Attorney disciplinary matters involving illegal, immoral, incompetent, negligent, unprofessional, or unethical behavior by intellectual property practitioners are a frequent source of news in the IP media outlets. When an attorney does not violate the ethics rules, that fact, in and of itself, is rarely the subject of discussion. Then there are those rare occasions where an attorney’s adherence to the rules of professional conduct is integral to the story.
Which brings us to LBDS Holding Company LLC v. ISOL Technology Inc., Civil Action No. 6:11-cv-00428-LED (E.D. Tex.). The case commenced in 2011, when LBDS filed a lawsuit in the Eastern District of Texas against ISOL, a South Korean company, alleging LBDS developed proprietary technology relating to MRI imaging of the heart and was allegedly prevented by defendants’ misconduct from entering the market with a cardiac capable MRI system. The complaint asserted claims for misappropriation of trade secrets, breach of contract, theft, civil conspiracy, and unfair competition.
LBDS was represented by the law firm of Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”). In March 2014, after a six day trial, a jury verdict was returned in favor of LBDS for $24 million. Then things got interesting.
While the usual post-trial motions were being filed, ISOL dropped a paper “bomb” on Akin Gump – an emergency motion for sanctions. The motion alleged that lead counsel for ISOL had received a voicemail tip from an “anonymous source” to speak with the Federal Bureau of Investigation regarding the verdict. Defendant’s counsel contacted the FBI, which led counsel to the Computer Crimes Unit of the United States Attorney’s Office for the Western District of Missouri, which led to corporate counsel for a third-party.
Those discussions ultimately led to a startling discovery by defendants—LBDS had literally “manufactured” and forged documents, and altered others, which it relied upon at trial, all with the knowledge of its key corporate witnesses.
According to ISOL:
LBDS manufactured documents to defraud and manipulate a foreign company and then used those documents as its primary evidence in prosecuting its claims against the same company and its employees. The LBDS principals, Messrs. Davis and Hernon, based their perjurious testimony on these same fraudulent exhibits. Mr. Davis, as the party representative, even went so far as to sit silently at counsel table while LBDS’s damages expert testified under oath using these same manufactured documents as the substantial bases for his opinions. It is difficult to imagine a greater abuse of the civil justice system.
Upon receiving the sanctions motion, Akin Gump’s lead trial counsel, Sanford Warren, forwarded it to his clients at LBDS. During a telephone conference the next day, Mr. Warren presumably asked whether the allegations were true. To Mr. Warren’s surprise, LBDS confessed that the assertions in the motion were “essentially true.”
Counsel promptly consulted with the ethics rules. The submission of false evidence to a court in Texas is governed by Texas Disciplinary Rule of Professional Conduct Rule 3.03, which governed the LBDS proceeding. Rule 3.03 provides: “If a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall make a good faith effort to persuade the client to authorize the lawyer to correct or withdraw the false evidence. If such efforts are unsuccessful, the lawyer shall take reasonable remedial measures, including disclosure of the true facts.”
In accordance with Texas Rule 3.03, Mr. Warren informed the client representatives, both during their conference call and in a follow-up letter, the clients were required to disclose the information about the false evidence to the court. Mr. Warren further advised his client’s representatives that if they failed to inform the court about the false evidence, then counsel would have to do so. When the client failed to bring the matter to the court’s attention, counsel at Akin Gump reported the misconduct to the district judge.
Some commentators have suggested that Akin Gump might have done more to discover its client’s fraudulent conduct prior to trial. But an attorney may rely upon the objectively reasonable representations of a client. See, e.g., Dubois v. USDA, 270 F.3d 77, 83 (1st Cir. 2001); Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1329 (2d Cir. 1995). Furthermore, the lengths to which multiple members of the client organization acted in concert to orchestrate their scheme would have made it considerably more difficult to identify particular forged or altered documents. Indeed, the fact that defendants or their counsel also failed to pick up on the fraud further suggests plaintiffs did a good job concealing the truth from everyone involved. But for the lone voice mail from an anonymous tipster, plaintiff nearly got away with its fraudulent scheme, and potentially millions of dollars.
This case undoubtedly was a bitter pill for Akin Gump and its litigation team. They wasted thousands of hours building a case on a foundation of forged documents and false testimony, resulting in a sham verdict.
To their credit, however, none of that interfered with counsel’s performance of their ethical duty to report the client’s fraud on the court. With so much money on the line, an ethically-challenged attorney might not have been so quick to do the right thing. Akin Gump had no such ethical dilemma. It followed the rules of professional conduct, reporting the misconduct in a motion to withdraw as counsel.
Akin Gump’s ethical conduct might never make the front page of the IP360. But the firm’s recognition of and compliance with its duties should be applauded.