Visa U.S.A., Inc. v. First Data Corp.
2003 WL 194490, 241 F. Supp. 2d 1100, 2003 U.S. Dist. LEXIS 4997 (2003)
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Rule of Law:
A law firm does not violate its duty of loyalty by representing a client against another current client in unrelated litigation if the latter client, particularly a sophisticated one, provided informed written consent through a prospective waiver that sufficiently disclosed the potential for future adverse representation.
Facts:
- The law firm Heller Ehrman White & McAuliffe (Heller) had a long-standing attorney-client relationship with Visa.
- In March 2001, First Data Corporation, a major competitor of Visa in the credit card processing business, sought to retain Heller's Silicon Valley office for an unrelated patent infringement case.
- Before agreeing to the representation, Heller informed First Data of its relationship with Visa and required First Data to sign an advance conflict waiver.
- The engagement letter, signed by First Data, explicitly stated that First Data consented to Heller's future representation of other clients, specifically naming Visa, in matters adverse to First Data, 'including litigation.'
- The waiver stipulated that an 'ethical wall' would be created to separate the attorneys working on the respective matters to protect confidential information.
- First Data is a large, sophisticated corporation with a legal department of about fifty attorneys.
- A few months after the waiver was signed, in July 2001, First Data publicly announced a new business initiative involving 'private arrangements' that would bypass Visa's regulations, leading to a direct conflict between the two companies.
- Visa, represented by Heller's San Francisco office, subsequently sued First Data over this initiative.
Procedural Posture:
- In April 2002, Plaintiff Visa sued defendant First Data in the U.S. District Court for the Northern District of California for trademark infringement and breach of contract.
- After the lawsuit was filed, the parties engaged in settlement discussions, which ultimately broke down.
- In August 2002, four months after the complaint was filed, First Data filed a motion to disqualify Visa's counsel, the law firm of Heller Ehrman White & McAuliffe.
- The U.S. District Court held a hearing on the motion to disqualify.
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Issue:
Does a law firm violate its duty of loyalty under California Rule of Professional Conduct 3-310(C)(3) by representing a client against another current client when the client being sued had previously signed a prospective conflict waiver consenting to such future adverse representation?
Opinions:
Majority - Hamilton, District Judge
No, the law firm does not violate its duty of loyalty. An otherwise-prohibited concurrent representation is permissible where a client has given informed written consent, and a prospective waiver can constitute such consent if it was made with reasonably sufficient information. The general rule of automatic disqualification for representing clients with adverse interests is rebutted by a valid waiver. California law permits advance waivers of potential future conflicts, and a second waiver is not required when an actual conflict arises if the initial waiver was fully informed. To determine if the waiver was 'fully informed,' the court undertakes a fact-specific inquiry, considering factors such as the client's sophistication, the specificity of the waiver, and the quality of the disclosure. Here, the waiver was valid because it specifically named Visa as the potential adverse client and expressly contemplated 'litigation.' Furthermore, First Data is a sophisticated user of legal services and was independently aware of the potential for a high-stakes dispute with Visa when it signed the letter. Therefore, First Data gave knowing and informed consent, and Heller's representation of Visa is permissible.
Analysis:
This decision reinforces the validity and enforceability of prospective conflict waivers, especially when dealing with sophisticated corporate clients. It provides a blueprint for large law firms on how to draft effective waivers to continue representing multiple clients in the same industry who may become adversaries. The ruling signals that courts will hold sophisticated clients to the terms of their agreements, preventing them from using disqualification motions as a tactical litigation weapon after having benefitted from the representation they agreed to. The case emphasizes a fact-specific, multi-factor analysis over a rigid rule, focusing on the quality of disclosure and the client's ability to understand the risks involved.
