Appeal from the United States District Court for the Eastern District of Wisconsin. No. 75-C-127 - John W. Reynolds, Judge.
Before Fairchild, Chief Judge, Castle, Senior Circuit Judge, and Swygert, Cummings, Pell, Sprecher, Tone, Bauer and Wood, Circuit Judges.
The ultimate, and apparently first impression, issue in this appeal, stated as simply as possible is whether, when attorneys are judicially determined to have been disqualified to represent a client because of prior simultaneous representation of that client's adversary in litigation, the written product of lawyer work*fn1 performed during the period of disqualification may be made available to successor counsel. The answer to this issue, in our opinion, is not a per se preclusion but must be a flexible one based upon an examination of the particular facts of the case under consideration.
The plaintiff, First Wisconsin Mortgage Trust (Trust), is a real estate investment trust which was established in 1971 under the sponsorship of the defendant First Wisconsin Corporation (FWC) with a public offering following. Trust was advised on its investments by the defendant First Wisconsin Mortgage Company (Advisor), a wholly owned subsidiary of FWC. Advisor was staffed by employees of the mortgage loan division of the defendant First Wisconsin National Bank (Bank), also a subsidiary of FWC. FWC was jointly involved in various loan transactions with Bank. We ordinarily herein will refer collectively to FWC and its subsidiaries as "defendants."
From the time Trust was established the law firm of Foley & Lardner (Foley) was general counsel to Trust as well as general counsel to FWC and its subsidiaries.
Commencing in 1973 serious loan defaults occurred, a problem which increased in momentum in 1974. Apparently Foley began to represent Trust and Bank in the workout of some of the problem loans, but in early 1974 Foley recommended that Trust retain separate counsel to represent it in connection with the problem loans. At that time Trust retained Sonnenschein, Carlin, Nath & Rosenthal (Sonnenschein) as special counsel to represent the Trust with regard to the problem loans. Following retention of Sonnenschein, Trust asserted claims against the defendants, and threatened to file suit thereon. Adversary negotiations followed between the Trust represented by Sonnenschein and defendants represented by Foley. At one point in June 1974 a partial agreement was executed but it apparently did not resolve the underlying disputes. In September 1974 Foley resigned as general counsel to Trust. Indications of the filing of suit by Trust and negotiations between Foley and Sonnenschein to resolve the controversy continued through the winter months of 1974-75. These were not met by success and the present suit was filed in March 1975 with Trust claiming that the defendants violated certain sections of the Federal Securities Laws and Regulations.
Throughout most of 1974 and early 1975, 15 Foley lawyers engaged in an extensive analysis and review of some 300 real estate investment transactions, this being the work product which is the subject matter of the present dispute. There is no indication of any formal objection during the pre-suit adversary negotiations on the part of Trust or its counsel as to Foley representing the defendants. However, immediately following the filing of the suit, Foley, by letter, requested the consent of Trust to its representation of the defendants, which consent was refused by Trust. In June 1975 Sonnenschein advised Foley that if that firm did not withdraw voluntarily, Trust would move its disqualification which in fact was done on August 1, 1975. Defendants opposed the motion on the principal ground that the work done by Foley for Trust did not substantially relate to the issues in the lawsuit. The motion for disqualification was granted on November 16, 1976. First Wisconsin Mortgage Trust v. First Wisconsin Corp., 422 F. Supp. 493 (E.D.Wis.1976).
On December 15, 1976, Foley withdrew and Mayer, Brown & Platt (Mayer) entered that firm's appearance for the defendants in this action. On the same day the successor counsel filed a notice of appeal of the disqualification order. On January 7, 1977 Mayer requested the district court to hold a pre-trial conference to discuss defendants' access to the work product as generated by Foley prior to disqualification. The district court declined to hold a conference on the basis that it had been deprived of jurisdiction upon the filing of the notice of appeal. The defendants thereupon moved for voluntary dismissal of the appeal of the disqualification order and entered into negotiations regarding the work product with the plaintiff.
Shortly thereafter defendants formally moved the district court for authorization to request access to the Foley work product. This motion was denied on June 14, 1977. First Wisconsin Mortgage Trust v. First Wisconsin Corp., 74 F.R.D. 625 (E.D.Wis.1977). The defendants filed a timely notice of appeal of the work product order and also requested the district court to certify the order for interlocutory appeal under 28 U.S.C. § 1292(b), which certification request was denied on September 15, 1977, subsequent to the filing of the defendants-appellants' original brief in this court. Plaintiffs' August 17, 1977, motion to dismiss the appeal for lack of jurisdiction was taken under advisement by the court together with the merits at oral argument. By a 2-1 decision this court affirmed the district court order on February 24, 1978. First Wisconsin Mortgage Trust v. First Wisconsin Corp., 571 F.2d 390 (7th Cir. 1978). Subsequently upon the granting of the petition to that effect, the case was reheard by the court en banc.
In the opinion of the three-judge panel originally hearing this case, the first issue considered was the plaintiffs' motion to dismiss the appeal for lack of jurisdiction. The entire panel was of the opinion that the appeal was properly before this court. No purpose is served by restating the previous opinion of the court on the matter of jurisdiction. That portion of the prior opinion is therefore adopted as the opinion of the court sitting en banc and part II of the court's prior opinion, 571 F.2d at 392-96, is incorporated herein by reference.
Turning to the merits of this appeal, we do so with the underlying assumption that the disqualification of Foley was correct, the appeal having been dismissed.*fn2
That which the defendants seek to secure from the attorneys formerly representing them in the present litigation is, as described by the defendants, the "written work product, consisting essentially of summaries of loan files relating to more than 300 complex transactions, and an explanation limited to an identification of the documents reviewed."
Beginning in 1974 a number of Foley attorneys were engaged in analyzing the various claims being asserted on behalf of Trust and analyzing the loan files regarding such claims. This work continued after suit was filed. The analysis of the loan files was conducted by a team of 15 Foley lawyers for more than a year prior to the ultimate disqualification of that firm in November 1976.
Neither the district court in its opinion, nor the plaintiff in its brief or at oral argument has contradicted the defendants' contention that the loan file summaries are the result of routine lawyer work of a type which any competent lawyer, by spending the substantial time which would be required, could accomplish just as well as did Foley. The work product came into being for the benefit of the defendants. It may be safely assumed that the work was not performed gratuitously by Foley but rather on a compensated fee basis. There is no challenge to the defendants' assertion that the preparation of the loan file summaries was not aided by any confidential information acquired by the Foley lawyers through their prior relationship with Trust. Indeed, it appears that the summaries are no different than they would have been if made in their entirety by lawyers who were strangers to all of the parties.
The district court in its opinion under review here, while noting the contention that no confidential information was involved, in effect found this to be of no significance. Quoting from the case of E. F. Hutton & Company v. Brown, 305 F. Supp. 371 (S.D.Texas 1969), a case in which the lack of confidentiality was proposed as a defense to disqualification, the district court in the present case, in what we can characterize only as adopting a per se standard, stated that "if any attorney's subsequent adverse representation in the form of his work product is not barred from use by substitute counsel, then there is little or no point in the initial disqualification." 74 F.R.D. at 627. The district court, addressing itself to that part of Hutton which denied an injunction against the disqualified counsel turning over its files to substitute counsel, distinguished Hutton on the basis that the requested injunction against the production of files appeared to have been based on an asserted attorney-client privilege. We shall discuss Hutton further hereinafter but at the moment note only that the district court in the present case stated that the plaintiff before it did not oppose the turnover motion on the grounds of attorney-client privilege which had been true in Hutton. There the court had found the attorney-client privilege was inapplicable to the facts of the case. The district court in the present case then observed that here the plaintiff was objecting to the turnover on the grounds that the Foley firm had been disqualified ab initio with which the court agreed. 74 F.R.D. at 628.
As we read the district court's opinion in this respect, it is saying that because the Foley firm was disqualified from the time litigation was instituted, and in all probability from the very beginning of its representation of the defendants on the matter which ultimately went into litigation, any work performed during this entire period is automatically tainted by the disqualification and is unavailable to the party for whom the work was performed. This, of course, constitutes a sanction for representation subsequently determined to be improper without any independent basis therefor related to the work itself.
In our opinion, such an automatic or per se equation of denial of the work product to the disqualification of representation is not good law and the application of such a rule without more requires reversal. No doubt it will frequently be that the lawyer who is unfortunate enough to become involved in the Goodwin Sands of simultaneously representing clients whose interests either are or thereafter come into conflict, and who ceases representation of one of the clients, will find that the work performed during the period subject to disqualification will have aspects of confidentiality or other unfair detriment to the former client arising from the very fact of the knowledge and acquaintanceship acquired during the period of the prior representation. This does not mean, however, that this is always the situation, or even that it is frequently so. We see no reason for an irrebuttable presumption merely from dual representation in the conflict context to the effect that whenever cause of disqualification exists any lawyer work thereafter is lost work irrespective of its nature or any other pertinent factors.
The present case presents a particularly strong case for justifying a flexible rule in that the order of disqualification did not occur until 15 months after the motion for that purpose. The practical effect of this time frame is that once a motion of disqualification is filed the work performed thereafter is subject to the risk of automatically being wasted work to the detriment of the client. A very difficult choice would have to be made as to whether work should be continued by the challenged counsel. Certainly this is a real penalty for the client who is satisfied with the representation it is receiving but who finds out a year or so later that all the work which has been done in its behalf and for which it has paid has to be redone. Even though the attorneys who are claimed to be disqualified anticipate success in resisting the motion to disqualify, nevertheless they are laboring under a continuing handicap during all the time that the motion is pending. The judge to whom a motion for disqualification is presented, in evaluating whether the work product should be denied to the client on whose behalf it is done, will certainly consider factors which indicate the propriety of denial such as the use of confidential information or other unfair detriment to the other side. Conceivably also if the basis for the disqualification is so obvious that no good faith justification could be advanced for it, weight should be given to the fact that attorneys persisted in performing work when it was patent that their professional responsibility mandated their complete withdrawal. From the record of the case before us we do not deem that was the situation here. Attorneys who reasonably and in good faith resist the challenge of disqualification, and who perform work during the interim period in which the correctness of the disqualification motion is being determined, which work derives no advantage from the fact of prior representation, should not in effect be enjoined from that work by the mere filing of the motion. Unfortunately the practical effect might well be to impose a moratorium upon trial preparation for such period of time as it might take to rule upon a motion for disqualification.
A secondary aspect of this matter is that litigation must be ongoing, and the counsel representing the party prior to an ultimate disqualification is confronted with other aspects of the litigation as it proceeds, such as filing responsive pleadings, answering interrogatories, addressing requests for admissions, and production of documents, and in taking part in depositions. In the present case, all of these procedures, other than the work product, which were performed by Foley on behalf of the defendants have been left extant without challenge by Trust.
This is not a matter of penalty against the lawyer. The lawyer's penalty is the disqualification. The penalty from not having the work product made available to substitute counsel is against the client. The rule as here laid down by the district court would destroy the work done by disqualified counsel irrespective of any fault on the part of the party litigant.
In Part II of the original panel's opinion which we have adopted as the opinion of this court it was noted that increasing business and legal complexities as well as heightened sensitivity to ethical standards potentially will result in more disqualifications of counsel and presumably more questions regarding the status of pre-disqualification work and that the issue therefore was an important question of law. We agree thoroughly and particularly emphasize that we would not willingly approve any rule which would in fact or would even seem to lessen adherence to high ethical standards both on the part of counsel and in the general administration of justice. We do not believe that the result we reach in the present case will have that effect.
While paying tribute to the necessity of adherence to the highest ethical standards, we must also recognize that historically, partially, at least, because of the very nature of the adversary heat engendered in litigation, the image of lawyers in the public mind has not been optimal. To counteract this all-too-prevalent attitude, standards of professional conduct have increasingly been adopted, directed not only at those matters which actually offended the broad, and sometimes vague, ethical concepts of earlier years, but also at those which gave the appearance of offense. Specificity more and more has entered the picture and conduct which might not have been regarded as beyond the pale of acceptability a generation ago is now the subject of censure.*fn3
With this background in mind, we deem it appropriate to observe that in our opinion a lawyer who is charged with impropriety, here a disqualifying conflict of interest, should not, if he or she reasonably and in good conscience denies the charge, be expected forthwith to withdraw from the representation. Indeed, proper representation of the client might seem to militate against such precipitous action, suggesting instead a vigorous resistance where in good faith it is believed that impropriety does not exist. Leveling the charge of impropriety at opposing counsel, which if sustained would require withdrawal, should not be a standard part of counsel's offensive armament to be used routinely or without reasonable and good faith belief in its necessity. In the present case, we must also observe that we have no basis for discerning lack of good faith on the part of either charging or resisting counsel.
As was indicated at the beginning of this opinion, the particular issue for decision appears to be one of first impression. Nevertheless, the parties cite cases which appear to have some tangential bearing on the issue. Both parties, and, indeed, the district court, rely upon Hutton, supra, although the principal value of the extended opinion in that case appears from the plaintiff's perspective to be on the matter of disqualification. In that case, the court disqualified certain law firms from representing a corporation against one of its former officers where the attorneys had also previously represented the officer in matters relating to the substance of the suit. The court emphasized "that the receipt of confidential information is not a prerequisite to disqualification." 305 F. Supp. at 395. Nevertheless, the court denied the request for an injunction to prevent the disqualified firms from making available to the corporation or its other counsel any part of their files which contained information about the involved loan transaction which had come from the officer. As we have indicated hereinbefore the district court in the present case distinguished Hutton on the work product issue. Not surprisingly Trust agrees that Hutton has no application here, but further places a logical gloss on that opinion, which we have some difficulty in following, to the effect that because New York counsel of Hutton, who were not of record, were also disqualified the purpose of disqualification would not be served if the work product of the disqualified lawyers were to be available to substitute counsel.*fn4
On the other hand, the defendants, also not surprisingly, find support in Hutton, asserting that the district court's distinction strengthens, rather than weakens their case in that the movant in Hutton "asserted some basis (I. e., the purported confidentiality of the information) for his argument that the files in question should not be turned over to disqualified counsel's former client, while Plaintiff in his case asserts none."
Whatever may be the correct reading of Hutton, the fact remains that although the Hutton court gave extensive analytical treatment to the matter of disqualification, it had little difficulty in determining that the files which disqualified counsel had accumulated should be passed on to the new counsel. We also note that court's reference, in ruling on the matter of an interlocutory appeal pursuant to 28 U.S.C. § 1292(b), to the fact that if an appeal of the disqualification ruling was postponed until final judgment the question would be moot and Hutton would incur delay and expense "while new counsel are digesting the exhaustive files its present counsel have amassed." 305 F. Supp. at 402. We also discern an underlying rationale to the effect that the files which were being passed along were not acquired by virtue of any violation of confidentiality.
The parties also disagree on the proper reading of Allied Realty of St. Paul, Inc. v. Exchange National Bank of Chicago, 283 F. Supp. 464 (D.Minn.1968), Affirmed, 408 F.2d 1099 (8th Cir. 1969), Cert. denied sub nom. Abramson v. Exchange National Bank of Chicago, 396 U.S. 823, 90 S. Ct. 64, 24 L. Ed. 2d 73. In this case the district court, while finding that a former government attorney was disqualified to serve in the particular litigation because of American Bar Association Canon 36, denied an injunction which would have prevented "using evidence, knowledge or information examined or obtained by (the former government lawyer) in connection with this and any other litigation." Trust correctly points out that the injunction was denied because there was no showing that there was any intention to use any documents, testimony, or information that had not become public. The defendants find some support nevertheless in the reasoning of the court in distinguishing between disqualification of counsel and access to that counsel's work product. We do note that the district court did observe that it did "not suppress or deem "tainted' or "immunized' any of plaintiff's intended proof at the trial Even though such may have been "examined or obtained' by (the former government lawyer)." 283 F. Supp. at 470. (Emphasis supplied.) In the present case the raw materials which Foley had examined and analyzed were loan files which were equally available to the plaintiff for examination and analysis. The work product, the analyses, if "tainted" in the present case are only so by virtue of the application of a per se sanction flowing from the disqualification, and relating back in extent to the beginning of the cause for disqualification. They are not "tainted" by virtue of having been based upon confidential knowledge or other advantage gained during or from the dual representation.
Trust also cites Cord v. Smith, 338 F.2d 516 (9th Cir. 1964). We read this case as saying that the disqualified attorney, once disqualified, should not act by way of consultation or advice outside the court to the former client, a result of disqualification which would seem logically to follow and which would not seem to be arguable. We do not read the case, however, as going farther to say that work product which had been achieved during the period prior to the determination of disqualification necessarily is lost to client in whose behalf the work product was produced.
The most recent case coming to our attention, and one decided since the original opinion of this court, is International Business Machines Corporation v. Levin, 579 F.2d 271 (3d Cir. 1978). In that case, the court after noting the wide discretion of the district court in framing its sanctions applicable upon a disqualification order so as to be just and fair to all parties concerned, affirmed the disqualification order, concluding that the district court did not err in determining that IBM had not given informed consent to the dual representation, even though the law firm did not obtain any information which would aid it in the prosecution of an antitrust suit against IBM. The court then addressed itself to the work product issue:
It is true that the plaintiffs will be injured by the disqualification of CBM, their counsel for a number of years. Here the district court ameliorated the harsh effect upon the plaintiffs of its sanction against CBM by permitting the turnover to substitute counsel for the plaintiffs within sixty days of the past work product of CBM on the case. IBM contends that the allowance of a turnover of work product with consultation, particularly work product prepared after the filing of IBM's motion, was an abuse of discretion.
In support of its contention, IBM cites First Wisconsin Mortgage Trust v. First Wisconsin Corp., 571 F.2d 390 (7th Cir. 1978), and Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225 (2d Cir. 1977). To the extent that the Seventh Circuit Court of Appeals lays down a legal tenet in First Wisconsin Mortgage Trust against permitting the turnover of a disqualified attorney's work product, we disagree, but we note that the court in that case expressly limited its holding to the facts of the case. 571 F.2d 390, 399.
579 F.2d at 283. The court then stated what we deem to be an important guiding principle in cases of the present type, namely, that "disqualification in circumstances such as these where specific injury to the moving party has not been shown is primarily justified as a vindication of the integrity of the bar." at 283. This again brings a differing focus to what we regard as disparate aspects of these cases: the disqualification, which when cause exists, although having some impact upon the client, is primarily a sanction against the lawyer, while the prohibition of the turnover of the work product, created during the period subsequently determined to be a time of violation, but which has derived no advantage from the dual representation, such as would result from the use of confidential information, causes the sanction to be imposed on the client not the lawyer.
The cases to which we have adverted while not squarely in point do clearly point the way, in our opinion, for separate analysis and treatment of the two aspects of the situation. On that basis and looking at the case before us, we decline to apply the principle which basically Trust urges that if there is disqualification there is per se taint denying the use of work product during the period of disqualification. To apply this inflexible rule would, it appears to us, substantially activate the undesirable results urged by the defendants in their petition for rehearing.
It would destroy the work done by disqualified counsel, irrespective of any fault on the part of the party ...