- Wearing Multiple Corporate Hats Limits Attorney's Access to Discovery Documents
- August 13, 2003 | Author: Francis G. X. Pileggi
- Law Firm: Fox Rothschild LLP - Wilmington Office
A recent federal court decision supports the view that an attorney who serves as corporate secretary and as a member of the board of directors of a corporation may not have access to plaintiff's "Confidential/Attorney's Eyes Only" discovery materials when acting as co-counsel defending the corporation in litigation. The U.S. District Court for the Northern District of New York addressed in Norbrook Laboratories, Ltd., v. G.C. Hanford Manufacturing Co., (N.D.N.Y., 2003 WL 1956214, April 24, 2003) issues of attorney/client privilege and the duties and obligations of a lawyer to a client, as well as a lawyer/board member to the corporation.
Senior Judge Howard G. Munson found that the defense attorney's dual corporate positions in the defendant corporation created a serious risk of the inadvertent disclosure of plaintiff's confidential documents and information.
Norbrook Laboratories, Ltd. sued G.C. Hanford Manufacturing Co. (d/b/a/ Hanford Pharmaceuticals), alleging that Hanford misappropriated its trade secrets and confidential information. The companies were direct competitors in the U.S. market for injectable veterinary penicillin products and Norbrook alleged Hanford misappropriated its process for manufacturing a certain type of injectable penicillin.
During discovery, Hanford's co-counsel, Joseph Heath, sought access to Norbrook's documents and information that plaintiff's counsel had designated as "Confidential/Attorneys' Eyes Only." Heath was also Hanford's corporate secretary and a member of its board of directors. Heath was not "in-house counsel" for Hanford, but rather retained as outside counsel to work on the present litigation.
Norbrook asked the court to deny him access to the confidential material, characterizing Heath's relationship to Hanford as that of an "insider" and arguing that he should not be made privy to Norbrook's trade secret documents. Heath argued that his duties at Hanford were limited in time and scope in that he attended one monthly meeting of the board of directors in which he prepared the board's minutes. He maintained his representation of Hanford in the litigation was separate and distinct from his other corporate duties.
District Court Opinion
In reaching his decision, Judge Munson relied on U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984), which the court described as the "leading authority on protective orders distinguishing between outside and in-house counsel." He said that in U.S. Steel the Federal Circuit Court cautioned against arbitrary distinctions based on the type of counsel employed, noting that in practice the risk of inadvertent disclosure of trade secrets is present with both kinds of counsel.
Judge Munson relied on the U.S. Steel Court for the reasoning that to evaluate the risk of inadvertent disclosure and whether access to confidential material should be permitted, a court should examine the factual circumstances of each individual attorney's relationship to the party demanding access rather than focusing on the attorney's status as in-house or retained. Accordingly, Judge Munson concluded that whether Heath was Hanson's in-house counsel was irrelevant to his decision.
The Federal Circuit in U.S. Steel recognized the phrase "competitive decisionmaking" as a substantial factor in determining whether counsel should be denied access. Judge Munson reasoned that the phrase as used by the Federal Circuit was "shorthand for a counsel's activities, association, and relationship with a client that are as such to involve counsel's advice and participation in any or all of the client's decisions ... made in light of similar or corresponding information about a competitor." Judge Munson then found that Heath's dual positions "as Corporate Secretary and as a member of the Board of Directors, create a serious risk of inadvertent disclosure of confidential documents and information."
The judge observed that while Heath may not have been a direct participant in competitive decisionmaking, as a member of the board of directors, he sat in the same room with those decisionmakers. He concluded that Hanford's board meetings presented an unacceptable opportunity for the inadvertent disclosure of confidential information. He added that while the court did not doubt Heath's assurances he would abide by the protective order, it could not "endorse a situation that places Mr. Heath's ethical obligations as an attorney in direct competition with his fiduciary duty to Hanford."
Accordingly, the court denied Heath's access to Norbrook's confidential materials. Judge Munson noted that Hanford was not unduly prejudiced by Heath's restricted access to materials since co-counsel had been present from the inception of the litigation and was fully versed in the facts and disputes. The court also distinguished this case from that of U.S. Steel, where the exclusion of counsel would have forced the party to retain new counsel.