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Oracle America, Inc v. Innovative Technology Distributors


July 20, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


This case involves a multi-million dollar contract disputed between Plaintiff Oracle America, Inc. ("Oracle") and Defendant Innovative Technology Distributors, LLC ("ITD").

Presently before the Court is Oracle's motion to disqualify counsel. See Dkt. #38. Pursuant to Civil Local Rule 7-1(b), the Court deems this motion appropriate for resolution without oral 22 argument and vacates the July 21, 2011 motion hearing. The July 21, 2011 case management 23 conference, however, remains as set. For the reasons explained below, Oracle's motion to 24 disqualify counsel is DENIED.


A.The Parties

Oracle is a Delaware corporation with its principal place of business in Redwood Shores, California. It is the successor in interest to Sun Microsystems, Inc. ("Sun"). ITD is a New Jersey limited liability company with its principal place of business in Edison, New Jersey. Aside from 2 the contract dispute, Oracle has moved to disqualify certain counsel associated with ITD. Some 3 background on the prior business relationship between the parties is necessary to provide context 4 for the present motion before the Court.

later Oracle. See Decl. of Linda Spinella ¶ 2. The formal legal relationship between the two 7 companies goes back to 2005, when ITD signed a General Terms agreement and supplemental 8 agreements with Sun ("Sun-ITD Agreement"). As a result of the Sun-ITD Agreement, ITD 9 became a distributor of Sun's products to customers in the telecommunications industry. Id. ¶ 9.

Since its inception, ITD has been a reseller of hardware and software products for Sun, and Over the next several years, ITD and Sun modified their rights and responsibilities with several follow-on agreements, including executing "Amendment No. 1" to the Sun-ITD Agreement in September 2009. Id.

ITD continued to act as a reseller of Oracle products when Oracle acquired Sun in January 2010. Oracle Compl. ¶ 10. However, during the second half of 2010 and due to reasons that are a 15 matter of dispute, the parties' relationship soured. On March 1, 2011, the parties' senior executives 16 and legal counsel met in person to try to resolve their differences, id. at ¶ 13, but the meeting was 17 not successful. On March 2, ITD filed a complaint in New Jersey Superior Court ("ITD New Jersey Complaint")-since removed to the Federal District of New Jersey and then transferred to 19 this Court and related to this action. ITD seeks damages against Oracle for breach of contract, 20 violation of the New Jersey Franchise Practices Act, and other claims. According to Oracle's Complaint, the contract dispute arises from ITD's failure to pay for $19 million of product that Oracle supplied to ITD under contract, beginning around July 2010. Oracle Compl. ¶ 1.

B.Motion to Disqualify ITD Counsel

Oracle's motion to disqualify alleges that Vicky Dal Molin, a former in-house lawyer at Sun and then Oracle, should be disqualified for breaching her ethical duties by representing ITD in 26 this litigation. Oracle also alleges that ITD's long-time outside counsel, Lowenstein Sandler, PC 27 ("Lowenstein") should be disqualified because it "partnered" with Dal Molin.

1. Vicky Dal Molin's Employment at Sun

Dal Molin's employment with Sun began in March 2001 in Australia. Decl. of Vicky Dal Molin ¶ 5. In July 2005, Dal Molin moved to New York to become Senior Counsel for Sun's 4 Financial Services Area. Id. at ¶ 6. In April 2006, she became the Assistant General Counsel for 5 Sun's Channels Organization, making her "responsible for a variety of contract and compliance 6 issues" involving "thousands of resellers," including ITD. Id. at ¶ 8. In July 2008, Dal Molin 7 became Assistant General Counsel for Sun's Global Partners and Sales Group. Id. at ¶ 9.

9 she first became involved with a "substantive matter dealing with ITD in or around the Summer of Dal Molin worked on several ITD-related matters on behalf of Sun. Dal Molin recalls that 2009." Id. at ¶ 11. The business executives in the Global Partners and Sales Group wanted to create an addendum to the Sun-ITD Agreement. Id. Dal Molin attended meetings between ITD

and Sun in New York on July 14, 2009 and in Boston in September 2009. In preparation for these 13 meetings, Dal Molin "review[ed] the proposed terms for the contract addendum that the Sun 14 business representatives had put together, and assisted in finalizing those terms and preparing the 15 addendum for execution." Id. The timing of the September 2009 meeting and execution of the 16 "addendum" coincide with the September 2009 execution of Amendment No. 1 to the Sun-ITD 17 agreement.

Dal Molin also recalls working for Sun on a matter that both parties refer to as the Motorola

"last time buy" issue. According to ITD, in 2008, ITD purchased $11.3 million worth of Sun 20 products scheduled to be phased out, based on Sun's forecast that Motorola was planning to buy 21 these products and a promise from Sun to accept the return of the products if Motorola did not 22 follow through. See Friedman Decl. Exh. A ¶¶ 116-120. But, Motorola only purchased about half 23 of these products from ITD, leaving ITD with $6 million worth of inventory it could not sell. Id. at 24 ¶ 121. Dal Molin became involved with this issue in August 2009, when ITD requested that Sun 25 accept the return of the products. Dal Molin Decl. ¶ 12. Specifically, Dal Molin provided 26 comments on a draft e-mail to be sent from Sun to ITD, raising "queries/issues" related to the 27 potential agreement in response to Oracle personnel's request for legal input. 28

Dal Molin continued in her role at Sun until early February 2010-one month after Oracle's

2 acquisition of Sun-when she accepted an offer from Vincent James Spinella of ITD to become 3

ITD's General Counsel. Id. ¶¶ 14-16. Prior to leaving Oracle, Dal Molin completed a form 4

"setting forth the basic terms of Sun's contracts with ITD." Id. at ¶ 13. The document shows that 5

Dal Molin reviewed the Sun-ITD agreement at issue in the underlying contract dispute in this 6 action and "flagged" certain contract terms for review by Oracle.

9 firm has handled "virtually all" of ITD's legal work, "including all of ITD's transactional, 10 intellectual property, and litigation matters," with the sole exception of ITD's local counsel for this lawsuit. Id. at ¶¶ 3-4. In connection with this dispute, Lowenstein has reviewed thousands of pages of documents, held numerous meetings with ITD executives, researched legal issues and 13 prepared ITD's 42-page complaint against Oracle. Id. at ¶ 5. ITD believes it would be "severely 14 prejudiced" if Lowenstein was disqualified from representing ITD in this matter. Id. at ¶ 7.

2. Lowenstein

Lowenstein has been ITD's primary outside counsel since 2005. L. Spinella Decl. ¶ 3. The

3. The March 1, 2011 Meeting

On March 1, 2011, Dal Molin attended an "executive level" meeting between the parties in New York. Dal Molin Decl. ¶ 25. ITD was represented at the meeting by Vincent James Spinella, 1 Brian Conway and Dal Molin, along with its outside counsel from Lowenstein, Jason Halper and 19 Michael Hahn. Id. Oracle was represented by Jeffrey Ross, Managing Counsel of Oracle's 20 Litigation Group, Robert Friedman, its outside counsel, and Alison Derbewick-Miller, an Oracle 21 Vice President. Id. Bhaskar Gorti, another Oracle executive, participated by phone. Id. On 22 February 3, 2011, Ross contacted Dal Molin to discuss helping their clients obtain a "beneficial 23 resolution" to the contract disputes. Dal Molin Decl. ¶ 23. At that time, however, Ross did not 24 know the extent of Dal Molin's prior role in ITD matters as an attorney for Sun. Ross Decl. ¶ 3. 25

26 conference room with the Lowenstein attorneys. See Halper Decl. ¶ 14. Friedman voiced Oracle's 27 objection to Dal Molin's presence believing she might have had a conflict of interest and asked that 28

At the beginning of the meeting, Friedman asked for a private discussion outside the she be excused. Id.; Friedman Decl. ¶ 5. The Lowenstein attorneys refused to exclude Dal Molin 2 from the settlement meeting, but said they would look into the potential conflict issue after the 3 meeting. Halper Decl. ¶ 15. Dal Molin did not speak at the roughly two-hour meeting, and 4 represents that she had no other involvement in the disputes between ITD and Oracle. Dal Molin 5 Decl. ¶¶ 23, 27. 6

4. Aftermath

In the weeks after the meeting, Friedman (on behalf of Oracle) and Halper (on behalf of ITD) exchanged a series of letters. The first letter from Friedman, dated March 7, reiterated 9 Oracle's objections to Dal Molin's "clear conflict and breach of ethical rules" and suggested that 10 Lowenstein had been "tainted" by Dal Molin's involvement. See Friedman Decl., Exh. B. In a 11 letter dated March 9, Halper disputed Oracle's claims that Dal Molin had a conflict of interest and that Lowenstein Sandler was obligated to resign. Friedman Decl., Exh. C. Halper's March 9, 2011 13 letter further noted that Dal Molin had "officially resigned from ITD" to take a position at 14 HDlogix, Inc. and thus "will have absolutely no involvement in the pending litigation." The two 15 companies, however, are apparently run by husband and wife. Linda Spinella is the President and 16 majority shareholder of ITD. V. Spinella Decl. ¶ 3. Her husband, Vincent James Spinella, is the 17 CEO and a minority shareholder of HDlogix. Id. at ¶¶ 1, 3. In her sworn declaration, Dal Molin 18 states that she has "never disclosed any confidential information or attorney-client privileged 19 information" and that, other than the declaration, she has had "absolutely no involvement in the 20 litigation between ITD and Oracle in any manner." Dal Molin Decl. ¶¶ 28-31.

II.Legal Standards

23 powers." See Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 264 F. Supp. 2d 914, 24 918 (N.D. Cal. 2003). Under Civ. L.R. 11-4(a)(1), all attorneys who practice in this Court must 25 comply with the standards of professional conduct required of members of the State Bar of 26 California. This Court, therefore, applies state law in determining matters of disqualification. See 27 28

"The right to disqualify counsel is a discretionary exercise of the trial court's inherent

In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000).*fn1 California courts recognize that 2

"[m]otions to disqualify counsel present competing policy considerations. On the one hand, a court 3 must not hesitate to disqualify an attorney when it is satisfactorily established that he or she 4 wrongfully acquired an unfair advantage that undermines the integrity of the judicial process and 5 will have a continuing effect on the proceedings before the court . . . . On the other hand, it must 6 be kept in mind that disqualification usually imposes a substantial hardship on the disqualified 7 attorney's innocent client, who must bear the monetary and other costs of finding a replacement." 8

Gregori v. Bank of America, 207 Cal. App. 3d 291, 300 (Cal. App. 1st 1989) (citations omitted).9

10 strongly disfavored." See Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1104 (N.D. Cal. 2003); see also Optyl Eyewear Fashion Intern. Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1050 (9th Cir. 1985). Therefore, "disqualification motions should be subjected to particularly strict 13 judicial scrutiny." Id. (quotation and quotation marks omitted). 14

16 overarching principle that "the business of the court is to dispose of litigation and not to oversee 17 the ethics of those that practice before it unless the behavior taints the trial." See Continental Ins. 18 Co. v. Superior Court, 32 Cal. App. 4th 94, 111 n.5 (Cal. App. 2d Dist. 1995).

Because of their susceptibility to tactical abuse, "[m]otions to disqualify counsel are


In considering whether to disqualify Dal Molin or Lowenstein, the Court is guided by the

A. Whether Vicky Dal Molin Must be Disqualified?

Oracle argues that Dal Molin must be disqualified because she violated her ethical duties to Oracle. Specifically, Oracle alleges that Dal Molin represented Oracle on issues substantially 22 related to this litigation, "including the very contracts, transactions and issues identified in ITD's 23 complaint." See Pl.'s Mot. to Disqualify Counsel at 8. ITD responds that Oracle's motion, at least 24 in so far as it targets Dal Molin, is moot because Dal Molin has never been an attorney of record in this case, has not participated in this case, and, in any event, has accepted employment at another 2 company, HDlogix, since litigation began. See Def.'s Opp'n to Mot. to Disqualify Counsel at 13. 3

4 the attorney-client relationship is a principle long recognized by California courts. See Elan 5

That lawyers have ethical duties to their former clients arising out of the fiduciary nature of Transdermal Ltd. v. Cygnus Therapeutic Systems, 809 F.Supp. 1383, 1387 (N.D.Cal. 1992). One 6 such ethical precept is that an attorney shall not use confidences obtained from a former client to 7 injure its interests. See People ex rel. Deukmejian v. Brown, 29 Cal.3d 150, 155, 172 (1981). As 8 stated in Rule 3--310(E) of the Rules of Professional Conduct of the State Bar of California, "a 9 member shall not, without the informed written consent of the client or former client, accept 10 employment adverse to a client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment."*fn2

Based on the declarations and exhibits submitted by both parties, it appears that Dal Molin 13 did work on at least two issues substantially related to this litigation while at Oracle. First, Dal 14

Molin analyzed and provided legal approval for an Oracle employee's e-mail related to the 15

Motorola "last-time buy" issue. See Pl.'s Reply at 8; Decl. of Robert Friedman, Exh. A at 29-31. 16

Second, in 2009, Dal Molin also attended meetings and helped to finalize Amendment 1 to the 17

General Terms and Purchasing Agreement between ITD and Sun. See Pl.'s Reply at 8. This 18 amendment is mentioned on page seven of ITD's Complaint and is invoked in ITD's Breach of 19

Contract claim. Moreover, Dal Molin acknowledges that she "assisted in finalizing [] terms" on 20 an addendum to the Sun-ITD contract and "provid[ed] comments on a draft e-mail" related to the 21

"last-time buy" issue. See Dal Molin Decl. ¶¶ 11, 13. In sum, serious ethical issues would be 22 raised if Dal Molin were representing ITD or participating in this litigation on ITD's behalf given 23 her prior legal advisory role on behalf of Oracle/Sun. 24

25 in this litigation on behalf of ITD. Oracle's requested relief is telling: Oracle seeks a Court order 26

27 lawyer who has represented a client in a matter shall not thereafter represent another client in the same or a substantially related matter in which that client's interests are materially adverse to the 28 interests of the former client unless the former client gives informed consent confirmed in writing."

The problem for Oracle, however, is that Dal Molin is not representing ITD or participatingproviding that "Ms. Dal Molin is disqualified from representing ITD, or having any role or 2 involvement whatsoever in this dispute." The Court finds such relief superfluous and unnecessary 3 where, as here, Dal Molin is already not participating in this litigation. See Haldane v. Haldane, 4 210 Cal. App. 2d 587, 592 (Cal. App. 2d Dist. 1962) (noting that motion to disqualify was moot 5 because attorney in question was not participating in the case) and Cargill Inc. v. Budine, 2007 6 U.S. Dist. LEXIS 48405, *22 (E.D. Cal. June 22, 2007) (disqualification improper where 7 transgression has no substantial and continuing effect on future judicial proceedings); compare 8

Phelps v. D&S Consultants, Inc., 2010 U.S. Dist. LEXIS 81593, *17 (D.N.J. Aug. 10, 2010) 9 (granting motion to disqualify, where law firm sought to continue representing one client despite 10 that representation being substantially related and adverse to its prior representation of another client in the same action). On the record before it, there is simply no reason for the Court to disbelieve Dal Molin's sworn declaration that she is not (and has not) participated in this litigation. 13 See Halladay & Mim Mack Inc. v. Trabuco Capital Partners Inc., 2009 U.S. Dist. LEXIS 97040, 14 *9 (C.D. Cal. Oct. 5, 2009) (absent credible evidence otherwise, "[t]here no reason to disbelieve 15 [attorney's] factual statements in his declaration"); compare Cargill,2007 U.S. Dist. LEXIS 16 48405, *33-35 (E.D. Cal. June 22, 2007) (rejecting counsel's self-serving declarations where 17 evidence in the record led to court's concern that confidential information was actually disclosed).

Accordingly, Oracle's motion to disqualify Attorney Vicky Dal Molin is DENIED.

B. Whether ITD's Outside Counsel, Lowenstein, Must Be Disqualified?

21 counsel, Lowenstein.*fn3 In its Motion to Disqualify, Oracle argued that Lowenstein should be 22 disqualified because it "must have" worked with Dal Molin based on certain allegedly confidential 23 information relied upon in ITD's Complaint in the New Jersey action. Oracle, however, changes 24 tack in its Reply and instead argues that, even if Lowenstein did not work with Dal Molin, 25

Lowenstein should be disqualified because the ITD Complaint in the New Jersey action cited to 26 27

The real target of Oracle's motion to disqualify counsel appears to be ITD's outside confidential and/or privileged documents that were improperly sent to ITD employees by Oracle 2 employees prior to the initiation of this lawsuit.*fn4

5 counsel as the basis for disqualification. Indeed, the general rule seems to be the contrary: 6

"disqualification of one firm does not automatically compel disqualification of the firm's co-7 counsel . . . . Rather, the particular facts of each case must be considered in order to determine 8 whether disqualification is warranted." See In Re Airport Car Rental Antitrust Litigation, 470 F. 9

1. Lowenstein's Connection to Dal Molin

There appear to be few cases where courts have imputed confidential knowledge to co- Supp. 495, 501-502 (N.D. Cal. 1979) (citing Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 10 F.2d 225, 235 (2d Cir. 1977)); compare Zarco Supply Co. v. Bonnell, 658 So.2d 151 (Fl. Ct. App. 1995) (disqualifying law firm because of evidence that the two firms had jointly filed the complaint together, the court found it would be "illogical to assume the two firms have not exchanged 13 confidential information."). A review of the particular facts here lead the Court to conclude that 14 disqualification of Lowenstein is not warranted. There is no evidence that Lowenstein worked 15 with Dal Molin in this litigation. Oracle's initial speculation that Dal Molin provided the allegedly 16 confidential information relied upon in the ITD Complaint turned out to be completely unfounded, 17 as it appears that Oracle employees, not Dal Molin, provided the information to ITD employees 18 long before this lawsuit. 19

20 absent evidence of attorney misconduct or serious risk that the entire trial may be tainted. See 21

United States v. Nosal, 2009 U.S. Dist. LEXIS 14820, *6 (N.D. Cal. Feb. 24, 2009) (noting that the 22

ABA Model Rules eliminated the "appearance of impropriety" approach for disqualification).Dal 23

Molin's recent transfer to HDlogix and presence on behalf of ITD at the March 1, 2010 settlement 24 meeting are troubling in terms of avoiding the appearance of impropriety. Dal Molin did, after all, 25 previously represent Oracle/Sun on substantially similar issues. However, given the general rule 26 that co-counsel should not be automatically disqualified, Dal Molin's transfer and presence at a 27

In addition, courts are generally reluctant to apply an appearance of impropriety standard pre-litigation settlement meeting are simply insufficient to justify a presumption of disclosure of 2 confidential information to Lowenstein that will taint this entire litigation going forward. See 3 Cargill, 2007 U.S. Dist. LEXIS 48405, *38-39 (considering whether potential association of 4 counsel would have a "continuing adverse effect" detrimental to the litigation). 5 7 should be disqualified for the separate reason that it relied upon allegedly confidential information 8 in crafting the ITD New Jersey Complaint. This argument fails both because it is made for the first 9 time in Oracle's Reply and because it is not supported by relevant authority. See Rains v. Flinn (In 10 re Rains), 428 F.3d 893, 902 (9th Cir. Cal. 2005) (citing with approval the principle that "issues cannot be raised for the first time in a reply brief").*fn5

Under California law:

When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged.

2. Lowenstein's Use of Allegedly Confidential Information

Oracle's alternative argument, made for the first time in its Reply, is that Lowenstein

See Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807, 817 (Cal. 2007) (quotations omitted, italics 19 added).*fn6 On its face, the Rico rule applies only to inadvertent disclosures of confidential 20 information. That concern is not present here, where the documents were voluntarily sent before 21 litigation began. 22

However, Oracle's ignorance of the actions of its own employees does not justify bringing a 25 motion to disqualify counsel on one basis (e.g., speculation as to the connection between Dal Molin and Lowenstein) and then raising a totally separate basis for disqualification in a reply.

27 requiring that "[a] lawyer who receives a document relating to the representation of the lawyer's client and knows or reasonably should know that the document was inadvertently sent shall 28 promptly notify the sender."

Courts outside of this Circuit have questioned "why this same duty to disclose should cease where confidential documents are sent intentionally and without permission." See Chamberlain 3

Group, Inc. v. Lear Corp., 270 F.R.D. 392, 398 (N.D. Ill. 2010). On the record before it, however, 4 the Court declines to extend the Rico rule to disqualify Lowenstein here, where the allegedly 5 confidential documents at issue were e-mails voluntarily sent by several different Oracle business 6 representatives, not Dal Molin or anonymous sources, to ITD employees prior to the initiation of 7 litigation. As ITD notes, Oracle does not cite "a single case where a law firm was disqualified 8 because it made use of an e-mail in its client's files that was voluntarily sent by the defendant to 9 another business person . . . before the litigation." See Def.'s Sur-reply at 3 (italics in original); 10 see also Burt Hill, Inc. v. Hassan, 2010 U.S. Dist. LEXIS 7492 at *16 (W.D. Pa. Jan. 29, 2010) 11

(denying motion to disqualify counsel even where counsel retained documents received from allegedly "anonymous sources" for months during litigation); compare Arnold v. Cargill Inc., 2004 13 U.S. Dist. LEXIS 19381 at *31 n.7 (D. Minn. Sept. 24, 2004) (recognizing that disqualification m 14 motions should be subject to strict judicial scrutiny, but granting motion to disqualify where 15 counsel violated "several ethical duties," including soliciting information from party on opposing 16 side and contributing to the destruction of documents). 17

In sum, the Court will not disqualify Lowenstein where it is clear that Oracle's own


For the reasons explained above, Oracle's motion to disqualify counsel [dkt. #38] is DENIED. The July 21, 2011 motion hearing is vacated. The July 21, 2011 case management 4 conference remains as set. 5


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