Barragree v. Tri-County Elec. Co-op., Inc.

• Decision Date: 12 December 1997
• Docket Number: No. 78075,TRI-COUNTY,78075
• Citation: 950 P.2d 1351,263 Kan. 446
• Parties: Flora BARRAGREE, et al., Appellees, v.ELECTRIC COOPERATIVE, INC., Appellant.
• Court: Kansas Supreme Court

Page 1351

950 P.2d 1351

263 Kan. 446

Flora BARRAGREE, et al., Appellees, v. TRI-COUNTY ELECTRIC COOPERATIVE, INC., Appellant.

No. 78075.

Supreme Court of Kansas.

Dec. 12, 1997.

Syllabus by the Court

1. Under the standard of review for an attorney disqualification case, an appellate court decides whether the district court's findings of fact are (1) supported by substantial competent evidence and (2) sufficient to support the conclusions of law. Appellate review of conclusions of law is unlimited.

2. A court, in deciding a motion to disqualify counsel, must balance several competing considerations, including the privacy of the attorney-client relationship, the prerogative of a party to choose counsel, and the hardships that disqualification imposes on the parties and the entire judicial process.

3. In determining whether disqualification under the Model Rules of Professional Conduct (MRPC) 1.7(a) is required, various additional factors are to be examined, including (1) the nature of the ethical violation, (2) the prejudice to the parties, including the extent of actual or potential delay in the proceedings, (3) the effectiveness of counsel because of the violations, (4) the public's perception of the profession, and (5) whether 4. In a motion to disqualify under MRPC 1.7(a), the general rule that the burden of proof is on the moving party applies.

a motion to disqualify has been used as a tactical device or for harassment.

5. An MRPC 1.9(b) motion to disqualify requires proof that (1) the attorney sought to be disqualified had acquired confidential information during the former attorney-client relationship and (2) the confidential information could be used to the disadvantage of the former client in the current matter. There is no irrebuttable presumption that the attorney acquired such information, absent a substantial relationship between the current and former matters.

6. In order for confidential information to be used to the disadvantage of the former client under MRPC 1.9(b), such information must be sufficiently relevant to the current matter to cause disadvantage . The relevancy requirement is similar to the materiality requirement under MRPC 1.10(b).

7. In an MRPC 1.9(b) motion to disqualify, an evidentiary hearing is required on the question of whether relevant confidential information was acquired during the former representation. The type of factual inquiry is similar to an MRPC 1.10(b) motion to disqualify evidentiary hearing. The factual inquiry will necessarily involve disclosure of the alleged confidential information. Tools such as conducting a portion of the hearing out of the presence of the party against whom confidentiality is to be protected or an in camera inspection are available to the district court to prevent disclosure of the information to adverse parties and counsel.

Ken W. Strobel, of Williams, Strobel, Malone, Mason & Ralph, P.A., Dodge City, argued the cause and was on the brief, for appellant.

Jeffrey L. Carmichael, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause, and Jana D. Abbott, of the same firm, and Terry E. Cordes and Gary S. Hess, of Cordes & Hess, Meade, were with him on the brief, for appellees.

SIX, Justice:

This is an attorney disqualification case. The law firm of Sharp, McQueen, McKinley, Dreiling & Morain, P.A. (Sharp, McQueen), of Liberal, Kansas, has been disqualified from representing Tri-County Electric Cooperative, Inc., (Tri-County) in defending against damage claims by plaintiffs Chris, Loyd, and Bobbie Smith (Smiths) arising from a range fire on the Smiths' property. Our jurisdiction is under K.S.A. 20-3018(c) on a transfer from the Court of Appeals of an interlocutory appeal.

We address, for the first time, a Model Rules of Professional Conduct (MRPC) 1.7(a) (1997 Kan. Ct. R. Annot. 297) and MRPC 1.9(b) (1997 Kan. Ct. R. Annot. 304) civil litigation disqualification claim. We consider two issues. Did the district court err in finding that: (1) an ongoing attorney-client relationship existed between Sharp, McQueen and the Smiths under MRPC 1.7(a), creating a conflict of interest requiring disqualification and (2) the Smiths disclosed to Sharp, McQueen confidential financial information that would be detrimental to the Smiths in settlement negotiations in the current controversy, creating a conflict of interest under MRPC 1.9(b)?

We reverse the district court. Sharp, McQueen is not disqualified.

FACTS

An understanding of the disqualification claims, the counter arguments, and our resolution requires a detailed factual recitation.

A range fire in February 1996 near the Kansas/Oklahoma border burned approximately 25,000 acres, including 2,000 to 3,000 acres owned by the Smiths. Chris is the son of Bobbie. Loyd is Chris's uncle. The three are engaged in a family farming operation. On April 23, 1996, the Kansas landowners, including the Smiths and 34 others (3 more were added later), joined together as plaintiffs in a damage action filed against Tri-County in the district court of Meade County. The petition alleged that the fire was caused by sparks from an electrical distribution line negligently installed, operated, or maintained by Tri-County. Two law firms Kerry McQueen, the Sharp, McQueen attorney handling Tri-County's defense, wrote to the Smiths' counsel on May 20, 1996, advising that Sharp, McQueen had in the past represented some of the Smiths in unrelated matters. McQueen requested that plaintiffs' counsel notify him if the Smiths believed a conflict existed. Morris, Laing advised McQueen on July 23, 1996, that Chris Smith was concerned about Sharp, McQueen continuing to represent Tri-County. Chris believed Sharp, McQueen had obtained sensitive confidential information concerning his farming operations and financial affairs. He thought the information could be used to his detriment in the pending lawsuit. Chris claimed to have dealt with Sharp, McQueen as recently as April 1996. Morris, Laing requested that Sharp, McQueen withdraw as counsel for Tri-County.

represented all plaintiffs: Morris, Laing, Evans, Brock & Kennedy, Chartered (Morris, Laing), of Wichita, and Cordes & Hess of Meade. A third firm, Lindner, Bolt & Marquez of Garden City, represented six of the plaintiffs, but not the Smiths. On May 17, 1996, Tri-County contacted Sharp, McQueen and requested that the firm handle its defense. Sharp, McQueen filed an appearance on May 20, 1996, and an answer on June 5, 1996. Discovery commenced.

McQueen advised that his firm did not feel there was any conflict of interest, but that he would forward the matter to his client for a decision. McQueen acknowledged that the firm's records showed a brief conference between Chris Smith and attorney Gene Sharp on April 19, 1996. According to Sharp, there were no disclosures relating to either the current lawsuit or other matters that would adversely affect the Smiths. Tri-County waived any conflict of interest.

On July 30, 1996, the Smiths filed a motion to disqualify Sharp, McQueen, alleging conflicts of interest under MRPC 1.7(a), 1.9(b) and 1.10(a) (1997 Kan. Ct. R. Annot. 305). The motion included a supporting affidavit of the Smiths describing the history of the attorney-client relationship with Sharp, McQueen beginning in 1990. The Smiths considered Sharp as the attorney for their business and expected to continue to do so.

Tri-County opposed the motion. Sharp filed a counter-affidavit, claiming that his representation of Chris and Bobbie Smith ended on April 5, 1996. He saw no conflict of interest.

Jerry Freck, an accountant for the Smiths, testified. Freck attended a meeting with Sharp and the Smiths in late 1994. According to Freck, the purpose of the meeting was to discuss the Smiths' financial situation and to make financial files available to Sharp. Sharp was representing the Smiths in a Meade County foreclosure action filed by Great Plains Federal Credit Union (Great Plains foreclosure). Freck brought financial information and projections regarding the Smiths' operation. Sharp selected certain documents for copying by his secretary. Freck did not know which documents were copied. Freck believed that the information was confidential.

Chris testified that Loyd and Bobbie first sought Sharp's assistance in early 1990 regarding a farm lease dispute. Chris recalled attending a meeting with Sharp, Bobbie, and Loyd. Sharp helped resolve the problem without litigation. Mike Dreiling, another attorney at Sharp, McQueen, prepared a title opinion for Loyd in early 1990. Chris produced two canceled checks drawn on Loyd's account made out to Sharp, dated June 19, 1990, for $109.50 and May 17, 1991, for $60. One check was for the title opinion and the other was probably for the work on the lease dispute. Chris provided tax returns and financial statements to Tammie Kurth of Sharp, McQueen, who represented Chris and his wife in a 1993 adoption. In early 1995, Chris contacted Sharp regarding a lawsuit filed by Gigot Irrigation against Chris' corporation, Bar Diamond Ranch (Gigot Irrigation matter), concerning an unpaid bill. The collection suit was resolved in mid-1995. The Great Plains foreclosure matter, in which Sharp represented Chris, Bobbie, and the corporation, lasted through April 1996.

Chris recalled the 1994 meeting attended by Freck, Chris, Bobbie, Loyd, and Sharp. Sharp's involvement in representing Chris in the Great Plains foreclosure action was limited to obtaining extensions of time to respond.

Sharp withdrew from the case in August 1995, and it was settled without Sharp's involvement. However, Sharp prepared documents for the land transaction that was part of the settlement. The proceeds from the transaction were to be applied to the Smiths' debt and closing costs. Included in the expenses paid by the sale proceeds were Sharp, McQueen legal bills, ($786 [the Great Plains foreclosure settlement, real estate transaction...