- While defending against allegations of trade secret misappropriation, EVelozcity attempted to disqualify part of Faraday’s legal team for a conflict of interest. That attempt fell short when the court ruled that EVelozcity had not shared confidential information with the allegedly-conflicted attorneys.
As discussed in our previous post, the artificial intelligence electric vehicle developer Faraday&Future, Inc. filed a lawsuit in January against rival startup EVelozcity, Inc. for misappropriation of trade secrets. Several senior members of the EVelozcity team were formerly employed by Faraday, and Faraday accused those former employees of stealing trade secrets on their way out the door. EVelozcity responded to these accusations with two motions to the court.
First, EVelozcity argued that the case is really a fight over the employee agreements that were in place between Faraday and the former employees accused of trade secret theft. If so, those agreements allegedly state that disputes will be handled by out-of-court arbitration rather than federal court litigation. EVelozcity therefore requested the court to order Faraday to take the case to an arbitrator. The court does not appear to have taken any action yet regarding this request.
Second, EVelozcity requested that the court disqualify part of Faraday’s legal team in the case due to an alleged conflict of interest. Attorneys are governed by rules of ethics that preclude the representation of parties for certain conflicts of interest. Although the rules vary from state to state, such conflicts would typically arise from representing parties on both sides of a dispute or obtaining confidential information from one client that could be harmful to another client. Importantly, conflicts typically impact not just the individual attorney having a conflict, but also the entire firm where that attorney practices law.
In the Faraday case, Faraday is represented by attorneys from two law firms: Irell & Manella and Quinn Emmanuel. Before the lawsuit began, employees of EVelozcity held a preliminary consultation with a different set of attorneys at Quinn to discuss some aspects of their dispute with Faraday. This pre-litigation contact between EVelozcity and Quinn raises the possibility that the entire Quinn law firm would be disqualified from representing Faraday due to a conflict of interest.
So when does a preliminary consultation create a disqualifying conflict of interest? Under California law, the attorney must (1) obtain material and confidential information and (2) render legal advice or services as a result. Here, the general counsel at EVelozcity had a conference call with two attorneys at Quinn to discuss Faraday’s potential claims against EVelozcity. The general counsel was provided estimates of the cost of having Quinn defend EVelozcity in trade secret litigation, and after the call the Quinn attorneys sent the general counsel some “general legal research” about employee agreements. After the Quinn-EVelozcity conference call, EVelozcity hired a team of attorneys from a different firm (Goodwin Proctor) to represent EVelozcity in the dispute with Faraday.
The Goodwin Proctor attorneys representing EVelozcity learned of this interaction between the general counsel and Quinn attorneys about two months after Faraday filed its lawsuit for trade secret misappropriation. By that time, as mentioned above, a different set of Quinn attorney were representing Faraday in the case. The Goodwin Proctor attorneys then requested that the court disqualify the Quinn attorneys from representing Faraday since their firm had conducted a preliminary consultation with EVelozcity.
In reviewing the evidence, the court found that EVelozcity’s general counsel did not actually share any confidential information with the Quinn attorneys. Instead, the information that was shared was known (or soon became known) to the public: that EVelozcity intended to compete with Faraday by offering a similar product, that certain former employees of Faraday were joining EVelozcity, and that those employees were bound by employment agreements with Faraday. EVelozcity’s general counsel claimed to have also shared details of EVelozcity’s confidential hiring practices with Quinn, but the court found that claim to “strain credulity” when viewing the full body of evidence.
Without the sharing of confidential information, no conflict of interest existed and the court declined to take the “drastic measure” of disqualifying the Quinn attorneys representing Faraday. Faraday will retain its full legal team as the case now moves forward.