UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
December 14, 1955
UNITED STATES of America, Plaintiff,
STANDARD OIL COMPANY (New Jersey) and Esso Export Corporation, Defendants
The opinion of the court was delivered by: KAUFMAN
In a civil suit by the United States Government to recover refunds from Standard Oil Company (New Jersey) and its subsidiary, Esso Export Corporation, for alleged overcharges in ECA financed transactions, defendant Esso Export moved for an order decreeing that the law firm of Sullivan & Cromwell, its counsel, may properly represent Esso Export in this action, and the government cross-moved for an order disqualifying Sullivan & Cromwell from acting as attorneys for defendant in this suit. The basis for the motion and cross-motion was a request made by the Department of Justice on June 2, 1955 that Sullivan & Cromwell withdraw as attorneys because one of their partners, Mr. Garfield Horn, who is actively working on the case, was a government counsel for a Paris office of the Economic Co-operation Administration (ECA) during the period in question. The government contends that Mr. Horn and his firm are barred from participation in this suit by Canons 6, 36 and 37 of the Canons of Legal Ethics adopted as Rules of this Court.
Succinctly stated, these Canons forbid an attorney to accept employment in matters adversely affecting any interest of a former client with respect to which confidence has been reposed. They forbid his revealing or using such confidences to the disadvantage of the former client even though there are other available sources of this information. Further, they forbid a former government attorney to accept employment 'in connection with any matter which he has investigated or passed upon while in such office or employ.' Canon 36. In order to intelligently decide whether Mr. Horn and his firm have in fact violated these Canons, a thorough understanding of the factual and legal questions posed by the main controversy is necessary.
The Main Action
In the main action, the United States seeks recovery of $ 35,862,288.08 claiming that Esso Export charged excessive prices in sales of Arabian crude oil to private importers in European countries participating in the Marshall Plan. Under this plan, authorized by the Economic Cooperation Act of 1948, 22 U.S.C.A. 1501, et seq., the ECA allocated funds in United States currency to various European nations participating in the program through the issuance of 'procurement authorizations' setting forth the conditions for procurement of commodities. Firms in participating countries which desired crude oil, for example, after obtaining the approval of their respective governments, contracted to purchase such crude oil from various suppliers (including Esso Export). Such purchasers made payment to their local governments in local currencies and the money so paid was placed in 'counterpart fund' accounts for use locally in connection with foreign aid programs. The suppliers were paid in the United States currency allocated by ECA, payment being made either through the participating countries or through designated banks in accordance with the type of procurement authorization which had been issued. Thus although the money was not paid directly by ECA to the suppliers, suppliers were paid in money provided by the United States; the local moneys paid out by the importers were retained in their respective countries for ECA approved projects aimed at the economic rehabilitation of Europe.
With regard to the specific transactions which are the subject matter of this suit, the United States claims that the prices charged by Esso Export for Arabian crude oil were higher than the maximum prices permitted by the Act and by the ECA Regulations which were promulgated (purportedly) pursuant to the Act. The government claims that these price maximums were the allegedly lower prices charged by Esso Export and other companies in comparable sales not financed by ECA and in shipments of Arabian crude oil to Western Hemisphere destinations.
The period in question dates from April 3, 1948, effective date of the Economic Cooperation Act of 1948, until August 1952, the month of the commencement of this law suit and of the last shipment of Arabian oil in any ECA transactions.
Defendant, Esso Export, in its answer, denied any violation either of the price provisions of the Act or of the ECA regulations promulgated under them, assuming these to be valid. Defendant further contended that these Regulations are invalid.
For an affirmative defense, the defendant alleged that the United States continued to reimburse participating countries with respect to these purchases of Arabian crude oil although it had full knowledge of all data material to applying the price maximums of the Act and Regulations to the prices Esso Export charged for such crude oil. It alleged further that by the government's failure to notify defendant that the prices charged were considered excessive, it represented to the defendant that the prices charged were not in excess of maximum prices, and that the government knew or should have known that the defendant would rely on this representation by continuing to sell crude oil at those prices. In good faith, defendant alleged, it did rely on such representation, and it pleaded estoppel against the government. Another defense averred that under the Marshall Plan, for each dollar of assistance provided by the United States to a participating country, that country deposited an amount of its local currency commensurate to the United States dollar cost in counterpart funds. Defendant asserted that since these funds were expended for various economic rehabilitation projects consistent with the purposes of the Act, and therefore with the purposes of the United States, the government has had full benefit of the moneys it expended and has sustained no damages.
It is against this background of the case that we must examine the government service and private employment record of Mr. Garfield Horn, the partner in Sullivan & Cromwell whose former employment by ECA is the cause of these motions.
Mr. Horn's Employment Record
Mr. Horn joined the staff of Sullivan & Cromwell as a salaried associate upon his graduation from Harvard Law School in 1946. A major part of his work for the firm was in the area of foreign legal and economic problems, an area of work for which he had specially prepared during his undergraduate training. In April 1949, Mr. Horn completely terminated his relationship with Sullivan & Cromwell, and on May 31, 1949, he entered the employ of ECA. At the time he left the employ of Sullivan & Cromwell there was no understanding with respect to his being re-employed by the firm; rather he was clearly told that any application for re-employment would have to be considered anew on the basis of the situation at the time such application was made. Mr. Horn served with the ECA until October 11, 1951, and in November 1951, he again entered the employ of Sullivan & Cromwell, pursuant to arrangements made during the summer of 1951, and he became a partner of the firm on January 1, 1953. Since his return to the firm, he has continued to concentrate on problems with foreign aspects. In the spring of 1952, Sullivan & Cromwell was retained to represent Esso Export in this case; the retainer came personally to Arthur H. Dean, senior partner of the firm, who is also quite familiar with aspects of the Marshall Plan and related problems. Since Mr. Horn had often worked under Mr. Dean in such matters before, Mr. Dean chose Mr. Horn to act as his assistant in this case. Mr. Horn assured Mr. Dean at that time that while in ECA he had never worked on the subject of the present controversy, that he had never investigated or passed upon it, and that in all respects the matter was completely new to him, and he had never heard of it while he was with ECA.
The government has been aware of Mr. Horn's active participation in the case since the fall of 1952, but not until June 2, 1955 did it make a request for Mr. Horn's and his firm's withdrawal.
The government contends that it was not until Mr. Horn displayed 'peculiar knowledge' of the inner workings of ECA during a conference in March of 1955 that it considered whether there might be any impropriety in his serving as attorney for defendant and that an investigation then of Mr. Horn's government service record convinced it that a request for withdrawal was necessary.
During the entire two and a half years Mr. Horn served with the ECA he was in the General Counsel's Office of the Office of the Special Representative in Paris (OSR/Paris). The only periods during which he was in Washington were ten days of personnel processing and indoctrination at the time of his initial assignment to Paris, approximately two days personnel processing at the termination of his duties, and two trips to Washington on OSR/Paris business. He was initially hired as an Attorney and served in that capacity until February, 1950 when he was promoted to Assistant General Counsel, a position he held for eight months.
On October 15, 1950 he was appointed Deputy General Counsel, having served during one or two periods in the interim as Acting General Counsel of OSR. He continued to be Acting General Counsel of OSR from October 15, 1950 until January 21, 1951, when he was appointed General Counsel of OSR/Paris, a position he retained until his resignation in October 1951. I reiterate; all these positions were held in Paris. The General Counsel of OSR/Paris was chief legal representative and adviser of the United States Special Representative in Europe. The Special Representative, holding the rank of Ambassador, was the representative in Europe of the Administrator of the Economic Cooperation Act.
Respective Interpretations of Mr. Horn's Government Service Record
Mr. Horn's period of service with ECA from May 1949 to October 1951 falls entirely within the period of time during which the contested transactions occurred, i.e., April 1948 to August 1952. His position in the OSR/Paris hierarchy was an important one. Nevertheless, defendant contends that due to a division in functions between ECA/Washington and OSR/Paris, Mr. Horn's office in OSR/Paris knew nothing of the subject matter of these transactions, and none of his work for OSR/Paris was related to the subject of this case.
Defendant contends that OSR/Paris was concerned with implementing the operating phases of the ECA program, that its function in chief was to work closely with the various European countries and the ECA Missions in them on problems such as eliminating trade restrictions between the participating countries, clearing European payments and working out foreign currency problems, the allocation of scare materials, and problems of manpower supply. It claims that the General Counsel's Office furnished legal advice on such problems, its chief job being the determination of whether various activities could be undertaken under the terms of the Act or financed with counterpart funds. Defendant further asserts that the only petroleum problems considered by OSR/Paris were those that dealt with the compiling of data estimating the oil requirements of the various countries, and recommending where and how much additional refinery capacity should be built in Europe. It is defendant's contention that ECA/Washington had exclusive responsibility for the drafting, promulgation and enforcement of the ECA policies relating to procurement and prices set forth in ECA Regulation 1, the Regulation which implemented the Marshall Plan procurement program. Defendant further says that this sharp division in functions between ECA/Washington and OSR/Paris also applied to the two separate General Counsel's Offices; that while the General Counsel's Office in Washington played an active part in the drafting, promulgation and enforcement of the procurement and price provisions of Regulation 1, the General Counsel's Office in Paris played no role in these matters, and that as to the very controversy on which the lawsuit is based, the General Counsel in Washington was continuously involved in the controversy while the Paris office played no part in it. The defendant urges, therefore, that Mr. Horn never received any confidences of the government with regard to the subject matter of this case; that he cannot be considered as having represented the government in matters relating to this case; that he never investigated or passed upon the matters involved in this controversy; and that he is, therefore, free to act as attorney for defendant, Esso Export.
The government's reply to defendant's contentions is largely based on the key legal position Mr. Horn held during the time of the transactions in question. It urges that his duties in Paris included proposing legislation necessary to implement the operating phases of the program, solving legal problems arising under the Act, interpreting legislative provisions under the Act and drafting new legislative provisions. The government contends, therefore, that while Mr. Horn was employed by the government, he should have pointed out any invalidity in Regulation 1 which defendant now asserts. It is the government's position that whether or not Mr. Horn ever actually considered the validity of Regulation 1, he is disqualified because he should have done so.
Further, it claims that he actually did pass on Regulation 1 and pricing problems under it, more specifically, petroleum pricing problems.
It is urged further by the government that Mr. Horn had access to confidential data relating to the present controversy, and that in connection with the broad estoppel defense urged by defendant, many of the matters which must necessarily have come to Mr. Horn's attention while he was counsel and General Counsel in Paris, and because of his official position, are closely related to and interwoven with the question of the government's knowledge of the purported overcharges. It points out that many of his duties related to the counterpart funds mentioned in defendant's answer as having been expended for the benefit of the United States thus nullifying the government's claim of damages, and asserts that this fact also disqualifies him. The government summarizes its position by asserting that Mr. Horn is disqualified from acting in this case by Canons 6 and 37 because he had access to and obtained confidential information from the plaintiff and because he owed a duty of fidelity to plaintiff; and that he is further disqualified by Canon 36 because he passed upon or should have passed upon matters relating to the present controversy.
It is obvious, therefore, that the extent, if any, of Mr. Horn's involvement in matters related to the present case is in sharp conflict. The legal consequences of any relationship found will depend, of course, on the pertinent Canons of Ethics as interpreted by the courts and various bar association committees on professional ethics which have dealt with these Canons.
The Canons of Ethics Involved
The pertinent provisions of these Canons follow:
'Canon 6. Adverse Influences and Conflicting Interests
'* * * * The obligation to represent the client with undivided fidelity and not to divulge his secrets or confidences forbids also the subsequent acceptance of retainers or employment from others in matters adversely affecting any interest of the client with respect to which confidence has been reposed.'
Canon 37. Confidences of a Client
'It is the duty of a lawyer to preserve his client's confidences. This duty outlasts the lawyer's employment, and extends as well to his employees; and neither of them should accept employment which involves or may involve the disclosure or use of these confidences, either for the private advantage of the lawyer or his employees or to the disadvantage of the client, without his knowledge and consent, and even though there are other available sources of such information. A lawyer should not continue employment when he discovers that this obligation prevents the performance of his full duty to his former or to his new client.
* * * *'
Canon 36. Retirement from Judicial Position or Public Employment
'* * * * A lawyer, having once held public office or having been in the public employ, should not after his retirement accept employment in connection with any matter which he has investigated or passed upon while in such office or employ.'
Inferences Arising Under the Canons
Decisions interpreting these Canons have created three inferences operating against the attorney in question which the government contends are operative here. These must be examined to determine if they are applicable in the present case.
I. Inference of Access to Confidential Information
Insofar as these canons relate to the question of preservation of a former client's confidences, they disqualify an attorney who has received confidences which might possibly be relevant to the controversy at hand as they seek to avoid unconscious as well as conscious betrayal.
As to who must carry the burden of showing that relevant confidences were reposed, an inference favorable to complainant has been reaffirmed recently in this Circuit. In T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., D.C.S.D.N.Y.1953, 113 F.Supp. 265, 268, Judge Weinfeld said:
'A lawyer's duty of absolute loyalty to his client's interests does not end with his retainer. He is enjoined for all time, except as he may be released by law, from disclosing matters revealed to him by reason of the confidential relationship. Related to this principle is the rule that where any substantial relationship can be shown between the subject matter of a former representation and that of a subsequent adverse representation, the latter will be prohibited.'
The court disagreed with the contention of the attorney whose conduct was questioned in the T. C. Theatre case. The attorney urged that the former client was required to show that it had disclosed to the attorney confidential matters related to the instant case. The court stated:
'The former client need show no more than that the matters embraced within the pending 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. The Court will assume that during the course of the former representation confidences were disclosed to the attorney bearing on the subject matter of the representation.' (Italics supplied.) at page 268
In Consolidated Theatres, Inc., v. Warner Bros. Circuit Management Corporation, 2 Cir., 1954, 216 F.2d 920, the Court of Appeals for the Second Circuit adopted Judge Weinfeld's reasoning as related to the issue of burden of proof of disqualification under the Canons of Ethics. In that case there were no findings -- and perhaps no evidence -- of specific information given by the former client to the attorney, the use of which would adversely affect the former client in the instant suit. The Court said:
'There is no suggestion in the Canons that to invoke an obligation defined therein the proof thereof must be by direct evidence. We think that the professional obligation therein defined, like any legal relationship, may be established by reasonable inference.' (Second emphasis supplied.) at page 924.
The rule is clear, therefore, that complainant's burden extends only to showing the existence of a substantial relationship between the subject matter of the lawsuit and the matters in which the attorney represented his former client. This substantial relationship creates an inference that confidential information was reposed. Further, complainant need only show access to such substantially related material and the inference that defendant received these confidences will follow.
The rationale behind this rule is as sound as it is elementary. The confidences communicated by a client to his attorney must remain inviolate for all time if the public is to have reverence for the law and confidence in its guardians. It is traditional in the legal profession that the fidelity of a lawyer to his client can be depended upon. The client must be secure in his belief that the lawyer will be forever barred from disclosing confidences reposed in him. It follows that if, in order to protect his secret utterances to counsel, the client or former client is required to reveal these utterances, the very purpose of the rule of secrecy will be destroyed, and the free flow of information from client to attorney, so vital to our system of justice, will be irreparably damaged. Therefore, to guarantee that these confidences remain inviolate, the courts will assume that when a client entrusts an attorney with the handling of a particular matter, the client will reveal to that counsel all the information at his disposal, including confidential matter. It is upon this assumption that the courts will bar an attorney from taking a position adverse to a former client in regard to any matters substantially related to those in which the attorney represented that client. This assumption, however, is reasonable only so long as there is a substantial relationship between those former matters and the lawsuit in which the confidence question is raised.
A. Substantial Relationship of Subject Matter
Unfortunately, the cases furnish no applicable guide as to what creates a 'substantial' relationship. In both of the cited cases, the attorney in question had served as defense counsel for motion picture producers in anti-trust actions brought by the United States government charging defendants with a nationwide conspiracy in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. 1, 2. They were later retained by independent exhibitors as counsel for plaintiffs in treble damage actions against these producers alleging the same type of conspiracy in violation of the Sherman Act. The evidence disclosed that the attorneys in question had had access to the files of their former clients which showed in detail their clients' modus operandi, and that they had made extensive use of these files in preparing a defense against the government. The relationship between the first anti-trust litigation and the second case was in each instance patently clear; indeed, the finding of a nation-wide conspiracy in the government's case was prima facie proof of a conspiracy in the later private actions.
No such glaringly obvious relationship exists in this case.
Guidance on this point cannot be found either in those other decisions by courts or Ethics Committees which have dealt with the problem of representing adverse interests and the question of confidence betrayal raised thereby. In the majority of the cases decided by both bench and bar committees on the question of representing interests adverse to a former client, the offending attorney had either accepted a retainer from the other side in a retrial of the same case in which he had formerly represented complainant, or he had taken a position adverse to the former client in a matter in which he had specifically represented him.
In most of these cases, the link between the subject matter of the first litigation or first representation by offending counsel, and the second, adverse litigation was comparatively simple to detect -- the same accident,
the same documents,
the same litigation,
There appears to be no case where the question of whether a substantial relationship existed between the former representation and the second suit presented serious factual problems. But, clearly, the word 'substantial' must be given some restrictive content.
B. Defendant's Contention: No Substantial Relationship
In the present case, Mr. Horn was formerly employed in a Paris office of the very agency which is making a claim against his client. His job was concerned with legal questions arising during the implementation in Europe of the operating phases of the ECA program, the program under which the contested transactions occurred. However, ECA was a vast agency with a network of offices throughout Europe and in Washington, D.C. It administered a billion dollar foreign aid program which dealt with almost every sort of problem that could arise in financing a project aimed at helping Europe recover from the devastations of World War II. It is easy to visualize a situation where an official in one office of that agency would be unaware of some of the functions of other branches of the agency. Indeed, this is the very contention that defendant makes here. It claims that the job of implementing the operating phases of the program in no way involved consideration of any pricing, procurement or refund problems of the type involved in the present controversy. Defendant supports its assertion that Mr. Horn's former duties had nothing to do with any matters relating to the present controversy by the affidavits of 13 men who held key positions in ECA in Paris and in Washington during the period in question. Typical of their recollections is the affidavit of Isaac N. P. Stokes, who served as Acting General Counsel, General Counsel and Acting Special Representative in OSR/Paris from February 1949 through September 1952, at which time he became General Counsel in Washington, a position in which he served until March 1953. In his affidavit of September 26, 1955, he states:
'In connection with the preparation of this affidavit, I have carefully searched my recollection as to all aspects of this case of which I had any knowledge and as to the functions, responsibilities, and activities of GC/Paris. I am unable to recall any instance in which there was referred to or considered by GC/Paris any question relating to the promulgation, interpretation, operation, or validity of any of the pricing or refund provisions of ECA Regulation 1, either in connection with Arabian crude oil or any other commodity; any question involving the consideration of whether prices charged in ECA-financed sales of Arabian crude oil complied or failed to comply with the provisions of ECA Regulation 1; any question concerning prices charged for Arabian crude oil, whether in ECA-financed sales or non-ECA-financed sales; any question involving comparisons between prices of Arabian crude oil shipped to European destinations and prices of Arabian crude oil shipped to Western Hemisphere or other destinations; or any question concerning refunds to be obtained in respect of ECA-financed shipments of Arabian crude oil. Nor can I recall any other instance in which GC/Paris would have had any occasion to acquire any information regarding any of the above mentioned questions, or any instance when or any reason why any member of the staff of GC/Paris would have had any occasion, on his own initiative, to inquire into the subject matter of this case.
'Any reference of any such questions to GC/Paris or to any other part of OSR/Paris would have been inconsistent with the recognized division of responsibilities and functions as between Washington and Paris.'
I find that these affidavits establish that there was no such substantial relationship between Mr. Horn's former work and his present position as would disqualify him in this suit. Any other ruling would delete all meaning from the word 'substantial.'
These affidavits deprive of any significance the fact that Horn had access to the file rooms of OSR/Paris by their assertion that the functions of that office were such that it would not maintain relevant files.
C. Rebutting Defendant's Affidavits Re: No Substantial Relationship
The government had two alternative methods of rebutting the import of these affidavits:
(1) It could show that no such functional division actually existed, and that substantially related affairs were handled by Paris, thereby raising the inference of access to substantially related material.
(2) If it could not disprove the existence of the functional split, it could show that despite this division, Mr. Horn did actually work on matters substantially related to the present controversy.
The government has attempted to pursue both courses by submitting a series of documents with which Mr. Horn had some contact while working for OSR and which, it claims, show that he actually did work on or have access to documents on matters substantially related to the present controversy, and that he received confidences relevant to the present case. By choosing to rest its case on specific documents, however, the government has withdrawn itself in part from the sphere of the access-substantial relationship-confidence inference. If any of these documents tends to show that Mr. Horn's job did actually bring him into contact with relevant confidences or substantially related affairs generally, the government will have carried its point -- not by inference but by direct proof.
If none of the documents is itself indicative of such a connection between his former job and the present lawsuit, the government will not have sustained its burden of showing substantial relationship in light of the affidavit evidence of a division in functions, and the inference flowing from such a relationship will not be applicable. Only if these documents fail to show action by Mr. Horn, but do disprove the asserted division in functions will the question of an inference arising from access be presented.
II. Inferences Arising From the Appearance of Evil
Interpretations of the Canons of Ethics have held that it is the duty of an attorney to avoid not only the actuality but the appearance of evil. In discussing Canon 36, H. S. Drinker in his Legal Ethics, p. 130, points out that one of the reasons for the rule forbidding the former public attorney to act in relation to any matter he passed upon while in government service is to prevent the appearance of evil -- i.e. to prevent even the appearance that the government servant may take a certain stand in the hope of later being privately employed to uphold or upset what he had done.
This rule finds application here in the government's contention that Mr. Horn should be disqualified if he passed upon or should have passed upon the validity of the pricing regulations in question in this controversy. Of course, if Mr. Horn did actually pass on the validity of these regulations, he is barred from participating in this case by the language of Canon 36. However, if he did not actually consider the question of whether these regulations were valid, I find that there is no appearance of evil arising from his now questioning their validity unless it is proven that he was specifically ordered to consider that question while in government employ. If he was so ordered, he cannot now be heard to urge that he shirked his duty in the past and is, therefore, free to raise the question presently. This exception to the necessity of proving actual investigation of the matter in question will be applied, however, only when the attorney's duty to pass upon that particular matter, was very clear.
The factual questions raised by this rule as applied to this case will be discussed after consideration of one more inference arising under these Canons.
III. Inference of Imputed Knowledge Within a Partnership
It has been repeatedly held by courts and ethics committees which have considered these canons, that the knowledge of one member of a law firm will be imputed by inference to all members of that firm. In Laskey Bros. of West Virginia v. Warner Bros. Pictures, Inc., 2 Cir., 1955, 224 F.2d 824, 826-827, the Court said:
'All authorities agree that all members of a partnership are barred from participating in a case from which one partner is disqualified. * * *
'Within the framework of the original partnership the fact of access to confidential information through the person of the partner with such specialized knowledge is sufficient to bar the other partners, whether or not they actually profit from such access. Such a result, although an extension of the literal wording of Canons 6 and 37 of the Canons of Professional Ethics of the American Bar Association, is necessary to facilitate maximum disclosure of relevant facts on the part of clients.'
This chain of imputed knowledge has been held to extend, not only to the partners in a law firm, but to salaried law clerks in a firm.
Applied to the instant case, treating the entire OSR/Paris office as a partnership, the government argues that if anyone in the OSR/Paris office would have been barred from taking part in this controversy, then Horn is barred. It then urges that there was such a close association between the Counsel's Office in Washington and the Counsel's Office in Paris, that the chain of disqualification must necessarily extend from one office to another, and the Washington Counsel's Office was clearly involved in the present controversy from its inception.
The major premise on which the partnership disqualification theory is based, however, is that there was in the partnership office confidential information pertinent to the pending law suit to which all the partners had access. In this case, that basic premise is challenged by affidavits denying this alleged closeness between Washington and Paris, and the government has attempted to meet that challenge by producing documents from its files. If none of the documents the government has introduced rebut the import of those affidavits, the basic premise of knowledge within the office fails, the inference fails also, and the government is again left with the burden of proving actual knowledge.
Applying Doctrine of Imputed Knowledge to Government Attorney
Applying this doctrine of imputed knowledge within a partnership to the present case, however, presents a difficulty not found when dealing with private law firms. As stated, the doctrine's basic premise is that there is a free flow of information within a partnership office so that the knowledge of one member is the knowledge of all. When dealing with a government attorney, the question remains, within what office is that free flow of information assumed to exist. In this case, for example, is the office the overall ECA agency itself, OSR/Paris, or the General Counsel's Office of OSR/Paris.
This question arises in analogous form with relation to the inference set forth in the T.C. Theatre case that if an attorney had access to materials of the former client which are substantially related to the present controversy, it will be presumed that he came into contact with confidential information relating to the controversy, and he will be disqualified. Who is the client which the former government attorney represented and to whose files will access be presumed? Through what divisions and sub-divisions of a large government office will an attorney, who actually can go to any file, be presumed to have gone to such files regardless of his personal job assignments? At this point, when dealing with the government attorney, the client he represented and the partnership of which he was a member become merged. This is so because the basic problem is not merely to identify the former client here, which is in a larger sense the United States Government in toto, but rather to identify the interests with respect to which the attorney represented the client, for it is only as to these interests that he is disqualified. In identifying these interests one is confronted by the question of whether this attorney is to be considered as having represented the government in matters pending within his immediate office, or within a broader agency to which that office is attached, or solely in matters which he himself handled. In other words, the full circle has been swung and a decision must be made as to whether the theory of imputed knowledge as applied to members of a law partnership applies to attorneys working for the government; if it does, what office marks the boundary of imputation?
Guidance on this point can be taken from the language of Canon 36 which was enacted in 1928, twenty years after the American Bar Association originally adopted the first 32 Canons, and which deals specifically with lawyers retiring from public positions.
This Canon forbids a former government attorney to accept employment 'in connection with any matter which he has investigated or passed upon while in such office or employ.' (Italics supplied.) The main purpose of this Canon was to clarify the duties in Canon 6 as related to government attorneys -- chiefly, it avoids the 'client' language of Canon 6 which presents serious difficulties in this sphere. Although it cannot be considered as completely superseding Canon 6 in dealing with a lawyer's duty to a former client, Canon 36 undoubtedly serves as a guide to the chief purpose of the ethical principle involved and the words 'investigated' or 'passed upon' imply a test of actual personal knowledge or action.
However, it is also undoubtedly the purpose of the Canons generally to avoid the appearance that an attorney has taken a position contradictory to his former client's interests although, in fact, he may not have done so. This second purpose makes it impossible to hold that Canon 36 permits of none of the previously discussed inferences where a former government attorney is involved. The language of that Canon, however, must be held to require that a practical test be employed in determining when an appearance of evil exists: i.e. in each instance the fact finder must determine whether it was likely that the particular government attorney would have attained knowledge of or taken a stand on the subject matter of the particular controversy. If there is no practical likelihood, there is no appearance of evil.
Vertical and Horizontal Imputation of Knowledge to Government Attorneys
Where an attorney is head of his office or a subdivision of it, as was Mr. Horn during part of his tenure, there is, of course, imputed to him knowledge of the proceedings taken by his juniors. This is a vertical theory of imputed knowledge well founded in rules of ultimate responsibility.
However, for such an official there is still the problem of horizontal imputation of the knowledge of another division head of coordinate rank within the same larger agency. Again, there may sometimes be a rebuttable presumption of imputed knowledge, but this is the kind of question which must be decided on an ad hoc basis depending on the particular factual relationship between the two divisions or the two personalities involved and the likelihood that knowledge passed freely between them. In the instant case, the decision as to imputed knowledge, if any, must await closer examination of these facts.
In view of the importance of the determination being made in the instant case in a virgin area of the law, further discussion is in order of those unique problems which arise when these Canons are applied to government attorneys.
Unique Problems Presented in Cases of Public Employment
Support for applying this practical, factual test in cases involving the disqualification of former government attorneys can be found in recognition of the serious problems which would otherwise arise -- problems particularly acute where the employment was with the United States Government as opposed to some smaller public body.
The government itself does not expect to bar a former government servant from participating in any case against the government involving in any way the agency in which he was employed.
The size and diversity of function of many government agencies prohibit any such broad conclusion. The fact that the government is a client difficult to identify, and that the 'firm' of which the government attorney is a part is difficult to limit in scope, were factors in the establishment of the more specific 'investigated' or 'passed upon' language of Canon 36. Although the confidence and adverse interests rules of Canons 6 and 37 still bind the former government attorney with a duty of fidelity, that duty must be given a practical scope. This is important for the benefit of the government which must constantly recruit attorneys from private practice. If service with the government will tend to sterilize an attorney in too large an area of law for too long a time, or will prevent him from engaging in practice of the very specialty for which the government sought his service -- and if that sterilization will spread to the firm with which he becomes associated -- the sacrifices of entering government service will be too great for most men to make. As for those men willing to make these sacrifices, not only will they and their firms suffer a restricted practice thereafter, but clients will find it difficult to obtain counsel, particularly in those specialties and suits dealing with the government.
Ethical Problems Cannot Be Viewed in a Vacuum
These practical problems undoubtedly were factors leading to the formulation of Canon 36; they have been given recent consideration by the Court of Appeals for the Second Circuit, and have been recently discussed by both the Yale Law Journal and the Harvard Law Review.
In Laskey Bros. of West Virginia v. Warner Bros. Pictures, Inc., 2 Cir., 1955, 224 F.2d 824, in a disqualification proceeding, the Second Circuit was confronted with a former partner in a private law firm, who would have been barred from taking the case in question if he had remained a member of that firm because of the theory of imputed knowledge. The Court held that although the presumption of imputed knowledge is irrebuttable while a partnership exists, after its dissolution or after an attorney leaves the firm, a former partner barred only by imputed knowledge may rebut the inference that he received confidential information from the attorney with actual knowledge.
It held further that the testimony of the former partner was itself sufficient rebuttal. Discussing the practical problems which would be raised by any stricter application of the partnership-imputed knowledge rule, the Court said:
'Since the degree of association to effect disqualification need not necessarily be that of a partner, young lawyers might seriously jeopardize their careers by temporary affiliation with large law firms. But even more important is the effect on litigants who may seriously feel they have claims worthy of judicial testing, but are prejudiced in securing proper representation. For the net effect of an over harsh rule of disqualification must be to hinder adequate protection of clients' interests in view of the difficulty in discovering technically trained attorneys in specialized areas who were not disqualified, due to their peripheral or temporally remote connections with attorneys for the other side. See Note, 64 Yale L.J. 917, 928. The necessity of judicial recognition of the contingent fee is an appropriate analogy.'
Aside from these practical problems, it is doubtful if the Canons of Ethics are intended to disqualify an attorney who did not actually come into contact with materials substantially related to the controversy at hand when he was acting as attorney for a former client now adverse to his position.
I agree, that where there is a close question as to whether particular confidences of the former client will be pertinent to the instant case, an attorney should be disqualified to avoid the appearance if not the actuality of evil. But, where an attorney has worked for a vast agency of the United States government, as in the instant case, it is hardly reasonable to hold that an appearance of evil can be found in his undertaking a case against the government where there is not some closer factual relationship between his former job and the case at hand other than that the same vast agency is involved.
Application of Principles to Instant Case
Recapitulating the positions, defendant rests its case on the alleged fact that there was a clearcut division in functions between the Washington and Paris offices, and that the former office had sole responsibility for and actually solely handled all problems relating to pricing, procurement and refunds, including the drafting, promulgation and enforcement of the various regulations which are the subject matter of this controversy. It supports this contention chiefly with two lengthy affidavits by Mr. Horn: the first sets forth in detail the specific nature of all the duties of the personnel of the OSR/Paris General Counsel's Office while he was a member of its staff;
the second is a document-by-document explanation of the papers on which the government rests its case. Mr. Horn's affidavits are supported by the affidavits of 13 key officials of OSR/Paris and/or ECA/Washington who attest to that same functional division,
and by the affidavits of Arthur H. Dean as to the background of the present controversy. These affidavits establish that the work of the Paris office was unrelated to the instant controversy and refute any actuality or appearance of evil.
The government, complainant herein, had the burden of coming forward with evidence to dispel the effect of these affidavits. Specifically, to show grounds for disqualifying Mr. Horn in the present controversy, the government had the burden of either showing that he actually received relevant confidences or passed on the subject of the controversy, or that, although such personal active participation cannot be proved, his former duties were so substantially related to the present controversy that an appearance of evil arises from his taking part in this suit.
To support its contention that Mr. Horn's duties did bring him into contact with the subject matter of the present controversy in such a way as to disqualify him from proceeding as attorney for defendant in this action, the government has submitted some 25 assorted documents from its files, and two explanatory affidavits by Judge Stanley N. Barnes, Assistant Attorney General in charge of the Anti-trust Division, United States Department of Justice. Unlike the affidavits submitted by defendant, Judge Barnes' affidavits are based, not upon personal knowledge of ECA and OSR operations during the time in question, but upon interpretations which he has given the submitted documents without such personal knowledge.
After careful study of these documents, the government's interpretation of their significance as set forth in the Barnes affidavits and government oral argument,
Mr. Horn's explanation of their significance in his affidavits of August 3 and September 26, 1955, and the supporting affidavits submitted by Sullivan & Cromwell -- it is my considered opinion that the government has failed to present grounds for ordering the disqualification of Mr. Horn and his firm as defense attorneys in this case, and that the division in functions between OSR/Paris and ECA/Washington has been clearly established.
Specifically, the government has failed to prove:
(1) that Mr. Horn had access to documents substantially related to the subject matter of the instant case;
(2) that he ever had access to and/or actually saw or worked on any relevant confidential materials;
(3) that he ever investigated or passed upon the subject matter of the instant case;
(4) that he ever rendered any legal advice or opinion in relation to the regulations which are the subject matter of the instant case; and
(5) that despite these conclusions, Mr. Horn's present position creates an appearance of evil requiring disqualification.
These conclusions have been reached after a thorough document-by-document analysis of the papers upon which the government bases its motion.
Many of these documents fail on their face to show any conceivable disqualifying relationship between their content and the subject matter of the present controversy. Others bear a surface relationship, but can be and are satisfactorily explained as unrelated owing to the functional division between ECA/Washington and OSR/Paris, a division which the government does not either disprove or place in substantial doubt. For example, the government placed great reliance on Civil Service Job Description Sheets which imposed upon the General Counsel and his staff the duty of drafting and interpreting legislation on the operating phases of the program, but it made no attempt to show why the word 'operating' should not be read as limiting that office's duties to the problems encountered in European operations -- operations in no way concerned with pricing and procurement policies. The latter interpretation is supported by thirteen knowledgeable affiants and contradicted only by the speculations of Judge Barnes and Mr. Olson, the Special Assistant who presented the government's argument on the instant application. Neither of these proponents has any personal knowledge as to the operations of either ECA or OSR during the period in question.
Similarly, another series of documents upon which the government placed considerable stress consisted of three missives dealing with a publicized change in price policy -- a change which ultimately took effect as Amendment 5 to Regulation 1. In presenting these documents, the government did not consider it relevant that the Amendment in question dealt with petroleum products and not crude oil; that the missives did not in any way discuss whether defendant had been charging over ECA maximum prices for such products; that two of the three missives in question were copies of letters sent direct to defendant and other oil companies; that Paris was clearly being told what Washington had done, not being asked its opinion on whether the new policy was sound; and that the last missive was a request for information sent from Paris to Washington which clearly reflected complete ignorance of that price policy on the part of the Paris office.
Most of the other government exhibits go even further afield. Examination of them leads me to the conclusion that, in preparing its case, the mere mention of the word 'petroleum' in a document caused the government to assume its relevancy to the instant case and its pertinence to the instant motion. But, it must be borne in mind that a word appearing in empty space, with no history, expresses nothing. To be expressive of any meaning, the word must be considered in its context and background.
When dealing with ethical principles, it is apparent that we cannot plaint with broad strokes. The lines are fine and must be so marked. Guide-posts can be established when virgin ground is being explored, and the conclusion in a particular case can be reached only after painstaking analysis of the facts and precise application of precedent.
After full consideration of all applicable principles, I hold that the motion of the government to disqualify Mr. Horn and his firm as defense attorneys is denied, and the motion of Sullivan & Cromwell for an order decreeing them to be qualified as attorneys herein is granted. So ordered.