Lefrak v. Arabian American Oil Co.

• Decision Date: 12 December 1975
• Docket Number: Nos. 117--119,D,s. 117--119
• Parties: 1975-2 Trade Cases 60,638 Samuel J. LEFRAK et al., Plaintiffs-Appellees, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants. ROCHDALE VILLAGE, INC., Plaintiff-Appellee, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants. NEW YORK CITY HOUSING AUTHORITY, Plaintiff-Appellee, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants. ockets 75--7234--75--7236.
• Court: U.S. Court of Appeals — Second Circuit

Page 1136

527 F.2d 1136

1975-2 Trade Cases 60,638

Samuel J. LEFRAK et al., Plaintiffs-Appellees, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants.

ROCHDALE VILLAGE, INC., Plaintiff-Appellee, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants.

NEW YORK CITY HOUSING AUTHORITY, Plaintiff-Appellee, v. ARABIAN AMERICAN OIL COMPANY et al., Defendants-Appellants.

Nos. 117--119, Dockets 75--7234--75--7236.

United States Court of Appeals Second Circuit.

Argued Oct. 30, 1975.

Decided Dec. 12, 1975.

Frank Raichle, Buffalo, N.Y., for plaintiffs-appellees.

Robert MacCrate, New York City (Sullivan & Cromwell, New York City, Robert M. Osgood, Kenneth M. Bialo, New York City, of counsel), for defendants-appellants.

Before MULLIGAN, VAN GRAAFEILAND and MESKILL, Circuit Judges.

MULLIGAN, Circuit Judge:

The appellants here are four of the eleven defendants (Exxon Corporation, Gulf Oil Corporation, Texaco, Inc. and Arabian American Oil Company) in three non-class antitrust actions ¹ pending in the United States District Court for the Eastern District of New York. Their appeal is from an order of Hon. Mark A. Costantino filed on March 11, 1975 denying their motion to disqualify David Berger, P.A. (Berger firm) from continuing to represent the plaintiffs Samuel J. Lefrak, the New York City Housing Authority and Rochdale Village, Inc. in those pending actions. The appellants further sought an injunction against the Berger firm and those alleged to be in concert with it, principally the firm of Wien, Lane & Malkin (Wien firm), from soliciting clients to join as plaintiffs in the pending actions. The plaintiffs are owners of multi-dwelling residences located in the New York City area who charge that a price-fixing conspiracy among the eleven defendants caused them to pay artificially high prices for heating oil.

On February 21, 1975 Exxon filed papers in the district court and obtained an ex parte order from Judge Costantino forbidding the Berger and Wien firms from initiating communications with any potential plaintiffs. The defendants-appellants' motion was based essentially on documents they discovered in February, 1975 which on their face suggested that improper efforts were being undertaken to encourage the filing of identical claims against the defendants in violation of New York Judiciary Law § 479 as well as Disciplinary Rules DR 2--103(C), (D) and (E) and 2--104(A)(1) of the Code of Professional Responsibility. ² Essentially, the claim of disqualification is based on improper solicitation of clients directly or indirectly through laymen and accepting employment as a result thereof. The documents in issue were letters distributed by Sulzberger-Rolfe, Inc. (Sulzberger) and Douglas L. Elliman & Co., Inc. (Elliman), two prominent New York real estate firms which act as managing agents for a large number of New York cooperative apartment buildings. The letters were sent to the presidents of the boards of trustees of the cooperatives managed by these firms. The letters advised that there was a pending law suit for treble damages in the Eastern District for claimed overcharges for fuel oil; that David Berger, a prominent Philadelphia trial attorney, and Wien, Lane & Malkin, as associate counsel, had been retained by various residential owners; that counsel fees were on a one-third contingency basis and that intervenors were being asked to advance the sum of $1.00 per apartment for out-of-pocket expenses. In addition to indicating that the complaint sought millions of dollars, the Sulzberger letter also enclosed an unsigned retainer agreement on the Berger letterhead. It is obvious that there was cause for inquiry and on March 3, 1975 a hearing was held. The plaintiffs filed seven affidavits from attorneys in both the Berger and Wien firms as well as from officers of Sulzberger and Elliman which purported to explain the origin and transmittal of the letters. Exxon supplied an additional affidavit describing three additional letters which were in substance similar to the prior circulars.

Counsel for Exxon requested the adjournment of the March 3 hearing and it was finally conducted by Judge Costantino on March 5, 1975. Counsel for Exxon insisted that he had the right to interrogate the witnesses at the hearing. Judge Costantino disagreed, characterizing the hearing as a 'judicial proceeding' and not an 'adversary proceeding.' Counsel for Exxon then submitted to the court an outline of the questions intended to be asked of each of the witnesses. The court stated that counsel had the right to indicate what transgressions were claimed to have been committed, but stated that he did not 'have the right to be the advocate, nor be my advocate.' The court took a ten-minute recess to examine the proposed questions and thereafter counsel for plaintiffs, who was also given a copy of them, indicated his objection to those questions which involved confidential attorney-client relationships. When the hearing was resumed Judge Costantino stated that he would not ask all of the questions propounded but would limit his questions to those he considered germane to the solicitation issue. At the hearing David Berger and Stanley Wolfe of the Berger firm, and William J. Lippman and Ralph Felsten of the Wien firm, testified and answered all of the court's questions. On March 11 Judge Costantino filed a ten-page opinion in which he found that '(a)ll communications by members of the Wien and Berger firms . . . appear to have been made in compliance with instructions given by clients or in response to specific inquiries from clients or others.' He found that 'plaintiffs' attorneys violated neither the spirit nor letter of the Code of Professional Responsibility and section 479 of the Judiciary Law.' He vacated the stay of February 21, 1975 and stated that counsel for plaintiff should advise Sulzberger not to distribute copies of the law firm retainer forms to any potential claimant. He denied as unwarranted the alternate relief sought by the defendants which would have required the Berger and Wien firms to advise the recipients of the Sulzberger and Elliman letters that they were unauthorized and that the firms were not available to represent them.

I.

In Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496 F.2d 800 (2d Cir. 1974) this court en banc overruled prior circuit precedents and held that an order of the district court refusing to disqualify an attorney for unprofessional conduct was directly appealable to this court on the authority of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). The theory underlying the decision was that the issue involved a final disposition of a claimed right, not requiring consideration of the merits of the cause of action, and 'if unresolved, might well taint a trial,' thus needlessly expending judicial and attorney trial time. Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., supra, 496 F.2d at 806. Judge Moore presciently forecast that '(c)harges of conflict of interest and motions to disqualify will probably increase rather than abate.' Id. at 803. Certainly since that opinion was written this court has had several appeals based on the conflict of interest problem. ³ The appeal before us is not based on conflict of interest, however, but rather on a charge that plaintiffs' counsel has solicited clients in violation of section 479 of the New York Judiciary Law and related provisions of the Code of Professional Responsibility. We emphasize that there is no evidence and no claim made that the plaintiffs in the three separate pending antitrust actions were in fact solicited by their counsel or anyone else. Rather the charge is that counsel solicited other prospective plaintiffs, none of whom have surfaced as intervenors or as plaintiffs in comparable actions against the defendants-appellants. In sum, there is no taint attached to counsel's representation of the clients who are plaintiffs in the pending law suits.

The only comparable case we have discovered in this circuit is Fisher Studio, Inc. v. Loew's Inc., 232 F.2d 199 (2d Cir.), cert. denied, 352 U.S. 836, 77 S.Ct. 56, 1 L.Ed.2d 55 (1956). There counsel for plaintiffs in an antitrust suit was held to be flagrantly soliciting clients who commenced an action against fifteen motion picture companies. In addition, nine of these defendants were former clients of plaintiffs' counsel and there was clear evidence of improper use by him of confidential information obtained as defendants' prior counsel. Despite these findings of clear and convincing evidence of solicitation Chief Judge Clark, writing for this court, held:

We do not think that the solicitation shown here may form a separate ground for disqualification and thus justify such action as to the six nonclient defendants. Solicitation may well merit appropriate discipline; but it appears quite incongruous that disqualification should be the remedy, separating the client from his counsel without substitution of other protection for the client's interest. And the possibilities of endless disputes at the inception of lawsuits as to how the business was obtained are not to be overlooked.

Id. at 204. How much more incongruous would it be to separate nonsolicited clients from the counsel of their choice here.

The misconduct complained of does not infect either the merits, the competence or the ethics of the representation in the pending actions. Even if the appellants could establish that counsel had sought, albeit unsuccessfully, to secure additional clients as intervenors or as separate suitors, it is extraneous to the pending litigation. We therefore fail to see how disqualification is the appropriate remedy. Even if the existing plaintiffs had been solicited, under Fisher Studio, Inc. v. Loew's Inc., supra, the remedy of disqualification would be unwarranted. A fortiori, such relief is inappropriate here. There has...