3M Outside Counsel Suit 'Troublesome' to Many General Counsel

Note: This story has been updated with a statement from Covington at the end of the original text.

An assistant general counsel at St. Paul-based 3M Company has become caught up in a nasty legal fight between the company and its one-time outside counsel, Covington & Burling.

3M, which is represented by the Dallas firm Bickel & Brewer, sued Covington last week in U.S. District Court in Minneapolis for breach of fiduciary duty and breach of contract.

The suit follows a 3M motion to disqualify Covington from representing the state of Minnesota in an 18-month-old natural resources damage suit against the company, due to a conflict of interest by representing 3M on similar issues.

William Brewer III, name partner at Bickel & Brewer, said the case is very unusual—but also troublesome to a lot of general counsel he talks with. And “no end of corporate clients have called me about it,” he said in an interview Monday with CorpCounsel.com.

“You can imagine how disturbing it is for someone like [3M GC] Marschall Smith, who wasn’t there prior to 2007 when Covington was representing the company on these issues, to think that the law firm wouldn’t bring something like this [representing the state] to his attention,” Brewer explained.

3M didn’t realize it had a problem, Brewer said, until Covington started doing discovery in the state suit and was deposing the same in-house counsel that it once represented on the same issues. “It’s a very disturbing case for in-house lawyers,” Brewer said.

3M assistant general counsel David Overstreet was especially involved when Covington used him to, in Brewer’s words, “orchestrate the situation where they thought they could pursue a large economic opportunity with the state.”

The new 3M suit [PDF] states that in 2010, Covington partner Seth Safra had been working with Overstreet on an employee benefits matter. Safra wrote an unusual letter to 3M in December saying the law firm had determined that its work on the matter was complete.

Shortly afterwards, Overstreet thought it strange when Safra contacted him to ask for written confirmation that 3M’s engagement of Covington on the matter was over.

“Not the normal course of dealing . . . In fact, Covington had never before requested written confirmation that it had completed a legal matter” in its 18 years of working with the company, the complaint states.

Overstreet, an eight-year veteran at 3M, told Safra that the company might need Covington to provide additional analysis of the benefits matter, or to work on related issues. But Safra said the parties could simply open a new matter file if they needed to, the suit says.

“Thinking that Covington was simply addressing internal administrative issues,” the complaint says Overstreet emailed Safra the confirmation he wanted.

Eight days later, Covington was appointed special attorney for the state of Minnesota, hired to investigate and litigate state environmental claims against 3M over perfluorochemicals and other contaminants.

The suit alleges that Covington communicated with the state in November 2010 about the possibility of serving as the special attorney against 3M—while still representing 3M at the time, and well before Safra wrote his December completion letter or obtained Overstreet’s email.

Not true, insisted Covington in a brief [PDF] filed over the disqualification motion in the environmental suit. Covington’s brief called 3M’s claims “inflammatory and unsubstantiated accusations.” Covington didn’t return calls for comment.

Besides, the law firm argued, 3M had always used other law firms to handle all its environmental matters. Its FDA issues were separate and unrelated, it said.

Both sides cited contract clauses that seem to support their stance.

But 3M also accuses Covington of making claims for the state that “are directly counter to the (correct) positions advocated by Covington while it was representing 3M” before the U.S. Food and Drug Administration on a matter involving food packaging that contained fluorochemicals.

At that time, Covington truthfully told the FDA and others that PFCs were not toxic and did not cause adverse health effects in humans, the suit says.

“Yet now, on behalf of the state and with the allure of a large contingency fee . . . Covington has reversed itself to attack 3M’s FC business and argue that PFCs are toxic and that the tiny concentrations of PFCs in the Minnesota environment pose risks to human health. Covington’s greed-motivated side-switching is a quintessential example of a breach of fiduciary duties.”

The company presented an array of ethics professors and experts who said Covington’s switch was improper.

The 3M suit seeks compensatory damages, attorneys fees, and injunctive relief “to keep Covington from further jeopardizing 3M’s confidential information.”

And on top of all that, 3M wants back its 18 years worth of legal fees paid to Covington.