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COMMERCIAL UNION INS. CO. v. MARCO INTERN. CORP.

March 31, 1999

COMMERCIAL UNION INSURANCE COMPANY, PLAINTIFF,
v.
MARCO INTERNATIONAL CORP., DEFENDANT.



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

MEMORANDUM OPINION

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.

Facts

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.

Discussion

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 ...


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