Coke’s Crack-up with its Counsel

One of my biggest pet peeves about in-house law department relationships with large law firms was the firms’ insistence on advance waivers of future conflicts of interest. For the uninitiated, this is the practice where attorneys, as a condition to representing a new client, require that new client to give up any objection if, in the future, the attorney represents another client against that new client.  The new client is not told who that adverse client is, what matter it relates to or even who from the firm is working on the conflicting matter. Why? Because the waiver is about something unknown that may or may not happen in the future.

This article about Paul Hastings’ dispute with Coca-Cola is a great example of the hazards posed by these waivers. Coke's Feud With Paul Hastings Highlights Risks of Conflict Waivers

As General Counsel, I had a major law firm take on representation of a company seeking to invalidate our crown jewel patents. The firm said they didn’t need my consent to take this on because someone in the distant past had signed an advance waiver. We terminated our relationship with the firm.

In another case, a major law firm was hired to review patents as part of the due diligence for an acquisition. That firm failed to flag potential problems with a set of patents we were considering because they could be construed to conflict with another client’s patents. Again, the firm pointed to an advance waiver to justify this behavior. Whether the waiver was valid in this situation is the topic for another article, but, needless to say, we never did business with that firm again.

In my experience, most large firms simply will not do business with a new client if an advance waiver is not granted. My standing instructions to my team as General Counsel was that no one was allowed to sign these waivers without my consent. I rarely granted these waivers with the breadth requested by the law firms. We always tried to narrow the scope of the waiver as much as possible. For example, if we were solely a corporate client, we did not waive corporate conflicts, only conflicts outside of the corporate representation. To completely refuse advance waivers would have left us without access to the biggest firms. 

As part of these negotiations, in the early years, I asked to be notified when a conflict arose, even if the waiver applied. The firms refused. I asked to be told what matter came into conflict with us. The firms refused. I asked to be told if attorneys working directly on our matters had taken on representation adverse to us. The firms refused. I asked to be told simply that a conflict existed, nothing more. The firms refused.

The attorney ethics regimes of states like California explicitly allow firms to obtain advance waivers from “sophisticated” clients. To do so, those states dispense with the “informed” part of the consent. All an attorney has to do is describe at a high level what could happen if such conflicts arise. Sophisticated or not, this is a problem. The client cannot at the time of an advance waiver be informed of what the conflict is, who it’s with, who in the firm is working on it and how it affects the client’s interests at the time the conflict arises.  

Advance waivers leave the waiving client with the choice of accepting a bad situation or finding new counsel once they learn of a conflict. In the middle of litigation or a corporate transaction, this is harmful to the client.

When asked, I almost always approved ad-hoc requests for conflict waivers. Only in the most conflicted situations did I deny them. I understand that advance waivers could benefit me as a client because a firm could take me on as a client, where without the waiver, they could not. However, even in those cases, I wanted to know where the conflicts were so that I could determine whether giving business to a particular firm was in my client’s best interests.

I get that large firms could be seriously hamstrung without these waivers, but law firms and their clients need to work out a much more transparent approach so that clients can truly be informed about their consent.