3M Loses Bid to Disqualify Law Firm It Accused of 'Betrayal'

3M Loses Bid to Disqualify Law Firm It Accused of 'Betrayal' wellesenterprises / iStockPhoto.com The 3M World Headquarters in suburban St. Paul, Minn.

The 3M Co. has long argued that one if its former law firms, Covington & Burling, committed a “betrayal” by filing an environmental lawsuit against it on behalf of another client. Covington got some good news on Friday, when a judge refused to disqualify it from the environmental suit, a case Covington has poured years of effort into on a contingent fee basis. 3M’s lawyers are also cheering the ruling, however, seizing on a finding by the judge that Covington did, in fact, violate an ethics rule.

In a 36-page decision, Judge John McShane in Hennepin County, Minnesota, ruled that the environmental case is “substantially similar” to earlier regulatory work Covington did for 3M. Based on that finding, the judge ruled that Covington had a conflict of interest and violated an ethics rule relating to duties owed to former clients.

But the judge’s analysis didn’t stop there. After reviewing emails exchanged by 3M in-house lawyers, which were recently produced in discovery, the judge found that 3M waived its right to object to the conflict. Indeed, the judge wrote that 3M made a “tactical decision” not to seek disqualification earlier.

There was once a happier relationship between Covington and 3M. In the 1990s, Covington advised 3M on regulatory issues relating to fluorochemicals. The firm did a bit of related work for 3M in the early 2000s. And in 2010 a Covington lawyer advised 3M on an unrelated retiree benefits matter.

The relationship began to sour in late 2010. That’s when a different set of Covington lawyers agreed to represent Minnesota in a lawsuit alleging that 3M polluted the state’s waterways when it disposed of perfluorochemicals.

3M filed its disqualification motion in April 2012, 16 months into the environmental case and with fact discovery coming to a close. 3M argued that the pollution case is “substantially similar” to the earlier engagement and that “the breach of loyalty could not be more sharply drawn.”

A few months later, 3M also filed a breach of fiduciary duty case against Covington, making similar arguments. That case is pending.

3M scored an early win in October 2012, when a judge disqualified Covington from the environmental case on grounds that it “exhibited a conscious disregard for its duties of confidentiality, candor, full disclosure, and loyalty to 3M.” The Minnesota Supreme Court later remanded the case, however, ruling that there should be additional discovery into whether 3M waived its right to seek disqualification.

The emails produced in discovery bolstered Covington’s waiver argument, McShane wrote in Friday’s opinion. The internal 3M emails show that company lawyers debated whether to seek disqualification of Covington early in the environmental case. In one email, an in-house lawyer at 3M wrote that the company had “[run] the traps on Covington and will not seek to disqualify the firm.” The same lawyer later wrote that Covington’s earlier work for 3M “was remote in time and only tangentially related.”

“Not only 3M decision makers, but numerous others within 3M, knew there was a potential conflict and decided not to pursue it,” the judge wrote. “It is clear to this court, based upon the evidence presented, that 3M made a tactical decision not to seek disqualification of Covington in January 2011.”

“We are pleased that the court agreed with 3M’s fundamental position—that Covington & Burling violated its legal and ethical obligations to 3M,” 3M’s outside lawyer, William Brewer III of Brewer Attorneys & Counselors, said in a statement. “The court’s opinion enables 3M to protect its confidences shared with Covington from misuse.”

In an interview, Brewer added that the judge’s finding of an ethical breach bolsters the parallel breach of fiduciary duty case. “I believe there is a strong case to be made that Covington should be collaterally estopped from arguing those issues over again,” he said, referring to the doctrine of collateral estoppel, which prevents the relitigating of identical issues in separate lawsuits.

In a statement, a Covington representative said Brewer is wrong on that point. “Collateral estoppel would not apply,” the representative said. “Among other things, the doctrine applies to rulings against a party. Although Covington sought to be a party in the trial court disqualification proceedings, 3M objected and persuaded the trial court to deny Covington’s motion to intervene as a party.”

The Covington representative also said: “We have long contended that 3M was attempting to use the disqualification issue for tactical reasons, by waiting for 16 months into the [natural resources damage] litigation and one month before discovery closed to file its motion. We’re pleased to have the issue resolved and behind us. We’re also gratified that we can now move forward with our representation of the State of Minnesota, a firm client for more than 20 years.”

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