Dresser Industries, Inc., In re

• Decision Date: 21 August 1992
• Docket Number: No. 92-2199,92-2199
• Citation: 972 F.2d 540
• Parties: 1992-2 Trade Cases P 69,952 In re DRESSER INDUSTRIES, INC., Petitioner.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 540

972 F.2d 540

1992-2 Trade Cases P 69,952

In re DRESSER INDUSTRIES, INC., Petitioner.

No. 92-2199.

United States Court of Appeals,

Fifth Circuit.

Aug. 21, 1992.

Robin P. Hartmann, Haynes & Boone, Dallas, Tex., for appellant.

Stephen D. Susman, Houston, Tex., for Baker Hughes, Inc., Et al.

J. Eugene Clements, Porter & Clements, Houston, Tex., for appellee.

Petition for Writ of Mandamus to the United States District Court for the Southern District of Texas.

Before JOLLY, DAVIS, and SMITH, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

In this petition for a writ of mandamus, we determine whether a law firm may sue its own client, which it concurrently represents in other matters. In a word, no; and most certainly not here, where the motivation appears only to be the law firm's self-interest. ¹ We therefore grant the writ, directing the district judge to disqualify counsel. ²

I

The material facts are undisputed. This petition arises from a consolidated class action antitrust suit brought against manufacturers of oil well drill bits. Red Eagle Resources et al. v. Baker Hughes, et al., No. H-91-0627, 1992 WL 170614 (S.D.Tex.) ("Drill Bits ").

Dresser Industries, Inc., ("Dresser") is now a defendant in Drill Bits, charged--by its own lawyers--with conspiring to fix the prices of drill bits and with fraudulently concealing its conduct. Stephen D. Susman, with his firm, Susman Godfrey, is lead counsel for the plaintiff's committee. As lead counsel, Susman signed the amended complaint that levied these charges against Dresser, his firm's own client. ³

Susman Godfrey concurrently represents Dresser in two pending lawsuits. CPS International, Inc. v. Dresser Industries, Inc., No. H-85-653 (S.D.Tex.) ("CPS "), is the third suit brought by CPS International, a company that claims Dresser forced it out of the compressor market in Saudi Arabia. CPS International initially sued Dresser for antitrust violations and tortious interference with a contract. The antitrust claim has been dismissed, but the tort claim is scheduled for trial. Susman Godfrey has represented Dresser throughout these actions, which commenced in 1985. During its defense of Dresser, Susman Godfrey lawyers have had relatively unfettered access to data concerning Dresser's management, organization, finances, and accounting practices. Susman Godfrey's lawyers have engaged in privileged communications with Dresser's in-house counsel and officers in choosing antitrust defenses and other litigation strategies. Susman Godfrey has also, since 1990, represented Dresser in Cullen Center, Inc., et al. v. W.R. Gray Co., et al., a case involving asbestos in a Dresser building, which is now set for trial in Texas state court.

On October 24 and November 24, 1991, Susman Godfrey lawyers wrote Dresser informing it that Stephen Susman chaired the plaintiffs' committee in Drill Bits, that Dresser might be made a Drill Bits defendant, and that, if Dresser replaced Susman Godfrey, the firm would assist in the transition to new counsel. Dresser chose not to dismiss Susman Godfrey in CPS and Cullen Center.

Dresser was joined as a defendant in Drill Bits on December 2, 1991. Dresser moved to disqualify Susman as plaintiffs' counsel on December 13. Both Dresser and Susman Godfrey submitted affidavits and depositions to the district court, which, after a hearing, issued a detailed opinion denying the motion.

The district court noted that Southern District local rule 4B provides that the code of professional responsibility for lawyers practicing in that district is the Code of Responsibility of the State Bar of Texas. Although the court further noted that other district courts look to other codes in deciding motions to disqualify, nevertheless, it concluded that "Dresser's motion to disqualify Susman Godfrey is governed wholly by the Texas Disciplinary Rules of Professional Conduct." The court then focused on Texas Disciplinary Rule 1.06, which provides:

(b) ... [E]xcept to the extent permitted in paragraph (c), a lawyer shall not represent a person if the representation of that person:

(1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer's firm; or

(2) reasonably appears to be or become adversely limited by the lawyer's or law firm's responsibilities to another client or to a third person or by the lawyer's or law firm's own interests.

(c) A lawyer may represent a client in the circumstances described in (b) if:

(1) the lawyer reasonably believes the representation of each client will not be materially affected; and

(2) each affected or potentially affected client consents to such representation after full disclosure....

The district court described the Drill Bits complaint as a civil antitrust case, thus somewhat softening Dresser's description of it as an action for fraud or criminal conduct. The court held, "as a matter of law, that there exists no relationship, legal or factual, between the Cullen Center case and the Drill Bits litigation," and that no similarity between Drill Bits and the CPS suits was material. The court concluded that "Godfrey's representation of the plaintiffs in the Drill Bits litigation does not reasonably appear to be or become adversely limited by Susman Godfrey's responsibilities to Dresser in the CPS and Cullen Center cases," and accordingly denied the motion to disqualify. Finally, the court denied permissive interlocutory appeal under 28 U.S.C. § 1292(b).

II

Our review is governed by the standard required to issue a writ of mandamus, not the standard we would apply if this matter were before us on direct appeal. ⁴ We will therefore grant the writ only if the petitioner can show its right to the writ is clear and undisputable. Allied Chem. Corp. v. Daiflon, Inc., 449 U.S. 33, 35, 101 S.Ct. 188, 190, 66 L.Ed.2d 193 (1980). Mandamus is appropriate "when the trial court has exceeded its jurisdiction or has declined to exercise it, or when the trial court has so clearly and indisputably abused its discretion as to compel prompt intervention by the appellate court." In re Chesson, 897 F.2d 156, 159 (5th Cir.1990).

In evaluating a motion to disqualify, we interpret the controlling ethical norms governing professional conduct as we would any other source of law. When the facts are undisputed, district courts enjoy no particular advantage over appellate courts in formulating ethical rules to govern motions to disqualify. Woods v. Covington County Bank, 537 F.2d 804, 810 (5th Cir.1976). Thus, in the event an appropriate standard for disqualification is based on a state's disciplinary rules, a court of appeals should consider the district court's interpretation of the state disciplinary rules as an interpretation of law, subject essentially to de novo consideration. See Woods, 537 F.2d at 810; see also Unified Sewerage Agency v. Jelco, Inc., 646 F.2d 1339, 1342, n. 1 (9th Cir.1981).

III

The district court clearly erred in holding that its local rules, and thus the Texas rules, which it adopted, are the "sole" authority governing a motion to disqualify. Motions to disqualify are substantive motions affecting the rights of the parties and are determined by applying standards developed under federal law. See Woods, 537 F.2d at 810; see also McCuin v. Texas Power & Light Co., 714 F.2d 1255 (5th Cir.1983) (conflict arising from attorney-judge relationship did not require attorney disqualification but judicial recusal); Zylstra v. Safeway Stores, Inc., 578 F.2d 102 (5th Cir.1978) (motion to disqualify inextricably linked with motion to certify class); American Can Co. v. Citrus Feed Co., 436 F.2d 1125 (5th Cir.1971) (disqualification order reversed as contrary to prevailing ethical principles).

The district court's authority to promulgate local rules is derived from 28 U.S.C. § 2071, which allows the courts only to adopt "rules for the conduct of their business." Thus, although the district court should determine rules for the conduct of attorneys for the purpose of identifying conduct subject to sanctions, its local rules alone cannot regulate the parties' rights to counsel of their choice.

IV

We apply specific tests to motions to disqualify counsel in circumstances governed by statute or the Constitution. ⁵ When presented with a motion to disqualify counsel in a more generic civil case, however, we consider the motion governed by the ethical rules announced by the national profession in the light of the public interest and the litigants' rights. Woods, 537 F.2d at 810; Brennan's Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 171 (5th Cir.1979). Our source for the standards of the profession has been the canons of ethics developed by the American Bar Association. We have applied particularly the requirement of canon 5 that a lawyer exercise "independent professional judgment on behalf of the client" and the admonition of canon 9 that lawyers should "avoid even the appearance of impropriety." Zylstra, 578 F.2d at 104.

Our most far-reaching application of the national standards of attorney conduct to an attorney's obligation to avoid conflicts of interest is Woods v. Covington County Bank, 537 F.2d 804 (5th Cir.1976) (attorney in army reserve not barred from privately representing clients in securities matters he had investigated while on active duty). We held in Woods that standards such as the ABA canons are useful guides but are not controlling in adjudicating such motions. Id. ⁶ The considerations we relied upon in Woods were whether a conflict has (1) the appearance of impropriety in general, or (2) a possibility that a specific impropriety will occur, and (3) the likelihood of public suspicion from the impropriety outweighs any social interests which will be served by the lawyer's continued participation in the case. 537 F.2d at 812-813.

We applied the Woods standard to a conflict that arose when...