The opinion of the court was delivered by: Moran, District Judge.
The defendants, Hillel Maeir ("Maeir") and Paine, Webber,
Jackson & Curtis, Inc. ("Paine Webber"), have moved this court to
disqualify the law firm of Arvey, Hodes, Costello & Burman
("Arvey Hodes") from any further representation of any of the
plaintiffs in this action.*fn1 For the reasons stated below, the
motion to disqualify is denied.
Proper disposition of a motion to disqualify requires a careful
examination of the allegedly conflicting representations.
International Paper Co. v. Lloyd Manufacturing Co., 555 F. Supp. 125,
127 (N.D.Ill. 1982).
Piecing together the parties' various memoranda, affidavits and
exhibits reveals the following account. In the summer of 1980
Raymond and Lilli Mesirow (the "Mesirows"), two of the plaintiffs
in this action, consulted with Sidney Sosin ("Sosin"), a partner
at Arvey Hodes, regarding certain complaints about the handling
of their option accounts at Paine Webber by Maeir and Thomas
Furnari ("Furnari"). On October 9, 1980, Sosin wrote to Paine
Webber outlining the Mesirows' complaints, identifying Maeir and
Furnari as the persons involved, and requesting a settlement of
the alleged damages. Paine Webber furnished Maeir with a copy of
this letter*fn2 and requested him to prepare a written response
thereto.*fn3
On January 14, 1981, Maeir, represented by a Paine Webber
attorney, testified voluntarily and without subpoena before the
Securities Exchange Commission ("SEC") regarding an investigation
focusing on the option accounts of five Paine Webber customers
(including the Mesirows) who subsequently became the plaintiffs
in this case. In his deposition taken in the instant litigation,
Maeir claims he answered the SEC's questions candidly, openly and
truthfully. Maeir further claims that he left the five-hour
interrogation believing that he had concealed nothing.
Up to this point Maeir and Paine Webber had been represented by
the same attorneys. During the summer of 1981, however, Maeir
became concerned over whether to retain separate counsel for the
pending SEC investigation. At the suggestion of a fellow
employee, Maeir scheduled an appointment with Allen Barry Witz
("Witz"), an Arvey Hodes partner, to discuss the possibility of
separate representation. Although the exact date is uncertain, it
appears that in early July of 1981 Maeir met with Witz and an
Arvey Hodes associate, Andrew B. David ("David"), in Witz's
office. The parties disagree over the length of this meeting; it
appears to have lasted between forty-five minutes and an hour.
Also disputed is what was discussed at the meeting. Witz and
David claim that the "central and exclusive business of the
meeting" was a consideration of the benefits versus the
additional expense of retaining separate counsel. Maeir asserts
that, in addition to this consideration, he "openly and candidly
recounted" all the facts and circumstances concerning the
accounts under investigation by the SEC. Maeir further claims
that he disclosed information at this meeting which was outside
the scope of his SEC testimony.*fn4
All the parties agree, however, that no threatened litigation
by customers of Paine Webber was discussed. The parties also
agree that Maeir was not informed at this meeting that Arvey
Hodes represented the Mesirows in connection with the very same
matters that Maeir claims to have discussed with Witz and David.
Additionally, Maeir claims he assumed that his revelations to the
Arvey Hodes attorneys were confidential and subject to the
attorney-client privilege, though he ultimately decided not to
retain that law firm to represent him.
On September 8, 1981, the Mesirows, along with Whitfield
Hughes, Jr., Bernard Resnick and Irwin Weiner, filed a thirty-two
count complaint against Paine Webber, Maeir and Furnari for
damages caused by the activities under SEC investigation. At this
time plaintiffs were represented by the law firm of Winston &
Strawn. Six months later Winston & Strawn withdrew from the case
and on March 17, 1982, Jeffrey R. Liebman ("Liebman") and Gary L.
Starkman ("Starkman") of Arvey Hodes, appeared as substituted
counsel for the plaintiffs. As soon as Maeir realized that Arvey
Hodes was representing the plaintiffs he informed his attorney,
Michael B. Roche ("Roche"), of the meeting with Witz and David.
Roche thereupon contacted Liebman, informed him of the situation,
and requested him to voluntarily withdraw as counsel. Liebman
eventually refused to do so, and the defendants moved to
disqualify Arvey Hodes as plaintiffs' counsel.
II. PRINCIPLES GOVERNING ATTORNEY DISQUALIFICATION
A. The Lawyers' Ethical Duties
"When an attorney undertakes litigation against a former
client, the attorney may be disqualified if the new
representation violates an ethical duty to the former client."
Cannon v. U.S. Acoustics Corp., 398 F. Supp. 209, 221 (N.D.Ill.
1975), adopted and aff'd in relevant part, 532 F.2d 1118 (7th
Cir. 1976). The disqualification remedy serves to "enforce the
lawyer's duty of absolute fidelity and to guard against the
danger of inadvertent use of confidential information, as well as
to continue to achieve a high regard for the legal profession in
the public mind. . . ." Freeman v. Chicago Musical Instrument
Co., 689 F.2d 715, 723 (7th Cir. 1982) (citations omitted).
Essentially, disqualification is designed to encourage clients to
fully disclose all information necessary for their attorneys to
adequately prepare their cases.*fn5 See Cannon, 398 F. Supp. at
221.
The defendants claim that Arvey Hodes has violated Canons
4,*fn6 5,*fn7 and 9*fn8 of the American Bar Association Code
of Professional Responsibility (the "Code"), which "[t]his
District Court has adopted . . . as an appropriate guideline for
the conduct of attorneys admitted to practice before it (General
Rules 6(a)(i)), and [which] our Court of Appeals has regularly
relied upon . . . in the disqualification area." Kadish v.
Commodity Futures Trading Commission, 548 F. Supp. 1030, 1032
(N.D.Ill. 1982). See also Resnick v. American Dental Association,
95 F.R.D. 372, 378 (N.D.Ill. 1982) (noting that "[c]ourts
consistently employ provisions of the Code as sources of
procedural and substantive law"). The major thrust of defendants'
claim is that Arvey Hodes' representation of plaintiffs violates
confidences established between Maeir and the Arvey Hodes
attorneys at their meeting in early July of 1981. If such
representation does violate confidences it would seem to violate
Canon 4. If it does not, however, Arvey Hodes' representation of
plaintiffs could still violate Canon 9 if it even "appeared" to
be professionally improper.*fn9
Both the fiduciary relationship existing between
lawyer and client and the proper functioning of the
legal system require the preservation by the lawyer
of confidences and secrets of one who has employed or
sought to employ him. A client must feel free to
discuss whatever he wishes with his lawyer and a
lawyer must be equally free to obtain information
beyond that volunteered by his client. A lawyer
should be fully informed of all the facts of the
matter he is handling in order for his client to
obtain the full advantage of our legal system. It is
for the lawyer in the exercise of his independent
professional judgment to separate the relevant and
important from the irrelevant and unimportant. The
observance of the ethical obligation of a lawyer to
hold inviolate the confidences and secrets of his
client not only facilitates the full development of
facts essential to proper representation of the
client but also encourages laymen to seek early legal
assistance.
In addition to protecting the attorney-client relationship and
encouraging full disclosure, the Code's conflict of interest
provisions preserve the integrity and favorable public image of
both the legal profession and the judicial system, by prohibiting
even "the appearance of professional impropriety." ABA Code of
Professional Responsibility Canon 9 (1980). This second goal of
the Code, however, does not come without certain costs. For
example, in cases where a lawyer has received no client
confidences the appearance of impropriety standard is clearly
over-inclusive; disqualification in such situations accomplishes
nothing toward preserving confidentiality. Additionally, this
standard may often cause a significant hardship on a client by
depriving him of an attorney chosen for his specialized knowledge
and already familiar with the client's case. Finally, such a
standard may adversely affect attorneys because "[u]nnecessary
disqualification may blemish the attorney's professional
reputation with an `undeserved and unfair stigma.'" Developments
in the Law — Conflicts of Interest in the Legal Profession, 94
Harv.L.Rev. 1244, 1320 (1981) (citing Government of India v. Cook
Industries, 569 F.2d 737, 741 (2d Cir. 1978) (Mansfield, J.,
concurring)). Nevertheless, in promulgating the Code, the
American Bar Association has determined that these costs are
sufficiently outweighed by the interest in preserving the
public's trust in attorneys.
B. The Attorney-Client Relationship