United States District Court, Northern District of Illinois, E.D
August 23, 1982
RICHARD A. BOBBITT, PLAINTIFF,
VICTORIAN HOUSE, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Richard A. Bobbitt ("Bobbitt") sues Victorian House, Inc.
("Victorian House") and its President Albert Morlock ("Morlock"),
primarily seeking dissolution of Victorian House and an
accounting of corporate funds allegedly misapplied by Morlock.
Bobbitt has moved to disqualify defendants' attorney John C.
Stiefel ("Stiefel") and his law firm (Solomon, Rosenfeld,
Elliott, Stiefel & Abrams, Ltd.) from representing defendants.
For the reasons stated in this memorandum opinion and order that
motion is denied.
Bobbitt has owned one-half of Victorian House's outstanding
shares since its inception and has been a member of its board of
directors since at least July 27, 1978. Stiefel has represented
Victorian House since about December 1976. Although not
articulated in precisely these terms, Bobbitt's claim is dual in
1. Stiefel assertedly represented the Victorian
House incorporators (including Bobbitt) before the
corporation was formed.
2. Bobbitt contends he later gave confidential
information to Stiefel in his capacity as counsel to
As a result Stiefel's presence in this action allegedly
constitutes a conflict of interest.
During the past several years our Court of Appeals has dealt
with a number of variations on the theme of lawyer
disqualification. In doing so it has stated this test for
determining if a conflict of interest exists in the face of prior
representation, Novo Terapeutisk Laboratorium A/S v. Baxter
Travenol Laboratories, Inc., 607 F.2d 186, 195 (7th Cir. 1979)
(quoting Westinghouse Electric Corp. v. Gulf Oil Corp.,
588 F.2d 221, 225 (7th Cir. 1976)):
Initially, the trial judge must make a factual
reconstruction of the scope of the prior legal
representation. Second, it must be determined whether
it is reasonable to infer that the confidential
information allegedly given would have been given to
a lawyer representing a client in those matters.
Finally, it must be determined whether that
information is relevant to the issues raised in the
litigation pending against the former client.
First, however, it must be decided whether "prior legal
representation" of Bobbitt was present at all.
As to the undisputed Stiefel representation — that involving
Victorian House itself — the problem is relatively
straightforward. Normally a corporate director talking to
corporate counsel should understand anything he told that
attorney was "known by the corporation." Thus there should
normally be no conflict of interest when a director sues a
corporation represented by its general corporate counsel, because
anything the director would previously have told that attorney
would ordinarily have been communicated to him as lawyer for the
corporation. In other words, no conflict exists simply because
there was no prior representation of the individual. As EC 5-18
of the Code of Professional Responsibility states:
A lawyer employed or retained by a corporation or
similar entity owes his allegiance to the entity and
not to a stockholder, director, officer, employee,
representative, or other person connected with the
entity. In advising the entity, a lawyer should keep
paramount its interests and his professional judgment
should not be influenced by the personal desires of
any person or organization. Occasionally a lawyer for
an entity is requested by a stockholder, director,
officer, employee, representative, or other person
connected with the entity to represent him in an
individual capacity; in such case the lawyer may
serve the individual only if the lawyer is convinced
that differing interests are not present.
Analysis is somewhat more complex as to a small close
corporation with only a few shareholders and directors. There it
may be more difficult to draw the line between individual and
corporate representation. But representing such a corporation
does not inherently mean also acting as counsel to the individual
director-shareholders. Rather the question must be determined on
the individual facts of each case.*fn1
This Court has found only a single case dealing with closely
parallel facts. In Wayland v. Shore Lobster & Shrimp Corp.,
537 F. Supp. 1220, 1223 (S.D.N.Y. 1982) the court rejected a like
disqualification claim in these terms:
However, Wayland has presented no support, and we
have found none, for the proposition that a law firm
which acts as counsel to a close corporation acts as
counsel to individual shareholders simply by
suggesting amendments to a shareholder agreement or
by drafting and negotiating on behalf of the
corporation severance agreement with departing
shareholders. To the contrary, it appears that the
Proskauer firm has always represented the
shareholders as a group, as an alter-ego of the
corporation. Wayland has pointed to no instance where
the firm has represented any shareholder as an
individual. Furthermore, Wayland's argument that the
firm must be disqualified because it may have been
exposed to confidential information from Wayland
while he was employed at Shore is unpersuasive since,
in the circumstances of Proskauer's representation,
it is clear that the firm was representing the
corporation and thus Wayland could not have
reasonably believed or expected that any information
given to the firm would be kept confidential from the
shareholders or from the corporation as an entity.
See Allegaert v. Perot, 434 F. Supp. 790 (S.D.N.Y.),
aff'd, 565 F.2d 246 (2d Cir. 1977). It is undisputed
that the firm was retained to represent Shore as a
corporation, that services were billed to and paid by
the corporation, and that the firm was only consulted
on corporate matters. In fact, Wayland presents no
evidence that he ever consulted the firm in any
capacity other than as an officer and a shareholder
At least after Victorian House was formed the situation was
substantively the same as in Wayland, for Bobbitt looked to
Stiefel as his personal counsel in only
three minor instances (two of them trivial indeed), none of which
was in any way related to this action:
1. They had a single meeting in 1977 involving
Bobbitt's general estate tax considerations (for a
2. Stiefel handled a medical insurance claim in
July 1977, which was settled in May 1978 with
3. About April 1979 Stiefel reviewed an apartment
lease for Bobbitt (one telephone call to the lessor
may have been involved).
To that extent Stiefel represented Bobbitt as an individual and
Bobbitt could have expected any communications were confidential.
But under Novo Terapeutisk an attorney should be disqualified
only if matters he might have discussed with his former client
would in some way be relevant to the current action. That is
clearly not so here.
That leaves the claim in Bobbitt's initial affidavit that
Stiefel represented the incorporators (including Bobbitt) before
Victorian House's incorporation.*fn2 At his deposition (Tr. 39)
Bobbitt shifted to the position that Stiefel was "consulted"
before incorporation and another attorney actually took care of
the incorporation. More importantly Stiefel's claimed
consultation was only as to corporate matters.
Bobbitt's original affidavit also said:
In the course of this aforementioned representation,
during late 1974 and 1975, Stiefel and the plaintiff
met privately and during those meetings, Stiefel
received confidential information covering the
finances and economic goals of Bobbitt and had access
to his confidential records and Stiefel participated
in and was party to, various decisions concerning
this confidential information.
Bobbitt was questioned about this too at his deposition (Tr.
Q. Was there anything that you showed John [Stiefel]
of the documents we have talked about? Was there
anything in those documents that was unique, special,
secret to you that was not something that Al
[Morlock] knew or Nadine [Stiefel] knew?
A. My personal financial statement for one.
Shortly after that Bobbitt clarified what he meant by "secret"
(Tr. 130, 131):
Q. What I am asking is were any of those papers that
you gave John things that you treated as secret to
A. Well, they were strictly for the restaurant's
business and the people who had to have them at the
Bank of Ravenswood.
Q. And you are saying there are things on your
personal financial statement that you considered
secret that Al [Morlock] didn't know?
A. No, that is not — Al saw them.
A. There is nothing that I submitted to John Stiefel
that I considered that was confidential other than
that was our own business.
Q. Other than as related to Victorian House business?
Thus Bobbitt's deposition makes plain his use of the term
"confidential" was in the sense of non-public. There is no
evidence whatever he discussed confidential matters with Stiefel
that he expected would not be revealed to Morlock or Victorian
House (in fact his testimony was precisely the opposite). Both
Bobbitt's motion and his original affidavit seriously overstated
the situation to Stiefel's detriment (or more accurately to
defendants, for it is their right to representation of their
choice that would have been impaired by a successful
motion). This Court concurs in the Wayland analysis and finds it
fully applicable here.
Well before appointment to the bench this Court had occasion to
note the use of the meritless disqualification motion as a
litigation tactic.*fn3 That trend has not abated, and in this case
it has had the usual effect of diverting the litigation from
attention to the merits. Bobbitt's motion to disqualify attorney
Stiefel and his law firm is denied.