Published on:

District Court Disqualifies Defense Counsel Where Law Firm Previously Did Work for Wholly Owned Subsidiary of Plaintiff Before Subsidiary was Acquired

The plaintiff, The Hillman Group, Inc. (“Hillman”), moved to disqualify Cooley LLP (“Cooley”) in this patent infringement action based on its relationship with Minute Key that is now wholly owned by Hillman.  Cooley, which had represented Minute Key throughout its acquisition by Hillman, now represented the defendant in this case, KeyMe, LLC (“KeyMe”).  Cooley had represented Minute Key for approximately 10 years before the acquisition by Hillman.

In the motion to disqualify, Hillman alleged two separate grounds why Cooley should be disqualified: (1) that Cooley should be disqualified because Hillman is a current client of Cooley, and, alternatively, (2) that Cooley should be disqualified because Hillman is a former client and Cooley’s representation of KeyMe in this case is substantially related to Cooley’s past representation of Minute Key and the confidential information it received.

The district court first analyzed the whether Hillman was a current client of Cooley and concluded that it was:

Considering the “practical consequences” of this merger, the Court finds that in acquiring and merging with Minute Key there was a “transfer of control of the business and the continuation of the business under new management” to Hillman. See Soverain Software, 340 F. Supp. 2d at 763. Prior to Hillman’s acquisition of Minute Key, Minute Key had one singular business—self-service key duplication kiosks—with its main office in Boulder, Colorado. It held and owned intellectual property in the name “Minute Key” and relating to the technology involved in their kiosks. (Dkt. No. 32 at 1, 5.) After the merger, Minute Key maintained their home office in Boulder, Colorado. (Id. at 5.) Minute Key also maintained most of the same employees. (Id.) Most importantly, Minute Key continued its one sole business—self-service key duplication kiosks— under its same name and implementing its same intellectual property. (Id.) The only real change after the merger in June 2018 was that Hillman internally integrated Minute Key into its corporate structure and combined their executive management teams. (Id.) Then in December 2018, on this same basis, Minute Key completed its full merger into Hillman. (Id.)

In light of this history, it is clear to the Court that Minute Key’s attorney-client relationship with Cooley transferred to and was succeeded to by Hillman. Hillman is the complete successor, in law and fact, to Minute Key. Hillman continued Minute Key’s existing business unchanged. The same employees (and presumptively customers) were retained. The same patents and trademarks were used. Thus, the Court finds that Hillman continues to run Minute Key’s business as before but simply “under new management” and, as a result the attorney-client relationship transferred as well from Minute Key to Hillman. See Soverain Software, 340 F. Supp. 2d at 763 (citing Commodity Futures Trading Commn., 471 U.S. at 349).

The district court also noted that Cooley knew about the acquisition and also took no step to end their relationship with either Minute Key or Hillman.  Cooley still held Minute Key files and had sent no letter of termination.

In addition, the district court also determined that a conflict of interest existed as the current representation bore a substantial relationship between the subject matter of the former and present relationships:

From a review of the entire record, the Court finds that Mr. Pittard’s work for Minute Key repeatedly exposed him to confidential information which is directly at issue to the present case. Mr. Pittard regularly attended and participated in board meetings over a long period of time. (Dkt. No. 32 at 1, 12.) At these meetings Mr. Pittard was exposed to highly confidential discussions related directly to the ’446 Patent and to its family within what has been categorized as: “Minute Key’s product development, patent strategies, and competitive analysis.” (Id. at 2–5; Dkt. No. 115 at 11:14–13:23, 14:7–14:12, 15:7–19 16:25–17:7.) In fact, in at least one board meeting Mr. Pittard sat through a multi-hour presentation by Minute Key’s outside IP counsel on the status of Minute Key’s patent litigation. (Dkt. No. 115 at 25:5–8.) The same patents, products, and defendant are involved in this case. Even if, contrary to the Court’s earlier conclusion, Hillman is not a current client, Cooley’s prior representation of Minute Key was substantially related to the current action and would be a conflict of interest.

Accordingly, the district court found that disqualification was appropriate:  “the Court finds that such relationship was succeeded to by Hillman as part and parcel of the Minute Key acquisition. As such, the Court finds that Hillman is a current client of Cooley and, thus, that Cooley has a concurrent conflict of interest under Rule 1.7 of the Model Rules. The Court further finds that, even if this were not the case, there is a real risk of confidential information from Minute Key being used against Hillman in this lawsuit. The Court finds that Cooley’s prior representation of Minute Key is substantially related to the present action. This results compels the Court to hold that disqualification of Cooley is warranted in this case.”

The Hillman Group, Inc. v. KeyMe, LLC, Case No. 2:19-CV-00209-JRG (E.D. Tex. Feb. 14, 2020)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or