Greenberg Traurig has apparently decided that discretion is the better part of valor. The law firm has agreed voluntarily to withdraw as counsel from a litigation rather than face a disqualification motion in which it was charged with a conflict of interest for trying to invalidate patents it helped prosecute. We previously reported here that Greenberg Traurig had “switched sides” by taking a position directly adverse to its former client in what appeared to be a substantially related matter.
By way of background, Greenberg’s former client, Apollo Enterprise Solution, Inc. (“Apollo”) sued Greenberg Traurig in California state court for breach of fiduciary duty, interference with contractual relations, and negligence. The basis of Apollo’s state court lawsuit was that Greenberg was misusing Apollo’s privileged information and had filed counterclaims in another lawsuit asserting the invalidity of Apollo patents that Greenberg helped to obtain. Apollo’s state court complaint against Greenberg sought $2 million in compensatory damages and unspecified punitive damages.
That “other” lawsuit was a case in which Apollo sued a licensee called Lantern Credit LLC (“Lantern”) for breach of a “Master Services Agreement.” This contract case related to Lantern’s use of Apollo’s patented “TrueCollect” service. According to Apollo, the TrueCollect system allows creditors to recover delinquent debts faster and more efficient by combining online payment, debt collection, and debt recovery technologies in one offering. Apollo alleged that Lantern owed it $2 million for services rendered under their Master Services contract.
Greenberg entered its appearance on behalf of Lantern against its former client Apollo. Things then got interesting when, after Greenberg removed the contract case to federal court, it asserted on behalf of Lantern counterclaims seeking a declaratory judgment of invalidity and non-infringment of Apollo’s U.S. Patent Nos. 7,814,005 and 8,510,214, which allegedly relate to the TrueCollect service. Lantern, through its counsel at Greenberg, alleged that it had no obligation to pay under the Master Services Agreement based on the alleged invalidity of those patents. See Apollo Enterprise Solutions, Inc. v. Lantern Credit, LLC, No. 2:17-cv-02331-AB-JC (C.D. Cal. filed Mar. 24, 2017).
The problem, according to Apollo, was that Greenberg had helped Apollo obtain the very same patents it was now seeking to invalidate. Greenberg’s conduct led Apollo to file the above-referenced state court lawsuit against Greenberg. In addition, Apollo sought Greenberg’s disqualification from representing Lantern in the removed breach of contract action. See Motion to DQ Greenberg here.
In its disqualification motion filed in the Lantern case, Apollo alleged that Greenberg had a conflict of interest because Greenberg previously represented Apollo in the prosecution of the ‘005 and and ‘214 patents. In particular, an attorney from Greenberg had represented Apollo in drafting a provisional patent application regarding Apollo’s debt collection system. The ‘005 and ‘214 patents each claimed priority to that provisional patent application. Thus, according to Apollo, Greenberg Traurig had a former client conflict by taking on a matter directly adverse to its former client (Apollo) that was substantially related to the subject matter of the prior representation and without the former client’s consent.
On May 8, 2017, Greenberg filed an opposition to the motion to disqualify. A hearing on Apollo’s motion to disqualify was scheduled to be held today.
At some point, Greenberg had a change of heart. On May 15, 2017, Apollo and Lantern filed a joint stipulation to withdraw Apollo’s motion to disqualify. In their Joint Stipulation, Greenberg agreed voluntarily to withdraw as counsel for Lantern without “admitting any fault or conceding any issue raised” in Apollo’s disqualification motion.
On May 16, 2017, the district court granted the motion to withdraw. The district court also denied the motion to disqualify Greenberg as moot and stayed the case for 30 days to give Lantern time to engage new counsel.
In light of this development, it is not clear whether Apollo will continue its separate state court lawsuit against Greenberg.
For Greenberg, this appeared to be a wise procedural move. Whether Greenberg would have survived Apollo’s DQ motion was debatable. Moreover, an adverse ruling on the DQ motion could have strengthened Apollo’s hand in the state court case. Quite possibly, Greenberg’s withdrawal “killed two birds with one stone” by avoiding the downside ethical and legal ramifications if Greenberg had lost on the disqualification issue. And its voluntary withdrawal may have helped set the stage for an early exit from Apollo’s pending state court lawsuit.