UNIFIED SEWERAGE AGENCY, ETC. v. JELCO INC. No. 78-1920.
646 F.2d 1339 (1981)
UNIFIED SEWERAGE AGENCY OF WASHINGTON COUNTY, OREGON, a municipal corporation and County Service District, on behalf of and for the use and benefit of Teeples & Thatcher Inc., a corporation, Plaintiffs-Appellees, v. JELCO INCORPORATED, a corporation, and Seaboard Surety Company, a corporation, Defendants-Appellants.
United States Court of Appeals, Ninth Circuit.
Decided June 1, 1981.
Robert D. Maack, Salt Lake City, Utah, argued for defendants-appellants; Wayne Wadsworth, Watkiss & Campbell, Salt Lake City, Utah, Lindsay, Hart, Neil & Weigler, Portland, Or., on brief.
Dwight L. Schwab, Schwab, Burdick & Hilton, Daniel J. Seifer, Portland, Or., for plaintiffs-appellees.
Before GOODWIN, FLETCHER and PREGERSON, Circuit Judges.
GOODWIN, Circuit Judge.
Jelco moved to disqualify the plaintiff's law firm on the theory that the attorneys were suing their own client in violation of Canons 4, 5 and 9 of the Code of Professional Responsibility of the State of Oregon (1980).
We treat the appeal as a petition for mandamus.
Jelco, based in Salt Lake City, was the prime contractor on a sewer plant project in Oregon. Teeples & Thatcher was the subcontractor for concrete work, and Ace Electric Co. was an electrical subcontractor. Kobin & Meyer is a Portland law firm experienced in representing construction companies. Kobin & Meyer had represented Teeples & Thatcher for ten years prior to this litigation.
In 1975, a dispute arose between Ace Electric and Jelco over Ace's claim for additional compensation under its subcontract. Ace contended that a change Jelco made in suppliers constituted a change in the terms of the subcontract. Jelco's Salt Lake City counsel, one Beesley, and another Jelco agent contacted Paul Meyer of Kobin &
Meyer told Beesley that Kobin & Meyer represented Teeples & Thatcher in what was then an embryonic dispute between Teeples & Thatcher and Jelco. Teeples & Thatcher's expressions of dissatisfaction with Jelco's scheduling and sequence of concrete work had reached the stage of lawyer discussions. Beesley nonetheless recommended to Jelco management that Kobin & Meyer be retained to assist in the Ace Electric litigation. Jelco's management, with full knowledge of Jelco's potential conflict with Teeples & Thatcher on the same project, and with full knowledge of Kobin & Meyer's long-standing relationship with Teeples & Thatcher, retained Kobin & Meyer.
In mid-1976, after a proposed settlement of the Teeples-Jelco dispute collapsed, Meyer told Beesley that the Teeples-Jelco dispute could ripen into a lawsuit. Meyer asked Beesley, and through him, Jelco's management, to re-evaluate whether Jelco wished Kobin & Meyer to continue to represent Jelco in the Ace Electric litigation. Meyer made it clear that if it came to a choice, Kobin & Meyer preferred to keep Teeples as a client. Jelco, through Beesley, replied unequivocally that it desired Kobin & Meyer to continue as counsel in the Ace litigation regardless of what happened in the Jelco dispute with Teeples & Thatcher.
The liability issues in the Ace litigation were tried in July 1976, and were determined adversely to Jelco. In December 1976, Kobin & Meyer filed an action for Teeples & Thatcher against Jelco.
In March 1977, with the damages issue in the Ace litigation still to be tried, Meyer again asked Beesley and Jelco's house counsel if Jelco desired to have Kobin & Meyer continue to represent Jelco against Ace. Meyer repeated his firm's expressed desire to avoid prejudicing Kobin & Meyer's representation of Teeples. Jelco again decided to continue with Kobin & Meyer in the Ace litigation.
In May 1977, Jelco discharged Beesley, obtained new Salt Lake City counsel, and discharged Kobin & Meyer from the Ace Electric litigation as soon as a substitute attorney could take over that case. In December 1977, Jelco filed this motion to disqualify Kobin & Meyer from further representation of Teeples & Thatcher in the action against Jelco.
Denial of a motion to disqualify counsel is not an appealable order under the test set forth in Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). Firestone Tire & Rubber Co. v. Risjord, 449 U.S. ___, 101 S.Ct. 669, 66 L.Ed.2d 571 (1981); Chugach Elec. Ass'n v. United States D. C. for Dist. of Alaska, 370 F.2d 441 (9th Cir. 1966), cert. denied, 389 U.S. 820, 88 S.Ct. 40, 19 L.Ed.2d 71 (1967); Cord v. Smith, 338 F.2d 516, 521 (9th Cir. 1964), clarified, 370 F.2d 418 (1966). See also, United States v. State of Wash., 573 F.2d 1121, 1122 (9th Cir. 1978) (order denying motion to disqualify a judge is not appealable).
From time to time, however, this circuit has treated an appeal from a nonappealable order as a petition for a writ of mandamus and has undertaken discretionary review under the All Writs Act, 28 U.S.C. § 1651 (1976). Whether we will do so in a particular case depends upon whether the order qualifies for extraordinary relief under the guidelines set forth in Bauman v. United States Dist. Court, 557 F.2d 650 (9th Cir. 1977). Those guidelines are:
The Bauman court emphasized that all factors would not be relevant in every case, and that the factors might point in different directions in any one case.
Mandamus relief is appropriate here.
If the district court's refusal to disqualify Kobin & Meyer is an error, it comes under the purview of review for errors of law.
II. THE MERITS
The trial court viewed the case as one involving an attorney's acceptance of employment adverse to a former client, and therefore tested Kobin & Meyer's actions against the standards set forth in Canon 4. In general Canon 4 prohibits an attorney from divulging confidences and secrets of a client. Under Canon 4 an attorney may not represent interests adverse to a former client if the factual context of the later representation is similar or related to that of the former representation. Trone v. Smith, 621 F.2d 994, 998 (9th Cir. 1980). See generally, Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264, 270-71 (D.Del.1980).
The case, however, is one in which the attorney undertook representation adverse to a present client. The questions
Disciplinary Rule 5-105(B) provides that:
In International Business Machines Corp. v. Levin, 579 F.2d 271 (3rd Cir. 1978), the Third Circuit did not require that "adverse effect" be specifically demonstrated. It presumed that adverse effect resulted when an attorney took an adverse position to a present client. We agree that a specific adverse effect need not be demonstrated to trigger DR5-105(B) if an attorney undertakes to represent a client whose position is adverse to that of a present client. See also In re Hedrick, 258 Or. 70, 481 P.2d 71, 73-74 (1971) (attorney's legal relationship with client provided him with information which would adversely affect client in action brought against client by the attorney). Accordingly, Kobin & Meyer's dual representation of Teeples & Thatcher and Jelco triggers DR5-105(B) because the representation is presumed to affect adversely Kobin & Meyer's representation of each.
Teeples & Thatcher argues, however, that Kobin & Meyer should not be disqualified under DR5-105(B) because of the exception set forth in DR5-105(C). To avoid disqualification under DR5-105(B), an attorney must satisfy DR5-105(C)'s two conditions.
The leading case on the meaning of "consent" in Canon 5 of the disciplinary rules of the State Bar of Oregon is In re Boivin, 271 Or. 419, 533 P.2d 171 (1975). The court stated that the consent must be an "informed consent" made after full disclosure of all of the material facts. 533 P.2d at 174. The court further said:
Jelco asserts that it did not give "informed consent" because Kobin & Meyer merely "informed" it of the conflict, rather than explained to it the "implications" of the conflict. The district court, on the other hand, found that "there was an informed and knowing waiver by Jelco of any conflict or apparent conflict...." This finding does not offend Fed.R.Civ.P. 52(a).
The record shows that Jelco knew from the beginning that Kobin & Meyer represented Teeples & Thatcher in a long-standing client relationship and that Teeples & Thatcher was involved in an embryonic dispute with Jelco. Jelco also knew that Kobin & Meyer would accept Jelco as a client only if that relationship would not inhibit Kobin & Meyer in continuing to act as Teeples & Thatcher's counsel.
As the dispute between Teeples & Thatcher and Jelco developed, Kobin & Meyer twice alerted Jelco's counsel to the potential conflict and asked whether Jelco wished to continue Kobin & Meyer's retainer. After consulting with Jelco's management, Jelco's counsel assured Kobin & Meyer that Jelco wished Kobin & Meyer to continue representing Jelco.
We have no doubt that Jelco consented to the representation after full disclosure was made to Jelco and its own attorney.
Thus, the "consent" prong of DR5-105(C) is satisfied.
B. "Adequate Representation".
The requirements of DR5-105(C) are not satisfied, however, by a mere showing of consent after full disclosure. The rule also requires that it be "obvious that [the lawyer] can adequately represent the interest of each [client]...." As the Oregon Supreme Court said in In re Porter, 283 Or. 517, 584 P.2d 744, 749 n.5 (1978), "[t]his is troubling language." The Porter court acknowledged, but did not resolve, the very issue confronting the court in this case — the meaning of the "adequate representation" part of DR5-105(C). The court said:
Our analysis of the history of DR5-105(C), the structure of the Code, and the relevant policy considerations convinces us that the latter approach mentioned by the Porter court (i. e., that if adverse affect is shown, it is never obvious that an attorney can adequately represent both) is not the correct approach to DR5-105(C).
1. Legislative History of DR5-105(C).
The history of the consent provision in the Code of Professional Responsibility's conflict of interest section indicates that consent was never intended to be meaningless or ineffective. Canon 6 of the 1908 Code of Professional Responsibility,
Although Canon 6 seemingly allowed multiple representation whenever the clients consented, the courts have interpreted it in a more restrictive manner.
Despite the restrictive interpretation of Canon 6's expansive language, consent was
Thus, Canon 6 of the old Code of Professional Responsibility contemplated that consent would be available to authorize multiple representation which would otherwise be inappropriate.
In 1969, a new Model Code of Professional Responsibility was enacted. Disciplinary Rule 5-105(C), which differed from old Canon 6 in several respects, provided that:
DR5-105(C) has a broader scope than Canon 6. Canon 6 only applied to "conflicting interests" which arose when the lawyer had a "duty to contend for that which duty to another client required him to oppose." DR5-105(C), in contrast to Canon 6, applies whenever the attorney's representation of one client is likely to be adversely affected by his representation of another client,
The case law and bar association opinions have continued, however under DR5-105(C), to allow multiple representation in certain situations if there has been consent after full disclosure. See Opinions of the Comm. on Legal Ethics of the Oregon State Bar, No. 218 (1972) (attorney can represent both parties in a divorce if there are no
2. Structure of the Code.
Giving effect to both elements of DR5-105(C) is not inconsistent with the remainder of the Code of Professional Responsibility. We note that although an attorney's actions are generally governed by the Code, with the attorney deciding the propriety of his actions, a few limited situations exist under the Code in which client consent justifies certain actions. See DR5-104(A) (business transactions with a client); DR5-101(A), DR5-105(A) and (B) (declining or discontinuing employment when judgment on behalf of a client is likely to be affected); DR4-101(B) (revealing confidences of a client); DR5-105 (settling similar claim of clients). DR5-105(C) is one of those few cases when consent can justify otherwise improper actions. This section has remained in the Code despite objections.
3. Policy Grounds.
Policy reasons support our decision not to interpret DR5-105(C)'s "adequate representation" language in such a way as to abolish consent. It is true that from its representation of Jelco in the Ace matter, Kobin & Meyer was likely to gain information and insights from Jelco about such things as Jelco's institutional attitudes towards negotiation and settlement and Jelco's method of doing business. Such information undoubtedly could prove useful to an opponent. Nevertheless, while the practice of suing a client can be neither condoned nor encouraged,
It is true that the court has an obligation to safeguard the integrity of the judicial process in the eyes of the public. See Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264, 267 (D.Del.1980); see also, Silver Chrysler Plymouth, Inc. v. Chrysler Motor Corp., 518 F.2d 751, 754, 759 (2nd Cir. 1975), and at p. 759 (Adams, J., concurring), overruled on other grounds Armstrong v. McAlpin, 625 F.2d 433 (2nd Cir. 1980), vacated McAlpin v. Armstrong, ___ U.S. ___, 101 S.Ct. 911, 66 L.Ed.2d 835 (1981). But the impact upon the public's respect for lawyers may be too speculative to justify overriding the client's
4. Defining "Adequate Representation".
Of course, saying that there will be situations in which it is appropriate for an attorney to represent a client who is suing another client is much easier than defining when the representation will meet DR5-105(C)'s "adequacy" requirements. Under both Canon 6 and DR5-105(C), the courts have consistently said that representation is unavailable where the public interest is impaired or where there is a great likelihood that one party will be prejudiced.
None of the cases, however, sets forth the specific factors to use in determining when the representation is adequate. In determining whether it is obvious that an attorney can represent adverse parties, the court should look at factors such as: the nature of the litigation; the type of information to which the lawyer may have had access; whether the client is in a position to protect his interests or know whether he will be vulnerable to disadvantage as a result of the multiple representation; the questions in dispute (e. g., statutory construction versus disputes over facts) and whether a government body is involved.
Thus, the court will undoubtedly look at some of the factors which are considered in deciding whether representation against a former client is appropriate. See Gas-a-Tron of Arizona v. Union Oil of California,
5. The Merits of this Case.
We now consider whether it was "obvious" that Kobin & Meyer could adequately represent each of its clients in this instance. As a preliminary matter, we must decide whether the findings of fact made by the district court may be relied upon in deciding whether it was obvious that Kobin & Meyer could provide adequate representation. The district court found that there was "no substantial or close relationship between the subject matter of the Ace litigation and the subject matter of the Teeples & Thatcher litigation," and "no evidence to justify a finding that Kobin & Meyer [had] any special insight or advantage arising on account of its representation of Jelco in the Ace case which would give to Teeples & Thatcher any unfair advantage over Jelco." These findings of fact are consistent with Fed.R.Civ.P. 52(a).
Although the two actions arose out of the same construction contract between Jelco and Unified Sewerage, the nature of the cases is quite different. The action which Kobin & Meyer handled for Jelco involved only a narrow issue of contract interpretation. The issue was whether the use of a certain aeration equipment manufacturer constituted a change in Jelco's subcontract with Ace because Ace allegedly had to provide different and additional equipment than originally planned. The facts were virtually undisputed.
The action which Kobin & Meyer handled for Teeples & Thatcher and against Jelco involved the scheduling and sequencing of concrete work which was to be performed by Teeples & Thatcher for Jelco. Each party claimed that the other party delayed and interfered with its work. The only information furnished by Jelco to Kobin & Meyer in connection with the first action concerned the pre-bid proposals on aeration equipment and electrical work, project specifications for aeration work, the subcontract negotiations between Jelco and Ace, the shop drawings and submittals prepared by Ace and expert testimony relative to costs differentiations for electrical installations. We conclude that the district court's findings of fact are not clearly erroneous.
The next question this court must address is whether the district court abused its discretion in denying the motion to disqualify, given the above findings of fact. The appropriate standard for reviewing a district court's ruling on a motion for attorney disqualification is whether the ruling was an abuse of discretion. See Gas-a-Tron of Arizona v. Union Oil Co. of California, 534 F.2d 1322, 1325 (9th Cir. 1976). The rationale is that the primary responsibility for controlling the conduct of lawyers practicing before the district court lies with that court, not with us. Id.; see Trone v. Smith, 621 F.2d 994, 999 (9th Cir. 1980).
We find that the district court did not abuse its discretion. It is sufficiently obvious, for the purposes of the canon, that Kobin & Meyer could adequately represent both Jelco and Teeples & Thatcher in the several actions. The litigation in the two cases was quite different; one involved a question of contract interpretation and the other was a highly disputed factual claim concerning each party's performance. Although one umbrella contract covered each case, the individual contracts involved were quite different. As the findings of fact indicate, Kobin & Meyer did not have access to any specific information that would help Teeples & Thatcher prevail against Jelco (other than general information concerning the personality of a client, which is always helpful in later suits against that client). Jelco, fully advised by its regular counsel, was in a position to know all the risks it was taking in employing Kobin & Meyer.
We find no facts that suggest that Kobin & Meyer would be tempted to "soft pedal"
III. CANON 9 AND THE APPEARANCE OF IMPROPRIETY
Jelco has argued that Kobin & Meyer should be disqualified because the challenged multiple representation carries the appearance of impropriety. The point does, of course, raise questions. But, to paraphrase the Silver Chrysler court, we do not believe Canon 9 was intended to override the delicate balance created by Canon 5 and the decisions thereunder. Silver Chrysler, supra, 518 F.2d at 757. Having decided that Canon 5 was written to allow multiple representation in exceptional cases if all clients consented after full disclosure and if the attorney could adequately represent both parties, we do not read Canon 9 as an implied repeal of the multiple representation language in Canon 5 because it has "the appearance of impropriety."
The district court's failure to disqualify Kobin & Meyer was not an abuse of discretion on the facts of this case. Jelco consented after full disclosure and the court found that Kobin & Meyer could adequately represent both parties.
Accordingly, the ruling of the district court will not be disturbed.
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