Opinion
99 C 1174
December 13, 2000
MEMORANDUM OPINION
This matter is before the Court on Plaintiff R.J. Reynolds Tobacco Company's motion to disqualify the law firm of Latham and Watkins. For the reasons set forth below, we deny the motion.
BACKGROUND
On February 23, 1999, Plaintiffs R.J. Reynolds Tobacco Company ("Reynolds") and GMB, Inc. brought this action against Defendant Cigarettes Cheaper! ("Cigarettes Cheaper") and other cigarette sellers and distributors alleging, inter alia, that the defendants' domestic sale of cigarettes manufactured by Reynolds for sale in foreign countries constitutes trademark infringement and unfair competition. Cigarettes Cheaper answered the complaint and counterclaimed against Reynolds for alleged violations of the Robinson-Patman Act, 15 U.S.C. § 13(a) and (d). Cigarettes Cheaper's Second Amended Counterclaim (the "Counterclaim") alleges that Reynolds has refused to provide Cigarettes Cheaper with buydowns, free goods, and "other similar promotions" on proportionally equal terms to the promotional support provided by RJR to other retailers with which Cigarettes Cheaper competes. In its answer to the Counterclaim, Reynolds raised, inter alia, the affirmative defense of meeting competition.
A "buydown" is a promotional program in which the manufacturer lowers the cost to the retailer for a carton of cigarettes in exchange for the retailer's promise to pass the discount on to the consumer.
On October 31, 2000, Cigarettes Cheaper moved for leave for attorney James G. Hunter, Jr. and three other attorneys from the law firm of Latham Watkins ("Latham") to file their appearances in the case. The motion was noticed for November 1, 2000, but was routinely granted without a hearing on that date. Reynolds filed no formal opposition to the motion. It did, however, express privately to Cigarettes Cheaper's existing counsel from Freeborn Peters that it was investigating a possible conflict issue involving Hunter and Latham. Specifically, Reynolds was attempting to determine whether Hunter's representation of Reynolds in the late 1980s on a patent license issue was "substantially related" to his proposed representation of Cigarettes Cheaper in this case. Reynolds therefore opposed amending the existing Protective Order to allow Latham access to confidential discovery materials until its investigation of Hunter's prior representation had been completed.
Reynolds did not immediately move to disqualify Hunter and Latham. As a result, on November 13, 2000, Cigarettes Cheaper filed a pre-emptive motion for an order stating that Latham Watkins' prior representation of Reynolds was not substantially related to its representation of Cigarettes Cheaper in this case. Reynolds responded and filed an affirmative motion to disqualify Latham. Because the issues in Cigarettes Cheaper's and Reynolds' motions are identical, we address and decide them together below.
LEGAL STANDARD
Disqualification is a "drastic measure that courts should impose only when absolutely necessary." Owen v. Wangerin, 985 F.2d 312, 317 (7th Cir. 1993) (citations omitted); Schiessle v. Stephens, 717 F.2d 417 (1983). The burden is on the moving party to show the facts warranting disqualification. Livers v. Wu, 6 F. Supp.2d 921, 925 (N.D. Ill. 1998);Weeks v. Samsung Heavy Industries Co., 909 F. Supp. 582, 583 (N.D. Ill. 1996). At the same time, any doubts as to the existence of an asserted conflict must be resolved in favor of disqualification. U.S. v. Goot, 894 F.2d 231, 235 (7th Cir. 1990).
Pursuant to Northern District of Illinois Local Rule 83.51.9(a), a lawyer who has formerly represented a client in a matter shall not, without the former client's consent, thereafter represent another party in a substantially related matter in which the party's interests are materially adverse to the interests of the former client. Two matters are substantially related for purposes of the Local Rule if "it could reasonably be said that during the former representation the attorney might have acquired information related to the subject matter of the subsequent representation." LaSalle National Bank v. County of Lake, 703 F.2d 252, 255 (7th Cir. 1983) (quoting Cannon v. U.S. Acoustics Corp., 398 F. Supp. 209, 223, aff'd in relevant part, 532 F.2d 1118 (7th Cir. 1976)). Courts in this circuit undertake a three-level inquiry to determine whether the prior and current representations are substantially related. First, we make a factual reconstruction of the scope of the prior representation. Second, we determine whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters. Third, we determine whether that information is relevant to the issues raised in the litigation pending against the former client. LaSalle National Bank, 703 F.2d at 255-56. If we find that a substantial relationship does exist, it is unnecessary for the movant to prove that the attorney in question actually received during the course of his former representation confidential information relevant to matters involved in the subsequent representation. Id. at 255 (citing Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706, 710 (7th Cir. 1976). Instead, we are entitled to presume that the attorney received such confidential information during his prior representation, although this presumption is a rebuttable one.Id. at 256.
With these principles in mind, we turn to the merits of the disqualification motion.
DISCUSSION
In determining whether the subject matter of Hunter's prior representation of Reynolds is substantially related to this case, we first reconstruct the scope of that prior representation. LaSalle National Bank, 703 F.2d at 255. It is undisputed that, in late 1988, Hunter and Latham rendered legal advice to Reynolds regarding Reynolds' plan to provide the Winn-Dixie grocery chain with a free license to use Reynolds' patented security shelving in exchange for Winn-Dixie's commitment to utilize Reynolds pack merchandisers in all of its stores and carry specified Reynolds brand styles for a period of three years. Hunter was familiar with the pending security shelving patent at issue because he had been retained by Reynolds in early 1988 to analyze validity and on-sale issues related to the patent. Because Reynolds was concerned that the Winn-Dixie arrangement might involve a misuse of the patent, it asked Hunter to look into the issue. It further requested that Hunter analyze whether the lease and license fee waiver, which was being offered to Winn-Dixie and not to other retailers, would violate the Robinson-Patman Act, or whether it would be defensible on the ground that Reynolds was simply meeting competition from cigarette giant Philip Morris.
By letter of December 26, 1988, Hunter summarized his advice as to both issues. As Hunter described it, the subject of his advice was "whether you may lawfully waive the license fee that would otherwise be charged to a retailer for [the security shelving] system, in return for the retailer's agreement to use exclusively RJR pack displays and to carry an RJR brand not presently carried." He first concluded that there was no risk of misuse of the pending patent. He then counseled, with respect to the Robinson-Patman issue:
Nor is it unlawful under the antitrust laws generally, wholly apart from the question of patent misuse, for you to waive the fee in order to obtain such an agreement. In the first place, the amount of money involved is virtually de minimis in the context of total sales. Moreover, all you are doing is meeting the competition of Philip Morris's own payments, and — in the final analysis — there is no substantial chance that you could diminish competition, let alone achieve a monopoly, in any relevant market by doing so.
Hunter's time sheets indicate that he spent a total of approximately twenty hours over the course of three months on the Winn-Dixie issue. It does not appear that Hunter or Latham performed any additional relevant work on behalf of Reynolds.
Having reconstructed the factual scope of the prior representation, we proceed to determine whether it is reasonable to infer that Hunter and Latham were given confidential information relevant to the subject matter of the present litigation. In this we are aided by the affidavits of James Hunter and Michael O. Johnson, who in 1988 was Reynolds' Assistant General Counsel and served as Hunter's liaison on the Winn-Dixie matter. According to Hunter, "the only even-arguably confidential information of RJR supplied to Latham Watkins was the fact that RJR was contemplating waiving the security shelf payment fee for Winn-Dixie." Hunter specifically denies having received any confidential information about Cigarettes Cheaper (which was then not in existence) or "buydowns, free goods, or promotional allowances required to be passed on by retailers." According to Hunter, "such information [would not] have been relevant to analyzing the Robinson-Patman meeting competition issues related to the waiver of the security shelving lease and license payment for Winn-Dixie." Johnson does not directly contradict Hunter's statement with respect to buydowns and free goods. He does, however, state that "we provided privileged information to Mr. Hunter about RJRT's merchandising contracts with retailers, RJRT's overall promotional support programs and its policies and practices regarding meeting competition." Despite being pressed at oral argument for a more precise delineation of the categories of confidential information provided, Reynolds has been unwilling or unable to elaborate on Mr. Johnson's broad description.
Against this backdrop, we must determine what confidential information was likely to have been given to Hunter and Latham to enable them to complete their task. Hunter's assignment was to analyze two discrete legal issues with respect to a specific proposed business arrangement between Reynolds and a single retailer, Winn-Dixie. That business arrangement involved one particular promotional activity — the provision of free security shelving to Winn-Dixie in exchange for display and sales opportunities in its stores. Hunter was not asked to consult on Reynolds' marketing strategy as a whole or to evaluate the legality of any promotional activity other than the proposed Winn-Dixie arrangement. Nor was he retained to address unequal distribution of the buydown and free goods-type promotions at issue in Cigarettes Cheaper's case.
Hunter's assignment with respect to Reynolds' potential "meeting competition" defense appears to have been similarly circumscribed. In his letter setting forth Reynolds' request for legal advice on the Winn-Dixie issue, Michael Johnson specifically asked Hunter to analyze "the possibility of a meeting the competition defense under Robinson-Patman because Philip Morris' pack merchandiser plan pays more than does our plan." He appended to that letter a copy of both Philip Morris' and Reynolds' standard pack merchandiser payment agreements. There is no evidence that
Hunter considered any areas of competition other than pack merchandiser payment plans.
In light of the discrete, focused nature of Latham's assignment and the brief time Hunter spent working on it, we do not think it reasonable to infer that Latham received confidential information relevant to the case at bar. Reynolds has not provided a persuasive explanation for why Latham would have needed, or been given, confidential information about any promotional support programs other than the security shelving/pack merchandising deal at issue. Similarly, the limited scope of Latham's representation, as well as Michael Johnson's letter, suggest that confidential information about Reynolds' efforts to meet Philip Morris' competition would have been limited to the comparison of their respective pack merchandiser plans, the plans explicitly referred to in Johnson's letter and about which he sent Latham nonprivileged documentation.
This case is not about security shelving or payments for pack merchandising displays. Nor is it about the proposed 1988 agreement between Reynolds and Winn-Dixie. Paragraphs 10 through 12 of the Counterclaim and Reynolds' answers thereto make clear that Cigarettes Cheaper is concerned with programs involving savings passed down through retailers to consumers, as well as the in-store promotional displays that frequently accompany them. Reynolds has admitted that such programs are different from the so-called "retail display allowances" involved in the Winn-Dixie deal. Both can be characterized as "promotional support programs," but the similarities appear to end there.
Following the hearing on its motion to disqualify Latham, Reynolds submitted a reply brief in which it argued, for the first time, that the Counterclaim encompasses all discriminatory promotional support, including arrangements like the one with Winn-Dixie in the late 1980s. We find this argument unpersuasive in light of the representations made by counsel for Cigarettes Cheaper in the course of litigating this motion and in view of the above-cited language of the Counterclaim.
In sum, we find that Latham's representation of Reynolds in 1988 is not substantially related to its representation of Cigarettes Cheaper in this case. There is some overlap between the legal issues raised by the 1988 Winn-Dixie situation, on the one hand, and Cigarettes Cheaper's Counterclaim on the other. In both cases, Reynolds has (allegedly) given promotional support to one retailer and not another and is defending its conduct by citing the need to meet competition from Philip Morris. The passage of time and significant factual differences between the two situations make it unlikely, however, that Latham would have received confidential information relevant to the present litigation. Thus while it is true that Hunter and Latham can be said to have switched sides on the Robinson-Patman "meeting competition" issue, such analytical ambivalence does not warrant the drastic measure of disqualification. As the Committee Comment to Local Rule 83.51.9 makes clear, "a lawyer who recurrently handled a type of problem for a former client is not precluded from later representing another client in a wholly distinct problem of that type, even though the subsequent representation involves a position adverse to the prior client." We find this to be a wholly distinct problem of the type Latham addressed in 1988, and we decline to deprive Cigarettes Cheaper of the right to have the counsel of its choice working on it.
CONCLUSION
For the foregoing reasons, Reynolds' motion to disqualify Latham Watkins is denied.