Lawyer dodges sanctions after confidentiality breach in joint defense deal - Fed Circ.

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Lawyers walk with their briefcases towards the federal court house in San Diego, California June 22, 2015. REUTERS/Mike Blake

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(Reuters) - Until Tuesday, Jen-Feng (Jeff) Lee was a poster child for the perils of sharing confidential discovery with another lawyer under the auspices of a joint defense agreement.

Lee and his client, Leader Accessories LLC, were hit with $11,000 in sanctions and attorneys’ fees last July, after U.S. District Judge William Conley of Madison, Wisconsin, concluded that Lee violated a protective order shielding discovery produced by Static Media LLC in a patent infringement case against Leader. Lee shared Static evidence that had been designated as confidential with Shlomo (Sam) Hecht, a Florida lawyer who was also defending a client sued by Static and had signed a joint defense agreement with Lee, a partner at LT Pacific Law Group.

Static got wind of the disclosure when Hecht referred to royalty data he had obtained from Lee during settlement talks to resolve Static’s Florida lawsuit against his client. By then, Leader had already won a summary judgment ruling that ended Static’s Wisconsin case.

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But Static’s counsel at FisherBroyles and DeWitt nevertheless persuaded Conley and U.S. Magistrate Judge Stephen Crocker of Madison that Lee’s disclosure was improper, despite his joint defense agreement with Hecht, because the protective order specifically limited the use of confidential information to Static’s Wisconsin suit against Leader. The Wisconsin judges were unconvinced by Lee’s protestations that Hecht was acting as a consultant in Static’s case against Leader.

On Tuesday, the U.S. Court of Appeals for the Federal Circuit let Lee and Leader off the hook.

In a 2-1 decision, the appeals court refuted a central tenet of the lower courts’ sanctions orders, concluding that Static did not offer clear and convincing evidence that Lee should have known Hecht, the Florida lawyer, would improperly use the confidential information. After all, the majority said, Lee followed the directives of the protective order when he shared information with Hecht. Before showing protected Static evidence to Hecht, Lee insisted that Hecht sign a pledge to maintain confidentiality, the majority said. Lee also reminded Hecht of the protective order whenever he passed along confidential material.

Even Static, according to the majority, conceded during oral argument that Lee could not be held in contempt in Wisconsin simply because of “Hecht’s improper use of the confidential information in the Florida action.” (Hecht, who has been sanctioned for that disclosure by the Florida court, did not respond to my query on the Federal Circuit’s decision.)

The Federal Circuit majority — Judges Timothy Dyk and Richard Taranto — also ruled that the trial judge abused his discretion in holding Lee in contempt for sharing documents under a joint defense agreement. The protective order, on its face, allowed the two sides to share information with outsiders — such as expert witnesses or technical advisers — only for use in the Wisconsin case. The lower court concluded that the joint defense agreement between Lee and Hecht necessarily involved the Florida case as well, so, in the view of the magistrate judge in Wisconsin, it was “illogical, unreasonable and self-serving” for Lee and his client to contend that the joint defense agreement permitted the disclosure of confidential Static evidence to Hecht.

The Federal Circuit majority reasoned that the real purpose of the protective order was to preclude the public disclosure of confidential information. The joint defense agreement, the court said, contemplated the private use of confidential evidence in both the Wisconsin and Florida cases. So, according to the Federal Circuit, Lee reasonably concluded that the protective order allowed him to enter a joint defense deal with another lawyer who agreed to be bound by the protective order. To hold otherwise, the appeals court said, would lead to the problematic conclusion that lawyers must somehow wipe their memories clean when they’ve received confidential information, rather than relying in subsequent cases on what they learned in confidence.

In a dissent, Judge Jimmie Reyna said he believed Lee and Leader violated the protective order because it was unreasonable for them to believe that Hecht would not use the information in the Florida case.

Static counsel Deborah Meiners of DeWitt, who argued for the Federal Circuit to uphold the sanctions ruling, did not respond to my email query. Jeff Lee also did not respond.

Aaron Davis of Valhalla Legal, who represented Lee and Leader at the Federal Circuit, said in an email statement that Tuesday’s decision is vindication for his clients. “As the court recognized, there was a lack of evidence for the district court's finding that Mr. Lee should be held in contempt for the allegedly improper actions of another,” Davis said. “What's more, the court held that Mr. Lee did exactly what was required under the protective order and that Mr. Lee's interpretation of the protective order was reasonable, as the order prohibited only the public disclosure of documents or disclosure to a third party not bound by the protective order, neither of which Mr. Lee did.”

For lawyers in cases that end up before the Federal Circuit, the lesson of Tuesday’s decision would seem to be that it’s OK to share confidential information under a joint defense agreement as long as you follow the protocols of protective orders and take steps to be sure the evidence stays private.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.