Coca-Cola fails to remove law firm from trade secrets suit

Case highlights “conflict that is more likely to occur as law firms get bigger” | Multinational compared to “a seasoned vaudeville actor” that was reasonably informed | Disqualification of counsel “extraordinary remedy” that should be used sparingly.

Coca-Cola has lost its bid to disqualify a law firm from acting for an opponent in a $100 million trade secrets lawsuit concerning cooling technology.

In a decision handed down yesterday, July 17, the US District Court for the Middle District of Florida was unconvinced by the multinational’s arguments that Paul Hastings should not represent SuperCooler Technologies in its lawsuit against it.

The beverage giant argued that there was a conflict of interest because the firm had represented it in other matters.

In his opinion, Judge Robert Norway noted that the case framed “a particular conflict that is more likely to occur as law firms get bigger”.

“Larger law firms aggregate more work and more clients. And as firms take on more clients, it is more likely that a law firm’s advocacy for one client will rub up against the firm’s duty of loyalty to another,” he opined, going on to colourfully describe Coca-Cola as behaving like “a seasoned vaudeville actor” in the litigation.

Background

The origins of the dispute emerged in 2021 when Coca-Cola engaged Jonathan Drimmer, partner at Paul Hastings, in connection with international human rights work in the Democratic Republic of Congo.

Coca-Cola and Paul Hastings signed a letter of agreement containing a provision titled Waiver of Prospective Conflicts that stated:

“Because we represent a large number of clients in a wide variety of legal matters, it is possible that we will be asked to represent a client whose interests are actually or potentially adverse to your interests in matters that may include, without limitation, mergers, acquisitions, financing, restructuring, bankruptcy, litigation, or administrative, rulemaking or regulatory proceedings.”

A year later, SuperCooler retained Bradley Bondi, Michael Weiss, Michael Wheatley, and Vitaliy Kats of Cahill Gordon & Reindel to develop legal strategies and claims against Coca-Cola in a trade secrets clash.

After months of pre-litigation work on behalf of SuperCooler, the Cahill Gordon team, spearheaded by Bondi, filed a complaint in February 2023 against the multinational alleging theft.

SuperCooler team moves to Paul Hastings

Bondi later joined Paul Hastings, followed by Wheatley and Kats, and the trio notified Coca-Cola’s counsel via email that they had changed law firms.

SuperCooler then filed a second amended complaint asserting claims against Coca-Cola for breaches of contracts, breach of fiduciary duty, misappropriation of trade secrets under Florida law; fraud in the inducement, unjust enrichment, promissory estoppel, a claim for declaratory relief, a violation of Florida Deceptive and Unfair Trade Practices Act, and a Lanham Act violation.

Coca-Cola moved to disqualify SuperCooler’s counsel and Paul Hastings in April 2023, arguing that the firm cannot represent SuperCooler in this matter because “its interests are directly adverse to Coca-Cola”.

Florida laws are meant to “protect clients from lawyers seeking to benefit by playing both sides of the field for monetary or personal reasons,” contended Coca-Cola in its motion.

Playing the field is allowed

But yesterday, the court noted that a subsection of Florida law allows an attorney to represent a client even where there is an actual conflict of interest if the counsel reasonably believes that they will be able to provide competent and diligent representation to each client.

It further noted that this scenario is allowed when the representation is not prohibited by law; it does not involve the assertion of a position adverse to another client when the lawyer represents both clients in the same proceeding before a tribunal; and each client gives informed consent.

During proceedings, Coca-Cola and Paul Hastings hotly disputed the contents of the 2021 engagement letter, and crucially, whether Paul Hastings had provided “reasonably adequate information for Coca-Cola to understand the material risks of waiving future conflicts of interest”.

Coca-Cola insisted that the waiver provision was an “open-ended boilerplate that cannot be enforced”, and that the waiver provision was “not specific enough to be effective, either because Paul Hastings did not specifically identify its clients or that its other clients may accuse Coca-Cola of fraud”.

A boilerplate agreement

Paul Hastings countered that it believed that it had obtained a waiver from Coca-Cola for any future litigation conflicts.

Conceding that Coca-Cola had shown there is a potential conflict of interest under Florida Rule 4-1.7(a), the court found that the conflict in this particular case could be waived.

“Common sense may lead one to believe that a lawyer cannot sue a client on another client’s behalf, that is not so. The ethical rules governing the practice of law sometimes allow a lawyer to sue a client if the lawyer obtains informed consent from all involved,” wrote Norway.

Noting that the “disqualification of counsel is an extraordinary remedy” and that disqualification “is a harsh sanction” that “should be resorted to “sparingly”, the court then tackled the question of whether it was reasonably foreseeable for Coca-Cola to understand that Paul Hastings may appear as counsel against it in litigation.

On this point, Paul Hastings persuasively argued that Coca-Cola is “an experienced, frequent, and sophisticated consumer of legal services” that spends “many millions of dollars” on legal services each year just on its in-house legal team.

A seasoned actor in litigation

In concluding, Judge Norway drew a pithy analogy in favour of the law firm.

“Think of it this way. A magician performing magic tricks is perceived differently by different people. A toddler in the audience might be surprised and delighted to see the magician pull a rabbit out of his hat. Teenagers and adults in the audience may respond differently based on the number and types of magic shows they have experienced.”

But, as he wryly observed, the “seasoned vaudeville actor lurking just off the stage won’t be surprised. Here, Coca-Cola is most like the jaundiced-eyed vaudeville actor”.

Pointing out that “Coca-Cola knew what Paul Hastings is, what Paul Hastings does, and the types of clients Paul Hastings represents”, Norway dismissed the motion to remove the firm from the case.

“Based on Coca-Cola’s familiarity of the risks involved, its representation by independent counsel, and the disclosure provided, I find that Coca-Cola knowingly waived the specific conflict here—that is, it understood and consented to Paul Hastings serving as counsel to an opposing party in future litigation matters,” he wrote.

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