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Tiversa Holding Corp. v. Labmd, Inc.

United States District Court, Third Circuit

December 20, 2013

TIVERSA HOLDING CORP. and ROBERT J. BOBACK, Plaintiffs,
v.
LABMD, INC. and MICHAEL J. DAUGHERTY, Defendants.

MEMORANDUM ORDER

NORA BARRY FISCHER, District Judge.

I. INTRODUCTION

Presently before the Court is the Motion to Disqualify Counsel (Docket No. 19) filed by LabMD, Inc. ("LabMD") and Michael J. Dougherty ("Dougherty") ( collectively, "Defendants"), seeking disqualification of Reed Smith, L.L.P. ("Reed Smith") as counsel for Tiversa Holding Corp. and Robert J. Boback ( collectively, "Plaintiffs") pursuant to Rule 1.18 of the Pennsylvania Rules of Professional Conduct ("PRPC"). For the following reasons, Plaintiff's Motion to Disqualify Counsel is DENIED.

II. PROCEDURAL AND FACTUAL BACKGROUND

Plaintiffs and Defendants have been embroiled in litigation since October 2012 when Defendants filed a state law claim in Georgia against Plaintiffs for "trespass, conversion, violation of the Computer Fraud and Abuse Act and violation of a Georgia statute regarding computer crimes." (Docket No. 20 at 2). The case was eventually removed to the United States District Court for the Northern District of Georgia, where it was ultimately dismissed. (Docket No. 20 at 3). On appeal, the dismissal for lack of personal jurisdiction was affirmed by the United States Court of Appeals for the Eleventh Circuit on February 5, 2013. (Docket No. 20 at 3.

While on appeal, however, Defendants considered filing suit against Plaintiffs in Pennsylvania - where Plaintiffs' business operations are located. (Docket Nos. 1 at 1; 20 at 3). Stephen Fusco, then general counsel of LabMD, contacted Reed Smith about sponsoring his admission to the United States District Court for the Western District of Pennsylvania. (Docket No. 20 at 3). George Stewart, managing partner at Reed Smith in Pittsburgh, Pennsylvania agreed to help Mr. Fusco. (Docket No. 20 at 3). Over the course of their communications regarding Mr. Fusco's admission, Mr. Fusco inquired as to whether Reed Smith might have the ability and/or desire to help Defendants with a potential future lawsuit against Plaintiffs in Pennsylvania's courts. (Docket No. 20 at 3). A meeting was arranged between Mr. Fusco, Mr. Daugherty, Mr. Stewart, Reed Smith Pittsburgh partner Thomas Allen, and Mark Melodia, head of Reed Smith's Global Data Security, Privacy & Management practice in Princeton, New Jersey, at the Edgeworth Club in Sewickley, Pennsylvania following Mr. Fusco's admission to the Western District on January 17, 2013. (Docket No. 20 at 3-4).

The exact subject matter of the conversation that ensued between Defendants and Reed Smith attorneys at the Edgeworth Club is debated. What is clear is that there was discussion about the litigation in the Georgia courts between Defendants and attorneys Stewart, Allen, and Melodia, and that Defendants were considering initiating an action in Pennsylvania. (Docket No. 20 at 4-5). Reed Smith also provided information regarding its capabilities in the legal fields relevant to the Defendants' litigation. (Docket No. 20 at 4-5). Following the meeting, Defendants had expected Reed Smith to send a proposal for representation of Defendants against Plaintiffs, but such was never received. (Docket No. 20 at 5). Further, there were no substantive communications between Reed Smith and Defendants following the January 17, 2013 meeting. (Docket No. 20 at 5).

On September 5, 2013, Plaintiffs filed a Complaint (Docket No. 1) in this Court against Defendants. Plaintiffs are currently represented by Reed Smith attorneys Jarrod Shaw, Donna Doblick, and Lucas Liben. On November 12, 2013, Defendants filed a Motion to Dismiss and accompanying brief in support (Docket Nos. 16, 17), as well as the present Motion to Disqualify Counsel, Motion to Stay Pending Decision, and accompanying brief in support (Docket Nos. 19, 20). This Court granted Defendants' Motion to Stay on October 13, 2013. Plaintiffs filed a Response in Opposition (Docket No. 24) on November 27, 2013, Defendants filed a Reply (Docket No. 26) on December 4, 2013, and Plaintiffs filed a Sur-Reply (Docket No. 28) on December 10, 2013. Additionally, Plaintiffs filed a Motion for Leave to File Documents Under Seal (Docket No. 27) on December 10, 2013. The motion was granted by the Court, and documents were filed under seal on December 11, 2013. (Docket No. 29). The matter is now fully briefed and ripe for disposition.

III. STANDARD OF REVIEW

"The district court's power to disqualify attorneys derives from its inherent authority to supervise the professional conduct of attorneys appearing before it." Wise v. Washington County, 2013 WL 5674460 at *3 (W.D. Pa. Oct. 17, 2013) (quoting United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980)). Local Rule of Civil Procedure 83.3(A)(2) provides that the Court expects litigants in the Western District of Pennsylvania to adhere to the PRPC, including Rule 1.18. Nonetheless, a motion to disqualify counsel is an "extreme sanction" which is not granted lightly. Id. (citing Reg'l Emp'rs' Assurance Leagues Voluntary Emps. Beneficiary Ass'n Trust v. Castellano, 2009 WL 1911671 at *2 (E.D. Pa. Jul. 1, 2009)). Imposition of such a "drastic measure" is only permitted when "absolutely necessary." Id. (citing Martin v. Turner, 2011 WL 717682 (E.D. Pa. Feb. 18, 2011)).

Deference is given to the choice of counsel made by the non-moving party because disqualification not only "robs one's adversary of her counsel of choice, but also because of the risk... one could subvert the ethical rules in an attempt to use them as a procedural weapon." Wise, 2013 WL 5674460 at *3 (quoting Wolf, Block, Schorr & Solis-Cohen LLP v. Navon, 2006 WL 680915 at *1 (E.D. Pa. Mar. 9, 2006)). A balancing test adopted by the United States Court of Appeals for the Third Circuit requires a district court to "weigh the value of using disqualification to enforce applicable disciplinary rules against the value of upholding policies such as permitting a litigant to retain the counsel of his choice and enabling attorneys to practice without excessive restrictions.'" Id. at *4 (quoting Mumma v. Bobali Corp., 382 F.App'x 209, 210 (3d Cir. 2010)). Clear evidence must be provided by the moving party to establish that ongoing representation is impermissible. Id. (citing Buschmeier v. G&G Investments, Inc., 2007 WL 4150408 at *5 (W.D. Pa. Nov. 19, 2007)). Conclusory statements of harmfulness without supporting evidence are insufficient to meet the moving party's burden. Sershen v. Cholish, 2009 WL 3332993 at *2 (M.D. Pa. Oct. 15, 2009) (citing In re: Rite Aid Corp. Litig., 139 F.Supp.2d 649, 656 (E.D. Pa. 2001)).

V. DISCUSSION

Defendants argue that Reed Smith, as a firm, should be disqualified from representation of Plaintiffs because matters discussed prior to, and during, the January 17, 2013 meeting at the Edgeworth Club involved the sharing of privileged information, knowledge of which by Plaintiffs' counsel allegedly places Defendants at an extreme disadvantage in the current dispute before this Court. (Docket No. 20 at 6-19). As "prospective clients" under PRPC Rule 1.18, Defendants assert that they were entitled to the assurance that the information they shared would be maintained in confidence and not be used against them, that they should have been notified by Reed Smith of its representation of Plaintiffs, and that they should have been informed about the screening procedures used to prevent the sharing of privileged information between attorneys at Reed Smith. ( Id. ). These failures by Reed Smith allegedly merit disqualification. ( Id. ). The Court, however, is not persuaded. PRPC Rule 1.18 provides that:

(a) A person who discusses with a lawyer the possibility of forming a client-lawyer relationship with respect to a ...

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