San Diego A Carlsbad spine surgery company recently sued a law firm, highlighting a thicket of conflict-of-interest issues lawyers wade through in choosing clients.
In February, Carlsbad-based Alphatec filed a breach-of-fiduciary-duty lawsuit against DLA Piper. It alleges the global law firm represented Alphatec for more than a decade, but then sued Alphatec CEO Patrick Miles on behalf of competitor NuVasive in October.
This month, DLA Piper withdrew from the case, though Alphatec still seeks damages through its own lawsuit and stated concerns over new representation’s connections to DLA Piper.
Against this backdrop, law firms must navigate whether to take on competing clients, risking legal action if careless — or loss of business if needlessly paranoid of client overlap. Further complicating matters: merger mania and lawyers’ increasing mobility between firms.
Mobility Changes Picture
Dan Stanford, a San Diego attorney who prosecutes legal malpractice, said conflict of interest allegations have risen.
“It has occurred more frequently over the last 10 years or so, particularly as law firms have increasingly merged. And when I started practicing in 1975, everybody went to a law firm and stayed there until they retired. But that’s no longer the case,” he said.
These lawsuits often turn on whether legal firms wielded a company’s confidential information to benefit a new client.
“You are perfectly free to represent a new client against a former client so long as there’s absolutely no relationship between the current matter and the former representation,” Stanford said. “So in other words, for an egregious conflict of interest to exist, there has to be some nexus or connection to your prior representation.”
Proof of Damages
For companies, proving a conflict isn’t enough — there must be proof of damages, like valuable trade secrets changing hands.
“Without damages, you have no case,” Stanford said. He later wrote in an email Alphatec’s lawsuit appears to be missing this key element, and it looks like the legal action was filed to “get DLA Piper to withdraw and get ‘conflicted out.’”
Compared with decades ago, firms are bound by fewer conflict-of-interest restrictions.
Once a blanket prohibition, attorneys can represent competing firms, provided there’s written consent.
In addition, Stanford said recent cases enabled firms to erect an “ethics wall” — an information barrier dividing attorneys who might have a conflict of interest and the rest of the firm.
“Years ago they (ethics walls) were not permitted at all. They were not deemed sufficient to eliminate conflicts of interest and the law firms were disqualified from continuing representation,” Stanford said.
Law firms — especially large ones — run sophisticated software spotting potential turf battles and lawyers with potential conflicts. But a conflict doesn’t automatically mean a law firm should back off.
Key to abide by: Rule 3-310. Notably, law firms must disclose a conflict — including financial, professional or a personal relationship — in writing to new or existing clients.
“Rule 3-310 is not intended to prohibit a member from representing parties having antagonistic positions on the same legal question that has arisen in different cases, unless representation of either client would be adversely affected,” states the State Bar of California’s website.
San Diego attorney David Cameron Carr represents lawyers in discipline proceedings and advises firms on ethics. He said law firms should train employees in conflict law, as well as ensure scrupulous data entry into screening software to avoid down-the-road issues.
It’s not easy, he acknowledged.
“It becomes very complicated, especially when you need to check conflicts with thousands of lawyers scattered sometimes in hundreds of offices,” Carr said.
Stats aren’t kept on how often firms turn down cases due to a would-be competitor. As an idea, Carr declines three or four possible cases a month. (For reference, in mid-March his caseload stood at 25.)
Conflicts carry possible fees, discipline or liability, so it’s as much an ethics as a business decision.
“My advice to law firms is to be conservative, avoid risk,” Carr said.
Stanford said large companies — aware of conflict-of-interest rules — sometimes put as many as six law firms on the payroll to keep them away from competitors.
“Even if it’s just a small amount of work, it’s to tie them up,” Stanford said.
Most conflict disputes, he said, don’t escalate to the level of lawsuits, unlike Alphatec against DLA Piper. While DLA Piper is no longer representing Alphatec competitor NuVasive, Alphatec is still pursuing damages and costs through legal action.
Alphatec in a statement said it was forced to expend resources “in both the Delaware and California actions, as a direct result of DLA’s conflicting representation.”
In addition, Alphatec said it remains concerned over NuVasive’s legal representation having ties to DLA Piper.
“Alphatec is concerned that the breach of duty of loyalty was not seriously addressed by DLA Piper, but was in fact compounded by having DLA Piper lawyers continue to work on the case, but at a new firm they joined just days ago,” Alphatec Spine’s Craig Hunsaker, executive vice president of people and culture and the company’s general counsel, said in a statement.
Firm Fires Back
In court documents filed in February, DLA Piper contended that only its U.K. office represented Alphatec, and the contract between the law firm and Alphatec forbids a lawsuit against the global entity DLA Piper. The law firm also argued it was representing Alphatec Holdings, and not Alphatec subsidiaries.
Court documents don’t spell out why DLA Piper withdrew from the case. The firm’s media department did not respond to a request to comment.
The lawsuit is the latest in the saga of Alphatec versus NuVasive.
NuVasive’s October lawsuit alleges that Miles — a former NuVasive employee — dissuaded NuVasive from buying Alphatec and schemed to secure a massive equity stake in the company. Alphatec counter-sued, stating the non-compete restrictions NuVasive placed in its agreement with Miles are void under state law, and that alienating NuVasive leadership led Miles to leave.