The opinion of the court was delivered by: Preska, District Judge.
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.
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. ¶
II. Private Representation
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
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,
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."
[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 ...