Essex Chemical Corp. v. Hartford Acc. and Indem.
| Decision Date | 23 May 1997 |
| Docket Number | Civil Action No. 93-3438(JCL). |
| Citation | 975 F.Supp. 650 |
| Parties | ESSEX CHEMICAL CORPORATION and Essex Specialty Products, Inc., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
Robert D. Chesler, Michael J. McDonald, Lowenstein, Sandler, Kolh, Fisher & Boylan, Roseland, NJ, for Essex Chemical Corp.
Robert D. Chesler, Lowenstein, Sandler, Kolh, Fisher & Boylan, Roseland, NJ, for Essex Specialty Products, Inc.
Grace C. Guiffdrida, Melito & Adolfsen, P.C., New York City, for Hartford Acc. and Indem. Co.
Frances J. Phillips, Luce, Forward, Hamilton & Scripps, New York City, for Westport Ins. Corp.
William E. McGrath, Jr., Smith, Stratton, Wise, Heher & Brennan, PC, Princeton, NJ, Honora M. Keane, Skadden, Arps, Slate, Meagher & Flom, LLP, Newark, NJ, for Home Indem. Co.
Ernest Douglas Sederholm, Guy A. Cellucci, White and Williams, Westmont, NJ, for Insurance Co.
Antonio D. Favetta, Garrity, Graham, Hawkins & Favetta, PC, Montclair, NJ, for Lexington Ins. Co.
Stephen D. Cuyler, Cuyler Burk, Parsippany Corp. Center, Parsippany, NJ, for Northbrook Ins. Co.
Lila Wynne Williams, Marshall, Dennehey, Warner, Coleman & Goggin, PC, Cherry Hill, NJ, for Puritan Excess & Surplus Lines Ins. Co.
Gerald A. Hughes, Hughes & Hendrix, PC, Trenton, NJ, for Zurich Ins. Co.
Plaintiffs Essex Chemical Corporation and Essex Specialty Products, Inc. ("Essex") seek an order disqualifying all defense counsel due to the existence of a conflict of interest.1 Alternatively, Essex requests that I direct all defense counsel to respond to interrogatories which pertain to communications and documents exchanged between all defense counsel. I have considered the papers submitted in support of and in opposition to the motion. I heard oral argument on April 28.1997.
This motion arises in a declaratory judgment action brought by Essex seeking insurance coverage from primary, umbrella, and excess insurers for property damage at various facilities. Essex's motion focuses on Skadden's representation of Essex beginning in May of 1988 when a joint venture partner of Essex attempted a hostile takeover of it.2 From the time of this hostile takeover attempt until Essex was acquired by The Dow Chemical Company ("Dow") in October 1988, Essex was represented by Skadden. Farley Cert., ¶¶ 4, 5. Skadden also represented Essex in litigation which arose from this same takeover attempt. Farley Cert., ¶¶ 2, 3. Throughout its representation of Essex, Skadden had access to documents protected by the attorney/client privilege and the work product doctrine. Farley Cert., ¶¶ 3, 4, 6. Skadden also had close contact with senior Essex personnel, including its general counsel, chief financial officer, and board members. Farley Cert., ¶¶ 3, 4.
Moreover, during the time leading up to Dow's purchase of Essex, Skadden participated in what was commonly known as "white knight shows." The purpose of these presentations was to allow potential buyers to learn of the environmental status of properties and any potential environmental liabilities that arose from past practices at the Essex sites. To help Essex prepare for the white knight shows, Skadden worked closely with its investment banker and met continually with senior Essex personnel. Farley Cert., ¶ 4. Essex personnel set up a data room containing volumes of corporate documents which related to aspects of Essex's business. Farley Cert., ¶ 4. Skadden became familiar with both the assets and liabilities of Essex. Farley Cert., ¶ 6.
Here, Skadden was retained by defendant Home Insurance Company ("Home"), one of the primary insurers of Essex. The other named defendants which issued primary, umbrella, and/or excess policies are defendants Hartford Accident and Indemnity Company ("Hartford"), Lexington Insurance Company ("Lexington"), Northbrook Insurance Company ("Northbrook"), Westport Insurance Corporation ("Westport")3, Home Indemnity Company ("Home"), Insurance Company of North America ("INA"), and Twin City Fire Insurance Company ("Twin City").4 In 1996 three years after this action was commenced, all of the defendants entered into the "ECC Coverage Litigation Joint Defense and Cost Sharing Agreement" ("Joint Defense Agreement"). Walsh Cert. ¶ 4. Defendants assert that the purpose of this Joint Defense Agreement was to enable the insurance carriers to manage the litigation in an orderly and cost efficient fashion by coordinating discovery.5 Walsh Cert., ¶¶ 4, 5. Defendants deny that the creation of such a Joint Defense Agreement suggests that they shared identical legal interests in defending this action. In fact, Hartford asserts that its interests may be adverse to the other defendants regarding trigger, allocation and the existence of aggregate limits in the Hartford insurance policies. Essex asserts that all defense counsel, as participants of the Joint Defense Agreement, necessarily consulted with one another in defending against its claims. Essex also asserts that all defense counsel had access to confidential and privileged information which Skadden received from its former client, Essex.
During the course of discovery, defendants have deposed former employees of Essex regarding the 1988 acquisition of Essex by Dow as well as the environmental disclosures made during the acquisition process. Essex claims that these discovery efforts focused on the environmental status of the properties as well as the practices of Essex which may have led to environmental liabilities.
Defendants argue that in any environmental liability litigation there are questions as to whether the insured had knowledge of the site contamination. Walsh Cert., ¶ 10. In addition, it is commonly known that corporations seeking to acquire another entity will make inquiries regarding the acquisition's environmental liability status. Walsh Cert., ¶ 10. Therefore, defendants argue it was reasonable for them to inquire into the 1988 acquisition of Essex and the triggering of New Jersey's Environmental Clean-Up Responsibility Act ("ECRA"). Walsh Cert., ¶ 10.
On January 24, 1997, during the deposition of Deirdre Farley, former in-house counsel of Essex, it first became aware of Skadden's prior representation of Essex. Thomas Cert., ¶ 4. After bringing this concern to the attention of defense counsel, Essex moved for disqualification.6
Local Civil Rule 103.1(a) of this Court provides that,
[t]he Rules of Professional Conduct of the American Bar Association as revised by the New Jersey Supreme Court shall govern the conduct of the members of the bar admitted to practice in this Court, subject to such modifications as may be required or permitted by federal statute, regulation, court rule or decision of law.
Accordingly, to resolve this motion for disqualification, I turn to the New Jersey Rules of Professional Conduct ("RPC").
Motions to disqualify are viewed disfavorably, and disqualification is considered a drastic remedy. As a result, courts should hesitate to disqualify counsel unless absolutely necessary. Carlyle Towers Condominium Ass'n, Inc. v. Crossland Savings, FSB, 944 F.Supp. 341, 345 (D.N.J.1996). Under any circumstances, disqualification of counsel during pending litigation "does a great disservice to the affected client." Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201.221, 536 A.2d 243 (1988). Therefore, the reviewing court must closely scrutinize the facts before it to avoid unjust results. Carlyle Towers, 944 F.Supp. at 345; Reardon v. Marlayne, Inc., 83 N.J. 460, 469, 416 A.2d 852 (1980) ().
"Although doubts are to be resolved in favor of disqualification, the party seeking disqualification must carry a `heavy burden' and must meet a `high standard of proof,' Evans v. Artek Sys. Corp., 715 F.2d 788, 791 (2d Cir.1983), before a lawyer is qualified." Alexander v. Primerica Holdings, Inc., 822 F.Supp. 1099, 1114 (D.N.J.1993); see Host Marriott Corp. v. Fast Food Operators, Inc., 891 F.Supp. 1002, 1007 (D.N.J.1995). Likewise, while a party cannot claim a right to choose specific counsel, International Business Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir.1978), "a party's choice of counsel is entitled to substantial deference." Alexander, 822 F.Supp. at 1114.
Essex claims that all defense counsel must be disqualified as a result of their relationship with Skadden. As it relates to the present motion. I will address the conflict which arose from Skadden's former representation of Essex.7
Under RPC 1.9,
(a) A lawyer who has represented a client in a matter shall not thereafter: (1) represent another client in the same or a substantially related matter in which that client's interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation with the former client.
The test for disqualification under RPC 1.9(a)(1) is three-pronged: (I) a prior attorney-client relationship must have existed; (2) the interest of the current client must be materially adverse to those of the former client; and (3) the current representation must involve the same or a substantially related matter.8 Host Marriott Corp., 891 F.Supp. at 1007. "[A] substantial relationship between matters will exist where the `adversity between the interests of the attorney's former and present clients ... has created a climate for disclosure of relevant confidential information.'" Reardon, 83 N.J. at 472, 416 A.2d 852 ().9
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