Visa U.S.A., Inc. v. First Data Corp.

• Decision Date: 29 January 2003
• Docket Number: No. C-02-1786 PJH.,C-02-1786 PJH.
• Citation: Visa U.S.A., Inc. v. First Data Corp., 241 F.Supp.2d 1100 (N.D. Cal. 2003)
• Parties: VISA U.S.A., INC., Plaintiff, v. FIRST DATA CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of California

241 F.Supp.2d 1100

VISA U.S.A., INC., Plaintiff, v.FIRST DATA CORPORATION, et al., Defendants.

No. C-02-1786 PJH.

United States District Court, N.D. California.

January 29, 2003.

Geraldine Mary Daly Alexis, Jonathan P. Hersey, Raymond Lara, Beth H. Parker, Victoria Wong, David J. Zack, Bingham McCutchenLLP, San Francisco, CA, for Defendants.

M. Laurence Popofsky, Stephen V. Bomse, Scott A. Westrich, Aaron M. Armstrong, Jarrod Wong, Heller Ehrman White & McAuliffe LLP, San Francisco, CA, for PlaintiffVisa U.S.A., Inc.

George A. Riley, Scott A. Schrader, O'Melveny & Myers LLP, San Francisco, CA, for Heller Ehrman White & McAuliffe LLP.

AMENDED ORDER DENYING MOTION TO DISQUALIFY COUNSEL¹

HAMILTON, District Judge.

DefendantFirst Data Corporation's motion to disqualify the law firm of Heller Ehrman White & McAuliffe as counsel for plaintiff Visa came on for hearing on October 9, 2002 before this court, the Honorable Phyllis J. Hamilton presiding.First Data appeared by its counsel, Geraldine M. Alexis; Visa appeared by its counsel, M. Laurence Popofsky; and Heller appeared by its counsel, George A. Riley.²Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court rules as follows for the reasons stated at the hearing.

BACKGROUND

Plaintiff Visa sued defendant First Data in April 2002 for trademark infringement, dilution, and various breach of contract claims.First Data has contracted with Visa to process financial transactions on Visa's (and other credit card companies') behalf.First Data has recently launched a new business initiative, which will allow First Data to bypass Visa's regulations on the processing of certain Visa-related transactions (known as "private arrangements").Visa claims these private arrangements violate its contractual and trademark rights.

Visa is represented in this matter by Heller's San Francisco office.In March 2001, before this lawsuit was filed, First Data was sued in an unrelated patent infringement action currently pending in the District of Delaware.First Data sought to retain Heller's Silicon Valley office as counsel in the Delaware action.After running a conflicts check, Heller informed First Data that it had a long-standing relationship with Visa.While Heller did not see any conflicts between the two parties at that time, Heller could not represent First Data in the patent infringement case unless First Data agreed to permit Heller to represent Visa in any future disputes, "including litigation," that might arise between First Data and Visa.First Data consented to those terms, which were memorialized in an engagement letter between Heller and First Data.The relevant portion of the letter states:

Our engagement by you is also understood as entailing your consent to our representation of our other present or future clients in "transactions," including litigation in which we have not been engaged to represent you and in which you have other counsel, and in which one of our other clients would be adverse to you in matters unrelated to those that we are handling for you.In this regard, we discussed [Heller's] past and on-going representation of Visa U.S.A. and Visa International (the latter mainly with respect to trademarks)(collectively, "Visa") in matters which are not currently adverse to First Data.Moreover as we discussed, we are not aware of any current adversity between Visa and First Data.Given the nature of our relationship with Visa, however, we discussed the need for the firm to preserve its ability to represent Visa on matters which may arise in the future including matters adverse to First Data, provided that we would only undertake such representation of Visa under circumstances in which we do not possess confidential information of yours relating to the transaction, and we would staff such a project with one or more attorneys who are not engaged in your representation.In such circumstances, the attorneys in the two matters would be subject to an ethical wall, screening them from communicating from [sic] each other regarding their respective engagements.We understand that you do consent to our representation of Visa and our other clients under those circumstances.

Jeronimus Decl. Exh. A ("waiver letter").After First Data agreed to the waiver, Visa also agreed to Heller's dual representation.AllenDecl. 1120.

A few months later, in July 2001, First Data publicly announced its intention to launch its new private arrangement plan, and in the beginning of 2002, First Data officially notified Visa.Visa then sued First Data.First Data in response threatened antitrust counterclaims against Visa, and then began settlement discussions.Almost four months after the complaint was filed, and shortly after settlement talks broke down, First Data informed Visa in August 2002 that it intended to move to disqualify Heller as counsel for Visa in this matter.³

First Data claims that when it signed the waiver letter, it was not adequately informed of the possibility that its patent counsel could sue it for millions of dollars in damages and raise claims disparaging First Data and attacking the very core of its business.First Data contends that under the California Rules of Professional Conduct, Heller at a minimum was required to reaffirm First Data's prospective consent when the actual conflict between Visa and First Data arose.First Data has also indicated that it believes that Heller's patent lawyers have access to confidential information from First Data that Visa could use against First Data in this action.

Heller and Visa argue that First Data was fully informed about the situation and agreed to allow Heller to represent Visa in future litigation against First Data.Heller and Visa argue that the California Rules of Professional Conduct and other ethical rules expressly permit prospective written consent to a conflict waiver, and that no rules require Heller to obtain a second consent to continue in their representation of Visa.Heller also indicates that it has put an ethical wall in place that adequately protects First Data's confidential information.

DISCUSSION

A.Motion to Disqualify Counsel—Legal Standards

The Northern District of California has adopted the California Rules of Professional Conduct at Civ. L.R. 11-4, and attorneys practicing in this court are required to adhere to those standards, as articulated in the rules and any court decisions interpreting them.SeeCiv. L.R. 11-4 commentary.The right to disqualify counsel is within the discretion of the trial court as an exercise of its inherent powers.SeeUnited States v. Wunsch,84 F.3d 1110, 1114(9th Cir.1996)(district court has inherent power to sanction unethical behavior);Image Technical Serv., Inc. v. Eastman Kodak Co.,820 F.Supp. 1212, 1215(N.D.Cal.1993)(incorporating California state law standard for disqualification of counsel in the Northern District);Cal. Code Civ. Proc. § 128(a)(5).

Motions to disqualify counsel are strongly disfavored.See, e.g., Gregori v. Bank of America,207 Cal.App.3d 291, 300-301, 254 Cal.Rptr. 853(1989)("Motions to disqualify counsel often pose the very threat to the integrity of the judicial process that they purport to prevent.");In re Marvel,251 B.R. 869(Bankr.N.D.Cal.2000), aff'd265 B.R. 605(N.D.Cal.2001)("A motion for disqualification of counsel is a drastic measure which courts should hesitate to impose except when of absolute necessity.They are often tactically motivated; they tend to derail the efficient progress of litigation.").Thus, such requests "should be subjected to particularly strict judicial scrutiny."Optyl Eyewear Fashion Int'l Corp. v. Style Cos.,760 F.2d 1045, 1050(9th Cir.1985)(citations omitted).

In reviewing a motion to disqualify counsel, the district court must make "a reasoned judgment and comply with the legal principles and policies appropriate to the particular matter at issue."Gregori at 300, 254 Cal.Rptr. 853(citations omitted).The district court is permitted to resolve disputed factual issues in deciding a motion for disqualification and must make findings supported by substantial evidence.Dept. of Corporations v. SpeeDee Oil Change Syst,20 Cal.4th 1135, 1143, 86 Cal.Rptr.2d 816, 980 P.2d 371(1999).

B.Simultaneous Representation of Adverse Clients and Written Waivers

1.Conflict Waiver Letters

First Data claims that Heller has violated Cal. Rule of Prof. Conduct 3-310(C)(3), which states:

A member [of the California State Bar] shall not, without the informed written consent of each client:

... (3) represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.⁴

First Data argues that this rule automatically disqualifies Heller from representing both Visa and First Data, even though First Data's patent litigation is unrelated to this action, citing Flatt v. Superior Court,9 Cal.4th 275, 284-285, 36 Cal. Rptr.2d 537, 885 P.2d 950(1994)andMindscape, Inc. v. Media Depot,973 F.Supp. 1130,1131(N.D.Cal.1997).

When evaluating whether a law firm may concurrently represent two clients, even on unrelated matters, it is presumed that the duty of loyalty has been breached and counsel is automatically disqualified.Flatt,9 Cal.4th at 284-85, 36 Cal.Rptr.2d 537, 885 P.2d 950.But, as Visa and Heller note, the presumption may be rebutted and a law firm may nonetheless simultaneously represent two adverse clients if full disclosure of the situation is made to both clients and both agree in writing to waive the conflict.Id. at 285 n. 4, 36 Cal.Rptr.2d 537, 885 P.2d 950.Here, it is undisputed that Heller and First Data executed a conflict waiver letter.See Waiver Letter.Neither Flatt nor Mindscape involved situations where a conflict waiver letter had been executed, and thus they do not...