Delaware Corporate and Commercial Litigation Blog : Delaware Litigation Lawyer & Attorney : Francis G. X. Pileggi : Corporate, Business, Commercial, Delaware Chancery Court

The Delaware Chancery Court ruled today that it would deny a motion to disqualify the Wachtell Lipton firm from representing Rohm and Haas in its pending suit against Dow Chemical despite the prior representation of Dow by Wachtell.  Rohm and Haas Co. v.  Dow Chemical Co., (Del. Ch., Feb. 12, 2009), read opinion here.

The expedited lawsuit, filed earlier this month and now scheduled for trial on March 9, is an effort by Rohm and Haas to force Dow to consummate a merger based on the terms of the merger agreement, and  was highlighted on this blog here. Although Delaware adheres to the objective theory of  contracts and is not inclined to treat sophisticated parties like children who want to be relieved of a bad decision, (see, e.g., here), the Chancery Court is a court of equity and is famously capable of considering the fairness aspect of even the most sophisticated and complex business dispute.

Bloomberg News has a helpful summary of the decision here.  It was also reported today  (before the court  issued its decision) that for the first time in its over 100 year history, Dow has reduced its dividend. Another pre-decision overview of the issues in the case, prior to today's decision, was published today on Deal.com here.

The court noted its concern for the timing of motions such as these and  it also made clear that it is not enough to establish that a technical violation of the professional rules of conduct has been shown.  See, e.g., a similar result in an unrelated case that denied a similar motion that was highlighted here.

Before the Chancery Court will grant a motion  to disqualify counsel, the court must be convinced that the information obtained in the prior representation could be used against the client in the current case, and that there would be a material threat to the fair and efficient adminstration of justice. The court concluded  in this case that:

... I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice

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In Postorivo v. AG Paintball Holdings, Inc., 2008 WL 3876199 (Del. Ch., Aug. 20, 2008), read opinion here, the Chancery Court disqualified from the case (i.e., colloquially, kicked off the case) certain lawyers of the defense team due to their litigation conduct which also raised issues about their compliance with the Delaware Lawyers' Rules of Professional Conduct.  Though the court stopped short of disqualifying the entire law firm, it did award fees to the plaintiff due to the defense counsel's conduct.

This decision in its original format is over 70-pages long, and by necessity it is factually intensive. In part due to my disinclination to bring attention to an unfortunate experience for some of the lawyers involved, I will simply highlight some of the key issues in this case primarily because it is rare that the Chancery Court disqualifies lawyers from continuing representation in a case, and the Delaware Lawyers' Rules of Professional Conduct  (DLRPC) involved are not very often addressed in Chancery Court (compared for example, with the conflict of interest Rules 1.7 to 1.10.)

The Court also addresses the "standing of a non-client" to prosecute violations of the DLRPC. In sum, it cannot be merely a "technical violation", but rather must prejudice one's rights and "call into question the fair or efficient administration of justice".

The DLRCP Rules addressed by the Court include: Rule 4.2 (communication with witnesses represented by counsel); Rule 4.4 (regarding obtaining evidence in a way that violates rights of a third-party); Rule 8.4 (engaging in conduct prejudicial to the adminstration of justice or that involves dishonesty, fraud, deceit or misrepresentation).

Rule 4.2 was interpreted in the recent Chancery Court decision of LaPoint v. AmerisourceBergen Corp., 2006 WL 2105862 (Del. Ch. 2006). Relying in part on LaPoint, here is some guidance from the Court that would be useful for most lawyers involved in litigation:

Even when appopriate to contact a former employee ex parte, one cannot do so "without first making the former employee aware that she could not divulge attorney-client privileged information, or any other privileged, information and providing the information required in Monsanto " [Co v. Aetna Casualty & Surety Co., 593 A.2d 1013 (Del. Super. 1990).]

Additional practical guidance from the Court was provided regarding Rule 4.4 and in particular, "what to do with documents that the other side claims to be privileged"? This is especially important in the current climate where large volumes of electronic data is exchanged, and one may not have the benefit of a "clawback provision" (as discussed in a recent case summary on this blog here.) As to this situation, the Court instructs as follows:

In modern commercial litigation, it is becoming more common for outside counsel or other agents of a party to litigation to be in possession of privileged information of an adverse party. Many cases involve some form of electronic discovery, for example, and the sheer volume of documents involved often necessitates creative means to handle privileged documents. Consequently, for cost-saving or -shifting reasons, during the early stages of discovery, one side rightfully may come into possession of documents and information storage devices that contain privileged information or communications of an adverse party. It is essential to the integrity of the litigation process in such circumstances that the court and the parties can rely on counsel scrupulously to conform to their ethical obligations and to whatever treaties or agreements they work out for handling the particular discovery challenges they face. As reflected in the relatively recent amendments to the Federal Rules of Civil Procedure relating to discovery of electronically stored information, the success of that approach depends importantly on early and fulsome communications among counsel for the opposing parties about the discovery demands of their particular case. Similar communications in early 2007 in this case would have ameliorated many of the problems that arose.

Two prior Chancery Court decisions in this same case that addressed "who held the attorney/client privilege" in connection with the sale of a company in which certain assets were excluded,  as well as dismissing derivative claims, and including more factual background, were summarized here.

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