Professional Service Industries, Inc. v. Kimbrell

• Decision Date: 06 March 1991
• Docket Number: No. 90-1326-C.,90-1326-C.
• Citation: 758 F. Supp. 676
• Parties: PROFESSIONAL SERVICE INDUSTRIES, INC., Plaintiff, v. W. David KIMBRELL and Janet Kimbrell, Defendants.
• Court: U.S. District Court — District of Kansas

758 F. Supp. 676

PROFESSIONAL SERVICE INDUSTRIES, INC., Plaintiff, v. W. David KIMBRELL and Janet Kimbrell, Defendants.

No. 90-1326-C.

United States District Court, D. Kansas.

March 6, 1991.

William A. Bonwell, Jr. and Susan Ellis, Bonwell, Foster, Irby & Ellis, David E. Bengston and William R. Smith, Hershberger, Patterson, Jones & Roth, Wichita, Kan., John J. Thomason of Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams, Memphis, Tenn., for plaintiff.

Paul L. Thomas, Wichita, Kan., Dennis J. Dobbels and David A. Welte of Polsinelli, White, Vardeman & Shalton, Kansas City, Mo., John Jurcyk, Jr., McAnany, Van Cleave & Phillips, Pa., Kansas City, Kan., for defendants.

MEMORANDUM AND ORDER

CROW, District Judge.

The case comes before the court on the motion of defendant W. David Kimbrell to disqualify John J. Thomason, Jerry E. Mitchell and the law firm of Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams from representing the plaintiff in this case. At the court's notice, an evidentiary hearing was set for February 21, 1991. Two days before the hearing, movant asked for a continuance in order that he might conduct discovery on his motion which was filed December 6, 1990. The continuance was denied during a telephone conference on the afternoon of February 19, 1991. On February 21, 1991, the court heard the parties' evidence and arguments on the motion. After reviewing the parties' additional briefs, the court will issue for purposes of this motion only its findings and conclusions as required by Fullmer v. Harper, 517 F.2d 20, 21-22 (10th Cir.1975).

FINDINGS OF FACT

1. Hall-Kimbrell Environmental Services, Inc. ("Hall-Kimbrell"), an environmental engineering company, started business in 1982. W. David Kimbrell founded Hall-Kimbrell and served as its president, CEO, and chairman of the board until December of 1989.

2. Between 1982 and 1989, Hall-Kimbrell was one of the fastest growing corporations in the United States. With the passage in 1986 of "AHERA," Asbestos Hazard Emergency Response Act, 15 U.S.C. § 2641 et seq., Hall-Kimbrell contracted with numerous school districts to inspect and develop management plans for controlling and removing asbestos in their school buildings.

3. In the fall of 1989, David and Janet Kimbrell were two of seven principal shareholders in Hall-Kimbrell who were approached by Professional Service Industries, Inc. ("PSI") and its parent corporations, Professional Service Industries Holding, Inc. and ADIA/Inspectorates, Inspectorate International, Ltd. (a Swiss company), about PSI's possible purchase of Hall-Kimbrell. On December 29, 1989, David Kimbrell, who owned in excess of 70% of the shares in Hall-Kimbrell, and the other six shareholders of Hall-Kimbrell executed a stock purchase agreement selling their stock to PSI. The sale of Hall-Kimbrell became effective on July 1, 1990.

4. The stock purchase agreement provided that the former shareholders, including David Kimbrell, would execute individual employment agreements with PSI that would insure their employment with Hall-Kimbrell for at least one year after the sale. David Kimbrell retained his position as president of Hall-Kimbrell until his termination in July of 1990.

5. In March of 1990, the Denver office of the Environmental Protection Agency ("EPA") filed and served one or two formal complaints or citations against Hall-Kimbrell. Mark Weiland, corporate counsel for PSI; Robert W. Naibert, corporate counsel for Hall-Kimbrell; and John Thomason, outside retained counsel for PSI, met in Lawrence in March and April of 1990 and drafted an answer to these complaints. In early May, the EPA filed ten more complaints against Hall-Kimbrell. No other defendants or parties are named in the complaints. The EPA complaints primarily focused on Hall-Kimbrell's failure to inspect wallboard in the school buildings.

6. Harold Ahlberg, chairman of Professional Service Industries Holding, Inc., asked David Kimbrell to provide a written report of the history to these EPA problems and his recommendations concerning these particular complaints. David Kimbrell gave his report in a five-page letter dated May 18, 1990, and sent copies to five other members of the management team on the EPA complaints. The letter summarized the ongoing dispute with the EPA on the requirement of inspecting the sheetrock, drywall or wallboard in schools for asbestos material and suggested various actions for defusing this controversy.

7. On May 18, 1990, David Kimbrell received a memorandum from James Ahlberg, president of PSI, requesting his attendance "at a planning meeting to discuss the company's strategy for defending the referenced EPA complaints," scheduled for 2:00 p.m. to 7:00 p.m. on Thursday, May 24, 1990. The memorandum was also addressed to Sal Falcone and Richard Sanfilippo, employees of Hall-Kimbrell; Murray Savage, Chief Financial Officer of Hall-Kimbrell; Robert Naibert; Stan Stanley, President of PSI Holding; James Ahlberg; and Mark Weiland.

8. Those requested in the memorandum to attend were present at the meeting on May 24 and 25, 1990. In addition, John Thomason and Jerry Mitchell, attorneys with the firm of Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams were present. Shortly after the meeting began, John Thomason introduced himself and Jerry Mitchell as attorneys representing PSI.

9. At the meeting, several persons, including David Kimbrell, made presentations. The specifics of each EPA complaint were discussed. The history of the EPA's position on this issue and the past dealings between the EPA and Hall-Kimbrell were other topics. The management team decided on a strategy for dealing with these complaints on several different fronts.

10. David Kimbrell, in his words, "bared his soul" at the meeting telling all about the past relationship, including the rocky moments, between the EPA and Hall-Kimbrell. He placed the current complaints in the chronology of the EPA's evolving position on wallboards. He identified the strong and weak points with the EPA complaints and offered his personal insights on handling them. He considered his comments confidential in the sense that they were not intended to inform the public or the EPA.

11. David Kimbrell did not know until he arrived at the meeting that attorneys would also be attending. He did not prepare or plan his presentation to the team in anticipation of obtaining legal advice upon what he presented. David Kimbrell did not testify that upon learning of the attorneys that he altered his presentation in any way. David Kimbrell did not testify that his statements and remarks at the meeting were induced or evoked as a result of the attorneys.

12. Others attending the meeting do not recall David Kimbrell disclosing anything more than what he already had wrote in his letter of May 18th or discussed at other times. David Kimbrell admitted that what he said at the meeting was already known by others at Hall-Kimbrell.

13. Neither John Thomason nor Jerry Mitchell nor anyone else at the meeting told David Kimbrell that his interests with respect to the EPA complaints were or could be adverse to Hall-Kimbrell or PSI, that they could not represent him in such matters, and that he may want to obtain independent legal representation.

14. None of those attending the meeting and testifying at the hearing, including David Kimbrell, perceived an adverse interest in regards to the EPA complaints between David Kimbrell, Hall-Kimbrell and PSI at the time of the meeting. PSI's attorneys in the present case did not represent PSI in the purchase of Hall-Kimbrell. There is no evidence showing John Thomason and Jerry Mitchell were aware of the terms to the stock purchase agreement before or during the May 24th and 25th meeting.¹

15. David Kimbrell met John Thomason and Jerry Mitchell for the first time at this meeting. He never sought personal legal advice from them at any time. They had no private conversations about the EPA complaints or the matters alleged therein. The only occasion where David Kimbrell spoke with either attorney privately outside of the meeting was a brief, social conversation in the hallway about a photograph or plaque hanging there. David Kimbrell believed that the attorneys were representing the management team and that he was a member of the team. During this period, David Kimbrell regularly sought the counsel of the law firm of Shook, Hardy & Bacon on his personal legal matters.

16. The law firm of Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams has regularly represented PSI for the last five years. It has primarily provided litigation support services in PSI's major defensive litigation.

17. Within days after the May 24th and 25th meeting, PSI retained a law firm in Austin, Texas, to represent it on the EPA complaints. John Thomason and his firm did not provide any further representation on that matter after the meeting.

18. On July 5, 1990, Kimbrell was locked out of his office at Hall-Kimbrell and was served with a summons on this lawsuit filed the same day.

19. On September 4, 1990, Kimbrell's attorneys raised the conflict of interest issues found in the present motion in a letter faxed to John Thomason. In a letter dated September 10, 1990, Mr. Thomason responded that he found no merit in those issues and urged that they be brought before the court immediately if Kimbrell's attorney believed there was any merit to the issues.

CONCLUSIONS OF LAW

1. As a result of Rule 407(c) in this court and Rule 226 of the Kansas Supreme Court, the Model Rules of Professional Conduct ("Model Rules") set forth the "standards of conduct and practice of the legal profession in Kansas." Graham v. Wyeth Laboratories, 906 F.2d 1419, 1421 (10th Cir.1990), cert. denied, ___ U.S. ___, 111 S.Ct. 511, 112 L.Ed.2d 523 (1990).

2. The court generally supervises counsels' conduct in litigation before it, and decisions to disqualify c...