Rearden LLC v. Crystal Dynamics, Inc.

Background

Hagens Berman Sobol Shapiro LLP (HBSS) moved for leave to withdraw as counsel for Rearden LLC and Rearden Mova LLC, collectively referred to as Rearden. HBSS said that its representation of Microsoft Corporation created an ethical conflict requiring withdrawal from this action. The case includes Rearden’s claim that Crystal Dynamics was responsible for copyright infringement involving Rearden’s Contour software, including alleged use connected to the Rise of the Tomb Raider game and its promotional materials.

The potential conflict concerned an issue involving the E3 2014 promotional trailer. HBSS stated that continuing to represent Rearden could require it to argue that the complaint covered a claim involving the trailer, pursue discovery about the trailer, and attempt to show that use of Contour contributed to profits from the game. HBSS said those actions could be adverse to Microsoft, which allegedly commissioned production of the trailer, while declining to pursue the theory could be adverse to Rearden. Some information in HBSS’s filings was redacted, and HBSS said it could not disclose additional facts because of its duty to protect client confidences.

Parties’ Positions and Procedural History

The motion was filed in September 2019. The court held hearings and delayed a ruling to give Rearden time to find replacement counsel. Rearden later reported that it had been unable to do so. Rearden argued that the motion was premature because Microsoft had no direct stake in the case and the possibility that work product might later help Rearden sue Microsoft was not enough to trigger the ethical rule at issue.

Crystal supported HBSS’s withdrawal and asked that the case proceed. The court noted that Rearden still had counsel of record from Wagstaffe, von Loewenfeldt, Busch & Radwick LLP, although that firm indicated it would not represent Rearden in this matter beyond the withdrawal motion. The court also noted that Rearden could not appear without counsel.

Court’s Analysis

The court applied California’s professional-conduct rules and considered four factors: the reasons for withdrawal, prejudice to other litigants, harm to the administration of justice, and delay. It found good cause based on HBSS’s asserted conflict. The court accepted that HBSS could not disclose all supporting facts because of its duty not to reveal client confidences. It concluded that the conflict was already present because HBSS’s response to a prior order about the E3 trailer would either advance Rearden’s interests at Microsoft’s expense or advance Microsoft’s interests at Rearden’s expense.

The court recognized that withdrawal could harm the administration of justice because Rearden might be left without counsel. But it concluded that allowing conflicted counsel to withdraw served the administration of justice. The court also reasoned that if Wagstaffe could not or would not represent Rearden and Rearden did not find replacement counsel, withdrawal would not delay the case and could instead have the opposite effect.

Ruling

Judge Robert M. Illman granted HBSS’s Motion to Withdraw. Because Rearden had counsel of record who was not conflicted and could receive service, the court declined to impose service requirements on HBSS. The court also granted, for good cause shown, administrative motions to file under seal at docket numbers 204 and 220.

The court did not decide Crystal’s request that it retain jurisdiction for a possible later motion. Instead, it instructed Crystal to raise that issue separately before Judge Jon Tigar if it wished to do so.