Emle Industries, Inc. v. Patentex, Inc., 668-673

• Citation: 478 F.2d 562
• Decision Date: 09 May 1973
• Docket Number: No. 668-673,Dockets 72-2048 to 72-2053.,668-673
• Parties: EMLE INDUSTRIES, INC., et al., Plaintiff, and GLEN RAVEN MILLS, INC., et al., Plaintiffs in Separate Actions and Appellants, v. PATENTEX, INC., Defendant in All Actions and Appellee, and Burlington Industries, Inc., Former Defendant in Emle Action.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

478 F.2d 562 (1973)

EMLE INDUSTRIES, INC., et al., Plaintiff, and GLEN RAVEN MILLS, INC., et al., Plaintiffs in Separate Actions and Appellants, v. PATENTEX, INC., Defendant in All Actions and Appellee, and Burlington Industries, Inc., Former Defendant in Emle Action.

Nos. 668-673, Dockets 72-2048 to 72-2053.

United States Court of Appeals, Second Circuit.

Argued April 3, 1973.

Decided May 9, 1973.

COPYRIGHT MATERIAL OMITTED

Frederic Houston, New York City, for appellant Glen Raven Mills, Inc.; John L. Ryan, New York City, for appellants Knit Products Corp., Bossong Hosiery Mills, Inc., Tower Hosiery Mills, Inc., and Holt Hosiery Mills Inc.; William T. Stephens, New York City, for appellant Alba-Waldensian, Inc. (Otterbourg, Steindler, Houston & Rosen, Pell & LeViness, Sullivan & Cromwell, New York City, Arthur O. Cooke, and Cooke & Cooke, Greensboro, N. C., on the brief).

George T. Mobille, Washington, D. C. (Robert S. Newman, Whitman & Ransom, New York City, George M. Sirilla, Cushman, Darby & Cushman, Washington, D. C., on the brief), for appellee.

Before KAUFMAN, ANDERSON and OAKES, Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

We are called upon today to decide a question of acute sensitivity and importance, touching upon vital concerns of the legal profession and the public's interest in the scrupulous administration of justice. At issue is the disqualification of David Rabin, Esq., on the ground that his representation of the plaintiffs in the underlying actions below constituted a breach of Canon 4 of the Code of Professional Responsibility, which governs the conduct of lawyers.¹

The complaints in these actions² sought declaratory judgments that patents held by Patentex, Inc., were invalid and unenforceable. The complaints alleged unlawful manipulation and control of Patentex by its part-owner, Burlington Industries, Inc., and charged Burlington with directing Patentex to improperly acquire and illegally use the patents in question to control prices in the yarn processing and knitting industry. Lead counsel for the plaintiffs, and self-acknowledged architect of all but one of the seven complaints in these actions, was David Rabin, a specialist in textile patent litigation. In the years between 1958 and 1962, however, Rabin had represented Burlington in another patent suit, referred to as the Supp-hose case,³ which also called into question the nature and scope of Burlington's control over Patentex. Patentex, therefore, moved for Rabin's disqualification, asserting that Rabin's present adversarial posture might result in disclosure or conscious or unintentional use of confidential information acquired by him during the Supp-hose litigation. Judge Motley, in the district court, granted the motion, and this appeal followed.

We approach our task as a reviewing court in this case conscious of our responsibility to preserve a balance, delicate though it may be, between an individual's right to his own freely chosen counsel and the need to maintain the highest ethical standards of professional responsibility. This balance is essential if the public's trust in the integrity of the Bar is to be preserved. Moreover, we are mindful that ethical problems cannot be resolved in a vacuum. To affirm the order below will, to be sure, deprive plaintiffs of highly qualified counsel of their own choosing and may foreclose Rabin's participation in future actions brought against Burlington and Patentex. There can be no doubt, however, that we may not allow Rabin to press these claims against Patentex if, in doing so, he might employ information disclosed to him in confidence during his prior defense of Burlington. Such a result would work a serious injustice upon Burlington and Patentex and would tend to undermine public confidence in the Bar. Thus, even an appearance of impropriety requires prompt remedial action by the court. After thorough consideration, we conclude that Rabin's earlier defense of Burlington against charges that it controlled Patentex for illegal purposes precludes him from pressing similar claims in the instant suits. Accordingly, we affirm.

I.

At the outset, it is useful to identify the central characters in this litigation. Burlington Industries Inc., whose executive offices are located in Greensboro, North Carolina, is, we are told, the world's largest textile company. As such, it is a major force in the yarn processing and knitting industry. Chadbourn Gotham, Inc., headquartered in Charlotte, North Carolina, is also a primary competitor in this field. These two companies each own fifty percent of the voting stock of Patentex, Inc. According to a Dun & Bradstreet report, Burlington and Chadbourn created Patentex in 1955 "to acquire title from them to patents and methods of manufacturing women's stretch stockings and processing yarns used in their manufacture . . . . Patentex licensed other hosiery manufacturers under their patents and in turn received royalties for their use." Thus, in return for royalty payments, Burlington and Chadbourn allowed their competitors to employ knitting technology which they had patented.

Lawrence Greenwald was president of Patentex at the time of the Supp-hose litigation, discussed in greater detail below, but is no longer employed by either Patentex or Burlington. Edward Kobos became Assistant to the President and Secretary of Patentex in 1957 and continues to hold these posts today. In 1957, Douglas Orr was assistant general counsel of Burlington and served as chief counsel to Patentex. From 1964 until his retirement in 1971, he was Burlington's general counsel. Finally, David Rabin is a patent attorney who specializes in textile patents. In addition to both a bachelor's and a master's degree in law, his professional background includes a degree in mechanical engineering from Duke University and a period of employment in the United States Patent Office, where he specialized in yarn and knitting technology. His present office is in Greensboro, an area correctly categorized as "the heart of the textile industry."

Since an understanding of Rabin's prior involvement with Burlington in the Supp-hose case is essential to consideration of Patentex's motion to disqualify him from serving as counsel in the pending actions, we now turn to a discussion of these two proceedings.

A. The Prior Action: The Supp-hose Case

The Rabin-Burlington-Patentex nexus was first formed in the Supp-hose case. The origins of that dispute date back to at least January, 1958, when Claussner Hosiery Co., a licensee of Patentex, inquired of Patentex President Greenwald whether it could manufacture hosiery with the same construction as a stretch support stocking then being marketed by Kayser-Roth, Inc. under the trade name "Supp-hose." After several communications between Patentex and Claussner on this subject, Kobos, Greenwald's assistant, informed Claussner and certain other Patentex licensees that they could continue to manufacture stretch support stockings under several Patentex patents without infringing Kayser-Roth's patent. Patentex assured them that pursuant to its license agreement it would defend its licensees against any infringement actions brought against them by Kayser-Roth. Claussner's primary concern, however, was that Kayser-Roth would commence infringement actions throughout the country against Claussner's large retail customers, who in turn would threaten to withhold future retail orders unless Claussner defended them. When Claussner sought assurance from Patentex that the latter would defend such "third-party" actions as well, Kobos replied, on October 30, 1958, that "we would not be willing to undertake to defend you in the event one of your retail customers were sued, even though you were later voluntarily or involuntarily involved in the suit."

At this juncture, Claussner turned to Rabin for professional advice. Rabin suggested that the wisest course for Claussner to follow would be to initiate litigation in a forum of its own choosing seeking a declaratory judgment that Kayser-Roth's patent was invalid. At Claussner's request, Rabin prepared an appropriate complaint for Claussner and its affiliate, McCallum Hosiery Co. Claussner subsequently consented to joining two other Rabin clients, Triumph Hosiery Mills and Hudson Hosiery Co., as plaintiffs in the action.

After his retention by these four hosiery mills, Rabin met with Orr, at that time Burlington's assistant general counsel, to discuss Patentex's attitude toward the impending litigation. Although Orr again rebuffed a request to defend any actions that Kayser-Roth might bring against retail customers of Patentex's licensees, he indicated that Burlington would be interested in joining the contemplated declaratory judgment action against Kayser-Roth and, accordingly, requested Rabin to represent Burlington as well. According to Rabin, he responded by "explaining to Mr. Orr that he was flattered with the invitation to represent Burlington but in view of the then pending actions against Burlington and his position of representing Claussner, McCallum, and Hudson, he would have to decline." The currently pending actions to which Rabin referred were two infringement actions—both unrelated to the Kayser-Roth matter—which Rabin was prosecuting against Burlington on behalf of Floyd Shoaf, an inventor, and Tight Pat, Inc., owner of an allegedly infringed patent. The conflict concerning Claussner, McCallum, and Hudson to which Rabin alluded was, of course, their potential claims against Patentex based on the indemnity clause in the license agreement. After discussing these matters with Orr, Rabin conferred with Shoaf and representatives of Claussner, McCallum, Hudson, and Tight Pat. Rabin then informed Orr that his clients had consented to his representation of Burlington and that Rabin would do so as long as he maintained "the right to protect and preserve any claims of my various clients with respect to ...