Richardson v. Hamilton International Corporation, Civ. A. No. 71-699.
| Decision Date | 03 November 1971 |
| Docket Number | Civ. A. No. 71-699. |
| Parties | James M. RICHARDSON, on behalf of himself and all others similarly situated, Plaintiffs, v. HAMILTON INTERNATIONAL CORPORATION et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Edward W. Mullinix and Ira P. Tiger, Schnader, Harrison, Segal & Lewis, John F. Wilson, III, Dechert, Price & Rhoads, Philadelphia, Pa., for defendants.
Paul R. Rosen, Pechner, Sacks, Cantor, Dorfman, Rosen & Richardson, Philadelphia, Pa., for plaintiff.
Defendants Hamilton International Corporation (hereinafter Hamilton), Hamilton Life Insurance Company of America (hereinafter Hamilton Life), the individually named defendant officers and directors of Hamilton and Hamilton Life, and Lybrand, Ross Brothers and Montgomery (hereinafter Lybrand), have moved to disqualify the plaintiff on the ground that Mr. Richardson did extensive legal work for Hamilton Life when he was an associate in the law firm of Schnader, Harrison, Segal & Lewis (hereinafter Schnader firm), which firm formerly represented Hamilton Life and is now representing Hamilton, Hamilton Life, and the individual officers and directors. Lybrand, although not previously represented by Mr. Richardson or the Schnader firm joins in this motion and likewise seeks disqualification as to them.
Mr. Richardson was a shareholder in Hamilton Life and is now a shareholder in Hamilton. He brings this action as a shareholder and derivatively on behalf of Hamilton Life and alleges that Hamilton, its officers and directors, issued and caused to be issued certain allegedly false and misleading proxy statements in connection with the merger of Hamilton Life and Hamilton in 1969 wherein Hamilton became the surviving corporation. It is alleged that as a result of the merger, Hamilton and its officers and directors received excessive amounts of stock in Hamilton to the detriment of the shareholders of Hamilton Life. The claim against Lybrand stems from the fact that they certified the financial statement in the aforementioned proxy statement. Although I have found no case law on the point, I feel that for the purposes of this motion, the allegation of the complaint should be assumed to be true as with a motion for summary judgment. The allegations contained in the motion, together with attached affidavits, are not controverted by pleadings or counter affidavits, so that they will be treated as facts for purposes of this motion.
Different and possibly conflicting policies of the law become apparent. On one hand SEC regulations are designed to protect shareholders of a corporation from wrongdoing and bad faith dealing with the "insiders" of the corporation. Mr. Richardson is a shareholder and is, along with all other shareholders, entitled to that protection. On the other hand, the law seeks to protect attorney-client confidences. If the facts presented compel the conclusion that the attorney-client privilege exists as to these defendants, then the divergent policies of the law must be resolved, and, if possible, harmoniously reconciled.
The operative facts as to the present motion are not seriously disputed. Naturally both sides argue that these facts compel opposite conclusions. Both parties disagree as to the standard to be applied. However, both sides argue that no matter what standard is applied, their respective conclusions are compelled by the facts. I will first enumerate the relevant facts as I find them from the depositions and affidavits which are part of the record. Next I will discuss the applicable standards and apply those standards to the facts.
James M. Richardson, an attorney and member of the Philadelphia Bar, became an associate of the Schnader firm in June of 1955 where he remained until February 1969. Mr. Richardson is presently a partner in the law firm of Pechner, Sacks, Cantor, Dorfman, Rosen & Richardson (hereinafter Pechner firm). The Pechner firm represents Mr. Richardson in the present action. From September 1964 through June 1966, the Schnader firm did legal work for Hamilton Life. Mr. Richardson, as an associate in the Schnader firm, devoted some 669 hours of his time during that period to the affairs of Hamilton Life. Hamilton Life was a client of the Schnader firm during that period and Mr. Richardson was one of the attorneys for Hamilton Life by virtue of his association with the Schnader firm and his work for Hamilton Life. The deposition of Mr. Richardson discloses the nature of the work he did for Hamilton Life.
Mr. Richardson worked with Mr. Meeker, a partner in the Schnader firm, in connection with an intra-state offering of Hamilton Life stock. Mr. Richardson did the "spade" work in this connection. He conducted interviews with the various officers and directors of Hamilton Life (Dep. pp. 10-11). Some of those same persons are named as individual defendants. He reviewed the files of Hamilton Life, and delved into its formation (Hamilton Life was formed sometime in 1963, Dep. p. 13). Mr. Richardson also reviewed stock subscription agreements and prepared memoranda with respect to registration statements filed by Hamilton Life with the SEC (Dep. pp. 26-27). Those registration statements do not involve the presently contested transactions. Mr. Richardson also did work in preparing the individual officers and directors of Hamilton Life for testimony before the SEC in Washington in 1965 and he also attended some of those hearings (Dep. pp. 27-30).
It is fair to assume that the information available to Mr. Richardson through interviews and records was not generally available to the public, and it was given to Mr. Richardson as an attorney (Dep. pp. 42-43). The exact nature of the information, as opposed to the type of work that Mr. Richardson did, is not known to the court. However, the type of work suggests that Mr. Richardson received confidential information about the entire workings of Hamilton Life up to and through June 1966 and in particular as to its finances, corporate structure and operations. There may be some question as to the exact date when the Schnader firm ceased to represent Hamilton Life. For purposes of this decision, any work done by the Schnader firm for Hamilton Life after the proceedings before the SEC in September of 1965 is of no consequence and will not be considered.
Defendants argue that on these facts, Mr. Richardson gained an "insight" into the operation of Hamilton Life and its officers and directors and as a result of this "insight," obtained while engaged as attorney for Hamilton Life, he should be barred from maintaining this action. Plaintiff argues that the complaint deals with matters in connection with a 1969 merger arising after termination of the attorney-client relationship and that the matters complained of stem only from that merger and are not connected or in any way related to the previous representation of Hamilton Life by the Schnader firm.
No authority need be cited for the proposition that an attorney may not participate in litigation if his participation would violate his ethical duty to a former client. This proposition involves two things: First, the nature of the "ethical duty" to a former client; and second, the facts which would give rise to a possible violation of that duty.
Recognizing that the ethical duty of an attorney to his former client may be defined in various ways, in general it is an absolute duty not to disclose or use any confidence revealed to the attorney by the client that may in any manner be detrimental to the former client. The facts which give rise to the alleged violation necessarily vary with each case. The crux of the problem is that the court rarely knows the nature or details of the confidences and to require them to be disclosed even "in camera" for the purposes of a motion to disqualify violates the confidential nature of the communications. Faced with this problem, courts have attempted to fashion standards by which they can judge objectively the circumstances under which an attorney must be disqualified because of the danger of violating the confidential relationship.
Where an attorney seeks to represent a party opposing his former client in the same matter, the compelling conclusion is that the ethical duty would be breached, not because the confidences of the former client would necessarily be used, but because of the likelihood that they could be used, e. g., United States v. Standard Oil Company, 136 F.Supp. 345 (S.D.N.Y.1955). What the courts are saying is that when an attorney represents a client, the court will presume the existence of confidences in connection with that representation.
Where an attorney seeks to represent a party opposing his former client in a different and separate matter from that in which the attorney represented his former client, the courts have looked to the relation between the present matter and the former matter to determine whether confidences which may have been revealed might be used to the detriment of the former client. Again, the courts presume that confidences have been revealed. The attempt to define the relation between the present and former matter is an attempt to determine whether those former confidences could be used to the detriment of the former client in the present matter (Also the attempt to define the relation between the present and former matter is an attempt to determine what confidences may be presumed from former representation).
Having set forth my understanding of the reasons behind the standard, it is appropriate to determine the nature of that standard.
Our starting point is the Canon of Ethics, specifically Canons 6 and 37. They provide in pertinent part as follows:
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