Canada: The Second Opinion: When Is A Little Knowledge A Dangerous Thing? When It Is Used To Disqualify In-House Counsel

A powerful tool in the litigation arsenal is the bringing of a motion to remove counsel from a file, either because she possesses disqualifying confidential information or faces a disqualifying conflict of duty.  A recent ruling of the Federal Court of Appeal, Valeant Canada LP v. Canada, 2014 FCA 50, confirms that even a party's in-house counsel is potentially vulnerable to such an attack.

Valeant Canada and Cobalt Pharmaceuticals are involved in litigation concerning a Valeant patent ("the '224 Patent"), and a Valeant product with diltiazem hydrochloride ("DH") as its active ingredient.  Valeant had alleged that three disqualification issues had arisen in the proceeding:

• First, until 2008, law firm DWW had been the long-time external counsel of Valeant's predecessor corporation ("Biovail").  During its past mandates, DWW had worked for Biovail on cases involving the '224 Patent and DH products.  In this context, the law firm had gained confidential information regarding Biolvail's business.   More recently, DWW had represented Cobalt in bringing the current proceeding involving the '224 Patent and attacking Valeant's DH  products.  Valeant alleged that DWW had to be removed as Cobalt's external counsel because it possessed relevant confidential Biovail/Valeant information.
• Second, during the time that DWW had represented Biovail, an individual ("Mr. Migus") had been both an articling student and an associate at the firm.  In this capacity, he had been involved in work relating to the '224 Patent and to Biovail's DH products.  Mr. Migus was currently in-house counsel at Cobalt, the company bringing the current proceeding involving the '224 Patent and attacking Valeant's DH  products.  Valeant alleged that Mr. Migus had to be prevented from working on the current matter because he possessed relevant confidential Biovail/Valeant information.
• Third, because of the involvement of both DWW and Mr. Migus, Valeant argued that Cobalt's "Notice of Allegation" (lying at the heart of the current proceeding) was invalid , and could not be relied upon by Cobalt.

The law firm had voluntarily withdrawn from the file once Valeant raised its concerns.  As such, the Court did not need to address the conflict that it faced.

Regarding the role of Mr. Migus, the in-house counsel, the Court of Appeal ruled that — applying the test established inMacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, and Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39 – he was disqualified from working on the file for his employer.  The Court accepted that, while Mr. Migus was working at the law firm DWW, he had reviewed confidential Biovail information relating to the '224 Patent.  There was clearly a risk that such information could now be used against Valeant.  In such circumstances, the disqualification was automatic.  Interestingly, and unlike the motions judge, the Federal Court of Appeal stated expressly that it was not relying on any "inference" that would have disqualified Mr. Migus merely because other lawyers at DWW had reviewed confidential Biovail information while he was working at the firm.

On the facts of the case, the Court of Appeal refused to grant the final remedy requested by Valeant — namely, the rejection of Cobalt's Notice of Allegation, which had been prepared with input from DWW and Mr. Migus.  The Court accepted that, in extraordinary cases, such relief might be granted, but that the current record did not conclusively establish that Biovail/Valeant confidential information had been misused in a material way in preparing the Notice of Allegation.

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