1. MOTION TO DISQUALIFY WILSON VARNER Page 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
IN RE: §
§
INTROGEN THERAPEUTICS, INC., § CASE NO. 08-12442-CAG
INTROGEN TECHNICAL SERVICES, INC., § CASE NO. 08-12443-CAG
§ CHAPTER 11
DEBTORS. §
§ JOINTLY ADMINISTERED UNDER
8066 EL RIO STREET § CASE NO. 08-12442-CAG
HOUSTON, TEXAS 77054 §
§
TAXPAYER IDENTIFICATION NOs.: §
74-2704230, 35-2340711 §
MOTION TO DISQUALIFY WILSON & VARNER, L.L.P. AND
ITS ATTORNEYS, INCLUDING PARTNER RODNEY VARNER,
FROM REPRESENTING DAVID G. NANCE
TO THE HONORABLE CRAIG A. GARGOTTA, UNITED STATES BANKRUPTCY
JUDGE:
COME NOW Introgen Therapeutics, Inc. (“Introgen”) and Introgen Technical Services,
Inc. (“ITS”) the above-captioned debtors and debtors-in possession (collectively, the “Debtors”),
and, pursuant to Disciplinary Rule of Professional Conduct 1.09, file this Motion to Disqualify
Wilson & Varner, L.L.P. and its Attorneys, including Partner Rodney Varner, From
Representing David G. Nance, the Debtors would respectfully show the Court as follows:
I. JURISDICTION
1. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157
and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this
Court pursuant to 28 U.S.C. §§ 1408 and 1409.
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II. BACKGROUND FACTS
2. Rodney Varner (“Varner”) served as general counsel and Corporate Secretary to
the Debtors from 1993 to May 2009.1
3. David G. Nance (“Nance”) served as Debtors’ Chief Executive Officer and
President from its formation in 1993 until November 2008, and as a member of the Board of
Directors until March 2009.
4. On December 3, 2008, (the “Petition Date”), the Debtors filed their petitions for
relief under Chapter 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy
Code”). On December 19, 2009, the Debtors filed their Application to Employ Wilson &
Varner, L.L.P. as Special Counsel Pursuant to 11 U.S.C. § 327(e) (the “Application”) [Docket
No. 48].
5. On January 26, 2009, this Court entered an order approving the Application
[Docket No. 93].
A. The Adversary Proceeding Against David Nance
6. On August 7, 2009, the Debtors filed their Complaint against Nance (the
“Complaint”) [Docket No. 340]. The Complaint initiated Introgen Therapeutics, Inc., et al v.
David G. Nance, Case No. 09-01081, in the Bankruptcy Court for the Western District of Texas,
Austin Division (the “Adversary Proceeding”). In the Complaint, the Debtors seek to recover
from Nance fraudulent transfers in the amount of $427,989.47 pursuant to §§ 548(a)(1)(A) and
548(a)(1)(B). The Debtors also seek to recover from Nance fraudulent transfers in the amount of
$669,380.26 pursuant to TEX. BUS. & COM. CODE ANN. § 24.005(a)(1). Additionally, the
Debtors allege that Nance committed corporate waste under Delaware law and self-dealing.
1
In April of 1996, Varner and Will Wilson formed the firm Wilson & Varner, L.L.P. ("Wilson & Varner"). From
April of 1996 to April 2009, Introgen and ITS remained clients of Varner while Varner practiced law at Wilson &
Varner.
3. MOTION TO DISQUALIFY WILSON VARNER Page 3
7. On August 21, 2009, the Debtors filed their Amended Complaint against Nance
(the “Amended Complaint”) [Docket No. 3 in the Adversary Proceeding]. In the Amended
Complaint, the Debtors assert the aforementioned causes of action against Nance and also object
to Nance’s proof of claim in the amount of $10,950.00 [Claims Register Claim No. 81].
8. On September 08, 2009, Wilson & Varner filed a Motion to Dismiss Under FED.
R. CIV. P. 12(b) and Bankruptcy Rule 7012(b) on behalf of Nance [Docket No. 4 in the
Adversary Proceeding]. On September 18, 2009, Wilson & Varner filed a Motion Under Rule
12, Federal Rules of Civil Procedure on behalf of Nance [Docket No. 6 in the Adversary
Proceeding].
B. Debtor’s Motion to Designate Certain Ballots Pursuant to Section 1126(e) as Being
Filed in Bad Faith
9. On August 20, 2009, the Debtors filed their Motion to (i) Set Ballot Tally at
Scheduled Amount or Alternatively at Claim Amount Pursuant to Section 1126(a), and (ii)
Designate Certain Ballots Pursuant to Section 1126(e) as Being Filed in Bad Faith (the “Motion
to Designate”) [Docket No. 388]. In the Motion to Designate, the Debtors ask that the ballots of
Nance, Wilson & Varner, Rodney Varner, Alizzita, Ltd., Octagon Asset Management and
Wilson Sonsini Goodrich & Rosati, P.C. (collectively, the “BioTx Affiliates”) be designated in
bad faith pursuant to § 1126(e) due to their involvement in the formation of BioTx
Pharmaceuticals, Inc. As this Court is aware, the Debtors allege that the BioTx Affiliates cast
their votes against the Debtors’ Plan of Reorganization (the “Plan”) to cause the Plan to fail so
that the BioTx Affiliates may purchase ADVEXIN in the hands of a cash-strapped Chapter 7
estate.
10. On August 21, 2009, Wilson & Varner filed the Response of David G. Nance to
Debtors’ Motion to (i) Set Ballot Tally at Scheduled Amount or Alternatively at Claim Amount
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Pursuant to Section 1126(a), and (ii) Designate Certain Ballots Pursuant to Section 1126(e) as
Being Filed in Bad Faith (the “Response”) [Docket No. 403]. In the Response, Nance admits
that he intended to become a shareholder of BioTx. Nance also discusses his intention to assert a
counter-claim against the Debtors in the Adversary Proceeding. Nance’s counter-claim arises
from the Debtors’ alleged unilateral alteration of Nance’s duties as Chief Executive Officer in a
material way, breaching his Employment Agreement.
11. On September 8, 2009, the Debtors sent a letter to Wilson & Varner requesting
that they withdraw from representing Nance based on a plain reading of the applicable rules of
ethics. Despite several follow up requests, Wilson & Varner has failed and refused to withdraw
and has filed additional pleadings on behalf of Nance.
III. ARGUMENT AND AUTHORITIES
12. A motion to disqualify counsel, such as the one now before the Court, “is the
proper method for a party-litigant to bring the issues of conflict of interest or breach of ethical
duties to the attention of the court.” Musicus v. Westinghouse Elec. Corp., 621 F.2d 742, 744
(5th Cir. 1980). Under Fifth Circuit law, motions to disqualify counsel in Texas Federal Courts
take guidance from Texas State Law, the ABA Model Code of Professional Responsibility, and
the ABA Model Rules of Professional Conduct and other generally accepted ethical rules.
Milliken v. Grigson, 986 F.Supp. 426 (S.D. Tex. 1997); affirmed 158 F.3d 583 (5th Cir. 1998).
13. The Texas Disciplinary Rules of Professional Conduct provide that:
Without prior consent, a lawyer who personally has formerly represented a client
in a matter shall not thereafter represent another person in a matter adverse to the
former client:
(2) if the representation in reasonable probability will involve a
violation of Rule 1.05 [which forbids attorneys from disclosing
confidential information of a client]; or
(3) if it is the same or substantially related matter.
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TEX. DISCIPLINARY R. PROF’L CONDUCT 1.09(a). As discussed in detail below, Wilson &
Varner’s representation of Nance against its former clients Introgen and ITS is a violation of
Rule 1.09 because Wilson & Varner’s representation of Nance involves the same or substantially
related matter, and because Wilson & Varner’s representation of Nance in reasonable probability
involves a violation of Rule 1.05.
A. Wilson & Varner Should be Disqualified from Representing Nance in the Same or
Substantially Related Matter
14. When a former client moves to disqualify an attorney who appears on behalf of
his adversary, the law of the Fifth Circuit is “fairly straightforward” that the movant “need only
to show that the matters embraced within the pending suit are substantially related2
to the matters
or cause of action wherein the attorney previously represented [it].” Wilson P. Abraham Constr.
Corp. v. Armco Steel Corp., 559 F.2d 250, 252 (5th Cir. 1997). As the Fifth Circuit explained in
Abraham:
This rule rests upon the presumption that confidences potentially damaging to the
client have been disclosed to the attorney during the former period of
representation. The Court may not even inquire as to whether such disclosures
were in fact made or whether the attorney in fact is likely to use the damaging
disclosures to the detriment of his former client. The inquiry is limited solely to
whether the matters of the present suit are substantially related to matters of the
prior representation, and this is because this Court recognizes that in order to aid
the frank exchanges between attorney and client, it is necessary to preclude even a
possibility that information given in the confidence by a former client will ever be
used without that client’s consent.
Id. (citation omitted). The presumption to which the Fifth Circuit referred in Abraham is
irrebuttable. In re American Airlines, Inc., 972 F.2d 605, 614 (5th Cir. 1992) (noting that
“[o]nce it is established that the prior matters are substantially related to the present case, the
2
Although "substantially related" is not defined in the Rules, it primarily involves situations where a lawyer could
have acquired confidential information concerning a prior client that could be used either to that prior client's
disadvantage or for the advantage of the lawyer's current client r some other person. Rule 1.09, cmt. 4A.
6. MOTION TO DISQUALIFY WILSON VARNER Page 6
court will irrebutably presume that relevant confidential information was disclosed during the
former period of representation” (internal quotation marks omitted)). There is a second
irrebuttable presumption that confidences presumably obtained by an individual lawyer will be
shared with the other members of his firm. Id. at 614, n. 1.
15. The conflict is as follows: Varner, while serving as general counsel to the
Debtors, drafted Nance’s 1996, 2003 and 2007 Employment Agreements. Varner, while serving
as general counsel to the Debtors, drafted the provisions of the Employment Agreement that
Nance will rely on to assert his counter-claim against the Debtors.
16. Additionally, prior to the Petition Date, the Board of Directors and former officers
of the Debtors contemplated a sale of the Debtors’ assets to Steve Gibson (who caused Vivante
GMP Solutions, Inc. to acquire certain of the Debtors’ ITS assets), a sale of the Debtors’ assets
to Crucell Holland, B.V. and the creation of a liquidating trust (the “Prepetition Reorganization
Options”). Varner, as general counsel to the Debtors, was involved in discussions involving the
Prepetition Reorganization Options. Varner now represents Nance in a contested matter in
which the Debtors will prove that key elements of the Debtors’ Plan of Reorganization were
contemplated by Nance and others prior to the Petition Date.
17. Because claims and allegations asserted the Adversary Proceeding and the Motion
to Designate are substantially related, if not identical, to Varner’s representation of the Debtors,
both prepetition and postpetition, the Debtors request that the Court disqualify Wilson & Varner
under Rule 1.09(a) of the Texas Disciplinary Rules of Professional Conduct.
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B. Wilson Varner’s representation of Nance in reasonable probability will involve a
violation of Rule 1.05
18. Varner possesses relevant confidential information regarding the Debtors.3
There
is more than a “reasonable probability” that Varner’s representation of Nance against the Debtors
will result in the disclosure, intentional or not, of confidential information in violation of Rule
1.09(a)(2).
19. The relevant confidential information includes, but is not limited to, the drafting
of Nance’s Employment Agreement, discussions regarding Nance’s compensation, the drafting
of and discussions regarding the Debtors’ Employee Manual, discussions of certain expenditures
of Nance and decisions and discussions regarding the disposition, both prepetition and
postpetition, of the Debtors’ assets. The Debtors do not consent to the disclosure of this
confidential information to Nance or, more importantly, for the confidential information to be
used against them strategically at trial. Accordingly, the Debtors request that the Court
disqualify Varner pursuant to Rule 1.09(a)(2) of the Texas Disciplinary Rules of Professional
Conduct.
20. Further, Rule 1.09(b) provides “[w]hen partners are or have become members of
or associated with a firm, none of them shall knowingly represent a client if any one of them
practicing alone would be prohibited from doing so by [Rule 1.09(a)].” TEX. DISCIPLINARY R.
PROF’L CONDUCT 1.09(b). As discussed above, Mr. Varner, if practicing alone would be
3
“Confidential information” includes both “privileged information” and “unprivileged client information.”
“Privileged information” refers to the information of a client protected by the lawyer-client privilege of Rule 503 of
the Texas Rules of Evidence or of Rule 503 of the Texas Rules of Criminal Evidence. “Unprivileged client
information” means all information relating to a client or furnished by the client, other than privileged information,
acquired by the lawyer during the course of or by reason of the representation of the client. TEX. DISCIPLINARY R.
PROF'L CONDUCT 1.05(a). See e.g., In re American Airlines, Inc., 972 F.2d 605, 615 (5th Cir. 1992) (discussing
Texas Disciplinary Rule of Conduct 1.09 provision allowing former client to disqualify counsel “by showing that his
former attorney possessed relevant confidential information [as] contemplated by Rule 1.09(a)(2)”); City of El Paso
v. Salas-Porras Soule, 6 F.Supp.2d 616, 624 (W.D. Tex. 1998) (addressing Texas and federal ethical standards and
holding firm may be disqualified if movants establish firm possesses relevant confidential information through its
former representation of them).
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prohibited from representing Nance in this matter. Under the plan language of Rule 1.09(b), all
lawyers in his firm, Wilson & Varner, are similarly disqualified.
WHEREFORE, the Debtors pray that this Court grant their Motion to Disqualify Wilson
& Varner, L.L.P. and its Attorneys, including Partner Rodney Varner, From Representing David
G. Nance, and grant the Debtors such other and further relief to which they may show
themselves to be justly entitled.
Respectfully submitted,
By: /s/ Vanessa E. Gonzalez
Patricia B. Tomasco, Esq.
State Bar No. 01797600
Vanessa E. Gonzalez, Esq.
State Bar No. 24065307
Munsch Hardt Kopf & Harr, P.C.
600 Congress Avenue, Suite 2900
Austin, Texas 78701
Telephone: (512) 391-6100
Facsimile: (512) 391-6149
Email: ptomasco@munsch.com
Email: vgonzalez@munsch.com
ATTORNEYS FOR DEBTORS
CERTIFICATE OF SERVICE
I hereby certify that on this 23rd day of September, 2009, a true and correct copy of the
foregoing document was served via the Court’s CM/ECF notification system, facsimile
transmission, e-mail transmission, and/or regular first class mail, on all parties set forth on the
attached Service List.
/s/ Vanessa E. Gonzalez
Vanessa E. Gonzalez
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