International Paper Co. v. Lloyd Mfg. Co., Inc.

• Decision Date: 29 December 1982
• Docket Number: No. 81 C 2438.,81 C 2438.
• Citation: 555 F. Supp. 125
• Parties: INTERNATIONAL PAPER CO., Plaintiff, v. LLOYD MANUFACTURING CO., INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

555 F. Supp. 125

INTERNATIONAL PAPER CO., Plaintiff, v. LLOYD MANUFACTURING CO., INC., Defendant.

No. 81 C 2438.

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

December 29, 1982.

COPYRIGHT MATERIAL OMITTED

David McLauchlan, Lord, Bissell & Brook, Chicago, Ill., Martin H. Weisfuse, New York City, for plaintiff.

Michael K. Murtaugh, Baker & McKenzie, Bernard Harrold, Wildman, Harrold, Allen & Dixon, Tomas Morgan Russell, Sidley & Austin, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

This Court is faced with deciding a difficult and sensitive question: whether to disqualify an attorney and his law firm from continuing to represent a litigant in this case. The Court has very carefully reviewed the briefs and exhibits submitted by counsel, and on November 16, 1982, conducted an evidentiary hearing pursuant to the requirement of Freeman v. Chicago Musical Instrument Co., 689 F.2d 715 (7th Cir. 1982). For the reasons stated below, the motion to disqualify is denied.

I. Background of the Instant Action

The legal principles upon which the Court must base its decision are known. The United States Court of Appeals for the Seventh Circuit and several other courts have addressed the problems posed by motions for disqualification of counsel many times in recent years. It is in the application of these legal principles to complex fact situations that the Court sees greatest difficulty. Therefore, it is necessary to set forth in detail the intricacies of the allegedly conflicting representations.

This action was initiated by the plaintiff International Paper Company ("IP") bringing suit against Lloyd Manufacturing Co. ("Lloyd").¹ IP alleges that Lloyd sold IP a product called green nitrile. Green nitrile is a kind of rubber sheeting which IP used as one component in its production of food dispensers. These food dispensers were purchased by Conway Imports, Inc. ("Conway"), which filled them with sauces and sold them to the McDonald's Hamburger Corporation ("McDonald's"). IP claims Lloyd warranted that green nitrile met Food and Drug Administration ("FDA") requirements and that it had received FDA approval as suitable for contact with food.

However, McDonald's soon determined that the sauces had been contaminated and that the green nitrile was at fault. McDonald's returned to Conway the dispensers, and they and their contents were destroyed. As a result, IP paid Conway $449,000, and claims to have suffered harm to its business reputation and goodwill. IP alleges that Lloyd's actions resulted in damages to IP of $10 million.

On December 8, 1981, the defendant Lloyd brought a Third Party Complaint against the Velsicol Chemical Corporation ("Velsicol") and Harwick Chemical Corporation ("Harwick"). Lloyd alleges that Velsicol manufactured Polyvel G-100, a hydrocarbon resin which is a component of green nitrile, and that Harwick distributed the Polyvel G-100 to Lloyd. Further, Lloyd claims that Harwick and Velsicol represented that Polyvel G-100 met FDA requirements and could be used in contact with food.

Harwick then brought a cross claim against Velsicol on May 3, 1982, alleging that any liability found against Harwick should be properly laid at Velsicol's doorstep. Harwick argues that all statements it made to Lloyd about Polyvel G-100 were made in reliance upon Velsicol's representations to Harwick. On the same day Harwick filed its cross claim, Velsicol moved to disqualify Harwick's counsel.

Harwick is represented by Bernard Harrold ("Harrold") of the law firm of Wildman, Harrold, Allen & Dixon ("Wildman"). The basis for Velsicol's disqualification motion is that Harrold and the Wildman firm previously represented a former Velsicol employee and agent, Bernard Lorant ("Lorant"), in a criminal action. Velsicol argues that Harrold's representation of Lorant is substantially related to Wildman's current representation of Harwick, and that under applicable precedent disqualification is warranted here.

II. Wildman's Prior Representation

In addressing disqualification questions, "initially, the trial judge must make a factual reconstruction of the scope of the prior legal representation." Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 225 (7th Cir.1978). The Court has heard testimony and examined documentary submissions and finds the facts to be as follows. Bernard Lorant was for 24 years an attorney and chemist for Velsicol. He was consulted as to regulatory matters pertaining to various Velsicol products. In 1970, Lorant left the direct employ of Velsicol but maintained a relationship with the company as outside counsel and consultant.

In 1975 a federal grand jury (No. 75 GJ 1541 N.D.Ill.1975) began a broad investigation into Velsicol and several of its employees and associates. A second grand jury (No. 76 GJ 2361 N.D.Ill.1976) was empanelled the next year to continue the investigation. The investigations were broad and far ranging, as can be demonstrated by quoting a few of the requests in the grand jury subpoenas:

Any and all minutes, records, notes, or documents of any kind, relating in any way to meetings of the Board of Directors and meetings of the Executive Committee of Velsicol Chemical Corporation, from January 1971 to the present.

* * * * * *

Any and all records or documents of any kind, relating in any way to litigation or investigations concerning Velsicol Chemical Corporation conducted by any Agency, Bureau, Service or Department of the United States, from January 1, 1971 to present.

* * * * * *

Any and all monthly reports for the Toxicology Group and the Regulatory Division of Velsicol from January 1, 1972 to June 30, 1975.

* * * * * *

Any and all records concerning the Regulatory Group and/or Regulatory Advisory Group meetings from January 1, 1974 to December 31, 1976.

(Affidavit of Neil R. Mitchell).

Eventually it became clear that six individuals associated with Velsicol, in addition to the Velsicol company itself, were targets of the grand jury investigations. The Washington, D.C. law firm of Williams & Connolly (at that time named Williams, Connolly & Califano) was retained as outside counsel to represent Velsicol in September, 1975. In October, 1975, the Wildman firm was retained to represent Lorant in regard to the same grand jury investigation. Each of the individuals (later defendants) subsequently retained separate outside counsel.² Velsicol completely paid for the legal fees incurred by all the individuals both during the investigations and subsequent prosecution. Over a six year period, Velsicol paid the Wildman firm nearly $500,000 for its representation of Lorant.

On December 12, 1977, an indictment naming Velsicol, Mitchell, Lorant, Gold and three others was handed down in the case of United States v. Gold, et al., No. 77 CR 1073 (N.D.Ill.1978). The indictment charged that information relating to two pesticides produced by Velsicol, heptachlor and chlordane, had been withheld from the Environmental Protection Agency ("EPA").

Williams & Connolly remained as Velsicol's counsel during the prosecution of this indictment, and the Wildman firm continued to represent Lorant. In addition, Williams & Connolly became co-counsel with the Wildman firm in representing Lorant. The Wildman firm never became co-counsel with Williams & Connolly in representing Velsicol.

Counsel for Velsicol and the six individual defendants cooperated in coordinating their defenses to the prosecution. They attended numerous meetings, had conference telephone calls, circulated drafts of legal pleadings prior to their filing, and communicated as to all important aspects of the defense. Hundreds of thousands of documents had been subpoenaed from Velsicol during the grand jury investigations leading to the indictment. Velsicol maintained copies of the subpoenaed documents in its Chicago headquarters, and counsel for Velsicol's co-defendants (including the Wildman firm) had access to these copies. Some of the subpoenaed documents were actually furnished to all counsel. The Wildman firm and Williams & Connolly discussed on several occasions the question of whether certain Velsicol documents came within the attorney-client privilege and therefore could be withheld from the grand jury (Velsicol Ex. 5).

During the course of the grand jury investigations, counsel for the defendants became convinced that there had been widespread prosecutorial misconduct. Consequently, the defendants moved for a dismissal of the indictment on grounds of gross prosecutorial abuse and misconduct before the grand jury. This motion was granted by Judge Leighton on April 20, 1979, and the indictment was dismissed. United States v. Gold, 470 F.Supp. 1336 (N.D.Ill.1979).

A third grand jury was empanelled (No. 79 GJ 1496 N.D.Ill.1979) and the investigation of Velsicol and the individual defendants was again pursued. Williams & Connolly continued to represent Velsicol, and the Wildman firm with Williams & Connolly as co-counsel continued to represent Lorant. This last grand jury investigation terminated when Velsicol pleaded nolo contendere to a one count information charging criminal contempt. Velsicol was sentenced on January 16, 1981 to pay a fine of $1,000. No criminal charges were brought against the former individual defendants.

The defense of all the defendants after the indictment was handed down in 1977 focused on three basic lines of attack: (1) moving to dismiss the indictment on grounds of prosecutorial misconduct; (2) if the indictment were not dismissed, the defendants intended to argue that no criminal violation had occurred and that all involved had acted according to law; and (3) if the indictment were not dismissed and a defense could not be made out that there had been no criminal violations, some of the defendants (in attempts to exonerate themselves) might have accused other defendants of having violated the law. Neither steps 2 nor 3 ever came into play since the...