Image Technical Services, Inc. v. Eastman Kodak Co.
93 Daily Journal DAR 6819, 1993 U.S. Dist. LEXIS 6576, 820 F. Supp. 1212 (1993)
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Rule of Law:
An attorney cannot concurrently represent clients with conflicting interests without obtaining the informed written consent of all affected clients, which requires full disclosure of the nature of the conflict and the reasons why independent counsel may be desirable.
Facts:
- The Coudert firm provided legal services to Eastman Chemical, a major operating division of Eastman Kodak Company ('Kodak'), for six years, covering various international legal matters.
- In 1991, Independent Service Organizations ('ISOs'), who were plaintiffs in an antitrust lawsuit against Kodak, asked the Coudert firm to participate in their briefing before the U.S. Supreme Court against Kodak.
- A conflict check performed by Coudert disclosed an ongoing relationship with Eastman Chemical (a Kodak division) and Kodak Pathe.
- Coudert attorney Douglas Rosenthal asked Owen Nee, the managing partner of Coudert’s Hong Kong office, to disclose the conflict to Eastman Chemical representatives and obtain their consent to represent the ISOs.
- On July 13, 1991, Rosenthal faxed Nee suggesting specific, limited wording for the disclosure: that Coudert's San Francisco office would 'participate in a brief contrary to the interests of the Kodak Corporation' but determined 'the China representation is sufficiently distant that the actions of the San Francisco office do not constitute a conflict of interest.'
- On July 23, 1991, Nee met with Barry Falin and Michael Chung, Director of Business Development and Manager, respectively, of Eastman Chemical's Filter Products Organization, and explained the matter using the wording provided in Rosenthal's fax.
- Messrs. Falin and Chung later testified they did not recall such conversations, and Mr. Chung specifically stated he did not recall Nee disclosing that Coudert would represent the ISOs at the district court level or explaining the potential exposure Kodak faced.
- Coudert filed a formal notice of appearance in the district court on October 9, 1992, indicating its participation in the ISO case at that level.
Procedural Posture:
- Independent Service Organizations (ISOs) sued Eastman Kodak Company (Kodak) in federal district court, asserting federal antitrust claims.
- The district court (Judge William Schwarzer) dismissed the plaintiffs' federal antitrust claims.
- The Ninth Circuit Court of Appeals reversed the district court's order and remanded the case.
- Kodak appealed the Ninth Circuit's judgment to the United States Supreme Court in 1991.
- The Coudert firm participated in the briefing before the Supreme Court as co-counsel for the ISOs (respondents).
- The U.S. Supreme Court issued a judgment, reversing and remanding the case, which was then sent back to the district court.
- Kodak filed a motion in the district court seeking to disqualify the Coudert Brothers Law Firm from representing the ISOs.
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Issue:
Does a law firm obtain informed consent for concurrent adverse representation when it provides a limited, 'in passing' disclosure of a conflict to non-legal business managers of an existing client, without fully explaining the nature of the litigation, the specific adverse interests, or the potential exposure?
Opinions:
Majority - Caulfield, District Judge
No, the Coudert firm failed to obtain Kodak's informed written consent for its concurrent representation of the ISOs in litigation adverse to Kodak. The court found that under California Rule 3-310(B) (1989 version), which governs attorney conduct in the Northern District of California, concurrent representation of clients with conflicting interests requires 'informed written consent.' Coudert admitted it did not obtain written consent from Kodak. Even if written consent were not required, the court determined that Coudert failed to obtain 'informed consent' as defined by Unified Sewerage Agency, etc. v. Jelco, Inc. and In re Boivin. The Ninth Circuit in Jelco emphasized the 'duty of undivided loyalty' an attorney owes to each present client. Boivin clarified that 'full disclosure' requires explaining the nature of the conflict 'in such detail so that they can understand, the reasons why it may be desirable for each to have independent counsel, with undivided loyalty to the interests of each of them.' Coudert’s disclosure to Kodak’s business managers was limited to a vague statement that its San Francisco office would participate in a brief 'contrary to the interests of the Kodak Corporation.' This disclosure did not explain how the representation would be adverse, did not state Kodak was a party to the Supreme Court action, the nature of the underlying action, or the potential exposure Kodak faced. Such a disclosure, made 'in passing' to business representatives rather than legal counsel, fell far short of the 'full disclosure' and 'undivided loyalty' required for informed consent. The court also rejected Coudert's waiver argument, finding that Kodak's notice of Coudert's involvement in the Supreme Court brief was not sufficiently informative to trigger a timely objection, and that Coudert's full involvement in the district court was not clear until July 1992. The court concluded that no unreasonable delay, prejudice, or tactical advantage had been shown. Finally, policy considerations, including the strong interest in ensuring counsel fulfills the highest duty of loyalty and trust to clients, decisively favored disqualification, regardless of the multinational nature of the clients or law firms involved.
Analysis:
This case rigorously applies and clarifies the high standard for 'informed consent' in concurrent conflict-of-interest situations, particularly emphasizing the 'duty of undivided loyalty' owed to existing clients. It establishes that perfunctory or vague disclosures to non-legal personnel are insufficient to meet this standard, even in complex international legal relationships. The ruling also provides important guidance on waiver, indicating that a client's delay in seeking disqualification will not be excused if the initial disclosure of the conflict was inadequate, thereby placing the burden of clear and comprehensive disclosure firmly on the attorney.
