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CALDERWOOD & HARKNESS LLP

MEMORANDUM

ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL

PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE CONFLICTS COMMITTEE

TO: Rachel Bernstein, Partner, Privacy & Data Security Devon Archer, Associate, Labor & Employment

FROM: Nadia Petrov, Associate, Labor & Employment (under the supervision of Devon Archer)

DATE: May 13, 2024

RE: Proposed Representation of Metropolitan Transit Development Corp. ("MTDC") — Matter No. 1031-00001; Analysis of Direct Adversity to Existing Client Pinnacle Workforce Analytics, Inc. — Matter No. 1031-00001

CC: Lawrence Keating, Chair, Conflicts Committee Helen Drazkowski, General Counsel Colleen Farrow, Director, Conflicts & New Business

I. Executive Summary

This memorandum analyzes whether Calderwood & Harkness LLP's ("the Firm's") proposed representation of Metropolitan Transit Development Corp. ("MTDC") in connection with a Biometric Information Privacy Act ("BIPA") enforcement action commenced by the Illinois Attorney General and a related employee class-action lawsuit pending in the Circuit Court of Cook County would be "directly adverse" to the interests of Pinnacle Workforce Analytics, Inc. ("Pinnacle"), an existing Firm client, within the meaning of Illinois Rule of Professional Conduct 1.7(a)(1).

For the reasons set forth in detail below, I conclude that the proposed MTDC engagement would create direct adversity to Pinnacle on at least three independent grounds, each of which is by itself sufficient to establish a concurrent conflict of interest under Rule 1.7(a)(1):

1. Pinnacle is a named "responsible party" in the Illinois Attorney General's Civil Investigative Demand issued April 22, 2024 (Reference No. CRB-2024-0417), and the Attorney General has indicated that Pinnacle may be joined as a co-respondent in any resulting enforcement action. Any defense mounted on behalf of MTDC will necessarily place blame on the design, configuration, and data-handling protocols of Pinnacle's TruScan 360 platform.

2. The proposed scope of the MTDC engagement expressly contemplates that the Firm will draft and prosecute cross-claims and indemnification demands directly against Pinnacle under the Master Software License and Services Agreement dated June 15, 2021 (the "MSLA"). The Firm cannot simultaneously represent Pinnacle in a current, active engagement and file affirmative claims against it in another.

3. The legal characterization the Firm would advance on MTDC's behalf — that TruScan 360's biometric-data collection, storage, and disclosure practices violate BIPA, 740 ILCS 14/1 et seq. — is diametrically opposed to the position the Firm currently advocates on Pinnacle's behalf in the pending patent-enforcement action in the Eastern District of Virginia, in which the Firm champions the technological and commercial legitimacy of the very same platform.

I therefore recommend that the Conflicts Committee, in advance of its May 14, 2024 meeting, find that the proposed MTDC engagement would be directly adverse to Pinnacle within the meaning of Rule 1.7(a)(1). Whether the conflict is capable of being cured by informed, written consent under Rule 1.7(b) is a distinct question addressed in a companion memorandum.

II. Scope and Purpose of This Memorandum

This memorandum is one of several supporting analyses I have prepared, at the request of Ms. Bernstein and under the supervision of Mr. Archer, for the Conflicts Committee's review of the proposed representation in Matter No. 1031-00001. It is limited to the threshold question of whether direct adversity exists under Illinois Rule of Professional Conduct 1.7(a)(1).

The following related questions are addressed in separate companion memoranda:

• Whether the conflict, if it exists, is waivable and, if so, on what terms — analyzed under Rule 1.7(b);

• Whether any former-client duties are implicated — analyzed under Rule 1.9, included for completeness notwithstanding that Pinnacle remains a current client; and

• Whether the conflict is imputed to all Firm lawyers, and whether any screening arrangement could be effective — analyzed under Rule 1.10.

Nothing in this memorandum should be read as expressing any view on those distinct questions.

III. Background Facts

The following factual summary is drawn from the new-matter intake for Matter No. 1031-00001, the Firm's existing files for Matter No. 1031-00001, the Civil Investigative Demand issued by the Illinois Attorney General, the complaint in the Cook County class action, and communications with MTDC's General Counsel, Terrence Whitfield, and Pinnacle's General Counsel, Sandra Yee (the latter conducted through Jonathan Mercer's team and limited to information already in the Firm's possession in connection with the existing Pinnacle engagement).

A. The Prospective Client: Metropolitan Transit Development Corp.

MTDC is a unit of local government and special-purpose transit authority organized under the Illinois Local Mass Transit District Act. Its principal offices are located at 550 West Harrison Street, Suite 1400, Chicago, Illinois 60607. MTDC operates bus, commuter rail, and paratransit service across Cook County and five collar counties, serving approximately 1.6 million riders on an average weekday. Its annual operating budget is approximately $3.2 billion, funded through a combination of farebox revenue, sales-tax authority, state operating assistance, and federal formula grants.

Key MTDC personnel relevant to the proposed representation are:

• Darnell Okafor, Executive Director;

• Terrence Whitfield, General Counsel; and

• Lucia Marchetti, Chief Information Security Officer.

MTDC's existing outside litigation counsel is Hargrove, Tillman & Reese LLP, with Constance Hargrove serving as lead partner. Hargrove, Tillman & Reese does not have significant BIPA or biometric-privacy experience and referred MTDC to the Firm — and specifically to Ms. Bernstein's Privacy & Data Security practice group — for that specialized capability.

B. The Proposed Engagement (Matter No. 1031-00001)

On May 6, 2024, Mr. Whitfield contacted Ms. Bernstein by telephone and, later that afternoon, by e-mail to inquire about the Firm's availability to serve as lead defense and remediation counsel to MTDC in the matters described below. On May 9, 2024, the Firm opened a new-matter intake as Matter No. 1031-00001, and the conflicts search was initiated the same day. The proposed engagement encompasses five categories of work:

1. Defense of the Illinois Attorney General's Civil Investigative Demand. On April 22, 2024, the Bureau of Civil Rights of the Office of the Illinois Attorney General issued a Civil Investigative Demand referenced as CRB-2024-0417, alleging that MTDC's deployment of a biometric workforce-management platform to track employee timekeeping, scheduling, and access control violates BIPA, 740 ILCS 14/1 et seq., and the Illinois Personal Information Protection Act, 815 ILCS 530/1 et seq. The CID is signed by Deputy Attorney General for Civil Rights Malcolm Jeffries. The Attorney General has designated Ridgeway & Falk LLP (lead partner: Diane Falk; 401 East Adams Street, Suite 300, Springfield, Illinois 62701) as outside special counsel.

2. Defense of a putative employee class action. On April 29, 2024, a putative class of approximately 12,400 current and former MTDC employees filed suit in the Circuit Court of Cook County, Chancery Division, styled Reynolds, et al. v. Metropolitan Transit Development Corp., et al., Case No. 2024-CH-04417. Class counsel is Kessler, Brandt & O'Neill LLP (lead: Martin Kessler; co-counsel: Yolanda Brandt; 120 North LaSalle Street, Suite 2200, Chicago, Illinois 60602).

3. Remediation advice. Counseling on the redesign and remediation of MTDC's biometric-data collection, storage, retention, and dissemination practices, including vendor management protocols.

4. Cross-claims and indemnification proceedings against technology vendors. Analysis, drafting, and prosecution of cross-claims and indemnification demands against MTDC's technology vendors, expressly including Pinnacle Workforce Analytics, Inc.

5. Employment counseling. Related labor and employment counseling with respect to workforce-monitoring policies, collective-bargaining implications, and employee communications.

Estimated fees under the proposed engagement are $3.5 million to $5.2 million over an 18-to-24-month period. MTDC's potential BIPA statutory-damages exposure, as calculated by its consulting actuary, Lakefront Actuarial Advisors, LLC (principal: Felix Drummond, FSA, MAAA), ranges from approximately $12.4 million (negligent violations, at $1,000 per class member × 12,400 class members) to approximately $62.0 million (intentional or reckless violations, at $5,000 per class member × 12,400 class members), before considering attorneys' fees, costs, and any additional exposure under PIPA.

C. The Existing Client: Pinnacle Workforce Analytics, Inc.

Pinnacle is a Delaware corporation headquartered at 11900 Sunrise Valley Drive, Suite 500, Reston, Virginia 20191. Its Delaware registered agent is Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, Delaware 19801. Pinnacle's Chief Executive Officer is Gregory Harmon, and its General Counsel is Sandra Yee.

Pinnacle develops and licenses biometric workforce-management software. Its flagship product, "TruScan 360," is an AI-powered timekeeping, scheduling, and access-control platform that ingests fingerprint, facial-geometry, and iris-scan data. Pinnacle reported annual revenues of approximately $485 million in its most recent fiscal year, of which a material portion is derived from public-sector deployments in the transportation, healthcare, and higher-education sectors.

The Firm has represented Pinnacle continuously since 2019. The currently active engagement is Matter No. 1031-00001, opened March 14, 2022, in which the Firm represents Pinnacle in patent-licensing and patent-enforcement matters concerning the core biometric-recognition algorithms embedded in TruScan 360. The principal litigation in that engagement is Pinnacle Workforce Analytics, Inc. v. Veritas Biometrics Corp., filed September 6, 2022, in the United States District Court for the Eastern District of Virginia, Case No. 1:22-cv-01533. Veritas Biometrics Corp. (CEO: Randall Cho) is represented by Whitmore & Sato LLP (lead partner: Akira Sato; 999 Waterside Drive, Suite 600, Norfolk, Virginia 23510).

The responsible and billing partner for Matter No. 1031-00001 is Jonathan Mercer of the Firm's Intellectual Property and Patent Litigation practice; the lead associate is Priya Subramaniam. Fiscal year 2023 collections from Pinnacle totaled $2,137,500.

D. The Pinnacle–MTDC Contractual Relationship

Pinnacle sold and deployed TruScan 360 to MTDC under a Master Software License and Services Agreement, effective June 15, 2021. The MSLA has a five-year initial term running from June 15, 2021 through June 14, 2026, with an optional three-year renewal, and a total initial-term contract value of $8,700,000 (equating to $1,740,000 per year). The MSLA includes representations and warranties by Pinnacle concerning regulatory compliance, indemnification obligations running in favor of MTDC, and provisions allocating responsibility for data-protection compliance. It is under the MSLA that MTDC would assert the cross-claims, indemnification demands, and breach-of-warranty and breach-of-contract claims contemplated by category (4) of the proposed engagement scope.

IV. Applicable Ethical Standard: Illinois Rule of Professional Conduct 1.7(a)(1)

A. Text of the Rule

Illinois Rule of Professional Conduct 1.7(a), adopted by the Supreme Court of Illinois effective January 1, 2010 and enforced by the Illinois Attorney Registration and Disciplinary Commission ("ARDC"), provides in relevant part:

"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."

Although the Illinois rule closely tracks ABA Model Rule 1.7, it is the Illinois formulation — as construed by the Illinois Supreme Court and the ARDC — that governs. This memorandum addresses only subsection (a)(1); the "material limitation" prong of subsection (a)(2) is not necessary to the conclusion reached herein.

B. Interpretive Framework

"Direct adversity" under Rule 1.7(a)(1) is not confined to co-parties in the same litigation. As explained in the Comments to Rule 1.7 and in Illinois disciplinary decisions and ARDC advisory opinions construing the rule, direct adversity extends to any situation in which the lawyer's action on behalf of one client will directly and adversely affect another current client. The doctrine reaches at least the following three categories of circumstance:

1. Same-proceeding adversity. The clients' interests are opposed as parties or de facto parties in the same transaction, negotiation, or judicial or administrative proceeding.

2. Cross-matter positional adversity. The lawyer would be required to take, in one matter, a legal position that would harm the interests of another current client in a different matter — particularly where the two matters involve the same or substantially related subject matter, technology, product, or course of conduct.

3. Foreseeable-liability adversity. The lawyer's actions on behalf of one client will foreseeably and directly result in legal claims against, or increased liability exposure for, another current client, whether through cross-claim, indemnification demand, third-party practice, joinder, or the marshalling of a factual record against the other client.

Illinois Rule 1.7, Comment [6], makes clear that direct adversity may arise even where the matters are pending before different tribunals and involve different substantive areas of law. Comment [8] recognizes that so-called "positional" conflicts may rise to the level of direct adversity where the positions taken concern the same or closely related legal or factual issues, the two matters are pending simultaneously, and there is a realistic probability that the position taken in one matter will prejudice the other. Consistent with these principles, ARDC advisory materials have repeatedly cautioned that a firm's simultaneous representation of a technology vendor and of a customer-user of that vendor's technology — particularly where the customer's defense depends on faulting the vendor's product design or data-handling protocols — presents a paradigmatic direct-adversity problem and cannot be reconciled by resort to structural or geographic separation within the firm.

Against this framework, the proposed MTDC engagement presents not merely one but three independently sufficient grounds of direct adversity.

V. Analysis: Three Independent Grounds for Direct Adversity

A. Ground One: Pinnacle Is a Named "Responsible Party" in the Attorney General's CID and a Likely Co-Respondent in Any Enforcement Action

The Civil Investigative Demand issued by the Illinois Attorney General's Bureau of Civil Rights on April 22, 2024 (Ref. CRB-2024-0417) names Pinnacle as a "responsible party" alongside MTDC. In the preliminary conference held April 30, 2024 between Deputy Attorney General Jeffries and MTDC's General Counsel, Deputy Attorney General Jeffries expressly stated that the Attorney General "intends to name the platform vendor as a co-respondent in any complaint" that may issue at the conclusion of the CID process. That representation is reflected in the meeting minutes furnished to the Firm as part of the new-matter intake.

If the Firm were to accept the MTDC engagement, it would immediately be required to develop and advance a defense theory in the CID response — and, in due course, in any enforcement action — that unavoidably shifts blame to Pinnacle. MTDC's most powerful and, in candor, its most likely defense arguments are precisely those that place responsibility on the vendor:

• that the biometric templates alleged to have been unlawfully collected were generated by, and reside on, Pinnacle-controlled infrastructure;

• that TruScan 360's default configurations governed the scope, retention, and dissemination of biometric data;

• that MTDC relied on Pinnacle's representations and warranties concerning BIPA compliance in the MSLA; and

• that any deficiency in the "written policy," "informed consent," and "retention schedule" required by Sections 15(a) and 15(b) of BIPA is properly laid at the vendor's feet.

To advance those arguments — as competent BIPA defense counsel to MTDC would be duty-bound to advance them — the Firm would be affirmatively constructing the factual and legal predicate for Pinnacle's own liability. The very act of representing MTDC in the CID response would thus produce evidence, argument, and admissions that materially increase Pinnacle's exposure in the same investigation. That is the definition of direct adversity: taking action on behalf of one current client that directly and foreseeably injures another.

B. Ground Two: MTDC's Anticipated Cross-Claims and Indemnification Demands Against Pinnacle Under the MSLA

Category (4) of the proposed engagement scope, as set forth in the new-matter intake and confirmed by Mr. Whitfield in his May 8, 2024 e-mail to Ms. Bernstein, expressly encompasses "potential cross-claims and indemnification proceedings against technology vendors, including Pinnacle." Mr. Whitfield's e-mail is unambiguous that MTDC views the MSLA as its "principal recovery vehicle" and expects outside counsel to "pursue Pinnacle aggressively" for indemnification, breach of warranty, and breach of contract.

If the Firm accepts that scope, it will be doing the following, on behalf of MTDC and against Pinnacle:

• investigating and analyzing Pinnacle's conduct under the MSLA;

• drafting a formal demand letter asserting breach of Pinnacle's representations and warranties, breach of the MSLA's data-protection covenants, and invocation of Pinnacle's contractual indemnification obligations;

• initiating and prosecuting cross-claim, third-party, or affirmative-litigation proceedings against Pinnacle in the Cook County class action and, if the Attorney General names Pinnacle as a co-respondent, in the enforcement action; and

• in the alternative, initiating a separate contractual action against Pinnacle for indemnification and recovery of defense costs.

Each of these steps is direct adversity in the most literal and unambiguous sense the rule contemplates. The Firm would be preparing and filing pleadings against its own current client. It is difficult to conceive of a more paradigmatic violation of Rule 1.7(a)(1). Illinois Rule 1.7, Comment [6], removes any doubt that this analysis is unaffected by the fact that the cross-claims and indemnification demands, on the one hand, and the pending patent-enforcement matter, on the other, are before different tribunals and involve different substantive law: "[a] lawyer may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated."

Nor does it matter that the cross-claims and indemnification demands have not yet been formally asserted. The proposed scope contemplates that they will be — indeed, MTDC has retained the Firm precisely because it wants them asserted — and the Firm cannot accept a representation whose defined objective, plainly foreseeable at inception, is the commencement of adverse proceedings against a current client.

C. Ground Three: Irreconcilable Legal Positions Regarding TruScan 360's Legitimacy

The third ground is independently sufficient even if Grounds One and Two could somehow be set aside. In the existing Pinnacle engagement (Matter No. 1031-00001), the Firm — through Mr. Mercer, Ms. Subramaniam, and their team — advances the position that TruScan 360's biometric-recognition algorithms are innovative, technologically legitimate, and commercially valuable subject matter protected by Pinnacle's issued patents. The very theory of infringement asserted against Veritas Biometrics Corp. in the Eastern District of Virginia depends on establishing (i) that TruScan 360's fingerprint, facial-geometry, and iris-scan pipelines embody the novel and non-obvious elements of the claims-in-suit; (ii) that the platform's data-handling architecture is a legitimate, commercially significant use of biometric identifiers; and (iii) that infringement by Veritas has caused Pinnacle competitive and reputational harm that would not exist absent the lawfulness and value of Pinnacle's own use of the technology.

In the proposed MTDC engagement, by contrast, the Firm would be required to argue — and to prove — that TruScan 360's biometric-data collection, storage, and dissemination practices violate BIPA, i.e., that the platform's core data-handling functionality is unlawful. That characterization is not incidental to the MTDC defense; it is the defense. In particular, in seeking to shift responsibility to Pinnacle in the CID response, the class action, and the cross-claim proceedings, the Firm would necessarily contend that TruScan 360's default retention practices, its consent workflows, its template-storage architecture, and its data-sharing behaviors fail to comport with Sections 15(a), 15(b), 15(d), and 15(e) of BIPA.

These positions are diametrically opposed. The patent-enforcement action rests on the premise that TruScan 360's biometric capabilities are legitimate, valuable, and lawfully deployed by Pinnacle and its customers; the BIPA defense and cross-claim posture would rest on the premise that those same capabilities are, in operation, tools of unlawful biometric surveillance. The Firm cannot simultaneously champion TruScan 360 as innovative and lawful technology in one federal proceeding and condemn it as a vehicle of unlawful biometric collection in another.

This is not, in the terminology of Comment [8], a "mere issue conflict" of the sort that arises when a firm argues one abstract legal position for Client A and the opposite abstract position for Client B in wholly unrelated contexts. This is a direct positional conflict. The two matters concern the same technology platform, the same architectural components, the same data-handling practices, and materially overlapping factual questions about how TruScan 360 collects, stores, transmits, and uses biometric information. The positions the Firm would take on MTDC's behalf are not merely inconvenient for Pinnacle in some general sense; they would be marshalled from, and would generate, a factual record about the very product on which the Firm's ongoing representation of Pinnacle depends.

Under Illinois Rule 1.7(a)(1), that alone constitutes direct adversity.

VI. Additional Considerations Reinforcing the Direct-Adversity Finding

Although the three grounds set forth in Section V are each sufficient to establish direct adversity, three additional considerations reinforce the conclusion. I note them here because, while they arguably bear more heavily on the waivability analysis under Rule 1.7(b) than on the threshold direct-adversity determination, they underscore that the adversity here is not merely formal or theoretical but is deeply substantive and operationally acute.

A. The Firm's Possession of Pinnacle Confidential Information

Per the Confidential Information Inventory prepared by Ms. Subramaniam under Mr. Mercer's supervision (a copy of which is appended to the companion Rule 1.7(b) memorandum), the Firm currently possesses several categories of Pinnacle confidential information that bear directly on the issues MTDC's defense and cross-claims would probe, including:

• technical specifications for the TruScan 360 fingerprint, facial-geometry, and iris-scan pipelines;

• source-code architecture summaries and internal design documents;

• data-flow diagrams showing the collection, transmission, and storage of biometric templates;

• biometric-data retention and deletion policies;

• algorithm design and training documentation, including materials describing the provenance of training data; and

• patent-prosecution correspondence with the U.S. Patent and Trademark Office, including internal characterizations of the technology's operation.

Each of these information categories is directly relevant to how TruScan 360 collects, processes, and retains biometric data — precisely the questions that the CID, the class action, and the contemplated cross-claims would put in issue. While confidential-information issues are the specific province of the Rule 1.7(b) analysis and are addressed there, the existence of such information underscores that the adversity here is substantive rather than nominal, and that the Firm's involvement on MTDC's side of the ledger would present concrete, not hypothetical, risks to Pinnacle.

B. Risk to Pinnacle's Patent-Enforcement Position

Any litigation position taken by the Firm on MTDC's behalf that characterizes TruScan 360's data practices as unlawful could be exploited by Veritas Biometrics Corp. in the pending Eastern District of Virginia patent litigation. Specifically, Whitmore & Sato LLP could be expected to argue that pleadings, briefs, admissions, deposition designations, or witness statements generated by Pinnacle's own counsel of record in the MTDC matter constitute (i) binding judicial admissions or party admissions under Federal Rule of Evidence 801(d)(2), or (ii) at a minimum, powerfully persuasive impeachment and cross-examination material as to Pinnacle's characterizations of TruScan 360's operation, data practices, and market value. Veritas might also seek discovery of such materials on the theory that they are non-privileged as to Pinnacle because they were generated by counsel acting adversely to Pinnacle. The resulting cross-contamination between the two matters would create a concrete and foreseeable mechanism by which the MTDC representation would directly harm Pinnacle's interests in pending federal litigation.

C. Potential for Pinnacle to Be Named as a Co-Defendant or Co-Respondent

Finally, and as noted in Section V.A above, the Attorney General has affirmatively indicated an intent to name Pinnacle as a co-respondent in any enforcement action arising from CID CRB-2024-0417. If that occurs, MTDC and Pinnacle would be co-parties with adverse interests in the same administrative or judicial enforcement proceeding, each seeking to minimize its own liability by maximizing that of the other. Comparable co-party dynamics can be expected in the Cook County class action, where MTDC's cross-claims against Pinnacle would place the two entities in adverse posture in a single caption. The Firm would then be representing both a party and its co-party adversary in the same proceeding — the paradigmatic concurrent conflict, and one that no advisory opinion, disciplinary decision, or comment to Rule 1.7 has ever tolerated.

VII. Conclusion

For the reasons set forth above, I conclude that the Firm's proposed representation of Metropolitan Transit Development Corp. in Matter No. 1031-00001 would be directly adverse to Pinnacle Workforce Analytics, Inc. within the meaning of Illinois Rule of Professional Conduct 1.7(a)(1) on three independently sufficient grounds: (i) Pinnacle's status as a named "responsible party" and likely co-respondent in the Attorney General's proceedings; (ii) the express inclusion, within the proposed engagement scope, of cross-claims and indemnification proceedings by MTDC directly against Pinnacle under the MSLA; and (iii) the diametrically opposed legal positions the Firm would be required to take regarding the same TruScan 360 platform and the same biometric-data-handling practices at the heart of the Firm's existing Pinnacle engagement.

The direct adversity is neither speculative nor contingent. It is inherent in the defined scope of the proposed engagement, in the posture of the enforcement and class-action matters, and in the factual and legal substance of the Firm's ongoing representation of Pinnacle. Accordingly, I respectfully recommend that the Conflicts Committee, at its May 14, 2024 meeting, find that a concurrent conflict of interest exists under Rule 1.7(a)(1) as to Matter No. 1031-00001.

The separate question of whether the conflict is capable of being cured by informed, written consent under Rule 1.7(b), including whether the Firm could provide competent and diligent representation to each affected client notwithstanding the conflict, and whether the representations involve the assertion of a claim by one client against another client in the same litigation, is addressed in the accompanying companion memorandum.

Respectfully submitted this 13th day of May, 2024.

________________________________________

Nadia Petrov Associate, Labor & Employment Calderwood & Harkness LLP

Reviewed and approved as to form and substance:

________________________________________

Devon Archer Associate, Labor & Employment (Supervising Associate)

VIII. Appendices

Appendix A: Party Relationship Chart

The following diagram summarizes the relationships among the principal parties and their respective counsel referenced in this memorandum:

Contractual privity: MTDC ⇄ Pinnacle under the Master Software License and Services Agreement dated June 15, 2021 (five-year initial term; $8,700,000 total initial-term value).

Pending proceedings implicating both MTDC and Pinnacle: (i) Illinois AG CID Ref. CRB-2024-0417; (ii) Reynolds, et al. v. Metropolitan Transit Development Corp., et al., Cir. Ct. Cook Cty., Chancery Div., Case No. 2024-CH-04417.

Pending proceedings implicating Pinnacle only (and represented by the Firm): Pinnacle Workforce Analytics, Inc. v. Veritas Biometrics Corp., E.D. Va. Case No. 1:22-cv-01533.

Appendix B: Relevant Provisions of Illinois Rule of Professional Conduct 1.7

Rule 1.7(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

Rule 1.7(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."

Comment [6] (excerpt):

"Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client's informed consent. Thus, absent consent, a lawyer may not act as advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated."

Comment [8] (excerpt):

"Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests… The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client."

Appendix C: Summary of Key Facts and Dates

Appendix D: Cross-Reference to Companion Memoranda

The following companion memoranda have been or will be delivered separately to the Conflicts Committee and should be read together with this analysis:

1. Ethics Analysis: Illinois Rule of Professional Conduct 1.7(b) — Waivability Assessment for Proposed Representation of MTDC (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024).

2. Ethics Analysis: Illinois Rule of Professional Conduct 1.9 — Former-Client Considerations (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024) — included for completeness only, as Pinnacle remains a current client.

3. Ethics Analysis: Imputation Under Illinois Rule of Professional Conduct 1.10 and Screening Considerations (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024).

4. Confidential Information Inventory — Pinnacle Workforce Analytics, Inc., Matter No. 1031-00001 (prepared by Priya Subramaniam under the supervision of Jonathan Mercer; dated May 12, 2024).

END OF MEMORANDUM — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL — DO NOT DISTRIBUTE OUTSIDE THE CONFLICTS COMMITTEE, GENERAL COUNSEL'S OFFICE, AND NAMED RECIPIENTS.

Role	Entity	Counsel
Prospective Firm Client	Metropolitan Transit Development Corp. (Chicago, IL)	Proposed: Calderwood & Harkness LLP; General litigation: Hargrove, Tillman & Reese LLP (Constance Hargrove)
Existing Firm Client	Pinnacle Workforce Analytics, Inc. (Reston, VA)	Calderwood & Harkness LLP (Jonathan Mercer / Priya Subramaniam)
Regulator	Office of the Illinois Attorney General — Bureau of Civil Rights (DAG Malcolm Jeffries)	Outside special counsel: Ridgeway & Falk LLP (Diane Falk, Springfield, IL)
Class Plaintiffs	Approximately 12,400 current and former MTDC employees	Kessler, Brandt & O'Neill LLP (Martin Kessler; Yolanda Brandt)
Defendant in Pinnacle patent action	Veritas Biometrics Corp. (Randall Cho, CEO)	Whitmore & Sato LLP (Akira Sato, Norfolk, VA)
Date	Event
June 15, 2021	MSLA executed between Pinnacle and MTDC (five-year initial term; $8.7M total initial-term value)
March 14, 2022	Calderwood & Harkness opens Matter No. 1031-00001 (Pinnacle patent-enforcement engagement)
September 6, 2022	Pinnacle v. Veritas Biometrics Corp. filed, E.D. Va. Case No. 1:22-cv-01533
April 22, 2024	Illinois Attorney General issues CID Ref. CRB-2024-0417, naming Pinnacle as a "responsible party"
April 29, 2024	Reynolds, et al. v. MTDC class action filed, Cir. Ct. Cook Cty., Chancery Div., Case No. 2024-CH-04417
April 30, 2024	DAG Jeffries advises MTDC that AG intends to name Pinnacle as a co-respondent
May 6, 2024	MTDC (Terrence Whitfield) initial contact with Rachel Bernstein regarding proposed representation
May 8, 2024	Follow-up e-mail from Mr. Whitfield confirming scope, including cross-claims against Pinnacle
May 9, 2024	New-matter intake opened as Matter No. 1031-00001; conflicts search Round 1 initiated
May 10, 2024	Conflict with Matter No. 1031-00001 (Pinnacle) identified and escalated to Conflicts Committee
May 13, 2024	This memorandum submitted
May 14, 2024	Conflicts Committee meeting scheduled

CALDERWOOD & HARKNESS LLP
MEMORANDUM
ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL
PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE CONFLICTS COMMITTEE
TO: Rachel Bernstein, Partner, Privacy & Data Security Devon Archer, Associate, Labor & Employment
FROM: Nadia Petrov, Associate, Labor & Employment (under the supervision of Devon Archer)
DATE: May 13, 2024
RE: Proposed Representation of Metropolitan Transit Development Corp. ("MTDC") — Matter No. 1031-00001; Analysis of Direct Adversity to Existing Client Pinnacle Workforce Analytics, Inc. — Matter No. 1031-00001
CC: Lawrence Keating, Chair, Conflicts Committee Helen Drazkowski, General Counsel Colleen Farrow, Director, Conflicts & New Business
I. Executive Summary
This memorandum analyzes whether Calderwood & Harkness LLP's ("the Firm's") proposed representation of Metropolitan Transit Development Corp. ("MTDC") in connection with a Biometric Information Privacy Act ("BIPA") enforcement action commenced by the Illinois Attorney General and a related employee class-action lawsuit pending in the Circuit Court of Cook County would be "directly adverse" to the interests of Pinnacle Workforce Analytics, Inc. ("Pinnacle"), an existing Firm client, within the meaning of Illinois Rule of Professional Conduct 1.7(a)(1).
For the reasons set forth in detail below, I conclude that the proposed MTDC engagement would create direct adversity to Pinnacle on at least three independent grounds, each of which is by itself sufficient to establish a concurrent conflict of interest under Rule 1.7(a)(1):
1. Pinnacle is a named "responsible party" in the Illinois Attorney General's Civil Investigative Demand issued April 22, 2024 (Reference No. CRB-2024-0417), and the Attorney General has indicated that Pinnacle may be joined as a co-respondent in any resulting enforcement action. Any defense mounted on behalf of MTDC will necessarily place blame on the design, configuration, and data-handling protocols of Pinnacle's TruScan 360 platform.
2. The proposed scope of the MTDC engagement expressly contemplates that the Firm will draft and prosecute cross-claims and indemnification demands directly against Pinnacle under the Master Software License and Services Agreement dated June 15, 2021 (the "MSLA"). The Firm cannot simultaneously represent Pinnacle in a current, active engagement and file affirmative claims against it in another.
3. The legal characterization the Firm would advance on MTDC's behalf — that TruScan 360's biometric-data collection, storage, and disclosure practices violate BIPA, 740 ILCS 14/1 et seq. — is diametrically opposed to the position the Firm currently advocates on Pinnacle's behalf in the pending patent-enforcement action in the Eastern District of Virginia, in which the Firm champions the technological and commercial legitimacy of the very same platform.
I therefore recommend that the Conflicts Committee, in advance of its May 14, 2024 meeting, find that the proposed MTDC engagement would be directly adverse to Pinnacle within the meaning of Rule 1.7(a)(1). Whether the conflict is capable of being cured by informed, written consent under Rule 1.7(b) is a distinct question addressed in a companion memorandum.
II. Scope and Purpose of This Memorandum
This memorandum is one of several supporting analyses I have prepared, at the request of Ms. Bernstein and under the supervision of Mr. Archer, for the Conflicts Committee's review of the proposed representation in Matter No. 1031-00001. It is limited to the threshold question of whether direct adversity exists under Illinois Rule of Professional Conduct 1.7(a)(1).
The following related questions are addressed in separate companion memoranda:
• Whether the conflict, if it exists, is waivable and, if so, on what terms — analyzed under Rule 1.7(b);
• Whether any former-client duties are implicated — analyzed under Rule 1.9, included for completeness notwithstanding that Pinnacle remains a current client; and
• Whether the conflict is imputed to all Firm lawyers, and whether any screening arrangement could be effective — analyzed under Rule 1.10.
Nothing in this memorandum should be read as expressing any view on those distinct questions.
III. Background Facts
The following factual summary is drawn from the new-matter intake for Matter No. 1031-00001, the Firm's existing files for Matter No. 1031-00001, the Civil Investigative Demand issued by the Illinois Attorney General, the complaint in the Cook County class action, and communications with MTDC's General Counsel, Terrence Whitfield, and Pinnacle's General Counsel, Sandra Yee (the latter conducted through Jonathan Mercer's team and limited to information already in the Firm's possession in connection with the existing Pinnacle engagement).
A. The Prospective Client: Metropolitan Transit Development Corp.
MTDC is a unit of local government and special-purpose transit authority organized under the Illinois Local Mass Transit District Act. Its principal offices are located at 550 West Harrison Street, Suite 1400, Chicago, Illinois 60607. MTDC operates bus, commuter rail, and paratransit service across Cook County and five collar counties, serving approximately 1.6 million riders on an average weekday. Its annual operating budget is approximately $3.2 billion, funded through a combination of farebox revenue, sales-tax authority, state operating assistance, and federal formula grants.
Key MTDC personnel relevant to the proposed representation are:
• Darnell Okafor, Executive Director;
• Terrence Whitfield, General Counsel; and
• Lucia Marchetti, Chief Information Security Officer.
MTDC's existing outside litigation counsel is Hargrove, Tillman & Reese LLP, with Constance Hargrove serving as lead partner. Hargrove, Tillman & Reese does not have significant BIPA or biometric-privacy experience and referred MTDC to the Firm — and specifically to Ms. Bernstein's Privacy & Data Security practice group — for that specialized capability.
B. The Proposed Engagement (Matter No. 1031-00001)
On May 6, 2024, Mr. Whitfield contacted Ms. Bernstein by telephone and, later that afternoon, by e-mail to inquire about the Firm's availability to serve as lead defense and remediation counsel to MTDC in the matters described below. On May 9, 2024, the Firm opened a new-matter intake as Matter No. 1031-00001, and the conflicts search was initiated the same day. The proposed engagement encompasses five categories of work:
1. Defense of the Illinois Attorney General's Civil Investigative Demand. On April 22, 2024, the Bureau of Civil Rights of the Office of the Illinois Attorney General issued a Civil Investigative Demand referenced as CRB-2024-0417, alleging that MTDC's deployment of a biometric workforce-management platform to track employee timekeeping, scheduling, and access control violates BIPA, 740 ILCS 14/1 et seq., and the Illinois Personal Information Protection Act, 815 ILCS 530/1 et seq. The CID is signed by Deputy Attorney General for Civil Rights Malcolm Jeffries. The Attorney General has designated Ridgeway & Falk LLP (lead partner: Diane Falk; 401 East Adams Street, Suite 300, Springfield, Illinois 62701) as outside special counsel.
2. Defense of a putative employee class action. On April 29, 2024, a putative class of approximately 12,400 current and former MTDC employees filed suit in the Circuit Court of Cook County, Chancery Division, styled Reynolds, et al. v. Metropolitan Transit Development Corp., et al., Case No. 2024-CH-04417. Class counsel is Kessler, Brandt & O'Neill LLP (lead: Martin Kessler; co-counsel: Yolanda Brandt; 120 North LaSalle Street, Suite 2200, Chicago, Illinois 60602).
3. Remediation advice. Counseling on the redesign and remediation of MTDC's biometric-data collection, storage, retention, and dissemination practices, including vendor management protocols.
4. Cross-claims and indemnification proceedings against technology vendors. Analysis, drafting, and prosecution of cross-claims and indemnification demands against MTDC's technology vendors, expressly including Pinnacle Workforce Analytics, Inc.
5. Employment counseling. Related labor and employment counseling with respect to workforce-monitoring policies, collective-bargaining implications, and employee communications.
Estimated fees under the proposed engagement are $3.5 million to $5.2 million over an 18-to-24-month period. MTDC's potential BIPA statutory-damages exposure, as calculated by its consulting actuary, Lakefront Actuarial Advisors, LLC (principal: Felix Drummond, FSA, MAAA), ranges from approximately $12.4 million (negligent violations, at $1,000 per class member × 12,400 class members) to approximately $62.0 million (intentional or reckless violations, at $5,000 per class member × 12,400 class members), before considering attorneys' fees, costs, and any additional exposure under PIPA.
C. The Existing Client: Pinnacle Workforce Analytics, Inc.
Pinnacle is a Delaware corporation headquartered at 11900 Sunrise Valley Drive, Suite 500, Reston, Virginia 20191. Its Delaware registered agent is Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, Delaware 19801. Pinnacle's Chief Executive Officer is Gregory Harmon, and its General Counsel is Sandra Yee.
Pinnacle develops and licenses biometric workforce-management software. Its flagship product, "TruScan 360," is an AI-powered timekeeping, scheduling, and access-control platform that ingests fingerprint, facial-geometry, and iris-scan data. Pinnacle reported annual revenues of approximately $485 million in its most recent fiscal year, of which a material portion is derived from public-sector deployments in the transportation, healthcare, and higher-education sectors.
The Firm has represented Pinnacle continuously since 2019. The currently active engagement is Matter No. 1031-00001, opened March 14, 2022, in which the Firm represents Pinnacle in patent-licensing and patent-enforcement matters concerning the core biometric-recognition algorithms embedded in TruScan 360. The principal litigation in that engagement is Pinnacle Workforce Analytics, Inc. v. Veritas Biometrics Corp., filed September 6, 2022, in the United States District Court for the Eastern District of Virginia, Case No. 1:22-cv-01533. Veritas Biometrics Corp. (CEO: Randall Cho) is represented by Whitmore & Sato LLP (lead partner: Akira Sato; 999 Waterside Drive, Suite 600, Norfolk, Virginia 23510).
The responsible and billing partner for Matter No. 1031-00001 is Jonathan Mercer of the Firm's Intellectual Property and Patent Litigation practice; the lead associate is Priya Subramaniam. Fiscal year 2023 collections from Pinnacle totaled $2,137,500.
D. The Pinnacle–MTDC Contractual Relationship
Pinnacle sold and deployed TruScan 360 to MTDC under a Master Software License and Services Agreement, effective June 15, 2021. The MSLA has a five-year initial term running from June 15, 2021 through June 14, 2026, with an optional three-year renewal, and a total initial-term contract value of $8,700,000 (equating to $1,740,000 per year). The MSLA includes representations and warranties by Pinnacle concerning regulatory compliance, indemnification obligations running in favor of MTDC, and provisions allocating responsibility for data-protection compliance. It is under the MSLA that MTDC would assert the cross-claims, indemnification demands, and breach-of-warranty and breach-of-contract claims contemplated by category (4) of the proposed engagement scope.
IV. Applicable Ethical Standard: Illinois Rule of Professional Conduct 1.7(a)(1)
A. Text of the Rule
Illinois Rule of Professional Conduct 1.7(a), adopted by the Supreme Court of Illinois effective January 1, 2010 and enforced by the Illinois Attorney Registration and Disciplinary Commission ("ARDC"), provides in relevant part:
"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."
Although the Illinois rule closely tracks ABA Model Rule 1.7, it is the Illinois formulation — as construed by the Illinois Supreme Court and the ARDC — that governs. This memorandum addresses only subsection (a)(1); the "material limitation" prong of subsection (a)(2) is not necessary to the conclusion reached herein.
B. Interpretive Framework
"Direct adversity" under Rule 1.7(a)(1) is not confined to co-parties in the same litigation. As explained in the Comments to Rule 1.7 and in Illinois disciplinary decisions and ARDC advisory opinions construing the rule, direct adversity extends to any situation in which the lawyer's action on behalf of one client will directly and adversely affect another current client. The doctrine reaches at least the following three categories of circumstance:
1. Same-proceeding adversity. The clients' interests are opposed as parties or de facto parties in the same transaction, negotiation, or judicial or administrative proceeding.
2. Cross-matter positional adversity. The lawyer would be required to take, in one matter, a legal position that would harm the interests of another current client in a different matter — particularly where the two matters involve the same or substantially related subject matter, technology, product, or course of conduct.
3. Foreseeable-liability adversity. The lawyer's actions on behalf of one client will foreseeably and directly result in legal claims against, or increased liability exposure for, another current client, whether through cross-claim, indemnification demand, third-party practice, joinder, or the marshalling of a factual record against the other client.
Illinois Rule 1.7, Comment [6], makes clear that direct adversity may arise even where the matters are pending before different tribunals and involve different substantive areas of law. Comment [8] recognizes that so-called "positional" conflicts may rise to the level of direct adversity where the positions taken concern the same or closely related legal or factual issues, the two matters are pending simultaneously, and there is a realistic probability that the position taken in one matter will prejudice the other. Consistent with these principles, ARDC advisory materials have repeatedly cautioned that a firm's simultaneous representation of a technology vendor and of a customer-user of that vendor's technology — particularly where the customer's defense depends on faulting the vendor's product design or data-handling protocols — presents a paradigmatic direct-adversity problem and cannot be reconciled by resort to structural or geographic separation within the firm.
Against this framework, the proposed MTDC engagement presents not merely one but three independently sufficient grounds of direct adversity.
V. Analysis: Three Independent Grounds for Direct Adversity
A. Ground One: Pinnacle Is a Named "Responsible Party" in the Attorney General's CID and a Likely Co-Respondent in Any Enforcement Action
The Civil Investigative Demand issued by the Illinois Attorney General's Bureau of Civil Rights on April 22, 2024 (Ref. CRB-2024-0417) names Pinnacle as a "responsible party" alongside MTDC. In the preliminary conference held April 30, 2024 between Deputy Attorney General Jeffries and MTDC's General Counsel, Deputy Attorney General Jeffries expressly stated that the Attorney General "intends to name the platform vendor as a co-respondent in any complaint" that may issue at the conclusion of the CID process. That representation is reflected in the meeting minutes furnished to the Firm as part of the new-matter intake.
If the Firm were to accept the MTDC engagement, it would immediately be required to develop and advance a defense theory in the CID response — and, in due course, in any enforcement action — that unavoidably shifts blame to Pinnacle. MTDC's most powerful and, in candor, its most likely defense arguments are precisely those that place responsibility on the vendor:
• that the biometric templates alleged to have been unlawfully collected were generated by, and reside on, Pinnacle-controlled infrastructure;
• that TruScan 360's default configurations governed the scope, retention, and dissemination of biometric data;
• that MTDC relied on Pinnacle's representations and warranties concerning BIPA compliance in the MSLA; and
• that any deficiency in the "written policy," "informed consent," and "retention schedule" required by Sections 15(a) and 15(b) of BIPA is properly laid at the vendor's feet.
To advance those arguments — as competent BIPA defense counsel to MTDC would be duty-bound to advance them — the Firm would be affirmatively constructing the factual and legal predicate for Pinnacle's own liability. The very act of representing MTDC in the CID response would thus produce evidence, argument, and admissions that materially increase Pinnacle's exposure in the same investigation. That is the definition of direct adversity: taking action on behalf of one current client that directly and foreseeably injures another.
B. Ground Two: MTDC's Anticipated Cross-Claims and Indemnification Demands Against Pinnacle Under the MSLA
Category (4) of the proposed engagement scope, as set forth in the new-matter intake and confirmed by Mr. Whitfield in his May 8, 2024 e-mail to Ms. Bernstein, expressly encompasses "potential cross-claims and indemnification proceedings against technology vendors, including Pinnacle." Mr. Whitfield's e-mail is unambiguous that MTDC views the MSLA as its "principal recovery vehicle" and expects outside counsel to "pursue Pinnacle aggressively" for indemnification, breach of warranty, and breach of contract.
If the Firm accepts that scope, it will be doing the following, on behalf of MTDC and against Pinnacle:
• investigating and analyzing Pinnacle's conduct under the MSLA;
• drafting a formal demand letter asserting breach of Pinnacle's representations and warranties, breach of the MSLA's data-protection covenants, and invocation of Pinnacle's contractual indemnification obligations;
• initiating and prosecuting cross-claim, third-party, or affirmative-litigation proceedings against Pinnacle in the Cook County class action and, if the Attorney General names Pinnacle as a co-respondent, in the enforcement action; and
• in the alternative, initiating a separate contractual action against Pinnacle for indemnification and recovery of defense costs.
Each of these steps is direct adversity in the most literal and unambiguous sense the rule contemplates. The Firm would be preparing and filing pleadings against its own current client. It is difficult to conceive of a more paradigmatic violation of Rule 1.7(a)(1). Illinois Rule 1.7, Comment [6], removes any doubt that this analysis is unaffected by the fact that the cross-claims and indemnification demands, on the one hand, and the pending patent-enforcement matter, on the other, are before different tribunals and involve different substantive law: "[a] lawyer may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated."
Nor does it matter that the cross-claims and indemnification demands have not yet been formally asserted. The proposed scope contemplates that they will be — indeed, MTDC has retained the Firm precisely because it wants them asserted — and the Firm cannot accept a representation whose defined objective, plainly foreseeable at inception, is the commencement of adverse proceedings against a current client.
C. Ground Three: Irreconcilable Legal Positions Regarding TruScan 360's Legitimacy
The third ground is independently sufficient even if Grounds One and Two could somehow be set aside. In the existing Pinnacle engagement (Matter No. 1031-00001), the Firm — through Mr. Mercer, Ms. Subramaniam, and their team — advances the position that TruScan 360's biometric-recognition algorithms are innovative, technologically legitimate, and commercially valuable subject matter protected by Pinnacle's issued patents. The very theory of infringement asserted against Veritas Biometrics Corp. in the Eastern District of Virginia depends on establishing (i) that TruScan 360's fingerprint, facial-geometry, and iris-scan pipelines embody the novel and non-obvious elements of the claims-in-suit; (ii) that the platform's data-handling architecture is a legitimate, commercially significant use of biometric identifiers; and (iii) that infringement by Veritas has caused Pinnacle competitive and reputational harm that would not exist absent the lawfulness and value of Pinnacle's own use of the technology.
In the proposed MTDC engagement, by contrast, the Firm would be required to argue — and to prove — that TruScan 360's biometric-data collection, storage, and dissemination practices violate BIPA, i.e., that the platform's core data-handling functionality is unlawful. That characterization is not incidental to the MTDC defense; it is the defense. In particular, in seeking to shift responsibility to Pinnacle in the CID response, the class action, and the cross-claim proceedings, the Firm would necessarily contend that TruScan 360's default retention practices, its consent workflows, its template-storage architecture, and its data-sharing behaviors fail to comport with Sections 15(a), 15(b), 15(d), and 15(e) of BIPA.
These positions are diametrically opposed. The patent-enforcement action rests on the premise that TruScan 360's biometric capabilities are legitimate, valuable, and lawfully deployed by Pinnacle and its customers; the BIPA defense and cross-claim posture would rest on the premise that those same capabilities are, in operation, tools of unlawful biometric surveillance. The Firm cannot simultaneously champion TruScan 360 as innovative and lawful technology in one federal proceeding and condemn it as a vehicle of unlawful biometric collection in another.
This is not, in the terminology of Comment [8], a "mere issue conflict" of the sort that arises when a firm argues one abstract legal position for Client A and the opposite abstract position for Client B in wholly unrelated contexts. This is a direct positional conflict. The two matters concern the same technology platform, the same architectural components, the same data-handling practices, and materially overlapping factual questions about how TruScan 360 collects, stores, transmits, and uses biometric information. The positions the Firm would take on MTDC's behalf are not merely inconvenient for Pinnacle in some general sense; they would be marshalled from, and would generate, a factual record about the very product on which the Firm's ongoing representation of Pinnacle depends.
Under Illinois Rule 1.7(a)(1), that alone constitutes direct adversity.
VI. Additional Considerations Reinforcing the Direct-Adversity Finding
Although the three grounds set forth in Section V are each sufficient to establish direct adversity, three additional considerations reinforce the conclusion. I note them here because, while they arguably bear more heavily on the waivability analysis under Rule 1.7(b) than on the threshold direct-adversity determination, they underscore that the adversity here is not merely formal or theoretical but is deeply substantive and operationally acute.
A. The Firm's Possession of Pinnacle Confidential Information
Per the Confidential Information Inventory prepared by Ms. Subramaniam under Mr. Mercer's supervision (a copy of which is appended to the companion Rule 1.7(b) memorandum), the Firm currently possesses several categories of Pinnacle confidential information that bear directly on the issues MTDC's defense and cross-claims would probe, including:
• technical specifications for the TruScan 360 fingerprint, facial-geometry, and iris-scan pipelines;
• source-code architecture summaries and internal design documents;
• data-flow diagrams showing the collection, transmission, and storage of biometric templates;
• biometric-data retention and deletion policies;
• algorithm design and training documentation, including materials describing the provenance of training data; and
• patent-prosecution correspondence with the U.S. Patent and Trademark Office, including internal characterizations of the technology's operation.
Each of these information categories is directly relevant to how TruScan 360 collects, processes, and retains biometric data — precisely the questions that the CID, the class action, and the contemplated cross-claims would put in issue. While confidential-information issues are the specific province of the Rule 1.7(b) analysis and are addressed there, the existence of such information underscores that the adversity here is substantive rather than nominal, and that the Firm's involvement on MTDC's side of the ledger would present concrete, not hypothetical, risks to Pinnacle.
B. Risk to Pinnacle's Patent-Enforcement Position
Any litigation position taken by the Firm on MTDC's behalf that characterizes TruScan 360's data practices as unlawful could be exploited by Veritas Biometrics Corp. in the pending Eastern District of Virginia patent litigation. Specifically, Whitmore & Sato LLP could be expected to argue that pleadings, briefs, admissions, deposition designations, or witness statements generated by Pinnacle's own counsel of record in the MTDC matter constitute (i) binding judicial admissions or party admissions under Federal Rule of Evidence 801(d)(2), or (ii) at a minimum, powerfully persuasive impeachment and cross-examination material as to Pinnacle's characterizations of TruScan 360's operation, data practices, and market value. Veritas might also seek discovery of such materials on the theory that they are non-privileged as to Pinnacle because they were generated by counsel acting adversely to Pinnacle. The resulting cross-contamination between the two matters would create a concrete and foreseeable mechanism by which the MTDC representation would directly harm Pinnacle's interests in pending federal litigation.
C. Potential for Pinnacle to Be Named as a Co-Defendant or Co-Respondent
Finally, and as noted in Section V.A above, the Attorney General has affirmatively indicated an intent to name Pinnacle as a co-respondent in any enforcement action arising from CID CRB-2024-0417. If that occurs, MTDC and Pinnacle would be co-parties with adverse interests in the same administrative or judicial enforcement proceeding, each seeking to minimize its own liability by maximizing that of the other. Comparable co-party dynamics can be expected in the Cook County class action, where MTDC's cross-claims against Pinnacle would place the two entities in adverse posture in a single caption. The Firm would then be representing both a party and its co-party adversary in the same proceeding — the paradigmatic concurrent conflict, and one that no advisory opinion, disciplinary decision, or comment to Rule 1.7 has ever tolerated.
VII. Conclusion
For the reasons set forth above, I conclude that the Firm's proposed representation of Metropolitan Transit Development Corp. in Matter No. 1031-00001 would be directly adverse to Pinnacle Workforce Analytics, Inc. within the meaning of Illinois Rule of Professional Conduct 1.7(a)(1) on three independently sufficient grounds: (i) Pinnacle's status as a named "responsible party" and likely co-respondent in the Attorney General's proceedings; (ii) the express inclusion, within the proposed engagement scope, of cross-claims and indemnification proceedings by MTDC directly against Pinnacle under the MSLA; and (iii) the diametrically opposed legal positions the Firm would be required to take regarding the same TruScan 360 platform and the same biometric-data-handling practices at the heart of the Firm's existing Pinnacle engagement.
The direct adversity is neither speculative nor contingent. It is inherent in the defined scope of the proposed engagement, in the posture of the enforcement and class-action matters, and in the factual and legal substance of the Firm's ongoing representation of Pinnacle. Accordingly, I respectfully recommend that the Conflicts Committee, at its May 14, 2024 meeting, find that a concurrent conflict of interest exists under Rule 1.7(a)(1) as to Matter No. 1031-00001.
The separate question of whether the conflict is capable of being cured by informed, written consent under Rule 1.7(b), including whether the Firm could provide competent and diligent representation to each affected client notwithstanding the conflict, and whether the representations involve the assertion of a claim by one client against another client in the same litigation, is addressed in the accompanying companion memorandum.
Respectfully submitted this 13th day of May, 2024.
________________________________________
Nadia Petrov Associate, Labor & Employment Calderwood & Harkness LLP
Reviewed and approved as to form and substance:
________________________________________
Devon Archer Associate, Labor & Employment (Supervising Associate)
VIII. Appendices
Appendix A: Party Relationship Chart
The following diagram summarizes the relationships among the principal parties and their respective counsel referenced in this memorandum:
Contractual privity: MTDC ⇄ Pinnacle under the Master Software License and Services Agreement dated June 15, 2021 (five-year initial term; $8,700,000 total initial-term value).
Pending proceedings implicating both MTDC and Pinnacle: (i) Illinois AG CID Ref. CRB-2024-0417; (ii) Reynolds, et al. v. Metropolitan Transit Development Corp., et al., Cir. Ct. Cook Cty., Chancery Div., Case No. 2024-CH-04417.
Pending proceedings implicating Pinnacle only (and represented by the Firm): Pinnacle Workforce Analytics, Inc. v. Veritas Biometrics Corp., E.D. Va. Case No. 1:22-cv-01533.
Appendix B: Relevant Provisions of Illinois Rule of Professional Conduct 1.7
Rule 1.7(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."
Rule 1.7(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."
Comment [6] (excerpt):
"Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client's informed consent. Thus, absent consent, a lawyer may not act as advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated."
Comment [8] (excerpt):
"Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests… The mere possibility of subsequent harm does not itself require disclosure and consent. The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client."
Appendix C: Summary of Key Facts and Dates
Appendix D: Cross-Reference to Companion Memoranda
The following companion memoranda have been or will be delivered separately to the Conflicts Committee and should be read together with this analysis:
1. Ethics Analysis: Illinois Rule of Professional Conduct 1.7(b) — Waivability Assessment for Proposed Representation of MTDC (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024).
2. Ethics Analysis: Illinois Rule of Professional Conduct 1.9 — Former-Client Considerations (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024) — included for completeness only, as Pinnacle remains a current client.
3. Ethics Analysis: Imputation Under Illinois Rule of Professional Conduct 1.10 and Screening Considerations (prepared by Nadia Petrov; supervised by Devon Archer; May 13, 2024).
4. Confidential Information Inventory — Pinnacle Workforce Analytics, Inc., Matter No. 1031-00001 (prepared by Priya Subramaniam under the supervision of Jonathan Mercer; dated May 12, 2024).
END OF MEMORANDUM — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL — DO NOT DISTRIBUTE OUTSIDE THE CONFLICTS COMMITTEE, GENERAL COUNSEL'S OFFICE, AND NAMED RECIPIENTS.
Role | Entity | Counsel
Prospective Firm Client | Metropolitan Transit Development Corp. (Chicago, IL) | Proposed: Calderwood & Harkness LLP; General litigation: Hargrove, Tillman & Reese LLP (Constance Hargrove)
Existing Firm Client | Pinnacle Workforce Analytics, Inc. (Reston, VA) | Calderwood & Harkness LLP (Jonathan Mercer / Priya Subramaniam)
Regulator | Office of the Illinois Attorney General — Bureau of Civil Rights (DAG Malcolm Jeffries) | Outside special counsel: Ridgeway & Falk LLP (Diane Falk, Springfield, IL)
Class Plaintiffs | Approximately 12,400 current and former MTDC employees | Kessler, Brandt & O'Neill LLP (Martin Kessler; Yolanda Brandt)
Defendant in Pinnacle patent action | Veritas Biometrics Corp. (Randall Cho, CEO) | Whitmore & Sato LLP (Akira Sato, Norfolk, VA)
Date | Event
June 15, 2021 | MSLA executed between Pinnacle and MTDC (five-year initial term; $8.7M total initial-term value)
March 14, 2022 | Calderwood & Harkness opens Matter No. 1031-00001 (Pinnacle patent-enforcement engagement)
September 6, 2022 | Pinnacle v. Veritas Biometrics Corp. filed, E.D. Va. Case No. 1:22-cv-01533
April 22, 2024 | Illinois Attorney General issues CID Ref. CRB-2024-0417, naming Pinnacle as a "responsible party"
April 29, 2024 | Reynolds, et al. v. MTDC class action filed, Cir. Ct. Cook Cty., Chancery Div., Case No. 2024-CH-04417
April 30, 2024 | DAG Jeffries advises MTDC that AG intends to name Pinnacle as a co-respondent
May 6, 2024 | MTDC (Terrence Whitfield) initial contact with Rachel Bernstein regarding proposed representation
May 8, 2024 | Follow-up e-mail from Mr. Whitfield confirming scope, including cross-claims against Pinnacle
May 9, 2024 | New-matter intake opened as Matter No. 1031-00001; conflicts search Round 1 initiated
May 10, 2024 | Conflict with Matter No. 1031-00001 (Pinnacle) identified and escalated to Conflicts Committee
May 13, 2024 | This memorandum submitted
May 14, 2024 | Conflicts Committee meeting scheduled

CALDERWOOD & HARKNESS LLP

MEMORANDUM

PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE CONFLICTS COMMITTEE

Record

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