Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 1 of 10

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

CAPITAL MACHINE COMPANY, INC., and IN- )

DIANA FORGE, LLC, )
Plaintiffs, )
) 1:09-cv-00702-JMS-TAB
vs. )
)
MILLER VENEERS, INC., et al., )
Defendants. )

ORDER

Presently before the Court in this patent infringement action is Capital Machine Compa-

ny’s (“Capital”) Emergency Motion to Disqualify Counsel. [Dkt. 145.] Through it, Capital

seeks to disqualify Barnes & Thornburg LLP (“B&T”), which recently entered an appearance on

behalf of Defendants. Capital contends that B&T’s should not be allowed to represent Defen-

dant Miller Veneers here because B&T previously represented Capital in five other “substantial-

ly related” matters to this action.1

EVIDENTIARY OBJECTIONS

At oral argument on Capital’s motion, B&T proffered two new affidavits for the Court’s

consideration, affidavits which B&T contends help prove that its representation here is proper.

One of the affidavits was from Kenneth J. Yerkes, a B&T partner, [dkt. 166-2]; the other was

from Molly J. Denien, B&T’s controller, [dkt. 166-1], which supplemented a previous affidavit

that she submitted, [dkt. 154-5]. Capital objected to both affidavits: Because B&T didn’t in-

clude them with its Response, Capital had never seen them before the oral argument and thus

couldn’t adequately respond to the statements contained in them. In the interests of efficiency,

1
Capital’s brief also claims that B&T violated Indiana Rule of Professional Conduct 1.7. That
rule could only apply if Capital were currently B&T’s client. At oral argument, however, Capital
abandoned reliance on Rule 1.7, so the Court won’t address that claim.

-1-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 2 of 10

the Court permitted B&T to reference those affidavits in its argument and took Capital’s objec-

tions under advisement.

Absent compelling reasons, litigants must come forth with their best arguments and evi-

dence the first go around; “[m]otion practice is not an exercise in trial and error or maybe-maybe

not where a party can reserve arguments to present later if earlier ones fail,” Brownstone Publ’g,

LLC v. AT&T, Inc., 2009 U.S. Dist. LEXIS 25485, *7 (S.D. Ind. 2009).

B&T offers the compressed nature of the briefing schedule as its sole justification for be-

latedly providing the affidavits—which, by and large, simply respond to points made in Capital’s

opening brief. [See, e.g., dkt. 166-2 ¶3 (disputing statement contained in an affidavit filed with

Capital’s opening brief).] That justification won’t suffice. The seven days allotted for B&T to

prepare its response should have permitted it sufficient time to obtain any necessary affidavits

from its own employees, especially because B&T doesn’t contend that Mr. Yerkes was away

from the office during that time and because B&T was previously able to obtain one affidavit

from Ms. Denien. If B&T couldn’t actually obtain the affidavits for whatever reason, it could

and should have notified opposing counsel that it intended to obtain them. That way, opposing

counsel could have had the opportunity to confer with his client about them and/or conduct any

necessary additional legal research. Certainly B&T could have at least faxed the affidavits to

opposing counsel the day before the hearing—when the affidavits were actually executed—or

even the morning of the hearing, rather than springing them upon him the following afternoon in

the middle of oral argument.2 B&T’s failure to provide advance notice is simply inexcusable and

is utterly inconsistent with the fair notice upon which our adversarial system depends.

2
Permitting Capital time to respond in writing wouldn’t cure the prejudice from the late disclo-
sure. Capital has offered a strong case for disqualification, and the two affidavits, even if admit-
ted, wouldn’t seriously undercut that case. Further delaying the proceedings to permit Capital to
respond in writing would unnecessarily protract the proceedings.

-2-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 3 of 10

The Court thus SUSTAINS Capital’s objections to the belated affidavits of Kenneth J.

Yerkes, [dkt. 166-2], and of Molly J. Denien, [dkt. 166-1]. The Court won’t consider those affi-

davits in connection with the present motion.

BACKGROUND

In (very) simple terms, Capital has sued Miller Veneers LLC (“Miller”), claiming that

Miller uses a machine to produce wood veneers that infringes upon six of Capital’s patents. [See

dkt. 1.] It has also named as a Defendant Robert Brand, whom it contends helped Miller design

the allegedly infringing machine. [Id. ¶68.] At one time, Mr. Brand worked for Capital as its

Vice-President of Engineering, and it told the U.S. Patent Office that he invented the technolo-

gies covered by the patents at issue. [Id. ¶25.] Miller and Mr. Brand deny that last charge; they

say that he “did not invent the subject matters of all the claims of [the six] patents, and therefore

each of the applications for each of the[] patents were void ab initio.” [Dkt. 76 at 13 ¶3b.]

Capital had, to varying degrees, used B&T for legal services, including both patent and

labor/employment issues since the mid-1980’s. [Dkt. 146-1 ¶¶3, 8.]3 On December 26, 2006,

when Mr. Brand announced his resignation from Capital, [dkt. 163-5], B&T’s time records re-

flect that current B&T partner Terry W. Dawson had a forty-two minute telephone call with Cap-

ital’s president, Bill Koss. [Dkt. 155-1 at 6.] The narrative for the call indicates that the two dis-

cussed an “engineer quitting.” [Id.] In February 1997, the time records for another B&T attor-

ney named Derek Murphy indicate a brief (six-minute) telephone conference with Capital on

preparing a “Covenant Not to Compete.” [Id. at 9.] In April, Mr. Murphy recorded five-and-a-

half hours, among other things, preparing a non-compete agreement “for salesman and engineers

employed by Capital Machines,” and discussing it with Capital’s president. [Id.]

3
B&T reports that its total billings over the twenty-five year legal relationship amounted to ap-
proximately $50,000. [Dkt. 154 at 5.]

-3-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 4 of 10

Mr. Koss has submitted an affidavit in which he claims that B&T provided Capital with,

among other things, “[c]ounseling regarding employment matters generally, and specifically, as

they relate to: (a) the ownership of inventions; and (b) Capital’s employment relationship with

Defendant Robert Brand.” [Dkt. 146-1 ¶8.] He goes on to state that B&T’s also provided advice

regarding Capital’s “employment contract, which includes provisions regarding ownership of

inventions and confidential information.” [Id. ¶25.]

Neither Mr. Dawson nor Mr. Murphy provided affidavits regarding their version of

events memorialized in their time entries.

DISCUSSION

The Court will first consider whether B&T’s appearance in this action violates the Se-

venth Circuit’s prohibition against a lawyer representing a new client who is adverse to a former

client in a substantially related matter. Concluding that B&T’s appearance does in fact violate

that prohibition, the Court will then determine the appropriate remedy.

I. Substantial Relatedness

Even though lawyers are obligated to maintain client confidences even after the represen-

tation has concluded, “this prohibition has not seemed enough by itself to make clients feel se-

cure about reposing confidences in lawyers.” Analytica, Inc. v. NPD Research, Inc., 708 F.2d

1263, 1266 (7th Cir. 1983). Accordingly, the Seventh Circuit has held that “a lawyer may not

represent an adversary of his former client if the subject matter of the two representations is

‘substantially related,’ which means: if the lawyer could have obtained confidential information

in the first representation that would have been relevant in the second.” Id.4 Where, as here, an

entire law firm is alleged to have improperly switched sides, the firm cannot avoid disqualifica-

4
This prohibition is consistent with Indiana Rule of Professional Conduct 1.9(a).

-4-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 5 of 10

tion by claiming it did not actually obtain any relevant confidential information. Cromley v. Bd.

of Ed., 17 F.3d 1059, 1065 n.3 (7th Cir. 1994) (discussing the rule established by Analytica).

The appearance of a conflict in such a circumstance is simply too “difficult to dispel in the eyes

of the lay public—or for that matter the bench and bar—by the filing of affidavits, difficult to

verify objectively, denying that improper communication has taken place or will take place be-

tween the lawyers in the firm handling the two sides.” Analytica, 708 F.2d at 1269.

The analysis for substantial relatedness here involves three steps:

(1) Determine the scope of the prior representation;

(2) Ask whether “it is reasonable to infer that the confidential information allegedly giv-

en would have been given to a lawyer representing a client in those matters;” and if

so,

(3) Ask whether that confidential information “is relevant to the issues” raised in the

present action.

La Salle Nat’l Bank v. County of Lake, 703 F.2d 252, 255 (7th Cir. 1983) (citations omitted).

Only if the answer to the last question is “yes” are the two matters substantially related. Id.

Capital claims that this action is substantially similar to five other matters where B&T

previously represented it.5 B&T’s records corroborate, to some extent, Capital’s claims. B&T

represented Capital over several decades. The firm provided an array of services, including pa-

tent advice, tax advice, acquisition advice, and employment law advice. Capital’s principal, Mr.

Koss, has testified by affidavit that during these consultations he shared confidential and relevant

information with B&T lawyers. Capital notes that certain general discovery requests bear on its

5
The Court notes that Capital’s brief contained redacted excepts from B&T’s billing records that
B&T argued were misleading. Much time was spent—and wasted—by the parties debating the
redactions. While Capital ultimately explained the omissions, Counsel for Capital is cautioned
to quote verbatim in the future, in order to avoid wasting the Court’s and counsel’s time.

-5-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 6 of 10

acquisition of a particular company and on Capital’s taxes. The Court will, however, only dis-

cuss one prior B&T matter: what Capital calls B&T’s assistance in “securing rights to inven-

tions and invention agreement.” [Dkt. 146 at 18.] That matter easily satisfies the substantially

related test and, as explained later, justifies disqualification, regardless of whether the other mat-

ters were or weren’t also substantially related.6

Applying the required three-part analysis, the Court first finds that from late 2006 to mid-

2007, B&T advised Capital about how to better protect its intellectual property and about the po-

tential intellectual property consequences of Mr. Brand’s departure. In making this finding, the

Court affords significant weight to Mr. Koss’ affidavit. While B&T attempts to rely upon the

vagueness of its time records to narrow the scope of the prior representation, the Court cannot

accept B&T’s argument that the records are the best or exclusive source of information about the

scope of prior representation. Doing so not only would incentivize attorneys to maintain vague

time records—to maximize their ability to take on adverse clients in the future—but would also

deprive clients of any meaningful participation in the reconstruction of the scope of the relation-

ship, even though the ethics rules exist for their benefit. In any event, because Mr. Koss’ affida-

vit simply elucidates the narratives in B&T’s time records rather than actually conflicting with

them, crediting his affidavit is particularly appropriate.

As for the second step in the analysis, the Court finds that it would have been reasonable

6
The Court does, however, note its concern over the relationship between this action and B&T’s
role in procuring U. S. Patent No. 4,503,896, which was referenced by Capital in obtaining the
patents in suit. This claim, too, may brush up against the ethical lines and may well cross them.
See In re Air Crash Disaster near Roselawn, 909 F. Supp. 1116, 1122 (N.D. Ill. 1995) (“The
‘chalk lines’ drawn by the ethical rules are meant to be avoided at all costs. The goal should not
be to come so close to the ‘chalk lines’ that one is covered in white dust.”). But given the evi-
dentiary record, the analysis of that claim is not nearly so straightforward as that relating to the
matter discussed above. The analysis would be even less straightforward with respect to the oth-
er matters that Capital has identified, matters which are far more attenuated to the present action.

-6-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 7 of 10

for Capital to have discussed in the course of the attorney-client relationship what intellectual

property Mr. Brand did and didn’t create during his tenure. Without that information, it would

have been very difficult for B&T to have properly advised Capital about how to best protect the

intellectual property that he, and future employees like him, had access to.

Finally, confidential information about the extent to which Mr. Brand actually created

Capital’s intellectual property relates to the present action. Miller and Mr. Brand have raised as

a defense that Mr. Brand didn’t create the patented technology here. Accordingly, this action is

substantially related to B&T’s prior representation of Capital.

II. Remedy

Capital seeks several remedies as a consequence for B&T’s appearance in this substan-

tially related action.

First, Capital asks that the Court require B&T withdraw their appearances in this action.

In response, B&T has collected cases denying disqualification in the absence of any prejudice to

the former client, [see dkt. 154 at 28], and it goes on to argue that depriving Miller of its counsel

of choice would unfairly prejudice Miller. But insofar as B&T claims that Capital would suffer

no prejudice, the Court notes that the intra-Circuit authority that B&T collected denied disquali-

fication only upon “unique circumstances.” Metro. Life Ins. Co. v. Guardian Life Ins. Co. of

Am., 2009 U.S. Dist. LEXIS 42475, *15 (N.D. Ill. 2009). See also SWS Fin. Fund A v. Salomon

Bros., Inc., 790 F. Supp. 1392, 1403 (N.D. Ill. 1992) (“The court is cognizant that this decision

[denying disqualification] may be viewed by some as a departure from the norm.”). No such

unique circumstances are present here. Further, B&T’s argument rests upon the incorrect pre-

mise that the harm to Capital, and the potential benefit to Miller, is merely “speculative.” [Dkt.

154 at 27.] The potential harm to Capital—and to the profession in the eyes of the public—is

-7-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 8 of 10

real given the close relationship between the prior representation and this one. And insofar as

B&T claims that Miller would be unfairly prejudiced, the Court rejects that claim: Miller has

other counsel who have been handing this matter for more than a year before a B&T attorney

appeared, at which time Capital promptly filed the present motion.

Capital also seeks attorneys’ fees as a form of relief. Attorneys’ fees for prevailing on a

motion to disqualify are only recoverable upon a showing of bad faith; they aren’t recoverable as

of right. See Analytica, 708 F.2d at 1269 (“[W]e must decide whether Schwartz & Freeman’s

insistence on litigating [disqualification] rather than bowing out gracefully was so unreasonable

that the district judge could properly find it to be in bad faith; otherwise the order to reimburse

NPD’s legal fees and expenses was improper.” (citation omitted)). While B&T ultimately didn’t

prevail against Capital’s motion, Capital has failed to establish that the firm’s position was taken

in bad faith. The requisite showing under Analytica has thus not been made, so no fees are reco-

verable.

Finally, Capital’s prayer for relief includes a number of other equitable remedies, includ-

ing, for example, that B&T be required to segregate and maintain its files for its representation of

Miller for at least twenty-four months. [Dkt. 146 at 31.] Capital hasn’t, however, cited any au-

thority for imposing such remedies, nor explained why they are necessary. The Court is confi-

dent that B&T will comply with its professional obligations with respect to its withdrawal from

this action. If additional equitable relief is required, Capital must file a motion justifying that

relief.

CONCLUSION

The Court GRANTS IN PART and DENIES IN PART Capital’s Emergency Motion to

Disqualify Counsel. [Dkt. 145.] It is granted to the extent that B&T, and all their attorneys, may

-8-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 9 of 10

not further represent Miller in this action before this Court, and all B&T attorneys must promptly

file motions to withdraw their appearances. It is denied insofar as it seeks attorneys’ fees. It is

also denied to the extent that it seeks any other relief, but that denial is without prejudice.

The parties should meet and confer about a revised schedule for summary judgment and

Markman briefing as well as any other case management deadlines. They must file a joint report

to the Court within fourteen days. If they cannot agree, their report should set forth competing

proposals, and they should request a status conference with Magistrate Judge Baker to discuss

those proposals.

09/16/2010
_______________________________

Hon. Jane Magnus-Stinson, Judge

United States District Court
Southern District of Indiana

Distribution via ECF only:

Cynthia A. Bedrick
MCNEELY STEPHENSON THOPY & HARROLD
cabedrick@msth.com

Clifford W. Browning
KRIEG DEVAULT LLP
cbrowning@kdlegal.com

Courtney E. Curtis
OVERHAUSER & LINDMAN, LLC
ccurtis@overhauser.com

Jennifer M. Frasier
MCNEELY STEPHENSON THOPY & HARROLD
jmfrasier@msth.com

Donald Robert Lundberg

BARNES & THORNBURG LLP
donald.lundberg@btlaw.com

-9-
 Case 1:09-cv-00702-JMS-TAB Document 175 Filed 09/16/10 Page 10 of 10

J. Lee McNeely
MCNEELY STEPHENSON THOPY & HARROLD
jlmcneely@msth.com

Paul B. Overhauser
OVERHAUSER & LINDMAN, LLC
poverhauser@overhauser.com

Katherine A. Petralia
MCNEELY STEPHENSON THOPY & HARROLD
kapetralia@msth.com

Deborah Pollack-Milgate
BARNES & THORNBURG
dmilgate@btlaw.com

Brady J. Rife
MCNEELY STEPHENSON THOPY & HARROLD
bjrife@msth.com

-10-