SCA Services, Inc. v. Morgan

• Decision Date: 17 June 1977
• Docket Number: No. 77-1194,77-1194
• Citation: 557 F.2d 110
• Parties: SCA SERVICES, INC., Petitioner, v. Hon. Robert D. MORGAN, Judge, United States District Court for the Southern District of Illinois, et al., Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 110

557 F.2d 110

40 A.L.R.Fed. 942

SCA SERVICES, INC., Petitioner, v. Hon. Robert D. MORGAN, Judge, United States District Court for the Southern District of Illinois, et al., Respondents.

No. 77-1194.

United States Court of Appeals Seventh Circuit.

Submitted May 20, 1977.

Decided June 17, 1977.

Jerome P. Facher, James C. Donnelly, Jr., Boston, Mass., Max Wildman, Jerald P. Esrick, Chicago, Ill., for petitioner.

Clyde D. Stoltenberg, Rock Island, Ill., Richard N. Molchan, Bret S. Babcock, Peoria, Ill., C. William Garratt, Detroit, Mich., for respondents.

Before CUMMINGS, SPRECHER and BAUER, Circuit Judges.

PER CURIAM.

The petitioner, SCA Services, Inc. (SCA) is the plaintiff in SCA Services, Inc. v. Lucky Stores, Inc., a civil action pending in the District Court for the Southern District of Illinois, Northern Division, before Judge Robert D. Morgan. ¹ In October, 1976, SCA filed a "Motion to Disqualify", supported by affidavits, seeking the disqualification of Judge Morgan pursuant to 28 U.S.C. § 455, as amended in 1974, on three separate grounds: (1) the judge's brother is acting as a lawyer in the proceeding (id. § 455(b)(5)(ii)); (2) the judge's brother has an interest which could be substantially affected by the outcome of the proceeding (id. § 455(b)(5)(iii)); and (3) the judge's impartiality might reasonably be questioned under all the particular facts and circumstances of the case (id. § 455(a)). The motion to disqualify did not allege actual bias or prejudice on the part of Judge Morgan, but was based solely on the statutory grounds contained in section 455, which the petitioner believes require mandatory disqualification.

Judge Morgan denied SCA's motion to disqualify without a hearing and filed a "Memorandum of Decision" on November 2, 1976. The judge also denied SCA's request for an order allowing an interlocutory appeal. Three months later, on February 17, 1977, SCA filed a "Petition for Mandamus" in this Court seeking an order directing the respondent judge to refrain from presiding at further proceedings in SCA Services, Inc. v. Lucky Stores, Inc., and to assign the case to another judge. Responses and a reply thereto have been filed. Although discovery and other proceedings have continued in the district court, the trial date has been indefinitely postponed pending resolution of this petition.

This is a case of first impression under 28 U.S.C. § 455, as amended, involving the mandatory disqualification of a federal judge based on relationship to counsel and on the appearance of partiality which might reasonably arise from the relationship. ² This case raises important public issues concerning the interpretation and application of the statute and affecting public confidence and trust in the impartiality of the judicial system.

Legislative History

In 1972, the House of Delegates of the American Bar Association adopted a new Code of Judicial Conduct which advocated the "appearance of justice" standard for judicial disqualification. ³ One year later the Judicial Conference applied this new code to all federal judges, but it specifically provided that this adoption "did not abrogate or modify . . . conflicting provisions of (Federal) Statutes ⁴ 'which were considered to be less restrictive' ". ⁵ Finally, in 1974, Congress enacted the new section 455 which was designed to reconcile the 1972 Code of Judicial Conduct with the federal statutes. ⁶ Its purpose was to eliminate "dual standards, statutory and ethical, couched in uncertain language (that) had the effect of forcing a judge to decide either the legal or the ethical issue at his peril." ⁷ Congress also intended to overrule the concept that close cases involving disqualification should be resolved on the ground that a judge had a "duty to sit." ⁸

Pertinent to this case are the following provisions of section 455:

"(a) Any justice, judge, magistrate, or referee in bankruptcy of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b) He shall also disqualify himself in the following circumstances:

(5) He or his spouse, or a person within the third degree of relationship to either of them, or the spouse of such a person:

(ii) Is acting as a lawyer in the proceeding;

(iii) Is known by the judge to have an interest that could be substantially affected by the outcome of the proceeding." (Emphasis added.)

The new statute contains the general, all-inclusive objective standard of the 1972 Judicial Code: a judge "shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." 28 U.S.C. § 455(a). In addition, subsections (b)(1), (2), (3), (4) and (5) provide for the mandatory disqualification of a judge in certain specific circumstances, such as where family or financial interests are involved.

In the underlying case none of the parties disputes that Donald A. Morgan is Judge Morgan's brother and that he is a senior partner in Davis & Morgan, the firm which has entered a general appearance for one of the parties in the district court litigation. ⁹ The parties dispute, however, whether or not this relationship mandates Judge Morgan's disqualification pursuant to 28 U.S.C. § 455(b)(5)(ii). SCA posits that when general principles of agency and partnership are applied in the factual setting of a law firm, Donald A. Morgan is "acting as a lawyer" regardless of his involvement or non-involvement in this case. Contrariwise, respondents urge that this position is specious because Donald A. Morgan has not performed any professional duties in this case since its initiation over one-and-a-half years ago. They are supported in their argument by Judge Morgan's own findings, after "specific inquiry," that Donald Morgan was not acting as lawyer in this case. (Petitioner's App. at D-3.)

On the basis of the undisputed facts in this case and the well-settled principles of agency and partnership law, it is clear that the appearance of Davis & Morgan in the case before Judge Morgan is the appearance of every lawyer in the firm, including Donald A. Morgan. A Formal Opinion issued by the A.B.A. Committee on Professional Ethics as long ago as 1931 opined that every member of a law firm is prohibited from accepting employment which another member could not accept because of a conflict of interest. See A.B.A. Comm. on Prof. Ethics, Formal Opinion No. 33 (1931). More recently this Court in a case involving a conflict of interest situation assumed this same ethical stance: "confidential information presumptively possessed by . . . (one attorney) would be imputed to the other members of the . . . firm." Schloetter v. Railoc of Ind., Inc., 546 F.2d 706, 710 (7th Cir. 1976). Although Schloetter is distinguishable on the facts because it involved an order disqualifying an attorney from proceeding in a case, it does afford precedential value for applying partnership law to law firms. In addition, both Illinois case law and statutes support the principle that an agency relationship exists between partners of a law firm and between each partner and the firm itself. See Schumann-Heink v. Folsom, 328 Ill. 321, 159 N.E. 250 (1928); Ill.Rev.Stat. ch. 1061/2, §§ 11, 13, 15 (1975); see also Restatement (Second) Agency § 20, Comment e (1958).

I.

Having decided that Donald A. Morgan is an attorney in this action by virtue of his relationship with the firm of Davis & Morgan is not to decide, however, that he is "acting as a lawyer" within the language and intent of § 455(b)(5) (ii). Although the statute on its face mandates recusal where "near relatives" are involved, the Senate hearings suggest disqualification was not intended to be automatic. ¹⁰ Rather, it was indicated that the limitations which had been recommended in the Commentary to Canon 3C of the Judicial Code and adopted by the 1973 Judicial Conference should continue to guide the judiciary when "near relatives" were involved. ¹¹ The Commentary accompanying that section provides:

"The fact that a lawyer in a proceeding is affiliated with a law firm with which a lawyer-relative of the judge is affiliated does not of itself disqualify the judge. Under appropriate circumstances, the fact that 'his impartiality might reasonably be questioned' under Canon 3C(1), or that the lawyer-relative is known by the judge to have an interest in the law firm that could be 'substantially affected by the outcome of the proceeding' under Canon 3C(1)(d)(iii) may require his disqualification."

Because the legislative history of section 455 indicates that a judge would be advised to consider whether his near relative has "an interest in the law firm that could be 'substantially affected by the outcome of the proceeding' " or whether " 'his impartiality might reasonably be questioned' ", and because these two matters parallel the two other provisions of section 455 asserted by petitioner, a discussion of this issue will follow disposition of the other two objections. It must also be pointed out that petitioner's attempt to draw analogies to cases decided in other federal courts, while helpful in most circumstances, affords no guidance here because all of these decisions were rendered prior to the enactment of the amended section 455 during a period when judicial disqualification was decided under a more subjective standard. ¹²

II.

Petitioner's second contention is that the position of the judge's brother as a senior partner in Davis & Morgan makes disqualification mandatory under § 455(b)(5)(iii). SCA claims that Donald A. Morgan has an interest in the firm which is clearly a financial interest within the definition of 28 U.S.C. § 455(d)(4). As defined in that statute:

" 'financial interest' means ownership of a legal or equitable interest, however small, or a relationship as director, adviser, or other active participant in the affairs of a party."

See also Ill.Rev.Stat. ch. 1061/2, §§ 24, 26 (1975).

Because the underlying...