State v. 3M Co., s. A12–1856

• Decision Date: 30 April 2014
• Docket Number: A12–1867.,Nos. A12–1856,s. A12–1856
• Citation: 845 N.W.2d 808
• Court: Minnesota Supreme Court
• Parties: STATE of Minnesota, by its Attorney General Lori SWANSON, et al., Appellants (A12–1856), Covington & Burling, LLP, Appellant (A12–1867), City of Lake Elmo, Respondent, Metropolitan Council, Respondent, v. 3M COMPANY, Respondent.

845 N.W.2d 808

STATE of Minnesota, by its Attorney General Lori SWANSON, et al., Appellants (A12–1856),Covington & Burling, LLP, Appellant (A12–1867),City of Lake Elmo, Respondent,Metropolitan Council, Respondent,

v.3M COMPANY, Respondent.

Nos. A12–1856, A12–1867.

Supreme Court of Minnesota.

April 30, 2014.

Syllabus by the Court

1. When a district court disqualifies an attorney from representing a client based on a violation of the rules of professional conduct, the attorney has standing to appeal independent of the attorney's client.

2. When deciding whether matters are substantially related under Minn. R. Prof. Conduct 1.9(a), a district court must assess whether there is a substantial risk that confidential factual information that ordinarily would have been obtained in the prior representation would materially advance the current client's position in the subsequent matter. This inquiry requires an analysis of the extent to which the factual and legal issues in the two representations overlap and an examination of other relevant circumstances, including whether confidential information provided to the attorney in the prior representation subsequently has been disclosed to the public and whether that information has been rendered obsolete by the passage of time.

3. The right to seek disqualification of opposing counsel for a violation of Minn. R. Prof. Conduct 1.9(a) is subject to waiver.

4. If a district court finds a violation of Rule 1.9(a), attorney disqualification is required, unless the moving party otherwise is barred from seeking disqualification.

Lori Swanson, Attorney General, Alan I. Gilbert, Solicitor General, Alethea M. Huyser, Assistant Attorney General, Beverly M. Conerton, Assistant Attorney General, Saint Paul, MN, for appellants State of Minnesota, et al.

John W. Lundquist, Kevin C. Riach, Fredrikson & Byron, P.A., Minneapolis, MN; and John K. Villa, Michael S. Sundermeyer, Joseph M. Terry, Williams & Connolly LLP, Washington, D.C., for appellant Covington & Burling, LLP.

Michael T. Nilan, Amanda M. Cialkowski, Peter Gray, Nilan Johnson Lewis P.A., Minneapolis, MN; Michael C. McCarthy, Maslon Edelman Borman & Brand, LLP, Minneapolis, MN; Delmar R. Ehrich, Faegre Baker Daniels LLP, Minneapolis, MN; and William A. Brewer III, Shain A. Khoshbin, Bickel & Brewer, Dallas, TX, for respondent 3M Company.

OPINION

WRIGHT, Justice.

This case presents several issues regarding disqualification of legal counsel because of a violation of Minn. R. Prof. Conduct 1.9(a) arising from a conflict of interest with a former client. These issues include who has standing to appeal a district court order granting a motion to disqualify, the legal standard for determining whether Rule 1.9(a) has been violated, and whether the right to seek disqualification can be waived. Appellant State of Minnesota retained appellant Covington & Burling, LLP (Covington) to represent it in a natural resource damages (NRD) case against respondent 3M Company involving the manufacture and disposal of perfluorochemicals (PFCs). Covington previously had represented 3M in legal and regulatory matters related to 3M's fluorochemicals (FC) business from 1992 to 2006. Covington first appeared on behalf of the State in this action in January 2011. In October 2012, the district court granted 3M's disqualification motion. Both the State and Covington appealed. The court of appeals dismissed Covington's appeal for lack of standing and affirmed the disqualification of Covington. We granted Covington's and the State's respective petitions for review. For the reasons that follow, we affirm in part, reverse in part, and remand to the district court.

I.

3M began manufacturing FC products for consumer and industrial uses in the 1950s. In the early 1990s, 3M sought FDA approval of two of its FC products for use in high-temperature food-packaging applications. In 1992, 3M engaged Covington attorney Peter Hutt for advice concerning the FDA petitions for FC-product approval. As 3M's FC business grew, 3M created what it called a “virtual law firm”—a team of both in-house and outside counsel—to advise 3M on regulatory, legal, and business issues related to its FC products. Hutt was a member of the team's regulatory group.

3M decided in 2000 to stop manufacturing FCs in the United States. However, Covington's representation of 3M on FC matters continued until 2006. In the course of representing 3M regarding the legal and regulatory issues related to the use of FCs in food-packaging applications, Covington attorneys obtained information from 3M addressing the health effects of exposure to FCs.

Since the end of Covington's representation of 3M on FC issues in 2006, 3M has entered into agreements with regulatory authorities to assist in remediation of PFC-related environmental pollution and to disclose information related to the health and environmental effects of PFCs.¹ In 2007, 3M reached an agreement with the Minnesota Pollution Control Agency (MPCA) that required 3M to assist in the abatement of PFC pollution, disclose documents concerning the health and environmental effects of PFCs, and work with MPCA and the Minnesota Department of Health to develop health and toxicology studies related to PFCs. As part of that agreement, 3M was required to provide MPCA all documents, except those subject to attorney-client privilege or protection as attorney work product, related to “(1) the health or environmental effects of any PFC; (2) actions or precautions considered or recommended by 3M for managing, treating or disposing of wastes containing any PFC; and (3) any characteristic of any PFC or PFC waste that might cause the PFC or waste to be considered a hazardous substance or a hazardous waste.”

In May 2010, 3M again engaged Covington. This engagement involved a retiree-benefits matter that was unrelated to 3M's FC business. Covington completed its work on the retiree-benefits matter on September 27, 2010. At Covington's request, 3M sent an e-mail formally terminating the engagement on the retiree-benefits matter on December 22, 2010, and Covington began representing the State against its former client less than two weeks later.

Covington also has a history of representing the State. Since 1995, Covington has represented the State in various environmental-litigation matters. Pertinent to the issues before us, on December 30, 2010, Covington agreed to represent the State in the NRD case against 3M. Covington and the State entered into a contingency-fee arrangement in which Covington agreed to assume all litigation costs and be reimbursed only in the event of a recovery.

In the NRD case, the State alleges that 3M's production of FCs polluted Minnesotawaters and injured natural resources. Covington first appeared as counsel for the State in January 2011. The parties began discovery, and as of November 8, 2012, the parties had produced more than six million pages of documents and deposed more than 70 witnesses. Between December 30, 2010, and October 11, 2012, Covington devoted more than 20,000 hours of attorney time to the NRD case and incurred between $2 million and $3 million in litigation expenses.

The deadline for completing fact discovery in the NRD case was June 1, 2012. On March 26, 2012, William Brewer III, outside counsel for 3M in the NRD case, sent a letter to Covington stating, “It has just come to our attention that Covington previously represented 3M for the purpose of providing 3M with legal advice concerning legal and regulatory issues associated with its fluorochemical business.” 3M subsequently demanded that Covington withdraw. Covington refused.

Between the dates of Covington attorneys' first appearance in the NRD case and 3M's demand for Covington's withdrawal, then–3M General Counsel Marschall Smith twice indicated in communications with Covington attorneys that he was aware that Covington may have a conflict of interest in the NRD case. Smith exchanged e-mails with Covington attorney Daniel Spiegel on April 8, 2011. In these e-mails, Smith first indicated that he was aware Covington had taken an environmental case against 3M on a contingency basis. Although Spiegel initially replied that he was unaware of the environmental case, Spiegel sent a second e-mail confirming Covington's representation of the State in the NRD case. Spiegel explained that Covington had performed work for 3M before Smith's tenure but “the work stream from 3M basically ended.” Smith responded, “Sure, makes perfect sense ... you do have to represent your clients. Nothing personal. Hope we can get back to you after this is over.” Seven months later, in a November 16, 2011 letter to Covington attorneys Mitchell Dolin and Benedict Lenhart, Smith wrote, “We did not raise the conflict issue when you filed the lawsuit on behalf of the State, but perhaps we should have.” The November 2011 letter specifically referred to Covington's prior representation of 3M in insurance-coverage disputes and did not address Hutt's work for 3M related to the FC business.

On April 30, 2012, 3M moved to disqualify Covington as counsel for the State, alleging that Rule 1.9(a), Minn. R. Prof. Conduct, bars Covington from representing the State in the NRD case because the lawsuit is substantially related to Covington's prior representation of 3M regarding its FC business. While 3M's motion to disqualify Covington was pending, 3M brought a separate lawsuit against Covington in Ramsey County District Court for breach of fiduciary duty and breach of contract arising out of Covington's representation of the State in the NRD case. In that separate lawsuit, 3M alleges that Covington failed to protect client confidences, breached its duties of candor and full disclosure, and breached its duty of loyalty by taking a position materially adverse to 3M in the NRD case.

On October 11, 2012, the district court in the NRD case concluded that Covington violated Rule 1.9(a) and granted 3M's motion...