Sunday, June 14, 2015

Implications of Unfolding Conflicts Allegations: On Engagement Letters and Waivers

As reported in the American Lawyer (and previously noted here), while the firm strongly disagrees that its representation represents any form of conflict: "Kirkland's Conflict Woes Worsen in Teva Takeover Case" --
  • "It's too early to declare the litigation for Mylan, since Tuesday's report by U.S. Magistrate Judge Lisa Pupo Lenihan could be rejected by the district judge. Lenihan blasted Kirkland for ignoring conflicts related to its past work for Mylan, finding that the firm breached its ethical duties. Kirkland immediately vowed to contest Lenihan's findings, saying in a statement that it rejected Mylan's conflict of interest claims."
  • "Still, Lenihan's unsparing, 61-page report, which heavily cites the opinions of Harvard Law School professor and former Wachtell, Lipton Rosen & Katz partner John Coates, makes Kirkland out to be the clear villain in the dispute. Her holding that Kirkland should be preliminarily enjoined from representing Teva in the takeover battle is likely to carry a great deal of weight with Chief Judge Joy Flowers Conti, who must decide whether to adopt the report. And the damage may already be done: Teva told Reuters late Tuesday that Sullivan & Cromwell will be taking over Kirkland's role on the deal front."
Bloomberg BNA offers up its own commentary on these matters: "To Dodge Conflicts, Make Waivers Specific" --
  • "Should law firms rethink their client engagement letters, and more specifically, the advance waiver clauses they include? That’s the question emerging after a federal magistrate’s lengthy report recommending that Kirkland & Ellis LLP be disqualified from representing Teva Pharmaceutical Industries Ltd. in its attempt to acquire Mylan NV because of the work Kirkland had done for Mylan."
  • "The issue is particularly fraught because of partners moving laterally and because of law firm consolidation as well as consolidation within industries."
  • "Kirkland was already representing Teva when Mylan became a client. According to the magistrate’s report, Mylan was aware of Kirkland’s work for Teva, 'including regulatory matters and products liability litigation with respect to certain drugs, some of which were matters in which Teva’s interests were directly adverse to Mylan.' In addition, Mylan had agreed to a waiver agreement that allowed Kirkland to represent others, “including in litigation, arbitration or other dispute resolution” procedures that might be adverse. Nonetheless, that agreement, known as an advance waiver, shouldn’t be read to permit Kirkland to represent Teva, the magistrate said."
The judge has yet to issue a final ruling, so the debate remains live. With that context, here is additional commentary via Reuters: "Lessons from Kirkland’s ‘unfortunate and unethical’ Mylan mess" --
  • "What the Kirkland case shows, however, is that conflict waivers may not give lawyers broad rights to represent hostile bidders for current and former clients, even if the clients have said it’s okay for the law firm to pursue adverse litigation and even if the firm has set up ethical walls."
  • "Kirkland had originally wanted Mylan to waive conflicts on cases that were not “substantially related,” according to the magistrate’s report, but “substantially” fell out in negotiations over the wording of the waiver."
  • "Mylan sued Kirkland for breaching its duty in May. Its lawyers at Wilson Sonsini Goodrich & Rosati, Peacock Keller & Ecker and Pietragallo Gordon Alfano Bosick & Raspanti argued that Mylan’s conflict waiver in no way contemplated that the firm would represent a hostile bidder trying to take over the company. Kirkland, they contended, was violating the terms of its engagement agreement with Mylan by representing a Mylan adversary in a takeover bid necessarily related to the products at issue in Kirkland’s work for Mylan."
  • "Ultimately, Judge Lenihan read the agreement only to permit Kirkland to represent Mylan in the sorts of cases in which the firm was already working for Mylan competitors."
And the Wall Street Journal weighs in with: "Dealpolitik: Mylan-Kirkland Decision Should Give Big Law Firms Shivers" --
  • "Finally, the magistrate turned the way Kirkland tried to protect Mylan’s confidential information it obtained on the drug products representation against Kirkland. Kirkland had put in place what the magistrate called an “ethical screen” to be sure Mylan’s information was accessible only to lawyers representing Mylan (which in my experience is not an unusual action). The magistrate seemed to agree with Mylan that such a screen would not be necessary if the takeover were not 'related' to the Mylan representation. I find that conclusion dubious, but I think law firms now need to write into their engagement letters that a client agrees that specified procedures for the protection of client confidential information are appropriate and not evidence of a prohibited representation."
  • "In short, large law firms view themselves as a business. If a client wants its services, the client should expect prescribed terms of engagement giving a law firm maximum freedom to act on other assignments.  Because this thinking is so different from how the default ethical rules are structured, every once in a while a case has to remind the firms how explicit they need to be to get that permission and to make it stick."

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