Alliedsignal Recovery v. Alliedsignal, Inc.

• Decision Date: 09 August 2006
• Docket Number: No. 2D05-4251.,2D05-4251.
• Citation: 934 So.2d 675
• Parties: ALLIEDSIGNAL RECOVERY TRUST, Petitioner, v. ALLIEDSIGNAL, INC., Respondent.
• Court: Florida District Court of Appeals

934 So.2d 675

ALLIEDSIGNAL RECOVERY TRUST, Petitioner, v. ALLIEDSIGNAL, INC., Respondent.

No. 2D05-4251.

District Court of Appeal of Florida, Second District.

August 9, 2006.

Donald B. Ayer, Gregory M. Shumaker, Edward K.M. Bilich, Michael S. Fried of Jones Day, Washington, D.C.; and John W. Frost, II, of Frost, Tamayo, Sessums & Aranda, P.A., Bartow, for Petitioner.

Benjamin H. Hill, III, and Dennis P. Waggoner of Hill, Ward & Henderson, P.A., Tampa; Steven D. McCormick, PC of Kirkland & Ellis, LLP, Chicago, Illinois; Major B. Harding and John Beranek of Ausley & McMullen, P.A., Tallahassee; Eugene F. Assaf and Craig S. Primis of Kirkland & Ellis, LLP, Washington, D.C., for Respondent.

LaROSE, Judge.

AlliedSignal Recovery Trust (Trust), a group of creditors of Breed Technologies, Inc. (Breed), petitioned this court for certiorari review of an interlocutory order disqualifying its trial counsel, Geoffrey Stewart, in Breed's fraud lawsuit against AlliedSignal, Inc. (AlliedSignal). In an earlier order, we granted the petition and quashed the trial court's order. We take this opportunity to explain our reasoning.

At the outset, we note that "certiorari is the proper remedy to seek review of an order granting or denying a motion to disqualify counsel or a law firm." Gonzalez v. Chillura, 892 So.2d 1075, 1076 (Fla. 2d DCA 2004). After all, an order disqualifying counsel denies the right to choose one's counsel and works a material injury that cannot be remedied on appeal. Id. at 1076-77; City of Lauderdale Lakes v. Enter. Leasing Co., 654 So.2d 645, 646 (Fla. 4th DCA 1995).

The underlying facts are straightforward. Breed manufactured automobile air bag systems. Safety Restraint Systems (SRS), an AlliedSignal division, also manufactured automobile safety products. Breed retained Mr. Stewart, long-time counsel for Breed and its founders, to negotiate the purchase of SRS from Allied-Signal. In late 1997, Breed acquired SRS for $710,000,000.

In mid-1998, Breed allegedly learned that SRS's financial condition was significantly worse than previously represented by AlliedSignal. Breed's financial condition deteriorated and bankruptcy loomed. In 1999, Mr. Stewart advised Breed's founders to restructure their personal financial affairs to avoid potential mismanagement claims by Breed's creditors. Mr. Stewart also conducted an investigation that allegedly revealed that AlliedSignal had concealed critical financial information about SRS and seriously misrepresented SRS's past and projected earnings. In the summer of 1999, Breed, represented by Mr. Stewart, sued AlliedSignal. In defense, AlliedSignal contended that Mr. Stewart concocted his discovery of alleged fraud to insulate Breed's founders from mismanagement claims.

Several weeks after filing suit, Breed filed for bankruptcy protection. As part of Breed's restructuring, the bankruptcy court authorized formation of the Trust to pursue the fraud claims against AlliedSignal on behalf of Breed's creditors. In effect, Breed's claims were transferred to the Trust. "After payment of fees and expenses, any recovery from Allied Signal by the Trust [would] be distributed to Breed's creditors." Allied Signal Recovery Trust v. Allied Signal, Inc., 298 F.3d 263, 266 n. 2 (3d Cir.2002). The Trust retained Mr. Stewart as its counsel.

AlliedSignal moved to disqualify Mr. Stewart. The motion stressed that Mr. Stewart had an extensive and lengthy relationship with Breed and its founders, the fraud claims were based on Mr. Stewart's investigation, and the asset protection advice he gave to Breed's founders created a conflict between him and the Trust. According to AlliedSignal, Mr. Stewart would be a key trial witness or, at a minimum, an impermissible "unsworn witness."¹

The Trust opposed the motion. It argued that disqualification was limited to two situations: (1) where the lawyer is a necessary witness for his own client; or (2) where the attorney, when called as a witness for the other side, will provide testimony prejudicial to his client and the client either does not consent to waive the conflict or does consent and the court finds the consent unreasonable.

Although the Trust saw no conflict, it waived any potential conflict of interest that Mr. Stewart might have in representing the Trust. Further, the Trust disavowed any need or intention to call Mr. Stewart to testify at trial. The Trust certainly did not act injudiciously; the trustee consulted with Trust beneficiaries, sophisticated business entities, and financial institutions represented by competent lawyers. They supported Mr. Stewart's continued role as counsel, recognizing his expertise, detailed knowledge of the legal and factual issues in the case, and familiarity with Breed and its personnel. Nevertheless, the trial court disqualified Mr. Stewart. It concluded that Mr. Stewart was a necessary witness for AlliedSignal, was likely to be an "unsworn witness" at trial, and that any conflict waiver by the Trust was unreasonable.

Disqualification is an extraordinary remedy to be used sparingly. Therriault v. Berghmans, 788 So.2d 1119, 1120 (Fla. 2d DCA 2001); Arcara v. Philip M. Warren, P.A., 574 So.2d 325, 326 (Fla. 4th DCA 1991). Disqualification is an "immensely unusual remedy." Whitener v. First Union Nat'l Bank of Fla., 901 So.2d 366, 370 (Fla. 5th DCA 2005). An order disqualifying counsel "`must be tested against the standards imposed by [the] Rules of Professional Conduct.'" Tobkin v. Tobkin, 843 So.2d 961, 962 (Fla. 4th DCA 2003) (quoting City of Lauderdale Lakes, 654 So.2d at 646); accord Ray v. Stuckey, 491 So.2d 1211, 1213 (Fla. 1st DCA 1986); Cazares v. Church of Scientology of Cal., Inc., 429 So.2d 348, 349 (Fla. 5th DCA 1983). Measured against these standards, Mr. Stewart's disqualification was inappropriate.

The Rules Regulating the Florida Bar provide:

Rule 4-3.7. Lawyer as witness

(a) When Lawyer May Testify. A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness on behalf of the client except where:

(1) the testimony relates to an uncontested issue;

(2) the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony;

(3) the testimony relates to the nature and value of legal services rendered in the case; or

(4) disqualification of the lawyer would work substantial hardship on the client.

Rule 4-3.7 prohibits a lawyer from serving as trial counsel for a client where he is likely to be a necessary witness for that client. "Combining the roles of advocate and witness can prejudice the opposing party and can involve a conflict of interest between the lawyer and client." Rule 4-3.7 cmt. This dual role could create a conflict if the lawyer's testimony is at odds with that of his client. Moreover, the dual role could prejudice the opposing party by bolstering the lawyer's testimony for his client because it comes from an advocate. See Scott v. State, 717 So.2d 908, 910 (Fla.1998).

Rule 4-3.7 is inapplicable here, however; the rule contemplates the lawyer testifying on his client's behalf. The Trust conceded that Mr. Stewart was not a necessary witness and announced that it would not call him to testify. Nonetheless, the trial court disqualified Mr. Stewart because of potential prejudice to AlliedSignal if it called him to testify: "[T]he court's focus is on prejudice to the opposing party who calls him as a witness, not on the prejudice to his own client contemplated by the analysis under Rule 4-3.7." Neither the rule nor its comment supports disqualification on this basis.

As for AlliedSignal's concern that Mr. Stewart's prior representation of Breed's founders creates a conflict with the Trust, we do not quarrel with the general rule that a lawyer may not represent a client if such representation will be directly or materially adverse to the interests of a current or former client. See Rules Regulating the Florida Bar 4-1.7, 4-1.9:

Rule 4-1.7. Conflict of interest; general rule

(a) Representing Adverse Interests. A lawyer shall not represent a client if the representation of that client will be directly adverse to the interests of another client, unless:

(1) the lawyer reasonably believes the representation will not adversely affect the lawyer's responsibilities to and relationship with the other client; and

(2) each client consents after consultation.

....

Rule 4-1.9. Conflict of interest; former client

A lawyer who has formerly represented a client in a matter shall not thereafter:

(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation. . . .

The Trust retained Mr. Stewart solely to pursue claims against AlliedSignal and waived any conflict of interest. See rule 4-1.7 cmt. consultation and consent ("A client may consent to representation notwithstanding a conflict."). Any recovery would inure to the benefit of the Trust and, ultimately, to Breed's creditors. Any potential claim against Breed's founders was not a Trust asset; such a claim, if any, might belong to the reorganized Breed, an entity not represented by Mr. Stewart.² Under the circumstances, therefore, it is not evident that any conflict existed. Assuming that Mr. Stewart provided asset protection planning for Breed's founders, AlliedSignal failed to articulate how that advice created a conflict. It seems obvious that Breed's founders and the Trust shared an interest in securing a meaningful recovery from AlliedSignal.

We discern that AlliedSignal's central conflict concern is that Mr. Stewart will be a key witness for AlliedSignal, especially as to his investigation of AlliedSignal's alleged fraud. On our record, we are not persuaded that this rationale warrants disqualification. We find Allstate...