AINSWORTH, Circuit Judge:
The interlocutory appeal before us is from an order of the District Judge disqualifying Roger J. Nichols and his law firm from representing the plaintiffs in the two captioned securities fraud cases. Nichols was adjudged to have violated Canon 9
I. THE FACTS
The two cases which underlie this appeal were initially filed as class actions to recover funds invested in certain industrial development bonds issued by the City of Tuskegee, Alabama. These actions seek damages from a number of Alabama defendants alleged to have been aiders and abettors of a fraudulent scheme concocted by Alexander & Allen, Inc., a Florida-based group of broker-dealers. The litigation below was prompted by an injunction proceeding brought in the United States District Court for the Southern District of Florida by the Securities and Exchange Commission against Alexander & Allen, Inc., for violations of the anti-fraud provisions of the securities acts. In the Florida case, the Commission alleged that, as one part of a wide-ranging scheme to defraud investors, Alexander & Allen began a solicitation aimed specifically at returning Vietnam prisoners of war who had accumulated substantial sums in back pay during their years of imprisonment. In November of 1974, the court found that the company was perpetrating "a horrible fraud, one that has been vicious and brutal" on the former POWs and a large number of civilian investors. S.E.C. v. R. J. Allen & Assoc., Inc., S.D.Fla. 1974, 386 F.Supp. 866, 874. It is estimated that the POWs alone lost about $316,260.
Several of the former prisoners of war, including Commander Robert Dean Woods, the named plaintiff in one of the class actions below, met while testifying in the Florida case and decided to investigate the possibility of instituting a private suit to recover their investments.
Although the Navy desired to aid the defrauded servicemen, a severe shortage of resources precluded direct participation by the Judge Advocate General's Office in the litigation of such a complex case.
On December 3, 1974, Captain Fink called Nichols in Los Angeles and asked him to conduct the investigation which they had discussed in November. Although he had already completed his required two weeks of "active duty for training" and despite other demands on his time, Nichols, after some persuasion, agreed to return to active duty on December 16 for an additional five days.
Pursuant to Captain Fink's earlier suggestion, Commander and Mrs. Woods contacted Nichols on December 4 and asked him to represent them and others defrauded in the securities scheme. Nichols, however, informed them that he was returning to active service in order to evaluate their chance for recovery in such a suit and that they should therefore await the outcome of his investigation before undertaking any personal expenditures in connection with the case.
Upon his return to active duty in mid-December, Nichols conducted a five-day "on-the-ground" investigation which included a day-long meeting in Miami with S.E.C. officials familiar with the R. J. Allen injunctive proceeding, an examination of the files of the Deputy Attorney General of Alabama, and interviews with the president and trust
On January 11, 1975, Commander and Mrs. Woods again asked Nichols to serve as their personal counsel. Because of his desire to aid the former prisoners of war, his familiarity with the case, and his concern that the statute of limitations was about to run on certain claims,
In holding that Nichols' conduct gave rise to an "appearance of professional impropriety" in violation of Canon 9, the District Court relied on Ethical Consideration (EC) 9-3 which is a specific application of this rule to attorneys who are former public employees:
This principle is reiterated in mandatory form in Disciplinary Rule (DR) 9-101(B) which states: "A lawyer shall not accept private employment in a matter in which he had substantial responsibility while a public employee."
The District Judge found that Nichols' tour of duty with the Navy constituted public employment, and that while serving with the Judge Advocate General's Office he had "investigated and passed upon" the POWs claims. Thus the District Court concluded that Nichols "cannot ethically continue that investigation and representation for a fee in his civilian capacity." The appearance of impropriety isolated by the District Judge was that the defendants in the class actions could be substantially disadvantaged "both economically and strategically" by the knowledge of the case Nichols had acquired while a public employee.
II. PRELIMINARY CONCERNS
Inasmuch as it is well established that a District Court's order granting or denying a motion to disqualify an attorney appearing before it is a "final order" appealable pursuant to 28 U.S.C. § 1291, we properly have jurisdiction in this case. In re Yarn Processing Patent Validity Litigation, 5 Cir., 1976, 530 F.2d 83, 85; United States v. Garcia, 5 Cir., 1975, 517 F.2d 272, 275; Tomlinson v. Florida Iron & Metal,
In evaluating Nichols' conduct, we turn for guidance, as did the District Judge, to the Code of Professional Responsibility. As the legal profession's own source of ethical standards, the Code carries great weight in a court's examination of an attorney's conduct before it. See Handleman v. Weiss, S.D.N.Y. 1973, 368 F.Supp. 258, 261 n. 4, 263; E. F. Hutton & Co. v. Brown, S.D.Tex., 1969, 305 F.Supp. 371, 377 n. 7. The scope of such an inquiry, however, should encompass more than the ABA Canons, Ethical Considerations and Disciplinary Rules. See International Electronics Corp. v. Flanzer, 2 Cir., 1975, 527 F.2d 1288, 1293; J. P. Foley & Co. v. Vanderbilt, 2 Cir., 1975, 523 F.2d 1357, 1359-60 (Gurfein, J., concurring); Handleman v. Weiss, supra, 368 F.Supp. at 263. A court should be conscious of its responsibility to preserve a reasonable balance between the need to ensure ethical conduct on the part of lawyers appearing before it and other social interests, which include the litigant's right to freely chosen counsel. See Emle Industries, Inc. v. Patentex, Inc., 2 Cir., 1973, 478 F.2d 562, 564-65. It is with these considerations in mind that we turn to an examination of the District Court's application of EC 9-3 and DR 9-101(B) to the circumstances of this case.
III. CONGRESSIONAL POLICY
At the outset, we observe that Congress has declared in unequivocal terms that inactive reservists and those on active duty for training are not federal employees:
5 U.S.C. § 2105(d). As is stated in the House Committee report on the bill, section 2105(b) was enacted
H.R.Rep. No. 1884, 71st Cong., 2d Sess., at 2 (1930). The House report went on to quote from the War Department's explanation of the bill's purposes:
Id. at 3.
Congress evidently recognized that inactive or part-time reservists are dependent upon civilian occupations or professions for their livelihood, and therefore that they should not be subject to the numerous blanket disabilities imposed on government employees by both federal and state law. As Senator Reed noted during the floor debate on the bill:
72 Cong.Rec. 11892-93, 71st Cong., 2d Sess. (1930). A similar concern is evident in several other statutes which protect reservists in their civilian vocations.
This is not to say, however, that reservists protected by section 2105(d) are exempt from the Canon 9 requirement that a lawyer should avoid even the appearance of professional impropriety. By eliminating blanket prohibitions against the civilian employment
IV. THE ROLE OF CANON 9
Even in the absence of the congressional policy prohibiting blanket restrictions on the civilian employment of reservists, we would reverse the District Court's order disqualifying Nichols. Canon 9 does not require the disqualification of every attorney who has been privately retained in a matter for which he had substantial responsibility while associated with the Government. The A.B.A. itself has recognized that the limitation on former government attorneys which is now codified in EC 9-3 and DR 9-101(B) "was not intended to have the effect that its words too literally construed imply." A.B.A. Comm. on Professional Ethics and Grievances, Formal Opinion 26 (1930).
International Electronics Corp. v. Flanzer, 2 Cir., 1975, 527 F.2d 1288, 1293, quoting Brief for the Connecticut Bar Association
The District Judge's unduly rigid construction of Canon 9 appears to have stemmed from a misunderstanding of its admonition that "[a] lawyer should avoid even the appearance of professional impropriety." Although the principle did not receive overt expression until the promulgation of the Code in 1970, the "appearance of evil" doctrine was implicit in several of the old Canons of Professional Ethics and was directly stated in a number of A.B.A. opinions interpreting them. R. Wise, Legal Ethics 125 (1970). Thus, even under the old Canons, the absence of demonstrable wrongdoing was usually not enough. See, e. g., United States v. Trafficante, 5 Cir., 1964, 328 F.2d 117, 120. An attorney's conduct had to be sufficiently unambiguous "to merit the approval of all just men." A.B.A. Canons of Professional Ethics, Preamble (1908).
With adoption of Canon 9 in 1970, express recognition was given to the applicability of this principle to all aspects of a lawyer's professional life. The requirement that a lawyer avoid even the appearance of impropriety reflects the bar's concern that some conduct which is in fact ethical may appear to the layman as unethical and thereby could erode public confidence in the judicial system or the legal profession. A.B.A. Code of Professional Responsibility, EC 9-2 (1970). Similarly conscious of the need to keep both the public and private segments of the profession above suspicion, courts have disqualified attorneys under the appearance of evil doctrine even though the record was free of any evidence of actual wrongdoing. E. g., General Motors Corp. v. City of New York, 2 Cir., 1974, 501 F.2d 639, 641; United States v. Trafficante, 5 Cir., 1964, 328 F.2d 117, 120; see A.B.A., Standing Committee on Professional Ethics, Informal Opinion No. 885 (Nov. 2, 1965).
It does not follow, however, that an attorney's conduct must be governed by standards which can be imputed only to the most cynical members of the public. Inasmuch as attorneys now commonly use disqualification motions for purely strategic purposes,
Under Canon 9, then, the standard governing the conduct of all former government lawyers is consistent with the approach mandated by the congressional policy toward reservists in particular. We therefore turn to an examination of the facts of this case to determine whether there is a reasonable possibility that Nichols engaged in improper conduct while on active duty with the Navy.
V. LIMITATIONS ON FORMER GOVERNMENT ATTORNEYS
Our review of the relatively sparse precedent in this field reveals that the limitation on former government attorneys has been construed as applying to two distinct types of improper conduct. Most frequently, disqualification occurs when private representation of a client calls into question a lawyer's conduct while a public official. Occasionally, though, an attorney has been disqualified because his association with the government gave him an improper advantage over his adversaries in private litigation. The facts of this case, however, do not fit into either of these categories.
A. Apparent Conflicts of Interest While a Public Employee
The purpose most often ascribed to the limitation on former government attorneys is to avoid
A.B.A. Comm. on Professional Ethics, Opinion No. 37 (1931);
As our review of the undisputed facts of this case demonstrates, and as appellees apparently concede, Nichols' retention by Commander Woods, his wife, and other class members does not impugn any of his actions while on active duty in the Judge Advocate General's Office.
Clearly, Nichols did not have the authority or opportunity improperly to concentrate Navy resources on the POWs' problem to the detriment of his other official responsibilities. Indeed, we have seen that the entire Navy investigation was under the control of and being planned by Nichols' superiors
In addition, there can be no assertion that Nichols' investigation and his resulting advice to the Navy was affected by the prospect of his employment by Commander and Mrs. Woods. Inasmuch as Nichols is presently representing the Woodses and all other plaintiffs on a contingent fee basis, he is not open to the charge of having induced the Judge Advocate General's Office to proceed with a meritless case.
A legal assistance officer's function, moreover, is significantly different from that of other government lawyers. See Coles, Manter & Watson v. Denver District Court, 1972, 177 Colo. 210, 493 P.2d 374, 375. Rather than being charged with public matters in which the government is the client, a legal assistance attorney owes a preeminent duty to the private individual who, in effect, retains him.
Because the Government has no direct interest in a legal assistance officer's relationship with his client, any ethical questions arising out of that relationship are best dealt with under those provisions of the Code which specifically delineate an attorney's obligations to his client. See, e. g., A.B.A. Code of Professional Responsibility, Canons 4, 5, 6 & 7 (1970). Consequently, where there is no claim that a legal assistance lawyer used his public office as a means of soliciting clients or otherwise garnering lucrative cases, the Canon 9 limitation on a former government attorney should not be brought into play against apparently improper conduct occurring during his tenure with the Government.
The District Judge, however, took the position that the Woodses were not Nichols' clients while he was on active duty because "he was acting at all times on the instructions of his superiors and in the interests of his employer, the United States Navy." Nichols' superiors, of course, were all attorneys in the Judge Advocate General's Office who were coordinating the Navy's legal assistance efforts on behalf of the POWs. All the lawyers working on this case were bound by the traditional obligations of a lawyer to his client. Thus, the fact that Nichols did not head the Navy's efforts in
In short, there is no reasonable possibility under the facts of this case that Nichols' conduct while on active duty violated the public trust. We therefore turn to a consideration of whether his five-day investigation improperly disadvantaged the appellees.
B. The Improper Use of Information Acquired While a Public Employee
Although Canon 9 has generally been invoked because of the appearance that a public official's action may have been influenced by the prospect of private employment, it has, in a few instances, been employed to prevent the private use of information obtained by a lawyer while in public office. The impropriety perceived in these cases is not so much that a public employee may have contemplated private gain while performing official functions as it is that his exercise of governmental power may be used to the prejudice of one side in a private suit. Thus, the focus of our inquiry must shift from the propriety of Nichols' actions while in the Government to the effect of that conduct on the cases below.
Generally, this construction of Canon 9 has been used to disqualify a former prosecutor from representing a private client in a civil matter related to or arising out of the criminal prosecution in which he had substantial responsibility. Allied Realty v. Exchange National Bank, D.Minn. 1968, 283 F.Supp. 464; Hilo Metals Co. v. Learner Co., D.Hawaii 1966, 258 F.Supp. 23; see A.B.A. Comm. on Professional Ethics & Grievances, Formal Opinion No. 135 (1935). But see Control Data Corp. v. International Business Machines Corp., D.Minn. 1970, 318 F.Supp. 145. A rationale for this rule is that:
A.B.A. Comm. on Professional Ethics & Grievances, Formal Opinion No. 135, supra. A former prosecutor, moreover, has had access to materials such as investigative reports and grand jury minutes which may not be available to his opponents in a civil trial. See Allied Realty v. Exchange National Bank, supra, 283 F.Supp. at 466.
As Opinion 135 implies, however, officials other than prosecutors could improperly use information obtained while a public employee. Indeed, in Handleman v. Weiss, supra, a lawyer formerly associated with the Securities Investors Protection Corporation was disqualified on these grounds even though SIPC was technically not a governmental agency. 368 F.Supp. at 263. Finding the attorney in question to be "in many
Id. at 263 (emphasis supplied). As the court pointed out, the depositions taken by the former SIPC lawyer were not available for public inspection.
In sum, former government officials have been disqualified in cases in which, "under sanction or color of official power," they could have obtained an advantage over their adversaries in a private suit which they could not otherwise have obtained. See Allied Realty v. Exchange National Bank, 8 Cir., 1969, 408 F.2d 1099, 1102, aff'g, D.Minn. 1968, 283 F.Supp. 464; A.B.A. Comm. on Professional Ethics & Grievances, Opinion No. 135, supra. In particular, both the A.B.A. and courts have felt that specific information obtained by the exercise of government power should not be used to the prejudice of a party to private litigation.
As a legal assistance officer, however, Nichols did not possess any investigative authority beyond that available to a private lawyer. See Dep't. of the Navy, Manual of the Judge Advocate General, § 1906(a) & (b), 32 C.F.R. § 727.6(a) & (b) (1975). Neither is there any allegation that Nichols ever held himself out to be an investigating officer acting on behalf of United States Navy or as having any special governmental authority. Indeed, the undisputed facts adduced below reveal that both the S.E.C. office in Miami and the Alabama Attorney General's office were well aware that Nichols was appearing on behalf of the defrauded servicemen and that he was investigating the possibility of a private action. Both the S.E.C. and the State of Alabama, in fact, explicitly predicated their cooperation with Nichols' investigation on a clear understanding that the class actions would be brought on behalf of all persons defrauded by the Alexander & Allen scheme. In Nichols' meetings with persons who are presently defendants in the class actions below, it is undisputed that Nichols clearly stated that he was making a factual investigation to determine whether there was any basis for recovery by the ex-POWs against aiders and abettors to this securities fraud. Under these circumstances, it cannot fairly be said that Nichols gained his information by "the exercise of official authority" or that he would have been unable to secure this information if he had been appearing in a purely private capacity.
The District Judge, however, based his disqualification order on a quite different putative impropriety. Relying on Allied Realty v. Exchange National Bank, supra, the District Court concluded that Nichols' "retention by plaintiffs in these lawsuits would amount to a substantial advantage to them and a corresponding disadvantage to defendants, both of which constitute the `appearance of evil' which is the target of the Canons...." The Allied Realty court did state that
283 F.Supp. at 467. The court found this conduct to be improper because a former government attorney
Id. at 468.
Allied Realty, however, concerned a former Assistant United States Attorney who had access to secret FBI reports and grand jury proceedings. Id. at 466. As we have seen, information obtained by the exercise of this sort of public power should not be used for private gain or to the prejudice of an adverse party in a lawsuit.
Because there was no exercise of official authority in this case, the District Judge's reliance on Allied Realty necessarily implies that it is improper for the Government to give any aid to one party in a private lawsuit. Indeed, appellees' essential contention in both their brief and at oral argument is that the underlying purpose of the limitation on former government attorneys "is to prevent a disparity of equities among litigants." Specifically, they contend that the Navy, by planning the class actions, financing the investigation, and referring the POWs to Nichols, were engaged in "an unprecedented exercise of power" which disadvantaged the defendants below and thereby created the appearance of impropriety prohibited under Canon 9.
Obviously, all government-provided legal aid is "a substantial advantage" to those receiving it and, of course, "a corresponding disadvantage" to their adversaries. The logically inescapable extension of the District Judge's rationale, then, is that all public legal assistance programs violate Canon 9.
The District Court also justified the disqualification of Nichols on the ground that he may ultimately receive private remuneration for work done under the auspices of the Judge Advocate General Corps. The evil perceived by the District Court is not that the lawyer's private compensation calls into question the propriety of his conduct while in government office.
However, the Canon 9 limitation on former government attorneys does not apply to the problem of excessive remuneration. Where, as here, there is no reasonable possibility that a government lawyer violated the public trust, the question of his remuneration is best answered by those provisions of the Code specifically addressed to the problem of reasonable attorney fees. E. g., EC 2-17 & 2-18, DR 2-106 (A) & (B).
A disqualification order is obviously an ill-suited remedy to the problem of excessive attorney's fees under these provisions of the Code. In this case, for example, Nichols is representing the plaintiffs on a contingent fee basis. At this point in the litigation it is not certain that he will receive any compensation at all. As appellants point out, moreover, even if plaintiffs ultimately prevail, the fees in the class actions below will be set by the District
We have seen that Nichols' participation in the class actions underlying this appeal does not impugn his conduct while on active duty with the Navy and does not improperly disadvantage appellees. On the other hand, to permit the District Court's disqualification order to stand would inflict substantial harm on military legal assistance programs and would prejudice appellants' cases below. Inasmuch as attempts to disqualify opposing counsel are becoming increasingly frequent, we cannot permit Canon 9 to be manipulated for strategic advantage on the account of an impropriety which exists only in the minds of imaginative lawyers. Therefore, the disqualification order of the District Court is
ABA Code of Professional Responsibility, Preliminary Statement (1971) (citations omitted).
5 U.S.C. § 502. A similar intent to protect the civilian occupations of reservists is evident in the following provision:
50 App. U.S.C. § 459(c)(3). Further evidence of this policy is found in 5 U.S.C. § 5534 which provides:
Section 207, however, is only applicable if the United States presently "is a party or has a direct and substantial interest" in the matter or proceeding in question. As our discussion in Part V-A of this opinion will demonstrate, the Government has no direct interest in the class actions underlying this appeal. Therefore, section 207 is not applicable to this case.
EC 9-3 and DR 9-101(B) have carried forward the general principles of Canon 36. General Motors Corp. v. City of New York, supra, 501 F.2d at 649 n. 18; see R. Wise, Legal Ethics 122 n. 2 (1970).
In passing, we note that while the old and new provisions do not differ in principle, the "investigated or passed upon" standard of Canon 36 has been superseded by the "substantial responsibility" test of EC 9-3 and DR 9-101(B). A.B.A. Standing Comm. on Ethics and Professional Responsibility, Formal Opinion 342 (1975). The District Court erred, therefore, in holding that the "investigated or passed upon" standard has continuing vitality.
32 C.F.R. § 727.8 (1975) (emphasis supplied).