In re DRESSER INDUSTRIES, INC.

972 F.2d 540 (5th Cir. 1992)

 

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.

 

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 ("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.

 

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 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, in ruling on the motion, looked to the Texas Disciplinary Rules.]

 

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. . .  .

 

[The court determined that mandamus was appropriate to review the denial of a motion to disqualify counsel where the “petitioner can show its right to the writ is clear and undisputable.”  It then focussed on what rules it should apply in determining whether disqualification was required.  It concluded that it must “consider the motion governed by the ethical rules announced by the national profession in the light of the public interest and the litigants' rights.”  It then continued:]

 

Our most far‑reaching application of the national standards of attorney conduct to an attorney's obligation to avoid conflicts of interest is Woods v. Covington County Bank . . . .  We held in Woods that standards such as the ABA canons are useful guides but are not controlling in adjudicating such motions.  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. . . .

 

In Woods [and subsequent cases], 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 Conduct [1.7] nor the Code of Professional Responsibility allows an attorney to bring a suit against a client without its consent. 2 This position is also taken by the American Law Institute in its drafts of the Restatement of the Law Governing Lawyers. 3

 

Unquestionably, the national standards of attorney conduct forbid a lawyer from bringing a suit against a current client without the consent of both clients.  Susman's conduct violates all of these 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.4  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:  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.5

 

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 [District Court] 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.

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1. Is this result fair to the attorneys?  Should they be forced to turn down important and lucrative cases simply because someone else hired them first?  Might not a strict approach cause firms to shy away from representing small clients with relatively small matters in complex areas for fear that doing so might affect future representation of an existing client or the ability to attract large clients in the future?  

 

2.  Remember that, for purposes of disqualification (and discipline under Rule 1.7), courts treat an entire law firm as one unit.  Model Rule 1.10(a) provides: “While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7, 1.8(c), 1.9 or 2.2”  This prohibition may prohibit representation where a lawyer in one office of a “mega-firm” on one coast represents a client, and another attorney in the same firm, a continent away on the other coast (who the first attorney has never even heard of or met), sues that client for something totally unrelated.  Should this make a difference to applicability of the rule?  Or is this merely a price a firm pays for the benefits of large-scale, multi-office practice?  What about representation of a corporation and representation by the same firm adverse to an affiliated corporation, such as a subsidiary?  Are the concerns the same?  See ABA Formal Op, 95-390.  What if the conflict is caused by merger of companies?  Of law firms?  Should the resolution be the same?  See Chapter 7, infra.

 

3. Can a law firm resolve this problem by obtaining in advance consent to future adverse representation?  Should this be permitted?  See ABA Formal Opinion 93-372 and the Restatement, § 202, Comment d, both of which permit waiver of future conflicts with informed consent in most circumstances.

 

 

4. Why can’t the firm just withdraw from client #1 and turn the situation into a “former client, subsequent representation” case?  Where former clients are involved, no disqualification is required unless the matters are substantially related. (See infra).   In Dresser, the client refused to discharge the attorney.  Could the firm withdraw in any event?  See M.R. 1.16.  Would this resolve the problem?  Most courts say no.  They are unwilling to “allow a law firm to drop a client ‘like a hot potato’ in order to shift resolution of the conflict question from Rule 1.7 to Rule 1.9.”  ABA/BNA Lawyers Manual, § 51:213.  The result is to the contrary where the original client agrees to the firm’s withdrawal.  In such a situation, the concerns of “unceremoniously dumping” the client are not involved.  In re Sandahl, 980 F.2d 1118, 1121 (7th Cir. 1992).