disqualifying law firm that had a "direct and substantial stake in the outcome of the litigation"Summary of this case from Ray v. Balestriere Fariello LLP
Argued May 3, 1979
Decided June 14, 1979
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, THOMAS J. HUGHES, J.
Alan M. Gelb and Philip S. Kaufman for Finley, Kumble, Wagner, Heine Underberg, defendant and third-party plaintiff-appellant, and Charles M. McCaghey and Joseph M. Burke for Theodore J. Greene, defendant and third-party plaintiff-appellant.
Samuel N. Greenspoon and Richard E. Hahn for respondent.
The issue presented for review is whether plaintiff's counsel, the law firm of Eaton, Van Winkle, Greenspoon Grutman, should be disqualified because two of the members of the firm were formerly partners in defendant law firm, Finley, Kumble, Wagner, Heine Underberg. For divers reasons the Eaton firm should be disqualified.
In the action underlying this controversy, plaintiff, Helen Greene, alleges that the firm of Finley, Kumble and one of its partners, Theodore Greene, committed a breach of fiduciary duties, fraud, and a host of other wrongs in connection with the creation and management of an inter vivos trust established in 1969. Plaintiff was the settlor, sole beneficiary, and cotrustee of the trust. The two third-party defendants, Grutman and Bjork, are former members of the Finley, Kumble law firm. Grutman was affiliated with defendant firm from 1970 to 1976, during which time he acted as a managing partner of the firm and directed its litigation department. Bjork, Grutman's wife, joined Finley, Kumble as an associate in 1974, and became a member of the firm in 1975. She departed with her husband in 1976. Apparently, both joined the Eaton firm soon after leaving Finley, Kumble.
In August, 1977 plaintiff retained the Eaton firm to represent her and this action was instituted some four months later. According to plaintiff, she was fully advised that Grutman and Bjork, as former members of defendant firm, might be jointly and severally liable for any wrongdoing. She was further informed that since Grutman and Bjork had become members of Eaton, there might be "at least the appearance of a conflict of interest between [their] position as members of the firm representing [her] and their possible liability". Nonetheless, plaintiff expressed her desire that the Eaton firm represent her.
Defendants moved at Special Term for the disqualification of plaintiff's counsel on conflict of interest grounds. Special Term denied the motion, and the Appellate Division affirmed, with two Justices dissenting. That court subsequently granted leave to appeal, certifying the following question for our review: "Was the order of Supreme Court, as affirmed by this Court, properly made?" We now modify the order of the Appellate Division and grant defendants' motion insofar as it sought to disqualify Eaton, Van Winkle, Greenspoon and Grutman from acting as plaintiff's counsel.
In the motion, defendants sought other relief, including dismissal of the complaint, but the motion was denied in its entirety.
It is a long-standing precept of the legal profession that an attorney is duty bound to pursue his client's interests diligently and vigorously within the limits of the law (Code of Professional Responsibility, canon 7). For this reason, a lawyer may not undertake representation where his independent professional judgment is likely to be impaired by extraneous considerations. Thus, attorneys historically have been strictly forbidden from placing themselves in a position where they must advance, or even appear to advance, conflicting interests (see, e.g., Cardinale v Golinello, 43 N.Y.2d 288, 296; Eisemann v Hazard, 218 N.Y. 155, 159; Code of Professional Responsibility, DR 5-105). This prohibition was designed to safeguard against not only violation of the duty of loyalty owed the client, but also against abuse of the adversary system and resulting harm to the public at large.
Perhaps the clearest instance of impermissible conflict occurs when a lawyer represents two adverse parties in a legal proceeding. In such a case, the lawyer owes a duty to each client to advocate the client's interests zealously. Yet, to properly represent either one of the parties, he must forsake his obligation to the other. Because dual representation is fraught with the potential for irreconcilable conflict, it will rarely be sanctioned even after full disclosure has been made and the consent of the clients obtained (Matter of Kelly, 23 N.Y.2d 368, 376, 378; Eisemann v Hazard, 218 N.Y. 155, 159, supra; Matter of Gilchrist, 208 App. Div. 497; see, also, Matter of Cohn, 46 N.J. 202). Particularly is this so when the public interest is implicated (see, e.g., Matter of A B, 44 N.J. 331), or where the conflict extends to the very subject matter of the litigation (Matter of Kelly, supra, at p 378; see Matter of Gilchrist, supra, at pp 497-498).
By the same token, where it is the lawyer who possesses a personal, business or financial interest at odds with that of his client, these prohibitions apply with equal force (Code of Professional Responsibility, DR 5-101, subd [A]). Viewed from the standpoint of a client, as well as that of society, it would be egregious to permit an attorney to act on behalf of the client in an action where the attorney has a direct interest in the subject matter of the suit. As in the dual representation situation, the conflict is too substantial, and the possibility of adverse impact upon the client and the adversary system too great, to allow the representation. In short, a lawyer who possesses a financial interest in a lawsuit akin to that of a defendant may not, as a general rule, represent the plaintiff in the same action.
Aptly illustrating these problems are the circumstances of the present case. Plaintiff's counsel, the Eaton firm, has strong interests on both sides of the litigation. It has undertaken to represent plaintiff, owing her the highest duty of loyalty and professional skill in carrying on the legal action. At the same time, Grutman and Bjork, members of the firm, are manifestly liable, jointly and severally, for all tortious conduct which might have occurred during their tenure with defendant, Finley, Kumble (Partnership Law, §§ 24-26). That a possibility of their being cast in damages exists is demonstrated by their status as third-party defendants in this lawsuit. Hence, the firm representing plaintiff has a direct and substantial stake in the outcome of the litigation. Whether this conflict may be effectively waived by the client need not now be addressed, as there are additional considerations which dictate disqualification.
Even if the third-party claim is not pursued, the defendants may later obtain contribution in a separate action (CPLR 1403).
Of course, we apply here the familiar principle that a conflict of interest involving even one lawyer in a firm taints the entire firm (e.g., Cardinale v Golinello, 43 N.Y.2d 288, 296, supra).
An attorney traditionally has been prohibited from representing a party in a lawsuit where an opposing party is the lawyer's former client (e.g., Hatch v Fogerty, 40 How Pr 492, 503). Underlying this rule is the notion that an attorney, as part of his fiduciary obligation, owes a continuing duty to a former client — broader in scope than the attorney-client evidentiary privilege — not to reveal confidences learned in the course of the professional relationship (see Watson v Watson, 171 Misc. 175, 176). To obtain disqualification of the attorney, the former client need not show that confidential information necessarily will be disclosed in the course of the litigation; rather, a reasonable probability of disclosure should suffice (see Sheffield v State Bar of California, 22 Cal.2d 627; Galbraith v State Bar of California, 218 Cal. 329).
As former partners in defendant law firm, Grutman and Bjork owe a fiduciary obligation similar to that owed by an attorney to his client (see, e.g., Meinhard v Salmon, 249 N.Y. 458, 463-464). This is especially so with respect to Grutman, a former managing partner of the firm (id., at p 468). Defendant relates, in its affidavits, that Grutman and Bjork gained confidential information in their capacity as members of the firm. Indeed, it is alleged that one or both of them were privy to partnership discussions concerning the firm's potential liability for its management of plaintiff's trust. In view of these allegations, we cannot discount the possibility that information obtained by Grutman and Bjork in their role as fiduciaries will be used in the pending lawsuit.
Although it is usually recognized that a party to litigation may select an attorney of his or her choosing, this general right is not limitless. The attorney may not accept employment in violation of a fiduciary relationship and may not allow his own interests to conflict with those of his client. To hold otherwise would be to ignore the overriding public interest in the integrity of our adversary system.
For these reasons, the Eaton firm should be disqualified from representing plaintiff in this matter. Accordingly, the order of the Appellate Division should be modified in accordance with this opinion, with costs to appellants, and, as so modified, affirmed. The certified question is answered in the negative.
I agree that the Eaton, Van Winkle firm must be disqualified, but I reach this conclusion on a slightly different analysis than does the majority and without reliance on obligations which attach when there is an attorney-client relationship. Indeed, in my view, the core issue here is whether in view of the legitimate interests of third parties — the defendants in this action — the present attorney-client relationship between the Eaton, Van Winkle firm and Mrs. Greene may properly be allowed to continue. This case presents for resolution "the potentially difficult problem of balancing the interests of a client [here Mrs. Greene] desirous of retaining an attorney of [her] personal choice and preference against the interests of the opposing litigant to be free from the risks of opposition by a lawyer once privy to that litigant's confidences". (Cardinale v Golinello, 43 N.Y.2d 288, 294.)
Any prejudice to which Mrs. Greene, the client, might be exposed is not pertinent to the present application, and indeed appears in any event to have been effectively waived by her.
The focus, as it seems to me, must be on the right of defendants in the lawsuit brought against them by Mrs. Greene not to have her represented by a law firm which includes, or until very recently did include, two lawyers who were members of the defendant law firm and allegedly privy to its affairs at the time of the transactions which form the basis of Mrs. Greene's claims. It appears that Grutman and Bjork, husband and wife, were partners in the Finley, Kumble firm (defendants herein), and, if not actual participants in rendering the professional services of which Mrs. Greene complains, at least had access to the inner workings of that firm when those services were being rendered to her. To permit another law firm with which Grutman and Bjork subsequently became affiliated to represent Mrs. Greene in her lawsuit against their former firm would be inappropriate, at least when there is tendered no special reason why Mrs. Greene selected the Eaton, Van Winkle firm over others to represent her. The information and any documents and records which Bjork and Grutman might have acquired while in the inner councils of defendants' affairs should not be made available to Mrs. Greene other than by discovery or on trial in the action. From the perspective of defendants they are entitled to be protected from having their adversary represented by an attorney who was directly or indirectly an inside participant on their side of the transactions on which the lawsuit is based. And in this instance any primary disqualification of Grutman and Bjork on this ground must be extended vicariously to any law firm of which either of them is a member.
From the opposing point of view of Mrs. Greene, the client, it may surely be said that, absent any countervailing considerations, she should be entitled to an attorney or law firm of her preferential choice. In this instance, however, the substantive rights of defendants do countervail and must be held sufficient to require Mrs. Greene to seek legal representation elsewhere. Conceivably the result might be different with recourse had to other means adequately to protect the legitimate rights of defendants not to have one of their former members sit in the councils of the enemy if there were special reasons, such as prior association, personal confidence or relationship, or singular experience and competence, supporting the client's initial desire to be represented by the particular law firm or lawyer. In this case, however, it does not appear that the Eaton, Van Winkle firm or any of its members had ever previously represented Mrs. Greene, nor does she now advance any reason why she could not be as adequately, competently and satisfactorily represented by some other firm. Indeed, no explanation is offered as to why she chose the Greene firm in the first place.
It appears from the record that Mrs. Greene selected the Eaton, Van Winkle firm from among six firms recommended to her by two New York City banks.
Nor does it seem to me that the predicament is significantly altered by reason of the fact that Grutman and Bjork have recently severed all affiliation with the Eaton, Van Winkle firm. There has been opportunity for, even if not the fact of, disclosure by Grutman and Bjork (while members of the Eaton, Van Winkle firm and allegedly participating in the preparation of Mrs. Greene's complaint in the present action) of information or writings either of them may have obtained while they were part of the Finley, Kumble firm. The necessity for disqualification of the Eaton, Van Winkle firm continues, only slightly diminished, even after Grutman and Bjork have left. (Cf. Cardinale v Golinello, 43 N.Y.2d 288, 296, supra.)
A motion by plaintiff to dismiss the appeal on the ground of mootness because of such severance was denied on April 5, 1979. ( 46 N.Y.2d 1072.)
Because the presence of Grutman and Bjork has operated to disqualify the Eaton, Van Winkle firm, however, does not mean that plaintiff's lawsuit must be dismissed, as defendants urge. Mrs. Greene is not to be penalized because she retained the Eaton, Van Winkle firm with knowledge of the Grutman and Bjork involvement but apparently without comprehension that the firm might be disqualified to serve her should objection thereto be raised by defendants. She is now free to engage other counsel to represent her in the prosecution of her lawsuit against the Finley, Kumble firm and its members. I would be confident that in turning over Mrs. Greene's files to a successor law firm or attorney, the Eaton, Van Winkle firm will remove any writings or documentary evidence which might have found their way into those files from Grutman or Bjork.
Judges JASEN, GABRIELLI and FUCHSBERG concur with Chief Judge COOKE; Judge JONES concurs in result in a separate opinion in which Judge WACHTLER concurs.
Order modified, etc.