Joint defense agreements have long been used by parties with common interests to coordinate strategy, pool resources, and reduce costs. Energy companies, maybe more than other industries, find themselves in litigation with multiple defendants where misconduct has been alleged against an entire industry segment. A few examples include hot fuel litigation, MTBE litigation, royalty qui tam claims, greenhouse gas/global warming litigation, and the dozens of suits arising from the California Energy Crisis. Understandably, federal judges are encouraging, and, in some cases, even ordering cooperation among counsel in complex cases to promote judicial efficiency. Therefore, many practitioners who represent energy companies have experience and are comfortable with the basic elements of a joint defense agreement. Recent scrutiny by courts, however, highlights the potential traps such agreements can create; these traps are not often encountered but can pose material risks to both clients and lawyers.
The risk of failing to enter an enforceable agreement is most obvious in that the attorney-client privilege could be waived for all shared material. Less obvious, however, is the risk clients face if their lawyers are disqualified or prohibited from pursuing positions contrary to the interests of other members of the agreement. Further, lawyers themselves may not fully appreciate the risk of potential disqualification in future cases where their client would be adverse to a party to a joint defense agreement in a prior case even though the lawyer had not represented that party in the prior litigation. For example, if the operator and nonoperating working interest owners of an oil or gas well sign a joint defense agreement in connection with a suit by royalty owners or with a midstream gathering or processing company, the lawyers representing the defendants may later be surprised that they are disqualified from representing their respective clients in disputes over the joint operating agreement.
After reviewing the legal underpinnings and framework of joint defense agreements, we discuss the often unforeseen risks of entering a joint defense agreement and strategies for minimizing those risks.