Barnes & Thornburg's Outrageous Conflict of Interest in the IBM Medicaid Privatization Case

Gary Welsh of Advance Indiana reports on interesting closing comments by the attorneys in the Medicaid privatization case.   On behalf of the State, Barnes and Thornburg's John Maley, a former law school classmate of mine, talked about how IBM had breached the privatization contract.  In response, the IBM's attorney pointed fingers at ACS, IBM's major subcontractor on the job.

One would think ACS would have been an obvious target as a co-defendant on the case. But ACS has a couple ace cards in the hole.  ACS had employed Mitch Roob, former director of FSSA, the agency which, under Roob, hired ACS for the privatization effort. But more importantly, ACS's current law firm is the politically-connected Barnes and Thornburg, the very firm representing the State.

We attorneys all know what a conflict of interest is.  Warning bells go off.  Even the attorneys at Barnes and Thornburg knew they were faced with a conflict of interest.  In the legal contract (that now as amended pays the firm $8.05 million), the firm discusses in a section stretching out over three pages the conflict the firm has in in representing the State in suing IBM over the company's handling of the Medicaid privatization while also representing the ACS, the major subcontractor on the project.  While it is dry reading to the average person, attorneys reading it will find the section jaw-dropping, an admission of a blatant conflict of interest that probably no other law firm in the State would even dare attempt to undertake.  As I will outline afterwards, the conflict of interest outlined in the contract is a nonwaivable conflict under the Indiana Rules of Professional Conduct:

Here is a portion of the conflict of interest section of the Barnes and Thornburg contract:

As Counsel has previously advised State, if Counsel represents State in this litigation it will determine if obtaining consent is necessary pursuant to the Rules of Professional Conduct from several clients who have served as subcontractors of IBM in respect of the Medicaid modernization project, and obtain such consent where required. These parties are ACS Human Services, Arbor/Res-Care, AW Holdings/Postmasters, Crowe Horvath, LLP , and Haverstick Consulting.  Counsel understands that Crowe Horvath and State have not agreed upon terms for Crowe to continue participation in the Medicaid modernization project. The other listed parties are continuing to work with State on the project.  All of these parties, other than Haverstick Consulting, are current clients of Counsel's firm.  Lawyers in Counsel's firm have provided legal advice and representation to each of those parties in matters related to the Medicaid modernization project and, in particular, their contractual relationship with IBM.  These parties are referred to below a the "Other BT Clients."

Counsel expects to obtain consents from each of the Other BT Clients required that will permit Counsel to fully represent State in the Medicaid Eligibility Litigation even if doing so Counsel must take positions or actions directly adverse to them.  (For example, proving a breach by IBM may require proof of a breach by a subcontractor.)  Counsel expects such consents to permit Counsel to take complete discovery from them as necessary. However, the Other BT Clients will not be consenting to Counsel's assertion of direct substantive claims against them in the litigation, based on Counsel's understanding that State's Claims will be asserted against IBM. Accordingly, Counsel understands that State agrees that Counsel will not be called upon in this representation to assert direct substantive claims against any of the Other BT Clients.

In addition, Counsel will continue (primarily through Joe Loftus) to represent ACS, Arbor and AW Holdings/Postmasters in connection with their prospective participation in FSSA's continuing Medicaid eligibility modernization initiatives and other matters relating to their ongoing dealings with the State.  As long as Counsel continues to represent State in the controversy with IBM, however, Counsel will not assert or defend claims on behalf  of any of such parties against State in any litigation or similar proceeding arising from such parties' contractual rights and obligations in connection with State's Medicaid Eligibility Matters. Counsel will be free to represent any client on any Medicaid eligibility matter other than IBM.  Counsel understands that State consents to these consenting representations and limitations.

State has carefully considered that Counsel has represented  each of these Other BT Clients in matters related to the Medicaid eligibility project, including their contracts with IBM and recognizes that this may create some challenging issues.  Counsel will seek the required consents described above from Other BT Clients.  Given such parties' desire to foster good relations with the State on such an important matter, Counsel expects they will consent.  If they do not, Counsel will not move forward. State has agreed that if required consents are not forthcoming that Counsel cannot move forward with this representation.  Counsel may screen John Maley, Peter Rusthoven, Brian Burdick, Patrick Price, and Curtis Greene (these being other attorneys who will assist) and any confidential information Counsel has received from State on this matter so that other lawyers within Counsel's firm may still be free to represent any of the Other BT Clients in related matters and the litigation if and as needed. If the Other BT Clients do consent, the fact that we have had such other representations may have other consequences that the State should consider.

...

Counsel for IBM in this matter is extremely aggressive and will seek to disadvantage State at every opportunity.  They may endeavor to utilize Counsel's representation of Other BT Clients in an effort to cause the court to disqualify Counsel from representing the State. Although Counsel does not believe IBM will have standing to do so, any effort to assert such issues may distract Counsel and State from the central issues in the litigation and create additional expense to oppose such efforts. Further it is possible that one or more of the subcontractors  may decide that their interests are better served by cooperating with IBM in such matters, and even if they have provided consent, they may seek to revoke their consent, or contend that some aspect of the case is outside the scope of their consent or that circumstances changed in an unanticipated way making their consent to Counsel's representation of State ineffective.

IBM's counsel may also attempt to use Counsel's representation of Other BT Clients to IBM's advantage in other ways in the litigation.  For example, IBM could try to undermine these client's credibility to the extent an Other BT Client's testimony is helpful to State or to enhance its credibility to the extent it is helpful to IBM   In short, you should anticipate that IBM's counsel will look for creative ways to exploit the fact that Counsel represents and continues to represent Other BT Clients.

In addition, Counsel has obtained from the Other BT Clients information that is potentially relevant to the Medicaid Eligibility Litigation. State agrees that counsel need not disclose to State or use in the litigation on behalf of State any information that Counsel may have acquired in any representation of the Other BT Clients.  Further, Mr. Loftus and others who have or continue to perform work for the Other BT Clients will be screened from the representation of State, and lawyers working on the Medicaid Eligibility Litigation will be screened from access to files of the Other BT Clients going forward.

State has carefully considered these issues and weighed the benefit of having Indiana based Counsel in this matter with the fact that using other counsel would not likely raise the same issues.  State has considered these matters carefully with independent counsel. By signing this Contract, State consents to (i) Counsel's representation in the Medicaid Eligibility Litigation on the foregoing bases and notwithstanding the limitations described herein, and (ii) Counsel's ongoing representation of Other BT Clients in prospective issues related to State's Medicaid modernization initiative.

Because of the foregoing risks, Counsel has recommended that State consider engaging co-counsel to represent it along with Counsel in this litigation. Such co-counsel would generally observe and concur on strategic decisions.  Counsel would generally direct the case and handle primary responsibility for the litigation. Counsel would keep co-counsel regularly informed. Such co-counsel then would be available to participate more proactively if (i) allegations of conflict of interest were made regarding Counsel's representations of any of the Other BT Clients where co-counsel could handle matters directly involving such parties; and (ii) in the unlikely event that a court would disqualify Counsel, co-counsel could be available to carry the case forward without significant disruption to representation to State.

...

This is the section of the Indiana Rules of Professional Conduct that applies to the conflict Barnes and Thornburg outlined in its contract with the State.

Rule 1.7. Conflict of Interest: Current Clients 

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law; 

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Barnes and Thornburg admits that (a) is triggered in the contract, but it uses paragraph (b) to try to escape the conflict.  It repeatedly points out that it will get waivers from those conflicted clients.

The problem is the "and" in subparagraph (b).  A waiver does not get the firm around its conflict.  The problem is (b)(3).  The contract specifically acknowledges that the IBM litigation could potentially involve claims against its current clients.  That makes it a nonwaivable conflict.  The commentary on the rules explains why:

[14] Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When the lawyer is representing more than one client, the question of consentability must be resolved as to each client.

[17] Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in vigorous development of each client's position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding....

In short, of course ACS will consent to its law firm representing the State in this action because ACS knows that having its attorneys driving the litigation it is extremely unlikely the firm will sue it or otherwise aggressively pursue it during discovery.  That is exactly we have nonconsentable conflicts of interest...there is an institutional interest in having attorneys zealously pursuing litigation without regard to teh fear of losing existing clients.

In my nearly quarter of a century practicing law, this is by far the the worst conflict of interest I have ever seen.   If the conflict of interest rules in the Indiana Rules of Professional Conduct are to have any meaning, they need to be enforced in this case.  While Judge David Dreyer currently hearing the case is an excellent  judge, I think the first order of business in the case should have been to send the Barnes and Thornburg attorneys back to their offices at 18 S. Meridian and make a referral to the Indiana Supreme Court Disciplinary Commission for the attorneys' blatant violation of the ethics rules on conflicts of interest.