Opinion
Case No. 1:01 CV 2185
March 11, 2002
Memorandum of Opinion and Order
INTRODUCTION
This matter is before the Court upon Plaintiff's Motion to Disqualify Shearman Sterling as Counsel for Defendant (Doc, 22). This case arises out of work performed by defendant Cap Gemini America, Inc. (hereafter "Cap Gemini") on the information system of plaintiff Pioneer-Standard Electronics, Inc. (hereafter "Pioneer"). The basis of Pioneer's Motion is the concurrent representation by Shearman Sterling (hereafter "Shearman") of Cap Gemini in this litigation and Pioneer in a regulatory matter before the European Commission. For the following reasons, the Motion is DENIED.
FACTS
Pioneer, a broad-line distributor of electronic components and computer products, is an Ohio corporation with its principal place of business in Cleveland, Ohio. (Compl. ¶¶ 1, 5). Cap Gemini, an information systems and management consulting firm, is a Delaware corporation with its principal place of business in New York, New York. (Compl. ¶¶ 2, 6). Cap Gemini was selected to analyze, select and implement changes to Pioneer's software system. (Compl. ¶ 12). The project began on January 13, 1997. (Compl. ¶ 12). Based on its dissatisfaction with Cap Gemini's work, Pioneer terminated this project in 1998 and brought suit against Cap Gemini in September 2001. (Compl. ¶ 38).
Pioneer is represented in this litigation by Calfee, Halter Griswold, LLP. Cap Gemini is represented by both Baker Hostetler, LLP and Shearman. Jeremy Epstein of Shearmans New York office filed his notice of appearance on behalf of Cap Gemini on December 4, 2001. Arguing that Shearman is prohibited from representing Cap Gemini in this matter because it also represents Pioneer in a separate matter, Pioneer filed this Motion to Disqualify Shearman on January 2, 2002.
Pioneer became a client of Shearman as a result of Shearman's merger with the German law firm, Schilling, Zutt Anschtitz (hereafter "Schilling"), which was effective September 2001. (Hellmann Aff ¶ 2). Pioneer had retained Schilling in October 1998 to render legal services with respect to matters of Gennan and European competition law in connection with a transaction that Pioneer negotiated with a German company, Magirus. (Hellmann Aff ¶ 3). The Schilling firm had no role in the negotiation of the transaction itself but was only involved in registering the transaction with the proper regulatory bodies. (Hellmann Aff. ¶ 3). The Schilling firm filed a notification on behalf of Pioneer and Magirus with the German Federal Cartel Office (hereafter "German ECO") on March 20, 2000. (Hellmann Aft ¶ 4). The German FCO cleared the Pioneer-Magirus transaction on April 2. 2000. (Hellmann Aff. ¶ 5). Following Shearman's September 2001 merger with Schilling, the German office of the newly merged Shearman firm filed a notification of the Pioneer-Magirus transaction with the European Commission on November 13, 2000. (Hellmann Aff. ¶ 4). The European Commission has yet to clear the transaction. (Hellmann Aff. ¶ 5). Since November 13, 2000, Shearman has spent approximately ten hours following-up with the European Commission on the status of the submission. (Hellmann Aff. ¶ 10).
Cap Gemini and its parent company have been clients of Shearman since approximately 1987. (Epstein Aff. ¶ 2). As a firm, Shearman has represented Cap Gemini in approximately fifteen matters since that time. (Epstein Aff. ¶ 2). Attorney Epstein of Shearman has represented Cap Gemini in seven different matters since 1996. (Epstein Aff. ¶ 3).
On November 7, 2001, Shearman wrote to Pioneer explaining that it had been asked to represent Cap Gemini in this litigation and asking Pioneer to waive any conflicts. (Hellmann Aff. Ex. A). Pioneer refused to waive the conflict created by Shearman's representation of Cap Gemini. (Hellmann Aff. Ex. B). In response, Shearman notified Pioneer on November 27, 2001 that it was withdrawing from representation of Pioneer in the European Commission matter. (Vanderwist Aff. Ex. A).
DISCUSSION
Courts have broad discretion in ruling on motions to disqualify. Gould Inc. v. Mitsui Min. Smelting Co., 738 F. Supp. 1121, 1124 (N.D. Ohio 1990). When faced with a request for disqualification, a "delicate balance must be struck between two competing considerations: the prerogative of a party to proceed with counsel of its choice and the need to uphold ethical conduct in courts of law." Id. at 1126 (citing Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1577 (Fed. Cir. 1984); Schiessle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983)).
While motions to disqualify may be legitimate and necessary under certain circumstances, they "should be viewed with extreme caution for they can be misused as techniques of harassment." Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 722 (7th Cir. 1982). Disqualification is a drastic measure which should not be imposed unless absolutely necessary. Gould, 738 F. Supp. at 1124-1125. Ohio courts have held that a litigant's right "to select counsel of choice should be limited only when representation poses a significant risk of a violation of the Canons of the Code of Professional Responsibility." Henry Filters, Inc. v. Peabody Barnes, Inc., 611 N.E.2d 873, 875 (Ohio App. 6th Dist. 1992).
Pioneer argues that Shearman's representation of Cap Gemini in this suit brought by Pioneer violates Ohio Code of Professional Responsibility Disciplinary Rule 5-105 (hereafter "DR 5-105") because Shearman has been representing Pioneer in a separate matter.
DR 5-105(A) specifies when an attorney "shall decline proffered employment," while DR 5-105(B) indicates when an attorney "shall not continue multiple employment." Because Shearman has already entered an appearance on behalf of Cap Gemini, DR 5-105(3) is applicable to this case.
Shearman argues that Pioneer is a former client because it withdrew from its representation of Pioneer prior to filing for pro hoc vice appearance on behalf of Cap Gemini. However, for purposes of determining the status of an attorney-client relationship within the context of adverse representation, courts will not honor an attorney's unilateral termination of the relationship. As noted by the Ninth Circuit, "[i]f 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." Unified Sewerage Agency of Washington County. Oregon v. Jelco, Inc., 646 F.2d 1339, 1345 n. 4 (9th Cir. 1981). See also Santacroce v. Neff 134 F. Supp.2d 366, 370 (D.N.J. 2001) (noting relevant date for determining status of client is one on which complaint was filed); SWS Fin. Fund A v. Salomon Bros. Inc., 790 F. Supp. 1392, 1399 (N.D. Ill. 1992) (stating termination of one client for purpose of securing another client's business is invalid). This principle has been coined the "hot potato" doctrine. See Picker Intl., Inc. v. Varian Assoc., Inc., 670 F. Supp. 1363, 1366 (N.D. Ohio 1987). Pursuant to this doctrine, Shearman's termination of its relationship with Pioneer is ineffective because Shearman terminated its attorney-client relationship with Pioneer only after it was asked to represent Cap Gemini in this litigation and Pioneer refused to waive the conflict.
As noted above, on November 27, 2001, Shearman notified Pioneer that it would no longer be able to represent Pioneer due to a conflict with Cap Gemini. Sheannan filed an appearance on behalf of Cap Gemini in this matter on December 4, 2001.
Because Pioneer must be deemed a current client of Shearman for the purpose of ruling on Pioneer's Motion, Shearman's representation of Cap Gemini in this suit triggers DR 5-105(B). which provides:
A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).
With regard to determining whether a violation of DR 5-105(B) has occurred, this Court agrees with Pioneer's assertion that the "substantially related" test is not applicable. "Where an attorney seeks to represent a client with interests adverse to a former client, the attorney will be disqualified only where the present litigation bears a `substantial relationship' to the prior representation." Henry Filters, 611 N.E.2d at 877. On the other hand, "where an attorney undertakes employment against a current client, the rule is much more strict." Id. See also Sarbey v. Nat'l City Bank, 583 N.E.2d 392, 396 (Ohio App. 9th Dist. 1990) (stating substantial relationship test "may properly be applied only where the representation of a former client has been terminated").
Under the stricter test applied to continuing relationships, "adverse representation is prima facie improper, and the attorney must be prepared to show, at the very least, that there will be no actual or apparent conflict in loyalties or diminution in the vigor of his representation." Cinema 5, Ltd v. Cinerama, Inc., 528 F.2d 1384, 1387 (2nd Cir. 1976) (citation omitted). See also Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264, 271 (D. Del. 1980); Henry Filters, 611 N.E.2d at 877; Sarbey, 583 N.E.2d at 396. This stricter test is not a per se rule against an attorney representing clients adverse to each other. Rather, a rebuttable presumption is established by concurrent representation. There is no violation of DR 5-105 if the attorney can show that he can represent adverse clients concurrently with equal vigor. without conflict of loyalties and without using confidential information to the detriment of either client. Henry Filters, 611 N.E.2d at 877. See also Gen-Cor, LLC v. Buckeye Corrugated, Inc., 111 F. Supp.2d 1049, 1052-1053 (S.D. Ind. 2000) (applying Rule 1.7 of the Model Rules of Professional Conduct, the analog to DR 5-105, and finding relevant inquiry to be whether "representation of either client will be `materially limited'"); Pennwah, 85 F.R.D. at 272 (stating court must "gauge the degree, if any, to which [the attorney's] representation of either [client] may be influenced by a regard for the alternate client's welfare").
Pioneer asserts that "absent consent by both clients to the conflict, the adverse representation is to be declined; if it is not, then the law firm must be disqualified." (Pltf. Reply at 2.). Apparently, Pioneer believes there is a per se rule against adverse representation, unless the clients consent. However, this Court finds Pioneer's argument to be a misreading of DR 5-105. DR 5-105 is framed in such a way that if there is a violation of DR 5-105(B), that violation can be cured under DR 5-105(C) if the clients consent and it is obvious that the attorney can represent both adequately. However, the analysis must start with whether there is a violation of DR 5-105(B) because if there is no violation, there is no need for consent. Furthermore, this Court finds Pioneer's reliance on Picker as evidence of a per se rule against adverse representation misplaced. When Picker was decided, DR 5-105(B) read: "A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, or it would be likely to involve him in representing differing interests." 670 F. Supp. at 1365 n. 3 (emphasis added). This last phrase has been removed from DR 5-105. Thus, when Picker was decided, simply representing differing interests constituted a violation of DR 5-105, but now there is only a violation if the attorney's "independent professional judgment. will be or is likely to be adversely affected."
This Court finds that Shearman's representation of Cap Gemini in this suit brought by Pioneer does not constitute a violation of DR 5-105(B). There is no reason to believe that Shearman could not pursue both the Cap Gemini litigation and the European Commission matter with equal vigor and without using confidential information to the detriment of either client. In fact, there is no evidence to suggest that Shearman, through its handling of the European Commission matter, gained any information about Pioneer that could now be used against Pioneer as Shearman defends Cap Gemini in this matter.
Shearman's representation of Pioneer has been limited to registering a transaction negotiated between Pioneer and Magirus with regulatory bodies. Shearman was not even involved in negotiating the transaction itself Rather, Shearman was retained for the narrow purpose of determining with which regulators the transaction needed to be registered, according to the competition laws, and drafting the necessary documents to complete the registration. Shearman filed a report describing the transaction and the expected market effects with the European Commission on November 13, 2000. Since filing the report with the European Commission, Shearman has only billed Pioneer for approximately 10 hours of work, all of which pertained solely to the matter before the European Commission.
Pioneer's lawsuit against Cap Gemini is wholly unrelated to the matter before the European Commission. Pioneer's suit against Cap Gemini concerns work performed by Cap Gemini on Pioneer's internal information technology systems. In addition to being substantively unrelated, the European Commission matter has been handled by Hans-Joachim Hellmann of Shearman's Germany office while the Cap Gemini litigation has been handled by Jeremy Epstein of Shearman's New York office.
This Court is persuaded by the logic of the court in Elonex I.P. Holdings, Ltd v. Apple Computer Inc., 142 F. Supp.2d 579 (Del. 2001). In that case, the Dechert law firm represented Apple in a patent infringement action and represented Elonex in a separate suit that named Apple as a defendant. Id. at 581. The court found that the matters in which Dechert represented Elonex and Apple were unrelated and posed no likelihood of passing confidential information between Elonex and Apple. Id. at 582. Thus, the court determined that Dechert "could reasonably serve both clients' interests." Id.
Elonex involved the application of Rule 1.7 of the Model Rules of Professional Conduct rather than Rule DR 5-105 of the Model Code of Professional Responsibility. 142 F. Supp.2d 579. However, the two rules are analogous. Id. at 581 (noting "the basic inquiry still remains the same: the court must determine it' Dechert's representation of Apple . . . conflicts with its representation of Elonex").
This same logic was applied in Gen-Cor, in which the law firm of Baker Daniels, which had represented a subsidiary of Buckeye for several years in labor and employment issues, brought suit against Buckeye on behalf of Gen-Cor. 111 F. Supp. 2d at 1050-1051. The court found that because Baker Daniels's representation of the Buckeye subsidiary was limited to "narrow issues," there was no reason to believe Baker Daniels's representation of Gen-Cor "would prevent the firm from pursuing [those narrow] matters to the fullest." Id. at 1053.
The court in Gen-Cor also applied Rule 1.7 of the Model Rules of Professional Conduct. 111 F. Supp.2d 1049.
Similarly, this Court finds that Shearman's representation of Cap Gemini would not prevent it from pursuing the European Commission matter to the fullest. This finding rebuts the presumption against concurrent adverse representation.
CONCLUSION
For the foregoing reasons, Plaintiffs Motion to Disqualify Shearman Sterling as Counsel for Defendant is denied.