MPT-1 File IN THE DISTRICT COURT OF THE STATE OF FRANKLIN FOR THE COUNTY OF LANCASTER PHOENIX CORPORATION, No. Civ. 041033 Plaintiff, PLAINTIFF'S BRIEF IN SUPPORT OF MOTION TO DISQUALIFY COUNSEL FOR DEFENDANT BIOGENESIS, INC., Defendant. Introduction The rule governing this motion is plain: A trial court may-and, indeed, must- disqualify an attorney who has violated an ethical obligation by his or her handling of an opposing party's attorney-client privileged material and has thereby threatened that party with incurable prejudice. Just as plain is the result that the rule compels here: Defendant's attorneys obtained one of plaintiff's attorney-client privileged documents evidently by inadvertent disclosure. In violation of their ethical obligation, they chose to examine the document, failed to notify plaintiff's attorneys, and then refused to return the document at the latter's demand. By acting as they did, they have threatened plaintiff with incurable prejudice. Since this Court cannot otherwise prevent this prejudice, it must disqualify them to guarantee plaintiff a fair trial. II. Factual Background and Procedural History In 1977. Phoenix Corporation, a medical research company, invented a process for genetically engineering human proteins-a process essential to the development of entirely new categories of pharmaceuticals capable of managing or curing the most serious conditions and diseases afflicting human beings, including diabetes and cancer. In 1978, Phoenix entered into an agreement with Biogenesis, Inc., one of the pioneers in the field of biotechnology: Phoenix licensed its invention to Biogenesis, and Biogenesis obligated itself to pay Phoenix royalties on its sales of various categories of pharmaceuticals.MrI-I Fue Between 1979 and 1997, Biogenesis produced dozens of pharmaceuticals and generated billions of dollars in revenue as a result of their sale. To be sure, Biogenesis paid Phoenix substantial royalties-but, as it turns out, far less than it was obligated to. In 1998, Phoenix learned that Biogenesis had not been paying royalties on its sales of all the categories of pharmaceuticals in question, but only categories specified in the 1978 agreement. For the first time, Biogenesis stated its position that the agreement so limited its obligation. Phoenix rejected any such limitation. Between 1999 and 2002, Phoenix attempted to resolve its dispute with Biogenesis. Each and every one of its efforts, however, proved unsuccessful. In 2003, Phoenix brought this action against Biogenesis for breach of the 1978 agreement, seeking $80 million in damages for royalties Biogenesis owed but failed to pay. Between 2003 and 2009, Phoenix and Biogenesis have been engaged in extensive discovery and motion practice and in several interlocutory appeals as they have prepared for a jury trial. set to begin on March 30, 2009, and expected to last six weeks. On February 2, 2009, Phoenix learned, fortuitously, that Biogenesis's attorneys, Amberg & Lewis LLP. had obtained a document evidently through inadvertent disclosure by Phoenix's attorneys, the Collins Law Firm, in the course of discovery. On its face, the document showed itself to be protected by the attorney-client privilege, reflecting a confidential communication from Phoenix, by its then president Gordon Schetina, to one of its attorneys, Peter Ilorvitz, seeking legal advice, and clearly the document was not intended for the Amberg firm. Nevertheless, the Amberg firm failed to notify Collins about its receipt of the Schetina letter. As soon as it learned what had transpired, Collins instructed the Amberg firm to return the letter, but the Amberg firm refused. III. Argument A. This Court Should Disqualify Amberg & Lewis from Representing Biogenesis Because It Has Violated an Ethical Obligation Threatening Phoenix with Incurable Prejudice in Its Handling of Phoenix's Attorney-Client Privileged Document. The law applicable to Phoenix's motion to disqualify Amberg & Lewis from representing Biogenesis in this action is clear.A trial court may, in the exercise of its inherent power, disqualify an attorney in the interests of justice. Indigo v. Luna Motors Corp. (Fr. Ct. App. 1998). The court may-and, indeed, must-disqualify an attorney who has violated an ethical obligation by his or her handling of an opposing party's attorney-client privileged material and has thereby threatened that party with incurable prejudice. /d. Although the party represented by the disqualified attorney may be said to enjoy an "important right" to representation by an attorney of its own choosing, any such "right" "must yield to ethical considerations that affect the fundamental principles of our judicial process." /d. As the court said, "The paramount concern, however, must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar." Id. As will be demonstrated, the law compels the disqualification of Amberg & Lewis. 1. Phoenix's Document Is Protected by the Attorney-Client Privilege. To begin with, the Schetina letter is protected by the attorney-client privilege. Under Franklin Evidence Code $ 954, the "client . . . has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and attorney. . . ." On its face, the Schetina letter reflects a confidential communication from Phoenix's then president. Schetina, to one of its attorneys, Horvitz, seeking legal advice. 2. Amberg & Lewis Has Violated an Ethical Obligation. Next. Amberg & Lewis has violated an ethical obligation by handling the Schetina letter as it did. In the face of the inadvertent disclosure of attorney-client privileged material, such as evidently occurred in this case, the ethical obligation is plain under Franklin Rule of Professional Conduct 4.4: "An attorney who receives a document relating to the representation of the attorney's client and knows or reasonably should know that the document was inadvertently sent shall promptly notify the sender." Because on its face the Schetina letter reflects a confidential communication from Phoenix's then president, Schetina, to its attorney, Horvitz, seeking legal advice, and is therefore protected by the attorney-client privilege, Amberg & Lewis should surely have known that the letter was not intended for it. The Amberg firm was at the very least obligated to notify Collins that it had received the letter. It should also have refrained from examining the letter, and should have abided by our instructions. On each point, the Amberg firm acted to the contrary, choosing to examine the letter, failing to notify Collins, and then refusing to return it at Collins's demand.MPT-1 File Even if it should turn out that Amberg & Lewis obtained the Schetina letter as a result of unauthorized disclosure as opposed to inadvertent disclosure, the outcome would be the same. In Mead v. Conley Machinery Co. (Fr. Ct. App. 1999) the Court of Appeal imposed an ethical obligation similar to that of Rule 4.4 to govern cases of unauthorized disclosure. It follows that the misconduct of the Amberg firm, as described above, would amount to an ethical violation if the letter's disclosure were unauthorized and not inadvertent. 3. Amberg & Lewis Has Threatened Phoenix with Incurable Prejudice. Finally, by its unethical actions, Amberg & Lewis has threatened Phoenix with incurable prejudice. The Schetina letter could well prejudice the jury in the midst of a long and complex trial, especially if it were cleverly exploited by Biogenesis. Whether or not any direct harm could be prevented by the exclusion of the letter from evidence-which Phoenix intends to seek in the coming days-the indirect harm that might arise from its use in trial preparation cannot be dealt with so simply: The bell has been rung. and can hardly be unrung, except by disqualification of Amberg & Lewis an action that is necessary in order to guarantee Phoenix a fair trial. Even if it should turn out that Amberg & Lewis obtained the Schetina letter by unauthorized disclosure as opposed to inadvertent disclosure, the result would not change. It is true that in Mead v. Conley Machinery Co., the Court of Appeal suggested in a footnote that, in cases of unauthorized disclosure, the "threat of 'incurable prejudice'. . . is neither a necessary nor a sufficient condition for disqualification." But that suggestion is mere dictum, inasmuch as Mead did not involve the threat of any prejudice, incurable or otherwise. IV. Conclusion For the reasons stated above, this Court should grant Phoenix's motion and disqualify Amberg & Lewis from representing Biogenesis in this action. Respectfully submitted, Date: February 9, 2009 Aimbaby Block Kimberly Block COLLINS LAW FIRM LLP Attorneys for Plaintiff Phoenix CorporationMPT-1 Library Indigo v. Luna Motors Corp. Franklin Court of Appeal (1998) The issue in this permissible interlocutory In response, Luna filed a motion to disqual- appeal is whether the trial court abused its ify Corrigan. After a hearing, the trial court discretion by disqualifying plaintiff's attor- granted the motion. The court determined ney for improper use of attorney-client that the technical evidence document was privileged documents disclosed to her inad- protected by the attorney-client privilege, vertently. We hold that it did not. Accord- that Corrigan violated her ethical obligation ingly, we affirm. by handling it as she did, and that disqualifi cation was the appropriate remedy. Indigo Plaintiff Ferdinand Indigo sued Luna Motors appealed. Corporation for damages after he sustained serious injuries when his Luna sport utility It has long been settled in Franklin that a vehicle rolled over as he was driving, trial court may, in the exercise of its inherent power, disqualify an attorney in the interests In the course of routine document produc- of justice. See, e.g., In re Klein (Fr. Ct. App. tion, Luna's attorney's paralegal inadver- 1947). Ultimately, disqualification involves tently gave Joyce Corrigan, Indigo's a conflict between a client's right to an al- attorney, a document drafted by Luna's at- torney of his or her choice and the need to tomey and memorializing a conference be- maintain ethical standards of professional tween the attorney and a high-ranking Luna responsibility. The paramount concern, executive, Raymond Fogel, stamped however, must be to preserve public trust in "attorney-client privileged," in which they the scrupulous administration of justice and discussed the strengths and weaknesses of the integrity of the bar. The important right Luna's technical evidence. As soon as Cor- to an attorney of one's choice must yield to rigan received the document, which is re- ethical considerations that affect the funda- ferred to as the "technical evidence mental principles of our judicial process document," she examined it closely; as a result, she knew that it had been given to her Appellate courts review a trial court's ruling inadvertently. Notwithstanding her knowl- on disqualification for abuse of discretion. A edge, she failed to notify Luna's attorney. court abuses its discretion when it acts arbi- She subsequently used the document for im- trarily or without reason. As will appear, we peachment purposes during Fogel's deposi- discern no arbitrary or unreasonable action tion, eliciting damaging admissions. Luna's here . attorney objected to Corrigan's use of the document, accused her of invading the Indigo's first claim is that the trial court attorney-client privilege, and demanded the erred in determining that Corrigan violated document's return, but Corrigan refused.MPT-1 Library Mead v. Conley Machinery Co. Franklin Court of Appeal (1999) The issue in this permissible interlocutory without a violation of a specific rule, a court appeal is whether the trial court abused its may, in the exercise of its inherent power. discretion by disqualifying plaintiff's attor- disqualify an attorney in the interests of jus- ney on the ground that the attorney im- tice, including where necessary to guarantee properly used attorney-client privileged a fair trial. Indigo. documents disclosed to him without authori- zation. Cf. Indigo v. Luna Afotors Corp. (Fr. Without doubt, there are situations in which Ct. App. 1998) (inadvertent disclosure). We an attorney who has been privy to his or her hold that it did and reverse. adversary's privileged documents without authorization must be disqualified, even Dolores Mead, a former financial consultant though the attorney was not involved in for Conley Machinery Company, sued obtaining the documents. By protect- Conley for breach of contract. Without au- ing attorney-client communications, the thorization, she obtained attorney-client attorney-client privilege encourages parties privileged documents belonging to Conley to fully develop cases for trial, increasing and gave them to her attorney, William the chances of an informed and correct Masterson, who used them in deposing resolution. Conley's president over Conley's objection. To safeguard the attorney-client privilege Conley immediately moved to disqualify and the litigation process itself, we believe Masterson. After an evidentiary hearing, the that the following standard must govern: An trial court granted the motion. Mead attorney who receives, on an unauthorized appealed. basis, materials of an adverse party that he or she knows to be attorney-client privileged In determining whether the trial court should, upon recognizing the privileged na- abused its discretion by disqualifying ture of the materials, either refrain from re- Masterson, we ask whether it acted arbitrar- viewing such materials or review them only ily or without reason. Indigo. to the extent required to determine how to III proceed; he or she should notify the adver- At the threshold, Mead argues that the trial sary's attorney that he or she has such mate- court had no authority to disqualify rials and should either follow instructions Masterson because he did not violate any from the adversary's attorney with respect to specific rule among the Franklin Rules of the disposition of the materials or refrain Professional Conduct. It is true that from using the materials until a definitive Masterson did not violate any specific resolution of the proper disposition of the rule-but it is mor true that the court was materials is obtained from a court. without authority to disqualify him. With orMPT-1 File FORBES, BURDICK & WASHINGTON LLP 777 Fifth Avenue Lakewood City, Franklin 33905 MEMORANDUM To: Applicant From: Ann Buckner Date: February 24, 2009 Subject: Phoenix Corporation v. Blogenesis, Inc. Yesterday, we were retained by the law firm of Amberg & Lewis LLP to consult on a motion for disqualification filed against it. Amberg & Lewis represents Biogenesis, Inc., in a breach-of-contract action brought by Phoenix Corporation seeking $80 million in damages. The lawsuit has been winding its way through state court for almost six years. Phoenix is represented by the Collins Law Firm. There have been extensive discovery, motion practice, and several interlocutory appeals over the years, but the matter is now set for jury trial in a month and is expected to last six weeks. Two weeks ago. however, Phoenix filed a disqualification motion after Amberg & Lewis obtained one of Phoenix's attorney-client privileged documents-a letter from Phoenix's former president to one of its attorneys. Yesterday. I interviewed Carole Ravel, an Amberg & Lewis partner. During the interview, I learned some background facts; I also obtained a copy of the letter and Phoenix's brief in support of its disqualification motion. Please prepare a memorandum evaluating the merits of Phoenix's argument for Amberg & Lewis's disqualification, bringing to bear the applicable legal authorities and the relevant facts as described to me by Ms. Ravel. Do not draft a separate statement of facts, but instead use the facts as appropriate in conducting your evaluation.PHOENIX CORPORATION 1500 Rosa Road Lakewood City, Franklin 33905 January 2, 1998 DNFIDENTIAL tter Horvitz, Esq- llins Law Firm '00 Laurel Boulevard ikewood City, Franklin 33905 car Peter: im writing with some questions I'd like you to consider before our meeting next Tuesday so at I can get your legal advice on a matter I think is important. I have always understood our reement with Biogenesis to require it to pay royalties on specified categories of armaceuticals. I learned recently how much money Biogenesis is making from other tegories of pharmaceuticals. Why can't we get a share of that? Can't we interpret the recment to require Biogenesis to pay royalties on other categories, not only the specified ones? et me know your thoughts when we meet. Very truly yours, andm Schetina Gordon Schetina President