Conflicts of Interest

  1. Defense Counsel’s Concurrent Conflicts of Interest
    1. Introduction.
    2. Defense Counsel’s multiple representations.
    3. The actual conflicts of interest and the courses of action they foreclosed.
      1. The civil conspiracy claims, in general.
      2. Criminal liability, in general.
    4. The disclosures required by the potential criminal charges underlying Grove Fresh’s claims.
    5. The direct conflict of interest between Marshall and the Labatt organization.
      1. McDermott Will & Emery’s unethical “cure” for the conflict of interest between the Labatt subsidiaries and Marshall.
      2. McDermott Will & Emery’s admission that, without the unethical limits on Grove Fresh’s claims, the conflict of interest between Labatt and Marshall was incurable.
      3. The “inherent dangers” in McDermott Will & Emery’s representation of the 89c1114 defendants.
    6. The direct conflict of interest between Marshall and American Citrus.
      1. Kowal’s unethical cure for the conflict between American Citrus and Marshall.
      2. Kowal’s implicit admission that, without the unethical limits on Grove Fresh’s claims, the conflict of interest between American Citrus/Lang and Marshall was incurable.
  2. James Marshall: The witness feared by Labatt and American Citrus.
    1. Marshall’s knowledge of evidence incriminating Labatt’s subsidiaries and those subsidiaries’ officers and employees.
    2. Marshall’s knowledge of evidence incriminating American Citrus and its officers and employees.
  3. The knowledge imputed to defense counsel by virtue of their representation of multiple clients with conflicting interests.
    1. The scope of Defense Counsel’s duty to investigate the merits of Grove Fresh’s claims and the ethics of representing multiple clients with conflicting interests.
      1. Identifying witnesses.
      2. Pinpointing the date the misconduct began.
      3. Identifying potential criminal charges.
      4. Analyzing the client’s exposure to unasserted claims.
      5. Ascertaining whether Hines’s covenants were enforceable.
    2. The inculpatory knowledge that can be imputed to Steven Kowal and Burditt, Bowles & Radzius from their representation of American Citrus and Holiday Juice in the 1988 Purity Products litigation.
    3. McDermott Will & Emery’s actual knowledge of Kohlbach’s felonious scheme to import Oleum 320/IDEA.
    4. The inculpatory knowledge that can be imputed to McDermott Will & Emery from its representation of Labatt in the February 1989 investigation and from its representation of the 89c1113 defendants.
      1. The information available to McDermott Will & Emery.
      2. The legal problems implicated by the available information.
  4. McDermott Will & Emery’s conflict-ridden relationship with Flavor Fresh.
    1. The criminal misconduct alleged by the 89c1114 complaint.
    2. McDermott Will & Emery’s knowledge, actual or imputed, that the 89c1114 defendants intended to continue their criminal activities.
    3. The breadth of discovery implicated by the 89c1114 complaint.
    4. The fifth amendment dilemmas posed by the interrogatories.
    5. The conflicts of interest.
      1. The hazards of dealing with another client as a third-party witness.
      2. The mutual adversity of the 89c1113 defendants and the 89c1114 defendants.
      3. The impermissible limits on the McDermott lawyers’ representation of the 89c1114 defendants due to the lawyers’ responsibilities to the Labatt Entities.
        1. The competence and diligence required when representing fifth amendment witnesses in civil litigation.
        2. The incurable conflicts inherent in McDermott Will & Emery’s advising Marshall on fifth amendment issues.
      4. The conflict between Flavor Fresh’s criminal plans and Labatt’s intent to make disclosures to the FDA.
    6. The ethically flawed consents to the conflicts of interest.
      1. The limitations on McDermott Will & Emery’s services.
      2. The faulty predicates.
      3. The orphaned claims.
    7. The clients’ motives for purporting to consent to McDermott Will & Emery’s conflicts of interest.
      1. Extending the restrictive covenant.
      2. The mutual non-destruction pact.

 

I. Defense Counsel’s Concurrent Conflicts of Interest

A. Introduction. 

Concurrent conflicts of interest exist when the interests of Client A “foreclose courses of action that reasonably should be pursued on behalf of” Client B. Model Rule of Professional Conduct (“M.R.P.C.”) 1.7 comment 8.

Lawyers cannot represent clients with concurrent conflicts of interest unless they first make adequate disclosures and obtain their clients’ informed consent.[1]  Even then, lawyers cannot defend multiple clients unless they “reasonably believe” that they would “be able to provide competent and diligent representation to each affected client.” Illinois Rule of Professional Conduct (“R.P.C.”) 1.7(b)(1). See also R.P.C. 1.1 (competent representation); R.P.C. 1.6 (diligent representation); M.R.P.C. 1.7, comment 2. 

In the Grove Fresh litigation and in other civil and criminal cases affecting the orange juice industry, Burditt Bowles & Radzius, where Steven Kowal worked, and McDermott Will & Emery (collectively, “Defense Counsel”) represented multiple clients in circumstances that created concurrent conflicts of interest. 

This discussion identifies Defense Counsel’s multiple representations, explains the courses of action foreclosed by their concurrent conflicts of interest, and describes specific disclosures Defense Counsel were required to make before they could proceed ethically with the concurrent representations.

B. Defense Counsel’s multiple representations. 

Defense Counsel represented the following clients on matters relating to allegations that the clients made and sold adulterated orange juice that was misbranded as 100% pure:

C. The actual conflicts of interest and the courses of action they foreclosed. 

The facts underlying Grove Fresh’s claims gave rise to civil conspiracy claims against American Citrus, Holiday Juice, Everfresh, Flavor Fresh, and Labatt, among others. See Conspiracy Claims §§A-F. Those same facts would also support criminal charges, making the defendants potential targets of the grand jury that was investigating Bodine’s.

The civil conspiracy claims and the potential criminal charges created actual conflicts of interest that foreclosed Defense Counsel from pursuing any settlement with Grove Fresh that would require a client to provide evidence establishing the conspiracy. 

1. The civil conspiracy claims, in general. 

Under the common law, members of a civil conspiracy are jointly and severally liable for the damages caused by the conspiracy. M. Polelle & B. Ottley, Illinois Tort Law 389 (1985).

In the Grove Fresh litigation, Labatt was the deep-pocket defendant. The rule on a co-conspirator’s joint and several liability meant that Labatt could be held 100% responsible for all of the damages caused by the core conspiracy and the overlapping sub-conspiracies.

The rule on joint and several liability made the situation ripe for one of the co-conspirators to seek the following deal with Grove Fresh: the settling defendant would provide Grove Fresh with truthful evidence inculpating the other co-conspirators in exchange for Grove Fresh’s promise not to satisfy any judgment from the settling defendant’s assets.

For a lawyer representing multiple defendant-clients, the prospect that the clients faced joint and several liability presented an actual conflict of interest: seeking a sweetheart settlement for one culpable client would betray the interests of the other(s). 

2. Criminal liability, in general. 

Each of the defendants in the Grove Fresh litigation had plea-bargaining material that could help resolve the potential criminal charges—they each had information that, if shared with the government, would facilitate the indictment and conviction of others.  For this very reason, a lawyer representing multiple defendants in the Grove Fresh litigation could not plea-bargain for one client without jeopardizing the interests of the other(s) he represented.[2] 

D. The disclosures required by the potential criminal charges underlying Grove Fresh’s claims. 

If the representation of a singleton client would differ from the representation of that same client as part of a multi-client group, adequate disclosure requires that the lawyer take an extra precautionary step.  The lawyer must candidly explain the difference between

C. Wolfram, Modern Legal Ethics 345 (1985) [“Modern Legal Ethics”]. 

Before proceeding with concurrent representations in the orange juice litigation, Defense Counsel were required to explain to each affected client the foreclosed courses of action:

E. The direct conflict of interest between Marshall and the Labatt organization. 

(This Section outlines in broad strokes the conflict of-interest issues between Marshall and Labatt. For an in-depth analysis of these issues, see §IV, below.)

James Marshall was not a named defendant in 89c1114, but he was one of only two Flavor Fresh shareholders. As such, he was “to be treated as virtually identical and inseparable” from Flavor Fresh. See Legal Theories §D-8-c.

For 13 months—from March 1989 to April 1990—McDermott Will & Emery lawyers appeared as the attorneys of record for both the 89c1113 defendants and the 89c1114 defendants.  These concurrent representations created a direct conflict of interest between Marshall and the Labatt organization.

As discussed below in §II, Marshall was an adverse witness against Labatt and its orange juice subsidiaries. See also Marshall/Flavor Fresh §I. If the 89c1113 case were to go to trial, and Grove Fresh called Marshall as a witness, a lawyer diligently representing the Labatt subsidiaries would attack Marshall’s credibility.  A McDermott Will & Emery lawyer could not mount such an attack, however, because the firm was also counsel of record for Flavor Fresh/Marshall.  As such, the lawyer would owe a duty of loyalty to Marshall; that loyalty would require the lawyer to refrain from attacking Marshall. 

Representing Flavor Fresh/Marshall was directly adverse to the interests of the Labatt subsidiaries, since the diligence owed to Labatt would compel the lawyer to attack Marshall’s credibility, whereas the duty of loyalty owed to Marshall would require the lawyer to refrain from making such attacks.[4] 

1. McDermott Will & Emery’s unethical “cure” for the conflict of interest between the Labatt subsidiaries and Marshall. 

McDermott Will & Emery unilaterally declared that Grove Fresh’s claims in 89c1113 were limited to products packed at only one of Everfresh’s three plants—the plant in Franklin Park, Illinois—and only to products packed there after August 10, 1988. McDermott Will & Emery also declared, without offering any proof, that the orange juice packed in Franklin Park after August 10, 1988, was pure and unadulterated. See Analytical & Procedural History of the Grove Fresh Litigation §I-K.

In McDermott Will & Emery’s eyes, this alleged limitation on Grove Fresh’s claims, coupled with the alleged purity of the products implicated by the narrowed claims, eliminated Marshall as an adverse witness in 89c1113, thereby clearing the way for McDermott Will & Emery to represent both the 89c1113 defendants and the 89c1114 defendants concurrently. 

The flaw in McDermott Will & Emery’s analysis is that the “cure” for its unethical conflict of interest was itself unethical: the cure sprang from the surreptitious enforcement of the unethical restriction on Hines’s right to practice law. See Analytical & Procedural History of the Grove Fresh Litigation §I-L-1.

2. McDermott Will & Emery’s admission that, without the unethical limits on Grove Fresh’s claims, the conflict of interest between Labatt and Marshall was incurable. 

After Grove Fresh fired Hines, it repudiated the limits he had furtively imposed on 89c1113 and 89c1114. When, on the eve of the scheduled trial in 89c1114, Grove Fresh refused to retract that repudiation, McDermott Will & Emery complained to Judge Bua that Grove Fresh’s stance would require the firm to withdraw as counsel of record for the 89c1114 defendants. 89c1114 Tr. of Proceedings, p. 7 (February 21, 1990).

McDermott Will & Emery’s threat to withdraw as counsel for the 89c1114 defendants was an admission that, without the unethical limits on Grove Fresh’s claims, the conflict of interest between Marshall and the Labatt subsidiaries was incurable. 

3. The “inherent dangers” in McDermott Will & Emery’s representation of the 89c1114 defendants.

Courts and commentators have long recognized “the inherent dangers that arise when a [potential] criminal defendant is represented by a lawyer hired and paid by a third party.” Wood v. Georgia, 450 U.S. 261, 268-69 (1981).  When the third party can be incriminated by the client’s testimony, “[o]ne risk is that the lawyer will prevent his client from obtaining leniency by preventing the client from offering testimony against [the third party] or from taking other actions contrary to the [third-party’s] interest.” 450 U.S. at 269.

Here, a third party (Labatt) hired and paid lawyers (McDermott Will & Emery) to represent potential criminal defendants (Flavor Fresh/Marshall) who could obtain leniency if Marshall were to offer testimony against the third party (Labatt). 

In the end, Marshall was indicted, convicted, fined, and sent to prison (Marshall/Flavor Fresh §F), while Labatt and its culpable officers and employees got off scot-free.

F. The direct conflict of interest between Marshall and American Citrus. 

From 1989 through 1993, Kowal and his firm represented both American Citrus and Flavor Fresh/Marshall in the Grove Fresh litigation.  As noted elsewhere, Marshall was an adverse witness against American Citrus. Marshall/Flavor Fresh §J. His adverse relationship to American Citrus created for Kowal the same conflict-of-interest problems that McDermott Will & Emery faced when it concurrently represented the 89c1113 and 89c1114 defendants. 

1. Kowal’s unethical cure for the conflict between American Citrus and Marshall. 

Kowal’s cure for his conflict of interest followed McDermott Will & Emery’s flawed model for eliminating Marshall as an adverse witness: (a) an unverified claim that American Citrus products made after July 15, 1988, were pure and unadulterated, and (b) surreptitious enforcement of the unethical restriction on Hines’s right to sue American Citrus for acts or omissions occurring prior to July 15, 1988. See Analytical & Procedural History of the Grove Fresh Litigation §I-L-2. 

2. Kowal’s implicit admission that, without the unethical limits on Grove Fresh’s claims, the conflict of interest between American Citrus/Lang and Marshall was incurable. 

In February 1993 consumers filed separate class action lawsuits against American Citrus and Lang and against Flavor Fresh, Marshall, and Benton.  The consumers’ claims tracked Grove Fresh’s complaints in 89c1114 and 89c 1117—but Hines did not represent the consumers.  Consequently, the unethical restrictions on his right to practice law did not come into play. 

Given Kowal’s experience in the 89c1114 and 89c1117 cases that shaped the consumers’ claims, he was the logical choice to represent the American Citrus defendants and the Flavor Fresh defendants in the consumer litigation.  He did appear for the American Citrus defendants, but not for Flavor Fresh, Marshall, and Benton; they had to retain new counsel.

Kowal’s unwillingness to represent the Flavor Fresh defendants in litigation unfettered by Hines’s unethical covenants was an implicit admission that the conflict of interest between Marshall and the American Citrus defendants was incurable.

II. James Marshall: The witness feared by Labatt and American Citrus. 

As the creator of the adulteration formulas used by all the members of the core conspiracy (see Conspiracy Claims §D; Marshall/Flavor Fresh §H), and as a key figure in the sub-conspiracies involving Holiday Juice, Peninsular Products, and Oleum 320/IDEA (see Marshall/Flavor Fresh §E), Marshall could be a powerful witness for the government against every other member of the core conspiracy and the sub-conspiracies. 

This Section identifies some of the civil and criminal consequences for Labatt and American Citrus if Marshall were to strike a deal with Grove Fresh or the government. 

A. Marshall’s knowledge of evidence incriminating Labatt’s subsidiaries and those subsidiaries’ officers and employees.

Marshall had knowledge of the following information, which, if shared with the government or Grove Fresh, would expose Labatt and its employees to the following civil and criminal problems:

B. Marshall’s knowledge of evidence incriminating American Citrus and its officers and employees.

Marshall had knowledge of the following information, which, if shared with the government or Grove Fresh, would expose American Citrus and its employees to the following civil and criminal problems:

III. The knowledge imputed to defense counsel by virtue of their representation of multiple clients with conflicting interests. 

This Section describes the scope of the investigations Defense Counsel were required to undertake before they could proceed with the multiple representations.  This Section then identifies the knowledge that can be imputed to Defense Counsel, assuming that they conducted the required investigations in a manner that was “reasonable under the circumstances.” FRCP 11.  See also ABA Code of Professional Responsibility, Ethical Consideration 4-1 (“A lawyer should be fully informed of all the facts of the matter he is handling in order for his client to obtain the full advantage of our legal system. It is for the lawyer in the exercise of his independent professional judgment to separate the relevant and important from the irrelevant and unimportant.”)   

A. The scope of Defense Counsel’s duty to investigate the merits of Grove Fresh’s claims and the ethics of representing multiple clients with conflicting interests. 

Because Defense Counsel intended to represent multiple clients, they had to arm themselves with the information necessary to explain to each client the difference between 

They also needed to gather information relevant to assessing whether they would “be able to provide competent and diligent representation to each affected client.” R.P.C. 1.7(b)(1). See also R.P.C. 1.1 (competent representation); R.P.C. 1.6 (diligent representation); M.R.P.C 1.7 comment 2.

Here are some of the subjects that astute Defense Counsel would have covered in the due diligence investigation they were required to conduct before they accepted engagements to represent multiple clients in the Grove Fresh litigation.

1. Identifying witnesses. 

The first step in evaluating the merits of any civil case is identifying potential witnesses for and against one’s client.  Only after the witnesses are identified and interviewed can counsel fulfill their duty to gather the information relevant to an effective evaluation of the case.

When the client is a corporation charged with wrongdoing, identifying the officers, directors, and employees who participated in the alleged misconduct is an essential step in a reasonable investigation.

2. Pinpointing the date the misconduct began.

A competent due diligence investigation seeks to quantify the amount of damages that the client may be required to pay in the event the client is found liable.  A case with bet-the-company stakes, for example, would require greater resources and a more nuanced strategy than a case where the plaintiff’s claim has only nuisance value.

In cases such as Grove Fresh’s, where the plaintiff’s claims are governed by the continuous tort doctrine (see Legal Theories §B), competent defense counsel would attempt to pinpoint the date the tortious conduct began.  Until that date is established, counsel cannot reliably quantify the extent of the client’s exposure. 

3. Identifying potential criminal charges. 

Due diligence would require counsel to ascertain the criminal charges that could be brought under the Food, Drug, & Cosmetic Act (“FD&C Act,” or “Act”) against the corporate defendants and their officers, directors, and employees.  Counsel would ascertain who might be subject to misdemeanor charges under §303(a)(1) of the Act, and who might be subject to felony charges under §303(a)(2).

Defense counsel would also investigate whether the defendants’ schemes, in addition to violating specific prohibitions of the FD&C Act, also violated any general criminal statutes.

Kohlbach’s declarations to the Bureau of Customs (see FDA Investigations§II-E), for example, violated 18 U.S.C. §1001(a)[5] because they were “materially false, fictitious, or fraudulent statement[s]” that were made “in [a] matter within the jurisdiction of the executive…branch of the Government…” See United States v. Rose, 570 F.2d 1358 (9th Cir. 1978) (false statements to border agent are “material” within meaning of §1001 because they potentially impaired function of customs service); United States v. Gafyczk, 847 F.2d 685 (11th Cir. 1988) (shipping export declarations are “material” to function of U.S. Customs Service).  Violations of §1001(a) are felonies punishable by up to five years in prison.

4. Analyzing the client’s exposure to unasserted claims. 

Another elementary subject for a defense lawyer’s due diligence investigation is whether the client’s alleged acts or omissions create claims in favor of third parties who have not yet come forward.

In the Grove Fresh litigation, the potential liability from claims unasserted as of February 1989—claims by consumers and by other competitors similarly situated to Grove Fresh—far outweighed the potential liability to Grove Fresh. 

5. Ascertaining whether Hines’s covenants were enforceable.

Another obvious subject for investigation was the enforceability of the covenants restricting Jeffrey Hines’s right to practice law.

If Hines’s covenants were enforceable, and if Hines were to continue to represent Grove Fresh, enforcement would substantially reduce the damages recoverable in 89c1113, 89c1114, and 89c1117.

Enforcement also had the potential to eliminate Marshall as an adverse witness if, as the defense alleged, the 89c1113 and 89c1117 defendants had abandoned their illegal practices prior to the covenants’ effective dates.  Eliminating Marshall as an adverse witness would simplify the defense effort.  It would also allow the defendants to economize by hiring one law firm to defend all three cases.

A reasonable investigation of this issue in February 1989 would have turned up an unfavorable precedent—O’Hara v. Ahlgren, Blumenfeld and Kempster, 158 Ill. App. 3d 562, 511 N.E. 2d 879 (1st Dist. 1987). O’Hara held that contracts that violate the Code of Professional Responsibility are unenforceable as a matter of public policy.

A reasonable investigation would have alerted counsel that the O’Hara decision was on appeal to the Illinois Supreme Court.  Diligent counsel would have monitored that appeal and learned that on March 29, 1989, the Illinois Supreme Court affirmed the Appellate Court ruling. O’Hara v. Ahlgren, Blumenfeld and Kempster, 127 Ill. 2d 333, 537 N.E.2d 730 (1989).

Since Hines’s covenants violated DR 2-108(b), the Illinois Supreme Court’s affirmance in O’Hara precluded enforcement of those covenants against either him or Grove Fresh. 

B. The inculpatory knowledge that can be imputed to Steven Kowal and Burditt, Bowles & Radzius from their representation of American Citrus and Holiday Juice in the 1988 Purity Products litigation.  

In January 1988 Purity Products sued Holiday Juice and American Citrus for making and selling adulterated and misbranded orange juice products. See Other Litigation §A.  Both firms retained Joseph Radzius and Steven Kowal of Burditt Bowles & Radzius to defend against those claims.[6]  The terms of settlement executed later that summer—six-figure payments coupled with covenants restricting Hines’s right to practice law—suggest that the lawyers had investigated the adulteration claims and had concluded that the claims had merit.

Throughout the pendency of the lawsuits Kotwicki was Holiday Juice’s chief executive officer, and Lang was American Citrus’s principal and chief executive officer.[7]  A reasonable interrogation of Kotwicki and Lang, and a reasonable review of the firms’ business records, would have yielded at least the following information to Radzius and Kowal bearing on the issues described above in §A: 

The above facts were sufficient to put Kowal and Burditt Bowles & Radzius on notice that American Citrus, Everfresh, Holiday Juice, Flavor Fresh, and Labatt could be charged with a civil conspiracy rendering each of them jointly and severally liable for damages caused by the adulteration of orange juice. 

C. McDermott Will & Emery’s actual knowledge of Kohlbach’s felonious scheme to import Oleum 320/IDEA.

McDermott Will & Emery’s actual knowledge of Kohlbach’s scheme came from an investigation triggered by Duane Bosch’s whistleblower suit. See Other Litigation §E; Analytical & Procedural History of the Grove Fresh Litigation Introduction, §B-1.

Bosch filed his lawsuit in January 1989, the same month that Hugo Powell became Everfresh’s chief executive officer.  After taking office Powell interviewed senior Everfresh executives, who told him that when Kotwicki was president, Everfresh had added unlabeled ingredients to products represented to be 100% pure orange juice from concentrate. Powell Affidavit ¶¶1-4. (The Powell Affidavit is Exhibit C to Grove Fresh 4-90 Motion to Enforce Agreement Concerning Discovery) Powell promptly flew to Toronto and reported what he had learned to senior executives at Labatt headquarters.

On February 7, 1989—three days before Grove Fresh filed its lawsuits—Labatt hired William Appler, a former Justice Department lawyer with experience in FDA matters.  Appler advised his client that FDA regulations required a “thorough investigation….[of] the facts of any misbranding of orange juice” at Everfresh Juice Co. Appler Affidavit ¶¶5, 7.  Labatt heeded the advice and conducted an investigation led by David Murray, Labatt’s Director of Technological Development.

Murray summarized the investigation’s results in a report dated February 21-22, 1989 (“Murray Report”), which he delivered to Appler. Appler Affidavit ¶8.  I have never seen the Murray Report, so I can only surmise what it contains, except for the following facts supplied by Murray at a deposition and confirmed in a follow-up letter from McDermott Will & Emery dated December 13, 1991

Kohlbach’s false declarations to the Bureau of Customs were felony violations of 18 U.S.C. §1001(a). See discussion above in §A-3.

D. The inculpatory knowledge that can be imputed to McDermott Will & Emery from its representation of Labatt in the February 1989 investigation and from its representation of the 89c1113 defendants. 

While Murray’s investigation was underway, “Everfresh Juice Co.” was served with the complaint and interrogatories in 89c1113; McDermott Will & Emery was retained to represent the 89c1113 defendants. 

1. The information available to McDermott Will & Emery.

A reasonable investigation of Bosch’s and Grove Fresh’s claims would have yielded at least the following information:

2. The legal problems implicated by the available information.

The above facts were sufficient to put McDermott Will & Emery on notice of the following:

IV. McDermott Will & Emery’s conflict-ridden relationship with Flavor Fresh. 

Sometime in March 1989, McDermott Will & Emery decided to represent the 89c1113 defendants and the 89c1114 defendants concurrently.  Superficially, the decision made some sense.  The Everfresh corporations had co-packed Flavor Fresh’s products, so discovery in both cases would overlap.  The 89c1113 and 89c1114 defendants could realize economies of scale if they were represented by the same set of lawyers.

These concurrent appearances created two distinct sets of conflicts, however.  One set arose out of the ability of some clients to offer damaging evidence against other clients.  (§E-1, below.)  In theory, these conflicts were cured by consents from the affected clients, but the consents were riddled with conditions grounded in ethically flawed premises.  (§F, below.)

The second set of conflicts arose out of limitations on McDermott Will & Emery’s ability to diligently and competently represent the 89c1114 defendants because of the firm’s prior duty of loyalty to the Labatt Entities. (§E-2.)  These conflicts could not be cured by consent.  (§E-2-b, below.)

A. The criminal misconduct alleged by the 89c1114 complaint.

Paragraph 6 of the 89c1114 complaint required Flavor Fresh and Benton to admit or deny that “the product manufactured and distributed by Flavor Fresh was and continues to be falsely represented as ‘100% orange juice from concentrate’ when, in fact, said product is simply water in a solution of numerous ingredients.”

This allegation, if admitted, would implicate Flavor Fresh and Benton in a violation of §303(a)(2) of the FD&C Act, 21 U.S.C. §333(a)(2), which classifies as a felony crime the adulteration or misbranding of any food product “with the intent to defraud or mislead.”

B. McDermott Will & Emery’s knowledge, actual or imputed, that the 89c1114 defendants intended to continue their criminal activities.

When the McDermott lawyers agreed to represent the 89c1114 defendants, they bound themselves to make a “reasonable inquiry” into the truth or falsity of ¶6. FRCP 11.  A reasonable inquiry—i.e., interviews of Flavor Fresh’s principals—would have revealed that Flavor Fresh had been making and selling adulterated products since 1979. See Marshall/Flavor Fresh §H. Those interviews would also have revealed that Flavor Fresh had not been acting alone, and that its co-conspirators included predecessors of both Everfresh entities. See Marshall/Flavor Fresh §§I-J.

Finally, those interviews would have revealed that Flavor Fresh was continuing its criminal activities and would do so until the FDA serendipitously discovered those activities two years later. See FDA Investigations §IV-D.

We don’t have access to McDermott Will & Emery’s communications with the 89c1114 defendants, so we don’t know directly whether the McDermott lawyers ever asked their 89c1114 clients about the truth or falsity of ¶6.  Even if the McDermott lawyers avoided having this candid conversation, the law presumes that they knew about their clients’ past criminal conduct, and their clients’ intention to continue that conduct, because “[o]ne may not deliberately close his eyes to what otherwise would have been obvious to him.” United States v. Hanlon, 548 F.2d 1096, 1000 n.7 (2d Cir. 1977). 

C. The breadth of discovery implicated by the 89c1114 complaint. 

The 89c1114 complaint against Flavor Fresh concerned ready to-drink products labeled as “Flavor Fresh 100% Orange Juice from concentrate” and sold in various-sized containers.

The complaint’s allegations were open-ended; they did not purport to restrict Grove Fresh’s claims to any particular co-packer or to any period of time.  Fairly read, the complaint stated claims against all products made by all five of Flavor Fresh’s co-packers.  Under the continuous tort doctrine (Legal Theories §B), Grove Fresh could seek damages back to 1979, when Flavor Fresh got into the business of making and selling its own single-serve products.

The breadth of the open-ended allegations would permit Grove Fresh to serve deposition subpoenas with document riders on the following third parties, among others:

D. The fifth amendment dilemmas posed by the interrogatories.

Along with the complaint Grove Fresh served the 89c1114 defendants with interrogatories.  Interrogatory nos. 1 and 2 required Flavor Fresh and Benton to support their admission or denial of ¶6 of the complaint with further details.[11]  Flavor Fresh couldn’t avoid answering these interrogatories by invoking the fifth amendment; corporations have no fifth amendment privilege against self-incrimination. Hale v. Henkel, 201 U.S. 43 (1906).

FRCP 33(b)(1)(B) required Flavor Fresh to answer the interrogatories by “furnish[ing] the information available to [it];” the officer or agent who prepared the answers had to sign them. FRCP 33(b)(5).  Because Benton and Marshall[12] were corporate officers with knowledge of facts responsive to the interrogatories, FRCP 33(b)(1)(B) required them to participate in the preparation of Flavor Fresh’s answer to the complaint and responses to the interrogatories.  These were their options:

Option 3 would be the only sensible option for Marshall and Benton.  If they took option 3, however, their refusals to cooperate, and the fifth amendment ground for their refusals, would have to be disclosed to Grove Fresh.  These refusals would be admissible in evidence and could support adverse inferences against Flavor Fresh in the trial of the 89c1114 claims. See Legal Theories §D-4.

E. The conflicts of interest. 

Before the McDermott lawyers could ethically agree to represent the 89c1113 defendants and the 89c1114 defendants concurrently, they had to conduct the investigations described above in §III-A.  At the conclusion of those investigations they knew or should have known the particulars of the conflicts described below in §§2-4.

They also knew, or should have known, that the conflicts described in §§3-b and 4 were incurable.

1. The hazards of dealing with another client as a third-party witness. 

Subparagraph (a) of R.P.C. 1.7 bars concurrent representations when one client “is directly adverse to another client.”[13] A directly adverse conflict occurs “when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit.” Comment, M.R.P.C. 1.7 (2004).

The potential for conflict does not depend on testimonial evidence being involved; “documentary third-party discovery of a client, on behalf of another client, may well present the same core issue.” ABA Formal Opinion 92-367, Lawyer Examining a Client as an Adverse Witness, or Conducting Third Party Discovery of the Client, p. 1 (1992).

The ABA Standing Committee on Ethics and Professional Responsibility summarized the hazards of dealing with another client as a third-party witness this way (id., p. 3):

[E]xamining one’s own client as an adverse witness on behalf of another client, or conducting third party discovery of one client on behalf of another client, is likely (1) to pit the duty of loyalty to each client against the duty of loyalty to the other; (2) to risk breaching the duty of confidentiality to the client-witness; and (3) to present a tension between the lawyer’s own pecuniary interest in continued employment by the client-witness and the lawyer’s ability to effectively represent the litigation client.

2. The mutual adversity of the 89c1113 defendants and the 89c1114 defendants. 

In the 89c1113 and 89c1114 cases, the mutual adversity of McDermott Will & Emery’s multiple clients arose out of each client’s ability to offer damaging evidence against the other:

3. The impermissible limits on the McDermott lawyers’ representation of the 89c1114 defendants due to the lawyers’ responsibilities to the Labatt Entities. 

Subparagraph (b) of R.P.C. 1.7 speaks to situations where the lawyer is a source of conflict because the scope of the services the lawyer can render is “materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests.”[14]  Here, McDermott Will & Emery’s responsibilities to the Labatt Entities precluded the firm from representing the 89c1114 defendants with sufficient competence and diligence.

a. The competence and diligence required when representing fifth amendment witnesses in civil litigation. 

In a civil case where, as in the Grove Fresh litigation, there is a parallel grand jury investigation, a client who invokes the fifth amendment as a ground for refusing to answer discovery runs the risk of drawing the grand jury’s attention; the client might even become a grand jury target.

A competent lawyer[15] representing such a client would anticipate the possibility that his client would become a target; a diligent lawyer[16] would be prepared to plea bargain for the client.

b. The incurable conflicts inherent in McDermott Will & Emery’s advising Marshall on fifth amendment issues. 

If Marshall were to invoke the fifth amendment privilege during discovery in the Grove Fresh litigation, he was likely to draw the attention of the federal grand jury that was on the verge of indicting Bodine’s Inc., and that would later investigate the allegations in 89c1113, 89c1114, and 89c1117. See FDA Investigations §III-B. If he became a target, he could plea-bargain his way out of trouble by proffering evidence incriminating Home Juice and the Everfresh entities.  McDermott Will & Emery could not ethically represent Marshall in any such plea-bargaining, however, since the firm owed a prior duty of loyalty to the Labatt Entities.

Since the McDermott lawyers were ethically constrained from plea-bargaining for Marshall, they could not ethically advise him on the pros and cons of taking an action in a civil case (invoking the fifth amendment in 89c1114) that might trigger a reaction by the government (serving Marshall with a grand jury subpoena) that would put Marshall in a position where plea-bargaining would be a “lawful and ethical measure…required to vindicate [Marshall’s] cause or endeavor.” M.R.P.C. 1.3, comment 1.

In other words, McDermott Will & Emery’s loyalty to Marshall would be impaired because the firm could not “consider, recommend or carry out an appropriate course of action for [Marshall] because of the [firm’s] other responsibilities or interests. The conflict in effect foreclose[d] alternatives that would otherwise be available to [Marshall].” Comment to M.R.P.C. 1.7.

The ethical constraints on McDermott Will & Emery’s ability to plea bargain for Marshall meant that the firm could not provide competent and diligent representation to Marshall if the firm were to represent him in 89c1114 discovery proceedings.  Consequently, the representation was prohibited. See Comment 15, M.R.P.C. 1.7 (2004) (“representation is prohibited if in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.”) 

4. The conflict between Flavor Fresh’s criminal plans and Labatt’s intent to make disclosures to the FDA. 

Labatt and JLI retained McDermott Will & Emery to represent them in communicating with the FDA regarding the Everfresh entities’ illegal practices. Appler Affidavit ¶3.  Having agreed to assist in those communications, McDermott Will & Emery had a duty to ensure that the communications were candid and complete.  A candid and complete disclosure of the Everfresh entities’ illegal practices would implicate Flavor Fresh in the sub-conspiracy to distribute adulterated COJM. See Conspiracy Claims §F.

Flavor Fresh, on the other hand, had no interest in communicating with the FDA.  McDermott Will & Emery’s duty of loyalty to Flavor Fresh barred it from assisting Labatt in any communication with the FDA that would harm Flavor Fresh.

By agreeing to represent Flavor Fresh after it had already agreed to represent the Labatt Entities at the FDA, McDermott Will & Emery created a conflict between (a) Labatt and JLI’s duty of candor in their communications with the FDA and (b) McDermott Will & Emery’s duty of loyalty to Flavor Fresh.  This conflict could not be cured.

F. The ethically flawed consents to the conflicts of interest. 

The right to a conflicts-free representation is a contract right that, in many situations, can be bargained away, so long as the affected clients give their voluntary, informed consent. C. Wolfram, Modern Legal Ethics 343 (1986).  Here, the affected clients gave their consents, but those consents were riddled with conditions that rested on ethically flawed premises.  In the end, the clients’ conditional consents created orphaned claims for which no defense lawyer of record could speak.

1. The limitations on McDermott Will & Emery’s services. 

The consents of the 89c1113 and 89c1114 defendants were conditioned on McDermott Will & Emery limiting the scope of its services in four respects, as follows:[17] 

McDermott Will & Emery would later admit that without these limitations, its conflicts of interest were incurable. See §I-E-2, above.

2. The faulty predicates.

The limitations that McDermott Will & Emery placed on its services rested on three ethically flawed predicates.  First: Limitations 1 and 2 required that the Everfresh Entities enforce the covenant restricting Hines’s right to practice law.  McDermott Will & Emery knew or should have known, however, that under Illinois law, the covenant was unenforceable as against public policy. See §III-A-5, above

Second: Limitations 3 and 4 were implemented stealthily, through a combination of deceitful acts that exploited the Canadian Everfresh’s failure to register with the Illinois Secretary of State, in violation of the Illinois Business Corporation Act. (The deceits are described in Analytical & Procedural History of the Grove Fresh Litigation §§V-E-2, 4; VIII-D, F; and IX-B.)

Third:  Limitations 2, 3, and 4 assumed that, for purposes of analyzing conflicts of interest, McDermott Will & Emery could treat the Canadian Everfresh Inc. as a separate and distinct client from the Michigan Everfresh Inc.  This purported distinction was spurious.

Both the Canadian Everfresh Inc. and the Michigan Everfresh Inc. had jointly shared confidences with McDermott Will & Emery.  Their confidences concerned the very same subject that would be in issue in 89c1114—orange juice adulteration.  Consequently, for purposes of analyzing conflicts of interest, they (along with Labatt and JLI) were a single and indivisible client. See ABA Formal Opinion 95-390, Conflicts of Interest in the Corporate Family Context, pp. 9-11 (1995). 

3. The orphaned claims.

The limits on McDermott Will & Emery’s services in 89c1113 and 89c1114 created a gap in each case between the scope of the claims alleged in the complaint and the scope of the defense being provided by the firm.  The integrity of the legal process required McDermott Will & Emery to do the following:

McDermott Will & Emery did none of these things.  As a result, each case had a subset of orphaned claims for which no defense lawyer spoke.

For the first ten months of the litigation, Grove Fresh did not know that McDermott Will & Emery was defending less than 100% of the claims alleged in 89c1113 and 89c1114. 

G. The clients’ motives for purporting to consent to McDermott Will & Emery’s conflicts of interest. 

If the clients affected by a lawyer’s conflicts of interest give informed consent, the lawyer may go forward with the representations. R.P.C. 1.7(a)(2).

Here, the Labatt Entities didn’t just consent to McDermott Will & Emery’s representing the 89c1114 defendants—they were the ones who first proposed the idea.  They gilded the proposal with an offer to pay the fees for the services that McDermott Will & Emery would render to the 89c1114 defendants.  Flavor Fresh’s principals accepted the free ride, but with a telling condition—that attorney Kowal be present whenever Flavor Fresh’s principals met with McDermott Will & Emery. This condition signaled Flavor Fresh’s lack of trust in McDermott Will & Emery’s loyalties.

Kowal’s involvement, in turn, required the consent of Lang and American Citrus, the defendants in 89c1117, which they gave.

The Labatt Entities and Flavor Fresh had two distinct motives for consenting to their lawyers’ conflicts of interest: extending to 89c1114 the covenant restricting Hines’s right to practice law, and creating what was, in effect, a mutual non-destruction pact.  

1. Extending the restrictive covenant.

  The scope of the 89c1114 complaint would support document and deposition subpoenas to all five of Flavor Fresh’s co-packers, including the Canadian Everfresh Inc. and the Michigan Everfresh Inc.  Discovery from the Everfresh entities, if answered truthfully, would show that they both had been making and selling adulterated products since at least the 1970s. See Marshall Proffer p.2.

Any damaging evidence that Grove Fresh might elicit in 89c1114 from the Everfresh entities, even if made subject to a protective order, could, under decisions such as Wilk v. American Medical Association, 635 F.2d 1295 (7th Cir. 1980),[19] become available to class action lawyers representing other competitors and consumers.  If that were to occur, the proverbial floodgates to liability would open up.

These potentially devastating consequences gave the Labatt Entities a tremendous economic incentive to find a way to enforce Hines’s covenant in 89c1114.  If they could enforce the covenant in that case, they could prevent Hines from seeking discovery of the Everfresh Entities’ illegal acts or omissions prior to August 10, 1988. 

Flavor Fresh, however, was not a party to the covenant, so it had no reason to know that the covenant even existed.  Moreover, the Labatt Entities were barred from telling Flavor Fresh about the covenant; the covenant was part of a settlement agreement that included a strict confidentiality clause enforceable by the court’s contempt powers.

The Labatt Entities were, of course, free to tell their lawyers about the covenant.  If those same lawyers also represented Flavor Fresh, they could, under the protection of the attorney-client privilege, tell Flavor Fresh about the covenant.  With the consent of both clients, the lawyers could incorporate the covenant into a strategy for simultaneously settling 89c1113 and 89c1114. 

2. The mutual non-destruction pact.

Another reason for consenting to McDermott Will & Emery’s conflicts was the duty of loyalty that McDermott Will & Emery would then owe to each set of clients.  So long as McDermott Will & Emery represented both sets of defendants, neither set could betray the other in a plea-bargain with federal prosecutors, who were running a grand jury investigation into orange juice adulteration by a Chicago firm. See Other Litigation §§C, F.

The Labatt Entities and Flavor Fresh, by consenting to being represented by the same law firm, were entering into a mutual non-destruction pact.

[1] The adequacy of disclosure and consent is “rather specific to the particular situation.  The permissibility of proceeding after consent requires close examination of a number of interrelated variables:  [a] the nature and strength of the interests of each affected client; [b] the nature of the legal services that the lawyer might perform for each client if no conflict existed as compared with the legal services in fact performed or contemplated in the conflicting relationship; [c] the detail and intelligibility of the disclosures made by the lawyer; [d] the capacity of the client to understand the conflict and consent to it; [e] the timing of the disclosure and consent; and [f] the apparent good faith of the lawyer.” Modern Legal Ethics 343. (lettering added) 

[2] “Incipient competition for the favor of the prosecutor is present in every criminal case in which there are multiple suspects, whether the co-defendants are charged in the same indictment or information or are to be tried separately.” Modern Legal Ethics 412.  The Supreme Court “has uniformly condemned representations in which the [criminal] defense lawyer operates under a conflict of interest.” Id. at 414.  Criminal defense lawyers have an “ethical obligation” not only to avoid representing multiple clients with conflicting interests but also to “advise the court promptly when a conflict of interest arises during the course of a trial.” Id. at 415.

[3] Independent judgment and loyalty “are essential elements in the lawyer's relationship to a client.” M.R.P.C. 1.7 comment.

[4] ABA Formal Op. 92-367.  See also State v. Catanoso, 537 A.2d 794 (N.J. Super. Ct. App. Div. 1987); Narel Apparel Ltd. v. American Utex Int’l, 460 N.Y.S. 2d 125 (App. Div. 2d Dept. 1983); Kevlik v. Goldstein, 724 F.2d 844 (1st Cir. 1984).  See also comment 6 to R.P.C. 1.7 (“a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit.”).

[5] 18 U.S.C. §1001(a) provides:

[W]hoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully—

(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;

(2) makes any materially false, fictitious, or fraudulent statement or representation; or

(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;

shall be fined under this title, imprisoned not more than 5 years….

[6] Family ties may explain Burditt Bowles & Radzius’s deep roster of clients in the orange juice industry.  Edward Boden, Sr. was one of four siblings connected to that industry.  As of 1988, his brothers, Joseph and George, were officers in Labatt’s Holiday Juice division; Labatt had acquired their firm (Boden Products, Inc.) in 1985.  Edward’s sister, Marie Haddad, was the mother-in-law of American Citrus’s principal, Henry Lang; Lang had acquired Home Juice in 1982 from the estate of Marie’s late husband, Leonard Haddad; he merged Home Juice into American Citrus in 1986.

[7] Lang and Kotwicki were not sued individually, so Burditt Bowles & Radzius did not formally represent them.  As corporate officers, they both had a duty to cooperate with counsel in preparing the defense against Purity Products’ claims.

Because American Citrus was a closely-held corporation, Lang had an expectation of confidentiality, such that the information he shared with Burditt Bowles & Radzius would be protected by the attorney-client privilege.  Labatt, on the other hand, was a publicly-held corporation; Kotwicki did not have an expectation of confidentiality and could not assume that the information he shared with counsel would be protected by the attorney-client privilege.  See discussion of the entity representation doctrine and lawyer-officer conflicts in C. Wolfram, Modern Legal Ethics 422-23(1986). 

[8] “Ever Fresh” is the format used in these essays when referring to that firm’s operations prior to December 1986, when Labatt acquired the firm and changed the format of the name to “Everfresh.”

[9] These documents should have been produced no later than April 1990, pursuant to the 89c1114 settlement agreement.  They weren’t produced for another year—not until April 5, 1991. Uncontested Facts ¶167.

McDermott Will & Emery produced the documents a day or two after I served a subpoena duces tecum on Marshall.  To that point in the litigation there had been no mention of Bio Trade.  The document rider on the subpoena to Marshall made it plain that Grove Fresh had learned about Bio Trade through its own independent investigations. 

[10] See Labatt's North American Strategy for an explanation of why Labatt had two corporations with the same name domiciled in two different jurisdictions. 

[11] Interrogatory no. 1 asked: “If you contend that ‘Flavor Fresh 100% Orange Juice from Concentrate,’ which is the subject of this action, contains no sugar or any other adulterants, and meets the standard of identity required for orange juice from concentrate, state the basis for your contention and attach, hereto, copies of any documentation supportive of that contention, including test results, quality control reports and analysis.”

Interrogatory no. 2 asked:  “State in complete detail the exact composition of ‘Flavor Fresh 100% Orange Juice from Concentrate,’ as represented.”

[12] Benton was named as a defendant in 89c1114, but not Marshall.  However, since Marshall was one of Flavor Fresh’s only two shareholders, he was a client of the firm for purposes of conflict-of-interest analysis.  See discussion in Legal Theories §D-8-b.

[13] R.P.C. 1.7(a) provides:  “A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after disclosure.”

[14] R.P.C. 1.7(b) provides:  “A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after disclosure.”

Subparagraph (c) provides: “When representation of multiple clients in a single matter is undertaken, the disclosure shall include explanation of the implications of the common representation and the advantages and risks involved.”

[15]  “Competent representation requires the legal knowledge, skill, thoroughness, and preparation necessary for the representation.” R.P.C. 1.1.

[16] Every lawyer must “act with reasonable diligence and promptness in representing a client.” R.P.C. 1.3.  Diligence requires a lawyer to “take whatever lawful and ethical measures are required to vindicate a client's cause or endeavor.”  M.R.P.C. 1.3, comment 1.

[17] The limitations on the scope of the firm’s engagements can reasonably be inferred from the McDermott lawyers’ statements and behavior between the date of their first settlement initiative (October 1989) and the date the 89c1114 settlement contract closed (April 1990). See Analytical & Procedural History of the Grove Fresh Litigation §§V, VII, VIII, IX.

[18] McDermott Will & Emery eventually relaxed this limitation in April 1990, but only in the 89c1113 case, and then only after the 89c1114 settlement contract had closed. 

[19] Wilk held that where a third party wishes to modify a protective order so as to avoid duplicative discovery in collateral litigation, policy considerations favoring the efficient resolution of disputes justify modification unless such an order would tangibly prejudice substantial rights of the party opposing modification.