Moritz v. MEDICAL PROTECTIVE CO., ETC.

• Decision Date: 22 February 1977
• Docket Number: No. 76-C-339.,76-C-339.
• Citation: 428 F. Supp. 865
• Parties: Walter D. MORITZ and Frank Edward Nichols, Plaintiffs, v. The MEDICAL PROTECTIVE COMPANY, OF FORT WAYNE, INDIANA, a corporation, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

428 F. Supp. 865

Walter D. MORITZ and Frank Edward Nichols, Plaintiffs, v. The MEDICAL PROTECTIVE COMPANY, OF FORT WAYNE, INDIANA, a corporation, Defendant.

No. 76-C-339.

United States District Court, W. D. Wisconsin.

February 22, 1977.

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Myron M. Cherry by Peter A. Flynn, Chicago, Ill., for plaintiffs.

Boardman, Suhr, Curry & Field, Bradway A. Liddle, Madison, Wis., for defendant.

JAMES E. DOYLE, District Judge.

This is a civil action in which the plaintiff seeks monetary, declaratory and injunctive relief. Plaintiffs are doctors who were insured by the defendant against liability accruing from medical malpractice suits. Plaintiffs complain that defendant breached this insurance contract by refusing to prosecute an appeal in a case in which judgment was entered against the doctors in a state trial court, and that defendant threatens similar wrongs. Jurisdiction is present. 28 U.S.C. § 1332(a).

This opinion and order responds to a motion by plaintiff to bar all members of the Madison, Wisconsin, law firm of Boardman, Suhr, Curry and Field (the Boardman firm) from representing the defendant in this action on the grounds that: (1) such representation would result in the disclosure of confidential information which plaintiff gave to a member of the Boardman firm in another lawsuit; (2) such representation would put the Boardman firm in the position of representing interests of clients which are in conflict; and (3) such representation would create the appearance of impropriety.

On the basis of the pleadings and affidavits submitted, and only for the purpose of deciding the motion to bar the Boardman firm from participation, I find the facts set forth in the section entitled "Facts."

Facts

Plaintiffs (the doctors) are orthopedic surgeons. Defendant (MPC) is a stock insurance company engaged in providing insurance to physicians and surgeons.

The doctors and MPC entered into two contracts covering the calendar years 1973 and 1974. The contracts provided, among other things, that: MPC would defend and pay damages (within stated monetary limits) in the name of the insured in cases involving medical malpractice claims. Upon MPC's receipt of notice from the insured that a claim had been made or was threatened, MPC "shall immediately assume its responsibility for the defense of any such claim and shall retain legal counsel, who shall defend in conjunction with the legal department of the Company." The defense costs would be paid by MPC. The insured would notify MPC immediately of any threatened claim, provide full information concerning the medical services in question, and cooperate fully in the defense.

Sometime in 1973, Katherine and John Schofield filed claims against the doctors alleging that the doctors had negligently performed certain medical services. Pursuant to the insurance contract then in effect, MPC appointed counsel (other than the Boardman firm) to represent the doctors in that action. On January 6, 1976, a judgment was entered in favor of the Schofields and against the doctors for a substantial amount of money. The doctors asked their counsel in that case to appeal the judgment, but MPC and the counsel refused to take this appeal. MPC then paid to the Schofields the amount of the judgment and filed a satisfaction of judgment.

From about September, 1974, to the present, Bradway A. Liddle of the Boardman firm has been primary counsel for MPC in Dane and surrounding counties and has handled most, if not all, of the actions commenced during this period against MPC "and/or" its insureds.¹

On February 19, 1976, Moritz and Nichols tendered to MPC defense of another lawsuit against Moritz arising from alleged negligence in rendering professional services. Jacobson v. Moritz (Dane County Circuit Court, Case No. 150-236). In late February or early March of 1976, again pursuant to the applicable insurance contract, MPC referred the defense of the Jacobson case to the Boardman firm and, in particular, to Liddle. Liddle prepared and served an answer to the complaint.²

On March 30, 1976, MPC informed Moritz that the Boardman firm had been retained by MPC to defend the Jacobson case and that Liddle, in particular, would be representing him. In a telephone call to Liddle by Moritz on or about April 7, 1976: (1) Moritz inquired about Liddle's view as to Liddle's duty to defend Moritz, as contrasted with MPC, in the Jacobson case; (2) Moritz discussed the facts of the Jacobson case; and (3) Moritz advised Liddle that MPC had paid a judgment against him in another suit without taking an appeal, and that Moritz was contemplating bringing suit against MPC on the ground of breach of contract.³ Moritz was satisfied by the assurance Liddle gave him that Liddle and the Boardman firm would remain loyal to Moritz in the Jacobson case.

On May 25, 1976, Moritz and Nichols filed the complaint against MPC in the present case in this court and it was served upon MPC the same day. That complaint contains two counts related to the refusal to take the appeal in the Schofield case. It contains a third count which incorporates by reference certain allegations from the first and second counts, and then continues with additional allegations to the following effect:

In September 1975, MPC declined to issue any further liability insurance to these two doctors, but MPC remains obliged to perform under the policy against claims for liability arising from events which occurred during the policy periods. One such claim is the Jacobson claim, and MPC has accepted the tender of the defense against this claim. However, because of the conduct of MPC with respect to the Schofield claim, the doctors do not believe that MPC will act fairly either in appointing lawyers who will represent the independent interest of these doctors or in pursuing or authorizing appeals from adverse judgments. MPC intends, instead, in connection with the defense of claims against the doctors, to make decisions solely in the interest of MPC without regard to the interests of the doctors. MPC intends to take steps to hurt these doctors' interests, including their practice and reputation, in connection with the Jacobson claim and other claims which may be filed in the future relating to events which occurred during the policy periods. The steps which MPC may take to damage the doctors' practice and reputation are "so varied, subtle, and discrete" that the doctors' interests can be protected only by an injunction preventing MPC from continuing to breach its obligation of loyalty and defense to the doctors and by an injunction permitting the doctors to retain counsel of their own choice, but at MPC's expense, to defend covered claims against the doctors.

When Liddle became aware of the allegations of the complaint in the present case in this court, including those which appear to allege that counsel retained by MPC in the Jacobson case would be unfaithful to Moritz' interests and that Moritz' interests could be protected only by counsel chosen by Moritz, Liddle decided to withdraw from the Jacobson case and he accepted MPC's invitation to represent MPC in the defense of the present case. Between May 25 and June 15, 1976, Liddle drafted an answer for MPC in the present case and also a letter to Moritz advising Moritz of Liddle's desire to withdraw as Moritz' attorney in defense of the Jacobson case, advising Moritz that MPC had retained another lawyer to serve as Moritz' attorney in Jacobson, and enclosing papers for the substitution of the other lawyers for the Boardman firm as Moritz' attorneys in Jacobson. The answer by MPC in the present case in this court was served by mail on June 15. The letter to Moritz was dated and mailed June 16. This sequence occurred because the MPC answer was typed before the letter to Moritz was typed.

Opinion

Plaintiffs' motion for the disqualification of the Boardman firm in the instant case is based principally on Canons 4, 5, and 9 of the Code of Professional Responsibility (CPR) of the American Bar Association.⁴ It is not completely clear whether when exercising its diversity jurisdiction, a federal court must look to the substantive law of the state in which it sits in deciding questions of the conduct of the attorneys appearing before it, or may exercise its own judgment in conflict with or more stringently than the rules adopted by the state. See, e. g., Cord v. Smith, 338 F.2d 516, 524 (9th Cir. 1964), aff'd on rehearing, 370 F.2d 418 (9th Cir. 1966). I need not definitively resolve this question since I intend to look to the CPR and since the relevant provisions of CPR (but not the footnotes prepared by the American Bar Association's Special Committee) have been adopted by the Wisconsin Supreme Court (with amendments not relevant here) pursuant to Wis. Stat.Ann. § 256.29(2) (App.1971), January 1, 1970.

I. Canon 4: The Preservation of the Confidences and Secrets of a Client.

Ethical consideration (EC) 4-1 of Canon 4 opens with this sentence: "Both the fiduciary relationship existing between lawyer and client and the proper functioning of the legal system require the preservation by the lawyer of confidences and secrets of one who has employed or sought to employ him." EC 4-5 of Canon 4 closes with this sentence: "Care should be exercised by a lawyer to prevent the disclosure of the confidences and secrets of one client to another, and no employment should be accepted that might require such disclosure."

Disciplinary Rule 4-101(A) defines "confidence," for the purpose of Canon 4 and the related disciplinary rule (DR), as "information protected by the attorney-client privilege under applicable law," and it defines "secret" as "other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client."

DR 4-101(B) of CPR provides:

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