Opinion
Civil Action No. 07-4819 (SDW).
July 28, 2008
OPINION
Before the Court is the motion of Plaintiff, Celgene Corporation ("Celgene"), to disqualify Buchanan Ingersoll Rooney PC ("Buchanan") as counsel for Defendant KV Pharmaceutical Company ("KV") (Docket Entry No. 13). Buchanan opposes this motion. For the reasons stated below, this motion will be GRANTED.
I. BACKGROUND
In brief, this case involves a Hatch-Waxman patent dispute between Celgene, assignee of two patents related to treatment using methylphenidate in an extended release form, and KV, who seeks to market generic methylphenidate extended release capsules. After KV submitted ANDA No. 79-004 for methylphenidate in an extended release form to the FDA, which included paragraph IV certifications regarding Celgene's patents, Celgene sued KV for patent infringement.
Celgene and Buchanan do not dispute the following facts. Celgene and KV are both current clients of Buchanan. Celgene has been a Buchanan client for more than four years. Buchanan attorneys have represented and advised Celgene in a range of patent, securities, transactional, and litigation matters.
Since 2003, Buchanan has been representing Celgene in a securities litigation matter, Stein v. Celgene Corporation, Docket No. L-425-03, which is pending in the Superior Court of New Jersey ("Stein litigation"). (First Girards Decl. ¶ 6.) Specifically, Tod Chasin, Esq. and John Leathers, Esq. of Buchanan are litigation counsel for Celgene in the Stein litigation. (Chasin Cert. at ¶ 3; Leathers Cert. at ¶ 3.) Buchanan expects to continue to represent Celgene in the Stein litigation. (Opp. Br. 5.)
At the start of Buchanan's representation in the Stein litigation, Buchanan and Celgene entered into a retention agreement, dated August 7, 2003 (the "2003 Retention Agreement"). The 2003 Retention Agreement states, in relevant part:
In accordance with the Rules of Professional Conduct and our Firm's procedures, this letter confirms the terms on which Buchanan Ingersoll will provide legal services to the Company in connection with defense of the action brought against it by Laurence J. Stein in the Superior Court of New Jersey, Law Division, Somerset County, New Jersey. . . .
(Gruppuso Cert. Ex. A at 1.) The document contains a conflict of interest provision and an advance or prospective waiver of certain conflicts:
Recognizing and addressing conflicts of interest is a continuing issue for attorneys and clients. We have implemented policies and procedures to identify actual and potential conflicts at the outset of each engagement. From time to time we may be asked to represent someone whose interests may differ from the interests of the Company. We are accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement from a new or existing client, including litigation or other matters that may involve the Company. However, we will not accept an engagement that is directly adverse to the Company or any of its subsidiaries if either: (1) it would be substantially related to the subject matter of our representation of the Company or representation of Anthrogenesis Corp.; or (2) would impair the confidentiality of proprietary, sensitive or otherwise confidential communications made to us by the Company or Anthrogenesis Corp.
(Gruppuso Cert. Ex. A at 2.). Francis A. Muracca, II, Esq. executed the 2003 Retention Agreement on behalf of Buchanan, and Sanford Kaston, Assistant Secretary, executed the document on behalf of Celgene. (Gruppuso Cert. Ex. A at 4.)
In 2006, Patrick H. Higgins ("Higgins") joined the Buchanan firm, and brought with him a Celgene matter concerning thalidomide. Higgins delivered a signed retention agreement to Celgene (the "2006 Engagement Letter"), dated July 31, 2006. (Pl.'s Br. Ex. 4.) On September 11, 2006, Maria Pasquale ("Pasquale"), Chief Counsel for Celgene, executed the 2006 Engagement Letter on behalf of Celgene. The first paragraph of the 2006 Engagement Letter states that the letter is in accord with the Rules of Professional Conduct. (Pl.'s Br. Ex. 4 at 1.) The letter contains a provision concerning conflicts of interest:
From time to time we may be asked to represent someone whose interests may differ from the interests of the Company. The Firm is accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement that is adverse to the Company or its interests, including litigation. However, the Firm will not accept an engagement that is directly adverse to the Company if either: (1) it would be substantially related to the subject matter of our representation of the Company; or (2) would impair the confidentiality of proprietary, sensitive or otherwise confidential communications made to us by the Company.
(Pl.'s Br. Ex. 4 at 4.)
On October 4, 2007, Celgene, with co-Plaintiffs Novartis Pharmaceuticals Corporation and Novartis Pharma AG, filed the Complaint in this case. On November 27, 2007, Buchanan entered its appearance on behalf of Defendant KV. On February 8, 2008, Celgene filed the instant motion, asking this Court to disqualify Buchanan as counsel for KV.
II. DISCUSSION
The instant motion invokes this Court's authority to supervise the professional conduct of an attorney appearing before it:
The district court's power to disqualify an attorney derives from its inherent authority to supervise the professional conduct of attorneys appearing before it. As a general rule, the exercise of this authority is committed to the sound discretion of the district court . . . Commitment of this matter to the district court's discretion means that the court should disqualify an attorney only when it determines, on the facts of the particular case, that disqualification is an appropriate means of enforcing the applicable disciplinary rule.United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980) (citations omitted).
The Third Circuit "has often employed a balancing test in determining the appropriateness of the disqualification of an attorney." In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 162 (3d Cir. 1984) (balancing the interest of one party in the loyalty of its attorney against the interest of the other party in retaining chosen counsel). In its exercise of its discretion, this Court balances a number of considerations. The Third Circuit has stated:
[P]laintiffs do not have an absolute right to retain particular counsel. The plaintiffs' interest in retaining counsel of its choice and the lack of prejudice to [defendant] . . . are not the only factors to be considered in this disqualification proceeding. An attorney who fails to observe his obligation of undivided loyalty to his client injures his profession and demeans it in the eyes of the public. The maintenance of the integrity of the legal profession and its high standing in the community are important additional factors to be considered in determining the appropriate sanction for a [disciplinary] Code violation. The maintenance of public confidence in the propriety of the conduct of those associated with the administration of justice is so important a consideration that we have held that a court may disqualify an attorney for failing to avoid even the appearance of impropriety. Indeed, the courts have gone so far as to suggest that doubts as to the existence of an asserted conflict of interest should be resolved in favor of disqualification.International Business Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978).
At issue in this case is whether Buchanan's representation of KV constitutes a concurrent conflict of interest prohibited by Rule 1.7 of the New Jersey Rules of Professional Conduct ("RPC 1.7"). It is undisputed that Celgene and KV are current clients of Buchanan, and that they are adverse parties in this litigation. Pursuant to RPC 1.7(a)(1), this constitutes a concurrent conflict of interest:
Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client . . .
N.J. COURT RULES RPC 1.7(a). Buchanan contends that its representation of KV is permissible because it falls within the exception provided in RPC 1.7(b):
Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) each affected client gives informed consent, confirmed in writing, after full disclosure and consultation, provided, however, that a public entity cannot consent to any such representation. When the lawyer represents multiple clients in a single matter, the consultation shall include an explanation of the common representation and the advantages and risks involved;
(2) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(3) the representation is not prohibited by law; and
(4) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.
N.J. COURT RULES RPC 1.7(b). Buchanan argues that Celgene twice gave its consent to the current representation of KV in advance waivers of future conflicts of interest, first when it signed the 2003 Retention Agreement, and again when it signed the 2006 Engagement Letter.
The parties dispute at length whether Buchanan's representation of KV falls within the scope of the relevant conflict waiver provisions in the two agreements. The parties have argued this as an issue of contract interpretation, with the debate focused on the question of whether the present case is "substantially related" to the past work done by Buchanan for Celgene. This Court does not agree, however, that this motion should be decided by interpretation of ambiguous terms in the waiver provisions. Given that there is no dispute that Buchanan's representation of KV in this case constitutes a concurrent conflict of interest pursuant to RPC 1.7(a)(1), the key question is whether Buchanan has satisfied the requirements of the exception provided by RPC 1.7(b). For this Court to find that Buchanan's representation of KV falls within the exception provided in RPC 1.7(b), it must answer this question: did Celgene give "informed consent [to the concurrent representation], confirmed in writing, after full disclosure and consultation," as required by RPC 1.7(b)?
A waiver of a concurrent conflict, whether executed in advance of the actual conflict or at the time the conflict occurs, must meet the requirements of RPC 1.7(b). The Third Circuit made this clear in 2005, when it decided a bankruptcy case which involved a concurrent conflict of interest in this district, Century Indem. Co. v. Congoleum Corp. (In re Congoleum Corp.), 426 F.3d 675 (3d Cir. 2005). Debtor Congoleum had applied to the Bankruptcy Court to appoint attorney Gilbert as counsel. Id. at 682. Certain creditors objected, contending, inter alia, that Gilbert should be disqualified because of a current conflict of interest under RPC 1.7. Id. The bankruptcy judge appointed Gilbert over the creditors' objections and was affirmed by the district court. The creditors appealed.
The Third Circuit found that, under RPC 1.7, Gilbert's representation of Congoleum created an actual conflict of interest. Id. at 690. Gilbert contended that it had waivers that "legitimized" the conflict of interest. Id. In evaluating the effectiveness of the conflict of interest waivers, the Third Circuit reasoned: "Although concurrent conflicts may be waived by clients under the New Jersey and ABA Rules of Professional Conduct, the effect of a waiver, particularly a prospective waiver, depends upon whether the clients have given truly informed consent." Id. at 691. The Third Circuit concluded that the waivers failed to constitute informed, prospective consent and that Gilbert had violated RPC 1.7, and it reversed the order approving the retention of Gilbert as counsel. Id. Congoleum is controlling authority in the matter before this Court. The Third Circuit emphasized that a prospective waiver will be ineffective in the absence of truly informed consent. In support of this emphasis on "truly informed consent," the Third Circuit cited two New Jersey Supreme Court cases, Dolan andLanza. Id. These cases are helpful in understanding what constitutes truly informed consent. In Dolan, the New Jersey Supreme Court stated: "where dual representation is sought to be justified on the basis of the parties' consents, this Court will not tolerate consents which are less than knowing, intelligent and voluntary." In re Dolan, 76 N.J. 1, 13 (1978). In Lanza, the New Jersey Supreme Court stated:
The extent of the necessary disclosure is what is important. . . . [T]his is a question that must be conscientiously resolved by each attorney in the light of the particular facts and circumstances that a given case presents. It is utterly insufficient simply to advise a client that he, the attorney, foresees no conflict of interest and then to ask the client whether the latter will consent to the multiple representation. This is no more than an empty form of words. A client cannot foresee and cannot be expected to foresee the great variety of potential areas of disagreement that may arise in a real estate transaction of this sort. The attorney is or should be familiar with at least the more common of these and they should be stated and laid before the client at some length and with considerable specificity. Of course all eventualities cannot be foreseen, but a great many can.In re Lanza, 65 N.J. 347, 352-353 (1974). By citing Dolan andLanza, the Third Circuit made clear that courts must look beyond the words in a waiver provision to determine whether the client gave truly informed consent. Even though Lanza was decided prior to the adoption of RPC 1.7, it describes the attorney's responsibilities that were later codified as "full disclosure and consultation" in RPC 1.7(b)(1). The Third Circuit's parenthetical summary of Lanza leaves no doubt that the attorney must actually consult with and inform the client: "(concluding that attorney should have first explained . . . all the facts and indicated in specific detail all of the areas of potential conflict that foreseeably might arise)." Congoleum, 426 F.3d at 691.
Under Congoleum, "truly informed consent" requires the attorney to provide meaningful consultation to the client about potential conflicts. Thus, in determining whether Celgene gave "truly informed consent," the inquiry focuses in part on how Buchanan actually consulted with its client, Celgene, and informed Celgene about the potential conflict when consent was obtained.
Although the New Jersey Supreme Court decided Lanza in 1974, before RPC 1.7 existed, the emphasis on the sufficiency and extent of the disclosure is consistent with the disclosure requirements of the current RPC 1.7(b)(1). RPC 1.7(b)(1) states that when a representation involves a concurrent conflict of interest, a lawyer may represent a client only if "each affected client gives informed consent, confirmed in writing, after full disclosure and consultation." RPC 1.7(b)(1). The Rules of Professional Conduct define "informed consent" in RPC 1.0(e): "`Informed consent' denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct." RPC 1.0(e). Thus, based on the relevant case law and the express language of RPC 1.7(b)(1) and 1.0(e), this Court understands "truly informed consent" to be consent that an attorney obtained after a consultation with the client in which the attorney proposed a course of conduct using adequate information, explained the material risks of this course of conduct, and stated reasonably available alternatives to the proposed course of conduct. Congoleum makes clear that the requirement of "truly informed consent" applies to future conflicts as well as ones that have already manifested.
Congoleum does not address two questions which must be answered to rule on the instant motion: 1) who bears the burden of proving that the attorney obtained truly informed consent? and 2) how should this Court determine whether Buchanan obtained truly informed consent from Celgene? The Third Circuit has instructed this Court to look for a "definitive state court decision" interpreting the New Jersey RPCs but, in the absence of such a case, to reach its own conclusions about how to apply the rules of professional conduct. Congoleum, 426 F.3d at 687. Because there is no definitive state court decision on advance waivers of concurrent conflicts of interest, this Court must reach its own conclusions as to these two questions.
A. Who bears the burden of proving that Buchanan obtained truly informed consent?
Courts in this district have often held that, on a motion to disqualify, the movant bears the burden of proof, and that it is a "heavy burden." Alexander v. Primerica Holdings, Inc., 822 F. Supp. 1099, 1114 (D.N.J. 1993). In the instant case, Celgene has met this burden by pointing to the undisputed fact that the adverse parties in the instant case are both current clients of Buchanan. There is no dispute that, absent Celgene's consent, Buchanan has violated RPC 1.7. There is also no dispute that a violation of RPC 1.7 merits disqualification. In re Cedent Corp.Sec.Litig., 124 F. Supp. 2d 235, 249 (D.N.J. 2000) ("New Jersey simply does not permit concurrent representation where the interests of two current clients are adverse.")
The instant case calls for a burden-shifting approach. There is nothing more that Celgene must prove. Because Celgene has shown that, absent consent, Buchanan has violated RPC 1.7, and because this merits disqualification, the burden shifts to Buchanan to show that its representation of KV falls within the exception provided in RPC 1.7(b). It was Buchanan's responsibility to obtain informed consent for a conflicted representation, and thus the burden should be on Buchanan to show that it has done so.
This shift in the burden of proof is especially appropriate, given that Buchanan contends that it has not violated RPC 1.7 because Celgene gave its consent in two retention agreements. The New Jersey Supreme Court addressed the issue of burden of proof in cases involving attorney-client contract disputes in Cohen v. Radio-Electronics Officers Union, 146 N.J. 140, 155 (1996). InCohen, an attorney and a client were involved in a dispute over a contractual provision. Id. at 140. The Court stated:
[W]e are committed to preserving the fiduciary responsibility that lawyers owe their clients. We remain especially vigilant when attorneys and clients contract with each other. To this extent, an attorney's freedom to contract with a client is subject to the constraints of ethical considerations and our supervision. Consequently, courts scrutinize contracts between attorneys and clients to ensure that they are fair.Id. at 155 (citations omitted). The Court then held: "Consistent with the special considerations inherent in the attorney-client relationship, the attorney bears the burden of establishing the fairness and reasonableness of the transaction." Id. at 156. In the instant matter, then, as to the provisions of the contracts it drafted and gave to Celgene to sign, it is appropriate that Buchanan should bear the burden of establishing that the contracts satisfy the ethics rules. Buchanan bears the burden of proving that Celgene's consent to the concurrent representation meets the requirements of RPC 1.7.
The Third Circuit's decision in International Business Machines Corp. v. Levin, 579 F.2d 271, 282 (3d Cir. 1978), supports placing the burden of proof on Buchanan at this juncture. IBM was a disqualification case involving a previous version of the disciplinary rule prohibiting concurrent adverse representation.Id. The Third Circuit held that, because the rule gave the attorney the obligation to provide disclosure and obtain consent, the attorney bore the burden of proof. Id. Although RPC 1.7 differs from the predecessor rule, RPC 1.7 continues to give the attorney the obligation to obtain informed consent after full disclosure and consultation. The Third Circuit's holding in Levin is thus still relevant, and is authority for the proposition that, in the context of a motion for disqualification, the attorney alleging consent bears the burden of proving it. See Corn Derivatives, 748 F.2d at 162 (citing Levin as authority for placing burden of proof of consent on attorney in case involving RPC 1.9).
Furthermore, the attorney is the party in the best position to ensure that the requirement is met. First, the attorney is most likely to have drafted the waiver. Second, the attorney has professional duties of care and ought to bear the responsibility for ensuring informed consent as part of acting with due care. Third, the attorney bears a responsibility for safeguarding the client's interests. "It is the attorney's responsibility to avoid conflicts of interest." Baldasarre v. Butler, 132 N.J. 278, 291 (1993). Fourth, the attorney, by virtue of his or her professional experience and expertise, is in the best position to anticipate future conflicts of interest and raise them with the client.
B. How should this Court determine whether Buchanan obtained truly informed consent from Celgene?
RPC 1.7(b) states the consent requirement as follows: "each affected client gives informed consent, confirmed in writing, after full disclosure and consultation." The RPCs define "informed consent" as an "agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct." RPC 1.0(e).
In 1995, the New Jersey Supreme Court's Advisory Committee on Professional Ethics provided insight into the meaning of the RPC 1.7(b) consultation requirement in Opinion 679. The Advisory Committee cited the definition of "consultation," stated in the ABA Model Rules then in effect (and since eliminated): "communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question." N.J. Supreme Ct. Advis. Comm. on Prof. Ethics, Opinion 679 (1995). The Opinion then states: "We assume that the consultation will include an explanation of the implications of the proposed representation, including both its risks and advantages." Id. This is consistent with the definition of "informed consent" contained in RPC 1.0(e), and makes clear that the attorney must explain the risks of the proposed representation to the client.See also DeBolt v. Parker, 234 N.J. Super. 471, 483 (N.J.Super. Ct Law Div. 1988) (holding that consultation, in the context of RPC 1.7, "certainly requires a broad spectrum of advice if it is to be meaningful.")
Buchanan has failed to demonstrate that it obtained Celgene's informed consent, within the meaning of RPC 1.0(e). In making this determination, this Court looks to two kinds of evidence: the agreements themselves, and evidence outside the agreements. 1. Do the agreements manifest informed consent?
This Court has examined the 2003 Retention Agreement and the 2006 Engagement Letter and does not find within either of those documents any of the following: 1) any statements which adequately communicate a proposed course of conduct with regard to concurrent conflicts of interest; 2) any explanation of the material risks of the course of conduct with regard to concurrent conflicts of interest; or 3) any explanation of reasonably available alternatives to the proposed course of conduct.
The Court first turns to the waiver provisions. The relevant provision in the 2003 Retention Agreement is: "We are accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement from a new or existing client, including litigation or other matters that may involve the Company." The relevant provision in the 2006 Engagement Letter is: "The Firm is accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement that is adverse to the Company or its interests, including litigation."
These two provisions have key similarities. In both the 2003 Retention Agreement and 2006 Engagement Letter, statements of Celgene's consent are followed by statements in which Buchanan promises to refrain from accepting engagements that are directly adverse to Celgene under certain conditions. The statements of consent in both engagement letters are very broad. These general statements of consent must be analyzed, however, in the context of the promises by Buchanan that follow. Buchanan's promises to refrain from representation that is adverse to the position of Celgene if it is "substantially related" to their work for Celgene, or if it impairs the confidentiality of communications made to Buchanan by Celgene.
This Court finds no basis to conclude that either agreement manifests informed consent, within the meaning of RPC 1.0(e), for several reasons. First, both agreements propose a future course of conduct that is very open-ended and vague. Both provisions are so general that a reader has no clear idea what course of conduct Buchanan anticipated: what kinds of cases are substantially related? Did the parties anticipate that Buchanan would be adverse to Celgene in other patent cases? Second, there is nothing in the agreements to indicate that Buchanan communicated to Celgene adequate information or explanation about the risks of the proposed course of conduct, with regard to concurrent conflicts of interest: would Celgene be comfortable if Buchanan represented a generic pharmaceutical company in a patent case? Third, there is nothing in the agreements to indicate that Buchanan explained to Celgene reasonably available alternatives to the proposed course of conduct, such as Celgene asking Buchanan to specifically define "substantially related" or requesting an even broader limitation — perhaps that Buchanan would not represent any generic drug companies. The record does not show that Celgene received anything in return for agreeing to these provisions. Indeed, the agreements only appear to benefit Buchanan — which further underscores the importance of Buchanan fully explaining the meaning and implications of the waiver. Neither agreement manifests informed consent within the meaning of RPC 1.7(b) and 1.0(e).
A number of authorities have considered the issue of the specificity of an advance waiver provision and have recommended that courts consider the degree of specificity of the waiver provision when ruling on the effectiveness of the waiver. First and foremost, Comment 22 to Rule 1.7 of the ABA Model Rules of Professional Conduct states that general waivers are ordinarily ineffective. In its entirety, Comment 22 states:
In a discussion about drafting engagement letters containing advance waivers, Fragomen and Yakoob wrote:
The contents of these engagement letters should also be carefully crafted to avoid the impression of a generalized waiver of future conflicts. While future conflicts may be waived, the lawyer must make appropriate disclosures of and the client must understand the relevant implications, advantages, and risks, so that the client may make an informed decision whether to consent. Advance waivers that are too general in scope are potentially incompatible with the requirement that the consent be informed.
Austin T. Fragomen, Jr. and Nadia H. Yakoob, No Easy Way Out: the Ethical Dilemmas of Dual Representation, 21 Geo. Immigr. L.J. 621, 631 (2007).
Consent to Future Conflict
[22] Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict nonconsentable under paragraph (b).
MODEL RULES OF PROF'L CONDUCT R. 1.7 cmt. 22 (2004).
Comment 22 thus provides support for finding that the general nature of the waiver provisions in the 2003 Retention Agreement and 2006 Engagement Letter weighs against a conclusion that Celgene gave informed consent.
Formal Opinion 05-436 ("Opinion 05-436"), issued by the American Bar Association Standing Committee on Ethics and Professional Responsibility, interprets Comment 22 so as to weight fairly heavily the sophistication of the client as a user of legal services. Discussing Comment 22, Opinion 05-436 states:
The Comment goes further, however, by supporting the likely validity of an "open-ended" informed consent if the client is an experienced user of legal services, particularly if, for example, the client has had the opportunity to be represented by independent counsel in relation to such consent and the consent is limited to matters not substantially related to the subject of the prior representation.
ABA Comm. on Ethics and Professional Responsibility, Formal Op. 05-436 (2005). This Court notes, however, that this merely acknowledges that a consent that is informed but general is likely to be valid if the client was represented by independent counsel in the waiver transaction. In the instant case, this Court finds no evidence that the consent was informed, and so the fact that Celgene spoke through in-house patent counsel (Pasquale) does not have the weight contemplated in Opinion 05-436.
In re Gabapentin Patent Litig., 407 F. Supp. 2d 607 (D.N.J. 2005), is also instructive. Gabapentin concerned a motion to disqualify; the matter turned on whether an advance waiver of a conflict of interest satisfied the informed consent requirements of RPC 1.7(b) and 1.0(e). The Court observed: "A precise definition of `informed consent' and `full disclosure' is difficult, necessitating a case-by-case factual analysis." Id. at 612. Unlike the instant case, however, the advance waiver in Gabapentin expressly stated the possibility that the law firm (Kaye Scholer) would represent a particular client (Pfizer) in a particular matter (the Gabapentin matter), and that the client (Ivax) waived the right to move to disqualify the firm. Id. at 610. The court concluded that, because the waiver letter clearly informed Ivax of the possibility that Kaye Scholer might represent Pfizer in the Gabapentin matter, and because "Ivax was represented by sophisticated counsel in reaching its decision to consent . . . Ivax's consent to the waiver was informed after full disclosure." Id. at 612.
Similar to Gabapentin, though decided under California law, isVisa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1105 (N.D. Cal. 2003), in which the court found an advance waiver to have been "fully informed" and therefore effective. In Visa, as in Gabapentin, the waiver provision specifically identified the future adversary and warned of the potential for a future conflict between the clients. Id. at 1106. Because of these facts, among other considerations, the court found that the advance waiver was fully informed and valid. Id. at 1108.
In the instant case, unlike Gabapentin and Visa, neither waiver provision specifies a particular client or a particular matter. When waiver provisions clearly anticipate a specific conflict, they provide strong evidence that the client's consent was truly informed. Here, the agreements do not provide such evidence.
2. Does evidence from outside the agreements show informed consent?
This Court has also reviewed the evidence that the parties have offered concerning the circumstances surrounding the execution of the two agreements and finds no evidence that Buchanan provided full disclosure and consultation to Celgene in some other way. First, Buchanan has not offered any evidence from Francis A. Muracca, II or Sanford Kaston, the signatories to the 2003 Retention Agreement. Higgins, the Buchanan signatory to the 2006 Engagement Letter, testified that he understood the letter to mean that "we would not represent any parties adverse to my client in intellectual property matters." (Baton Decl. Ex. 1 at 41:3-5.) It is reasonable to infer from this testimony that Higgins did not inform Celgene of the possibility that Buchanan would represent a party adverse to it in an intellectual property matter, given his stated belief that the agreement prohibits such conduct. It is clear from Higgins' testimony that he did not believe that Celgene had given consent — whether informed or not — to Buchanan's future representation of a party adverse to it in an intellectual property matter.
Buchanan has offered no evidence to contradict these inferences. Rather, Buchanan concedes that "Mr. Higgins simply did not discuss his purported understanding of the advance waiver with anyone at Celgene." (Def.'s First Supp. Br. 20.) This supports the conclusion that Higgins did not provide full disclosure and consultation to Celgene regarding the advance waiver.
Maria Pasquale has stated that she did not discuss the language of the engagement letter with anyone at Buchanan. (Pasquale Cert. ¶ 9.) Pasquale also stated: "if Buchanan Ingersoll had informed me that the waiver language was intended to allow it to represent a generic company in ANDA litigation against Celgene, I would not have retained Buchanan Ingersoll to represent Celgene in its patent matters." Id. Pasquale testified that Higgins had stated to her that he did not do work for pharmaceutical companies that sold generic drugs. (Baton Decl. Ex. 2 at 221:12-15.) The evidence supports the conclusion that Buchanan did not inform Celgene of the specific possibility that it might represent a generic pharmaceutical company in future ANDA litigation against it. Furthermore, Pasquale testified that Buchanan did not inform her of the risk that the language of the waiver provision would allow Buchanan to represent a generic company against Celgene in ANDA litigation:
Q: Did anyone at Buchanan Ingersoll advise you, prior to the time you signed this letter, that Buchanan Ingersoll would be permitted, under the terms of the letter, to represent a generic pharmaceutical company against Celgene in ANDA litigation?
A: No.
(Baton Decl. Ex. 2 at 251:5-11.)
The evidence thus supports the conclusion that Buchanan did not explain the material risk to Celgene that Buchanan would represent a generic pharmaceutical company against Celgene in ANDA litigation. This Court concludes that Buchanan did not adequately inform Celgene about the current conflict of interest, and that Celgene's consent, as expressed in the 2003 Retention Agreement and the 2006 Engagement Letter, does not constitute truly informed consent to Buchanan's representation of a generic pharmaceutical company in ANDA litigation against it, within the meaning of Congoleum, RPC 1.7, and RPC 1.0(e).
In its supplementary brief, Buchanan's primary argument for its claim that it obtained informed consent from Celgene is that Celgene was a sophisticated client independently represented by its experienced General Counsel, Pasquale. Buchanan contends that "Pasquale unquestionably understood exactly what she was signing when she executed Buchanan's waiver agreement. . . . Her decision to bind her client was unquestionably knowing and voluntary." (Def.'s Sec. Supp. Br. 8.) It is significant that Buchanan does not even assert, no less offer supporting evidence, that Buchanan at any time provided a consultation to Celgene on the conflict waiver, nor that Buchanan provided full — or any — disclosure on the matter of conflicts of interest, nor that Buchanan communicated "adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct." RPC 1.0(e). In fact, in its first supplementary brief, Buchanan states, in regard to the 2006 Engagement Letter: "Celgene never discussed the Engagement Letter or the meaning of the advance waiver with anyone at Buchanan prior to signing it." (Def.'s First Supp. Br. 16.) This essentially concedes that Buchanan did not provide the consultation that RPC 1.7(b)(1) expressly requires of an attorney obtaining informed consent. Indeed, RPC 1.7(b) and 1.0(e) require the attorney obtaining consent to actually inform the client — not merely that the consenting client be someone who is informed.
Buchanan does not assert that it met the requirements of RPC 1.7 and 1.0(e) by adequately informing Celgene about the advance conflict waiver, but relies on only one ethics committee opinion from New Jersey as support for the proposition that the waivers are enforceable because Celgene was represented by experienced and independent counsel. Buchanan points to Opinion 679 of the New Jersey Supreme Court's Advisory Committee on Professional Ethics, which states:
While we conclude that RPC 1.7(b) appears to be satisfied on the facts presented, we do pause to clarify and emphasize the importance of proceeding meticulously in this area. In regard to disclosure, consultation and consent, we first note the baseline principle that "the consent must be `knowing, intelligent and voluntary.'" In re Dolan, 76 N.J. 13 (1978). The sufficiency of the disclosure and consultation, and thus the adequacy of the waiver, depends on the facts of the case, including, significantly, the sophistication of the parties.
N.J. Supreme Ct. Advis. Comm. on Prof. Ethics, Opinion 679 (1995). Opinion 679 does not support the proposition that the sophistication of a party can excuse an attorney from the obligations of consultation and full disclosure. Opinion 679 merely advises courts to consider the sophistication of the client when assessing the sufficiency of the disclosure and consultation. Celgene may have been a very sophisticated client, but that does not mean that Buchanan is excused from the obligation to obtain informed consent. RPC 1.0(e) makes no exception for sophisticated clients or clients who are independently represented by counsel.
The New Jersey Supreme Court has stated: "The paramount obligation of every attorney is the duty of loyalty to his client." State v. Cottle, 194 N.J. 449, 463 (2008). Having examined the record before it, this Court cannot conclude that Buchanan fulfilled this duty to Celgene. Rather, based on the record before it, this Court concludes that Buchanan breached its duty of loyalty to Celgene when it undertook to represent KV in this case, and it must be disqualified as counsel for KV because of the unwaived conflict of interest.
C. Buchanan's contract theory
In opposing the motion to disqualify, Buchanan argues primarily that this motion should be decided by contract interpretation: if the phrase "substantially related" in the waiver provision is properly construed, Buchanan's representation of KV falls within the scope of conduct that Celgene consented to. Buchanan contends that its representation of KV is not substantially related to the subject matter of its past or current representation and is therefore permissible under the terms of the waiver provisions.
This Court does not agree with Buchanan's premise. The motion to disqualify is not fundamentally a matter of contract interpretation. Rather, it is primarily a matter of interpretation of the New Jersey Rules of Professional Responsibility, as well as application of those rules to the facts of this case. As has been discussed, the key issue is the question of whether Buchanan obtained from Celgene the informed consent required by RPC 1.7(b)(1) and RPC 1.0(e). Even if Buchanan were correct — which it is not — in its assertion that its conduct is permitted by the waiver provisions, this Court is not now adjudicating a breach of contract case. Rather, this Court is "supervis[ing] the professional conduct of attorneys appearing before it." Miller, 624 F.2d at 1201.
Even if this Court were to agree with Buchanan, however, that the instant motion may be decided through interpretation of the waiver provisions, Buchanan would still be disqualified as counsel: interpreted under New Jersey law, the waiver provision does not permit Buchanan's representation of KV in this litigation.
The 2003 Retention Agreement and the 2006 Engagement Letters are both written contracts, and the parties do not dispute that this Court should apply New Jersey law to questions of interpretation of provisions in these contracts. From the outset, it is crucial to observe that the New Jersey Supreme Court does not apply its usual interpretive principles when construing a contract between an attorney and a client, but instead applies the principles set forth in the Restatement (Third) of the Law Governing Lawyers: "A court should construe an agreement between a lawyer and a client as a reasonable person in the circumstances of the client would have construed it." Cohen, 146 N.J. at 156 (citing Restatement (Third) of the Law Governing Lawyers § 18 cmt. h). More significantly, contracts between lawyers and clients are construed against the lawyer. Id. The Court quoted the Restatement in giving its rationale for adherence to this principle:
Three reasons support this rule. First, lawyers almost always write such agreements . . . and an agreement traditionally is interpreted against its author. Second, lawyers are more able than most clients to detect and repair omissions in client-lawyer agreements. Third, lawyers have a fiduciary obligation to inform clients about the risks of the representation, including those unresolved by the client-lawyer agreement.Cohen, 146 N.J. at 156 (quoting Restatement (Third) of the Law Governing Lawyers § 18 cmt. h). Thus, under New Jersey law, to the extent that there are ambiguities in the waiver provisions, the provisions are construed against Buchanan.
See also Richard W. Painter, Advance Waiver of Conflicts, 13 Geo. J. Legal Ethics 289, 312 (2000) ("Clarity will also be encouraged if an ambiguous waiver is construed against the lawyer, who in most circumstances will have drafted it.")
Both Pasquale and Higgins have testified that they understood the meaning of "substantially related," as used in the provision at issue in the 2006 Engagement Letter, to be such that all ANDA litigation matters are substantially related. At his deposition, Higgins stated: "My read of this is that we would not represent any parties adverse to my client in intellectual property matters." (Baton Decl. Ex. 1 at 41:3-5.) At her deposition, Pasquale stated: "My understanding of the phrase is that they would not engage in matters that were substantially related to matters they handled for Celgene, and . . . that could encompass an ANDA litigation with a generic company and Celgene." (Baton Decl. Ex. 2 at 211:25-212:5.) Although it is not clear from this testimony whether Pasquale and Higgins had an identical understanding of the meaning of "substantially related," it is clear that they both understood that the language meant that Buchanan would not represent any party adverse to Celgene in ANDA litigation.
Buchanan points to the certification of its General Counsel, John R. Leathers, stating that he drafted the 2003 Retention Agreement and that he intended "substantially related" to have a meaning consistent with that given to the phrase by the ABA in the context of Model Rule 1.9. (Leathers Cert. ¶ 4.) Buchanan offers no law to support the relevance of this evidence to this inquiry. Leathers was not a party to the 2003 Retention Agreement, which was executed by Francis A. Muracca II, on behalf of Buchanan, and Sanford Kaston, on behalf of Celgene. The drafter's intent sheds little light on how a reasonable person in the circumstances of the client would have construed "substantially related."
Under New Jersey law, this Court interprets contracts between an attorney and a client as a reasonable person in the circumstances of the client would have construed it. When the contract language is ambiguous, it is construed against the drafter, here Buchanan. This Court has been offered no evidence to support the position that a reasonable person in Celgene's circumstances would have understood that either provision gave consent for Buchanan to represent a party adverse to it in ANDA litigation. Furthermore, this Court has examined the agreements and finds that neither agreement defines "substantially related to the subject matter of our representation of the Company" such that its meaning is clear and unambiguous. The parties have disputed the meaning of this phrase at length. Neither party contends that the meaning of this phrase is clear and unambiguous; rather, Buchanan argues that interpretation is necessary. The Court finds that the phrase "substantially related to the subject matter of our representation of the Company," as used in the 2003 Retention Agreement and the 2006 Engagement Letter, is ambiguous. Because, under New Jersey law, this language must be construed against Buchanan, as drafter, "substantially related" must be construed as Celgene has proposed.
III. CONCLUSION
As a matter of law, this Court holds that, as the attorney, drafter, and proponent of the waiver provisions at issue, Buchanan bears the burden of proving that Celgene gave "truly informed consent," as required by Congoleum, to its present representation of KV. This Court has examined the waiver provisions of the 2003 Retention Agreement and the 2006 Engagement Letter, as well as the other evidence offered by the parties. As finder of fact, this Court determines that Celgene has met its initial burden of proving that Buchanan's representation of KV in this case constitutes a concurrent conflict of interest, in violation of RPC 1.7(a)(1), and that Buchanan has failed to meet its burden of proving that Celgene gave truly informed consent to the concurrent conflict of interest. Buchanan has failed to prove that Celgene's consent was obtained after full disclosure and consultation, as required by RPC 1.7(b)(1) and RPC 1.0(e). Buchanan's representation of KV is barred by RPC 1.7, and Buchanan will be disqualified as counsel for KV.
For the reasons set forth above, the Court grants Celgene's motion to disqualify Buchanan Ingersoll as counsel for KV. KV has 30 days from the date of this Opinion to retain new counsel.