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VISA U.S.A., INC. v. FIRST DATA CORP.

January 29, 2003

VISA U.S.A., INC., PLAINTIFF,
v.
FIRST DATA CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hamilton, District Judge.

AMENDED ORDER DENYING MOTION TO DISQUALIFY COUNSEL*fn1

Defendant First Data Corporation's motion to disqualify the law firm of Heller Ehrman White & McAuliffe as counsel for plaintiff Visa came on for hearing on October 9, 2002 before this court, the Honorable Phyllis J. Hamilton presiding. First Data appeared by its counsel, Geraldine M. Alexis; Visa appeared by its counsel, M. Laurence Popofsky; and Heller appeared by its counsel, George A. Riley.*fn2 Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court rules as follows for the reasons stated at the hearing.

BACKGROUND

Plaintiff Visa sued defendant First Data in April 2002 for trademark infringement, dilution, and various breach of contract claims. First Data has contracted with Visa to process financial transactions on Visa's (and other credit card companies') behalf. First Data has recently launched a new business initiative, which will allow First Data to bypass Visa's regulations on the processing of certain Visa-related transactions (known as "private arrangements"). Visa claims these private arrangements violate its contractual and trademark rights.

Visa is represented in this matter by Heller's San Francisco office. In March 2001, before this lawsuit was filed, First Data was sued in an unrelated patent infringement action currently pending in the District of Delaware. First Data sought to retain Heller's Silicon Valley office as counsel in the Delaware action. After running a conflicts check, Heller informed First Data that it had a long-standing relationship with Visa. While Heller did not see any conflicts between the two parties at that time, Heller could not represent First Data in the patent infringement case unless First Data agreed to permit Heller to represent Visa in any future disputes, "including litigation," that might arise between First Data and Visa. First Data consented to those terms, which were memorialized in an engagement letter between Heller and First Data. The relevant portion of the letter states:

Our engagement by you is also understood as entailing your consent to our representation of our other present or future clients in "transactions," including litigation in which we have not been engaged to represent you and in which you have other counsel, and in which one of our other clients would be adverse to you in matters unrelated to those that we are handling for you. In this regard, we discussed [Heller's] past and on-going representation of Visa U.S.A. and Visa International (the latter mainly with respect to trademarks) (collectively, "Visa") in matters which are not currently adverse to First Data. Moreover, as we discussed, we are not aware of any current adversity between Visa and First Data. Given the nature of our relationship with Visa, however, we discussed the need for the firm to preserve its ability to represent Visa on matters which may arise in the future including matters adverse to First Data, provided that we would only undertake such representation of Visa under circumstances in which we do not possess confidential information of yours relating to the transaction, and we would staff such a project with one or more attorneys who are not engaged in your representation. In such circumstances, the attorneys in the two matters would be subject to an ethical wall, screening them from communicating from [sic] each other regarding their respective engagements. We understand that you do consent to our representation of Visa and our other clients under those circumstances.

Jeronimus Decl. Exh. A ("waiver letter"). After First Data agreed to the waiver, Visa also agreed to Heller's dual representation. Allen Decl. ¶ 20.

A few months later, in July 2001, First Data publicly announced its intention to launch its new private arrangement plan, and in the beginning of 2002, First Data officially notified Visa. Visa then sued First Data. First Data in response threatened antitrust counterclaims against Visa, and then began settlement discussions. Almost four months after the complaint was filed, and shortly after settlement talks broke down, First Data informed Visa in August 2002 that it intended to move to disqualify Heller as counsel for Visa in this matter.*fn3

First Data claims that when it signed the waiver letter, it was not adequately informed of the possibility that its patent counsel could sue it for millions of dollars in damages and raise claims disparaging First Data and attacking the very core of its business. First Data contends that under the California Rules of Professional Conduct, Heller at a minimum was required to reaffirm First Data's prospective consent when the actual conflict between Visa and First Data arose. First Data has also indicated that it believes that Heller's patent lawyers have access to confidential information from First Data that Visa could use against First Data in this action.

Heller and Visa argue that First Data was fully informed about the situation and agreed to allow Heller to represent Visa in future litigation against First Data. Heller and Visa argue that the California Rules of Professional Conduct and other ethical rules expressly permit prospective written consent to a conflict waiver, and that no rules require Heller to obtain a second consent to continue in their representation of Visa. Heller also indicates that it has put an ethical wall in place that adequately protects First Data's confidential information.

DISCUSSION

A. Motion to Disqualify Counsel — Legal Standards

The Northern District of California has adopted the California Rules of Professional Conduct at Civ. L.R. 11-4, and attorneys practicing in this court are required to adhere to those standards, as articulated in the rules and any court decisions interpreting them. See Civ. L.R. 114 commentary. The right to disqualify counsel is within the discretion of the trial court as an exercise of its inherent powers. See United States v. Wunsch, 84 F.3d 1110, 1114 (9th Cir. 1996) (district court has inherent power to sanction unethical behavior); Image Technical Serv., Inc. v. Eastman Kodak Co., 820 F. Supp. 1212, 1215 (N.D.Cal. 1993) (incorporating California state law standard for disqualification of counsel in the Northern District); Cal. Code Civ. Proc. § 128(a)(5).

Motions to disqualify counsel are strongly disfavored. See, e.g., Gregori v. Bank of America, 207 Cal.App.3d 291, 300-301, 254 Cal.Rptr. 853 (1989) ("[M]otions to disqualify counsel often pose the very threat to the integrity of the judicial process that they purport to prevent."); In re Marvel, 251 B.R. 869 (Bankr.N.D.Cal. 2000), aff'd 265 B.R. 605 (N.D.Cal. 2001) ("A motion for disqualification of counsel is a drastic measure which courts should hesitate to impose except when of absolute necessity. They are often tactically motivated; they tend to derail the efficient progress of litigation."). Thus, such requests "should be subjected to particularly strict judicial scrutiny." Optyl Eyewear Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985) (citations omitted).

In reviewing a motion to disqualify counsel, the district court must make "a reasoned judgment and comply with the legal principles and policies appropriate to the particular matter at issue." Gregori at 300, 254 Cal.Rptr. 853 (citations omitted). The district court is permitted to resolve disputed factual issues in deciding a motion for disqualification and must make findings supported by substantial evidence. Dept. of Corporations v. SpeeDee Oil Change Syst., 20 Cal.4th 1135, 1143, 86 Cal.Rptr.2d 816, 980 P.2d 371 (1999).

B. Simultaneous Representation of Adverse Clients and ...

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