In 2012, two years into a heated patent dispute with its main rival, web-translation firm MotionPoint parted ways with its lawyers.
Now the company and its ex-counsel at McDermott Will & Emery are once again locked in fierce litigation—with each other.
MotionPoint Corp. accuses McDermott of breach of duty, fraud and malpractice and wants the firm to pony up more than $10 million. That’s what the Florida-based company says it cost to hire new lawyers and bring them up to speed after McDermott was disqualified from continuing to represent MotionPoint by a federal judge.
The two sides are still fighting over the events that caused the firm’s removal from the Northern District of California patent case and whether disqualification was warranted. As disqualification demands become a more common gambit in patent litigation, the MotionPoint-McDermott feud makes clear the consequences for law firms can be both long lasting and potentially expensive.
On Wednesday, McDermott and MotionPoint are scheduled to face off in San Mateo County Superior Court over the parameters of McDermott’s legal defense. The firm has turned to Duane Morris partner Allison Lane Cooper, who specializes in defending large and midsized law firms against professional liability, breach of fiduciary duty and malicious-prosecution claims. The legal team, which includes partner James Krieg and associate Justin Fields, has made clear it intends to attack the 2012 ruling from U.S. Magistrate Judge Joseph Spero that bounced McDermott lawyers Joel Freed and Stephen Becker off the case, based on the work of a New York partner, hired as a lateral after the firm had begun its work for MotionPoint.
“There were several overarching questions raised by the motion to disqualify, all of which McDermott believes were wrongly decided,” the Duane Morris attorneys wrote.
Meanwhile, MotionPoint and its lawyers contend that McDermott shouldn’t get to relitigate a matter already decided by a federal judge.
“McDermott cannot ‘unring the bell’ at this point,” Wolf Legal attorneys Adam Wolf and Tracey Cowan wrote on behalf of MotionPoint, “it cannot ‘re-qualify’ as counsel for MotionPoint in June 2012; and it certainly cannot argue with a straight face that public policy is on its side in this matter.”
MotionPoint, which is majority-owned by Riverwood Capital, a Menlo Park equity fund, is also represented by Ricklin Brown, a partner specializing in labor and employment law with West Virginia firm Bailey & Glasser.
Challenging the validity of a federal ruling in state court is hardly a dream defense. But Arnold & Porter partner Pamela Phillips, a legal malpractice specialist not involved in the case, thinks McDermott has a shot at relitigating the disqualification issue in the context of MotionPoint’s malpractice suit.
“I totally agree with McDermott that the disqualification order shouldn’t bind it,” she said.
THE DUTY OF LOYALTY
McDermott began its tumultuous relationship with MotionPoint as defense counsel in a patent suit filed in 2010 by rival translation company TransPerfect Global Inc.
The relationship soured when TransPerfect alerted the court that McDermott was simultaneously representing its cofounders in estate matters. McDermott had picked up TransPerfect co-owners Philip Shawe and Elizabeth Elting as clients when it hired partner Carlyn McCaffrey in 2011 from Weil, Gotshal & Manges.
According to TransPerfect, the conflict came to light when Shawe was advised by his accountant that he was apparently being “sued (and had been deposed) by his own law firm.”
McDermott “violated one of the most clear and foundational ethical rules that attorneys owe to their clients: the duty of loyalty,” Wolf and Cowan wrote in their complaint.
Spero agreed and removed McDermott from the case in June 2012, concluding McDermott had clearly accepted clients whose interests were adverse to each other. “Once a client engages a lawyer, that client must be able to expect undivided loyalty,” Spero wrote. “McDermott’s concurrent representation—which has already resulted in McDermott deposing its own client, Shawe—does not fulfill this expectation.”
MotionPoint brought in replacement lawyers from Quinn Emanuel Urquhart & Sullivan. In 2013, TransPerfect, represented by Latham & Watkins partner Douglas Lumish, won the court fight, a $1 million verdict and an injunction.
Now McDermott hopes to renew the fight over its disqualification in the state case before San Mateo Superior Court Judge Marie Weiner.
The firm’s posture now is fundamentally different than it was in 2012 when it was obligated to litigate on behalf of MotionPoint’s interests, not its own, its lawyers contend. In fact, McDermott argues that MotionPoint blocked it from fully fighting the disqualification when it abandoned a petition to vacate the disqualification order.
“Essentially,” McDermott’s lawyers at Duane Morris wrote, MotionPoint “invited the erroneous ruling and eliminated McDermott’s chance to contest it in the underlying case.”
MotionPoint filed a motion for summary judgment in February asking Weiner to block McDermott from challenging the federal rulings, which it says address the identical ethical question at the center of its case—whether McDermott crossed the line by concurrently representing litigation adversaries.
“McDermott’s attempt to overcome the application of the doctrine of collateral estoppel is simple and erroneous,” MotionPoint’s attorneys stated.
Even if Weiner sides with McDermott and eventually disagrees with the disqualification—that doesn’t necessarily seal a victory for the law firm.
The key question, according to attorney Gerald Klein of Klein & Wilson, who has served as an expert in legal malpractice matters, is: Did McDermott know it had clients on both sides of the MotionPoint suit?
If so, that knowledge should have been disclosed, Klein said. “In fairness to McDermott,” he added, “I don’t think most conflict checks would have picked up on that conflict.”
As behemoth law firms continue to expand, the conflict checks they need to run become impossibly extensive. As a result, Klein said, more firms are coming to him with conflict-of-interest issues.
“Clearly one of the problems big firms are having as they get so big is they can’t keep track of all their conflicts,” Klein said. “They just stumble into the fact that they’re now suing a former client.”
It’s possible that’s what happened in this case.
McDermott told the court it ran a conflicts check on the clients McCaffrey brought with her from Weil, but it didn’t trigger any alert based on her representation of Shawe and Elting.
According to McDermott, that’s because there was no conflict to detect; McCaffrey’s work was strictly related to the TransPerfect executives in their personal capacities, not to the company.
MotionPoint disagrees. Shawe and Elting own a combined 99 percent of TransPerfect shares, making their personal finances inextricably intertwined with the company. Moreover, the estate work handled by McCaffrey included drafting an agreement governing how Shawe and Elting’s shares in TransPerfect would be handled if one died. TransPerfect also paid Shawe and Elting’s legal bills through the company’s accountant, according to court records.
“It’s an area where analysis is required,” said Arnold & Porter’s Phillips. “You do have to make a judgment call, and courts have been known to disagree with lawyers’ judgment calls.”
RAMP UP COSTS
Whether McDermott did work for TransPerfect is just the first in a slew of issues over which the two sides have exchanged barbs.
In its first complaint, MotionPoint also accused McDermott of theft—a charge McDermott dismissed as “hyperbolic” and Weiner later threw out. McDermott billed MotionPoint for an accrued $2 million in legal services after the conflict arose, the complaint states. MotionPoint demanded this money back, and McDermott refused.
Weiner’s rejection of the theft claim gives McDermott hope for more favorable rulings in the future.
“We are confident that the court will resolve these issues in a fair and equitable manner, as it did when it struck the exaggerated and inflammatory allegations from MotionPoint’s original complaint,” Alan Rutkoff, McDermott’s general counsel, said in a prepared statement.
A firm spokesman declined an interview request.
MotionPoint also alleges McDermott discovered the potential conflict with TransPerfect when screening its new attorney, but chose to keep it hidden. McDermott vehemently denies that claim.
Money is another issue where the two sides clash. McDermott says MotionPoint has estimated the cost of bringing its new counsel at Quinn Emanuel up to speed at more than $10 million. The sum includes costs to hire a new expert witness, as Quinn had a conflict with the witness MotionPoint had been using.
McDermott calls the damages request “incredible.”
“The claimed ‘ramp up’ costs include all Quinn Emanuel fees incurred through trial, and beyond,” its lawyers wrote. “MotionPoint is now trying to make McDermott the guarantor of the inflated bills from its successor law firm, all based on a disqualification ruling that was wrongly decided, and that MotionPoint effectively made unreviewable in federal court.”