Fleetboston Robertson Stephens v. Innovex

• Decision Date: 14 November 2001
• Docket Number: No. Civ. 00-778(DSD/JMM).,Civ. 00-778(DSD/JMM).
• Citation: 172 F.Supp.2d 1190
• Parties: FLEETBOSTON ROBERTSON STEPHENS, INC. (formerly BancBoston Robertson Stephens), a Massachusetts corporation, Plaintiff, v. INNOVEX, INC., a Minnesota corporation, and ADFlex Solutions, Inc., a Delaware corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

172 F.Supp.2d 1190

FLEETBOSTON ROBERTSON STEPHENS, INC. (formerly BancBoston Robertson Stephens), a Massachusetts corporation, Plaintiff, v. INNOVEX, INC., a Minnesota corporation, and ADFlex Solutions, Inc., a Delaware corporation, Defendants.

No. Civ. 00-778(DSD/JMM).

United States District Court, D. Minnesota.

November 14, 2001.

Karen E. Wilson, David J.F. Gross, Faegre & Benson, Minneapolis, MN, for plaintiff.

Terrence J. Fleming, Kim Ruckdschel-Haley, Lindquist & Vennum, Minneapolis, MN, for defendants.

ORDER

DOTY, District Judge.

This matter is before the court on plaintiff's motion for summary judgment and defendants' motion to prohibit use of evidence. Based upon a review of the file, record and proceedings herein, and for the reasons stated, the court grants plaintiff's motion, the court denies plaintiff's request for attorney fees and denies defendants' motion.

BACKGROUND

Defendant ADFlex Solutions, Inc. ("ADFlex") manufactures components used in computer and communications products. In 1998, ADFlex was experiencing cash shortages and declining financial results. ADFlex asked Robertson Stephens ("Robertson Stephens," formerly known as "FleetBoston Robertson Stephens"), a financial services and investment banking firm, for its assistance in securing additional capital. Over the next several months, Robertson Stephens consulted with ADFlex and attempted to locate investors for proposed private placements by ADFlex of equity or convertible securities. None of these potential investors pursued an investment in ADFlex.

In the spring of 1999, ADFlex explored the possibility of a merger with several other parties, including defendant Innovex, Inc. ("Innovex"). Over the next several weeks, the chief executive officers ("CEO") of ADFlex and Innovex negotiated a purchase price for ADFlex's stock. During the negotiations period, Robertson Stephens continued to advise ADFlex regarding its strategic options, including the potential merger with Innovex. ADFlex and Innovex merged in September 1999, resulting in the sale of 100 percent of ADFlex's voting stock.

Prior to the merger, on June 7, 1999, Robertson Stephens and ADFlex executed a written engagement agreement. The engagement agreement set forth the terms of an "exclusive engagement" for Robertson Stephens "to provide financial advisory and investment banking services to [ADFlex] in connection with its exploration of various strategic alternatives available to it, including a possible sale of, or business combination involving (including, a merger, reverse merger or merger of equals)." (Wilson Aff., Ex. A.) Under the agreement, Robertson Stephens would receive a fee of $800,000. The fee portion of the agreement provides as follows:

If the Transaction is completed, the Company agrees to pay to [Robertson Stephens] a "Transaction Fee" equal to $800,000. A transaction (or series of related transactions) resulting in the sale of 50% or more of the Company's voting stock or assets to another party represents a concluded Transaction for determining when the Transaction fee is payable.

Id.

The parties dispute the terms of the fee agreement. Plaintiff claims that the parties agreed that Robertson Stephens would receive a flat fee of $800,000 if ADFlex closed on a transaction resulting in the sale of 50 percent or more of ADFlex's voting stock or assets. (Pl.'s Mem.Law Supp.Mot.Summ.J. at 1.) Because the ADFlex/Innovex merger resulted in the sale of 100 percent of ADFlex's voting stock, plaintiff asserts that it is entitled to the $800,000 fee under the clear terms of the contract. Defendants, on the other hand, allege that Robertson Stephens' compensation was for the services that it provided. Defendants claim that Robertson Stephens is not entitled to the full $800,000 because it did not perform the services for which ADFlex contracted. (Defs.' Mem.Law Opp'n Mot.Summ.J. at 5.) Specifically, defendants refuse to pay plaintiff because they contend that the Robertson Stephens' fee is above industry standards, that Robertson Stephens' work was of poor quality and that Robertson Stephen's affiliation with ADFlex's primary lender breached a fiduciary duty to ADFlex. (Defs.' Mem. Law Opp'n Mot.Summ.J. at 12-13, 24, 26.)

As a result of this dispute, plaintiff filed suit against defendants to recover the $800,000 fee. After filing suit, David Flower, plaintiff's counsel, contacted Steve Sanghi, ADFlex's Chairman of the Board ("COB") and CEO at the time the companies merged, to discuss the ADFlex/Innovex merger, ADFlex's relationship with Robertson Stephens, and the dispute between Robertson Stephens, ADFlex and Innovex. Flower also asked Sanghi whether he would complete an affidavit or declaration regarding these matters, and Sanghi stated that he would. (Pl.'s Br. Opposing Defs.' Mot. Prohibit Use of Evidence at 4.) Karen Wilson, co-counsel for plaintiff, later contacted Sanghi to ask him to submit the declaration. Plaintiff's counsel then had one or two other conversations with Sanghi. (Fleming Aff., Ex. D, Sanghi Depo. at 50.)

The parties dispute the contents of the conversations. Defendants claim that plaintiff's counsel did not ask Sanghi whether he was represented by ADFlex's counsel or his own counsel. Defendants further claim that they did not properly inform Sanghi that he could retain counsel, that Robertson Stephens may have adverse interests to his and that they would not ask about privileged information. (Defs.' Mem.Supp.Mot. Prohibit Use of Evidence at 4.)

Plaintiff, however, contends that its counsel asked Sanghi whether he was represented by counsel. Plaintiff also alleges that its counsel informed Sanghi that they represented Robertson Stephens, that Sanghi had no obligation to discuss the ADFlex/Innovex issues with them and that Robertson Stephens would speak with any lawyer he retained before discussing the matter further. (Pl.'s Br. Opposing Defs.' Mot. Prohibit Use of Evidence at 4.) Plaintiff further states that its counsel told Sanghi that Robertson Stephens did not wish to interfere with any communications that Sanghi might have with ADFlex, Innovex or their counsel and that they never asked Sanghi about any privileged communications. (Pl.'s Br. Opposing Defs.' Mot. Prohibit Use of Evidence at 6.)

Defendants now move to prohibit plaintiff from using Sanghi's deposition transcription and declaration in support of its motion for summary judgment and at trial and plaintiff moves for summary judgment. The court denies defendants' motion and grants plaintiff's motion; the court, however, denies plaintiff's request for attorney fees.

DISCUSSION

A. Defendants' Motion to Exclude Evidence

Defendants contend that the court should not consider Steve Sanghi's deposition transcript and declaration in support of its summary judgment motion or at trial because plaintiff's counsel obtained it in violation of Rule 4.2 of the Minnesota Rules of Professional Conduct. The court finds that plaintiff's counsel did not violate Rule 4.2 and allows plaintiff to use Sanghi's deposition transcript and declaration in support of its summary judgment motion.¹

Rule 4.2 provides that "[i]n representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so." 52 M.S.A., Rules of Prof. Conduct, Rule 4.2 (1985). When the party is an organization, the Rule "prohibits communications by a lawyer for one party concerning the matter in representation with persons having managerial responsibility on behalf of the organization, and with any other person whose act or omission in connection with that matter may be imputed to the organization for purposes of civil or criminal liability or whose statement may constitute an admission on the part of the organization." 52 M.S.A., Rules of Professional Conduct, Rule 4.2, Comment (1985).

Although the Eighth Circuit has not settled the issue of whether Rule 4.2 prohibits ex parte communications with former managerial employees of the adverse party, the ABA Committee on Ethics and Professional Responsibility has addressed this issue. (Flower Aff., Ex. A, Contact with Former Employee of Adverse Corporate Party, ABA Formal Op. 91-359 (1991).) The ABA Committee states:

it is the opinion of the Committee that a lawyer representing a client in a matter adverse to a corporate party that is represented by another lawyer may, without violating Model Rule 4.2, communicate about the subject of the representation with an unrepresented former employee of the corporate party without the consent of the corporation's lawyer. Id.

While the ABA's opinion is not binding upon this court, the Eighth Circuit has instructed courts to consider the ABA Code of Professional Responsibility in construing the Minnesota Rules of Professional Conduct. United States v. Agosto, 675 F.2d 965, 969 (8th Cir.1982) (stating that the district court must consider the ABA Code of Professional Responsibility in supervising members of its bar).²

The majority of courts that have considered this matter have reached the same result. See, e.g., United States ex rel. O'Keefe v. McDonnell Douglas Corp., 961 F.Supp. 1288, 1295 (E.D.Mo.1997) (holding that counsel can interview former unrepresented employee of opposing party) aff'd. 132 F.3d 1252 (8th Cir.1998); Jenkins v. Wal-Mart Stores, Inc., 956 F.Supp. 695, 697 (W.D.La.1997) (finding that counsel can interview former employee of opposing party so long as they do not discuss information protected by attorney-client privilege); Orlowski v. Dominick's Finer Foods, Inc., 937 F.Supp. 723, 728 (N.D.Ill. 1996) (holding that former employees not included in the rule prohibiting ex parte communications); Concerned Parents of Jordan Park v. Housing Auth. of St. Petersburg, 934 F.Supp. 406, 408 (M.D.Fla. 1996) (finding counsel's ex parte...