Kearns v. Fred Lavery Porsche Audi Co.

• Decision Date: 11 October 1984
• Docket Number: No. 84-655,84-655
• Citation: 745 F.2d 600
• Parties: Robert W. KEARNS, Appellee, v. FRED LAVERY PORSCHE AUDI COMPANY, et al., Appellants. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 600

745 F.2d 600

223 U.S.P.Q. 881

Robert W. KEARNS, Appellee, v. FRED LAVERY PORSCHE AUDI COMPANY, et al., Appellants.

Appeal No. 84-655.

United States Court of Appeals Federal Circuit.

Oct. 11, 1984.

Certiorari Denied Jan. 21, 1985.

See 105 S.Ct. 967

David S. Klontz, Washington, D.C., argued for appellants; James H. Marsh, Washington, D.C., on the brief.

Keith V. Rockey, Chicago, Ill., argued for appellee; Thomas C. Elliott, Jr., Chicago, Ill., Dale R. Small, Detroit, Mich., of counsel.

Before RICH, DAVIS and BALDWIN, Circuit Judges.

DAVIS, Circuit Judge.

The only issue is whether the attorney for appellants (defendants below) was properly disqualified by the District Court in this patent infringement suit. This is one of those cases in which the result turns on the assessment of the individual facts. We believe that on the record before it the District Court's factual findings were not clearly erroneous. On those findings it necessarily follows that the decision of the District Court that the attorney must be disqualified was not an abuse of discretion. We therefore affirm. ¹

I

In March 1982 appellee Robert Kearns brought this patent infringement suit in the United States District for the Eastern District of Michigan against Audi NSU Auto Union, A.G. and Volkswagenwerk, A.G. (manufacturers respectively of Audi and Volkswagen automobiles), Fred Lavery Porsche Audi Co. and Wood Motors Inc. (Michigan sellers respectively of Audi and Volkswagen autos) on five United States patents directed to automobile intermittent windshield wiper systems. In August 1983 Kearns moved to disqualify Audi's attorney, Peter N. Lalos, and his law firm from representing Audi in this litigation. The ground asserted was that Kearns had earlier consulted Lalos for the purpose of obtaining Lalos' representation of Kearns in related patent infringement suits previously brought (in 1978) by Kearns on the same patents against Ford Motor Co. and Wood Motors (as a Ford dealer). On that motion, the District Court received affidavits and heard the oral testimony of Messrs. Kearns and Lalos. The court granted the motion, made findings and issued an opinion, and then entered an order disqualifying Lalos and his firm. This appeal is taken from that order.

The District Court found that Kearns, the inventor and owner of the patents, had previously sued other automobile manufacturers for infringement of those patents, including Ford. Kearns' then attorney in that case was forced to withdraw in December 1980, and Kearns had to obtain other counsel. In March 1981 he approached Lalos to ascertain whether he would represent Kearns in the litigation against Ford. At their first meeting, on March 13, Kearns told Lalos that Audi was a potential defendant in another patent suit which could be brought on the same patents (a notice of infringement had already been sent to Audi), and Lalos advised Kearns that he had, and did, represent Audi on patent matters, although he had not yet been retained to represent Audi on the matter now before us. Up to that point, both sides are agreed.

After that point, the testimony of Kearns and Lalos, which was taken before the court, diverged drastically. On the basis of the oral testimony, the various affidavits filed, and documentary evidence, the court found the following as the facts: Lalos said to Kearns that he might be able to represent him in the pending litigation against Ford if there could be a satisfactory settlement of the potential Audi case. "Kearns believed that Lalos seriously considered representing him, and ... for the period of approximately March 13 [the date of the first meeting] until April 8, 1981, Kearns and Lalos discussed Lalos' representation of Kearns. In these discussions, they went into the facts of the case, both public and confidential, in great detail". Some time after the initial conference on March 13 (and before April 8th), Kearns delivered to Lalos all the documents in the Ford case that he had obtained from his prior lawyer. These documents contained, among other things, "handwritten notes of [the prior lawyer], and confidential and public records". Lalos then called the prior attorney and talked about the case. Lalos testified that he talked only about public matters, but the prior attorney's affidavit stated: "I believe I discussed various issues, and Kearns' position in respect to those issues, in some depth with Mr. Lalos because of Mr. Kearns' interest in securing Mr. Lalos' representation". The court specifically found that "matters related to the Ford litigation, other than those of public records, were discussed between Lalos and [the prior attorney]".

Kearns' son said in an affidavit quoted by the District Court: "I accompanied my father on four of his visits to Mr. Lalos. I heard Mr. Lalos tell my father that he would consider representing my father in that litigation. As a result, my father conducted, in my presence, detailed discussions with Mr. Lalos regarding the merits of the litigation".

Kearns asked Lalos to undertake the representation on a contingency basis, and Lalos said that would have to be taken up with his partners. That was done and the partners "turned down a contingency arrangement". The court found that these facts were borne out by two contemporaneous handwritten documents by Kearns (quoted by the court) dated April 8 and April 13.

The court then found (1) that the representation negotiations broke down (in the second week of April 1981) after Lalos decided he would not take the case on a contingency basis, and (2) that the parties at that time started to negotiate a settlement of the Audi matter (although suit against Audi had not yet been begun, a notice of infringement had been sent); these negotiations ultimately broke down (but were resumed after suit was brought in March 1982).

The District Court concluded that "there is no question that between March 13 and April 8, 1981, a lawyer-client relationship existed between Lalos and Kearns" in the sense that that relationship attaches when one consults a lawyer with a view to obtaining professional legal services, and therefore that "a fiduciary relationship existed". The court decided that Lalos was disqualified from further representation of appellee-defendant "because he received confidential information concerning a case [the Ford case] which is substantially related to the instant case". Lalos' firm was also disqualified.

II

There is no significant dispute between the parties, and the court agrees, as to the controlling legal principles. ² First, the "fiduciary relationship existing between lawyer and client extends to preliminary consultation by a prospective client with a view to retention of the lawyer, although actual employment does not result". Westinghouse Electric Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1319 (7th Cir.1978). To the same effect, see McCormick on Evidence, 2d Ed.1972), Sec. 88, p. 179. If such a temporary fiduciary lawyer-client relationship exists, the rule on disqualification is: "If there is a reasonable probability that confidences were disclosed which could be used against the client in later, adverse representation, a substantial relation between the two cases is presumed". Trone v. Smith, 621 F.2d 994, 998 (9th Cir.1980). Such a "substantial relationship" requires the attorney's disqualification. General Electric Co. v. Valeron & Co., 608 F.2d 265, 267 (6th Cir.1979); Melamed v. ITT Continental Baking Co., 592 F.2d 290, 292 (6th Cir.1979); Westinghouse Electric Corp. v. Gulf Oil Corp., 588 F.2d 221, 224 (5th Cir.1978); Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706, 709-10 (7th Cir.1979). And if there is both such a fiduciary lawyer-client relationship [on the part of the challenged lawyer himself] and a substantial relationship between the cases, "it is the possibility of the breach of confidence, not the fact of the breach, that triggers disqualification". Trone v. Smith, supra, 621 F.2d at 999. The cases also show that this disqualification rule prima facie extends to disqualification of the lawyer's firm as well. See also Rule DR 5-105(D) of the American Bar Association Code of Professional Responsibility. ³

III

The controversy in this case is not over these legal rules but over the factual question of whether there ever was, even preliminarily, such a fiduciary relationship between Kearns and Lalos. Appellants' position is that there was not, and could not reasonably have been, any such lawyer-client fiduciary relationship because Kearns knew almost from the first moment that Lalos represented Audi which company Kearns had already accused of infringing his patents, and Kearns could not have believed that Lalos would even consider representing Kearns. Appellants argue that Kearns is an educated, experienced and sophisticated inventor, with extensive business knowledge and much contact with lawyers and legal matters. When he was immediately informed (at his first interview with Lalos) that the attorney represented Audi in patent matters, Kearns must have known--it is said--that any relationship between him and Lalos could be nothing but purely adversarial, and thus there could not have been any thought on Lalos' part of undertaking to represent Kearns in a patent matter (i.e. the Ford case) that was so intimately connected with the threatened...