Opinion ID: 2436005
Heading Depth: 1
Heading Rank: 11

Heading: amended order on motion to disqualify

Text: Defendants National Medical Enterprises, Inc. and Psychiatric Institutes of America, Inc. n/k/a NME Psychiatric Hospitals, Inc. (collectively, NME) and Intervenor Ron Cronen both move to disqualify plaintiffs' counsel, Baker & Botts, L.L.P. (Baker & Botts). The Court denies the motion to disqualify, primarily because Baker & Botts' current representation is not adverse to Mr. Cronen and NME has no standing to assert disqualification as there was no attorney-client relationship or other duty between Baker & Botts and NME that would support disqualification. This Order constitutes the Court's findings of fact and conclusions of law relating to the motion. [1] Plaintiffs and others have claimed that NME and various of its employees engaged in a massive conspiracy or scheme to defraud. Baker & Botts previously represented Mr. Cronen, a former NME employee, in urging that he was not part of any such scheme. Baker & Botts now claims that plaintiffs were injured by that alleged conspiracy or scheme and, on plaintiffs' behalf, seeks recovery from NME and related individuals, but does not allege any involvement of Mr. Cronen. The metaphorical argument implicit in movants' position is that Baker & Botts is dropping bombs all around Mr. Cronen and cannot expect him to escape injury, so Baker & Botts' present representation of plaintiffs is adverse to Mr. Cronen. Baker & Botts argues that such a superficial analysis is inappropriate and that a careful examination of all pertinent surrounding facts and circumstances would show that this action in fact is not adverse to Mr. Cronen. The Court agrees and so finds. The Court further finds and concludes that NME, having instigated Baker & Botts' representation of Mr. Cronen because of NME's potential conflict with Mr. Cronen cannot urge disqualification of Baker & Botts because Baker & Botts is now adverse to NME. NME was never a client of Baker & Botts. NME's motion rests upon a presumption of sharing of confidences with a law firm, to which only former clients are entitled and which NME admits is factually incorrect here. NME admits that its confidential information disclosed during Baker & Botts' representation is not being used against NME in this case. NME cannot deny plaintiffs their choice of counsel on that basis. I. Factual Background Movant Psychiatric Institutes of America, Inc., n/k/a NME Psychiatric Hospitals, Inc. (PIA) operated several psychiatric hospitals. In 1994, PIA pleaded guilty to certain federal criminal charges of conspiring to violate and violating the Medicare anti-remuneration statute, which prohibits payments to obtain referrals of Medicare patients. 42 U.S.C. § 1320a-7b(b)(2). This conspiracy was also the subject of various criminal investigations and civil actions generally alleging that PIA engaged in an ongoing conspiracy to defraud by wrongly paying referral fees to obtain psychiatric patients and providing treatment to those patients that was designed to maximize payment from insurance rather than to provide what treatment was medically necessary; these proceedings and allegations generated considerable publicity. Due to the potential for conflict of interest, NME retained separate counsel for some of its employees in connection with some of those matters. Ron Cronen was Administrator of Laurelwood Hospital, an NME-controlled psychiatric hospital, from July, 1987 to May, 1988; he was Regional Administrator of the Texas Region for Psychiatric Institutes of America, an NME subsidiary, from December, 1990 to November, 1991. In April or May, 1992, attorney Ed Tomko and his firm, Doke & Riley, [2] began representing Mr. Cronen in connection with various criminal and civil matters arising out of the NME conspiracy. Haynes & Boone, L.L.P., NME's outside counsel in some of those matters, referred Mr. Cronen to Mr. Tomko. [3] Mr. Tomko's representation of Mr. Cronen included representing him in connection with the criminal investigation and representing him as a nonparty in connection with discovery in some civil lawsuits. Mr. Cronen to date has not been indicted and was not a party defendant in the civil actions in which Mr. Tomko represented him. Mr. Cronen was named as a defendant in some civil actions, in which Mr. Tomko did not represent him; he was subsequently dropped from those actions on terms that did not require payment of any money by Mr. Cronen. During the course of Mr. Tomko's representation of Mr. Cronen, Mr. Tomko participated in joint defense meetings with counsel for NME and other individual defendants. A written Joint Defense Agreement addressed certain aspects of the joint defense arrangement. At those meetings Mr. Tomko was privy to confidential information relating to NME's defense strategy. In January, 1993, upon the dissolution of Doke & Riley, Mr. Tomko joined Baker & Botts' Government Contracts department, and not the Baker & Botts Trial Department. Mr. Tomko continued to represent Mr. Cronen sporadically until May, 1993. In May, 1993, Mr. Tomko and Baker & Botts withdrew from representing Mr. Tomko due to an unrelated potential conflict of interest. Mr. Tomko billed a total of $18,177.09 for his representation of Mr. Cronen, of which $674.09 was for services rendered after Mr. Tomko joined Baker & Botts. As detailed below, see infra Section II.B, Baker & Botts has put into place procedures designed to ensure that confidential information obtained during Mr. Tomko's representation of Mr. Cronen is not disseminated within the firm or used in this action. This lawsuit is brought by Baker & Botts on behalf of seventy-two former patients at NME psychiatric hospitals located in Texas. It alleges a fraudulent illegal scheme that resulted in improper patient admissions and treatment in Texas psychiatric hospitals and elsewhere, and that NME, its hospitals, employees and medical personnel admitted patients with no legitimate medical justification, manipulated diagnoses, and paid kickbacks to a network of referral doctors in order to reap the reward of insurance benefits. See Plaintiffs' Amended Petition ¶ 1. At least twenty-one of the plaintiffs were hospitalized at hospitals that Mr. Cronen supervised during the period Mr. Cronen was Regional Administrator of the Texas Region. One plaintiff was hospitalized at Laurelwood Hospital while Mr. Cronen was the Administrator there. This lawsuit names as defendants the NME entities to which Mr. Cronen reported, the hospitals that reported to Mr. Cronen, and the individual who preceded Mr. Cronen as Regional Administrator. See Plaintiffs' Amended Petition ¶¶ 3-17. Baker & Botts' pleadings do not name Mr. Cronen as a defendant or make any allegations of misconduct by Mr. Cronen. [4] II. MR. CRONEN'S MOTION TO DISQUALIFY Mr. Cronen moves to disqualify Baker & Botts under Rule 1.09(a) of the Texas Disciplinary Rules of Professional Conduct. [5] That Rule provides in pertinent part: (a) Without prior consent, a lawyer who personally has formerly represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client: .... (2) if the representation in reasonable probability will involve a violation of Rule 1.05; or (3) if it is the same or a substantially related matter. (b) Except to the extent authorized by Rule 1.10 [relating to former government lawyers], when lawyers are or have become members of or associated with a firm, none of them shall knowingly represent a client if any one of them practicing alone would be prohibited from doing so by paragraph (a). TEX. DISCIPLINARY R. PROF. CONDUCT 1.09 (1989), reprinted in TEX. GOV'T CODE, tit. 2, subtit. G. app. (Vernon Supp. 1993) (State Bar Rules art. X, § 9) [hereinafter cited as Rules]. It is undisputed that Baker & Botts had an attorney-client relationship with Mr. Cronen and that Mr. Cronen has not consented to Baker & Botts' present representation of plaintiffs in this action. Thus, the matters for determination are: whether Baker & Botts' present representation is adverse to Mr. Cronen, whether that representation would in reasonable probability involve a violation of Rule 1.05, whether this lawsuit is substantially related to Baker & Botts' representation of Mr. Cronen, and whether the mandatory disqualification of the firm in Rule 1.09(b) would apply under these facts. In making these determinations, the Court is aware that disqualification is a severe remedy that should only be applied judiciously and with caution because it can be used as an instrument of harassment. NCNB National Bank v. Coker, 765 S.W.2d 398, 399 (Tex. 1989).