Court Disqualifies Firm from Representation Adverse to Client’s Affiliate

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By Procopio Partner and General Counsel Carole J. Buckner

A recent decision, Trimble Inc. v. PerDiemCo LLC, decided on January 28, 2020 by the United States Court of Appeals for the Federal Circuit, applies California law to grant the request to disqualify the Davidson law firm from representation of Trimble Inc. in an appeal. The case is a good reminder of several important legal ethics concepts including the importance of the duty of loyalty in handling conflicts of interest involving affiliated entities.

The underlying case, brought in the U.S. District Court for the Northern District of California, concerned patent infringement by Trimble Inc. and its subsidiaries of PerDiemCo’s patents. Per Diem was represented by Finnegan, Henderson, Farabow and Garrett & Dunner LLP in the litigation in district court. On appeal, attorneys from the Davidson firm entered appearances on behalf of PerDiem, and Trimble Inc. moved to disqualify the Davidson firm, based in part on the Davidson firm’s ongoing representation of Trimble Transportation, starting in 2016, in intellectual property matters.

The issue for disqualification purposes was whether Trimble Inc. and Trimble Transportation should be considered one client. Trimble’s intellectual property counsel submitted a declaration indicating that Trimble Inc.’s legal department provided services for Trimble subsidiaries, including supervising outside counsel on intellectual property matters and litigation. In that role, he had provided Davidson with direction on patent prosecution and managed the present litigation in which Davidson was now adverse to Trimble Transportation in the appeal. After the disqualification motion was filed, the Davidson firm at first omitted Trimble IP counsel from communications, then withdrew from representation of Trimble Inc. and its subsidiaries.

The court relied on both the law of the Federal Circuit, and California legal ethics law. Withdrawal from representation would not suffice to resolve the conflict, the court said, citing Flatt v. Superior Court, 885 P.2d 950 (Cal. 1994). The court applied California Rule of Professional Conduct, Rule 1.7, providing that a lawyer shall not represent a client in the same or a separate matter if the matter is directly adverse to another client, without informed written consent. The question was whether Trimble Inc. was a “client” of the Davidson firm. Based on Trimble Inc.’s corporate affiliation with the Davidson firm’s formal corporate client, Trimble Transportation, the court found it appropriate to treat the two as one where there is a “unity of interests,” citing Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, LLP, 81 Cal. Rptr. 2d 425 (1999). To determine this, the court examined the degree of management and operational integration, including law departments, as well as the degree of financial interdependence between the affiliates. Because Trimble Inc. and Trimble Transportation were sufficiently intertwined the court found it appropriate to treat them as one client, and ordered the Davidson firm to withdraw from representation of PerDiemCo in the appeal.

Lawyers should assure that they have systems in place to properly manage their ethical obligations as to conflicts arising from affiliated entities.

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