Title: ARKANSAS VALLEY STATE BANK v. PHILLIPS

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

ARKANSAS VALLEY STATE BANK v. PHILLIPS  ARKANSAS VALLEY STATE BANK v. PHILLIPS 2007 OK 78 171 P.3d 899 Case Number: 104021 Decided: 10/16/2007 THE SUPREME COURT OF THE STATE OF OKLAHOMA ARKANSAS VALLEY STATE BANK, an Oklahoma corporation, Appellee, v. JOHN W. PHILLIPS, JR., an individual, and WILBANKS SECURITIES, INC., an Oklahoma corporation, Defendants, and BILL V. WILKINSON, attorney, Appellant. APPEAL FROM THE DISTRICT COURT OF TULSA COUNTY, THE HONORABLE J. MICHAEL GASSETT, DISTRICT JUDGE ¶0 Arkansas Valley State Bank (Bank/Appellee) filed suit for breach of an employment agreement against Wilbanks Securities, Inc. and John W. Phillips, Jr. (Defendants). Subsequently, the Bank filed a motion to disqualify the defendants' counsel, Bill V. Wilkinson (Appellant), alleging that he had received confidential work product information from one of the Bank's former employees. The trial court, Honorable J. Michael Gassett, granted the motion to disqualify Wilkinson, and he appealed. Because the trial court applied the "appearance of impropriety" standard, resolved all doubt in favor of disqualification and failed to make the proper finding of fact that Wilkinson had knowledge of material and confidential information, the motion to disqualify counsel was improperly granted. DISTRICT COURT ORDER VACATED; CAUSE REMANDED. Ron D. Martinek, Topeka, Kansas, for Appellee. Bill Wilkinson, Tulsa, Oklahoma, for Appellant/Defendants. KAUGER, J.: ¶1 The issue presented is whether the district court properly granted the motion to disqualify the defendants' counsel. We find that it did not. FACTS ¶2 The Appellee, Arkansas Valley State Bank (Bank) had contracted with Wilbanks Securities, Inc. (Wilbanks Securities) to provide customers of the Bank with investment counseling and services, which the Bank could not provide legally on the Bank's premises. ¶3 On February 8, 2006, one of the deposed witnesses, Daniel G. Witham (Witham), a dual employee of the Bank and UVEST Financial Services, Inc., an investment center that had replaced Wilbanks Securities on the Bank's premises, was terminated. Witham retained Phillips and Wilbanks Securities' attorney, Bill V. Wilkinson (Attorney/Appellant), to represent him in a wrongful termination suit against the Bank and Almon. Witham filed suit in the United States District Court for the Northern District of Oklahoma on February 22, 2006. ¶4 On March 17, 2006, Phillips and Wilbanks Securities filed a Motion for Protective Order and Application for Sanctions by Defendants in this cause, alleging that the errata sheets filed in the Banks' action were improper attempts to alter testimony. On May 26, 2006, the Bank sought to disqualify the attorney and his law firm from representing Phillips and Wilbanks Securities. The Bank alleged that the attorney had received confidential work product information about the Bank's breach of the employment agreement suit against Phillips and Wilbanks Securities from Witham during his representation of Witham in the wrongful termination suit against the Bank. Phillips and Wilbanks Securities countered that the motion to disqualify counsel was merely a tactic to prevent the district court from uncovering the alleged improprieties in the errata sheets. ¶5 On September 8, 2006, the district court granted the Bank's motion to disqualify the attorney, finding there was "beyond a nagging suspicion" that Witham had disclosed confidential work product information to the attorney. ¶6 On November 22, 2006, the attorney, Phillips and Wilbanks Securities filed an Application to Assume Original Jurisdiction, Petition for Writ of Mandamus, and Petition for Writ of Prohibition. On December 11, 2006, this Court recast the application as a timely appeal from the district court's order. The cause was assigned to the Court of Civil Appeals on April 4, 2007, and on June 12, 2007, we withdrew the assignment and retained the cause. ¶7 BECAUSE THE DISTRICT COURT APPLIED THE "APPEARANCE OF IMPROPRIETY" STANDARD, RESOLVED ALL DOUBT IN FAVOR OF DISQUALIFICATION AND MADE NO FINDING IN ITS ORDER THAT WILKINSON HAD KNOWLEDGE OF MATERIAL AND CONFIDENTIAL INFORMATION, THE MOTION TO DISQUALIFY COUNSEL WAS IMPROPERLY GRANTED ¶8 An order granting a motion to disqualify counsel is a final order subject to appellate review. ¶9 The central point of contention in this cause is determining the proper test a trial court must apply when faced with a motion to disqualify counsel. The Bank contends that an "appearance of impropriety" test, based on Canon Nine of the ABA Model Code of Professional Responsibility, ¶10 The due process clauses of the United States ¶11 The United States ¶12 The right to counsel may also be based on statutory authority. ¶13 Nevertheless, the right to select one's own counsel is not absolute. ¶14 The Bank's first argument supporting its motion to disqualify counsel is an allegation that although the attorney knew Witham was represented by counsel, the attorney elicited from him information about the Bank's suit against Phillips and Wilbanks Securities. The Bank argued that this was a violation of Rule 4.2 of the Oklahoma Rules of Professional Conduct. ¶15 The Bank's second argument is that the attorney had induced Witham to disclose confidential information about the Bank's suit against Phillips and Wilbanks Securities. The Bank maintained that this was a violation of Rule 1.6 of the Oklahoma Rules of Professional Conduct ¶16 The common thread running through each of the Bank's arguments is essentially that the attorney was improperly in possession of confidential work product information about the Bank's suit against Phillips and Wilbanks Securities. ¶17 Various federal and state courts have crafted a variety of tests for reviewing a motion to disqualify counsel. These range from stringent tests that limit a trial court's discretion and place a heavy burden on the moving party, to more expansive tests that give a trial court broader discretion and require a lesser showing by the moving party. While looking toward the Code of Professional Responsibility for guidance in considering the disqualification of counsel, the trial court should be mindful that disqualification is a drastic measure. In fact, a violation of the Code of Professional Responsibility alone should not result in a disqualification, unless disqualification is found to be absolutely necessary. Certainly, more is required than an allegation of an ethical violation. . . . [Precedent] suggest[s] the guideline of "a reasonable possibility that some specifically identifiable impropriety actually occurred." In MMR/Wallace Power & Indus., Inc. v. Thames Assoc., 764 F. Supp. 712 , 718 (D.Conn. 1991), the court applied a broader test: [I]f the court concludes that the asserted course of conduct by counsel threatens to affect the integrity of the adversarial process, it should take appropriate measures, including disqualification, to eliminate such taint. Even an appearance of impropriety may, under the appropriate circumstances, require prompt remedial action by the court. In assessing the possibility that the trial may be prejudiced by an attorney's unethical conduct, the district court must bear in mind the fact that: The preservation of public trust both in the scrupulous administration of justice and in the integrity of the bar is paramount. Recognizably important [is defendant's] right to counsel of [its] choice...T[his] consideration must yield, however, to considerations of ethics which run to the very integrity of our judicial process. Accordingly, "any doubt is to be resolved in favor of disqualification." In Casco Northern Bank v. JBI Associates, Ltd., 667 A.2d 856 , 859 (Me. 1995), the court applied an even more expansive test: The standard of review for orders disqualifying or refusing to disqualify counsel is highly deferential . . . Although the movant has the burden of showing the grounds for disqualification, producing more than "mere speculation" and sustaining "a reasonable inference of a[n ethical] violation," doubts should be resolved in favor of disqualification. In the case of In re. BellSouth Corp., 334 F.3d 941, 961 (11th Cir. 2003), the court took a middle course: Because a party is presumptively entitled to the counsel of his choice, that right may be overridden only if "compelling reasons" exist. The party moving to disqualify counsel bears the burden of proving the grounds for disqualification. However, each test seeks to balance the same important interests: 1) a party litigant's right to employ the counsel of his or her choice; 2) a moving party's right to maintain the confidentiality of certain information; and 3) the public's interest in preserving the integrity of the judicial process. We believe that when there is no claim that the trial will be tainted, appearance of impropriety is simply too slender a reed on which to rest a disqualification order except in the rarest cases. This is particularly true where, as in this case, the appearance of impropriety is not very clear. Only a few jurisdictions have explicitly continued to use the standard after adopting the Rules of Professional Conduct. ¶19 Oklahoma adopted the Rules of Professional Conduct in 1988, ¶20 The Comment to Rule 1.9 provides in pertinent part: The other rubric formerly used for dealing with disqualification is the appearance of impropriety proscribed in Canon 9 of the ABA Model Code of Professional Responsibility. This rubric has a two fold problem. First, the appearance of impropriety can be taken to include any new client-lawyer relationship that might make a former client feel anxious. If that meaning were adopted, disqualification would become little more than a question of subjective judgment by the former client. Second, since "impropriety" is undefined, the term "appearance of impropriety" is question-begging. It therefore has to be recognized that the problem of disqualification cannot be properly resolved either by simple analogy to a lawyer practicing alone or by the very general concept of appearance of impropriety. Although this Comment relates to the slightly different issue of when a lawyer may represent a client against a former client, its reasoning is helpful here. One of the reasons behind the ethical rules forbidding conflicts in representation is that an attorney should not gain an unfair advantage for a current client against a former client by possessing information which the attorney could not have obtained but for the former client's confidential disclosures. ¶21 The Comment to Rule 1.9 reveals the excessive subjectivity inherent in the "appearance of impropriety" standard. The comment essentially states that: 1) it would be patently unfair to base the determination of what appears to be improper on the perceptions of the party seeking disqualification; and 2) nowhere in the Model Code of Professional Responsibility or in the Oklahoma Rules of Professional Conduct is the term "impropriety" defined. If it is difficult to determine whether an attorney's conduct falls within the bounds of the undefined term "impropriety," how much more difficult to determine whether an attorney's conduct conveys the appearance of impropriety? Because the right to employ the counsel of one's choice is fundamental and a disqualification order is a drastic measure, the "appearance of impropriety" test is an insufficient basis for a disqualification order. ¶22 Because we find the "appearance of impropriety" test to be insufficient, we cannot adopt the more expansive standard urged by the Bank - that any doubt about the appearance of the propriety of an attorney's actions must be resolved in favor of disqualification. Any competent attorney can devise a creative argument to cast a shadow of a doubt about nearly anything, and it would be possible in nearly any suit to create a shadow of a doubt about the very subjective determination of the appearance of an opposing attorney's actions. Requiring only so minimal a showing as the existence of "any doubt" to carry a motion to disqualify counsel would create too great a potential for abusive motions to disqualify counsel, employed as procedural weapons. ¶23 Although it does not address precisely the same issue, the teaching of Towne v. Hubbard, ¶24 The trial court in this cause did not apply the proper standard when it granted the Bank's motion to disqualify Wilkinson. Not only does the record reflect that district court seems to have applied the "appearance of impropriety" test, it also appears that it held that any doubt must be resolved in favor of disqualification. CONCLUSION ¶25 A party litigant's right to employ the counsel of his or her choice is fundamental. A disqualification order is a drastic measure. The standard for granting a motion to disqualify counsel is whether real harm to the integrity of the judicial process is likely to result if counsel is not disqualified. If a trial court grants a motion to disqualify counsel based on conflict of interest or improper possession of confidential information, it must hold an evidentiary hearing and make a specific factual finding that the attorney had knowledge of material and confidential information. Because the district court did not apply the correct standard to the motion to disqualify counsel, we vacate the district court's order disqualifying Wilkinson from representation of Phillips and Wilbanks Securities and remand for proceedings consistent with this opinion. DISTRICT COURT ORDER VACATED; CAUSE REMANDED. WINCHESTER, C.J., EDMONDSON, V.C.J., OPALA, KAUGER, WATT, TAYLOR, COLBERT, JJ., concur. HARGRAVE, J., concurs in result. FOOT