Conflict of Interest

Winston & Strawn kicked off $1 billion Pfizer case

A federal magistrate judge in Utah has blocked Winston & Strawn from representing Pfizer Inc. in a $1 billion lawsuit brought by Brigham Young University because of a conflict of interest.

Magistrate Judge Brooke Wells granted BYU's motion to disqualify Winston & Strawn and firm Chairman Dan Webb from the case, much of which remains under seal.

Winston & Strawn was one of four law firms defending Pfizer in the lawsuit filed in 2006 over the drug Celebrex. The problem is that Winston & Strawn partner Gene Schaerr represented BYU in other matters at the same time that Winston & Strawn was representing Pfizer. The magistrate judge found that Schaerr's relationship with the school created a conflict that infected the rest of Winston & Strawn. That firm, she said, appeared to "abandon" BYU in favor of a more lucrative matter.

"Allowing Winston, who has represented BYU since 2005, and Mr. Schaerr, who has represented BYU since 2001, to suddenly shift all allegiances for the sake of monetary gain in a troubled economy undermines the interests of the parties, the legal profession, and the intent of the Rules of Professional Conduct," wrote Wells, of the U.S. District Court for the District of Utah, in an Aug. 23 order.

Webb said that he was disappointed by the ruling. Earlier this month, Winston & Strawn, Pfizer and other defendants filed objections to the disqualification order and a motion to stay it. "I really wanted to be trial counsel for Pfizer," he said. "Pfizer felt strongly that I should be able to be their lawyer. I felt strongly that I should be their lawyer." (Full disclosure: Webb is a regular contributor to The National Law Journal.)

Pfizer said in a written statement that it "respectfully disagree[d]" with the decision. "We believe that Winston & Strawn should remain as our counsel in this matter. We're hoping that there will be a reconsideration of this decision," the company said.

The underlying case involves allegations by BYU and professor Daniel Simmons that they were not compensated for research that created Celebrex, an arthritis pain reliever. The plaintiffs amended their complaint in July to include claims of fraud that they said boosted profits from Celebrex. Representing BYU as outside counsel is Leo Beus, a partner at Beus Gilbert in Scottsdale, Ariz. He declined to comment.

Lateral move

Schaerr, who earned his undergraduate degree from BYU, began handling regulatory and legislative matters for the school in 2001 as a partner at Sidley Austin, according to the decision. In 2005, Pfizer hired Sidley Austin for the dispute with Pfizer and its predecessors. Sidley Austin obtained a waiver from the school to pursue the Pfizer matter. Later that year, Schaerr left Sidley Austin for Winston & Strawn, which also obtained an "advance patent waiver" from BYU for any clients that might be adverse to the school. Winston & Strawn was not working on the Pfizer case at the time. Schaerr was never formally attached to the dispute between BYU and Pfizer.

It is unclear when Schaerr, who declined to comment for this story, learned that Winston & Strawn was representing Pfizer in the BYU litigation. The magistrate judge noted that in October 2006 he signed up with LexisNexis for alerts about the case. Following his departure from Sidley Austin, Schaerr should have monitored the case for conflicts with Winston & Strawn, she wrote.

In January 2010, Schaerr informed BYU general counsel Michael Orme during a telephone conversation of Winston & Strawn's involvement in the Pfizer case. The substance of that conversation and correspondence between the two men that followed were of particular concern to the magistrate judge.

According to Wells' decision, during the call, Schaerr offered to help broker a settlement between BYU and Pfizer by acting as a "go between" to bring the parties to the table. Schaerr, the judge wrote, asked Orme to divulge the specific dollar amount that the parties had discussed when mediation broke down in 2006. He also said during the call that Winston & Strawn would not play the same "discovery games" with Pfizer that Sidley Austin had played. (Orme did not return telephone calls seeking comment.)

Soon after the phone call, Schaerr sent an e-mail to Orme saying that he regretted "the difficult position" his firm's "potential involvement" in the Pfizer litigation had created for the school. "Yet I also have a fiduciary duty to my partners, and (especially in turbulent economic times) a moral duty to our employees, not to stand in the way, unnecessarily, of new opportunities that come to other partners," he added. Wells wrote that she found Schaerr's attitude "troubling": "In essence, it appears that Mr. Schaerr is willing to leave his loyalty for a current client behind if a more lucrative offer comes along."

Also of concern, she wrote, was that Schaerr had obtained details about the case from Orme. In particular, she referred to Orme's testimony that he, Schaerr and Utah lobbyist Joe Cannon met with Sen. Orrin Hatch, R-Utah, in 2006. During the meeting, some of Hatch's staff inquired about BYU's case against Pfizer, Orme testified. Following the meeting, Orme, Schaerr and Cannon talked about the possibility of settlement. The judge wrote that the incident gave Orme the impression that he could freely share his thoughts on the matter with Schaerr -- even as his firm continued to represent an adverse party.

The judge determined that the relationship Schaerr had with BYU disqualified him -- and all other Winston & Strawn attorneys, including Webb -- from representing Pfizer, absent an appropriate waiver. That said, the ruling did not mention Webb by name, nor did it accuse him of any personal wrongdoing.

Defining 'other clients'

Pivotal to Wells' ruling was the "advance patent waiver" that BYU signed in 2005 when Schaerr joined Winston & Strawn. Since 2005, Winston & Strawn has earned $463,000 in fees and costs from BYU, the court said. The Aug. 23 ruling hinged on the waiver's term, "Other Clients," with interests potentially adverse to BYU.

Winston & Strawn argued that the term "Other Clients" included those with intellectual property and patent matters that it could acquire in the future -- which, as it turned out, would include Pfizer. BYU, however, argued that "Other Clients" included only those with IP and patent matters that the firm was representing at the time the parties signed the waiver. That definition would have excluded Pfizer.

Wells focused on a specific sentence in the waiver. It read, "Winston & Strawn currently represents multiple pharmaceutical and other companies with respect to patent and intellectual property matters (collectively, the 'Other Clients')." Later references in the waiver to "Other Clients," she determined, meant Winston & Strawn's IP and patent clients at the time, which did not include Pfizer. Winston & Strawn was representing Pfizer in other kinds of cases when the agreement was signed, but not in IP and patent cases, she said.

In its objections to the order, Winston & Strawn asserted that Wells' "cramped interpretation" of the waiver "makes little sense in the context of modern law practice." It added that Pfizer would suffer significant prejudice by disqualifying Winston & Strawn.

"[T]he order does not acknowledge the case law recognizing the importance of a litigant's right to counsel of their choice, let alone afford Pfizer any sort of deference in its choice of Winston and specifically Dan Webb, a lawyer characterized by multiple publications as the top trial lawyer in the country," the firm argued.

Representing Winston & Strawn are David Jordan in Stoel Rives' Salt Lake City office and Brad Brian of Munger, Tolles & Olson in Los Angeles.

The agreement demonstrates the difficulty in drafting advance waivers that strike the right balance of specificity and breadth, said Richard Painter, a professor at University of Minnesota Law School. "If it's too broad, then the whole thing gets thrown out. On the other hand, if it's too specific, the [representation] falls outside of it, and it won't work," said Painter, whose scholarship focuses on ethics. He served as associate counsel in the White House Counsel's office from 2005 to 2007. "My gut reaction is that the magistrate judge did the right thing."

Other law firms representing Pfizer are DLA Piper and Holme Roberts & Owen of Denver. Beus Gilbert, the law firm representing BYU, has filed a proposed order denying the objections to Wells' disqualification of Winston & Strawn with the judge presiding over the case, Ted Stewart.

(Published by Law.com – September 27, 2010)

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