Opinion ID: 885205
Heading Depth: 1
Heading Rank: 5

Heading: Did the District Court abuse its discretion when it denied Klemens' motion to disqualify the Marra firm from representing Schuff?

Text: ¶ 40 The District Court denied Klemens' motion to disqualify on September 3, 1993. From that date forward, Klemens did not once renew its concern for the tainted legal proceedings that allegedly followed, including in its post-judgment motions to amend. Thus, in light of the foregoing discussion, Klemens did not present any evidence to the District Court that it was prejudiced or that its rights were adversely impacted by the Marra firm's representation of Schuff subsequent to the court's denial of its motion to disqualify. Likewise, the relief sought from this Courta new trial, including adjudication on liabilitywas not requested at any time from the District Court. ¶ 41 Schuff argues, therefore, that Klemens should be barred from making its claim now, six years later, based on the equitable doctrine of laches. In principle, we agree with Schuff's laches argument, but need not pursue that theory in resolving this issue in its favor. However, in light of our ultimate determination of this issue, a review of the merits of Klemens' claim is warranted. ¶ 42 Rule 1.7(a) of the Montana Rules of Professional Conduct provides that 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. This rule must be viewed in light of Rule 1.16, M.R.Pro.C., which provides that a lawyer must decline or withdraw from representing a client if (1) the representation will result in violation of the rules of professional conduct or other law. ¶ 43 These rules arise out of the fundamental principle that an attorney, as a fiduciary, owes a duty of undivided loyalty to his or her client. See Joyce v. Garnaas, 1999 MT 170, ¶ 32, 295 Mont. 198, ¶ 32, 983 P.2d 369, ¶ 32 (Trieweiler, J., dissenting) (quoting 1 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 11.1, at 631 (3d ed.1989)). See also In re Anonymous (Ind.1995), 654 N.E.2d 1128, 1129-30 (concluding that lawyer violated Rule 1.16(a)(1), and should have withdrawn from representation of current client when he used information gathered from former client to maintain action against client in later litigation). ¶ 44 Klemens goes to great lengths to articulate precisely how Rule 1.7(a) should be construed in its favor. In the absence of clear Montana case law precedent, Klemens' reliance on a California state court decision, Flatt v. Superior Court (1994), 9 Cal.4th 275, 36 Cal.Rptr.2d 537, 885 P.2d 950, is inarguably well-founded, as is its reliance on current authority from other jurisdictions. Its application of these authorities to the factual scenario that arose when the Marra firm chose to represent Schuff and eventually drop Klemens like a hot potato is certainly well drawn. Klemens correctly asserts that at no time did it consent in writing to the Marra firm's representation of Schuff, nor is there any evidence that the required consultation and consent, required by the Rules of Professional Conduct, was ever sought by the Marra firm from Klemens, once the apparent conflict arose. ¶ 45 Further, Klemens is also correct in pointing out that the Marra firm conveniently failed to discuss the required consent and consultation under Rule 1.7(a)(2) throughout this dispute, and that the District Court, in its 1993 order denying Klemens' motion to disqualify, did not reference this factor either, but instead applied a former client test for disqualification. See, e.g., Trust Corp. of Montana v. Piper Aircraft Corp. (9th Cir.1983), 701 F.2d 85, 87 (stating that the relevant test for disqualification is whether the former representation is substantially related to the current representation) (emphasis added). But see Unified Sewerage Agency of Wash. County v. Jelco Inc. (9th Cir.1981), 646 F.2d 1339, 1344-45 (stating that representation adverse to a present client must be measured not so much against the similarities in litigation, as against the duty of undivided loyalty which an attorney owes to each of his clients, and further providing that this present-client standard continues even though the representation ceases prior to filing of the motion to disqualify ) (emphasis added). ¶ 46 Nevertheless, in moving to disqualify in the first instance Klemens should have been aware that, as a general rule, [a]lleged lawyer conflict of interest problems should be brought up as early as possible so that a determination may be made that does not unduly prejudice any party. In re Guardianship of Mowrer, 1999 MT 73, ¶ 23, 294 Mont. 35, ¶ 23, 979 P.2d 156, ¶ 23 (citing Trust Corp. of Montana v. Piper Aircraft Corp. (9th Cir.1983), 701 F.2d 85, 88). In Mowrer, we concluded that even if a conflict of interest had occurred (having found none), under the circumstances ... failure to object and move to disqualify within a reasonable time would constitute a de facto consent to Christiansen's continued representation of Mowrer and a waiver of the right to object. Guardianship of Mowrer, ¶ 23. ¶ 47 The Ninth Circuit, in Trust Corp. of Montana, followed the well-settled rule that a former client who is entitled to object to an attorney representing an opposing party based on a conflict of interest but who knowingly refrains from asserting it promptly is deemed to have waived that right. See Trust Corp. of Montana, 701 F.2d at 87 (citing Central Milk Producers Co-op. v. Sentry Food Stores (8th Cir.1978), 573 F.2d 988, 992; and Redd v. Shell Oil Co. (10th Cir.1975), 518 F.2d 311, 315). ¶ 48 Although readily distinguishable by the facts herenamely, Klemens initiated the motion to disqualify in a timely mannerthe fact remains that several viable options to forestall the looming ineradicable harm rested in its hands as lengthy discovery ensued and this matter eventually went to trial five years after the court denied its motion to disqualify. ¶ 49 For starters, the motion to disqualify should have been attached to a request for an injunction under the irreparable harm theory. [4] If denied, the district court's order could have been reviewed by this Court subject to an interlocutory appeal, without awaiting the outcome of the related litigation. See Rule (1)(b)(2), M.R.App.P. (permitting interlocutory appeal from an order granting or refusing to grant an injunction). Such an appeal could have led to an order staying the proceedings below. See Rule (1)(b)(2) M.R.App.P. ¶ 50 Although failing to seek a remedy that would have clearly given rise to an interlocutory appeal, Klemens could have nevertheless sought a writ of supervisory control, arguing that the alleged taint of the Marra firm's representation of Schuff would render any future remedy by appeal inadequate. See Plumb v. Fourth Jud. Dist. Court (1996), 279 Mont. 363, 368-69, 927 P.2d 1011, 1014 (citations omitted). Or, alternatively, Klemens could have sought certification of the order pursuant to Rule 54(b), M.R.Civ.P., arguing that the issue of disqualification was a matter unrelated to the merits of the underlying litigation. See, e.g., Roy v. Neibauer (1980), 188 Mont. 81, 87, 610 P.2d 1185, 1189 (listing five factors and three guiding principles that court should consider in making a Rule 54(b) certification) (citations omitted). ¶ 51 At the very least, it can be argued that counsel for Klemens failed to observe the Rules of Professional Conduct by not promptly reporting the alleged violation to the Commission on Practice. See Rule 8.3(a), M.R.Pro.C. (requiring lawyers to report rule violations). If the obvious prejudice suffered by its client was in fact so severe, and the court's failure to disqualify the Marra firm was entirely inconsistent with public policy, it would seem that a reasonable course of action would include the timely observance of Rule 8.3's mandate. ¶ 52 Instead, what the record reveals is that Klemens did nothing for six years. In this sense, we agree with Schuff's laches argument: in view of such an unexplained delay, it would be inequitable to permit a party to assert its rights. See Kelleher v. Board of Soc. Work Exam'rs & Licensed Prof'l Counselors (1997), 283 Mont. 188, 191, 939 P.2d 1003, 1005 (citations omitted). ¶ 53 Here, the unexplained delay is further compounded by the fact that Klemens' original request for relief is moot at this point. Indeed, Klemens' claim for relief has changeddramatically. At the time of its motion in 1993, Klemens sought nothing more than for Schuff to find another attorney, or, far more generously, to dismiss her claim against Klemens. Now, after six years of silence, Klemens seeks a new trial on the meritsincluding the issue of liability which was deemed admitted pursuant to a subsequent discovery sanction default judgment. As we have often stated, we do not address substantive and procedural issues raised for the first time on appeal, which includes a party's change in legal theory. See Day v. Payne (1996), 280 Mont. 273, 276, 929 P.2d 864, 866 (citation omitted). More specifically, a change in legal theory includes a change in a request for relief or for a particular remedy. Thus, a party may not request relief or remedy on appeal that was not presented to the trial court. See generally Peretti v. State (1989), 238 Mont. 239, 245, 777 P.2d 329, 333. Accordingly, on these grounds we hold that the District Court's 1993 order denying Klemens' motion to disqualify is affirmed. ¶ 54 Nevertheless, Klemens focusses our attention not so much on the District Court's denial of its motion but on the subsequent results: the alleged tainted legal proceedings. As previously discussed, such a contention must be supported by evidence of prejudice. See, e.g., First Small Business Inv. Co. v. Intercapital Corp. (1987), 108 Wash.2d 324, 738 P.2d 263, 267 (holding that when a motion for disqualification is challenged after judgment has been entered, the judgment will not be reversed unless the breach of ethics prejudiced the interests of the former client). ¶ 55 On appeal, Klemens claims that Schuff's counsel was in possession of the most intimate and detailed financial information of Klemens. Even so, Klemens offers no specific details of how this informationwhich presumably could otherwise be obtained through discoverywas used by Schuff through the course of litigation to its prejudice. Klemens then vaguely claims that the Marra firm knew the concerns, attitudes, and approaches that Klemens wanted undertaken in conjunction with defending itself in lawsuits where excess verdict[s] were a possibility. Again, even if Schuff possessed such knowledge, Klemens fails to explain if and how Schuff unfairly used such information to its detriment during the course of litigation. Finally, Klemens claims that it was prejudiced by the alleged fact that counsel for Schuff assured the court at the disqualification hearing that it only sought recovery of Klemens' insurance policy limits, which purportedly were $1 million, and then proceeded to seek a judgment in excess of that amount. [5] Assuming this is true, how this relates to the alleged conflict of interest and any ensuing prejudice at trial is never substantiated. ¶ 56 Therefore, even if we were to assume, arguendo, that counsel in the Marra firm violated Rule 1.7(a), or other related rules in its representation of Schuff, we conclude that the subsequent alleged prejudice suffered by Klemens is not supported by substantial evidence. In light of our prior discussion, a violation of a professional conduct rule standing alone is not sufficient to sustain a claim for relief by a party. Prejudice must be proven. Thus, the District Court's order denying Klemens' motion to disqualify is affirmed. ¶ 57 Nevertheless, that does not end this matter. Pursuant this Court's singular jurisdiction under Article VII, Section 2(3), of the Montana Constitution over matters pertaining to lawyer discipline and claimed violations of the M.R.Pro.C., we conclude that the conduct of Schuff's counsel and of Klemens' trial and appellate counsel as regards those claimed violations, must be referred to the Commission on Practice. If the Commission's further investigation reveals violations of the M.R.Pro.C. as regards counsels' conduct in this case, then the Commission may pursue appropriate prosecutions and recommendations for discipline as the facts and law may, in the Commission's discretion, warrant. ¶ 58 In making this referral we emphasize for the benefit of counsel and the Commission that we have reached no conclusion as to the merits of any claimed or alleged violations by counsel of the M.R.Pro.C., except to the extent that any such violations, even if proven by the requisite clear and convincing evidence, have not prejudiced any party's substantial rights to a fair trial in the underlying cause. Under the facts presented we determine only that Schuff's counsel's conduct in connection with the alleged conflict of interest in question and that Klemens' counsels' apparent decision not to report this alleged violation warrants further examination by the Commission in the context of a possible discipline inquiry. ¶ 59 That said, the practicing bar should understand that the situation presented in this case is unusual. On the one hand, both in the trial court and on appeal, Klemens' counsel have maintained that Schuff's counsel engaged in unethical conduct so serious that we should reverse the trial judge's pretrial disqualification of counsel ruling; that we should set aside a substantial jury verdict in favor of an innocent widow and her children; and that we should send a case that already has been in litigation for ten years back to the District Court for retrial. We assume that Klemens' counsel has made these arguments in good faith with the view and expectation that we would grant the relief requested. And if, in fact, the Commission determines that Schuff's counsel did engage in unethical conduct as serious as Klemens' counsel claims, then, no doubt, the Commission will deal with that in an appropriate manner. ¶ 60 On the other hand, if Klemens' counsel did view Schuff's counsel's conduct as being as serious as claimed, then it is, likewise, appropriate that the Commission make inquiry into why such violations were not reported to the disciplinary authority with jurisdiction to address those. ¶ 61 We again emphasize that the Montana Rules of Professional Conduct are not to be ignored for economic gain nor are they to be usedor rather abusedby opposing parties as procedural weapons to gain a tactical or strategic advantage in litigation. See Carlson, 229 Mont. at 238, 745 P.2d at 1136. The Rules encompass ethical standards by which all attorneys are expected to conduct their practice of law; the rules are there to protect the public in general and the lawyer's clients in particular. On the one hand, the prospect of earning a substantial fee does not justify ignoring the Rules. On the other hand, the Rules are not designed to be employed as arrows in the litigator's quiver, to be loosed from time to time at targets of opportunity as the ebb and flow of an adversarial proceeding may appear to dictate. Quite simply, a serious M.R.Pro.C. violation is a serious matter that needs to be taken seriously and reported promptly to the Commission. ¶ 62 For these reasons we refer this matter to the Commission for investigation and consideration of Schuff's counsel's conduct, as well as that of trial and appellate counsel for Klemens, and for a recommendation as to discipline if the Commission determines, after appropriate proceedings and the taking into consideration the requisite standard of proof, that any attorney involved in this cause violated the M.R.Pro.C.