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KLEIN v. CHURCHILL COAL CORP.

June 26, 1985

RUSSELL KLEIN, et al., Plaintiffs,
v.
CHURCHILL COAL CORPORATION, et al., Defendants, No. 84 Civ. 6509 (WK) HENRY ACCARINO, et al., Plaintiffs, vs. CHURCHILL COAL CORPORATION, et al., Defendants, No. 84 Civ. 7326 (WK) ELI BALLAN, et al., Plaintiffs, vs. CHURCHILL COAL CORPORATION, et al., Defendants, No. 84 Civ. 7327 (WK) EARL ADLER, et al., Plaintiffs, vs. CHURCHILL COAL CORPORATION, et al., Defendants, No. 84 Civ. 7350 (WK) JOHN BLUME, et al., Plaintiffs, vs. CHURCHILL COAL CORPORATION, et al., Defendants, No. 84 Civ. 7351 (WK)



The opinion of the court was delivered by: KNAPP

WHITMAN KNAPP, D. J.

MEMORANDUM & ORDER & ORDER OF REFERENCE

 In each of these five related complaints, plaintiffs allege, among other things, a variety of federal securities law violations. The actions are before us on several motions. Larry Haber ("Haber"), a defendant in only one of the cases (Klein v. Churchill Coal Corp. et al., 84 Civ. 6509), moves to disqualify Sheber, Pomerantz, Slotnik & Hamburg ("Sheber Pomerantz"), the law firm representing plaintiffs, on the ground that a member of that firm representing plaintiffs, on the ground that a member of that firm, Michael J. Sheber ("Sheber"), previously represented him in a matter substantially related to the Klein action. Larry Gordon ("Gordon"), a defendant in all five cases, similarly moves to disqualify plaintiff's counsel from participating in each of them. Plaintiffs cross-move for a protective order and sanctions.

 HABER DISQUALIFICATION MOTION

 Pursuant to Cannon 4 of the Code of Professional Responsibility, an attorney should be disqualified if he as accepted employment adverse to the interests of a former client on a matter substantially related to the prior representation. NCK Organization, Ltd. v. Bregman (2d Cir. 1976) 542 F.2d 128, 132-34; Hull v. Celanese Corp. (2d Cir. 1975) 513 F.2d 568, 571; Emle Industries, Inc. v. Patentex, Inc. (2d Cir. 1973) 478 F.2d 562, 570. Once the substantial relationship is established, the court need not inquire whether the attorney in fact received confidential information. Rather, where "it can reasonably be said that in the course of the former representation the attorney might have acquired information related to the subject matter of his subsequent representation,...it is the court's duty to order the attorney disqualified." (Emphasis in original.) Emle Industries v. Patentex, Inc., 478 F.2d at 571, quoting T.C. Theatre Corp. v. Warner Bros. Pictures (S.D.N.Y. 1953) 113 F. Supp. 265, 269.

 We believe that the instant case falls within this strictly enforced rule. In March 1982 Haber retained Sheber (who was then a sole practitioner) to represent him in the Court of Claims to contest an Internal Revenue Service assessment. The Internal Revenue Service had notified Haber that, as a former officer of Churchill Coal Corporation ("Churchill Coal"), he was liable for approximately $150,000 of unpaid withholding taxes for Churchill Coal employees. As we understand it, the issue in that proceeding was whether Haber had in 1979 been a "responsible officer" of the corporation. To enable his attorney to address that issue, Haber asserts, he spoke with him at length about his role and activity as vice president of Churchill Coal.

 In the instant Klein action, plaintiffs allege that from November 1978 to the present, defendants (including Haber) violated federal securities laws in connection with the offer, purchase and sale of working interests and pooling interests in mining land. A major component of plaintiff's allegations is that defendants made material misrepresentations and omissions in a memorandum used in connection with the purchase and sale of the working interests. In P45 of the Klein complaint, plaintiffs allege:

 
The defendants [including Haber] . . .willfully and deliberately, or recklessly, misrepresented, or failed to disclose:
 
* * *
 
(d) that some of the corporations and individuals named in the North and South Programs as having been retained to perform services for the North and South Programs were controlled by one another and/or under common control with defendant Churchill Coal and its affiliates, and the nature of the relationships among them, and the background of the individual defendants, Gordon, Haber, and Bloom and their lack of any experience in the coal industry, including the fact that defendants Gordon and Bloom were professional photographers and that defendant Haber had formerly been a bank officer at Bankers Trust Company with which Churchill Coal had banking relationship;
 
* * *
 
(1) that defendant Churchill Coal and its affiliates and controlling persons would receive additional compensation, directly or indirectly, by virtue of their relationship to defendants Delta Energy Corp. and C&C Mining Corp. and the fees to be paid to Delta Energy Corp. and C&C Mining Corp. under the Programs;
 
* * *

 Without going into the details of the allegations, it is obvious that it will be necessary -- or at the very least helpful -- for the plaintiffs, in making out a case against Haber, to establish the extent of his involvement with Churchill Coal. As that was the very issue before the Court of Claims, it inexorably follows that a reasonable probability exists that Haber relayed confidential information to Sheber which could be used against him in the instant action. See Trone v. Smith (9th Cir. 1980) 621 F.2d 994, 1000 ("The relationship is ...


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