The opinion of the court was delivered by: WEINSTEIN
Defendants move to disqualify the law firm representing plaintiff on the ground that one of its attorneys previously represented one of the defendants in other, related matters. For the reasons stated below the motion must be denied.
The present action is brought by Silver Chrysler Plymouth (Dealer), an authorized dealer of Chrysler Corporation against Chrysler Motors Corporation (Chrysler) and Chrysler Realty Corporation (Realty) for breach of a dealership lease. Defendants are represented by the firm of Kelley, Drye, Warren, Clark, Carr & Ellis. Plaintiff is represented by the firm of Hammond & Schreiber.
An alleged conflict arises out of Schreiber's previous employment as an associate with Kelley, Drye, Newhall, Maginnes & Warren, predecessor to defendants' law firm (both hereinafter "Kelley Drye"), which has represented Chrysler and its affiliates in a substantial number of legal matters. Defendants claim that Schreiber's work at Kelley Drye disqualifies his firm from representing plaintiff because of confidences he may have had access to or because of the appearance of impropriety.
Issues of disqualification of counsel for conflicts based on former representation presents the courts with especially delicate policy and factual decisions. On the one hand the court must protect the confidentiality of the relationship between client and attorney. This duty is laid down in Canon 4 of the Code of Professional Responsibility: "A lawyer should preserve the confidences and secrets of a client." The court is charged with the duty of insuring maintenance of "the highest ethical standards of professional responsibility." Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 565 (2d Cir. 1973). See Paterson and Cheatham, The Profession of Law 277-279 (1971).
Yet, on the other hand, the courts must be cautious not to interfere needlessly with the freedom of litigants to proceed with counsel of their choice, and, as illustrated in the circumstances of the present case, not to unnecessarily circumscribe the career of a young professional. The Canons may not be used to engross legal talent or to obtain the advantages of an implied restrictive covenant that would be of doubtful validity in any other employment situation.
A. Counsel for the Parties
Dale Schreiber graduated as an honor student from Columbia Law School in June 1965. He was hired by Kelley Drye as an associate, commencing September 1965 at an annual salary of $7,800. In late fall 1965, he left Kelley Drye when he was appointed law clerk to Marvin E. Frankel, United States District Judge for the Southern District of New York. Schreiber returned to Kelley Drye in September 1966, at an annual salary of less than $10,000. In February 1969, after approximately thirty-two months total employment, he left the firm and established his own practice in White Plains, New York. In August 1970 he accepted an invitation from Mr. Hammond -- a senior lawyer with a national reputation for his representation of automobile dealers -- to form their present two man firm.
While relatively modest in size as compared to some other firms which range up to Baker and McKenzie's 240 lawyers, the eighty member -- 30 partners and 50 associates -- Kelley Drye firm is well known and respected in the legal and commercial worlds. Since 1925 it has actively represented Chrysler and its associated companies, one of the nation's half dozen biggest corporate groups. Although Kelley Drye is listed on Chrysler's reports as "counsel" and its 1971 fees from Chrysler were reported to be close to $600,000, other lawyers throughout the country also represent this client. It has been estimated in affidavits before the court that the number of lawyers associated with firms representing Chrysler interests in recent years runs into the thousands. As in the case of most large law firms, Kelley Drye has a high rate of associate turnover; it is said that since 1965 this firm has probably employed some two hundred lawyers.
The complaint in the present action charges that Chrysler entered into a standard form Dealer Relocation Agreement with Dealer in January 1967. The agreement provided that Chrysler would erect a facility to be occupied by Dealer at a rental computed under a special formula. Before the new building was completed, Chrysler transferred its real estate operations to Realty. In 1968, Dealer occupied the premises, at which time it signed a new form lease agreement with Realty. The new agreement was for a five year term, compared to what Dealer alleges was the original twenty-five year period.
Dealer alleges that it was assured on signing that the new lease in no way prejudiced any rights under the original agreement. When the five year term expired in May 1973, Realty threatened Dealer with eviction unless it signed a new agreement at a higher rental. Refusing to sign, since June 1 Dealer has paid the higher rent under protest. In this action declaratory, injunctive and monetary relief to redress the alleged breach of the original Dealer Relocation Agreement is sought.
Three theories underlie the complaint. The first two, grounded on diversity and pendant jurisdiction, are essentially based on contractual breach of the Dealer Relocation Agreement by Chrysler and Realty. The third, based on the Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq., alleges that defendants coerced plaintiff into relinquishing the benefits of its Dealer Relocation Agreement by threats of termination, non-renewal and otherwise.
As to confidences gained by Schreiber through his personal involvement in Chrysler cases, defendants allege:
Mr. Schreiber . . . was personally engaged in extensive legal work for and representation of Chrysler . . . and other Chrysler companies, and obtained immeasurable confidential information regarding the practices, procedures, methods of operation, activities, contemplated conduct, legal problems, and litigations of those companies. . . .
More specifically, defendants charge:
Mr. Schreiber's representation of Chrysler encompassed numerous matters in which Chrysler's real estate and other business practices were involved, as well as relationships with dealers and specific actions against Chrysler by dealers, including an action which, like the case at bar, relied in part upon an alleged violation of the Dealer's Day in Court Act . . . .
While both sides have provided the court with extensive recitals of the work done by him at Kelley Drye, assessment of Schreiber's involvement in Chrysler matters has been hampered by the absence of Kelley Drye's relevant time records. Production of such records would normally not entail disclosure of client confidences. United States v. Long, 328 F. Supp. 233 (E.D. Mo. 1971). Negative inferences from the firm's failure to produce records in its exclusive control may be drawn. Cf. Case v. New York Central R. Co., 329 F.2d 936 (2d Cir. 1964); Matarese v. Moore-McCormack Lines, 158 F.2d 631, 637, 71 U.S.P.Q. (BNA) ...