Gould, Inc. v. Mitsui Min. & Smelting Co.

• Court: U.S. District Court — Northern District of Ohio
• Writing for the Court: JOINER, , Sitting by Designation
• Citation: Gould, Inc. v. Mitsui Min. & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990)
• Decision Date: 07 June 1990
• Docket Number: No. C85-3199.,C85-3199.
• Parties: GOULD, INC., Plaintiff, v. MITSUI MINING & SMELTING CO., et al., Defendants.

738 F. Supp. 1121

GOULD, INC., Plaintiff, v. MITSUI MINING & SMELTING CO., et al., Defendants.

No. C85-3199.

United States District Court, N.D. Ohio, E.D.

June 7, 1990.

Maynard F. Thomson, Jones Day Reavis & Pogue, Cleveland, Ohio, for plaintiff.

Brice M. Clagett, Covington & Burling, Washington, D.C., Patricia Hemann, Hahn Loeser & Parks, Cleveland, Ohio, Lance Gotthoffer, Marks Murase & White, New York City, John D. Joliffe, Black McCluskey Souers & Arbaugh, Canton, Ohio, for defendants.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge, Sitting by Designation.

In this case, the law firm of Jones, Day, Reavis & Pogue (Jones, Day) represents plaintiff Gould, Inc. (Gould), in an action by Gould against, among others, defendants Pechiney and Trefimetaux (Pechiney). The issue before the court is defendants' motion to disqualify plaintiff's counsel. Defendants claim that Jones, Day's representation of Gould involves a conflict of interest with its representation of Pechiney, in patent matters, and of IG Technologies, which is a wholly owned subsidiary of Pechiney. Defendants further claim that the conflict of interest requires the court to disqualify Jones, Day from representing Gould in this litigation. The parties fully briefed the issues, and after hearing oral argument on May 2, 1990, the court stated on the record that this motion would be denied. As indicated in a written order on that same date, the court will now expand upon its reasons for denying defendants' motion.

A. Patent Representation

Gould filed this suit on October 23, 1985, against, among others, Pechiney and Trefimetaux,¹ alleging unfair competition, unjust enrichment, and violation of the Racketeer Influenced and Corrupt Organizations (RICO) provisions of the Organized Crime Control Act of 1970, 18 U.S.C. §§ 1961 et seq.² This action arises out of defendants' alleged misappropriation of Gould trade secrets concerning the manufacture of electrolytic copper foil. At the time the complaint was filed, the Chicago law firm of Leydig, Voit & Mayer was lead counsel, and the Cleveland office of Jones, Day was local counsel, though both firms were signatories to the complaint. On June 27, 1986, the court³ denied defendants' motion to dismiss Gould's complaint, and an appeal followed. This case was stayed pending the outcome of that appeal.

Prior to 1987, Pechiney was represented by the Chicago law firm of McDougall, Hersh & Scott on patent matters in the United States. The matters handled by McDougall, Hersh & Scott have no connection whatsoever to any of the issues presented in the instant case. Effective February 1, 1987, Jones, Day merged with McDougall, Hersh & Scott. On May 21, 1987, Jones, Day sent a letter to Pechiney informing it of the merger and the fact that Jones, Day was representing Gould against Pechiney in this case. The letter sought Pechiney's consent, pursuant to the Code of Professional Responsibility, to Jones, Day's continued representation of Gould against Pechiney in the instant case. The letter stated that "Jones, Day has been representing Gould in the capacity of local counsel." The letter also arranged for the implementation of chinese-wall procedures to insure that no dissemination of client confidences would occur. Pechiney consented to Jones, Day's representation of Gould in this case by a May 29, 1987, notation on the letter Jones, Day sent to Pechiney. Jones, Day continues to represent Pechiney on patent matters to this day.

In August of 1988, the Sixth Circuit reversed in part the denial of defendants' motion to dismiss, and remanded the case so that further evidence could be produced on the motion. Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445 (6th Cir. 1988). After discussions with the parties the court entered two orders in early November 1989. The first order set a schedule for the parties to conduct additional discovery relevant to defendants' motion to dismiss, and set an evidentiary hearing for March of 1990. The second order was a confidentiality order which limited disclosure of confidential information obtained through discovery, to lead counsel for all parties. Leydig, Voit & Mayer had access to confidential materials under this order, but Jones, Day did not.

Subsequently, Gould moved for the withdrawal of Leydig, Voit & Mayer as counsel, asking that Jones, Day be permitted to become sole counsel for Gould in this case. No objections to this motion were filed, and the court granted this motion on February 15, 1990. As a result, the parties stipulated to an amendment of the confidentiality order to permit access by Jones, Day to confidential materials in this case. According to counsel for defendants, they learned only in early March of 1990 that Jones, Day was representing Pechiney in connection with patent matters in the United States. Given that Jones, Day had now become sole counsel for Gould, defendants immediately asked Jones, Day to withdraw as counsel for Gould. Jones, Day refused, and defendants filed the instant motion on March 7, 1990.

B. IG Technologies Representation

In July of 1989, Pechiney acquired IG Technologies, Inc. (IGT), an Indiana corporation. Jones, Day represented IGT in various matters prior to this acquisition, and continues to represent IGT in contractual, licensing and related matters to this day. There is no connection between the matters Jones, Day handles for IGT and this litigation, and no evidence has been presented that Jones, Day has obtained any information about Pechiney through its representation of IGT.

At no point since Pechiney acquired IGT has Jones, Day attempted to obtain Pechiney's consent to Jones, Day's continuing representation of both IGT and Gould. According to defendants, they did not learn of Jones, Day's continuing representation of IGT until February 28, 1990, and they immediately requested that Jones, Day withdraw as counsel for Gould in this case. When Jones, Day refused, the instant motion was filed.⁴

Discussion

Defendants argue that Jones, Day is involved in two independent conflicts of interest in its representation of Gould, and either one requires that Jones, Day be disqualified. First, Jones, Day is representing Gould in a suit against Pechiney, whom Jones, Day represents in patent matters as well. Jones, Day is therefore suing a current client on behalf of another current client, and defendants insist that this requires disqualification. Defendants argue that the 1987 consent by Pechiney only permitted Jones, Day to act as local counsel in this case, and did not extend to their representing Gould as lead counsel. Second, defendants contend that a separate current-client conflict exists because Jones, Day represents both Gould and IGT, a subsidiary of Pechiney. Defendants argue that the ethical rules for attorneys are even more clearly violated in this instance, as Jones, Day never attempted to obtain Pechiney's consent to its representation of both Gould and IGT.

Jones, Day responds that Pechiney's 1987 consent allows Jones, Day to act as either local or lead counsel for Gould, because there is no significant distinction between the two capacities. In addition, it contends that this consent is also in effect as to its representation of IGT, because once Pechiney consented to Jones, Day's representation of both Gould and Pechiney, the consent extended to representing Gould and a subsidiary of Pechiney. Jones, Day concludes that it has the consent of all interested parties to its continued representation of Gould in this case, therefore it has acted in accordance with governing ethical standards.⁵

The court has broad discretion in determining whether counsel should be disqualified in ongoing litigation. Redd v. Shell Oil Co., 518 F.2d 311, 314 (10th Cir. 1975); Kalmanovitz v. G. Heileman Brewing Co., Inc., 610 F.Supp. 1319, 1322 (D.Del.1985); Sherrod v. Berry, 589 F.Supp. 433, 436 (N.D.Ill.1984). However, the law requires the discretion to be exercised wisely, and with due regard to lawyers' ethical standards. The issue arising from the application of these standards cannot be resolved in a vacuum, and the ethical rules should not be blindly applied without consideration of relative hardships. Disqualification questions are intensely fact-specific, and it is essential to approach such problems with a keen sense of practicality as well as a precise picture of the underlying facts. Huntington v. Great Western Resources, Inc., 655 F.Supp. 565, 567 (S.D.N.Y.1987).

At issue here is Canon 5 of the Model Code of Professional Responsibility, and particularly DR 5-105, which provides:

DR 5-105. Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer

(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).

(B) A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).

(C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.

(D) If a lawyer is required to decline employment or to withdraw from employment under DR 5-105, no partner or associate of his or his firm may accept or continue such employment.

Two separate questions must be answered in order to resolve this motion: first, whether Jones, Day has violated DR 5-105; and second, in the...