Failure to clear conflicts with a former client resulted in one appellate court affirming a $32 million legal malpractice verdict against an international law firm. The court reasoned that, but for the conflict, the plaintiff would have been successful in the underlying action against the firm’s former client. ABA Litigation Section leaders agree that the court correctly applied the “case-within-a-case” doctrine to affirm the trial judgment and remind practitioners of the necessity to clear conflicts across affiliates before representing clients.
In Revolaze LLC v. U.S. Dentons LLP, the defendants, the U.S. office of a global law firm and its patent partner, appealed from a jury verdict in favor of the plaintiff, a family-owned business that holds a patent related to laser abrading technology. The laser allows manufacturers to create a faded look in jeans at rates much faster than previously possible in the industry. Typically, companies used “sandblasting or hand sanding” to create the faded look. This method is also potentially deadly to humans.
The plaintiff granted licenses to companies in exchange for lump sum royalty payments to earn revenue from its technology. When a major garment manufacturer decided to stop purchasing jeans from a domestic sandblasting plant, the plaintiff suspected that manufacturer and others were illegally using its patented technology. The plaintiff filed a complaint against multiple manufacturers in the U.S. International Trade Commission (ITC) with the goal of obtaining a general exclusion order that would block importation of infringing products. Since the ITC does not award monetary damages, the plaintiff filed a parallel case for damages in the U.S. District Court for the Northern District of Ohio. The defendants represented the plaintiff in its ITC litigation.
The defendants filed multiple lawsuits on behalf of the plaintiff alleging patent infringement against several entities. One of these alleged infringers then filed a motion to disqualify the defendants in the ITC, alleging that the firm and its predecessors-in-interest represented it for more than 20 years in multiple litigations around the world.
The defendant law firm is organized as a “verein,” an association governed by Swiss law which treats offices in different countries as separate entities. The defendants opposed the motion to disqualify on the grounds that the verein entity that represented the alleged infringer for decades was a Canadian affiliate, separate from the U.S. firm. The ITC concluded that the defendants were members of a single verein for purposes of application of Model Rule of Professional Conduct (MRPC) 1.7—concurrent conflicts of interest—and disqualified the defendants from the ITC action.
The plaintiff then successfully filed a malpractice complaint in Ohio state court against the defendants alleging that, but for the defendants’ disqualification, the plaintiff would have been successful in the underlying patent infringement litigations. Therefore, the plaintiff argued, the defendants breached their duty of care by not clearing the conflict they had before representing plaintiff in the ITC and federal court, contrary to the Ohio rule that is analogous to MRPC 1.7.
The court pointed out the standard for proving damages in a legal malpractice case. The court noted that a “plaintiff may be required to provide some evidence of the merits of the underlying claim.” However, precedent had established that there is not a mandatory application of this “case-within-a-case doctrine” that necessarily requires a plaintiff to prove it would have been successful in every instance. The court held that a plaintiff need only prove by a preponderance of the evidence that but for the defendant’s conduct it would have received a more favorable outcome.
Here, the court pointed to a combination of expert testimony at trial, as well as inferences made in favor of the plaintiff, which supported the conclusion that the plaintiff would likely have recovered damages in the patent litigations and that the client conflict was foreseeable and could have been avoided. The court affirmed the trial court’s ruling.
“Given the outcome in the trial court, I’m not particularly surprised that the court of appeals affirmed here and that the Ohio Supreme Court declined to review,” states James H. Gilbert, New Orleans, LA, cochair of the Sound Advice Subcommittee of the Litigation Section’s Pretrial Practice & Discovery Committee.
Section leaders think the “case-within-a-case” doctrine compelled the appellate court to affirm the trial court. “The ‘case-within-a-case’ concept often creates a significant hurdle in legal malpractice cases, as it typically forces the former client to prove that the underlying case in which the defendant-lawyer provided representation would have been successful but for malpractice by the attorney,” Gilbert observes.
The defendant’s failure to clear conflict checks with its Canadian affiliate in the verein are concerning. “I agree with the court’s analysis here—all of the evidence outlined in the opinion is compelling,” opines Naomi M. Berry, Miami, FL, cochair of the Section’s Corporate Counsel Committee.
Thorough conflict checks serve both clients and legal practice. “Lawyers and law firms need to take their duties of loyalty seriously in order to protect their clients and protect the profession,” exhorts Fabrice N. Vincent, San Francisco, CA, cochair of the Section’s Business Torts & Unfair Competition Committee.
