CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP — CONFLICTS COMMITTEE
Meeting Agenda and Supporting Materials
May 14, 2024
Prepared by: Colleen Farrow Director, Conflicts & New Business Calderwood & Harkness LLP
DISTRIBUTION LIST
This document and the attached supporting materials are protected by the attorney-client privilege, the work-product doctrine, and the attorney self-evaluative privilege. Distribution is strictly limited to the above-named individuals. Do not forward, copy, scan, photograph, or otherwise reproduce without express written authorization from the Committee Chair. In the event you have received this document in error, please contact Colleen Farrow immediately at cfarrow@calderwoodharkness.com or (312) 555-7800.
I. Meeting Logistics
Meeting Date and Time: Tuesday, May 14, 2024, at 10:00 a.m. Central Time
Location: Calderwood & Harkness LLP, Chicago Office — One North Wacker Drive, Suite 4200, Chicago, IL 60606, Conference Room 42-A. Committee members unable to attend in person may participate via secure videoconference (link and dial-in credentials distributed separately via encrypted email on May 13, 2024).
Attendees:
• Lawrence Keating — Committee Chair
• Helen Drazkowski — General Counsel
• Rachel Bernstein — Partner, Privacy & Data Security
• Jonathan Mercer — Partner, intellectual Property / Patent Litigation
• Colleen Farrow — Director, Conflicts & New Business
Purpose of Meeting: The Conflicts Committee convenes to evaluate, discuss, and make a formal determination regarding the waivability of an identified conflict of interest between a proposed new engagement (Matter No. 1031-00001, on behalf of prospective client Metropolitan Transit Development Corp.) and an existing client engagement (Matter No. 1031-00001, on behalf of existing client Pinnacle Workforce Analytics, Inc.). The conflict arises from the fact that TruScan 360, the biometric workforce-management platform developed and licensed by Pinnacle—the subject of the firm's existing patent-enforcement representation—is the same platform whose deployment by MTDC is the basis for the Civil Investigative Demand and class action litigation that MTDC seeks to retain the firm to defend. Additional complexities include MTDC's anticipated cross-claims against Pinnacle under the governing software license agreement and the firm's possession of Pinnacle confidential information directly relevant to the disputed biometric data practices.
The Committee is asked to determine whether this conflict is waivable under the Illinois Rules of Professional Conduct and, if not, to authorize the appropriate steps for declining the proposed engagement while preserving the interests of both parties and the firm.
II. Agenda
The following agenda will govern the proceedings of the Conflicts Committee meeting on May 14, 2024. The Committee Chair reserves the right to modify the order of items or allocate additional time as the discussion warrants.
1. Call to Order — Lawrence Keating, Committee Chair
2. Summary of Proposed New Matter (Matter No. 1031-00001) — Rachel Bernstein, Partner, Privacy & Data Security
3. Summary of Existing Client Engagement (Matter No. 1031-00001) — Jonathan Mercer, Partner, intellectual Property / Patent Litigation
4. Presentation of Conflicts Search Results (Round 1 and Round 2) — Colleen Farrow, Director, Conflicts & New Business
5. Review of Party Relationship Chart — Colleen Farrow
6. Discussion of Applicable Ethical Rules (Illinois Rules of Professional Conduct 1.7, 1.9, 1.10) — Helen Drazkowski, General Counsel
7. Financial Considerations — Colleen Farrow
8. Assessment of Waivability — Open Discussion (All Committee Members)
9. Committee Determination and Vote — Lawrence Keating, presiding
10. Next Steps and Action Items — Lawrence Keating / Colleen Farrow
11. Adjournment
Committee members are asked to review all Supporting Materials (Materials A through F) and Attachments (A through H) in advance of the meeting. Questions or preliminary observations may be directed to Colleen Farrow at cfarrow@calderwoodharkness.com prior to the meeting.
III. Supporting Material A: Summary of Proposed New Matter — Matter No. 1031-00001
A. Prospective Client Information
Full Legal Name: Metropolitan Transit Development Corp. ("MTDC" or "Metro Transit")
Entity Type: Unit of local government; special-purpose transit authority organized and existing under the Illinois Local Mass Transit District Act, 70 ILCS 3610/0.01 et seq.
Headquarters: 550 West Harrison Street, Suite 1400, Chicago, IL 60607
Employer Identification Number (EIN): 36-6041928
Key Officers and Representatives:
Operational Profile: MTDC operates the regional public transit system serving the greater Chicago metropolitan area and surrounding suburban communities. The authority's system encompasses bus, rail, and paratransit services with an approximate daily ridership of 1.6 million passengers across all modes. MTDC is governed by a Board of Directors appointed by the Governor of Illinois and the Mayor of Chicago, subject to confirmation by the Illinois Senate.
Financial Profile:
• Annual operating budget: Approximately $3.2 billion, funded through a combination of farebox revenue, federal formula grants administered through the Federal Transit Administration, a dedicated 1.0% regional sales tax authorized by the Regional Transportation Authority Act, and direct State of Illinois appropriations.
• Annual outside-counsel budget: Approximately $14.8 million (as reported by Terrence Whitfield during the May 6, 2024 intake call with Rachel Bernstein).
B. Source of Referral
MTDC's existing outside litigation counsel, Hargrove, Tillman & Reese LLP ("HTR"), referred MTDC to Calderwood & Harkness specifically for data-privacy and biometric-law expertise. HTR's lead partner for MTDC matters is Constance Hargrove, whose office is located at 233 South Wacker Drive, Suite 5600, Chicago, IL 60606. According to Ms. Hargrove, HTR does not maintain a dedicated data-privacy or biometric-information practice group and determined that the complexity and magnitude of the BIPA-related proceedings warranted referral to specialized counsel.
Initial Contact: MTDC General Counsel Terrence Whitfield and Chief Information Security Officer Lucia Marchetti participated in a telephone conference with Rachel Bernstein on May 6, 2024. During that call, Mr. Whitfield provided an overview of the Civil Investigative Demand, the class action complaint, and MTDC's preliminary assessment of its BIPA exposure. Ms. Bernstein noted during the call that engagement would be subject to completion of the firm's standard conflicts-clearance process and intake procedures.
Intake Opened: May 9, 2024. New-Matter Intake Request Form (C&H Form NM-1) submitted by Rachel Bernstein and processed by the Conflicts & New Business Department on the same date. See Attachment F.
C. Proposed Engagement Scope
The proposed engagement of Calderwood & Harkness by MTDC would encompass the following matters, which are interrelated and arise from MTDC's deployment of the Pinnacle TruScan 360 biometric workforce-management platform:
1. Defense of Civil Investigative Demand. Defense and response to the Civil Investigative Demand ("CID") issued by the Illinois Attorney General's Bureau of Civil Rights on April 22, 2024 (CID Ref. No. CRB-2024-0417). The CID alleges that MTDC's deployment and ongoing use of a biometric workforce-management platform—specifically, Pinnacle's TruScan 360—violated the Illinois Biometric Information Privacy Act ("BIPA"), 740 ILCS 14/1 et seq., and the Illinois Personal Information Protection Act ("PIPA"), 815 ILCS 530/1 et seq. The CID demands production of extensive documentation regarding MTDC's biometric data collection practices, notice and consent procedures, data retention and destruction protocols, third-party data sharing arrangements, and contractual relationships with biometric technology vendors.
2. Defense of Putative Employee Class Action. Defense of a putative employee class action filed on April 29, 2024, in the Circuit Court of Cook County, Chancery Division (Case No. 2024-CH-04417), by a class of approximately 12,400 current and former MTDC employees. The complaint alleges violations of BIPA Sections 15(a), 15(b), and 15(d), as well as related state-law privacy and employment claims. Class counsel for the plaintiffs is Kessler, Brandt & O'Neill LLP, with Martin Kessler serving as lead class counsel and Yolanda Brandt serving as co-counsel. The offices of class counsel are located at 120 North LaSalle Street, Suite 2200, Chicago, IL 60602.
3. Biometric Data Remediation Advisory. Advice and counsel to MTDC on the remediation of its biometric-data collection, storage, retention, and dissemination practices to achieve compliance with BIPA and PIPA on a going-forward basis, including assessment of alternative workforce-management technologies.
4. Cross-Claims and Indemnification Against Technology Vendors. Potential assertion of cross-claims and indemnification demands against MTDC's biometric technology vendors, including and principally Pinnacle Workforce Analytics, Inc., under the Master Software License and Services Agreement dated June 15, 2021 (the "MSLA"). The MSLA contains vendor representations and warranties concerning regulatory compliance, indemnification obligations for third-party claims arising from the vendor's technology, and limitation-of-liability provisions that are expected to be central to any cross-claim or contribution proceeding.
5. Employment Counseling. Related employment counseling concerning MTDC's workforce-monitoring policies, including review and revision of employee handbooks, consent protocols, and collective bargaining agreement implications for represented employees.
D. Adverse Parties in Proposed Engagement
The following parties have been identified as adverse to MTDC in connection with the proposed engagement:
• Illinois Attorney General's Office, Bureau of Civil Rights. The Deputy Attorney General for Civil Rights is Malcolm Jeffries. The Attorney General's Office has retained outside special counsel for this matter: Ridgeway & Falk LLP (lead partner: Diane Falk), located at 401 East Adams Street, Suite 300, Springfield, IL 62701.
• Putative Employee Class. Approximately 12,400 current and former MTDC employees who are putative members of the class certified (or to be certified) in Case No. 2024-CH-04417. Class counsel: Kessler, Brandt & O'Neill LLP (Martin Kessler, lead; Yolanda Brandt, co-counsel), 120 North LaSalle Street, Suite 2200, Chicago, IL 60602.
• Pinnacle Workforce Analytics, Inc. Pinnacle has been identified as a "responsible party" in the Attorney General's CID and is the anticipated target of cross-claims and indemnification demands by MTDC under the MSLA. The Attorney General's Office has further indicated that it may name Pinnacle as a co-respondent in any enforcement action that follows the CID.
E. Proposed Engagement Team
F. Proposed Rates and Fee Estimate
Estimated Total Fees: $3.5 million to $5.2 million over an anticipated 18- to 24-month engagement period, encompassing the CID response, class action defense through trial or settlement, vendor cross-claims, and remediation advisory. This estimate does not include potential appellate proceedings or extended discovery disputes, which could increase total fees.
G. MTDC's Estimated BIPA Exposure
The financial exposure facing MTDC in the class action and any related enforcement proceeding is substantial:
• Putative Class Size: Approximately 12,400 current and former employees.
• Negligent Violation Floor: 12,400 class members × $1,000 per violation (BIPA § 20(1)) = $12,400,000.
• Intentional Violation Ceiling: 12,400 class members × $5,000 per violation (BIPA § 20(2)) = $62,000,000.
MTDC has retained Lakefront Actuarial Advisors, LLC (Felix Drummond, FSA, MAAA; 200 East Randolph Street, Suite 1710, Chicago, IL 60601) as its consulting actuary to develop a comprehensive estimate of aggregate BIPA exposure, taking into account the number of discrete biometric transactions per employee, the applicable statute of limitations, and various settlement and judgment probability scenarios.
Bond Covenant Implications: MTDC's management has identified that material BIPA liability could trigger reporting obligations under MTDC's Continuing Disclosure Agreement executed in connection with its outstanding revenue bonds. Additionally, bond covenants with Meridian Trust National Bank (fiscal agent and bond trustee; Angela Tran, Chief Fiduciary Officer; 135 South LaSalle Street, Chicago, IL 60603) may impose disclosure requirements and financial-ratio covenants that could be implicated by a judgment or settlement in the range described above.
IV. Supporting Material B: Summary of Existing Client Engagement — Matter No. 1031-00001
A. Existing Client Information
Full Legal Name: Pinnacle Workforce Analytics, Inc. ("Pinnacle")
Entity Type: Corporation; incorporated under the laws of the State of Delaware; principal place of business and headquarters located at 11900 Sunrise Valley Drive, Suite 500, Reston, VA 20191.
Delaware Registered Agent: Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, DE 19801
Employer Identification Number (EIN): 54-2198437
Key Officers and Representatives:
Financial Profile: Pinnacle's annual revenues are approximately $485 million. Pinnacle is a leading developer and licensor of biometric workforce-management software products deployed across public-sector and private-sector clients nationwide. Its flagship product is TruScan 360, an AI-powered timekeeping and scheduling platform that utilizes fingerprint recognition, facial-geometry mapping, and iris-scan data to authenticate employee identity for workforce-management purposes, including clock-in/clock-out timekeeping, shift scheduling, overtime tracking, and labor-cost allocation.
B. Nature of Existing Representation
Calderwood & Harkness has maintained a continuous attorney-client relationship with Pinnacle since 2019, during which time the firm has represented Pinnacle in patent-licensing negotiations and patent-enforcement matters related to TruScan 360's core biometric-recognition algorithms. The relationship originated through Jonathan Mercer's intellectual-property practice and has been a significant component of the firm's IP/Patent Litigation caseload.
Active Matter: C&H Matter No. 1031-00001, opened March 14, 2022.
Engagement Team:
Active Litigation: Pinnacle Workforce Analytics, Inc. v. Veritas Biometrics Corp., United States District Court for the Eastern District of Virginia, Case No. 1:22-cv-01533, filed September 6, 2022.
Opposing Party: Veritas Biometrics Corp. (CEO: Randall Cho; Headquarters: 8200 Greensboro Drive, Suite 1100, McLean, VA 22102). Veritas is a direct competitor of Pinnacle in the biometric workforce-management software market.
Opposing Counsel: Whitmore & Sato LLP (lead partner: Akira Sato), 999 Waterside Drive, Suite 600, Norfolk, VA 23510.
Nature of Claims: The patent-enforcement matter involves claims that Veritas Biometrics Corp. infringed multiple Pinnacle-owned patents related to TruScan 360's biometric-recognition algorithms, including patents covering facial-geometry comparison methods, iris-pattern matching protocols, and multi-modal biometric fusion techniques. Central to the prosecution of Pinnacle's infringement claims is establishing the legitimacy, technical innovation, and commercial value of TruScan 360's biometric capabilities. The case is currently in the expert-discovery phase, with claim-construction proceedings (Markman hearing) completed in November 2023. Trial is scheduled for January 2025.
C. Pinnacle–MTDC Relationship
The relationship between Pinnacle and MTDC is governed by the Master Software License and Services Agreement dated June 15, 2021 (the "MSLA"), under which Pinnacle sold and deployed the TruScan 360 platform to MTDC for use in managing MTDC's workforce of approximately 12,400 employees across its bus, rail, and paratransit operations.
Key MSLA Terms:
• Total Contract Value: $8,700,000 over a five-year initial term (June 15, 2021 through June 14, 2026), equating to $1,740,000 per year.
• Renewal Option: Optional three-year renewal at the same annual rate, subject to mutual agreement and CPI adjustment.
• Vendor Representations and Warranties: The MSLA contains representations by Pinnacle that TruScan 360 complies with all applicable federal, state, and local laws, including data-privacy and biometric-information statutes. The MSLA further contains indemnification provisions obligating Pinnacle to defend and indemnify MTDC against third-party claims arising from Pinnacle's technology, subject to specified limitations of liability.
Pinnacle's Role in MTDC Proceedings: Pinnacle is named as a "responsible party" in the Attorney General's CID (CRB-2024-0417) issued to MTDC on April 22, 2024. The CID specifically requests production of all agreements, communications, and technical documentation related to MTDC's relationship with its biometric technology vendor. The Attorney General's Office has further indicated, through correspondence with MTDC's existing counsel, that it may name Pinnacle as a co-respondent in any formal enforcement action.
D. Confidential Information in the Firm's Possession
Per Jonathan Mercer's confirmation, provided by email dated May 10, 2024 (see Attachment D), Calderwood & Harkness is currently in possession of the following categories of Pinnacle confidential information that bear directly on TruScan 360 and its biometric data capabilities:
• Technical Specifications: Detailed technical specifications for TruScan 360, including system requirements, integration protocols, and biometric sensor hardware interfaces.
• Source-Code Architecture Summaries: High-level and in some cases detailed summaries of TruScan 360's source-code architecture, including module descriptions and data-processing logic.
• Data-Flow Diagrams: Diagrams depicting the flow of biometric data through the TruScan 360 system from collection point (biometric scanner) through processing, storage, and transmission to client systems.
• Biometric-Data Retention Policies: Pinnacle's internal policies governing the retention, storage, encryption, and destruction of biometric data collected and processed by TruScan 360.
• Algorithm Design Documents: Proprietary algorithm design documents describing the mathematical models and machine-learning techniques underlying TruScan 360's fingerprint-recognition, facial-geometry, and iris-scan functionalities.
• Patent-Prosecution Correspondence: Correspondence with the United States Patent and Trademark Office in connection with Pinnacle's patent applications and issued patents related to TruScan 360's biometric-recognition algorithms.
Significance: This confidential information bears directly on the biometric-data collection, storage, and dissemination practices that are at the center of the proposed MTDC engagement. In the CID response and class action defense, counsel for MTDC would necessarily need to examine, evaluate, and potentially challenge or critique the adequacy of the biometric data practices implemented through TruScan 360. The firm's possession of Pinnacle's proprietary technical information regarding those same practices creates a substantial risk that Pinnacle's confidences could be used—whether intentionally or inadvertently—to the disadvantage of Pinnacle and to the advantage of MTDC.
V. Supporting Material C: Party Relationship Chart
The following chart illustrates the relationships among the principal parties relevant to the conflicts analysis. The Committee should note that the TruScan 360 biometric platform is the common nexus connecting the existing and proposed engagements, and that Pinnacle Workforce Analytics, Inc. sits on both sides of the firm's proposed and existing representations.
Table 1: Party Relationships and Key Linkages
Table 2: Calderwood & Harkness Engagement Relationships
Key Conflict Nexus:
The TruScan 360 biometric workforce-management platform is the common subject of both the existing and proposed engagements. In the existing engagement, the firm advocates for the legitimacy, innovation, and commercial value of TruScan 360's biometric capabilities on behalf of Pinnacle. In the proposed engagement, the firm would be required to defend MTDC against claims that TruScan 360's biometric data practices violated Illinois law—and would potentially assert cross-claims and indemnification demands directly against Pinnacle based on the alleged deficiencies of TruScan 360. These positions are diametrically opposed. Furthermore, the firm possesses Pinnacle confidential information (technical specifications, source-code architecture, data-flow diagrams, retention policies, and algorithm design documents) that is directly relevant to the biometric data practices at issue in the proposed MTDC engagement.
VI. Supporting Material D: Applicable Ethical Rules
The following discussion of applicable ethical rules has been prepared by Helen Drazkowski, General Counsel, for the Committee's consideration. A more detailed analysis is set forth in the Draft Conflicts Committee Analysis Memorandum (see Attachment G).
A. Illinois Rule of Professional Conduct 1.7 — Conflict of Interest: Current Clients
Illinois Rule of Professional Conduct 1.7 governs conflicts of interest arising from the concurrent representation of clients. The Rule provides, in pertinent part:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
Application to Present Facts: Rule 1.7(a)(1) is directly implicated because the proposed MTDC engagement would require the firm to take legal positions that are directly adverse to Pinnacle's interests. In the patent-enforcement matter, the firm champions TruScan 360's legitimacy, innovation, and commercial value; in the proposed MTDC engagement, the firm would defend MTDC against allegations that TruScan 360's biometric practices are unlawful—and would potentially assert affirmative cross-claims against Pinnacle alleging deficiencies in TruScan 360. Rule 1.7(a)(2) is also implicated because the firm's obligations to Pinnacle, and its possession of Pinnacle's confidential information regarding TruScan 360, would create a significant risk that the firm's representation of MTDC would be materially limited.
B. Illinois Rule of Professional Conduct 1.9 — Duties to Former Clients
Illinois Rule of Professional Conduct 1.9 provides, in pertinent part:
(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.
Application to Present Facts: Rule 1.9 is included in this analysis for completeness. Because Pinnacle is a current—not former—client of the firm, Rule 1.9 is not directly applicable. However, the Committee should note that even if the Pinnacle relationship were characterized as a former-client relationship (for example, if the firm were to withdraw from the Pinnacle engagement before undertaking the MTDC engagement), the conflict would persist under Rule 1.9 because the two matters are substantially related. Both engagements concern TruScan 360's biometric capabilities and data practices, and the firm possesses confidential information from the Pinnacle engagement that is directly relevant to the proposed MTDC engagement. Accordingly, the conflict cannot be resolved by the expedient of terminating the Pinnacle relationship.
C. Illinois Rule of Professional Conduct 1.10 — Imputation of Conflicts of Interest
Illinois Rule of Professional Conduct 1.10 provides, in pertinent part:
(a) While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7 or 1.9, unless the prohibition is based on a personal interest of the disqualified lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm.
Screening Exception: Rule 1.10(d) provides a limited screening exception for conflicts arising from the association of a lawyer who was formerly associated with another firm and who has a conflict under Rule 1.9. This screening exception is available only for conflicts arising from lateral hires and does not apply to concurrent-representation conflicts originating from a current firm partner's representation of an existing client.
Application to Present Facts: Jonathan Mercer's conflict arising from his ongoing representation of Pinnacle is imputed to Rachel Bernstein and to every other lawyer at Calderwood & Harkness under Rule 1.10(a). The screening mechanism of Rule 1.10(d) is unavailable because this is not a lateral-hire conflict; it is a concurrent-client conflict arising from a current partner's active representation. There is no ethical screen that can be erected within the firm to permit the proposed MTDC engagement to proceed while the Pinnacle engagement remains active.
D. Preliminary Application to the Facts
Based on the foregoing rules and their application to the facts presented, the General Counsel's preliminary analysis identifies the following issues for Committee consideration:
1. Direct Adversity Under Rule 1.7(a)(1): Representing MTDC in the BIPA proceedings would require the firm to argue, at a minimum, that TruScan 360's biometric-data practices—as deployed by MTDC—violated BIPA, or alternatively, that any such violations were attributable to Pinnacle as the technology vendor rather than to MTDC as the deploying entity. Either position is directly adverse to Pinnacle. In the patent-enforcement matter (Pinnacle v. Veritas), the firm is simultaneously arguing that TruScan 360's biometric capabilities are innovative, legitimate, and commercially valuable. The cross-claims and indemnification demands that MTDC anticipates asserting against Pinnacle under the MSLA would constitute direct adversity of the most unambiguous kind: one client asserting claims against another client of the firm.
2. Material Limitation Under Rule 1.7(a)(2): The firm's obligations to Pinnacle—including the duty of loyalty and the duty to preserve Pinnacle's confidential information—would create a significant risk that the firm's representation of MTDC would be materially limited. The firm's possession of Pinnacle's confidential technical specifications, source-code architecture summaries, data-flow diagrams, biometric-data retention policies, algorithm design documents, and patent-prosecution correspondence means that the firm cannot serve as MTDC's counsel without the constant risk that Pinnacle's confidences could be compromised, whether intentionally or through the inadvertent influence of knowledge that individual attorneys or the firm's institutional knowledge base cannot meaningfully segregate.
3. Waivability Under Rule 1.7(b): The central question for the Committee is whether the conflict is waivable—that is, whether a reasonable lawyer could conclude that competent and diligent representation of both MTDC and Pinnacle is possible, notwithstanding the conflict. The General Counsel's preliminary assessment is that waiver is not available for the following reasons:
(a) The legal positions required in the two engagements are diametrically opposed with respect to TruScan 360, and a reasonable lawyer could not conclude that competent and diligent representation of each client is achievable;
(b) The proposed MTDC engagement contemplates the assertion of cross-claims by MTDC directly against Pinnacle, which implicates Rule 1.7(b)(3)'s prohibition on the assertion of a claim by one client against another client represented by the firm;
(c) The firm's possession of Pinnacle's confidential information—information that bears directly on the biometric data practices at issue in the MTDC proceedings—creates an irremediable informational asymmetry that precludes meaningful informed consent; and
(d) Even if both clients were willing to consent, the nature and extent of the conflict are such that a reasonable lawyer could not form the belief required by Rule 1.7(b)(1).
4. Imputation Under Rule 1.10: Mercer's conflict is imputed to the entire firm. The lateral-screening exception under Rule 1.10(d) is inapplicable because the conflict arises from a current partner's ongoing representation, not from a lateral hire's prior representation at another firm. The imputation is firm-wide and cannot be cured by an ethical screen.
VII. Supporting Material E: Financial Parameters
The following financial data are presented to provide the Committee with a complete picture of the economic implications of the conflicts determination. The Committee is reminded that financial considerations, while relevant to firm management and the assessment of business impact, do not govern the ethical analysis. The determination must be based on the applicable Illinois Rules of Professional Conduct.
A. Proposed MTDC Engagement — Revenue Potential
The MTDC engagement, if accepted, would represent a significant single-matter revenue opportunity for the firm's Privacy & Data Security practice group. MTDC's annual outside-counsel budget of approximately $14.8 million further suggests the potential for an ongoing client relationship extending beyond the immediate BIPA-related proceedings, although no representations regarding future work have been made.
B. Existing Pinnacle Engagement — Current Revenue
The Pinnacle relationship has been a valuable and longstanding component of the firm's intellectual-property practice. Annual billings of $2,137,500 reflect active litigation with a trial date approaching in January 2025. The loss of Pinnacle as a client—whether through termination of the relationship by the firm or by Pinnacle in response to a perceived conflict—would represent not only the loss of current revenue but also the loss of a five-year relationship with a technology-sector client that may generate additional patent-prosecution and enforcement work as TruScan 360 evolves and Pinnacle's patent portfolio expands.
C. Financial Comparison
The financial comparison illustrates that the proposed MTDC engagement would generate greater one-time revenue than the current annual Pinnacle billings. However, the Pinnacle relationship is ongoing and recurring, whereas the MTDC engagement is projected as a discrete, time-limited matter. More importantly, the acceptance of the MTDC engagement in violation of the Rules of Professional Conduct would expose the firm to disciplinary proceedings, malpractice liability, and reputational damage far exceeding any revenue differential.
The Committee is advised that financial considerations cannot justify the acceptance of an engagement that violates the firm's ethical obligations under the Illinois Rules of Professional Conduct.
D. Pinnacle–MTDC MSLA Contract Value
The MSLA is directly relevant to the conflicts analysis because it is the contract under which MTDC would assert cross-claims and indemnification demands against Pinnacle. The contract value provides context for the magnitude of the commercial relationship between the prospective client and the existing client and underscores the adversity of interests between MTDC and Pinnacle.
VIII. Supporting Material F: Conflicts Search Results — Summary
A. Round 1 — Initial Search (May 9, 2024)
Date of Search: May 9, 2024
Search Conducted By: Colleen Farrow, Director, Conflicts & New Business; assisted by Senior Conflicts Analyst Margaret Chen.
Databases Searched: All Calderwood & Harkness firm databases, including the Ridgeway Health IT module, the master client/matter database, the billing system (Beaumont Technologies), the document management system (Tidewater Systems), the lateral-hire disclosure database, and the personnel conflicts-disclosure database.
Search Terms and Entities:
• Metropolitan Transit Development Corp. / MTDC / Metro Transit
• Pinnacle Workforce Analytics, Inc. / Pinnacle
• Illinois Attorney General's Office / Illinois AG / Bureau of Civil Rights
• Kessler, Brandt & O'Neill LLP / Martin Kessler / Yolanda Brandt
• Hargrove, Tillman & Reese LLP / Constance Hargrove
• Ridgeway & Falk LLP / Diane Falk
• Meridian Trust National Bank / Angela Tran
• All identified individual officers and principals of the foregoing entities (Darnell Okafor, Terrence Whitfield, Lucia Marchetti, Gregory Harmon, Sandra Yee, Malcolm Jeffries, Felix Drummond)
Result: A match was identified for Pinnacle Workforce Analytics, Inc. as an existing client of the firm under Matter No. 1031-00001 (Responsible Partner: Jonathan Mercer). The Round 1 search confirmed that Pinnacle is a current, active client with ongoing litigation (Pinnacle v. Veritas Biometrics Corp., E.D. Va. 1:22-cv-01533).
Nature of Conflict Identified: Direct adversity and material limitation. The TruScan 360 biometric platform that is the subject of the firm's existing patent-enforcement representation of Pinnacle (Matter No. 1031-00001) is the same platform whose deployment by MTDC is the subject of the proposed new engagement (Matter No. 1031-00001). The proposed engagement would require the firm to take positions adverse to Pinnacle regarding TruScan 360 and would potentially involve the assertion of cross-claims and indemnification demands by MTDC against Pinnacle.
No other conflicts were identified in Round 1. The full Round 1 search report, dated May 10, 2024, is attached as Attachment A.
B. Round 2 — Expanded Parties Search (May 13, 2024)
Date of Search: May 13, 2024
Search Conducted By: Colleen Farrow, with assistance from Margaret Chen and Conflicts Analyst David Reyes.
Expanded Search Terms and Entities:
• All Pinnacle affiliates, subsidiaries, and known subcontractors (based on information available in the firm's matter files and public records)
• MTDC Board of Directors members (names obtained from MTDC's public website and most recent Annual Financial Report)
• Veritas Biometrics Corp. / Randall Cho
• Lakefront Actuarial Advisors, LLC / Felix Drummond
• Gregory Harmon (Pinnacle CEO) — expanded personal search
• Sandra Yee (Pinnacle General Counsel) — expanded personal search
• Randall Cho (Veritas CEO) — expanded personal search
• Additional related individuals identified through the Round 1 search results
Result: No additional conflicts were identified beyond the Pinnacle issue identified in Round 1. The expanded search confirmed that the firm has no current or prior relationship with MTDC, the Illinois Attorney General's Office (in any capacity relevant to this matter), Kessler, Brandt & O'Neill LLP, Ridgeway & Falk LLP, Lakefront Actuarial Advisors, or any of the MTDC Board members.
The full Round 2 supplemental search report, dated May 13, 2024, is attached as Attachment B.
C. Attachments
• Attachment A: Full Conflicts Search Report — Round 1 (dated May 10, 2024)
• Attachment B: Supplemental Conflicts Search Report — Round 2 (dated May 13, 2024)
IX. Questions for Committee Determination
The Conflicts Committee is asked to consider and make formal determinations with respect to the following questions:
1. Direct Adversity. Does the proposed MTDC engagement (Matter No. 1031-00001) create a concurrent conflict of interest under Illinois Rule of Professional Conduct 1.7(a)(1) by virtue of direct adversity to the firm's existing client, Pinnacle Workforce Analytics, Inc. (Matter No. 1031-00001)?
2. Material Limitation. Does the proposed MTDC engagement create a concurrent conflict of interest under Illinois Rule of Professional Conduct 1.7(a)(2) by virtue of a significant risk that the firm's representation of MTDC would be materially limited by the firm's obligations to Pinnacle and by the firm's possession of Pinnacle's confidential information regarding TruScan 360?
3. Waivability. If a conflict exists under Rule 1.7(a)(1) or (a)(2), or both, is the conflict waivable under Illinois Rule of Professional Conduct 1.7(b)? In particular, the Committee should address:
(a) Whether a reasonable lawyer can conclude that competent and diligent representation of both MTDC and Pinnacle is possible, given the diametrically opposed legal positions the firm would be required to take with respect to TruScan 360 in the two engagements;
(b) Whether informed consent from both clients could cure the conflict, given the substantially related subject matter and the fundamentally incompatible interests of MTDC and Pinnacle;
(c) Whether the firm's possession of categories of Pinnacle confidential information bearing directly on TruScan 360's biometric data practices—including technical specifications, source-code architecture summaries, data-flow diagrams, retention policies, and algorithm design documents—precludes the formation of the reasonable belief required under Rule 1.7(b)(1) and renders any purported waiver ineffective; and
(d) Whether the anticipated assertion of cross-claims by MTDC against Pinnacle triggers the prohibition in Rule 1.7(b)(3) against the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal.
4. Declination. If the Committee determines that the conflict is unwaivable, should the firm decline the proposed MTDC engagement (Matter No. 1031-00001)?
5. Post-Declination Steps. If the engagement is declined, what steps should be taken regarding notification to MTDC, referral of MTDC to qualified alternative counsel, documentation of the declination, and preservation of the firm's obligations to Pinnacle?
X. Recommended Next Steps (Pending Committee Determination)
The following action items are recommended for implementation based on the anticipated outcome of the Committee's deliberations. Final action items will be confirmed following the Committee's formal vote.
If the Committee Determines That the Conflict Is Unwaivable and Directs Declination of the MTDC Engagement:
1. Internal Declination Memorandum. Rachel Bernstein will prepare an internal declination memorandum documenting the basis for the firm's decision to decline the proposed engagement, for inclusion in the firm's conflicts files.
2. Declination Letter to MTDC. Rachel Bernstein will prepare a draft declination letter addressed to Terrence Whitfield, General Counsel of MTDC, for review and approval by Helen Drazkowski prior to transmission. The declination letter must not reveal the identity of the existing client (Pinnacle) or the nature of the existing engagement. The letter should be limited to stating that the firm has identified an unwaivable conflict of interest that precludes its acceptance of the proposed engagement.