Thursday, August 31, 2006 Conflict claim
sours big firm’s work with health giant Duane Morris handling Atlanta suit against McKesson,
is company’s counsel in Pennsylvania case By GREG LAND, Staff Reporter
ACCUSATIONS OF BAD faith, breach of loyalty and attorney
activity "bordering on extortion" are flying in Fulton County
Superior Court, where medical conglomerate McKesson Corp. wants to
have the Duane Morris firm disqualified from representing two
Georgians against a McKesson subsidiary.
At issue is whether Duane Morris’ representation of the Georgians
against McKesson Information Solutions, while serving as local
counsel for two other McKesson subsidiaries in Harrisburg, Pa, is a
conflict of interest.
Documents in McKesson’s case against the firm show that Duane
Morris lawyers are relying on an engagement letter McKesson
officials in the Pennsylvania case signed that waived conflicts that
are not "subantially related" to that matter.
The case highlights the ethical risks when a megafirm like Duane
Morris, which has 600-plus lawyers in 18 offices around the world,
works for a huge company such as McKesson, a supplier of medical and
health-care technology, training and pharmaceuticals that claims
more than $80 billion in annual revenue.
The problem started in April, when McKesson Medication Management
and McKesson Automation contracted with Duane Morris’ office in
Harrisburg, Pa., to serve as local outside counsel in a case being
heard in U.S. Bankruptcy Court in which the two companies are among
In July, Duane Morris’ Atlanta office was hired by Nan and Alex
Smith to help in their claims against McKesson Information Systems,
the name for the health-care business they sold in 1994 to a company
that has since been acquired by McKesson.
The Smiths took McKesson Information to arbitration to settle
their claims that McKesson breached a noncompete agreement and
committed fraud, based on allegations that the company shipped empty
boxes to inflate sales figures several years earlier.
The trouble is spelled out in communication, included in the
Fulton case file, between the Atlanta firm of Morris Manning &
Martin, which was lead counsel for the McKesson subsidiaries in the
Pennsylvania bankruptcy case, and Duane Morris’ Atlanta office.
On Aug. 8, Duane Morris’ Sean R. Smith sent a letter to Lawrence
H. Kunin of Morris Manning. (There was no response by press time to
an inquiry as to whether Sean R. Smith is related to Alex and Nan
Smith argued that Duane Morris’ engagement letter with McKesson
clients in Pennsylvania expressly limited their attorney-client
relationship to serving as local counsel to the two companies for
the bankruptcy case.
"You recently stated that ‘McKesson’ believes that representation
of one McKesson entity, under any circumstances, would automatically
give rise to a conflict by representation against another McKesson
company," wrote Smith. "We were very surprised to learn this,
because the Engagement Letter was revised at the request of
[McKesson], and the terms that specify that Duane Morris represents
only McKesson Medical and McKesson Automation and not any affiliates
and the waiver of conflicts were not identified as
The agreement letter, signed by Duane Morris’ Harrisburg partner
Brian Bisignani and included in the Fulton case file, contains this
statement: "Given the scope of our business and the scope of our
client representations … it is possible that some of our clients or
future clients will have matters adverse to McKesson. ... We
understand that McKesson has no objection to our representation of
parties with interests adverse to McKesson and waive any actual or
potential conflict of interest as long as those other engagements
are not substantially related to our services to McKesson."
The next paragraph, however, contains a caveat that the waiver
"shall not apply in any instance where … we have obtained
proprietary or confidential information."
Duane Morris’ Smith wrote that that section "contemplates
situations exactly like the current one," and conforms to the
American Bar Association’s "preferred method for resolving potential
conflicts in the corporate affiliate context before they arise."
Should McKesson insist upon its position, Smith concluded, Duane
Morris would bow out of the bankruptcy proceedings entirely.
Three days later, Kunin and Morris Manning partner Joseph R.
Manning filed McKesson’s Fulton case against Duane Morris.
The complaint terms the firm’s threat of withdrawing as
"bordering on extortion."
Pointing to the allegations of malfeasance the Smiths allege,
Manning and Kunin wrote, "It is hard to imagine a more blatant
breach of loyalty than to accuse your current client of fraud and
then withdraw from the initial representation as pure
McKesson Information, the subject of the arbitration, and
McKesson Automated are both part of a larger segment of the
corporation, which has a single president and shares a legal
department headquartered in Alpharetta, the complaint adds.
The complaint referred to a consultation with Paula J. Frederick
of the State Bar of Georgia’s Office of General Counsel. She cited
Rule 1.7 of the Georgia Rules of Professional Conduct and Comment
and said, according to the complaint, "Absent specificity, future
waivers of conflicts of interest are invalid because a waiver must
be ‘knowing’ and a party cannot know in advance exactly what
conflicts are involved."
Frederick would not elaborate on her comments.
On Aug. 21, Duane Morris’ Smith and partner John C. Herman and
associate Antony L. Sanacory filed a motion in opposition to the
emergency injunction and disqualification, describing the suit as an
attempt "to create a conflict where none exists." The filing decried
their firm’s portrayal as "extortionists" as "an entirely unfounded
and spurious claim," and said that Duane Morris’ Pennsylvania
attorneys have had limited contact with any employee at any
McKesson-owned entity and "certainly received no confidential
information related to [McKesson Information] at all."
Kunin said he could not comment.
Smith referred inquiries to Duane Morris’ general counsel in
Chicago, Michael J. Silverman, who similarly declined comment. A
call to McKesson’s local in-house counsel, Ami R. Patel, was
Georgia State University legal ethics professor Clark D.
Cunningham reviewed the filings and was troubled by Duane Morris’
"A lawyer cannot commit unethical conduct because a client gives
him permission," said Cunningham, calling the engagement letter an
"unprofessional and unconscionable" effort "that’s all about the
lawyers’ desire to make money, and not about their clients’
Cunningham said that Georgia Bar rules and case law "specifically
require consultation with the client; that he receives, in writing,
reasonable, adequate, detailed notice of the potential conflict ...
and, once explained, he can say, ‘No, I don’t want to take that
Cunningham said a provision of the engagement letter that waives
notice of any conflict unrelated to bankruptcy, even though it may
be adverse to McKesson’s interest, is not only a violation of
Georgia rules but also "an unconscionable breach of legal
"They’re saying, ‘We can pick and choose our clients,’ and shop
around for the most money, even if it’s adverse to existing
Duane Morris’ Smith could not be reached to comment on
Staff Reporter Greg Land can be reached at