Oxford Systems, Inc. v. Cellpro, Inc.

• Decision Date: 22 April 1999
• Docket Number: No. C98-298Z.,C98-298Z.
• Citation: Oxford Systems, Inc. v. Cellpro, Inc., 45 F.Supp.2d 1055 (W.D. Wash. 1999)
• Parties: OXFORD SYSTEMS, INC., on behalf of itself and all others similarly situated, Plaintiff, v. CELLPRO, INC., et al., Defendants.
• Court: U.S. District Court — Western District of Washington

45 F.Supp.2d 1055

OXFORD SYSTEMS, INC., on behalf of itself and all others similarly situated, Plaintiff, v. CELLPRO, INC., et al., Defendants.

No. C98-298Z.

United States District Court, W.D. Washington, at Seattle.

April 22, 1999.

Jessica Ann Eaves, Cohen Milstein Hausfeld & Toll PLLC, Seattle, WA, for Oxford Systems, Inc. and Lillian Keen, plaintiffs.

George E. Greer, Heller, Ehrman, White & McAuliffe, Seattle WA, Bruce G. Vanyo, John Pearce, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, CA, for defendants.

Karen Marie Sutherland, and Robert G. Andre, Ogden Murphy Wallace, P.L.L.C., Seattle, WA, for Intervenor Becton Dickinson.

ORDER

ZILLY, District Judge.

This matter comes before the Court on intervenor Becton Dickinson's motion to disqualify Perkins Coie from representing Lyon & Lyon, L.L.P., in this litigation (docket no. 44). The Court, having considered the briefs in support and opposition to the motion, and having heard oral argument on March 30, 1999, hereby GRANTS Becton Dickinson's motion to disqualify Perkins Coie.

Background

Johns Hopkins University (JHU) owns certain patents which it has licensed to Becton Dickinson (Becton). Becton has in turn sublicensed these patents to Baxter Healthcare Corporation (Baxter).

In April 1992 CellPro filed a complaint in this district against Baxter and Becton seeking a declaratory judgment of non-infringement, invalidity, and unenforceability of the JHU patents. The complaint also alleged violations of the Sherman and Clayton Acts. CellPro was represented in the action by Lyon & Lyon, with Seed & Berry acting as local counsel. Becton Dickinson hired a Boston law firm to handle the antitrust claims, a New York firm to handle the patent issues, and Perkins Coie to serve as local counsel.

JHU was not named in the Washington lawsuit even though it was the owner of the patents. Baxter and Becton filed a motion to dismiss the complaint, arguing that JHU was a necessary party and that JHU was not subject to personal jurisdiction in this district. In September 1993, District Judge Carolyn Dimmick found that JHU was a necessary party with respect to the patent claims and that the Court did not have jurisdiction over JHU. Accordingly, the Court dismissed the portion of the Complaint related to the patent claims, and stayed the antitrust claims.

In early 1994, Becton, Baxter, and JHU filed a complaint against CellPro in Federal District Court for the District of Delaware alleging that CellPro infringed one of the JHU patents. In response to the filing of the Delaware complaint, CellPro filed a second complaint in this district against JHU, Becton, and Baxter alleging further antitrust violations. CellPro then moved to consolidate the two Washington actions, and JHU, Becton, and Baxter moved to transfer the Washington cases to Delaware. In April 1994, Judge Dimmick granted CellPro's motion to consolidate the two Washington cases, and also granted the defendants' motion to transfer the consolidated cases to the Delaware court.

Perkins Coie was not counsel of record in the Delaware litigation. Perkins partner David Burman states in his declaration that the Office of the Clerk of the District Court of Delaware notified Perkins that it could not continue as counsel in the Delaware litigation unless it retained local counsel and applied for admission pro hac vice. It is undisputed that Becton never asked Perkins to make application to the Delaware court, and Perkins never sought to be admitted pro hac vice in Delaware. See Burman Decl. at ¶ 9(j) & Ex. 4 to Burman Decl. Nevertheless, Perkins did continue to assist Becton with aspects of the Delaware litigation, particularly "organiz[ing] and prepar[ing] documents for exhibits," preparing and serving subpoenas, and arranging depositions in Seattle. See Ex. 10. Notably, Perkins assisted Becton with preparing a subpoena for Coe Bloomberg, a partner with Lyon & Lyon, which Perkins now represents.

The Delaware patent infringement case was tried to a jury beginning on July 24, 1995. Although the jury found that the claims of all of the JHU patents were invalid as obvious in light of prior art, the district court granted the plaintiffs' post-trial motion for judgment as a matter of law as to some issues and for a new trial on other issues. A second jury trial commenced on March 4, 1997. On March 11, 1997, the jury returned with verdicts finding that plaintiffs had proven damage in the amount of $2.3 million and that CellPro's infringement of the patents had been wilful. Plaintiff then moved for enhancement of damages pursuant to 35 U.S.C. § 284, arguing that CellPro had no reasonable, good faith basis to believe the JHU patents were invalid. CellPro's defense to the bad faith allegation was that it relied on the advice of its counsel, Lyon & Lyon, that the JHU patents were invalid. The district court rejected this defense, stating:

... CellPro almost proved plaintiff's case for them, with its weak and disingenuous defense of alleged good-faith reliance on the advice of counsel.... The Lyon & Lyon opinions were so obviously deficient, one might expect a juror to conclude the only value they had to CellPro in the world outside the courtroom would have been to file them in a drawer until they could be used in a cynical effort to try to confuse or mislead what CellPro, its Board, and counsel must have expected would be an unsophisticated jury.

Johns Hopkins University v. CellPro, 978 F.Supp. 184, 193 (D.Del.1997), aff'd, 152 F.3d 1342 (Fed.Cir.1998). The Delaware court, having concluded that CellPro acted in bad faith, trebled the jury's damage award.

Following the district court's decision, JHU, Becton, and Baxter requested that the Court award attorneys' fees and costs of approximately $7.0 million against CellPro and Lyon & Lyon based on Rule 11 and 28 U.S.C. § 1927. The district court stated that it would address that motion in a separate decision after the Court of Appeals had had an opportunity to review the case on appeal. On August 11, 1998, the Federal Circuit affirmed. On September 30, 1998, the district court entered judgment against CellPro for attorneys' fees and costs in the amount of $8.7 million. The district court's order expressly reserved decision "on whether to award additional fees and costs against CellPro's trial counsel, Lyon & Lyon, and whether Lyon & Lyon should be declared jointly and severally liable for some or all of the fees and costs hereby awarded against CellPro." Hallenbeck Decl. at ¶ 20. Becton asserts that it intends to pursue a claim against Lyon & Lyon for fees. Id.

On March 10, 1998, while Becton's and JHU's patent litigation remained pending in Delaware, this securities fraud action was filed. Both CellPro and Lyon & Lyon are named as defendants. In the Complaint, the plaintiff shareholders allege, among other things, that

Lyon & Lyon had access to the adverse non-public information about CellPro's wilful patent infringement. In furtherance of defendants' common scheme, Lyon & Lyon issued false and misleading opinions and defended CellPro in litigation based on those opinions.

Class Action Complaint at ¶ 68. The Complaint goes on to allege that Lyon & Lyon knew or recklessly disregarded that CellPro continued to utilize the patent opinions, and that CellPro purported to base the legitimacy of its infringing activities on those opinions. See ¶¶ 69-75. Thus, Lyon & Lyon's opinions on the validity of the JHU patents and Lyon & Lyon's conduct in the Delaware litigation are central to the securities fraud allegations in this lawsuit.

Lyon & Lyon is represented in this lawsuit by Perkins Coie. Becton Dickinson, who is not a party to this lawsuit, has intervened in this action for the sole purpose of moving to disqualify Perkins Coie as counsel for Lyon & Lyon. Becton argues that Perkins' representation of Lyon & Lyon is a conflict of interest that requires Perkins' disqualification. Perkins argues there is no conflict of interest because Becton is a former client, not a current client; the Perkins partner who handled the patent suit as local counsel left Perkins in 1996; and no current Perkins attorneys who previously worked on the patent matter have any material confidential information about Becton that could be used in this securities litigation.

Discussion

When faced with an allegation that an attorney's representation presents a conflict of interest, it is "the duty of the district court to examine the charge, since it is that court which is authorized to supervise the conduct of the members of its bar." Gas-A-Tron of Arizona v. Union Oil Co. of California, 534 F.2d 1322, 1324 (9th Cir.1976) (per curiam) (citing Richardson v. Hamilton Int'l Corp., 469 F.2d 1382 (3rd Cir.1972), cert. denied, 411 U.S. 986, 93 S.Ct. 2271, 36 L.Ed.2d 964 (1973)), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976). To determine whether an attorney's representation of a particular client violates the attorney's ethical responsibilities, the Court should first refer to the local rules regulating the conduct of members of its bar. United States ex rel. Lord Elec. Co., Inc. v. Titan Pacific Const. Corp., 637 F.Supp. 1556, 1560 (W.D.Wash. 1986). Attorneys practicing in this district must abide by the Rules of Professional Conduct promulgated by the Washington Supreme Court. See Local Rule GR 2(e)(1).

The Washington Rules of Professional Conduct (RPC) have different conflict-of-interest rules for current clients than for former clients. With respect to current clients, the rules provide that a lawyer cannot represent any client with interests directly adverse to the interests of another client unless each client consents in writing after full disclosure. See Rule 1.7. With respect to former clients, the rules provide that a lawyer may not represent a client if he or she is utilizing confidences to the disadvantage of the former client, or the former client's interests are adverse and...