Court Opinion

ID: 5115
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:02:35+00
Date Added: 2024-06-11T12:04:24.071343
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                          FOR THE FIFTH CIRCUIT

                          ____________________

                               No. 92-2199
                          ____________________

IN RE:      DRESSER INDUSTRIES, INC.,

                                                          Petitioner.

__________________________________________________________________

               Petition for Writ of Mandamus to the
 United States District Court for the Southern District of Texas

__________________________________________________________________
                      ( August 21, 1992 )

Before JOLLY, DAVIS, and SMITH, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

        In this petition for a writ of mandamus, we determine whether

a law firm may sue its own client, which it concurrently represents

in other matters.      In a word, no; and most certainly not here,

where the motivation appears only to be the law firm's self-

interest.1      We therefore grant the writ, directing the district

judge to disqualify counsel.2

        1
          Drill Bits was going to be a case that was
          going to be active, big, protracted, the first
          price fixing case that's come along in Houston
          in a long time.    I had made somewhat of a
          reputation in that area, and I guess it's kind
          of painful not to be able to play in the game
          anymore, . . .
Deposition of Stephen D. Susman
    2
     The writ issued on March 31, 1992, immediately following oral
argument on the petition.
                                     I

      The material facts are undisputed.       This petition arises from

a   consolidated   class   action    antitrust    suit   brought   against

manufacturers of oil well drill bits.        Red Eagle Resources et al.

v. Baker Hughes, et al., No. H-91-627 (S.D.Tex.)("Drill Bits").

      Dresser Industries, Inc., ("Dresser") is now a defendant in

Drill Bits, charged -- by its own lawyers -- with conspiring to fix

the prices of drill bits and with fraudulently concealing its

conduct. Stephen D. Susman, with his firm, Susman Godfrey, is lead

counsel for the plaintiff's committee.           As lead counsel, Susman

signed the amended complaint that levied these charges against

Dresser, his firm's own client.3

      Susman Godfrey concurrently represents Dresser in two pending

lawsuits. CPS International, Inc. v. Dresser Industries, Inc., No.

H-85-653 (S.D.Tex.)("CPS"), is the third suit brought by CPS

International, a company that claims Dresser forced it out of the

compressor market in Saudi Arabia.          CPS International initially

sued Dresser for antitrust violations and tortious interference

with a contract.   The antitrust claim has been dismissed, but the

tort claim is scheduled for trial.        Susman Godfrey has represented

Dresser throughout these actions, which commenced in 1985.          During

its defense of Dresser, Susman Godfrey lawyers have had relatively

      3
      The Drill Bits suit was a consolidation of several suits,
although   Dresser   became   a  defendant   following   both   the
consolidation and Susman's appointment as plaintiffs' lead counsel.

                                    -2-
unfettered     access   to    data      concerning      Dresser's   management,

organization, finances, and accounting practices. Susman Godfrey's

lawyers have engaged in privileged communications with Dresser's

in-house counsel and officers in choosing antitrust defenses and

other litigation strategies.           Susman Godfrey has also, since 1990,

represented Dresser in Cullen Center, Inc., et al. v. W.R. Gray

Co., et al., a case involving asbestos in a Dresser building, which

is now set for trial in Texas state court.

     On October 24 and November 24, 1991, Susman Godfrey lawyers

wrote   Dresser   informing       it   that   Stephen     Susman    chaired    the

plaintiffs' committee in Drill Bits, that Dresser might be made a

Drill bits defendant, and that, if Dresser replaced Susman Godfrey,

the firm would assist in the transition to new counsel.                 Dresser

chose not to dismiss Susman Godfrey in CPS and Cullen Center.

     Dresser was joined as a defendant in Drill Bits on December 2,

1991. Dresser moved to disqualify Susman as plaintiffs' counsel on

December 13.    Both Dresser and Susman Godfrey submitted affidavits

and depositions to the district court, which, after a hearing,

issued a detailed opinion denying the motion.

     The district court noted that Southern District local rule 4B

provides that the code of professional responsibility for lawyers

practicing in that district is the Code of Responsibility of the

State Bar of Texas.      Although the court further noted that other

district   courts   look     to   other    codes   in    deciding    motions    to

disqualify, nevertheless, it concluded that "Dresser's motion to

                                        -3-
disqualify    Susman    Godfrey      is    governed        wholly    by   the     Texas

Disciplinary Rules of Professional Conduct."                        The court then

focused on Texas Disciplinary Rule 1.06, which provides:

     (b)...[E]xcept to the extent permitted in paragraph (c),
     a lawyer shall not represent a person if the
     representation of that person:
     (1) involves a substantially related matter in which that
     person's interests are materially and directly adverse to
     the interests of another client of the lawyer or the
     lawyer's firm; or
     (2) reasonably appears to be or become adversely limited
     by the lawyer's or law firm's responsibilities to another
     client or to a third person or by the lawyer's or law
     firm's own interests.
     (c) A lawyer may represent a client in the circumstances
     described in (b) if:
     (1) the lawyer reasonably believes the representation of
     each client will not be materially affected; and
     (2) each affected or potentially affected client consents
     to such representation after full disclosure....

        The district court described the Drill Bits complaint as a

civil antitrust case, thus somewhat softening Dresser's description

of it as an action for fraud or criminal conduct.                   The court held,

"as a matter of law, that there exists no relationship, legal or

factual,   between     the   Cullen       Center    case    and     the   Drill   Bits

litigation," and that no similarity between Drill Bits and the CPS

suits   was   material.        The    court        concluded      that    "Godfrey's

representation of the plaintiffs in the Drill Bits litigation does

not reasonably appear to be or become adversely limited by Susman

Godfrey's responsibilities to Dresser in the CPS and Cullen Center

cases," and accordingly denied the motion to disqualify.                    Finally,

the court denied permissive interlocutory appeal under 28 U.S.C.

§ 1292(b).

                                       -4-
                                    II

     Our review is governed by the standard required to issue a

writ of mandamus, not the standard we would apply if this matter

were before us on direct appeal.4        We will therefore grant the writ

only if the petitioner can show its right to the writ is clear and

undisputable. Allied Chem. Corp. v. Daiflon, Inc. 449 U.S. 33, 35.

(1980). Mandamus is appropriate "when the trial court has exceeded

its jurisdiction or has declined to exercise it, or when the trial

court has so clearly and indisputably abused its discretion as to

compel prompt intervention by the appellate court." In re Chesson,

897 F.2d 156, 159 (5th Cir. 1990).

     In   evaluating   a   motion   to    disqualify,   we   interpret   the

controlling ethical norms governing professional conduct as we

would any other source of law.           When the facts are undisputed,

district courts enjoy no particular advantage over appellate courts

in formulating ethical rules to govern motions to disqualify.

Woods v. Covington County Bank, 537 F.2d 804, 810 (5th Cir. 1976).

Thus, in the event an appropriate standard for disqualification is

based on a state's disciplinary rules, a court of appeals should

      4
       The denial of a motion to disqualify counsel is not an
appealable collateral order.    Firestone Tire & Rubber Co. v.
Risjord, 449 U.S. 368 (1981). On appeal, the standard of review
for the grant or denial of a motion to disqualify would be for
abuse of discretion. In re Gopman, 531 F.2d 262 (5th Cir. 1976)
cert. denied Hobson v. United States, 459 U.S. 906. Underlying
determinations would be reversed if findings of fact are clearly
erroneous, but the ethical standards applied would be "carefully
examined." Brennan's, Inc. v. Brennan's Restaurants, Inc., 590
F.2d 168, 171 (5th Cir. 1979).

                                    -5-
consider    the   district   court's         interpretation   of   the   state

disciplinary rules as an interpretation of law, subject essentially

to de novo consideration. See Woods, 537 F.2d at 810; see also

Unified Sewerage Agency v. Jelco, Inc.,            646 F.2d 1339,1342, n.1.

(9th Cir. 1981).

                                       III

     The district court clearly erred in holding that its local

rules, and thus the Texas rules, which it adopted, are the "sole"

authority governing a motion to disqualify.           Motions to disqualify

are substantive motions affecting the rights of the parties and are

determined by applying standards developed under federal law.                See

Woods, 537 F.2d at 810; see also McCuin v. Texas Power & Light Co.,

714 F.2d 1255 (5th Cir. 1983)(conflict arising from attorney-judge

relationship did not require attorney disqualification but judicial

recusal); Zylstra v. Safeway Stores, Inc., 578 F.2d 102 (5th Cir.

1978)(motion to disqualify inextricably linked with motion to

certify class); American Can Co. v. Citrus Feed Co., 436 F.2d 1125

(5th Cir. 1971)(disqualification order reversed as contrary to

prevailing ethical principles).

     The district court's authority to promulgate local rules is

derived from 28 U.S.C. § 2071, which allows the courts only to

adopt "rules for the conduct of their business."              Thus, although

the district court should determine rules for the conduct of

attorneys   for   the   purpose   of    identifying    conduct     subject   to

                                       -6-
sanctions, its local rules alone cannot regulate the parties'

rights to counsel of their choice.

                                IV

     We apply specific tests to motions to disqualify counsel in

circumstances governed by statute or the Constitution.5       When

presented with a motion to disqualify counsel in a more generic

civil case, however, we consider the motion governed by the ethical

rules announced by the national profession in the light of the

public interest and the litigants' rights.    Woods, 537 at 810.;

Brennan's Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 171

(5th Cir. 1979).   Our source for the standards of the profession

has been the canons of ethics developed by the American Bar

Association. We have applied particularly the requirement of canon

5 that a lawyer exercise "independent professional judgment on

behalf of the client" and the admonition of canon 9 that lawyers

should "avoid even the appearance of impropriety."    Zylstra, 578
F.2d at 104.

     Our most far-reaching application of the national standards of

attorney conduct to an attorney's obligation to avoid conflicts of

    5
      Under 11 U.S.C. §§ 327 and 328, a conflict of interest by an
attorney toward the debtor and a creditor can require disgorgement
of fees. See In re Humble Place Joint Venture, 936 F.2d 814, 815
(5th Cir. 1991). There are also well-developed standards governing
when an attorney may represent criminal defendants simultaneously
with co-defendants, see U.S. v. Casiano, 929 F.2d 1046, 1051, et
seq. (5th Cir. 1991), or following the representation of a
government witness.    U.S. v. Martinez, 630 F.2d 361 (5th Cir.
1980).

                               -7-
interest is Woods v. Covington County Bank, 537 F.2d 804 (5th Cir.

1976)(attorney          in     army       reserve     not     barred          from    privately

representing clients in securities matters he had investigated

while on active duty).             We held in Woods that standards such as the

ABA    canons     are        useful       guides     but    are        not    controlling      in

adjudicating such motions.                 Id.6    The considerations we relied upon

in    Woods    were   whether         a    conflict    has    (1)       the    appearance      of

impropriety in general, or (2) a possibility that a specific

impropriety will occur, and (3) the likelihood of public suspicion

from the impropriety outweighs any social interests which will be

served by the lawyer's continued participation in the case. 537
F.2d at 812-813.

       We     applied        the    Woods     standard       to        conflicts      based   on

representation        against         a   former     client       in    Wilson       P.   Abraham

Construction Corp. v. Armco Steel Corp., 559 F.2d 250 (5th Cir.

1977)7 and Brennan's Inc. v. Brennan's Restaurants, Inc., 590 F.2d
168 (5th Cir. 1979).               Under the test developed in those cases, a

lawyer would be disqualified if he sued a former client in a matter

substantially related to the representation of the former client.

Wilson P. Abraham 559 F.2d at 252.                   The former client did not have

         6
        The same approach is, incidentally, taken by the Texas
courts. See Spears v. Fourth Court of Appeals, 797 S.W.2d 654, 656
(Tex. 1990).
        7
       Stephen Susman was the lawyer who was barred in Abraham
Construction Corp. from representing a client in a suit against a
former client.

                                               -8-
to show that privileged information was made actually available for

use in the later case.        Brennan's 590 F.2d at 172.

     In Woods, Wilson Abraham, and Brennan's, we applied national

norms    of   attorney     conduct       to    a   conflict     arising    after     the

attorney's prior representation had been concluded.                    Now, however,

we are confronted with our first case arising out of concurrent

representation,     in     which   the        attorney   sues   a    client   whom    he

represents on another pending matter. We thus consider the problem

of concurrent representation under our framework in Woods                            as

tailored      to   apply    to     the        facts   arising       from   concurrent

representation.

     We turn, then, to the current national standards of legal

ethics to first consider whether this dual representation amounts

to impropriety.       Neither the ABA Model Rules of Professional

Conduct8 nor the Code of Professional Responsibility9 allows an

     8
        ABA Model Rule of Professional Conduct 1.7 provides:

     (a) 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.
     (b) A lawyer shall not represent a client if the
     representation of that client may be materially limited
     by the lawyer's responsibilities to another client ...
     unless:
     (1) the lawyer reasonably believes the representation
     will not be adversely affected; and
     (2) the client consents after consultation.

Forty-five states now follow the Model Rules with some amendments.

                                          -9-
attorney to bring a suit against a client without its consent.10

ABA/BNA Lawyer' Manual On Professional Conduct 01:3 (1992 update).
Our cases based on the language of the Model Code are not greatly
altered by the states' change to the Model Rules. We consider both
to be effective pronouncements of the standards generally accepted
by the profession.
     9
      The ABA Model Code of Professional Responsibility
Ethical Consideration 5-2 provides:

     A lawyer should not accept proffered employment if his
     personal interest or desires will, or there is a
     reasonable probability that they will, affect adversely
     the advice to be given or services to be rendered the
     prospective client. After accepting employment, a lawyer
     carefully should refrain from ... assuming a position
     that would tend to make his judgment less protective of
     the interests of his client.

Ethical Consideration 5-19 provides:

     A lawyer may represent several clients whose interests
     are not actually or potentially differing. .....
     Regardless of the belief of a lawyer that he may properly
     represent multiple clients, he must defer to a client who
     holds the contrary view and withdraw from representation
     of that client.

      10
       The agreement between the Code and Rules on this point is
made obvious in the practice guide of the ABA/BNA Lawyer's Manual
On Professional Conduct, which discusses the obligations of a
lawyer under both the ABA rules and code.     The practice guide
describes a bar to a nonconsensual representation adverse to the
client:

     A lawyer may not represent one client whose interests are
     adverse to those of another current client of the
     lawyer's even if the two representations are unrelated,
     unless the clients consent and the lawyer believes he or
     she is able to represent each client without adversely
     affecting the other. Courts and ethics panels generally
     take a broad view of this restriction, and a specific
     adverse effect probably will not have to be shown. All
     that need be present is that one lawyer is or firm is
     representing two clients, even in unrelated matters, with

                               -10-
This position is also taken by the American Law Institute in its

drafts of the Restatement of the Law Governing Lawyers.11

Unquestionably, the national standards of attorney conduct forbid

a lawyer from bringing a suit against a current client without the

consent of both clients.12   Susman's conduct violates all of these

     potentially conflicting interests.

ABA/BNA Lawyer's Manual On Professional Conduct, 51:101 (1990
supp.).
    11
      The most recent draft of The Restatement of the Law Governing
Lawyers forbids a lawyer from suing a client in another case
without all parties' consent. Restatement (Third) Lawyers § 209
(tent. draft No.4, 1991).     In the comments to this draft, the
reporter notes

     A lawyer's representation of Client A may require the
     lawyer to file a lawsuit against Client B whom the lawyer
     represents in an unrelated matter. It might seem that no
     conflict of interest is presented by such a case if
     Client B is represented in Client A's suit by a lawyer
     unaffiliated with the lawyer for Client A. .... However,
     the lawyer has a duty of loyalty to the client being
     sued, and the client on whose behalf suit is filed might
     fear that the lawyer would pursue that client's case less
     effectively out of deference to the other client. ....
     Because what is at stake is the lawyer's loyalty, the
     rule should be applied so as to minimize the impact on
     the choice of counsel by the affected clients.

Restatement (Third) Lawyers § 209, com. d, p. 114 (tent. draft No.
4, 1991).
         12
        We note that there is a limited utility to seeking the
consent of the client in a class action. In class actions, the
court must independently determine whether the lawyer for the class
can fairly represent all of the members of the class, and a
lawyer's conflicts with the defense may forbid such representation.
In Doe v. A Corporation, 709 F.2d 1043 (5th Cir. 1983), we held
that a lawyer could not represent a class against his former client
even though he could represent himself as a class member, because
the client could move to prevent the lawyer from revealing
privileged information, to the detriment of the class as a whole.

                                -11-
standards    --    unless   excused    or    justified   under   exceptional

circumstances not present here.

     Exceptional circumstances may sometimes mean that what is

ordinarily a clear impropriety will not, always and inevitably,

determine a conflicts case.      Within the framework we announced in

Woods, Susman, for example, might have been able to continue his

dual representation if he could have shown some social interest to

be served by his representation that would outweigh the public

perception of his impropriety.13         Susman, however, can present no

such reason.      There is no suggestion that other lawyers could not

ably perform his offices for the plaintiffs, nor is there any basis

for a suggestion of any societal or professional interest to be

served.     This fact suggests a rule of thumb for use in future

motions for disqualification based on concurrent representation:

In any event, Susman's clients have not consented.
      13
       We found above that the Texas rules of discipline do not
control a motion to disqualify in federal court. We are mindful,
however, that the Texas rules' allowance of some concurrent
representation is based, in part, on a concern that concurrent
representation may be necessary either to prevent a large company,
such as Dresser, from monopolizing the lawyers of an area or to
assure that certain classes of unpopular clients receive
representation.   Although we do not now reach the matter, our
consideration of social benefit to offset the appearance of
impropriety might allow such a representation if the balance
clearly and unequivocally favored allowing such representation to
further the ends of justice.
     We believe, moreover, that the Texas rules are drawn to allow
concurrent representation as the exception and not the rule. Even
if the Texas rules had applied, no special circumstances being
present here, Texas rule 1.06's prohibition of representation of
potentially adverse interests would have barred the representation.

                                      -12-
However a lawyer's motives may be clothed, if the sole reason for

suing        his   own   client   is       the   lawyer's   self-interest,

disqualification should be granted.14

                                       V

     We find, therefore, that Dresser's right to the grant of its

motion to disqualify counsel is clear and indisputable. We further

find that the district court clearly and indisputably abused its

discretion in failing to grant the motion.           We have thus granted

the petition and have issued the writ of mandamus, directing the

United States District Court for the Southern District of Texas to

enter an order disqualifying Stephen D. Susman and Susman Godfrey

from continuing as counsel to the plaintiffs in Red Eagle Resources

et al. v. Baker Hughes, et al., No. H-91-627.

                                                            WRIT GRANTED.

        14
       This result accords with the approach of other circuits,
which have similarly found concurrent representation to be grossly
disfavored. See, e.g., International Business Machines Corp. v.
Levin, 579 F.2d 271 (3d Cir. 1978)(antitrust plaintiff firm
disqualified from suing company for which it was on retainer);
Cinema 5, Ltd. v. Cinerama, Inc. (2d Cir. 1976)(antitrust plaintiff
counsel's representation while firm was counsel in an unrelated
antitrust case was prima facie improper); EEOC v. Orson H. Gygi
Co., Inc., 749 F.2d 620 (10th Cir. 1984)(attorney disqualified from
defending employer in sex discrimination suit by employee
represented in state annulment proceeding).

                                   -13-