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GTE NORTH, INC. v. APACHE PRODS. CO.

January 31, 1996

GTE NORTH, INC., Plaintiff,
v.
APACHE PRODUCTS COMPANY, BELVIDERE DAILY REPUBLICAN CO., DEAN FOODS COMPANY, MANLEY MOTOR SALES COMPANY, and THE PILLSBURY COMPANY, successor in interest to the GREEN GIANT COMPANY, Defendants.



The opinion of the court was delivered by: REINHARD

 INTRODUCTION

 Plaintiff, GTE North, Inc. ("GTE"), has brought a cost recovery action pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. ยง 9601 et seq., against Apache Products Company, Belvidere Daily Republican Co., Dean Foods Company, Manley Motor Sales Company, and The Pillsbury Company. GTE moves to disqualify attorney Jon S. Faletto and the law firm of Howard & Howard, counsel for one of the defendants, Dean Foods Company ("Dean Foods").

 BACKGROUND1

 This cost recovery action arises out of the clean up of the Belvidere Landfill Superfund Site, located in the City of Belvidere, Illinois. GTE moves to disqualify Howard & Howard and Faletto, a member of that firm, on the basis of their involvement with the investigation that preceded the filing of this lawsuit. In 1989, the U.S. Environmental Protection Agency gave notification of Potentially Responsible Party ("PRP") status to various companies. Five of these companies, including Chrysler Corporation and GTE, formed the Appleton Road Committee ("Appleton Committee") and executed a joint remedial cost sharing agreement ("Appleton Agreement"). The purposes of the Appleton Agreement were to allocate each member's share of shared response cost, *fn2" cooperate in investigating and identifying additional PRPs, and to pursue cost recovery activities against any additional PRPs. Pursuant to the agreement, each member agreed to abide by its allocated share of responsibility and agreed not to sue or take civil action against any other member. The Appleton Agreement also included confidentiality provisions which provided that all shared information between the members and their counsel shall "be held in strict confidence by the receiving member and by all persons to whom such confidential information is revealed by the receiving member." The agreement further provided that the disclosure of such confidential information shall not constitute a waiver of the attorney-client or work-product privilege. In essence, the agreement resolved all liability and allocation issues between the members of the Appleton Committee.

 In relation to potential cost recovery activities, the Appleton Agreement provided for the formation of a separate committee designed to pursue any additional PRP. That provision states:

 
The cost recovery action will be prosecuted in the name of each Member who chooses to join the action. Each such Member may serve on the Cost Recovery Committee. The Cost Recovery Committee will direct the course of the litigation and will determine whether to accept settlement from Additional PRPs and whether to distribute funds arising from the action. The Cost Recovery Committee will act by majority vote. Each Member will have as many votes as its Member's percentage from Exhibit A times 100.

 Pursuant to the Investigation Agreement, Hinshaw & Culbertson disseminated "confidential communications" to all members. In addition, counsel for each member (including Faletto) jointly met on several occasions to discuss strategy for conducting the investigation, the investigation results themselves, the relative legal merit of proceeding against certain defendants, including Dean Foods, and the legal strategy for bringing the cost-recovery action. At the close of the investigation, Chrysler notified the other members of the Cost Recovery Committee on March 13, 1995 that it would not participate in any cost-recovery litigation and assigned its rights of indemnity and contribution to each of the remaining members of the Cost Recovery Committee.

 After obtaining the assigned rights of the other members of the Cost Recovery Committee (including Chrysler), GTE filed this present action against the defendants. Faletto, of Howard & Howard, has appeared on behalf of Dean Foods to defend it in the cost recovery action. Prior to undertaking legal representation of Dean in this matter, Howard & Howard fully disclosed its intention to do so to Chrysler and obtained Chrysler's consent.

 CONTENTIONS

 GTE contends that Faletto owes GTE a fiduciary duty to maintain the confidences disclosed during the earlier investigation by virtue of an implied attorney-client relationship between Faletto and GTE. This implied attorney-client relationship arose from the peculiar relationship between the members of the Cost Recovery Committee and the circumstances under which confidential information was disclosed. In support of its contention, GTE relies on the confidentiality provisions in both the Appleton and Investigation agreements and the fact that confidential information and legal strategy was freely communicated between all of the Cost Recovery Committee members and their attorneys. GTE moves to disqualify the entire firm of Howard & Howard on the basis of imputed disqualification. Alternatively, GTE contends that fundamental fairness bars Faletto and Howard & Howard from representing Dean Foods in this matter. Faletto and Howard & Howard contend that in order for an implied attorney-client relationship to exist, GTE must show that it supplied information with the reasonable belief that Faletto was acting as GTE's attorney. Similarly, they contend any belief held by GTE that Faletto acted as GTE's attorney is unreasonable in light of the fact that GTE was represented by its own counsel, Hinshaw & Culbertson. Further, Faletto and Howard & Howard contend that in order to prevail under a theory of fundamental fairness, GTE must show that it had a pre-existing attorney-client relationship with Faletto, a relationship which GTE fails to demonstrate.

 DISCUSSION

 Ethical questions before a district court are governed by federal case law. See Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 722 (7th Cir. 1982). In determining whether Faletto and Howard & Howard should be disqualified, the court applies the Rules of professional Conduct for the Northern District of Illinois. See, e.g., Healy v. Axelrod Const. Co. Defined Benefit Pension Plan and Trust, 155 F.R.D. 615, 620 (N.D. Ill. 1994). GTE seeks to disqualify Faletto and Howard & Howard pursuant to Rule 1.9, which addresses conflicts of interest involving former clients, and Rule 1.10, which disqualifies an entire firm where a member of that firm is prohibited ...


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