Associated Wholesale Grocers, Inc. v. Americold Corp.

• Decision Date: 05 March 1999
• Docket Number: No. 80,786,80,786
• Citation: 266 Kan. 1047,975 P.2d 231
• Parties: ASSOCIATED WHOLESALE GROCERS, INC., et al., Appellees, v. AMERICOLD CORPORATION, et al., Defendants, and Northwestern Pacific Indemnity Company, Appellant.
• Court: Kansas Supreme Court

Page 231

975 P.2d 231

266 Kan. 1047

ASSOCIATED WHOLESALE GROCERS, INC., et al., Appellees, v. AMERICOLD CORPORATION, et al., Defendants, and Northwestern Pacific Indemnity Company, Appellant.

No. 80,786.

Supreme Court of Kansas.

March 5, 1999.

Syllabus by the Court

Stephen A. Cozen, of Cozen and O'Connor, of Philadelphia, Pennsylvania, argued the cause, and David R. Strawbridge, Thomas G. Wilkinson, Jr., and Gaele Mclaughlin Barthold, of the same firm, M. Warren McCamish, of Williamson & Cubbison, of Kansas City, Kansas; and James D. Oliver and Robert L. Howard, of Foulston & Siefkin, L.L.P., of Topeka, were with him on the briefs for appellant.

John M. Duggan, of Duggan, Shadwick & Doerr, of Kansas City, Missouri, argued the cause, and Jay T. Shadwick, of the same firm; Jo Ann Butaud, of Evans & Mullinix, P.A., of Lenexa; John E. North, Jr., and Pamela K. Black, of McGrath, North, Mullin & Kratz, P.C., of Omaha, Nebraska; Edward J. Barbosa, William J. Gotfredson, and Edward L. Smith, of Knipmeyer, McCann, Smith, Manz & Gotfredson, of Kansas City, Missouri; and James A. Durbin, and Richard N. Bien, of Swanson, Midgley, Gangwere, Kitchin & McLarney, L.C., of Kansas City, Missouri, were with him on the brief for appellees.

SIX, J.:

This is an attorney disqualification case under MRPC 1.9, Conflict of Interest: Former Client, (1998 Kan. Ct. R. Annot. 320), and MRPC 1.10, Imputed Disqualification (1998 Kan. Ct. R. Annot. 322). Northwestern Pacific Indemnity Company (NPIC) appeals the disqualification of its trial counsel Cozen and O'Connor of Philadelphia. The district court found an implied attorney-client relationship between a member of that firm and one or more of the plaintiffs here. (NPIC's Kansas counsel was not disqualified.)

Our jurisdiction is under K.S.A. 20-3017 (a motion by a party to transfer).

The question is: Did the district court err in its disqualification decision?

The answer is, "Yes."

FACTS

Our background journey requires a brief return to Associated Wholesale Grocers, Inc. v. Americold Corp., 261 Kan. 806, 934 P.2d 65 (1997) (Americold I ). Americold I involved lawsuits arising out of a fire in Americold's 170 acre underground cold storage facility. Americold had primary general liability coverage for tenant claims of $1 million through National Union Fire Insurance Company (National Union), with $25 million excess coverage through NPIC. TIG Insurance Company (TIG) provided $15 million excess coverage to National Union and NPIC. National Union eventually tendered the $1 million policy limit to plaintiffs, who were various tenants and their subrogated insurers, referenced here as Associated Wholesale Grocers, Inc., et al. (Associated).

Although the fire burned only a part of the stored goods, smoke and other contaminants discharged by the fire damaged other goods stored in the facility. NPIC disclaimed coverage, reasoning that the claimed damages were excluded by the policy's pollution exclusion.

Concluding that NPIC and TIG were denying coverage, Americold negotiated a settlement with Associated. The settlement included consent judgments totalling $58,670,754, a covenant by Associated not to execute against the assets of Americold, and an assignment of Americold's claims against its excess insurers, NPIC and TIG. After the settlement, Associated filed a garnishment action against NPIC. The district court granted summary judgment in favor of Associated. We reversed. TIG settled while Americold I was on appeal. Material issues of fact remained "as to the good faith and reasonableness of the settlement amount resulting in the consent judgments, the excess insurer's bad faith in denial of coverage and rejection of settlement within the policy limits, and the liability of the excess insurer for the judgments over policy limits." 261 Kan. 806, Syl. p 15, 934 P.2d 65. We held, however, that the pollution exclusion in the NPIC policy did not exclude coverage. 261 Kan. at 811, 934 P.2d 65.

Disqualification on Remand

On remand from Americold I, NPIC retained the Cozen and O'Connor firm as counsel. According to NPIC, new counsel was engaged because there was a substantial likelihood that prior counsel would be called as witnesses to answer allegations of insurer bad faith. Associated sought to disqualify Cozen and O'Connor, alleging a member of the firm (Daniel Q. Harrington) had an implied attorney-client relationship with Associated.

Cozen and O'Connor, although not involved in Americold I, represented two subrogated insurers in federal court with bailment claims against Americold. Associated's Americold I claims were in state court. Harrington did not name NPIC in his client's suit against Americold. He settled the bailment claims in 1994, separately from the Associated tenant claims settlement at issue in Americold I. (Before oral argument in Americold I, NPIC and two of the Associated plaintiffs, Arkwright and Doskocil, filed a joint motion requesting remand to allow the district court to vacate judgments totaling $26,887,191.) The remaining Associated plaintiffs objected. We granted the motion. The Arkwright and Doskocil judgments against NPIC were vacated. 261 Kan. at 820, 934 P.2d 65.

In early 1993, Associated's tenant claims in state court and the federal cases were consolidated for discovery. Harrington and other plaintiffs' attorneys entered into a February 16, 1993, Agreement Regarding Exchange of Information (the Agreement). The Agreement provided that the listed parties

"have a joint interest in pursuing litigation against Americold Corporation and Americold Services Corporation (Americold Defendants), arising out of the fire that occurred on December 28, 1991, at the Americold Storage Facility in Kansas City, Kansas;

"WHEREAS, exchange of information obtained or developed by the parties will further the parties joint interest in pursuing "Now, therefore, the parties identified in this Agreement through their respective, undersigned attorneys, agree:

their claims against the Americold Defendants.

1. All information exchanged regarding the fire will be exchanged pursuant to the joint interest of the parties; and

2. By exchanging information the parties do not intend to waive and are not waiving any work product protection, attorney-client privilege or other protection or privilege applicable to information obtained or developed by any party; and

3. This agreement does not require any party to exchange information.

Dated: February 16, 1993."

(The signatures of Harrington and several counsel for Associated in this case followed.)

The Parties' Claims

According to Associated, Harrington also shared trial strategy, legal research, and draft briefs of arguments opposing Americold's motion for summary judgment, and participated in conference calls and meetings. In support of these allegations, Associated submitted affidavits from three attorneys, John Duggan, William Gotfredson, and Edward Barbosa. In a lengthy affidavit, Harrington refutes Associated's contentions concerning his representation. Specifically, he denies ever receiving confidential information or entering into a joint representation agreement with other plaintiffs. Harrington contends that the Agreement was not a "joint representation agreement," but an agreement stating any shared information would remain subject to any applicable attorney-client privilege. According to Harrington, he never received any confidential information. Harrington also draws a distinction between his clients and Associated. Harrington observes his clients sought recovery under Americold's warehouseman's legal liability line of coverage (provided by Home Insurance Company). Associated's claims were asserted under Americold's general liability line of coverage (National Union and NPIC).

Associated admits that neither Harrington nor Cozen and O'Connor were retained to represent any of the Associated plaintiffs. Associated argues, however, that Harrington represented other plaintiffs against Americold "and by agreement shared confidential information of the Plaintiffs." The parties advanced opinions from four prominent attorneys in the legal ethics field. Associated submitted an affidavit from J. Nick Badgerow, Chairman of the Wyandotte County Bar Association Ethics and Grievance Committee and co-author, co-editor of the Kansas Ethics Handbook (Kan. Bar Assoc.1996). Badgerow opined that Cozen and O'Connor had a conflict of interest precluding representation of NPIC based on MRPC 1.6, confidentiality of information (1998 Kan. Ct. R. Annot. 309), and MRPC 1.9. conflict of interest: former client (1998 Kan. Ct. R. Annot. 320). Badgerow reasoned that by the terms of a joint representation agreement: (1) "confidential information was shared among the various plaintiffs" and (2) "a fiduciary duty on the part of each participation (plaintiff and counsel) not to use or disclose any confidential information received from any other party" was created.

NPIC submitted affidavits from: Michael A. Barbara, former Shawnee County District Judge and Professor Emeritus, Washburn University School of Law; Samuel Dash, Professor of Law, Georgetown University, former special counsel to the Watergate Committee, retained by the Independent Counsel appointed to investigate the Whitewater matter as ethics counsel; and Geoffrey C. Hazard, Jr., Trustee Professor of Law, University of Pennsylvania, Sterling Professor of Law Emeritus at Yale University and executive director of the American Law Institute.

Professor Barbara concluded Cozen and O'Connor had no disabling conflict of interest and that there was no basis for disqualification. In Professor Dash's opinion, no ethical or legal rule justifies the disqualification of Harrington or Cozen and O'Connor. Professor Dash reviewed the Agreement and, with the exception of the two in camera exhibits, the other Associated submissions in support of disqualification. In Professor Hazard's

opinion, neither...