Ageloff v. Noranda, Inc.

• Decision Date: 04 September 1996
• Docket Number: C.A. No. 95-0325L.
• Citation: 936 F. Supp. 72
• Parties: Lester AGELOFF, Robert Snyder and Herbert Stern, Plaintiffs, v. NORANDA, INC. and Noranda Finance, Inc., Defendants.
• Court: U.S. District Court — District of Rhode Island

936 F. Supp. 72

Lester AGELOFF, Robert Snyder and Herbert Stern, Plaintiffs, v. NORANDA, INC. and Noranda Finance, Inc., Defendants.

C.A. No. 95-0325L.

United States District Court, D. Rhode Island.

September 4, 1996.

Joseph V. Cavanagh, Jr., Michael W. Carroll, Blish & Cavanagh, Providence, RI, Paul A. Izzo, Erik Lund, Posternak, Blankstein & Lund, Boston, MA, for Plaintiffs.

Mark A. Pogue, Edwards & Angell, Providence, RI, David C. Greer, John F. Haviland, Bieser, Greer & Landis, Dayton, OH, for Defendants.

MEMORANDUM AND ORDER

LAGUEUX, Chief Judge.

This matter is before the Court on the appeal of defendants, Noranda, Inc. and Noranda Finance, Inc. ("Noranda"), from Magistrate Judge Timothy M. Boudewyns' Order dated November 14, 1995 denying Noranda's motion to admit out-of-state counsel pro hac vice. At a hearing held on October 30, 1995, the magistrate judge held that a prior attorney-client relationship had been established among plaintiffs Lester Ageloff, Herbert Stern and Robert Snyder (collectively "plaintiffs" or "Executives"), and proposed defense counsel, David Greer and John Haviland, as a result of a joint defense agreement entered into by the now adverse parties in May 1992. For the reasons discussed below, the magistrate judge's order is reversed, and the motion to admit Greer and Haviland pro hac vice is granted.

I. Background

Lester Ageloff, Herbert Stern, Robert Snyder and Samuel Perelman¹ are former senior executives of Carol Cable Co., Inc. ("Carol Cable"), then a Noranda subsidiary. In this capacity, the Executives conducted negotiations with the Penn Central Corporation ("Penn Central") for the sale of Carol Cable and the assets of Noranda Inc.'s Carol Canada division. During negotiations, the Executives supplied Penn Central with documents, materials and other information pertaining to Carol Cable. In 1990, Penn Central purchased Carol Cable and the assets of Carol Canada from Noranda for approximately $155 million.

Plaintiffs stayed on as senior executives of Carol Cable pursuant to three-year employment agreements which were guaranteed by Penn Central. By November of 1990, however, Penn Central had appointed a new management team at Carol Cable and had discharged the Executives. Despite this, Penn Central continued to make payments to the plaintiffs under their employment agreements.

In May or June 1991, at Penn Central's request, the Executives canceled the employment agreements and replaced them with severance agreements which were similarly guaranteed. The severance agreements provided plaintiffs with essentially the same financial benefits as those to which they were entitled under the employment agreements and endured for the same period of time.

In November 1991, Noranda sued Penn Central in United States District Court in Ohio (the "Ohio Civil Action") asserting breaches and anticipatory breaches of the 1990 Purchase Agreement. Penn Central counterclaimed, alleging that the Executives had made material misrepresentations to Penn Central in connection with the sale of Carol Cable. Noranda chose David C. Greer and John F. Haviland of the Dayton, Ohio law firm of Bieser, Greer & Landis as its counsel.

Soon after, Penn Central pursued the same misrepresentation claims against the Executives and Samuel Perelman in Rhode Island Superior Court ("the Rhode Island Civil Action"). Simultaneously, Penn Central ceased payments to the Executives under the severance agreements. To defend themselves, the Executives employed Erik Lund and Paul Izzo of the Boston, Massachusetts law firm of Posternak, Blankstein & Lund.

Faced with identical misrepresentation claims, Noranda and the Executives entered into an agreement dated May 1, 1992 (the "May 1992 agreement") whereby the Executives agreed to assist Noranda's counsel in coordinating the defense of the Ohio Civil Action. In return, Noranda extended a $100,000 line of credit to the Executives to cover defense costs arising out of the Rhode Island Civil Action. Eventually, both Noranda and the Executives reached settlement agreements with Penn Central. The Ohio Civil Action was settled by Noranda's payment of $21.4 million to Penn Central. The Rhode Island Civil Action appears to have been resolved by Penn Central's partial payment of money owed to the Executives under the guaranteed severance agreements, although the terms of the settlement are unclear.

In the present action, the Executives claim that Noranda failed to meet financial obligations allegedly owed to them under the May 1992 agreement. Noranda counterclaims, seeking contribution for the $21.4 million settlement payment which Noranda was allegedly required to make as a result of the Executives' misrepresentations to Penn Central.

On August 30, 1995 Noranda moved, through local counsel, to have Greer and Haviland admitted pro hac vice in this case pursuant to Local Rule 5(c). Plaintiffs objected and the matter was referred to Magistrate Judge Boudewyns for determination. He held that by cooperating with Noranda's counsel in the defense of the Ohio Civil Action, plaintiffs had established an attorney-client relationship with Noranda's attorneys. Since Noranda's counterclaims involve the same misrepresentation claims asserted in the prior two lawsuits, the magistrate judge concluded that admission of Greer and Haviland would violate Rhode Island Rules of Professional Conduct ("Professional Rules") 1.9,² applicable in this Court by virtue of Local Rule 4(d).

Thus, on November 14, 1995, the magistrate judge approved an order that denied Noranda's pro hac vice motion, and also (1) disqualified attorneys Greer and Haviland from representing Noranda in this lawsuit, (2) enjoined Noranda from consulting Greer and Haviland for any purpose concerning the first, second and third counts of their counterclaim,³ and (3) ordered Noranda not to use any information obtained by Greer and Haviland for any purpose related to this litigation.

After hearing oral argument on the appeal by Noranda, the Court took this matter under advisement. The appeal is now in order for decision.

II. Standard of Review

A district judge may reconsider any pretrial matter designated for hearing by a magistrate judge "where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1)(A) (1994); Local Rule 32(b)(2), see also Fed.R.Civ.P. 72(a). "A finding is clearly erroneous when it is against the clear weight of the evidence, or when the court has `a definite and firm conviction that a mistake has been committed.'" Blinzler v. Marriott International, Inc., 857 F.Supp. 1, 3 (D.R.I. 1994) (citing Holmes v. Bateson, 583 F.2d 542, 552 (1st Cir.1978)).

III. Analysis

In the Court's view, there are only two grounds on which the disqualification of Greer and Haviland can be predicated. First, although both sides agree that the May 1992 agreement did not create an express attorney-client relationship between the Executives and Noranda's counsel, an attorney-client relationship could arise by implication from that agreement and/or the conduct of the parties. Alternatively, if Greer and Haviland's representation of Noranda jeopardized the confidentiality of a presently existing joint defense privilege, an implied attorney-client relationship could arise for disqualification purposes.

A. The Existence of An Implied Attorney-Client Relationship Arising From the Agreement or Conduct.

Noranda argues that the magistrate judge erred in holding that an attorney-client relationship arose between the Executives and Noranda's counsel, therefore, his disqualification of Greer and Haviland under the Rhode Island Rules of Professional Conduct was improper.

Rule 1.9 prohibits a lawyer from successively representing different clients in matters that are substantially related and adverse. In order to determine whether a situation requires attorney disqualification under Rule 1.9, a court needs to determine "(i) whether there is an attorney-client relationship and (ii) if so, whether there is a substantial relationship between the former representation and present relationship." See Polyagro Plastics, Inc. v. Cincinnati Milacron, Inc., 903 F.Supp. 253, 256 (D.P.R. 1995) (citations omitted). Both parties agree that the subject matter of the prior joint representation and Noranda's present counterclaims are the same. Consequently, resolution of the issue turns on whether an attorney-client relationship, in fact, was created between the Executives and Greer and Haviland with regard to the Ohio Civil Action.

The First Circuit recently noted that "the Rhode Island Supreme Court has often stated that an attorney-client relationship is contractual in nature, and thus is the product of an agreement of the parties and may be implied from their conduct." R.I. Depositors Economic Protection Corp. v. Hayes, 64 F.3d 22, 27 (1st Cir.1995). To imply an attorney-client relationship, the law requires more than an individual's subjective belief that the person with whom he is dealing has become his lawyer. Id. Rather, "if such a belief is `to form a foundation for the implication of a relationship of trust and confidence, it must be objectively reasonable under the totality of the circumstances.'" Id. (quoting Sheinkopf v. Stone, 927 F.2d 1259, 1260 (1st Cir.1991)).

While not determinative, the fact that the Executives retained separate counsel and did not pay Noranda's lawyers for services are indicia that an attorney-client relationship did not exist. See U.S. v. Bay State Ambulance and Hospital Rental Service, Inc., 874 F.2d 20, 28 (1st Cir.1989). Also relevant to the inquiry is the intent of the alleged client and the attorney. Id. at 28-29. In Ageloff and Stern's virtually identical affidavits,⁴ they state that they "previously enjoyed an attorney-client relationship with attorneys David Greer and John Haviland", clearly a legal conclusion. Yet in these same documents they...