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A Maryland federal judge has issued a ruling in a legal malpractice suit that could set a “dangerous precedent” for area firms, according to the defense lawyer involved in the case. Although the case is far from over, the decision, issued by Judge Alexander Williams Jr. of the U.S. District Court for the District of Maryland, allows the malpractice suit to go forward. In addition, it could place more pressure on firms to ensure that clients’ interests don’t conflict. In the Oct. 23 opinion, Williams found that Houston-based Arnold, White & Durkee created a conflict of interest when it agreed to represent the Intel Corp. while working for a Washington, D.C.-area inventor who was suing the IBM Corp. for patent infringement. According to the judge, the lawyers violated D.C. Bar rules because the inventor had told the firm he also wanted to pursue similar claims against Intel, a chip manufacturer that supplied components for IBM computers. The judge’s ruling stems from a legal malpractice suit filed against Arnold White and four of its former partners by Arnold Berkeley, a D.C.-area lawyer and inventor and president of Berkeley Ltd. Berkeley claims he lost millions of dollars because Arnold White, whom he retained in 1984 to sue IBM, took on Intel as a client without his knowledge and then persuaded him to drop all claims that could have been levied against Intel. The judge’s ruling “makes our task that much simpler,” says Richard Chaifetz, a Columbia, Md., sole practitioner who is representing Berkeley along with Georgetown University Law Center professor and ethics specialist Sherman Cohn. Williams’ finding is a sharp blow to Arnold White’s defense and, according to D.C. Bar authorities, could spur bar counsel investigations of the four partners named in the suit — Edward Goldstein, Wayne Harding, Travis White, and John Lynch. Arnold White merged earlier this year with D.C.’s Howrey & Simon to form Howrey Simon Arnold & White. Lynch now works at Howrey Simon, where he heads the firm’s intellectual property practice. Thomas Buchanan, a partner at the D.C. office of Winston & Strawn who represents the four lawyers and Arnold White, maintains that no conflict existed because there was never a valid claim against Intel. Buchanan adds that Williams’ ruling could put firms in a dangerous bind — forcing them to give serious consideration anytime one client speaks about suing a party that happens to be a firm client, even if the action has no legal merit. “All the client would have to do is have a subjective belief that there was a claim against one of your clients, irrespective of whether that claim was viable or not,” Buchanan says. “It would require people to search every client they have ever had.” Buchanan, who says he will ask Williams to reconsider the ruling, argues that Berkeley was well aware that Arnold White represented Intel and points to several occasions where the inventor was informed of that fact by Arnold White attorneys. Buchanan also notes that Berkeley, who died in September, suffered from mental illness and that a Maryland Circuit Court found him incompetent to stand trial in another lawsuit. And even if there was a conflict, Buchanan contends that Berkeley is barred from seeking redress by a three-year statute of limitations. Williams’ Oct. 23 ruling on a summary judgment motion calls for a jury to decide the statute of limitations dispute. A jury decision for the defense could stop the case cold. If a jury were to find in favor of Berkeley, finding out who to peg damages to could be a complicated task. Believing that any firm that picked up former Arnold White partners could be forced to pay damages, the plaintiffs earlier this year tried to add Howrey Simon to the suit. But Williams denied the motion. Also, Robert Ruyak, managing partner of Howrey Simon, says it’s “highly unlikely” his firm would be on the hook because the merger contract between Howrey & Simon and Arnold White specified that any liability arising from actions before the merger would remain with Arnold White. “These activities occurred prior to the merger,” Ruyak says. “We were aware of issues that could exist and were very careful in how [the merger agreement] was structured.” According to Buchanan, upon merging, Arnold White kept its malpractice insurance policy, which would cover up to $40 million in damages. KEY TO THE CASE In 1984, Berkeley retained Arnold White to file a patent infringement suit against IBM. Berkeley believed that the mammoth company had been manufacturing computers containing technology that enables the keys on a keyboard to represent not just text, but also commands. The technology, Berkeley claimed, infringed on a patent that he had owned since 1972. Berkeley and Arnold White partner Goldstein agreed that the firm would also pursue similar claims against manufacturers of IBM clones and any other companies believed to be infringing on the patent. Five months after agreeing to represent Berkeley, Arnold White also agreed to represent Intel. The firm was hired to defend Intel against a patent suit filed by Hughes Aircraft. Meanwhile, Arnold White realized it had a conflict because it represented both Berkeley and the Compaq Computer Corp., which manufactured IBM-compatible computers. According to a firm memo dated Dec. 9, 1986, Paul Janicke, then managing partner of Arnold White, wrote that Compaq was one of the firm’s “very best ongoing clients” and that Berkeley’s suit would “clearly strain the relationship” with the company. “We have always known that we couldn’t represent either side in a suit by Berkeley against Compaq,” Janicke wrote. Two years after that memo was written, Berkeley agreed to waive the conflict in writing. Before ever filing suit against IBM, Arnold White tried for several months to settle Berkeley’s claim that the computer company was violating his patent. According to Berkeley, as the firm began constructing the suit, he pointed out two instances where Intel was also infringing his patent. Berkeley explained his desire to sue Intel during a 1985 meeting with Arnold White lawyers. “It’s true — Intel is infringing, and that’s the world’s most popular chip,” Berkeley told his lawyers, according to a transcript of that meeting. Berkeley states in his malpractice suit that Arnold White declined, “without explanation,” to pursue those claims. Berkeley, represented by Arnold White, filed suit in 1987 against IBM, alleging that the company’s personal computers, including the microprocessors and computer chips used in those computers, infringed on his patent. And the complaint contained one allegation that Berkeley believed implicated Intel: The IBM computer chips containing the infringing programs were manufactured and programmed by Intel. An Arnold White expert argued that Berkeley was entitled to a royalty rate of between 1 percent and 3 percent of IBM’s computer sales revenue. Based on those calculations, Berkeley’s lawyers now value the IBM suit at between $150 million and $1 billion. Later that year, Donald Jefferson, a business partner of Berkeley’s, asked Travis White of Arnold White why the firm wasn’t pursuing the chip claims. White told Jefferson that the firm could not bring such claims because they had a conflict of interest due to its representation of Intel, according to a declaration made by Jefferson to the Maryland court. Jefferson contends he didn’t tell Berkeley about this conversation at the time because he assumed Berkeley must have already known about Arnold White’s representation of Intel and signed a waiver, as he did with Compaq. In 1988, Arnold White pressured Berkeley to drop the part of the suit that Berkeley believed could implicate Intel. Berkeley opposed this action, but ultimately signed a notarized statement authorizing the decision. Defense counsel Buchanan says the claim was dropped because it had no merit. If the case proceeds to trial, he says he has two patent law experts who will testify that Arnold White’s decision to drop the chip claim were “legally sound.” “There is no evidence today that [Intel] infringed” on the patent, Buchanan says. Later in 1988, Berkeley, who was licensed to practice law in the District, negotiated a settlement with IBM for $9.5 million. In exchange, he gave IBM the patent and forfeited his right to sue any other company — including Intel — for infringement. The malpractice case ultimately will hinge on a jury’s decision of what Berkeley knew about the Intel representation — and when he learned about it. Berkeley says it was in 1996. According to Berkeley, he and Jefferson, the former business partner, were reminiscing when the conversation turned to the IBM case. Jefferson mentioned that they could have gotten much more money if not for Arnold White representing Intel. At that point, Berkeley became enraged, according to Jefferson, saying that his lawyers had deceived him. “He stated that he would have fired them on the spot if he had known about it and that he was going to sue,” Jefferson stated in a declaration filed in the malpractice action. Arnold White argues that this could not have been the first Berkeley heard of its representation of Intel. In court documents, the firm says it discussed its relationship with Intel several times between 1985 and 1987. Court documents also state that three witnesses — including two of the Arnold White lawyers named as defendants in the malpractice case — have said in sworn depositions that they discussed the Intel matter with Berkeley. Berkeley filed the legal malpractice suit against Arnold White in 1997, claiming that the firm breached its responsibilities to him. He alleges that by removing the computer chip aspect of the IBM case, his infringement suit was weakened dramatically. In addition to compensatory damages, Berkeley is seeking to recoup nearly $3.5 million paid to Arnold White in legal fees, plus interest. But Arnold White’s lawyer, Thomas Buchanan, says Berkeley is not entitled to the fees or damages because his client did absolutely nothing wrong. “All they’ve established, in our view, is that we represented Intel and Intel makes computer chips,” Buchanan says. “They’ve proved nothing else.”

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