Opinion
90 Civ. 2370 (JFK)(FM)
October 11, 2002
MEMORANDUM DECISION
I. Introduction
Defendant Seguros La Republica, S.A. ("La Republica") and its corporate parent, nonparty Grupo Financiero Interacciones, S.A. ("GFI") (together, "Movants"), have moved to disqualify the firm of Riker, Danzig, Scherer, Hyland and Perretti, L.L.P. ("Riker, Danzig"), which serves as counsel to Plaintiff British International Insurance Company, Limited ("British") in this action. The Movants contend that Riker, Danzig's prior representation of GFI, the parent company of La Republica, in another matter creates a potential conflict of interest which requires Riker, Danzig's removal. For the reasons set forth below, the motion is denied.
II. Relevant Facts
A. Background
The present lawsuit arises out of a series of reinsurance agreements between American Centennial Insurance Company ("ACIC"), the predecessor in interest to British, and Aseguradora Interacciones, S.A., the predecessor in interest to La Republica. According to the complaint, these agreements obligated La Republica to reimburse ACIC for a share of the losses and expenses that ACIC incurred in connection with certain claims by ACIC's insureds. (Compl. ¶ 7-9). On May 12, 1999, the Court (Keenan, J.) adopted the Report and Recommendation of former Magistrate Judge Bernikow and directed that a default judgment be entered against La Republica, in the amount of more than $11.2 million, as a result of La Republica's failure to honor its contractual undertakings. British v. La Republica, 1999 WL 301689 (S.D.N.Y. May 12, 1999). Following La Republica's partially successful appeal from the default judgment, see British v. La Republica, 213 F.2d 625 (2d Cir. 2000) (unpublished opinion), British was awarded an additional $52,000 in damages. See British v. La Republica, 2001 WL 897180 (S.D.N.Y. Aug. 8, 2001).
Over the last several years, Riker, Danzig has been attempting to enforce the default judgment, both here and in Mexico, against La Republica and, if it can establish a basis for doing so, against GFI or other GFI subsidiaries. On the eve of a deposition concerning the location of La Republica's assets, its counsel sought leave to file this motion, citing information that counsel had recently learned concerning Riker, Danzig's prior representation of GFI. In response, I granted La Republica's request and stayed further discovery until the motion could be decided. See British v. La Republica, 2002 WL 987199 (S.D.N.Y. May 14, 2002).
B. Basis for Motion
The Movants seek to disqualify Riker, Danzig because the firm previously represented La Republica's parent company, GFI, in connection with a dispute between Salomon Brothers, Inc. ("Salomon") and Inter Financial Services, Inc. ("IFS"), another GFI subsidiary. (Def.'s Mem. at 2). At the time that the dispute arose in late 1994, Lee H. Kimmell was the Chief Executive Officer of Interacciones Global, Inc. ("IGI"), and acting Chief Executive Officer of Interacciones Casa de Bolsa ("ICB"), IGI's parent company. (Kimmell Decl. at 1-2). ICB, in turn, was a subsidiary of GFI. (Id.). Kimmel was asked to attempt to resolve the dispute because he was a former Salomon partner. (Id. at 3). Kimmel then recommended that GFI retain Alan E. Kraus, Esq., and his firm, Riker, Danzig, as litigation counsel in connection with the matter. (Martinez Decl. at 2). In addition to Riker, Danzig, GFI retained Paul, Weiss, Rifkind, Wharton Garrison to provide corporate expertise. (Kimmell Decl. at 3; Kraus Decl. at 5). Although the parties disagree as to the precise duration of Riker, Danzig's engagement, it appears that GFI reached an agreement in principle with Salomon in February 1995 and that their dispute was fully resolved by no later than March 31, 1995. (Kraus Decl. at 4; Chomiak Decl. Exs. 5, 6).
The Movants allege that Riker, Danzig gained access to confidential information about GFI during its prior engagement which can now be used to their detriment in this suit. (Def's Mem. at 2). For example, the Movants contend that, unless their motion is granted, Riker, Danzig may be able to use its preexisting knowledge to help pierce the corporate veil of GFI or other GFI subsidiaries. (Id.).
III. Discussion
A. Disqualification
As the Second Circuit has noted, disqualification motions interfere with the ability of parties to choose their own counsel, are often employed for tactical reasons, and, even in the best of circumstances, cause delay. Board of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979); Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978). Accordingly, a party moving for disqualification carries a "heavy burden," Evans v. Artek Sys. Corp., 715 F.2d 788, 791-92 (2d Cir. 1983), and must satisfy a "high standard of proof," Gov't of India, 569 F.2d at 739. Although the conclusion in any particular case "can be reached only after a painstaking analysis of the facts and precise application of precedent," United States v. Standard Oil Co., 136 F. Supp. 345, 367 (S.D.N.Y. 1955) (Kaufman, J.), the question is ultimately one of preserving the public's trust in the "scrupulous administration of justice and in the integrity of the bar." Hull v. Celanese Corp., 513 F.2d 568, 572 (2d Cir. 1975). For that reason, any lingering doubt must be resolved in favor of disqualification. Cheng v. GAF Corp., 631 F.2d 1052, 1059 (2d Cir. 1980), vacated on other grounds, 450 U.S. 903, 101 S.Ct. 1338, 67 L.Ed.2d 327 (1981); Hull, 513 F.2d at 571.
In this case, the Movants argue that disqualification is mandated because GFI's former counsel has now become their adversary in a related litigation. To prevail on such a claim, the Movants must make a three-part showing that:
(1) the moving party is a former client of the adverse party's counsel;
(2) there is a substantial relationship between the subject matter of the counsel's prior representation of the moving party and the issues in the present lawsuit; and
(3) the attorney whose disqualification is sought had access to, or was likely to have had access to, relevant privileged information in the course of his prior representation of the client.Evans, 715 F.2d at 791.
This "substantial relationship" test was first promulgated by Judge Weinfeld in T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 265, 268 (S.D.N.Y. 1953). See, e.g., Leber Assoc. v. Entm't Group Fund Inc., 2001 WL 1568780, at *3 n. 5 (S.D.N.Y. Dec. 5, 2001) (Dolinger, Mag. J.). The test gives effect to the proscriptions in Canons 4 and 5 of the New York Code of Professional Responsibility against an attorney improperly using the confidences of a former client to the former client's disadvantage. See Blue Cross and Blue Shield of New Jersey v. Phillip Morris, Inc., 53 F. Supp.2d 338, 342 (E.D.N.Y. 1999);Leber, 2001 WL 1568780, at *3; D.R. 4-101(B), 5-108(A).
B. Standing
The first element of the substantial relationship test requires that the party seeking disqualification be a former client of the firm whose disqualification is sought. Evans, 715 F.2d at 791. "[A]s a general rule, courts do not typically disqualify an attorney on the grounds of conflict of interest unless the former client moves for disqualification." United States v. Rogers, 9 F.3d 1025, 1031 (2d Cir. 1993) (quoting In re Yarn Processing Patent Validity Litig., 530 F.2d 83, 88 (5th Cir. 1976)). In this case, neither of the Movants meets the literal language of the first prong of the substantial relationship test. La Republica is a party, but it never retained Riker, Danzig for any purpose. Conversely, GFI retained Riker, Danzig, but is a stranger to this litigation. Accordingly, at first blush, it would appear that the Movants lack standing.
Citing Decaview Distribution Co., Inc. v. Decaview Asia Corp., 2000 WL 1175583 (N.D.Cal. Aug. 14, 2000), La Republica argues that its close ties to its parent company warrant a finding that the standing requirement has been met. In that case, the court opined that a party that was a shareholder of opposing counsel's former corporate client could assert "derivative standing" to bring a disqualification motion. There was a question, however, as to whether the shareholder could exercise that right because the filing of an involuntary bankruptcy proceeding against the former client arguably transferred "all of [that party's] rights [to] the possession of the Bankruptcy Trustee." Id. at *3-*4 The court concluded that even if the former client was unable to claim derivative standing following the bankruptcy, the nonclient "may have standing where the involvement of the opposing party's law firm in the litigation injures the third party's interest in a just and lawful determination of its claims." Id. at *4 (emphasis deleted) (citing Colyer v. Smith, 50 F. Supp.2d 966 (C.D. Cal. 1999)). To meet the requirements of Article III of the United States Constitution, however, that nonclient must have a "personal stake" in the outcome of the motion. Id. at *9
Curiously, Decaview took the form of a Report and Recommendation even though a decision regarding the disqualification of counsel is a nondispositive matter that a magistrate judge may hear and determine pursuant to 28 U.S.C. § 636 (b)(1)(A). See Hutchinson v. Pfeil, 105 F.3d 562, 564 (10th Cir. 1997); Advanced Mfg. Technologies, Inc. v. Motorola, Inc., 2002 WL 1446953, at *1 n. 1 (D. Ariz. July 2, 2002);Kamyr AB v. Kamyr, Inc., 1991 WL 246465, at *1 (N.D.N.Y. Nov. 20, 1991).
Although Decaview was decided under Ninth Circuit law id at *4, several judges in this District have concluded that a party who is not a former client can bring a disqualification motion See, e.g., Skidmore v. Warburg Dillon Read, LLC., 2001 WL 504876, at *3 (S.D.N.Y. May 11, 2000) (Buchwald, J.) ("Ample precedent indicates that a party who is not part of the alleged conflict has standing to make a disqualification motion."); Planning Control, Inc. v. MTS Group, Inc., 1992 WL 51569, at *2 (S.D.N.Y. Mar. 11, 1992) (Conner, J.) ("the general rule which restricts standing to raise a Canon 4 disqualification motion to one who is a client or former client . . . must give way to a maxim that adequately addresses the need to ensure both clients and the general public that lawyers will act within the bounds of ethical conduct"). Nevertheless, to have standing, a nonclient movant must demonstrate "a personal interest in preserving the confidentiality of the information in possession of the law firm whose disqualification was sought." Schwabach v. Mem'l Sloan-Kettering Cancer Ctr., 1999 WL 1456537, at *4 (S.D.N.Y. Nov. 24, 1999).
Here, because the Movants are unwilling to make any statements that might bolster British in its attempt to enforce its default judgment against GFI, they have studiously avoided any factual representations which might establish that GFI and La Republica are alter egos or that GFI will suffer actual injury if its former counsel is not disqualified. British argues that this "gamesmanship" precludes a finding that GFI, as a nonparty, has a "personal stake" in the outcome of the disqualification motion. (Pl.'s Mem. at 33). While the parent-subsidiary relationship between GFI and La Republica is a matter of public record, there is no need to determine whether this alone constitutes a sufficient basis for the Court to find that either La Republica or GFI have standing here because, even if this element of the substantial relationship test were satisfied, the Movants have plainly failed to meet the remaining requirements for disqualification.
C. Substantial Relationship
To prevail, the Movants must first establish that the issues in this case and Riker, Danzig's prior engagement are substantially related.Gov't of India, 569 F.2d at 739. As a practical matter, this requires a showing that "the issues involved are "identical" or "essentially the same." See id. at 740. Here, however, the two matters at issue involve wholly different inquiries. The matter in which Riker, Danzig previously represented GFI arose out of a series of swap transactions between GFI and Salomon involving the stock of a Mexican telephone company. (Martinez Supp. Decl. at 1-2). Riker, Danzig's principal involvement in that matter was to prepare for possible litigation in the event that Mr. Kimmell and his counterparts at Paul, Weiss were unable to reach an agreement with Salomon regarding a restructuring of those transactions. On the other hand, the present action, by virtue of La Republica's default, is essentially a collection action in which Riker, Danzig, on behalf of British, seeks to satisfy its judgment by levying against the assets of La Republica or, if feasible, other GFI entities. Although the relationship between GFI and its subsidiaries is therefore at the forefront of this case, there is no reason to believe that it was implicated in the former matter, notwithstanding the Movants' conclusory assertions to the contrary. The two matters consequently cannot be characterized as "identical" or "essentially the same."
D. Access to Privileged or Confidential Information
The Movants assert that disqualification is required even if the issues relevant to the two engagements differ if there is a "reasonable likelihood" that the earlier representation resulted in the acquisition of confidential information that could prove useful to British in this suit. (Def.'s Mem. at 14). With respect to this question, they allege that Mr. Kimmell
had to have passed on to [Mr.] Kraus confidential and secret information of [GFI] regarding the company and its subsidiaries — including the legal structure of the group, all the principal investments in all of its subsidiary companies, the business activities and relationships of those companies, the legal responsibilities of [GFI] regarding its subsidiaries, the identity of the shareholders of the group, as well as information related to the financial activities of the group, including its relationships with banks in the United States and Mexico.
(Id., at 5). Contrary to this supposition, the narrow issues presented by the prior GFI representation in no way suggest that Mr. Kraus was necessarily privy to a broad overview of GFI and its subsidiaries and finances. Additionally, the suggestion that Riker, Danzig had access to privileged or otherwise confidential information which could be used to La Republica's detriment has been fully rebutted. The only source of information concerning GFI identified in the Movants's papers is Mr. Kimmell. (See Martinez Decl. ¶ 6) ("Kraus acquired the information on these matters, much of which . . . was confidential, from Kimmell"). In his own declaration, however, Mr. Kimmell expressly disclaims having furnished any confidential information to Mr. Kraus concerning the "corporate structure and the interrelationships of the companies in the GFI corporate family," La Republica, or the other confidential subjects that the Movants suggest must have been discussed. (Kimmell Decl. ¶ 8-9). Similarly, in his companion declaration, Mr. Kraus denies in considerable detail having received any such confidential or privileged information from Mr. Kimmell. (Kraus Decl. ¶ 7). Finally, although Mr. Kraus at one point requested certain documentation from Mr. Kimmell, their declarations (and the documents subsequently obtained by the Movants from the files of Paul, Weiss and Riker, Danzig) establish that Mr. Kraus did not receive any documents disclosing confidences which could be used to the Movants' detriment in this suit. (See Kimmell Decl. ¶ 18-19; Kraus Decl. ¶ 18; Chomiah Decl. Exs. 2-3, 5-7). British has therefore adequately rebutted any presumption that GFI "had to have" shared with Mr. Kraus confidential information relevant to this action.See Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 518 F.2d 751, 757 (2d Cir. 1975) (affidavits of former law firm associate and two of his former colleagues deemed sufficient to rebut inference that he possessed confidences that could be used to detriment of his former client), overruled on other grounds, Armstrong v. McAlpin, 625 F.2d 433 (2d Cir. 1980), vacated, 449 U.S. 1106, 101 S.Ct. 911, 66 L.Ed.2d 835 (1981); Siverio v. Lavergne, 1989 WL 31357, at *4 (S.D.N.Y. Apr. 12, 1989) (concluding that movants could not meet their heavy burden when former counsel's credible statements rebutted "vague, unspecific allegations that privileged information was disclosed").
D. Potential for Impropriety
Finally, it bears mention that the disqualification of Riker, Danzig, if granted, would at best be a pyrrhic victory. As British correctly observes, there has been no showing that Mr. Kimmell is in any way restricted from disclosing to successor counsel the detailed information concerning GFI that he is alleged to have furnished to Mr. Kimmell. (Pl.'s Mem. at 31). Since such disclosures plainly would not violate Canons 5 and 9 of the Code of Professional Responsibility, the granting of the Movants' disqualification motion would cause further delay in this rather ancient case but serve no useful purpose whatsoever.
As Judge Kaufman noted almost fifty years ago:
When dealing with ethical principles, it is apparent that we cannot paint with broad strokes. The lines are fine and must be so marked. Guide-posts can be established when virgin ground is being explored, and the conclusion in a particular case can be reached only after painstaking analysis of the facts and precise application of precedent.Standard Oil, 136 F. Supp. at 367. In this case, after fully exploring the facts, it is clear that Riker, Danzig has not crossed the ethical line.
V. Conclusion
For the foregoing reasons, the motion to disqualify Riker, Danzig from further service as counsel for Plaintiff British International is denied.
SO ORDERED