Woods v. Covington County Bank

• Citation: 537 F.2d 804
• Decision Date: 11 August 1976
• Docket Number: No. 75--3303,75--3303
• Parties: Fed. Sec. L. Rep. P 95,745 Dean WOODS, and all other persons similarly situated, et al., Plaintiffs-Appellants, v. COVINGTON COUNTY BANK et al., Defendants-Appellees. Edward HOGLUND et al., Plaintiffs-Appellants, v. COVINGTON COUNTY BANK et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 804

537 F.2d 804

Fed. Sec. L. Rep. P 95,745

Dean WOODS, and all other persons similarly situated, et

al., Plaintiffs-Appellants, v. COVINGTON COUNTY BANK et al., Defendants-Appellees.

Edward HOGLUND et al., Plaintiffs-Appellants, v. COVINGTON COUNTY BANK et al., Defendants-Appellees.

No. 75--3303.

United States Court of Appeals Fifth Circuit.

Aug. 11, 1976.

Roger J. Nichols, Mason H. Rose, V, Los Angeles, Cal., J. Michael Rediker, Birmingham, Ala., John H. Blanton, Selma, Ala., William Q. Kendall, Sardis, Ala., for plaintiffs-appellants.

Donald D. Chapman, Arlington, Va., Francis J. Mooney, Jr., New Orleans, La., amici curiae, for Judge Advocates Assoc.

Arthur Gerwin, Nat. Judge Advocate, New York City, amici curiae, for Reserve Officers Assoc.

Oakley W. Melton, Jr., Montgomery, Ala., for Odom, Smith & Argo.

C. L. Whitaker, Hobart A. McWhorter, Jr., William M. Warren, Jr., Birmingham, Ala., for Covington Co.

L. Murray Alley, Crawford S. McGivaren, Jr., Birmingham, Ala., T. W. Thagard, Jr., Montgomery, Ala., for defendants-appellees.

William B. Moore, Jr., Charles E. Porter, Montgomery, Ala., for Camp, Carmouch, and others.

Wilbor J. Hust, Jr., Tuscaloosa, Ala., for intervenor Brock.

Appeal from the United States District Court for the Middle District of Alabama.

Before WISDOM, GOLDBERG and AINSWORTH, Circuit Judges.

AINSWORTH, Circuit Judge:

The interlocutory appeal before us is from an order of the District Judge disqualifying Roger J. Nichols and his law firm from representing the plaintiffs in the two captioned securities fraud cases. Nichols was adjudged to have violated Canon 9 ¹ of the Code because he was representing clients in a matter for which he had responsibility while on temporary duty as a reserve officer with the Navy's Judge Advocate General Corps. We hold that Nichols' continued representation of the plaintiffs in these cases does not violate the ethical requirements of the Code of Professional Responsibility, and we therefore reverse.

I. THE FACTS

The two cases which underlie this appeal were initially filed as class actions to recover funds invested in certain industrial development bonds issued by the City of Tuskegee, Alabama. These actions seek damages from a number of Alabama defendants alleged to have been aiders and abettors of a fraudulent scheme concocted by Alexander & Allen, Inc., a Florida-based group of broker-dealers. The litigation below was prompted by an injunction proceeding brought in the United States District Court for the Southern District of Florida by the Securities and Exchange Commission against Alexander & Allen, Inc., for violations of the anti-fraud provisions of the securities acts. In the Florida case, the Commission alleged that, as one part of a wide-ranging scheme to defraud investors, Alexander & Allen began a solicitation aimed specifically at returning Vietnam prisoners of war who had accumulated substantial sums in back pay during their years of imprisonment. In November of 1974, the court found that the company was perpetrating 'a horrible fraud, one that has been vicious and brutal' on the former POWs and a large number of civilian investors. S.E.C. v. R. J. Allen & Assoc., Inc., S.D.Fla. 1974, 386 F.Supp. 866, 874. It is estimated that the POWs alone lost about $316,260.

Several of the former prisoners of war, including Commander Robert Dean Woods, the named plaintiff in one of the class actions below, met while testifying in the Florida case and decided to investigate the possibility of instituting a private suit to recover their investments. ² The ex-POWs turned to the Navy's Office of the Judge Advocate General for advice as to how to proceed and for possible legal assistance. As a result of this request, the Navy began in November of 1974 actively to explore methods by which it could aid these servicemen in recovering their lost investments. Captain E. R. Fink, who headed this effort, sought the advice of Roger J. Nichols, an attorney with expertise in the area of securities fraud who, it happened, was then completing his annual tour of duty as a reserve officer in the Judge Advocate General's Corps. Nichols recommended that no action be taken until an investigation could be made to determine whether a suit could be maintained against parties other than the principals named in the S.E.C.'s action. ³ In addition, Nichols offered to supervise such an inquiry. After completing his brief tour of duty in mid-November, Nichols returned to his private practice in a Los Angeles law firm.

Although the Navy desired to aid the defrauded servicemen, a severe shortage of resources precluded direct participation by the Judge Advocate General's Office in the litigation of such a complex case. ⁴ In late November, therefore, Captain Fink suggested a course of action by which the Navy would continue to provide legal assistance short of actual litigation but would refer the POWs to several Navy reserve attorneys who were willing to represent them on a contingent fee basis in the contemplated court actions. Captain Fink specifically recommended Nichols as a Naval Reserve officer with a great deal of expertise in securities law and suggested that he be retained as lead counsel in the case.

On December 3, 1974, Captain Fink called Nichols in Los Angeles and asked him to conduct the investigation which they had discussed in November. Although he had already completed his required two weeks of 'active duty for training' and despite other demands on his time, Nichols, after some persuasion, agreed to return to active duty on December 16 for an additional five days.

Pursuant to Captain Fink's earlier suggestion, Commander and Mrs. Woods contacted Nichols on December 4 and asked him to represent them and others defrauded in the securities scheme. Nichols, however, informed them that he was returning to active service in order to evaluate their chance for recovery in such a suit and that they should therefore await the outcome of his investigation before undertaking any personal expenditures in connection with the case.

Upon his return to active duty in mid-December, Nichols conducted a five-day 'on-the-ground' investigation which included a day-long meeting in Miami with S.E.C. officials familiar with the R. J. Allen injunctive proceeding, an examination of the files of the Deputy Attorney General of Alabama, and interviews with the president and trust officer of defendant Covington County Bank. During this investigation, Nichols reported his findings to Captain Fink on a daily basis. After completing the investigation on December 20, 1974, Nichols was released from active service and he accordingly returned to private practice in Los Angeles. Subsequently, Nichols thoroughly discussed all his conclusions with Captain Fink.

On January 11, 1975, Commander and Mrs. Woods again asked Nichols to serve as their personal counsel. Because of his desire to aid the former prisoners of war, his familiarity with the case, and his concern that the statute of limitations was about to run on certain claims, ⁵ Nichols felt compelled to accept the case. Nichols' participation in the case on a contingent fee basis was personally approved by the Judge Advocate General of the Navy, with the result that the two actions below were filed on January 22 and 27 respectively.

In holding that Nichols' conduct gave rise to an 'appearance of professional impropriety' in violation of Canon 9, the District Court relied on Ethical Consideration (EC) 9--3 which is a specific application of this rule to attorneys who are former public employees.

After a lawyer leaves judicial office or other public employment, he should not accept employment in connection with any matter in which he had substantial responsibility prior to his leaving, since to accept employment would give the appearance of impropriety even if none exists.

This principle is reiterated in mandatory form in Disciplinary Rule (DR) 9--101(B) which states: 'A lawyer shall not accept private employment in a matter in which he had substantial responsibility while a public employee.' ⁶

The District Judge found that Nichols' tour of duty with the Navy constituted public employment, and that while serving with the Judge Advocate General's Office he had 'investigated and passed upon' the POWs claims. Thus the District Court concluded that Nichols 'cannot ethically continue that investigation and representation for a fee in his civilian capacity.' The appearance of impropriety isolated by the District Judge was that the defendants in the class actions could be substantially disadvantaged 'both economically and strategically' by the knowledge of the case Nichols had acquired while a public employee.

II. PRELIMINARY CONCERNS

Inasmuch as it is well established that a District Court's order granting or denying a motion to disqualify an attorney appearing before it is a 'final order' appealable pursuant to 28 U.S.C. § 1291, we properly have jurisdiction in this case. In re Yarn Processing Patent Validity Litigation, 5 Cir., 1976, 530 F.2d 83, 85; United States v. Garcia, 5 Cir., 1975, 517 F.2d 272, 275; Tomlinson v. Florida Iron & Metal Inc., 5 Cir., 1961, 291 F.2d 333, 334; see Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 2 Cir., 1974, 496 F.2d 800 (en banc). Less clear, however, is the standard of review which should govern our assessment of a District Judge's disposition of a motion to disqualify counsel. As we have previously indicated, a District Court is obliged to take measures against unethical conduct occurring in connection with any proceeding before it. Sanders v. Russell, 5 Cir., 1968, 401 F.2d 241, 246; see Ceramco, Inc. v. Lee Pharmaceuticals, 2 Cir., 1975, 510 F.2d 268, 270--71; E. F. Hutton & Co. v. Brown, S.D.Tex., 1969, 305 F.Supp. 371, 376--77. While disqualification orders issued pursuant to this supervisory authority have been held to be within the discretion of the lower court, ⁷ court...