NotBillable - 💸 Frightening Fights and Fees.

💰 PAYDAY

Fee Fight↗

Another outside counsel fee fight made the news (no we are not talking about Watchell).

This story begins in 2015, when Philidor RX Services was investigated by the SEC, Congress, and the DOJ for its relationship with Valeant Pharmaceuticals International, Inc. Polsinelli and WilmerHale were both retained to jointly defend the companies. While WilmerHale was billing by the hour, the companies agreed to pay Polsinelli a flat fee of $12 million to “provide legal counsel and assistance in accordance with [the Contract] . . .[,] and another $2 million in the event they needed to hire additional counsel. This is a very, very important fact.

SO WHAT HAPPENED?

What could be better than not one, but two law firms fighting tooth-and-nail in your defense? Well, turns out two is not for the price of one here. Polsinelli apparently pushed a bulk of the WilmerHale. From Polsinelli’s point of view, the more work WilmerHale took on, the less time and money Polsinelli had to invest in Davenport and Tanner’s defense.”

As you would expect, WilmerHale filed most of the “pretrial motions, responses to the governments motions, jury instructions,” etc. At trial, WilmerHale supplied at least four lawyers to each day, while Polsinelli only two lawyers on deck. After losing their case, the clients sued Polsinelli, alleging breach of contract, unjust enrichment, and mismanagement of litigation.

OUCH.

The gist of the allegations was that Polsinelli negligently performed its contractual obligations by only sending two lawyers to trial, failing to draft and file an appropriate number of court filings, and otherwise not providing enough legal representation to mount a proper defense. Effectively breaching their duty of care by causing their clients to “pa[y] twice for one defense because Polsinelli did not provide enough legal representation.”

Well, the District Court disagreed. Same with the appellate court. The 3rd Circuit rationed that Polsinelli did not violate the obligations outlined in their agreement and that the applicable bar rules regarding charging illegal or excessive fees could make the [engagement letter agreement] unenforceable” was unsupported.

What a payday.

🚫 CONFIDENTIAL

What’s Upjohn? NM HBU?↗

What's Upjohn? No, it’s not the set-up to a dumb joke (though I have de finitely made it one at least a few times). An “Upjohn warning,” also known as a “corporate Miranda warning,” is the notice owed by in-house or outside counsel to company employees. It stems from the 1981 Supreme Court case Upjohn Co. v. United States, which established that counsel must explicitly alert company employees that the counsel solely represents the company — not the individual employees.

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SO WHAT HAPPENED IN UPJOHN?

Well, in Upjohn Co. v. United States, the Court was presented with a question about the application of attorney-client privilege.

Upon being audited, Upjohn’s GC, Gerard Thomas, sent company employees a questionnaire requesting any information regarding the payments at issue. Having good attorneys, the IRS requested those questionnaires. As you would expect, Upjohn refused to produce the questionnaires, citing attorney-client privilege. The district court and the 6th Circuit both disagreed with Upjohn. These courts held that attorney communications with lower-level employees were outside the scope of the attorney-client privilege because the employees lacked authority to act on the attorney’s legal advice.

Due to it’s massive reaching implication on the attorney-client privilege and how businesses operate, the Supreme Court picked up the case. And, in a unanimous decision for Upjohn, the Supreme Court held that corporate attorney-client privilege applies to high-level employees with authority to act on the legal advice of the attorney, as well as to any other employees providing information to the attorney to enable his administration of such legal advice.

Information from these employees is often required for the attorney to give informed legal advice to those that may act on it. The lower courts’ restriction of the privilege to only employees who could act on that legal advice would discourage the often crucial communication between lower-level employees to the company’s attorney. As a result, the Court found that the questionnaires completed by the lower-level Upjohn employees were included in the scope of attorney-client privilege.

However (and importantly), the facts contained within the questionnaires were not protected. The prosecution could learn such facts just by questioning the employees directly, but was not entitled to the facts by method of seeing Thomas’s privileged questioning of Upjohn employees.

ANYTHING HAPPEN SINCE?

Yes. Plenty. But to save you time and energy, let’s talk about the most recent update. Early this year, the Supreme Court’s review of In re Grand Jury dealt with whether communications for the purpose of legal advice but also for other non-legal purposes are also protected by attorney-client privilege. In February 2023, the Court dismissed the case and refused to rule on where dual-purpose communications fall regarding the scope of attorney-client privilege. The Court was asked to replace the primary purpose test with a “significant purpose” test, which would “allow the withholding of dual-purpose communications as privileged even if bona fide legal advice played only a subsidiary but significant role.” And of course, we didn’t get an answer.

While this question still remains, The importance of Upjohn warnings, however, remains obvious; clarifying the extent of attorneys’ representation and of attorney-client privilege to employees is vital.