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 ...