McElroy v. Gaffney, s. 86-367

• Decision Date: 03 June 1987
• Docket Number: 86-368,Nos. 86-367,s. 86-367
• Citation: 129 N.H. 382,529 A.2d 889
• Parties: , 56 USLW 2011 John F. McELROY, Individually and on Behalf of Action Manufacturing Company, Inc. v. Lawrence A. GAFFNEY et al.
• Court: New Hampshire Supreme Court

Page 889

529 A.2d 889

129 N.H. 382, 56 USLW 2011

John F. McELROY, Individually and on Behalf of Action Manufacturing Company, Inc. v. Lawrence A. GAFFNEY et al.

Nos. 86-367, 86-368.

Supreme Court of New Hampshire.

June 3, 1987.

Burns, Bryant, Hinchey, Cox & Shea, Dover (James H. Schulte on the brief and orally), for plaintiff.

Wadleigh, Starr, Peters, Dunn & Chiesa, Manchester (Ronald J. Lajoie and Robert E. Murphy, Jr., orally and on the brief), for defendants Lawrence A. Gaffney and Jerold R. Graff.

JOHNSON, Justice.

This is an interlocutory appeal from rulings by the Trial Court (Temple, J.) denying the defendants a jury trial and refusing to disqualify the plaintiff's attorney, in this the third lawsuit between these parties arising out of the ownership and operation of Action Manufacturing Company. The following issues are presented for our review: (1) to what extent does the constitutional right to a jury trial require a binding jury verdict where the plaintiff's bill in equity includes a count alleging intentional infliction of emotional distress; and (2) whether the plaintiff's attorney should have been disqualified, where it appeared that he would be a necessary witness at trial, as a result of his continuous past representation of the plaintiff in matters at issue in this lawsuit. We hold that the defendants are constitutionally entitled to a binding jury verdict on their legal claim, but find no error in the trial court's refusal to disqualify the plaintiff's counsel.

The relevant facts are these. In 1978, John F. McElroy and Lawrence A. Gaffney left their employment at Chelsea Enterprises, Inc., a Massachusetts corporation, taking several other employees with them, including Jerold R. Graff. McElroy and Gaffney had formed Action Manufacturing Company, Inc. (hereinafter referred to as "the corporation"), while both were still employed at Chelsea Enterprises, which is involved in the manufacture and sale of products utilized in the shoe industry. McElroy and Gaffney invested about $130,000 in the corporation.

The new venture was stymied at the start when Chelsea Enterprises obtained an injunction preventing the corporation from competing in the domestic market. From August 1978 to mid-January, 1979, the corporation's financial woes were mitigated by the infusion of "loans" of about $106,000 by McElroy and $2000 by Gaffney. There was also a partial stock and asset sale to another corporation, Textile Tape, Inc., which had an established foreign market. The relationship between the parties deteriorated. Believing he was being forced out of the corporation, McElroy retained Attorney James H. Schulte in 1980, and brought a successful petition to compel Gaffney and the corporation to provide him with access to corporate records.

In March 1982, McElroy brought suit to compel a readjustment of the disproportionate investments made by McElroy and Gaffney in the corporation, again retaining Attorney Schulte to represent him. When Gaffney terminated McElroy's salary in November, 1982, McElroy filed an action at law to recover compensation and benefits, with Schulte acting as his attorney. Meanwhile, Gaffney filed suit on behalf of the corporation in an effort to deny McElroy access to the corporate books, and to enjoin him from divulging any information to Chelsea Enterprises and others. McElroy prevailed in both actions, with Schulte at his side. Schulte has continued to represent McElroy in his general course of dealings with the corporation, and having done so, is intimately involved in and familiar with the various transactions at issue in the current action.

The instant case was commenced by a bill in equity in May 1985, and was framed as a shareholders' derivative action. The plaintiff alleged that the defendants used the corporation to their own purposes and diverted corporate assets. He sought damages, an accounting, restoration of improperly diverted assets, and an injunction to prevent future damages. Additionally, in paragraph 23 of the bill in equity, the plaintiff raised a claim for damages for intentional infliction of emotional distress. Attorney Schulte is the plaintiff's counsel of record in this action.

The defendants Gaffney and Graff made demand for jury trial in their initial pleading. This demand was subsequently joined by Marsh and Colby, the attorney and accountant for the corporation. They also moved for the disqualification of Attorney Schulte because he would be a necessary witness at the trial. The court denied the jury trial demand, instead appointing an "advisory jury" to hear the emotional distress count, pursuant to RSA 519:23, noting that the right to a jury trial on the one "legal" claim would thereby remain intact.

By separate order entered the same day, the court denied the defendants' motion to disqualify Attorney Schulte. The court found that Schulte's knowledge of the various transactions that comprise this case would likely make him a "necessary witness" within the meaning of Rule 3.7 of the New Hampshire Rules of Professional Conduct. The court further found, however, that disqualification of Schulte following his extended involvement in the intricacies of the case would create an unreasonable hardship on the plaintiff within the meaning of paragraph (a)(3) of the same rule. The defendants brought this interlocutory appeal to challenge the above rulings.

I. Right to a Jury Trial

We first consider whether the trial court's designation of an " advisory jury" to hear the emotional distress claim satisfied the defendants' right to a jury trial under part I, article 20 of the New Hampshire Constitution, which provides:

"In all controversies concerning property--and in all suits between two or more persons, except in cases in which it has been heretofore otherwise used and practiced, and except in cases in which the value in controversy does not exceed five hundred dollars, and title of real estate is not concerned the parties have a right to a trial by jury and this method of procedure shall be held sacred, unless, in cases arising on the high seas and such as relates to mariners' wages the legislature shall think it necessary hereafter to alter it."

This provision affords the unqualified right to a trial by jury in actions at common law, as it was understood to apply at common law prior to 1784. Hallahan v. Riley, 94 N.H. 338, 339, 53 A.2d 431, 432 (1947). It is well recognized that the right has no application in special, statutory, or summary proceedings unknown to the common law, id. at 340, 53 A.2d at 432, or to purely equitable proceedings, Lakeman v. LaFrance, 102 N.H. 300, 304, 156 A.2d 123, 126 (1959).

However, it is equally well recognized that the jury trial right remains intact even though a legal action to which the right attaches is joined with an action in equity:

"A party's constitutional right to a trial by jury is not lost by the presentation of [legal] issues in an equity proceeding or by joining equity and law claims in one action. The issues as to which a party has and claims a right to jury trial may be determined by a jury in equity...."

R. Wiebusch, 5 New Hampshire Practice, Civil Practice and Procedure § 2045(a), at 496 (1984). Indeed, "the decisions of this State indicate a strong tendency to uphold the right of trial by jury whenever possible...." Hampton v. Palmer, 99 N.H. 143, 146, 106 A.2d 397, 399 (1954) (citing Murphy & Sons, Inc. v. Peters, 95 N.H. 275, 62 A.2d 718 (1948)). Our courts "will generally give a jury trial to a party who claims the right in a timely fashion as to any issues that would have been subject to a jury trial if brought in a separate action...." Wiebusch, supra § 1455, at 252.

Both parties concede that a shareholders' derivative action is an action in equity. See Bowker v. Nashua Textile Co., 103 N.H. 242, 245, 169 A.2d 630, 632 (1961). However, that a cause of action for intentional infliction of emotional distress is an action at law is, we think, beyond peradventure. Such an action is a wrong that falls within the traditional definition of a tort as "[a] civil wrong for which the remedy is a common law action for unliquidated damages, and which is not exclusively the breach of a contract or the breach of a trust or other merely equitable obligation." Salmond, Law of Torts 13 (10th ed. 1945). See Plante v. Engel, 124 N.H. 213, 469 A.2d 1299, 1302 (1983) (Annotated in 49 A.L.R. 4th 1 (1983)); Corso v. Merrill, 119 N.H. 647, 406 A.2d 300 (1979).

This case is different from Smith v. Manchester Management Corp., 117 N.H. 361, 373 A.2d 361 (1977), cited by the plaintiffs. Smith involved an action for a constructive trust and damages arising out of a partnership agreement; it was strictly and solely an equitable action for an accounting and did not join a legal claim. In the instant case, however, paragraph 23 of the bill in equity specifically raises a legal rather than an equitable claim. Although it may be true that the action as a whole remains predominantly one for equitable relief, we agree with the reasoning in Thermo-Stitch, Inc. v. Chemi-Cord Processing Corp., 294 F.2d 486, 491 (5th Cir.1961) that it makes no constitutional difference "if the equitable cause clearly outweigh[s] the legal cause so that the basic issue of the case taken as a whole is equitable."

Since in this action the defendants are entitled to have the legal issue decided by a jury as a matter of right, it follows that the verdict of the jury must be accorded binding effect. See American Employers Ins. Co. v. Liberi, 101 N.H. 480, 482, 147 A.2d 306, 307-08 (1958). Hence, the trial court's appointment of a mere "advisory jury" to hear the emotional distress count pursuant to RSA 519:23, was error.

RSA 519:23 provides that "[t]he court may direct proper issues to be framed for the trial by a jury of any question of fact arising in a suit in equity...." However, this provision must be read in conjunction with RSA 491:16,...