ML19329A873
| ML19329A873 | |
| Person / Time | |
|---|---|
| Site: | Davis Besse, Perry  |
| Issue date: | 04/21/1976 |
| From: | Jennifer Davis, Fieldman A, Goldberg R CLEVELAND, OH, GOLDBERG, FIELDMAN & LETHAM, P.C. |
| To: | |
| References | |
| NUDOCS 8001150766 | |
| Download: ML19329A873 (82) | |
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i UNITED STATES OF AMERICA ;
NUCLEAR REGULATORY COMMISSION 4
, ATOMIC SAFETY AND LICENSING APPEAL BOARD g;,f-y Alan S. Rosenthal, Chairman h F .2. 2 1 'G7 8 > b.,.'
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Michael C. Farrar -
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Richard S. Salzman
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! In the Matter of
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THE TOLEDO EDISON COMP /WY and : Docket Nos. 50-346A.-
THE CLEVELAND ELECTRIC ILLUA11NATING 50-50'dA p COMPANY : 50-50]A s (Davis-Besse Nuclear Power Station :
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[ Units 1, 2 and 3) :
Tile CLEVELAND ELECTRIC ILLUMINATING : Docket Nos. 50-440A g COMPANY, ET AL ,
- 50-441A (Perry Nuclear Power Plant, :
Units 1 and 2) :
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. BRIEF IN SUPPORT OF ORDER OF- ;
LICENSING BOARD SUSPENDING SSLD
, PROM FURTHER PARTICIPATING IN THESE PROCEEDINGS
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( JAMES B. DAVIS Director of Law ROBERT D. HART
+; First Assistant, Director of Law
-l j 213 City Hall - Cleveland, Ohio 44114 216-694-2681 T
) REUBEN GOLDBERG
] ARNOLD FIELDMAN DAVID C. HJELMFELT Attorneys at La v
- ! 1700 Pennsylvania Avenue, N.W. ,
i Washington , D .C. 20006 1 202-659-2333 l 3 Attorneys for City of Cleveland.
- ! 8001150 gg
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TABLE OF CONTENTS l
Page TABLE OF C0NTENTS........................................ i -
t TABLE OF AUTHORITIES..................................... 11 ARGUMENT................................................. :
I. THE NUCLEAR REGULATORY C0101ISSION HAS FULL POWER .
TO DISQUALIFY AN ATTORNEY FROM ONE OF ITS PRO-CEEDINGS ON Tile AUTIIORITY OF N.R.C. RULE 2.713, .
, FEDERAL CASE LAW, AND THE CODE OF PROFESSIONAL ,
RESPONSIBILITY................................. 1 II. IT IS FUNDAMENTAL TO LEGAL ETHICS rHAT SSLD 'AY t, NOT SIMULTAMEOUSLY REPRESENT TWO CLIFNTS, Tii" :
k CITY AND CEI, WHO HAVE DIFFERING INTERESTS, WITH- , i OUT FULL DISCLOSURE AND CONSENT, AND SHOULD NEVER 5 l HAVE ATTEMPTED TO REPRESENT CEI AGAINST ITS OTHER
( CLIENT, THE CITY, IN LITIGATION BEFORE THE N.R.C. .... 7 t {
i A. To Disqualify A Law Firm Representing Multiple !
[ Clients, It Is Necessary For The Movant To !
Demonstrate Only, 1) An Established Attornev-
, Client Relationship E::ists. 2) That Adverse Interests Are Involved. 3) That The Movant Did Not Grant To This Counsel A Waiver Allow-
- . ing The Present Dual Representation, And 4) {
- A Substantial Relationship Between The Prior g Representation And The Present Proceeding ...... 13 J
) B. Case Law Does Not Require A Disclosure Of
[ Confidence As A Basis For Disqualification .
.i As SS&D Tries To Maintain................. 17 1
III. THE FACT THAT DANIEL J. O'LAUGHLIN, NOW A SS&D '
, PARTNER, WAS CHIEF COUNSEL OF THE CITY LAW DEPARTMENT COVERING A PERIOD OF YEARS AT ISSUE i IN TllESE N.R.C. PROCEEDINGS, IS BY ITSELF SUFFI- i CIENT GROUND FOR DISQUALIFYING SS&D............ 28 .
, , IV. AFFIDAVITS, ADMISSIONS IN BRIEFS AND UNDISPUTED I FACTS ALL DEMONSTRATE THAT SS6D IS GUILTY OF l SECRETLY CAUSING NOT POTENTIAL BUT ACTUAL l E
PREJUDICE TO Tile CITY'S INTERESTS BY ADVISING l
CEI FOR MANY YEARS ON MATTERS SUBSTANTIALLY '
g RELATED TO THIS N.R.C. ANTITRUST REVIEW........ 31 ;
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Page V. SS&D'S TOTAL FAILURE TO M/d1 FULL DISCLOSURE 0F ITS ACTUAL CONFLICTS OF INTEREST TO THE CITY MEANS THAT THE CITY UAS NEVER IN A .
POSITION TO Midi AN INTELLIGENT WAIVER OF ITS RIGHTS AND NEVER DID S0.................... 40 VI. SS&D IS ESTOPPED EY ITS O'JN MISLEADING REPRESEN- l TATIONS TO THE CITY FROM CLAIMING THE CITY NNEW OF SS&D'S CONFLICT OF INTEREST............ 47 -
I VII. IN VIEW OF SS&D'S TOTAL FAILUPI TC DISCLOSE ITS CONFLICT OF INTEREST AND ITS MISLEADING REPRESENTATIONS, THE FACT THAT THEY UERE l
! RETAINED BY THE CITY'S L/MiERS HAS NO BEARING l
!, ON THE APPLICATION OF THE CAR'ONS OF THIS 4
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PROCEEDING.....................................
VIII. QUESTIONS OF THE APPEAL BOAPJ) AND LICENSING E0ARD.......................................... 52 .
1 IX. IF ANY PARTY HAS BEEN DEPRIVED OF PROCEDURAL DUE PROCESS EEFORE THE NIL, IT IS THE CITY AND NOT SS&D................................... 56 ,
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.' CONCLUSION............................................... l CERTIFICATE OF SERVICE................................... 63 l
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i TABLE OF AUT110RITIES Page CASES Acorn Printing Co. v. Brown 385 S.W. 2d 912 (C.A.Mo. 1964)...................... 17 Barker v. Winco '
4 0 7 U . S . 5 0 4 ( 19 7 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Cannon v. -U. S. Acoustics Corp.
398 F.Supp. (N.D.Ill. E.D. 1975).................... 22 f
Chunach Electric Association v. U. S. District Court 370 F. 2d 441 (9th Cir. 1966)....................... 29 Consolidated Theaters, Inc. v. Warner Bros. Circuit Manager.ent Corp.
216 F. 2d 920 (2d Cir. 1954)........................ 8, 13, 16 Cord v. Smith 338 F. 2d 516 (9th Cir. 1954)....................... 4 .
E. F. Hutton & Co. v. Brown ,
305 F.Supp. 371 (S.D. Tex. 1969)..................... 5 i Emile Industries Inc. v. Patentex, Inc.
478 F. 2d 562 (2d Cir. 1973)........................ 22 Estates Theatres, Inc. v. Columbia Pictures, Inc.
345 F.Supp. 93 (S.D.N.Y. 1972)...................... 13 Gottwals v. Rencher, et al.
98 P. 2d (S.Ct. Nev. 1940).......................... 18 Harry Rich Corp. v. Curtis-Wright Corp.
233 F.Supp. 252 (D.C.N.Y. 1964)..................... 20 Hilo Metals'Co., Ltd. v. Learner Co.
258 F. Supp. 23, 28 (D.C. Haw. 1966)................. 54 l t
, Laskey Bros. v. Warner Bros. Pictures Inc. !
130 F.Supp. 514 (S.D.N.Y. 1955) , af f ' d 224 F. 2d 824 I
, (2d Cir.), cert. don'd. 350 U.S. 932)............... 13, 55 Louisiana Power & Light Co.
ALAB-121, RAI-73-5, p. 319.......................... 2 Marketti v. Fitzsimmons 373 F.Supp. 637 (W.D.Wis. 1974)..................... 6, 22 Mildner v. Culotta 405 F.Supp. 182, 195 (E. D.N.Y. 1975) . . . . . . . . . . . . . . . . 57,58 11 * !
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l TABLE OF AUTHORITIES, Continued Par,c Northern In_diano Public Service Conpany '
ALAB-204, RAI-74-5, p. 835.......................... 2 Schware v. Bd. of Bar D:aniners 353 U.S. 2 3 2 , 2 4 7 ( 19 5 7 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Schwebel v. Orrich 153 F.Supp. 701 (D.C.D.Ct. 1957).................... 3 Shelly v. The Maccabees j 184 F.Supp. 7 9 7 ( E . D . N . Y . 19 6 0) . . . . . . . . . . . . . . . . . . . . . 19 Silver Chrysler Plymouth Inc. v. Chrysler Motors Corp., Inc.
518 F. 2d 751 (2d Cir. 3975)................ ....... 21 T. C. Theatres Corp. v. Wa rner Bros. Pictures Inc.
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113 F.Supp. 265 (S.D.N.Y. 1953)......... . 13 Universal Athletic Sales Co. v. American Gve. Recreational and Equipment Corpo ra t ion. Inc. ,
. 357 F.Supp. 905 (\:.D.Pa. 1973)...................... 17 Upper Columbia River Towing Co. v. Maryland Casualty Co.
313 F. 2d 702, 706 (9th Cir. 1963).................. 14 OTHER Code of Federal Regulations $2.718....................... 53
' Code of Professional Responsibility D R5 - 1 01 ( A ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 31, 40 D R5 - 10 5 ( A ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 31, 40 D R5 - 10 5 ( D ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Nuclear Regulatory Commission Rule 2. 713. . . . . . . . . . . . . . . . . 1
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i FACTUAL DACK(.ROUND ,
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i Basic Description of CEI and the City of Cleveland Electric System (MELP)
The Cleveland Electic Illuminating Co. (CE1) is a privately-owned electric utility offering electric service to approximately 1,700 i
y square miles of Northern Ohio. There are only two other electric generating V
! operations in this service arca; one operated by the City of Cleveland (MELP),
" and the other by the City of Painesville. CEI is inter-connected with five i privately-owned power companics contiguous to its service area in a power co-
! . ordination group known as CAPCO, and is able to supply and rcccive electric 1
power from sources located between the East Coast and the Rocky Mountains.
CEI supplies retail electric power to 89 municipalities, including most of
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! ,the City of Cleveland. In 1975, CEI's electric operating revenues were in i
J i excess of $500,000,000.00. Its total Kilowatt hour sales for 1975 were 18,133,800,000. Its peak load was over 3600 M.W.
a in contract to this large, fully integrated and inter-connected investor-owned electric utility system, the City has a small, publicly-owned, I isolated system, The Cleveland Municipal Elcetric Light Plant (MELP), which generates its own power, except for emergency purchases from CEI. HELP com-potes with CEI for cicctric customers and supplies about 19% of Cleveland's electric market. In 1975 MELP's electric operating revenues were about
$20,500,000.00 KWH. which was about 3.5% of CEI's sales for that year. MELP's j
} peak load in 1975 was approximately 119 FM, or about 3% of CEI's load. .
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. CEI and FELP engage in direct competition for retail trade to s degree seldom encountered in the public utility industry. Both operate l 1
parallel distribution networks throughout the City of Cleveland and engage 1
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in street-by-strcot and house-by-house competition for customers. It is not l l unusual to find within the same block one building served by CEI and c neigh- l l
boring building served by MELP.
~be Frincinal Issues Of This !!RC Proceeding Acainst Which SS & D's Conduct Is To Be 1:nderstood. Deal Uith CEI's and CAPCO's Economic Prescures To Eliminate Mi:1.P.
l The background of issues in this NRC procccding against which the actions of SS 6 D are to be understood needs to be briefly recalled.
The tELP electric system is a small island within the City of Cleveland, completely surrounded by the system of CEI. It is an issue in this proceeding that for years, CEI hcs sought to climinate by purchase or otherwise the competitive system of 1ELP. The various means that CEI has utilized for years to eliminate IELP alto form issues in this proceeding.
These include the following: (1) CEI has sought to maintain its monopoly in the retail, wholesale and regional power exchange markets by denying MELP any membership in CAPC0; (2) CEI has consistently refused to sell its power at wholesale to MILP; (3) CEI has refused to wheel power from outside sources 4
across its lines to MELP: (4) CEI has consistently attempted to cause MELP to fix prices by raising its rates to those of CEI, thereby destroying one ,
of the few competitive advantages FELP possessed; (5) CEI for years sought to deny 1ELP reliability of service by denying it a synchronous interconnection except upon conditions it knew MELP could not accept; lack of reliability j on the part of MELP would drive MELP's customers into the arms of CEI; (6) ,
.CEI has sought, through a variety of means, to increase financial burdens -
upon MELP, such as by forcing it to accept greater costs for street light-i ing in C1cveland and pass these costs on to its residential customers; (7)
CEI and the other CAPCO defendants have sought to deny MELP the benefits of coordinated operation and development of their plants by refusing it member-ship in CAPC0; (o) CEI has sought to exclude FELP from participation in the
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i very nuclear generating units being licensed in this NRC proceeding, except upon terms it knew MELP could not accept. In addition to the foregoing, there are other issues involving (9) the City's ability to finance its electric system; (10) the reliability of MELP as a factor precluding its membership in CAPCO: (11) the City's financial ability te pay for inter-connection agreements of transmission facilities. This list is by no means all-inclusive. l Basic Nature of-SS&D's Renresentation of CEI SS&D has represented Defendant CEI nearly since its incorporation, or over sixty years. CEI has its own internal 1ccal staff and hires other law firms from time to time, but SS&D has been the principal outside law i
firm representing CEI for some years. SS&D has been paid more in legal .
1 fees by CEI than any other law firm in recent yeara, according to reports filed by CEI with the Federal Power Commission (Exhibit C)*. CEI is one of the major corporate clients of SS&D. The ties between CEI and SS&D extend I
beyond the purely legal. After serving for years as a Partner of SS&D, Mr. Ralph Besse became President and later Chairman of the Board of CEI.
Following his retirement from management at CEI, Mr. Besse returned to SS&D, where he is once again a partner. Mr. Besse and Mr. John Lansdale, another i
Partner of SS&D, currently serve as Directors of CEI, for which they re-ccived $7,100.00 and $6,00.00, respectively, in 1974 (Exhibit D) . In 1974, SS&D received $449,000.00 in legal fees from CEI (Exhibit C) . From 1966 ;
through 1974, annual CEI fees to SS&D have been as follows:
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- References are to Exhibits found in the City's Brief in Support of Motion to Disqualify of December 1, 1975 unless otherwise indicated. "
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t 1966 $ 99,434
- i 1967 68,514 1968 129,885 1969 101,757 1970 148,750 '
1971 234,488 1972 189,769 1973 516,112 1974 449,000 Total $ 1,927,729 Annual Average $ 215,303 ,
B asic Unture of SS&D's Representation of the City SS&D represented the City of Cleveland for some sixty-five contin-
- uous years until December, 1975, acting as counsel to the City in connection E
with general litigation, municipal finance and a variety of other matters.
- In December of 1975, the City discharged SS&D as Bond counsel when the full
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dimensions of the SS&D conflict of interest became known through discovery in this NBC proceeding. Prior to that time, numerous SS&D lawyers worked on many phases of City legal matters dealing with issues in these proceedings.
) , The 22-page summary of invoices (Exhibit A to City's Brief of t
December 1, 1975) indicates the subject matters and areas of law handled by SS&D on behalf of the City just since 1960. SS&D received $147,000.00 from the City in 1974, and was paid $107,000.00 for the first half of 1975 (See Exhibit B to City's Brief of December 1, 1975).
Many of the invoices reflect SS&D s efforts as bond counsel and its advice to the City relative to tht i
raising of capital for the Municipal Electric Light and Power Plant (MELP),
,in particular, a 1963 }ELP Mortgage Revenue Bond Issue Street Lighting Bonds in 1966 and $6 Million of Electric Light and Power Bonds in 1968. The 1972 MELP Mortgage Revenue Bond Issue is discussed in more detail later. !
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- Annual Report of CEI to FPC Form 1y1966-74_
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, i l Fron 1966 through 1974, the annual fees paid by the City to S S&D were as follows:
Year Amount i 1966 $ 16,323 1967 31,613 ,
! 1968 40,798
- 1959 33,896 1970 45,831 ,
1971 75,447 1972 35,007 1973 23,348 .
1974 147,000 3 Total $ 449,263 Annual Average $ 49,918 l 1 i
S S&D's I: ole as Bond Counsel to the City a FS&D is the largest law firm in the State of Ohio, with approxi-
,mately 180 lawyers in 1975. It has one of ti.e largest sections cpecializing in public law and public finance of any major law firm in the United States.
i 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 I
amount of public bond legal work. Neither has ever worked for the City.
Cleveland has four other firms with in excess of 80 lawyers cach and a num-ber of other firms of substantial size, but none has ever attempted any sig-4 .
nificant amount of bond work in the public sector. The opinion of SS&D is widely accepted by financial institutions in Ohio and elsewhere as authori-t tative for the sale of public notes and bonds.
l The City of Cleveland, in order to conduct its business and sur-vive financially, must each year issue millions of dollars of notes and bonds.
Over the last.several decades, virtually all of such notes and bonds were ,
i cither prepared by SS&D or, in any event, sold because of its opinion let-ters. No other law firm in Ohio or elsewhere has the great and detailed familiarity with the City's affairs, the icgal skills in dealing with Ohio ',
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. j municipal law, and the staff necessary to prepare the City's bonds and notes t
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and give the necessary opinions for their sale as does SS&D. l 4
l i The City Law Department, with a constant problem of low pay and heavy turnover, never managed to develop lawyers with the skills necessary i
to handle its own bond work. ,
I Until events arising out of these proceedings forced the recent ;
break -.th'SS&D, the City was unwilling to contemplate the added expense and serious inconvenience involved in dealing with a firm outside Cleveland.
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More recently, it was very reluctant to risk such a major change immediately following the financial crisis in New York when expertise in municipal finance became all the more critical to it.
SS&D's 65 Years of Representation of the City Give It a Comprehensive
- ' Knowledce of ?ELP and All It s Financini Af f airs. ,!
Lecause of its great size, the long years it represented the City in virtually all aspects of its finances, the numbers of SS&D lawyers I
invo'lved, the continuity of its staff and its detailed files, SS&D has a comprehensive knowledge of MELP and all its financial affairs that one who had not represented the City legally could never have. SS&D acquired detailed knowledge of FELP finances in preparing MELP hond issues in 1963; street lighting issues in 1966; a Municipal Electric Light System Bond Issue I-in 1968, and a MELP Revenue Bond Issue in 1972.
SS&D's Representation of the City Cave It Access to Many Matters .
Of a Confidential Nature Not Availabic Elsewhere I In its long representation of the City, SS&D had direct access to vir-tually all major officials of various administrations. It had access to the
- City Director of Public Utilit! -
who was in charge of MELP. It had access i
j to the Finance Director and others. MELP's marketing strategics, its finan-cial condition, the state of repair of its equipment, its priorities in re-i f
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t pair and renovation and other details were open to SS&D. Many of these matters were never published and were not availabic elsewhere. Examples of such disclosures to SS&D lawyers appear in depositions recently taken of Daniel J. O'Laughlin and John Brueckel in the antitrust case City of Cleveland vs. CEI, et al, Case No. C75-560 U.S. D.C. N.D. Ohio E.D. Excerpts are reproduced and discussed in Section II B 2 beginning at page 24.
1 Daniel J. O'Lauchlin, Now An SSED Partner, Uas Chief Counsel of The City Lau liepartnent Coverinn a Period of Years at J Issue in This Proceeding.
Daniel J. O'Laughlin, now a Partner at SSLD, was for some 14 years, a member of the City of Cleveland Law Department. During four (4) of those years, from 1964 to 1968, he was Chief Counsel of the Civil Branch of the City Law Department and, as such, had general supervision of a staff of some 30 lawyers and of all civil legal affairs of the City. (0'Laughlin Deposition, pages 12-14.) This meant that all legal affairs of the City's MELP came under his direct supervision. As such, he had direct access to all the legal affairs of MELP during the period he was Chief Counsel, namely 1964-1968, until Mr. O'Laughlin left the City to join SS&D in 1968. His immediate supervisor was Cleveland Law Director, Bronis Klementowicz, who had for some years prior been Director of Public Utilities of Clevelan,d. Since leaving the City, Mr. O'Laughlin has been a member of the Public Law Section of SS&D and has frequently been consulted on financial matters of the City of Cleveland.
(0'Laughlin Deposition, pages 48-49.) l SS&D Totally Failed to Disclose To The City Over the Years l The Real Nature of Its Conflict of Interest in Representine CEI Never, to the date of this brief, has SS&D come forward to make any full disclosure to City representatives'of the real nature of its con-flict of interest in attempting to represent CEl in these proceedings. SS&D says the City " knew" about controversies between CEI and MELP. Certainly, CEI'and MELP have been in economic c,ompetition for many years, and this was___
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,. 1 known to City officials. And, City officials may be presumed to have known that SS&D represented CEI for many years in its personal injury defense ,
4 work, in certain rate cases, and in a general way with CEI's business con-cerns. City officials also knew of proceedings before the FPC and the NRC.
Ilowever, for years, CEI's in-house Icgal staff appeared in various forums where IELP and CEI were in conflicq. A Washington law firm, Ried & Priest, represented CEI before the Federal Pouer Commission. And, initially in these NRC proceedings, CEI was visibly represented, as part of i
i CAPCO, only by Shaw Pittman Potts & Trowbridge.
(A) SS&D Can Produce No Document Showing Disclosure .
Although the issue of disqualification has been intensively .
litigated before the NRC since November, 1975, SS&D is, as yet, unable to produce a singic document arising out of their 65 years of representing the City in which they disclosed the nature of their representation of CEI to a f
City representative. There is no such document. SS&D has never made an ex-plicit disclosure to the City.
(B) At_No Time Did An SS&D Lavver Make a Verbal Full Disclosure To A City _. Representative of Their Conflict of Interest.
Hover once in the 65 years of representation of the City did an SSLD Inwyer explain to a City representative those financial, business and ,
other interests it had in CEI or their impact upon SS&D's representation of the City. Several SS&D Partners have recently admitted as much upon deposi-tion. Excerpts from these depositions are reproduced below. SS&D, in its briefs, now claims the City should have known tha't it was " reluctant" to re-i present the City. Ot that the City was hiring SS&D through its Law Director, who was dealing at " arms length." None of this remotely approaches that dis-closure which the Code of Professional ~ Responsibility and its predecessor, the Canons, call for. SS&D never made a meaningful disclosure. They can cite no ,
singic instance where they did.
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l SS&D Proclaimed To The City That Thev Had Not Acted I
Adversely 'ta The City's Interests Uhi]e Representinn CEI.
Consistent with its position as a leading firm in Ohio, SS&D always reacted strongly to any suggestion that it was guilty of unethical conduct.
On September 16, 1974, a City attorney charged SS&D in these NRC proceedings, with acting adversely to the interests of the City. S3&D i
Partner John Lansdale reacted strongly with a written statement in which he denied that CEI had acted adversely to the City's interests. This written statement is further discussed and reproduced in full below in Section VI.
Recent1v SS&D Has Adnitted Its Conflict of Interest Position ,
In Briefs and Depositions. ,
L Beginning with its Answer Brief of John Lansdale, Jr. of December 12, 1975, SS&D has altered its long standing position that it had not acted ad-versely to the City. In subsequent briefs and recent depositions of SS&D partners SS&D has proclaimed that there was a conflict of interest all along I
in its simultaneous representation of CEl and the City's MELP and that the City should have known of this. Specific examples of such admissions are i
cited and discussed in Section IV beginning at page 36 and Section V at pages 45-46. i l
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. 10 TIIE NUCLEAR REGULATORY COMMISSION IIAS FULL ,
- POWER TO DISQUALIFY AN ATTORNEY FROM ONE OF i ITS PROCEEDINGS ON Tile AUTIIORITY OF N.R.C. RULE
'2.713, FEDERAL CASE LAW, AND TIIE CODE OF PRO-FESSIONAL RESPONSIBILITY.
l The Nuclear Regulatory Commission functions through its Rules of Practice. Rule 2.713 pertains to practice before the Commission. i 2.713 Appearance and Practice before the Commission in Adjudicatory Proceedings .
(a) Representation . A person may appear in adjudi-cation on his own behalf or by an attorney-at-law in good standing admitted to practice before any court of the United States, the District of Columbia, or the highest court of any state, territory, or possession of the United States. An attorney i appearing in a representative capacity shall
.I file with the Commission a written notice of appearance which shall state his name, address and telephone number, the basis of his eligibility; i
and the name and address of the person on whose be-I half he appears.
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(b) Standards of Conduct. . An attorney shall conform r to the standards of conduct required in the courts of the United States. ,
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(c) Suspension of Attorneys. A presiding officer may, by order, suspend or bar any person from participat-(
l-ing as an attorney in a proceeding if the presiding i'
officer finds that such person- l
'; (1) Is not an attorney at law in good standing i;
admitted to practice before any court of the United States, the District of Columbia or the highest court of any state, territory, ,
c or possession of the United States; i,
1 (2) lias failed to conform to the standards of I conduct required in the courts of the United
. ( States: ,
li (3) Is lacking in character or professional integrity; (4) Engages in dilatory tactics or disorderly or '
contemptuous conduct; or (5) Displays toward the Commission or any of I its presiding officers conduct which, ,
E if displayed toward any court of the 3
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United States, would be cause for censure, l suspension, or disbarment.
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., Any such order shall state the grounds .
on which it is based. Before any pet son
, is suspended or barred from participation as an attorney in a proceeding, charges shall be preferred by the presiding of-
- ficer against such person and he shall be afforded an opportunity to be heard thereon before another presiding officer.
(80 Stat. 385, 81 Stat.195: U.S.C.
555, 500) 27 F.R. 377, Jan.13,1962,
,' as amended at 35 F.R.11459, July 17,
- 1970; 37 F.R.15131, July 26,1972)
The Appeal Board in Northern Indiana Public Scrvice Com2ang, ALAB-t-
E 204, RAI-74-5, page 835, makes it quite clear that the ABA Code of Professional I, ,
Responsibility is applicable to proceedings before the Commission.
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[ Also of interest is the Appeal Board's decision in Louisiana Power &
li Light Company, ALAB-121, RAI-73-5, page 319, in which the Appeal Board sua
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,, sponte struck a brief filed by the would-be intervenor because it contained insult-d p ing references to the Licensing Board chairman. The Appeal Board noted that g attorneys practicing before the Commission "are under an express mandate to i
ij conform to the standards of conduct required in the courts of the United States".
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3 Louisiana Power, supra, at 319. i )
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- These two Board decisions reinforce the City's contention that the I l
conduct of an attorney before the Licensing Board is identical with that of an
, attorney practicing before the Federal Courts. Since the Federal Court would e -
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] consider the matters raised by the City, to wit, the disqualification of an attorney I
from appearing on behalf of a party because of a conflict of interest, it follows that the Licensing Board was correct in considering the matter, using the standard E of conduct of the Code of Professional Resonsibility. t l i
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That a formal Code of Conduct has not been adopted b a Federal Agency is not an impediment to controlling c the condu t before it. of persons appearing
- j If an agency is given general statutory power t o promulgate rules
\
and regulations for the proper execution of its functions
, it has the authority to regulate the conduct of persons practicing ore it.bef Schwebel v. Orrick, i
153 F. Supp. 701 (DC. D. Ct.1957),
The _Schwebel case was a challenge obydisciplinzxy an attorney t proceedings being undertaken by the SEC. The attorney contended that 1) no statutory authority existed which would enable the SEC to discipline him; and
- 2) if an implied statutory power "to make rules and regulations as may be nec-essary for the execution of the functions vested in them (15 U
.S.C . Sec. 70W (a))" granted it the authority, the SECe had fail d t .
o establish a bar from which to disqualify the attorney, and the SEC lacked ary action, authority to take any disciplin- !
r j . l The Court, however, refused to heed the attorney' !
held: s contentions and J
'i "In the exercise of its jurisdiction to determi ne i
the legal question of the authority of the admin
- istrative body to maintain the threatened action- ,
the Court holds that the Securities nge and Excha Commission has implied authority, under its g eneral statutory power to make rules and regulations necessary for the execution of its functions to establish qualifications for attorneys found guilty of unethical or improper professional i conduct (citing Coldsmith v. U.S. Board of - '
Tax Appeals, 270 U.S.117 (1926)), i and that th Commission has adequately implementede this .
authority by its Rule II(b) and (c). f; '
It is not but it is sufficient that the Commission
' i y
prescribed by regulation the qualifications for .
admission to practice before it. "
- v. Ilersog,104 1952)). F. Supp.134 (U.S.D.C.D . .
C(citing Camp '
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sf .
The Nuclear Regulatory Commission, with Regulation 2.713(a) has
]
prescribed the qualifications for admission to practice before it.
Regulation 2.713(b) has set the standard of conduct required in the Courts of the United States.
Regulation 2.713(c) provides for disciplinary action by the Commission .
The main preliminary question that remains is the meaning of "the standard of conduct required in the Courts of the United States."
The case of Cord v. Smith, 338 F. 2d 516 (9th Cir.1954), explains the standards of conduct of an attorney practicing before a Federal Court. An attorney attempted to use California case law and standards to sustain his con-tention that his actions involved in representatinn of his client did not involve a conflict of interest. The attorney represented Smith in a suit involving a contract that he had arranged between S - .J Cord while he was the attor-ncy for Cord. The attorney claimed that state case la v sustained his pos-ition that his actions did not constitute a conflict of interest as he had been authorized to communicate with Smith at the time of his employment by Cord and no confidential information or cor..uiunication was involved.
The Court refused to base any judgment upon the technical require-ments of prior California case law concerning confidentiality. It held that under the Eric Railroad Doctrine, the Federal Courts were not compelled by California case law to permit, before the Federal Courts, actions by an attorney that might be sanctioned by that state, "When an attorney appears before a federal court, .
he is acting as an officer of that court, and it ,
is that court which must judge his conduct" a
g_._ __ _ . . . . . ._.
P i
t .
The Court held , and very firmly: !
An attorney who has 2 epresented one party in a transaction may not thereafter 2 epresent the other party in an action against his former client, arising out of or closely relating to the trans-action . "
j Further, it stated:
- This rule does not depend for its operation upon subsidiary decisic, s to whether the attorney would or might be using or misusing confidential information derived from his former client . " Cord, supra, at 524.
4 The Cord Court agreed that no court should tolerate conduct which violates the Canons of Professional Ethics of the ABA - the predecessor of the ABA Code of Professional Responsibilty, and disqualified the attorney.
The Court in E.F. Hutton & Co. , v. Brown, 305 F. Supp. 371 (S. ,
D. Tex.1969), also examined the standards of conduct for attorneys practicing I
before the Federal Courts.
The Hutton court disqualified both Texas and New Yorle hes firms from sppearing on behalf of the plaintiff and was guided in its decision by the Canons ' cut not limited to the minimum standards imposed by the Canons.
4 It refused to be bound Lf " hair-splitting nicety" of the Canons and felt '
i 1
free to looic into the entire course of conduct of the two firms and found i
serious error of professional judgment. "The conflict alone is sufficient to
, require disqualification." Thus both firms were disqualified.
The City submits that the minimum standard of conduct of the ,
FederM Courts and :,f this Board is the ABA Code of Professional Responsibility relied upon by the 'iajority of the Atomic Safety and Licensing Board. .
I I
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=
] The City further submits that, precisely as is the case of a Federal Court, the jurisdiction of the NRC must extend to attorney conduct outside the NRC forum which would require disqualification for conflict of interest in repre-senting clients with opposing interests.
Any other result would mean that an NRC proceeding would contain major error from the outset with no way to correct it. The Federal Courts of Appeals recognize that the matter is so important that it may infect the entire course of a trial if not dealt with at the outset. It is one of the few issues that may be dealt with upon interlocutory appeal in the Federal Courts, as the Licensing Board majority correctly held.
For the same reasons, the NRC must consider at least this type of attorney misconduct outside ,
' the NRC forum. !
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II.- IT IS FUNDAhiENTAL TO LEGAL ETIIICS TIIAT SSLD hiAY NOT SlhiULTANEOUSLY REPRESENT TWO CLIENTS, TiiR CITY AND CEI, WilO IIAVE DIFFERING INTERESTS, WITII-OUT FULL DISCLOSURE AND CONSENT, AND SilOULD NEVER IIAVE ATTEh!PTED TO REPRESENT CEI AGAINST ITS OTilER CLIENT Tile CITY IN LITIGATION BEFORE THE NRC.
The fundamental proposition put forward by the City of Cleveland in these disqualification proceedings is very simple. For some 65 years, SSLD has represented CEI. For some 65 years, SSLD has represented the City of Cleveland in a host of matters including virtually all of its financing, particu-larly including several bond issues for the Cleveland Municipal Electric Light Plant. CEI and the City's MELP have been for years and are now in fundamental conflict. The antitrust review of the licensing of CEI's proposed nuclear plants
~
, is critical to the very survival of the City's MELP. The City has never received from SSLD any disclosure, let alone a full disclosure of its role for CEI or how that might impair its representation of the City. The City has never consented to SSLD's representation of CEI in these NRC proceedings. Under these circum-stances, it is a fundamental breach of legal ethics for SSLD to represent its client, CEI, against its client, the City, before the NRC. l The disciplinary rules of the Code of Professional Responsibility set a mi.iimum level of conduct below which no lawy er can tall without being subject to disciplinary action. Professional independence is the hallmark of an attorney and the Code requires him to refuse employment when interests might impair the independence. .
' DR5-101 (a) - Except with the consent of his client l after full disclosure, a lawyer shall not accept employment if the exercise of his professional
. judgment on behalf of his client will be or reason- ,
ably may be affected by his financial business property or personal interest. (emphasis ours) . i
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l To the same affect is a further disciplinary Rule DR5-105: :
DR5-105 (A) - A lawyer shall decline proferred employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversch,*
affected by the acceptance of the proferred employment, except to the extent permittec' under DRS-105 (C) .
(Emphasis ours).
These disciplinary rules have been discussed in a number of cases decided in the Federal courts which are cited in the City's Brief in Support of Motion To Disqualify And Declarc Counsel Incligible To Further Particpate In These Proceedings filed before the NRC Atomic Safety and Licensing Board, December 1,1975. (Hereafter " City Brief of December 1,1975") . The City respectfully requests a careful reading of that Brief by this Appeal Board and will not attempt to restate those authorities or arguments in full at this time, 4
cxces L cmphasize this: The mere possibility of injury to a client by having
, his former attorney act against him in litigation is enough to disqualify that
- ttorney .
In the case of Marketti v. Fitzsimmons , 373 F . Supp. 637 (W .D .
Wis.1974), the Court stated:
. Proof that no confidential information had been '
disclosed during the prior representation would '
not remove the taint of disloyalty."
The Court disqualified the attorneys because:
"A lawyer's representation of an interest adverse 3
, to a former client in a suit dealing with substantially ,
l
. the same matter as that involved in the former repre- .
sentation would seem a breach of trust to the lay sense i of justice. " l
! The case of Consolidated Theaters, Inc. v. Warner Bros. , Circuit i 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.
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The court disqualified the attorney because he could have had access to the files of the defendant. The mere possibility that information concerning defendants might be availat:e to him was grounds for his disqualification.
The fundamental fact of the SSLD conflict makes it a more exaggerated case than any reported case found anywhere by the City. In every reported case one will fint a situation where a lawyer used to represent one of the clients in a previot s act an or matter and later comes before a subsequent court or board to represent the other client but after a lapse of time. Not once in all the reported cases that the City has found were the lawyers ro brazen as to come into a court or board and at the very moment they were collecting money from the rejected -
client, attempt without that client's consent to represent the other client with an opposing interest. Nevertheless that was precisely what was happening before the NRC in November,1975, when the City initially filed its motion to disqualify SSLD. It was at that time that the City first became aware that SSLD was going to openly and fully rept esent CEI in this NRC antitrust review. Prior to that time the City had understood that SSLD were merely on the Service List of these NRC proceedings and that CEI was being represented as part of the CAPCO group by the Washington firm of Shaw, Pittman, Potts & Trowbridge. These matters are taken up in more detail below in Section I. A . (3) .
'In an antitrust review many events in the history of the relationship between the Cleveland Municipal Light Plant and CEI become important. SS&D were the City's lawyers for 65 continuous years. They handled virtually all of its i
l financial matters including various financial matters for MELP. It means that they have immense weapons of knowledge and insight to use against the City in these NRC proceedings. SS&D's representation of the City has endured so long, involved so i A
L i
many of its lawyers, and been so all pervasive it is very difficult to put any limits l
on their knowledge of the City's affairs. Their knowledge of the City's affairs is
- not that of one or two lawyers but of many specialists, both partners and associates,
! working on a host of the City's legal problems particularly including its utility
- financing . One of SS&D's lawyers, Mr. Daniel O'Loughlin, was for 14 years a City attorney and for 4 years Chid Counsel of the City in control of the City Law Department. Their inside know.' edge of MELP's finances and other business affairs very likely exceeds that of the City itself.
In the first and most fundamental way the City insists that this relation-b ship, looked at as an entirety, must without more disqualify SSLD. The conflict of interest is si nple, obvious, overwhelming and inescapable.
All that the City sccks to do is disqualify SSLD L om this one NRC
[ antitrust review. There is no question of having SSLD stop representing CEI in other matters. There is no thought of permanently barring them from practice before the NRC.
Neither the Code of Professional Responsibility nor the cases treat a disciplinary proceeding like a criminal proceeding. It is not incumbent upon the client to prove his attorney guilty of misconduct beyond a reasonable i
doubt which, in essence, is the position SSLD has adopted in these disqualifica-tion proceedings. In an effort to draw attention away from the simple, obvious and l ,cgregious fact of its conflict of interest, based on its entire relationship with the City over many years, SS&D has tried to focus the attention of the Licensing Board on j one 1972 bond issue. There SSLD claim that its employment for that bond work i
was solicited by the Law Director of the City at a time when there were pending controversies between the City and CEI and further claim there was no transfer of confidential information. While totally disagreeing with SS&D's view of the i _ .__ _ ._- __. __ -
.q_ ._ --- _ . _ -- _ _ . _ - - . _ _ _ a_
g ,
) 1972 bond episode, the City's major observation is that this episode is in no way j
critical, because thcre is such a mass of other evidence which cries out for disqualification .
l SSLD points to the anomoly that the City continued to retain them for decades down through December of 1975 (when they were discharged as City i
! attorneys, which period obviously encompassed years in which the City's MELP
! and CEI were engaged in controversy. SSLD points to many litigated matters i
- against the City in which it was counsel over the years. As to any past conflicts l of interest the City had the right to waive them a.id none of those matters was re-
- motely as critical to it as this NRC litigation. But past waivers certainly do not _
imply waivers of all future conflicts of interest on the part of SSLD. In these proceedings the City demanded disqualification of SSLD as soon as it was clear SSLD would openly participate in the hearings.
The City's failure in the past years to demand such disqualification
! or drop SS&D as its attorneys may be attributed to many things, such as the i
dominance to the point of virtual total monopoly of public finance law in Northern Ohio by SSLD and the City's great need for its services. It is also explained by SSLD's total failure to disclose the true nature of its activities with CEI and i
SSLD's actions in directly misleading the City into believing that there was no conflict of interest. The information that led the City to move to disqualify SS&D was obtained only through discovery proceedings of the NRC and never from SSLD itself. ,
Whatever the failings of the City in not sooner dropping SSLD they are insignificant compared with the failure of SSLD to recognize its ethical duty when the interests of its two clients, the City and CEI, were so clearly differing.
i,
'It is above all the duty of an attorney to recognize his own ethical duties. It should not be incumbent upon the client to point them out to him. Only SSLD to this day knows the full nature of its relationship with each client. It knew far earlier and far more clearly than anyone else the nature of its conflict of interest, having represented both clients for years. SSLD should have known from the very outset it could not even commence representation of CEI in those NRC proceeding: . The only real issue is why SSLD did not recognize its ethical duties and withdraw voluntarily and at the outset. The detailed discussions of actual misconduct which appear later in this brief are in no way necessary for the inevitable and correct decision of the Licensing Board to disqualify SSLD. '
1 e
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(
- l A. To Disqualify A Law Firm Representing Multiple Clients,11 Is Necessary For The I.fovant To Demon-strate Only , 1) An Established Attorney-Client Relationship Exists , 2) That Adverse Interests Arc Involved, 3) That The Movant Did Not Grant To This Counsel A Waiver Allowinc The Present Dual Representation. And 4) A Substantial Relation-
- ship Between The Prior Representation And The 1 Present Proceeding.
- 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 or was an established attorney-client relationship be-tween the attorney now representing an opposing party, and the movant. Con-solidated Theatres, Inc. v. Warner Bros. Cir. Management Corp. 216 F 2d 920 (2nd Cir.1954), antitrust case - attorney disqualified; Laskey Bros v. Warner i ;
Bros. Pictures Inc. ,130 F. Supp 514 (S.D.N.Y.1955) aff'd 224 F 2d 824 (2nd
(
6 Cir.) cert. denied 350 U.S. 932, antitrust case - attorney disqualified; T. C.
Theatres Corp . v. Warner Bros. Pictures , Inc. ,113 F . Supp . 265 (S .D .N .Y .
1953), antitrust case - attorney disqualified; Esiates Theatres, Inc. v. Columbia l Pictures , Inc. , 345 F . Supp. 93 (S.D.N.Y.1972), antitrust case - attorney dis-i qualified . ,
For 65 continuous years down until December,1975, when SSLD was discharged from its legal representation of the City, SS&D was legal counsel to
, the City in numerous capacities. There was hardly a Department or Division of the City that did not receive some legal representation from SS&D. The City depended almost exclusively upon SS&D for its reputation and competence as t
Bond Counsel, paying SS&D approximately $147,000.00 in fees 'n 1974 and over
$107,000.00 in the first six months of 1975. Beyond any argument SS&D was attorney for the City.
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- 2) In The Present Case The Interests Of CEI And The City Of Cleveland Are Adverse.
l That the interests of CEI and the City are adverse may be seen from l
l the street-by-street competion that has prevailed between these two electric i
systems in the City of Cleveland for years. The reader is referred back to the i
Statement of Facts at the beginning of this Brief for further details. It is the
- position of the City of Cleveland that competition between the two entitites was i
j pursued by CEI to the point of virtual extinction of the City's MELP through a
~
I series of predatory acts constituting antitrust violations. The two parties are on <
4 I
opposite sides in these NRC proceedings. Beyond any argument the interests of 4
CEI and the City of Cleveland are adverse.
- 3) The City llas Not Given SSLD A Waiver Which
- Would Permit SSLD To Represent CEI In The Present l Action .
A waiver is an intentional voluntary relinquishment of a known right.
B_arker v. Wingo, 407 U.S. 504 (1972): Upper Columbia River Towing Co. v.
Maryland Casualty Co. , 313 F. 2d 702, 706 (9th Cir.1963) .
l
) The City has never intentionally and voluntarily agreed to permit
.; SSLD to represent CEI in these proceedings. CEI and SSLD will be able to offer
- no single writing on the part of the City in which it has waived its rights on the i
matter .
Prior to July of 1975 the City was aware only that John Lansdale of
- SS&D was on the Service List of this proceeding. This List includes' p'ersons who ,
i :
)
i are merely interested in the proceedings and does not necessarily indicate repre-sentation . The City believed that CEI was represented as part of the CAPCO group by the Washington law firm of Shaw, Pittman, Potts & Trowbridge. As far back i
as July 21, 1975, the City in an oral communication to SS&D set forth its position
.I that it would object to SSLD'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 for the Northern District of Ohio, Eastern Division, filed on July 5,1975. The City confirmed this oral communication to SSLD by a letter to the firm c,n August 5,1975. It was at this point that SSLD responded with a letter from its Chairman, Mr. Jack L. White, on August 25,1975 (this correspondence is set out as Exhibits K and L attached to the City's Brief of December 1,1975). For the first time in this letter, the City learned that "although the defendants as a group (CAPCO) have been represented
' ni 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, denies that it had any such knowledge. Even in the White letter of August 25, 1975, there is no disclosure of the extent or ,
nature of SS&D's representation of CEl. There is further no attempt in this l White letter to disclose the possible conflicts of interest of SSLD or its possible adverse imp'act on the City's position. SSLD 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.
In the present antitrust review conducted of the activities of CEI, CEI has listed approximately 780 documents as privileged or work product and denied the City access to them. Over 50 of these allegedly privileged documents are correspondence between SS&D and CEI. Although the Licensing Board viewed these documents in camera they have never been disclosed to the City, save for 5 l l
to which CEI waived privilege. The City despite its knowledge of the context and ,
i circumstances of these documents has never been permitted to explain their l f
. 1
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significance to the Licensing Board or the Special Board. The City's attempts at discovery of SSLD and CEI documents showing SSLD's relationship with CEI have been thwarted. SSLD has hidden repeatedly behind the privilege of its other client, CEI. Without the beginnings of a full disclosure from SSLD there can be i no-waiver by the City. Consolidated Theatres, Inc. v. Warner Bros. Cir. hian-gment Corp. , 216 F. 2d 910 (2nd Cir.1954) . SSLD argues in effect that the City has given SSLD an implied waiver of its misconduct because in one isolated instance in 1972 it hired SS&D as Bond Counsel at a time the City knew of certain controversies between hiELP and CEI. Even in that instance, however, SSLD failed to make any disclosure to the City. The City adamantly refuses to rest its case for disqualification on the isolated happenings surrounding the 1972 bond ordinance, or indeed upon any single instance of misconduct by SSLD.
The City has continuously objected since 1975 to its attorneys openly opposing it in litigation where CEI is involved.
- 4) There Was A Substantial helationship Between i SSLD s Prior Representation Of The City And These Present NRC Proceedings.
SSLD was Bond Counsel for hiELP's 1963 hiortgage Revenue Bonds, for hiELP , City Street Lighting Bonds and for the $9.8 hiillion of hfELP Bonds of 1972. All of these bond issues are interrelated with antitrust matters before the NRC. A fuller discussion of these matters follows in Section IV. Beyond
'. these legal matters directly affecting hiELP, SSLD has had a virtual monopoly in i
handling all the rest of the City's finance matters over the years. This bears directly upon the City's ability to finance nuclear participation, another issue in these proceedings. Beyond any question,SSLD's extensive representation of the City over many years substantially relat to many issues in these proceedinCs.
i n
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! i B. CASE LAW DOES NOT REOUIRE A DISCLOSURE OF C,0NFIDENCES AS A BASIS FOR DISOUALIFICATION AS SS t D TRIES TO MAINTAIN.
- 1. The Cases SS&D Cites Do Not Support It.
i It is one of the . primary contentions of SS & D that it was never told l anything in confidence by the City. SSLD then goes on to attempt to claim, on the basis of inapposite cases, that such disclosure of confidences to a lawyer is an essential part of the case to disqualify. The City has cited many cases in its Brief of December 1,1975 at pages 8-14 which, quite explicitly, do away with a l a need for confidentiality in a motion to disquahiy a lawyer. These cases will not be discussed again here. .
SSLD has found, essentially, seven cases which they cite in their ,
briefs . One of these, the Acorn Printinc Co. v. Brown, 385 S .W . 2d 812 ,
(C. A. Mo.1960, case is not a federal case at all. In addition, its facts ,
{ i are so totally dissimilar to the present case as to be no authority at all. There, Acorn Printing sued Joplin Investors as one defendant, and other defendants Brown and Whitaker for printing services. One Macintosh, who was Chairman ,
i of Joplin, who well knew that attorney Patton represented Acorn, contrived to have Patton represent Joplin Investors, in an effort to have Acorn push liability off on the other defendants Brown and Whitaker. Here was not a question of a motion to disqualify a lawyer, but the actual seeking and employment of that
, lawyer to represent the interests of Joplin under very special circumstances.
t The case must be confined to its own very special set of facts and is no authority ,
1 whatever for the propositions for which SS&D quote it extensively. !
1 The case of Universal Athletic Sales Co. v. American Gym, Recrea- !
tional and Athletic Equipment Corporation, Inc. , 357 F. Supp. 905 (W.D.
Pa.1973), is likewise no authority in this casc. The facts immediately i
4,
B l t !
distinguish it from the present circumstances. The District Judge himself explains the circumstances:
"In this case, we are asked by plaintiff to disqualify defendant's counsel who has repre-sented defendant throughout this litigation and for whose services defendant has paid. The reason given is a co-defendant, to wit: defendant Larry Salheld, has resigned or been discharged from his position as President of the defendant, now finds himself at odds with the defendant corporation . lie apparently to some extent has sought shelter in the tents of the enemy. If we allow this, we are opening the door to numerous attempts to disrupt relations between a corporation and its counsel by the simple device of having one of the individual defendants become hostile to the 4 corporate defendants and then demand that the l corporate defendant's counsel be disqualified."
This was a unique case as the Judge himself stated later on at i
page 908: .
"First, this case is unlike any other reported case we have discovered since here the conflict arises in the original lawsuit itself. This is not a case where an attorney represented one client in a former piece of litigation and thercafter takes a lawsuit against him in which confidential informa- j tion derived from the first case can possibly be used."
The Court concluded that there was no demonstration that a '
l conflict either actually or possibly existed in the instant case. Never-theless, the Court left the whole matter open and agreed that should an actual
, conflict of interest develop during the court of litigation, it would consider a petition to remove counsel. ;
The case of Gottwals v. Rcncher , et al. . , 98 P.2d(S .Ct. Nev.1940),
is not a federal case either. It is further totally distinguishable from the present case in that the Court there found that there was both an express waiver and an implied waiver of the representation of one of the defendants to attorney Morse,
, s .- . - . _.
7 The facts further disclose that the only contact between plaintiff and Morse was minimal.
In the case of Shelly v. The Maccabees, 184 F . Supp . 797 (E .D .N .Y .
1960), the SSLD brief quotes the West headnote to make it appear that the crux of the decision was confidential information. Actually, the Court went upon the issue of whether or not prior representation was substantially related to the issues involved in the instant action. Let us quote exactly from the opinion:
I agree with the defendant's contention that as set forth in Marco v. Dulles D.C. , 169 F.
Supp. 622, at page 629, (4) it is unnecessary on a motion to disqualify for a former client to show that his former attorney is in the possession of specific secrets or confidences.
As Judge Weinfeld said in T.C. Theater Corp.
- v. Warner Bros. Pictures , Inc. , D.C.S.D.N.Y.,
113 F. Supp . 265, 268, the rule is "that where any substantial relationshio can be shown between the subject matter of a former repre-sentation and that of a subsequent adverse representation, the latter will be prohibited.'
Judge Weinfeld said, further, at page 268, that
'the former client need show no more than that the matters embraced within the cendine suit wherein his former attorney appears on behalf of his adversary are substantially related to the matters or cause of action wherein the attorney previously represented him, the former client. "
(Emphasis ours)
(5) In the case at bar, however, the retainers of Maning, Hollinger and Shea by 'The Maccabees' were of a most limited and specific nature. They represented 'The Maccabees' only in the proceeding
, to transform it from a fraternal benefit insurance society into a mutual irsurance company, and in j the investigWm conducted by the Insurance Department of the State of New York, matters totally unrelated to the instant case, wherein they represent the plaintiff Shelley in an action for the breach of certain contracts and for conspiracy .
to induce the breach thereof; nor have they ever represented any of the individual defendants th erein . "
1 I
Shelley v. The Maccabees, supra, is only the most limited authority for requiring that a former attorney have access to confidential information.
l The real basis of the decision was that the attorneys previously represented j the complaining party on matters totally unrelated to the instant case. To
- the limited extent that ;nis case seems to require confidential information, it has long since been by passed by more recent and more authoritative cases cited in the City's initial brief.
l The citation of the case of Harry Rich Corp. v. Curtis-Wright
- Corp . . , 233 F . Supp . 252 (D .C.N.Y .1964) is bizarre. In the first y ' ace, all
) that is reported is part of a hearing with no final order. In the next l
place, if the case is authority for anyone, it is authority for the City.
What the SSLD brief completely omits is the following quote from the trial judge:
"A second situation, however, can be envisioned wherein information is disclosed by Jones, who is either actually or potentially a client, but is not, for whatever reason informed by counsel of the latter's general retainer by Smith whose interests .
in the particular matter may possibly conflict with his own. In such an instance, a disclosure by Jones, no matter how inocuous and irrespective of availability of the same information from outside sources, should preclude counsel from representing Smith in the particular matter. Citing T.C. Theater l Corp. v. Warner Bros. Pictures Corp _ 113 F . Supp . l 2 6 5 .
l What is also omitted from the SSLD brief is the balance of the paragraph that they quote at page 254:
"In the second case, the client is entitled to ;
regard counsel as unswervingly dedicated to -
his cause, i.e. , as in the normal attorney-client relationship with him, even if no financial {
arrangements have been made between them, and -
t even if the lawyer has not definitely agreed to i take the matter. In the interest of promoting public confidence in the attorney-client relation-ship, any disclosure, no matter how trivial, and ;j whether or not of information otherwise casily ob- :
-. ._. _ _. _ _ _ __ i - ._- .
N tainable, will be sufficient to disqualify counsel [
from acting further."
The case of Silver Chrysler Plymouth Inc. v. Chrysler Motors Corp. ,
Inc. , 518 F.2d 751 (2d Cir.1975), is fully distinguishable. All that case held was that one former young associate of an 80-man firm whose involvement with Chrysler had been limited to briefs and formal discussions on procedural matters or research on specific points of law need not be disqualified when sone years later he sought to represent a dealer against Chrysler. It was a matter of great importance in the decision that the lawyer in question, Shriver, was at tbc time in question, only a young associate who worked on matters not substa tially related to the issues in the instant litigation. The court said:
"But there is reason to differentiate for disquali- .
fication purposes between lawyers who become .
heavily involved in the facts of a particular matte i
- and those who enter briefly on the periphery .%r a ,
limited and specific purpose relating solely to legal question. In large firms, at least, the former are normally more seasoned lawyers and the .
latter the more junior." (Page 756 )
This case is totally unHke the present case where numbers of the i
top partners of SSLD have represented the City on virtually all its financial affairs, including MELP bond financing for 65 yeat s. ,
In summary, none of the cases cited by SS&D are respectable authority l l
i for the proposition that in order to disqualify a lawyer, a client must show that
, he has imparted confidential information to him. An impossible burden is placed
?
upon a client when he must sort out and distinguish all those things which he j told his lawyer that were confidential as opposed to non-confidential. The burden becomes totally impossible when there is a relationship such as existed between the City of Cleveland and SS&D which stretches back 65 years and involved numerous
--. . . - J - -_ .-
t, . l City officials now long departed.
If the client must constantly keep separate the confidential matters he disclosed to his lawyer from the non-confidential, in the expectation that "non-confidential" matters may be later used against him by the lawyer, then the whole lawyer-client relationship is undermined. SSLD's position is ruinous to that relationship. The law is absolutely against them. ?!arketti v. Fitzsimmons, 373 F. Supp. 637 (W.D. Wis.1974) .
The recent case of Cannon v. U.S. Acoustics Corp. , 398 F. Supp.
(N.D.111. E.D.1975) indicates that the federal courts are not limited by a question of whether or not confidential information may have passed between the lawyer and the client and are, indeed, even examining the necessity for adherance to the substantial relationship test for disqualification. The Cannon case involved the disqualification of a corporate attorney turned plaintiff. The Court found that the Code of Piofessional Responsibility did not encompass the situation of an attorney who had been employed by the corporation for 12 years and had now become a plaintiff in an action against it. The Court used the Code, however, as a guide in its decision to disqualify. Cannon was disqualified because there was no question that in his representation of defendant corporation, as corporate solicitor, he might have acquired information which was substantially related to the matters in the pending suit. It further held that even if no substantial relationship was proven b.y the defendant corporation, the attorney's representation was "so lengthy and pervasive that he wculd have to be disqualified under Canon i
9." Cannon, supra, at 229. (Emphasis ours). ,
j The Court directly quoted Emile Industries Inc. v. Patentex, Inc. , !
478 F. 2d 562 (2nd Cir.1973):
._ o - _ - . ~ ___ - _ _ - _ - _ . _ .
7
- " Canon 4 implicitly incorporates the admonition
. . .The lawyer's obligation to represent the client with undivided fidelity and not to divulge his j secrets or confidences forbids also the subsequent i acceptance of retainers or employment from others in matters with respect to which confidence has
- been reposed. Without st2ict enforcement of such
! high ethical standards a client would hardly bc inclined to discuss his problems freely and in j depth with his lawyer, for he would justifiably fear that information he reveals to his lawyer on one day may be used against him on the next.
! A lawyer's good faith, although essential in all
- his professional activities, is, nevertheless, an inadequate safeguard when standing along. Even I
the most rigorous self-discipline might not prevent j a lawyer from unconsciously using or manipulating a confidence acquired in the earlier representation into a telling advantage. "
9 The Court disqualified Cannon as a plaintiff and enjoined him from
! disclosing information received during th'c course of his representation of the i
. corporadon .
) Case law does not require that confidential information must have
- been given by the City to SSLE in order for that firm to be disqualified, or that the City must prove that such information was given.
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. _ , - ~ - - - - - __ __ -
- 2. In Any Event, SSLD IIad Access To Much Information Of A Confidential Nature About MELP'S Affairs That Was Never Made Public.
In its long representation of the City, SSLD had direct access to virtually all major officials of various City administrations. It had access to the City's Commissioners of Light and Power, who were in direct charge of MELP operations. It had access to the Finance Director and others. MELP's marketing strategics , its financial condition, the state of repair of its equipment, its priorities in repair and renovation and other details were open to SSLD. Many of these matters were never published and were not available elsewhere. For example, in a deposition of SSLD's partner and City Bond Counsel Specialist, John Brueckel, taken February 28, 1976 by the City Law Director, James B. Davis, in the case of City of Cleveland v. CEI, Case No. C-75-560 in the U.S. District Court N.D. Ohio E.D. , the following was elicited:
1
.Q. (Mr. Davis) You would also talk to the Finance Director?
l A. (Mr. Brueckel) Oh , yes. ;
Q. And would you talk to the Director of Budget and l Management?
A. We did, I think, in this sense that this, as I indicated before, is part and parcel of their communicating to us the decisions that they had so that you might, for example, get input from the Office of Budget and Management as to what should be put into the purpose of the note of bond issue.
(Page 9)
Q. (Mr. Davis) My question was: Did you discuss the City 1
financial statements with the City financial officers? I
It i A. (Mr. Brueckel) We checked to be sure all the data was there .
and that it was all reflected in the statement.
i Q. Then you did discuss the financial statements with the City financial officials?
MR GALLAGHER: He said he checked the City's sources.
A. Well, we did. What you do is to make sure all the debt is in the financial statement. Sure we checked that.
(Page 15) 3 Q. (Mr. Davis ) All right. You say you talked to Mr. Hinchee.
Mr. Hinchee at that time was the Commissioner of Light and Power for the City of Cleveland?
A. (Mr. Brueckel) Y es . He told me what he wanted to spend the money for.
Q. What did he tell you he wanted to spend the money for?
A. Whatever the bond ordinance says.
1 Q. He told you in more detail that what is specified in the bond ordinance, did he not?
A. He told me whatever is reflected in the bond
- ordinance, is what he told me.
Q. All right. The City contemplated a list of repairs to its equipment at the Light Plant, did it not?
~
A. At might have. I just don't recall.
l r
(Page 40) l l eee e e
i,
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-)
Q (Mr. Davis) I will strike it. You talked to Warren Ilinchee at ,
the time you did the 1972 --
A. (Mr. Brueckel) Yes, the statement from him that in order to be able to develop the statement of the purpose of the issue.
Q. Now, your conversations with Mr. Hinchee never i
appeared in public, d'id they? ,
A. No, I think they were in my office, but there w ere other City officials present.
1 3
(Page 85) h l'
i i Another example may be seen in the deposition in the above case taken February 24, 1976 of former City Chief Counsel and current SSLD partner i
and City financial advisor Danic! O'Laughlin.
$ Q. (Mr. Davis) And in your discussion with Mayor Locher about
. the Light Plant over the years you were chief counsel, there would have been matters that were not written down?
A. (Mr. O'Laughlin) Well, to the extent of discussions there, I am sure i
there were matters that weren't written down.
Q. Were there likewise matters discussed between you and the Mayor that did not become public at the time?
A. There weren't any Sunshine laws so I am sure there must have been some discussions.
I
, (Page 29)
._m,.___ _ _ . _ _ _ . , . . . , , _ , , , _ , _ , , , , , _
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4 I I
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If (Mr. Davis)
All right. During your years as the chief counsel, .i 4 Q.
did you have any discussion with Mr. Klementowicz (former City Utilities Director) concerning the Cleveland Light Plant?
A. (Mr. O'Laughlin) I assume I did, ycc.
All right, and is it also not true that some of those Q. ,
discussions were never written down and never made public?
A.
I had discussions I am sure that weren't written ,
down. Whether it was ever made public or not, I don't know.
i Again during your years as chief counsel, did Q.
you have discussions with Mr. Fakult (former City Commissione
!. of Light & Power) about the Light Plant that were not written ,
down anywhere?
MR. GALLAGHER: Same Objection.
t To the extent I had some discussions with Mr. Fakult, A. ,
I assume some were not written down. !
(Page 30) t t
l The foregoing are merely samples of the kind of inside, non public, LP and confidential information numerous SSLD lawycrs have been gleaning abou !
the City for 65 years.
I i
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i i i
i III. THE FACT TIIAT DANIEL J. O'LAUGIILIN NOW A i SSLD PARTNER WAS CilIEF COUNSEL OF THE CITY LAW DEPARTMENT COVERING A PERIOD OF YEARS -
AT ISSUE IN TIIIS TRIAL IS P.Y ITSELF SUFFICIENT <
i GROUND FOR DISQUALIFYING SSLD. i i
i Daniel J. O'Laughlin, now a partner at SSLD, was for some 14 years a member of the City of Cleveland Law Department. During four (4) of those years from 1964 to 1968 he was Chief Counsel of the Civil Branch of the City Law Department and as such had general supervision of some 30 civilattorneys and of all civil legal affairs of the City. (O'Laughlin Deposition pages 12-14. ) This meant that all legal affairs of the City's MELP came under his direct supervision.
As such he had direct access to all the legal affairs of MELP and its relationship j to CEI during the period he was Chief Counsel, namely 1964-1968 until Mr . O' Laugh-lin left the City to join SSLD in 1968. Since leaving the City, Mr. O'Laughlin
- has been a member of the Public Law Section of SS L D and has been frequently consulted on financial matters of the Jity of Cleveland. (O'Laughlin Deposition i l i
pages 48-49). ,
j What is critical to understand at this juncture is that it was one thing for the City to continue to use Mr. O'Laughlin's municipal law expertise down through the years after he left tne City when this was being done for the l
7 benefit of the City. It is an altogether different proposition to permit a
- firm of which Mr. O'Laughlin is a partner to represent a major corporate ,
1 l j client, CEI directly against the interests of the City in this antitrust proceeding.
All the insight Mr. O'Laughlin gained in 14 years with the City Law Department is now to be turned against the City. ,
' i N is not necessary to presume that Mr. O'Laughlin has had contact v ith Mr. Lansdale and others actively repres.cnting CEI in matters adverse to the City of Cleveland. This was discovered in documents in these N.R.C. pro- .
b
.., _ . . m . - i -
4, e
i' a
ccedings . ,
One of these documents, a letter from Brucchel to Lansdale dated i
May 21,1974 is identified in the City's Brief of December 1,1975. Exhibit II.
The other one of these documents had never been seen by the City prior to those 1
- procceedin gs . The mere appearance of this document on the N.R.C. privileged i
I . documents list further demonstrates certain contacts between Mr. O'Laughlin and representatives of CEI.
A case almost completely on all fours with the situation of Mr. O' Laugh-lin is Chucach Electric Association v. U . S. District Court, 370 Fed. 2d 441 (9th I Cir. 1966). In that case attorney Edgar Boyko had representated the Chugach
! i Electric Association as general counsel in the years 1954 to 1956 and was a consult-I i
ant until 1957. Years later Mr. Boyko sought to act as the trustcc in bankruptcy l of Mrak Coal Company. In the capacity of Mrak's trustee in bankruptcy Mr.
l 1 Boyko brought an action charging the Chugach Electric Association with violations s ,
i of federal anhrust laws in efforts to maintain its monopoly position as the sole l l
company in the arca generating sales of electric power. He alleged among other l l
t-
- things that Mrak's bankruptcy resulted from Chugach's antitrust violations.
The tual court had mused to disqualify Boyko for three reasons: 1) that the activitics on which the present case was predicated began after Boyko left Chugach:
i
[ 2) there was no showir.g that Boyko, while acting as general counsel for Chugach, received or had access to secret or confidential information; 3) that Chugach 1
tr -
t failed to establish a substantial relationship between the issues in the present case and the subject matter of Boyko's full representation. I p
The Court of Appeals disqualified Boyko with the following statement:
A likelihood here exists which cannot be dis-i I I , !
): l a regarded that hir. Boyko's knowledge of private matters gained in confidence would provide him with greater insight and understanding of the 1
significance of subsequent events in an anti-trust context and offer a promising source of i
discovery. This likelihood is enhanced by r'e-cognition of the fact that the allegations of a Complaint are not always an accurate appraisal of the relevant period of time in antitrust cases.
Discovery and trial proof frequently introduce ramifications rendcring earlier events relevant.
The petitioner does not have the burden of speci-fying the secret and confidential information which was available to Mr. Boyko. Such specification might entail disclosure of the very confidences i
that canons seek to protect. It must be remembered that the attorney in such situations as this does not have the shelter enjoyed by a defendant whose adversary must meet a burden of proof. Where con-flict of interest or abuse of professional confi- ,
dence is asserted, the right of an attorney freely ;
to practice his pr'ofession, must in the public interest, give way in cases of doubt. "
l The case for disqualification of Mr. O'Laughlin and his firm SS & D i
i is even stronger than that of Mr. Boyho. Unlike the C_hugach case where the ,
j ,
actions in the antitrust matter took place after the attorney left Chugach, 1
many of the actions, relationships and involvements between CEI and the City took place while Mr. O'Laughlin was Chief Counsel in the years 1964 to 1968.
Unlike the Chugach case, Mr. O'Laughlin has maintained direct access to the s
City's financial affairs as bond counsel in all the years down to the present.
i t
Solely upon this independent ground, SS & D should be disqualified.
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- IV . AFFIDAVITS, ADMISSIONS IN BRIEFS, AND UNDISPUTED FACTS ALL DEMONSTRATE Tl!AT SS & D IS CUILTY OF SECRETLY CAUSING NOT POTENTIAL BUT ACTUAL PREJUDICE TO TIIE CITY'S INTERESTS BY ADVISING CEI FOR MANY YE/sRS ON MATTERS SUB STANTIALLY
, RELATED TO TIIIS NRC ANTITRUST REVIEW.
! The Disciplinary Rules of the Code of Professional Responsibility and the case law all are based upon the fundamental principle, that if there is even the possibility of professional judgment being affected by an attorney's own financial business or personal interests the attorney must be disqualified. -
DR5-101 (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 of his client will be or reason-ably may be affected by his own financial business l
,' property or personal interest. (Emphasis ours).
To the same affect is a further disciplinary Rule DR5-105:
~
I f
DR5-105 (A) - A lawyer shall decline proferred employment if the exercise of his independent professional ju' dgment in behalf of a client will be or is likely to be adversely
, affected by the acceptance of the proferred employment, except to the extent permitted under DR5-105 (C)
(Emphasis ours). '
These are not merely aspirational ethical considerations, but 4
disciplinary rules which set the minimum level of permissible conduct by attorneys.
These disciplinary rules and their predecessor canons have l been flagrantly disregarded for years by SS & D based upon v hat has [
recently been discovered, and in what has just been admitted in their briefs before the N .R .C . '
- l. In Exhibit "G" of the City's Brief of December 1,1975, may be i
found some exordinary documents. They show that on February 18, 1965,
' - - - - - -- -- L-
h . i
. l John Lansdale, SS&D partner, was writing to Ralph M. Bessee, then President of CEI (and now once again an SS & D partner) about a possible arrangement for interconnec-tion between CEI and MELP. At that time the City very much wanted such an interconnection to improve its reliability of service and its ability to hold customers.
E t
- CEI did not wish to give the City an interconnection to help it out. The scheme
. devised by SS & D lawyers to permit CEI to avoid the interconnection was to tie t
the interconnection to a demand that the City increase its rates to the same level as the company's rates. SS & D and CEI well knew that the City could never accept such a condition because it would destroy the principle competitive advantage
' the City had over CEI, namely, that its rates were lower because it paid no taxes.
, licre in the February 18, 1965 letter was Lansdale admitting that because of the
. FPC's jurisdiction over sales at wholesale, the Icgal right of CEI to make such condition was doubtful.
"The Federal Power Commission's jurisdiction over sales
. at wholesale might cast doubt upon our ability to make such condition in an interchange agreement effective. "
(Exhibit "G"),
i Lansdale also betrays the full awareness of SS & D and CEI that the City could never agree to their condition.
"You will note that while we did not believe the City could agree to tie its rates to the company's rates, we saw no reason why the company could not make the continued main-tenance of such a rate level. " (Exhibit "G") .
, , Thus, in full awareness that SS & D's client, the City, needed the interconnection yet could not tie its rates to CEI's rates, SSLD partner Lansdale i
proposed linking the offer of the interconnection to this condition on the City's rate. The offer of interconnection is rendered a sham. ~
4 Who was the lawyer writing the underlying opinion? None other than Ralph Gibbon, head of the Public Law Section of SS & D, which did the City's
_ _ _ - - -_ _ . _ _ . - . - _ _ _ _ _ _ - a. . - _ - _ _ - - _ - - - __ . _ - - - -. - - _ _ - -_
l i
bond work over tne last 65 years. These document < demonstrate a flagrant be-i trayal of the City's interests as far back as February 18, 1965 without the City's knowledgc but at a time when the City was paying SS & D to represent it.
These documents have a direct impact on a number of the issues in this N.R.C.
Antitrust Review. They bear upon efforts by CEI to increase MELP's rates; cfforts by CEI to deny the City a much needed interconnection; cfforts by CEI to decrease the City's service reliability; cfforts by CEI to cause the City to lose customers; cfforts by CEI to deny MELP membership in CAPCO because of unreliable service, contributed to by CEI's refusal of an interconnec' ion, even though CEI had major interconnections with its CAPCO partners to maintain its own reliability. The prejudice of these documents to the City is overwhelmingly clear once the factual background is understood. Likewise the nexus to this proceeding is clear.
- 2. In Exhibit E attached to the City's Brief of December 1,1975, is
' set forth a letter and a memorandum to the file dated October 26, 1966 composed by
- hir. John Lansdale of SS & D. The very existence of this document was confidential ,
l and unknown to the City until it surfaced in NCR discovery pioceedings. What is the meaning of this extraordinary document? '
l As the Lansdale hiemorandum itself makes clear, in 1966 MELP was pro-viding electricity for City Street Lighting at a cost of $671,000.00 but the cost of service actually exceeded this sum by S780,000.00, thus there was an indirect i
subsidy to hiELP operations from the General Fund of the City of Cleveland of an alleged $780,000.00. The plan of CEI then as now was to increase hiELP rates to residential customers and thereby destroy hiELP's major competitive advantage.
It is clear from the Lansdale memorandum that "the Light Plant received '
l . $1,200,000. 00 in excess of cost of service from private consumers." Thus the
- thrust of this confidential memorandum and the thrust of what was happening was i
- i I
i . !
that Lansdale was helping advise the Little Iloover Commission how to increase MELP rates to private residential customers under the guise of relieving the a treet lighting burden on the City's General Fund. Such a scheme was particu-larly damaging to the City because CEI policy could thus be foisted upon the City by an apparently neutral and outside body, The Little Hoover Commission.
This is clear evidence of an SS & D lawyer working to undermine established City policy while other members of his firm were on the City payroll. This Memo also destroys the Affidavits of Brueckel and Lansdale that they had never i
acted adversely to their client, the City. Here is SS&D partner, Brucchel in a conversation with Lansdale and Mr. White of The Little Hoover Commission. This same SSLD partner, Brueckel was the City's Bond lawyer advising on the terms of the trust indenture under which the revenue bonds of MELP are issued. This I
is the same Brucchel who years later prepared the 1972-1973 MELP Bond Issue.
Nothing in the record of this case in any way suggests that any of this was known to the City. SS & D attempt to explain this meeting away by saying The Little l
Hoover Commission was an agent of the City. This is totally misleading. The City was attempting to get expert, independent, and disinterested advice from The Little Hoov'er Commission. It is indisputable that after contact with Lansdale, The Little Hoover Commission recommended that MELP increase its rates to residential customers to cover street lighting costs. This was CEI policy directly contrary to City policy. Here are SS & D lawyers, Lansdale and Brueckel, directly involved i
in one of the key antitrust issues of this case, namely, CEI efforts to increase l
the City's rates to its residential customers.
I
- 3. In the spring of 1966, SS & D served as Bond Counsel for the .
City in connection with a series of bond issues including a $1 Million Street Lighting Improvement Bond Issue. (Exhibit A, Page 6 of the City's Brief dated i
4
! . December 1,1975). SS & D tries to brush this aside by arguing that this was not a revenue bond and thus did not involve hiELP finances.
l But we have seen above that the financing of the City's Street I Lighting System was directly tied into rates charged by AfELP to its residential customers . As bond counsel for the City, SS & D were here obtaining informa-tion abot. an area of City financing that had a direct, relationship with opera-tions of hiELP.
- 4. Sometime in early 1968, SS & D served as bond counsel to prepare
$6 hiillion of Electric Light and Power Plant and System Bonds. (Exhibit A, Page 8 of City's Brief dated December 1,1975) . In order to prepare a $6 Million f'
Bond Issue for hiELP, SS & D necessarily had access to all relevant financial information from MELP at a time when MELP's financial condition was obviously a critical part of its relationship with CEI. Here were SS & D obtaining information and insight into issues now before this Court, namely the City's ability to finance its' electric system and the City's financial ability to pay for interconnection agree-ments or transmission facilities.
- 5. SS & D does not deny that their John Brueckel prepared the 1972-1973 MELP Bond Issue of $9.8 Million. They do not attempt to deny that CEI lawyer Donald Hauser appeared before Cleveland Council and managed to amend Mr. Brueckel's Bonds by inserting a change that would require them to be sold
, first on the open market, when the City had conterr. plated from the first that they would be sold to one of its own internal Sinking or Treasury Funds. Brueckel in his deposition nowhere claims he tried to resist these damaging Hauser-CEI ameni nents, although called upon to do so by then Law Director Whiting.
Brueckel admits he knew in advance these bonds could never be and in fact they never were sold to the public or the open market. His failure
. - _?. - - _ _ - _
e p
3 ,
? l to defend his bond language before Cleveland Council was an outright betrayal of the City Administration which hired him and the MELP position. The deepcnt suspicion attaches that CEI Corporate Solicitor Donald Hauser, SSLD partner and CEI Board hiember, John Lansdale and SS&D partner and City Bond Lawyer John Brueckel privately arranged these " amendments" to the City Bonds.
Several years later in 1975, the issue was partially sold to the Treasury Investment Account as originally planned in 1972. It had taken three years to sell the first bond. In the meantime, hiELP suffered from a loss of critically needed capital funds to make repairs to its equipment. Its competitive position deteriorated rapidly. This episode bears directly upon those issues involving the City's ability to finance its electric system, hiELP, and the City's financial ability to
, pay for interconnection agreements or transmission facilitics. Here again the City charges SS & D not merely with a possib]c conflict of interest, but with a direct sabotage of its interest.
SS & D attempt s to explain all of this away by claiming that the City then knew of existing conflicts with CEI; that it "was dealing at arms length" with SS & D in the person of the then capable Law Director Richard Hollington (SS & D NRC Trial hiemorandum, dated Feb. 3,1976, Page 20) . This itself is an extraordinary statement by lawyers engaged by a client. Here are lawyers attempting to claim that they were dealing "at arms length" with their client.
This is a contradiction in terms. Lawyers must give a client complete and undivided loyalty or not represent it at all. Then comes one of the most extraordinary statements ever used by a lawyer to excuse his own misconduct at Page 22 of the SS & D NRC Trial hicmorandum, dated Feb. 3,1976.
"Briefly restated , the conflict was not a future onc, but an existing one, it existed at the time of SS & D's employment in 1972. It was a conflict
g N
- I created by General Counsel for the City when he filed proceedings before the Federal Power Com-mission and the Nuclear Regulatory Commission.
Any effects which sprang from the conflict were effects created and caused by general counsel for the City in insisting on the employment of SS & D when they themselves had created the conflict si tu a tion . " (Emphasis ours).
The admission in this brief of SS & D when fully appreciated should be sufficient grounds in and of itself for disqualification. HERE SS & D ADMITS TilAT THERE WAS A CONFLICT OF INTEREST. In effect they are saying that this existing conflict of interest was created by the City and that they were free to betray the interest of their client, the City, as they in fact did by sabotaging the 1972-1973 Bond Ordinance. These admissions are shocking and almost unbeliev-able.
The claim that the City brought about conflicts by inducing this " employment" is totally false. SS & D had already been employed for the City for decades.
SS & D was guilty of conflicts of interest against the City that long precede this 1972 bond episode, such as Items 1, 2, 3 and 4 above. Here SS & D completely fails to recognize its ethical responsibilities. They thus admit that there was a conflict of interest between their existing representation of CEI and any attempt to do work for the City in 1972 on a MELP Bond Issue. Under the above cited t
disciplinary rules, if this was so, it was simply impossible for them to represent the City even if asked by the City Law Director. It was their fundamental duty as attorneys to recognize this duty and withdraw. What they did was grossly ;
, improper . Without the slightest attempt at a full and meaningful disclosure, they attempted to paper over their problems by getting a brief letter from the then City Law Director requesting their employment. That letter did nothing l to change their fundamental duty to disclose and withdraw. '
l
- 6. In Exhibit A, attached to the Majority Memorandum of the Atomic l
Y
- Safety and Licensing Board are a letter from John Lansdale, SS & D partner, i ,
dated June 17, 1974 to Mr. Donald H. Hauser, Corporate Solicitor of CEI, and an underlying Memorandum dated May 21, 1974 from Mr. John Brucchel to Mr. Lansdale.
It should be noted that copics of this memorandum also went to Mr. Daniel O'Laughlin and Mr. Morris Knopf, Attorneys in the SS & D Public Law Section who were highly involved with City financial matters. Here is an SS & D memorandum that dealt directly with an agreement between MELP and CEI concerning the supply to the City of electricity generated by nuclear power plants. One could not ask for a document more critically connected with the issues in this proceeding.
Once again, this was done secretly by SS & D without the knowledge or consent of its client, the City. !
- 7. In Exhibit U, attached to the City's Supplementary Brief dated D ecember 10, 1975 appear notes by CEI Corporate Solicitor Donald Hauser dealing with a series of meetings at CEI. His notes of the August 8,1973 meeting disclosed the following: ,
4 "At a meeting in the company on August 8,1973, at which Messrs. Tudolph, Ginn, Williams, Hauser ,
Lansdale, Charnoff, Davidson and Lester attended, it was decided that the Company should refuse the ,
request of AMP-Ohio to Wheel PANSY Power or Wheel Power from any other third party. It was ,
decided that the company should refuse to agree to Cleveland becoming a member of CAPCO. . .
(Emphasis ours)
This extraordinary document has never been denied by SS & D or even explained by them. Although this document was discussed in detail before the NRC panel they chose not to say a word about it in rebuttal. There is in fact nothing they can say about it. THIS PROVES CONCLUSIVELY AN OUTRIGHT BETRAYAL BY AN SS & D LAWYER OF THE CITY'S POSITION. Within a few months of the time John Brueckel of SS & D had been working on the $9.8 Million Bond ;
i
9 Issue and before that bond issue had been sold or completed here was another SS & D partner, Lansdale, participating in a decision at the highest level of CEI, the inevitable impact of which was to damage the sale of these very same bonds and deny MELP hydroelectric power from PASNY, a critically needed source of cheap power. In the clearest terms here is Mr. Lansdale further participa-ting to deny MELP membership in CAPCO which would improve MELP's system reliability and allow it the benefits of coordinated operations and development.
J Following this decision by CEI executives and in an attempt to justify it, another 2
SS & D lawyer, James P. Murphy, on August 16, 1973 submitted a 1cgal opinion justifying the action. (City's Supplementary Brief of December 10, 1973 - Exhibit V) . Here then were SS & D attorneys betraying fundamental interests of the City which are direct issues in this NRC proceeding. This was all done secretly and only came to the City's attention shortly before December 10,1975. ThL is the cicarest imaginable example not of a possible conflict of interest but an i actual conflict of interest deeply prejudicial to the City's interests by SS & D lawy ers .
I It is to be remembered that the City has never been granted full discovery against its former attorneys. The City has never seen the 50 privileged documents treated in camera by the Licensing Board. Even without such discovery the foregoing examples of SS & D misconduct are clear. The City insists there is
, an iceberg of SS & D misconduct present and that the tip displayed by the foregoing
- instances is quite visible enough all by itself.
4
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1 ..
I I.. 1 t a. .
V. SS&D'S TOTAL FAILURE TO MAKE FULL DISCLOSURE OF ITS ACTUAL CONFLICTS OF INTEREST TO TIIE CITY MEANS TIIAT TIIE CITY WAS NEVER IN A POSI-TION TO MAFT AN INTELLIGENT WAIVER OF ITS RIGIITS AND NEVER DID SO.
We return once more to those two disciplinary rules which control in this case.
DR5-101A 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 of his client will be or reasonably may be affected by his own financial busi-ness, property or personal interests.
(emphasis ours) .
DR5-105C In the situations covered by DR5-105(A)
(B), a lawyer may represent multiple
- clients if it is obvious that he can adequately represent the interests of each and if each consents to the renre-sentation after full disclosure of theat possible effect of such representation on the exercise of his independent pro-
, fessional iudement on behalf of each.
(emphasis ours) .
Unless a client is given full disclosure by his attorney of the pos-sible effects that could result when the same attorney is exercising his pro-fessional judgment on behalf of another client, the first client has no way of knowing that a possible conflict of interest exists or its possible impact.
Never once in the 65 year history of the attorney-client relation-l ship between the City and SS&D has SS&D disclosed to the City the possible ad-I verse effect of its employment and services to CEI. i In fact the key SS&D partners have all admitted individually upon deposition taken in the City's antitrust case against CEl, in the U.S. Distric't Court for the Northern District of Ohio, that they never disclosed.
Here is Mr. John Lansdalc, Jr. , Senior SS&D Partner and member of n i
5 !
of the Board of Directors of CEI in a deposition by City Law Director Davis ;
taken February 26, 1976: .
Q (Mr. Davis) Now, let me ask you this: In the entire history of the representation by SSLD of the City of Cleveland, did there ever come a time when someone from SS&D orally or in any way noti-fied the City of Cleveland there was a conflict in SS&D's repre-sentation of MELP and CEI? j
- A (Mr. Lansdale) Well, this goes back, you are talking a good long period of time.
i I don't know, I assume so.
Q Well, you don't know of any?
Oh, yes, indeed I do. Indeed I do.
! A
[! Q. Well, tell us about it. 1 A It was certainly clear, this subject was discussed t
in the 1972 episode.
Q Between what representative of SS&D and what repre-i sentative of the City l
4 A Brueckel, O'Loughlin.
Q Well, let's take these one at a time.
Q All right, Confining it to the area of the Light Plant and CEI, if we may --
A I myself have never had any discussions with any City l
representative about this. -
Q The answer is that you have not answered that right.
. .~ :
It would also be correct to say that you have never disclosed in any way to the City or any of its representatives the exact relation-
- ship of your representation of CEI?
A I personally have never discussed it with anybody i at the City as such.
, ,,, (pages 66 - 67)
Next, here is SSLD Partner and City Bond Specialist, John Brueckel in his deposition of February 28, 1976:
Q (Mr. Davis) Now, in connection with that 1972 bond icgislation did you state to any City official that you were reluctant to pre-pare it?
(Mr. Gallagher) You are talking now at the outset when he was first approached?
(Mr. Davis) Right.
Q (Mr. Davis) At any time during the exercise dealing with the 1972 temporary bonds, did you tell any City cfficial --
A (Mr. Brueckel) Certainly the inference was clear from my conversa-tion with Howard Holton.
Q Just exactly what did you tell Howard Holton?
A As I said before in response to his question as to i
whether or not we would be able to handle the approval of further notes of the 1971 ordinance, because of the controversy between the l
- City and the Cleveland Electric Illuminating Company, I said, "I don't know. In effect, I will have to check with my partners. "
Q Did you say anything else?
A No.
Q Did you ever make such a statement to the then Law
- .. i Director?
A I did not.
Q Is that the only such conversation you had with any City official in reference to the subject of whether or not Squire, Sanders could go ahead?
A That's the only one that I can recall.
(pages 74-76)
Ne>:t here is SSLD Partner, former City Chief Counsel and for years thereafter finance law advisor to the City, Daniel J. O'Loughlin, concerning disclosure at the time of the 1972 bond work. This is from his deposition of February 24, 1976. -
Q (Mr. Davis) We will come to that.
Did you send anything in writing to the City regarding this representation?
i A (Mr. O'Loughlin) I did not, no.
Q Did anybody else from SS&D?
A I don't know. ,
Q Okay. I take it you never informed Mr. Hollington (The City Law Director in 1972) that SSLD had obtained from Mr.
. Rudolph and CEI clearance to do this work?
A I don't recall having discussed that with Mr. Holling- l ton.
I know I knew at the time ihat he called back that this clearance had been obtained.
Q Did you ever inform Mr. Holton (sic Hollington) that
( i i
SSLD owed its primary loyalty to CEI and secondary loyalty to the City?
MR. GALLAGIIER: OBJECTION.
)
is I assume Mr. IIollington was well acquainted with the relationship based on the first phone conversation we had.
He certainly recognized the fact that there was 1
cristing controversies between the City and CEI, and as the Utilities Director felt there was a conflict based on that.
Q You felt there was a conflict?
I A I felt it wasn't good practice if the Utilities Dir-i ector felt there was a conflict he chould come to SS&D.
Q Well, what affirmative actions, if any, did SSLD take to inform the City of problems that may arise from such a represen-tation?
A In my judgment the Law Director was aware of the exist-ing controversies that were taking place between the City of Cleve-land and CEI and was able to draw his own conclusion.
Q So the answer to my question is "none," is that cor-rect?
A No, the answer to your question isn't "none" .
The answer to your question is: That is the conversa-t tion that took place between the Law Director and myself.
f Q All right. But what specific problems did you see i .
arising -- well, strike that.
Was there any discussion of the fact that SSLD was ob-taining at that time roughly four times as much in fees from CEI as
it was from the City?
A No, there was -- there wasn't any discussion of that.
Q Was there any discussion of the fact that -- well, let me strike that and ask this.
You say you were aware of a conflict that existed at the time and you initially concurred it was better that SS&D did not represent the City in this particular financing, is that correct?
A That's correct.
(pages 62-64)
It was a duty upon SSLD to disclose to the City the full implications of its activities on behalf of CEI well back in the 1960's or far earlier than the episode with the 1972-1973 bond issue. The fact that the City in despei a-tion after trying to obtain other bond counsel turned to SSLD for bond work in 1
1972 does ncthing to excuse SS&D's misconduct reaching as far back as 1965 and I beyond. In 1972, SS&D owed to the City of Cleveland a full disclosure of all those actions of its partner John Lansdale and others who had been secretly l
working on behalf of CEI to climinate MELP. It was in 1972 that SSLD owed the duty to th'c City to disclose such items as the Lansdale letter to Ralph M. Besse of CEI dated February 18,1965 (Item 1), and the Lansdale memorandum dated October 26,1966 (Item 2) . In 1972, SS&D should have disclosed to the City the extraordinary fact that it considered that its " primary committment" was to CEI .
There can be no question of the total committ- .
ment of SS&D to the Icgal and business affairs of CEI. Its legal representation of CEI over years has not been special or limited, but has been general in character; and its loyalty :
n -
0 i
l
)
and primary committment to that client has been unqualified. "
In contrast SSLDis representation of the City of Cleveland has been special and limited, not general in character. "
(Answer Brief of John Lansdale, Jr., December 12, 1975, Emphasis ours.)
Even more extraordinary, SS&D should have disclosed what it now dis-closes on page 26 of that same Brief:
"The City argues in its Supplemental Brief that SSLD in the person of John Lansdale, Jr. has provided CEI with local advice adverse to the interests of the municioal electric licht and power plant: and, particularly, that he has -
provided legal advice on antitrust and competitive matters.
.This is correct . . . Mr. Lansdale and Squire, Sanders & Dempsey have acted in all respects as outside general counsel for CEI providing those services typically provided by general counsel including advice and opinions on antitrust mat-
' ters, competitive business matters, and matters of a general legal nature. " (Emphasis ours)
Here is another totally extraordinary quotation from a SS&D Brief filed with the Licensing Board December 12, 1975 which in and of itself should
. be conclusive grounds for their disqualification. THEY ADMIT THAT, ONE OF THEIR PARTNERS WAS ACTING ADVERSELY TO THE CITY ALL THESE YEARS. It is law that if any member of a law firm cannot properly accept professional employment,
, neither the firm nor any member or associate thereof may accept the employment.
DR5-105D If a lawyer is required to decline employment or to withdraw from em-ployment under a Disciplinary Rule,
! no partner, or associate, or any I
other lawyer affiliated with him or -
his firm, may accept or continue such employment. Silver Chrysler Plymouth
- v. Chrysler Motors Corp. , 518 F. 2d
_ _ _ _ i_
751 (2nd Cir.1975) and see the many other cases cited at page 36 of 'ne City's Bricf Ir Support Of The Motion To Disqualify, dated December 1,19t5.
Lansdale's providing CEI with legal advice adverse to the interests of MELP then and there shculd nave disqualified SSLD. No one appreciated or understood this better than SSLD itself. The Ccdt demands that the lawyer recognize his ethical responsibilities and a:t accordingly, It was not incumber.t upon the client, the City, to guess at such matters. The failures to disclose of SSED going back over many yo u . now mean that it tr.unt suffer the penalty of disquali-fication . Even the isolat ed (nisode c.f the 1972-1973 bond issue took place without the necessary disc crc b~ SSLD. Nothing in the entire history of the relationship between SSLD and the City can explain away or excuse their miscon-duct or their failure to disclose. Without such disclosure the City was never in a position to make an in'elligent waiver of its right to disqualify them and l
l never did so. .
VI SSLD IF ESTCPPED BY ITS OWN MISLEADING RE-PRESEN~ / TIONS TO THE CITY FRCM CLAIMING THE CITY l'NEW CF SSLD'S CONFLICT OF INTEREST.
. \
One of the major arguments in SSLD's Brief is that by the time of SSLD's 1972 MELl' bond work, the City had intervened before the N.R.C. Thus
, at that time there was an existing controversy between CEI and the City well known to the City Law Director who hired SSLD.
There are several ansv. .r1 to this.
In the first place, disqualification of SSLD is not dependent solely upon its role in the 1972 bond ordinance. Its 65 years of detailed familiarity with all the City's financial affairs, the conduct of SS&D Partner John Lans-exsu_nce nrenemn, r;n rutnren _ , -
,e k
, Daniel O'Loughlin at SSLD are independent reasons enough. There are numerous other independent reasons for their disqualification in this extraordinary Case.
But as to the N.R.C. proceeding it is important to understand that SSLD did not initially represent CEI. CEI and the other CAPCO companics were represented by Shaw, Pittman, Potts L Trowbridge of Washington, D.C. As far as the City was aware, SSLD was not directly oppcsing it in the N.R.C. until after the 1972 bond work was launched.
More important, the City was constantly misled by SSLD as to the real role it was playing. SS&D constantly proclaimed it never acted adversely to the interests of the City.
Recall that on September 16, 1974, a City attorney charged SSLD be-fore the N.R.C. with acting adversely to the interests of the City.
The response of Mr. Lansdale which came October 4,1974 is repro-duced in full below:
O e e
Y
V ,-
UNITED STATES OF AMERICA ATOMIC EMERGY COlc!ISSION BEFORE THE ATOMTC SAFETY AND LICENSING BOARD In the Matter )
)
The Toledo Edison Company )
The Cleveland Electric Illuminating ) Docket No. 50-346A I
Company )
j (Davis-Desse Nuclear Power Station) ) '
)
Dochet Nos. 50-440A The Cleveland Electric Illuminating )
Company, et al. ) and 50-441A (Perry Plant, Units 1 and 2) ) f STATEMENT OF SQUIRE, SANDERS & DEMPSEY RELATIVE TO * '
ALLEGATIOUS OF MISCONDUCT MADE BY ONE OF COUNSEL FOR THE CITI OF CLEVET_AND
, ~
We have read the portions of'the transcript of the proceedings held before this Board on September 16, 1974, in which Mr. Hjelmfelt, one of counsel for the City of Cleveland, an intervonor, suggested that the firm of Squire, Sanders & Dempsey,*
while acting as bo'nd counsel for the City of Cleveland, acted ,
adversely to the City of Cleveland and in the ' interest of its client, The Cleveland Electric Ill,uminating Company (R. 749).
We regret that a prior engagement in the U.S. District Court for -
- The firm practices in Washington, D.C. under the name Cox, Langford & Brown in which style it is referred to in the appear-ance hercin of John Lansdale for the Cleveland Electric Illuminating Company.
14cw crue'y prevented attendance at the hearing. .
Squire, Sanders & Denpsey has represented the .
91cvoland Electric Illuminating Company in a wide variety of rnatters since shortly af ter its formation. For more than
.i5 years, such firm has acted, and continucs to act, as bond . ,
- ounsel in connection with bonds and notes issued by the City ,
of Cleve3and. Both parties are and have been fully aware of f 1ig such representations. Sofar as we know, the integrity of this i 6 i
firm has not heretofore been impugned in the manner in which !
,. t We did not and have never H
'.4r. Hjelmfelt has seen fit to do. ll
- it while representing one client acted adversely to such client in the interests of the other. l'-
I s'
t Respectfully submitted ,- k
,4 Squire, Sandcrc & Dempsey ;. .,
1000 Union Commerce Building
)
Ij Cleveland, Ohio 44115 j.
- ,I
- - 216-696-9200 i
, 71 d
j i
Co>:, Langford & Brown i 21 Dupont Circle, N. W. .
l' fj
- - Washington, D. C. 20036
. l -
- 1't a i .__ h d.h. J f JojinLansdale, Jr. ,
I e a
)
0
. I
. I,.
d"')
s Such was the face SSLD always presented to the City and the world until the City began to disqualify it. Now, trapped by overwhelming evidence of its conflict of interest, SSLD has switched strategies and proclaims boldly that there always was a conflict of interest, and that the City Law Directors in past years should have known it.
In view of such deliberately misleading statements as those above and SSLD's total failure to disclose, it is easy to see why the City continued to use SSLD. In view of such conduct, SS&D is now estopped from claiming the City knew of this conflict of interest.
i ;
i.
I 4
le i
l:
e i
j.
I 4
e E
'h i
1 e
. 49
i r l i
Vl! IN VIEW OF SSLD'S TOTAL FAILURE TO ,
DISCLOSE ITS CONFLICTS OF INTEREST AND ITS MISLEADING REPRESENTATIONS, Tile FACT TilEY WERE RETAINED BY THE CITY'S LAWYERS IIAS NO BEARING ON Tile APPLICATION OF Tile CANONS TO Til!S PROCEEDING.
The Appeal Board h; posed the following question:
(3) What (if any) bearing does the fact that the City's lawyers retained the firm have on the application of the Canon to this case and, in particular, did it affect the firm's obligation to " explain ful-ly to each client the implications of the common representation and (to) accept or continue employ-ment only if the clients consent"?
Another way to ask this question is: Should a lawyer be excused from making a full disclosure of a potential conflict of interest because the person doing the hiring for the client is another lawyer?
Unless one wishes to remove the duty of disclosure imposed by the Code of Professional Responsibility on the lawyer seeking to maintain common representation and replace it with a duty of investigation on the part of the law'yer for the client, the answer to the Board's question must be "None - No".
The fact that SSLD were hired by City lawyers certainly cannot diminish SS&D's obligation to " explain fully to cach client the implications of the common representation and to accept or continue employment only if the clients consent. "
Only SSLD was in a position to understand those implications fully and explain them fully. Their total failure to disclose such implications compound-ed by their declarations of purety have been discussed above. i Any other result perverts and demeans the Code and the entire case law construing it. Any other result means that one is carving out an exception to the Code in which lawyci s do not owe cach other the same dutics of disclosure
0, ti
)
they owe to other persons. Any other result diminishes the kind of conduct the ,
United States Supreme Court, at least.scems to expect of lawyers:
"It is a fair characterization of the lawyer's responsibility in our society that he stands 'as a shield' in defense of right and to ward off wrong. From a profession charged with these responsibilities there must be exacted those qualities of truth speaking, of a high sense of honor, of granite discretion, of the strict-est observance of fiduciary responsibility, that have throughout the centuries, been compendiously described as ' moral character'" . Schware v . Bd .
of Bar Examiners, 353 U.S. 232,247 (1957) e i
e i l e
I
'4 e
.g e
I O
t *
.k '
i
' .. i VIII QUESTIONS OF TIIE APPEAL BOARD AND j i
LICENSING BOARD. i The Appeal Board have posed three questions which have been previous-ly answered in this brief.
1 (1) When the City of Cleveland requested the firm of Squire, Sanders and Dempsey to represent it respecting the issuance of municipal bonds to finance construction of a new City power plant, what explana-tions were given to the City by the firm about potential conflicts of interest which might arise because the firm also repre-sented its competitor, the Cleveland Elec-tric lliuminatir.g Company? .
! i City Answer: Absolutely none. See Section V for full , i !
i m
l discussion of SSLD's failure to diclose. j j e
f (2) Precisely when, by whom, and to whom were those representations made and what signi-ficance attaches to them?
I ,
City Answer: Never - by no one - to no one. No signi-i fican ce. See Section V for a full discussion of SSLD's failure to disclose.
(3) What (if any) bearing does the fact that the . ,
the City's lawyers retained the firm have on the application of the Canon to this case ,
) and, in particular, did it affect the firm's i l l obligation to " explain fully to cach client - l the implications of the common representa-tion and (to) accept or continue employment only if the clients consent? '
City Answer: None - No. See Section VII for full disc assion.
The Licensing Board have posed four questions which have been .
i I
partially answered above and will be further considered here: !
(1) Whether the jurisdiction of the NRC under Rule 2.713 extends to situations covering -
attorney conduct outside the NRC forum which has an impact on representation with- l in the forum.
- t l 6 ,
' I n
g.
- 1 City Answer: Yes and certainly as to the type of attorney conduct in issue here. For a full discussion see SectionI.
(2) Whether the Special Board has the ultimate authority to put into effect or vacate an order of suspension under Rule 2.713.
City Answer: No, or at least not under the circumstances here.
The referral of this case to the Special Board was an anomaly from the outset.
]
The charge of SSt,D misconduct outside the NRC was made by the City. The Licensing I
Board was a neutral forum to decide disqualification and hear any necessary evidence. Just as any Federal Court, the Licensing Board had full authority
- to control its proceedings. The City at the very outset (See transcript of Licensing Board Proceedings December 31,1975 pages 3-9) ruggested that the Licensing Board invoke the Code of Federal Regulations 2.718
- "A presiding officer has
[ ' the duty to conduct a fair and impartial bearing according to law. . ." . Under i
this language there appeared no necessity of using a Special Board. A reading of NRC Rule Section 2.713 as a whole makes clear that the " opportunity to be heard (on pieferred charges) before another presiding officer" was designed
- to provide a neutral forum to consider misconduct occurring before the NRC.
i licre the misconduct arose outside the NRC. Out of an excess of caution and because this Rule 2.713 had previously never been applied to disquali-fication of attorneys for conflict of interest, the Licensing Board referred i
the matter to the Special Board. Under such cit cumstances the Special Boardt s l function was analogous to that of a Master to receive further evidence, sub-ject to final confirmation and judgment by the ^ icensing Board, just as a Court l would confit m or modify or reverse the findings of a Master. When the Special Board reversed the suspension of SS&D by the Licensing Board, it did so on the 1
t _- _. __ _ - - - _
3 '
l
~
basis of no new evidence, since none was taken. The Special Board lacked all of the full context of the events in Cleveland concerning CEI and the City's MELP possessed by the Licensing Board. Without such a context the significance of the conduct of SSt,D was obviously lost upon it.
In view of these factors and the serious procedural and substantive legal errors it managed to commit in the brief hearing before it. The findings of the Special Board should be er, titled to very little weight. In any event, the Licensing Board had full power to modify or reverse the findings of the Special Board subject to the right of appeal.
(3)) Whether a showing of either actual injury or specific exchange of information of a
> confidential nature is required to enforce a finding of attorney misconduct based upon the exchange of some information sup-plied by one client of an attorney to an-other client of that attorney whose in-terests are adverse to the original client.
City Answer: No. I 1
The suggestion that actual misconduct by an attorney must be proven in order to disqualify him for conflict of interest in attempting to represent multiple l
clients entirely misconstrues the Code and the case law. No actual misconduct need be shown. The mere possibility of injury to the client from having his former attorney oppose him in litigation is enough. The City has gone far beyond its burden of proof in what it has demonstrated in this brief.
"' It is not necessary , in order that disquali-
, , fication result from a prior employment, if it be shown that the attorney acquired knowledge -
while representing the prior client which could operate to his disadvantage in subsequent adverse represe ation .'" llilo Metals Co. Ltd. v. Lear-ner Co. , 258 F . Supp . 23,28 (D .C . Ilaw .1966) cit-ing U.S. v. Trafficante, 328 F. 2d 117 6th Cir. 1964) .
1 l
l n ,
, J i ,
l "I cannot accept the rather fine distinction which Mr. Ruskay sccks to establish - in effect
- to measure the impact of the conflict upon his l ,
client's interests. Once a conflict of interest i
! appears from the facts and where the matters em-braced in the pen d ., action are substantially
- related to those in the other actions, the law t
- will not inquire into the force of the impact or its potential damage. For the court to do so would require it to speculate as to the course a litigation would take and would tend to under-mine the confidence of clients that their counsel would be constant in their loyalty to their in-I terests, a confidence essential to our adversary legal process. " Estates Theatres . Inc . v . Col-umbia Pictures Indus. Inc. , 345 F. Supp. 93, 98,99 i (S .D .N .Y .1972) i "I do not agree that the burden is upon the de-fendants . It is far too great t task to place l upon a former client seeking protection against disclosure of his confidences to require him to establish by proof that the confidence he plac- .
ed in one partner has been disclosed to other (
~
partners . . . Direct evidence would be well nigh l impossible to obtain; the circumstances shown i lead to one rational conclusion." Laskey Bros.
. of W. Va. v. Warner Bros. Picturcs. . 224 F. 2d 824,833 (2nd. Cir.1955) .
(4) Assuming the answer to question 2 is negative and 3 is affirmative, whether in the circumstances now before us the order of disqualification may be up- -
held .
City Answer: Yes, it must be. Any other result would undermine the legal profession.
i 9
3 i 1
IX IF ANY PARTY IIAS BEEN DEPRIVED OF PROEEDURAL DUE PROCESS BEFORE Tile NRC IT IS Tile CITY AND NOT SSLD.
f.
SSLD has claimed, in its brief, a denial of procedural due process of law by the Licensing Board based upon 1) deprivation of an opportunity to make a full evidentiary showing; 2) the entering of a finding and order prior to a required hearing; and 3) the consideration of privileged documents in camera without affording $SLD a hearing thereon prior to its finding; and
- 4) lack of impartiality when in entering its order of suspension of March 19, 1976, it acted as an advocate urging the propriety of finding. Let us examine these claims in order.
- 1) No Opportunity To Make A Full Evidentiary Showing 4
At the hearing of December 31, 1975, able counsel for SSLD, Mr. Gal-lagher, and Chairman Ripler discussed the form of any subsequent "hcaring" be-1 fore another officer in the event charges were preferred against SSLD.
Mr. Gallagher: As I understand your ,
question, it is whether 1 would be pre- ,
pared to agree that the submission to 2
y another Hearing Officer, if this Panel does prefer charges, would be on briefs -
filed presently and we would -- 1
' Chairman Rigler: And the transcript of ,
this proceeding.
Mr. Gallagher: And the transcript of this proceeding.
Chairman Rigler: So that no additional .
argument need be taken.
i Mr. Gallagher: We are agreeable to that.
- Mr. Davis: I am not, your llonor. . .
(Page 87 of December 31, 1975 transcript) ,
1 It was thus the Law Director of Cleveland who argued for a full evidentiary ,
I
! hearing before the Special Board and Mr. Gallagher for SS&D who waived it. l l
i D '
l !
i
'l. .
On January 23, 1976, the Special Board was appointed to afford SSLD an f
opportunity to be heard on the charges stated that the procedure of the hear-ing "will be the same as that followed . . . on December 31, 1975." with the hearing set for February 3,1976. hir. Gallagher was on notice as to the scope of the Special Board hearing and his cleventh hour attempt to present an eviden-tiary hearing while at the same time blocking the City's attempt to protact its interests if the scope of inquiry was to be expanded indicate that he believed his client SSLD was entitled to more than equal treatment before the Commission.
It was the City which was denied fundamental rights of discovery and was taken by surprise by the last minute rulings of the Special Board.
These rulings were so patently unfair that the Staff intervened and the Special l
" Board reversed itself. Nevertheless SSLD made a full and openproffer of what l its evidence would have been which the Special Board heard. The City was again taken by surprise and was not prepared to reply. It was the City which was 4
. given no rights to present evidence or time to make a proffer.
Was SS&D entitled to a full evidentiary hearing on the charges of conflict of interest? No. The recent case of hiildner v. Gulotta,405 F. Supp.
i 182,195 (E.D.N.Y.1975) explained that an accused attorney cannot expect to chal-lenge procedural features of disciplinary proceedings by claiming that a hear-ing on charges against him required a full evidentiary hearing.
l "First, while we agree that the opportunity ;
. to hear and observe the demeanor of witnesses '
. is an essential element in weighing and apprais-~
ing of testimony, its importance diminishes when facts are developed and inferences may be l drawn without reference to credibility. As al-ready pointed out, a disciplinary proceeding is not a full blown trial but an inquest - a gath- '
cring of facts concerning the conduct of an at-torney, a subject more likely to be illuminated by the evidence of the attorney's own acts than
'l .
I, g
't by what is said or not said by someone else."
Earlier the court had stated:
I '
"(Disciplinary Preccedings) are not lawsuits between parties litigant but rather are in the nature of an inquest or inquiry as to the l
conduct of the respondent. They are not for the purpose of punishment, but rather to scck I to determine the fitness of an officer of the court to continue in that capacity and to pro-tect the courts and the public from the offi-cial ministration of persons unfit to practice."
! Mildner v. Gulotta, 405 F. Supp.182,191,192 r (E.D.N.Y.1975) citing In re Ming, 469 F. 2d.
1352,1352 (7th Cir.1972) . .
- 2. The Entering of an Order and Charge Prior to a
.: Required Hearing.
, SSLD's second claim for denial of due process centers around
. the Licensing Board entering an order and charges prior to a "rcquired" hearing.
1 i The claim is without merit. The rules specify that that procedure may be fol-r .
. Iowed (Sec. 2.713(c)) and Mr. Gallagher had every opportunity to raise the t
I issue before now. j r, 3. In Consideration of Privileged Documents In Camera.
1.
SSLD's third claim centers around the examination by the Panel of t
50 privileged documents in camera without affording SSLD still another hear-
.'i .
ing before entering any order or preferring charges. The claim is also sham.
l SS&D in person of one of its senior partners agreed to such examin-c y
! ' ation .
I 1
John Lansdale responded in December of 1976 to Chairman Rigler's
. I request to examine the documents as follows: l
- "Our position, as far as we are concerned ,
- you can examine them until kingdom come.
It is the privilege of the client, however. i I haven't consulted my client" (page 90 l of December 31, 1975 transcript) . .
I
(
i
- And, after all, SSLD were the authors of these 50 privileged docu-ments and well knew their contents.
~
On the other hand, the City has never to this dov seen these documents or been permitted to comment on them or explain their relevance to either Board.
j
- 4. The Licensing Board Acted As An Advocate.
Mr. Gallagher finally claims that due process was denied SSLD ,
because the Licensing Board acted as an advocate urging the propriety of its ,
I carlier "ill conceived and unwarranted findings" .
Congress has empowered the Commission to have original jurisdiction over the attorneys who practice before it. That the Panel found grounds fer sus-
, pension is no reason for SSLD to attack the integrity of its memberr. Mr . Galla-I gher is being unjust to Panel members charged with the duty of regulating the i .
1 , course of the hearings and the conduct of the participants. He cites no evidence j whatever to back his charge except a result adverse to his client.
The Fundamental Injury To The City It is easy to lose sight of what these proceedings to disqua.lif, attorneys are all about. The City has sought since November 1975 to disqualify SS&D. Throughout the disqualifcation proceedings SSLD attorneys have partici-pated in the evidentiary hearings on the merits before the Licensing Board over
. the City's standing objection. The very injury tha City sought to avoid at the
- onset has been permitted to occur.
If any party to these proceedings before the NRC has been derived procedural due process or suffered injury it has been the City of Cleveland '
t and not SSLD.
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' CONCLUSION
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The facts before this Appeal Board present an overwhelming case I
i for disqualification. The City's lawyers for 65 continuous years, SSt.D, now 1
seek to represent CEI directly against the City's h!ELP in litigation. All the knowledge of the City's financial affairs and its electric utility operatione gained l by numerous SSLD partncrs over 65 years is now to be used against it.
This is a total conflict of interest and in violation of Disciplinary * .
Rules 5-101(A) and 5-105(A), and (B) and (C) of the Code ci Professional Responsibility .
The City has proved, notpossible, but actual prejudice to its r .
interests by SSLD in a number of instances. Crme of these instances occurred long before the 1972-73 MELP bond episode, where SSLD sechs to shift the i
blame for its misconduct to the City.
Going far beyond its required burden of proof, the City has proved actual prejudice by SSLD relating to numerous issues before this Court, including refusal to give MELP an interconnection; refusal to let it join CAPCO; schemes to force it to proce fix by raising rates; refusal to let MELP wheel hydroelectric power; and sabotage of its bonds to deny it critical financing.
The City has proved all these matters despite frantic and'so far successful efforts by these lawyers to deny it access to many privileged docu-ments prepared by SSLD for CEI dealing with the City's own MELP.
SS&D does not evenpretend they ever made an honest or full l disclosure to the City of their secret misconduct. They were too busy conceal-ing it, prior to this trial, by constant assertions of fidelity to the City and by helping CEI claim privilege for them.
s 00
What is truly incredible is that they have lived with a pattern of misc.onduct so long they are incapable of seeing it.
Ilov. clse can one explain the extraordinary admissions in their own briefs and depositions that their " loyalty and primary committment to that client (CEI) has been unqualified."
(Answer Brief of John Lansdale, Jr.)
December 12,1975 - Pages 2-3 or "they were dealing 'at arms length' with their client the City" (SSLD Trial Memorandum Before Special Board)
February 3,1976 - Page 20 or the conflict (between CEl and the City) was not a future one but an existing one" (SSLD Trial Memorandum Before Special Board)
February 3,1976 - Page 21 or
" John Lansdale, Jr. has provided CEl with legal advice adverse to the interests of the municipal electric light and power plant . . . This is correct."
(Answer Brief of John Lansdale, Jr.)
December 12, 1975 or Q. (Mr. Davis) You say you were aware of a conflict that existed at the time and you initially concurred it was better that SS&D did '
)
not represent the City in this particular financing , is that correct?
(The 1972 MELP Bond Financing)
A. (Mr. O'Laughlin) That's correct. .
(Deposition of SSLD Partner Daniel J. O'Lau-ghlin, taken in City antitrust case against CEl . Case No. C-75-560 U .S .D .C . N .D .
o
Ohio - February 24,1976 - Page 64.)
Since SSLD concedes SS&D's conflict of interent in its past dual representation of CEI and the City, the further damage the City will suffer from its former attorneys in this direct litigation against them will be ruinous to the entire future of its electric light operation. They must be disqualified now. It must be settled that Federal AdministrativcAgencies have no lesser standard of conduct for attorneys than do the Federal Courts.
Respectfully submitted ,
m M Q /)4OyM%)
JAMES B. DAVIS Director of Law ROBERT D. IIART First Assistant, Director of Law 213 City IIall Cleveland , Ohio 44114 694-2737 Attorneys for City of Cleveland 1
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i A copy of the foregoing Document was mailed this dlO dh day of April, 1976 by Regular U.S. Mail to the following: .
Alan S. Rosenthal, Chairman Atomic Safety and Licensing Appeals Board
- U. S. Nuclear Regulatory Commission ;
Washington, D. C. 20555 Dr. John H. Buch i Dr. Lawrence K. Quarles Atomic Safety & Licensing Appeals Board .
U.S. Nuclear Regulatory Commission !
Washington, D. C. 20555 Howard K. Shapar, Esquire Executive Legal Director U.S. Nuclear Regulatory Commission
' Washington, D. C. 20555 Mr. Frank W. Karas, Chief ,
' Public Proceedings Branch Office of the Secretary U.9. Nucicar Regulatory Commission Washington, D.C. 20555 i Abraham Braitman, Esquire l Office of Antitrust & Idemnity i U.S. Nuclear Regulatory Commission j Washington, D.C. 20555 ,
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Frank R. Clokey, Esquire .
Special Assistant Attorney General , ,
Towne House Apartments, Room 219 :
Harrisburg, Pennsylvania 17105 Edward A. Matto, Esquire !
Assistant Attorney General !
- Chief, Antitrust Section 30 East Broad Street, 15th Floor Columbus, Ohio 43215 Richard S. Sal: man, Chairman Atomic Safety & Licensing Appeals Board U. S. Nuclear Regulatory Commission -
Washington, D. C. 20555 D
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5, Michael C. Farrar ;
Dr. W. Reed Johnson ,
Atomic Safety 6 Licensing Appeals Board ,
U.S. Nuclear Regulatory Commission Washington, D. C. 20555 Andrew F. Popper, Esquire ,
Office of the Executive Legal Director U.S. Nuclear Regulatory Commission Washington, D. C. 20555 Benjamin H. Vogler, Esquire .
Joseph Rutberg, Esquire '
Robert J. Verdisco, Esquire Roy P. Lessy, Jr., Esquire j' Office of the General Counsel Regulation ,
U.S. Nuclear Regulatory Ccemission Washington, D.C. 20555 1
Melvin C. Berger, Esquire l
) Joseph J. Saunders, Esquire Steven M. Charno, Esquire i David A. Lechic, Esquire Janet R. Urban, Esquire
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Ruth GreenFpan Bell, Esquire Antitrust Division j Department of Justice g Post office Box 7513 1 Washington, D.C. 20044 l
Raren H. Adkins, Esquire
' Richard M. Firestone, Esquire l Assistant Attorney Generals Antitrust Section *
' 30 East Broad Street, 15th Floor t Columbus, Ohio 43215 l
Christopher R. Schraff, Esquire Assistant Attorneys General Environmental Law Section 361 East Broad Street, 8th Floor i Columbus, Ohio 43215 ,
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' Thomas J. Munsch, Jr., Esquire a 3
i General Attorney
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Duquense Light Company '
l 435 Sixth Avenue -
Pittsburgh, Pennsylvania 15219 6
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Joseph Rieser, Esquire .
Reed, Smith, Shaw & McClay Suite 440 1155 Fifteenth Street, N.W. ;
Washington, D. C. 20005 i Terrence H. Benbow, Esquire Winthrop, Stimson, Putnam & Roberts 40 Wall Street New York, New York 10005 Wallace L. Duncan, Esquire Jon T. Broun, Esquire ,
Duncan, Broun, Weinberg & Palmer ,
1700 Pennsylvania Avenue, N.W. ;
1 Washington, D.C. 20006
! t l Robert P. Monc, Esquire i George, Greek, Ring, McMahon & !
li McConnaughey .
Columbus Center .
100 East Broad Street l Columbus, Ohio 43215 j i ,
Reuben Goldberg, Esquire Arnold Ficidman, Esquire David C. Hjelmfelt, Esquire i Goldberg, Fieldman & Hjcimfelt Attorneys at Law I 1700 Pennsylvania Avenue, N.W.
Suite 550 l l Washington, D. C. 20006
- David McNeill Olds, Esquire .
John McN. Cramer, Esquire ,
William S. Lerach, Esquire Reed, Smith, Shaw & McClay P. O. Box 2009 t
Pittsburgh, Pennsylvania 15230 John C. Engle, President AMP-0, Inc. ,
Municipal Building 20 High Street ,
Hamilton, Ohio 45012 Jon T. Brown, Esquire l Duncan, Brown, Weinberg & Palmer j Suite 777 ,
1700 Pennsylvania Avenue, N.W. , ,
Washington, D.C. 20006
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Victor F. Creenslade, Jr. , Esquire ;
Principal Staff Counsel The Cleveland Electric Illuminating Company ,
P.O. Box 5000 Cleveland, Ohio 44101 1
Lee A. Rau, Esquire -
Joseph A. Rieser, Jr., Esquire Reed, Smith, Shaw & McClay i Suite 404 i
!!adison Building Washington, D.C. 20005 Leslie Henry, Esquire
!!ichael M. Briley, Esquire .
Roger P. Klee, Esquire ruller, Henry, Hodge & Snyder 30011adison Avenue '
To.1edo, Ohio 43604 Pennsylvania Power Company 1 East Washington Street i New Castic, Pennsylvania 15103
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[JampsB. Davis ,
M irector of Law O
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The following ucre hand-delivered:
i John Lansdale, Jr., Esquire Cox, Langford & Brown 21 Dupont Circle, N.W.
Washington, D. C. 20036 Donald 11. !!auscr, Esquire '
Corporate Solicitor ,
The Cleveland Elcetric Illuminating Company '
Post Office Box 5000 i I
Cleveland, Ohio 44101 ,
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Gerald Charnoff, Esquire I Wm. Bradford Reynolds, Esquire -
l Shaw, Pittman, Potts & Trowbridge l 910 Seventeenth Street, N.W.
Washington, D.C. 20006 l Mr. Chase R. Stephens j Docketing and Service Section U.S. Nuclear Regulatory Commission 1717 11 Street, N.W.
Washington, D. C. 20555 i i
Dou'glas V. Rigler, Esquire -
Chairnan i Atomic Safety 6 Licensing Board Panel l
, Foley, Lardner, llollabaugh & Jacobs -
815 Connecticut Avenue, N.W.
Washington, D.C. 20555 ;
i Michael R. Gallagher . i Attorney at Lau 630 Bulkley Building Cleveland, Ohio 44115 i.
Ivan W. Smith, Esquire John M. Frysiak, Esquire
. Atomic Safety & Licensing Board Panel U.S. Nuclear Regulatory Commission Washington, D. C. 20555 l l
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