Dynamic 3D Geosolutions LLC v. Schlumberger Ltd.
837 F.3d 1280 (2016)
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Rule of Law:
An attorney's conflict of interest arising from suing a former client on a substantially related matter creates a presumption of shared confidences. This conflict can be imputed to the attorney's new corporate legal department and to outside counsel, justifying their disqualification and the dismissal of a complaint tainted by the conflict from its inception.
Facts:
- From 2006 to 2013, Charlotte Rutherford was a senior in-house intellectual property counsel at Schlumberger, eventually becoming Deputy General Counsel for IP.
- At Schlumberger, Rutherford's duties included managing IP strategy and litigation concerning the 'Petrel' software platform and assessing litigation risks against it.
- In mid-2013, Rutherford left Schlumberger and began working as a Senior Vice President at Acacia Research Group LLC, a parent company of patent-holding entities.
- Shortly after joining Acacia, Rutherford participated in meetings to discuss acquiring U.S. Patent 7,986,319 ('319 patent) where Schlumberger's Petrel product was identified as a potential infringement target.
- Rutherford concurred in the recommendation to acquire the '319 patent and to sue Schlumberger.
- Rutherford jointly made the decision with another Acacia employee to hire the law firm Collins, Edmonds, Pogorzelski, Schlather & Tower PLLC (CEP) as outside counsel for the litigation.
- Acacia acquired the '319 patent and assigned it to a newly formed, wholly-owned subsidiary, Dynamic 3D Geosolutions LLC.
Procedural Posture:
- Dynamic 3D sued Schlumberger for patent infringement in the U.S. District Court for the Western District of Texas.
- Schlumberger filed a motion in the district court to disqualify Dynamic 3D's counsel, including Charlotte Rutherford, other Acacia in-house counsel, and the outside law firm CEP, due to Rutherford's prior employment at Schlumberger.
- The district court granted the motion, disqualifying all of Dynamic 3D's counsel.
- The district court then dismissed Dynamic 3D's complaint without prejudice.
- Dynamic 3D and Acacia (appellants) appealed the disqualification and dismissal order to the U.S. Court of Appeals for the Federal Circuit, with Schlumberger as the appellee.
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Issue:
Does an attorney's conflict of interest, arising from suing her former employer on a substantially related matter, justify disqualifying the attorney, her new in-house legal department, and the outside counsel she helped hire, and subsequently dismissing the lawsuit without prejudice?
Opinions:
Majority - Lourie, J.
Yes, the attorney's conflict of interest justifies the disqualification of all counsel and the dismissal of the complaint. The court found that Rutherford's prior work at Schlumberger involving the Petrel software was 'substantially related' to her subsequent work at Acacia targeting Petrel for infringement. This created an irrebuttable presumption that she possessed confidential information, requiring her personal disqualification to protect her duty of loyalty to her former client. The conflict was then imputed to Acacia's other in-house counsel because a corporate legal department is treated like a 'firm' for conflict purposes, and Acacia admitted it had implemented no ethical screen to isolate Rutherford from the matter. The disqualification was extended to the outside law firm, CEP, because Rutherford's involvement in hiring them and her 'concurrence' with the plan to sue Schlumberger constituted a communication of confidential information, creating a presumption of disclosure that was not rebutted. Finally, dismissing the case without prejudice was not an abuse of discretion because the conflict tainted the case from its inception, and allowing it to proceed would prejudice Schlumberger.
Concurring - Wallach, J.
Yes. The concurring opinion agrees entirely with the majority's legal reasoning but writes separately to emphasize the ethical failings involved. It states that Rutherford's conduct 'failed to meet minimal standards necessary to preserve public confidence in the legal system.' The opinion serves as a reminder that attorneys are members of an honorable profession and should hold themselves to a higher standard of conduct than what was displayed in this case.
Analysis:
This decision strongly reinforces the 'substantial relationship' test for former-client conflicts and demonstrates that courts will apply imputation rules broadly to both in-house legal departments and outside counsel. The ruling serves as a significant warning to companies against hiring attorneys from competitors and immediately involving them in litigation against their former employers, especially without implementing robust ethical screens. The court's willingness to disqualify not only the conflicted attorney but also her entire new team and outside counsel, and then dismiss the case entirely, highlights the severe consequences of failing to adhere to duties of loyalty and confidentiality. This case solidifies the principle that a conflict of interest can fatally 'contaminate' a lawsuit from its very beginning.
