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.
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 ...