IPVX Patent Holdings, Inc. v. 8x8, Inc.

Filing 90

ORDER by Judge Kandis A. Westmore denying 71 Motion to Disqualify Counsel. (kawlc1, COURT STAFF) (Filed on 12/19/2013)

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United States District Court
Northern District of California

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IPVX PATENT HOLDINGS, INC.,
Plaintiff,

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v.

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8X8, INC.,

Case No.: 4:13-cv-01707 SBA (KAW)
ORDER DENYING DEFENDANT 8X8,
INC.’S MOTION TO DISQUALIFY
PLAINTIFF’S COUNSEL
(Dkt. No. 71)

Defendant.

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United States District Court
Northern District of California

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Before the Court is Defendant 8x8, Inc.’s Motion to Disqualify Plaintiff’s Counsel filed on

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August 20, 2013. (Def.’s Mot. to Disqualify (“Def.’s Mot.”), Dkt. No. 71.)

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8x8, Inc. moves to disqualify Sean Luner and Pierre Yanney from representing IPVX

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Patent Holdings, Inc. (“IPVX”) in this matter on the grounds that Pierre Yanney is tainted by the

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alleged conduct of attorney/co-counsel Sean Luner, who held a client representation meeting with

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8x8, Inc. prior to the filing of the instant action, during which alleged confidential information

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was shared with Mr. Luner.

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On November 21, 2013, the Court held a hearing and after consideration of the parties’

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arguments, the Court denies Defendant’s motion to disqualify counsel for the reasons set forth

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below.

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I. BACKGROUND
In December 2009, and prior to the filing of this action, Sean Luner held a telephone

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meeting with 8x8, Inc.’s Bryan Martin, Chairman and Chief Executive Officer for 8x8, Inc., and

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Dan Weirich, Chief Financial Officer, to discuss possible representation. (Def.’s Mot. at 1.) 8x8,

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Inc. alleges that highly confidential information was disclosed during the 30 minute meeting. Id.

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Ultimately, Luner did not undertake representation of 8x8, Inc., Inc.

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Defendant, however, alleges that Sean Luner and Pierre Yanney act as co-counsel on

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behalf of Klausner and IPVX, and have met privately to “investigate” the confidential

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communications from the Luner-8x8, Inc. meeting. (Def.’s Mot., at 8.)

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On November 1, 2011, then-Plaintiff Klausner Technologies, Inc. filed a complaint

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against 8x8, Inc. in the U.S. District Court for the Eastern District of Texas, alleging that

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Defendant had infringed on United States Patent No. 5, 572, 576 (“‘576 Patent”). (Compl., Dkt.

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No. 1.) At the time of filing, Klausner was represented by attorneys S. Calvin Capshaw, III,

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Pierre Yanney, and William J. Seymour. Id. at 5.
On December 7, 2011, Pierre Yanney sent an email to 8x8, Inc.’s counsel informing them

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that Sean Luner stated that he never represented to 8x8, Inc. that it did not infringe on Klausner’s

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United States District Court
Northern District of California

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patents. (Dkt. No. 71, Ex. A.)

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On May 17, 2012, Klausner assigned to IPVX all right, title and interest in, the ‘576

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Patent, including the right to enforce the patent and to recover for past infringement as to the

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Defendant in this lawsuit. (First Amend. Compl., Dkt. No. 31 at 1.)

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On August 10, 2012 IPVX was substituted for Klausner Technologies as the plaintiff in

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this action. (Dkt. Nos. 24-25.) On August 23, 2012, 8x8, Inc. filed a motion to change venue.

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(Dkt. No. 25.) On January 30, 2013, 8x8, Inc. filed a motion to disqualify counsel. (Dkt. No. 71.)

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On March 21, 2013 this action was transferred to U.S. District Court for the Northern District of

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California. (Dkt. No. 40.) On August 20, 2013, 8x8, Inc. renoticed its previously filed motion to

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disqualify, which was referred to the undersigned for disposition on August 22, 2013.

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On October 11, 2013, the Court ordered the parties to submit supplemental briefs to
specifically address the applicable law in the Ninth Circuit.

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II. LEGAL STANDARD

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“The right to disqualify counsel is a discretionary exercise of the trial court's inherent

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powers.” Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 264 F. Supp. 2d 914, 918

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(N.D. Cal. 2003). Under Civil L.R. 11–4(a)(1), all attorneys who practice in the Northern

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District of California must comply with the standards of professional conduct required of

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members of the State Bar of California. Accordingly, state law applies in determining matters of
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disqualification. In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000). In California, a

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lawyer may not, “without the informed written consent of the client or former client, accept

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employment adverse to the client or former client where, by reason of the representation of the

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client or former client, the member has obtained confidential information material to the

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employment.” Cal. R. Prof’l. Conduct, 3-310(E). “Depending on the circumstances, a

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disqualification motion may involve such considerations as a client's right to chosen counsel, an

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attorney's interest in representing a client, the financial burden on a client to replace disqualified

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counsel, and the possibility that tactical abuse underlies the disqualification motion.” People ex

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rel. Dept. of Corporations v. SpeeDee Oil Change Sys., Inc., 20 Cal. 4th 1135, 1145 (1999)
(citations omitted); see also Oracle Am., Inc. v. Innovative Tech. Distrib., LLC, 11-CV-01043-

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United States District Court
Northern District of California

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LHK, 2011 WL 2940313, at *4 (N.D. Cal. July 20, 2011) (quotation marks omitted).

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Generally, “[m]otions to disqualify counsel are strongly disfavored.” Visa U.S.A., Inc. v.

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First Data Corp., 241 F. Supp. 2d 1100, 1104 (N.D. Cal. 2003). Disqualification motions involve

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“a conflict between a client’s right to counsel of his choice and the need to maintain ethical

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standards of professional responsibility.” Comden v. Superior Court, 20 Cal. 3d 906, 915 (1978).

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Moreover, the ethical rules can be used tactically. See, e.g., Optyl Eyewear Fashion Intern. Corp.

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v. Style Companies, Ltd., 760 F.2d 1045, 1050 (9th Cir. 1985). As a result, “disqualification

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motions should be subjected to particularly strict judicial scrutiny.” Id. (quotation and quotation

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marks omitted). “[D]isqualification is a drastic measure that is generally disfavored and imposed

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only when absolutely necessary.” Ramirez v. Trans Union, LLC, No. 12-0632, 2013 WL

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1164921, at *2 (N.D. Cal. Mar. 20, 2013).

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As a result, the moving party “carries a heavy burden and must satisfy a high standard of

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proof.” Kelly v. Roker, No. 11-5822, 2012 WL 851558, at *2 (N.D. Cal. Mar. 13, 2012). That

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said, “the paramount concern must be the preservation of public trust both in the scrupulous

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administration of justice and in the integrity of the bar.” State Farm Mut. Auto. Ins. Co. v.

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Federal Ins. Co., 72 Cal. App. 4th 1422, 1428 (1999). “Consequently, the recognizably important

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right to choose one’s counsel must yield to the ethical considerations that embody the moral

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principles of our judicial process.” Id. “Attorneys have a duty to maintain undivided loyalty to
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their clients to avoid undermining public confidence in the legal profession and the judicial

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process.” SpeeDee Oil, 20 Cal. 4th at 1146 (citations omitted). “The effective functioning of the

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fiduciary relationship between attorney and client depends on the client's trust and confidence in

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counsel.” Id. (citation omitted). “The courts will protect clients’ legitimate expectations of

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loyalty to preserve this essential basis for trust and security in the attorney-client relationship.”

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Id. at 1147 (citation omitted).

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III. DISCUSSION
A.

Whether Sean Luner must be disqualified
8x8, Inc. argues that Sean Luner must be disqualified because he violated his ethical

duties to 8x8, Inc., a former client. (Def.’s Mot. at 5.) Specifically, 8x8, Inc. alleges that Sean

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United States District Court
Northern District of California

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Luner received confidential information during a client representation meeting that is

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substantially related to the current litigation. (Def.’s Mot. at 5-6.) IPVX responds that 8x8, Inc.’s

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motion, at least in so far as it targets Sean Luner, is moot because Luner has never been an

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attorney of record in this case and has not participated in this case. (Pl.’s Opp’n to Mot. to

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Disqualify Counsel (Pl.’s Opp’n”) at 3.)

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“When a party seeking legal advice consults an attorney at law and secures that advice, the

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relation of attorney and client is established prima facie.” SpeeDee Oil, 20 Cal.4th at 1148

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(quoting Perkins v. West Coast Lumber Co., 129 Cal. 427, 429, 62 P. 57 (1900)). That lawyers

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have ethical duties to their former clients arising out of the fiduciary nature of the attorney-client

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relationship is a principle long recognized by California courts. Oracle Am., Inc., No. 11–CV–

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01043–LHK, 2011 WL 2940313, at *4 (citing Elan Transdermal Ltd. v. Cygnus Therapeutic

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Systems, 809 F.Supp. 1383, 1387 (N.D. Cal. 1992)). One such ethical precept is that an attorney

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shall not use confidences obtained from a former client to injure its interests. Id.

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Here, 8x8, Inc. sought legal advice from Luner during a 30 minute consultation in 2009,

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and according to the sworn declarations of 8x8, Inc. representatives who were present during the

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consultation, shared confidential information regarding their VoIP technology and patents.

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(Def.’s Mot. at 5.) The Court concludes that a prima facie attorney-client relationship was

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established between Sean Luner and Defendant 8x8, Inc.
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An attorney’s successive representation of clients with adverse interests mandates

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disqualification. H.F. Ahmanson & Co. v. Salomon Brothers, Inc. 229 Cal. App. 3d 1445, 1452

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(1991). A party seeking disqualification, however, need not prove actual possession of

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confidential information to disqualify the former attorney. “It is enough to show a ‘substantial

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relationship’ between the former and current representation.” Id. (citing Global Van Lines, Inc. v.

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Superior Court, 144 Cal. App. 3d 483, 489 (1983).

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The court must next determine whether there was a substantial relationship between
Luner’s former representation and the current representation. In assessing whether a “substantial

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relationship” exists, “courts look at the practical consequences of the attorney’s representation of

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the former client and ask whether confidential information material to the current dispute would

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United States District Court
Northern District of California

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normally have been imparted to the attorney by virtue of the nature of the former representation.”

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See H.F. Ahmanson & Co. v. Salomon Brothers, Inc., 229 Cal. App. 3d 1445, 1454 (1991). This

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inquiry turns on two variables: 1) “the relationship between the attorney and the former client

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with respect to the legal problem involved in the former representation;” and 2) the relationship

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between the subjects of the former and current representation. See Jensen v. Hartford Cas. Ins.

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Co., 111 Cal. App. 4th 698, 709-712 (2003).
As to the first variable, courts must differentiate “between lawyers who become heavily

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involved in the facts of a particular matter and those who enter briefly on the periphery for a

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limited and specific purpose related solely to legal questions. H.F. Ahmanson & Co., 229 Cal.

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App. 3d at 1457. If the court determines that the attorney’s former representation of the prior

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client was direct and personal, the disclosure of confidential information is presumed, and “the

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only remaining question is whether there is a connection between the two successive

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representations.” Id. at 1453. On the other hand, where the former attorney-client relationship is

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peripheral or attenuated instead of direct, then the presumption will not be applied in the absence

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of an adequate showing that the attorney was in a position vis-à-vis the client to likely have

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acquired confidential information material to the current representation. Jessen, 111 Cal. App.

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4th at 710.

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There is no dispute that Sean Luner met with 8x8, Inc. in 2009. Ultimately, that meeting

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did not result in Mr. Luner representing 8x8, Inc., nor was there any continued communication

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between Luner and 8x8, Inc. after the client representation meeting. While Luner may have

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offered some initial impressions of the legal issues discussed, he was not called upon to formulate

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a legal strategy for 8x8, Inc., and is unlikely to have gained detailed knowledge of the pertinent

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facts and legal principles at issue in the instant litigation. As a result, the Court finds that Luner’s

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relationship with 8x8, Inc. is attenuated and will not presume that he acquired confidential

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information material to the instant litigation.

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In regard to the second variable, a “substantial relationship” exists between the prior and
current representation whenever the “subjects” are linked in some rational manner. Id. at 711.

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United States District Court
Northern District of California

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Information acquired during the first representation must be ‘material’ to the second; that is it

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must be found to be directly at issue in, or have some critical importance to, the second

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representation. Genetech, Inc. v. Sanofi-Aventis Deutschland GMBH, No. C08-04909 SI, 2010

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WL 1136478 (N.D. Cal. March 20, 2010) (quoting Farris v. Fireman’s Fund Ins. Co., 119 Cal.

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App. 4th 671, 680 (Cal. Ct. App. 2004)).

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While it appears that Luner and 8x8, Inc. discussed related subject matter- VoIP

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technology- that does not necessarily establish a substantial relationship. Farris, 119 Cal. App.

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4th at 680-81. 8x8, Inc.’s meeting with Sean Luner was to specifically discuss intellectual

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property covering 8x8, Inc.’s VoIP technology. 8x8, Inc. alleges that during this meeting they

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also discussed the Klausner lawsuits with an understanding that the patents would not/or could

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not be properly asserted against any of 8x8, Inc.’s products. 8x8, Inc., however did not identify

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any specific products in their declarations that were discussed that are directly at issue in this

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case. As such, the Court is not persuaded that material confidential information was disclosed to

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Luner in December 2009.

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Moreover, 8x8, Inc. faces an additional obstacle in that Sean Luner is not representing

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Klausner or IPVX in this litigation, and has not been retained to represent either company in any

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litigation against 8x8, Inc. (Decl. of Sean Luner, “Luner Decl.,” Dkt. No. 71, Ex. F ¶ 5.)

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Disqualification is unnecessary when the conflicted attorney is not participating in the litigation.
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Oracle Am. Inc., 11-CV-01043-LHK, 2011 WL 2940313, at *5 (citing Haldane v. Haldane, 210

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Cal.App.2d 587, 592 (Cal. App. 2d Dist. 1962) (motion to disqualify was moot when attorney in

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question was not participating in the case); Cargill Inc. v. Budine, No. CV-F-07-349, 2007 WL

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1813762, at *7 (E.D. Cal. June 22, 2007) (disqualification improper where transgression has no

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substantial and continuing effect on future judicial proceedings).
Although Sean Luner’s name is listed on several filings in the instant action, this is due to

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the consolidation of Klausner Technologies, Inc. v. Aastra Technologies, LTD, where Sean Luner

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was counsel of record for Klausner Technologies, and all the Klausner/IPVX patent infringement

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cases were filed in the Eastern District of Texas, including the instant case against 8x8, Inc. This

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case continues to serve as the lead case for all consolidated issues. (Dkt. No. 37.) The lead case

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United States District Court
Northern District of California

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in which Luner represented Klausner, however, was dismissed on November 30, 2012. (Dkt. No.

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86, Ex. 3.) At the hearing, Plaintiff clarified that Luner’s signature on the protective order in this

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case was a clerical error in the signature block, and that Luner was not appearing as counsel. In

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fact, Luner and his firm are no longer involved in any of the cases pending in the Eastern District

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of Texas or in any cases against 8x8, Inc. Since Sean Luner is not participating in the instant

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litigation, there is no need to disqualify him.

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Accordingly, 8x8, Inc.’s motion to disqualify Sean Luner is DENIED.
B.

Yanney’s alleged imputed knowledge of confidential information

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8x8, Inc. seeks to disqualify Yanney based on its belief that Sean Luner’s knowledge of

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8x8, Inc’s confidential information is imputed to Yanney. As discussed above, Sean Luner had

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represented Klausner in a previously dismissed, consolidated case. Nevertheless, Klausner is no

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longer a party to this action.

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Defendant relies heavily on Pound v. DeMera DeMera Cameron in support of its

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argument that Yanney must be disqualified. (Def.’s Supplemental Mem. at 6.) This reliance is

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misplaced, because Pound is factually distinguishable. In Pound, the California Court of Appeal

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held that an associated counsel’s successive representation disqualified a law firm, because the

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associated attorney changed “from one side (plaintiffs) to the other (defendants), during the

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pendency of a case.” 135 Cal. App. 4th 70, 76 (2005). Here, Yanney was not associated with
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Luner. In fact, the two attorneys represented different clients. Defendant points to a previous,

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unrelated case in which the attorneys associated, with Yanney serving as local counsel. This,

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however, does not mean that Luner’s knowledge may be automatically imputed on Yanney.

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Further, unlike in Pound, the instant litigation was not pending when Luner met with 8x8. See

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Pound, 135 Cal. App. 4th at 74. Lastly, Luner was not disqualified by the Court, like the

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associated attorney in Pound. Rather, Luner is no longer involved in the instant litigation due to

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the substitution of IPVX for Klausner.

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Instead, the “disqualification of one firm does not automatically compel disqualification of
the firm’s co-counsel .... Rather, the particular facts of each case must be considered in order to
determine whether disqualification is warranted.” Oracle Am. Inc., 11-CV-01043-LHK, 2011

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United States District Court
Northern District of California

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WL 2940313, at *5 (citing In Re Airport Car Rental Antitrust Litigation, 470 F.Supp. 495, 501–

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502 (N.D. Cal. 1979).

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A review of the particular facts in this case leads the Court to conclude that

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disqualification of Mr. Yanney is not warranted. The scant evidence in the record does not create

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a reasonable probability that important information regarding the Luner-8x8, Inc. meeting was

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divulged to Yanney. 8x8, Inc. provided two declarations from high ranking representatives which

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state that confidential information was divulged during the 30 minute telephone meeting between

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8x8, Inc. and Sean Luner, and an email from Mr. Yanney stating that he had investigated 8x8,

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Inc.’s allegation that Mr. Luner told them that 8x8, Inc.’s patent did not infringe on any Klausner

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patent. Mr. Yanney rebutted this allegation in his sworn declaration stating that he did not receive

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any confidential 8x8, Inc. information from Sean Luner and that his communications with Luner

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were “limited to confirming that Mr. Luner did not at any time state to 8x8 that it does not

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infringe the Klausner patent-in-suit.” (Yanney Decl. ¶¶ 3,6., Dkt. No. 71, Ex. E.)

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Based on the record before the Court, there is no reason to doubt Yanney’s sworn

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declaration that he was not privy to confidential 8x8, Inc. information. See Oracle Am. Inc., 11-

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CV-01043-LHK, 2011 WL 2940313, at *5 (citing Halladay & Mim Mack Inc. v. Trabuco Capital

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Partners, Inc., 2009 EL 3244746 (C.D. Cal. Oct. 5, 2009) (absent credible evidence otherwise,

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“[t]here is no reason to disbelieve [attorney’s] factual statements in his declaration”); c.f. Cargill,
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2007 WL 1813762, at *11 (E.D. Cal. June 22, 2007) (rejecting self-serving declarations where

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evidence in the record led to court’s concern that confidential information was actually disclosed).

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Furthermore, Sean Luner’s sworn declaration states that the December 2009 telephone meeting

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did not discuss any of 8x8’s products, the functionality of any of its products, nor whether any of

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its products infringed on any patent. (Luner Decl. ¶ 3.)
Accordingly, 8x8, Inc.’s speculation that Luner provided allegedly confidential

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information relied upon in IPVX’s complaint is unfounded. None of the facts alleged in the

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original complaint or the First Amended Complaint appear to be based on the alleged confidential

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communications from 2009. Additionally, no evidence has been provided that shows Yanney
received confidential information from Luner regarding 8x8, Inc. that was relevant to the merits

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United States District Court
Northern District of California

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of this litigation. See FlatWorld Interactives LLC v. Apple Inc., No. 12-cv-01956-WHO, 2013

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WL 4039799, at *9 (N.D. Cal. Aug. 7, 2013) (refusing to disqualify co-counsel lacking actual

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knowledge or possession of confidential information and conflicted only through imputation).
In light of the above, Defendant’s motion to disqualify Pierre Yanney is DENIED.

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C.

8x8, Inc. may have waived its objections to representation by Mr. Yanney or Mr.
Luner.
Additionally, Plaintiff argues that even if Mssrs. Luner and Yanney should be disqualified,

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8x8, Inc.’s failure to bring this motion sooner constitutes a waiver of its objection. While it

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appears that 8x8, Inc. first became aware of the alleged conflict on December 7, 2011 at the latest,

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and that 8x8, Inc. has offered no explanation for its delay in pursuing disqualification until

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January 30, 2013, based on the foregoing, the Court need not address the issue of waiver in

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denying Defendant’s motion.
IV. CONCLUSION

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For the reasons set forth above, 8x8, Inc.’s motion to disqualify plaintiff’s counsel is
DENIED.
IT IS SO ORDERED.
DATE: December 19, 2013

___________________________
KANDIS A. WESTMORE
United States Magistrate Judge

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