The opinion of the court was delivered by: HERLANDS
The decisive question raised by plaintiff's motion for an injunction against defendants' attorneys is: Are the issues and subject-matter of the present lawsuit 'substantially related' to the issues and subjects of other and prior litigation and legal matters in which the attorneys now representing three of the defendants herein formerly represented the plaintiff and the plaintiff's interests and associates during the years 1929 to 1940?
The plaintiff, Dave Fleischer, suing individually and as trustee in dissolution of Fleischer Studios Incorporated (a Florida corporation, referred to herein as 'the Florida corporation') seeks to restrain the law firm of Phillips, Nizer, Benjamin & Krim from appearing in this action as attorneys for three of the defendants: Paramount Pictures, Inc., Paramount Pictures Corporation and Flamingo Films, Inc. There are eight additional co-defendants, for whom the Phillips law firm does not appear.
The ground of the motion is that said attorneys' appearance and representation violate Canons 6 and 37 of the Canons of Professional Ethics, Judiciary Law, Appendix, McKinney's Consol.Laws N.Y. c. 30 (Rules of the United States District Court for the Southern District of New York, General Rule 5(c)).
The gist of the plaintiff's claim is that the law firm of Phillips & Nizer and Louis Phillips, a partner in that firm (which firm is the predecessor of the present law firm of Phillips, Nizer, Benjamin & Krim) represented him and his brother, Max Fleischer, and the two corporations of which they were equal shareholders (Fleischer Studios Inc., a New York corporation, referred to herein as 'the New York corporation,' and the previously mentioned Florida corporation, the successor to the New York corporation) from 1929 to 1940 as their lawyers in legal matters 'substantially related' to the issues in the litigation at bar.
This claim of 'substantial relationship' is denied by defendants' attorneys.
The parties draw sharply different inferences from the transactions and contracts mentioned in the voluminous motion papers.
A recital of the ascertainable facts should be preceded by an explicit statement of the controlling principles of law and policy in the light of which the facts must be examined and appraised.
The dual duty imposed upon members of the bar by Canons 6 and 37 includes the obligation: (1) not to disclose confidential information obtained from the client by the attorneys; and (2) to represent the client with undivided fidelity by not representing conflicting interests.
In enforcing this dual duty, the courts have been confronted with the questions (a) whether confidences have been reposed in the attorney; and (b) whether the attorney represents an interest that in fact and in law conflicts with the interest he formerly represented.
Without requiring the client to reveal what he had disclosed to his former attorney (see Consolidated Theatres, Inc., v. Warner Bros. Circuit Management Corp., 2 Cir., 1954, 216 F.2d 920, 926, 52 A.L.R.2d 1231), the courts have sought the answers to the foregoing questions by examining the nature of the work performed for the former client and scrutinizing the nature of the duties presently owing to the new client. If, upon such examination and scrutiny, it appears that there are inconsistencies in position or the real possibility that confidential communications may be divulged or utilized, the attorney will be disqualified.
Where an attorney represents a litigant in a case involving the very matters concerning which he originally represented the party now on the other side, the attorney will be disqualified. Fisher Studio, Inc., v. Loew's Incorporated, 2 Cir., 1956, 232 F.2d 199; Consolidated Theatres, Inc., v. Warner Bros. Circuit Management Corp., 2 Cir., 1954, 216 F.2d 920, 52 A.L.R.2d 1231; Empire Linotype School, Inc., v. United States, D.C.S.D.N.Y. 1956, 143 F.Supp. 627; Packer v. Rapoport, Sup.1949, 88 N.Y.S.2d 118.
Although all of the information obtained by the attorney from his former client may be available to his present client through other sources or channels, the attorney will, nevertheless, be disqualified. Note, Disqualification of Attorneys for Representing Interests Adverse to Former Clients, 64 Yale L.J. 917, 919 (1955). In the latter situation, the courts are more concerned with the avoidance of the appearance of evil than with an actual unfair or unethical use of confidential information. See United States v. Standard Oil Company, D.C.S.D.N.Y.1955, 136 F.Supp. 345; Note, 64 Yale L.J., supra.
A statement of what facts a former client must submit to the court in order to have his former attorney disqualified in a particular case was formulated as follows by Judge Weinfeld in T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., D.C.S.D.N.Y.1953, 113 F.Supp. 265, 268, 269:
'* * * 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. * * * In cases of this sort the Court must ask whether it can reasonably be said that in the course of the former representation the attorney might have acquired information related to the subject of his subsequent representation. If so, then the relationship between the two matters is sufficiently close to bring the later representation within the prohibition of Canon 6.'
The above formulation was specifically approved by the Court of Appeals in Consolidated Theatres, Inc., v. Warner Bros. Circuit Management Corp., supra, 216 F.2d at pages 924-925, where the Court also pointed out that the statement 'was not a rule of substantive law purporting to define the professional obligation. It went no further than to measure the quantum of evidence required for proof of the obligation.' This rule has ben consistently applied by the courts. Fisher Studio, Inc., v. Loew's Incorporated, supra; United States v. Standard Oil Company, supra.
The courts have generally treated this so-called rule of evidence as creating an 'irrebuttable inference' that confidential information, material and relevant to the instant case, was given to the attorney if the issues and subject-matter of the former case are substantially related to issues and subject-matter of the present litigation. See Laskey Bros. of West Virginia, Inc., v. Warner Bros. Pictures, Inc., 2 Cir., 1955, 224 F.2d 824, 827, certiorari denied 350 U.S. 932, 76 S. Ct. 300, 100 L. Ed. 814. In a case where the attorney may be 'vicariously disqualified' (as by virtue of his former membership in a law partnership), the inference is treated as rebuttable. Harmar Drive-In Theatre, Inc., v. Warner Bros. Pictures, Inc., 2 Cir., 1956, 239 F.2d 555, rehearing denied 2 Cir., 1957, 241 F.2d 937.
Underlying the above general rule are strong reasons of policy: (1) to encourage and protect inviolate confidential communications between client and attorney; and (2) to inspire and maintain public respect for and trust in the law and lawyers. See United States v. Standard Oil Company, supra, 136 F.Supp. at 355.
In particular situations, e.g., where pre-trial discovery is sought, the courts may be confronted by policy considerations pulling in another direction. See Laskey Bros. of West Virginia, Inc., v. Warner Bros. Pictures, Inc., 2 Cir., 1955, 224 F.2d 824.
'The policy of maintaining public confidence in the inviolate nature of confidential communications to attorneys and in the fidelity of attorneys to their clients' interests highlights only one aspect of the problem. Modern discovery procedures are based on the desirability of making available to litigants all the facts necessary for a full presentation of their case. * * * A formulation of the attorney's ethical obligation which allows a former client to disqualify an attorney who has never received any confidential information useful in the present suit may unnecessarily restrict other parties from access to legal talent most familiar with the facts of their case.' 64 Yale L.J., supra, at 927-928.
In accommodating the tug between inconsistent policies, the courts have given greater weight to the socially desirable objective of promoting and preserving the integrity of, and respect for, the bar.
In every case cited in this opinion, in the briefs of both parties herein, and in the bar association opinions on legal ethics -- except United States v. Standard Oil Company, supra, it was clear that there was virtual identity between the issues in the former and the current litigation, or it was equally clear that there was a lack of 'substantial relationship' between such issues. Consequently, decisional law construing and implementing the concept of 'substantial relationship' is relatively undeveloped. In United States v. Standard Oil Company, supra, the only prior case posing a closely analogous problem, Judge Irving R. Kaufman analyzed the documentary and other evidence presented to him and concluded that a Government attorney, who had worked for ECA, Paris branch, was not disqualified from representing the defendant in a suit brought by the United States to collect for overcharges in ECA financial transactions, where it clearly appeared that all of the data, information and policy on the transactions had emanated from the Washington office and had never been accessible to or passed upon by the attorney in the Paris office.
United States v. Standard Oil Company, supra, however, does not control the decision in the present case. In the Standard Oil case, the controverted question of fact was whether the former Government attorney had, in the course of his official work, come in contact, directly or indirectly, with the subject matter of the then current suit, i.e., what had been the scope and character of the former duties and activities of the attorney. Furthermore, Canon 36 influenced the Court in the Standard Oil case, but plays no role in this case. See Note, 57 Colum.L.Rev. 994, 998-999 (1957).
The fact that the conflict may appear to be rather remote, while relevant, is not determinative. Drinker, Legal Ethics 108 (1953). The pragmatic test is whether the prior matters or evidence concerning them may be admitted into evidence with respect to the current litigation. Watson v. Watson, Sup.1939, 171 Misc. 175, 11 N.Y.S.2d 537. Moreover, the duty of an attorney to avoid conflicting interests is not adequately definable in the precise terms of the attorney-client privilege and the incompetency of privilege communications. Packer v. Rapoport, Sup.1949, 88 N.Y.S.2d 118. The governing principle is that the Court must protect a client against even the unintentional or unconscious use by his former attorney of his confidential communications. Watson v. Watson, supra.
On the other hand, the mere fact without more that a former attorney is incidentally connected with the now adverse interest does not disqualify the attorney. United States v. Standard Oil Company, supra; Adams v. Adams, 1953, 156 Neb. 778, 58 N.W.2d 172; Drinker, Legal Ethics 107 (1953).
Only where it is clearly discernible that the issues involved in a current case do not relate to matters in which the attorney formerly represented the adverse party will the attorney's present representation be treated as measuring up to the standard of legal ethics.
The stated rule does not shift a burden of disproof upon the attorney sought to be disqualified by his former client. On the contrary, the former client must show that there is a 'substantial relationship' between the issues in the present case and the subject-matter of the former representation. Nevertheless, should the question be close, it should be resolved in favor of the client. As Judge Irving R. Kaufman said in United States v. Standard Oil Company, supra, 136 F.Supp. at page 364:
'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.'
We now turn to a general consideration of the question whether the issues in the present case are 'substantially related' to any of the prior legal matters and litigation during the years 1929 to 1940, in which the Fleischer corporations or Max or Dave Fleischer was represented by Louis Phillips or any present member of his law firm. To answer that question, it is necessary to consider a number of contracts and lawsuits and the background of such matters.
During the period from 1929 to 1942, Dave and Max Fleischer and the Fleischer corporations produced hundreds of animated motion picture cartoons. The best known of such creations included 'Popeye,' 'Betty Boop,' 'Superman,' 'Screensongs' and several full-length animated motion picture cartoons. All of these cartoons were distributed by Paramount Pictures Corporation.
Louis Phillips is presently senior partner in the law firm of Phillips, Nizer, Benjamin & Krim. He also is vice-president and general counsel of Paramount Pictures Corporation.
From 1928 to 1946, Mr. Phillips was an attorney in Paramount's legal department. From 1946 to April 1955, he was assistant general counsel; and, from April 1955 to date, general counsel of that corporation.
During the earlier years of their relationship, Mr. Phillips and the Fleischer brothers were on very friendly terms.
In April 1932, one Helen Kane brought an action for damages in the Supreme Court of the State of New York, New York County, against Max Fleischer, the New York corporation, and Paramount Publix Corp. (predecessor of the present Paramount corporations). The suit was based upon the use of a cartoon character named 'Betty Boop,' created by Max Fleischer and distributed by Paramount. Plaintiff-Kane had originated, used and popularized the expression 'Boop boop a doop.' The Fleischer defendants appeared by their own attorney, the late N. William Welling. Paramount employed both Mr. Phillips and Mr. Nizer to work on the case, in one capacity or another. There is no discernible relevance of this 1932 litigation to the present case. Moreover, plaintiff admits that the Fleischers were not represented in that litigation by the Phillips & Nizer firm or by either Mr. Phillips or Mr. Nizer. (Plaintiff's rebuttal affidavit, sworn to November 25, 1957, p. 2 c.)
On July 7, 1932, Phillips & Nizer commenced an action in this Court, in behalf of Fleischer Studios, Inc. and one Joseph Kallus against Art Doll Co. for copyright infringement of the 'Betty Boop' doll (Fleischer Studios, Inc., v. Ralph A. Freundlich, Inc., D.C.S.D.N.Y., 14 F.Supp. 401). Plaintiff now argues that, during the course of the Art Doll litigation, the attorneys were informed of their clients' patent and copyrights in 'Betty Boop,' the history of the firm, the origin of the work, their work methods, and the work performed by each of the Fleischer brothers (plaintiff's rebuttal affidavit, sworn to November 25, 1957, p. 2 b). Upon close analysis, the Court does not perceive any relevance of the Art Doll case to any current issue.
During 1932, there were negotiations between the New York corporation and King Features Syndicate, Inc., with respect to the right to use in motion picture cartoons a comic strip character called 'Popeye,' which character was owned by King Features. King Features desired to have 'Popeye' cartoons released through the same channels as the 'Betty Boop' cartoons. King Features, therefore, wanted certain representations and warranties from Paramount. As a result, Phillips & Nizer represented the New York corporation in the 1932 negotiations vis-a-vis King Features. A five-year license agreement was executed on or about November 17, 1932. A copy of a draft of that agreement (used during the negotiations in September 1932) is appended to plaintiff's affidavit of November 4, 1957. Pursuant to this agreement, approximately one hundred 'Popeye' cartoons were produced.
In 1938, Joseph Kallus commenced suit in the New York state courts against Fleischer Studios Inc., the New York corporation, to collect for his services in negotiating the 1932 King Features license agreement. Phillips & Nizer were attorneys for the defendant in that case. The case involved the circumstances surrounding the negotiations of the 1932 King Features license.
In 1937, another license agreement between King Features and the New York corporation was executed. (The 1932 agreement was due to expire on July 31, 1938.) Any 'Popeye' cartoons produced after July 31, 1938 were to be governed by the 1937 agreement (Exh. CC attached to the Phillips' rebuttal affidavit, sworn to December 12, 1957). In the negotiations for the 1937 agreement, the Fleischer interests were represented by the Fleischers' personal attorney, the late N. William Welling, while the Paramount interests were represented by Bernard Goodwin of Paramount's legal department (Phillips' rebuttal affidavit, pp. 19-20; Goodwin's affidavit, p. 4).
During 1937 to 1938, the New York corporation ran into certain labor problems. It also had under consideration the making of a full length motion picture. Plaintiff now argues that he consulted Mr. Phillips about these labor problems and the full length motion picture. 'The solution of this problem (the full length cartoon movie) as well as our labor problems was supplied by an attorney, Louis Philips, who counseled and advised the removal of our plant and transfer of the seat of our operations to Florida' (D. Fleischer affidavit of November 25, 1957, p. 2 d). On the other hand, Mr. Phillips denies that he had counseled the Fleischers to move to Florida. Mr. Phillips claims that 'the decision to move to Florida was strictly the Fleischers decision' (Phillips' rebuttal affidavit of December 12, 1957, p. 5).
A contract dated May 27, 1938 between the New York corporation and Paramount occupies a central position in plaintiff's second cause of action in the amended complaint. May 27, 1938 is the alleged starting date of the antitrust conspiracy pleaded in this second cause of action.
The May 27, 1938 agreement has not been presented to the Court. However, according to the amended complaint (paragraphs 7, 9) that agreement provided:
'* * * inter alia for the making of a full length motion picture cartoon then in the course of manufacture and subsequently known as 'Gulliver's Travels'; the continuation of the manufacture of the one-reel series known as 'Popeye' series; the making of one two-reel cartoon, and the financing of the removal of the plant and equipment of 'Original Fleischer corporation' (the New York corporation) from New York to Miami Florida; the hypothecation of the assets referred to in paragraph 3, hereinabove set forth (certain cartoons already produced by the New York corporation) as collateral security for loan of $ 100,000 to be made by Paramount Pictures, Inc., to finance said removal of plant from New York to Miami; the payment of 50% of all moneys received from the commercial exploitation of the fictional characters invented or created or used by 'Original Fleischer corporation' (New York corporation) in any of said motion picture cartoons; a series of options to call upon 'Original Fleischer corporation' (New York corporation) to produce additional cartoons * * *.' (Amended complaint, p. 5. See also D. Fleischer affidavit of November 25, 1957, pp. 2 gA to 2 g.)
Plaintiff charges Mr. Phillips with having represented both sides in that contract and that Phillips & Nizer were part of the anti-trust conspiracy (Amended complaint, paragraphs 27, 34, 12, 23(a), 23(b), 23(c), 23(d)). Plaintiff also charges that on April 18, 1939, while Phillips & Nizer were allegedly still acting as attorneys for the Fleischers, the Fleischers signed a 'supplemental agreement of interpretation' (D. Fleischer affidavit of November 25, 1957, p. 2 g). These charges are vigorously denied by Mr. Phillips in his affidavits and in other affidavits submitted by Mr. Phillips in corroboration of his position.
On May 24, 1941, Fleischer Studios, the Florida corporation (represented by N. William Welling) and Paramount (represented by Bernard Goodwin of their legal department) entered into the final agreement. This sixty-two-page document is attached to the original complaint and is referred to in the amended complaint. In view of the fact that it clearly cancels all prior agreements with the Florida corporation and its predecessors, all rights of plaintiff and the Fleischer interests must be traced to and through this May 24, 1941 agreement. (Details of the agreement will be discussed whenever they become pertinent to the problem now before the Court.)
In separate letter agreements likewise dated May 24, 1941, Max and Dave Fleischer personally assumed the Florida corporation's duties and obligations under the May 24, 1941 contract.
It is now necessary to consider the allegations contained in the three claims or causes of action set forth in the amended complaint.
The first claim recites the background facts, to which this opinion has already alluded. it then alleges that certain cartoons (called 'New Cartoons') were produced pursuant to the May 24, 1941 contract; that defendants violated plaintiff's contractual rights in relation to said 'New Cartoons' and plaintiff's rights in the old cartoons as preserved by the May 24, 1941 contract. In his affidavit (p. 12), plaintiff's attorney sums up this first claim in the following words: 'a cause of action for unfair competition, an accounting and conspiracy among all of the defendants to destroy the plaintiff's rights under the agreement of May 24, 1941, particularly his rights in 'Popeye' cartoons.'
The second claim charges a violation of the anti-trust laws. Plaintiff alleges that certain clauses in the 1938 and 1941 contracts violate the anti-trust laws; that, pursuant to an alleged conspiracy, Paramount Pictures resorted to 'block booking of films, master agreements as to franchises, aquisition(sic) and use of theatres owned by affiliated companies or theatres owned by distributors either alone or jointly with said defendant being used for distribution of films, discrimation(sic) against and favoring of exhibitors, suppression of films before their full release possibility had been achieved, booking of films of Fleischer Studios, Florida together with its own films of inferior type and quality and the charging of a slight amount for the films of Fleischer Studios, Florida while taking the maximum possible amount for its own films; the rendition of false ...