Opinion
C.A. No. 19719-NC
Date Submitted: July 9, 2002
Date Decided: September 3, 2002
Kevin G. Abrams, Esquire, Richards, Layton Finger, Wilmington, DE.
William M. Lafferty, Esquire, Morris, Nichols, Arsht Tunnell, Wilmington, DE.
Dear Counsel:
Defendant Juniper Financial Corp. ("Juniper") has moved to disqualify the law firm of Richards, Layton, Finger, P.A. ("RLF") from representing Plaintiff Benchmark Capital Partners IV, L.P. ("Benchmark") in this matter. Following a hearing on July 9, 2002, I reserved decision on Juniper's motion because of time constraints associated with Benchmark's motion for a preliminary injunction scheduled for hearing on July 11, 2002, and the prejudice that might have befallen Benchmark if its counsel had been disqualified two days before the hearing on its preliminary injunction application. This letter opinion addresses Juniper's disqualification motion.
The substantive dispute between Benchmark, a holder of preferred stock of Juniper, and Juniper involves a financing transaction (the "Series D Transaction") between Juniper and CIBC Delaware Holdings, Inc. ("CIBC") which, according to Benchmark, has adverse effects on rights protected by Juniper's certificate of incorporation. In the early spring of 2002, Juniper concluded that a special committee of its independent directors should be appointed to assess the Series D Transaction. At the invitation of Juniper's general counsel, Clinton W. Walker, Esquire, two lawyers from RLF met with Mr. Walker and Lawrence J. Drexler, Esquire, an assistant general counsel of Juniper, (collectively, "Juniper's in-house counsel") on April 2, 2002, (the "Meeting") as part of a solicitation process to select and retain counsel for the special committee. Everyone at the Meeting understood that the final hiring decision would be made by the members of the special committee and not the management of Juniper, which was already represented by sophisticated counsel who, in fact, had previously recommended to Juniper that a special committee be appointed. At the Meeting, which lasted less than one and one-half hours, the background of the Series D Transaction and the need for a special committee were discussed, and RLF provided Mr. Walker and Mr. Drexler with a standard form set of board resolutions for establishing a special committee that Mr. DiCamillo had brought with him to the Meeting. Afterwards, RLF sent an e-mail to Mr. Walker correcting a mistake in one of the form documents provided at the Meeting, and Mr. DiCamillo and Mr. Walker had a brief phone call addressing some questions about the form resolutions. Mr. Drexler informed RLF on April 10, 2002, that Juniper's special committee had retained other counsel and invited RLF to bill Juniper for its time in connection with the Meeting. In response, RLF forwarded to Juniper a bill that was discounted by approximately 50%. In the absence of Juniper's request for a bill, RLF would not otherwise have billed Juniper.
A fuller discussion of the factual background can be found in this Court's memorandum opinion denying Benchmark's motion for a preliminary injunction. See Benchmark Capital Partners IV, L.P. v. Vague, Del. Ch., C.A. No. 19719, mem. op., Noble, V.C. (July 15, 2002).
The two attorneys from RLF participating in the Meeting with Juniper's in-house counsel were Jesse A. Finkelstein, Esquire and Raymond J. DiCamillo, Esquire.
In moving to disqualify RLF, Juniper claims that it established an attorney-client relationship with RLF at the Meeting. Benchmark counters that the Meeting merely explored the possibility of RLF's retention as counsel for Juniper's special committee and that the Meeting did not result in the formation of an attorney-client relationship.
Juniper contends that Juniper's in-house counsel provided RLF's attorneys with confidential information regarding the Series D Transaction. In support of this argument, Juniper relies on Mr. Walker's affidavit which recites that "[a]t the April 3 meeting, we provided more tha[n] just `general background information' to RLF, as we discussed a number of factual, legal, and strategy issues" with RLF that included "the respective backgrounds of the individuals that were proposed to serve on the special committee." Mr. Walker asserts that Mr. Drexler and he provided confidential information to RLF; specifically, they revealed Juniper's dire need for capital and its contemplation of the Series D Transaction which was "not the sort of information that a privately-held company would broadcast about itself, let alone want to have revealed to a party that is adverse to it in litigation." Juniper further points to RLF's actions in providing Juniper with form board resolutions and billing Juniper for services rendered on that company's behalf in support of its position that an attorney-client relationship between Juniper and RLF was created.
Reply Aff. of Clinton W. Walker, Esq., ¶ 3.
Id. ¶ 4.
Id. ¶ 6. I note that Benchmark had been negotiating with Juniper and others about the need for and terms of additional financing for Juniper. Thus, Benchmark had knowledge of at least a significant portion of the information that was provided to Mr. Finkelstein and Mr. DiCamillo at the Meeting.
RLF maintains that only general information was exchanged between the participants at the Meeting and that RLF did not receive information that it viewed as confidential. RLF asserts that there was never a request that it represent Juniper — if anything, RLF claims that the Meeting did not even amount to a "beauty contest." Instead, it argues that the Meeting afforded an opportunity for Juniper's in-house counsel, before the special committee was even designated, to review with RLF certain questions about the possibility of its representing Juniper's special committee. Moreover, if any of the information was confidential, most, or all, of the information became public by virtue of Juniper's proxy statement issued prior to the filing of this action. Regarding the draft resolutions provided to Juniper by RLF, RLF maintains that the resolutions were form documents not tailored to the specifics of the Series D Transaction, as evidenced by the fact that Mr. DiCamillo had brought them with him to the Meeting before any substantive information had been exchanged. Finally, RLF only billed Juniper after being invited by Juniper to do so and, in addition, the bill reflected an approximately 50% discount from RLF's normal rate.
This action was not filed until July 1, 2002, more than two and one-half months after Juniper informed RLF that other counsel would be representing the special committee.
I have considered whether it is necessary to hold an evidentiary hearing to resolve these differing views of the nature of the Meeting and its ramifications. Both sides of this dispute have indicated that a hearing is not needed. With some reluctance, I concur. I accept the veracity of all those who have submitted affidavits regarding this motion. The "facts" do not vary materially from affidavit to affidavit. The parties' characterizations of those facts and their inferences drawn from those facts diverge significantly. Ordinarily, assessment of such characterizations and drawing the necessary inferences would be assisted by (and perhaps would require) an evidentiary hearing. Ultimately, I am satisfied that my understanding of what transpired at the Meeting (and the subsequent limited communications between Juniper and RLF) would not benefit from an evidentiary hearing.
Juniper's argument is premised upon Rule 1.9 of the Delaware Lawyers' Rules of Professional Conduct which provides:
A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or
(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client or when the information has become generally known.
Because RLF seeks to represent Benchmark in its challenge of the same Series D Transaction that Juniper's in-house counsel discussed with RLF at the Meeting, Juniper argues that Rule 1.9 and Delaware's stated policy of "err[ing] on the side that would protect the integrity of the profession and promote a favorable impression with the general public" require this Court to disqualify RLF from further representation of Benchmark. The requirements of Rule 1.9, however, only apply if there was a previous attorney-client relationship between the challenged firm and the party contesting its participation. Thus, I turn to the question of whether an attorney-client relationship between Juniper and RLF was established.
The parties also agree that Benchmark's interests are materially adverse to the interests of Juniper and that Juniper has not consented to RLF's representation of Benchmark.
Del-Chapel Assoc. v. Ruger, Del. Ch., C.A. No. 16942, Lamb, V.C., mem. op. at 10-11 (Apr. 17, 2000) (quoting Gieder v. Waxman, Del. Ch., C.A. No. 7021, Longobardi, V.C. (Sep. 16, 1983)).
RLF has represented Juniper in other, unrelated matters. Juniper does not contend any other representation by RLF is relevant to its motion here.
In the absence of an express contract or formal retainer agreement, determining the existence of an attorney-client relationship is a fact-intensive inquiry that depends on the circumstances of each case. In determining the existence of an attorney-client relationship, courts look at the contacts between the potential client and its potential lawyers to determine whether it would have been reasonable for the "client" to believe that the attorney was acting on its behalf as its counsel.
In re Berl, 540 A.2d 410, 414 (Del. 1988).
SBC Interactive, Inc. v. Corporate Media Partners, Del. Ch., C.A. No. 15987, op. at 9, Jacobs, V.C. (Dec. 9, 1997); see also, Scott v. New Drug Services, Inc., Del. Ch., C.A. No. 11336, let. op. at 10-11, Allen, C. (Sept. 6, 1990).
Juniper invokes Westinghouse Elec. Corp. v. Kerr-McGee Corp. for the proposition that "an attorney-client relationship exists whenever a lay party submits confidential information to a lawyer with the reasonable belief that the lawyer is acting as his attorney." Westinghouse, however, is distinguishable because Juniper's representatives at the Meeting were its attorneys and it would have been unreasonable for those representatives to have believed that an attorney-client relationship between Juniper and RLF had been formed. Juniper contacted RLF regarding the formation and representation of a special committee for Juniper in connection with the Series D Transaction. According to Mr. Finkelstein, "the sole purpose of [the] meeting with Juniper executives was to [ascertain] background information regarding potential representation of the Special Committee." Indeed, at the time of the Meeting Juniper was already represented with respect to the Series D Transaction by separate counsel. Following the Meeting, which lasted less than one and one-half hours, there was one phone call between Mr. Walker and Mr. DiCamillo relating to an e-mail sent by Mr. DiCamillo correcting a form set of board resolutions provided by RLF to Juniper's in-house counsel. Neither party asserts that Juniper or its special committee requested that RLF be retained as its counsel. While RLF billed Juniper for services rendered in connection with the Meeting, RLF would not have done so but for Juniper's request. In sum, Juniper and its in-house counsel had no reasonable basis for concluding that an attorney-client relationship had been established.
580 F.2d 1311 (7th Cir. 1978).
Reply in Supp. of Juniper Financial Corp.'s Mot. to Disqualify Richards, Layton Finger from Representing Pl. in this Action, at 6.
Aff. of Jesse A. Finkelstein, Esq., ¶ 6.
The sending of a bill by RLF and the payment of that bill by Juniper, while factors in this analysis, do not require the conclusion that an attorney-client relationship was formed. See, e.g., B.F. Goodrich Co. v. Formosa Plastics Corp., 638 F. Supp. 1050, 1052 (S.D. Tex. 1986). I am convinced that Juniper's request to RLF to be billed reflected a desire to compensate RLF for its time in order to maintain good relations. While RLF's bill stated that it was "for services rendered on behalf of Juniper," I am unwilling to conclude that such language in and of itself is enough, especially, where, as here, the bill was sent in response to an invitation and reflected a significant discount from RLF's normal rates. I also note that the bill was sent after RLF had been informed that it would not be representing the special committee.
Juniper also argues that RLF's receipt of confidential information from Juniper establishes the existence of an attorney-client relationship between it and RLF. While courts have recognized that a client's submission of confidential information to an attorney is an important factor in this inquiry, that factor alone is not controlling. For example, under the rules of evidence, the attorney-client privilege covers the receipt of confidential information by an attorney from a potential client at the time of a preliminary interview. Rule 502(a)(1) of the Delaware Uniform Rules of Evidence defines the term "client" for purposes of the attorney-client privilege as including, inter alia, an organization that "consults a lawyer with a view to obtaining professional legal services from the lawyer." "Implicit in this language is that a person who has consulted a lawyer may still invoke the protection of the [privilege], even if that person did not ultimately retain the lawyer." Thus, assuming that some of the information provided by Juniper at the Meeting was confidential — an assumption that Benchmark disputes — that exchange does not require the Court to find the existence of an attorney-client relationship notwithstanding the duty precluding RLF from disclosing information received at the Meeting.
See Delaware Trust Co. v. Brady, Del. Ch., C.A. No. 8827, mem. op. at 9, Allen, C. (Sep. 14, 1988) ("The assertion that a lawyer-client relationship exists requires a realistic assessment of all aspects of the relationship. The heart of the matter is the duty of loyalty that arises upon the receipt of confidences by one who offers his advice as legal counsel.") While the receipt of confidential information is certainly an important inquiry, it is only one of several factors relevant to this Court's analysis here. In denying the movant's disqualification motion in Brady, the Court listed the law firm's lack of receipt of confidential information as one of four factors supporting its conclusion that there was no record of any indicia of an attorney-client relationship. As discussed infra, however, the mere receipt of confidential information does not in and of itself give rise to an attorney-client relationship for purposes of Rule 1.9.
DONALD J. WOLFE, JR. MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY § 7-2[a][1], at 7-13 (2001).
As such, I am convinced that in light of the facts and circumstances surrounding the Meeting, the contacts between RLF and Juniper do not warrant the finding of an attorney-client relationship. I acknowledge the presence of factors suggesting that an attorney-client relationship was established and factors supporting the opposite conclusion. On the one hand, sensitive and, at the time of the Meeting, non-public information regarding Juniper's financial condition and its plans for remedying its fiscal problems was discussed. On the other hand, Juniper's representatives were both experienced lawyers. The circumstances surrounding the sending of the bill indicate that the bill was the product of professional and community relationships and in the nature of an accommodation. Finally, and most importantly, everyone involved clearly understood that retention of REF was expressly conditioned upon action by the special committee (with which RLF never had any direct contact) and could not have been effectuated by Mr. Walker or Mr. Drexler who, a few days after the Meeting, conveyed the message to REF that it had not been retained. Thus, notwithstanding the general policy of "err[ing]" on the side of disqualification in close cases, I conclude that it was not reasonable for Juniper, through its in-house counsel or others, to have believed, based on the facts of this case, that an attorney-client relationship had been created between Juniper and REF. My finding as to the absence of an attorney-client relationship between Juniper and REF is not, however, the end of my inquiry.
For the above reasons, Jack Eckerd Corp. v. Dart Group Corp., 621 F. Supp. 725 (D. Del. 1985), is also distinguishable. At issue in Eckerd was a motion seeking to disqualify the plaintiff's law firm on the basis that it had previously represented the defendant corporation on a substantially similar matter. Prior to the Eckerd action, an investment bank hired by the defendant retained the services of plaintiff's law firm in connection with defendant's matter and defendant in turn agreed to reimburse the investment bank for the resultant fees and expenses subject to its approval. While the corporation was represented by separate counsel, the corporation agreed to provide plaintiff's law firm with information relevant to the investment bank's directive. In connection with this endeavor, plaintiff's law firm prepared a lengthy and detailed memorandum referring to the corporation as its client and identifying nine strategic alternatives for minimizing the defendant's exposure to risk. Applying Westinghouse, the Court in Eckerd found that the defendant corporation had supplied information relating to plaintiff's law firm with the reasonable belief that that an attorney-client relationship existed. As detailed above, however, the record in this case is insufficient to support a reasonable belief by Juniper that RLF was its counsel.
One of the vexing questions raised by Juniper's motion is: who was the client? Juniper was already represented and was not looking for representation. If the special committee was the client, RLF never communicated with any of its members.
In In re Appeal of Infotechnology, Inc., the Delaware Supreme Court addressed a disqualification challenge brought by a "non-client litigant," one who had "not been previously represented by opposing counsel." The Court concluded that the burden was on the party seeking disqualification "to prove by clear and convincing evidence (1) the existence of a conflict and (2) to demonstrate how the conflict will prejudice the fairness of the proceedings." In this case, a potential conflict arose from RLF's receipt of non-public information relating to the Series D Transaction from Juniper at the Meeting. However, Juniper suffered no prejudice from use or disclosure of the information exchanged at the Meeting because of the disclosures in Juniper's proxy statement filed prior to Benchmark's initiation of this action and because of Benchmark's own access to much of the information through its discussions and negotiations with Juniper. Accordingly, I find that Juniper is unable to demonstrate by clear and convincing evidence (or, indeed, by any lesser burden) that the potential conflict could prejudice it in this proceeding or that it could jeopardize the fairness of this proceeding.
582 A.2d 215 (Del. 1990).
Id. at 218.
Id. at 221. Thus, the litigant moving for disqualification will be called upon to show how its rights may have been prejudiced. See also, In re Estate of Waters, 647 A.2d 1091, 1095-96 (Del. 1994); IMC Global, Inc. v. Moffett, Del. Ch., C.A. No. 16387, let. op., Chandler, C. (Nov. 12, 1998).
In light of the foregoing, I find that the limited contacts between Juniper and REF never resulted in the formation of an attorney-client relationship, notwithstanding any duty of confidentiality that REF owed Juniper relating to the information discussed at the Meeting. I also find that Juniper has not demonstrated any potential for prejudice in this action because of RLF's receipt of non-public information. Accordingly, Juniper's motion to disqualify REF is denied.
IT IS SO ORDERED.