ALM Properties, Inc.
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Note: After this story from the October 2012 issue of Corporate Counsel went to press, there were key updates to important aspects of the case. Please read this statement from Timothy Hester, chair of Covingtons management committee [PDF], for Covington & Burling's response.
An assistant general counsel at 3M Company is caught up in an unusual and nasty fight between his employer and its former outside counsel. It's particularly surprising because the firmwith which it had a long-standing relationshipisn't exactly Dewey Cheatem & Howe. It's prestigious Covington & Burling.
St. Paulbased 3M sued Covington in state court in Minneapolis in August for breach of fiduciary duty and breach of contract. The suit follows a motion the company filed to disqualify Covington from representing Minnesota in a lawsuit the state brought against 3M. Minnesota's suit, which alleges environmental damage, involves the same chemicals that were part of previous but unrelated work that Covington did for 3M.
The company is represented by the Dallas firm Bickel & Brewer. Name partner William Brewer III says the case is very unusualand troublesome to a lot of general counsel. "No end of corporate clients have called me about it," he says.
"You can imagine," Brewer continues, "how disturbing it was for someone like Marschall Smith"3M's then general counsel"who wasn't there prior to 2007, when Covington was representing the company on these issues, to think that the law firm wouldn't bring something like this to his attention." The company didn't realize that it had a problem, he adds, until Covington started doing discovery in the state suit and was deposing the same in-house counsel that it once represented on the same issues.
David Overstreet, 3M's assistant general counsel, was especially involved when Covington used him to, in Brewer's words, "orchestrate the situation where they thought they could pursue a large economic opportunity with Minnesota." The 3M suit says that in 2010 Covington partner Seth Safra was working with Overstreet on an employee benefits matter. Safra wrote a letter to 3M in December saying that the law firm had determined that its work on the matter was complete. Overstreet thought it strange when Safra contacted him shortly afterward to ask for written confirmation that 3M's engagement of Covington on the matter was over.
"Not the normal course of dealing," the complaint states. "In fact, Covington had never before requested written confirmation that it had completed a legal matter" in its 18 years of working with the company.
Overstreet, an eight-year veteran at 3M, told Safra that the company might need Covington to provide additional analysis of the benefits matter, or to work on related issues. But Safra said the parties could simply open a new matter file if they needed to, the suit says. "Thinking that Covington was simply addressing internal administrative issues," the complaint says that Overstreet emailed Safra the confirmation he wanted.
Eight days later, Covington was appointed special attorney for the state of Minnesota, hired to investigate and litigate state environmental claims against 3M over perfluorochemicals and other contaminants.
The suit alleges that Covington communicated with the state in November 2010 about the possibility of serving as the special attorney against 3Mwhile still representing 3M, and well before Safra wrote his December completion letter.
Covington insists that it's not true. In a brief filed over the disqualification motion in the environmental suit, Covington called 3M's claims "inflammatory and unsubstantiated accusations." In a motion to dismiss 3M's suit, Covington called it a PR stunt, and promised to show that the breach claims were baseless "at an appropriate time." Besides, the law firm argued, 3M had always used other law firms to handle all its environmental matters.
Both sides have cited contract clauses that seem to support their stances. But 3M also accuses Covington of making claims for the state that "are directly counter to the (correct) positions advocated by Covington while it was representing 3M" before the Food and Drug Administration on a matter involving chemicals in food packaging.
At that time, Covington truthfully told the FDA and others that PFCs were not toxic and did not cause adverse health effects in humans, the suit says. "Yet now, on behalf of the state and with the allure of a large contingency fee . . . Covington has reversed itself to attack 3M's [fluorochemicals] business and argue that PFCs are toxic and that the tiny concentrations of PFCs in the Minnesota environment pose risks to human health. Covington's greed-motivated side-switching is a quintessential example of a breach of fiduciary duties."
In support of its position, the company presented statements from an array of ethics professors and experts who said Covington's switch was improper. It seeks compensatory damages, attorney fees, and injunctive relief "to keep Covington from further jeopardizing 3M's confidential information."
It also wants to recover 18 years of legal fees.