Warpar Mfg. Corp. v. Ashland Oil, Inc., C78-1562.

• Decision Date: 21 December 1984
• Docket Number: No. C78-1562.,C78-1562.
• Parties: WARPAR MANUFACTURING CORP., et al., Plaintiffs, v. ASHLAND OIL, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

606 F. Supp. 852

WARPAR MANUFACTURING CORP., et al., Plaintiffs, v. ASHLAND OIL, INC., et al., Defendants.

No. C78-1562.

United States District Court, N.D. Ohio, E.D.

December 21, 1984.

Larry K. Elliott, Cloyd R. Mellott, Edwin L. Klett, Eckert, Seamans, Cherin, Mellott, Pittsburgh, Pa., for plaintiffs.

Michael Gallagher, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio, for defendants.

MEMORANDUM OPINION

DOWD, District Judge.

On July 9, 1984, approximately six weeks before this protracted litigation was scheduled for trial on a bifurcated basis, the plaintiffs filed a motion to disqualify defendants' counsel, Gallagher, Sharp, Fulton and Norman (hereinafter GSFN), from further participation on behalf of defendants.

The motion for disqualification arises from a unique set of circumstances. Stated simply, it is the plaintiffs' contention that the defense by GSFN of plaintiffs' counsel in a malpractice action subsequently filed by the plaintiffs against plaintiffs' counsel requires disqualification of GSFN pursuant to canons 4, 5 and 9 of the Code of Professional Responsibility.

The salient facts are not in dispute. On November 21, 1978, the initial complaint in this action was filed on behalf of the plaintiff Warpar Manufacturing Company (hereinafter Warpar), against the defendant by Warpar's initial counsel, Mr. Lewis Einbund (hereinafter Einbund) of the law firm of Sindell, Selker and Rubenstein of Cleveland, Ohio. GSFN promptly entered the lawsuit on behalf of the defendants Ashland Oil Inc., and Ashland Petroleum Company (hereinafter Ashland), obtained leave to move or plead and file an answer for the defendants January 18, 1979. Thereafter, a great deal of pretrial skirmishing ensued including the filing of an amended complaint which named as a new party plaintiff Randustrial Corporation (hereinafter Randustrial).¹

On June 25, 1981, two and a half years after the complaint was filed, Einbund was granted leave to withdraw as counsel for Warpar and Randustrial. Howard Fishkin, who apparently was initially associated with Einbund in the prosecution of the complaint, withdraw as counsel for plaintiff on November 9, 1982. Attorney Anthony J. DiVenere entered and withdrew as counsel for the plaintiff on March 25, 1982. Dan L. McGookey and James E. McGookey of the law-firm of Lucal, Pfefferle and McGookey of Sandusky, Ohio, entered the case on behalf of the plaintiffs in 1982. Later, in 1984, G. Richard Gold of the law firm of Eckert, Seamans, Cherin and Mellott of Pittsburgh, entered the case on behalf of plaintiffs as co-counsel with the McGookeys.

The precipitating action upon which the motion for disqualification is based, commenced on March 8, 1982, when Randustrial, Warpar, and others as plaintiffs filed a complaint in the Common Pleas Court of Cuyahoga County, Ohio, against the law firm of Sindell, Sindell, Selker, Rubenstein, Einbund, & Pavlik, and against Einbund individually.² The complaint, while alleging in general terms, negligent representation in numerous legal matters, failed to disclose the pending action against Ashland by Warpar and Randustrial nor was Einbund's handling of the Ashland case included within the several allegations of misconduct made by the plaintiffs against Einbund.

Einbund's carrier for malpractice insurance retained GSFN to defend Einbund. George Stuhldreher of GSFN was assigned to Einbund's defense. The March 2, 1982 malpractice complaint against Einbund was signed as counsel by Dan L. McGookey, who later in September of 1982, became counsel of record for Warpar and Randustrial in the action against Ashland.

On June 1, 1982, Stuhldreher of GSFN filed a motion to make certain in the Einbund litigation and the motion was sustained on June 30, 1982. Subsequently, a definite statement was filed by McGookey which for the first time identified the instant action as included within the broad allegations in the March 8, 1982, complaint. See appendix 2.³

The plaintiffs' initial brief filed in support of the motion to disqualify focuses on the fact that because GSFN represented Einbund in the malpractice action, the firm had access to the plaintiffs' corporate documents and records, Einbund's trial strategies, privileged communications between Einbund and plaintiffs' representatives and Einbund's work product including his mental impressions, conclusions and opinion, which were instrumental in the conduct and planning of the Ashland case. The plaintiffs contend that there is a taint connected to GSFN's improper simultaneous representation of Einbund and Ashland Oil and only disqualification and denial of access to GSFN's firm's work product can even begin to remove the taint.

It is the duty of a federal district court to supervise the members of its bar. NCK Organization, LTD v. Bregman, 542 F.2d 128, 131 (2d Cir.1976). The Court in the exercise of its duty must support "the strong public interest in preserving client conferences in the integrity of the litigation process." First Wisconsin Mortgage Trust v. First Wisconsin Corp., 571 F.2d 390, 399 (7th Cir.1978).

In its initial brief and in support of the motion to disqualify, the plaintiff relies heavily upon Hull v. Celanese Corp., 513 F.2d 568 (2d Cir.1975). In Hull a law firm, on behalf of a Celanese employee brought a single sex discrimination suit against Celanese. Donata A. Delulio, an attorney with the corporate legal staff of Celanese was assigned to work on the Hull case. During her participation, Delulio determined that she was also a victim of sex discrimination by the Celanese Corporation and approached the law firm representing Hull and inquired whether the law firm would also represent her. Hull's law firm then filed a motion seeking permission for Delulio to intervene as a plaintiff in the suit brought against Celanese. Celanese filed a motion to disqualify Hull's law firm. The trial court denied the motion to intervene and disqualified counsel for Hull. On appeal, the Second Circuit observed that had Delulio changed law firms, that is from the Celanese corporate legal staff to the law firm representing Hull, then counsel for Hull would clearly have been disqualified. The fact that Delulio joined as it were, the law firm as a client, was no less damaging and the Court held that "`where it can be reasonably be said that in the course of the former representation the attorney might have acquired information relating to the subject matter of a subsequent representation,' it is the Court's duty to order the attorney disqualified," Id. at 572, citing Emle Industries Inc. v. Patentex, Inc., 478 F.2d 562 (2d Cir.1973). It is the plaintiffs' contention that while the fact situation in this case is novel, it is similar philosophically to the fact situation in Hull and the same results should obtain, i.e., disqualification.

Defendants dispute the Hull application and contend that the decision in Meyerhofer v. Empire Fire & Marine Insurance Co., 497 F.2d 1190 (2d Cir.1974), cert. denied 419 U.S. 998, 95 S.Ct. 314, 42 L.Ed.2d 272 (1974), is the more applicable fact situation to the one at hand. In Meyerhofer, the Second Circuit reversed the trial court's disqualification of plaintiffs' counsel in the following fact situation. Plaintiffs Meyerhofer and Federman had purchased stock of the defendant Empire Fire and Marine Insurance Company and subsequently alleged that the registration statement and prospectus under which the Empire stock had been issued was materially false and misleading and filed a suit against Empire and the law firm involved in the public offering of the 500,000 shares of Empire's stock. Stewart Goldberg, the managing underwriter employed by Empire's law firm, was named as one of the defendants in the class action brought by Meyerhofer and Federman. Although no service was initially made on Goldberg, he was advised by telephone that he had been made a defendant. Goldberg contacted the law firm representing the plaintiffs and requested an explanation of the nature of the charges against him. Goldberg requested and was given the opportunity to prove to the satisfaction of plaintiffs' counsel his non-involvement in the arrangements which had led to the flawed issuance of Empire stock as alleged by plaintiffs. Goldberg met with counsel for the plaintiffs and delivered a copy of a lengthy affidavit, that he previously had filed with the Security Exchange Commission, which explained his conduct with the law firm responsible for the registration statement and other forms filed in connection with the public issue of the stock. Goldberg acted after his law firm refused Goldberg's insistence that a complete disclosure of the attorney fees paid with respect to the Empire offering should be made as subsequently claimed in the class action against Empire.

The law firm representing the plaintiffs, after considering Goldberg's affidavit, dropped him from the lawsuit. The district court agreed with Empire's position that Goldberg's explanation to plaintiffs' law firm required the barring of further participation in the action by plaintiffs' law firm given Canons 4 and 9 of the Code of Professional Responsibility.

In reversing the district court with respect to plaintiffs' law firm's participation, the court focused on the disciplinary rules in connection with Canon 4 and in particular Rule DR4-101(C)(4) which states:

(C) a lawyer may reveal:

... (4) conferences or secrets necessary to establish or collect his fee or to defend himself or his employees or associates against an accusation of wrongful conduct.

Based upon the foregoing rule, the Second Circuit held that Goldberg had the right to make an appropriate disclosure with respect to his role in the public offering and in so doing, had the right to support his version of the facts with suitable evidence. In sum, the circuit court found that Goldberg, acting with reliance upon Rule DR4-101(C)(4) violated neither Canon 4 or Canon 9 of the...