Joel R. Brandes and Carole L. Weidman
CONFLICTS AND ISSUES OF impropriety go way beyond questions of
law; they deal with people's sense of integrity and often, personal ethics and
values. A poorly understood topic, the issue of conflicts has evolved over the
years through trial and error - mostly error. A significant step toward
helping lawyers stay on course came in the Court of Appeals decision in
Tekni-Plex Inc. v. Myner and Landis. [FN1]
A leading-edge decision involving questions of "conflict of
Interest" and "appearance of impropriety," Tekni-Plex is highly enlightening
to members of the matrimonial bar who are so often faced with thorny ethical
issues. In Tekni-Plex, the Court of Appeals established a "bright line" test
that deals with and avoids any suggestion of impropriety on the part of an
attorney. It was accompanied by the assertion that the test mandates
disqualification, irrespective of actual detriment, "even when there may not,
in fact, be any conflict of interest." With reader-friendly application, it is
intended to allow self-enforcement among members of the bar.
Disciplinary Rule (DR) 5-108 provides: "(a) Except with the
consent of a former client after full disclosure, a lawyer who has represented
the former client in a matter shall not: (1) Thereafter represent 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." Canon
9 of the Canons of Ethics instructs a lawyer to avoid the appearance of
impropriety.
In Tekni-Plex Inc. the Court of Appeals held that under DR
5-108(a)(1), a party seeking disqualification of its adversary's lawyer must
prove: (1) the existence of a prior attorney-client relationship between the
moving party and opposing counsel; (2) that the matters involved in both
representations are substantially related, and (3) that the interests of the
current client and former client are materially adverse.
By satisfying these three criteria there arises an
irrebuttable presumption of disqualification. The court acknowledged
significant competing interests inherent in attorney disqualification cases.
Perhaps the most prominent is that disqualification conflicts with the general
policy favoring a party's right to representation by counsel of choice and,
thus, deprives current clients of an attorney familiar with the particular
matter.
Three Pivotal Inquiries
The Court of Appeals held that in assessing whether the moving
party has met its burden of satisfying each of the three requirements for
disqualification under DR 5-108, courts should avoid mechanical application of
blanket rules. Rather, the three pivotal inquiries - whether there exists a
prior attorney- client relationship, a substantial relationship between the
representations and adversity of interests - require careful appraisal of the
interests.
Tang, who had been a director and a shareholder of Tekni-Plex
Inc. became its sole shareholder, president, chief executive officer and sole
director in 1986. Myner and Landis (M&L), were retained as Tekni-Plex counsel
in 1971. It represented both Tekni-Plex, on legal matters, and Tang
individually, on personal matters. In March 1994, Tang and Tekni-Plex agreed
to merge with TP Acquisition Corp., whereby Tang sold the company to
Acquisition for $43 million. M&L represented both Tekni-Plex and Tang
personally. Under the Agreement, Tekni-Plex merged into Acquisition, and
ceased its separate existence. It conveyed to Acquisition all of its assets
and liabilities. All of Tang's shares in Tekni-Plex were canceled.
The Agreement contained representations and warranties by Tang
about environmental matters and provided for indemnification of Acquisition by
Tang for any losses incurred as the result of misrepresentation or breach of
warranty by either Tang or Tekni-Plex.
Following the transaction, Acquisition changed its name to "Tekni-Plex
Inc." (new Tekni-Plex). In June 1994, new Tekni-Plex commenced an arbitration
against Tang, alleging breach of the representations and warranties regarding
the former Tekni-Plex's (old Tekni-Plex) compliance with environmental laws.
Tang retained M&L to represent him in the arbitration. Supreme Court concluded
that M&L should be disqualified from representing Tang in the arbitration.
Attorney-Client Relationship
The Court of Appeals affirmed. It held that new Tekni-Plex, as
the party seeking M&L's disqualification, had the burden of satisfying the
three-prong test for disqualification by establishing that (1) it assumed the
role of M&L's "former client," (2) the matters involved in both
representations were substantially related, and (3) the interests of M&L's
present client Tang were materially adverse to the interests of the former
client.
The Court concluded that an attorney-client relationship
between M&L and new Tekni-Plex existed. It also found that there was a
substantial relationship between the current and former representations and
that M&L's earlier representation of old Tekni-Plex provided the firm with
access to confidential information conveyed by old Tekni-Plex about the
environmental compliance matters at issue in the arbitration. M&L's duty of
confidentiality with respect to these communications passed to new Tekni-Plex;
yet its current representation of Tang created the potential for the law firm
to use these confidences against new Tekni-Plex in the arbitration.
In Cardinale v. Golinello, [FN2] which was referred to
extensively in Tekni- Plex Inc., a partner in Halperin, Somers & Goldstick,
PC, had represented defendant Golinello in connection with the purchase of
corporate stock. After the transaction had been completed, attorney Schiller
joined the Halperin firm. The firm continued to represent Golinello after
Schiller's arrival, but Schiller did not render legal services on Golinello's
behalf. Schiller subsequently left the Halperin firm and became associated
with King & King.
Thereafter, plaintiffs retained the King firm in connection
with claims against Golinello and members of the Halperin firm arising out of
the earlier stock purchase. Upon learning that Schiller had been retained by
the King firm to handle the matter, Golinello moved to disqualify both the
King firm and Schiller. Its motion was granted.
The Court of Appeals affirmed. It identified specific
characteristics of the firm that caused an unmistakable conflict. Halperin was
"a small firm whose activities were characterized by an understandable
informality" in which "there was a 'constant cross-pollination"' and "'cross
current of discussion and ideas"' among the employees.
Improper Appearance
Given that atmosphere, the Court believed Schiller had likely
become aware of confidential information concerning Golinello while with
Halperin. It was of "no moment" that Schiller had never rendered legal
services to Golinello, because, by being an attorney associated with
Golinello's attorney, the possibility was simply too great that he had
wittingly or unwittingly acquired confidential information concerning
Golinello. It also expressed concern over the appearance of impropriety, for
if Schiller were allowed to represent plaintiffs in the action, laypersons
might well believe that he was being hired not only because of his legal
talent, but also because he possessed confidential information.
It concluded that Schiller was properly disqualified from the
litigation. No inquiry was required. Disqualification arose "simply from the
fact that the lawyer, or the firm with which [the lawyer] was then associated,
represented the former client in matters related to the subject matter of the
second representation." The King firm was similarly disqualified under the
principle that if one attorney in a firm is barred from representing a client,
then all attorneys in a firm are also precluded.
The Court of Appeals 1994 opinion in Solow v. Grace & Co.
[FN3] was also referred to in Tekni-Plex Inc. Creating a framework for the
"bright-line" test established by Tekni-Plex Inc., it distinguished large
firms from small law firms in applying the rule. In Solow, Stroock & Stroock &
Lavan represented plaintiffs in an action to recover damages for asbestos
contamination from materials manufactured by defendant W. R. Grace & Co.
Stroock had previously defended Grace in "City of Enterprise" litigation, an
action that also involved the contamination of a premises by asbestos.
Grace moved to disqualify the Stroock firm, and its motion was
granted. The Appellate Division affirmed, but the Court of Appeals reversed
the order of disqualification. It stated that there was an irrebuttable
presumption of shared confidences among attorneys employed by the firm that
foreclosed the firm from representing others in the future in substantially
related matters. However, it distinguished the case because the attorney who
represented Grace in the prior matter, one of 372 attorneys employed by
Stroock, left the firm well before it was retained in the litigation.
The Court concluded that in these circumstances, the strict
enforcement of the irrebuttable presumption rule gave too much weight to
ethical concerns and unduly impaired policy objectives involving the right of
clients to select counsel of their choice and favoring the mobility of
attorneys.
Competing Policy
The Court of Appeals stated that any fair rule of
disqualification should consider the "circumstances of the prior
representation." If an attorney has represented a client in an earlier matter
and then attempts to represent another in a substantially related matter which
is adverse to the interests of the former client, the presumption of
disqualification is irrebuttable. However, under circumstances such as the
Solow case, the ethical considerations that support a per se disqualification
rule have considerably less force and may be overridden by competing policy
concerns.
The Court reasoned that in such a situation the court must
presume that the rights of the former client are jeopardized by Stroock's
subsequent representation of plaintiffs, but Stroock should be allowed to
rebut that presumption by facts establishing that the firm's remaining
attorneys possess no confidences or secrets of the former client. It noted
that this procedure does no violence to existing rules:
In firms characterized by the informality exhibited by the
Halperin firm in Cardinale, disqualification will be imposed as a matter of
law without a hearing. If the firm can demonstrate prima facie that there is
no reasonable possibility that any of its other attorneys acquired
confidential information concerning the client, a hearing should be held after
which the court may determine that disqualification may be unnecessary. The
evidence must be sufficient, however, to establish that the former client's
interests are fully protected and to overcome any suggestion of impropriety.
(emphasis supplied)
One may question whether Solow was considered by two later
appellate matrimonial cases that never refer to Solow. In Lammers v. Lammers,
[FN4] the wife's motion to disqualify the husband's attorney was granted where
the husband's counsel on the appeal represented the wife during the months of
February through April 1987 and concurrently represented her husband in
connection with a conservatorship proceeding filed in April 1987.
The wife alleged that during the course of conferences with
the attorney he obtained confidential information that he later used in a
Family Court proceeding against her to create the impression that she had
separate property. Although the attorney denied having acquired any
confidential information, the record supported the wife's allegations by
establishing, among other things, that counsel charged her $6,693 for 46 hours
of billable time that included more than 2 1/2 hours of conferences with her.
In Leisman v. Leisman [FN5] an action for a divorce, the
Appellate Division affirmed an order that disqualified the wife's attorney.
The husband had a preliminary consultation with the wife's attorney regarding
a prior action between the husband and his former wife, which the court held
may bear a substantial relationship to the current litigation and that would
be subject to the attorney-client privilege.
Conclusion
Motions to disqualify an attorney based on "conflict of
interest" claims are almost always coupled with "appearance of impropriety"
claims. The usual situation is where the attorney or the law firm has been
retained or consulted by the movant spouse, who discloses confidences.
Subsequently the attorney or the firm represents the other spouse. The
principal of attribution "suggested impropriety" in Cardinale sufficient to
disqualify the attorney and his law firm based on an irrebuttable presumption
of shared confidences among attorneys employed by a small firm, which
foreclosed it from representing the client in substantially related matters.
In Solow, the Court of Appeals distinguished between small and
large law firms in applying a per se disqualification rule for "conflict of
interest" or "appearance of impropriety" giving the large firm the opportunity
to overcome any "suggestion of impropriety." In Tekni-Plex Inc., a case
involving a small law firm, the Court of Appeals enunciated a three-prong test
that is applicable to small law firms including matrimonial practices and
intended to be applied to both "conflict of interest" and "suggestion of
impropriety" claims
A party seeking disqualification must prove the existence of a
prior attorney- client relationship; the matters involved in such
representation must be substantially related and the interests of the
current-client and former client-client are mutually the same. These rules
must not be mechanically applied. "Big Brother" with a close eye is watching.
FN1. 89 NY2d 123.
FN2. 43 NY2d 288 (1977).
FN3. 83 NY2d 303 (1994).
FN4. 205 AD2d 432 (1994, 1st Dept.).
FN5. 208 AD2d 688 (1994, 2d Dept.).
Joel R. Brandes and Carole L. Weldman have law offices in New
York City and Garden City. They co-authored, with the late Doris Jonas Freed
and Henry H. Foster, Law and the Family New York, and co-authored Law and the
Family New York Forms (both, Lawyers Cooperative Publishing).
5/27/97 NYLJ 3, (col. 1)
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