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Essex Chemical Corp. v. Hartford Accident and Indemnity Co.

975 F. Supp. 650 (D. N.J. 1997)

ATTORNEYS; JOINT DEFENSE; CONFLICTS OF INTEREST—All counsel participating in a joint defense and cost sharing agreement were disqualified when the Court (with appropriate analysis) found that one of the law firms had a conflict of interest because it had previously represented the adverse party.

A chemical company sought insurance coverage from numerous insurers for property damage at various facilities. The chemical company sought an order disqualifying all defense counsel due to a conflict of interest by one of many joint defense counsel or, alternatively, an order directing all defense counsel to respond to interrogatories pertaining to communications and documents exchanged between them. The motion to disqualify focused on representation of the chemical company by one particular law firm in May, 1988, when a joint venture partner attempted a hostile takeover. From that time until October, 1988, the law firm represented the chemical company in litigation and other sensitive corporate matters. In this case, the law firm represented one of the primary insurers of the chemical company. All the insurers named as defendants in this case entered into a joint defense and cost sharing agreement, and asserted that the purpose of the agreement was to enable them to manage the litigation in an orderly and cost efficient manner, in part by coordinating discovery. The insurers denied that they shared identical legal interests, and assert that they only consulted with one another with respect to defending the claims by the chemical company. The chemical company claimed that all defense counsel had access to the confidential and privileged information previously received by the law firm, and should therefore be disqualified from this case.

The District Court first expressed a dislike for motions to disqualify, citing precedent holding that disqualification of counsel during litigation should only occur when absolutely necessary. The Court analyzed the three-pronged test for disqualification of counsel found in the Rules of Professional Conduct, Rule 1.9. First, there must have been a prior attorney-client relationship. Second, the interests of the current client must be materially adverse to those of the former client. Third, the current representation must involve the same or a substantially related matter. The Court held that a substantial relationship between matters exists where the adversity between the attorney’s former and present clients has created a climate for disclosure of relevant confidential information. The focus is on whether, during the course of the former representation, an attorney might have acquired information related to the subject matter of his subsequent representation. The moving party does not have to demonstrate an actual breach, or even a plan to use the information in a detrimental manner, a showing of the possibility of breach by virtue of the similarity of representations is sufficient, and the receipt of information will be presumed and the attorney disqualified.

In this case, the District Court found a similarity of factual bases of the present action and the law firm’s prior representation of the chemical company. The Court also found that the information to which the law firm had access related substantially to the subject matter of the current representation. The law firm had become privy to events and confidential documents, and worked closely with senior personnel of the chemical company. Questions that were asked at depositions for the current dispute further proved that the matters were substantially related, thus compelling disqualification of the law firm under RPC 1.9. The Court agreed there is a risk that confidential information may be used to the detriment of the chemical company, and that there may even be a presumption that information has already been shared. At the very least, there is an appearance of impropriety requiring disqualification. The Court held that allowing the other defense counsel to remain indirectly creates the same risk that the law firm representation posed directly, despite the absence of a prior attorney-client relationship between the chemical company and any of the other attorneys. The other defense counsel asserted that they may not be interrogated about any knowledge already shared with the law firm, citing the joint defense, attorney-client, and work product privileges. The Court agreed, but went on to state that along with the benefits of these protections come the burdens, including a presumption of shared information. Finally, the Court concluded that, under the guidelines of RPC 1.9, an ordinary knowledgeable citizen acquainted with the facts could conclude that a substantial risk of disservice existed to either the public interest or the interest of one of the parties, and that this provides ample grounds for disqualification. Accordingly, the Court found a conflict of interest justifying disqualification of all defense counsel.


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