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Westinghouse Electric Corp. v. Kerr-Mcgee Corp.

decided: July 25, 1978.

WESTINGHOUSE ELECTRIC CORPORATION, PLAINTIFF-APPELLEE,
v.
KERR-MCGEE CORPORATION, NORANDA MINES LIMITED, GULF OIL CORPORATION, GULF MINERALS CANADA LIMITED, AND GETTY OIL COMPANY, DEFENDANTS-APPELLANTS



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76-C-3830 - Prentice H. Marshall, Judge.

Fairchild, Chief Judge, Sprecher and Bauer, Circuit Judges.

Author: Sprecher

SPRECHER, Circuit Judge.

The novel issues on this appeal are (1) whether an attorney-client relationship arises only when both parties consent to its formation or can it also occur when the lay party submits confidential information to the law party with reasonable belief that the latter is acting as the former's attorney and (2) whether the size and geographical scope of a law firm exempt it from the ordinary ethical considerations applicable to lawyers generally.

The four separate appellants are some of the defendants in this antitrust case who were each denied their motions to disqualify the law firm of Kirkland and Ellis ("Kirkland") from further representing the plaintiff, Westinghouse Electric Corporation ("Westinghouse"). Whether fortuitously or by design, on the same day, October 15, 1976, Kirkland, while representing the American Petroleum Institute ("API"), of which three of the appellants, Gulf Oil Corporation ("Gulf"),*fn1 Kerr-McGee Corporation ("Kerr-McGee") and Getty Oil Company ("Getty"), were members, released a report which took an affirmative position on the subject of competition in the uranium industry, while simultaneously filing this lawsuit, representing Westinghouse, seeking to establish an illegal conspiracy in restraint of trade in the uranium industry.

The fourth appellant, Noranda Mines Limited ("Noranda"), asserts a different conflict of interest in Kirkland resulting from its prior representation of Noranda from 1965 to 1967 in several matters.

The complaint in this case was filed on October 15, 1976 and the four appellants moved to disqualify Kirkland in January and February 1977. On April 18, 1978, the district court filed a lengthy memorandum followed by orders denying the disqualification motions. Westinghouse Electric Corp. v. Rio Algom Limited, 448 F. Supp. 1284 (N.D. Ill. 1978). These appeals followed. This court has jurisdiction under Cohen v. Beneficial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949). Schloetter v. Railoc of Indiana, Inc., 546 F.2d 706, 709 (7th Cir. 1976).

I

On September 8, 1975, Westinghouse, a major manufacturer of nuclear reactors, notified utility companies that 17 of its long-term uranium supply contracts had become "commercially impracticable" under § 2-615 of the Uniform Commercial Code. In response, the affected utilities filed 13 federal actions, one state action, and three foreign actions against Westinghouse, alleging breach of contract and challenging Westinghouse's invocation of § 2-615. The federal actions were consolidated for trial in the Eastern District of Virginia at Richmond under MDL Docket No. 235.

As an outgrowth of its defense of these contract actions, Westinghouse on October 15, 1976, filed the present antitrust action against 12 foreign and 17 domestic corporations engaged in various aspects of the uranium industry.

Kirkland's representation of Westinghouse's uranium litigation has required the efforts of 8 to 14 of its attorneys and has generated some $2.5 million in legal fees.

Contemporaneously with its Westinghouse representation in the uranium cases, Kirkland represented API, using six of its lawyers in that project.

In October, 1975, Congress was presented with legislative proposals to break up the oil companies, both vertically by separating their control over production, transportation, refining and marketing entities, and horizontally by prohibiting cross-ownership of alternative energy resources in addition to oil and gas. Since this proposed legislation threatened oil companies with a potential divestiture of millions of dollars of assets, in November, 1975, the API launched a Committee on Industrial Organization to lobby against the proposals. On December 10, 1975, API's president requested that each company designate one of its senior executives to facilitate coordination of the Committee's activities with the individual companies.

The Committee was organized into five task forces. The Legal Task Force was headed by L. Bates Lea, General Counsel of Standard Oil of Indiana, assisted by Stark Ritchie, API's General Counsel.

On February 25, 1976, Ritchie wrote to Frederick M. Rowe, a partner in Kirkland's Washington office, retaining the firm to review the divestiture hearings and "prepare arguments for use in opposition to this type of legislation." On May 4, 1976, Ritchie added that the Kirkland firm's work for API "should include the preparation of possible testimony, analyzing the probable legal consequences and antitrust considerations of the proposed legislation" and "you should make an objective survey and study of the probable effects of the pending legislation, specifically including probable effects on oil companies that would have to divest assets." Ritchie noted that "as a part of this study, we will arrange for interviews by your firm with a cross-section of industry personnel." The May 4 letter to Rowe concluded with:

Your firm will, of course, act as an independent expert counsel and hold any company information learned through these interviews in strict confidence, not to be disclosed to any other company, or even to API, except in aggregated or such other form as will preclude identifying the source company with its data.

On May 25, 1976, Ritchie sent to 59 API member companies a survey questionnaire seeking data to be used by Kirkland in connection with its engagement by API. In the introductory memorandum to the questionnaire, Ritchie advised the 59 companies that Kirkland had "ascertained that certain types of data pertinent to the pending anti-diversification legislation are not now publicly available" and the API "would appreciate your help in providing this information to Kirkland. . . ." The memorandum included the following:

Kirkland, Ellis & Rowe is acting as an independent special counsel for API, and will hold any company information in strict confidence, not to be disclosed to any other company, or even to API, except in aggregated or such other form as will preclude identifying the source company with its data.

(Emphasis in original). The data sought was to assist Kirkland "in preparing positions, arguments and testimony in opposition to this type of legislative [divestiture]" and was not to be sent to API but rather to Kirkland.

Pursuant to the provision in Ritchie's May 4, 1976 letter to Rowe that interviews would be arranged with a cross-section of industry personnel, Nolan Clark, a Kirkland partner, interviewed representatives of eight oil companies between April 29 and June 15, 1976.

After going through several drafts, the final Kirkland report to API was released on October 15, 1976. The final report contains 230 pages of text and 82 pages of exhibits. References to uranium appear throughout the report and uranium is the primary subject of about 25 pages of text and 11 pages of exhibits. The report marshalls a large number of facts and arguments to show that oil company diversification does not threaten overall energy competition. In particular the report asserts that the relatively high concentration ratios in the uranium industry can be expected to decline, that current increases in uranium prices are a result of increasing demand, that oil company entry into uranium production has stimulated competition and diminished concentration, that oil companies have no incentive to act in concert to restrict coal or uranium production and that the historical record ...


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