Gsi Commerce Solutions, Inc. v. Babycenter, L.L.C.

Facts

Johnson & Johnson (J&J) entered into an Engagement Agreement with Blank Rome in 2004. Blank Rome's representation was limited to compliance matters involving J&J and J&J affiliates 'in connection with the European Union . . . Data Protection Directive and potential certification to the U.S. Safe Harbor.' As part of the agreement, Blank Rome was free to continue to represent Kimberly-Clark in that matter so long as J&J agreed to waive the conflict. The letter also confirms that, should Rome's representation of Kimberly-Clark in connection with patent-related proceedings involve J&J, or any other entity related to J&J, J&J consents, and will not object, to Rome's continuing representation of Kimberly-Clark in connection with these proceedings . . . . In 2005, Blank Rome sent another letter to J&J seeking to amend the terms of the Engagement Agreement. It states that the firm's representation of these new clients could lead to conflicts with its existing clients, such as J&J, which are known as branded drug manufactures. The 2005 Letter then states: 'The Addendum to our current engagement letter stipulates that we represent only [J&J], and not its affiliates, subsidiaries, partners, divisions and joint venturers.' However, the Letter goes on to request the following waiver from J&J: should our representation of generic drug manufacturers in connection with patent-related proceedings involve J&J, or any other entity related to J&J, J&J consents, and will not object, to our continuing representation of the generic drug manufacturers in connection with these proceedings, and should we determine that our withdrawal as counsel is necessary for us under the Rules of Professional Conduct to continue to represent the generic drug manufacturers, Johnson & Johnson consents, and will not object, to our firm's withdrawal at such time. D is a wholly-owned subsidiary of J&J. D relies on J&J for a variety of business services, including accounting, audit, cash management, employee benefits, finance, human resources, information technology, insurance, payroll, and travel services and systems. It also substantially relies on J&J's legal department to provide legal services or to secure outside counsel. Stuart Wilks, a member of the J&J legal department, serves as 'Board Attorney' to D. J&J's legal department participated in the negotiation of the E-Commerce Agreement between P and D. J&J lawyers have also been involved in the dispute between P and D. Indeed, J&J's legal department has dealt directly with Blank Rome in attempting to resolve the present dispute. J&J exercises some management control over S's business decisions. P and D where P agreed to run the day-to-day operations of D's online store in return for a percentage of sales revenue. The agreement provides that, if a dispute should arise, the parties will first attempt to resolve it through mediation. Should mediation fail, the agreement provides that the parties will proceed to arbitration. When D closed its online store in 2009, P accused it of wrongfully terminating the E-Commerce Agreement. P claims that its five-year term of service in the agreement had not expired at the time the store closed. James Smith, a Blank Rome partner, notified D of P's demand for mediation on its claim. Daniels, the Blank Rome partner who had worked with J&J and affiliates on privacy matters, contacted J&J's legal department the same day to inform J&J of the dispute. In January 2009, the parties attempted mediation. Blank Rome partners Smith and Rebecca Ward appeared on behalf of P. Members of the J&J legal department, as well as John Winter from the firm Patterson Belknap Webb & Tyler LLP, appeared on behalf of D at mediation. Mediation was unsuccessful. Winter informed P that D would not continue to arbitration so long as Blank Rome represented P. On the same day, J&J informed Blank Rome of its opposition to Blank Rome's representation of P. P filed a motion to compel arbitration. D moved to disqualify Blank Rome as counsel as it had not given its consent. The court granted D's motion to disqualify Blank Rome. The court found that the Engagement Agreement had not given Blank Rome broad authority to accept representation adverse to affiliates such as D. Since Blank Rome had not obtained consent to the concurrent representation, the court disqualified them. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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