Opinion
MDL DOCKET NO. 1361
March 12, 2001
MEMORANDUM DECISION AND ORDER ON MOTION TO DISQUALIFY
On May 18, 2000, the law firm of Milberg Weiss Bershad Hynes Lerach ("Milberg Weiss") filed suit on behalf of consumers against certain named music compact disc distributors and retailers, accusing them and unnamed co-conspirators of price fixing. Until May 18, 2000, and perhaps for a brief time thereafter, Milberg Weiss also represented certain retailers in a lawsuit accusing the music CD distributors of price fixing. The question on this motion to disqualify is whether that representation of certain retailers created a conflict of interest that prevents Milberg Weiss from proceeding as counsel in this putative class action on behalf of consumers. I conclude that it does.
FACTS
To the extent the facts are not based upon docket entries and pleadings, I take them from the report of Milberg Weiss's expert, Professor Roy Simon, a Professor of Law at Hofstra University School of Law. Milberg Weiss retained Professor Simon to advise the firm whether representing the retailers disqualified it from representing the consumers in the present action. Professor Simon determined that it did not and prepared a report (the "Simon Report") describing his findings on Milberg Weiss's alleged conflict of interest.
On December 1, 1997, Milberg Weiss, representing Third Street Jazz and Rock Holding Corporation, filed a class action complaint on behalf of CD retailers against CD distributors, alleging that the distributors were engaged in a horizontal price fixing scheme of CD prices. See Complaint of Third Street Jazz Rock Holding Corp. v. EMI Music Distrib., No. 97-8864 (C.D.Cal. 1997). The Multi-District Litigation Panel transferred a number of similar suits to the Central District of California. See In re Compact Disc Antitrust Litig., MDL No. 1216 (C.D. Cal. 1997). Milberg Weiss was not appointed lead counsel in that consolidated litigation, but did assist in preparing plaintiffs' depositions, briefing motions, reviewing documents and otherwise prosecuting the action. In addition, an associate at Milberg Weiss represented three other retailers in the consolidated California action, preparing discovery responses on their behalf and representing these entities at depositions. Simon Report at 2. Ultimately, the California court denied the retailers' motion for class certification, but the lawsuit is still pending.
The three clients were Chandu Dani (d/b/a Compact Disc Warehouse), Digital Distribution, Inc. and Record Revolution, Inc. See Simon Report at 2.
On May 18, 2000, Milberg Weiss notified co-counsel in the Third Street Jazz case that it was withdrawing from the case. On the same day, Milberg Weiss filed class action complaints on behalf of consumers accusing CD distributors and unnamed retailers of violating antitrust laws through the use of minimum advertised pricing policies. See Michaelson v. Capitol Records, Inc., No. 00-05398 (C.D.Cal. May 18, 2000); Noll v. BMG Music, No. 00-2852 (E.D.N.Y. May 18, 2000); Schwam v. BMG Music, No. 00-2851 (E.D.N.Y. May 18, 2000). Other law firms filed consumer class actions making similar allegations and naming certain retailers (not the four Milberg Weiss clients) as defendants. See In re Compact Disc Minimum Advertised Price Antitrust Litig., MDL No. 1361, Joint Mot. Of Distrib. Defs. To Transfer Consol. For Pretrial Proceedings (July 25, 2000). All of these lawsuits and similar State Attorney General lawsuits have been transferred to this Court for pretrial proceedings and have been consolidated for pretrial discovery before this Court. See In re Compact Disc Minimum Advertised Price Antitrust Litig., MDL No. 1361 (D.Me. Nov. 1, 2000) (order on practice and procedure). Apparently in response to Milberg Weiss's seeking lead counsel status in the consolidated proceedings, two other law firms-Polack, Rosenberg, Endom Riess and Krislov Associates-representing four individual plaintiffs, moved to disqualify Milberg Weiss. Milberg Weiss has opposed the motion. The motion has been submitted on facts that are essentially undisputed. Three legal ethics professors have also given their opinions.
On June 1, 2000, Milberg Weiss filed a voluntary dismissal of the Third Street Jazz lawsuit. See No. 97-8864, Docket Item 30. On June 5, 2000, the firm of Kaplan, Kilsheimer Fox, co-lead counsel in the retailer action, informed Milberg Weiss that Milberg Weiss might be engaging in a conflict of interest as counsel in the consumer actions. See Simon Report at 2-3.
ANALYSIS 1. Applicable Law
Under the Local Rules of this Court, Maine's rules of professional ethics-the Maine Bar Rules-govern. Aware that law firms with a national practice have voiced some concern over varying ethical rules from jurisdiction to jurisdiction, see Discussion Draft of Federal Rules of Attorney Conduct, in Judith McMorrow, The (F)Utility of Rules: Regulating Attorney Conduct in Fed. Court Practice, SF13 A.L.I.-A.B.A. 317, 327 (Nov. 2000), I hasten to add that the result I reach here would be the same under most if not all ethical standards, and is not simply an artifact of the MDL Panel's decision to transfer pretrial proceedings in these cases to Maine.
The District of Maine Local Rule 83.3 states that "[t]he Code of Professional Responsibility adopted by this Court is the Code of Professional Responsibility adopted by the Supreme Judicial Court of Maine, as amended from time to time by that Court." ME. LOCAL RULES 83.3. Therefore, the conflict rules of the Maine Code of Professional Responsibility will apply.
I have also consulted the ABA Model Rules of Professional Conduct Rule 1.9 (if the interests are materially adverse representation is forbidden unless the former client consents), the Restatement (Third) of the Law Governing Lawyers § 133 (if the interest is materially adverse, consent of both former and current clients is required), and the California Rules of Professional Conduct of the State Bar of California Rule 3-310(E) (new representation is forbidden if the lawyer obtained material confidential information from the other client unless there is informed written consent by that client).
2. Standing of the Moving Parties
Milberg Weiss does not challenge the standing of the four private consumer plaintiffs, through their attorneys, to assert the motion to disqualify. I therefore address that subject only briefly. Although motions to disqualify a lawyer are generally brought on behalf of former or current clients, standing to assert conflicts of interest is not limited to such clients. In fact, the First Circuit has allowed opposing counsel to bring a motion to disqualify, extending standing to those who are placed at a disadvantage by reason of a lawyer's breach of an ethical duty. See Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir. 1984) (holding that opposing counsel has standing to assert motion to disqualify because lawyers must report ethical violations). For purposes of the dispute here-a law firm seeking to represent a class of private consumers-I consider other putative class members, such as the four consumers bringing the motion to disqualify, to be the equivalent of clients of the Milberg Weiss law firm. Therefore, given that they are members of the putative consumer class and that Milberg Weiss seeks to participate in the class action as class counsel, the four private consumer plaintiffs have standing to assert the motion to disqualify.
I recognize that great care must be exercised in applying ethical rules to class actions. Herbert B. Newberg Alba Conte, Newberg on Class Actions, § 15.01 (3d ed. 1992); Herbert B. Newberg, Special Conflicts of Interest Rules Apply in Class Actions, 10 Verdicts, Settlements Tactics 149 (1990). For example, in a settlement of a class action, certain individual members of the class may oppose the terms of settlement, but this cannot mean that class action counsel is therefore automatically disqualified. See Lazy Oil Co. v. Witco Corp., 166 F.3d 581, 589 (3d Cir. 1999).
I also recognize that the law firm initially bringing the motion was simultaneously seeking to be appointed lead counsel in competition with the Milberg Weiss request to be lead counsel. See Mot. to Disqualify, Dec. 8, 2000; Polack, Rosenberg, Endom Riess's Suggested Criteria for Selection of Pls.' Class Counsel, Dec. 11, 2000. The other law firm seeking disqualification, Krislov Associates, wanted to be appointed to a steering committee to manage this litigation. Whether or not that played a role in the bringing of the motion does not affect my analysis. A court has an independent obligation to assess conflicts of interest. See Kevlik, 724 F.3d at 846 ("district court has duty and responsibility of supervising the conduct of attorneys who appear before it.").
3. The Conflict of Interest
Under the Maine Code of Professional Responsibility, a lawyer may not represent a client if the representation would involve a conflict of interest. Me. Bar Rule 3.4(b). According to the Maine Rules, "[r]epresentation would involve a conflict of interest if there is a substantial risk that the lawyer's representation of one client would be materially and adversely affected by the lawyer's duties to another current client, [or] to a former client. . . ." See ME. BAR RULE 3.4(b)(1). In determining whether such a conflict exists, "a district court is vested with broad power and responsibility to supervise the professional conduct of the attorneys appearing before it." Fiandaca v. Cunningham, 827 F.2d 825, 829 (1st Cir. 1987) (citing Kevlik v. Goldstein, 724 F.2d 844 (1st Cir. 1984)).The Maine rules have a specific provision when the interests of a former client may be involved. See ME. BAR RULE 3.4(d). They state: "Except as permitted by this rule, a lawyer shall not commence representation adverse to a former client without that client's informed written consent if such new representation is substantially related to the subject matter of the former representation or may involve the use of confidential information obtained through such former representation." Id. 3.4(d)(1)(i). Here, Milberg Weiss assumes for purposes of the motion that its current representation is substantially related to the subject matter of its former representation, Mem. in Opp'n to Mot. to Disqualify Counsel at 6 n. 4, and I shall do the same. Milberg Weiss has not provided the court with any written consent from its former clients. Thus, the question remains the same: is the new representation "adverse" to the former clients?
The parties have assumed that the "former client" analysis is the appropriate one. I observe that actually the four retailers could be considered "current clients" within the meaning of the rule, because they were still clients of Milberg Weiss at the time Milberg Weiss filed its consumer class actions. See, e.g., Blanchard v. Edgemark Fin. Corp., 175 F.R.D. 293, 306 n. 18 (N.D.Ill. 1997) (noting that withdrawing from existing representation will not transform a present-client conflict into a former-client conflict); Ransburg Corp. v. Champion Spark Plug Co., 648 F. Supp. 1040, 1044 (N.D.Ill. 1986) (noting that status of a present or former client should be determined at the time the complaint is filed); see also Unified Sewerage Agency v. Jelco Inc., 646 F.2d 1339, 1344 n. 4 (9th Cir. 1981). But the result would not change. Informed written consent from all parties would be required, see ME. BAR RULE 3(c)(2), and no such consent has been provided.
The Maine rules do not define what constitutes an adverse representation. The Advisory Committee Note to the July 1, 1993 Amendments, however, states that representation by an attorney is "adversely" affected "if the potentially conflicting duties create incentives or constraints that would limit the zeal or effectiveness with which the lawyer represents the client." ME. BAR RULE 3.4 Advisory Committee's Note to July 1, 1993 Amendment; see also RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 121, cmt. c(i) (noting that adverse effect "relates to the quality of representation; the incentives faced by the lawyer after or during the representation"). Thus, the inquiry is focused on the potential for an adverse effect. ME. BAR RULES, Reporter's Notes (noting that conflict rules "eliminat[e] any requirement that the contemplated employment actually produce an adverse effect; [i]t is enough if it is likely to do so"); see also IBM v. Levin, 579 F.2d 271, 280 (3d Cir. 1978). I therefore examine the consequences for both the potential consumer class in this lawsuit and for Milberg Weiss's former retailer clients in permitting Milberg Weiss to continue as counsel here.
Milberg Weiss concedes that there is a potential conflict between the four individual retailers it represented and the consumer plaintiffs. In its Memorandum in Opposition to the Motion to Disqualify Counsel, Milberg Weiss stated that "[w]ith respect to those four former clients, there is a potential conflict. However, it is inconceivable that they would be defendants or that any discovery would be sought by the plaintiffs here from them." Mem. In Opp'n to Mot. To Disqualify Counsel at 9.
As I stated in my Order of January 26, 2001, denying the motion to disqualify Kohn, Swift Graf, I do not treat Milberg Weiss as representing any retailers other than the four who were its clients.
Milberg Weiss asserts that there are no adverse effects for its four previous clients. Milberg Weiss does not plan to name any of its retailer clients as defendants; it does not expect any other plaintiff to name these retailers (a consolidated amended complaint has been filed and does not name them); it does not expect to take any discovery from the retailers; and therefore, its expert says, the consumer class action will not have any adverse effects on the economic interests of the retailers. Simon Report at 8-9. In addition, Professor Simon notes that "Milberg Weiss has made it clear that it will not use [any confidential retailer] information in consumer actions," and that a partner at Milberg Weiss assured the retailer's lead counsel in the California action that "`[w]e do not intend to use, for the new [consumer] cases, materials from the prior [retailer] cases which are (a) covered by protective order limiting their use to those cases, or (b) privileged or work product." Id. at 8.
One of them, Third Street Jazz, ceased operating after the retailer action was filed. See Simon Report at 2. In addition, Digital Distribution filed for bankruptcy, but has remained in the retailer action by the bankruptcy trustee's authorization. See Simon Report at 2. But the other two apparently are still ongoing businesses.
These measures may eliminate any adverse effect on Milberg Weiss's prior retailer clients, but unfortunately they carry the distinct potential of reducing Milberg Weiss's effectiveness in representing the putative consumer plaintiff class vigorously here. The prior representation has created an incentive for Milberg Weiss not to name those retailers as defendants or to seek any information from them that may be helpful in prosecuting the consumer case. And it has already agreed not to use certain information it acquired in the earlier case. Milberg Weiss characterizes its former retailer clients as "mom and pop operations," thereby suggesting that there would be no reason to name them as defendants here. Given its interest, I cannot rely on the Milberg Weiss statement to make it so. Even if I treat the decision by other law firms not to name these four retailers as defendants in the Consolidated Amended Complaint as confirming the lack of any reason to name them as defendants, I cannot be confident that even "mom and pop operations" would have no useful information to discover or, indeed, that Milberg Weiss is not already in possession of such information that it has agreed not to use.
I conclude that the retailer and consumer representations are inescapably adverse. Therefore, Milberg Weiss must be disqualified.
Essentially, Milberg Weiss switched sides. It filed complaints in the consumer action against distributors and retailers just as it informed its co-counsel in the Third Street Jazz action that it no longer could represent the retailer. See supra notes 3, 8. "[F]or a lawyer to switch sides on the same or a related controversy would create an appearance of impropriety and serve to undermine the public's confidence in the integrity of the legal profession." NFC, Inc. v. General Nutrition, Inc., 562 F. Supp. 332, 333 (D.Mass. 1983).
CONCLUSION
The motion to disqualify Milberg Weiss is therefore GRANTED.
SO ORDERED.
MEMORANDUM DECISION ON MOTION TO REMAND
On October 20, 2000, the MDL panel transferred 41 cases to this Court, one of which was Rosemarie Chacon, et al. v. Universal Music Video Distribution, Inc., et al., Civ. No. 00-331-P-H, a case originally filed in federal court in the Eastern District of Louisiana. Attorney George Riess of the law firm of Polack, Rosenberg, Endom Riess, LLP represented the plaintiffs in the case. On November 1, 2000, the cases were consolidated for pretrial purposes in an Order that specifies that any tag-along cases are also subject to the Order. In Re: Compact Disc Minimum Advertised Price Antitrust Litigation, MDL No. 1361 (D.Me. Nov. 1, 2000) (order on practice and procedure).
On November 15, 2000, another Chacon case, docketed in this Court as Civ. No. 01-23-P-H, in which Attorney Riess and the Polack, Rosenberg law firm were named counsel, was conditionally transferred here as a tag-along case. This case had initially been filed in Louisiana state court and removed to federal court. The plaintiffs had moved for a remand back to state court, but the Louisiana federal court never ruled on the motion. The plaintiffs did not oppose the transfer.
Attorney John Whitney, of Barton, Richardson, Canseco Whitney LLP, also represents the plaintiffs in both Chacon cases.
On November 28, 2000, I conducted the first conference in this litigation. Eighteen lawyers attended for private plaintiffs and five state attorney generals' offices were represented. Attorney Riess attended in person, having faxed the Court the day before a letter in which he (1) noted that a motion to remand had been filed in the second Chacon case, and that he would request a hearing on the matter as soon as possible; (2) stated that there was a representation problem in the multidistrict litigation that the lawyers were trying to resolve. (This turned out to be an asserted conflict of interest on the part of two law firms.)
Attorney Riess spoke on more than one occasion at the November 28 conference with the Court. Notwithstanding his letter, never once did he suggest that he was limiting any of his statements to the first Chacon case. The fact that tag-along cases were subject to what happened at that first conference was discussed. Never once did Attorney Riess voice any objection to the filing of a consolidated amended complaint on behalf of all private plaintiffs, a subject that was thoroughly discussed. In fact, objection was made only by the Roy plaintiffs, also a tag-along case that was only conditionally transferred.
Thereafter the stay of the conditional transfer of the second Chacon case was lifted on December 1, 2000, and the transfer became effective when it was filed in this Court on December 6, 2000. Judicial Panel on Multidistrict Litig. Rules of P. 1.5 7.4(e) (2000). Attorney Riess proceeded to seek to become lead counsel for all the private plaintiffs. On December 22, 2000, a Consolidated Amended Complaint was filed on behalf of all the private plaintiffs except Roy, and replacing all previous complaints. At no point during all these proceedings did Attorney Reiss make any further mention of the unruled-upon motion to remand or make any suggestion that the Consolidated Amended Complaint did not include the matters in which he was counsel. Finally, on January 26, 2001, I appointed lead counsel, but not Attorney Riess or his firm. Thereafter, on January 29, 2001, the filing of a Proposed Joint Agenda for the next conference (to be held on January 31, 2001) alerted me that Attorney Riess apparently viewed the Chacon motion to remand as still pending. Due to the travel difficulties of Attorney Riess, the subject was not taken up on January 31, 2001. On February 5, 2001, Attorney Riess filed a document in this court seeking to renew the motion to remand the second Chacon case and providing additional argument. Thereafter, I permitted retailers who are no longer defendants in the Consolidated Amended Complaint, but who would be defendants in the second Chacon case if I order its remand to Louisiana state court, to file a brief in opposition. Attorney Riess has filed an additional response.
In his reply to the non-distributor defendants' opposition to the motion to remand, Attorney Riess implies that he could not reassert the motion to remand until this Court received the Chacon case file from the Louisiana federal court, which was not until January 25, 2001. That is simply incorrect; nothing prevented Attorney Riess from pressing the motion earlier or, at a minimum, from clearly indicating his continuing opposition to consolidating the second Chacon case into the main proceedings.
I conclude that the Chacon plaintiffs are estopped from seeking remand in the second case and that the Consolidated Amended Complaint has replaced the two earlier Chacon complaints. From the conference on November 28, 2000, through the date of my appointment of lead counsel, their lawyer did not inform the Court that he was wearing two hats: one on behalf of the Chacon plaintiffs in a federal lawsuit already transferred to this Court, where he voiced no opposition to consolidation and in which he wished to become lead class counsel; and a second hat on behalf of the Chacon plaintiffs in a tag-along case removed from Louisiana state court, in which he wished to oppose consolidation, oppose the consolidated amended complaint procedure that was proposed, and seek remand back to state court. The Consolidated Amended Complaint was filed on December 22, 2000, and still Attorney Riess did not voice his objections to consolidation, the Consolidated Amended Complaint, or the dropping of certain retail defendants. Instead, he was still seeking to be appointed lead class counsel. The passing reference to the motion to remand in Attorney Riess' November 27 letter was insufficient to keep that issue alive given his subsequent acquiescence to the consolidated proceedings.
Only after I appointed different lead counsel on January 26, 2001, did I learn that Attorney Riess wished the second Chacon case not to be part of the Consolidated Amended Complaint, but instead to be remanded to state court. It is too late. The plaintiffs are estopped by their lawyer's conduct.
The motion to remand is DENIED.
SO ORDERED.