Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp.

• Decision Date: 23 May 1975
• Docket Number: D,No. 1,1
• Citation: 518 F.2d 751
• Parties: SILVER CHRYSLER PLYMOUTH, INC., Plaintiff-Appellee, v. CHRYSLER MOTORS CORPORATION and Chrysler Realty Corporation, Defendants-Appellants. ocket 74-1104.
• Court: U.S. Court of Appeals — Second Circuit

Page 751

518 F.2d 751

SILVER CHRYSLER PLYMOUTH, INC., Plaintiff-Appellee, v. CHRYSLER MOTORS CORPORATION and Chrysler Realty Corporation Defendants-Appellants.

No. 1, Docket 74-1104.

United States Court of Appeals Second Circuit.

Argued Sept. 16, 1974.

Decided May 23, 1975.

Robert Ehrenbard, New York City (Kelley, Drye, Warren, Clark, Carr & Ellis, Ezra I. Bialik, Michael S. Insel, New York City, on the brief), for defendants-appellants.

Dale A. Schreiber, New York City (Hammond & Schreiber, P. C., Alexander Hammond, Raymond A. Bragar, New York City, on the brief), for plaintiff-appellee.

Before MOORE, ADAMS ^* and MULLIGAN, Circuit Judges.

MOORE, Circuit Judge:

An action is pending before Judge Weinstein in the Eastern District of New York entitled Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corporation and Chrysler Realty Corporation. ¹ It awaits trial. The controversy alleged therein essentially is whether Silver Chrysler's dealership agreement with Chrysler was for five years (the term specified in a written lease executed between the parties in 1968) as asserted by Chrysler or for twenty-five years as alleged by Silver Chrysler on the basis of a 1967 agreement. This seemingly simple breach of contract complaint also contains a cause of action under the so-called Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq. The claim alleges threats amounting to coercion or intimidation which forced Silver Chrysler under threat of eviction to sign a new agreement at a higher rental in May 1973 (the expiration date of the five-year term). This brief recital of the nature of the action is required only as a background to the issue on this appeal, which is disqualification of counsel.

Chrysler for many years has been represented by the law firm of Kelley Drye Warren Clark Carr & Ellis (Kelley Drye) and its predecessors, which also represents Chrysler in this action. Although many other law firms represent Chrysler on various matters throughout the country, only Kelley Drye is listed on Chrysler's annual reports as "Counsel." Silver Chrysler is represented by the firm of Hammond & Schreiber, P. C. Dale Schreiber of that firm had been employed as an associate by Kelley Drye, and while there worked on certain Chrysler matters. Because of this fact Kelley Drye by motion sought to disqualify both Schreiber and his firm from representing Silver Chrysler in this action. In support of, and in opposition to, the motion respectively, the parties submitted voluminous affidavits, copies of pleadings in cases in which Schreiber had allegedly worked, and extensive memoranda of law. With this material before him and after oral argument, the Judge proceeded to analyze the motion on the theory that "(d)ecision turns on whether, in the course of the former 'representation,' the associate acquired information reasonably related to the particular subject matter of the subsequent representation." The Judge reviewed the subject matter of the cases on which Schreiber was claimed to have worked and the law as it appears in this Circuit from decided cases and in a comprehensive opinion (reported at 370 F.Supp. 581), concluded that "(d) isqualification of plaintiff's counsel is not warranted." From this decision Chrysler appeals. ²

Our task on review is to endeavor to ascertain those general precepts which may influence or even control our decision and then relate them to the particular facts of this case. Fortunately, we have the benefit of recent pronouncements in the area by this Circuit. Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562 (2d Cir. 1973). See also Hull v. Celanese Corporation, 513 F.2d 568 No. 74-2126 (2d Cir. 1975); Ceramco, Inc. v. Lee Pharmaceuticals, 510 F.2d 268 (2d Cir. 1975); General Motors Corp. v. City of New York, 501 F.2d 639 (2d Cir. 1974). As in Emle, we recognize "our responsibility to preserve a balance, delicate though it may be, between an individual's right to his own freely chosen counsel and the need to maintain the highest ethical standards of professional responsibility." 478 F.2d at 564-65.

A starting point is of necessity the Code of Professional Responsibility. Canon 4 provides: "A Lawyer Should Preserve the Confidences and Secrets of a Client." Canon 9 also cautions that "A Lawyer Should Avoid Even the Appearance of Professional Impropriety." But "ethical problems cannot be resolved in a vacuum." Emle, supra, at 565. Thorough consideration of the facts, as more elaborately set forth in the opinion below, is required. ³ Nor can judges exclude from their minds realities of which fair decision would call for judicial notice.

Upon graduation from law school in 1965, Dale Schreiber was hired by Kelley Drye to commence work in September 1965. He worked at the firm briefly before accepting a position as a law clerk to a federal judge. His work at Kelley Drye began again in September 1966 and continued to February 1969.

Kelley Drye is one of New York's larger law firms, having had at the time some 30 partners and 50 associates. Several of New York's firms have well over 100 associates and over 50 partners. Many firms hire a dozen or more law graduates each year and it has now become the practice to hire for summer work (usually between their second and third years at law school) a substantial number of law students. These "summer associates" most frequently perform tasks assigned to them by supervising associates or partners. Many of the summer students do not return to the same firms with which they have been associated or even remain in New York City. Even after an initial association with a firm upon graduation, it is not uncommon for young lawyers to change their affiliation once or even several times. It is equally well known that the larger firms in the metropolitan areas have hundreds (collectively thousands) of clients. It is unquestionably true that in the course of their work at large law firms, associates are entrusted with the confidences of some of their clients. But it would be absurd to conclude that immediately upon their entry on duty they become the recipients of knowledge as to the names of all the firm's clients, the contents of all files relating to such clients, and all confidential disclosures by client officers or employees to any lawyer in the firm. Obviously such legal osmosis does not occur. The mere recital of such a proposition should be self-refuting. And a rational interpretation of the Code of Professional Responsibility does not call for disqualification on the basis of such an unrealistic perception of the practice of law in large firms.

Fulfilling the purpose of the disqualification remedy, "namely the need to enforce the lawyer's duty of absolute fidelity and to guard against the danger of inadvertent use of confidential information" Ceramco, Inc. v. Lee Pharmaceuticals, supra, 510 F.2d at 271, does not require such a blanket approach. Nor are such broad measures required to maintain "in the public mind, a high regard for the legal profession" General Motors Corp. v. City of New York, supra, 501 F.2d at 649. Thus, while this Circuit has recognized that an inference may arise that an attorney formerly associated with a firm himself received confidential information transmitted by a client to the firm, that inference is a rebuttable one. Laskey Bros. of W. Va., Inc. v. Warner Bros. Pictures, 224 F.2d 824, 827 (2d Cir. 1955), cert. denied, 350 U.S. 932, 76 S.Ct. 300, 100 L.Ed.2d 814 (1956); United States v. Standard Oil Co., 136 F.Supp. 345, 364 (S.D.N.Y.1955). And in Laskey, the court cautioned that:

It will not do to make the presumption of confidential information rebuttable and then to make the standard of proof for rebuttal unattainably high. This is particularly true where, as here, the attorney must prove a negative, which is always a difficult burden to meet.

224 F.2d at 827. The importance of not unnecessarily constricting the careers of lawyers who started their practice of law at large firms simply on the basis of their former association underscores the significance of this language. See generally Note, Unchanging Rules in Changing Times: The Canons of Ethics and Intra-firm Conflicts of Interest, 73 Yale L.J. 1058 (1964).

The Circuit has also adhered to the rule enunciated by Judge Weinfeld in T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265, 268 (S.D.N.Y.1953), that "where any substantial relationship can be shown between the subject matter of a former representation and that of a subsequent adverse representation, the latter will be prohibited." And as to proof, Judge Weinfeld continued: "the former client need show no more than that the matters embraced within the pending suit wherein his former attorney appears on behalf of his adversary are substantially related to the matters or cause of action wherein the attorney previously represented him, the former client" (p. 268). This case was the genesis of the now so-called "substantially related" test. But as the present Chief Judge of the Second Circuit Court of Appeals noted twenty years ago in United States v. Standard Oil Company, 136 F.Supp. 345, 355 (S.D.N.Y.1955): "(u)nfortunately, the cases furnish no applicable guide as to what creates a 'substantial' relationship." The cases available at that time were cases in which the relationship was "patently clear." ⁴ Id.

Over the intervening years the cases in which disqualification has been granted have also fallen into, or have come close to, the "patently clear" category. A review of some of the more recent decisions is illustrative.

In Hull v. Celanese Corp., supra, an attorney who had worked in defense of the same case in the legal department of Celanese sought to join forces (albeit as a client) with the group suing Celanese and to be represented by the very law firm she had been opposing. The trial court initially denied the motion of the attorney to intervene, and little wonder that both trial and ...