Title: Cody v. Cody

State: vermont

Issuer: Vermont Supreme Court

Document:

Cody v. Cody (2005-171); 179 Vt. 90; 889 A.2d 733

2005 VT 116

[Filed 07-Oct-2005]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2005 VT 116

                                No. 2005-171


  Robert and Janice Cody and	                 Supreme Court
  Cody Chevrolet, Inc.
                                                 Original Jurisdiction

       v.


  William P. Cody 	                         June Term, 2005


  Matthew I. Katz, J.

  Robert B. Hemley and Andrew D. Manitsky of Gravel and Shea, Burlington, for 
    Petitioners.

  Michael L. Burak and W. Scott Fewell of Burak Anderson & Melloni, PLC,
    Burlington, for Respondents. 


  PRESENT:  Reiber, C.J., Dooley and Skoglund, JJ., and 
            Crawford, Supr. J., Specially Assigned

        
       ¶  1.  REIBER, C.J.  In this extraordinary relief action, we
  consider whether the trial court erred in granting plaintiff William Cody's
  motion to disqualify Gravel & Shea from representing defendants Robert
  Cody, Janice Cody, and Cody Chevrolet, Inc. in a lawsuit that he filed
  against them.  The trial court granted the motion after concluding that
  William had an objectively reasonable belief that Gravel & Shea had
  represented him personally while he worked at Cody Chevrolet.  The court
  presumed that William had divulged confidential information to Gravel &
  Shea in the course of such representation, and it therefore found a
  conflict of interest in Gravel & Shea's continued representation of
  defendants.  Defendants argue that the trial court abused its discretion in
  granting the motion because it ignored key facts, and it failed to hold an
  evidentiary hearing to resolve disputes of material fact.  We agree, and
  therefore vacate the court's decision.  Within thirty days of the date of
  this Court's order, the trial court must hold an evidentiary hearing on the
  motion and make findings of fact in deciding whether the motion should be
  granted. 

       ¶  2.  We begin with the events that gave rise to this action. 
  William sued defendants in September 2004, alleging in part that his
  parents, Robert and Janice Cody, had reneged on a promise to give him
  control of Cody Chevrolet after their deaths.  In December 2004, William
  filed a motion to disqualify Gravel & Shea from representing defendants. 
  William stated that he considered Gravel & Shea to have been his personal
  attorneys since at least 1994, and because he was a former client, the firm
  was ethically prohibited from taking a position adverse to his interests. 
  Defendants opposed the motion, asserting that Gravel & Shea had never
  represented William.  The trial court granted the  motion in April 2004,
  without holding a hearing, after finding that no material dispute of fact
  existed that would require the taking of testimony. 

       ¶  3.  In reaching its conclusion, the court relied on the following
  facts, which it derived from affidavits provided by William and attorneys
  Charles Shea and William Post.  Gravel & Shea began representing parents in
  1985 primarily for estate planning purposes.  The firm also represented
  Cody Chevrolet at times, although the scope and duration of the corporate
  representation was unclear from the record.  In 1985, Gravel & Shea drafted
  a stock purchase agreement for parents to allow William and his brother
  Robert, Jr. to obtain ownership and control of Cody Chevrolet before or
  upon parents' deaths.  Under the agreement, parents could make gifts of
  stock to brothers, and brothers would be required to transfer funds to
  parents' estate upon parents' death.  
   
       ¶  4.  Robert, Sr. later sought to begin gifting stock, and on
  attorney Shea's advice, the gifting of stock was conditioned on certain
  stock transfer agreements between Cody Chevrolet and brothers.  Shea
  drafted the agreements, which William and Robert, Jr. signed in 1994. 
  Shortly thereafter, Robert, Jr. was terminated from the corporation.  He
  signed amendments to the 1985 and 1994 agreements to reflect his changed
  status.  William, who was general manager of the corporation at the time,
  signed the amendments on behalf of Cody Chevrolet.  Robert, Sr. decided not
  to have another person assume Robert, Jr.'s role under the 1985 agreement. 

       ¶  5.  William later became concerned about his rights under the 1985
  agreement, fearing that several family members were opposed to his
  acquisition of controlling ownership of the corporation.  In May 1996,
  William contacted attorney Shea and requested a meeting.  At the meeting,
  which was billed to the corporation, William asked Shea about the status of
  stock gifts from his parents.  William averred that he and Shea discussed
  the various stock purchase agreements in some detail.  He stated that,
  although he did not quite understand Shea's explanation, Shea told him that
  it would be okay, and that there was nothing else that William needed to do
  to protect his interests.  According to William, Shea advised him that if
  Robert, Jr. ever returned to the corporation, Shea would make sure that
  documents were drawn up to protect William and the corporation.  William
  stated that he was comforted by Shea's advice and felt no need to seek
  another attorney to protect his interests. 
   
       ¶  6.  Shea acknowledged that the meeting occurred but disagreed
  with William's side of the story.  Shea asserted that while he might have
  informed William what the stock purchase agreement provided, he would not
  have informed William that there was "nothing else he needed to do to
  protect his interests."  Shea stated that he would not have reviewed the
  documents from William's point of view because he was not representing
  William and he was not retained to protect his interests. 

       ¶  7.  The following year, according to William, Robert Jr. was
  re-employed by Cody Chevrolet, and William again became concerned about his
  future ownership rights.  William  contacted attorney Post, and Post
  reassured him that he did not need to do anything to protect his interests. 
  An agreement was later reached whereby William would receive fifty-five
  percent of the stock up front and Robert, Jr. would receive forty-five
  percent over time.  Attorney Post was to handle the arrangements, including
  the transfer of stock.  Later, after a dispute with Robert, Jr. over the
  nature of their respective rights, William claimed that he contacted
  attorney Post again to inquire about his rights.  He alleged that Post had
  reassured him that with fifty-five percent of the corporation's stock, he
  would control the corporation's affairs. 

       ¶  8.  In his affidavit, Post disagreed with William's story.  Post
  acknowledged having several brief conversations with William regarding
  various aspects of stock transfers proposed by parents.  He stated,
  however, that these conversations had been in the nature of imparting
  specific information to William regarding the status of the transfers and
  they did not involve administering legal advice.  Post also stated that on
  several occasions he had informed William, and William had acknowledged,
  that parents were the firm's clients, and therefore Post could not get
  specific with William regarding anything that parents were doing. 
   
       ¶  9.  William then contacted another attorney (not affiliated with
  Gravel & Shea), who at the time regularly represented the corporation.  He
  inquired about the implications of owning fifty-five percent of the
  corporation stock.  The attorney declined to advise William, and informed
  him that he should seek his own attorney because he was requesting personal
  legal advice.  William apparently did so.  The agreement regarding stock
  transfers evidently fell through, giving rise to the underlying litigation.  

       ¶  10.  Based on these contested facts, and without holding a hearing,
  the court in its order considered the question of whether an
  attorney-client relationship had developed between William and Gravel &
  Shea.  To answer this question, it analyzed whether William, a nonlawyer,
  believed that Gravel & Shea represented his personal interests, and whether
  that belief, in the totality of the circumstances, was objectively
  reasonable.  The court accepted William's impressions and found the
  personal beliefs of attorneys Shea and Post irrelevant to its inquiry.

       ¶  11.  The court stated that Gravel & Shea's long history of
  corporate and family representation had created ambiguity as to whom the
  firm represented.  It explained that the recurring issues for the firm
  related to ownership and control of the corporation as it passed from one
  generation to the next, and the representation intermingled corporate and
  family issues.  Within this context, the court found the 1996 meeting
  between William and Shea significant.  It explained that William, who was
  worried about a family cabal, had asked Shea about the security of his
  right to become the controlling shareholder.  The court found that, at
  minimum, Shea had answered the question by reading from the pertinent
  documents.  The court indicated that it would be naive to believe that Shea
  limited his response to merely reading from the document, but stated that
  it was unnecessary to draw such an obvious inference from undisputed facts. 
   
       ¶  12.  The court also found Post's affidavit vague, explaining that
  the affidavit did not indicate that Post had advised William that he did
  not represent him or that William should retain his own attorney.  The
  court also concluded that the affidavit reflected William's belief that
  Gravel & Shea represented the Cody family, not just parents.  Finally, the
  court found it noteworthy that William's conversation with Post had
  occurred after the vast majority of William's other contacts with attorneys
  Shea and Post.
        
       ¶  13.  The court found the ambiguity of the situation worsened by the
  longstanding lack of shared interests among family members and stockholders
  in the corporation.  It explained that William had always wanted control of
  the corporation, and that family disagreements threatened that outcome for
  a protracted period and eventually prevented it.  William had approached
  Gravel & Shea several times about his concerns and he had never been
  explicitly advised that the firm did not represent him personally.  The
  court reasoned that, under such circumstances, Gravel & Shea was obligated
  to clarify the nature of its representation, and it failed to do so.  The
  court found that William had offered unrebutted evidence that he
  subjectively believed that Gravel & Shea represented him personally, and it
  concluded that this belief was objectively reasonable.  

       ¶  14.  After finding that the prior representation involved the same
  subject matter as the current litigation, the court presumed that William
  had divulged confidential information to Gravel & Shea.  It therefore found
  a conflict of interest in Gravel & Shea's continued representation of
  defendants, and it granted William's motion to disqualify.  Defendants
  filed a petition for extraordinary relief pursuant to V.R.A.P. 21, and the
  Court accepted the petition in June 2005. 

       ¶  15.  Defendants assert that the trial court erred in concluding
  that William was a client of Gravel & Shea.  They argue that, instead of
  analyzing the totality of the circumstances, the court improperly focused
  on a few facts and ignored contrary information.  According to defendants,
  the court should have held a hearing to assess the credibility of William's
  assertions and resolve disputed questions of fact.  
   
       ¶  16.  We review the trial court's decision for abuse of discretion. 
  Stowell v. Bennett, 169 Vt. 630, 631,