General Motors Corp. v. City of New York

• Decision Date: 28 June 1974
• Docket Number: Nos. 508,678,D,s. 508
• Citation: 501 F.2d 639
• Parties: 1974-2 Trade Cases 75,139 GENERAL MOTORS CORPORATION, Defendant-Appellant, v. CITY OF NEW YORK, for itself and all other persons similarly situated, Plaintiff-Appellee. GENERAL MOTORS CORPORATION, Petitioner, v. Hon. Robert L. CARTER, Judge of the United States District Court for the Southern District of New York, and City of New York, for itself and all other persons similarly situated, Respondents. ockets 73-2351, 73-2585.
• Court: U.S. Court of Appeals — Second Circuit

Page 639

501 F.2d 639

1974-2 Trade Cases 75,139

GENERAL MOTORS CORPORATION, Defendant-Appellant,

v.

CITY OF NEW YORK, for itself and all other persons similarly

situated, Plaintiff-Appellee.

GENERAL MOTORS CORPORATION, Petitioner, v. Hon. Robert L. CARTER, Judge of the United States District

Court for the Southern District of New York, and

City of New York, for itself and all

other persons similarly

situated, Respondents.

Nos. 508, 678, Dockets 73-2351, 73-2585.

United States Court of Appeals, Second Circuit.

Argued June 3, 1974.

Decided June 28, 1974.

Bruce Bromley and Paul M. Dodyk, New York City (Allen F. Maulsby, Cravath, Swaine & Moore, New York City, on the brief; Ross L. Malone, Detroit, Mich., of counsel), for petitioner-appellant.

Norman Redlich, Sp. Asst. to Corp. Counsel for City of New York and George D. Reycraft, New York City (Cadwalader, Wickersham & Taft, New York City, on the brief), for respondent-appellee.

Before KAUFMAN, Chief Judge, MANSFIELD and MULLIGAN, Circuit Judges.

IRVING R. KAUFMAN, Chief Judge:

Suits involving large damage claims inevitably spark intensive pretrial skirmishing, as the litigants bombard each other and the district court with a variety of motions. In this case, brought by the City of New York (City), which alone has a $12,000,000 claim, as a class action alleging that General Motors Corporation (GM) has violated the antitrust laws principally by monopolizing or attempting to monopolize the nationwide market for city buses, we face appeals by GM from interlocutory orders deciding two bitterly contested pretrial, although unrelated, motions. The first is the City's successful motion to permit the suit to proceed as a class action; the second, GM's unsuccessful motion to have the City's privately-retained counsel, George D. Reycraft, disqualified for breach of the ethical precepts embodied in Canon 9 of the Code of Professional Responsibility. ¹ After carefully applying the Cohen ² collateral order doctrine to separate the appealable from the non-appealable order, we dismiss the appeal from the court's order determining that this action may proceed as a class action because in the context of this case that order is not appealable. With respect to the motion to disqualify counsel, however, we conclude, without intending to suggest any actual impropriety on the part of Reycraft, that his disqualification is required to 'avoid even the appearance of professional impropriety.' ³ Accordingly, the court's order denying disqualification of Reycraft is reversed.

I. FACTUAL BACKGROUND

The facts necessary to an understanding of our disposition of these appeals have been gleaned, in the main, from the complaint and from the affidavits filed by the parties in support of and in opposition to the respective motions at issue. They are, thankfully, rather straightforward and, in all material respects, undisputed.

On October 4, 1972, the City filed a complaint alleging that GM had violated Section 2 of the Sherman Act ⁴ by attempting to monopolize and monopolizing 'trade and commerce in the manufacture and sale of city buses.' The complaint contained, as a second cause of action, the allegation that GM had breached Section 7 of the Clayton Act ⁵ by acquiring, in 1925, a controlling interest in Yellow Truck & Coach Manufacturing Co. (Yellow Coach)-- an acquisition which pruportedly 'threatens substantially to lessen competition and to tend to create a monopoly in the manufacture and sale of buses within the United State . . ..' The action, furthermore, was commenced on behalf of a class consisting of 'all non-federal governmental units and instrumentalities in the United States which have purchased or have contributed to the purchase of city buses or city bus parts . . ..' The relief sought was, inter alia, for appropriate divestiture, treble damages, costs and attorneys' fees.

According to Reycraft's affidavit, filed in opposition to the disqualification motion, he was asked by the Office of the Corporation Counsel, sometime in July 1972, to assist in the preparation of the complaint. When approached by the Corporation Counsel, then J. Lee Rankin, Reycraft responded by informing Rankin of his prior and substantial involvement in an action brought by the United States against GM, under Section 2 of the Sherman Act, based on GM's alleged monopolization of a nation-wide market for the manufacture and sale of city and intercity buses. United States v. General Motors (No. 15816, E.D.Mich.1956) (1956 Bus case).

In his affidavit, Reycraft described his participation in the 1956 Bus case, and his work for the Antitrust Division of the Department of Justice, in these words:

I was employed as an attorney for the Antitrust Division of the Department of Justice from the end of December, 1952 through the end of December, 1962. From sometime during the middle of 1954 through the end of 1962 I was employed in the Washington Office of the Antitrust Division. My initial assignment in the Washington Office of the Antitrust Division in 1954 was as a trial attorney in the General Litigation Section.

One of my first assignments as a member of the General Litigation Section was to work on an investigation of alleged monopolization by General Motors of the city and intercity bus business. The chief counsel in that matter from at least 1954 until the case was settled by Consent Decree in 1965 was Walter D. Murphy. At no time was I in active charge of the case. That investigation culminated in the Complaint filed on July 6, 1956 which I signed and in the preparation of which I participated substantially.

In 1958, I became Chief of the Special Trial Section of the Antitrust Division and no longer had any direct or indirect involvement with the 1956 Bus case. Subsequently in 1961 I became Chief of Section Operations of the Antitrust Division and had technical responsibility for all matters within the Washington Office of the Antitrust Division, including the 1956 Bus case. I have no recollection of any active participation on my part in the 1956 Bus case from 1958 through the time I departed from the Antitrust Division in December of 1962. The case was in the charge of Walter D. Murphy from its inception and he continued in charge until the Consent Decree was entered on December 31, 1965. ⁶

In light of his substantial involvement as an employee of the Department of Justice in a matter which, at the very least, was similar to the dispute for which his retention was sought, Reycraft initially consulted his partners in the firm of Cadwalader, Wickersham & Taft and, subsequently, requested the advice of the Antitrust Division on the applicability of the Federal conflict of interest statute. ⁷ That statute, we note, is penal in nature and its prohibitory urles, only two in number, must therefore be specifically defined and strictly construed. With that in mind, the Justice Department had little difficulty in concluding that the statute placed no bar on Reycraft's employment by the City. Its response to Reycraft states, in pertinent part:

It is clear that section 207(b) (which applies for only one year after separation from government employ) has no bearing on your case. As for section 207(a) (which applies only where the United States is a party or has a direct and substantial interest in the matter), although it appears that you participated personally and substantially in the case brought by the United States against General Motors, the Antitrust Division advises us that the United States will not be a party to or have a direct and substantial interest in the private antitrust suit by the City of New York against General Motors. Therefore, section 207(a) has no application.

Accordingly, with Cadwalader's approval and the absence of any barrier posed by federal law, Reycraft agreed to represent the City on a contingent fee basis, a not infrequent arrangement in actions where recovery is at the same time uncertain but potentially great.

On February 22, 1973, the City moved before Judge Carter for a determination that its suit could proceed as a class action pursuant to Fed.R.Civ.P. 23(a) and 23(b)(3). GM responded by opposing the class determination and, in turn, moved for the disqualification of Reycraft. Argument on both motions was subsequently heard by the court.

The City represented to Judge Carter that the class for which it sought representation would consist of 200-300 readily identifiable non-federal governmental units. It submitted a preliminary list of 177 entities identified as of the date of argument. ⁸ The City also informed the judge that it would bear the cost of notifying all class members. The argument in the district court on the disqualification motion, although quite thorough, as indeed it was in this Court, added no material facts other than those we have already related.

In August 1973, Judge Carter entered his order, and filed an accompanying memorandum opinion, ⁹ granting the City's motion for class action status and denying GM's motion to disqualify Reycraft. Rejecting GM's twofold contention that the requirements of Rule 23(b)(3) ¹⁰ had not been met, the district judge concluded: (1) 'that the common underlying issue of liability pursuant to an unlawful, nationwide monopoly predominates over any questions as to the varying nature or amount of damages;' and (2) that the class action mechanism was the superior method for resolving this controversy because 'it is . . . inconceivable that other governmental units will not pursue such claims (of monopolization) in the event that the class action motion is denied and the suit brought by the City of New York is, or appears likely to be, successful.'

Turning to the disqualification motion, the district court recognized that DR9-101(b) requires ¹¹ Reycraft's disqualification, in order to avoid 'even the appearance of impropriety,' if his participation in this action would constitute 'private employment in a matter in w...