Title: International Resource Ventures, Inc. v. Diamond Mining Co.

State: arkansas

Issuer: Arkansas Supreme Court

Document:

INTERNATIONAL RESOURCE VENTURES, INC. v.
DIAMOND MINING COMPANY OF AMERICA, INC.

96-674                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered December 9, 1996


1.   Attorney & client -- Model Rule of Professional Conduct 3.7
     applies to lawyer's giving evidence by affidavit. -- Rule 3.7
     of the Model Rules of Professional Conduct, which provides in
     general that a lawyer shall not act as advocate at a trial in
     which the lawyer is likely to be a necessary witness, is
     applicable to a lawyer's giving evidence by affidavit as well
     as by testimony in open court.

2.   Attorney & client -- reasoning underlying advocate-witness
     rule. -- Under Model Rule of Professional Conduct 3.7, a
     lawyer shall not act as advocate at a trial in which the
     lawyer is likely to be a necessary witness; the reasoning
     underlying the general rule is to prevent prejudice and a
     conflict of interest; the professional judgment of a lawyer
     should be exercised, within the bounds of the law, solely for
     the benefit of his client and free of compromising influences
     and loyalties; conversely, a witness is to tell the truth
     without loyalty to either party and without regard to which
     side his testimony might favor; combining the dissimilar roles
     of attorney and witness can prejudice the opposing party and
     can involve a conflict of interest between the lawyer and his
     client; the rule prohibits an attorney from acting as a
     witness in procedural matters.

3.   Attorney & client -- trial court correctly disqualified
     attorney after he chose to submit evidentiary affidavit and to
     testify. -- The supreme court held that the trial court
     correctly disqualified one of appellant's attorneys from
     acting as an attorney after he chose to submit an evidentiary
     affidavit and to testify.

4.   Attorney & client -- supreme court chose to follow advocate-
     witness rule and its own interpretations. -- The supreme court
     declined to embrace other authorities supportive of
     appellant's argument that Model Rule of Professional Conduct
     3.7 applies only to trial scenarios, emphasizing that it chose
     to follow the Model Rule it adopted as well as its own
     interpretations of the rule.

5.   Attorney & client -- hardship exception to advocate-witness
     rule did not apply to facts of this case. -- Model Rule of
     Professional Conduct 3.7(3) provides an exception to the
     general rule that a lawyer cannot act as an advocate and a
     witness when disqualifying the lawyer would work a substantial
     hardship on his client; the supreme court held, however, that
     the hardship exception did not apply to the facts of this
     case.

6.   Attorney & client -- appellee would be prejudiced if
     appellant's attorney were not disqualified -- appellant would
     not be substantially disadvantaged by disqualification. --
     Where appellant's Texas attorney's testimony was the primary
     evidence of appellant's opposition to appellee's motion to
     modify the order of dismissal to one with prejudice, and where
     his testimony was, without question, disputed, the supreme
     court, considering the nature of the case as it stood before
     the trial court, concluded that appellee would be prejudiced
     if appellant's Texas attorney were not disqualified and that
     appellant would not be substantially disadvantaged by the
     disqualification; appellant would not have the hardship of
     having to hire new counsel and to familiarize them with the
     case; additionally, the supreme court noted, the matter before
     the trial court concerned Arkansas procedural rules on nonsuit
     and modification of orders, and the Arkansas attorneys were
     presumably able to interpret Arkansas rules of civil procedure
     as well, or better, than Texas counsel.

7.   Attorney & client -- uncontested-issue exception to advocate-
     witness rule not applicable. -- There is a great difference
     between agreeing or stipulating to an order of dismissal and
     not objecting because there is no basis for objection; a
     statement by appellee showing that it had no reason to object
     to appellant's nonsuiting did not concede that the parties
     agreed to an order of dismissal without prejudice;
     furthermore, based on the pleadings, there appeared to be many
     contested facts regarding the motion to conform, and
     appellant's attorney would be a key witness on those matters;
     thus, appellant's attorney's testimony would not relate only
     to an uncontested issue, and the uncontested-issue exception
     to the advocate-witness rule was not applicable.

8.   Appeal & error -- case settled after submission -- opinion
     handed down because case had already been submitted and
     decided. -- Although, after the case was submitted on
     interlocutory appeal, the parties informed the supreme court
     that it had been settled, the court handed down its opinion
     because the case had already been submitted and decided.


     Appeal from Clark Circuit Court; John Ward, Judge; affirmed.
     Turner & Associates; John J. Watkins; and Allen Law Firm, by:
H. William Allen, for appellant.
     Wright, Lindsey & Jennings, by: N.M. Norton, Roger D. Rowe,
and Stephen R. Lancaster, for appellee.

     Robert H. Dudley, Justice. 
     This interlocutory appeal is lodged because of the
disqualification of one of International Resource Ventures, Inc.'s
attorneys.  It is before this court under Ark. Sup. Ct. R. 1-2(a)12
and Ark. R. App. P.--Civ. 2(a)8.  We affirm the trial court's
ruling disqualifying the attorney.
     International Resource Ventures, Inc., appellant, a Texas
corporation, owns eight percent of the common stock of Exdiam
Corporation, another Texas corporation.  On August 31, 1995,
International Resource filed a shareholder's derivative suit in
Clark County, on behalf of Exdiam, against Diamond Mining Company
of America, Inc., appellee, also a Texas corporation, and several
other people and corporations, including Diamond Fields Resources,
Inc., a Canadian corporation.  International Resource alleged that
Diamond Mining conspired with a co-defendant to breach fiduciary
duties.  International Resource asked for compensatory and punitive
damages or, alternatively, that 1,000,000 shares paid by co-
defendant Diamond Fields for corporate opportunities of Exdiam be
deemed to be held in constructive trust for the benefit of Exdiam
and reissued to Exdiam.  Diamond Mining filed a motion to dismiss
pursuant to Ark. R. Civ. P. 12(b)(2), (3), (5), and (6) on the
grounds that International Resource failed to state facts upon
which relief could be granted, failed to allege sufficient facts to
place venue in Clark County, and failed to allege sufficient
contacts among the subject transactions, Diamond Mining, and the
State of Arkansas that would render Diamond Mining subject to
personal jurisdiction.  Three of Diamond Mining's co-defendants
filed similar motions to dismiss.
    International Resource moved for a nonsuit, and on February 2,
1996, the trial court dismissed the action without prejudice.  More
than ninety days later, on May 31, 1996, Diamond Mining filed a
motion to modify the order of dismissal to one with prejudice. 
Under Ark. R. Civ. P. 60(c)(4), an order may be set aside after
ninety days for fraud practiced by the successful party in
obtaining the order.  The motion to modify the order to a dismissal
with prejudice alleged that on November 18, 1995, International
Resource had nonsuited an identical suit in Texas, and, under Ark. 
R. Civ. P. 41(a), the Clark County nonsuit was International
Resource's second nonsuit; therefore, it should have been with
prejudice.  Diamond Mining's motion also alleged that International
Resource had committed fraud in obtaining the dismissal without
prejudice.
     A summary of Diamond Mining's allegation of fraud is that on
August 29, 1995, or two days before the suit was filed in Clark
County, International Resource had filed a virtually identical
action in the district court of Dallas County, Texas, but had
instructed the clerk of that court not to have summons issued. 
Diamond Mining alleged that it was unaware of the Texas suit since
service was never had.  The suit in Texas was assigned to the 101st
District Court, and, a few months earlier, in another Exdiam
shareholder action, the same district court had granted summary
judgment against the plaintiff.  Diamond Mining contended that, as
a result, International Resource did not wish to pursue its case in
the Texas jurisdiction, but rather chose to pursue its virtually
identical suit that was pending in Clark County.  Diamond Mining
alleged that the purpose of the suits is to force Diamond Fields
Resources to pay an "in terrorem" settlement or else lose a $4.3
billion sale of its stock to Inco.  Diamond Mining alleged that
Diamond Fields shareholders are being deprived of $868,492.00 in
interest each day by the "machinations" of International Resource
and that its officers want to keep the suits pending as long as
possible in an attempt to force a settlement.  Diamond Mining
alleged that, after the dismissal without prejudice in Clark
County, International Resource filed a virtually identical third
suit in Texas, but that, if the Clark County order is modified to
dismissal "with prejudice," the third suit in Texas likely will be
procedurally barred.  Diamond Mining alleged that, after
International Resource filed its third suit, a computer check of
the Texas court's docket revealed to it for the first time the
existence of the first Texas Suit.  Diamond Mining finally alleged
that it had contacted International Resource in an attempt to
convince it to apprise the Clark County trial court of the true
facts, but that it refused to do so.
     International Resource responded to the motion to modify the
order of dismissal, and, to the response, attached a twenty-nine-
page evidentiary affidavit by Eric Fryar of its Texas law firm of
Susman Godfrey, L.L.P. Diamond Mining then moved to disqualify Eric
Fryar from acting as attorney for International Resource.  At a
hearing on the motion to disqualify, International Resource, by
another attorney, stated that it would submit Fryar's testimony
through the affidavit and also by live testimony.  The trial judge
ruled that Fryar could serve either as a witness, or as an
attorney, but not as both.  International Resource chose for Fryar
to give testimony, and the trial judge ruled that he was
disqualified from further participation as an attorney.  This
interlocutory appeal is taken from the ruling disqualifying Fryar
from serving as an attorney in the case.
     Rule 3.7 of the Model Rules of Professional conduct provides:
          A lawyer shall not act as advocate at a trial in
     which the lawyer is likely to be a necessary witness
     except where:
          (1)  the testimony relates to an uncontested issue;
          (2)  the testimony relates to the nature and value
     of legal services rendered in the case; or
          (3)  disqualification of the lawyer would work
          substantial hardship on the client.
The comment to Rule 3.7 states in part:
          Combining the roles of advocate and witness can
     prejudice the opposing party and can involve a conflict
     of interest between the lawyer and client.
          The opposing party has proper objection where the
     combination of roles may prejudice that party's rights in
     the litigation.  A witness is required to testify on the
     basis of personal knowledge, while an advocate is
     expected to explain and comment on evidence given by
     others.  It may not be clear whether a statement by an
     advocate-witness should be taken as proof or as an
     analysis of the proof.
Model Rules of Professional Conduct Rule 3.7 cmt. (1996). We have
held that Rule 3.7 is applicable to a lawyer's giving evidence by
affidavit as well as by testimony in open court.  See McIntosh v.
Southwestern Truck Sales, 304 Ark. 224,