Opinion
No. CV 98 0262264
June 3, 2003
MEMORANDUM OF DECISION ON MOTION TO DISQUALIFY COUNSEL
The corporate defendant, JoVal Machine Co., Inc. (Joval) has moved to disqualify the law firm of Nuzzo Roberts, LLC (N R) from representing the plaintiff in this action. This case involves a minority shareholder action brought by the plaintiff, Carl Philbrick, against the defendants, Gerald Chase and Joval. As alleged in the complaint, Philbrick was a plant manager for 21 years for, and has been since 1989 a fifteen percent owner of, Joval. Chase is the president and majority shareholder of Joval, and has complete management control of the corporation. As an equity owner of Joval, Philbrick receives an annual bonus from the corporation's net profits that is proportionate to his ownership percentage.
In March 1998, Philbrick filed suit against Chase and Joval. The current version of the complaint alleges, inter alia, that Joval has improperly diminished the value of Philbrick's ownership in the corporation and that Joval and Chase have breached their fiduciary obligations to Philbrick. The complaint seeks compensatory damages and a dissolution of Joval.
Joval filed the present motion to disqualify on December 4, 2002 and the court held a subsequent hearing on the motion. The movant and the plaintiff each filed both initial and supplemental briefs.
Philbrick has been represented by the law firm NR since the institution of this action. In March of 2002, an attorney from NR began representing a named defendant, Pac Products, in a workers' compensation claim filed by an employee for injuries allegedly suffered while working for Pac Products. It is this representation that gives rise to the present controversy because Pac Products had merged with the defendant Joval. N R, at that time, was simultaneously representing Joval in the workers' compensation action while suing it in the present case.
The exact date of this merger is unclear.
N R was retained by the workers' compensation insurer for Pac Products and the insurer was the financially involved entity in that proceeding. N R performed a conflict check prior to undertaking representation of Joval in the workers' compensation matter, but due to clerical error, none was discovered. Joval, in its motion, recites that it was sued in the workers' compensation proceeding as Pac Products and that N R was representing Pac Products in that proceeding. The only known contact between a N R attorney and Joval was an innocuous letter of October 10, 2002 from N R addressed to Pac Products, informing it that N R was representing Pac Products in the workers' compensation claim and advising Pac Products to communicate only with N R or the insurer about the claim. The attorney at N R handling the workers' compensation claim had no conversations with employees of Joval and the only information obtained by N R from Joval concerned the claimant employee's medical information and earnings. No information as to Joval's financial status was obtained:
No information which is relevant to this case was obtained by N R during its handling of the workers' compensation case. No plausible advantage to plaintiff or disadvantage to defendants in this case due to the representation of Pac Products by N R has been suggested or demonstrated.
The existence of the conflict was brought to the attention of N R by movant's counsel at a November 7, 2002 pretrial for this case. By November 15, 2002, N R had withdrawn from its representation of Pac Products in the workers' compensation matter.
On December 4, 2002 Joval moved to disqualify N R from its representation of Philbrick in this action on the ground that a conflict of interest exists. Specifically, Joval argues that N R should be automatically disqualified, pursuant to rule 1.7 of the Rules of Professional Conduct, because the law firm has simultaneously represented Philbrick in this matter against Joval, while representing Joval in a separate matter. Joval argues that it has lost trust in N R. Joval also argues that N R's continued participation in this case creates an appearance of impropriety.
Philbrick filed an objection to the motion to disqualify. In response, Philbrick argues that disqualification is unwarranted. Philbrick argues that because N R withdrew from its representation of Joval, rule 1.7 is not controlling, and that rule 1.9 of the Rules of Professional Conduct, which governs actions against former clients, should be utilized. Philbrick also argues that in weighing the various interests involved, N R should not be disqualified because the firm did not obtain any confidential information that would give it an unfair advantage in the present action.
"Since October 1986, the conduct of attorneys has been regulated . . . by the Rules of Professional Conduct, which were approved by the judges of the Superior Court and which superseded the Code of Professional Responsibility." Bergeron v. Mackler, 225 Conn. 391, 397, 623 A.2d 489 (1993). "The trial court has broad discretion to determine whether there exists a conflict of interest that would warrant disqualification of an attorney." Id. "Disqualification of counsel is a remedy that serves to enforce the lawyer's duty of absolute fidelity and to guard against the danger of inadvertent use of confidential information." (Internal quotation marks omitted.) Id.
In disqualification matters, the trial court must be "solicitous of a client's right freely to choose his counsel . . ." (Citation omitted; internal quotation marks omitted.) Id., 397-98. "[D]isqualification frequently entails substantial prejudice to the client whose attorney is disqualified." Goldenberg v. Corporate Air, Inc., 189 Conn. 504, 515-16, 457 A.2d 296 (1983), overruled in part, Burger Burger, Inc. v. Murren, 202 Conn. 660, 522 A.2d 812 (1987). The interests which must be taken into consideration on a motion to disqualify are: "(1) the defendant's interest in protecting confidential information; (2) the plaintiff's interest in freely selecting counsel of [his] choice; and (3) the public's interest in the scrupulous administration of justice." Bergeron v. Mackler, supra, 225 Conn. 398. It must also be kept in mind that "motions for disqualification are often used for strategic purposes." Goldenberg v. Corporate Air, Inc., supra, 189 Conn. 516.
Rules 1.7 and 1.9 of the Rules of Professional Conduct address conflict of interest situations. Rule 1.7 governs the concurrent representation of clients with adverse interests. The rule provides, in relevant part: "A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) The lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) Each client consents after consultation." Rule 1.7 is founded upon the duty of loyalty that an attorney owes his client. Florida Insurance Guaranty Association, Inc. v. Carey Canada, Inc., 749 F. Sup. 255, 258-59 (S.D.Fla. 1990). See also Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384 (2nd Cir. 1976).
In contrast, rule 1.9 "governs disqualification of counsel for a conflict of interest relating to a former client." Bergeron v. Mackler, supra, 225 Conn. 398. Rule 1.9 states in relevant part: "A lawyer who has formerly represented a client in a matter shall not thereafter . . . [r]epresent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation . . ." "This test has been honed in its practical application to grant disqualification only upon a showing that the relationship between the issues in the prior and present cases is patently clear or when the issues are identical or essentially the same." (Internal quotation marks omitted.) Bergeron v. Mackler, supra, 225 Conn. 399.
Because N R simultaneously represented Philbrick and Joval for a period of eight months, but withdrew from its representation of Joval prior to the motion to disqualify being filed, this case presents an initial issue of whether rule 1.7 or 1.9 should be applied. There is currently no Connecticut appellate authority on this subject. The court will therefore look to other jurisdictions for guidance.
The general rule applied by courts is that "[a] lawyer may not avoid the automatic disqualification rule applicable to concurrent representation of conflicting interests by unilaterally converting a present client into a former client." American Airlines, Inc. v. Sheppard, Mullin, Richter Hampton, 96 Cal.App.4th 1017, 1037, 117 Cal.Rptr.2d 685 (2002). See also Harte Biltmore Ltd. v. First Pennsylvania Bank, N.A., 655 F. Sup. 419, 421 (S.D.Fla. 1987); Picker International, Inc. v. Varian Associates, Inc., 670 F. Sup. 1363, 1365-66 (N.D.Ohio. 1987); Truck Insurance Exchange v. Fireman's Fund Insurance Co., 6 Cal.App.4th 1050, 1057, 8 Cal.Rptr.2d 228 (1992). In Unified Sewerage Agency v. Jelco, Inc., 646 F.2d 1339, 1345 n. 4 (9th Cir. 1981), the court held that the concurrent representation standard applies "even though the representation ceases prior to filing of the motion to disqualify. If this were not the case, the challenged attorney could always convert a present client into a `former client' by choosing when to cease to represent the disfavored client."
The rationale behind this approach is that little incentive would exist to avoid dual representation conflicts in the first place if the problem could be remedied by simply dropping one of the clients. Truck Insurance Exchange v. Fireman's Fund Insurance Co., supra, 6 Cal.App.4th 1057-58. Furthermore, such a manipulation of the client relationship would violate the undivided loyalty that an attorney owes to his or her client. Id. "Public confidence would be greatly shaken if a firm could simply drop one client in order to take on a more lucrative one." Picker International, Inc. v. Varian Associates, Inc., supra, 670 F. Sup. 1367.
Under certain circumstances, however, courts have recognized exceptions to the general approach stated above. See Florida Insurance Guaranty Association, Inc. v. Carey Canada, Inc., supra, 749 F. Sup. 261; Gould, Inc. v. Mitsui Mining Smelting Co., 738 F. Sup. 1121, 1127 (N.D.Ohio. 1990); Ex parte AmSouth Bank, N.A., 589 So.2d 715, 722 (1991); Truck Insurance Exchange v. Fireman's Fund Insurance Co., supra, 6 Cal.App.4th 1058-59. In Florida Insurance Guaranty Association, Inc. v. Carey Canada, Inc., supra, 749 F. Sup. 261, the court stated that "[w]hen counsel, upon discovery and absent consent, immediately withdraws from a concurrent adverse representation, the proper disqualification standard is expressed in the former representation rule. Otherwise, to require disqualification for the mere happenstance of an unseen concurrent adverse representation . . . would unfairly prevent a client from retaining counsel of choice and would penalize an attorney who had done no wrong." The court in Carey Canada, nonetheless, applied the concurrent representation rule and disqualified defendant's counsel because the law firm did not withdraw from representing the plaintiff until long after discovery of the conflict.
In Gould, Inc. v. Mitsui Mining Smelting Co., supra, 738 F. Sup. 1121, a law firm found itself representing a client as a plaintiff in a suit against another client. This conflict was created because the defendant corporation in the action merged with one of the firm's clients. The firm sought and originally received consent from the defendant for this dual representation, but that consent was later revoked and a motion to disqualify was filed. The court applied a balanced perspective to the issue, reasoning that "[d]isqualification questions are intensely fact-specific, and it is essential to approach such problems with a keen sense of practicality as well as a precise picture of the underlying facts." Id., 1124. The court recognized that attorneys are generally not allowed to drop a client in order to avoid disqualification, but held, nonetheless, that disqualification was not warranted under the circumstances before it. The court reasoned that the conflict was created by the merger, not by any action of the firm. Id., 1127. Furthermore, the court reasoned that neither party had been prejudiced by the dual representation. Id.
Given the specific facts and surrounding circumstances here, rule 1.9, the `former client' rule, should apply to the present case. N R's error did play a role in the creation of its conflict of interest. The court in no way condones N R's oversight. But N R did not knowingly enter into representation adverse to one of its existing clients. It entered into its representation of Pac Products, a part of Joval, believing erroneously that no conflict existed. This is not a situation where a law firm consciously created a conflict or manipulated client relationships for financial gain. This is a situation similar to "the mere happenstance of an unseen concurrent adverse representation" referred to in Florida Insurance Guaranty Association, Inc. v. Carey Canada, Inc., supra, 749 F. Sup. 261.
Because the conflict created by N R attorneys was inadvertent, they had in place a conflict check process, they corrected their error promptly upon discovery, no practical harm has resulted and Joval has been aware of the situation for many months, the court will not refer this matter to the statewide grievance committee.
Applying rule 1.9(1), disqualification is not warranted in this case because the workers' compensation case and this suit are not "the same or a substantially related matter." The issues central to the present matter involve the financial decisions made by Joval. In contrast, the workers' compensation matter involved the employee's alleged work-related illness. N R, in their involvement in the workers' compensation matter, received only information related to the employee's medical condition, diagnosis, treatment and earnings. No information was obtained regarding Joval's financial status or dealings. Because the facts relevant to the present matter and the prior representation differ greatly, the issues cannot be considered "identical or essentially the same." (Internal quotation marks omitted.) Bergeron v. Mackler, supra, 225 Conn. 399.
Rule 1.9(2) prohibits the use of confidential information obtained during the prior representation of Joval against it. N R has obtained no such information relevant to this action from its prior representation of Joval. Accordingly, Rule 1.9(2) does not warrant disqualification.
Additionally, the lack of such relevant confidential information in N R's possession, the plaintiff's interest in selecting counsel of his choice, the difficulty that it would cause the plaintiff to replace original counsel more than five years after initiation of suit, the inadvertent origin of the former conflict of interest, and the prompt resolution of the conflict by N R upon its discovery are persuasive reasons to allow N R to remain as plaintiff's counsel. Joval's motion to disqualify N R is denied.
James Graham Superior Court Judge