Kathleen O’Malley, United States Court of Appeals for the Federal Circuit

The U.S. Court of Appeals for the Federal Circuit has disqualified Katten Muchin Rosenman from representing Mylan Pharmaceuticals Inc. in three litigations against Valeant Pharmaceuticals International Inc. and one its subsidiaries.

Katten had argued it merely represents Valeant subsidiary Bausch & Lomb Inc. in unrelated work, and should not be held to the high standard of loyalty that Valeant demands from “key external firms” that bill more than $1 million a year.

But the Federal Circuit ruled Katten signed an engagement letter with Bausch & Lomb and Valeant, which makes clear that Katten was not to represent Valeant or any of its affiliates. Its reading of the provision governing key external firms is “irrational,” Judge Kathleen O’Malley wrote in a sealed order made public today.

“Because we find that Katten has an ongoing attorney-client relationship with Valeant … and its subsidiaries, including Salix, we conclude that Katten’s representation of Mylan in these appeals presents concurrent conflicts of interest,” O’Malley wrote. “Therefore, we grant the motions to disqualify.”

The conflict dates to Katten’s hiring of partner Deepro Mukerjee and eventually four other patent attorneys from Alston & Bird in April. Mukerjee was on the verge of going to trial for Mylan against Valeant in New Jersey. Within a few weeks, Valeant was accusing Katten of divided loyalties and demanding it withdraw from both the New Jersey case and two separate Mylan litigations spearheaded by Mukerjee against Valeant subsidiary Salix Pharmaceuticals Inc. All three cases are now on appeal to the Federal Circuit.

Finnegan, Henderson, Farabow, Garrett & Dunner partner Charles Lipsey argued last September that Valeant and Bausch share the same in-house legal department. By bringing in Mukerjee’s team, Katten created a situation where “on Day One that legal department will have to see the law firm as giving advice, and on Day Two will have to see that law firm as an adversary pounding their head. “

Katten partner Michael Verde argued Bausch & Lomb is a standalone company that his firm has represented since 2001—long before Valeant acquired it in 2013. And Valeant’s engagement letter permits outside law firms that bill less $1 million a year to be adverse to affiliates like Bausch, he contended.

The November 2016 engagement letter was signed by Valeant assistant general counsel Denis Polyn and Katten relationship partner Floyd Mandell. It incorporates outside counsel guidelines which govern the relationship between Valeant, “its subsidiaries and affiliates,” and outside counsel.

The guidelines also require “a significant degree of loyalty from Valeant’s key external firms,” which are defined as those billing more than $1 million per year. These key firms should “not represent any party in any matters where such party’s interests conflict with the interests of any Valeant entity,” the guidelines state.

Katten had billed Bausch & Lomb about $4.3 million for IP legal services over the last seven years.

Verde argued to the Federal Circuit that the converse of the “key external firms” provision is that a firm like Katten, which “never came close” to billing $1 million a year, was free to take positions adverse to Valeant affiliates, so long as the firm remained within the ABA rules of ethical conduct.

“We find this reading of the engagement letter to be irrational,” O’Malley wrote. Rather than relaxing standards for lower-billing firms, it requires heightened loyalty beyond the Rules of Professional Conduct, she concluded. For example, a “key external firm” would not be allowed to file an amicus curiae brief that presents no ethical conflict but that takes a legal position contrary to a Valeant entity’s position in another case, O’Malley wrote.

Katten also argued that Polyn, the signatory on the engagement letter, is a Bausch & Lomb attorney with a Bausch email address. “But Mylan ignores the fact that Polyn was also the vice president and assistant general counsel of Valeant [Pharmaceuticals International] at that time,” O’Malley wrote. “That the two entities appear to share a common letterhead and common employees only further underscores that Valeant … is a client of Katten because it demonstrates, as detailed below, that the two affiliates are interrelated.”

The Federal Circuit also disqualified Katten and Mukerjee from two appeals in which Mylan is defending judgments of patent invalidity it won against Valeant affiliate Salix. Mary Bourke of Womble Bond Dickinson argued the disqualification issue for Salix.

The two Salix cases are further along in the appeal process than the Valeant case. The Salix cases will be argued on the merits next month, with Katten’s co-counsel Robert Florence of Parker Poe Adams & Bernstein representing Mylan. Florence’s Parker Poe team has substituted in for Katten in the Valeant case, which is likely to be heard later this year.