Date:
20081024
Docket: T-1524-07
Citation: 2008
FC 1195
Ottawa, Ontario, October 24, 2008
PRESENT: Madam Prothonotary Roza Aronovitch
BETWEEN:
LOTECH
MEDICAL SYSTEMS LIMITED
Plaintiff
and
KINETIC CONCEPT, INC.,
KCI LICENSING, INC., and KCI MEDICAL CANADA, INC.
Defendants
REASONS FOR ORDER AND ORDER
[1]
At issue
in this motion is the application of the “bright line rule” to disqualify a law
firm that finds itself in a position of conflict as a result of concurrently
representing clients on both sides of the underlying action. The
defendants, collectively “KCI”, are requesting that the firm of Cassan Maclean
(CM) be removed as solicitors of record for the plaintiff as they also
represent, albeit in respect of unrelated matters, KCI Licensing Inc. (KCI
Licensing), one of the defendants in this action.
[2]
For the
reasons that follow I will grant the motion. I find that the bright line rule
is applicable in the present case and requires that Cassan Maclean be removed
as solicitors of record.
The Facts
[3]
The
defendants are related companies. Their evidence on this motion is by way of
the affidavit of Nadeem G. Bridi (Bridi), Associate General Counsel of the
parent company, Kinetic Concepts Inc. Bridi is one of the in-house counsel
responsible for this action on behalf of the defendants collectively.
[4]
The
plaintiff, for its part, relies on the affidavit of Bryan Weissenboeck
(Weissenboeck), a junior associate at Cassan Maclean. KCI has objected to
Weissenboeck’s evidence as being in violation of Rule 82 of the Federal
Courts Rules and constituting inadmissible hearsay evidence. I will deal
with these objections below.
[5]
I begin
with the following facts that are undisputed and set the background for the
motion. The plaintiff, LoTech Medical Systems Limited (LoTech) and KCI
Licensing are current clients of Cassan Maclean. LoTech’s relationship with
the firm began in approximately 1997. KCI Licensing’s relationship with Cassan
Maclean is more recent, dating from 2001. Until the commencement of the underlying
litigation, Cassan Maclean has acted as patent agents for both clients.
[6]
LoTech
commenced this action on August 17, 2007, alleging that the defendants have
infringed Canadian Patent No. 2,197,434 (‘434) that relates to a cushioning device for
seats or matresses. The statement of claim was filed on behalf of the
plaintiff LoTech by its solicitor, Lynn S. Cassan, of Cassan Maclean, and
served on KCI on September 26, 2007.
[7]
On
November 21, 2007, before KCI had filed its statement of defence, the parties
entered into settlement discussions in which Cassan Maclean was not involved.
The parties agreed that the defendants would not file statements of defence
while the settlement talk were ongoing.
[8]
Bridi’s evidence
is that he became aware of the fact that KCI Licensing was a client of Cassan
Maclean during the settlement discussions. The discussions concluded without
result, and thereafter in February 2008, Bridi instructed counsel for KCI to
advise the plaintiff of the conflict. On March 4, 2008, defendants’ counsel
wrote to Cassan Maclean to raise the issue of conflict and require that LoTech
retain new counsel to prosecute this action.
[9]
The
plaintiff did not respond to the invitation. The issue was raised again during
status review, which resulted in the action being continued as a specially
managed proceeding with a direction to the defendants to file the present
motion.
[10]
In
addition to a number of patents referred to in the letter of March 4, Cassan
Maclean is also currently agent of record for the defendant KCI Licensing in
connection with two other Canadian patent applications and were, until January
2008, agent of record on a third patent application, the ‘724. There is no dispute that
Cassan Maclean’s work on the above referenced patent applications was ongoing
at the time that this action was commenced and, save for the ‘724 application,
remains ongoing.
[11]
Bridi says
that Cassan Maclean did not seek KCI Licensing’s consent to act for the
plaintiff in this suit, and that, in any event, the defendant would not have
consented to have the firm act against it. Notwithstanding the fact that Cassan
Maclean is representing the plaintiff, the defendant maintains that it has
found Cassan Maclean to be capable counsel. Having retained the firm since
2001, for intellectual property matters, and in light of the law firm’s
acquaintance with its intellectual property business, KCI Licensing maintains that
it should not now be put to the cost and inconvenience of retaining new counsel
for its patent applications.
[12]
The
defendants deny the statements made by the plaintiff in its submissions on
status review to the effect that the defendants have made a “calculated effort”
to create a conflict of interest in order to serve their advantage in this case
by “tying up” the field of experienced patent firms.
[13]
Bridi
explains that due to the innovative nature of its businesses, KCI is the owner,
or applicant of approximately forty Canadian trademarks and forty five Canadian
patents. At various points since 1987, KCI has employed twelve law firms in Canada in respect of its
intellectual property matters.
[14]
KCI points
out that LoTech itself has used four firms for the prosecution and maintenance
of the ‘434
patent, and that Stephen Gates (Gates), LoTech’s principal, has previously used
different counsel in litigation against KCI involving the very patent at issue
in this proceeding. According to the defendants, Gates has once before
“chosen” to be represented by counsel also representing KCI. Gates had
retained Ridout & Maybee LLP, who also act for KCI, and had voluntarily
removed themselves from the record when the conflict was brought to their
attention.
[15]
For the plaintiff,
the Weissenboeck affidavit includes, as an attachment, a letter from Gates,
dated June 18, 2008, addressed to Lynn Cassan. In essence, the letter expresses
LoTech’s objections to having Cassan Maclean removed from the file. There are
three paragraphs in Weissenboeck’s affidavit that essentially relate the
contents of the Gates letter. They go to Gates’ longstanding relationship with
Cassan Maclean, refer to Gates’ complaint that KCI is tying up most of Ottawa’s
firms that do patent litigations thereby limiting his ability to have competent
patent counsel, and express Gates’ appreciation for being represented by Cassan
Maclean, whom he is said to find efficient and reasonable in its fees compared
with larger firms.
[16]
In
addition, Weissenboeck attests to searches that he conducted that indicate that
the three defendants together have a total of fifty three published Canadian
applications or patents. He names the eleven different firms that are retained
by the defendants as agents of record for the fifty three published
applications.
[17]
Having
reviewed the files, Weissenboeck describes the precise work performed by CM for
KCI Licensing on its outstanding patent applications. He makes the point that
the work done by his firm for KCI Licensing has been “overstated” by the
defendants, and that, in any event, the work to date has been in respect of technologies
unrelated to LoTech’s patent at issue in this proceeding. He further states
that he has found no document or correspondence from Kinetic Concepts, or its
related companies, that include confidential information that could be relevant
to the plaintiff’s action against KCI.
[18]
Finally,
Weissenboeck recounts that, pursuant to the instructions of the defendants’
in-house patent department, one of KCI Licensing’s patents was transferred from
CM to the firm of Borden Ladner Gervais LLP (BLG) on 25 January 2008.
Weissenboeck says that Cassan Maclean assumed that KCI Licensing’s three other
related divisional applications would also be transferred to BLG. Based on his
experience, and the information he obtained while working in the area of patent
law, Weissenboeck believes that it would be more prudent from a prosecution
standpoint for the four related files to be handled together since they contain
closely related subject matter. He notes however that KCI did not transfer the
work to BLG, as expected.
Admissibility
and Weight to be Given to Weissenboeck Affidavit
[19]
The defendants challenge the plaintiff’s
evidence as improper and in violation of Rule 82 of the Federal Courts Rules.
The Rule provides that, without leave of the Court, a solicitor may not depose
to an affidavit and at the same time present argument to the Court based on
that affidavit.
[20]
KCI contends that the entire affidavit should be
disregarded and given no weight. In the alternative, the Court is requested to
disregard as inadmissible hearsay evidence, those paragraphs that make
reference to the Gates letter, as well as Weissenboeck’s considered opinion as to what is
current or common practice in the area of patent
prosecutions.
[21]
The plaintiff, for its part, makes the following
points. The evidence proffered by the junior associate is not contentious and
does not go to the heart of the motion. In substance, the evidence goes to
show that the work done by Cassan Maclean for KCI Licensing is in respect of
unrelated patent applications. Weissenboeck’s evidence is proper and necessary
in that regard, as only counsel at the firm is able to review and provide a
first hand account of the work performed by the firm in the various files.
[22]
Ms. Cassan, on behalf of the plaintiff, accepts
that it would have been preferable for Gates to swear an affidavit and make
himself available for cross-examination in Canada. She argues however, that the Court ought to take into
consideration that, in so doing, LoTech would have had to incur significant costs
and that such costs are material for a “small entity” such as the plaintiff.
[23]
In Cross-Canada Auto Body Supply
(Windsor) Ltd. v. Hyundai Auto Canada, 2006 FCA 133, (Hyundai)
Justice Sexton of the Federal Court of the Appeal, in construing Rule 82 observed
at paragraph 4:
There can be no hard and fast rule, but it does
seem to us that it is not good practice for a law firm to cause its employees
to act as investigators for the purpose of having them later give opinion
evidence on the most crucial issues in the case. This is especially true where,
as in this case, there is no evidence from any non-employee of the firm on
these crucial issues…..
[24]
The admonition of the Federal Court of Appeal
that affidavits by solicitors are “not good practice,” in my view, takes on
heightened significance in the context of a motion to remove counsel on account
of conflict. The fact that only a lawyer of the firm that is sought to be
removed would have personal knowledge of the work done by the firm on behalf of
a client is among the reasons that such motions are ordinarily, and I would
suggest appropriately, argued by independent counsel.
[25]
Weissenboeck’s evidence that purports to convey
Gates’ views as expressed in his letter to Ms. Cassan, is clearly hearsay
evidence. There is no evidence or proper explanation as to why the best
evidence, that of Gates himself, was not available. Weissenboeck’s evidence is
prejudicial as no meaningful cross-examination can be had on it. It is therefore
inadmissible, and will be given no weight in support of the plaintiff’s
submissions.
[26]
As to Weissenboeck’s opinion regarding the
conduct of patent prosecutions, he has admitted on cross-examination to having
limited experience in the field, and to having based his views regarding the
transfer of patent applications on information provided to him as to what is common
practice. This evidence, as well, is entitled to no weight.
[27]
There are other elements of Weissenboeck’s
evidence that are not controversial and do not go to the heart of the dispute.
I see no reason, therefore, to reject the entire affidavit. Other facts, such
as the number of firms retained by the defendants, the nature of work done by
the firm on behalf of KCI, or that it is in respect of unrelated matters, are
either not disputed or, in my view, inconsequential.
The
Position of the Parties
[28]
It is uncontested that Cassan Maclean, at all relevant
times, has represented both the plaintiff and the defendant KCI Licensing, and
continues to do so. It is also common ground between the parties that this case
does not involve or raise any concern regarding the possession or use of confidential
information.
[29]
These facts take the matter outside the factual context
considered by the Court in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235
(MacDonald Estate) and bring it squarely within the principles
enunciated in the more recent decision of the Supreme Court in R. v. Neil,
2002 SCC 70, [2002] 3 S.C.R. 631 (Neil). Indeed it is the defendants’
position that this case falls to be decided wholly by the application of the
“bright line” test enunciated by Justice Binnie in Neil. They rely as
well on Rule 2.054 of the Ontario Rules of Professional Conduct to say
that Cassan Maclean must be removed.
[30]
LoTech, for its part, sees this motion as strategic on the
part of the defendants, and as essentially having to do with litigation funding
in cases, such as the present instance, where parties are of unequal means.
LoTech argues that the facts do not disclose a conflict of interest per se,
that the work of CM on the unrelated pending patent application does not give
rise to a “full meaningful relationship,” and that the “bright line” rule being
asserted by the defendants does not contemplate patent agency work.
[31]
The latter contention, in essence, is that a large company
such as KCI may have dozens or more patent applications that may be handled by
numerous firms that do patent agency and patent law. If the Court were to
strictly apply the bright line rule in such cases it would open the door for
large companies to retain a multiplicity of patent firms over the course of the
years, essentially tying up the field to the detriment of small entities that
would thereby see their choice of counsel severely restricted.
[32]
Ms. Cassan says that she does not advocate that Cassan
Maclean should be able to act for both clients. However, to secure a just
outcome, she urges that the Court ought not to apply the bright line rule
rigidly, without first engaging in a balancing of the parties’ interests. She
places on one side of the balance the fact that the plaintiff, the party who
can least afford it, stands to be denied his choice of counsel that he has
relied upon for the past 10 years with the attendant costs and hardship of
finding new counsel, and on the other side, the defendants who, with ease and
minimal cost, can transfer their work to one of their other counsel, as they
have already done in January of this year.
The Applicable Law
[33]
It is settled law that
the Courts play an important supervisory function in ensuring that lawyers
avoid conflicts of interest. In MacDonald Estate, Justice Sopkina
confirmed the inherent jurisdiction of the Courts to remove solicitors who have
such a conflict from the record. Their jurisdiction
stems from the fact that lawyers are officers of the Court and their conduct
which may affect the administration of justice is subject to this supervisory
jurisdiction.
The Court pointed out in the same case that while not bound by ethical rules set by the provincial
bar associations, Courts may look to such sources for guidance in determining
the proper standards of conduct for lawyers.
[34]
Rule 2.04 of the Ontario Rules of Professional Conduct (Rules of Conduct) under the heading “Avoidance of Conflicts
of Interest”, states in relevant part that:
…
(2) A lawyer shall not advise or represent more than
one side of a dispute.
(3) A lawyer shall not act or continue to act in a
matter when there is or is likely to be a conflicting interest unless, after
disclosure adequate to make an informed decision, the client or prospective
client consents.
[35]
Rule 2.09(7) of the Rules of Conduct
provides that a lawyer must withdraw if it becomes clear that the lawyer’s
continued employment will lead to a breach of the Rules of Conduct.
[36]
The scope of a solicitor’s obligations in the
present circumstances, that is, to an existing client, is fully canvassed in Neil.
The duty of loyalty to a current client is said to comprise dedication to the
client's case, avoidance of conflict, candour and good faith. It is described
as essential to maintaining the litigant’s as well as the public’s confidence
in the integrity of the administration of justice. The litigant must be
assured of his lawyer’s “undivided loyalty” leaving “no room for doubt” as to
counsel’s full dedication to the client’s case.
[37]
In most cases of conflict, Courts are asked to
intervene on behalf of a former client, where the possession and use of
confidential information is at issue. This case concerns mandates from current
clients. The duty of loyalty to a current client is more comprehensive
and “includes a much broader principle of avoidance of conflict of interest, in
which confidential information may or may not play a role.”
[38]
Lord Millet, quoted with approbation in Neil,
points out that the disqualification of counsel serving current clients that
are adverse in interest is due solely to the conflict inherent in the
situation, having nothing to do with confidential information:
…a fiduciary cannot act
at the same time for and against the same client and the firm is in no better
position. A man cannot without the consent of both clients act for one client
while his partner is acting for another in the opposite interest. His
disqualification has nothing to do with the confidentiality of client information.
It is based on the inescapable conflict of interest which is inherent in the
situation.
[39]
Neil recognizes that such a broad and “general”
prohibition is undoubtedly a major inconvenience, especially for large,
national firms with proliferating offices. However, Justice Binnie concludes
that the bright line is nevertheless required, even when, as in this case, the
mandates of the two clients are unrelated:
The bright line is provided by the general rule that a
lawyer may not represent one client whose interests are directly adverse to the
immediate interests of another current client -- even if the two mandates
are unrelated -- unless both clients consent after receiving full
disclosure (and preferably independent legal advice), and the lawyer reasonably
believes that he or she is able to represent each client without adversely
affecting the other.
(emphasis original)
[40]
Subsequent applications
of Neil have found that the nature or level of the work performed by a
solicitor for a client does not mitigate the bright line rule. In First
Property Holdings Inc. v. Beatty (2003), 66 O.R. (3d) 97 (First Property),
a law firm was acting for the plaintiff in an action, at the same time that it
was performing filing work with the Ontario Securities Commission on behalf of
a defendant in the same action. In granting an order to remove counsel, the Court
noted at paragraph 12:
Should there be different classes of clients, with
differing obligations and duties dependent upon the nature of the tasks
performed, and advice given? I think not. A current client of a law firm, even
a client for whom mechanical tasks are performed is entitled to a duty of
loyalty…
The Court went on to hold at paragraph 17:
The bright line test discourages nuances when a
conflict of interest is in issue between an existing client of the firm and
another client. Once there is a finding that there is a current
solicitor-client relationship, the "bright line test" applies to
avoid uncertainty and shades of grey.
Analysis and Conclusion
[41]
The plaintiff relies on MacDonald Estate and Riberio
v. Vancouver (City) 2002 BCCA 678, (2002) B.C.L.R. (4th) 207 (Riberio)
to support the argument that there can be a balancing of interests in the
application if the “bright line” test that would allow Cassan Maclean to remain
as counsel for the plaintiff.
[42]
As relates to the balancing of interests, the distinction
between the Supreme Court’s approach in MacDonald Estate and Neil
was addressed by Justice Binnie in Strother v. 3464920 Canada Inc., 2007
SCC 24, [2007] 2 S.C.R. 177 (Strother) at paragraph 51:
This
is not to say that in Neil the Court advocated the resolution of
conflict issues on a case-by-case basis through a general balancing of
interests, the outcome of which would be difficult to predict in advance. Once
arrived at, however, the MacDonald Estate v. Martin rule protecting
against disclosure of confidential information is applied as a "bright
line" rule. The client's right to confidentiality trumps the lawyer's
desire for mobility. So it is with Neil. The "bright line"
rule is the product of the balancing of interests not the gateway to further
internal balancing. (emphasis mine)
[43]
To similar effect, in First Property, following its
examination of the principles enunciated in Neil, and the Rules of
Conduct, the Court concluded that the bright line applies in the case of
existing, or current clients, and that the balancing approach applies in the
case of former clients.
[44]
The British Columbia Court of Appeal, in Ribiero
does apply MacDonald Estates and engages in a balancing of interests in
a case that, at one point, concerns concurrent retainers from adverse clients.
The Court acknowledges in that case that Neil was only brought to its
attention following the hearing. The case was distinguished on its facts and
the principals in Neil were accordingly found to have no application.
In the present circumstances, it is Ribiero that must be distinguished.
[45]
There are a number of bases for so doing. At issue in that
case were the British Columbia Rules of Conduct that allow concurrent
mandates from opposing clients where the service provided to the clients is in
respect of unrelated matters. Unlike the present circumstances, it would
appear that the possession and use of confidential information was at issue in
that case. Moreover, the facts in Ribiero may well come within an
exception identified by Justice Binnie in Neil:
In
exceptional cases, consent of the client may be inferred. For example,
governments generally accept that private practitioners who do their civil or
criminal work will act against them in unrelated matters…
[46]
In this case, I find no reason to derogate from the strict
application of the bright line rule to disqualify Cassan Maclean from acting
for the plaintiff. Indeed, the plaintiff’s own construal of the question to be
determined by this Court underscores the necessity for the unequivocal
application of the bright line in the circumstances. The issue for the
plaintiff is as to how to apply the bright line prohibition given that in the
result, one of the clients “has to go”. LoTech maintains that it would be just
and would present no difficulty or real cost to the defendants for this Court
“to require” the defendants to complete or transfer or all of their patent
applications to their other firms.
[47]
It is not for the Court to direct, or choose among its
clients, in order to enable Cassan Maclean to avoid its duty of loyalty or the
consequences of its breach of that duty. The Court is in no better position
than the firm, in that regard, as the firm’s duty of loyalty is owed to both
clients (see Toddglen Construction Ltd. v. Concord Adex Developments Corp. (2004),
34 C.L.R. (3d) 111).
[48]
Cassan Maclean can also not invoke in its favour the prejudice
that may have been caused to its plaintiff client. The firm has the
responsibility to take the required measures to identify and avoid conflicts.
The costs and inconvenience of recommencing the litigation with new counsel
could have been avoided had counsel taken the minimally necessary step of
conducting a conflict search before accepting the plaintiff’s mandate to
commence the litigation. The evidence is clear that it did not do so. This is
not a case that calls for the balancing of interests. There is a clear
prohibition to advising or representing both sides of a dispute. Cassan Maclean
simply could not accept a mandate from one client to sue another, existing
client without adequate disclosure and consent. Having done nothing to avoid
the conflict, and later having failed to recuse itself when the conflict was
brought to its attention, Cassan Maclean’s conduct calls to be sanctioned by
the strict application of the bright line.
[49]
I would add that if it were appropriate in the
circumstances to consider the balance of interests, I would, in any case, have
no basis to assert the interests of one client over the other, as neither wishes
to be denied its choice of Cassan Maclean as counsel.
Use
of the motion as a Tactical Ploy/Delay
[50]
The
plaintiff argues that the defendants’ practice in retaining counsel is for
tactical advantage, and has suggested that the defendants’ delay in raising the
conflict should bar any relief to the defendants. I say suggest, because the
defendants’ delay in raising the conflict, though raised in the Weissenboeck
affidavit, and in the plaintiff’s submissions on status review, was not pursued
at the hearing of the motion.
[51]
The Supreme Court in
both Neil, and Strother cautioned against the use of motions to
disqualify counsel for tactical purposes or advantage:
These competing interests are really aspects of
protecting the integrity of the legal system. If a litigant could achieve an
undeserved tactical advantage over the opposing party by bringing a
disqualification motion or seeking other "ethical" relief using
"the integrity of the administration of justice" merely as a flag of
convenience, fairness of the process would be undermined.
[52]
In the circumstances, there
is nothing nefarious in the defendants’ hiring of multiple intellectual
property firms to represent them, and no basis to find that it is done for an
improper purpose. There is equally no reason to accept the defendants’ view
that the plaintiff is wilfully choosing firms to represent it that are in
conflict. Both the plaintiff and the defendants have utilized a variety of
counsel in pursuing their intellectual property interests. Moreover, Weissenboeck
admits on cross-examination that LoTech continues to have a number of intellectual
property firms to choose from. There are no other grounds to suggest that the
defendants are using conflict as a ploy. The plaintiff’s charge that defendants
are raising conflict to delay the prosecution of this proceeding, can equally
be levelled at CM for not taking the appropriate measurers to prevent the conflict,
or to resolve it.
[53]
I turn to the
defendants’ delay in raising the conflict to the attention of Cassan Maclean or
in bringing the motion to disqualify the firm from acting for the plaintiff in
this action. The defendants were served with the statement of claim in the
underlying action in September 2007, discovered the conflict during the course
of settlement talks that were pursued between November 2007 and February 2008,
but waited to raise the conflict until March 2008. I accept the explanation of
the defendants that the matter was raised at the earliest possible stage of the
litigation, that is, before further steps had to be taken but in a manner to
allow the settlement discussion to conclude.
[54]
While delay in raising
the issue of conflict cannot be condoned and may, in certain cases, amount to
an implied consent, or to a waiver of a party’s rights in respect of the
conflict,
nothing of the sort is alleged by the plaintiff. Here, the length of the delay
was not inordinate and was satisfactorily explained. More importantly, there
is no assertion of mischief or prejudice to the plaintiff as a result.
ORDER
THIS COURT
ORDERS that
1. Cassan Maclean LLP is disqualified from acting as counsel
for the plaintiff, LoTech and is hereby removed as counsel of record.
2. Costs of this motion shall be payable by the plaintiff to the
defendants.
3. The plaintiff shall appoint new counsel of
record on or before December 12, 2008.
4. New counsel acting for the plaintiff shall file
a timetable for further steps in this proceeding, on consent, if any, by December
21, 2008.
“R.
Aronovitch”
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1524-07
STYLE OF CAUSE: Lotech
Medical Systems Limited v.
Kinetic
Concepts Inc. and others
PLACE OF
HEARING: Ottawa, Ontario
DATE OF
HEARING: August
14, 2008
REASONS FOR ORDER: ARONOVITCH P.
DATED:
APPEARANCES:
|
Lynn S. Cassan
|
FOR THE PLAINTIFF
|
|
Peter Wilcox
|
FOR THE DEFENDANT
|
SOLICITORS
OF RECORD:
|
Cassan Maclean
Ottawa,
Ontario
|
FOR THE PLAINTIFF
|
|
Peter Wilcox
Torys LLP, Toronto
|
FOR THE DEFENDANT
|
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