Schloetter v. Railoc of Indiana, Inc.

• Decision Date: 01 December 1976
• Docket Number: No. 76-1437,76-1437
• Citation: 546 F.2d 706
• Parties: Dr. Ing. Max SCHLOETTER et al., Plaintiffs-Appellees, v. RAILOC OF INDIANA, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 706

546 F.2d 706

192 U.S.P.Q. 566

Dr. Ing. Max SCHLOETTER et al., Plaintiffs-Appellees, v. RAILOC OF INDIANA, INC., Defendant-Appellant.

No. 76-1437.

United States Court of Appeals Seventh Circuit.

Argued Oct. 21, 1976.

Decided Dec. 1, 1976.

Armand P. Boisselle, Cleveland, Ohio, James H. Pankow, South Bend, Ind., for defendant-appellant.

Charles E. McKenney, New York City, Arthur A. May, South Bend, Ind., for plaintiffs-appellees.

Before CLARK, Associate Justice, ^* and SPRECHER and TONE, Circuit Judges.

SPRECHER, Circuit Judge.

The issue on this appeal is whether the district court exceeded the limits of its permissible discretion in granting plaintiffs' motion to compel withdrawal of defendant's counsel from the pending patent infringement action.

I

The action pending in the court below is for infringement of U.S. Reissue Patent 27,999, which was issued to plaintiff Schloetter based on original United States Patent No. 3,694,330. ¹ In their complaint, plaintiffs alleged that defendant Railoc infringed all twenty claims in the reissue patent, which includes the sixteen claims in the original Schloetter patent. In its motion for partial summary judgment, defendant contended that the four additional claims in the reissue patent should be held invalid because they claim an invention not disclosed by the original patent. Thus, the scope of the original Schloetter patent is directly in issue in the infringement action.

Attorneys Boisselle and Lyon of the Cleveland, Ohio based law firm of Donnelly, Maky, Renner & Otto (Donnelly firm) were retained to represent the defendant in this case. According to Mr. Boisselle's affidavit testimony, while reviewing the file history of the original Schloetter patent, he discovered that a Mr. Jeffery, while a partner in the Donnelly firm, ² performed services for Schloetter in connection with the prosecution of the original patent application before the Patent Office.

From January 1, 1967 to January 1, 1974, Mr. Jeffery was a partner in the Donnelly firm. ³ Although Donnelly's principal offices were located in Cleveland, Mr. Jeffery worked from June of 1967 in the Washington, D. C. office maintained by the Donnelly firm. He represented not only existing Donnelly clients but also other clients who engaged him to represent them before the Patent Office in Washington.

In 1969 Schloetter's patent agent retained Mr. Jeffery to aid in prosecuting the original Schloetter patent application. ⁴ The court below found that Mr. Jeffery's participation in the application process was substantial:

Because an interference was declared during the prosecution of the Schloetter application, Mr. Jeffery did more than the routine filing of papers and payment of fees he might normally have performed. He was named Associate Counsel during that interference, in which other inventors sought to show invention over Schloetter. It also appears that at some time during the prosecution of the application, . . . (Schloetter's patent agent) took a vacation, leaving Mr. Jeffery in complete charge of the processing of the application.

Mem. Op., Sept. 12, 1975, at 3. And Mr. Jeffery's representation in connection with the original Schloetter patent continued from about December of 1969 to June of 1973.

When Mr. Boisselle informed counsel for plaintiffs in this action of Mr. Jeffery's former representation of Schloetter in relation to the original patent, plaintiffs' counsel requested that the Donnelly attorneys withdraw from the case because of the potential conflict of interest. Thereupon, defendant filed a petition for a decree of competency of counsel to represent defendant, and plaintiffs followed with a motion to compel the withdrawal of the Donnelly attorneys from the case.

After hearing oral argument on the motions, the district court entered an order on September 12, 1975, denying defendant's petition for a decree of competency and granting plaintiffs' motion to compel defendant's attorneys to withdraw (Def. Appendix C). On September 22, 1975, defendant moved under Rule 59(e) of the Federal Rules of Civil Procedure to alter or amend the September 12 order. On March 29, 1976, the district court entered an order denying defendant's motion. It is from these orders that defendant appeals.

II

Before proceeding to the merits of this appeal, it is necessary to answer plaintiffs' threshold contention that this court is without jurisdiction at this time to review the disqualification order.

Section 1291 of Title 28 of the United States Code provides in pertinent part:

The courts of appeals shall have jurisdiction of appeals from all final decisions of the district courts of the United States . . . .

In Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), the Supreme Court adopted a practical approach to the appealability of "final decisions":

. . . (there exists a) small class (of decisions) which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated.

Id. at 546, 69 S.Ct. at 1225.

It is generally agreed ⁵ that an order granting or denying a motion to disqualify counsel satisfies the Cohen standard and is appealable. "(T)he order is collateral to the main proceeding yet has grave consequences to the losing party. . . ." Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp.,496 F.2d 800, 805 (2d Cir. 1974). And "(a)n order erroneously depriving a party of his chosen counsel during the course of the trial would . . . frustrate public policy in a way which a post-trial appeal could not mitigate." Draganescu v. First National Bank of Hollywood, 502 F.2d 550, 551 n.1 (5th Cir. 1974).

Accordingly, this court has jurisdiction to review the order disqualifying defendant's counsel.

III

The basic policies underlying any judicially-compelled withdrawal of counsel because of a potential conflict of interest can be found in Canons 4 and 9 of the ABA Code of Professional Responsibility. ⁶ Canon 4 provides that "a Lawyer Should Preserve the Confidences and Secrets of a Client," and Canon 9 provides that "a Lawyer Should Avoid Even the Appearance of Professional Impropriety." Read together, the two canons indicate that an attorney may be required to withdraw from a case where there exists even an appearance of a conflict of interest.

It is important to note at the outset that the district court, which has the primary responsibility for supervising the conduct of attorneys appearing before it, possesses broad discretion in determining whether disqualification is required in a particular case, and the scope of our review is limited accordingly. As the Third Circuit stated in Richardson v. Hamilton International Corp., 469 F.2d 1382 (3d Cir. 1972):

Whenever an allegation is made that an attorney has violated his moral and ethical responsibility, an important question of professional ethics is raised. It is the duty of the district court to examine the charge, since it is that court which is authorized to supervise the conduct of the members of its bar. The courts . . . have a responsibility to maintain public confidence in the legal profession. This means that a court may disqualify an attorney for not only acting improperly but also for failing to avoid the appearance of impropriety.

. . . (T)he regulation of attorneys appearing before the district court in these matters will be disturbed only when, on review of the record, we can say that the district court abused its permissible discretion.

Id. at 1385-86 (emphasis supplied, footnotes omitted). With these principles in mind, we proceed to determine whether the disqualification order in this case constituted an abuse of discretion.

We begin with the well-settled rule that where an attorney represents a party in a matter in which the adverse party is that attorney's former client, the attorney will be disqualified if the subject matter of the two representations are "substantially related." The court, in these circumstances, makes no inquiry into whether confidential information relating to the matter involved in the subsequent representation did in fact pass to the attorney during the course of the former representation; his possession of such information will be presumed. T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265, 268-69 (S.D.N.Y.1953).

Hence, if Mr. Jeffery were attempting to represent Railoc in this action, his disqualification would clearly be required. For, the subject matter of his former representation of Schloetter is without question substantially related to the subject matter of the pending action. As the district court stated:

The plaintiffs' complaint charges defendant with infringement of all the reissue patent's claims, including the sixteen claims which were unchanged from the original patent obtained by Mr. Jeffery, and for the validity of which Mr. Jeffery argued. Further, through its motion for partial summary judgment, defendant challenged the validity of the additional four claims in the reissue patent on the theory that they were not disclosed by the original patent; this issue remains in the suit. Thus the scope of the very patent Mr. Jeffery helped to obtain is very much in issue in this cause.

Mem. Op., Sept. 12, 1975, at 4-5.

We think it equally clear that if Mr. Jeffery were still a member of the Donnelly firm, ⁷ the confidential information presumptively possessed by him would be imputed to the other members of the Donnelly firm, including attorneys Boisselle and Lyon. This would result in their disqualification, irrespective of whether or not they had actually been exposed to such confidences. Laskey Bros. v. Warner Bros. Pictures, Inc., 224 F.2d 824, 826 (2d Cir. 1955), cert. denied, 350 U.S. 932, 76 S.Ct. 300, 100 L.Ed. 814 (1956). To adopt another rule...