Maritrans GP Inc. v. Pepper, Hamilton & Scheetz

• Citation: 602 A.2d 1277,529 Pa. 241
• Court: Pennsylvania Supreme Court
• Decision Date: 29 January 1992
• Parties: , 60 USLW 2497 MARITRANS GP INC., Maritrans Partners L.P. and Maritrans Operating Partners L.P., Appellants, v. PEPPER, HAMILTON & SCHEETZ and J. Anthony Messina, Jr., Esquire, Appellees.

Page 1277

602 A.2d 1277

529 Pa. 241, 60 USLW 2497

MARITRANS GP INC., Maritrans Partners L.P. and Maritrans Operating Partners L.P., Appellants, v. PEPPER, HAMILTON & SCHEETZ and J. Anthony Messina, Jr Esquire, Appellees.

Supreme Court of Pennsylvania.

Argued Jan. 17, 1991.

Decided Jan. 29, 1992.

Richard A. Sprague, Denise Pallante, William P. Murphy, Howard K. Goldstein, Gerald E. Arth, Joseph T. Pallante, Philadelphia, for appellants.

Geoffrey C. Hazard, Jr., Sterling Professor of Law, New Haven, Conn., for amicus in support of appellants.

Francis P. Newell, Arthur G. Raynes, Philadelphia, Stephen Gillers, New York City, pro hac vice, for appellees.

Before NIX, C.J., and LARSEN, FLAHERTY, McDERMOTT, ZAPPALA, PAPADAKOS and CAPPY, JJ.

OPINION OF THE COURT

PAPADAKOS, Justice.

This case involves the question of whether the conduct of Appellee-attorneys is actionable independent of any violation of the Code of Professional Responsibility. While we agree that violations of the Code do not per se give rise to legal actions that may be brought by clients or other private parties, we, nevertheless, conclude that the record supports a finding that Appellees' conduct here constituted a breach of common law fiduciary duty owed to Appellant-clients and that, contrary to Appellees' argument that they cannot be prevented from representing a former client's competitors, the injunction issued by the trial court against Appellees should have been sustained by the Superior Court. As a result, we reverse the decision of the Superior Court, as more fully explained below.

Appellants, plaintiffs in the trial court and appellees in the Superior Court, are Maritrans GP Inc., Maritrans Partners L.P. and Maritrans Operating Partners L.P. (hereinafter, collectively, "Maritrans"). Appellees, defendants in the trial court and appellants in the Superior Court, are the Philadelphia law firm of Pepper, Hamilton & Scheetz (hereinafter "Pepper"), and one of Pepper's partners, J. Anthony Messina, Jr. (hereinafter "Messina"). In February, 1988, Maritrans brought an action for preliminary and permanent injunctive relief, as well as for compensatory and punitive damages, against Pepper and Messina, its former attorneys of more than ten years. Maritrans' action arises out of Pepper and Messina's representation of Maritrans' competitors, entities whose interests were found to be adverse to the interests of Maritrans, in matters substantially related to matters in which they had represented Maritrans.

On May 1, 1989, the Court of Common Pleas of Philadelphia County entered an order preliminarily enjoining Pepper and Messina from continuing to act as labor counsel for seven of Maritrans' New York-based competitors, with the exception of one discrete piece of litigation then scheduled to commence on May 8, 1989. The trial court ruled that preliminary injunctive relief was necessary given the existence of a substantial relationship (i.e., a conflict of interest in derogation of Pepper and Messina's fiduciary duties to Maritrans) between Pepper and Messina's current representation of the New York companies, whose interests were adverse to the interests of Maritrans, and their former longstanding representation of Maritrans. Pepper and Messina then moved in the trial court for a stay pending appeal, and certain of the New York competitors moved for leave to intervene in the action. Both motions were denied.

Pepper and Messina then appealed the trial court's preliminary injunction order to the Superior Court which issued a judgment and opinion (Wieand, J. concurring in the result) reversing the preliminary injunction order. Maritrans' subsequent applications for a stay or an order restoring the preliminary injunction pending appeal were denied first by two of the members of the Superior Court panel which decided the case (Wieand, J. not participating in the decision), and then by Chief Justice Nix, Jr., acting as a single justice, and not on behalf of the Court, pursuant to Rule 123 of the Pennsylvania Rules of Appellate Procedure, Pa.R.A.P. 123(e). ¹ The matter is now on full appeal to this Court. For the reasons explained below, we reverse.

The facts taken in a light most favorable to Maritrans, the winner at the trial court level, are as follows:

Maritrans is a Philadelphia-based public company in the business of transporting petroleum products along the East and Gulf coasts of the United States by tug and barge. Maritrans competes in the marine transportation business with other tug and/or barge companies, including a number of companies based in New York. Pepper is an old and established Philadelphia law firm. Pepper and Messina represented Maritrans or its predecessor companies in the broadest range of labor relations matters for well over a decade. In addition, Pepper represented Maritrans in a complex public offering of securities, a private offering of $115 million in debt, a conveyance of all assets, and a negotiation and implementation of a working capital line of credit. Over the course of the representation, Pepper was paid approximately $1 million for its labor representation of Maritrans and, in the last year of the representation, approximately $1 million for its corporate and securities representation of Maritrans.

During the course of their labor representation of Maritrans, Pepper and Messina became "intimately familiar with Maritrans' operations" and "gained detailed financial and business information, including Maritrans' financial goals and projections, labor cost/savings, crew costs and operating costs." Trial court opinion, 4/21/89, at pp. 7-8. This information was discussed with Pepper's labor attorneys, and particularly with Messina, for the purpose of developing Maritrans' labor goals and strategies. In addition, during the course of preparing Maritrans' public offering, Pepper was furnished with substantial confidential commercial information in Maritrans' possession--financial and otherwise--including projected labor costs, projected debt coverage and projected revenues through the year 1994, and projected rates through the year 1990. Pepper and Messina, during the course of their decade-long representation of Maritrans, came to know the complete inner-workings of the company along with Maritrans' long-term objectives, and competitive strategies in a number of areas including the area of labor costs, a particularly sensitive area in terms of effective competition. In furtherance of its ultimate goal of obtaining more business than does its competition, including the New York-based companies, Maritrans analyzed each of its competitors with Pepper and Messina. These analyses included an evaluation of each competitor's strengths and weaknesses, and of how Maritrans deals with its competitors.

Armed with this information, Pepper and Messina subsequently undertook to represent several of Maritrans' New York-based competitors. Indeed, Pepper and Messina undertook to represent the New York companies in their labor negotiations, albeit with a different union, during which the New York companies sought wage and benefit reductions in order to compete more effectively with, i.e., to win business away from, Maritrans.

In September, 1987, Maritrans learned from sources outside of Pepper that Pepper and Messina were representing four of its New York-based competitors in their labor relations matters. Maritrans objected to these representations, and voiced those objections to many Pepper attorneys, including Mr. Messina. Pepper and Messina took the position that this was a "business conflict," not a "legal conflict," and that they had no fiduciary or ethical duty to Maritrans that would prohibit these representations.

To prevent Pepper and Messina from taking on the representation of any other competitors, especially its largest competitor, Bouchard Transportation Company, Maritrans agreed to an arrangement proposed by Pepper whereby Pepper would continue as Maritrans' counsel but would not represent any more than the four New York companies it was then already representing. In addition, Messina--the Pepper attorney with the most knowledge about Maritrans--was to act not as counsel for Maritrans but, rather, as counsel for the New York companies, while two other Pepper labor attorneys would act as counsel for Maritrans; the attorneys on one side of this "Chinese Wall" would not discuss their respective representations with the attorneys on the other side. Maritrans represented that it agreed to this arrangement because it believed that this was the only way to keep Pepper and Messina from representing yet more of its competitors, especially Bouchard.

Unbeknownst to Maritrans, however, Messina then "parked" Bouchard and another of the competitors, Eklof, with Mr. Vincent Pentima, a labor attorney then at another law firm, at the same time that Messina was negotiating with Pentima for Pentima's admission into the partnership at Pepper. Moreover, notwithstanding Pepper's specific agreement not to represent these other companies, Messina for all intents and purposes was representing Bouchard and Eklof, as he was conducting joint negotiating sessions for those companies and his other four New York clients. On November 5, 1987, Maritrans executives discussed with Pepper attorneys, inter alia, Maritrans' plans and strategies of an aggressive nature in the event of a strike against the New York companies. Less than one month later, on December 2, 1987, Pepper terminated its representation of Maritrans in all matters. Later that month, on December 23, 1987, Pepper undertook the representation of the New York companies. Then, on January 4, 1988, Mr. Pentima joined Pepper as a partner and brought with him, as clients, Bouchard and Eklof. In February, 1988, Maritrans filed a complaint in the trial court against Pepper and Messina.

Discovery procedures produced evidence as follows: (i) testimony by principals of the...