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EMONS INDUSTRIES, v. LIBERTY MUT. INS. CO.

October 4, 1990

EMONS INDUSTRIES. INC., PLAINTIFF,
v.
LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Leisure, District Judge:

ORDER & OPINION

This is an action for declaratory and injunctive relief, and for monetary damages, arising from defendant Liberty Mutual Insurance Company's ("Liberty") alleged breaches of its contractual and fiduciary duties owed to its insured, Emons Industries, Inc. ("Emons"). Liberty comes before the Court on a motion to disqualify Emons's counsel, Anderson, Kill, Olick & Oshinsky ("the Anderson Firm"), from representing Emons in the instant litigation.*fn1

BACKGROUND

Emons is a New York corporation primarily engaged in the boxcar leasing business. As the corporate successor to a number of pharmaceutical companies, Emons has been sued in numerous product liability cases arising out of the sale by those companies of diethylstilbestrol ("DES"). Liberty is a Massachusetts mutual insurance company and is Emons's insurer with respect to DES lawsuits pursuant to comprehensive general liability insurance policies ("Policies") issued by Liberty to Emons and its predecessors between 1945 and 1970.

In 1975 Emons was first sued in a DES-related lawsuit. Emons notified Liberty, and requested that Liberty defend Emons in the suit and indemnify Emons if Emons were found liable. Liberty refused the defense and coverage requests and Emons thereafter retained on its own behalf the firm of Greenberg, Irwin, Pellman & Slade ("the Greenberg Firm") to represent Emons in both the burgeoning number of DES lawsuits, as well as in a suit against Liberty seeking coverage under the Policies ("the Coverage Action").

In 1978, Emons and Liberty reached an interim settlement of the Coverage Action ("the Interim Settlement"), which provided that Liberty pay for Emons's costs in defending against the DES cases. Emons apparently continued to control its defense of the DES cases through counsel chosen by Emons. Through 1980 Emons was represented by the Greenberg Firm, which then split its membership and Emons's counsel became the firm of Slade, Pellman & Biehl. In 1982, Slade, Pellman & Biehl became Slade & Pellman. These firms successively represented Emons in the DES cases, with Liberty, pursuant to the Interim Settlement, paying all of Emons's defense costs. At the same time, these successive firm entities represented Emons in the Coverage Action against Liberty.

In 1988, Emons (represented by Slade & Pellman) and Liberty reached a final settlement of the Coverage Action ("the Settlement Agreement"), pursuant to which Liberty agreed to continue paying Emons's DES defense costs and to pay indemnification to Emons's subject to per claim and aggregate limits. In 1989, Slade & Pellman became Slade, Moross, Rahl, Glatzer & Stamm ("Slade Moross").

During April 1990, Jeffrey L. Glatzer, Esq., a Slade Moross partner, informed Liberty that Slade Moross would be merging with the Anderson Firm. On May 1, 1990, Slade Moross merged into the Anderson Firm, the Slade Moross attorneys involved in representing Emons prior to the merger continuing in that capacity as members of the Anderson Firm. On the same day as the merger, Liberty informed Mr. Glatzer that it would not agree to the Anderson Firm continuing in the role of DES counsel, which Slade Moross and its predecessor firms had served. Liberty stated as its basis for objecting to the Anderson Firm's involvement in unrelated policyholder actions against Liberty.

On July 25, 1990, Liberty informed Emons that Liberty was assigning defense of the DES cases to another firm, Jacobson & Triggs, and that if Emons refused to cooperate in the transfer of counsel Liberty would no longer defend Emons in the DES cases nor would it indemnify Emons under the Settlement Agreement or the Policies. On August 2, 1990, Emons brought suit against Liberty, Jacobson & Triggs and John F. Triggs in New York Supreme Court, County of New York, seeking a declaration of rights and a permanent injunction enjoining Liberty from interfering with Emons's attorney-client relationship with the Anderson Firm. Emons also sought monetary damages, including any unpaid defense or indemnity payments ("Coverage Payments") due Emons since May 1, 1990.

On August 13, 1990, Justice Ira Gammerman granted a request by Emons for a temporary restraining order preventing Liberty from interfering with Emons's relationship with the Anderson Firm, but refused to enjoin Liberty from withholding Coverage Payments pending a hearing on Emons's pending motion for a preliminary injunction. The case was subsequently removed to this Court, and Liberty now moves to disqualify the Anderson Firm from representing Emons in this action.

DISCUSSION

Liberty premises its motion to disqualify the Anderson Firm on two separate grounds: 1) that Slade Moross's prior representation in the DES cases bars the Anderson Firm from prosecuting the present action; and 2) that one or more attorneys from the Anderson Firm will be necessary witnesses in this action and that role requires the disqualification of the Anderson Firm as a whole. The Court will deal with each of these points in turn.

In undertaking this analysis the Court secures guidance from the Second Circuit's teaching with respect to motions to disqualify counsel. "[W]hile we have not hesitated to disqualify counsel when the circumstances warranted it, we have also noted that `there is a particularly trenchant reason for requiring a high standard of proof on the part of one who seeks to disqualify his former counsel, for in disqualification matters we must be solicitous of a client's right freely to choose his counsel — a right which of course must be balanced against the need to maintain the highest standards of the profession.' Government of India v. Cook Industries, Inc., 569 F.2d 737, 739 (2d Cir. 1978). This Court is also mindful of the considerations that disqualification motions `are often interposed for tactical reasons,' and that `even when made in the best of faith, such motions inevitably cause delay.' Board of Education v. Nyquist, 590 F.2d ...


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