United States District Court, Southern District of New York
August 15, 1990
SCHLAIFER NANCE & COMPANY, INC., PLAINTIFF,
THE ESTATE OF ANDY WARHOL, DEFENDANT.
The opinion of the court was delivered by: Stanton, District Judge.
MEMORANDUM AND ORDER
Plaintiff Schlaifer Nance & Company, Inc. ("SNC") moves for
an order directing defendant the Estate of Andy Warhol (the
"Estate") to turn over to SNC all documents given to the Estate
in breach of a settlement agreement in another action, to which
the Estate was not a party.
In 1985, Original Appalachian Artworks, Inc. ("OAA") sued SNC
in the United States District Court for the Northern District
of Georgia (the "OAA action"). As part of the settlement of
that action, the parties to it agreed "to destroy or return all
copies of all documents to the party which produced them".
(Affidavit of Paul K. Rooney sworn to July 18, 1990 ¶¶ 2-3,
exhibit 1). Later, the Estate retained the former counsel for
OAA, Messrs. Kilpatrick & Cody of Atlanta, Georgia, to
represent the Estate in an arbitration proceeding it
anticipated SNC might bring in Atlanta. (Id. ¶ 4; Affidavit of
Paul J. Hanley sworn to July 30, 1990 ¶ 3). That arbitration is
It appears that a partner at Kilpatrick & Cody, Jerre Swann,
Esq., gave the Estate documents that SNC had produced in the
OAA action, but which had been neither destroyed nor returned
to SNC. The Estate received those documents before discovery in
this action began, and its counsel in this action (not
Kilpatrick & Cody) denies knowing that the documents were under
restrictions when he received them. (Id. ¶ 4). SNC asserts that
the Estate should be ordered to return those documents.
Courts may issue orders "under the inherent `equitable powers
of courts of law over their own process, to prevent abuses,
oppression, and injustices.'" International Products Corp. v.
Koons, 325 F.2d 403, 407-08 (2d Cir. 1963) (quoting Gumbel v.
Pitkin, 124 U.S. 131, 144, 8 S.Ct. 379, 383, 31 L.Ed. 374
However, Mr. Swann obtained those documents in another action
in his capacity as counsel for OAA, and he voluntarily gave
them to the Estate. Neither the Federal Rules of Civil
Procedure nor courts' inherent powers support an order
prohibiting use of information innocently obtained from third
parties without use of judicial process. See Bridge C.A.T. Scan
Assocs. v. Technicare Corp., 710 F.2d 940, 945-46 (2d Cir.
While Mr. Swann apparently produced the documents in
violation of the settlement agreement in the OAA action at the
time the Estate retained him, there is no showing that the
Estate engaged in any wrongdoing in receiving them. Although
SNC asserts that the Estate induced Mr. Swann to breach the
agreement by retaining his firm, it offers no evidence to
support that contention.
Accordingly, there is no reason to attribute Mr. Swann's
breach to the Estate, or to deny it the use of relevant
documents because of his breach of an agreement made in an
unrelated action. Even a party who induced the breach of an
agreement not to disclose trade secrets may not be liable for
their use until it learns that it induced the breach.
Conmar Products Corp. v. Universal Slide Fastener Co.,
172 F.2d 150, 156-57 (2d Cir. 1949) ("Having acquired the secrets
innocently, they were entitled to exploit them till they
learned that they had induced the breach of the contract.").
Here there is no showing that the Estate induced the breach of
the contract. Nor is there sufficient reason, in its discovery
of Mr. Swann's breach, to bar the Estate's use of the
documents. The non-attribution to the Estate of Mr. Swann's
action, the fact that the Estate was not a
party to the settlement of the OAA action and did not agree to
its burdens, and the policy favoring full disclosure in federal
litigation overcome the temptation to extend the principle that
a client should not benefit from the wrongdoing of his
The motion is denied.
© 1992-2003 VersusLaw Inc.