In re Pressman-Gutman Co., Inc.

Decision Date18 August 2006
Docket NumberNo. 05-1012.,No. 05-1026.,05-1012.,05-1026.
PartiesIn re PRESSMAN-GUTMAN CO., INC. Employer/Sponsor of the Pressman-Gutman Co., Inc. Profit Sharing Plan, Petitioner in 05-1012 Pressman-Gutman Co., Employer/Sponsor of the Pressman-Gutman Co., Inc. Profit Sharing Plan, Appellant in 05-1026 v. First Union National Bank; Forefront Capital Advisors, LLC. Alvin P. Gutman; James C. Gutman Alvin P. Gutman; James C. Gutman, Third-Party Defendants.
CourtU.S. Court of Appeals — Third Circuit

A. Richard Feldman (argued), E. McCord Clayton, Bazelon Less & Feldman, P.C., Philadelphia, PA, for Appellant/Petitioner Pressman-Gutman Co., Inc.

Zachary L. Grayson (argued), The Lexington Law Group, Philadelphia, PA, for Appellee/Respondent Forefront Capital Management, LLP.

Joseph G. DeRespino (argued), Derespino & Dougher, P.C., Philadelphia, PA, for Appellee/Respondent First Union National Bank.

Before RENDELL and GREENBERG, Circuit Judges, and IRENAS, District Judge*.


GREENBERG, Circuit Judge.


This matter comes on before the court on an appeal by plaintiff Pressman-Gutman Co., Inc. ("PGI") from certain orders of the district court disqualifying counsel for PGI and appointing a guardian ad litem to replace the administrators of the employee profit-sharing plan on whose behalf PGI initiated this action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et. seq. Inasmuch as PGI recognizes that we may lack appellate jurisdiction, it has filed a petition for a writ of mandamus or prohibition ("Pl.'s pet.") invoking our original jurisdiction and seeking to prevent enforcement of the orders from which it appeals. For the reasons explained below, we will dismiss the appeal for lack of jurisdiction and deny the petition for a writ of mandamus.1


PGI is the employer sponsor and named fiduciary of the Pressman-Gutman Co., Inc. Profit Sharing Plan (the "Plan"), on whose behalf PGI in such capacities brought this action on November 13, 2002, against First Union National Bank ("First Union") and ForeFront Capital Advisors, LLC ("ForeFront") (collectively "defendants"). In the action PGI sought to recover damages on behalf of the Plan and its participants and beneficiaries that PGI claimed the Plan sustained as a result of defendants' mismanagement of the Plan's assets.2 In sum, PGI alleged that First Union, as trustee of the Plan, and Fore-Front, as First Union's sub-advisor, breached fiduciary duties they owed to the Plan by pursuing an imprudent investment course contrary to various representations made to PGI on which it justifiably relied. In initiating this litigation, PGI acted by and through its secretary, Alvin Gutman, and its president, James Gutman, Alvin's son, then the sole members of the Plan's Administrative Committee. At the time that PGI filed this action, the law firm of Hamburg & Golden, P.C. ("H & G") represented it.

On April 22, 2003, First Union filed a third-party complaint against the Gutmans asserting that they had participated in and consented to defendants' investment decisions and alleging that the Gutmans breached fiduciary duties owed to the Plan under ERISA by failing to take appropriate action with respect to the Plan's investments and assets.3 First Union further alleged that the Gutmans were negligent in the discharge of their fiduciary duties. Therefore, First Union sought judgment in its favor against the Gutmans "for contribution and/or indemnity, in the event that First Union is found liable to Plaintiff for any damages." J.A. at 252.

The Gutmans retained H & G as their attorneys to defend them against the third-party complaint. This retention led First Union to file a motion on August 1, 2003, to disqualify H & G as attorneys in this case alleging that it had an "inherent and unwaivable conflict of interest resulting from [H & G's] joint representation of both Plaintiff and Third-Party Defendants."4 J.A. at 277. The district court denied the motion, finding that there was insufficient evidence to disqualify H & G at that time. ForeFront later filed a renewed motion, in which First Union joined, to disqualify H & G from representing both the plaintiff, PGI, and the third-party defendants, the Gutmans, asserting that new facts had emerged during the course of discovery to bolster the case for disqualification.5

Before the district court ruled on the renewed motion to disqualify H & G, the Gutmans filed a motion for summary judgment on the third-party complaint that the district court denied on May 13, 2004. The district court held that First Union raised triable issues concerning the Gutmans' control over the Plan's assets and management, explaining that "to the extent that the Gutmans may have used their positions to cause First Union and/or ForeFront to relinquish their independent discretion with respect to management of the assets and exercised actual control over the assets, the Gutmans may be liable as fiduciaries for investment decisions." J.A. at 1770-71 n. 1 (internal citations omitted).

After denying the Gutmans' motion for summary judgment, the district court considered ForeFront's renewed motion to disqualify H & G. On August 30, 2004, the district court ordered that H & G be "disqualified from serving as counsel for third-party defendants" and further ordered that all pending motions be stayed for 30 days to allow the Gutmans to obtain new counsel. J.A. at 3. The court, however, did not disqualify H & G from representing PGI. In a memorandum accompanying the order, the court analyzed the conflict issue under Rule 1.7 of the Pennsylvania Rules of Professional Conduct ("Pa. R.P.C."), as the rule then read, which was applicable in the district court and which pertains to simultaneous representation of clients with adverse interests,6 and determined that disqualification was warranted because "plaintiff's potential claims against third-party defendants present directly adverse interests." J.A. at 7. Specifically the court explained:

This court finds it unreasonable for [H & G] to believe it can adequately represent both plaintiff and third-party defendants . . . . The court's review of the record reveals that plaintiff has not consented to [H & G's] joint representation of plaintiff and third-party defendants. Therefore, H & G is disqualified from representing third-party defendants in this action.

J.A. at 7. On September 17, 2004, Attorney Christopher M. Tretta filed a notice of appearance on behalf of the Gutmans, and H & G withdrew as their counsel four days later. On September 8, 2004, ForeFront and First Union filed motions seeking reconsideration or clarification of the August 30, 2004 order as they believed that the court should have disqualified H & G completely while the order only disqualified H & G from representing the Gutmans as third-party defendants. In addition, the defendants requested that the court appoint a "trustee ad litem" for the Plan as they argued, inter alia, that the Gutmans, who had been in control of the Plan's litigation, could not represent its interests adequately.

1. The November 30, 2004 Order

On November 30, 2004, the district court granted defendants' motions which sought to disqualify H & G completely and asked the court to appoint a trustee ad litem to replace the Gutmans as representatives of the Plan. At that time the court vacated its August 30, 2004 order. Notwithstanding the fact that two months earlier H & G had withdrawn from representing the Gutmans and new counsel had entered an appearance on their behalf, the district court reviewed "the record as it existed on August 30, 2004," J.A. at 19, the date that the court originally partially disqualified H & G, and again analyzed the conflict issue under Pa. R.P.C. 1.7. The district court explained that

[H & G] must also be disqualified from representing the profit-sharing plan as plaintiff. Because of [H & G's] duty of loyalty to the Gutmans, who it represented on August 30, 2004, [H & G] could not recommend to the [P]lan that it act against the Gutmans, as well as, or instead of, First Union and ForeFront . . . . Based on [H & G's] duty of loyalty to the Gutmans, who may well be liable for the [P]lan's losses, I conclude that it was unreasonable for [H & G] to believe that it could adequately represent the [P]lan. Moreover, since only the Gutmans represented the [P]lan in this action, I find that any consent given by the [P]lan to [H & G] for [H & G's] continued representation of the [P]lan was invalid.

J.A. at 19. The district court based its disqualification order, in part, on the circumstance that it found that there was "no record of disclosure and waiver," and because of what it regarded as the "noteworthy" fact that H & G "has never once produced any evidence that the members of the [P]lan have any idea about a possible conflict, let alone full disclosure and waiver." J.A. at 22. The court thus disqualified H & G completely.

Notably, the district court further concluded that "the Gutmans may well not be able to fulfill their duties as administrators and fiduciaries of the plan because of their potential liability." J.A. at 23. In this regard the court explained:

Because the Gutmans may be liable to the [P]lan, the duty to the [P]lan may include presenting claims against the Gutmans. However, because the Gutmans have an interest in protecting themselves from liability, the Gutmans are not likely to act against themselves for the benefit of the [P]lan, and the [P]lan's avenues for obtaining recovery may be adversely affected. Accordingly, I will appoint a guardian ad litem who will replace the Gutmans and serve as administrator of the [P]lan for the limited purpose of this lawsuit. The guardian ad litem will, in turn, appoint new counsel for the [P]lan.

Id. at 23 (...

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