United States District Court, Southern District of New York
May 25, 1990
VESTRON, INC., PLAINTIFF,
NATIONAL GEOGRAPHIC SOCIETY, DEFENDANT.
The opinion of the court was delivered by: James C. Francis IV, United States Magistrate.
MEMORANDUM AND ORDER
The parties to this action have consented to proceed before a United
States Magistrate pursuant to 28 U.S.C. § 636(c). Two motions are
currently pending: the plaintiff's motion for a preliminary injunction
and the defendant's motion to disqualify plaintiff's counsel.*fn1 For
the reasons that follow, the plaintiff's motion is granted and the
defendant's motion is denied.
Vestron, Inc. ("Vestron"), the plaintiff in this action, produces and
distributes video programs. In 1985, the National Geographic Society
("the Society") granted Vestron an exclusive license for domestic home
video rights for the Society's well known television documentaries. (Pl.
exh. 4). Pursuant to this agreement, the Society provided master tapes
from which Vestron produced and duplicated videocassettes for
distribution in the United States and English-speaking Canada. In
addition, Vestron sold cassettes back to the Society at $13.75 per unit,
and the Society then resold these to its members through a video club
In 1987, the Society began exploring the possibility of distributing
videocassettes of its programs in certain foreign territories. A number
of potential distributors, including Vestron, submitted proposals.
Vestron's bid included not only plans for foreign distribution, but also
the offer of a concession on its domestic contract with the Society,
lowering the price from $13.75
to $10.00 for each cassette sold back to the Society.
Vestron's proposal dated December 8, 1987, stated that "Vestron
distributes and sells directly to the video trade in every major
international video market with its own sales force. Local offices are in
full operation in: London, England; Stockholm, Sweden; Brussels,
Belgium; Munich, West Germany; Utrecht, Netherlands; Tokyo, Japan;
Sydney, Australia; Paris, France." (Pl. exh. 14, Proposal at 3).
In recommending acceptance of Vestron's bid, Tim Kelly, the Society's
associate director for television, stated:
Vestron has submitted a revised bid for home video
distribution in certain foreign territories (primarily
Western Europe and Australia). The bid is a good one,
combining price concessions which lower the Society's
cost for obtaining videos for the National Geographic
Video Club, with a strong proposal for distribution in
the foreign territories.
(Pl. exh. 1). The analysis upon which Mr. Kelly relied found that
Vestron's bid was economically preferable to the next best offer because
of the price concession on the domestic agreement. (Id.). Mr. Kelly also
argued that "Vestron has a full service international distribution
operation based in London, with 7 other offices, and staffed by
approximately 170 people worldwide." (Id.).
The Society ultimately accepted Vestron's bid, and by a Memorandum of
Agreement dated July 22, 1988, Vestron received the rights to sixty
titles, to be released over a period of six years. (Pl. exh. 2). The
territories covered were France and certain French-speaking territories,
non-Italian speaking Switzerland, Austria, East and West Germany,
Liechtenstein, the Benelux countries, Australia and New Zealand,
Scandinavia, Spain, Portugal, and Greece. (Id.). The Society was
guaranteed $1,000,000, to be paid in annual installments of $200,000, and
it was entitled to royalties of seventeen percent of gross receipts.
(Id.). On the domestic side, Vestron agreed to lower the price that it
charged for videotapes purchased by the Society itself to $10.00, and the
term of the domestic agreement was extended for a year. (Id.).
Following execution of the Memorandum of Agreement, the parties
performed under the modified terms of the domestic arrangement, with
Vestron providing finished cassettes to the Society at the lower price.
(Tr. 64-65, 234).*fn2 However, the Memorandum of Agreement specifically
contemplated the drafting of a more formal document reflecting the agreed
upon terms. (Pl. exh. 2).
Prior to execution of the long-form contract, the parties had
additional communications about the plans for foreign distribution.
First, in a meeting in Vestron's offices in Stamford, Connecticut in
September, 1988, Vestron described how the European operation would be
coordinated by Locus Video Group, B.V. ("Locus"), its affiliate in
Utrecht. (Tr. 107-08). Next, a meeting was set for May 3, 1989, both to
prepare for signing of the long-form contract and to allay the Society's
concerns about Vestron's financial health. (Tr. 110). In preparation for
this meeting, Vestron developed a document entitled "Home Video Launch
Plan" that described its plans for initiating distribution. This document
included details of a "hub" arrangement, with each of seven market
territories coordinated from a different hub office. (Pl. exh. 15 at 2,
4-5). In the first draft of this document presented to the Society, the
Scandinavian hub was located in Stockholm (Def. exh. D. at 4), while in
the revised version, this territory was to be coordinated from a London
office. (Pl. exh. 15 at 4). In both drafts, the territories of Spain,
Portugal, and Greece were to be subject to oversight from Vestron's Los
Angeles office. (Id. at 5; Def. exh. D at 6). At the May 3 meeting, it
was projected that the Society's first foreign distribution would be
undertaken simultaneously in each
territory in September, 1989 and would be coordinated from Locus in
Utrecht. (Tr. 118-22). In addition, Jon Peisinger, Vestron's President,
acknowledged that Vestron was seeking additional financing, but assured
the Society that it would be forthcoming. (Tr. 122-23).
On May 10, 1989, the deal anticipated by the Memorandum of Agreement
was finally formalized. The domestic agreement was officially modified to
incorporate the extended term and price changes. (Pl. exh. 4). At the
same time, a full contract for foreign distribution rights was executed
by the Society and by Vestron Video International, a division of Locus.
(Pl. exh. 3).
In addition to the terms set forth in the Memorandum of Agreement, this
longform contract also included several clauses of significance to this
litigation. First, Vestron warranted that it would use:
best efforts to promote the manufacture, sale,
distribution, and exploitation of the Programs to
create and satisfy demand in the Territory and that it
will use best efforts to make and maintain adequate
arrangements for the sale, distribution, and
exploitation of the Programs in all available markets
permitted hereunder throughout the Territory.
(Id. at Principal Terms, ¶ 16), Next, the long-form contract provides
that "[n]othing herein contained shall be deemed to limit [Vestron] from
entering into any agreement with any subdistributor, wholesaler, retailer
or otherwise with respect to copies on whatever term and conditions
[Vestron] and such other party may agree." (Id. at General Terms, ¶
5(j)). Finally, the Society is barred from rescission or equitable relief
and is relegated to an action for damages except where Vestron fails to
make a guarantee or royalty payment or fails to render a royalty
statement. (Id. at General Terms, ¶ 9).
Following execution of the long-form contract, Mr. Berman of the
Society met with representatives of the Vestron hubs at Locus' offices in
Utrecht. (Tr. 123). Although Mr. Berman was apparently unaware of it at
the time, the representative of the French hub was in fact an employee of
Warner Home Video, to whom Vestron had sublicensed its French rights.
(Tr. 123-29, d238, 377-78; Pl. exh. 34).
Throughout the period of the negotiations and implementation of the
foreign licensing agreement, Vestron was experiencing financial
uncertainty. On August 10, 1988, Vestron had received from Security
Pacific National Bank a commitment for a $100 million credit facility.
However, this commitment was withdrawn in October, 1988. (Tr. 191-92).
Thereafter, Vestron obtained $40 million in short term financing and made
efforts to find a longer term credit facility. In April, 1989, it
succeeded in obtaining a commitment for a $50 million facility from
Chemical Bank, contingent on Chemical's ability to syndicate $30 million
of the loan. (Tr. 194-96).
By mid-June, 1988, it was evident that Chemical would not be
successful, and its commitment would be withdrawn. Consequently, Vestron
decided to close Vestron Pictures, its movie production unit. Since
Vestron Pictures had supplied Vestron's foreign distributors with a large
share of their inventory, Vestron decided in July, 1989 to close its
remaining direct sales offices in Benelux, Germany, and Australia, and
rely exclusively on subdistributors. (Tr. 198-99). In late July, 1989,
Jon Peisinger of Vestron communicated these changes to Tim Kelly of the
Society in a telephone conversation. (Tr. 273). Thereafter, he discussed
them again with Todd Berman during a convention that they both attended
on August 8-10, 1989. (Tr. 275-77). Finally, in a memorandum dated August
11, 1989, Eric Eggleton of Vestron advised Todd Berman of the details of
the restructured foreign operations and indicated that the launch date
would likely be pushed back from September to October. (Pl. exh. 21).
Nevertheless, a schedule was developed that called for an initial release
of six titles, followed by releases of three titles each in December,
1989 and March, June, September, and December of 1990 (Id.; Tr. 132-34;
Some difficulties in distribution then ensued. The launch of the
Society's videocassettes was not accomplished simultaneously
in all territories as originally planned. (Tr. 261). Indeed, in
Australia, Benelux, and Norway, the first videotapes have yet to be
placed in the market. (Tr. 366-72). There were also problems with
production, including delays in translation and miscommunications
concerning packaging. (Tr. 262-64; Tr.* 90-95).
Perhaps most significant to the Society, Vestron's reliance on
subdistributors threatened to reduce the royalties that the Society would
ultimately receive. As long as Vestron distributed directly, the Society
would receive seventeen percent of the gross receipts received by
Vestron. However, by sublicensing the rights, Vestron reduced its own
gross receipts by about eighty percent, thus proportionally reducing the
amounts to be passed through to the Society. (Tr. 391-94).
On December 6, 1989, the Society's counsel sent a letter to Vestron
objecting to the restructuring of the foreign operations and complaining
of a number of problems encountered under the domestic agreement. The
attorney's letter concluded as follows:
As a result of the foregoing we have been instructed
by the Society to advise you of the matters set forth
above and to insure that you understand the
seriousness with which our client views the
situation. We are advised that a meeting with the
Society is now scheduled for December 19, 1989 and it
is our client's hope that these matters can be
amicably resolved at that time. However, if not, the
Society has informed us that it will have to consider
its other rights and remedies.
(Pl. exh. 11).
The parties did meet on December 19. At that time Tim Kelly first
proposed that Vestron agree to terminate both the domestic and
international agreements. When Jon Peisinger declined, Mr. Kelly then
suggested that Vestron lower the rate that it charged to the Society for
its purchase of videocassettes from $10 to $6 or $7. Again, Mr. Peisinger
refused, and no resolution was reached. (Tr. 284-90).
The Society then ceased performing under the international agreement by
refusing to deliver additional master tapes. (Tr. 82; Tr.* 175-76). The
schedule called for the Society to supply by December, 1989, all masters
due for release during 1990. (Pl. exh. 21). By late August, it had
delivered tapes for releases through April, 1990,*fn3 but one of the
April releases — "African Wildlife" — was returned as being of
unacceptable quality. (Tr.* 99; Pl. exh. 23). The Society has declined to
provide a replacement or to supply masters for subsequent releases. (Tr.*
The plaintiffs then initiated the instant action, and sought
preliminary relief enjoining the Society from selling any rights for the
territories covered by the agreement and requiring the Society to supply
the masters for releases through the end of 1990. The Society argues that
any breach that it has committed is compensable in damages and that
Vestron is therefore not threatened with irreparable harm. The Society
further contends that Vestron has no likelihood of success on the merits
because it fraudulently induced the Society to enter into a contract and
then breached the agreement by, among other things, entering into
sublicensing agreements and failing to use its best efforts.
I. Preliminary Injunction Motion
In order to prevail on its preliminary injunction motion, Vestron must
demonstrate "(a) irreparable harm and (b) either (1) likelihood of
success on the merits or (2) sufficiently serious questions going to the
merits as to make them a fair ground for litigation and a balance of
hardships tipping decidedly toward the party requesting preliminary
relief." Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling
Co., 749 F.2d 124, 125 (2d Cir. 1984) (quoting Jackson Dairy, Inc. v.
H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979).
The Society argues, however, that a higher standard must be applied
here because Vestron seeks a mandatory rather than a prohibitory
injunction. Indeed, where a party seeks an injunction that would alter
the status quo and grant it substantially all the relief ultimately
requested, the movant must demonstrate a substantial likelihood of
success on the merits. See Johnson v. Kay, 860 F.2d 529, 540 (2d Cir.
1958); Abdul Wali v. Coughlin, 754 F.2d 1015, 1025-26 (2d Cir. 1985). But
here the status quo is most properly seen as continuous performance under
the contract; indeed, the contract says as much by requiring performance
pending the resolution of most disputes. (Pl. exh. 3 at General Terms,
¶ 9). Furthermore, the injunction sought by Vestron would have no
impact on the parties' obligations beyond 1990, and so it hardly grants
the plaintiff all the relief sought. See Johnson v. Kay, 860 F.2d at
541. Accordingly, the usual preliminary injunction standards are
A. Irreparable Harm
"[T]erminating the delivery of a unique product to a distributor whose
customers expect and rely on the distributor for a continuous supply of
the product almost inevitably creates irreparable damage to the good will
of the distributor." Reuters Ltd. v. United Press International, Inc.,
903 F.2d 904, 907-908 (2d Cir. 1990) (citing, inter alia, Jacobson & Co.
v. Armstrong Cork Co., 548 F.2d 438, 444-45 (2d Cir. 1977)). See also
Travellers International AG v. Trans World Airlines, Inc.,
684 F. Supp. 1206, 1216 (S.D.N.Y. 1985) (loss of product line results in
irremediable loss of good will). Thus, "in cases where a preliminary
injunction has issued to prevent a product source from suspending
delivery to a distributor, the irreparable harm has often consisted of
the loss of customers and the competitive disadvantage that resulted from
a distributor's inability to supply its customers with the terminated
product." Reuters, at 909.
This is such a case, Vestron is committed to its subdistributors to
supply them with the Society's documentaries along with a variety of
other titles. Failure to do so will result in litigation with the
subdistributors, incalculable loss of revenues on other titles if their
distribution is affected, and diminution of good will. And, of course,
such consequences are all the more incalculable because they will occur
down through the chain of distribution to the retailers and ultimate
consumers. In short, there would be a chain reaction of losses,
impossible to quantify both at any specific stage and in total.
Indeed, even if problems of good will, commitments to subdistributors,
and the like were not present, damages could still not be readily
calculated. First, Vestron's distribution of the Society's program was
cut off almost at its inception, thus making it impossible to project
future sales on the basis of any track record. Second, Vestron and the
Society had agreed to a schedule of releases designed to create sales
momentum. Once that momentum is disrupted, it affects subsequent sales to
an indeterminate extent. In such circumstances, Vestron is faced with
irreparable injury because of the uncertainty of monetary damages. See
Danielson v. Local 275, Laborers International Union, 479 F.2d 1033, 1037
(2d Cir. 1973); Gulf & Western Corp. v. Craftique Productions, Inc.,
523 F. Supp. 603, 607-09 (S.D.N.Y. 1981).
B. Likelihood of Success of the Merits
The Society concedes its obligation to deliver master tapes to Vestron
under the contract. Therefore, probability of success on the merits turns
on whether the Society will be able to sustain any of its claims of
wrongdoing by Vestron.
1. Fraud in the Inducement
The Society first seeks to be relieved of its obligations on the ground
that it was fraudulently induced by Vestron to enter into the contract.
It argues that Vestron falsely represented its financial ability and its
intent to conduct the foreign distribution with a direct sales force
operating from a series of territorial hubs.
Under New York law, the Society must establish five elements to prove
misrepresentation of a material fact, falsity of that representation,
scienter, reliance, and damages. See Mallis v. Bankers Trust Co.,
615 F.2d 68, 80 (2d Cir. 1980), cert. denied, 449 U.S. 1123, 101 S.Ct.
938, 67 L.Ed.2d 109 (1981). Moreover, the Society must prove its claim of
fraud by clear and convincing evidence, a burden "`far more demanding'
than that for breach of contract." Ajax Hardware Manufacturing Corp. v.
Industrial Plants Corp., 569 F.2d 181, 186 (2d Cir. 1977) (quoting JoAnn
Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 302 N.Y.S.2d 799,
250 N.E.2d 214 (1969)).
Here, there is a substantial likelihood that Vestron will rebut the
Society's charges of fraud. There is no doubt that Vestron represented
that it would engage in foreign distribution through a series of hub
offices. However, there is also no evidence that Vestron employees had
any doubts about these representations at the time they were made.
Moreover, by the time the long-form contract was signed, the Society knew
that there was no local office serving Spain, Portugal and Greece, and,
on the basis of Vestron's "Launch Plan," it should have known that the
same was true of Scandinavia. These facts cut against any assertion that
the Society relied on Vestron's initial representations. Indeed any claim
of reliance is dealt a fatal blow by the long-form contract itself. The
Society can hardly maintain that Vestron's direct sales force and hub
offices were critical to its assent when, by the very contract that the
Society drafted, Vestron is explicitly permitted to enter into
subdistribution agreements. See Danann Realty Corp. v. Harris,
5 N.Y.2d 317, 320-22, 184 N.Y.S.2d 599, 601-03, 157 N.E.2d 597 (1959).
Similarly, no significant evidence has been presented that Vestron's
representations about its financial health were fraudulent The Society
occasionally asked vague questions about Vestron's capacity to perform
the contract and received equally vague answers. (Tr. 110, 122-23). These
were not specific misrepresentations that could have been reasonably
relied upon. See The Sample Inc. v. Pendleton Woolen Mills, Inc.,
704 F. Supp. 498, 505 (S.D.N.Y. 1989).
The Society next argues that it is entitled to terminate the contract
because Vestron is insolvent. Indeed, pursuant to the terms of the
contract, insolvency is one of the grounds for termination without prior
notice to Vestron.*fn4 However, whether Vestron is "insolvent" depends
upon the definition of that term for purposes of the contract:
The equity test of insolvency equates insolvency with
a lack of liquid funds, or the inability to pay one's
debts in the ordinary course of business as the debts
mature. . . . The bankruptcy test of insolvency, on
the other hand, focuses on the balance sheet of a
company at discreet intervals of time in order to
determine whether the company's liabilities exceed its
Kreps v. C.I.R., 351 F.2d 1, 9 (2d Cir. 1965). See also In re Anjopa
Paper & Board Mfg. Co., 269 F. Supp. 241, 263 (S.D.N Y 1967) (insolvency
means debtor unable to meet obligations as they fall due); Estate of
Froehlich, 98 Misc.2d 1, 2, 416 N.Y.S.2d 744, 745 (Sur.Ct. Nassau Co.
1979) ("Insolvency, in essence, is an inability to pay debts as they
If, in the instant case, insolvency is defined as liabilities exceeding
assets, then the Society is likely to prevail, since Vestron's balance
sheet shows a negative net worth. (Tr. 350). On the other hand, if
insolvency is equated with the inability to meet debts as they come due,
then Vestron is likely to prevail, since it has not failed to meet its
debt obligations. (Tr. 207-08).
Since the use of the word "insolvency" here is not derived from any
statute, it is necessary to look to the intent of the parties to
determine its significance in the contract. See Meighan v. Finn, 146
F.2d 594, 595 (2d Cir. 1944), aff'd, 325 U.S. 300, 303, 65 S.Ct. 1147,
1149, 89 L.Ed. 1624 (1945) (insolvency found to mean inability to meet
debts in context of contract). The primary concern of the Society in
providing for termination was the threat that it would not be paid. This
is evident from the fact that, in addition to insolvency, only failure to
pay royalties or provide an accounting are grounds for rescission: for any
other breach, the contract relegates the Society to an action for
damages. (Pl. exh. 3 at General Terms, ¶ 9). Thus, it is consistent
with this interest for insolvency to be defined as the inability of
Vestron to pay its debts: this would pose the immediate threat to the
By contrast, Vestron's negative net worth, though of legitimate concern
to the Society, poses no imminent danger. Rather, if this financial
condition causes Vestron to default in its substantive obligations under
the contract, the Society may seek recourse through the notice and cure
provisions. Indeed, the Society has argued that Vestron has violated the
best efforts clause, as will be discussed below. Thus, because Vestron's
construction of the term "insolvent" as used in the contract is the more
persuasive, it is likely to prevail on this issue.
3. Best Efforts
The Society next contends that Vestron has failed to live up to its
obligations to use its best efforts as required by the contract.
Specifically, the Society complains that by entering into subdistribution
agreements, Vestron has necessarily reduced the royalties that the
Society will receive.
There is no doubt that Vestron's decision to engage subdistributors was
based on self-interest: it could no longer carry the costs of its own
foreign marketing network, and it needed the cash infusion that would
come from guarantee payments under the subdistribution agreements.
Vestron's motives, however, are irrelevant, as is the specific
distribution structure that it is using in attempting to fulfill its
obligations. See Arnold Productions, Inc. v. Favorite Films Corp.,
298 F.2d 540, 543-44 (2d Cir. 1962) (best efforts clause not violated by
use of subdistributors as long as contracting party continued to
supervise compliance). Most significantly, the contract itself explicitly
permits Vestron to enter into subdistribution agreements, and it excludes
monies received by these subdistributors from gross receipts for purposes
of calculating royalties due to the Society. (Pl. exh. 4, General Terms
at ¶'s 5(b)(i) & 5(j)). Thus, the parties not only anticipated the
utilization of subdistributors, they also foresaw the impact that it
would have on royalties.
This is therefore not a case like Bloor v. Falstaff Brewing Corp.,
601 F.2d 609 (2d Cir. 1979), where a best efforts clause was violated
when a distributor took various steps to promote its own competing
product in derogation of the obligation to maintain a high sales volume
for the plaintiff's product. Id. at 610, 613-14. Rather, it is a case in
which Vestron appears to be making reasonable marketing decisions in
light of the resource constraints that it faces — decisions that
are expressly permitted by the contract it is working under.
Finally, the Society's argument that the best efforts clause trumps the
clause permitting subdistribution is unavailing. A best efforts
requirement must be reconciled with other clauses in the contract to the
extent possible, not used as a basis for negating them. See Bloor v.
Falstaff Brewing Corp., 454 F. Supp. 258, 266 (S.D. N Y 1978), aff'd,
601 F.2d 609 (2d Cir. 1979). Furthermore, the placement of the best
efforts clause among the "Principal Terms" in contrast to the location of
the subdistribution clause in the "General Terms" is hardly significant,
particularly given the greater specificity of the term permitting
subdistribution. See John Hancock Mutual Life Ins. Co. v. Carolina Power
& Light Co., 717 F.2d 664, 669 n. 8 (2d Cir. 1983).
4. Other Alleged Breaches
The Society also complains of a variety of other alleged breaches by
Vestron. Some of these, such as the failure to produce translations in
time and a mix-up in the color used for packaging, are normal
operational glitches. (Tr. 262-64). The inability to launch in all foreign
territories simultaneously, while seemingly more significant, had little
impact, since release in one foreign language market would have little
effect on another. (Tr. 261-62). Most serious is Vestron's failure to
launch in three territories, but it has demonstrated ongoing good faith
efforts to establish quality subdistribution arrangements in each
country. (Tr. 366-72).
Even if Vestron did violate the contract in these respects, as well as
by delegating its responsibilities to subdistributors, these breaches
would not be sufficiently material to justify rescission by the Society.
The Society continues to receive installments of the $1 million
guarantee, and under any sales projections, a significant portion of the
contract term will lapse before the Society is entitled to royalties
beyond this amount.*fn5 Where a distributor has not wholly defaulted in
making royalty payments and where its breaches, if any, can be
compensated in damages, rescission is not an appropriate remedy. See
Nolan v. Sam Fox Publishing Co., 499 F.2d 1394, 1398-99 (2d Cir.1974).
Finally, the contract itself limits the Society's remedies for these
types of breaches to an action for damages and precludes rescission.
(Pl. exh. 3 at General Terms, ¶ 9). Therefore, Vestron is likely to
prevail against these claims of breach of contract at least to the extent
of requiring continued performance.*fn6
C. The Scope of Relief
Vestron, then, has demonstrated a threat of irreparable injury and
likelihood of success on the merits, entitling it to preliminary relief.
In light of the schedule for releases negotiated by the parties, it is
appropriate to require the Society to supply Vestron with masters for all
programs to be released on videocassette through December, 1990. This
tailors Vestron's relief to the harm it would suffer while litigation is
pending, and it leaves disposition of the remaining titles to be
determined at the conclusion of the litigation. In addition, the Society
shall be enjoined from transferring any foreign rights which are the
subject of the contract, lest Vestron be deprived of full relief in the
event that it ultimately prevails. Finally, Vestron shall be required to
post an injunction bond of $50,000, which should be sufficient to
compensate the Society for delayed or disrupted foreign distribution of
its product if termination is found to have been warranted.
II. Motion to Disqualify Counsel
The Society moves to disqualify Vestron's counsel, Proskauer Rose Goetz
& Mendensohn ("Proskauer"), because that firm previously represented the
Society in significant trademark-related litigation in this Court:
National Geographic Society v. Conde Nast Publications, Inc., 87 Civ.
4228 (TPG). Pursuant to Disciplinary Rule 4-101(B) of the Code of
Professional Responsibility, an attorney may not use a client's
confidential information to the disadvantage of that client.
Accordingly, "an attorney may be disqualified from representing a client
in a particular case if
(1) the moving party is a former client of the
adverse party's counsel;
(2) there is a substantial relationship between the
subject matter of the counsel's prior representation
of the moving party and the issues in the present
(3) the attorney whose disqualification is sought
had access to, or was likely to have had access to,
relevant privileged information in the course of his
prior representation of the client."
Evans v. Artek Systems Corp., 715 F.2d 788, 791 (2d Cir. 1983).
In order to establish the second element — substantial
relationship — the movant bears a heavy burden of proof. It must
"show that the relationship is `patently clear,' see Silver Chrysler
Plymouth, Inc. v. Chrysler Motors Corp., 518 F.2d 751 (2d Cir. 1975)
(overruled on other grounds by Armstrong v. McAlpin, 625 F.2d 433 (2d
Cir. 1980) (en banc), vacated and remanded, 449 U.S. 1106 [101 S.Ct.
911, 66 L.Ed.2d 835] (1981)), or that the issues involved in the two
representations were `identical' or `essentially the same'. [Government
of India v. Cook Industries, 569 F.2d 737, 740 (2d Cir. 1978)]." C.A.M.,
s.p.a. v. E.B. Marks Music, Inc., 558 F. Supp. 57, 59 (S.D.N.Y. 1983).
Here, the evidence of a substantial relationship proffered by the
Society consists of the affidavit of its corporate counsel, Suzanne
Dupre. She attests that in connection with the Conde Nast litigation, she
imparted to Proskauer "sensitive and confidential information concerning
the manner in which those in the SOCIETY's upper management, including
myself, work and think, and specifically, NATIONAL GEOGRAPHIC's approach
to and strategy in litigation matters." Affidavit of Suzanne Dupre dated
March 21, 1990 at ¶ 5. Further, she states that Proskauer was
"exposed to my views, both personally and on behalf of the SOCIETY, as to
when settlement was appropriate, when and on what basis the SOCIETY was
prepared to litigate issues and generally how NATIONAL GEOGRAPHIC
functioned during a protracted litigation." Id. at ¶ 6. Finally, Ms.
Dupre contends that "the CONDE NAST litigation and the instant action
bear a substantial relationship, in that NATIONAL GEOGRAPHIC's trademark
is at issue once again in this action." Id. at ¶ 9.
This last statement betrays the emptiness of the Society's argument.
This is not litigation over a trademark; it is a breach of contract
case. Although the contract provides for trademark protection along with
a host of other things, the trademark is not at issue here. Thus, there
is no substantial relationship between this litigation and Conde Nast.
Furthermore, the only information that the Society is alleged to have
revealed during the course of its representation by Proskauer was its
general litigation posture in trademark suits. But if insight into a
former client's general "litigation thinking" were to constitute
"relevant privileged information", then disqualification would be
mandated in virtually every instance of successive representation. That
clearly is not the law, and the Society's motion must be denied.
For the reasons set forth above, the plaintiff's motion for a
preliminary injunction is granted. Upon posting of a $50,000 injunction
bond, and pending final determination of this action:
(1) The National Geographic Society shall provide Vestron with the
master tapes for all programs scheduled to be released through December,
(2) The Society shall not transfer any rights which are the subject of
its contract with Vestron.
Further, the defendant's motion to disqualify counsel for the plaintiff