Dallas’ 5th Court of Appeals has upheld a trial court ruling that disqualified Bickel & Brewer from representing a client in a business dispute. The justices concluded that the law firm could not "rebut the presumption" that a former employee of the opposing party shared privileged documents with Bickel & Brewer.

The background to the 5th Court’s June 5 decision In Re RSR Corp. and Quemetco Metals Limited Inc. is as follows.

RSR Corp. and Quemetco Metals Limited Inc. (which the court collectively refers to as RSR) and Inppamet S.A. aka Inppamet Ltd. and Plastics and Metal Parts Inc. (which the court refers to as Inppamet) are involved in the production and sale of anodes used in the mining industry to extract metals from ore.

The companies were parties to a licensing agreement. In 2008, RSR sued Inppamet in a Dallas district court, while Inppamet sued RSR in Chile, each party accusing the other of breaching the licensing agreement and misappropriating confidential information in both cases. RSR retained Dallas’ Bickel & Brewer to represent it in the Texas litigation, according to the opinion.

In 2010, Hernan Sobarzo left his position as finance manager with Inppamet, where he had worked for three years. Sobarzo was directly involved with Inppamet’s litigation team and had access to privileged and confidential information relating to the litigation. Before leaving, he copied approximately 2.3 gigabytes of data consisting of company email and other electronic files, according to the opinion.

Between December 2010 and June 2011, Sobarzo met with attorneys and representatives from Bickel & Brewer more than 19 times for more than 150 hours, both in Chile and New York. Sobarzo orally provided substantial information about Inppamet to RSR and showed Bickel & Brewer documents he had taken from Inppamet at the end of his employment. Sobarzo later also disclosed to an RSR employee that Inppamet purportedly owed RSR $3 million in unpaid fees relating to anode sales, according to the opinion.

On June 28, 2011, Sobarzo signed an affidavit drafted by Bickel & Brewer that detailed alleged fraudulent activity by Inppamet. Bickel & Brewer filed the affidavit in the state court case. Six days later, Sobarzo signed a new affidavit recanting his June 28 affidavit and characterized the statements in that prior affidavit as "false," the opinion states.

Inppamet moved to disqualify Bickel & Brewer from serving as RSR’s counsel in the state court case, based on the firm’s interaction with Sobarzo. A special master heard and denied the motion. As agreed by the parties, the trial court reviewed the special master’s decision de novo. Relying on the Texas Supreme Court’s 1998 opinion in In Re American Home Products Corp., the trial court granted Inppamet’s motion to disqualify Bickel & Brewer [See "Bickel & Brewer Disqualified From Mining Technology Dispute," Texas Lawyer, Dec. 10, 2012, page 4]. RSR filed a petition for writ of mandamus with the 5th Court, asserting that the trial court abused its discretion by disqualifying Bickel & Brewer from further participation in the case.

Case of the Paralegal

The 5th Court looked at American Home to arrive at its conclusions. In American Home, the high court ruled that a nonlawyer paralegal that left one law firm to work for another — when the firms represented opposing sides inlitigation — was subject to an irrebuttable presumption "that confidences and secrets were imparted" to her in connection with her prior employment. The high court also found that the paralegal was subject to a second, rebuttable presumption that she shared the confidences with her new employer.

The Supreme Court concluded in American Home that the only way to overcome that rebuttable presumption was: 1. to instruct the legal assistant "not to work on any matter on which the paralegal worked during the prior employment, or regarding which the paralegal has information relating to the former employer’s representation," and 2. to "take other reasonable steps to ensure that the paralegal does not work in connection with matters on which the paralegal worked during the prior employment, absent client consent."

RSR argued that American Home does not apply to the case because Sobarzo was not employed as a nonlawyer legal assistant. But the 5th Court justices wrote that they do not read American Home as narrowly as RSR.

"We conclude that an attorney’s relationship with a former employee of the opposing party who was a member of the opposing party’s litigation team carries the same unacceptably high risk of disclosure of confidential information as does the hiring by an attorney of a legal assistant who previously performed work for the opposing party," wrote Justice Robert Fillmore in an opinion joined by Justices Jim Moseley and Molly Francis.

The 5th Court also ruled that Sobarzo was subject to the conclusive presumption that confidential information was imparted to him in connection with his prior employment.

The court noted that, while Bickel & Brewer cautioned Sobarzo not to disclose confidential information belonging to Inppamet, a simple, informal admonition to a nonlawyer former employee of an opposing party "is not enough to overcome the presumption."

"After Bickel & Brewer knew Sobarzo was a member of Inppamet’s litigation team and possessed confidential information belonging to Inppamet, Bickel & Brewer continued to meet informally with Sobarzo and was involved in obtaining both an agreement that compensated Sobarzo for the time spent meeting with the firm on this case and an agreement that gave Sobarzo significant protections in return for providing information and documents related to Inppamet," Fillmore wrote.

"Further, Bickel & Brewer failed to either instruct Sobarzo not to work on the litigation or use formal, institutionalized screening measures to reduce the potential for misuse of confidences to an acceptable level," Fillmore wrote in the opinion that denied mandamus relief. "Rather, the sole purpose of meeting with Sobarzo was to discuss the pending litigation with Inppamet."

Which Standard?

Mike Lynn, a partner in Dallas’ Lynn Tillotson Pinker and Cox who represents Inppamet in the case, is pleased with the ruling.

"It reaffirms the fact that, if you hire a side-switching expert, you must screen them from the case from which they came. And saying you did it is not sufficient. You actually have to show the specific methods by which you did the screening," Lynn says.

"It is not unlike the way one would treat an associate that comes to your firm: You screen them and give them instructions that you are not to listen in or be involved in this litigation . . . ," Lynn says.

Harriet O’Neill, an Austin solo who represents the RSR entities, says her clients will appeal the decision to the Texas Supreme Court because they believe the 5th Court applied an incorrect legal analysis in the case.

"What happened is: We were presented with a former employee of the opposing party. . . . He was a fact witness, a former employee, that Texas law has long allowed opposing counsel to interview ex parte," O’Neill says.

"The rules [of Texas Civil Procedure] require, when interviewing a former employee, that counsel take steps to prevent eliciting privileged information, and Bickel & Brewer complied with that in all respects," O’Neill says.

"I do think it’s important to note that former Supreme Court Justice Deborah Hankinson was the special master in this case. And she meticulously reviewed all of the evidence and counsels’ arguments, and she denied all basis for disqualification," says O’Neill, who is also a former justice on Texas’ high court. "And the court of appeals in this case did not base its decision on misconduct, but on a legal decision that we don’t think fits the circumstances."