LeaseAmerica Corp. v. Stewart

• Decision Date: 17 June 1994
• Docket Number: No. 69677,69677
• Citation: 876 P.2d 184,19 Kan.App.2d 740
• Parties: LEASEAMERICA CORPORATION, Appellant, v. Robert L. STEWART, Appellee.
• Court: Kansas Court of Appeals

Page 184

876 P.2d 184

19 Kan.App.2d 740

LEASEAMERICA CORPORATION, Appellant, v. Robert L. STEWART, Appellee.

No. 69677.

Court of Appeals of Kansas.

June 17, 1994.

Syllabus by the Court

1. A trial court's interpretation of a disciplinary rule is a question of law over which an appellate court has unlimited review.

2. The "likely to be a necessary witness" language of MRPC 3.7 (1993 Kan.Ct.R.Annot. 324) is more restrictive than the "ought to be called as a witness" language of DR 5-101(B) (1993 Kan.Ct.R.Annot. 222) and DR 5-102(A) (1993 Kan.Ct.R.Annot. 223), placing a greater burden on the party seeking disqualification of an attorney.

3. Motions to disqualify counsel should be viewed with extreme caution, for they can be misused as a technique of harassment.

4. The burden in a motion to disqualify counsel is on the moving party.

5. When opposing counsel seeks to disqualify an attorney pursuant to MRPC 3.7 (1993 Kan.Ct.R.Annot. 324) because opposing counsel intends to call the attorney at trial to testify on matters adverse to his or her client's interests, the motion for disqualification should not be granted unless: (1) it is shown that the attorney will give evidence material to the determination of the issues being litigated; (2) the evidence cannot be obtained elsewhere; and (3) the testimony is prejudicial or may be potentially prejudicial to the testifying attorney's client. The conflict of interest rules in MRPC 1.7 (1993 Kan.Ct.R.Annot. 278) and MRPC 1.9 (1993 Kan.Ct.R.Annot. 285) may be waived, and the client may consent to the attorney's representation in spite of the adverse testimony.

6. Under the facts of this case, it was not shown the attorney's testimony is necessary, that it would be material to the issues to be resolved, that the evidence could not be obtained elsewhere, or that it would be potentially prejudicial to the attorney's client. Speculation is not a sufficient basis for an order to disqualify an attorney.

William F. Kluge III and Lucy L. Herlocker, of Lambdin & Kluge, Chartered, Wichita, for appellant.

Martin R. Ufford, of Redmond, Redmond & Nazar, Wichita, and Robert B. Barefield, Minneapolis, for appellee.

Before LARSON, P.J., and ELLIOTT and RULON, JJ.

LARSON, Presiding Judge.

This is an interlocutory appeal by LeaseAmerica Corporation (LeaseAmerica) from the trial court's order disqualifying its counsel from trying its case against Robert Stewart to recover the deficiency balance and accrued interest after the sale of motor homes it repossessed from Eldorado Motor Acceptance Corporation (Eldorado). The trial court's order was predicated upon the possibility that LeaseAmerica's counsel would be called by Stewart as a trial witness.

Eldorado leased 18 motor homes from LeaseAmerica. Stewart personally guaranteed payment of the sums due under the leases. Eldorado filed bankruptcy and defaulted on the lease payments. LeaseAmerica repossessed the 18 motor homes in July and sold them in September of 1989. LeaseAmerica sued Stewart to recover the claimed deficiency of $780,000 plus interest.

Stewart defended the action by alleging, in part, that LeaseAmerica had failed to dispose of the motor homes in a commercially reasonable manner.

Discovery in the action was completed and a pretrial order was filed. In the pretrial order, Stewart identified LeaseAmerica's counsel, William F. Kluge III, as a trial witness. LeaseAmerica filed a motion in limine requesting that the trial court forbid Stewart from calling Kluge as a trial witness. Stewart responded by moving to disqualify Kluge as LeaseAmerica's counsel.

In his motion to disqualify, Stewart contended Kluge was a necessary fact witness and that allowing him to continue as LeaseAmerica's attorney would violate Model Rule of Professional Conduct (MRPC) 3.7 (1993 Kan.Ct.R.Annot. 324) and Disciplinary Rule (DR) 5-102 (1993 Kan.Ct.R.Annot. 223).

Stewart argued he was entitled to examine Kluge about the contents of letters Kluge wrote on behalf of LeaseAmerica to Stewart's former attorney, Terry Cupps.

Stewart asserted that Kluge's testimony might be prejudicial to LeaseAmerica. Stewart noted that Kluge's deposition had been taken and he should have been aware that he would probably be a witness in this case.

At the hearing, LeaseAmerica withdrew its motion in limine. In opposition to Stewart's motion to disqualify, LeaseAmerica argued that Kluge's deposition revealed he had no firsthand knowledge of anything factual and the content of the Kluge letters to Cupps was as directed by LeaseAmerica. LeaseAmerica argued that it was advised by house counsel. Kluge's correspondence was an intermediate step to repossess the motor homes, attempting to avoid a lawsuit, and involved no contractual negotiations.

LeaseAmerica contended that because all of the letters Kluge wrote to Cupps had been stipulated into evidence at the pretrial conference, the only testimony Kluge could give would be cumulative, and repetitious. It claimed that under Stewart's position any attorney who corresponds to another prior to a lawsuit would be subject to being called as a witness.

LeaseAmerica further argued that a motion to disqualify must be supported by evidence and that a party's attorney could not be disqualified on the basis of statements of opposing counsel. LeaseAmerica asserted that Stewart had not deposed a single LeaseAmerica witness and had no idea what LeaseAmerica's witnesses' testimony would be.

Stewart responded by arguing that the letters written by Kluge were sufficient evidence for purposes of the hearing to show there was a substantial likelihood that Kluge's testimony would be necessary at trial and that he should be disqualified.

The trial court granted Stewart's motion to disqualify, stating that "there very well may be a necessity for counsel to call [Kluge] as a witness in the event that the testimony of the plaintiffs doesn't jive with the information set forth in [Kluge's] correspondence as to where that information came from."

The trial court found Kluge's situation indistinguishable from that of a lawyer who negotiates a contract on behalf of a client and is disqualified from acting as an advocate when a dispute with regard to the contract arises because, as a negotiator of the contract, the attorney would potentially be a material witness.

The trial court stated that if Kluge testified that the information in the letters was given to him by someone from LeaseAmerica who testified differently from the information contained in the letters, then Kluge would be testifying directly in opposition to LeaseAmerica.

The trial court found that:

"Kluge knew or reasonably should have known virtually from the inception of this litigation, and at least from the time of taking his deposition, that he was and remains a potential material witness to this case and of material facts which are or may be essential to the defense of the defendant in this case, would thus be required to testify against his own client's interest and not therefore serve as an advocate for that client in a jury trial in accordance with the Supreme Court rule which embodies the disciplinary Rule 5.102 and the Court would sustain the motion to disqualify counsel as a potential witness."

The trial court determined its ruling was a final decision subject to interlocutory appeal pursuant to K.S.A.1993 Supp. 60-2102(b). LeaseAmerica appeals.

LeaseAmerica contends the trial court erred by disqualifying its counsel without hearing any evidence and based only on the speculation of Stewart that he might attempt to obtain testimony from LeaseAmerica's trial counsel.

We first determine the appropriate standard of review of the trial court's order of disqualification. In United States v. Miller, 624 F.2d 1198, 1201 (3d Cir.1980), the Third Circuit concluded that the issue of whether a disciplinary rule prohibited certain professional conduct is a question of law subject to plenary review on appeal, stating the court's power to disqualify an attorney "derives from its inherent authority to supervise the professional conduct of attorneys appearing before it." Our court in In re Estate of Koch, 18 Kan.App.2d 188, 215, 849 P.2d 977, rev. denied 253 Kan. ---- (June 18, 1993), held the determination of whether an attorney suffers under a conflict of interest is a question of law, citing Miller and Haynes v. First Nat'l State Bk. of N.J., 87 N.J. 163, 432 A.2d 890 (1981). The Miller court made it clear that a trial court's interpretation of a disciplinary rule is subject to de novo review, while the trial court's use of disqualification as a sanction is reviewable for abuse of discretion. 624 F.2d at 1201.

We hold the trial court's decision that MRPC 3.7 and DR 5-102 prohibited Kluge from acting as trial counsel, subjecting him to automatic disqualification if Stewart intended to call him as a witness, is a question of law over which this court has unlimited review. See Hutchinson Nat'l Bank & Tr. Co. v. Brown, 12 Kan.App.2d 673, 674, 753 P.2d 1299, rev. denied 243 Kan. 778 (1988).

While we will consider the wording of DR 5-102, we look to the later provisions of MRPC 3.7, which must be interpreted and applied as we set forth in In re Estate of Koch:

"The history of the Model Rules of Professional Conduct adopted by the Kansas Supreme Court effective March 1, 1988, Supreme Court Rule 226 (1992 Kan.Ct.R.Annot. 238) can be traced to the Canons of Professional Ethics as first adopted by the American Bar Association on August 27, 1908. See 164 Kan. xi (1948).

"According to the Prefatory Rule to Rule 226, the Model Rules of Professional Conduct are 'general standards of conduct and practice required of the legal profession in Kansas.' The interaction between the Canons and the Model Rules is stated in the following manner:

'To the extent that they are not inconsistent with the rules herein adopted or the statutory or case law of Kansas, the court also adopts in...