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HomeMy WebLinkAbout01-13-89 (3) IN THE COURT OF COMMON PLEAS FOR CUMBERLAND COUNTY . BARBARA McK. MUMMA and LISA M. MORGAN, Executors of and Trustees under the Will of Robert M. Mumma, deceased, ,/ Plaintiffs, ORPHANS' COURT DIVISION v. 21-86-398 ROBERT M. MUMMA, II, BARBARA M. McCLURE and LINDA M. ROTH, Defendants. MEMORANDUM OF LAW IN SUPPORT OF MOTION OF ROBERT M. MUMMA, II FOR AN ORDER DISQUALIFYING MORGAN, LEWIS & BOCKIUS FROM REPRESENTATION OF PLAINTIFFS Defendant Robert M. Mumma, II ("Mr. Mumma") submits this Memorandum of Law in support of his Motion for an Order disqualifying the law firm of Morgan, Lewis & Bockius ("ML&B") from representation of the plaintiffs in this action. I. INTRODUCTION This motion is being filed in two related actions recently filed in this Court, one in Equity (No. 66 Equity 1988), and one in the Orphans' Court Division (21-86-398). Both complaints were filed on December 27, 1988. The facts supporting this motion to disqualify are extensively set forth in the motion itself and will not be repeated here. Briefly to recapitulate, these two cases involve the attempted sale to a foreign company of a family business by the executrixes of the estate of Robert M. Mumma who are also the /--.;< ,:., Trustees for the marital trust under Mr. Mumma's will. The plaintiffs, Mrs. Mumma and Mrs. Morgan, are, respectively, the wife and youngest daughter of the deceased. They claim, making reference to the purported stockholdings of the estate, the marital trust, and them individually, to control the family business, and they seek, in these two actions, various rulings which -- they believe will enable them to proceed with the proposed sale. Without attempting to be exhaustive, the primary holding company encompassing the family business is a corporation by the name of Nine Ninety Nine, Inc., which has an operating subsidiary by the name of Pennsylvania Supply, Inc. Some of the real estate used within the business, as well as other real estate holdings are presently held in two tenancies in common. After the death of the deceased and prior to the end of 1986, the corporations which previously held this real estate were dissolved and the assets distributed. The agreements which govern these tenancy in common relationships (two in number) are hotly disputed, both as to the pieces of paper, if any, which constitute these agreements, and as to what these writings mean. This is the primary focus of the equity action, wherein plaintiffs attach two documents which, they claim, constitute these agreements, which, they claim, were executed in December 1986. The plaintiffs ask this Court to declare that these documents are effective, that they provide (contrary to the law of tenancy in common in general) for majority rule, and that the plaintiffs may sell certain realty to the foreign company without -2- ~~_/ (~; (,I xc the approval of Mr. Mumma because the estate, as a tenant in common, has the largest percentage interest. Secondly, they claim that a power of attorney, purportedly executed in connection with these two agreements, empowers them to take this action. Finally, they claim that a right of first refusal given to Mr. Mumma by them, as well as by Mr. Mumma's other two sisters, who collectively constitute all of the shareholders of Nine Ninety Nine, is invalid because the consideration given to Mr. Mumma in return for the right of first refusal was his agreement to sell one of the properties held as tenants in common. Plaintiffs allege that, since the purported agreements upon which they rely, by their interpretation, do not require Mr. Mumma's approval, the consideration fails. There are other subsidiary claims, but this constitutes the essence of plaintiffs' cause of action. In the Orphans' Court, ML&B has actually taken at least two actions. First, on behalf of the plaintiffs, they have obtained the appointment of a guardian ad litem to represent the interest of Mr. Mumma's children with regard to the subject of the proposed sale. Secondly, they have filed on behalf of the plaintiffs a complaint and petition seeking declaratory relief from the Orphans' Court on two subjects. First, the will of the decedent specifically sets forth that it was his desire that the family business would stay within the family. Plaintiffs seek to be excused from this requirement, incidentally, without citing any reasons whatsoever which would justify such an excuse. Secondly, the plaintiffs have devised a complicated scheme by -3- lr,r) t"<; .~/ , which to transfer 100% of the stock of Nine Ninety Nine, as well as that of a related corporation, to the foreign prospective purchaser. The purpose of this scheme is to accommodate the unreasonable requirement of the possible purchaser that it receive 100% of the stock and that it have absolutely no obligation to grant dissenters' rights. The complaint and petition do not explain why the Orphans' Court has jurisdiction concerning this matter. As the Motion to Disqualify points out, ML&B carried on a very extensive attorney-client relationship with Mr. Mumma from the summer of 1986 through at least March of 1987. Some of ML&B's legal advice was rendered to Mrs. Mumma and all of the children, including Mr. Mumma. Falling within this category is advice concerning the terms of the will, the tax advantages of disclaiming one's interest under the will in favor of one's children, and very extensive advice and drafting concerning the dissolution of several corporations and the creation of tenancies in common, as referred to above. Other advice was given to Mr. Mumma by ML&B separately and individually. This included extensive advice on the question of whether Mr. Mumma should disclaim his interest under the will and the problems he faced and questions which he had in this regard. ML&B also rendered to Mr. Mumma extensive personal advice relating to his personal estate planning. II. ARGUMENT A. ML&B must be disqualified as counsel for plaintiffs in both the Equity and Orphans' Court proceedinqs. -4- ~ Q ~Dp The motion to disqualify clearly points out the very substantial relationship between the advice given to Mr. Mumma by ML&B and the subject matter of the litigation which is now pending. To begin with, as part of the initial relationship, ML&B assured Mr. Mumma that it was the intention that the family business would be sold to him and assured him that every opportunity would be given to him to acquire such business. The whole thrust of the present litigation, spearheaded by ML&B, is to deprive him of that opportunity. However, the relationship between the past representation and the present litigation goes much deeper than this and, in fact, raises the extremely inappropriate situation wherein an attorney counsels a client with regard to a course of action and later sues that client taking the position that the consequences which the attorney earlier counseled would not occur are indeed mandated. This is obviously the situation before this Court with regard to the advice to Mr. Mumma concerning disclaiming under his will. Also, it is present in even a more striking manner with regard to the tenancy in common agreements. It now appears that former counsel is attempting to foist upon Mr. Mumma as documents he executed pieces of paper which he contends are not what he agreed to and which, at least in part, he has not even seen before. It is equally obvious that ML&B will contend that these pieces of paper take positions which directly contradict what Mr. Mumma says he told ML&B he wanted incorporated into the agreements. If it is the law that counsel must withdraw even when there is but an appearance of impropriety -- and, surely, that must be the law -5- ,..:j () Cf then there cannot be a clearer case for disqualification than this one. Cf. American Dredqing Co. v. City of Philadelphia, 480 Pa. 177, 389 A.2d 568, 572 (court may disqualify attorney for failing to avoid appearance of impropriety). The pennsylvania Rules of Professional Conduct delineate those instances when an attorney may not represent another person as against the interests of a former client. Rule 1.9 Conflict of Interest: Former Client A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after a full ~isclosure of the circumstances and consultation. Rule 1.9, Rules of Professional Conduct, 42 Pa. C.S.A. (West Supp. 1988). The former representation bar furthers a number of policy considerations essential to the sanctity of the attorney- client relationship. As noted by the Third Circuit: A rule against representation of interests adverse to a former client in the same or substantially related litigation has several purposes. It is a prophylactic rule to prevent even the potential that a former client's confidences and secrets may be used against him. without such a rule, clients 1. The new Rules of Professional Conduct were adopted by the Supreme Court of Pennsylvania on October 16, 1987, effective April 1, 1988. Although the new Rules superseded the Code of Professional Responsibility, the recent codification simply incorporates the prevailing standards of professional responsibility in Pennsylvania as they relate to successive representation. See, e.g., Ries v. MTD Products, Inc., 14 D.&C. 3d 566, 569 (C.P. Allegheny 1980) (analysis based upon Canons 4 and 9 of the Code of Professional Responsibility). -6- ~/o may be reluctant to confide completely in their attorneys. Second, the rule is important for the maintenance of public confidence in the integrity of the bar. Finally, and importantly, a client has a right to expect the loyalty of his attorney in the matter for which he is retained. In Re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162 (3d Cir. 1984), cert. denied, 472 U.S. 1008 (1985).2 In any case where the present litigation is shown to be substantially related to the former representation provided by the firm now representing a party to the present action, disqualification is automatic. Reis v. MTD Products, Inc., 14 D.&C. 3d 566, 570 (C.P. Allegheny 1980). See also Oyster v. Bell Asbestos Mines, 568 F.Supp. 80, 81 (E.D.Pa. 1983). Because an exacting study of the confidences or secrets which may have been disclosed during the former representation may impinge upon the protection afforded to confidences and secrets by the attorney- client privilege, it is not appropriate for a court to demand proof of the communication of such information. INA Underwriters Ins. Co. v. Nalibotsky, 594 F.Supp. 1199, 1205 (E.D. Pa. 1984). See also Government of India v. Cook Indus., 569 F.2d 737, 740 2. The Third Circuit, in this case, applied Rule 1.9 of the A.B.A. Model Rules of Professional Conduct. Rule 1.9 of the A.B.A. rules states: A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another person in the same or substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation. In Re Corn Derivatives Antitrust Litiqation, 748 F.2d 157, 161-62 (3d Cir. 1984), cert. denied, 472 U.S. 1008 (1985). -7- '/' (""'0>; / (2d Cir. 1978) (former client should not be put to Hobson's choice of either having to disclose privileged information to gain disqualification or having to refrain from seeking disqualification).3 Lastly, "(d]oubts as to the existence of an asserted conflict of interest should be resolved in favor of disqualification." Westinghouse Electric Corp. v. Gulf Oil Corp., 588 F.2d 221, 225 (7th Cir. 1978). A cogent example of the operation of the above principles may be found in Gross v. Specter, 17 D.&C. 3d 281 (C.P. Phila. 1980), where plaintiff and defendant were the sole shareholders of a closely-held corporation. The Philadelphia law firm of Liebert, Short, Fitzpatrick & Lavin had, since the corporation's inception, represented the corporation on various matters. Defendant, who was both chief executive officer and production manager of the corporation, also consulted with the Liebert firm in her capacity as director and officer. Plaintiff, represented by the Liebert firm, then sued the defendant in an action seeking involuntary dissolution of the corporation. Defendant, represented by new counsel, then sought to disqualify the Liebert firm as counsel for the plaintiff. The Court in Gross granted defendant's motion to disqualify the Liebert firm, focussing on the "fundamental issue of the propriety of an attorney who has represented two persons jointly, thereafter representing one of them in a dispute arising 3. See Realco Services, Inc. v. Holt, 479 F.Supp. 867, 872 (E.D--:-Pa. 1979) ("Were actual prejudice the determining factor, a party's attempts to protect its confidences would necessarily cause further disclosure."). -8- ;))J. out of the matter in which he represented them jointly." Id. at 283. After noting that an attorney who elects to represent two potentially adverse persons assumes the "delicate" role as confidant and advocate for both persons, the Court condemned the continued representation of the plaintiff by the Liebert firm after the once amiable relationship between the two shareholders dissolved: In our view, any litigant would feel legitimately uncomfortable knowing that he or she had communicated on an amicable basis with an attorney who turned out to be opposing counsel in a dispute involving the subject matter of the prior amicable discussion. We believe that in the absence of an agreement to the contrary, an attorney who has regularly represented and/or advised a person with reference to a business enterprise should not be permitted to represent either opposing third parties or opposing co-owners against that person in any dispute involving the conduct of the business during the period of representation and/or advice. Id. at 288. Gross makes clear the principle that an attorney who chooses to represent jointly persons whose interests ultimately become adverse must be disqualified from continued representation of one person against the former client.4 4. Of course, the need for disqualification extends to all members of that firm which onCe represented the joint clients and now represents one party pitted against the former client. Rule l.lO(a), Rules of Professional Conduct, 42 Pa.C.S.A. (West Supp. 1988) (members of firm shall not knowingly represent a client when anyone of them would be prohibited under Rule 1.9); Commonwealth v. Eastern Dawn Mobile Home Park, Inc., 486 Pa. 326, 330, 405 A.2d 1232, 1234 (1979) (when one attorney prohibited by ethical considerations from undertaking to represent a certain client, all members of that firm similarly prohibited); Cook v. Cook, 559 F.2d 213, 215 (E.D.Pa. 1983) (disqualification of an attorney because of the prior representation of adverse party results in disqualification of that attorney's entire firm). -9- ~ / :( d _, Under the facts of this case, it is obvious that ML&B would have to withdraw as counsel at an early point in the proceedings in any event. As set forth in the earlier recitation of facts and in the motion, there will be a very substantial dispute as to a number of matters wherein attorneys for ML&B will have to testify. The most prominent are the questions concerning the alleged tenancy in common agreements. If any attorney from ML&B testifies, and "if there is likely to be a substantial conflict between the testimony of the [present] client and that of the lawyer or a member of the lawyer's firm, the representation is improper." Comment to Rule of Professional Conduct 3.7, 42 Pa. C.S.A. (West Supp. 1988). B. All Proceedings Should Be Stayed Pending Resolution of Defendant's Motion To Disqualify Morgan, Lewis & Bockius until the serious issue of the propriety of ML&B's representation of plaintiffs is resolved, these proceedings should be stayed. By counseling plaintiffs and instituting this litigation ML&B has already compromised the interests of Mr. Mumma and jeopardized the fairness of the proceedings. Absent a stay, the breach of trust and loyalty and the conscious or unconscious use of confidential information by Mr. Mumma's former counsel will continue unabated. Should a stay not issue, and the Court later disqualify, the irreparable damage to the integrity of judicial process and Mr. Mumma's interests will have been needlessly multiplied. The power to stay proceedings is most frequently exercised by courts to prevent the waste of the Court's and the -10- ";))I} ('""\.7 litigants' time and resources pending the outcome of a motion or other litigation which may prove dispositive of the issue or issues before the court. Justice Cardozo described the source of the court's power simply: The exercise of the power to stay further proceedings is incidental to the power inherent in every Court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel and for the litigants. Landis v. North American Co., 299 u.s. 248, 254 (1936); see also Ramco Corp. v. Colt Industries, Inc., 73 D.&C.2d 647, 649 (C.P. Chester 1975) (action in ejectment stayed pending disposition of equity action between the same parties) . Here, the need for a stay is more compelling than simply a matter of conserving resources. A stay in the instant case would immediately end the necessity of plaintiffs and their counsel continuing to consult on the merits of this litigation. Much like a preliminary injunction is ordered to avoid irreparable harm prior to a final determination on the merits, a stay here would preserve the status quo. Without a stay, as without a preliminary injunction, a final determination on the merits may be rendered meaningless by intervening events. Should Mr. Mumma prevail on his motion to disqualify, it will be a hollow "victory" indeed if these proceedings have not been stayed in the interim. The continuing harm to Mr. Mumma flowing from ML&B's representation of plaintiffs could never be adequately redressed. -11- ~/(. ~ ~ The Court's inherent power to control the litigation before it extends to its authority to respond immediately to remedy breaches of counsel's responsibilities. See Slater v. Rimar, Inc., 462 Pa. 138, 149, 388 A.2d 584, 589 (1975). The necessity and logic of staying pending actions until the resolution of the critical issue of counsel's representation of conflicting interests has been implicitly recognized in this Commonwealth. See Gottschall v. Jones & Laughlin Steel Corp., 333 Pa. Super. 493, 496, 482 A.2d 979, 981 (1984) (trial court stayed two actions pending resolution of petitions to disqualify counsel); Sciqliano v. The Hartford Insurance Group, 30 D.&C.2d 239 (C.P. Allegheny 1984) (action on petitions to consolidate suspended while parties respond to question of conflict in representation raised by court). Finally, one would expect that ML&B would welcome a stay pending a ruling on the disqualification motion. ~he firm faces an ethical dilemma if the action continues to go forward. If the action continues, in the furtherance of discharging its duty to represent vigorously its current clients' interests, Morgan, Lewis & Bockius will continue to exploit the knowledge gained in its representation of Mr. Mumma. However, by doing so, ML&B risks further breach of its duties and obligations to its former client. Therefore, until a determination is made as to whether its representation of plaintiffs is proper, ML&B is placed in the unenviable and irreconcilable position of either potentially violating ethical rules by continuing its conflicting representation on the one hand, or by not actively -12- ',ji O\'/{/ pursuing its claims, compromise its current clients' interests on the other. C. When ML&B is disqualified, it may have no contact with replacement counsel, and plaintiffs must return to ML&B any work product of that firm. To insure the continued sanctity of any confidences or secrets that Mr. Mumma may have entrusted to ML&B, this Court must properly order that ML&B is to have no contact with replacement counsel and plaintiffs must return to ML&B any work product of that firm. By the entering of such an order, Mr. Mumma will be further protected against the prospect of having to defend this action against those privy to the confidences already given to ML&B. ~, Realco Services, Inc. v. Holt, 479 F. Supp. 880, 881 (E.D. Fa. 1979) (substitute counsel permitted access to certain public and record documents with court's supervision; however, substitute counsel not permitted to consult with disqualified counsel); see also C. Wolfram, Modern Legal Ethics, ~7.1.7 (1986) (disqualified attorney should consult with a successor attorney only with permission of court or consent of affected former client) . D. Conclusion. Based on the foregoing, Mr. Mumma asks this Court to grant: 1) defendant's motion for a stay pending resolution of the disqualification motion; 2) defendant's motion for an order disqualifying Morgan, Lewis & Bockius as plaintiffs' counsel in the Equity and Orphan's Court actions; and 3) defendant's motion for an order barring Morgan, Lewis and Bockius from consulting -13- ~7 with replacement counsel and requiring plaintiffs to return all work product to Morgan, Lewis & Bockius. Respectfully submitted, Jon A. Baughman Anthony Vale PEPPER, HAMILTON & SCHEETZ 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 (215) 981-4000 John B. Fowler, III FOWLER, ADDAMS, SHUGHART & RUNDLE 28 South Pitt Street CarliSle, PA 17013 (717) 249-8300 nu /-// /J __ BY: ~, ).~,VH~ /' / Att6rneys for Robert M. Mumma, II I i V -14- .;J/i?