Melamed v. ITT Continental Baking Co.

• Decision Date: 24 January 1979
• Docket Number: No. 78-3181,78-3181
• Parties: 1979-1 Trade Cases 62,433 Maynard B. MELAMED, Trustee in Bankruptcy for Laub Baking Company, for Sandusky Baking Company, and for Jersey Bread Company, Plaintiff-Appellee, v. ITT CONTINENTAL BAKING COMPANY, a corporation, and International Telephone and Telegraph Corporation, a corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 290

592 F.2d 290

1979-1 Trade Cases 62,433

Maynard B. MELAMED, Trustee in Bankruptcy for Laub Baking

Company, for Sandusky Baking Company, and for

Jersey Bread Company, Plaintiff-Appellee, v. ITT CONTINENTAL BAKING COMPANY, a corporation, and International Telephone and Telegraph Corporation,

a corporation, Defendants-Appellants.

No. 78-3181.

United States Court of Appeals,

Sixth Circuit.

Argued Oct. 3, 1978.

Decided Jan. 24, 1979.

Eric M. Oakley, Squire, Sanders & Dempsey, Cleveland, Ohio, John H. Schafer, III, Charles Lister, S. William Livingston, Jr., Covington & Burling, Margaret E. Clark, Washington, D. C., Gordon A. Thomas, Craig D. Walley, ITT Continental Baking Co., Inc., Rye, N. Y., for defendants-appellants.

Robert S. Balantzow, Nadler, Sokolsky, Bahas & Balantzow, Cleveland, Ohio, Stanley A. Walton, III, Winston & Strawn, Logan T. Johnston, III, Chicago, Ill., for plaintiff-appellee.

Before EDWARDS, Chief Judge, and PHILLIPS and PECK, Senior Circuit Judges.

EDWARDS, Chief Judge.

This is the second appeal in this antitrust litigation and to date (nearly four years after the filing of the complaint) not only has no trial on the merits of the antitrust action occurred, but, in addition, only limited discovery proceedings have been started.

What we deal with now is a second appeal from another order of another District Judge, entered after full evidentiary hearing, again denying the motion filed by defendant-appellant, Continental Baking Co., seeking disqualification of Stanley Walton, partner of the law firm of Winston & Strawn of Chicago, from representing plaintiff Trustee for Laub Baking. The disqualification was and is sought on the grounds of conflict of interest in that Winston & Strawn also represents two other large baking companies, Interstate Brands Corp. and Ward Foods, Inc., which, like Continental, have been competitors of the now bankrupt Laub Baking Company.

On the first appeal this court determined that:

(T)he district court's order denying Continental's motion for disqualification of Winston & Strawn is appealable at this stage of the proceedings as a final decision of the district court pursuant to 28 U.S.C. § 1291. While this precise issue has not previously been before this Court, other circuits considering the question have generally concluded that an order denying a motion for disqualification is appealable under 28 U.S.C. § 1291. Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496 F.2d 800 (2d Cir. 1974) (en banc) (cases cited); see Kroungold v. Triester, 521 F.2d 763 (3d Cir. 1975); Fullmer v. Harper, 517 F.2d 20 (10th Cir. 1975); Yablonski v. United Mine Workers, 147 U.S.App.D.C. 193, 454 F.2d 1036 (1971) (dicta), Cert. denied, 406 U.S. 906, 92 S.Ct. 1609, 31 L.Ed.2d 816 (1972); Uniweld Products, Inc. v. Union Carbide Corp., 385 F.2d 992 (5th Cir. 1967), Cert. denied, 390 U.S. 921, 88 S.Ct. 853, 19 L.Ed.2d 980 (1968). Contra, Cord v. Smith, 338 F.2d 516 (9th Cir. 1964).

Melamed v. ITT Continental Baking Co., 534 F.2d 82, 84 (6th Cir. 1976).

We also determined that the District Court's order of denial of disqualification had been entered without a full evidentiary hearing and we remanded for such a hearing.

After full evidentiary hearing, District Judge Manos entered the following findings of fact:

On October 24, 1974 the trustee filed a 30 million dollar anti-trust action against Continental, which the Sixth Circuit described as follows:

The complaint, in four counts, alleges violations of the Sherman Act, 15 U.S.C. §§ 1, 2 (two counts), the Robinson-Patman Act, 15 U.S.C. §§ 13, 14, 15, 26 (one count), and the Ohio Valentine Act, Ohio Rev.Code § 1331.01 Et seq. (one count as pendent claim to the federal causes of action). Generally, the plaintiff claims that, in an effort to create and maintain a monopoly in bakery goods in Northern Ohio and Southwestern Michigan, defendants (hereafter referred to collectively as "Continental") have engaged in "various predatory prices, discriminatory discounts, and price-wars." Further, plaintiff alleges that Continental "subsidized" its unprofitable marketing activity in the Northern Ohio and Southeastern Michigan region by utilizing financial resources drawn from its more profitable, monopolistic marketing operations in other regions of the United States. On account of the asserted monopolistic practices, plaintiff alleges that Laub was forced out of business in January, 1974.

Melamed v. ITT Continental Baking Co., supra, 534 F.2d at 83.

It is undisputed that Continental was one of Laub's major competitors in Northern Ohio. It is also undisputed that Interstate Brands Corp. (Interstate) and Ward Foods Inc. (Ward) sold bakery goods in Northern Ohio at the time Laub went out of business. Like Continental, these two companies were major competitors of Laub's. However, only Continental was named as a defendant in this action.

Laub retained Stanley A. Walton of Winston & Strawn to represent it. From roughly 1970 to 1974, during which the claims in this lawsuit arose, Winston & Strawn represented both Interstate and Ward.¹ The work Winston & Strawn did for Interstate and Ward included anti-trust litigation, and Mr. Walton has personally counseled Interstate on certain anti-trust matters.

Our review of this record discloses no reason for us to hold that any of these findings are clearly erroneous. On the contrary, they appear to be fully supported by the record.

Judge Manos then entered the following conclusions of law:

Continental claims that Winston & Strawn's duty to protect the interest of Interstate and Ward conflict with their duty to represent Laub in the present suit. Continental argues that this suit would have joined Interstate, Ward and Continental as defendants if attorneys other than Winston & Strawn had been retained to represent Laub. Continental contends that Winston & Strawn's continued representation of Laub in this suit violates Canon 5 of the Code of Professional Responsibility and therefore Winston & Strawn should be disqualified.

Canon Five and pertinent Ethical Considerations promulgated thereunder read in part:

A lawyer should exercise independent professional judgment on behalf of a client.

Canon Five.

If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of this representation.

Ethical Consideration 5-15.

It has been repeatedly held that an attorney may not represent a client in litigation against a former client if the subject matter of the litigation is "substantially related" to work he or she did for the former client. See e. g. Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 565 (2nd Cir. 1968); Wilson P. Abraham Construction Corp. v. Armco Steel Corp., 559 F.2d 250, 252 (5th Cir. 1977); T. C. & Theatre Corp. v. Warner Bros. Pictures, 113 F.Supp. 265, 268 (S.D.N.Y.1953). If the representation is against an existing client, not just a former one, the balance shifts even more significantly toward disqualification. See Cinema 5, Ltd. v. Cinerama, 528 F.2d 1384, 1386 (2nd Cir. 1976). Continental claims that Winston & Strawn in representing Laub, represents a party whose interests may be adverse to pre-existing clients, Interstate and Ward. The court agrees. However this fact, in and of itself, does not necessitate disqualification. See Baglini v. Pullman Inc., 412 F.Supp. 1060, 1065, 1066 (E.D.Penn.1976); Cannon v. U.S. Accoustics Corp., 398 F.Supp. 209, 219-220 (N.D.Ill.S.D.1975). A lawyer's duty to his client is that of a fiduciary or trustee. See e. g. Hafter v. Farkas, 498 F.2d 587, 589 (2nd Cir. 1974). He or she must give Undivided loyalty to each client. See e. g. Von Moltke v. Gillies, 332 U.S. 708, 725, 68 S.Ct. 316, 92 L.Ed. 309 (1948). A client can expect that an attorney will "accept no retainer to do anything that might be adverse to his client's interests." See Cinema 5, Ltd. v. Cinerama, Inc., et al., supra, 528 F.2d at 1386 (emphasis added). In most situations the simple appearance of a conflict would be sufficient to cause this court to disqualify an attorney. See Canon 9 Code of Professional Responsibility. In this case however there is a crucial additional fact; the only party, who can be conceivably harmed by the potential conflict is Laub, which desires to keep its present counsel.

The court has found that Melamed and Balantzow were fully informed about any possible conflict of interest. Yet undisputably Melamed and Balantzow believe that the continued representation of Laub by Winston & Strawn is in the best interest of the trust. That there has been full disclosure weighs heavily against disqualification. See Whiting Corp. v. White Machinery Corp., 567 F.2d 713, 715 (7th Cir. 1977); Cinema 5, Ltd. v. Cinerama, Inc., supra, 528 F.2d at 1386. Further Laub exercised an important public right in retaining Winston & Strawn; the right to the counsel of their choice, See e. g. Woods v. Covington City Bank, 537 F.2d 804, 810 (5th Cir. 1976); Moritz v. Medical Protective Co. etc., 428 F.Supp. 865, 874 (W.D.Wisconsin 1977); Baglini v. Pullman Inc., supra, 412 F.Supp. at 1066. The knowing and intelligent exercise of the right to choose counsel, after full disclosure, will not be overturned by this court unless there is a convincing showing by the moving party of a real and substantial harm to the acquiescing party's interests.³ Baglini v. Pullman Inc., supra, 412 F.Supp. at 1064-1066. The court finds that Continental has not established a real and substantial disadvantage that would be caused to Laub by the continued representation of Laub by Winston & Strawn. Accordingly the motion to disqualify is overruled.

We find no reason to fault the District Judge's legal reasoning, and we affirm his conclusions. ¹

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