A Court of Appeals conflict of interest ruling against law firm representing state is a major blow for the attorney general’s office.

After 2½ years, more than 50 highly technical expert depositions and about 6 million pages of documents, the state’s high-profile lawsuit against 3M Co. over alleged damages from a widely used family of chemical compounds is, for now, back to square one.

In a setback for the Attorney General’s Office, Covington & Burling, which had taken on the potentially lucrative case on a contingency basis, was disqualified from representing the state in a ruling Monday by the Minnesota Court of Appeals. The three-judge panel, affirming a ruling last fall in Hennepin County District Court, found that the firm had violated rules of professional conduct when it switched legal sides in the lawsuit involving contamination from perfluorochemicals or PFCs without telling 3M.

Washington, D.C.-based Covington & Burling, one of the nation’s premier corporate and environmental law firms, had represented the company for years on regulatory issues surrounding PFCs.

However, when Covington agreed to take the state’s case in late 2010, just as it was ending legal work for 3M, it failed to notify the company that it was then preparing a lawsuit against it on those very same PFC issues. And presumably aided, the company argued, by the valuable inside information the law firm had gleaned while representing 3M.

In its ruling, the three-member panel of judges said that conflict of interest broke the rules. The company should have been given a chance to give its consent, or not, for Covington to represent the state.

“The integrity of the legal system demands that scrupulous care be taken so that client confidences are protected and legal counsel acts a vigorous advocate without a conflict of interest,” the ruling says.

Even though Covington had in the past also represented the state on environmental matters while also working for 3M, the court said, the situation in the PFC case is different because lawyers are barred from representing new clients when their interests are adverse to those of former clients.

Under Covington’s deal with the state, aside from expenses like travel and meals, the firm at the top end was to collect 15 percent of any pretrial settlement with 3M exceeding $150 million, and 20 percent of settlement amounts more than $150 million after the trial has started, documents show. The percentage collected by the firm was to increase as the potential settlement amount declined.

Attorney General Lori Swanson filed the lawsuit against 3M with much fanfare in December 2010, seeking to recover alleged and future damages to the environment from PFCs. The family of chemical compounds was developed by 3M in about 1950 for use in an array of consumer products until the company stopped producing and using them in 2002, but other firms continue to do so. They’re still found in fast food wrappers, and in products treated with Teflon, Stainmaster and Gore-Tex.

Ben Wogsland, spokesman for the Attorney General’s Office, deferred comment on the ruling to Covington, saying the legal clash was between the firm and 3M. As for the implications of the ruling in the state’s suit, he said, “We are reviewing the ruling and will discuss it with our client agencies.”

Covington & Burling attorneys declined to comment.

The state’s options appear to be appealing Monday’s ruling to the state Supreme Court — which could take months, finding a new private firm or handling the case itself.

3M has said that PFCs, which are so pervasive that the most common types are found in more than 98 percent of the U.S. population, cause no harm to people. The company also has spent an estimated $100 million in cleanup efforts over the past several years at sites where the PFCs had been legally dumped for decades in Woodbury, Cottage Grove, Lake Elmo and Oakdale.

William A. Brewer III, 3M’s lead attorney, said the court made the right call. “Everything is clear in this case that it was a conflict of interest,” he said.

The company, he added, is now looking forward to the lawsuit by the state — joined by the Metropolitan Council and Lake Elmo — getting back on track. “We have never believed the state’s case had substantive merit,” he said. “There is no hazard, nor should there be a concern about environmental exposure, related to these chemistries.”

Officials with the Minnesota Department of Health have acknowledged publicly that there is no proven link between PFCs and adverse effects on human health, he said. A biomonitoring program it has conducted among residents in three east-metro communities shows PFC levels dropping in the wake of cleanup efforts. The Minnesota Pollution Control Agency reported earlier this year that PFOS, a type of PFC once found in 3M’s Scotchgard fabric protector, have declined as well.

“We’re ready, willing and able — anxious, in fact — to have this case move forward,” Brewer said.

3M’s move to disqualify Covington was a major legal detour for the case, and the firm had put 15 months of work into it on the state’s behalf.

In part of its arguments before the Court of Appeals, the state had argued that 3M essentially waived its right to seek Covington’s disqualification by waiting so long, pushing the deadline set for the discovery process where sides are allowed to gather evidence. Attorneys for 3M countered that it had not realized the extent of Covington’s legal involvement with PFC-related issues.

The Appeals Court noted the delay “might well be perceived as tactical maneuvering. And 3M’s claim that it only realized at that late date that there may be a conflict is clearly contradicted by the record,” the judges wrote. “But 3M’s knowledge of the conflict, by itself, is not sufficient to avoid disqualification. Covington had the duty to avoid conflicts and to obtain the informed consent of its former client, and it failed to obtain this consent.”

In a separate case, 3M also has filed a suit in Ramsey County District Court seeking damages against Covington. To read Monday’s opinion, go to: http://tinyurl.com/m6nnxeo.