Thursday, November 2, 2006
Duane Morris’ conflict fight has broad reach
Lawyers watching as McKesson Corp. seeks to force firm off case

AS HE WAITED TO TESTIFY, the witness smiled.

“This is all about big money,” said Georgia State University legal ethics professor Clark D. Cunningham. “Big money and big business.”

Cunningham had been subpoenaed to weigh in on a dispute that has pitted multinational legal behemoth Duane Morris against local powerhouse Morris, Manning & Martin in a conflict-of-interest case.

Duane Morris’ Sean R. Smith agreed the stakes were big.

“Law firms around the country are watching this case,” said Smith, and waiting to see how a Fulton County Superior Court judge would rule on a matter which—while itself involving a multi-million dispute—may also hold far-reaching consequences for corporate attorneys and their clients.

At issue was medical service provider McKesson Corp.’s demand that Duane Morris, which in May signed on as outside counsel to two McKesson affiliates in a Pennsylvania bankruptcy case, cease its representation of a couple involved in unrelated arbitration proceedings in Atlanta against a third McKesson entity.

The local Duane Morris office signed on to assist with the arbitration, which deals with a non-compete contract between McKesson Information Solutions and a couple whose medical supply company the McKesson entity had bought years before.

In an August letter, Duane Morris partner Smith of the Atlanta office wrote to Morris Manning declining to withdraw. Smith pointed to a May 30 engagement letter reviewed, revised and accepted by the McKesson subsidiaries McKesson Automation Solutions and McKesson Medication Management and Morris Manning’s Daniel P. Sinaiko.

McKesson then filed suit, demanding that Duane Morris withdraw from the case. The suit, in Fulton County Superior Court, is McKesson Information Solutions v. Duane Morris, No. 2006-CV-121110.

According to Smith, the disconnect between the various McKesson companies—which are headquartered in three separate states—and the relatively minor work being handled by his firm’s Pennsylvania lawyers comply with the Duane Morris engagement letter’s waiver of conflict-of-interest concerns

The relevant section reads, in part, “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.” In such cases, McKesson will “waive any actual or potential conflict of interest as long as those other engagements are not substantially related to our services to McKesson.”

The parties met Tuesday before Judge Thelma Wyatt Cummings Moore.

Cunningham, who told the Daily Report in a previous story that Georgia’s legal rules barred such an open-ended waiver, was called to testify by Morris Manning founding partner Joseph R. Manning to support his opinion. Cunningham was subjected to tough questioning by Smith.

“McKesson is the 16th-largest company in the world … [and] one of the most sophisticated users of legal services in the world,” said Smith, ridiculing the notion that the company and its lawyers would have approved the waiver without foreseeing the possibility of another McKesson entity hiring Duane Morris for unrelated services.

Cunningham responded that, while the American Bar Association rules allowed for such open-ended waivers, Georgia rules are crafted to a higher standard, demanding written notice to each client of any possible risk.

Under Georgia rules, said Cunningham, “conflict is when there is a risk. … There doesn’t have to be any actual harm involved.”

Conceding that Georgia calls for a higher standard than the ABA or other states, Smith again pressed the point that the McKesson subsidiary in the Georgia case was never referred to in the engagement letter.

“Simply put,” he said, “it’s an engagement letter between McKesson Medication and McKesson Automation and Duane Morris … no other entity is mentioned.”

Duane Morris then presented its own expert, Steven C. Krane, a partner with New York’s Proskauer Rose and himself a former professor of legal ethics, who earlier submitted an affidavit in support of the law firm.

In that document, Krane attacked McKesson’s “strained construction of the language of the engagement letter”; such an interpretation, he wrote, would “mean that [McKesson Medication Management McKesson Automation] were the only two entities to which Duane Morris would look for payment of fees, but that otherwise the Firm’s duties would run to every entity in the McKesson family.”

Further, he noted, since the letter between McKesson and Duane Morris was inked in Harrisburg, Pa., Pennsylvania’s less-stringent standards should apply.

Conflict waivers came into being following “a lot of cases in the ’80s, where a law firm would take on a case for small piece of a large company and end up getting hit with a disqualification motion,” said Krane on the witness stand.

Currently, he said, “most large law firms use them to protect against conflict-of-interest charges [when representing] a client in a small legal matter somewhere else.”

But in some cases, he said, “they can be used tactically, just to try throw a monkey wrench into the proceedings [as a] weapon susceptible to abuse.”

When his turn came, Manning forcefully pushed his attack.

“Are your professional responsibilities for sale?” demanded Manning.

Receiving a negative reply, Manning said. “I would hope not. This is a serious matter.”

Manning then pressed Krane upon his use of the term “small matter” to question whether the lawyer was implying that such clients deserve less responsibility than a large client.

“Not necessarily,” said Krane. “In the absence of a contract, you owe them the same degree of responsibility…”

“So if the contract says they can [engage in a conflict of interest], they can do it?” asked Manning.

“With you’re dealing with a sophisticated client, yes,” responded Krane.

Manning then quoted from an opinion both sides have cited by U.S. District Judge Charles A. Moye Jr. in 1998’s Worldspan v. Sabre case. In it, Moye says that “[t]he requirements of this court’s rules governing the conduct of lawyers practicing before it, and, of course, of the Georgia Code of Professional Responsibility, transcend mere contract law.”

Do the codes of professional ethics “transcend mere contract law?” demanded Manning.

Yes, responded Krane, “but the rules must be applied in the context of the agreement. They don’t apply in a vacuum.”

Pressed to answer the question definitively, Krane responded, “It’s hard for me to agree or disagree that ethics rules transcend contract law in every case … if I have to say yes or no, I respectfully disagree.”

At the end of the three-hour hearing, Moore said, “As much as I would like to rule immediately, I will take the matter under advisement.”

She added that she expects to issue a ruling this week.

Staff Reporter Greg Land can be reached at gland@alm.com.