Westinghouse Elec. Corp. v. Gulf Oil Corp., 78-1700

Citation588 F.2d 221
Decision Date08 December 1978
Docket NumberNo. 78-1700,78-1700
Parties1978-2 Trade Cases 62,372 WESTINGHOUSE ELECTRIC CORPORATION, Plaintiff, v. GULF OIL CORPORATION, Defendant-Appellant, and United Nuclear Corporation, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

John Bodner, Jr., Washington, D. C., for defendant-appellant.

Edward H. Hickey, Chicago, Ill., for defendant-appellee.

Before CUMMINGS, Circuit Judge, WISDOM, Senior Circuit Judge, * and SPRECHER, Circuit Judge.

SPRECHER, Circuit Judge.

In this case we review the propriety of a district court's refusal to grant a motion to disqualify opposing counsel. The issues presented are whether there is a sufficient relationship between matters presented by the pending litigation and matters which the lawyers in question worked on in behalf of the party now seeking disqualification and whether the party seeking disqualification has given legally sufficient consent to the dual representation.

I

This case arises as one aspect of the complex litigation filed by Westinghouse against a number of parties engaged in, or having interests in, the mining of uranium. That suit alleged that increases in the price of uranium, which had encouraged Westinghouse to default on long-term uranium supply contracts, resulted from an international cartel which was alleged to have "fixed and increased the price of uranium to purchasers within the United States; . . . allocated, divided and curtailed the supply of, and market for, uranium; . . . boycotted certain uranium purchasers . . . ; and . . . otherwise eliminated competition among defendants. . . ." The movant here, Gulf Oil Corporation (Gulf), and the respondent, United Nuclear Corporation (UNC) are two of the named defendants in this action. UNC is being represented by the Santa Fe, New Mexico firm of Bigbee, Stephenson, Carpenter & Crout (Bigbee), which had previously performed legal work on behalf of Gulf. Gulf, accordingly, moved to disqualify the Bigbee firm.

The history of the relationship between Gulf and Bigbee had its origin in 1968, when substantial reserves of uranium ore were discovered on tracts of land located near Grant, New Mexico. By 1971 Gulf owned a substantial majority interest in a joint venture which had acquired a portion designated as the Mt. Taylor properties, of these uranium reserves. After having acquired its interests, Gulf retained the Bigbee firm to represent it on legal matters relating to Gulf's uranium operations in New Mexico. During a five year period of representation from 1971 through 1976, the Bigbee firm through nine of its twelve attorneys performed numerous services for Gulf including the patenting of fifty-nine mining claims, drafting leases required for uranium exploration, representing Gulf in litigation involving title disputes, counseling Gulf in relation to the resolution of certain problems relating to mine waters, and lobbying on behalf of Gulf in front of the New Mexico state legislature on tax and environmental matters. One of Bigbee's name partners, G. Stanley Crout, alone spent over 2,000 hours working on behalf of Gulf.

Gulf argued before the district court that these matters on which Bigbee represented Gulf were substantially related to the matters raised in the Westinghouse litigation. Gulf delineated this relationship by arguing that since the Mt. Taylor properties constituted Gulf's largest supply of uranium and was not currently in production, the reasons for Gulf's failure to produce from this property would be material to the allegation of the Westinghouse suit that Gulf, as well as the other defendants, withheld uranium supplies from the market. Further, Gulf argued, in relation to Bigbee's prior representation of Gulf, Gulf had entrusted Bigbee with confidential information relating to the quantity and quality of uranium reserves in the Mt. Taylor properties. Finally, even though Bigbee represented UNC, a co-defendant in Westinghouse, the position between the two parties was adverse because UNC was attempting to exculpate itself by inculpating Gulf.

The district court accepted Gulf's argument of actual adverseness but nonetheless declined to disqualify the Bigbee firm. The court concluded that Bigbee "certainly did gain knowledge of Gulf's uranium properties during its work" but reasoned that nevertheless there was not a substantial relationship between the matters encompassed by the prior representation and those of the Westinghouse litigation, because the prior representation "focused on real estate transactions connected with Gulf's untapped and undeveloped uranium reserves," whereas the "heart of the complaint" details a price-fixing conspiracy, the evidence of which "will focus on meetings and communications among the alleged co-conspirators, as well as evidence on uranium prices, terms and conditions of sale, and market availability." Thus, the court concluded that there was no substantial relationship between the matters. Westinghouse Electric Corp. v. Rio Algom Ltd., 448 F.Supp. 1284, 1312 (N.D.Ill.1978).

II

The district court set out and attempted to apply what is clearly settled as the relevant test in disqualification matters: 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 substantial relationship test had its federal court genesis in T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265, 268 (S.D.N.Y.1953). The Second Circuit continues to apply the test. Government of India v. Cook Industries, Inc., 569 F.2d 737, 739 (2d Cir. 1978); NCK Organization Ltd. v. Bregman, 542 F.2d 128, 132 (2d Cir. 1976); Cinema 5 Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1386 (2d Cir. 1976). That circuit has also developed the "peripheral representation" exception. 1

This circuit has also adopted the substantial relationship test. Cannon v. U. S. Acoustics Corp., 398 F.Supp. 209, 223-34 (N.D.Ill.1975), Adopted and affirmed, 532 F.2d 1118, 1119 (7th Cir. 1976); Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706, 710 (7th Cir. 1976); Westinghouse Electric Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1322 (7th Cir. 1978).

The substantial relationship rule embodies the substance of Canons 4 and 9 of the A.B.A. Code of Professional Responsibility. 2 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." As a result it is clear that the determination of whether there is a substantial relationship turns on the possibility, or appearance thereof, that confidential information might have been given to the attorney in relation to the subsequent matter in which disqualification is sought. The rule thus does not necessarily involve any inquiry into the imponderables involved in the degree of relationship between the two matters but instead involves a realistic appraisal of the possibility that confidences had been disclosed in the one matter which will be harmful to the client in the other. The effect of the Canons is necessarily to restrict the inquiry to the possibility of disclosure; it is not appropriate for the court to inquire into whether actual confidences were disclosed. 3

The substantial relationship test is not a rule of substantive law but a measure of the quantum of evidence required for proof of the existence of the professional obligation. Consolidated Theatres, Inc. v. Warner Bros. Circuit Management Corp., 216 F.2d 920, 924 (2d Cir. 1954). The evidence need only establish the scope of the legal representation and not the actual receipt of the allegedly relevant confidential information. Then only where it is clearly discernible, "that the issues involved in a current case do not relate to matters in which the attorney formerly represented the adverse party will the attorney's present representation be treated as measuring up to the standard of legal ethics." Fleischer v. A. A. P., Inc., 163 F.Supp. 548 553 (S.D.N.Y.1958). Doubts as to the existence of an asserted conflict of interest should be resolved in favor of disqualification. International Business Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978); Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975); Chugach Electric Association v. United States District Court, 370 F.2d 441, 444 (9th Cir. 1966), Cert. denied, 389 U.S. 820, 88 S.Ct. 40, 19 L.Ed.2d 71 (1967).

In Judge Marshall's opinion in Cannon, adopted and affirmed by us, he paraphrased the T. C. Theatre formulation that substantial relationship "is determined by asking whether it could reasonably be said that during the former representation (that) attorney might have acquired information related to the subject matter of the subsequent representation." 398 F.Supp. at 223. The opinion in T. C. Theatre continued "(i)f so, then the relationship between the two matters is sufficiently close to bring the later representation within the prohibition of . . . (the canons)." 113 F.Supp. at 269. Essentially then, disqualification questions require three levels of inquiry. Initially, the trial judge must make a factual reconstruction of the scope of the prior legal representation. Second, it must be determined whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters. Finally, it must be determined whether that information is relevant to the issues raised in the litigation pending against the former client.

Although the district court properly identified this rule of law, it erred in its application. First, we accept Judge Marshall's factual reconstruction of the scope of Bigbee's prior representation. It was established that Bigbee prepared numerous mining patents and handled real...

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