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BROWN & WILLIAMSON TOBACCO CORP. v. PATAKI

February 26, 2001

BROWN & WILLIAMSON TOBACCO CORPORATION, AND BWTDIRECT, LLC, PLAINTIFFS,
V.
GEORGE E. PATAKI, IN HIS OFFICIAL CAPACITY AS GOVERNOR OF THE STATE OF NEW YORK, ET AL., DEFENDANTS.



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

MEMORANDUM AND ORDER

Defendants George E. Pataki, in his official capacity as Governor of the State of New York, Eliot Spitzer, in his official capacity as Attorney General of the State of New York, and Antonia C. Novello, M.D., in her official capacity as Commissioner of Health of the State of New York (collectively, the "defendants") bring this motion to disqualify the law firm of Covington & Burling ("C & B") as counsel for plaintiffs Brown & Williamson Tobacco Corporation and BWTDirect, LLC (collectively, "Brown & Williamson") in the above-captioned action. For the reasons set forth below, the motion to disqualify is denied.

BACKGROUND

I. C & B's Relationship with New York State

The following facts are not in dispute. Over the past 25 years, C & B has represented various New York State (the "State") interests with respect to the State's social welfare programs. The State first entered into a contract with C & B in 1975. (Attwell Aff. ¶ 4). In 1987, C & B and the State executed a contract, which was subsequently renewed every three years. (Id. ¶ 2). The current contract between the parties was executed in July 2000 and will terminate on March 31, 2001, subject to the State's right to renew it for an additional year. (Id. ¶ 3; id., Ex. A at 6-7).

Under the current contract between C & B and the Division of Budget ("DOB"), C & B provides legal advice and assistance, including representation in litigation, on behalf of the State on issues of federal funding, rate structures and revenue maximization for the State's public assistance programs, including Medicaid, cash assistance, foster care, and child support. (Id., Ex. A ¶¶ 4, 9). As a necessary part of this work, C & B interacts with several State agencies, including the Office of Mental Retardation and Developmental Disabilities ("OMRDD"), the Office of Mental Health ("OMH"), the Office of Temporary and Disability Assistance ("OTADA"), the Department of Social Services ("DSS"), and the Department of Health ("DOH"). (Id. ¶ 8).

From 1997 through the third quarter of 2000, C & B billed the State as follows: $72,623 in 1997; $93,246 in 1998; $133,100 in 1999; and $47,359 through the third quarter of 2000. (Id. ¶ 7). Under the contract, payment to C & B is "limited to legal services rendered for those matters specifically set forth in [the contract], and [C & B] shall not be entitled to payment for any other services except as may be entered into by and between the parties hereto." (Id., Ex. A at 5).

On April 5, 1999, C & B filed a complaint in Arizona et al. v. Shalala, No. 99 Civ. 860(HHK), on behalf of five states, including New York, seeking declaratory and injunction relief against the Secretary of Health and Human Services ("HHS") and the HHS Assistant Secretary for Management and Budget to prevent enforcement of a federal policy restricting how states can use block grants under the Temporary Assistance for Needy Families program. (Robitzek Aff. ¶ 10; id., Ex. A). On October 23, 2000, the district court granted summary judgment to the defendants, Arizona et al. v. Shalala, 121 F. Supp.2d 40 (D.C. 2000), and on December 20, 2000, C & B filed a notice of appeal. (Id. ¶ 10). As part of this representation, C & B has consulted with the New York State DOB and OTADA. (Remes Aff. ¶ 5).

II. Private Representation

Over the years, C & B has also represented numerous and varied private interests, some of which involved parties adverse to the New York State Attorney General, Governor or DOH. (Id. ¶ 8). For example, C & B has represented food manufacturers against the Commissioner of Agriculture and Markets in cases involving the misbranding of food products; C & B has been adverse to the Attorney General in the contest over Doris Duke's will, (id. ¶ 9); and C & B has represented private companies in many environmental matters involving the New York Department of Environmental Conservation, including representation of a PCB manufacturer spanning more than a decade (id. ¶ 10). C & B has also represented clients in civil and criminal cases instituted by the Attorney General's Office and other state agencies. (Id. ¶ 11).

Of particular significance for purposes of this motion is C & B's representation of tobacco companies in matters adverse to various state agencies, and known to the Attorney General, the Office of the Governor, and DOH. (Id. ¶ 12). For example, C & B represented several tobacco companies and met with the Office of the Governor's Counsel in May 2000 to urge that the Governor disapprove the original "firesafe" cigarette bill, which the Governor vetoed on May 24, 2000. After the Governor signed the successor bill on the "firesafe" cigarette, a C & B attorney met with three officials of the State Office of Fire and Prevention and Control ("OFPC") on September 14, 2000 about implementation of the statute. The C & B attorney met again with the officials of OFPC and officials from DOH and the Department of State on October 10, 2000. (Id. ¶ 13).

Despite its representation of interests adverse to the State, "no state official or* agency over the past three decades has objected to, or sought to disqualify [C & B] with regard to, any [matters C & B has represented against the State]." (Id.). From time to time, however, C & B has raised with the State the fact that C & B represents the State on various issues while it represents private clients against the State on other issues. For example, a C & B attorney met with the State Attorney General in March 1995 on behalf of the four leading cigarette manufacturers in an effort to urge the Attorney General not to join other states in suing the cigarette companies for reimbursement of smoking-related Medicaid costs. (Id. ¶ 12(a); Schick Decl., Ex. D at 3). When the Attorney General filed suit against the manufacturers, C & B, "as a courtesy," advised DOB that it had represented the Tobacco Institute for many years and would possibly represent the defendants in the litigation. (Remes Aff., ¶ 12(a)). C & B did not believe that this dual representation of the tobacco companies and the State would constitute a conflict of interest, and "[n]o State official raised any objection to [C & B's] continued representation of the tobacco defendants," (id.), despite the fact that C & B represented the State on Medicaid issues and would be representing the Tobacco Institute and the manufacturers against the State in its effort to recoup smoking-related Medicaid costs.*fn1 Additionally, pursuant to the Master Settlement Agreement between the tobacco manufacturers and the Attorneys Generals of 46 states, C & B negotiated with the New York Attorney General's Office the dissolution of the Tobacco Institute. (Id. ¶ 12(b)).

III. Current Litigation Against the State

On October 12, 2000, C & B filed the complaint in Brown & Williamson, et al. v. Pataki, et al., 00 Civ. 7750(LAP), in this court.*fn2 On October 16, 2000, the Wall Street Journal ran a story on Brown & Williamson's suit to block enforcement of New York State Public Law 1399-11 ("P.L.1399-11"), which prohibits the sale of cigarettes to New York State residents via mail order, telephone and the internet. A C & B partner, David H. Remes, was mentioned in the article by name, but the firm was not. (Remes Aff., Ex. D). On October 30, 2000, The National Law Journal ran a short piece on "new business" stating that C & B "[is] representing [Brown & Williamson] in a suit to overturn" P.L. 1399-11. (Id., Ex. E).

The first scheduling order was issued on October 23, 2000 setting dates for expedited discovery, briefing and the preliminary injunction hearing. The time from the beginning of discovery to oral argument was to be just over seven weeks.*fn3 On November 14, 2000, an order (the "TRO") was issued temporarily restraining enforcement of P.L. 1399-11, and on November 15, 2000, a second scheduling order was issued setting dates for discovery, briefing and the preliminary injunction hearing. The time between the beginning of discovery to the expiration of the TRO was to be approximately four and a half months.*fn4

In November 2000, Brown & Williamson, through C & B, noticed the depositions of two attorneys who work in the Office of the Governor's Counsel. Assistant Attorney General Martin Bienstock advised C & B that those depositions were protected by the legislative privilege. (Bienstock Reply Aff. ¶ 2). The parties had several conversations but were unable to resolve the issue. (Id. ¶ 3). During these conversations, Assistant Attorney General Beinstock stated several times that plaintiffs' attempt to depose State counsel staff was causing "significant displeasure." (Gimbel Aff. ¶¶ 4, 6). On December 13, 2000, Brown & Williamson submitted a letter brief to the court requesting the court to compel the depositions. (Id. ¶ 7; Bienstock Reply Aff. ¶ 4; id., Ex. A). After considering the submissions from both sides, the deposition notices were quashed on December 15, 2000.

Forty-five minutes after Brown & Williamson submitted its letter brief to the court seeking to compel the depositions, Assistant Attorneys General Beinstock and Avi Schick informed C & B that defendants would move to disqualify the firm as counsel for Brown & Williamson. (Remes Aff. ¶ 14). C & B offered to establish a "concrete wall" to shield its work on behalf of the State from its representation of Brown & Williamson; this offer was rejected. (Pl. Mem. at 19). Defendants filed and served the motion to disqualify on January 18, 2001, consistent with the third scheduling order.*fn5 Oral argument on the disqualification motion was heard on February 16, 2001.

DISCUSSION

I. STANDARD FOR DISQUALIFICATION

It is axiomatic that a lawyer owes an undivided duty of loyalty to his or her client. Under Canon 5 of the New York Code of Professional Responsibility, "a lawyer should exercise independent professional judgment on behalf of a client." DR 5-105(A) requires a lawyer to refuse employment if representation of an existing client "will be or is likely to be adversely affected by the [lawyer's representation of another client], or if it would be likely to involve the lawyer in representing differing interests." Additionally, under Canon 9, "a lawyer should avoid even the appearance of impropriety."

In Cinema 5 Ltd. v. Cinerama, Inc., et al., 528 F.2d 1384, 1387 (2d Cir. 1976), the Court of Appeals held that adverse concurrent representation against an existing client is prima facie improper. The prima facie (or per se) rule shifts the burden to the attorney opposing disqualification to demonstrate that "there is no actual or apparent conflict in loyalties or diminution in the vigor of [the attorney's] representation." Id.

[W]ith rare exceptions disqualification has been ordered only in essentially two kinds of cases: (1) where an attorney's conflict of interests in violation of Canons 5 and 9 of the Code of Professional Responsibility undermines the court's confidence in the vigor of the attorney's representation of his client, or more commonly (2) where the attorney is at least potentially in a position to use privileged information concerning the other side through prior representation . . . thus giving his present client an unfair advantage.
[W]e believe that unless an attorney's conduct tends to "taint the underlying trial by disturbing the balance of the presentations in one of the two ways indicated above, courts should be quite hesitant to disqualify an attorney".

If the representation is not concurrent, but rather involves adverse representation against a former or vicarious client, the court applies the "substantial relationship" test, which requires disqualification when the subject matter of the present representation is substantially similar to the previous representation. Cinema 5, 528 F.2d at 1386; Glueck v. Jonathan Logan, Inc., 653 F.2d 746 (2d Cir. 1981). The purpose of the "substantial relationship" test is "to prevent any possibility, however slight, that confidential information acquired from a client during a previous ...


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