Kaselaan & D'Angelo Associates, Inc. v. D'Angelo

OPINION

Presently before the court is the motion by plaintiffs, Kaselaan & D’Angelo Associates, Inc. and Hill International, Inc., to disqualify John J. Rosenberg, Esquire, and Varet, Marcus & Fink, P.C., as counsel for defendant William “Chip” D'Angelo, pursuant to the New Jersey Rules of Professional Conduct, Rules 1.9(a)(1), 1.9(a)(2), 1.9(b) and 1.10(a). For the reasons stated herein, plaintiffs’ motion will be granted.

Background

The present suit involves claims by plaintiffs, Kaselaan & D’Angelo, Inc. (“K & D”) and Hill International, Inc. (“Hill International”), against defendant, William “Chip” D’Angelo (“D’Angelo”), for unfair competition, tortious interference with business relations between K & D and both its clients and employees, misappropriation of trade secrets and confidential information, and breach of duties of loyalty as an officer, director, and employee. The claims are based in part on restrictive covenants in an employment agreement as well as on the common law. There are additional claims asserted including those by Hill International under a theory of third-party beneficiary under the employment agreement and breach of a promissory note. Plaintiffs have sought injunctive relief as well as damages for defendant’s alleged improprieties.

On or about December 24, 1988, Hill International’s predecessor, Hill Group, purchased all the issued and outstanding stock of K & D from defendant D’Angelo and his then partner, Valdur Kaselaan. K & D has remained an extant corporation throughout the acquisition. As part of the acquisition, D’Angelo, on or about January 1, 1989, entered into a written employment agreement with K & D whereby he agreed to be employed by K & D for a period of six (6) years, commencing on January 1, 1989 and ending on December 31, 1994. On or about May 6, 1989, the parties consented to a written amendment to the employment agreement.

Pursuant to the agreement, D’Angelo was to remain an employee of K & D for the six year period stated therein and to discharge his various obligations and responsibilities on behalf of K & D. As part of the agreement, defendant agreed to the following three limited restrictive covenants: (1) to refrain from soliciting or interfering with customers or clients of K & D, (2) to refrain from soliciting or interfering with employees of K & D, and (3) to refrain from misappropriating or disclosing confidential business information of K & D. Plaintiffs have now alleged that defendant *237has violated his covenants, engaged in unfair competition, engaged in tortious interference with business relations of clients and employees, misappropriated trade secrets and confidential information, and breached his duty of loyalty as an officer, director, and employee of K & D.

After suit was filed, defendant contacted another firm to undertake his representation, but that firm declined. Defendant then retained as his counsel Varet, Marcus & Fink, P.C. (“Varet Marcus”), formerly known as Milgrim, Thomajan & Lee, P.C. (“Milgrim Thomajan”), of which John J. Rosenberg, Esquire (“Mr. Rosenberg”), is a member.1 Apparently, the first attorney involved in the case on defendant’s behalf was Michael Hepworth, Esquire. However, at the first day of defendant’s deposition held on July 28, 1992, Mr. Rosenberg identified himself as lead counsel on the case. Once plaintiffs became aware of Mr. Rosenberg’s prior representation of K & D, they filed the present disqualification motion because Mr. Rosenberg previously represented K & D as its lawyer.

Plaintiffs contend that Mr. Rosenberg began representing K & D on or about January 16, 1986, when he was an attorney with the firm of Friedman & Atherton, located in Boston, Massachusetts. See Plaintiffs’ Brief in Support of Motion at 7. According to plaintiffs, Mr. Rosenberg represented K & D in employment matters involving the following individuals: Paul Manna, James Dennison, Michael Collins, Michael Clarke, and William Eason. Id. at 8-14. In response, defendant concedes that Mr. Rosenberg’s prior representation of K & D is an “undisputed fact.” See Defendant’s Response to Plaintiffs’ Reply Brief at 2. He continued to represent K & D in such employment matters with present and former employees through at least March 29, 1990, which was 15 months after K & D bought out defendant D’Angelo. With this background in mind, this court will now consider the legal issues raised by this disqualification motion.

Discussion

According to D.N.J. Gen.R. 6 A, the New Jersey Rules of Professional Conduct (“RPC”) govern this dispute. General Rule 6 A states the following:

The Rules of Professional Conduct of the American Bar Association as revised by the New Jersey Supreme Court shall govern the conduct of the members of the bar admitted to practice in this Court, subject to such modifications as may be required or permitted by federal statute, regulation, court rule or decision of law.

The decisions announced by New Jersey state courts must generally inform this federal court’s interpretation of the New Jersey Rules of Processional Conduct.2 The reason that this court settled upon this formulation in its 1989 amendment of General Rule 6 A — adding the clarification that the RPC’s “as revised by the New Jersey Supreme Court” govern conduct of our bar — is obvious. “That amendment makes it clear that the ethical rules and constraints imposed on federal practitioners in New Jersey are the same as those imposed on New Jersey attorneys generally by the state Supreme Court under New Jersey Court Rule 1:14.” A. Lite, New Jersey Federal Practice Rules (1992 ed.) at 31-32. The only exceptions to this rule of uniformity arise from “such modifications as may be required or permitted by federal statute, regulation, court rule or decision of law,” as General Rule 6 A states. Where, as in *238the present case, no federal statute, court rule or decision of a higher court suggests or necessitates departure from the New Jersey Rules of Professional Conduct, we must first look to New Jersey’s case law and commentary interpreting the relevant RPC’s. To do otherwise would create a second body of ethics law for federal practitioners in this state diverging from state practice.

Under New Jersey law, the party who brings a disqualification motion, based on an attorney’s successive representations, bears the burden of proving that disqualification is appropriate. Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 221-22, 536 A.2d 243 (1988); Reardon v. Marlayne, 83 N.J. 460, 474, 416 A.2d 852 (1980); see also Satellite Financial Planning v. First National, 652 F.Supp. 1281, 1283 (D.Del.1987). However, “[i]f there is any doubt as to the propriety of an attorney’s representation of a client, such doubt must be resolved in favor of disqualification.” Reardon, 83 N.J. at 471, 416 A.2d 852 (citing International Business Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir.1978)). Plaintiffs therefore bear the burden of proving that disqualification is appropriate either because the New Jersey Rules of Professional Conduct are violated or because sufficient doubt exists as to the propriety of representation.

Plaintiffs assert three reasons to compel this court to disqualify Mr. Rosenberg and Varet Marcus from their representation of defendant in the present action.3 First, plaintiffs allege that RPC 1.9(a)(1) mandates that this court disqualify Mr. Rosenberg because the present action is “substantially related” to matters which Mr. Rosenberg previously handled on behalf of plaintiff K & D. Second, plaintiffs argue that Mr. Rosenberg must.be disqualified because in the present litigation Mr. Rosenberg will necessarily use information obtained in his prior representation of K & D and thus violate RPC 1.9(a)(2). Finally, plaintiffs maintain that even if this court finds that Mr. Rosenberg’s present representation of defendant D’Angelo does not violate either RPC 1.9(a)(1) or 1.9(a)(2), this court must disqualify him under RPC 1.9(b) because his present representation of defendant combined with his former representation of K & D creates an “appearance of impropriety.” Plaintiffs’ arguments for disqualification will be addressed in order since sufficient proof under one will necessitate disqualification.

A. Disqualification under RPC 1.9(a)(1)

RPC 1.9(a)(1) states the following:

(a) A lawyer who has represented a client in a matter shall not thereafter: (1) represent another client in the same or a substantially related matter in which that client’s interests are materially adverse to interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation with the former client.

This rule has three prongs that must be satisfied in order to warrant an attorney’s disqualification.4 First, the lawyer must have represented the former client at some previous time. Second, the current client's interests must be materially adverse to those of the former client. Finally, the lawyer’s current representation must occur in the same or a substantially related matter. It is uncontested that Mr. Rosenberg formerly represented K & D as an attorney from on or about January 16, 1986 until at least March 29, 1990. Thus, prong one is satisfied. As for prong two, it evident that defendant D’Angelo’s interests are materi*239ally adverse to those of K & D. Thus, prong two is similarly satisfied.

Prong three, on the other hand, is a point of marked disagreement between the parties. The current matter is not the “same” matter in which Mr. Rosenberg previously represented K & D. Plaintiffs argue, however, and defendant firmly disagrees, that the present matter is “substantially related” to matters which Mr. Rosenberg previously handled on behalf of K & D, thus requiring his immediate disqualification under RPC 1.9(a)(1). According to the New Jersey Supreme Court, a substantial relationship between matters will exist where the “adversity between the interests of the attorney’s former and present clients has created a climate for the disclosure of relevant confidential information.” Reardon, 83 N.J. at 472, 416 A.2d 852. Similarly, under pre-RPC ethical rules, the Third Circuit Court of Appeals has similarly held that disqualification is usually warranted “whenever the subject matter of the second representation is so closely connected with the subject matter of the earlier representation that confidences might be involved.” Richardson v. Hamilton Int’l Corp., 469 F.2d 1382, 1385 (3d Cir.1972) (holding that plaintiff, an attorney who formerly represented the defendant, was disqualified from maintaining his suit since he might have, in the course of prior litigation, acquired information to be used in the pending action). The purposes of RPC 1.9(a)(1) are threefold: protecting confidences, maintaining integrity, and preserving loyalty.5

The basis for plaintiffs’ assertion that a “substantial relationship” exists between the present matter and the previous matters which Mr. Rosenberg handled on behalf of K & D is that the subject matter of the present and former representations is the same. According to plaintiffs, Mr. Rosenberg actively represented K & D in connection with claims against former employees alleging misappropriation of trade secrets, tortious interference with customer relations, breach of duty of loyalty of an employee, and unfair competition. Plaintiffs specifically cite to the Paul Manna matter wherein they assert that Mr. Rosenberg engaged in six months of document drafting and settlement negotiations on behalf of K & D after Paul Manna had been terminated as an employee for reasons similar to the claims alleged in this action. Defendant, on the other hand, asserts that a “substantial relationship” exists only when the factual basis underlying the former representation applies to the subsequent representation. Thus, defendant asserts that the Paul Manna matter, for example, cannot justify disqualification because the circumstances of Manna’s employment, his departure from K & D, or his subsequent suits are not at issue in the present litigation. In short, defendant asserts that plaintiffs have failed to show that the facts obtained from the prior representation would apply to the current representation. In light of this disagreement, an analysis of case law interpreting the meaning of “substantially related” is necessary.

The New Jersey Supreme Court has recognized that in dealing with ethical problems “the conclusion in a particular case can be reached only after a painstaking analysis of the facts and precise application of precedent.” Reardon, 83 N.J. at 469, 416 A.2d 852; see also Dewey, 109 N.J. at 220, 536 A.2d 243 (recognizing that the disqualification of an attorney is based upon an analysis of the facts before the court). In Reardon, defendant General Motors Corporation (“G.M.”) sought to pre*240vent plaintiffs attorney from representing plaintiff in a products liability suit alleging brake failure on the grounds that he had formerly represented G.M. in similar suits.6 In addressing the issue of “substantial relationship,” the New Jersey Supreme Court recognized that “[disqualification is mandated where the issues between the former and present suits are practically the same or where there is a ‘patently clear’ relationship between them.” Id. 83 N.J. at 472, 416 A.2d 852 (citing Government of India v. Cook Industries, Inc., 569 F.2d 737, 739-40 (2d Cir.1978)). The court found that the substantial relationship test was “clearly satisfied” thus warranting disqualification since plaintiff’s attorney had specifically represented G.M. on at least two occasions in suits involving alleged brake defects and failure. Id. 83 N.J. at 475, 416 A.2d 852. Thus, the “striking similarity” between plaintiff’s case and the prior matters made “apparent both the legal and factual relationship of issues.” Id.7 As a result, plaintiff’s counsel was disqualified from representing plaintiff against his former client.

Subsequent to Reardon, the Appellate Division had occasion to address the “substantial relationship” issue. In Gray v. Commercial Union Ins. Co., 191 N.J.Super. 590, 468 A.2d 721 (App.Div.1983), plaintiff brought suit against Commercial Union Insurance Company (“Commercial Union”) alleging breach of his employment contract and Commercial Union moved to disqualify plaintiff’s attorney. The pivotal issue was “under what circumstances a lawyer may represent a client whose interest is adverse to a party whom the lawyer represented in prior litigation.” Id. at 594, 468 A.2d 721. Plaintiff’s attorney had represented Commercial Union’s insureds in personal injury litigation for more than twenty years.8 The court found that a substantial relationship existed between the subject matter of the present employment contract action and the subject matter of the prior representation on behalf of Commercial Union defending tort cases despite the fact that the legal issues between the cases were not at all the same. Id. at 596, 468 A.2d 721.

In reaching this result, the court reasoned that “the ‘substantial relationship’ standard should not be read in a mechanical or overly technical manner.” Id. Rather, the court looked to the dictates of Rear-don, which held that a substantial relationship of issues is satisfied where the “adversity between the interests of the attorney’s former and present clients has created a climate for disclosure of relevant confidential information.” Id. (quoting Reardon, 83 N.J. at 472, 416 A.2d 852). Recognizing that plaintiff’s attorney’s longstanding relationship with Commercial Union would necessarily have made him privy to confi*241dential and proprietary information of Commercial Union, including its claims and litigation philosophy, its methods and procedures for defending claims and litigation, and its information regarding the administration of various business operations, the court held that plaintiffs attorney could use such information to the substantial disadvantage of his former client Commercial Union. Id. 191 N.J.Super. at 597-98, 468 A.2d 721. Thus, a substantial relationship was established even though such general information may not have been specifically relevant to the merits of the employment contract dispute. Id. at 597, 468 A.2d 721.

Finally, in G.F. Industries v. American Brands, 245 N.J.Super. 8, 583 A.2d 765 (App.Div.1990), plaintiffs, G.F. Industries, Inc. (“G.F. Industries”) and its recently acquired subsidiary, Sunshine Biscuits, Inc. (“Sunshine”), sought to disqualify Chadbourne & Parke (“Chadbourne”), the attorneys for defendant American Brands, Inc. (“American Brands”). Plaintiffs alleged that American Brands, the company from whom G.F. Industries purchased Sunshine, misrepresented the conditions of Sunshine’s baking facilities and equipment at the time of the sale, specifically the ovens transferred with the sale. Plaintiffs argued that RPC 1.9(a)(1) mandated that Chadbourne be disqualified because Chadbourne had represented Sunshine and American Brands when American Brands owned Sunshine.

In upholding the trial court’s decision to disqualify, the Appellate Division specifically acknowledged that Chadbourne had represented American Brands in “all facets of its legal affairs,” id. 245 N.J.Super. at 10, 583 A.2d 765, and Sunshine “in a variety of matters.” Id. at 16, 583 A.2d 765. In particular, the court found that Chadbourne represented Sunshine and American Brands in prior OSHA inspections of the same ovens and in the sale of Sunshine wherein the condition of the ovens was at issue. Id. Thus, the Appellate Division affirmed the trial court’s finding that Chadbourne’s prior representation was substantially similar to the current representation which warranted disqualification under RPC 1.9(a)(1).

These three opinions represent the principal authorities in New Jersey interpreting the meaning of “substantially related” under RPC 1.9(a)(1). Both Reardon and Gray were decided prior to the enactment of the New Jersey Rules of Professional Conduct; however, théy interpret the term “substantially related matter” subsequently incorporated into RPC 1.9(a)(1). In any event, there are marked differences between the three decisions. Reardon stressed the similarity between the legal and factual issues involved in the present and prior representations. In that case both the present and prior representations involved product liability claims concerning defective automobile brakes which made the finding of a substantial relationship apparent.

G.F. Industries, on the other hand, emphasized that the same object, namely the Sunshine ovens, was the focus of the past and present representations even though the claims involving the ovens differed, those being an OSHA action, a sale of a subsidiary, and a misrepresentation claim. Finally, Gray rejected an overly-technical reading of the term “substantially related” and apparently stressed that the longevity of the attorney’s relationship with his former client warranted a finding of a “substantial relationship” since the attorney would necessarily have obtained confidential information that could be used to the former client’s detriment. The court made this determination despite the dissimilarity of the legal issues at hand.

As is evident, the meaning of “substantially related” under RPC 1.9(a)(1) is broadly construed in New Jersey. Disqualification has been required where the legal and factual issues of the former and present representation are practically the same or clearly related, as in Reardon, or where there was a twenty-year relationship with the former client although involving dissimilar legal and factual issues, as in Gray, or where the former client’s product or property was factually identical to the item at issue in the present suit although involving dissimilar legal issues, as in G.F. Industries. Since Reardon emanates from the *242New Jersey Supreme Court, its pronouncements should be afforded the greatest weight.

Defendant nevertheless asserts that the unpublished decision of Ciba-Geigy v. Alza Corp., 795 F.Supp. 711 (D.N.J.1992), which recently emanated from this court, controls the resolution of this issue. In Ciba-Geigy, the court refused to disqualify counsel from representing the plaintiff in a patent infringement case involving the transdermal delivery of nicotine.9 The defendant, Alza Corporation (“Alza”), moved to disqualify Ciba-Geigy’s counsel, Kenyon & Kenyon (“K & K”), because of its previous representation of Alza and Ciba-Geigy in an earlier litigation involving the transdermal delivery of a substance called estradiol.10 Despite the fact that K & K had formerly represented Alza in litigation involving transdermal delivery systems, the court, noting the difference between the substances involved and the resulting differences in the two transdermal delivery systems, rejected disqualification. According to the court, the factual bases for the two litigations were not “substantially related” as a qualitative difference existed between the transdermal patch involved in the former and the present litigations. Id.Id. 795 F.Supp. at 717-18.