Abstract
A non-disclosure agreement in a financing transaction did not create a conflict of interest stemming from a fiduciary relationship or obligation for a law firm with respect to a party to that non-disclosure agreement that it did not represent.
Background
Centripetal Networks sued
Prior Negotiations between Centripetal Networks and Silver Point Finance
The two parties, Centripetal Networks and Silver Point Finance, agreed they had a "common-interest with respect to the transaction" and executed a mutual non-disclosure agreement (NDA) to facilitate the disclosure of any confidential information used solely for the evaluation of the potential transaction. The same day the NDA was signed, Silver Point Finance retained Ropes & Gray to represent it in negotiating the potential transaction. Centripetal Networks, Silver Point Finance, and several attorneys from Ropes & Gray participated in a teleconference to discuss the potential transaction. According to Centripetal Networks, the parties discussed its "patents, prospective litigation, and other highly confidential, privileged, and work product information." According to
After the teleconference, Centripetal Networks set up a "data room" to store confidential information and provided access to the Ropes & Gray attorneys. Two Ropes & Gray attorneys tested their access to the data room, but never accessed documents in the data room because Silver Point Finance instructed them to stop working on the transaction. Ropes & Gray never resumed working on the transaction.
Pending lawsuit between Centripetal Networks and
After Centripetal Networks sued
Centripetal Networks then filed a motion to disqualify counsel alleging that Ropes & Gray's representation of
The Centripetal Networks-Palo Alto Order
The district court for the
In its motion to disqualify Ropes & Gray, Centripetal Networks alleged it was either "a former client" based on an "implied attorney-client relationship" theory under Rules 1.7 and 1.9 or "a third person" to whom the Ropes & Gray attorneys would owe responsibilities under Rule 1.7. Under
With respect to being a "third person," Centripetal Networks argued Ropes & Gray was obligated to not use any confidential information gained from the financial transaction for purposes outside of the transaction. When evaluating the evidence submitted, however, the court found Centripetal Networks's declarations contain conclusory allegations that were unsupported by relevant details, while Ropes & Gray's declarations provided detailed and specific information related to the transaction. Thus, the court found Centripetal Networks did not prove it is a "third person" to which Ropes & Gray owed an obligation that would materially affect its ability to represent
Having found no violations of Rules 1.7 and 1.9, there were no conflicts of interest to impute onto Ropes & Gray and the court denied Centripetal Networks's motion to disqualify.
Strategy and Conclusion
The wording of an NDA in a transactional financial negotiation is relevant to determining implied attorney-client relationships as well as obligations of outside counsel to parties to the agreement. The same is true for confidential information shared during negotiations. If companies or counsel do not want to create such obligations and relationships, they should consider the language and conduct of the attorneys.
Further Information
The Centripetal Networks order can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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