KOCH v. KOCH INDUSTRIES

MEMORANDUM AND ORDER

CROW, District Judge.

The case comes before the court on the defendants' motion to disqualify the law firm of Hughes, Hubbard & Reed ("HH & R") from representing any of the plaintiffs in this action. (Dk. 446). On January 27, 1992, HH & R entered its appearance in this case on behalf of the plaintiffs William I. Koch, Oxbow Energy, Inc., Spring Creek Art Foundation, and Northern Trust Co. (Dk. 416). On the same day, four members of HH & R firm, Abraham D. Sofaer, John M. Townsend, Norman C. Kleinberg, and Michael E. Salzman, moved for admission pro hac vice. (Dk. 417). The court granted these attorneys permission to practice before this court in their representation of the plaintiffs. (Dk. 442). HH & R opposes the defendants' motion to disqualify.

In their motion, defendants characterize HH & R's prior representation as "intimate" and wide-ranging involvement in defendants' affairs. HH & R's continued representation of plaintiff, in defendants' opinion, would constitute a "blatant breach" of HH & R's ethical duties of loyalty and confidentiality owed to them as former clients.

HH & R denies that its representation of certain plaintiffs in this suit is an ethical violation requiring disqualification. Specifically, HH & R maintains that KII could not reasonably expect in 1969 through sometime in 1976 that any information imparted to HH & R would be kept from William Koch who was serving then on the Board of Directors and as an officer in KII and several of its subsidiary corporations. Moreover, HH & R fails to see any substantial relationship between the present suit and the matters surrounding its representation of KII more than fifteen years ago.

An evidentiary hearing was held on May 20 and 21, 1992. The defendants presented the testimony of Donald Cordes. The plaintiffs called David Tillinghast, a former partner at HH & R and the supervising attorney or account executive of the legal work done for KII from 1972 through 1976. The parties agreed on nine pages of stipulations with fifteen exhibits in support. Additional exhibits were admitted at hearing.1 Having heard the closing arguments and reviewed the parties' final written submissions, the court issues for the purpose of deciding this motion only its findings and conclusions as required by Fullmer v. Harper, 517 F.2d 20, 21-22 (10th Cir.1975).

FINDINGS OF FACT

1. HH & R, a New York law firm, served as principal outside counsel to KII on various matters beginning in 1969 and continuing until sometime in 1976. Management for KII regularly contacted HH & R for legal advice on a wide array of subjects, including financing transactions, regulatory issues, maritime law, tax advice and planning, corporate reorganizations, stock recapitalization, and general corporate matters. HH & R delivered to KII at least thirteen transfer file cases of documents relating to HH & R's former representation of KII. While HH & R may not have been KII's only outside counsel during this period, the nature and scope of HH & R's representation suggests that HH & R functioned in many ways as general counsel to KII.

2. KII was, and continues to be, a privately held corporation with most shares owned by members of the Koch family. For this reason, HH & R's work required attention to the individual interests of the Koch family. In that regard, HH & R directly advised Charles Koch, David Koch, William Koch, and their mother, Mary Koch, on estate and tax planning matters, including the creation and maintenance of private charitable foundations.

3. After 1976, HH & R did not represent KII or any Koch family members until December of 1991, when it undertook its representation of William Koch and two corporate entities owned by him, Oxbow Energy, Inc. and Spring Creek Art Foundation, Inc., in this case. HH & R had no role in negotiating, drafting, or executing the Stock Purchase and Sale Agreement, dated June 4, 1983.

4. In October of 1982, William I. Koch and other shareholders filed an action against KII and its management alleging breach of fiduciary duties and fraud. This court was assigned the case. In connection with the settlement of that lawsuit in 1983, the parties entered into the Stock Purchase and Sale Agreement of June 4, 1983. By the terms of the settlement, the plaintiffs sold their shares of KII and dismissed the lawsuit. The present case was filed in June of 1985 by this group of selling shareholders, and they alleged their stock was sold at a price less than its true value because of fraudulent misrepresentations and misconduct and breaches of certain warranties contained within the stock sale agreement. The case was assigned also to this court. Over the seven-year history of this second case, the court has become quite familiar with the allegations and issues of the parties. After deciding several motions to amend and motions for review and in watching the discovery process, the court appreciates that the plaintiffs consider the allegations and issues relevant to their claims to encompass many more facts and circumstances than are alleged in the current second amended complaint (Dk. 180).

5. At least from 1969 and continuing past 1976, William Koch, Charles Koch, and David Koch were the largest shareholders of KII. William Koch was a member of KII's board of directors during this same period.

6. On November 4, 1988, William Koch filed an affidavit, Exhibit 16, in support of plaintiffs' motion to file a second amended complaint (Dk. 144). He avers therein that KII, at the direction of KII's management, in particular Charles Koch, engaged in unethical practices as early as the 1960s. For example, he avers that Charles Koch and KII fraudulently acquired the Atlas Petroleum stock of a Mr. Vosco resulting in an adverse judgment against KII. In the plaintiffs' proposed second amended complaint, plaintiffs refer to the Vosko litigation as evidence of a pattern of racketeering activity and allege that it was a "fraudulent scheme perpetrated by KII" and "conceived by defendant Charles Koch and participated in by defendants Varner and Carey." Even though the court denied plaintiffs' leave to include their RICO claim, Mr. Vosko's name appears on William Koch's witness list filed February 28, 1992. In its representation of KII, HH & R was in a position to acquire confidential information relating to the Vosko litigation that is connected or related to the instant case.

7. Also in his affidavit, William Koch avers that KII and Charles Koch by their attitudes and actions have disregarded the rights of minority shareholders. William Koch cites as one example the "force out" of minority shareholders in Great Northern Refining Company. Confidential information could have been imparted to HH & R about this transaction, as it gave legal advice to KII about the acquisition of minority interests in the successor company of Great Northern Refining.

8. Again in his affidavit, William Koch asserts that there were ongoing criminal investigations of KII by the Internal Revenue Service ("IRS") from 1970 to 1980. HH & R was very much involved with a contested proceeding before the IRS in the early 1970s.

9. In William Koch's affidavit at page four and in ¶ 67(c) of the plaintiffs' second amended complaint (Dk. 180), it is alleged that Charles Koch in March of 1980 misrepresented to William Koch that KII's exposure to the Department of Energy ("DOE") for fines was $1.2 billion. The complaint goes on to allege that no computer tape existed confirming this exposure, that Charles Koch knew there was no such exposure, and that the matter was eventually settled with the DOE for $14 million. HH & R represented KII in certain federal regulatory matters before the DOE and these matters appear to be related to the regulations and conduct upon which the fines were based.

10. At ¶ 56(a) of their second amended complaint (Dk. 180), the plaintiffs allege that Charles Koch fraudulently misrepresented to William Koch in May and June of 1978 and again in October of 1979 the legal requirement for William Koch's charitable foundation to sell certain KII stock. The defendant Cordes allegedly advised Charles Koch that the applicable law required this sale. In its estate planning services for KII and the Koch family members, HH & R developed the original plan for creating and maintaining the charitable foundations.

11. In the plaintiffs' memorandum in opposition (Dk. 70) to the defendants' motion to dismiss and for summary judgment, the plaintiffs alleged that they could not find on the 1982 and 1983 financial statements any disclosure of Koch Oil, S.A. or its asset value considering that "piles of funds" are on account for this foreign corporation. HH & R gave tax advice to KII regarding income received by Koch Oil, S.A.

12. On January 31, 1992, the plaintiffs filed a motion to amend their second amended complaint (Dk. 419), for a second time. This pending motion seeks to add specific allegations on the wrongfulness of KII's accounting practices and policies. One of the exhibits submitted in support of the motion is a document that had been prepared in a financial transaction to which HH & R served KII as the principal legal counsel.

13. Among the plaintiffs' proposed allegations on KII's misleading or fraudulent accounting practices is an attack on KII's practice of establishing and maintaining reserves for future or contingent liabilities. HH & R performed legal services for KII that could have revealed confidential information about KII's practices on contingent liabilities.

14. A review of the stipulations, exhibits, and testimony leaves the strong impression that HH & R became privy to many of the inside workings of KII and to the longterm wishes, desires and goals of the individual defendants. Beyond what is stated in these documents or is recalled on the witness stand, there is that intimate knowledge and familiarity which an attorney acquires of a client particularly during the course of an extended and general representation. The estate planning work done for Charles and David Koch put HH & R in a position to learn their priorities and plans for their own lives, as well as, their business.

CONCLUSIONS OF LAW

1. The standards for conduct of attorneys in this court are the Model Rules of Professional Conduct ("Model Rules") and the Code of Professional Responsibility ("Code") as adopted by the Supreme Court of Kansas. D.Kan. Rule 407. The Model Rules, in a modified form, are the standards effective March 1, 1988. 1991 Kan. Ct.R.Anno. Rule 226. The Code remains simply "as general statements of required professional conduct." 1991 Kan.Ct. R.Anno. Rule 226.

2. Within the inherent supervisory powers of the court is the discretionary authority to control attorneys. Redd v. Shell Oil Company, 518 F.2d 311, 314 (10th Cir.1975). Consequently, motions to disqualify counsel are committed to the court's sound discretion. E.E.O.C. v. Orson H. Gygi Co. Inc., 749 F.2d 620, 621 (10th Cir.1984). In this district, the courts give these motions serious, conscientious, and conservative treatment. Professional Service Industries, Inc. v. Kimbrell, 758 F.Supp. 676, 680 (D.Kan.1991) (and cases cited therein). This approach serves a number of goals. The court reviews such a motion mindful that it can be used as a part of the litigation strategy, Smith v. Whatcott, 757 F.2d 1098, 1100 (10th Cir. 1985), or as a technique for harassing the other side, Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1577 (Fed. Cir.1984). The court generally defers the issues of ethics to the appropriate disciplinary machinery except in those cases where the challenged conduct threatens to taint the process. Ramsay v. Boeing Welfare Ben. Plans Committee, 662 F.Supp. 968, 970 (D.Kan.1987). The court decides the motion on the facts peculiar to each case in an effort to balance carefully the interest of protecting the integrity of the process against the right of a party to the counsel of its choice.2 Id.

3. The movant has the burden of showing the grounds for disqualification. F.D.I.C. v. Sierra Resources, Inc., 682 F.Supp. 1167, 1170 (D.Colo.1987); Field v. Freedman, 527 F.Supp. 935, 941 (D.Kan. 1981).3 The proof must be more than mere speculation and must sustain a reasonable inference of a violation. In re Blinder, Robinson & Co., Inc., 123 B.R. 900, 907-08 (Bankr.D.Colo.1991) (and cases cited therein). Because the interests to be protected are critical to the judicial system, doubts are resolved in favor of disqualification. Id. at 907; see also Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 225 (7th Cir.1978).4

4. An ethical violation does not automatically trigger disqualification. Chapman Engineers v. Natural Gas Sales Co., 766 F.Supp. 949, 954 (D.Kan. 1991). Prophylactic conflict rules are enforceable also through disciplinary proceedings and civil remedies. SWS Financial Fund v. Salomon Brothers Inc., 790 F.Supp. 1392 (N.D.Ill.1992). Because the adverse effect of disqualification is not limited to the attorney, the court should be satisfied that this blunt remedy serves the purposes behind the ethical rule in question. Id. Rule 1.9(a), however, directly states that disqualification is the suitable remedy.5

5. The defendants contend HH & R's representation of the plaintiffs violates Rule 1.9(a) and requires the imputed disqualification of HH & R under Rule 1.10(a). Rule 1.9 provides:

Rule 1.10(a) provides:

These Model Rules, as adopted and construed by the Kansas Supreme Court, control these proceedings. Graham v. Wyeth Laboratories, 906 F.2d 1419, 1422-23 (10th Cir.1990). In the absence of Kansas precedent, the court takes up the task of predicting what the Kansas courts would do.

6. Rule 1.9(a) proscribes the representation of interests adverse to a former client in the same or substantially related matters. The Comments to Rule 1.9 reveal that Rule 1.9(a) is without a counterpart in the Code but concerns ethical questions that were formerly addressed by Canon 9, avoiding the appearance of impropriety, and ethical consideration 4-6, preserving the client's confidences and secrets after the employment ended. Courts have identified several purposes behind Rule 1.9(a):

In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162 (3rd Cir.1984), cert. denied, 472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985); see also Havens v. State of Ind., 793 F.2d 143, 145-46 (7th Cir.), cert. denied, 479 U.S. 935, 107 S.Ct. 411, 93 L.Ed.2d 363 (1986). Any interpretation and application of Rule 1.9(a) must either serve or, at least, be consistent with these multiple purposes.

7. Rule 1.9(a) was plainly intended to address in part an attorney's duty of loyalty in successive representation cases. Leading commentators have summarized the scope and purpose of Rule 1.9(a), as follows:

1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 1.9:103 (1990) ("Hazard & Hodes"). The congruent purposes of Rules 1.7 and Rule 1.9 is revealed in how the Model Rules were set up to address the duty of loyalty:

Comment to Rule 1.7 (emphasis added). A duty of loyalty in successive representation cases inheres in Rule 1.9(a).6

8. The movant's burden under Rule 1.9(a) is to show that:

Bieter Co. v. Blomquist, 132 F.R.D. 220, 223 (D.Minn.1990) (citations omitted). The first two elements are undisputed in this case. HH & R represented KII from 1969 through sometime in 1976. The interests of HH & R's current clients, the plaintiffs, are obviously adverse to the interests of HH & R's former clients, the defendants. The focus of these proceedings is on the third element.

9. Rule 1.9(a) essentially codifies the common law rule applied in conflict of interest questions concerning former clients. The landmark decision of T.C. Theatre Corp. v. Warner Brothers Pictures, 113 F.Supp. 265, 268 (S.D.N.Y.1953) set forth the standard followed by most courts under the Code:

The case law affords an historic context for interpreting and applying the substantial relationship test in Rule 1.9(a).

10. Since T.C. Theatre Corp., two distinct versions of the "substantially related" test have emerged. The first version, adopted by a majority of the courts, compares the "matters" or "factual contexts" of the prior and present representations. The Tenth Circuit has followed this majority rule. "`"Substantiality is present if the factual contexts of the two representations are similar or related."'" Smith v. Whatcott, 757 F.2d 1098, 1100 (10th Cir.1985) (quoting Trust Corp. v. Piper Aircraft Corp., 701 F.2d 85, 87 (9th Cir.1983) (quoting Trone v. Smith, 621 F.2d 994, 998 (9th Cir.1980))). The second version, adopted by the Second Circuit, imposes a higher standard. A substantial relationship must be "patently clear" and requires disqualification "only when the issues involved have been `identical' or `essentially the same.'" Government of India v. Cook Industries, Inc., 569 F.2d 737, 741 (2nd Cir.1978) (quoting in part NCK Organization, Ltd. v. Bregman, 542 F.2d 128, 135-36 (2nd Cir. 1976) (concurring opinion)). The difference between these two versions is with what is examined in the two representations—factual contexts versus issues—and with what is expected from the movant's proof—a similarity or relatedness versus "a patently clear" relationship.

11. This court posed to counsel the question whether Rule 1.9(a) adopts the Second Circuit's stricter version over the version followed by the majority of courts, including the Tenth Circuit. The reason for asking this question is that at least one writer has interpreted the Comment to Rule 1.9(a)7 as adopting the Second Circuit's version.8 After reading the counsels' responses and conducting its own research, the court believes the Tenth Circuit's traditional formulation of "substantially related" is still controlling in this district. Neither Rule 1.9(a) nor its comments9 provide, in this court's judgment, a compelling cause for inferring that a single, stricter definition of substantial relationship was intended for Model Rules.10 Moreover, the Tenth Circuit in Graham said the term, "substantially related," had achieved "the status of a term of art in the general law of attorney conflicts of interest." 906 F.2d at 1422. The Tenth Circuit then quoted and applied in its enforcement of Rule 1.10(b) the definition of "substantially related" expressed in Smith. Id. The terms of Rule 1.9(a) and its accompanying Comments do not warrant a departure from Tenth Circuit precedent on the meaning of "substantially related."

12. The plaintiffs argued in their memoranda and at the hearing that the substantial relationship test was inapposite as the defendants could not reasonably expect that the information conveyed to HH & R would be kept from William Koch, who was then a director and officer of KII and, therefore, entitled by law to access to all material information relating to corporate operations and governance. This general rule comes from Allegaert v. Perot, 565 F.2d 246 (2nd Cir.1977).11 The Second Circuit there held that the substantial relationship test was inapposite because the attorneys were not in a position during the previous representation whereby they could have received information which the former client might reasonably have assumed the attorneys would have withheld from the current clients. 565 F.2d at 250. In effect, Allegaert grafts another element onto the conflict of interest rule in successive representation cases where, in particular, "a partnership, joint venture or other cooperative effort breaks up, or where two former co-parties to a litigation later sue each other," Keoseian v. Von Kaulbach, 707 F.Supp. 150, 153 (S.D.N.Y.1989). The key common facts to Allegaert and its progeny is simultaneous representation of two clients with each aware of the other's relationship to the law firm and each without cause for believing its confidences would be withheld from the other. American Special Risk Ins. v. Delta America Re Ins., 634 F.Supp. 112, 121 (S.D.N.Y.1986). The Allegaert rule has been extended even to circumstances where the representation of the former and current client was never simultaneous. Id.; see, e.g., Christensen v. U.S. D. Court for Cent. D. of Cal., 844 F.2d 694, 698 (9th Cir.1988).

13. At the hearing, the court also posed to counsel the question whether the rule stated in Allegaert adequately serves each of the purposes to Rule 1.9(a). Though it believes the holding in Allegaert could be justified today under the Model Rules, the court seriously doubts whether the Allegaert rule, removed from its narrow factual underpinning, can be applied in harmony with Rule 1.9(a). As stated above, the prophylactic protection offered by Rule 1.9(a) extends beyond the preservation of confidential information. It also maintains public confidence in the system and, more importantly, safeguards a client's "right to expect the loyalty of his attorney...." In re Corn Derivatives Antitrust Litigation, 748 F.2d at 162. The Second Circuit in Allegaert was concerned only with an attorney's duty to preserve confidential information under Canon 4 and did not take up any appearance of impropriety or duty of loyalty that could be implicated by a conflict of interest problem in a successive representation case. 565 F.2d at 251 n. 7.12 Indeed, the Fifth Circuit reached a different result under the Code, despite the apparent applicability of the Allegaert rule, by relying in part on these other ethical concerns:

Brennan's, Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 172 (5th Cir. 1979);13 see Anchor Packing Co. v. Pro-Seal, Inc., 688 F.Supp. 1215, 1217-20 (E.D.Mich.1988); St. Albans Financial Co. v. Blair, 559 F.Supp. 523, 525-26 (E.D.Pa.), aff'd, 725 F.2d 670 (3rd Cir.1983). The court is convinced that the Allegaert rule fails to account for an important aspect of Rule 1.9(a), that is, an attorney owes to a former client a duty of loyalty which is breached when the attorney switches sides and begins representing an adverse interest in matters substantially related to the former representation. If the Allegaert rule were applied to the instant case as argued by HH & R, then any duty of loyalty that HH & R owes to KII and other defendants would go unprotected. Simply put, the rationale of Allegaert does not encompass the scope of Rule 1.9(a). See G.F. Industries, Inc. v. American Brands, Inc., 245 N.J.Super. 8, 11, 583 A.2d 765 (1990). Finally, Rule 1.9(a), by its terms, is not limited to situations where the former client would be harmed by the possible divulgence of confidential information. It imposes an ethical obligation irrespective of harm, Richards v. Badaracco, No. 88-836, 1988 WL 147152, 1988 U.S. Dist. LEXIS 15495 (D.N.J. June 27, 1988), or evidentiary privileges, Bobkoski v. Board of Education of Cary, No. 90-C-5737, 1991 WL 140150, 1991 U.S. Dist. LEXIS 10083 (July 23, 1991).14

14. Even assuming the court were to recognize the Allegaert rule, this court believes it is distinguishable on its facts. The Second Circuit explained its holding:

15. In determining whether a substantial relationship exists, the court evaluates the similarities between the factual bases of the two representations. A commonality of legal claims or issues is not required. In re Blinder, Robinson & Co., Inc., 123 B.R. at 909. At a functional level, the inquiry is whether "the attorneys were trying to acquire information vitally related to the subject matter of the pending litigation." Trone v. Smith, 621 F.2d 994, 1000 (9th Cir.1980).16 To accomplish this inquiry, the court must be able to reconstruct the attorney's representation of the former client, to infer what confidential information could have been imparted in that representation, and to decide whether that information has any relevance to the attorney's representation of the current client. See LaSalle Nat. Bank v. County of Lake, 703 F.2d 252, 255-56 (7th Cir.1983). What confidential information could have been imparted involves considering what information and facts ought to have been or would typically be disclosed in such a relationship. Kaminski Bros., Inc. v. Detroit Diesel Allison, 638 F.Supp. 414, 417 (M.D.Pa.1985). Consequently, the representations are substantially related if they involve the same client and the matters or transactions in question are relevantly interconnected or reveal the client's pattern of conduct. Hazard & Hodes, § 1.9:104.

16. If a substantial relationship is found, an irrebuttable presumption arises that the former client revealed facts requiring the attorney's disqualification. Smith, 757 F.2d at 1100. The court need not inquire into whether the confidential information was actually revealed or whether the attorney would be likely to use the information to the disadvantage of the former client. Green v. Montgomery County, Ala., 784 F.Supp. 841, 844 (M.D.Ala.1992); Carlson v. Langdon, 751 P.2d 344, 348 (Wyo.1988). To conduct such an inquiry would frustrate the former client's interest in the confidential information. Emle Industries Inc. v. Patentex, Inc., 478 F.2d 562, 571 (2nd Cir.1973).17 Doubts as to whether a substantial relationship exists should be resolved in favor of disqualification. See Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d at 225.

17. HH & R insists the second amended complaint (Dk. 180), as amended (Dk. 438), should be the sole source of what the court considers to be the matters involved in the present lawsuit. Specifically, HH & R disputes that the allegations found in the plaintiff William Koch's affidavit (Ex. 16 to Dk. 14), in the plaintiffs' proposed second amended complaint (Dk. 144), or any of the plaintiffs' proposed pleadings or other memoranda have any relevance to the scope of HH & R's current representation. The court agrees the general rule is that the relevance of information gained from the former representation is judged against the allegations in the complaint. On the other hand, none of the cases cited by the plaintiffs held that relevance should not be assessed from what has been alleged also in the proposed complaints, affidavits filed in support of them, or other pertinent pleadings.18 These cases, instead, emphasize that relevance is gauged from not only what can be gleaned from the complaints but also from what can be viewed as the nature of the evidence useful or helpful in proving those allegations. See, e.g. Trone v. Smith, 621 F.2d at 1000; Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d at 226. The pleadings to date establish that the scope of what evidence the plaintiffs consider relevant to their case is quite broad. The second amended complaint itself contains a number of allegations that could be seen as a way to offer a wide range of evidence on the defendants' carrying out a "scheme and artifice to defraud and overreach" minority shareholders, on the plaintiffs' diligence in selling their shares and in bringing this suit in light of what false information allegedly was disseminated by KII "over a number of years," and on the defendants' practice of governing KII in a way that the plaintiff shareholders could not know the actual operations of KII or the true value of their ownership interest. In addition, the claims and theories of this case makes the credibility of the principals a central issue. Consequently, the plaintiffs may attempt to use some of the facts from their proposed claims to impeach or discredit the defendants' case.19 As this case has been pending since 1985, this court has had more than one occasion to become familiar with what the parties consider to be their respective claims and theories. See, e.g., Koch v. Koch Industries, 127 F.R.D. 206, 211-12 (D.Kan.1989) ("From the circumstances of the present case, the court reasonably infers plaintiffs' effort to have this court entertain `theories seriatim' which would permit them to fulfill their apparent wish of conducting open-ended discovery of Koch Industries' business practices for the last twenty years.") For all of these reasons, the court rejects the plaintiffs' effort to set the parameters of HH & R's current representation by what is strictly alleged in the second amended complaint. In keeping with the general spirit that any doubts should be resolved in favor of disqualification, the court will consider what was and is alleged in proposed pleadings, memoranda and affidavits, and what has been the subject of discovery.

18. HH & R functioned as general counsel to KII; its representation was not limited to a particular area or business aspect of KII. Rather, HH & R gave advice to KII through its executives and key owners on a wide variety of problems and issues. The length and breadth of HH & R's representation evinces the reasonable likelihood that HH & R was in a position to learn confidential information relevant to this case. See In re Blinder, Robinson & Co., Inc., 123 B.R. at 909-10 (and cases cited therein).

19. Before their current defense against the motion to disqualify, plaintiffs have been less than willing to concede a definite temporal scope to their claims. For that matter, not until recently have the plaintiffs said the focus of their claims is with the written warranties in the 1983 Stock Purchase and Sale Agreement rather than some far-reaching allegations of fraud. At nearly every turn in this case for the last seven years, the magistrate judge and the district judge have heard arguments from plaintiff that their claims are far more than what the court has been able to read from their pleadings. Because of the plaintiffs' wide-ranging allegations of schemes, fraud and concealment in not only their complaint but in their proposed claims, affidavits and memoranda, the court expects that the plaintiffs' will attempt to prove their claims with evidence of an even wider range. To overcome the anticipated defense that they knew or had reason to know of KII's business practices during the period from 1980 to 1983, plaintiffs repeatedly have painted the defendants as spinning a web of deception that prevented them from discovering the truth. In other words, the court believes the plaintiffs consider one of the central themes of their case to be that the defendants have engaged in a pattern of fraudulent conduct over an extended period of time, beginning in the early 1970s and continuing at least until the plaintiffs sold their shares, in order to conceal their wrongdoings, to maintain their control of KII, and, in turn, to prevent KII from going public. The plaintiffs' far-reaching allegations of fraud and broad attacks on the personal motives of the individual defendants makes HH & R's general knowledge of KII and its top personnel, as well as, its legal background work for KII relevant to this case. See U.S. Football League v. National Football League, 605 F.Supp. 1448, 1460 (S.D.N.Y. 1985); Restatement (Third) Law Governing Lawyers (Tentative Draft No. 4) § 213 cmt. d, illus. 3.

20. The court's detailed findings establish the substantial relationship between HH & R's former representation of KII in numerous matters and its current representation of the plaintiffs in this case. Contrary to plaintiffs' assertions, these findings constitute much more than "superficial similarities, allusions or semantics." They, instead, evince a significant nexus between several events and transactions encompassed in the plaintiffs' broad allegations and what was entailed in HH & R's extended representation of KII. Moreover, the findings adequately reveal that HH & R served KII in such capacities that it could have received confidential information which would be relevant in the case sub judice. In these circumstances, the court is justified in imposing the irrebuttable presumption that KII and certain individual defendants revealed facts requiring HH & R's disqualification. No additional inquiry is necessary as to whether confidential information was actually imparted or whether HH & R would be likely to use this information to the disadvantage of the defendants.

21. Disqualification of HH & R from any further representation of the plaintiffs in this case is the appropriate remedy under the terms of Rules 1.9(a) and 1.10(a). HH & R's continued representation of the plaintiffs carries a threat of tainting the trial or compromising the integrity of the adversarial process. Because the insight and knowledge gained through its former representation of gives HH & R a material advantage in prosecuting the plaintiffs' claims, the playing field is now tilted. The competing factors do not overcome the need for disqualification. The plaintiffs are not severely or unfairly prejudiced by the disqualification of HH & R. The firm entered its appearance for the plaintiffs only a few months ago in this seven year old case. HH & R is not the only firm that has appeared for the plaintiffs. At least ten other law firms have done so. Several firms and their local counsel still represent the plaintiffs and are unaffected by the motion to disqualify. Plaintiffs' discovery was essentially completed by these other counsel. The trust and the financial investment that plaintiffs may have in HH & R are certainly considerations, but they simply do not outweigh the need for disqualification. As has been displayed in the last seven years, the plaintiffs have the financial means to hire more competent counsel who can serve them adequately at trial.

22. HH & R avers that it has erected a Chinese Wall to ensure that none of its attorneys working on the plaintiffs' case receive information obtained during its representation of KII. In two recent decisions, the Kansas Supreme Court interpreted the Model Rules as rejecting any notion that screening devices, such as the Chinese Wall, can prevent the imputed disqualification of firms under Rule 1.10. Lansing-Delaware Water District v. Oak Lane Park, Inc., 248 Kan. 563, 573-74, 808 P.2d 1369 (1991); Parker v. Volkswagenwerk Aktiengesellschaft, 245 Kan. 580, 589, 781 P.2d 1099 (1989) (citing 1 Hazard and Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct, Rule 1.10, p. 191 (1988 Supp.)). Kansas case law construing the Model Rules is controlling. Graham v. Wyeth Laboratories, 906 F.2d at 1423. HH & R's implementation of the Chinese Wall does not avert its disqualification.

IT IS THEREFORE ORDERED that the defendants' motion to disqualify (Dk. 446) HH & R from representing any of the plaintiffs in this action is granted.