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PAPYRUS TECH. CORP. v. NEW YORK STOCK EXCH.

June 28, 2004.

PAPYRUS TECHNOLOGY CORP., Plaintiff and Counterclaim-Defendant,
v.
NEW YORK STOCK EXCHANGE, INC., Defendant and Counterclaim-Plaintiff.



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

OPINION & ORDER

This case arises from the allegations of Papyrus Technology Corp. ("Papyrus")*fn1 that the New York Stock Exchange, Inc. ("NYSE") committed patent infringement and breach of contract.*fn2 Specifically, Papyrus alleges that the NYSE violated its four patents for a wireless device that enables brokers to make and receive inquiries, receive and execute orders, and provide instructions for orders. Papyrus further alleges that the NYSE breached its contractual obligations by not paying to use the proprietary technology. The NYSE counterclaims for a declaratory judgment that the NYSE has not violated the four patents.

The issues presently before the Court, however, have little to do with patent infringement and the work of the stock exchange. Instead, the present dispute implicates the work of attorneys, the ethics of the profession, and a litigant's right to choose its counsel. The NYSE moves to disqualify Mr. Tedd Van Buskirk and the law firm of Frommer Lawrence & Haug ("Frommer") from serving as Papyrus's counsel. The NYSE claims that while an associate at Milbank, Tweed, Hadley & McCloy ("Milbank"), which represents NYSE, Van Buskirk had access to and received NYSE confidences or secrets material to this case.*fn3 As a result, the NYSE argues that Van Buskirk and Frommer may not represent Papyrus. For the reasons set forth below, NYSE's motion is GRANTED IN PART AND DENIED IN PART.

  BACKGROUND

  From May 1988 through June 2001, Van Buskirk was an associate in Milbank's twelve-member intellectual property group. (Declaration of Tedd W. Van Buskirk, dated March 9, 2004 [3/9/04 Van Buskirk Decl.] ¶ 2; Declaration of Christopher E. Chalsen [Chalsen Decl.] ¶¶ 5-6.) While he worked for Milbank, the NYSE retained the firm to provide advice on the Papyrus patents, which are the subject of this dispute. (Id. ¶ 9.) It is undisputed that Van Buskirk never worked on the NYSE-Papyrus matter while at Milbank. (Id.; 3/9/04 Van Buskirk Decl. ¶¶ 3, 7; Declaration of Tedd W. Van Buskirk, dated April 8, 2003 [sic] [4/8/04 Van Buskirk Decl.] ¶ 11.)

  Nonetheless, the NYSE contends that Van Buskirk received NYSE confidences or secrets related to the patents on several instances. First, the NYSE avers that Van Buskirk attended weekly meetings of the intellectual property group, at which confidential client matters were discussed. (Chalsen Decl. ¶¶ 8, 11.) Papyrus responds that the discussions at these meetings concerned developments in intellectual property law, for which Van Buskirk received continuing legal education credit.*fn4 (4/8/04 Van Buskirk Decl. ¶¶ 17-18.) Second, the NYSE proffers that Van Buskirk actually received NYSE confidences or secrets when he received three emails concerning the NYSE-Papyrus matter. (Email, Ex. A to Chalsen Decl.; Emails, Ex. A to Declaration of Chris L. Holm [Holm Decl.].) Each was sent on August 24, 2000, by Milbank partners; two were addressed to the entire Milbank intellectual practice group while the third was sent solely between Milbank partners (therefore, it appears that Van Buskirk never received the third email). (Email, Ex. A to Chalsen Decl.; Emails, Ex. A to Holm Decl.; 4/8/04 Van Buskirk Decl. ¶¶ 4-9.)*fn5 To the extent that he did receive confidential information on the NYSE-Papyrus matter, Van Buskirk no longer recalls its substance. (3/9/04 Van Buskirk Decl. ¶ 3; 4/8/04 Van Buskirk Decl. ¶¶ 4, 6, 10, 12, 18.)

  In addition to alleging that Van Buskirk actually received NYSE confidences or secrets, the NYSE contends that he had access to such information. For example, the NYSE points to the fact that Milbank's files relating to the NYSE-Papyrus matter were stored near Van Buskirk's office. (Chalsen Decl. ¶¶ 12-13.) The NYSE further posits that Van Buskirk (like all Milbank intellectual property attorneys) had access to a centralized electronic document management system and that he could have accessed electronic versions of documents. (Id. ¶ 14.) Papyrus counters that Van Buskirk never had reason to review either the paper or electronic documents and never did so. (4/8/04 Van Buskirk Decl. ¶¶ 13-15.) Moreover, Papyrus argues that Milbank's electronic document management system tracks when a person has accessed an electronic document and records the person's name and time of access, but that the NYSE has not furnished evidence to demonstrate Van Buskirk reviewed these files. (Id. ¶ 16.)

  Van Buskirk transferred from Milbank to Frommer in June 2001. (Chalsen Decl. ¶ 5; 3/9/04 Van Buskirk Decl. ¶ 2.) Since then, Papyrus approached Frommer about suing the NYSE for patent infringement after its long-time attorneys at Darby & Darby withdrew on conflict grounds. (Declaration of Edgar H. Haug [Haug Decl.] ¶ 2; Patterson Decl. ¶¶ 3, 10-13; Chalsen Decl. ¶ 18.) Around November 2003, Papyrus retained the fifty-member Frommer law firm to represent it in this action. (Haug Decl. ¶¶ 2, 16.)

  Immediately after Papyrus approached Frommer, it conducted a conflict check by, among other things, circulating a memo to all attorneys. (Id. ¶ 2.) In response to the memo, Van Buskirk informed a Frommer partner that he previously worked at Milbank where he had been aware of a dispute between Papyrus and the NYSE. (3/9/04 Van Buskirk Decl. ¶ 6; Haug Decl. ¶ 3.) However, Van Buskirk stated that he had neither worked on the NYSE-Papyrus matter nor on any other NYSE matter. (3/9/04 Van Buskirk Decl. ¶ 6; Haug Decl. ¶ 3.) Van Buskirk further advised the partner that he did not recall learning any privileged or confidential NYSE information while at Milbank. (3/9/04 Van Buskirk Decl. ¶ 6; Haug Decl. ¶ 3.) Because Van Buskirk had previously worked at Milbank and had a general knowledge of the NYSE-Papyrus matter, he was not assigned to work on the case. (3/9/04 Van Buskirk Decl. ¶ 6; Haug Decl. ¶ 4.)

  On March 1, 2004, for the first time, NYSE's counsel raised Van Buskirk's previous employment as a reason for disqualification of both Van Buskirk and Frommer. (Id. ¶ 9; Amundson Decl. ¶ 2.) On March 5, 2004, when Milbank provided Frommer a redacted copy of an email message that listed Van Buskirk as an addressee, Frommer immediately implemented a formal screen to ensure that Van Buskirk was not involved with or had access to information regarding the NYSE-Papyrus matter.*fn6 (Haug Decl. ¶ 10; Amundson Decl. ¶ 4.) Frommer instituted the following screening mechanisms: (1) all Frommer employees were directed to refrain from discussing the Papyrus litigation with Van Buskirk; (2) all Frommer employees were instructed that Van Buskirk should not see any written materials related to the NYSE-Papyrus matter; and (3) Van Buskirk was ordered to refrain from communicating with anyone about or reviewing any written materials related to the NYSE-Papyrus matter. (Haug Decl. ¶ 11.) All Frommer employees have agreed in writing to abide by these restrictions. (Id. ¶ 12.) Finally, Frommer has sealed the firm's document management system (typically accessible by any firm employee) so that only the team working on the case may access electronic documents. (Id. ¶ 13.) While at Frommer, Van Buskirk has performed no work on the NYSE-Papyrus matter. (3/9/04 Van Buskirk Decl. ¶ 5; 4/8/04 Van Buskirk Decl. ¶ 19.)

  DISCUSSION

  There are two instances when an attorney may be subject to possible disqualification: (1) when the challenged attorney is concurrently representing adverse interests so that the attorney's vigor in pursuing one of them may be questioned; and (2) when the attorney has successively represented adverse interests, raising the possibility that confidences or secrets derived from the former representation may be used in the current representation to the former client's detriment. See United States Football League, 605 F. Supp. at 1452. This motion implicates the latter.

  Disqualification motions premised on an attorney's prior representation of a now adverse client are committed to the discretion of the district court. See Cheng, 631 F.2d at 1055. In addition, such motions are generally viewed with disfavor in this Circuit. See Evans, at 791-92; Song v. Dreamtouch, Inc., No. 01 Civ. 0386, 2001 WL 487413, at *4 (S.D.N.Y. May 8, 2001); Interpetrol Bermuda, Ltd. v. Rosenwasser, No. 86 Civ. 5631, 1988 WL 140801, at *1 (S.D.N.Y.Dec. 20, 1988). For this reason, the Second Circuit has directed that courts faced with disqualification motions take a "restrained approach that focuses primarily on preserving the integrity of the trial process." Armstrong v. McAlpin, 625 F.2d 433, 444 (2d Cir. 1980), vacated on other grounds and remanded, 449 U.S. 1106 (1981); see also United States Football League, 605 F. Supp. at 1463 n. 31 ("Courts are not policemen of the legal profession; that is a matter for the disciplinary arm of the bar. Disqualification is granted to protect the integrity of the proceedings, not to monitor the ethics of attorneys' conduct."); cf. Wheat v. United States, 486 U.S. 153, 160 (1988) (stating that in criminal trials "federal courts have an independent interest in ensuring [trials] are conducted within the ethical standards of the profession and that legal proceedings appear fair to all who observe them."). Moreover, a district court must consider the factual record underlying such a motion in detail to determine whether the party seeking disqualification has sustained the high standard of proof necessary to disqualify opposing counsel. See Evans, 715 F.2d at 791; Gov't of India, 569 F.2d at 739; Ucar, 2002 WL 31519616, at *2; Fields-D'Arpino, 39 F. Supp.2d at 415.

  The NYSE contends that under the New York State Bar Association's Disciplinary Rules Van Buskirk must be disqualified from representing Papyrus and that his disqualification ought to be imputed to the entire Frommer firm. Although New York's Disciplinary Rules are not binding on federal courts — as they were intended for use in disciplinary proceedings rather than in attorney disqualification motions — the Court refers to these rules, and to the Committee on Professional Ethics's opinions interpreting them, for guidance.*fn7 See, e.g., Cheng, 631 F.2d at 1055-56; Stratavest, 903 F. Supp. at 666; United States Football ...


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