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In GSI Commerce Solutions, Inc. v. BabyCenter LLC, No. 09-2790, the Second Circuit affirmed the ruling of SDNY Judge Jed S. Rakoff, who disqualified the Blank Rome law firm from representing a company adverse to a subsidiary of Johnson & Johnson, which was a client of Blank Rome.

The Second Circuit’s ruling is noteworthy because it addressed for the first time whether a law firm infringed on its duty of loyalty by taking on a representation adverse to an existing client’s corporate affiliate. In disqualifying Blank Rome, Judge Rakoff found that the overlap between BabyCenter LLC and Johnson & Johnson in effect made them a single company for various purposes. Judge Rakoff observed that BabyCenter LLC did not have a separate in-house legal department, but instead relied exclusively upon the in-house lawyers at Johnson & Johnson for legal advice.  Drawing upon extensive discussion by other courts as well as the ABA, the Second Circuit held that a law firm cannot take on a matter adverse to an affiliate if it diminishes the parent client’s level of confidence in its lawyers.

The Court first examined the ABA's Model Rules of Professional Conduct, which provide that a “lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as parent or subsidiary.” ABA Model Rule of Prof’l Conduct 1.7 cmt. 34 (2006). This statement embodies what is often termed the “entity theory” of representation. However, the exception to this rule is that an attorney may not accept representation adverse to a client affiliate if “circumstances are such that the affiliate should also be considered a client of the lawyer.”

For its own part, Blank Rome argued that no conflict existed because: (1) the dispute between GSI and BabyCenter involved matters unrelated to Blank Rome’s Johnson & Johnson matters; and (2) Johnson & Johnson had waived any conflict by signing Blank Rome’s engagement letter. Both of these arguments proved unpersuasive to the unanimous appeals court. In particular, the Second Circuit observed that Blank Rome’s engagement letter contained provisions that might constitute a waiver by Johnson & Johnson of some, but not all, corporate affiliate conflicts. However, these conflict waivers were specifically limited to patent litigation and, even more specifically, to matters brought by generic drug manufacturers. Therefore, the Second Circuit held, Blank Rome failed to “contract around” the corporate affiliate conflict at issue. 

In a footnote, Judge Ralph K. Winter, Jr., writing for the Court, stated that the Circuit was not addressing issues that would arise if a blanket waiver had been executed and left open how it might rule in those circumstances.

CNN reported not too long ago that Frank Mitloehner, an air quality specialist from the University of California at Davis, accused the authors of a 2006 report published by the U.N. Food and Agriculture Organization ("FAO"), titled "Livestock's Long Shadow", of skewing scientific data to grossly exaggerate the impact of livestock farming on climate change and, at the same time, underplaying the impact of climate change caused by transport.  As the debate over the legitimacy of certain climate change science continues to swirl in both scientific and academic as well as policy making circles, it is vitally important to avoid politicization of the science.  Politics may be unavoidable when policymakers' decisions on climate change will have a likely impact over time of tens of billions, but every effort should be made to keep the science on the straight and narrow.  That is why this article and the underlying FAO report is disturbing. The 2006 report claims that meat production is responsible for 18 percent of greenhouse gas emissions  world-wide (greater than impact of transport). The report goes on to claim that livestock farming occupies a whooping 30 percent of the world's surface and that its environmental impact will double by 2050 unless drastic action is taken now.  Who knew?  Frank Mitloehner contends the U.N. reached its conclusions for the livestock sector by adding up emissions from farm to table, including the gases produced by growing animal feed; animals' digestive emissions; and processing meat and milk into foods. The U.N. also downplayed climate change caused by transport by failing to add up emissions from well head to steering wheel, and only considered  emissions from fossil fuels burned while driving. In fact, leading authorities agree raising animals for food accounts for about 3 percent of all greenhouse gas emissions in the U.S., while transportation creates an estimated 26 percent.  Mitloehner's clarification must have brought about sighs of relief from U.S. beef associations, who were no doubt concerned about their member companies being tagged with responsibility for Hurricane Katrina's damage in Louisiana and Mississippi and the loss of sea ice in Kivaluna in the Northwest!  Meanwhile, environmentalists and campaigners including Paul McCartney, used the U.N.'s findings to urge consumers to eat less meat and save the planet with slogan:  "Less meat = less heat."  Sadly, once an icon in children's literature, Old McDonald's Farm, is no longer the innocent "EIEIO" of toddler rhyme, but a potential malefactor with inadequate insurance coverage to boot.