Appeal from an order of the United States District Court for the Southern District of New York, Hon. Charles L. Brieant, Jr., J., denying defendant-appellant's motion to disqualify plaintiff's law firm for allegedly improper communication with the then-unrepresented defendant-appellant.
Feinberg, Mulligan and Anderson, Circuit Judges.
Once again this court is faced with an appeal from the denial by the district court of a motion to disqualify plaintiff's counsel. The underlying action was commenced in the Southern District of New York by the appellee W. T. Grant Company (Grant) against thirteen named defendants, including five individuals and eight corporations, to recover damages of approximately 25 million dollars and for injunctive relief. The jurisdiction of the court was invoked under section 4 of the Clayton Act (15 U.S.C. § 15) since the defendants were charged with violations of section 1 of the Sherman Act (15 U.S.C. § 1). They were also charged with violations of common law with jurisdiction therefor based on diversity of citizenship and pendent jurisdiction. In essence, the complaint charged the defendant employees, including the appellant here, Mark S. Haines (Haines), who had been Southern Regional Director of Grant's real estate department, with conspiring to restrict competition by limiting Grant's access to other shopping center developers and landlords; with violations of various New York Penal Law provisions and New York's antitrust law, the Donnelly Act (N.Y. General Business Law § 340); and with fraud. These violations embraced alleged kickbacks and bribes to Grant's real estate employees. Grant is a well-known nationwide retailing company now in reorganization pursuant to Chapter XI of the Bankruptcy Act.*fn1 It had previously operated more than a thousand stores throughout the United States with annual sales in excess of one-and-a-half billion dollars. The defendant employees, including Haines, were entrusted with the responsibility of arranging leases for stores in shopping centers. The claims made in the complaint allege that the defendants engaged in the illicit practices which we have outlined above to the damage of Grant.
A number of motions to dismiss the complaint on various grounds were made by the defendants. The motion here relevant was made by Haines on March 26, 1975 in the Southern District of New York, for an order dismissing the action against him or, in the alternative, to disqualify the firm of Liebman, Eulau, Robinson & Perlman (Liebman firm) from further representing Grant; requiring the said firm to surrender all tapes, notes and records relating to their interrogation of Haines on January 31, 1975; and enjoining them from conveying or disclosing any such information to successor counsel. The ground for the motion was that the Liebman firm had violated Disciplinary Rule 7-104 (A) of Canon 7 of the Code of Professional Responsibility.
On June 3, 1975, the United States District Court for the Southern District of New York (Judge Charles L. Brieant) entered an order which inter alia denied the motion for disqualification of the firm or for dismissal of the complaint as to Haines on the ground of a violation of the Code of Professional Responsibility. The court's opinion, dated May 8, 1975, is not yet officially reported. This appeal followed.
The president of Grant called a meeting of the company's Real Estate Review Board to be held at 9 a.m. on January 31, 1975 in the New York office. Instead of attending the meeting as anticipated, Haines and other employees were advised upon their arrival that the meeting was cancelled but that they were not to leave the office. At the same time that morning the Liebman firm filed with the clerk of the Southern District court the complaint in the underlying case, naming Haines and others as defendants. The firm on the same morning also filed affidavits permitting them, as outside counsel, to serve process upon the defendants under local Rule 12(a) of the Southern District court. They made application as well for preliminary injunctions against the defendants' transfer of assets together with orders of attachment.
Meantime, at the Grant office starting at about 9:30 a.m., various employees including Haines were separately interrogated. Haines was questioned by Allan J. Kirschner, Esq., a member of the Liebman firm, in the presence of Robert J. Kelly, Esq., vice president and general counsel of Grant. The district court found, and it is not disputed, that outside counsel disclosed their identity to Haines as well as the fact that they had been retained by Grant to look into certain of Grant's commercial dealings with shopping center developers and landlords. The court also found that Kelly was apparently known to Haines as Grant's house counsel. Members of the Liebman firm advised Haines that they were investigating claims of their client Grant, characterized as suggestions or charges of commercial bribery. Thus as the court below found there was no deception by the Liebman firm as to the character and nature of their representation. There is no question however that outside counsel did not then disclose that there was a lawsuit filed that morning naming Haines as a defendant. Moreover, the court below found that the calling of the real estate meeting was a sham and a ruse to obtain the presence of out-of-state residents for the purpose of interrogation and service of process. (The court accordingly did vacate personal service on Haines but a motion to reargue is sub judice, and an amended complaint has been served on Haines pursuant to Fed. R. Civ. P. 4 and the New York long-arm statute, N.Y. C.P.L.R. §§ 302, 313.)
The record reveals that before he was interrogated, Haines was asked if he had any objection to the tape recording of the proceedings. He stated that he had none. Although the court below found that five-and-one-half hours of questioning ensued, it is not clear that the questioning was continuous. At one point in the morning Haines voluntarily took a polygraph (or "lie detector") examination and in connection therewith signed a statement which provided that "No duress, coercion, promise of reward or promise of immunity was made to me. I have been told of my rights to consult a lawyer before taking this test." The date and time (January 31, 1975, at 10:50 a.m.) also appear next to Haines's signature.
A separate afternoon interrogation was completed at about 3:05 p.m., with Haines once again stating that he had no objection to its being taped. Haines then for the first time was advised that the lawsuit described had been initiated and he was served with a summons and complaint. He was then told to report to Grant's personnel vice-president, who informed Haines he was fired.
The appellant's principal argument here is that the dismissal of the complaint or disqualification of the firm is required by reason of the alleged violation of the American Bar Association's Code of Professional Responsibility, Disciplinary Rule 7-104(A), which is set forth in the margin,*fn2 and which was adopted by the New York State Bar Association as its own code of ethics effective January 1, 1970.
Subdivision (A)(1) of the Rule prohibits a lawyer from communicating on the subject of his representation of his client with a party he knows to be represented by another lawyer. The court below found that since Haines was not yet represented by counsel and since there was no deception either as to the Liebman representation of Grant or as to the nature of that representation, there was no violation of that subdivision of the Rule. Appellant argues that the Rule should not be so construed where litigation had in fact been commenced and the layman is not advised of this until after his interrogation is completed. As the court below noted, Informal Opinion No. 908 of the Standing Committee on Professional Ethics of the American Bar Association (Feb. 24, 1966) provides that it is not unethical behavior for a potential plaintiff's attorney to interview a potential defendant so long as the latter knows that the statement is being taken by the lawyer in his status as attorney for the plaintiff. Aside from the fact that Haines is not within the literal language of subdivision 1, we see no reason to extend its coverage here. Haines was hardly a stranger to Grant. He was its representative as Regional Director of its real estate department, he had been employed by it for about ten years, and he had received some $200,000 of its money as salary or bonus over that period. He was presumably a sophisticated businessman who was questioned on matters within his competence, which related to his stewardship, and which unquestionably involved his honesty and fiduciary obligations to his employer. He was neither a callow youth nor a befuddled widow. A reading of the transcript reveals his willingness to discuss ...