Growing Trend Against Motions to Disqualify: Part 2

By Roy Simon

[Originally published in NYPRR December 2000]

In the first installment of this article, [see, NYPRR Nov. 2000], I asked whether there is a growing trend in the Southern District against granting motions to disqualify opposing counsel. I pointed out that courts hesitate to find conflicts; dislike granting a motion to disqualify when the moving party has not clearly suffered damage; look beneath the surface of a motion to determine if it is “tactical;” and will sometimes refuse to disqualify lawyers even when they are clearly violating the conflict rules. My first exhibit was the case of Rocchigiani v. World Boxing Council [82 F.Supp.2d 182 (S.D.N.Y. 2000)].

A second case denying a motion to disqualify is Sumitomo Corp. v. J.P. Morgan & Co. [2000 WL 145747 (S.D.N.Y)]. (Author’s note: The author served as the expert on behalf of Sumitomo and Paul Weiss in this case.) Paul Weiss, Sumitomo’s long-time U.S. counsel, began representing Sumitomo in connection with Sumitomo’s copper trading business in late 1995 when Sumitomo’s U.S. subsidiary received a subpoena from the Commodity Futures Trading Commission. In 1996, Sumitomo’s chief copper trader, Yasuo Hamanaka, confessed to unauthorized copper trading, and Sumitomo publicly disclosed that it had suffered losses of roughly $2.6 billion from Hamanaka’s copper trading. Following this disclosure, Sumitomo retained Paul Weiss to investigate Hamanaka’s activities, to represent Sumitomo before the various worldwide regulatory and law enforcement authorities investigating these activities, and to defend it in any litigation arising from Hamanaka’s copper trading.

Existing Client Among Potential Adversaries

During this investigation, Paul Weiss discovered that several of its clients, including Chase, were among Sumitomo’s potential adversaries. (Paul Weiss represented Chase in a number of matters, including the enforcement of a New York judgment against a resident of France.) Paul Weiss advised Sumitomo that it could not evaluate potential claims against those clients or represent Sumitomo in connection with any future litigation against those clients. However, in 1998 Sumitomo asked Paul Weiss to seek a waiver from Chase that would permit Paul Weiss to evaluate Sumitomo’s potential claims against Chase and to discuss any valid claims with Chase before Sumitomo commenced litigation. Chase refused to waive the conflict.

In June 1999, Sumitomo sued Chase. Sumitomo was represented by Kronish, Lieb. In August 1999, Sumitomo sued J.P. Morgan. In this case, Sumitomo was represented by Paul Weiss. The complaints were similar in many respects, so Chase moved to consolidate or coordinate the two actions. Chase also moved to disqualify Paul Weiss on grounds that Paul Weiss’s representation of Sumitomo in the Morgan action would adversely affect Chase.

Motions Generally Disfavored

The court began its analysis by noting that in the Second Circuit, “motions for disqualification are generally viewed with disfavor because disqualification of counsel impinges on a party’s right to employ counsel of choice, and such motions are often interposed for tactical purposes.” Here, Chase’s attorneys conceded at oral argument that Paul, Weiss’s use of confidential information obtained from Chase was not in issue. The only issue is loyalty.

No decision, however, has found that the Code’s prohibition against simultaneous representation extends to the situation before the Court. Here, Paul Weiss is not representing Sumitomo against Chase in this litigation in violation of DR 5-105. Instead, Paul Weiss is representing Sumitomo against Morgan, a non-client, while Kronish Lieb is representing Sumitomo against Chase, Paul Weiss’ current client in an unrelated matter. Thus, the per se rule against simultaneous representation articulated in Cinema 5 and other decisions does not require the Court to disqualify Paul Weiss.

[Editor’s note: In Cinema 5 v. Cinerama Inc. [528 F.2d 1384 (2nd Cir. 1976)], a New York attorney was a partner in two separate law firms, one with an office in Buffalo and the other with an office in New York City. The Buffalo firm represented Cinerama as one defendant in an anti-trust action by several upstate theatre operators, The New York City firm represented Cinema 5 in a suit against Cinerama and others, alleging a conspiracy to acquire Cinema 5 to restrain competition. As a result, one lawyer was in effect the attorney for an existing client in one matter and against the same client in another matter.

[The Court in Cinema 5 rejected the “substantial relationship” test measuring whether the two actions were similar in substance and instead applied a simple loyalty test. “We…hold…that the ‘substantial relationship’ test does not set a sufficiently high standard by which the necessity for disqualification should be determined… Where the relationship is a continuing one, adverse relationship is prima fade improper.”]

Chase argued that DR 5-105’s rule against a lawyer representing a client if that representation will adversely affect another current client’s interests mandates that Paul Weiss should be disqualified. However, in this Circuit, disqualification is only appropriate under Canon 5 where the attorney’s conflict undermines a court’s confidence in the vigor of the attorney’s representation of his client.

In assessing that issue it must be recognized that we are not dealing with an individual client who has placed his trust in an individual lawyer for a substantial period of time. Chase is a huge financial institution and Paul Weiss is but one of many law firms with which it does business. Moreover, the amount of business is not substantial given the size of the two institutions. Thus, there is no reason to suspect that Paul Weiss would fail to represent Sumitomo vigorously as a result of a desire to please its client Chase. Indeed, the fact that Chase had made this motion demonstrated that Chase does not believe that Paul Weiss will not vigorously represent Sumitomo.

One can imagine a factual situation where the relationship between the lawyer and client is so extensive and the prejudice that would result to the client, if the position the lawyer advanced on behalf of the other client was accepted, is so great that there would be an appearance of impropriety. That is not this case.

There is no danger that Paul Weiss’ participation in this case will adversely impact its representation of Chase in the other matters. The issues involved in this action are totally unrelated to the issues in the matters in which Paul Weiss represents Chase. While one can understand that Chase’s in-house counsel might be unhappy that a law firm which represents it in some matters was taking a position in litigation involving another client that, if adopted, would prejudice an argument that Chase was advancing in a separate case, that does not mean that the law firm is violating a confidence of its client or engaging in unethical conduct.

The court found “no indication that Paul Weiss’ conflict between Sumitomo and Chase will undermine the Court’s confidence in the vigor of Paul Weiss’ representation of either Sumitomo in the Morgan action or Chase in any unrelated matter.” There was, therefore, “no reason to disqualify Paul Weiss.” The cases cited by Chase in support of the motion to disqualify all “involved situations in which the disqualified firm was taking adverse action against a current client in a much more direct manner than Paul Weiss is here.”

However, the court granted the motion to consolidate the Chase and Morgan actions. “Upon consolidation, no conflict arises because consolidation does not merge separate lawsuits into a single action and does not make parties in one suit parties in another. Thus, consolidation does not create a situation in which Paul Weiss is representing a client who is suing another current client.”

Roy Simon, Professor of Law at Hofstra’s School of Law, writes Simon’s New York Code of Professional Responsibility Annotated, published by West. The book is revised annually.

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Disqualification Roy Simon