United States: Motion To Disqualify Based On Joint Defense Agreement Denied Where Agreement Did Not Create Implied Attorney-Client Relationship

Last Updated: January 29 2019
Article by Stanley M. Gibson

In a patent infringement action, Takeda Pharmaceuticals America, Inc., and Takeda Pharmaceuticals U.S.A., Inc.'s (collectively, "Takeda") filed a motion to disqualify Baker Botts, L.L.P. ("Baker Botts") from representing Defendants Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Limited (collectively, "Zydus"). Takeda moved to disqualify Baker Botts from representing Zydus based on Baker Botts' alleged previous representation of Ethypharm S.A. ("Ethypharm") in earlier litigation involving Takeda's Prevacid® SolutabTM product.

Takeda asserted that the law firm should be disqualified from representing Zydus based on a Common Interest & Confidentiality Agreement (the "Agreement") Ethypharm entered into with Takeda and TAP Pharmaceutical Products Inc. ("TAP") in the Delaware Action.

In this regard, Takeda claimed that the Agreement created an implied attorney-client relationship between Takeda and Baker Botts. As explained by the district court, Takeda argued that the current litigation was substantially related to the prior litigation involving Ethypharm, arguing that even though the patent infringement claims were dismissed, leaving only Zydus' antitrust counterclaims, the matters remained substantially related because the critical issue in deciding Zydus' antitrust counterclaims is whether Takeda's assertion of the dismissed patent claims was objectively baseless. Takeda also contended that facts and theories from the prior litigation, including arguments concerning commercial success were relevant and long-felt because, in order to succeed on its antitrust counterclaims, Zydus must establish a monopoly, and, consequently, Zydus has sought discovery on Takeda's sale and marketing of Prevacid® SoluTab.TM

The district court disagreed that this established an attorney-client relation. “Here, no express attorney-client relationship existed between Takeda and Baker Botts. Takeda was never a direct client of Baker Botts. Instead, Baker Botts expressly represented Ethypharm in the Delaware and New Jersey Actions. Takeda, however, relies on the Agreement entered in the Delaware Action and circulated in the New Jersey Action to establish an attorney-client relationship between itself and Baker Botts. Indeed, Takeda argues that the Agreement created an implied-attorney client relationship between Takeda and Baker Botts.”

The district court explained that “[t]o establish an implied attorney-client relationship 'a party must show (1) that it submitted confidential information to a lawyer, and (2) that it did so with the reasonable belief that the lawyer was acting as the party's attorney.'" Montgomery Acad., 50 F.Supp. 2d at 350 (quoting Pain Prevention Lab, Inc. v. Electronic Waveform Labs, Inc. 657 F.Supp. 1486, 1495 (N.D. Ill. 1987)). With respect to establishing a "reasonable belief" that the lawyer was acting as the party's attorney, the party seeking disqualification cannot rely on its subjective belief that an attorney-client relationship existed; instead, the "belief must be objectively reasonable under the totality of the circumstances." Essex Chemical Corp. v. Hartford Acc. & Indem. Co., 993 F.Supp. 241, 253 (D.N.J. 1998) (citing Ageloff v. Noranda, 936 F.Supp. 72, 76 (D.R.I. 1996)); Ellis v. Ethicon, Inc., Civ. No. 05-726, 2005 U.S. Dist. LEXIS 25705, *12-13 (D.N.J. Oct. 27, 2005) (same).”

Evaluating the facts, the district court found that under the totality of the circumstances, it was not objectively reasonable for Takeda to believe that the Agreement created an implied attorney-client relationship between Takeda and Baker Botts. The district court then held that “[b]ecause no direct or implied attorney-client relationship exists, there is no need to reach the question of whether this case is substantially related to the prior litigation. Instead, since Takeda failed to establish an attorney-client relationship with Baker Botts, there can be no violation” of the relevant rule of professional conduct.

Accordingly, the district court denied the motion to disqualify.

Takeda Pharmaceutical Company Limited, et al. v. Zydus Pharmaceuticals (USA), Inc., et al., Case No. 18-1994 (FLW) (D.N.J. Dec. 18, 2018)

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