1031-00001 · Kessler, Brandt & O'Neill LLP · documents

ethics-analysis-rule-1-7b-waivability.docx DOCUMENT Labor & Employment

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May 13, 2024

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

FROM: Nadia Petrov, Associate, Labor & Employment

RE: Waivability Analysis Under Illinois Rule of Professional Conduct 1.7(b) — Proposed Representation of Metropolitan Transit Development Corp. (Matter No. 1031-00001) / Conflict with Existing Client Pinnacle Workforce Analytics, Inc. (Matter No. 1031-00001)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

I. Introduction and Purpose

This memorandum is submitted as a companion to the separately circulated analysis addressing direct adversity and material limitation under Illinois Rule of Professional Conduct 1.7(a)(1) and 1.7(a)(2). That companion memorandum addresses whether the proposed representation of Metropolitan Transit Development Corp. ("MTDC") creates a concurrent conflict with Calderwood & Harkness LLP's existing representation of Pinnacle Workforce Analytics, Inc. ("Pinnacle"). This memorandum assumes the existence of that concurrent conflict and addresses the narrower question whether the conflict may nevertheless be cured through client consent under Illinois Rule of Professional Conduct 1.7(b).

The question presented is whether Calderwood & Harkness may undertake representation of MTDC in connection with a pending Illinois Attorney General Civil Investigative Demand, a putative employee BIPA class action, remediation counseling, and related indemnification or vendor claims, while continuing to represent Pinnacle in an active patent-licensing and enforcement matter concerning Pinnacle's flagship biometric workforce-management platform, TruScan 360.

For the reasons set out below, the answer is no. In my view, the conflict is not waivable under Rule 1.7(b). No reasonable lawyer could conclude that the firm would be able to provide competent and diligent representation to both MTDC and Pinnacle simultaneously. The proposed MTDC matter would require the firm to attack the legality and practical operation of Pinnacle's TruScan 360 platform under the Illinois Biometric Information Privacy Act ("BIPA"), while the existing Pinnacle matter depends on the firm's continued advancement of arguments concerning the legitimacy, innovation, and value of that same platform. Compounding that problem, the firm possesses confidential Pinnacle information directly bearing on the biometric-data collection, retention, architecture, and data-flow issues that would be central to MTDC's defense and any related indemnification or cross-claims. These are not merely inconsistent positions in unrelated matters; they concern the same product, overlapping factual questions, and likely overlapping legal theories.

Accordingly, the conflict cannot be cured by obtaining consent from both clients. The firm should decline the proposed MTDC engagement.

II. Factual Background

A. Proposed MTDC Engagement (Matter No. 1031-00001)

MTDC is a unit of local government and special-purpose transit authority organized under the Illinois Local Mass Transit District Act. Its headquarters are located at 550 West Harrison Street, Suite 1400, Chicago, Illinois 60607. MTDC operates bus, commuter rail, and paratransit services throughout Cook County and five surrounding collar counties, serving approximately 1.6 million daily riders. Available intake materials reflect an annual operating budget of approximately $3.2 billion.

The principal MTDC decisionmakers relevant to this intake appear to be Terrence Whitfield, General Counsel; Lucia Marchetti, Chief Information Security Officer; and Darnell Okafor, Executive Director. MTDC came to Calderwood & Harkness through a referral from its existing outside counsel, Hargrove, Tillman & Reese LLP. According to Rachel Bernstein's intake notes, lead partner Constance Hargrove advised that her firm lacked sufficient in-house BIPA-specific expertise to manage the regulatory and class-action dimensions of the matter.

The proposed representation arises out of a government investigation and private civil litigation relating to MTDC's use of a biometric workforce-management platform. On April 22, 2024, the Illinois Attorney General's Bureau of Civil Rights, through Deputy Attorney General for Civil Rights Malcolm Jeffries, issued a Civil Investigative Demand bearing CID Reference No. CRB-2024-0417. The CID alleges that MTDC's deployment of a biometric workforce-management platform may have violated BIPA, 740 ILCS 14/1 et seq., and the Illinois Personal Information Protection Act, 815 ILCS 530/1 et seq. We understand that the Attorney General has retained Ridgeway & Falk LLP as outside special counsel to assist in the matter, with Diane Falk serving as lead partner.

A week later, on April 29, 2024, a putative class action was filed in the Circuit Court of Cook County, Chancery Division, captioned on current information as Case No. 2024-CH-04417. The complaint was brought on behalf of approximately 12,400 current and former MTDC employees and alleges BIPA violations together with related state-law privacy and employment claims. The plaintiffs are represented by Kessler, Brandt & O'Neill LLP, with Martin Kessler identified as lead counsel and Yolanda Brandt as co-counsel.

The financial exposure is material. According to a preliminary estimate prepared by Lakefront Actuarial Advisors, LLC, through principal Felix Drummond, FSA, MAAA, MTDC's statutory damages exposure under BIPA could range from approximately $12,400,000 at the negligent-violation level to approximately $62,000,000 at the reckless or intentional-violation level, exclusive of attorneys' fees, injunctive relief, remediation costs, and potential collateral employment claims.

Rachel Bernstein had an initial call with MTDC representatives on May 6, 2024. Intake was formally opened on May 9, 2024 as Matter No. 1031-00001, subject to conflicts clearance. The proposed scope of engagement is broad. It includes:

1. Defense of the Attorney General's CID and any ensuing BIPA or privacy-related enforcement action.

2. Defense of the employee class action now pending in Cook County.

3. Advice concerning remediation of MTDC's biometric-data collection, notice, retention, disclosure, and destruction practices.

4. Evaluation and pursuit of potential cross-claims, indemnification demands, or related proceedings against technology vendors, including Pinnacle.

5. Related employment counseling concerning workforce timekeeping, consent protocols, policy revisions, and vendor management.

Preliminary budgeting materials estimate fees in the range of $3.5 million to $5.2 million over an 18- to 24-month period. Proposed timekeeper rates are listed as $1,150 per hour for Rachel Bernstein, $785 per hour for Devon Archer, and $625 per hour for Nadia Petrov.

B. Existing Pinnacle Engagement (Matter No. 1031-00001)

Pinnacle Workforce Analytics, Inc. is a Delaware corporation headquartered at 11900 Sunrise Valley Drive, Suite 500, Reston, Virginia 20191. The company's CEO is Gregory Harmon, and its General Counsel is Sandra Yee. Intake and billing records reflect annual revenue of approximately $485 million.

Pinnacle develops and licenses biometric workforce-management software. Its flagship product, TruScan 360, is an AI-enabled timekeeping and scheduling platform that uses fingerprint, facial-geometry, and iris-scan data to authenticate users, track attendance, and integrate with scheduling and workforce analytics functions.

Calderwood & Harkness has represented Pinnacle since 2019. The current active matter relevant here is Matter No. 1031-00001, opened on March 14, 2022. The responsible and billing partner is Jonathan Mercer of the intellectual Property / Patent Litigation group, and the lead associate is Priya Subramaniam. Internal billing reports indicate that firmwide billings from Pinnacle for fiscal year 2023 totaled $2,137,500.

Matter No. 1031-00001 concerns patent licensing and patent enforcement related to TruScan 360's core biometric-recognition algorithms. Among other things, the matter includes an active patent-infringement suit styled Pinnacle v. Veritas Biometrics Corp., pending in the United States District Court for the Eastern District of Virginia, Case No. 1:22-cv-01533, filed September 6, 2022. Veritas is represented by Whitmore & Sato LLP, with Akira Sato as lead partner. Veritas's CEO is Randall Cho.

The connection between the two matters is direct. Pinnacle sold and deployed TruScan 360 to MTDC pursuant to a Master Software License and Services Agreement dated June 15, 2021. The agreement has a total contract value of $8,700,000 over a five-year initial term running from June 15, 2021 through June 14, 2026, equivalent to $1,740,000 per year, with an optional three-year renewal period.

Importantly, Pinnacle is not merely a background vendor. We understand that Pinnacle has been identified as a named "responsible party" in the Attorney General's CID, and the Attorney General has indicated that it may ultimately be named as a co-respondent in any formal enforcement action. MTDC's anticipated cross-claims and indemnification demands under the June 15, 2021 MSLA would, by definition, be directed at Pinnacle.

C. The Nature of the Conflict — Summary

As addressed more fully in the companion Rule 1.7(a) memorandum, the proposed MTDC engagement would require Calderwood & Harkness to advocate positions directly contrary to Pinnacle's interests. In defending MTDC and pursuing any vendor-related recourse, the firm would need to investigate and potentially argue that TruScan 360's biometric-data collection, storage, disclosure, retention, and destruction practices violated BIPA and related Illinois privacy obligations.

At the same time, Calderwood & Harkness's ongoing representation of Pinnacle in Matter No. 1031-00001 depends upon advancing and protecting Pinnacle's interests in TruScan 360 as a lawful, innovative, valuable, and commercially defensible technology platform. While the patent matter is not a BIPA case, the firm's advocacy on Pinnacle's behalf necessarily rests on the product's technical design, market legitimacy, and value proposition.

The conflict is sharpened by the firm's access to confidential Pinnacle information. Jonathan Mercer confirmed by internal email dated May 10, 2024 that the firm possesses sensitive technical and strategic information concerning TruScan 360, including source-code architecture summaries, data-flow diagrams, biometric-data retention policies, algorithm design documents, and patent-prosecution correspondence. That information is not peripheral; it bears directly on how the platform collects, processes, stores, and potentially disseminates biometric identifiers and biometric information.

In practical terms, the firm would be asked to represent one client in a matter where the best path to defense may involve assigning legal and factual blame to the product and vendor, while continuing to represent the vendor whose proprietary information the firm already holds. That is the setting in which waivability under Rule 1.7(b) must be assessed.

III. Applicable Legal Standard — Illinois Rule of Professional Conduct 1.7(b)

A. Text of Rule 1.7(b)

Illinois Rule of Professional Conduct 1.7(b) provides:

"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."

The structure of the rule is conjunctive. All four requirements must be satisfied before a concurrent conflict may be treated as waivable. If any single prong is not met, client consent is ineffective as a matter of professional responsibility. Accordingly, the analysis does not ask simply whether the clients might be willing to sign waivers. It first asks whether the conflict is of a type that the Rules permit lawyers even to present to the clients for consent.

B. The "Reasonable Belief" Standard (Prong 1)

The first prong imposes an objective threshold. The relevant inquiry is not whether the lawyers involved subjectively believe they can manage the conflict. Rather, the question is whether a reasonable lawyer could conclude that competent and diligent representation of each affected client remains possible notwithstanding the conflict.

That principle is reflected in Comment [15] to Rule 1.7, which states:

"When a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide it through the terms of the engagement."

This "disinterested lawyer" benchmark is particularly important in close conflict situations because it prevents lawyers from relying on confidence in their own judgment, internal safeguards, or the sophistication of the clients where the structural adversity is too severe. The inquiry is practical, not theoretical. Relevant considerations include the degree of adversity between the clients, whether the matters are related, whether the legal or factual positions are reconcilable, whether the firm holds confidential information from one client that is material to the other representation, and whether the lawyers' strategic choices in one matter will necessarily affect the other.

Where the conflict concerns the same product, the same body of facts, and legal positions that cannot be harmonized without diluting advocacy for one or both clients, the first prong ordinarily cannot be satisfied.

C. Prohibition by Law (Prong 2)

The second prong asks whether some statute, regulation, court rule, or other rule of law independently prohibits the representation. On the current record, I am not aware of any Illinois statute or other positive law that would independently bar Calderwood & Harkness from concurrently representing MTDC and Pinnacle in the abstract. For that reason, this prong does not appear to be the dispositive obstacle here.

That said, satisfaction of prong 2 does not materially advance the waivability analysis because Rule 1.7(b) requires compliance with all four prongs, not merely the absence of an independent legal prohibition.

D. Same-Litigation / Same-Proceeding Prohibition (Prong 3)

The third prong bars waivers where the representation "involve[s] 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." This prohibition is categorical. Even fully informed clients cannot consent to a law firm's representing one current client in asserting a claim against another current client in the same tribunal proceeding.

At present, MTDC and Pinnacle are not yet formally adverse parties in the same captioned tribunal matter. But the issue cannot be analyzed at that level of abstraction. The proposed MTDC scope expressly contemplates cross-claims and indemnification demands against Pinnacle under the June 15, 2021 MSLA. In addition, the Attorney General has indicated that Pinnacle may be named as a co-respondent in the government enforcement matter. If that occurs, the firm would be placed in the untenable position of representing MTDC in a proceeding in which Pinnacle is also a party and in which MTDC's defense strategy may require shifting responsibility to Pinnacle, preserving indemnity rights, or asserting direct claims.

Even if the formal procedural alignment is not yet fixed, the proposed representation already contemplates claims by MTDC against Pinnacle arising from the same underlying events. That brings the matter at least very close to, and likely within, the rule's prohibition. At a minimum, it strongly counsels against any conclusion that the conflict is waivable.

E. Informed Consent, Confirmed in Writing (Prong 4)

The fourth prong requires informed consent from each affected client, confirmed in writing. "Informed consent" means more than generic acknowledgement that a conflict exists. The clients must be given sufficient information about the material risks of the representation and the reasonably available alternatives to permit a meaningful decision.

Here, even if the first and third prongs were satisfied, truly informed consent would be difficult to obtain in a meaningful way. Pinnacle would need to consent to Calderwood & Harkness's undertaking a representation in which the firm would challenge the lawfulness of Pinnacle's flagship platform and potentially pursue theories that Pinnacle's product design and data practices caused MTDC's exposure. MTDC, in turn, would need to consent to being represented by a firm that simultaneously represents the vendor whose product allegedly generated the BIPA liability and that possesses confidential vendor information it cannot freely use for MTDC's benefit.

The practical difficulty of describing those risks in a way that supports genuine informed consent underscores the underlying problem: the conflict is not a manageable business conflict but a structural conflict of loyalty and confidential information.

IV. Application of Rule 1.7(b) to the Present Conflict

A. Prong 1: Reasonable Belief of Competent and Diligent Representation — Fails

1. Irreconcilable Legal Positions Regarding TruScan 360

The first and most serious obstacle is that the firm's two clients would require fundamentally incompatible advocacy concerning the same technology platform.

If Calderwood & Harkness represents MTDC, the firm would need to assess and, where strategically useful or necessary, argue that TruScan 360's biometric-data practices were noncompliant with BIPA. That includes issues such as whether biometric identifiers were collected without legally sufficient written notice, whether any written release or consent mechanism satisfied statutory requirements, whether retention schedules and destruction policies were lawfully maintained and disclosed, whether biometric data were improperly stored or disseminated, and whether the platform's design contributed to those failures.

If Calderwood & Harkness continues to represent Pinnacle in Matter No. 1031-00001, the firm remains responsible for protecting Pinnacle's interests in the exact same platform. Although the patent matter centers on infringement and licensing, Pinnacle's commercial and litigation posture depends on maintaining the legitimacy, technical integrity, and value of TruScan 360's biometric capabilities. That work is not conducted in a vacuum. Arguments about the architecture, sophistication, utility, and deployment of the biometric-recognition algorithms are central to the product's legal and business posture.

The conflict therefore goes beyond ordinary positional adversity. This is not a situation in which a firm argues one interpretation of a statute for one client in one forum and another interpretation for a different client in an unrelated matter involving different facts. Rather, both matters concern the same technology product, the same operational features, and overlapping factual predicates about how the platform collects, processes, stores, and uses biometric data. To defend MTDC effectively, the firm may need to portray those features as defective, noncompliant, inadequately disclosed, or unlawfully implemented. To serve Pinnacle effectively, the firm would need to avoid or resist precisely those characterizations.

A disinterested lawyer would conclude that those positions cannot be reconciled without compromise to one side or the other. If the firm soft-pedals criticism of TruScan 360 in order to protect Pinnacle, MTDC receives diluted advocacy. If the firm presses all available arguments against the platform and its design, Pinnacle's interests are affirmatively harmed. Rule 1.7(b)(1) does not permit waiver where competent and diligent representation would require such divided loyalty.

2. The Firm's Possession of Pinnacle Confidential Information

The confidential-information problem independently makes competent and diligent dual representation impossible.

According to Jonathan Mercer's May 10, 2024 internal email and related intake follow-up, Calderwood & Harkness possesses extensive confidential Pinnacle information about TruScan 360, including source-code architecture summaries, data-flow diagrams, biometric-data retention policies, algorithm design documents, and patent-prosecution correspondence. Those materials are directly relevant to the issues that would drive MTDC's defense and any related claims against Pinnacle.

For example, a central issue in BIPA matters is how biometric identifiers and biometric information are collected, stored, retained, transmitted, disclosed, and destroyed. Data-flow diagrams and retention-policy documents are therefore not merely background technical files; they may bear directly on whether statutory notice was adequate, whether retention and destruction practices were properly defined and implemented, whether disclosures to third parties occurred, and whether the product architecture itself imposed or encouraged noncompliant handling of biometric data. Likewise, technical summaries and design documents may bear on the location and persistence of data storage, template generation, access controls, and interoperability with customer systems.

The ethical difficulty is straightforward. The firm may not use Pinnacle's confidential information against Pinnacle absent consent and other conditions not present here. But the same information could materially benefit MTDC in evaluating defenses, negotiating with regulators, asserting indemnity, or shaping vendor blame. The firm cannot both honor Pinnacle's confidentiality and simultaneously provide MTDC the benefit of all material information and insights it possesses about the technology at issue. Either path would shortchange one client.

This is one of the classic circumstances in which waivability fails. Where the law firm holds material confidential information from one current client that is substantially relevant to a proposed adverse matter for another current client, a reasonable lawyer cannot conclude that both clients can receive competent and diligent representation. The conflict is not cured by promises of discretion or by assigning different personnel. The very knowledge the firm possesses is part of the problem.

3. Substantial Relatedness of the Matters

The overlap between the matters is extensive and substantive.

Matter No. 1031-00001 for Pinnacle concerns patent licensing and enforcement relating to TruScan 360's biometric-recognition algorithms. Proposed Matter No. 1031-00001 for MTDC concerns defending and remediating claims that the same TruScan 360 platform was used in a manner that violated BIPA and related privacy obligations.

Although the doctrinal labels differ—patent enforcement on the one hand and privacy/compliance litigation on the other—the factual commonality is significant. Both matters require understanding and characterizing the same platform's design, operation, functionality, and business use. Both touch the same biometric features. Both implicate how the system actually works in practice, including data ingestion, matching, storage, retention, and system outputs. Both depend on the firm's understanding of the product's capabilities and limitations.

That degree of factual and technological overlap makes this a substantially related conflict in the practical sense contemplated by Rule 1.7's comments. It is precisely the kind of setting in which a waiver becomes illusory because the firm's obligations to one client cannot be compartmentalized away from the other.

4. Conclusion on Prong 1

For all of these reasons, prong 1 is not satisfied. No reasonable, disinterested lawyer could conclude that Calderwood & Harkness can provide competent and diligent representation to both MTDC and Pinnacle concurrently.

That conclusion alone is sufficient to render the conflict unwaivable under Rule 1.7(b), regardless of whether one could theoretically solicit written waivers.

B. Prong 2: Representation Not Prohibited by Law — Satisfied, but Not Dispositive

On the current record, there does not appear to be an independent statute, regulation, or court rule that would by itself prohibit the proposed dual representation. To that limited extent, prong 2 appears satisfied.

But that point does not materially alter the analysis. Rule 1.7(b) is conjunctive, and prong 2 cannot rescue a representation that fails prongs 1 and 3. The absence of an external legal prohibition does not mean the Rules permit the firm to proceed.

C. Prong 3: No Assertion of Claim by One Client Against Another in Same Proceeding — Likely Fails

Prong 3 likely provides an independent basis for non-waivability.

The proposed MTDC engagement expressly includes potential cross-claims and indemnification demands against Pinnacle under the June 15, 2021 MSLA. That is not a speculative or collateral issue; it is part of the proposed engagement scope described during intake. If the firm were retained, one anticipated component of the representation would involve evaluating whether Pinnacle must defend, indemnify, reimburse, or otherwise bear responsibility for losses connected to the biometric platform.

In addition, the Attorney General has already identified Pinnacle as a named "responsible party" in the CID and has indicated that Pinnacle may be named as a co-respondent in any formal enforcement action. If that occurs, the practical problem becomes even more acute. The firm could not simultaneously represent MTDC in defending the legality of its conduct while also representing Pinnacle in protecting the legality of the underlying product, particularly where MTDC may need to assert that the vendor caused or materially contributed to any statutory violations.

Even before formal joinder occurs, the engagement as scoped contemplates proceedings in which MTDC would assert rights against Pinnacle. That places the matter squarely within the concern animating prong 3: a law firm should not be representing one current client in pressing claims against another current client in the same tribunal context. At the very least, the substantial likelihood of that development makes it inappropriate to treat the conflict as waivable.

Accordingly, prong 3 likely fails as well.

D. Prong 4: Informed Consent — Impracticable

Even if one assumed, contrary to the analysis above, that prongs 1 and 3 could somehow be satisfied, obtaining meaningful informed consent from both clients would be highly impracticable.

For Pinnacle, informed consent would require full disclosure that the firm seeks to represent MTDC in a matter involving allegations that TruScan 360's biometric-data practices are unlawful; that MTDC may pursue indemnification or cross-claims against Pinnacle; that the firm possesses Pinnacle's confidential technical information relevant to those issues; and that the firm would be constrained in what it could do for MTDC because of its duties to Pinnacle. It is difficult to see why Pinnacle's CEO, Gregory Harmon, or General Counsel, Sandra Yee, would knowingly authorize their law firm to undertake a representation that so directly threatens Pinnacle's flagship product and litigation posture.

For MTDC, informed consent would require disclosure that Calderwood & Harkness already represents the vendor whose technology is alleged to have caused MTDC's legal exposure; that the firm has confidential information from that vendor that it cannot use freely for MTDC's benefit; and that the firm's strategic choices may be constrained by loyalty to Pinnacle. It is equally difficult to see why MTDC's General Counsel Terrence Whitfield, CISO Lucia Marchetti, or Executive Director Darnell Okafor would consider that arrangement acceptable in a matter involving significant governmental scrutiny and eight-figure exposure.

In that sense, the impracticability of obtaining informed consent is not simply an administrative issue. It reflects the substantive severity of the conflict. And because prongs 1 and 3 independently fail, the consent question is ultimately moot in any event.

V. Consideration of Alternative Structures

A. Could Screening Cure the Conflict?

No. As discussed in the separate memorandum concerning Illinois Rule 1.10 and imputation, screening is not an available cure for a current-client conflict of this nature.

This is not a case involving a lawyer's migration from another firm, where screening may under limited circumstances prevent imputation of a former-client conflict. The conflict here arises from the firm's present concurrent representation of a current client, Pinnacle, by an active firm partner, Jonathan Mercer, and the proposed acceptance of another matter directly adverse to that client. Illinois conflict rules do not permit the firm to solve that problem simply by walling off personnel.

Moreover, even if screening were theoretically available, it would not address the core issue. The firm as an entity would still be advocating diametrically opposed positions regarding the same technology platform in two active matters. Screens do not cure institutional divided loyalty.

B. Could the Firm Withdraw from the Pinnacle Engagement to Accept MTDC?

That approach is also not viable.

As a formal matter, withdrawal from Pinnacle could convert Pinnacle from a current client to a former client, thereby moving the analysis from Rule 1.7 to Rule 1.9. But as addressed in the separately circulated Rule 1.9 memorandum, the conflict would persist even under the former-client framework because the matters are substantially related and the firm possesses material confidential information relevant to the proposed adverse representation.

There is also the independent concern that a firm may not drop a current client like a "hot potato" in order to convert a current-client conflict into a former-client conflict and take on a more desirable or lucrative engagement. Courts and ethics authorities routinely view that tactic with skepticism, and often as itself inconsistent with the duty of loyalty. Here, where Pinnacle is an ongoing client represented since 2019 and billed more than $2.1 million in 2023 alone, withdrawal for the purpose of suing around or against Pinnacle's interests would invite precisely that criticism.

Accordingly, withdrawal from Pinnacle is not a sound or ethical mechanism for curing the conflict.

C. Could the Scope of the MTDC Engagement Be Narrowed?

Narrowing the MTDC scope would not solve the problem because the conflict is structural, not incidental.

One could imagine removing from the engagement letter any express reference to cross-claims or indemnification demands against Pinnacle. But the heart of the MTDC matter would remain defense of the Attorney General investigation and the employee class action. That core work would still require the firm to analyze, investigate, and potentially challenge TruScan 360's data practices under BIPA and related privacy law. It would still involve the same technology, the same product architecture, and the same confidential-information constraints.

In other words, even a narrowed engagement would still force the firm to represent MTDC in a matter where MTDC's best defenses may depend on characterizing Pinnacle's platform and conduct in ways harmful to Pinnacle. The contradiction is built into the facts, not merely into the optional components of the engagement letter.

VI. Financial Considerations — Not a Factor in the Ethical Analysis

The intake materials reflect that the proposed MTDC engagement would likely be significant from a revenue perspective, with estimated fees of approximately $3.5 million to $5.2 million over 18 to 24 months. By comparison, Pinnacle generated $2,137,500 in actual firm billings during fiscal year 2023. MTDC also reportedly maintains an annual outside-counsel budget of approximately $14.8 million, suggesting future work beyond the immediate BIPA matter could be meaningful.

Those facts may be relevant to business planning, client-development strategy, or internal resource allocation. They are not relevant to the ethical question presented here. The waivability analysis under Rule 1.7(b) turns on the nature of the conflict, the ability to provide competent and diligent representation to each client, the presence or absence of claims between clients in the same proceeding, and the feasibility of informed consent. Potential revenue, strategic value, or forgone business opportunity do not alter the governing standard.

For purposes of the Conflicts Committee's decision, the financial attractiveness of the MTDC matter should therefore be treated as legally and ethically irrelevant.

VII. Conclusion and Recommendation

The conflict between the proposed MTDC engagement (Matter No. 1031-00001) and the existing Pinnacle engagement (Matter No. 1031-00001) is unwaivable under Illinois Rule of Professional Conduct 1.7(b).

Prong 1 fails. No reasonable lawyer could conclude that Calderwood & Harkness can provide competent and diligent representation to both MTDC and Pinnacle at the same time, given: (i) the irreconcilable legal positions concerning Pinnacle's TruScan 360 platform; (ii) the firm's possession of Pinnacle confidential information directly relevant to the MTDC matter; and (iii) the substantial factual overlap between the two matters.

Prong 3 likely fails independently. The proposed MTDC scope expressly includes potential cross-claims and indemnification demands against Pinnacle, and the Attorney General has indicated that Pinnacle may be named as a co-respondent in the enforcement matter. The representation therefore likely would involve, or rapidly evolve into, the assertion of claims by one current client against another in the same proceeding or tribunal setting.

Prong 4 is, as a practical matter, not meaningfully satisfiable. Genuine informed consent from either client is unrealistic under these circumstances. And because prongs 1 and 3 fail, the consent issue is not outcome-determinative in any event.

My recommendation is that Calderwood & Harkness decline the proposed MTDC engagement. This memorandum is submitted for consideration by the Conflicts Committee at its meeting scheduled for May 14, 2024. It is consistent with, and should be read together with, the companion memorandum addressing direct adversity and material limitation under Rule 1.7(a).

VIII. Appendices / Attachments

Appendix A: Full Text of Illinois Rule of Professional Conduct 1.7

Illinois Rule of Professional Conduct 1.7 — Conflict of Interest: Current Clients

(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.

Selected Official Comments Referenced in This Memorandum

Comment [1]. Loyalty and independent judgment are essential elements in the lawyer's relationship to a client. Concurrent conflicts of interest can arise from the lawyer's responsibilities to another client, a former client, or a third person, or from the lawyer's own interests.

Comment [6]. 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 an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.

Comment [15]. The lawyer's own interests should not be permitted to have an adverse effect on representation of a client. 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. When a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide it through the terms of the engagement.

Comment [17]. Paragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients' consent. On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse does not ordinarily constitute a conflict and thus may not require consent.

Comment [18]. Consentability is typically determined by considering whether the interests of the clients will be adequately protected if they are permitted to give their informed consent to representation burdened by a conflict of interest. Representation is prohibited if, in the circumstances, the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.

Appendix B: Party Relationship Chart

Relationship Overview.

Narrative Diagram of Conflict Structure

Calderwood & Harkness currently represents Pinnacle in active intellectual-property matters centered on TruScan 360.

MTDC seeks to retain Calderwood & Harkness to defend claims arising from MTDC's deployment of that same TruScan 360 platform.

The Illinois Attorney General and the employee class both contend that MTDC's use of the platform violated BIPA and related privacy obligations.

MTDC's contemplated defenses and potential indemnification rights may require MTDC to place responsibility on Pinnacle and on the design, disclosures, retention policies, and data flows of TruScan 360.

At the same time, Calderwood & Harkness possesses Pinnacle confidential information about TruScan 360 that is materially relevant to those issues and cannot be used against Pinnacle without violating duties of confidentiality and loyalty.

Accordingly, the "TruScan 360 nexus" sits at the center of both matters and creates the dual-representation problem.

Appendix C: Key Documents Referenced

The following internal and matter-related documents were referenced or consulted in connection with this memorandum:

1. Conflicts Search Report — Round 1, dated May 10, 2024.

2. Conflicts Search Report — Round 2, dated May 13, 2024.

3. Internal Email from Jonathan Mercer to Rachel Bernstein and Conflicts Team, dated May 10, 2024, confirming the nature of confidential Pinnacle technical information in firm files.

4. Confidential Information Inventory, prepared by Priya Subramaniam, identifying categories of Pinnacle materials relating to TruScan 360 architecture, data flows, retention policies, and algorithm design.

5. Companion Memorandum re Illinois Rule 1.7(a), addressing direct adversity and material limitation.

6. Memorandum re Illinois Rule 1.9, addressing former-client conflicts in the event withdrawal from Pinnacle were considered.

7. Memorandum re Illinois Rule 1.10, addressing imputation and why screening would not cure the present conflict.

8. MTDC Intake Notes, including summary of May 6, 2024 call with Rachel Bernstein and preliminary engagement scope.

9. Preliminary Exposure Assessment from Lakefront Actuarial Advisors, LLC, regarding estimated BIPA statutory damages.

10. Master Software License and Services Agreement between MTDC and Pinnacle, dated June 15, 2021.

11. Attorney General Civil Investigative Demand, CID Ref. No. CRB-2024-0417.

12. Cook County Class Action Complaint, Case No. 2024-CH-04417.

End of Memorandum

Entity	Role / Position	Relationship to TruScan 360	Relationship to Calderwood & Harkness	Conflict Significance
Metropolitan Transit Development Corp. ("MTDC")	Proposed client	End-user/customer deploying TruScan 360 under 6/15/2021 MSLA	Proposed new representation, Matter No. 1031-00001	Would require defense of BIPA claims and likely scrutiny of Pinnacle's product and conduct
Pinnacle Workforce Analytics, Inc.	Existing current client	Developer/licensor of TruScan 360	Current representation since 2019; active Matter No. 1031-00001	Firm owes current duties of loyalty and confidentiality
Illinois Attorney General, Bureau of Civil Rights	Government investigator / likely enforcement authority	Investigating use and deployment of biometric platform	Adverse to MTDC; may also proceed against Pinnacle	Has identified Pinnacle as a responsible party and may name it as co-respondent
Employee Putative Class	Private plaintiffs in Cook County action	Allege unlawful biometric collection/use through TruScan 360	Adverse to MTDC	Underlying litigation pressures MTDC to evaluate vendor fault and indemnity
Veritas Biometrics Corp.	Adverse party in Pinnacle patent case	Alleged infringer of TruScan 360-related technology	Adverse to Pinnacle in E.D. Va. case	Existing Pinnacle matter depends on affirming value and legitimacy of TruScan 360
Calderwood & Harkness LLP	Law firm	Holds confidential technical information concerning TruScan 360	Counsel to Pinnacle; proposed counsel to MTDC	Would be institutionally conflicted regarding same technology platform

May 13, 2024
TO: Rachel Bernstein, Partner, Privacy & Data Security; Devon Archer, Associate, Labor & Employment
FROM: Nadia Petrov, Associate, Labor & Employment
RE: Waivability Analysis Under Illinois Rule of Professional Conduct 1.7(b) — Proposed Representation of Metropolitan Transit Development Corp. (Matter No. 1031-00001) / Conflict with Existing Client Pinnacle Workforce Analytics, Inc. (Matter No. 1031-00001)
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
I. Introduction and Purpose
This memorandum is submitted as a companion to the separately circulated analysis addressing direct adversity and material limitation under Illinois Rule of Professional Conduct 1.7(a)(1) and 1.7(a)(2). That companion memorandum addresses whether the proposed representation of Metropolitan Transit Development Corp. ("MTDC") creates a concurrent conflict with Calderwood & Harkness LLP's existing representation of Pinnacle Workforce Analytics, Inc. ("Pinnacle"). This memorandum assumes the existence of that concurrent conflict and addresses the narrower question whether the conflict may nevertheless be cured through client consent under Illinois Rule of Professional Conduct 1.7(b).
The question presented is whether Calderwood & Harkness may undertake representation of MTDC in connection with a pending Illinois Attorney General Civil Investigative Demand, a putative employee BIPA class action, remediation counseling, and related indemnification or vendor claims, while continuing to represent Pinnacle in an active patent-licensing and enforcement matter concerning Pinnacle's flagship biometric workforce-management platform, TruScan 360.
For the reasons set out below, the answer is no. In my view, the conflict is not waivable under Rule 1.7(b). No reasonable lawyer could conclude that the firm would be able to provide competent and diligent representation to both MTDC and Pinnacle simultaneously. The proposed MTDC matter would require the firm to attack the legality and practical operation of Pinnacle's TruScan 360 platform under the Illinois Biometric Information Privacy Act ("BIPA"), while the existing Pinnacle matter depends on the firm's continued advancement of arguments concerning the legitimacy, innovation, and value of that same platform. Compounding that problem, the firm possesses confidential Pinnacle information directly bearing on the biometric-data collection, retention, architecture, and data-flow issues that would be central to MTDC's defense and any related indemnification or cross-claims. These are not merely inconsistent positions in unrelated matters; they concern the same product, overlapping factual questions, and likely overlapping legal theories.
Accordingly, the conflict cannot be cured by obtaining consent from both clients. The firm should decline the proposed MTDC engagement.
II. Factual Background
A. Proposed MTDC Engagement (Matter No. 1031-00001)
MTDC is a unit of local government and special-purpose transit authority organized under the Illinois Local Mass Transit District Act. Its headquarters are located at 550 West Harrison Street, Suite 1400, Chicago, Illinois 60607. MTDC operates bus, commuter rail, and paratransit services throughout Cook County and five surrounding collar counties, serving approximately 1.6 million daily riders. Available intake materials reflect an annual operating budget of approximately $3.2 billion.
The principal MTDC decisionmakers relevant to this intake appear to be Terrence Whitfield, General Counsel; Lucia Marchetti, Chief Information Security Officer; and Darnell Okafor, Executive Director. MTDC came to Calderwood & Harkness through a referral from its existing outside counsel, Hargrove, Tillman & Reese LLP. According to Rachel Bernstein's intake notes, lead partner Constance Hargrove advised that her firm lacked sufficient in-house BIPA-specific expertise to manage the regulatory and class-action dimensions of the matter.
The proposed representation arises out of a government investigation and private civil litigation relating to MTDC's use of a biometric workforce-management platform. On April 22, 2024, the Illinois Attorney General's Bureau of Civil Rights, through Deputy Attorney General for Civil Rights Malcolm Jeffries, issued a Civil Investigative Demand bearing CID Reference No. CRB-2024-0417. The CID alleges that MTDC's deployment of a biometric workforce-management platform may have violated BIPA, 740 ILCS 14/1 et seq., and the Illinois Personal Information Protection Act, 815 ILCS 530/1 et seq. We understand that the Attorney General has retained Ridgeway & Falk LLP as outside special counsel to assist in the matter, with Diane Falk serving as lead partner.
A week later, on April 29, 2024, a putative class action was filed in the Circuit Court of Cook County, Chancery Division, captioned on current information as Case No. 2024-CH-04417. The complaint was brought on behalf of approximately 12,400 current and former MTDC employees and alleges BIPA violations together with related state-law privacy and employment claims. The plaintiffs are represented by Kessler, Brandt & O'Neill LLP, with Martin Kessler identified as lead counsel and Yolanda Brandt as co-counsel.
The financial exposure is material. According to a preliminary estimate prepared by Lakefront Actuarial Advisors, LLC, through principal Felix Drummond, FSA, MAAA, MTDC's statutory damages exposure under BIPA could range from approximately $12,400,000 at the negligent-violation level to approximately $62,000,000 at the reckless or intentional-violation level, exclusive of attorneys' fees, injunctive relief, remediation costs, and potential collateral employment claims.
Rachel Bernstein had an initial call with MTDC representatives on May 6, 2024. Intake was formally opened on May 9, 2024 as Matter No. 1031-00001, subject to conflicts clearance. The proposed scope of engagement is broad. It includes:
1. Defense of the Attorney General's CID and any ensuing BIPA or privacy-related enforcement action.
2. Defense of the employee class action now pending in Cook County.
3. Advice concerning remediation of MTDC's biometric-data collection, notice, retention, disclosure, and destruction practices.
4. Evaluation and pursuit of potential cross-claims, indemnification demands, or related proceedings against technology vendors, including Pinnacle.
5. Related employment counseling concerning workforce timekeeping, consent protocols, policy revisions, and vendor management.
Preliminary budgeting materials estimate fees in the range of $3.5 million to $5.2 million over an 18- to 24-month period. Proposed timekeeper rates are listed as $1,150 per hour for Rachel Bernstein, $785 per hour for Devon Archer, and $625 per hour for Nadia Petrov.
B. Existing Pinnacle Engagement (Matter No. 1031-00001)
Pinnacle Workforce Analytics, Inc. is a Delaware corporation headquartered at 11900 Sunrise Valley Drive, Suite 500, Reston, Virginia 20191. The company's CEO is Gregory Harmon, and its General Counsel is Sandra Yee. Intake and billing records reflect annual revenue of approximately $485 million.
Pinnacle develops and licenses biometric workforce-management software. Its flagship product, TruScan 360, is an AI-enabled timekeeping and scheduling platform that uses fingerprint, facial-geometry, and iris-scan data to authenticate users, track attendance, and integrate with scheduling and workforce analytics functions.
Calderwood & Harkness has represented Pinnacle since 2019. The current active matter relevant here is Matter No. 1031-00001, opened on March 14, 2022. The responsible and billing partner is Jonathan Mercer of the intellectual Property / Patent Litigation group, and the lead associate is Priya Subramaniam. Internal billing reports indicate that firmwide billings from Pinnacle for fiscal year 2023 totaled $2,137,500.
Matter No. 1031-00001 concerns patent licensing and patent enforcement related to TruScan 360's core biometric-recognition algorithms. Among other things, the matter includes an active patent-infringement suit styled Pinnacle v. Veritas Biometrics Corp., pending in the United States District Court for the Eastern District of Virginia, Case No. 1:22-cv-01533, filed September 6, 2022. Veritas is represented by Whitmore & Sato LLP, with Akira Sato as lead partner. Veritas's CEO is Randall Cho.
The connection between the two matters is direct. Pinnacle sold and deployed TruScan 360 to MTDC pursuant to a Master Software License and Services Agreement dated June 15, 2021. The agreement has a total contract value of $8,700,000 over a five-year initial term running from June 15, 2021 through June 14, 2026, equivalent to $1,740,000 per year, with an optional three-year renewal period.
Importantly, Pinnacle is not merely a background vendor. We understand that Pinnacle has been identified as a named "responsible party" in the Attorney General's CID, and the Attorney General has indicated that it may ultimately be named as a co-respondent in any formal enforcement action. MTDC's anticipated cross-claims and indemnification demands under the June 15, 2021 MSLA would, by definition, be directed at Pinnacle.
C. The Nature of the Conflict — Summary
As addressed more fully in the companion Rule 1.7(a) memorandum, the proposed MTDC engagement would require Calderwood & Harkness to advocate positions directly contrary to Pinnacle's interests. In defending MTDC and pursuing any vendor-related recourse, the firm would need to investigate and potentially argue that TruScan 360's biometric-data collection, storage, disclosure, retention, and destruction practices violated BIPA and related Illinois privacy obligations.
At the same time, Calderwood & Harkness's ongoing representation of Pinnacle in Matter No. 1031-00001 depends upon advancing and protecting Pinnacle's interests in TruScan 360 as a lawful, innovative, valuable, and commercially defensible technology platform. While the patent matter is not a BIPA case, the firm's advocacy on Pinnacle's behalf necessarily rests on the product's technical design, market legitimacy, and value proposition.
The conflict is sharpened by the firm's access to confidential Pinnacle information. Jonathan Mercer confirmed by internal email dated May 10, 2024 that the firm possesses sensitive technical and strategic information concerning TruScan 360, including source-code architecture summaries, data-flow diagrams, biometric-data retention policies, algorithm design documents, and patent-prosecution correspondence. That information is not peripheral; it bears directly on how the platform collects, processes, stores, and potentially disseminates biometric identifiers and biometric information.
In practical terms, the firm would be asked to represent one client in a matter where the best path to defense may involve assigning legal and factual blame to the product and vendor, while continuing to represent the vendor whose proprietary information the firm already holds. That is the setting in which waivability under Rule 1.7(b) must be assessed.
III. Applicable Legal Standard — Illinois Rule of Professional Conduct 1.7(b)
A. Text of Rule 1.7(b)
Illinois Rule of Professional Conduct 1.7(b) provides:
"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."
The structure of the rule is conjunctive. All four requirements must be satisfied before a concurrent conflict may be treated as waivable. If any single prong is not met, client consent is ineffective as a matter of professional responsibility. Accordingly, the analysis does not ask simply whether the clients might be willing to sign waivers. It first asks whether the conflict is of a type that the Rules permit lawyers even to present to the clients for consent.
B. The "Reasonable Belief" Standard (Prong 1)
The first prong imposes an objective threshold. The relevant inquiry is not whether the lawyers involved subjectively believe they can manage the conflict. Rather, the question is whether a reasonable lawyer could conclude that competent and diligent representation of each affected client remains possible notwithstanding the conflict.
That principle is reflected in Comment [15] to Rule 1.7, which states:
"When a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide it through the terms of the engagement."
This "disinterested lawyer" benchmark is particularly important in close conflict situations because it prevents lawyers from relying on confidence in their own judgment, internal safeguards, or the sophistication of the clients where the structural adversity is too severe. The inquiry is practical, not theoretical. Relevant considerations include the degree of adversity between the clients, whether the matters are related, whether the legal or factual positions are reconcilable, whether the firm holds confidential information from one client that is material to the other representation, and whether the lawyers' strategic choices in one matter will necessarily affect the other.
Where the conflict concerns the same product, the same body of facts, and legal positions that cannot be harmonized without diluting advocacy for one or both clients, the first prong ordinarily cannot be satisfied.
C. Prohibition by Law (Prong 2)
The second prong asks whether some statute, regulation, court rule, or other rule of law independently prohibits the representation. On the current record, I am not aware of any Illinois statute or other positive law that would independently bar Calderwood & Harkness from concurrently representing MTDC and Pinnacle in the abstract. For that reason, this prong does not appear to be the dispositive obstacle here.
That said, satisfaction of prong 2 does not materially advance the waivability analysis because Rule 1.7(b) requires compliance with all four prongs, not merely the absence of an independent legal prohibition.
D. Same-Litigation / Same-Proceeding Prohibition (Prong 3)
The third prong bars waivers where the representation "involve[s] 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." This prohibition is categorical. Even fully informed clients cannot consent to a law firm's representing one current client in asserting a claim against another current client in the same tribunal proceeding.
At present, MTDC and Pinnacle are not yet formally adverse parties in the same captioned tribunal matter. But the issue cannot be analyzed at that level of abstraction. The proposed MTDC scope expressly contemplates cross-claims and indemnification demands against Pinnacle under the June 15, 2021 MSLA. In addition, the Attorney General has indicated that Pinnacle may be named as a co-respondent in the government enforcement matter. If that occurs, the firm would be placed in the untenable position of representing MTDC in a proceeding in which Pinnacle is also a party and in which MTDC's defense strategy may require shifting responsibility to Pinnacle, preserving indemnity rights, or asserting direct claims.
Even if the formal procedural alignment is not yet fixed, the proposed representation already contemplates claims by MTDC against Pinnacle arising from the same underlying events. That brings the matter at least very close to, and likely within, the rule's prohibition. At a minimum, it strongly counsels against any conclusion that the conflict is waivable.
E. Informed Consent, Confirmed in Writing (Prong 4)
The fourth prong requires informed consent from each affected client, confirmed in writing. "Informed consent" means more than generic acknowledgement that a conflict exists. The clients must be given sufficient information about the material risks of the representation and the reasonably available alternatives to permit a meaningful decision.
Here, even if the first and third prongs were satisfied, truly informed consent would be difficult to obtain in a meaningful way. Pinnacle would need to consent to Calderwood & Harkness's undertaking a representation in which the firm would challenge the lawfulness of Pinnacle's flagship platform and potentially pursue theories that Pinnacle's product design and data practices caused MTDC's exposure. MTDC, in turn, would need to consent to being represented by a firm that simultaneously represents the vendor whose product allegedly generated the BIPA liability and that possesses confidential vendor information it cannot freely use for MTDC's benefit.
The practical difficulty of describing those risks in a way that supports genuine informed consent underscores the underlying problem: the conflict is not a manageable business conflict but a structural conflict of loyalty and confidential information.
IV. Application of Rule 1.7(b) to the Present Conflict
A. Prong 1: Reasonable Belief of Competent and Diligent Representation — Fails
1. Irreconcilable Legal Positions Regarding TruScan 360
The first and most serious obstacle is that the firm's two clients would require fundamentally incompatible advocacy concerning the same technology platform.
If Calderwood & Harkness represents MTDC, the firm would need to assess and, where strategically useful or necessary, argue that TruScan 360's biometric-data practices were noncompliant with BIPA. That includes issues such as whether biometric identifiers were collected without legally sufficient written notice, whether any written release or consent mechanism satisfied statutory requirements, whether retention schedules and destruction policies were lawfully maintained and disclosed, whether biometric data were improperly stored or disseminated, and whether the platform's design contributed to those failures.
If Calderwood & Harkness continues to represent Pinnacle in Matter No. 1031-00001, the firm remains responsible for protecting Pinnacle's interests in the exact same platform. Although the patent matter centers on infringement and licensing, Pinnacle's commercial and litigation posture depends on maintaining the legitimacy, technical integrity, and value of TruScan 360's biometric capabilities. That work is not conducted in a vacuum. Arguments about the architecture, sophistication, utility, and deployment of the biometric-recognition algorithms are central to the product's legal and business posture.
The conflict therefore goes beyond ordinary positional adversity. This is not a situation in which a firm argues one interpretation of a statute for one client in one forum and another interpretation for a different client in an unrelated matter involving different facts. Rather, both matters concern the same technology product, the same operational features, and overlapping factual predicates about how the platform collects, processes, stores, and uses biometric data. To defend MTDC effectively, the firm may need to portray those features as defective, noncompliant, inadequately disclosed, or unlawfully implemented. To serve Pinnacle effectively, the firm would need to avoid or resist precisely those characterizations.
A disinterested lawyer would conclude that those positions cannot be reconciled without compromise to one side or the other. If the firm soft-pedals criticism of TruScan 360 in order to protect Pinnacle, MTDC receives diluted advocacy. If the firm presses all available arguments against the platform and its design, Pinnacle's interests are affirmatively harmed. Rule 1.7(b)(1) does not permit waiver where competent and diligent representation would require such divided loyalty.
2. The Firm's Possession of Pinnacle Confidential Information
The confidential-information problem independently makes competent and diligent dual representation impossible.
According to Jonathan Mercer's May 10, 2024 internal email and related intake follow-up, Calderwood & Harkness possesses extensive confidential Pinnacle information about TruScan 360, including source-code architecture summaries, data-flow diagrams, biometric-data retention policies, algorithm design documents, and patent-prosecution correspondence. Those materials are directly relevant to the issues that would drive MTDC's defense and any related claims against Pinnacle.
For example, a central issue in BIPA matters is how biometric identifiers and biometric information are collected, stored, retained, transmitted, disclosed, and destroyed. Data-flow diagrams and retention-policy documents are therefore not merely background technical files; they may bear directly on whether statutory notice was adequate, whether retention and destruction practices were properly defined and implemented, whether disclosures to third parties occurred, and whether the product architecture itself imposed or encouraged noncompliant handling of biometric data. Likewise, technical summaries and design documents may bear on the location and persistence of data storage, template generation, access controls, and interoperability with customer systems.
The ethical difficulty is straightforward. The firm may not use Pinnacle's confidential information against Pinnacle absent consent and other conditions not present here. But the same information could materially benefit MTDC in evaluating defenses, negotiating with regulators, asserting indemnity, or shaping vendor blame. The firm cannot both honor Pinnacle's confidentiality and simultaneously provide MTDC the benefit of all material information and insights it possesses about the technology at issue. Either path would shortchange one client.
This is one of the classic circumstances in which waivability fails. Where the law firm holds material confidential information from one current client that is substantially relevant to a proposed adverse matter for another current client, a reasonable lawyer cannot conclude that both clients can receive competent and diligent representation. The conflict is not cured by promises of discretion or by assigning different personnel. The very knowledge the firm possesses is part of the problem.
3. Substantial Relatedness of the Matters
The overlap between the matters is extensive and substantive.
Matter No. 1031-00001 for Pinnacle concerns patent licensing and enforcement relating to TruScan 360's biometric-recognition algorithms. Proposed Matter No. 1031-00001 for MTDC concerns defending and remediating claims that the same TruScan 360 platform was used in a manner that violated BIPA and related privacy obligations.
Although the doctrinal labels differ—patent enforcement on the one hand and privacy/compliance litigation on the other—the factual commonality is significant. Both matters require understanding and characterizing the same platform's design, operation, functionality, and business use. Both touch the same biometric features. Both implicate how the system actually works in practice, including data ingestion, matching, storage, retention, and system outputs. Both depend on the firm's understanding of the product's capabilities and limitations.
That degree of factual and technological overlap makes this a substantially related conflict in the practical sense contemplated by Rule 1.7's comments. It is precisely the kind of setting in which a waiver becomes illusory because the firm's obligations to one client cannot be compartmentalized away from the other.
4. Conclusion on Prong 1
For all of these reasons, prong 1 is not satisfied. No reasonable, disinterested lawyer could conclude that Calderwood & Harkness can provide competent and diligent representation to both MTDC and Pinnacle concurrently.
That conclusion alone is sufficient to render the conflict unwaivable under Rule 1.7(b), regardless of whether one could theoretically solicit written waivers.
B. Prong 2: Representation Not Prohibited by Law — Satisfied, but Not Dispositive
On the current record, there does not appear to be an independent statute, regulation, or court rule that would by itself prohibit the proposed dual representation. To that limited extent, prong 2 appears satisfied.
But that point does not materially alter the analysis. Rule 1.7(b) is conjunctive, and prong 2 cannot rescue a representation that fails prongs 1 and 3. The absence of an external legal prohibition does not mean the Rules permit the firm to proceed.
C. Prong 3: No Assertion of Claim by One Client Against Another in Same Proceeding — Likely Fails
Prong 3 likely provides an independent basis for non-waivability.
The proposed MTDC engagement expressly includes potential cross-claims and indemnification demands against Pinnacle under the June 15, 2021 MSLA. That is not a speculative or collateral issue; it is part of the proposed engagement scope described during intake. If the firm were retained, one anticipated component of the representation would involve evaluating whether Pinnacle must defend, indemnify, reimburse, or otherwise bear responsibility for losses connected to the biometric platform.
In addition, the Attorney General has already identified Pinnacle as a named "responsible party" in the CID and has indicated that Pinnacle may be named as a co-respondent in any formal enforcement action. If that occurs, the practical problem becomes even more acute. The firm could not simultaneously represent MTDC in defending the legality of its conduct while also representing Pinnacle in protecting the legality of the underlying product, particularly where MTDC may need to assert that the vendor caused or materially contributed to any statutory violations.
Even before formal joinder occurs, the engagement as scoped contemplates proceedings in which MTDC would assert rights against Pinnacle. That places the matter squarely within the concern animating prong 3: a law firm should not be representing one current client in pressing claims against another current client in the same tribunal context. At the very least, the substantial likelihood of that development makes it inappropriate to treat the conflict as waivable.
Accordingly, prong 3 likely fails as well.
D. Prong 4: Informed Consent — Impracticable
Even if one assumed, contrary to the analysis above, that prongs 1 and 3 could somehow be satisfied, obtaining meaningful informed consent from both clients would be highly impracticable.
For Pinnacle, informed consent would require full disclosure that the firm seeks to represent MTDC in a matter involving allegations that TruScan 360's biometric-data practices are unlawful; that MTDC may pursue indemnification or cross-claims against Pinnacle; that the firm possesses Pinnacle's confidential technical information relevant to those issues; and that the firm would be constrained in what it could do for MTDC because of its duties to Pinnacle. It is difficult to see why Pinnacle's CEO, Gregory Harmon, or General Counsel, Sandra Yee, would knowingly authorize their law firm to undertake a representation that so directly threatens Pinnacle's flagship product and litigation posture.
For MTDC, informed consent would require disclosure that Calderwood & Harkness already represents the vendor whose technology is alleged to have caused MTDC's legal exposure; that the firm has confidential information from that vendor that it cannot use freely for MTDC's benefit; and that the firm's strategic choices may be constrained by loyalty to Pinnacle. It is equally difficult to see why MTDC's General Counsel Terrence Whitfield, CISO Lucia Marchetti, or Executive Director Darnell Okafor would consider that arrangement acceptable in a matter involving significant governmental scrutiny and eight-figure exposure.
In that sense, the impracticability of obtaining informed consent is not simply an administrative issue. It reflects the substantive severity of the conflict. And because prongs 1 and 3 independently fail, the consent question is ultimately moot in any event.
V. Consideration of Alternative Structures
A. Could Screening Cure the Conflict?
No. As discussed in the separate memorandum concerning Illinois Rule 1.10 and imputation, screening is not an available cure for a current-client conflict of this nature.
This is not a case involving a lawyer's migration from another firm, where screening may under limited circumstances prevent imputation of a former-client conflict. The conflict here arises from the firm's present concurrent representation of a current client, Pinnacle, by an active firm partner, Jonathan Mercer, and the proposed acceptance of another matter directly adverse to that client. Illinois conflict rules do not permit the firm to solve that problem simply by walling off personnel.
Moreover, even if screening were theoretically available, it would not address the core issue. The firm as an entity would still be advocating diametrically opposed positions regarding the same technology platform in two active matters. Screens do not cure institutional divided loyalty.
B. Could the Firm Withdraw from the Pinnacle Engagement to Accept MTDC?
That approach is also not viable.
As a formal matter, withdrawal from Pinnacle could convert Pinnacle from a current client to a former client, thereby moving the analysis from Rule 1.7 to Rule 1.9. But as addressed in the separately circulated Rule 1.9 memorandum, the conflict would persist even under the former-client framework because the matters are substantially related and the firm possesses material confidential information relevant to the proposed adverse representation.
There is also the independent concern that a firm may not drop a current client like a "hot potato" in order to convert a current-client conflict into a former-client conflict and take on a more desirable or lucrative engagement. Courts and ethics authorities routinely view that tactic with skepticism, and often as itself inconsistent with the duty of loyalty. Here, where Pinnacle is an ongoing client represented since 2019 and billed more than $2.1 million in 2023 alone, withdrawal for the purpose of suing around or against Pinnacle's interests would invite precisely that criticism.
Accordingly, withdrawal from Pinnacle is not a sound or ethical mechanism for curing the conflict.
C. Could the Scope of the MTDC Engagement Be Narrowed?
Narrowing the MTDC scope would not solve the problem because the conflict is structural, not incidental.
One could imagine removing from the engagement letter any express reference to cross-claims or indemnification demands against Pinnacle. But the heart of the MTDC matter would remain defense of the Attorney General investigation and the employee class action. That core work would still require the firm to analyze, investigate, and potentially challenge TruScan 360's data practices under BIPA and related privacy law. It would still involve the same technology, the same product architecture, and the same confidential-information constraints.
In other words, even a narrowed engagement would still force the firm to represent MTDC in a matter where MTDC's best defenses may depend on characterizing Pinnacle's platform and conduct in ways harmful to Pinnacle. The contradiction is built into the facts, not merely into the optional components of the engagement letter.
VI. Financial Considerations — Not a Factor in the Ethical Analysis
The intake materials reflect that the proposed MTDC engagement would likely be significant from a revenue perspective, with estimated fees of approximately $3.5 million to $5.2 million over 18 to 24 months. By comparison, Pinnacle generated $2,137,500 in actual firm billings during fiscal year 2023. MTDC also reportedly maintains an annual outside-counsel budget of approximately $14.8 million, suggesting future work beyond the immediate BIPA matter could be meaningful.
Those facts may be relevant to business planning, client-development strategy, or internal resource allocation. They are not relevant to the ethical question presented here. The waivability analysis under Rule 1.7(b) turns on the nature of the conflict, the ability to provide competent and diligent representation to each client, the presence or absence of claims between clients in the same proceeding, and the feasibility of informed consent. Potential revenue, strategic value, or forgone business opportunity do not alter the governing standard.
For purposes of the Conflicts Committee's decision, the financial attractiveness of the MTDC matter should therefore be treated as legally and ethically irrelevant.
VII. Conclusion and Recommendation
The conflict between the proposed MTDC engagement (Matter No. 1031-00001) and the existing Pinnacle engagement (Matter No. 1031-00001) is unwaivable under Illinois Rule of Professional Conduct 1.7(b).
Prong 1 fails. No reasonable lawyer could conclude that Calderwood & Harkness can provide competent and diligent representation to both MTDC and Pinnacle at the same time, given: (i) the irreconcilable legal positions concerning Pinnacle's TruScan 360 platform; (ii) the firm's possession of Pinnacle confidential information directly relevant to the MTDC matter; and (iii) the substantial factual overlap between the two matters.
Prong 3 likely fails independently. The proposed MTDC scope expressly includes potential cross-claims and indemnification demands against Pinnacle, and the Attorney General has indicated that Pinnacle may be named as a co-respondent in the enforcement matter. The representation therefore likely would involve, or rapidly evolve into, the assertion of claims by one current client against another in the same proceeding or tribunal setting.
Prong 4 is, as a practical matter, not meaningfully satisfiable. Genuine informed consent from either client is unrealistic under these circumstances. And because prongs 1 and 3 fail, the consent issue is not outcome-determinative in any event.
My recommendation is that Calderwood & Harkness decline the proposed MTDC engagement. This memorandum is submitted for consideration by the Conflicts Committee at its meeting scheduled for May 14, 2024. It is consistent with, and should be read together with, the companion memorandum addressing direct adversity and material limitation under Rule 1.7(a).
VIII. Appendices / Attachments
Appendix A: Full Text of Illinois Rule of Professional Conduct 1.7
Illinois Rule of Professional Conduct 1.7 — Conflict of Interest: Current Clients
(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.
Selected Official Comments Referenced in This Memorandum
Comment [1]. Loyalty and independent judgment are essential elements in the lawyer's relationship to a client. Concurrent conflicts of interest can arise from the lawyer's responsibilities to another client, a former client, or a third person, or from the lawyer's own interests.
Comment [6]. 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 an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.
Comment [15]. The lawyer's own interests should not be permitted to have an adverse effect on representation of a client. 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. When a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide it through the terms of the engagement.
Comment [17]. Paragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients' consent. On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse does not ordinarily constitute a conflict and thus may not require consent.
Comment [18]. Consentability is typically determined by considering whether the interests of the clients will be adequately protected if they are permitted to give their informed consent to representation burdened by a conflict of interest. Representation is prohibited if, in the circumstances, the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.
Appendix B: Party Relationship Chart
Relationship Overview.
Narrative Diagram of Conflict Structure
Calderwood & Harkness currently represents Pinnacle in active intellectual-property matters centered on TruScan 360.
MTDC seeks to retain Calderwood & Harkness to defend claims arising from MTDC's deployment of that same TruScan 360 platform.
The Illinois Attorney General and the employee class both contend that MTDC's use of the platform violated BIPA and related privacy obligations.
MTDC's contemplated defenses and potential indemnification rights may require MTDC to place responsibility on Pinnacle and on the design, disclosures, retention policies, and data flows of TruScan 360.
At the same time, Calderwood & Harkness possesses Pinnacle confidential information about TruScan 360 that is materially relevant to those issues and cannot be used against Pinnacle without violating duties of confidentiality and loyalty.
Accordingly, the "TruScan 360 nexus" sits at the center of both matters and creates the dual-representation problem.
Appendix C: Key Documents Referenced
The following internal and matter-related documents were referenced or consulted in connection with this memorandum:
1. Conflicts Search Report — Round 1, dated May 10, 2024.
2. Conflicts Search Report — Round 2, dated May 13, 2024.
3. Internal Email from Jonathan Mercer to Rachel Bernstein and Conflicts Team, dated May 10, 2024, confirming the nature of confidential Pinnacle technical information in firm files.
4. Confidential Information Inventory, prepared by Priya Subramaniam, identifying categories of Pinnacle materials relating to TruScan 360 architecture, data flows, retention policies, and algorithm design.
5. Companion Memorandum re Illinois Rule 1.7(a), addressing direct adversity and material limitation.
6. Memorandum re Illinois Rule 1.9, addressing former-client conflicts in the event withdrawal from Pinnacle were considered.
7. Memorandum re Illinois Rule 1.10, addressing imputation and why screening would not cure the present conflict.
8. MTDC Intake Notes, including summary of May 6, 2024 call with Rachel Bernstein and preliminary engagement scope.
9. Preliminary Exposure Assessment from Lakefront Actuarial Advisors, LLC, regarding estimated BIPA statutory damages.
10. Master Software License and Services Agreement between MTDC and Pinnacle, dated June 15, 2021.
11. Attorney General Civil Investigative Demand, CID Ref. No. CRB-2024-0417.
12. Cook County Class Action Complaint, Case No. 2024-CH-04417.
End of Memorandum
Entity | Role / Position | Relationship to TruScan 360 | Relationship to Calderwood & Harkness | Conflict Significance
Metropolitan Transit Development Corp. ("MTDC") | Proposed client | End-user/customer deploying TruScan 360 under 6/15/2021 MSLA | Proposed new representation, Matter No. 1031-00001 | Would require defense of BIPA claims and likely scrutiny of Pinnacle's product and conduct
Pinnacle Workforce Analytics, Inc. | Existing current client | Developer/licensor of TruScan 360 | Current representation since 2019; active Matter No. 1031-00001 | Firm owes current duties of loyalty and confidentiality
Illinois Attorney General, Bureau of Civil Rights | Government investigator / likely enforcement authority | Investigating use and deployment of biometric platform | Adverse to MTDC; may also proceed against Pinnacle | Has identified Pinnacle as a responsible party and may name it as co-respondent
Employee Putative Class | Private plaintiffs in Cook County action | Allege unlawful biometric collection/use through TruScan 360 | Adverse to MTDC | Underlying litigation pressures MTDC to evaluate vendor fault and indemnity
Veritas Biometrics Corp. | Adverse party in Pinnacle patent case | Alleged infringer of TruScan 360-related technology | Adverse to Pinnacle in E.D. Va. case | Existing Pinnacle matter depends on affirming value and legitimacy of TruScan 360
Calderwood & Harkness LLP | Law firm | Holds confidential technical information concerning TruScan 360 | Counsel to Pinnacle; proposed counsel to MTDC | Would be institutionally conflicted regarding same technology platform

May 13, 2024

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