Culebras Enterprises Corp. v. Rivera-Rios

• Decision Date: 03 November 1987
• Docket Number: Nos. 87-1562,RIVERA-RIOS,87-1659,s. 87-1562
• Parties: CULEBRAS ENTERPRISES CORPORATION, et al., Plaintiffs, Appellants, v. Miguel A., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 94

846 F.2d 94

56 USLW 2650

CULEBRAS ENTERPRISES CORPORATION, et al., Plaintiffs, Appellants, v. Miguel A. RIVERA-RIOS, et al., Defendants, Appellees.

Nos. 87-1562, 87-1659.

United States Court of Appeals, First Circuit.

Heard Nov. 3, 1987.

Decided May 9, 1988.

Jaime Sifre-Rodriguez with whom Cepeda, Sanchez-Betances & Sifre, Hato Rey, P.R., was on brief for plaintiffs, appellants.

Reina Colon De Rodriguez, Asst. Sol. Gen., Dept. of Justice, with whom Rafael Ortiz Carrion, Sol. Gen., and Norma Cotti Cruz, Deputy Sol. Gen., were on brief for defendants, appellees.

Before CAMPBELL, Chief Judge, BOWNES and BREYER, Circuit Judges.

LEVIN H. CAMPBELL, Chief Judge.

This is an attorneys' fees case which presents a novel issue: can plaintiffs, two of whose attorneys rendered pretrial legal services at a time when it was known the attorneys would be called as plaintiffs' witnesses at trial, recover fees for those services under 42 U.S.C. Sec. 1988 (1982)? The district court disallowed the challenged fees as a sanction for the two attorneys' believed unethical conduct. Culebras Enterprises Corp. v. Rivera Rios, 660 F.Supp. 540 (D.P.R.1987). It concluded that they had violated the canons of ethics by rendering pretrial services in a case in which they would later be witnesses. Because in these circumstances we do not find that the attorneys violated the relevant canons of ethics, we vacate the district court's judgment and remand.

I.

Plaintiffs-appellants Culebras' Enterprises, Inc., Vango, Inc., Nango, Inc., and Covan, Inc., are landowners on the island of Culebra, off the east coast of Puerto Rico. In 1974 they subdivided their property into agricultural-purposes-lots of five cuerdas ¹ and attempted to sell them. On December 1, 1974, the land was zoned by the Puerto Rico Planning Board primarily as "P," for public use only, and the rest as "RO-25-C," allowing only one agricultural residence per 25 cuerdas. The effect of these classifications, plaintiffs alleged, was to "freeze" the property without any compensation for an indefinite time, making the land unmarketable. Plaintiffs filed this 42 U.S.C. Sec. 1983 (1982) action in 1979 against the members of the Puerto Rico Planning Board and the Culebra Conservation and Development Authority, alleging that the "P" and "RO-25-C" zoning amounted to an unconstitutional deprivation of their property without just compensation. Plaintiffs sought inverse condemnation damages and an injunction restraining defendants from further depriving them of their property.

After extensive settlement negotiations, the parties submitted a Partial Settlement Stipulation dated August 16, 1984. Pursuant to the settlement, all "P" land was rezoned "RO-25-C." In addition, defendants specifically agreed to allow plaintiffs to proceed with single residence development of their original five-cuerda lots, notwithstanding the conflicting zoning requirement. The immediate effect of the agreement was to make plaintiffs' land marketable again. The landowners' rights to damages and attorneys' fees was reserved for trial. On June 28, 1985, the district court denied plaintiffs' claim for damages and attorneys' fees. In light of our opinion in Ortiz De Arroyo v. Romero Barcelo, 765 F.2d 275 (1st Cir.1985), the district court reconsidered its decision disallowing attorneys' fees. The court again dismissed the damages claim but reversed itself on the denial of attorneys' fees, and ordered plaintiffs to file a verified petition for attorneys' fees. The dismissal of the damages claim was appealed to this court. We affirmed the district court. Culebras Enterprises Corp. v. Rivera Rios, 813 F.2d 506 (1st Cir.1987).

Plaintiffs requested $241,601.50 in attorneys' fees and $32,714.79 in costs. A total of five attorneys, five law clerks, and one paralegal claimed fees for working on this case at various times between 1978 and 1984. Edward M. Borges and Raymond C. O'Neill, partners in the law firm of O'Neill & Borges, personally accounted for $101,271.50 of the requested fees. Another member of O'Neill & Borges, Walter Klasson, accounted for $62,425. Two other attorneys, Max Ramirez de Arrellano and Jaime Sifre Rodriguez, who were counsel of record and who are not members of O'Neill & Borges, claimed fees totalling $56,815. The remaining $21,090 was ascribed to work done by law clerks and a paralegal.

O'Neill and Borges are stockholders and officers of the four plaintiff corporations and had been expected to testify at trial. At an early stage of the litigation, they withdrew as counsel of record and engaged the Sifre firm to represent plaintiffs at trial. Sifre was thereafter counsel of record. Although not plaintiffs' counsel of record, and although never planning to act or acting as courtroom counsel, O'Neill and Borges performed much of the pretrial work, including discovery, for plaintiffs. The district court concluded that their participation as lawyers had been unethical and therefore, as a sanction, disallowed plaintiffs' request for attorneys' fees for their work and for the work of others associated with the law firm of O'Neill and Borges. In addition, the district court reduced by 50 percent the attorneys' fees of the other attorneys based on the fact that plaintiffs had only partially prevailed. Plaintiffs appeal from the district court's judgment denying the attorneys' fees requested for the work done by O'Neill and Borges and their law firm. Plaintiffs also appeal from the district court's reduction by 50 percent of the attorneys' fees of the other attorneys.

II.

The district court denied fees for O'Neill, Borges, and other members of the O'Neill & Borges law firm, on the ground that, since they were potential witnesses, their participation as lawyers was unethical even though others were counsel of record and were designated to serve as trial counsel. The court relied on Rule 5-101(B) of the ABA Code of Professional Responsibility ² and Canon 22 of the Puerto Rico Canons of Professional Ethics. ³ These canons embody aspects of the "advocate-witness" ethical rule, which limits the right of a lawyer to represent a client once it appears that he or she may be called as a witness at trial.

In the instant case, O'Neill and Borges expected all along to be witnesses at trial. That they were not in fact called as witnesses was because aspects of the case requiring their testimony were settled prior to trial. To avoid running afoul of the advocate-witness rule, plaintiffs had engaged as their trial counsel another law firm. Nonetheless, O'Neill and Borges performed much pretrial legal work for plaintiffs. Plaintiffs now seek compensation for that work as "prevailing parties" under 42 U.S.C. Sec. 1988.

Plaintiffs complain that in denying compensation to O'Neill and Borges the district court applied the wrong ethical canon. They point out that the local rules of the United States District Court for the District of Puerto Rico incorporate only the recent, more permissive Model Rules of Professional Conduct of the ABA but not the earlier ABA Code of Professional Responsibility. Without explanation, the district court relied upon the latter in deciding this case. The pertinent rule of the Model Rules of Professional Conduct, Rule 3.7, ⁴ only prohibits an attorney-witness from acting as "advocate at a trial." Plaintiffs argue that this rule did not prevent them from acting as plaintiffs' "solicitors" prior to the trial.

It is well settled in this circuit that the district court has the duty and responsibility to supervise the conduct of attorneys who appear before it, and that this court will review the district court's supervisory rulings under an "abuse of discretion" standard. Fiandaca v. Cunningham, 827 F.2d 825, 828 (1st Cir.1987); Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir.1984). Denial of attorneys' fees may be a proper sanction for violation of an ethical canon. Rybicki v. State Board of Election, 584 F.Supp. 849, 860 (N.D.Ill.1984). It is clear, however, that, when sanctioning an attorney for violating the advocate-witness rule, a district court must strike a fair balance between a party's right to select the lawyer of his preference ⁵ and the objectives of the advocate-witness rule under the facts of the particular case. Bottaro v. Hatton Associates, 680 F.2d 895, 897 (2d Cir.1982); General Mill Supply Co. v. SCA Services, Inc., 697 F.2d 704, 717 (6th Cir.1983) (Engel, J., concurring in part and dissenting in part). See also Security General Life Insurance v. Superior Court, 718 P.2d 985, 988 (Ariz.1986).

Here, we agree with plaintiffs that the district court erred in relying upon DR 5-101(B) of the ABA Code of Professional Responsibility. The district court should have applied the less restrictive Rule 3.7 of the Model Rules of Professional Conduct adopted by the ABA in 1983 and subsequently incorporated in the local rules of the Puerto Rico District Court. See In re American Cable Publication, Inc., 768 F.2d 1194, 1196 (10th Cir.1985); General Mill Supply Co. v. SCA Services, Inc., 697 F.2d at 717 n. 1; Freschi v. Grand Coal Venture, 564 F.Supp. 414, 417 n. 2 (S.D.N.Y.1983). While DR 5-101(B) states that a lawyer "shall not accept employment " if he or a member of his law firm ought to be called as a witness, Rule 3.7 only prohibits an attorney from acting "as advocate at a trial " if he ought to be called as witness. (Emphasis supplied.) O'Neill and Borges did not assume, and did not plan to assume, the role of "advocate at a trial" in the case.

Absent promulgation by means of a statute or a court rule, ethical provisions of the ABA or other groups are not legally binding upon practitioners. International Electronics Corp. v. Flanzer, 527 F.2d 1288, 1293 (2d Cir.1975). Local Rule 211.4(b) of the United States District Court for the District of Puerto Rico, where this action was filed, and which was adopted in 1984 and was in force at the time the district court awarded...