Margulies By and Through Margulies v. Upchurch

Decision Date28 January 1985
Docket NumberNos. 19762,19763 and 19776,s. 19762
Citation696 P.2d 1195
PartiesJason Mark MARGULIES, By and Through his Guardian ad Litem, David K. MARGULIES; David K. Margulies; and Janet C. Margulies, Plaintiffs, Respondents, and Cross-Appellants, v. John J. UPCHURCH, M.D.; Carl T. Woolsey, Jr., M.D.; Dan L. Chichester, M.D.; Ob-Gyn Associates, Inc., a Utah professional corporation; St. Mark's Hospital, a Utah corporation; and Dennis L. Morris, M.D., Defendants, Appellants, and Cross-Respondents, v. THIRD JUDICIAL DISTRICT COURT In and For SALT LAKE COUNTY, State of Utah, and The Honorable Dean E. Conder, District Judge, Respondents. John J. UPCHURCH, M.D., Plaintiff, v. THIRD JUDICIAL DISTRICT COURT and The Honorable Dean E. Conder, District Judge, Defendants. Jason Mark MARGULIES, etc., Plaintiffs and Cross-Appellants, v. John J. UPCHURCH, et al.; St. Mark's Hospital, a Utah corporation, Defendants, Appellant, and Cross-Respondents, v. THIRD JUDICIAL DISTRICT COURT and The Honorable Dean E. Conder, District Judge, Respondents.
CourtUtah Supreme Court

District Judge, Respondents.

John J. UPCHURCH, M.D., Plaintiff,

v.

THIRD JUDICIAL DISTRICT COURT and The Honorable Dean E.

Conder, District Judge, Defendants.

Jason Mark MARGULIES, etc., Plaintiffs and Cross-Appellants,

v.

John J. UPCHURCH, et al.; St. Mark's Hospital, a Utah

corporation, Defendants, Appellant, and Cross-Respondents,

v.

THIRD JUDICIAL DISTRICT COURT and The Honorable Dean E.

Conder, District Judge, Respondents.

Nos. 19762, 19763 and 19776.

Supreme Court of Utah.

Jan. 28, 1985.

Elliot J. Williams, David W. Slagle, Salt Lake City, for Morris.

P. Keith Nelson, Salt Lake City, for Upchurch.

Stewart M. Hanson, Jr., Michael W. Homer, Salt Lake City, for Woolsey and Chichester.

Carman E. Kipp, Salt Lake City, for St. Marks.

Donald Holbrook, William B. Bohling, Jeffrey L. Fillerup, Salt Lake City, for Margulies.

David L. Wilkerson, Atty. Gen., for third Dist. Crt DURHAM, Justice:

This is an interlocutory appeal, involving consolidated cases, from an order of the district court denying appellants' (Upchurch, Woolsey, and Chichester) motion to disqualify plaintiffs' counsel in the case of Margulies v. Upchurch. The plaintiffs have filed a cross-appeal challenging the trial court's findings regarding the existence of a conflict of interest on the part of plaintiffs' counsel. We reverse on the appeal and affirm on the cross-appeal.

The law firm of Jones, Waldo, Holbrook & McDonough ("Jones, Waldo") represents the plaintiffs and cross-appellants Margulies in a major medical malpractice action filed in Third District Court. The defendants in that action include the appellants and cross-respondents Upchurch, Woolsey, Chichester, and St. Mark's Hospital. The complaint alleges negligence resulting in severe disabilities (quadriplegia, blindness, brain damage, and cerebral palsy) in the plaintiff Jason Margulies. The claim is for several million dollars in general and punitive damages, which amounts are likely to be in excess of available insurance coverage.

At the time of the entry of the order appealed from, Jones, Waldo was also involved as counsel in a federal case, Diversified Energy/Intermountain Capital Private Drilling Fund 1981-A v. First City National Bank of Midland, No. C84-0041A (D. Utah filed Jan. 17, 1984) (hereinafter cited as "Diversified "). In that case, Jones, Waldo represented the plaintiff Diversified Energy/Intermountain Capital Private Drilling Fund 1981-A ("Diversified Energy"), a Utah limited partnership with nineteen limited partners. Appellants Woolsey and Chichester are limited partners of Diversified Energy. Appellant Upchurch is a stockholder, former officer, and director of Intermountain Capital, a corporation that is co-general partner in Diversified Energy.

In order to become limited partners, Upchurch, Chichester, and Woolsey were all required to submit "suitability" forms outlining their personal financial status and investment experience to Diversified Energy. They were also required to purchase units in Diversified Energy by paying twenty percent of the value of the units in cash and financing the remaining eighty percent by obtaining individual, personal letters of credit. Those letters of credit were subsequently pledged by Diversified Energy to First City National Bank of Midland ("Midland"). Appellant Upchurch, in addition to the above-described participation, also provided Intermountain Capital with personal financial statements and cosigned on lines of credit for the corporation from Midland.

The Margulies' malpractice action was filed in October 1982 and was scheduled for trial in March 1984. In approximately September 1983, David Sundstrom, a co-general partner (along with Intermountain Capital, of which he was president) of Diversified Energy, retained Jones, Waldo as counsel for the partnership. Jones, Waldo informed Sundstrom of the pending medical malpractice suit against three of Diversified's limited partners and requested that Sundstrom attempt to acquire the three limited partners' written consent to Jones, Waldo's representation of Diversified Energy in a lawsuit against Midland. The Diversified litigation was aimed at preventing foreclosure on the individual letters of credit.

Sundstrom discussed the proposed representation with the appellants Woolsey and Upchurch, but failed to acquire their written consent. Chichester was not contacted at all, and he and Woolsey were apparently never informed of the nature and ethical implications of the potential conflict of interest. Upchurch discussed the problem with his individual counsel in the malpractice action and, after being told about the significance of the conflict, declined to consent to Jones, Waldo's undertaking the Diversified litigation. The uncontroverted facts appear to establish that the appellants neither consented to the representation nor affirmatively objected to it at this stage. 1 It is also established that Jones, Waldo never discussed the problem with any of appellants' individual counsel in the malpractice action.

Jones, Waldo filed a complaint in the Diversified case in January 1984. During that same month, the trial court entered an order in the malpractice action regarding discovery efforts by Jones, Waldo, on behalf of the plaintiffs, to obtain detailed information regarding Upchurch's personal and professional finances. Upchurch, upon learning that Jones, Waldo had not withdrawn from either lawsuit, contacted his lawyer, and a motion was made to have the firm disqualified in the Margulies case.

After hearing the motion for disqualification, the trial court prepared a memorandum decision in which it found that: (1) for all practical purposes, the appellants are parties in the Diversified litigation; (2) Jones, Waldo had a conflict of interest in violation of the Utah Rules of Professional Conduct in undertaking its representation in both cases; (3) there was "no willful nor intentional violation of [the] standards" in the rules by Jones, Waldo; and (4) there was not full disclosure to the appellants of the possible effect of the representation on the exercise of Jones, Waldo's professional judgment, as required by Utah Code of Professional Responsibility DR 5-105(C) (1977) and, therefore, any consent to or acquiescence in the representation did not satisfy the rule's requirement regarding exceptions. Further finding that "great inconvenience and problems of delay" would be imposed on the plaintiffs by Jones, Waldo's withdrawal from the malpractice case, the court gave the firm the alternative option of withdrawing from the Diversified case in federal court and submitting to an order prohibiting them from using in the Margulies case any information "gained or available" in connection with the federal court action. The court also found that "in addition to the ethical considerations ..., there is a direct conflict in that in this action the plaintiffs have sought the financial statements of these defendants which was denied by the court but now the access to these very statements is [inherently] included in the federal case." Jones, Waldo withdrew from the federal actions, and an order was subsequently entered as outlined above.

There being relatively few reported decisions from this Court regarding the principles applicable to professional conduct, we look initially to standards of review articulated in other jurisdictions under similar rules of conduct. Trial courts are usually given broad discretion in controlling the conduct of attorneys in matters before the court, Redd v. Shell Oil Co., 518 F.2d 311, 314 (10th Cir.1975); their discretion extends to deciding whether disqualification is a proper sanction after a finding of an ethical violation, W.T. Grant Co. v. Haines, 531 F.2d 671, 676 (2d Cir.1976). Some appellate courts, however, have undertaken review without deference to the trial court on the ground that the interpretation of the ethical rules governing the legal profession involves substantial legal questions. Unified Sewerage Agency v. Jelco Inc., 646 F.2d 1339, 1344 n. 3 (9th Cir.1981); Kramer v. Scientific Control Corp., 534 F.2d 1085, 1088 (3d Cir.1976), cert. denied, 429 U.S. 830, 97 S.Ct. 90, 50 L.Ed.2d 94 (1976); American Roller Co. v. Budinger, 513 F.2d 982, 985 n. 3 (3d Cir.1975) . We believe that the trial court's findings in the instant case generally involve mixed questions of fact and law which, on review, do not require the deference due to findings on questions of pure fact. However, the proper standard of review of that portion of the trial court's order which allowed Jones, Waldo to remain as counsel in the malpractice action is the abuse of discretion standard. See Central Milk Producers Cooperative v. Sentry Food Stores, Inc., 573 F.2d 988, 991 (8th Cir.1978); (W.T. Grant Co. v. Haines, 531 F.2d at 676; Bicas v. Superior Court, 116 Ariz. 69, 69, 567 P.2d 1198, 1198 (Ariz.Ct.App.1977).

The record here adequately supports, and we agree with, the trial court's findings that an attorney-client relationship existed between Jones, Waldo and the appellants; that Jones, Waldo's concurrent representation of the doctors and the Margulies family created a conflict of interest; and that Jones, Waldo did not fully disclose the nature and possible effects of its concurrent representation to the appellants. Furthermore, under the circumstances of this case, we are persuaded that the trial court's...

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