In  case  underlying  e-­‐discovery  malpractice  suit,  company  charges  opposing  lawyers  with  ‘embezzling’  records  

By:  Robert  Hilson  |  ACEDS.org  Date:  Thursday,  April  18,  2013  

Nearly  two  years  after  its  tough  fight  over  privileged  materials,  the  filing  of  the  first  e-­‐discovery  legal  malpractice  suit  against  McDermott  Will  &  Emery,  the  disqualification  of  McDermott’s  replacement  firm,  Sheppard  Mullin,  and  900  docket  entries  in  the  underlying  False  Claims  Act  federal  case  it  is  facing  in  Los  Angeles,  J-­‐M  Manufacturing  Co.  now  alleges  that  the  attorneys  on  the  other  side  are  guilty  of  serious  transgressions.  

J-­‐M  accuses  the  law  firm,  Phillips  &  Cohen,  of  instructing  its  client,  John  Hendrix,  the  lead  plaintiff  in  the  False  Claims  Act  (FCA)  case,  to  “embezzle”  crucial  documents  from  J-­‐M’s  offices  while  he  was  employed  there.  The  firm  is  accused  of  acquiring  the  documents  unlawfully  “for  the  stated  purpose  of  bringing  this  lawsuit.”  J-­‐M  says  some  of  the  documents  are  protected  by  attorney-­‐client  privilege  or  contain  trade  secrets.  

“We  [have]  learned  that  Mr.  Hendrix  and  your  law  firm  participated  in  an  organized  and  extensive  ransacking  of  J-­‐M’s  confidential  and  proprietary  files…,”  Marc  Masters,  attorney  for  J-­‐M  at  Bird  Marella  wrote  in  an  email  to  Eric  Havian,  lead  attorney  for  Hendrix  at  Phillips  &  Cohen,  court  documents  show.  

J-­‐M  seeks  to  disqualify  attorneys,  dismiss  case  

Isabel  Estrada,  spokeswoman  for  J-­‐M  in  Los  Angeles,  told  ACEDS,  “Based  on  new  evidence…,  J-­‐M  has  filed  a  request  for  additional  discovery  from  Hendrix  and…  Phillips  &  Cohen,  relating  to  their  alleged  thefts  of  confidential,  trade-­‐secret  and  privileged  documents  and  computer  information  in  2005….”  

“J-­‐M’s  request  for  discovery,  …  filed  under  seal,  seeks  information  that  may  be  used  to  support  a  motion  for  sanctions  against  Hendrix  and/or  Philips  &  Cohen,  including  disqualification  or  dismissal  of  the  entire  action,”  she  continued.  

The  allegations  arise  from  a  deposition  by  Hendrix  on  January  24.  J-­‐M  says  

Hendrix  testified  to  “knowingly  misappropriating”  materials  and  illegally  providing  Phillips  &  Cohen  with  more  than  100  sensitive  documents,  including  research  and  development  reports,  claims  files,  test  reports,  emails  and  internal  memoranda.  

Attorneys  for  Hendrix  say  J-­‐M  has  known  about  these  materials  for  more  than  two  years.  On  April  2,  Phillips  &  Cohen  gave  J-­‐M  12  new  documents  that  Hendrix  held,  of  which  Phillips  &  Cohen  was  unaware.  Among  them  are  two  “potentially  privileged”  documents.  

US  district  Judge  George  Wu  has  set  a  hearing  on  these  issues  for  April  22.  

‘Misappropriation’  charges  increasingly  common,  says  FCA  expert  

It  is  not  uncommon  for  employees  to  take  materials  from  their  employers  to  buttress  claims  under  the  FCA.  Whistleblowers,  or  “relators”  as  they  are  called  in  these  cases,  are  required  by  the  law  to  give  all  evidence  they’ve  obtained  to  the  government  so  it  may  assess  whether  to  “intervene.”  

J-­‐M  notes  that  there  are  laws  that  dictate  the  delicate  way  in  which  this  process  must  occur,  who  may  see  the  materials,  and  for  what  purpose.  Hendrix’s  activities  also  violate  non-­‐disclosure  and  confidentiality  agreements  he  signed,  J-­‐M  says.  

David  Marshall,  an  attorney  who  specializes  in  representing  whistleblowers  at  Katz,  Marshall  &  Banks,  in  Washington,  DC,  told  ACEDS  that  courts  are  increasingly  siding  with  whistleblowers  when  these  allegations  surface.  

“The  shrill  cry  of  misappropriation  of  confidential  and  proprietary  documents  accompanied  by  lawsuits  and  countersuits  against  whistleblowers  who  are  acting  in  the  public  interest  is  something  that  plaintiffs  attorneys  and  relators  have  to  contend  with  more  and  more,”  he  says.  

“The  trend  is  for  courts  to  protect  the  rights  of  the  whistleblower,”  he  said,  noting  that  confidentiality  agreements  do  not  hold  weight  in  many  investigations.  

Generally,  courts  apply  a  reasonableness  test  to  resolve  allegations  of  misappropriated  documents.  Among  other  things,  they  look  atwhether  the  whistleblower  found  the  documents  in  the  ordinary  course  of  his  or  her  duties.  

‘Bet  the  company’  J-­‐M  suit  includes  three  dozen  plaintiffs    

Hendrix  is  seeking  to  show  that  J-­‐M,  one  of  the  largest  manufacturers  of  PVC  pipe  in  the  world,  knowingly  sold  inferior  piping  to  state  and  local  governments  across  the  US  and  falsified  test  results  that  showed  the  pipe  as  substandard.  More  than  three  dozen  state  entities,  cities  and  municipalities  have  joined  the  suit.  

J-­‐M  has  asked  Judge  Wu  for  permission  to  depose  Hendrix  and  his  lawyers  as  part  of  expedited  discovery  concerning  the  misappropriation  allegations.  It  has  also  asked  Phillips  &  Cohen  to  identify  all  individuals  to  whom  it  has  shown  the  allegedly  misappropriated  documents.  The  long  list  of  persons  may  include  other  plaintiffs,  their  attorneys,  the  US  Attorney’s  Office  in  Los  Angeles,  which  originally  investigated  the  FCA  allegations  and  declined  to  intervene,  prominent  media  and  attorneys  for  plaintiffs  in  a  related  class  action,  J-­‐M  says.  

On  February  22,  J-­‐M  filed  under  seal  an  ex  parte  application  for  the  return  or  destruction  of  the  documents.  

The  parties  argued  over  privilege  claims  at  a  March  25  hearing.  J-­‐M’s  assertion  that  it  could  not  identify  which  documents  were  protected  “because  the  obvious  source  of  that  information  is  Mr.  Hendrix  and  [the  Phillips  &  Cohen]  law  firm”  aroused  the  ire  of  Judge  Wu.  

“You  can’t  make  these  types  of  assertions  and  not  have  done  an  examination  of  these  documents.  [That]  would  just  be,  to  my  mind,  improper,”  he  warned.  

J-­‐M  submitted  a  full  list  of  the  supposedly  privileged  documents  on  April  2.  

Havian,  the  Phillips  &  Cohen  attorney,  in  San  Francisco,  told  ACEDS  the  firm  does  not  comment  on  pending  motions.  “Those  briefs  are  still  under  seal,”  he  said.  

“J-­‐M  believes  that  by  their  actions,  Hendrix  and  his  counsel  have  abused  the  litigation  process  and  tainted  the  evidence  at  issue  in  this…  lawsuit,  and  that  they  must  be  held  accountable  for  their  action,”  Estrada,  the  J-­‐M  spokeswoman,  told  ACEDS.  

Hendrix  attorneys  call  J-­‐M’s  allegations  ‘mendacious’  

Phillips  &  Cohen  says  it  produced  “nearly  all”  documents  Hendrix  took  from  J-­‐

M  in  April  2011.  

“(W)e  find  your  letter  disingenuous  and  mendacious,”  Havian  wrote  in  a  February  7  email  to  Masters,  the  J-­‐M  attorney.  

Phillips  &  Cohen  is    a  well-­‐known  whistleblower  firm  that  has  participated  in  some  of  the  largest  False  Claims  Act  settlements  in  history.  

But  J-­‐M  says  the  firm  is  not  new  to  accusations  of  using  allegedly  “purloined”  documents.  In  January  2012,  a  US  judge  in  Arizona  disqualified  the  firm  and  imposed  a  sanction  of  about  $20,000  in  attorneys’  fees  after  finding  that  it  withheld  privileged  documents  from  the  defendant,  IASIS  Healthcare  Corp.  The  court  found  that  the  FCA  relator  had  stolen  thousands  of  documents  from  IASIS  before  he  left  the  company.  

J-­‐M  says  the  law  firm’s  activities  are  “part  of  a  larger  and  deeply  troubling  pattern  of  apparent  misconduct.”  

FCA  case  gives  many  e-­‐discovery  lessons  

While  the  FCA  case  careens  toward  a  trial  now  set  for  August  13,  the  malpractice  suit  against  McDermott  is  stalled.  The  parties  are  waiting  for  Judge  Wu  to  rule  on  J-­‐M’s  September  2011  motion  for  the  return  of  privileged  materials  it  says  McDermott  repeatedly  disclosed  to  the  opposing  parties.  His  decision  is  viewed  as  a  key  element  to  lay  the  groundwork  for  the  damages  J-­‐M  seeks  to  recover  from  the  giant  Chicago-­‐based  law  firm.  A  status  conference  has  been  set  for  May  22.