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United States District Court, Southern District of New York

March 31, 1999


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


Plaintiff Commercial Union Insurance Co. ("Commercial") brings this action for a declaratory judgment with respect to the scope of an ocean cargo policy underwritten on behalf of defendant Marco International Corp. ("Marco"). Marco moves to disqualify Commercial's counsel in light of her firm's nominal representation of Marco in an unrelated subrogation suit arising out of Commercial's payment to Marco on the same policy with respect to another claimed loss. The issue whether an insurance carrier's counsel is disqualified from representing the carrier in coverage litigation with an insured by its nominal representation of the insured as subrogor appears to be one of first impression in this circuit.


Commercial is an insurance carrier issuing, inter alia, ocean cargo policies.*fn1 Marco deals in aluminum ingots and scrap aluminum.*fn2

Commercial issued an ocean cargo insurance policy to Marco effective February 1, 1996.*fn3 The policy contains standard clauses providing that Commercial is subrogated to Marco upon payment of any loss, permitting Commercial to sue in Marco's name to recover paid losses as subrogee, and requiring Marco to assist in the prosecution of any such suit.*fn4

Some time in or about March 1998, Marco sustained a loss unrelated to that at issue here and made claim against Commercial.*fn5 Commercial duly paid the loss and in June 1998, as subrogee, brought suit in Marco's name to recover from a third party.*fn6 The firm Nicoletti, Hornig, & Sweeney ("NH & S") represents Commercial,*fn7 with which it has a long relationship, and therefore Marco, in that suit, which remains pending.*fn8 Although representing Marco in name, N.H. & S reports to Commercial. Marco pays none of N.H. & S's fees and has no role in directing or controlling the litigation.*fn9

Marco sustained the loss that is the subject of this case in or about March 1997.*fn10 In September 1998, Commercial brought this action, in which it is represented here by N.H. & S,*fn11 for a declaration that the loss is not covered by the policy.*fn12 Marco counterclaimed, requesting a declaration to the opposite effect.*fn13

Marco objects to N.H. & S's representation of Commercial in this action on the ground that N.H. & S is representing Marco in the subrogation action and, it argues, may not represent Marco's adversary in this case.


The Applicable Standard

Attorneys practicing in this Court must adhere to the Code of Professional Responsibility adopted by the Appellate Division of the New York Supreme Court.*fn14 Nevertheless, it does not follow necessarily that district courts should disqualify counsel whenever they perceive a breach of the canons. Disqualification motions are subject to abuse for tactical purposes. They may require sometimes complex satellite litigation extraneous to the case before the court. Disqualification also deprives a client of counsel of its choice. Moreover, professional disciplinary bodies, including the Grievance Committee of this Court, are available to police the behavior of counsel. Accordingly, the Second Circuit has made clear that disqualification is appropriate only if a violation of the Code gives rise to a significant risk of trial taint.*fn15 That is to say, disqualification for an alleged conflict of interest is appropriate only if there is a significant risk that the conflict will affect the attorney's ability to represent his or her client with vigor or if the attorney is in a position to use privileged information acquired in his or her representation of a client against that client in another matter.*fn16

Canon 5 of the Code states that "[a] lawyer should exercise independent professional judgment on behalf of a client," and Disciplinary Rule DR 5-105 proscribes a lawyer from representing a client if that representation is of interests differing from or adverse to those of another existing client. While the Second Circuit held in Cinema 5, Ltd. v. Cinerama, Inc.,*fn17 that it is improper per se for an attorney to participate in a lawsuit against his or her own client,*fn18 the court there dealt only with a situation in which the lawyer had traditional attorney-client relationships with both clients.*fn19 More recently, the circuit "has established alternative guidelines for a district court to follow . . . depending on the particular facts of the case."*fn20

This more flexible approach stems from Glueck v. Jonathan Logan, Inc., where the circuit faced the question whether a law firm's suit against a member of an association which it represented implicated the standard of Cinema 5, Ltd. The court framed the inquiry as "whether there exist sufficient aspects of an attorney-client relationship for purposes of triggering inquiry into the potential conflict involved."*fn21 The court answered this question in the negative, holding that (1) the association member was a client only in a vicarious sense, and (2) the "risks against which Canon 5 guards will not inevitably arise" in such a situation.*fn22 In those situations, a standard less stringent than Cinema 5, Ltd.'s per se test applies.

Glueck suggests the appropriate line of inquiry here. While Marco is a client of N.H. & S in the subrogation case in the sense that Marco nominally is the plaintiff for which N.H. & S appears, the Court is mindful that

  "[w]hen dealing with ethical principles, it is
  apparent that we cannot paint with broad strokes. The
  lines are fine and must be so marked. Guideposts can
  be established when virgin ground is being explored,
  and the conclusion in a particular case can be
  reached only after painstaking analysis of the facts
  and precise application of precedent."*fn23

The basic question therefore is whether N.H. & S's role in the subrogation case is such that it should not sue Marco in this one.

Certainly Marco is neither a litigant nor a client of N.H. & S in the subrogation case in the usual sense. Under the terms of the policy, Marco was obligated to assign and subrogate to Commercial its right to prosecute and recover any claim against third parties responsible for the loss on which Commercial made payment. The subrogation case, although brought in Marco's name, is Commercial's alone. Marco has no material pecuniary or other interest in the subrogation suit.*fn24 Its role in the suit is limited to providing documents and testimony as required by the cooperation clause of the policy. Moreover, Marco did not retain N.H. & S to prosecute the suit, it pays none of N.H. & S's fees, and it has no control over the prosecution, settlement or dismissal of the matter. In consequence, N.H. & S represents Marco in the subrogation case only as a matter of form, and it cannot be said to stand in a traditional attorney-client relationship with Marco. As a matter of substance, N.H. & S's client in the subrogation case is Commercial.

Where, as here, the relationship between the client and the attorney it seeks to disqualify is so much more attenuated than in a conventional attorney-client relationship, the strict rule of Cinema 5, Ltd. does not apply.*fn25 "Disqualification will ordinarily be required whenever the subject matter of a suit is sufficiently related to the scope of the matters on which a firm represents [the adverse client] as to create a realistic risk either that the plaintiff will not be represented with vigor or that unfair advantage will be taken of the defendant."*fn26 These risks, however, are not present here.

Defendant does not identify, and the Court cannot discern, any connection between the subrogation suit and this action. Although both involve the policy, the subrogation suit seeks recovery in respect of an entirely unrelated loss. Under the substantial relationship test, disqualification should be granted only "upon a showing that the relationship between the . . . cases is `patently clear' [or] `essentially the same.'"*fn27 This showing has not been made.

Nor is there any other reason to suppose that Marco's interests would be disserved by permitting N.H. & S to represent Commercial in this case. Marco has no significant economic interest in the subrogation case, and the little interest it does have is coextensive with that of N.H. & S's client, Commercial. There is thus no risk that Marco's interest in that case will not be prosecuted with vigor.

Marco rejoins that its interests in this case could be jeopardized by its contractually compelled cooperation with N.H. & S in the subrogation case. It argues that Marco's duty to cooperate in the subrogation suit will force a Marco representative to be "alone in a room with and be[] prepared for testimony by an [NH & S] attorney."*fn28 It maintains also that there is a question "whether [its] attorney-client privilege will be respected."*fn29 But these arguments are unpersuasive. The lack of any substantial relationship between the subrogation case and this one means that nothing germane to the former is likely to be relevant to the latter. Moreover, Marco's obligation to cooperate with Commercial in the subrogation case means that it is obliged to disclose to Commercial anything reasonably related to the subrogation case irrespective of the identity of Commercial's counsel. Marco therefore has no reasonable expectation of privacy in anything relating to the subrogation claim.

Defendant relies on Ettinger v. Cranberry Hill Corp*fn30 for the proposition that N.H. & S's representation of it in the subrogation case is per se disqualifying. There, defendant Penn Hills Lodge sought to disqualify Ettinger's counsel, O'Malley, Harris & Schneider ("OH & S"), due to OH & S's attenuated representation of Penn Hills as subrogor in a claim against a third party. The court disqualified Ettinger's counsel upon the application of the Cinema 5 Ltd. per se test. Ettinger, however, is not persuasive here.

First, unlike Commercial's direct relationship to both the matter before this Court and the subrogation suit, Ettinger had no connection to the subrogation suit in which OH & S represented Penn Hill. Thus, the court legitimately was concerned that because "confidential records and accounts" were disclosed to OH & S by Penn Hill in the subrogation suit,*fn31 information might have passed through OH & S to Ettinger which had no right to it. But this concern is not present here because Commercial is the real party in interest. That is, Marco is obligated to disclose to Commercial anything reasonably related to the subrogation suit because of Marco's duty to cooperate with Commercial. There is therefore no concern that N.H. & S will act as a conduit for confidential information as was feared in Ettinger.

Second, while the Ettinger court predicated its holding on Cinema 5 Ltd.,*fn32 it did not consider Glueck which limited the per se test to situations of direct representation involving a traditional attorney-client relationship. Accordingly, even if Ettinger were on point, the Court respectfully would differ from its application here.

The Appearance of Impropriety

Defendant maintains too that even the appearance of impropriety — discouraged by Canon 9 — ought to be enough to disqualify N.H. & S from this action.*fn33 But in this circuit, "courts are reluctant to rest disqualification of counsel solely upon Canon 9."*fn34 This is because "[w]hile sensitive to the integrity of the bar, the public is also rightly concerned about the fairness and efficiency of the judicial process."*fn35 Any appearance of impropriety arising from N.H. & S's role in the subrogation suit therefore must be balanced against the fairness of depriving Commercial of its choice of counsel and the extent to which this motion to disqualify is motivated by litigation strategy.*fn36 And the scales tilt decisively in one direction.

While N.H. & S technically does represent Marco in the subrogation suit, only the most superficial understanding of the nature of the representation would permit the conclusion that there is any impropriety here. Any real familiarity with the facts would dispel any notion of a conflict of interest. Moreover, Commercial has a close and long-standing relationship with N.H. & S. Disqualification would result in added expense to Commercial and delay this litigation. Finally, in light of the lack of any material risk of trial taint resulting from N.H. & S's continued appearance in this matter, the Court is skeptical that this motion is anything more than a litigation tactic.

After weighing the countervailing concerns, this Court finds that the interests of fairness and efficiency would outweigh whatever minimal risk of appearance of impropriety there might be as a result of N.H. & S's continued representation of Commercial in the captioned matter.


In the last analysis, defendant offers little reason, beyond empty formalism, why the Court should disqualify plaintiff's counsel, and the Court sees no reason to elevate formalism over the pragmatic concerns attendant to disqualifying Commercial's counsel.


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