Case Title: SIMPSON PERFORMANCE PRODUCTS, INC. v. HORN

Citation: 

Docket Number: 03-126

State: wyoming

Court: Wyoming Supreme Court

Date: 2004-06-18T00:00:00Z

Document:
SIMPSON PERFORMANCE PRODUCTS, INC. v. HORN2004 WY 6992 P.3d 283Case Number: 03-126Decided: 06/18/2004
APRIL 
TERM, A.D. 2004

 

                                                                                                                                   

 

SIMPSON 
PERFORMANCE PRODUCTS, INC.,

 

Appellant(Defendant),

 

v.

 

ROBERT 
W. HORN, P.C.,

 

Appellee(Plaintiff).

 

 

 

Representing 
Appellant:

 

            
David B. Hooper of Hooper Law Offices, P.C., Riverton, 
Wyoming.

 

Representing 
Appellee:

 

            
Robert W. Horn of Robert W. Horn, P.C., Jackson Hole, 
Wyoming.

 

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 

 

            
VOIGT, Justice.

 

[¶1]      The appellant, 
Simpson Performance Products, Inc. (SPP), hired the appellee, Robert W. Horn 
(Horn), to conduct an investigation and to provide legal counsel regarding a 
possible lawsuit by SPP against the National Association of Stock Car Auto 
Racing (NASCAR).  Upon completing 
his work, Horn submitted a bill to SPP for $40,383.29 for legal fees and 
costs.  SPP paid Horn $20,000.00, 
but refused to pay the balance.  
Horn sued SPP to collect the outstanding amount.  The district court found in favor of 
Horn.  SPP now appeals, claiming 
that Horn is not entitled to the entire fee because his representation of E.J. 
"Bill" Simpson (Simpson), individually, violated Rule 1.9 of the Wyoming Rules 
of Professional Conduct for Attorneys at Law (Rule 1.9).  Finding no violation of Rule 1.9, we 
affirm.

 

ISSUE

 

[¶2]      Horn represented 
SPP in investigating a possible lawsuit against NASCAR.  He then represented Simpson, who had 
recently resigned as the CEO of SPP, in a lawsuit against NASCAR involving the 
same facts and cause of action.  The 
issue presented by this case is whether Horn's representation of Simpson, his 
new client, was "materially adverse" to SPP, his former client, and therefore a 
violation of Rule 1.9.

 

FACTS

 

[¶3]      SPP 
manufactures and sells automobile racing safety equipment such as fire-resistant 
driver suits, helmets, shoes, seatbelts and other products.  In 1998, Simpson, the company's founder, 
sold a two-thirds interest in the company to Carousel Capital.  Simpson retained his one-third share and 
remained involved with the company, acting as the Chairman of the Board of 
Directors and Chief Executive Officer.

 

[¶4]      On February 18, 
2001, Dale Earnhardt died in a racing accident at the Daytona 500.  Five days later, NASCAR held a press 
conference where a NASCAR representative displayed an SPP brand seatbelt and 
stated that it had broken in the crash.  
Further, the NASCAR representative asserted that had the seatbelt not 
failed, Earnhardt would have survived the accident.

 

[¶5]      The negative 
publicity resulting from the NASCAR press conference threatened SPP's reputation 
and financial well-being.  SPP hired 
Epley and Associates, a public relations group, to assess the situation and to 
propose a plan to counter the negative publicity.  Additionally, SPP considered a 
slander/false-light lawsuit against NASCAR, and was concerned with a potential 
wrongful death suit by the Earnhardt family.  Nelson Schwab (Schwab), Carousel 
Capital's managing partner, and Simpson agreed to hire two attorneys to "gather 
information and facts surrounding the accident in case there was a possible 
lawsuit."  Robert Horn, a Jackson 
lawyer who had performed some prior work for Simpson, and Jim Voyles, a lawyer 
from Indianapolis, Indiana, were hired in March of 2001 to perform this 
task.  No formal engagement letter 
was drafted;1 however, it was agreed that Horn 
would bill SPP "at 200 an hour for non-court time and 250 for court time, and 
that the cost of the case would be borne by Simpson Performance 
Products."

 

[¶6]      From March 28, 
2001, to September 9, 2001, Voyles and Horn provided legal services to SPP.  They actively participated in an 
investigation conducted by NASCAR into the cause of Dale Earnhardt's death.  During that time, Horn billed 
approximately 200 hours and incurred expenses relating to three trips: two to 
Indianapolis, Indiana, and one to Atlanta, Georgia.  Another substantial expense involved 
documenting and cataloguing all of the articles and press releases concerning 
the highly publicized case.

 

[¶7]      Simpson was 
saddened and distraught by the death of Earnhardt, who was a personal friend, 
and even more upset that SPP was being partly blamed for the tragedy.  He was quite steadfast in his desire to 
sue NASCAR, and felt that a lawsuit was necessary to clear the company's name 
and protect its reputation.  
However, Schwab did not share Simpson's view.  Schwab felt the only way to stabilize 
SPP and maintain its viability was to work with NASCAR and preserve that 
relationship.  In August of 2001, 
Simpson resigned from SPP, reporting that his "relationship with them had become 
very strained."  He stated, "I don't 
know if [the resignation] was in regard to us suing NASCAR.  It was in regard to us protecting the 
name, the Simpson name, that I worked so hard to build a spotless 
reputation."

 

[¶8]      Having completed 
its investigation into the Earnhardt crash, NASCAR held another press conference 
on August 21, 2001, to report its results.  
Schwab, Horn, Voyles, Simpson,2 and other SPP representatives 
attended the press conference.  The 
results of NASCAR's investigation indicated a number of factors, including a 
failure of the seatbelt, contributed to Earnhardt's death.  Simpson felt that NASCAR's statement was 
inadequate and that SPP was not exonerated.  Following the press conference, the 
group from SPP "huddled briefly" and agreed to meet in the next few days to 
decide how to respond.

 

[¶9]      On September 5, 
2001, Horn and Voyles participated in a conference call with Schwab to discuss 
an appropriate course of action for SPP.  
The attorneys reported the conclusions they had reached as a result of 
their investigation, and offered their opinions about SPP's likelihood of 
success in a lawsuit against NASCAR.  
Schwab then indicated that SPP's relationship with NASCAR was improving 
and stated that he had discussed the possibility of the lawsuit with SPP 
corporate counsel and they predicted a remote chance of success.  Schwab then told Voyles and Horn that 
SPP had no interest in pursuing a lawsuit against NASCAR.

 

[¶10]   When Schwab decided that SPP would 
not sue NASCAR, the purpose for which Horn had been hiredto participate in the 
investigation and evaluate the possibility of a lawsuit by SPP against 
NASCARwas complete.  Although no 
formal termination letter was written, it appears that following the September 
5th conference call, Horn's representation of SPP did, in fact, end.  No further services were requested of 
Horn, Horn did not bill SPP for any work thereafter, and according to Schwab, 
"there was no communication one way or the other to Mr. Horn after that 
date."  Horn prepared a final bill 
totaling $40,383.29, which he submitted to SPP in October of 
2001.

 

[¶11]   Two months after SPP decided it 
would not pursue an action against NASCAR, Simpson decided to sue NASCAR on his 
own.  He contacted Voyles and Horn 
to inform them that he planned to sue and to ask their opinion.  Simpson told them that he was going to 
send them a "pile of information" to look over to determine if there was a basis 
for his individual lawsuit.  Horn 
and Voyles sought the assistance of Dick Cardwell, an Indianapolis lawyer with 
special expertise in libel issues, and the three attorneys began preparing the 
lawsuit for Simpson.

 

[¶12]   Although Simpson had resigned from 
SPP, there was continued discussion between Simpson and SPP about the 
possibility of his returning to the company in some capacity.  Simpson was adamant that he would only 
return if SPP agreed to go forward with the lawsuit against NASCAR.  Because of the continued negotiations 
between Simpson and SPP, the first draft of the lawsuit against NASCAR included 
both Simpson individually and SPP as named plaintiffs.  When SPP received a draft of the 
complaint in late January 2002, or early February 2002, Schwab immediately 
called Horn and Voyles to inform them that SPP had no interest in the lawsuit, 
and issued a press release announcing that SPP was not suing NASCAR.  On February 13, 2002, Simpson, as the 
lone plaintiff, filed the suit against NASCAR.

 

[¶13]   When SPP received Horn's bill, 
Chuck Davies (Davies), who was acting as the company's CEO following Simpson's 
resignation, was "uncomfortable" with the amount and told Horn that SPP would 
pay "$10,000 a month until it was either paid in full or I decide I had paid 
enough."  Davies approved two 
$10,000 payments on Horn's bill: one in December of 2001 and the other in 
January of 2002.  On February 28, 
2002, Horn received an email from Davies informing him that SPP would make no 
further payments.  The email stated, 
"I think that the [$]20,000 we have paid you is the most we consider reasonable 
for the only bill you submitted in October representing work you said was for 
several earlier months."  Davies 
later testified that he probably would have paid the entire amount had Horn not 
prepared the lawsuit for Simpson.

 

[¶14]   On March 19, 2002, Horn filed a 
lawsuit to collect the unpaid balance of his bill. Following a two-day trial, 
the district court took the matter under consideration.  Less than one month later, a decision 
letter finding in favor of Horn was sent to the parties; and on April 21, 2003, 
the district court entered a judgment in the amount of $20,383.29 in favor of 
Horn.  SPP filed a notice of appeal 
on May 13, 2003.

 

STANDARD 
OF REVIEW

 

[¶15]   "When a trial court in a bench 
trial makes express findings of fact and conclusions of law, we review the 
factual determinations under a clearly erroneous standard and the legal 
conclusions de novo.'"  
Schlesinger v. Woodcock, 2001 WY 120, ¶ 13, 35 P.3d 1232, 1237 
(Wyo. 2001) (quoting Rennard v. Vollmar, 977 P.2d 1277, 1279 (Wyo. 1999)).  The parties do not dispute the findings 
of fact; rather, SPP argues that, as a matter of law, the district court erred 
in its application of Rule 1.9.  We 
will review this legal conclusion de novo.

 

DISCUSSION

 

[¶16]   SPP claims that Horn violated Rule 
1.9 when he represented Simpson in the lawsuit against NASCAR, and therefore he 
should be required to forfeit his fee.  
Horn contends that his representation of Simpson was not in violation of 
the rule inasmuch as the lawsuit against NASCAR was not "materially adverse" to 
the interests of SPP.  Rule 1.9(a) 
reads:

 

A 
lawyer who has formerly represented a client in a matter shall not thereafter 
represent another person in the same or a substantially related matter in which 
that person's interests are materially adverse to the interests of the former 
client unless the former client consents after consultation except that when the 
former client is a governmental entity, consent is not 
permitted.

 

A 
Rule 1.9 violation is established by proof of four 
elements:

 

First, 
there must have been a valid attorney-client relationship between the attorney 
and the former client.  . . .  Second, the interests of the present and 
former clients must be materially adverse.  
. . .  Third, the former 
client must not have consented, in an informed manner, to the new 
representation.  . . .  Finally, the current matter and the 
former matter must be the same or substantially related.

 

Sullivan 
County Regional Refuse Disposal Dist. v. Town of Acworth, 141 N.H. 
479, 686 A.2d 755, 757 (1996).

 

[¶17]   When a lawyer violates Rule 1.9, a 
number of remedies are available to the aggrieved party: many seek 
disqualification of the attorney or his firm, others may pursue a malpractice 
action, and others file a grievance.  
John M. Burman, Conflicts of Interest in Wyoming, 35 Land & 
Water L. Rev. 79, 96 (2000).  "Courts have also responded to 
inappropriate conflicts by ordering the forfeiture of attorney's fees . . 
.."  Id. at 96 n.74; see, 
for example, Cal Pak Delivery, Inc. v. United Parcel Service, 
Inc., 52 Cal. App. 4th 1, 14, 60 Cal. Rptr. 2d 207, 215 (1997) and Jeffry v. Pounds, 67 Cal. App. 3d 6, 9, 136 Cal. Rptr. 373, 375 (1977); 
see also Charles W. Wolfram, Modern Legal Ethics § 
7.1.7.

 

[¶18]   Before we can determine whether 
forfeiture of Horn's fee is appropriate, we must first determine whether each of 
the four elements necessary to establish that Horn violated Rule 1.9 is 
present.  The first element, which 
requires a valid attorney-client relationship with the former client, is not 
contested by SPP.  The second 
element, which requires that the interests of the present and former clients be 
materially adverse, is the issue on which this case turns.  If the interests of Horn's present 
client Simpson, and his former client SPP, are not materially adverse, then Horn 
did not violate Rule 1.9; and if he did not violate Rule 1.9, then SPP is 
obligated to pay the entire amount of Horn's attorney's fees.3

 

[¶19]   We must first ascertain what is 
meant by "materially adverse."  
"There is a paucity of authority interpreting the adversity requirement 
of ABA Rule 1.9."  Selby v. 
Revlon Consumer Products Corp., 6 F. Supp. 2d 577, 580 (N.D. Tex. 
1997).  Rule 1.9, cmt. 1 says, "[t]he principles 
in Rule 1.7 determine whether the interests of the present and former client are 
adverse."  Rule 1.7(a) 
provides:

 

(a)  A lawyer shall not represent a client if 
the representation of that client will be directly adverse to another client, 
unless:

 

(1)       the lawyer 
reasonably believes the representation will not adversely affect the 
relationship with the other client; and

 

(2)         each client 
consents after consultation.

 

Rule 
1.7, cmt. 2  
provides:

 

[A] 
lawyer ordinarily may not act as advocate against a person the lawyer represents 
in some other matter, even if it is wholly unrelated.  On the other hand, simultaneous 
representation in unrelated matters of clients whose interest[s] are only 
generally adverse, such as competing economic enterprises, does 
not require consent of the respective clients.  Paragraph (a) applies only when the 
representation of one (1) client would be directly adverse to the 
other.

 

Rule 
1.7, cmt. 6 further states that "[p]aragraph (a) prohibits representation of 
opposing parties in litigation."

 

[¶20]   As the comments to Rule 1.7 
indicate, most alleged conflicts of interest relating to former clients arise 
when a lawyer is representing a new client who is suing a former client.  ABA/BNA Lawyers' Manual on 
Professional Conduct § 51:220 (2002).

 

In 
that scenario, the alignment of the current and former clients as foes in the 
litigation makes it obvious that their interests are adverse.  . . .  For this reason, much of the case law 
involving efforts to disqualify a lawyer on the ground of a former-client 
conflict simply recites the adversity requirement and, with little discussion, 
finds it to be satisfied.

 

Id.  However, 
the question of whether representation is "materially adverse" to a former 
client becomes less clear in situations like the present, where the 
former client, although not directly involved in the litigation, may be affected 
by it in some manner.  Id.  Under these circumstances, we must 
make a case-specific inquiry to determine the degree to which the current 
representation may actually be harmful to the former client.  Id.; State ex rel. McClanahan v. 
Hamilton, 189 W.Va. 290, 430 S.E.2d 569, 573 (1993).  This fact-intensive analysis focuses on 
whether the current representation may cause legal, financial, or other 
identifiable detriment to the former client.  ABA/BNA Lawyers' Manual on 
Professional Conduct, supra, at § 51:220.  Additionally, we must determine "whether 
the attorney's exercise of individual loyalty to one client might harm the other 
client or whether his zealous representation will induce him to use confidential 
information that could adversely affect the former client."  Hamilton, 430 S.E.2d  at 
573; 
see also Briggs v. Wyoming Nat. Bank of Casper, 836 P.2d 263, 272 (Wyo. 
1992) (Urbigkit, C.J., dissenting) and Carlson v. Langdon, 751 P.2d 344, 348 (Wyo. 1988).

 

[¶21]   SPP claims that Horn's 
representation of Simpson was materially adverse to it because Schwab had 
advised Horn that SPP did not want to pursue the lawsuit against NASCAR, and 
because it jeopardized SPP's relationship with NASCAR, its major customer.  These two statements are the extent of 
SPP's argument on this issue, as the bulk of its appellate briefs focuses on the 
question of whether Horn should be required to forfeit his fee.4  SPP fails to expound on this argument or 
point to any facts contained in the record demonstrating any harm the company 
has suffered, or will suffer, as a result of Horn's representation of 
Simpson.  Contrary to SPP's 
assertion, the record indicates that the company's relationship with NASCAR has 
not been adversely affected.  
Davies, SPP's CEO, testified at the time of the trial that "the company 
is doing fine.  The company has a 
good relationship with NASCAR.  
NASCAR is still our bill board."

 

[¶22]   Also, we find nothing in the record 
indicating that Horn's representation of Simpson compromised his continuing duty 
of loyalty and confidentiality to his former client, SPP.  "The concerns underlying Rule 1.9 are 
the potential for violation of the lawyer's duty of loyalty, as well as the 
risk that confidential information gained in a prior representation will be used 
to the disadvantage of the former client.'"  Briggs, 836 P.2d  at 272 
(Urbigkit, C.J., dissenting) (quoting ABA/BNA Lawyers' 
Manual on Professional Conduct § 51:202 (1987)).  We have held that an irrebuttable 
presumption of disclosure arises when the interests of a former client are 
adverse to a client whom the attorney presently represents.  Carlson, 751 P.2d  at 
348.  Thus, a movant claiming a violation 
of Rule 1.9 is not required to prove disclosure of confidential information 
where he can demonstrate that the two matters are substantially related and that 
his interests are materially adverse to those of the new client.  Id.  SPP fails to point to any disclosure 
of confidential information or breach of Horn's duty of loyalty, and the 
irrebuttable presumption of disclosure does not arise in this case, as SPP has 
failed to demonstrate that its interests are materially adverse to Horn's 
representation of Simpson.

 

[¶23]   We refuse to speculate as to the 
possible effects, adverse or otherwise, that Horn's representation of Simpson 
may have had, or could have, on SPP.  
Based on the facts, as they exist in the record, we hold that Horn's 
representation of Simpson was not "materially" or "directly" adverse to SPP in 
violation of Rule 1.9.  Because 
Horn's representation of Simpson was not materially adverse to SPP, the second 
element of the four-part test is not present.  Therefore, we need not address the third 
factor, whether SPP consented to Horn's representation of Simpson, or the fourth 
factor, whether the matters were substantially related.

 

[¶24]   Finding no violation of Rule 1.9, 
we affirm the decision of the district court.

 

FOOTNOTES

  1Professor John Burman has made the 
following observation regarding engagement and termination 
letters:

 

The 
use of an engagement letter, always a good idea, is even more important when a 
lawyer represents multiple parties in a transaction and/or an entity.  The letter can, and should, identify the 
client(s), the payer, and the scope of representation.  Identifying the client is particularly 
important when an entity, or nascent entity, is involved.  The letter should specify whether the 
lawyer represents the entity, [individuals] within the entity, or both.  Normally, a lawyer represents the 
organization, and not the individuals within the organization.  See Wyoming Rules of Professional 
Conduct 1.13(a) (LEXIS 1999).  If 
the entity is a client, the letter should identify the person or persons with 
whom the attorney should interact and upon whom he or she may rely for direction 
in the representation.

 

John 
M. Burman, Conflicts of Interest in Wyoming, 35 Land & Water L. Rev. 
79, 88 n.32 (2000).

 

  2Although Simpson had resigned from 
SPP, he continued to speak for the company.  The NASCAR press conference was his 
final appearance on behalf of SPP.

 

  3We note that while SPP suggested to 
the district court that Horn's fee was excessive and that the fee did not 
reflect the value the company received from his services, this is not the 
position SPP has taken on appeal.  
On appeal, SPP's refusal to pay is founded solely on the alleged 
violation of Rule 1.9.

 

  4SPP's appellate brief points to a 
statement from the district court's decision letter where it wrote, "[h]owever, 
in sorting this all out, the real issue is, assuming a violation of Rule 
1.9 has occurred, does that prohibit a recovery of attorney fees."  (Emphasis added.)  SPP apparently took this statement as 
conclusively establishing a Rule 1.9 violation and did not examine the issue 
further.