ML19317F553
| ML19317F553 | |
| Person / Time | |
|---|---|
| Site: | Davis Besse, Perry  |
| Issue date: | 12/01/1975 |
| From: | Jennifer Davis, Hart R CLEVELAND, OH, TOLEDO EDISON CO. |
| To: | |
| References | |
| NUDOCS 8001150873 | |
| Download: ML19317F553 (57) | |
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a f l l l UITITED STATES OF AMIRICA NUCIf>R PIGUIATORY Cat!ISSICI Before the Atomic Safety and Licensing Board l e In the Matter of . The Toledo Edison Comoany : Docket Ilos. 50-346A The Cleveland Electric Illuminating : 50-500A Cmpany : 50-501A (Davis-Besse Nuclear Pomr Station : Units 1, 2 and 3) : The Cleveland Elec'tric Illuminating : Docket Nos. 50-440A Catpany, et al. : 50-441A (Perry thclear Pomr Plant, - Units 1 and 2 : IRIFT IN SUPPCRT OF M7fION TO DISOLTALIFY
- AND DECIAPI CCUNSEL II! ELIGIBLE TO FURIIER P/RTICIPATE , IN TIESE PROCE"DDES i
JA?ES B. DAVIS Director of Im ROBERT D. H'AT First Assistant, Director of Im 213 City Hall Department of Im Cleveland, Ohio 44114 (215) 694-2737 Attorneys for City of Cleveland. Decenber 1,1975 I o soonsoS73 A7
4 TABLE OF CONTENTS TABLE OF CONTENTS........................................... i,ii CITATIONS................................................... iii, iv,v
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STATEMENT OF FACTS......................................... 1 ARGUMENT................................................... 4 I IT IS FUNDAMENTAL TO LEGAL ETHICS THAT A FIRM OF ATTORNEYS MAY NOT SIMULTANEOUSLY REPRESENT TWO CLIENTS WHO HAVE DIFFERING INTERESTS WITHOUT FULL DISCLOSURE AND CONSENT AND SHOULD NEVER AT-TEMPT TO REPRESENT CLIENTS WITH DIFFERING INTER-ESTS.IN LITIGATION.................................. 4 II TO DISCUALIFY A LAW FIRM PPISENTLY REPRESENTING MULTIPLE CLIENTS IT IS NECESSARY FOR THE MOVANT TO DEMONSTRATE ONLY; l) THAT AN ESTABLISHED AT-TORNEY-CLIENT PILATIONSHIP EXISTS, 2) THAT AD-VERSE INTEPISTS ARE INVOLVED, AND 3) THAT THE MOVANT DID NOT GRANT TO THIS COUNSEL A WAIVER ALLOWING THE PPISENT DUAL REPPISENTATION. . . . . . . . . . . . 15 l) AN ESTABLISHED ATTORNEY-CLIENT PILATION-SHIP ENISTS BETWEEN SS&D AND THE CITY...... 15
- 2) IN THE PRESENT ACTION, THE INTERESTS OF CEI AND THE CITY OF CLEVELAND ARE AD-VERSE...................................... 17
- 3) THE CITY HAS NOT GIVEN SS&D A WAIVER WHICH WOULD PERMIT SS&D TO REPRESENT CEI IN THE PRESENT ACTION.................. 20 III THE PRESENT PROCEEDING ESPECIALLY CALLS FOR THE DISQUALIFICATION BECAUSE OF THE GREAT DANGER OF PREJUDICE TO THE - CITY DUE TO THE FACT THAT SS&D
. HAS SERVED AS SECURITIES COUNSEL TO THE CITY; THIS IS AN ANTITRUST PROCEEDING; MEMBERS OF
-i-s
. a SS&D HAVE SERVED AS OFFICERS AND DIRECTORS OF CEI
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AND SS&D HAS ALREADY PRESSURED THE CITY BY THREAT-ENING TO WITHDRAW AS BOND COUNSEL.................... 24
. 1) IN ITS ROLE AS SECURITIES COUNSEL TO "MELP", SS&D HAS HAD ACCESS TO ALL DETAILS OF THE CITY'S OPERATIONS........... 24
- 2) IN AN ANTITRUST ACTION THE INTENT, MO-TIVES AND OPINIONS OF THE DEFENDANT ARE PARTICULARLY IMPORTANT. CERTAIN MEMBERS OF SS&D MAY BE'DIRECTLY INVOLVED IN THEIR ROLES AS OFFICERS AND DIRECTORS OF CEI..................................... 27
- 3) SS&D HAS ALPIADY PRESSURED THE CITY BY THREATENING TO WITHDRAW AS BOND COUNSEL.... 35 IV DISQUALIFICATION OF ONE MEMBER OF A LAW PIRM RESULTS IN THE DISQUALIFICATION OF ItLL MEMBERS OF THE FIRM.. 36
- V FAILURE TO DISQUALIFY COUNSEL IS A PJTVERSIBLE ERROR. . 37 VI AN ORDER DENYING DTSQUALIFICATION IS IMMEDIATELY APPEALABLE.......................................... 39 VII A DISQUALIFICATION ORDER PROHIBITING A DISQUALIFIED ATTORNEY FROM AIDING, ADVISING OR CONSULTING NEW COUNSEL OR COUNSEL FOR THE OTHER DEFENDANTS IS PROPER.....*......................................... 41 CONCLUSION.................................................. 43 TABLE OF EXHIBITS........................................... vi, vii EXHIBITS l- , -ii-
s , 01EER: FederalRulesofCivilProcedure548........................... In the Matter of Jo M. Ferguson, S.E.C. Adm. Proc. File No. 3-4528...........................
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"Ihe Snerging Responsibilities of the Securities lawyer",
Address by S.E.C. Conmissioner A.A. Sommr Jr. , before the Section on Banking, Corporation and Business Isa of the New York State Bar Ass'n, January, 1974 ..............................................
'Hunicipal Bonds and the Federal Securities Isas:
'Ihe Results of Forty Years of Indirect Regulation" . . . . . . . . . . . . .
Vanderbilt Law Review 561 (1975), at 601 ......................................... e
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%em i
t-il
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. CITATION CASES:
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American Can Co. v. Citrus Feed Co., 436 F. 2d 1125 (5th Cir. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 American Roller Co. v. Bndinger, 513 F.2d 982 (3d Cir. 1975)................................. 27 W.E. Bassett Co. v. H.C. Cook Co., 201 F . Supp . 821 (D . Conn. 1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,41,43 Chuzach Elec. Assn. v. U.S. Dist. Ct., 370 F.2d 441 (9th Cir. 1966)................................ 12, 27, 38, Cohen v. Beneficial Ind. Loan Coro., 40 337 U .S . 541 69 S .Ct . 1221 (1949) . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Consolidated Theaters,Inc. v. Warner Bros., Circuit Manarrement Coro. , 216 F . 2d 920 (2d Cir . 1954) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 15, 22, i Cord v. Sntith, 36' 37' 41'43 338 F.2d 516 (9th Cir. 1964)................................ 24 Dickert v. Aetna Life Ins. Co. ,
- 176 S.C. 476, 180 S.E. 462 .......................... ..... 20 Fctates 'Ihcatres, Inc. v. Coltmbia Pictures , Indus. Inc. ,
345 F . Supp . 93 (S .D . M . Y . 19 72) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 14,15, .[ Fleischer v. Phillies, 3L 264 F.2d 515 (2nd Cir. 1959)................................ 40 Fullmer v. Harper, 517 F.2d 20 (10th Cir. 1975)................................ 40 Green v.'Ihe Singer Co., q No. 71-1835 (3rd Cir. 1971)............................ .... 40 Grove v. Grove Valve and Regulator Co., 29 Cal. Rptr. 150 (Dist . Ct . App . 1963) . . . . . . . . . . . . . . . . . . . . 36, 41, 43 u Hawley v. Hawlev, 114 F . 2d 745 (D . C . Cir . 1940) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 thrble Oil & Refining Co. v. American Oil Co. ,
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224 F. Supp. 909 (E.D. Mo. 1963)............................ 22, 36, 43 E. F. Hutton & Co. , Inc. v. Brown, 305 F . Supp . 371 (S .D . Tex. 1969) . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 13, 22, 36, 41
-iii-
Iaskey Bros. v. Warner Bros. Pictures,Inc. , 130 F. Supp. 514 (S.D.N.Y.1955) aff'd 224 F. 2d 824 (2d Cir'.) cert. denied 350 U.S. 932 .................................. 15, 36, 42 Marco v. Dulles, 268 F.2d (2nd Cir. 1959).................................... 40 Marketti v. Fitzsimons, 373 F. Supp. 637 (W.D.Wis. 1974)............................ 10, 27 Richardson v. Hamilton Int'l Corn., 333 F . Supp . 1049 (E.D. Penn. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . 12 S.E.C. v. Charles A. Morris, & Ass., Inc., CCH Fed. Sec. L. Rep. Sec. 93,756 (1953).................... 24 S.E.C. v. Coffey, CCH Fed. Sec. L. Rep. Sec. 94,464 (6th Cir. 1974) . . . . . . . . . . . 24, 25 S.E.C. v. 'Ihe Senex Coro. , CCH Fed. Sec. L. Rep. Sec. 94,735 (E.D. Ky.1974) ....... ... 25 Silver Chrysler Plvmouth v. Chrvsler Motors Coro., 370 F. Sunp. 581 (E.D.N.Y.1973) ..... .... ................ 3G Silver Chrysler Plvriouth v. Chrvsler Motors Coro. , 496 F . 2d 800 (2d Cir. 1974) . . . . . . . . . . . . . . . . . . ............ 39 T.C. 'Iheatre Corn. v. Warner Bros. Pictures, Inc., 113 F . Supp . 265 (S . D . 3. Y . 1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 15, 27 Thatcher v. United States, 212 F. 801 (C.C.A. 6th Cir. 1914)........................... 38 United States v. Bishon, 90 F . 2d 65 (6th Cir . 1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 38 United States v. Hankish, 462 F.2d 316 (4th Cir. 1972)................................ 40 United States v. Trafficante, 328 F . 2d 117 (5th Cir . 1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Uniweld Products, Inc. v. Union Carbide Corp. 385 F.2d 992 (5th Cir.1967), cert. denied , 88 S . Ct. 853 (1968) . . . . . . . . . . . . . . . . . . . . . . . . . 40 Yablonski v. United Mine Workers of /merica, 454 F.2d 1036 (D.C.Cir. 1971) cert. denied, 92 S. Ct. 1609 (1972)......................... 40 M
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STA'IUTES 28 U.S.C.A. 1292 (B)......................................... .. 39 amu-a ODER
/ - Code of Professional Resnonsibility adopted eff. July 15, 1974.. 4, 5, 6, 13, 14, 21, 36, Federal Rules of Civil Procedure .
54(b)...................................................... 39 In the Matter of Jo M. Ferguson, S . E.C . Acta. Proc. File Ib . 3-4528. . . . . . . . . . . . . . . . . . . . . . . . . . 25
" The Emerging Responsibilities of the Securities Iarfer",
Address by S.E.C. Cmmissioner A.A. Sccreer Jr. , before the Section on Banking, Corporation and Business Law of the New York State Bar Ass'n, January, 1974....................................................... 26
'Municinal Bonds and the Federal Securities las:
the Results of Forty Years of Indirect Remilation" 28 Vanderbilt Lau Review, 561 (1975), 601.................. . 25 t.
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i i TABLE OF EXHIBITS , f EXHIBIT NO. EXIIIBIT PAGE NO. A. List of payments made by City of Cleveland to Squire, Sanders & Dempsey from November 4, 1960, to' July 28, 1975........................................ 1 B. Memorandum from Ralph W. Muntz, Commissioner of Accounts, to Robert D'. Hart, Assistant Director of Law, dated July 30, 1975, concerning profoc-sional service fees paid to various lav firms; specifically Squire, Sanders & Dempsey................... 23 C. Annual Report of The Cleveland Electric Illumin-ating Company to the Federal Power Commission for the year ended December 31, 1974, showing payments made to the law firm of Squire, Sanders
& Dempsey............................................... 24 D. List of Directors of The Cleveland Electric Il-luminating Company for the year ended December 31, 1974.......................................'............. 26
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E. Correspondence from John Lansdal.c, Squire, Sc;.d crs & Dempsey, to Donald Hauser, The Clevclun6 Electric Illuminating Company, dated Octobcr i. 1966, and memorandum concerning Cleveland c:uai-cipal Electric Light Plant (HELP) rates............... . .? 7 F. Cleveland Electric Illuminating Compan1. memelan - dum from D.II. llauser to Lee C. Howley, dated October 31, 1966........................................ 33 G. Correspondence from John Lansdale, Squire, Sand-crs & Dempsey, to Ralph M. Ecsse, then President of Cleveland Electric Illuminating coupany, f a ' "d February'18, 1965....................................... 34 H. Partial list of documents claimed by The Cleveland Electric Illuminating Company as privileged; cor-respondence between Illuminating Company and Squire, Sanders & Dempsey; including identity of persons named on~ list........................................... 43 I .- Portion of Hauser Deposition: NRC Docket Nos. 50-346A, 50-440A,.50-441A, dated July 12, 1975.......... 51
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J. Annual Report of The Cleveland Electric Il-luminating Company to Federal Power Commis-sion for the year ended December 31, 1974, showing payments made to various law firms; specifically to Guren, Merrit, Sogg & Cohen............. 58 K.' Correspondence from Robert D. Hart, First Assistant Director of Law, City of Cleveland, to John Lansdalc, Squire, Sanders & Dempsey, dated August 5, 1975.................................... 60 L. Correspondence from Jack White, Squire, Sand-ers & Dempscy, to James B. Davis, Director of Law, City of Cleveland, dated August 25, 1975................ 61 M. Correspondence from James B. Davis, Director
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of Law, City of Cleveland, to Jack L. White, Squire, Sanders & Dempsey, dated September 30, 1975.................................................... 64 N. Correspondence frca Robert D. Hart, First Assistant Director of Lau, City of Cleveland, to John Lansdale, Squire, Sanders & Dempsey, dated October 11, 1975.................................. 66 O, Correspondence frcr Jack Uhite, Squirc, Sand.- ers & Dempsey, to James B. Davir, Director of Law, City of Cleveland, dated October 27, 1975............... 67 1 l' . Correspondence frcn Robart D. Hart, First Assistant Directer of Law, City of Cleveland, i to Jack White, Squire, Sanders & Dempsey, dat-ed November 8, 1975..................................... 69 G. Correspondence frcm John Lansdalc, Squire, Sanders & Dempsey (Cc::, Langford & Brown), to Robert D. Hart, First Assistant liirector of Law, City of Cleveland, dated IIovmbcr 13, 1975.............. 71 R. Correspondence from Robert D. Ilart, First Assistant Director of Law, City of Cleveland, to John Lansdale at Cox, Langford & Drown, dated November 21, 1975................................. 70 Code of Professional Responsibility..................... 80 S. l
t; STATEMENT OF FACTS . Squire, Sanders & Dempsey ("SS & D"), represent the applicant, fae Cleveland Electric Illumina' ting Company ("CEI"), in the present
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proceeding. It has represented this company for many years. SS & D has represented the City of Cleveland (" City") some sixty-five years past, and is presently acting as cou r to the City in connection with general litigation, municipal bonds and various other
- matters. With special relevance to this proceeding SS & D has represented the City in the area of bonds issued on behalf of its Division of Light and Power.
The attached summary of invoices (Exhibit A) indicates the subject matters and areas of involvement handled by SS & D on behalf of
- the City just since 1960. SS & D received $147,000.00 from the City in 1974 and has been paid $107,000.00 for the first half of 1975. (See Exhibit B). Many of the invoices reflect SS & D's efforts as bond counsel and its advice to the City relative to the raising of capital for the Municipal Electric Light and Power Plant ("MELP"), in partic'ular street lighting bonds and the 1963 mortgage revenue bond issue. The 1972 .
mortgage revenue bond issue is discussed in more detail later. , 1 In 1974, SS & D received S449,000.00 in fees from CEI. (Exhibit j .. C). In addition, Messrs. Lansdrle and Besse, senior partners of the firm of SS & D, receive additional compensation for serving as Directors i i (Exhibit D). 1 t of CEI. k l tl fp . C
I SS & D is th] inrgut icw firm in thm Stxte of Ohio with approximately 180 lawyers in 1975. .It has one of the largest sections specializing in public law and public finance of any major law firm in the United States. SS & D has a virtual monopoly on public finance law in Northern Ohio. Only two other firms in Ohio, one in Columbus and one in Cincinnati do any significant amount of public bond legal work. I Neither has ever worked for the City. Cleveland has 4 other firms with in excess of 80 lawyers each and a number of other firms of cubstantial size, but none has ever attempted any significant amount of bond work in the public sector. The opinion of SS & D is widely accepted by financial. institutions in Ohio and elsewhere as authoritative for the sale of public notes and bonds. The City of Cleveland, in order to conduct its business and survive financially, must each year issue millions of dollars of notes and bonds. Over the last several decades virtually all of such notes and bonds have been prepared by SS.6 D and sold because of its opinion letters. No other law firm in Ohio or elsewhere has the great and detailed familiarity with the City's affairs, the legal skills in dealing with Ohio municipal law and the staff necessary to prepare the City's bonds and notes and give the necessary opinions for their sale as does SS & D. For the City to arrange to transfer a part of its bond business to other firms would be ver; difficult and time consuming. The other large law firms in Cleveland are reluctant for a variety of reasons to _ even enter the field. Of the five large law firms in Cleveland, only Jones, Day, Reavis and Pogue has done any bond work for the City in recent years, having prepared an issue of sewer bond anticipation notes in 1974 and again in 1975. This firm is not currently available as a source of bond work because it now seeks to represent the Ohio Edison Company in an action filed by the City against CEI and others in the United States District Court for the Northern District of Ohio, Eastern Division. jDocketNo.C-75-560. r
, , The City, Law D pirtment, with a constont probica of low p;y and heavy turnover, has never managed to develop lawyers with the skills necessary to handle its own bond work. It is totally incapable of doing such work at the present time.
The practical consequence of the virtual monopoly of skills possessed by SS & D in the field of public finance is that the City must and does rely totally upon it for the daily conduct of its financial affairs. With the recent financial crisis in New York City, it is common knowledge that purchasers of municipal obligations across the country have become extremely cautious. With regard to the purchase of the current obligations of the City of Cleveland it is now more necessary than ever to have authoritative opinion letters from a law firm on its bends and notes. Only SS & D can now provide such opinions. During the course of 1976, and at the ve'ry time this proceeding will be heard, the City will need to issue some $85,000,000.00 in short term notes. The City expects to have SS & D prepare and issue opinions upon such notes. SS & D has already threatened in its letter of August 25, 1975, (Exhibit L) from its Chairman Jack L. White to James B. Davis, Director of Law, that if forced to chose between acting as counsel for the City and CEI it would choose CEI. In that same-letter SS & D issued a warning that it might have to withdraw from handling all of the City's legal business.
" Consequently, if the Department of Law adheres to the position suggested by Mr. Hart, [that SS & D withdraw as counsel for CEI] we shall be obliged to j
decline to give any further legal advice to the City l or any of its representatives on any matter whatso-ever." (Exhibit L) Similar verbal warnings have been given by SS & D partners to members of the City Administration in recent months.
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r It is obvious from a comparison of the fees paid to SS & D in 1974 that CEI, which paid $449,000, is much more important in generating fees than is the City which paid SS & D $147,000. This difference in the amount of fees generated has been the case in past years and will continue to be the case for the foreseeable future. It is a significant reason for SS & D to prefer the interests of CEI over the City. If SS & D is permitted to represent CEI in the current proceeding,
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it will be in a position to continue to bring great pressure upon the City to slacken, or fail to press its interests vigorously by withdrawing, or threatening to withdraw legal assistance .in the preparation of the City's notes and bonds. CEI has been represented throughout this proceeding, as a member of the CAPC0 Group, by the Washington D.C. law firm of Shaw,
, Pittman, Potts & Trowbridge who would appear to be available to represent CEI without interruption or delay.
Further facts are set forth in the argument. ARGUMEh7 I. IT IS FUNDAMENTAL TO LEGAL ETHICS THAT A FIRM OF ATTORNEYS MAY NOT SIMULTANEOUSLY REPRESENT TWO CLIENTS WHO HAVE DIFFERING INTERESTS WITHOUT FULL DISCLOSURE AND CONSENT AND SHOULD NEVER ATTEMPT TO RE-PRESENT CLIENTS WITH DIFFERING INTERESTS IN LIGITATION. SS & D may not act as a defense attorney against its present
" client the City without divided loyalty or adverse influence. The American Bar Association Code of Professional Responsibility, (Exhibit S) states standards of professional conduct that lawyers are expected to display in relation to the public, the Bar and their clients. The " Disciplinary Rules of the Code set a minimum level of conduct below which no lawyer can fall without being subject to disciplinary action". Professional c
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d independence is the hallmark of an attorney and the Code requires him to refuse employment when interests might impair that independence. DR 5-101 (A) Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf his client will be or reasonably may be affected by his own financial, business property, or personal interests. (Emphasis ours) i While this Disciplinary Rule controls an attorney's actions in general, the Code, specifies what conduct is permissable in relation to a client. DR 5-105. Refusing to Accept or Continue Employment if the Interests of Another Client May impair the Independent Professional Judgment of the Lawyer
, (A) A lawyer shall decline proffered employment if the exercise of his independent pro-F fessional judgment in behalf of a client will ; be or is likelv to be adversely affected by the acceptance of the proffered employment,
- r except to the extent permitted under DR 5-105(C) .
(Emphasis ours) .{ (B) A lawyer shall rot continue multiple emoloyment if the exercise of his independent cro-
' fessional judgment in behalf of a client will be or is likely to be adversely affected by his
'I representation of another client, except to the
._, , extent permitted under DR 5-105(C).
(Emphasis ours) 3 (C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the ,; interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment m on behalf of each. (Emphasis ours)
The Code also sets forth Ethical Considerations which,
" constitute a body of principles upon which the lawyer can rely for guidance r-1 in specific situations" and are " objectives toward w'-ich every member of the profession should strive". EC 5-14 states:
I t " Maintaining the independence of professional judgment required of a lawyer precludes his F acceptance or continuation of employment that will adversely affect his judgment on behalf or dilute his loyalty to a client. This
- problem whenever a lawyer is asked to represent two or more clients who have differing interests, whether such interests be conflicting inconsistent, diverse, or otherwise discordant."
(Emphasis ours) The City asks the Board to consider the all encompassing scope of the word I
" differing". Under the Code EC 5-15 a lawyer is admonished to never represent, in litigation, clients with differing interests and he should
'? ' resolve all doubts against the propriety of the representation and refuse O! employment initially or withdraw when the interest becomes differing. The basic duty of the lawyer is the exercise of his " independent judgment". i
- L Code EC 5-15 provides:
i "If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment mav be im-paited or his loyalty divided if he accepts or continues the employment, He should j resolve all doubts against the propriety m b . se l l
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e-of the representation. A lawyer should never represent in litigation multiple clients with differing interests; and there are few situations in which he would be iustified in representing in
- litigation multiple clients with potentially differing interests. If a lawyer accepted such employment and the interest did become actually i differing, he would have to withdraw from employ-ment with the likelihood of resulting hardship r ,
on the clients and'for this reason it is preferable
! that he refuse the employment initially. On the other hand, there are many instances in which a
- lawyer may properly serve multiple clients having potentially differing interests in matters not involving litigation. If the interests vary only slightly, it is generally likely that the lawyer will not be subjected to an adverse influence and that he can retain his independent judgment on behalf of each client; and if the interests become differing, withdrawal is less likely to have a disruptive effect upon the causes of his clients".
(Emphasis ours) The City of Cleveland owns and operates the Municipal Electric Light Plant (MELP) and serves 20% of the Cleveland Area. The Cleveland Electric Illuminating Company, (CIi) operates in the same area and serves 80% of Cleveland. In this highly competitive arena there are occasions when the interests of the two differ. i Whatever the past representation of the City and CEI by SS & D, the City and CEI are now litigating against each other on matters of I great significance to each in this forum,. 4 The burden was always upon SS & D to recognize when the interests - L_ of these clients became " differing interests" and to withdraw. SS & D has
~[ failed in its responsibilities, and now refuses to withdraw as counsel for CEI in this proceeding while currently representing the City in numerous matters. It must therefore be ordered to withdraw. There is ample legal precedent.
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e-In E. F. Mutton & Co. v. Brown, 305 F. Supp. 371, 395 (S.D.
- Tex. 1969), a national brokerage firm (Hutton) brought an action against i
Brown, its former regional vice-president, for negligence and breach of fiduciary duty. Hutton was represented by a " Houston Firm". Hutton's corporate counsel, s. "New York Ficm" did not enter a formal appearance e f but worked through the " Houston Firm". The same "New York Firm" had r been
- involved in a prior investigation before the SEC where it had l
represented Brown in a matter involving a stock Brown had worked with while in his position with Hutton. Brown requested that both the " Houston" and "New York" firms be disqualified from the case of Hutton suing Brown for
'- his allegedly devious activities.
F The court after a lengthy discussion of the circumstances and case law noted that counsel had refused to withdraw voluntarily and ordered both firms to with'-" and refrain from aiding, consulting or advising
- new counsel reta. . by Hutton, except to the limited extent necessary to l
L the transfer of their duties to new counsel. The court upheld the public
'I policy involved in the case by saying: -L "If an attorney is permitted to defend a motion to disqualify by showing that he i[
l[ received no confidential information from his former client, the client, a layman who y has reposed confidence and trust in his l attorney, will feel that the attorney has
"- escaped on a technicality. If courts protect only a client's disclosures to his attorney and fail to safeguard the attorney-client i[ relationship itself, a relationship which must u
be one of trust and reliance they can only undermine the public's confidence in the legal system. . . this court has reached the conclusion that the receipt of con.fidential information is j_ not a prerequisite to disqualification". ' E.F. Hutton & Co.. Inc. v. Brown. 305 F. Supp. 371 (S.D. Tex. 1969)
- Regardless of the amount of representation, the advice given, or the secrecy of the discussions that the attorney in the Hutton case gave to f.
Brown before the SEC, the court held that "the attorney's appearance
- against him (the client) now can only appear unseemly." E.F. Hutton & Co., Inc.
- v. Brown, 305 F. Supp. 371 (S.D. Tex. 1969) at page 399.
The antitrust case of Estates Theatres Inc. v. Columbia Pictures Indus. i Inc., 345 F. Supp. 93, (S.D. N.Y. 1972), presents a situation very close to the one before this Board. The attorney who was disqualified from
- -' the. case was employed by Estates who had charged in interrogatories that i
UATC (a theater chain) was a co-conspirator with Columbia in the [ antitrust action. UATC was not a party to the suit and indeed was not named a party to the suit because the Estates' attorney had advised Estates r-that he was representing UATC, a plaintiff in an antitrust action of long - (' standing. Estates had agreed not to name UATC and expressed its desire that the attorney remain in its employ. UATC, however, objected to even that representation and through the other defendants' attorneys raised _ 7, . the issue of a conflict of interest. L The court found that there would be ao way that the at torney could [~ satisfy his duties to Estates if he " covered up" the alleged inrolvement of UATC, as such would be "an intolerable violation of professional responsibility". . y - Since it was clear that UATC was very likely to be injured by the attorney . L. remaining on the case, the court disqualified him. The attorney, however, L requested that he be able to choose which client he would cont).nue to represent. The court held that the choice was not his to make. It removad him from -L the case, and noted that Estates had no grounds for complaint over the consequences of his disqualification because it was aware of the conflict of interest at the time it had employed the attorney. The Court further <1 stated that the attorney could make application for withdrawal from his representation of UATC in the separate action if he so desired. m L I
' The case of Censolidated Theaters, Inc. v. Warner Bros.,
Circuit Management Corp., 216 F.2d 920 (2d Cir. 1954), involved an attorney who had been a Law Clerk in a firm that had represented the defendant in
- prior litigation. The court disqualified the attorney because he could i
1 have had access to the files of the defendant. The mere possibility
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that confidential information concerning defendants might be available to him was grounds for his disqualification.
, T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp.
265 (S.D.N.Y.1953), held that an attorney who had been retained by the defendant in an earlier appellate court action was barred from representa-tion of the plaintiff in the current action because the court found that in ordar to fully discharge his duty to the defendant on the appellate level, the attorney must have had knowledge of various aspects of defendant's activities, individual trade practices, and its relationships. As he had been in a position to obtain all information concerning the defendant, the attorney and the firm that he was now associated with were barred from the ecse. The attorney's argument that his services ,f i
- L had been merely preparation, drafting, presentation, and conclusions of
!! law, was to no avail. In the case of Marketti v. Fitzsimmons, 373 F. Supp. 637 (W.D. Wis. 1974), members of a Labor Union brought suit against the International and sought the disqualification of the firm of attorneys who represented , - - the International but had also represented the Local Labor Union, and indeed seemed to be currently representing the Local Labor Union. The court found that
" Disqualification should not be limited to rituations in which confidential information
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has been received by the attorney from the former client. ,
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i
As the court believed that advice given by the attorneys to the Local concerning its affairs was substantially litigation and that
- " Adversity between the claims of the International and . . . the interests I
I of the Local invoked by plaintiffs is also present." It further held: I~
- " Proof thet no confidential information had l- been disclosed during the prior representation would not remove the taint of disloyalty".
- f The Court disqualified the attorneys because "A lawyer's r- representation of an interest adverse to a former client in a suit dealing with substantially the same matter as that involved in the former representa-tion would seem a breach of trust to the lay sense of justice. "
In a case involving an attorney who had once handled matters involving tax claims for the Internal Revenue Service involving the persons who he now represented in an action brought by the United States for the
' collection of different and distinct tax claims, the court found that it r
would not be necessary for the attorney to have knowledge concerning his prior client (The Internal Revenue), that would be to the disadvantage of 4
' that " client" in the subsequent adverse litigation. It disqualified the attorney because he sought to take employment "in connection with any matter which he investigated or passed upon while in such "public office or employ '. . .". It quoted the Cannons of Ethics by stating that an attorney's
" conduct should be such as to meet the approval of all good men. That 1 - conduct should not.be weighted with hair splitting nicety". United States 1 v. 7 eaf ficante, 328 F.2d 117 (5th Cir.1964) .
~.
- The Courts look to the relationship between the present and former matter in order to determine what confidences may be presumed from the former representation, and tiie detriment that the former client will suffer if his
" former attorney is permitted to pursue his appearance in the litigation.
t._ 4 Richardson v. Hamilton Int'l Corp, 333 F. Supp. 1049 (D.C.E;D. Penn 1971). It has been held that even where only insight and knowledge were gained from a former representation, that alone was sufficient to disqualify an attorney who i seeks to represent another in litigation against his former client. Chugach Elec. Assn. v. U. S. Dist. Ct. 370, F. 2d 441 (9th Cir.1966), antitrust case - attorney disqualified. , In Chugach Elec. Assn v. U. S. Dist. Ct. 370, F. 2d 441 (9th Cir. 1966), the Court was concerned with the fact that the former general counsel of the Electric Company was now attempting to act as attorney for the trustee in bankruptcy of a company that the Electric Association had allegedly helped to drive out of business. The court was well aware of the wide application of the antitrust laws to not only what was done, but as to why certain acts were done. The attorney was in a position, when he was employed by the Electric *
~
Company, to acquire knowledge casting light en the purposes of later acts and agreements. The court stateed:
"A likelihood here exists which cannot be disregarded that Mr. Boyko's knowledge of private matters gained in confidence would provide him with greater insight and under-
- standing of the significance of subsequent events in an antitrust context and offer a promising source of discovery. This like-lihood is enhanced by recognition of fact that the allegations of a complaint are not always an accurate appraisal of the relevant period of time in antitrust caser. Discovery and trial proof frequently introduce ramifi-cations rendering earlier events relevant."
Chugach Elec. Assn. v. U.S. Dist. Ct., 370, F. 2d 443 (9th Cir. 1966). It does not matter that there may be inconvenience to SS & D e.nd its other client, CEl, that SS & D must now withdraw. CEI has been represented from.the outset of this proceeding as part of
~
the CAPCO group by Shaw, Pittman, Potts & Trowbridge of Washington, D.C. who could continue the representation without delay. m
F . It does not matter that there could be some delay in the transfer of the case from SS & D to others for such delays would be insignificant compared with the prejudice to the City in having to __ face its own attorneys in this litigation. Any problems that now exist were caused first and foremost by the failure of SS & D to recognize its ethical duties promptly and act upon them at an early date.
! It is above all the duty of the attorney to recognize his own ethical duties. It should not be incumbent upon the client to point them out to him:
"It was the duty of counsel to call to the attention of both(clients), the existence and legal implications of any con-flict of interest. Receipt of such advice would be the predicate for a waiver by (the client) of its right to object to a subsequent adverse representation. A person cannot waive a right of which he is unaware, since ordinarily a waivec must be intentional." E. F. Mutton &
Co. , Inc. v. Brown, 305 F. Supp at 400 (S.D. Tex. 1969). Never once down to the present time has SS & D fully acknowledged that a conflict of interest exists. Never once down to the present j time has SS & D set forth to the City the full legal implications of such L. conflict of interest. It has ignored EC 5-16 of the Code of Professional Responsibility, ,
- m. ,
which states: i- - "In those instances in which a lawyer is justified in representing two or more clients
- i having differing interest, it is nevertheless essential that each client be given the op-portunity to evaluate his need for represen-tation free of any potential conflict and to obtain other counsel if he so desires. Thus
~
before a lawyer may represent multiple clients he should explain fully to each client the implications of the common representation
?
o- ,
3-and should accept or continue employment only if the clients consent. If there are present other circumstances that might cause any of the multiple clients to question the undi-vided loyalty of the lawyer, he should also advise all of the clients of those circum-stances.' (Emphasis ours) S S & D has also chosen to ignore Disciplinary Rule DR 5-105-C:
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"A lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such renresentation on the exercise of his independent professional judg-ment on behalf of each." (Emphasis ours)
DR 5-105-A demands that:
"A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the accept-ance of the proffered eriployment, or if it would be likely to involve him it. representing
' differing interests, except to the extent permitted under DR 5-105-C.
DR 5-105-B holds:
"A lawycr shall not continue multiple employ-ment if the exercise of his independent pro-fessional judgment on behalf of a client will be or is likely to be adversely affected by hIis representation of anothe- client, or if it would be likely to involve him in representing differing interest, except to the extent per-mitted under DR 5-105-C." e SS & D can point to no single writing in which the City, with knowledge of the actual representation of CEI in this proceeding, has waived its right to have SS & D withdraw. The court in Estates Theatres, Inc. v.
Columbia- Pictures, Indus. Inc. , 345 F. Supp. 93 (S.D.N.Y.1972) offered the attorney time to present written permission for dual adverse representation I .fram the client who objected to his representation. The attorney could l not come~forth with that permission either. h
b On the contrary, the City's consistent posture has been that SS & D withdraw both prior to and subsequent to that point in time when the City knew of the representation. (Exhibits K, L, M, N, 0, P, Q, R) It should never be forgotten, furthermore, that it was the ethical duty of the attorney to withdraw without the need for a demand from the client, and at the earliest opportunity. Having represented both clients for years, SS & D should have known at the outset it could not even commence representation of CEI in this proceeding. The real issue is not whether the city waived its rights, but why SS & D didn't withdraw voluntarily and at the outset. The elements necessary to disqualify SS & D are all clearly present. II.. TO DISQUALIFY A LAW FIRM PRESENTLY REPRESENTING MULTIPLE CLIENTS, IT IS NECESSARY FOR IHE M0VANT TO DEMONSTRATE ONLY,1) AN ESTABLISHED ATTORNEY-CLIENT RELATIONSHIP EXISTS, 2) THAT ADVERSE INTERESTS ARE INVOLVED, AND 3) THAT THE MOVANT DID NOT GRANT TO THIS COUNSEL A WAIVER ALLOWING THE PRESENT DUAL REPRESENTATION.
- 1. An established attorney-client relationship exists between SS&D and the City.
To disqualify an attorney from representation in litigation, the movant must establish that there is an established attorney-client relationship between the attorney, who now represents an opposing party, and the movant. Consolidated Theaters, Inc. v. Warner Bros Circuit Manacement Corp., 216 F. 4
~2d 920 (2d Cir. 1954), antitrust case - attorney disqualified; Laskey Bros.
- v. Warner Bros. Pictures, Inc. ,130 F. Supp. 514 (S.D.N.Y.1955T aff'd 224 F. 2d 824 (2d Cir.) cert . denied 350 U.S. 932, antitrust case - attorney disqualified; T.C. Theater Corp. v. Warners Bros. Pictures, Inc., 113 F.
Supp. 265 (S.D.N.Y.1953), antitrust case -attorney disqualified. Estates Theatres, Inc. v. Columbia Pictures, Indus. Inc., 3'.2 F. Supp. 93 (S.D.N.Y. 1972), antitrust case - attorney disqualified.
I
- 2. In the present case, the interests of CEI and the City of Cleveland are adverse.
That the interests of CEI and the City are adverse may be seen from an examination of the City's Petition to Intervene in this proceeding. Summarized briefly, those interests are as follows: CEI is a privately owned electric utility offering electric service to approximately 1700 square miles of Northern Ohio. There are only two other electric generating operations in this service area; one operated by the City of Cleveland (MELP) and the other by the City of Painesville. CEI is inter-connected with all the privately owned power companies contiguous to its service area and is able to supply and receive electric power from sources located between the East Coast and the Rocky Mountains. CFI supplies retni' s electric power to 89 municipalities, including parts of the City of Cleveland. In 1972, CEI's electric operating revenues were in excess of $287,000,000.00. Its 1972 peak load was 2,882 !!w and its net generation in that year was
'L 15,546,473,000 Kwh of which 14,872,213,045 Kwh were sold to ultimate consumers.
In contrast to this large, fully-integrated and interconnected investor-owned electric utility system, the City has a small, isolated system, MELP, which generates its own power except for emergency purchases from CEI. HELP competes with CEI for electric customers and supplies about 20% of
- -- Cleveland's electric rarket. In 1971, }DH.P sold 504,000,000 Kwh which was about 3.5% of CEI's sales for that year. MELP's peak load in 1971, was approximately 100 1hr or about 3.3% of CEI's load.
CEI controls all high-voltage transmission lines in the Cleveland crea. MELP does not have access to these facilities and without such access, ! MTLP is unable to participate with other systems in power pooling, reserve sharing. coordinated development and planning of generation and transmission. These arrangements are standard among electric utility systems as they make for greater reliability of service and provide economies of operation not otherwise obtainable. CEI has access to coordination with other systems and its resulting ability to utilize large and efficient baseload units con-
! situtes a significant economic advantage.
CEI has refused to provide transmission services to MELP by denying it access to 30 Mw of low cost surplus power from the Power Authority of the State of New York, ("PASNY"), on the grounds that "an arrangement to transmit the PASNY power would provide the municipal system electric energy at a cost which would be injurious to the Illuminating Company's competitive position." CEI and MELP engage in direct competition for retail trade to a degree seldom encountered in the public utility industry. Both operate parallel distribution networks throughout the City of Cleveland and engage in street-by-street and house-by-house competition for customers. It is not l' unusual to find within the same block one building served by CEI and a
- neighboring building served by MELP.
1 In the competition between MELP and CEI, quality and reliability
'f' of service have been significant competitive factors. In recent years, CEI has steadily enlarged its share of the Cleveland market. Whfie MELP's* customers
' have suffered interruptions in service which could have been avoided if the
- MELP system was not isolated, similar interruptions did not exist in the CEI L.
system because of interties with other power companies. CEI is a member of the Central Area Power Coordination Group ("CAPCO") . .CAPCO resembles a power pool and, through CAPCO, coordination of operation, interchange and reserve sharing take place among the members according to need. Generation units and transmission facilities for the CAPCO
. g_
members are planned on the basis of the total requirements of the pool members
- as though they constituted a single company. CAPCO has a generating capacity of approximately 10,000 Mw, compared to MELP's capacity of 100 Mw.
I~ . Cleveland's MELP has requested, and has been refused, membership i in CAPCO. CEI has responded negatively to MILP's detailed proposal for member-ship in CAPCO and for MILP participation in Davis-Besse, Beaver-Valley and Perry Nuclear Projects by refusing it CAPCO membership. CEI has blocked negotiatiens for MELP participation in the nuclear units by requiring that MELP first accept conditions that CEI knew could not be accepted. It has made i a mockery of its purported offer to enter into negotiations for CAPCO member-I 1 ship. During the 1960's, CEI offered to enter into interconnectiod J Cr- .
- rents with MELP. An interconnection is an electric tie-in that functions to F
permit MELP to draw power from external sources into the MELP system. It insures reliability. This interconnection was conditioned upon MELP entering L into a price fixing scheme with CEI. CEI reqcired MELP to raise its rates for retail service to the same level as the rates offered by CEI'in order to have the benefits of the interconnection. MELP could not agree to such a proposal, and accordingly, was forced to forego entering into any interconnection with CEI until 1970 when MELP and CEI agreed to certain load transfer points which
- l L permitted the flow of only emergency power into the MELP system. Emergency
. power is the most expensive power generated because a power company puts its most inefficient generating units on line. The cost of this inefficiency is then passed along to the customer (MELP) at a price that it cannot afford l-and at a price well in excess of that which it charges to its customers.
l l Such an anti-competitive technique is called a ' price-squeeze'. The City l, has been receiving emergency power from CEI since 1971.
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_19 l 1
I Further facts will be presented during this hearing. The fore-going, however, should be sufficient to show the nature of the adverse i positions of the City and CEI. p 3. The City has not given SS & D a waiver which would permit SS & D to represent CEI in the present action. A waiver is an intentional, voluntary relinquishment of a known right A Dickert v. Aetna Life Ins. Co., 176 S.C. 4"6, 180 S.E. 462. The City has nevc; intentionally and voluntarily agreed to permit SS & D to represent CEI in this proceeding. CEI & SS & D will be able to offer no single writing on the part of the City which has waived its rights in the matter. Prior to July, 1975 the City was aware only that John Lansdale of s SS & D was on the service list in this proceeding. This includes persons who are merely interested in the proceedings and does not indicate representation. '3 On July 21, 1975 the City in an oral communication to SS & D set fortf. '( its position that it would object to SS & D's representation of CEI in the case of City of Cleveland v. CEI, et al, Case No. 75-560 in the U.S. District Court, Northern District of Ohio, Eastern Division filed on July 5, 1975. The City confirmed this oral communication to SS & D with a letter to SS
& D on August 5, 1975 (Exhibit K) . SS & D responded with a letter from ;_ .its Chairman, Jack L. White on Auguct 25,1975 (Exhibit) L . For the first time, in this letter, the City learned that "Although the defendants as a a
group (CAECO) have been represented in the Regulatory Commission proceedings by other counsel, our firm, throughout the period of that proceeding has furnished counsel to the. Illuminating Company with respect to the proceedings, with the full knowledge of the City." The City, of course, denics it had any such knowledge. Even in
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the White letter of August 25, 1975, there is no disclosure of the extent
r.
. 4 or nature of its representation of CEI. There is further no attempt in this letter.to disclose the possible conflicts of interest of SS & D or its possible adverse impact on the City's position.
To the date of this motion SS & D has never made the disclosure re-quired of an attorney who would represent multiple clients. SS & D has ignored EC 5-16 of the Code of Professional Responsibility,
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which states:
"In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential con-flict and to obtain other counsel if he so desires. Thus before a lawyer may represent multiple clients he should explain fullv to each client the implications of the common representation and should accept or continue employment only if the clients consent. If[
there are present other circumstances that
- might cause any of the multiole clients to question the undivided lovalty of the lawver, he should also advise all of the clients of .
those circumstances." (Emphasis Ours)
-SS & D has chosen to ignore Disciplinary Rule DR 5-305-C:
"A lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation ca the exercise of his independent professional judgment on behalf of each." (Emphasis Ours).
SS & D is attempting to shift to the City of Cleveland the obligation w . that the attorney has regarding the protection of a client's interests. SS & D had to be aware of latent conflicts presented by its simultaneous representation of the City and CEI. It had an obligation to seek out possible conflicts and ~~' 16 form its clients of the existence of these conflicts and what effect each would have in relationship to the dual representation. mese
,- e n ,
a I
"The rule against representing conflicting interests must of necessity be a rule of general application, for the protection of the ignorant as well as the sophisticated.
And the rule requires counsel - not the clients - te search out and disclose potential cosflicts between clients and the facts M.wh cause them to arise." E.F. Hutton I Co., v. Brown, 305 F. Supp at 398 ,(S.D. Tex.1969) SS & D has yet to come forward with a good faith attempt to place all of the circumstances and interests involved in its present representation of CEI'before the City or this Board. 'There can be no waiver unt31 there has been a full disclosure by SS & D. It is only through this motion that this law firm is being publicly forced t.o acknowledge the facts of its intimate involvement with CEI which covers, by its own admission, sixty-five years. At the pre-hearing held before this Board on November 26, 1975, SS & D raised the issue of a waiver from the City, either explicit or implied, which would permit it to represent CEI before this Board. The same issue of waiver was raised unsuccessfully in Consolidated Theatres, Inc. v. Warner Bros., Circuit Management Corp., 216 F.2d 920
;L (2d Cir. 1954), on the grounds that the movant,' defendant picture corporation, had consented te the former employee-attorney's representation of the plaintiff, based upon a prior agreement whereby the attorney agreed not to represent adverse interests. The attorney introduced as evidence a conversation with the defendant several years before where, it was alleged, defendant had agreed there would be no restrictions on the attorney. The court disqualified
.t he attorney and held the corporation could not be held bound by the agreement since the corporation had the power to terminate that consent at any time.
The court in Humble Oil & Refining Co. v. American Oil Co., 224 F. Supp 909 (E.D. Mo. 1963), addressed the objection raised by plaintiff, '~ Humbic, to the presence of certain attorneys. The defendant pointed out that - l at the same time - Humble was not seeking to disqualify, as allegedly tainted L
m by a conflict of interest, the same attorney involved in litigation against Humble in a Mississippi Federal Court. The court refused to recognize "as indicative of bad faith" Humble's not raising the issue of disquilification in the Mississippi action. It distinguished the case as standing on its own merits and ignored any idea of implied waiver. The firm was disqualified because it had once represented an opposing party in an action involving the same igsues many years before. The City contends that it has never given SS & D any express waiver or any implied waiver that would permit SS & D to represent CEI in any adversary proceeding against the City of Cleveland. It expected SS & D to adhere to the Code of Professional Responsibili-tj; and until a full disclosure was made to the City of SS & D's involvement with CEI, SS & D could not assume that it would grant such waiver. The City has continuously objected since July, 1975, to its attorneys openly opposing it in a court of law and when SS & D was finally forced to state that it was representing CEI in the proceedings before this Board, the City filed its Motion to Disqualify on November 21, 1975. The City believes that it has established through r.he aforementioned Argument II (1), (2), and (3), that; an attorney-client relationship exists between SS & D and the City of Cleveland, that adverse interests are in-volved in the proceedings before this Board, and that the City has never granted SS & D a waiver that would enable it to represent CEI before this
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' Board.
A conflict of interest on the part of SS & D has been presented to this Board and only through this Board will SS & D be forced to recognize its existance. SS & D should be removed as counsel for CEI. k
.- ~ .- .
r III. THE PRESENT PROCEEDING ESPECIALLY CALLS FOR DISQUALIFICATION BECAUSE OF THE GREAT DANGER OF PREJUDICE TO THE CITY DUE TO THE FACT THAT SS & D HAS SERVED AS SECURTIES COUNSEL TO THE
' CITY; THIS IS AN ANTITRUST PROCEEDING; MEMBERS OF SS & D HAVE SERVED AS OFFICERS AND DIRECTOPS
- 0F CEI; AND SS & D HAS ALREADY PRESSURED THE CITY BY THREATENING TO WITHDRAW AS BOND COUNSEL.
- 1. In its role as Securities Counselfor MELP SS & D has had access to all details of the City's operations.
The standard of care for securities attorneys is extremely high. S.E.C. v. Coffey, CCH., Fed. Sec. L. Rep., Sec. 94, 464 (6th Cir. 1974) 8.E.C. v. Charles A. Morris & Associates, Inc.,CCH Fed.Sec. L. Rep., Sec. 93,756 (1973) The law firm of SS & D has established a relationship with the City as bond counsel. Having held out its competence in this area, SS
* -6 D has accepted a duty, a standard, and a burden of responsibility that is higher than that of an attorney in the normal advisory role, although even in that role the attorney must accept a high duty often equated to that of Ib a trustee. Cord v. Smith, 338 F. 2d 516 (9th Cir. 1964): Bond counsci do it not function as advocates; they are more closely related to money managers.
On one hand, bond counsel are acutely aware of their responsibility to the public who might never have become involved in the purchase of bonds but for an opinion of bond counsel. On the other hand, as the attorney for the bond issuer, the bond counsel must have the complete confidence of his client so that he may have free access to every shred of information in order to competen-tly advise and represent his client, the issuer. There must be no possibility that counsel will be denied access to any informational detail no matter hew trivial, in order that the interest of the issuing party and the public are to be protected. I
I m The standard of care for the bond counsel has been held to be one of " knowing or should have known". In the matter of Jo M. Ferguson, S.E.C. Adm. Proc. File No. 3-4528 (S.E.C. disciplinary proceeding against an attorney). The Ferguson case represented the first S.E.C. action against a bond counsel for his failure to investigate and disclose material iaformation in an offering i statement. This S.E.C. disciplinary action grew out of efforts by The Senex
-- Corporation toward building a nursing home for Covington, Kentucky. Certain information reflecting adversely on the project was omitted from the offering statement and it was falsely reported that an underwriter and investment banker were extremely interested in the project. The misleading offering statement was distributed to potential investors and was used to secure an "A" rating for the bonds. Bonds were sold based upon the misicading statment and the "A"
- rating. S.E.C. v. The Senex Corp., CCH Fed. Sec. L. Rep., 94,735 (E.D. Ky.
1974). The Commission found that bond counsel had assumed the principal Icgal responsibility for reviewing the offering statement used in the offer and (( i sale and had willfully aided and abatted violations of Section 17 (a) of the 'r Securities Act and Section 10 (b) of the Securities Exchange' Act as well as Rule 10b-5. . The Commission also found that "because of his review of the prospectus (offering statement) his pre-existing relationship with the developer
- i. on the offerings of municipal bonds, and other factors that had come to his
! attention, (bond counsel) should have known. . . that the prospectus omitted
!~ material facts." The rationale adopted by the Commission logically applies to an injunctive or private damage action. 28 Vanderbilt Law Rev., 561 (1975) at 601. The same standard was applied in the Sixth Circuit to a financial I vice-president. S.E.C. v. Coffey,,et al, CCH Fed. Sec. L. Rep., Sec. 94,464
- (6th Cir. 1974).
Particularly significant in the area of the responsibilitics of
,. securities is the trend in the law as enunciated by A.A. Sommer, Jr., Chairman I of the Securities and Exchange Commission when he stated:
E - "But I do suggest that the role of the attorney, the conduct of the attorney, the competence of the attorney, the integrity of the attorney, and yes, , in the same measure, the independence of the attorney will be increasingly scrutinized. The Emergency Responsibilities of the Securities Lawyer, by A.A. Sommer Jr." Further, in the same speech:
"I would suggest that in securities matters (other than those uhere advocacy is clearly proper) the attorney will have to function in a manner more akin to that of the auditor than to that of the advocate. This means several things. It means he will have to exercise a measure of independence that is perhaps uncomfortable if he is also the close counselor of management in other natters, often including business decisions. It means he vill - have to be acutely cognizant of his responsibility to the public who engage in securities transactions j that would never have come about vere it not for L his professional presence. It means he will have to adopt the healthy skepticism towtrd the repre-j sentations of management which a good auditor must adopt. It means he will have to do the same that the auditor does when confronted with an intran-sigent client -- resign." Sommer, ld.
j (Emphasis ours). n Thus it is seen that the standard of care imposed upon a bond counsel L leaves no room for error, doubt or ignorance. He must have the total and [ absolute confidence of his client to avoid criticism and to succeed. Indeed,
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to protect himseif fror liability, he must demand it. i L
- m. _
To quote T.C. Theatre Corp. v. Warner Bros. Pictures,Inc. 113 F. Supp. 265 at 271 (S.D.N.Y.1953), the activities of SS & D for the City of Cleveland "was no mere mechanical job of paste, pot and shears". Whatever information .
- it sought, whatever documents it desired, were made available.
I Financing and operating plans of the MELP system were freely given to SS & D. The correspondence attached and marked Exhibit E and G are from SS & D to CEI and are an example of the apparent use that was made of the trust and confidence of MELP. It would appear SS & D used the management and financial information it gleaned from its representation of the. City for the benefit of CEI. While an argument may be offered to the effect that information given to SS & D was not confidential, or was merely a matter of public record, Marketti v. Fitzsimmons, 373 F. Supp. 637 IS.D.N.Y.1973) illustrates that if there has been an exposure to information, confidentiality was not a relevant issue. American Rollar Co. v. Budinrer, 513 F. 2d Cc2 (3rd Cir. 1975); T.C. Theatre v. Warner Bros Pictures, Inc., 113 F. Supp. 265 (S.D.N.Y.1953) . The City questions now what further abuses will take place when SS & D uses the City's trust as a weapon before this Board. I 2. In an anti-trust action the intent, motives, and opinions of the defendant are particularly important. Certain members of SS & D may be directly involved in their roles as officers and directors of CEI. In an anti-trust action, the intent, motive, sources and opinions of 4" *tae defendants become more important than in most other areas of litigation. Chugach Elec. Assn. v. U.S. Dist. Ct., 370 F. 2d 441 (9th Cir. 1966). The scope d of the hearing on this matter will be far reaching and it is probable that those who might'have assisted CEI in its attempt to destroy the light plant, even indirectly, will become involved.. The City contends that there are already L_ i l i l' ! L. J
F specific matters in ths case which are now identified as relevant issues. These matters, among which is Bond Ordinance No. 2104-72, which were handled by SS & D are some of the identical issues to be heard by this Board when the matter comes on for hearing. Substantial relationship is more than established here. One specific and identical matter at issue is SS & D's legal representa-tion in the matter of the City's bond issues for MELP, mentioned above. Until , recently SS & D was the draftsman, auditor, financial advisor and legal advisor on all of the Cleveland Department of Public Utilities bonds. The Division of Light and Power, MELP, the division of the Department most affected by the anti-trust activities of CEI, is the party most affected by this suit. SS & D as both counsel for the City and counsel for CEI rendered opinions to CEI on the specific matters mentioned above that had been revealed to them by the City. It is interesting that never once did SS & D reveal anything about CEI to the City. The City believed that SS & D would hold its trust involate only to have it appear now that its trust was abused. By its service to the CEI, SS &
> D acted to the detriment of its other client, the City of Cleveland.
[ Interestingly, in the present anti-trust review of the activitics of L CEI, being conducted by this Board at the request of the Department of Justice, .r- .I CEI has listed approximately 780 documents as privileged or work product and denied.the City access to them. A substantial number of these allegedly privileged
- documents are correspondence between SS & D and CEI. (Exhibit 10 These are not
.; open to investigation, but the existence of " privileged correspondence" alone L raises a substantial question as to what confidences of MELP may have been passed to CEI by SS & D. The above matters, are among those at issue in the instant case and are important to the City as the threads by which it will establish the fabric of an antitrust violation by the applicants. These injurious matters will be presented at the hearing and were the matters handled by SS & D, then and now. f In view of the extraordinarily broad access to all phases of the City's operations by SS & D because of its role as securities counsel to 4 the City going back over many years it is in a unique position to injure the f City and aid CEI in this litigation. At a time when the intent and motive of CEI are relevant issues [ I in this proceeding, SS & D will be in a position to conceal them to the detriuent of the City, if they are permitted to act as counsel in this case. Using the l. lawyer client privilege they will continue to deny access to pertinent documents. This has already occurred. This ic a quite extraordinary case in the extent to which SS & D has I been involved with both clients. The City would be gravely prejudiced in this above all cases if SS & D vere permitted to continue. The history of the relationship between SS & D and the City has been one involving confidence and trust on the part of the City. Realize the amazenent of the City when it recently learned that, Mr. John Lansdale of SS & D, writing to i Mr. Hauser, General Attorney of CEI, in 1966, concerning himself with MELP's indenture of mortgage and was rendering opinions as to the adequacy of MEL1'
.L rates te its customers.
L "I enclose herewith two copies of a memorandum reflecting the recent consideration which we j have given to the matter of the Municipal
- Electric Light Plant rates as I mentioned '[ to you the other day. I would appreciate it if you would pass along a copy of this to Karl Rudolph and Ralph Besse. Ralph called me about this general subject the other day and I took an earlier version of this with me to the Directors meeting and l ;L handed a copy to Karl who asked about it."
(See Exhibit E) . The City never received a copy of this memo although it certainly concerned a matter of great interest to the City.
- The informational detail supplied by Mr. Lansdale to CF.T was con :Id-ered by CEI to be ' favorable':
F
" Note the attached letter and memorandum of J.L. Lansdale. I trust that Ernst and Ernst were referred to him by you.
In any event, this memorandum is favorable and the best we can expect of SS & D." (See Exhibit F). This information was discussed at the highest levels: by the President of CEI and the Board of Directors of CEI. Two of the senior partners of SS & D, Mr. Ralph Besse anC Mr. John Lansdale, are members of the Board of Directors of CEI, and have placed themselves in a position of discussing the affairs 4 of one of their clients with other clients. It must raise some question . I about each accepting positions which would endanger the fiduciary position which attorneys hold regarding their clients. Canon 5 of Code of Professional Responsibility. The City has learned that in 1965, correspondence from SS & D to CEI convey the thought that SS & D had made the proposal to CEI that CEI s offer to the City an intere'onnection between MELP and CEI. Mr. James C. Davis, Mr. Henry Crawford, Mr. Ralph Gibbons and Mr. John Lansdale, o of SS & D i apparently promoted the interconnection. The interconnection was conditioned upon MELP entering into a price jL fixing scheme with CEI which would have deprived MELP of its advantageous lower rates to retail consumers (Exhibit G). Mr. Lansdale states:
~ ~
"...while we did not believe the City could agree to tie its rates to the Company's rates, we saw no resson why the Company could not make the con-tiaued maintenance of its interconnection con-d!.tional upon the maintenance of such n rate level."
ll "I see no reason to change any of the views ex-pressed in these documents, with the possible ex-ception of that relating to the maintenance of rates... The Federal Power Commission's jurisdic-
~
tion over sales at wholesale might cast doubt upon
- our ability to make such condition in an interchange
! effective." \ ll :-
r The document itself, which Mr. Lansdale referred to, mentions on page 4 that CEI should make it very clear that the interconnection was conditioned upon the price fixing concept being centinually maintained by the City. The last paragraph on page 6 of the document again mentions the City's obligations and financing and offers further help to CEI when figures involving City revenues from proposed rate increases became known. Thus, it would appear that in 1965 Mr. Lansdale and SS & D tuggested a course of action to CEI that would adversely affect the interests of the City of Clevelana when it was aware that the Federal Government could force CEI to enter into an interconnection not dependent upon price fixing. Ten years later the interconnection was accomplished but only through FPC action. For ten years the City of Cleveland asked to be treated fairly and tas denied even the good offices of its attorneys who were well aware of the need for the interconnection. For ten years the financial condition of UELP, which was understood by SS & D, deteriorated. In a letter of February 18, 1965, from Mr. Lansdale, SS & D atterney to Mr. Ralph Besse, then President of CEI, and now a partner of SS & D, while speaking of MELP rates and the prospect of a MELP-CEI interconnection, Mr. Lansdale speaks.of a letter he wrote at Mr. Howley's request for a document:
"tMr. Howley) could hand to persons outside the coepany if he wished." (See Exhibit G).
This illustrates the extensive dissemination of information that men in positions of importance can utilize to the advantage of their interests. The City is unable to discover further communications and opinions rendered by SS & D to CEI because CEI has claimed certain documents marked Exhibit H as privileged in the present hearing before the Board but a scan of the list indicates that the communications with SS & D are extensive and involve many l of their attorneys. 31_ l 2
- t.
- I .
7
},
I Concerning matters under close scrutiny by the Board in the instant action is the 1972 Cleveland mortgage revenue bond issue. In 1972, the i Division of Light and Power needed captisi dollars for plant expansion. To I raise the necessary capital, SS & D's Mr. John Brueckel was asked to draft a
$9.8 million mortgage revenue bond issue ordinance. This $9.8 million bond issue ordinance as originally drafted by Mr. Brueckel provided for the sale of the bonds in a manner generally accepted and outlined in the Ohio Uniform Bond Act Chapter 133. It was to provide that the first offer of sale should be made to the City Sinking Fund, then, if not sold, to the City Treasury-Investment Account, and if not accepted by either'public entity, such bonds were then to be offered for private sale.
As originally drafted and printed after its first reading at City
, Council, the proposed ordinance read:
Section 3. Sale of the Improvement Bonds. The Improvement Bonds shall first be offered for sale to the Sinking Fund Commission of this City and, if not taken by such Commission, shall be offered to the Treasury Investment Account of this City for purchase and, if not taken by either c such Commission or by such Account, shall be sold I at private sale by the Director of Finance at a "'~ rate or rates of interest not exceeding the lini-tation set forth in Section 2 hereof, such sale in any event to be made at not less than the par value of such Improvement Bonds together with accrued interest thereon, if any. The purchaser to whom the Improvement Bonds are awarded in the m matter aforesaid is referred to in this ordinance as the " Original Purchaser". The bond ordinance provider for the sale of registered bonds not coupon bonds. Coupon bonds earn a lower rate of interest to the bearer, but are preferred because of the owner's ability to freely transfer them. The issuer prefers coupon bonds because it is able to save interest costs as well as administrative costs.
o In addition, Mr. Brueckel chose to draft a second mortgage revenue bond ordinance, rather than a bond ordinance for general obligation bonds supported by revenue, when general obligation bonds usually carry a lower rate of interest. The bond ordinance, further, provided that should any lawsuit be filed against MELP, a receiver could be appointed.
- "The Mortgage shall contain the usual convenants and provisions as to foreclosure and sale and as to other remedies of the bondholders, and shall provide for the appointment of a receiver with powers custocary in general equity cases to operate the Utility and to apply the revenues thereof to the payment of the Bonds and interest thereon in accord-ance with this ordinance and the provisions of the Mortgage in the event of litigation involving the operation or administration of the Utility by the City or default of the terms and conditions of this ordinance or of the Mortgage of the Bonds".
~
The Board may question why the City permitted this ordinance to be drafted in such a fashion. The Board should ask why the City of Cleveland did not have the ordinance drafted more advantageously. The City of Cleveland can only respond that it placed in the firm of SS & D its complete and total trust when it came to the matter of municipal bonds. Having employed SS & D for 65 years in this area, the City had delegated the duty of proper bond ordinance drafting to that firm and relied upon the attorney-client relatio1-1 ship to protect the City's interests. At the time of that ordinance no one in the Law Department or Finance Department of the City had the knowledge and insight necessary to forsee the problems and financing involved in an issue of that magnitude. Sixty-five years of service to Cleveland resulted in a rubber stamp of approval on the work product of SS & D. A firm of known competence and skill would surely protect the interests of the City of Cleveland and upon that belief the City placed its trust. ,
-~
i . v f' Following its introduction, the ordinance, as drafted by SS & D, i was presented to the City Council Finance Committee. During the discussion at the Committee meeting, Mr. Hauser of applicant CEI, presented an amendment
, to the bond ordinance. (See Exhibit I). The CEI amendments dissected the contents of Sec. 3 of the bond ordinance so that the bonds could only be sold at public sale and not to be offered to the Sinking Fund or the Treasury Investment Account. The amendment presented by Mr. Hauser was substantially as follows:
Section 3. Sale of the Improvement Bonds. The improvement Bonds shall be sold on the open market by the Director of Finance fol-lowing the solicitations or proposals from any further financial institutions and from any underwriters interested in or likely to be interested in purchasing the same, other-vise the Improvement Bonds shall be be sold in such a manner as may be determined in a resolution subsequently enacted by this Council to implement further the provisians of this ordinance." At the City Council Committee meeting, SS & D was asked by the Law
' Director of the City of Cleveland to defend the original ordinance which was in conformity with the practice outlined in the Ohio Uniform Bond Act. Mr.
Brueckel of SS & D declined to defend his own work product and CEI's crippling amendment was adopted and th? 1 mended ordinance was approved by Council and published in the City Record of July 11, 1973. The CEI amendment had the effect of delaying the capital MELP required to support its operation. The bond ordinance never was sold to the public or at a negotiated sale. In 1975 it was partially sold to the Treasury Investment Account as was originally planned in 1972 prior to the - CEI amendment. It had taken three years to sell the first bond. I L
.T i
- 3. SS & D has already pressured the City by threatening to withdraw as bond counsel.
We have seen above that for many years the City has totally relied upon SS & D to prepare its notes and bonds. The City has no capacity to do such legal work itself, within its own Department of Law. No other law fire in Ohio has ever done any significant amount ofJbond work for the City. No other law firm in Cleveland has the total familiarity with the City's financial affairs that SS & D does, nor its familiarity with Ohio law con-cerning public finance, nor an adequate staff to take over the City's bond work on short notice. The need that the City has for SS & D's opinion in the present climate of municipal finance, after the problems of New York City, is critical to its daily operations. SS & D has virtual monopoly of such law business at present. Knowing full well how critical its financial opinions are to the City, SS & D by its letter from Chairman Jack C. White to the City Law Director on August 25, 1975 (Exhibit L) threatened to withdraw from all legal representation of the City, if the City continued to seek to disqualify it. It is intolerable that the City should be so pressured by its attorneys. The possibility is that pressure will exist throughout this pro-cceding so long as SS & D is not disqualified. It is an unrebuttable reason why SS & D must be disqualified. The foregoing suggests the various ways in which the City has al-ready been injured because SS & D was at one and the same time attorneys for the City and attorneys and officers and directors of competing CEI. To permit SS & D to continue to play a double role when the City and CEl are openly litigating in this forum would totally prejudice the rights of the City. That abuses have occurred in the past is no excuse for perpetuating them. I . j . IV. THE DISQUALIFICATION OF ONE MEMBER OF A LAW
. , FIRM R '"LTS IN THE D7.SQUALIFICATION OF ALL
,c MEMBERS _ THE LAW FIM.
All members of a partnership are disqualified from representation in a case in which one member has been so constrained. Grove v. Grove Valve and Regulator Co., 29 Cal. Rptr. 150 (Dist. Ct. Ap.1963); E.F. Hutton & Co. v. n [ Brown, 305 F. Supp. 371 (S.D. Tex. 1969); Consolidated Theatres v. Warner Bros.
- Circuit Management Corp., 216 F. 2d 920 (2d Cir. 1954); W.E. Bassett Co. v.
H.C. Cook Co., 201 F. Supp. 821 (D. Conn. 1961); American Can Co. v. Citrus
.j Feed Co., 436 F. 2d 1125 (5th Cir.1971); Silver Chrysler P1vmouth Inc. v.
Chrysler Motors Corp., 370 F. Supp. 581 (E.D.N.Y. 1973); Humble 011 & Refining Co. v. American Oil Co., 244 F. Supp. 909 (E.D. Mo.1963); Laskey Bros. v. Warner Bros. Pictures, Inc., 130 F. Supp. 514 (S.D.N.Y. 1955). Indeed, the Code of Professional Responsibility requires disqualifi-cation of an entire firm if one member is disqualified from representation under penalty of disciplinary ac. ion in DR 5-105: ,
"If a lawyer is required to decline employment or to withdraw from employment under a Disciplinary Rule, no partner, or associate or any other lavycr affiliated with him or his firm, may accept or continue such employment."
- t
];{ This rule applies whether the firm is composed of two or two hundred attorneys since any knowledge gained during the attorney-client relationship is imputed to other members of the firm regardless of their status as partners, associates or clerks because of the opportunity for anyone associated uith the attorney being privy to the client's communication. American Can Co. v. Citrus Feed Co., 436 F. 2d 1125 (5th Cir. 1971). In Consolidated Theatres, Inc. v. Warner Bros., Circuit Management Corp., 216 F. 2d 920 (2d Cir. 1954), the court disqualified an attorney ! from participation upon behalf of the plaintiff in "any guise or way" based i upon that attorney's prior position as a law clerk in a firm that was employed l l_ by the defendant. The court reasoned that even as a law clerk he would have had access to the defendant's files and "might well have been brought into con-F -tact with confidential information when performing services for the defendant". l
I Con-'lidat-d Thn tre', Inc. v. W,rn r Bro' Circuit Mananement Corn.. 216 F. 2d 920 (2d Cir. 1954). The vicarious disqualification is based upon the personal working re-lationships involved in the practice of law. Indeed, EC 4-2 of the Code states that "unless the client otherwise directs, a lawyer may disclose the affairs of his. clients to partners or aasociates of his firm." Just an examination of Exhibit E, indicating a " MEMO TO FILE" must raise s question as to the exact disposition of the 102:0. The City cannot know if SS & D keeps all its information concerning MELP in one master file that is open to everyone in the firm or in separate files: one marked for the City and one marked for CEI and open to only sp?cial attorneys. Whatever the case City information is kept on file at SS & D. That the City would even have to wonder about a file casts serious doubts on the confidence it has placed in its attorneys SS & D. An attorney holds a sacred trust. A client should never have cause for doubting the
, complete and undivided loyalty of his attorney or most certainly our system of law will deteriorate. Though just one attorney of SS & D would be found unable to participate in these hearings, the City contends thnt every other attorney f
.L
- in that firm would be vicariously disqualified. Vicarious disqualification is a shield for the attorney-client relationship. The City calls upon this Board to keep that relationship unsullied.
V. FAILURE TO DISQUALIFY COUNSEL IS A REVERSIBLE ERROR. In the case of United States v. Bishop, 90 F. 2d 65 (6th Cir. 1937), the court was f aced with the sole issue of whether, af ter two prior jury trials, the motion to disqualify counsel should have been granted and whether the District Court had commited a reversible error in that regard. Because the motion to disqualify was not granted when it should have been granted, the Sixth Circuit Court of Appeals held that reversible error was present.
~
United States v. Bishop, 90 F. 2d 65 (6th Cir.1937), was an appeal { to the Sixth Circuit Court of Appeals from a judgment against the United States in an action under a War Risk Insurance Policy. Counsel for the United States at e-I the first trial on the matter had become counsel for Bishop at a second trial. The motion of the appellant-United States to exclude counsel for appellee-Bishop, on the ground that Bishop's attorney had previously represented the appellant in the same case, was denied. The court held the denial of the motion to disqualify as prejudicial error. Counsel for Bishop argued that the record was a public one and that the presence of an error concerning the motion was not prejudica1. The court was firm that this serious issue could not be summarily dismissed and stated:
" Counsel for the Government in the trial necessarily was possessed of confidential information not appearing in the record. The interests of the parties were adverse. It is well settled that an attorney who has acted for one party cannot render professional services in the same matters to another party, and it makes no difference in this resoect whether the relationship itself has l terminated. for the obligation of s fidelity still continues." United States
- v. Bishop, 90 F. 2d 66 (6th Cir. 1937).
The Court went on to say that one seeking to use knowledge acquired from a first litigant for the benefit of the second in participating is such culpable conduct as would justif; disbarment and cited Thatcher v. United States, 212 F. 801 (C.C.A. 5th Cir. 1914). The Sixtl. Circuit Court of Appeals was mindful of the fact that while no fraudulent intent appeared, the pra'ctice gave Bishop an unfair advantage, and the ethical objections were insuperable:
"We' consider this error is vital that even - though no other error appeared, the judgment necessarily must be reversed." United Stater
- v. Bishop, 90 F. 2d 66 (6th Cir. 1937).
In reaching its decision the Bishop court stressed the insight and 'know ledge' gained by the attorney from one litiscnt being used on behalf of tne opposing litigant, thus anticipating the higher standard of Chugach Electric
- Assn. V. U.S. Dist. Ct., 370 F. 2d 441 (9th Cir. (1966), which required merely the use of insight and knowledge acquired from a former client possibly being L.
used to.the detriment of that former client, as ground for disqualifying an
i . attorney. The United States Court of Appeals for the District of Columbia in Hawlev v. Hawlev, 114 F. 2d 745 (Ct. App. D.C.1940) considered reversible error of a case involving a conflict of interest by an attorney but dismissed that issue without making a firm decision as to the merits of that errer because the conflict of interest question had never been raised at the trial level though the appellant had full knowledge of the fa.ct. It is therefore, the holding of the Sixth Circuit Court of Appeals, and the City submits, the D.C. Circuit Court of Appeals,that where a conflict of interest exists in litigation, reversible error will result if an attorney who ought to be disqualified is not disqualified. VI. AN ORDER DENYING DISQUALIFICATION IS IMMEDIATELY APPEALABLE. Should this Board deny the City's mation to disqualify SS & D from further participation in the present case, the City submits that it has the right to an immediate appeal from the denial of its motion, not only under 28 U.S.C.A. 1292(B), but under the collateral order doctrine of Cohen v. Beneficial Ind. Loan Corp., 337 U.S. 541 69 S. Ct. 1221 (1949) u and Rule 54(b) of the Federal Rules of Civil Procedure. The facts of this case will demand an early review of this Board's decision. Anti-trust actions tend to be protracted and if applicant CEI, is required to obtain new counsel, it should be at the earliest stage, not many years after hearings and subsequent appeals. Both intervenors and applicant will be put to considerable expense and it would be unfair to both, to require, as the price of justice, the probable multiplicity of appeals based upon not merely the original complaint, but also appeals on collateral issues. The appealability of a motion to disqualify counsel, long an unresolved question to the courts and attorneys, has been settled by a recent l
- ruling in Silver Chrysler Plymouth v. Chrysler Motors Corp., 496 F. 2d 800 ii .
(2d Cir. 1974). The court reviewed the history of legal quandrie.= encountered when claims of right separable and collateral to the cause of action were denied review until the final adjudication of the case. The Silver appeal was from the denial by the District Court of the defendant's motion to dis-qualify plaintiff's counsel because of prior work that the attorney had done for defendant's counsel, which had included litigation for defendant Chrysler, when the attorney was a law clerk. The court firmly overruled the prior holding of Marco v. Dulles, 268 F. 2d 192 (2d Cir. 1959); and Fleisher v. Phillips , 264 F. 2d 515 (1959), which had rejected the interlocutory appeal of a motion to disqualify. It is noted that the majority of circuits, and especially the Court of Appeals of the District of Columbia, are consistant in all-owing an interlocutory appeal from a motion to disqualify. United States v. Hanhieb 462 F. 2d 316 (4th Cir.1972); Yablonski v. United Mine Workers of America, 454 F. 2d 1036 (D.C. Cir. 1971) cert. denied, 92 S. Ct. 1609 (1972); Uniweld Products, Inc. v. Union Carbide Corp. , 385 F. 2d 992 (5th Cir.1967) cert denied 88 S. Ct. 853 (1968); Green v. The Singer Co., unreported No. 71-1835 (3d Cir. 1971); Chugach Electric Assn. v. U.S. Dist Ct., 370 F. 2d 441 (9th Cir. 1966); Fullmer v. Harper, 517 F. 2d 20 (10th Cir.1975) . In Silver Chrysler Plvmouth v. Chrysler Motors Corp., 496 F2d. 806
- (2nd Cir. 1974), the Court stated:
L,
'w "By holding such an order directly appealable, we eliminate the uncertainties (and the paper-work), attendant to resorting to Sec. 1292 (b) i %mne
-40
p.. and/or Sec. 1561. Since the ultimate objective is to bring before the appellate court an important question which, if unresolved, might well taint a trial, why should not the question be presented, before judgment and attorney time have bcen need-lessly expended." Silver Chrysler Fivmouth v. Chrysler Motors Corp., 496 F.2d at 806 (2nd Cir. 1974) The City, therefore, submits that it would have the right to appeal a denial of its Motion to Disqualify and Declare Counsel ineligible to further participate in these proceedings prior to the conclusion of the present cause of action. VII. A DISQUALIFICATION ORDER PROHIBITING A DISQUALIFIED ATTORNEY FROM AIDING, ADVISING OR CONSULTING NEW COUNSEL OR COUNSEL FOR THE OTHER DEFENDANTS IS PROPER. An order disqualifying an attorney and firm fron furthec participation in a matter involving' litigation should include language to the effect that the attorney will transfer his duties to new counsel and will competely disassociate himself from the proceedings. W.E. Bassett Co. v. H.C. Cook Co., 201 F. Supp. 821 (D. Conn. 1961); E.F. Hutten & Co.. Inc. v. Broun, 305 F. Supp. 371 (S.D. Tex. 1969): Consolidated Theaters, Inc. v. Warner Bros., Circuit Management Corp., 216 F. 2d 920 (2d Cir. 1954); Grove v. Grove Valve and Regulator Co., 29 Cal. Rptr. 150 (Dist. Ct. App. 1963). While the Code sets forth guidelines for the protection of a client's confidences and secrets and imposes upon the attorney duties and obligations aimed at the prevention of any prejudice to his client, (EC 4-4, EC 4-5, EC 2-31, EC 4-2, DR 5-107-B, DR 7-101-A-3 and B-2, and DR 7-102-A-8), it is for the court to outline the manner of disengagement when an attorney is disqualified from a case. '~ The City submits that the Board should guide the disqualified attorney by setting forth a procedure he is to follow which would' satisfy
~41-
t J both the letter and the spirit of the law. Taking into consideration both the complexity of the case'at bar and the prior representation by SS & D of applicant CEI, as well as the fact that presently four other applicants and their own counsel are involved, the City suggests that in the best interest of all parties, SS & D should be: disqualified from any further participation in the present action; be ordered to refrain from aiding, consulting or advising new counsel retained by CEI except to the extent reasonably necessary to transfer its duties in the present action to new counsel; and ordered to refrain from aiding, consulting or advising, in any way, counsel for the other applicants. I The same ethical considerations and case law requiring the disqualification of SS & D from the present case demand the above controls over its conduct while the case is pending. The City contends that when a I'
, law firm has represented clients with differing or adverse interests, great care must be exercised so that neither client is compromised. Providing the attorney with specific regulations will be an aid in protecting the firm from any liability. As Judge Ryan stated in Lasky Bros., v. Warner Bros.,
Pictures, Inc., 130 F. Supp. 514 (S.D.N.Y. 1955), at 843, "The principles to guide us in fixing the extent of professional obligations of the Bar are not to be looked for in the market place." In order to adhere to Canon 9 of the Code, that a lawyer should avoid even "the appearance of professional impropriety", the City suggests these controls are necessary, due to SS & D's unique position of receiving the confidences and trust of both CEI and the City, and because SS & D will
- find it exceedingly difficult to maintain the impartiality that disqualification demands. Duc of the size of the firm and the ongoing
. relationship with CEI, the presence of two SS & D attorneys on the Board l_ -
i
cf CEI, cnd tha inv 1vement of CEI with'ths ethnr applicents which might adversely affect the attorneys for the other applicants the Board should assist SS & D in insuring its total disassociation from the' case. The court in Hutton & Co., Inc. v. Brown, 305 F. Supp. 371 (S.D. Tex.1969), d,id not question the good faith of the ' disqualified attorney
.but ordered him to refrain from aiding, advising or consulting the new counsel that would have to-be retained. The court in Consolidated Theaters, Inc. v. Warner Bros., Circuit Management Corp., 216 F. 2d 920 (2d Cir. 1954), recognized the extent to which the disqualified attorney had gone to insulate his practice from prior association but nevertheless denied him " personally or any firm with which he may be associated (from) any participation in any euise or way,"
r at 928 ,(Emnhasis Ours). The court in W.E. Bassett Co. v. H.C. Cook Co., 201
, F. Supp. 821 (D. Conn.1961) did not question the integrity of the disqualified 'i attorney but held that " Attorney Cunningham is ordered to disappear as counsel for the plaintiff and to disassociate himself from the case", at 825. (Emphasis ours). In Grove v. Grove Valve and Regulator Co., 29 Cal. Rptr. 150 (Dist. Ct.
App. 1963) at 157 the court ordered the disqualified attorney and his firm to refrain from disclosing "any knowledge or information confidential and privileged
.. .concerning matters or transaction.-(that were) the subject of plaintiff's complaint."
CONCLUSION An att'orney-client relationship exists between Squire, Sanders
& Dempsey and the City of Cleveland.
The interests of the parties to this action are such that zealous representation by the aforementioned attorneys on behalf of the applicant CEI constitutes a direct conflict of interest that ccn only result in great and certain damage and prejudice to the interest of the people of the City of Cleveland and to the legal profession. - 4
The City has placed its trust in SS & D and now finds that SS & D has taken the incongrous position of openly opposing its client, and intends to use this trust to the disadvantage of the City. SS & D should not be permitted to pursue its present course of conduct. The City sincerely regrets it has been forced to make this motion but requests this Board to grant its Motion to Disqus*ify and Order Counsel from directly or indirectly advancing the cause of applicant CEI. Respectfully submitted, JAMES B. DAVIS Director of Law By:/ . i
'/ l' - .;."[
/l l 3 l{ '
ROBERT D. HART First Assistant Director of Law
, Room 213 - City Hall Law Department Cleveland, Ohio 44114
- t. (216) 694-2737
- Attorneys for Intervenor L
L. m L_- i l.
. s r
t i ' I I urJaj.CATE OF SEPMICE A copy of the foregoing Brief in Support of Motion to Disqtalify And Declare Cotusel Ineligible to Further Participate in These Proceedig,s vos hand-delivered this / day of Dece:nber,1975, to the following part.ies
-. listed on the attachnent hereto.
/ *
, - f;,/ ~;' '
'/. ,
ROBERT D. IUKf First Assistant, Director of I;rc Attachmcat w l.d k.
}
m L ' E, 0
The following were hand delivered: John Lansdale, Jr., Esq. 1 1 Cox, Langford & Brown 21 Dupont Circle, N.W. Washington, D.C. 20036 Donald H. Hauser, Esq.
, Corporate Solicitor 'l The Cleveland Electric Illucir sting Co.
Post Office Box 5000 Cleveland, Ohio 44101 Atomic Safety & Licensing Board Panel ~ Nuclear Regulatory Commission
- Washington, D.C. 20555
' L' Gerald Charnoff, Esq.
Wm. Bradford Reynolds, Esq. Shaw, Pittman,' Fatts & Trowbridge 910 Seventeenth Street, N.W. Washington, D.C. 20006 Mr. Chase R.Stephens Docketing and Service Section -{ t U.S. Nuclear Regulatory Commission 1717 H Street, N.W. Washington, D.C. 20555 20 copies Douglas V. Rigler, Esq. Chairman ~I Atomic Sefety & Licensing Board Panel Foley, Lardner, Hollabaugh and Jacobs 815 Connecticut Avenue, N.W. Washington, D.C. 20006 Michael R. Gallagher
- 630 Bulkley Bldg.
1 4 Cleveland, Ohio 44115 Ivan W. Smith, Esq. j John M. Frysiak, Esq. Atomic Safety & Licensing Board Panel U.S. Nuclear Regulatory Commission
- i Washingten, D.C. 20555 w
.,, w ' '
i The following were mailed by Regular U. S. Mail: DE01 1975 ".f' e- - g ww--.g @7. ,gg L
. Thomas 'J. Munsch, Jr. , Esk. David McNeill Olds, Esq.
General Attornr", . John McN. Cramer, Esq.
. Duquesne Light Company William S. Lerach, Esq.
435' Sixth Avenue Reed, Smith, Shaw & McClay
. Pittsburgh, Pennsylvania 15219 Post Office Box 2009 Pittsburgh, Pennsylvania 15230
- l .
Joseph Rieser, Esq. John C. Engle, President Reed, Smith, Shaw & McClay AMP-0, Inc. Suite !440 Municipal Building 1155 Fif teenth Street, N.U. 20 liigh Street Washington,.D.r. O005 llamilton, Ohio 45012 ,) 5 -r Terrcqce 11. Benbow, Esq. Jon T. Brown, Esq. Uinthrop, Stimson, Putnam & Roberts Duncan, Brown, Ucinberg 5 Palmer 40 Hall Street L. rite 777 New York, New York 10005 1.T,0 Pennsylvania Avenue, N.U. Uar.hington, D.C. 20006 w Wallace L. Duncan, Esq. . Victor F. Greenslade, Jr., Esq. Jon T. Brown, Esq. Principal Staff Counsel Duncan, Brown, Ucinberg & Palmer The C]cveland Electric Illuminating Ccmp 1700 Pennsylvania Avenue, N.U. Post Office Box 5000 Hashington, D.C. 20006 Clevel.and, Ohio 44101
~
Robert P. Mone, Esq. Lcc A. Rau, Esq. s George, Greek, King, McMahon & Joseph A. Rieser, Jr. ,1:sq. L McConnaughey Reed, Smith, Shaw & McC3ay
- Columbus Center Suite 404 100 East Broad Street Madison Building
- 1 L . Columbus, Ohio 43215 Washi.ngton, D.C. 20C0.5 y Leslic llenry, Esq.
. ~ Reuben Goldberg, Esq. Michael M. Br11cy, Esq.
. David C. Iljelnfelt, Esq. Roger P. X1ce, Esq.
1700 Pennsylvania Avenue, N.U. Fuller, llenry,11odge & Snyder Suite 550 300 Madison Avenue Washington, D.C. 20006 Toledo, Ohio 43604 Pennsylvania Power Company 1 East Uashingt.on Strcct New Cantic, Pec.nsylvania 16103 L
[ Alan S. Rosenthal, Chairman Richard S. Salzman, Chairman s Atomic Safety and Licensing Appeals Board Atomic Safety and Licensing Appeals
. U.S. Nuclear Regulatory Commission U.S. Nuc,1 car Regulatory Commission 0 Washington, D.C. 20555
- Washington, D.C. 20555 i- e
- Dr. John H. Buck Michael C. Farrar Dr. Lawren'ec K. Quarles Dr. W. Reed Johnson Atomic Safety and Licensing Appeals Board Atomic Safety and. Licensing Appeals U.S. Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission
; Washington, D.C. 20555 Uashington, D.C. 20555' I
P 11oward K. Shapar, Esq. Andrew F. Popper, Esq. Esecutive Legal Director Office of the Executive Legal Direct i U.S. Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Washington, D.C. 20555 [ i I Benjamin 11. Vogler, Esq. lir. Frank W. Earas, Chief - Public Proceedings Branch Joseph Rutherg, Esq.
.l Office of the Occretary Robert J. Verdisco, Esq.
g U.S. . Nuclear Regulatory Commission Roy P. Lessy, Jr., Esq. Washington, D.C. 20555 Office of the Genera] Counse] Regalation U.S. Nuclear Regalatory Conaission Washington, D.C. 20555 , b' '. Abraham Braitman, Esq. Mcivin C. Ecrger, Esq. Office of Antitrust and Indemnity Joseph J. Saunders, Esq. I U.S. Nuclear Regulatory Commission - Steven H. Charno, Esq. L Washington, D.C. 20555 David A. Lechic, Esq.
. Janet R. Urban, Paq.
I John R. White, Esq. Ruth Greenspan E - L1, Esq. L Thomas A. Kayuha, Esq. j Antitrust Division Ohio Edison Company ) Department of Justice j 47 North Main Street ) Post Office Box 7513 L Akron, Ohio 44308 -
- Washington, D.C. 20044 Frank R. Clokey, Esq.
- f . Karen II. Adhins, Esq.
L . Special Assistant Attorney General Richard M. Firestone, Esq. Towne llouse Apartments, Room 219 Assistant Attorneys , General Harrisburg, Pennsylvania 17105 Antitrust Section 30 East Broad Street, 15th Floor Columbus, Ohio 43215 Edward A. Ifatto, Esq. Christopher R. Schraff, Esq. Assistant Attorney General - Assistant Atrorney General , Chief, Antitrust Section Environmental Law Section 30 East Broad Strcot, 15th Floor 361 East Broad Street, 8th Floor ' g' Columbus, Ohio 43215 Columbus, Ohio 43215 k}}