Opinion
No. A03-323.
Filed: December 30, 2003.
Appeal from the District Court, St. Louis County, File No. C8-02-603330.
Thomas R. Thibodeau, Jerome D. Feriancek, Thibodeau, Johnson Feriancek, Pllp, (for respondent).
James A. Wade, Jessica L. Durbin, Johnson, Killen Seiler, P.A., (for appellant).
Considered and decided by Klaphake, Presiding Judge, Willis, Judge, and Anderson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Respondent Keystone Bluffs, LLC (Keystone) moved to disqualify the law firm of Johnson, Killen Seiler, P.A. (JKS) from representing appellant Life Care Services, LLC (Life Care) in an arbitration between Keystone and Life Care, which was brought under the terms of a "client services agreement." Keystone moved to disqualify JKS from representing Life Care because one of JKS's attorneys, John Nys, had represented Keystone in 1999. Life Care opposed the motion to disqualify JKS.
The district court granted the motion, reasoning that while the attorneys involved "have differing recollections of the nature and extent of their various discussions, involvements, and the matters consulted upon, . . . all doubts must be resolved in favor of the affected client, Keystone Bluffs." Life Care appeals from the order requiring JKS to immediately withdraw from its representation.
Because the district court did not abuse its discretion in requiring JKS to withdraw under Minn. R. Prof. Conduct 1.9(a), we affirm.
FACTS
In February 1999, John Nys, an attorney with JKS, was retained by another attorney with the firm at the time, Thomas Thibodeau, to represent Keystone. Thibodeau was one of Keystone's founding partners.
According to an affidavit filed by Thibodeau, Nys was retained to "provide advice regarding the formation of the corporation as well as construction financing, permanent financing, management and other issues related to daily business operation." Thibodeau further indicated that Nys was "specifically questioned about the Life Care contractual arrangement with Keystone," "provided advice regarding that agreement," and "specifically discussed whether it was in the interest of Keystone to enter into such a financial relationship with Life Care." Finally, Thibodeau stated that "[t]hrough discussions about corporation and personal finances, Mr. Nys had access to information detailing the financial strength of Keystone and its shareholders."
By affidavit, the Vice President/Treasurer of Keystone, James Olson, confirmed Thibodeau's recollection of Nys'ss representation. Olson stated that Nys was "specifically retained by Keystone to provide advice regarding formation of the corporation as well as initial questions regarding management companies and other issues related to daily business operation." Olson further stated that he "recall[ed] conversations with Mr. Nys regarding the terms of the Life Care client services agreement and other business matters" and that "[t]hrough discussions about corporation and personal finances, Mr. Nys had access to information detailing the financial strength of Keystone and its shareholders."
Nys's recollection of his representation of Keystone differs significantly from the recollections of Thibodeau and Olson. By affidavit, Nys stated that he "was retained to prepare Articles of Organization for Keystone as a limited liability company in February of 1999." Nys further stated that he "was involved in a transaction between Keystone and U.S. Bank in 1999" and that he "reviewed and commented on several documents necessary for Keystone to obtain a loan from U.S. Bank, attended the loan closing, and drafted the documents necessary to close on the loan." Nys's representation of Keystone "ended on July 9, 1999, eight days after the closing on the loan from U.S. Bank."
On August 24, 1999, Keystone entered into the "client services agreement" with Life Care that is the subject of this arbitration. Under the terms of this agreement, Life Care agreed to provide management services relating to the operation of an assisted living community owned by Keystone. The parties agreed to submit to arbitration any dispute, claim, or controversy arising out of the agreement or involving the interpretation or application of the agreement.
In December 1999, Thibodeau left JKS and formed a new law firm. In June 2000, Nys returned the Keystone file to Thibodeau. Jerome Feriancek, an attorney in Thibodeau's new firm, was retained to represent Keystone. In August 2002, Feriancek wrote a letter to Life Care advising that its agents had violated the terms of the parties' agreement by promising Keystone residents that their monthly rent charges would not be increased during the time they remained there. Feriancek demanded that the dispute be submitted to arbitration.
In September 2002, Feriancek learned that James Wade, an attorney with JKS, had been retained to represent Life Care in the arbitration. Wade was apparently brought in as local counsel by the Iowa law firm that had represented Life Care in 1999 when it entered into the agreement with Keystone. Feriancek requested that Wade, Nys, and JKS withdraw from representing Life Care.
Wade claims that he conducted a thorough investigation of the alleged conflict of interest and found nothing. He and Nys advised Keystone that their firm would not withdraw because there was no conflict.
Keystone thereafter moved to disqualify JKS from representing Life Care in the arbitration. The district court granted the motion based on affidavits, and this appeal followed.
DECISION
Although a district court's interpretation of the rules of professional conduct presents a question of law, its decision to disqualify a law firm under those rules is reviewed under an abuse of discretion standard. See Lennartson v. Anoka-Hennepin Indep. Sch. Dist., 662 N.W.2d 125, 129 (Minn. 2003) ("interpretation of court rules presents question of law"); M.M. v. R.R.M., 358 N.W.2d 86, 90 (Minn. App. 1984) (finding "no abuse of discretion" in district court's refusal to dismiss attorney due to possible conflict of interest). The court's factual findings are reviewed under a clearly erroneous standard and will not be disturbed even though a reviewing court might have arrived at a different conclusion in the first instance. Prod. Credit Ass'n v. Buckentin, 410 N.W.2d 820, 822 (Minn. 1987).
The rules of professional conduct provide that "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." Minn. R. Prof. Conduct 1.10(a). Rule 1.9 applies here and states in pertinent part:
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 would permit with respect to a client or when the information has become generally known.
Minn. R. Prof. Conduct 1.9.
The Minnesota Supreme Court has stated that rule 1.9 represents a codification of the three-prong test set out in Jenson v. Touche Ross Co., 335 N.W.2d 720 (Minn. 1983). Lennartson, 662 N.W.2d at 132 (citing Prod. Credit Ass'n, 410 N.W.2d at 825). While Jensen remains viable, the supreme court has held that in the event of a conflict between an analysis under Jensen and the rules, the rules control. Lennartson, 662 N.W.2d at 135.
Keystone asserts that disqualification is automatic or mandated under rule 1.9. We disagree. The district court continues to have discretion when considering whether disqualification is proper under rule 1.9. "The scope of a `matter' for purposes of Rule 1.9(a) may depend on the facts of a particular situation or transaction" and "[t]he lawyer's involvement in a matter can also be a question of degree." Minn. R. Prof. Conduct 1.9 cmt. 1985.
Life Care asserts that disqualification is not required here because the subject matter in the instant arbitration is not the same or substantially related to the subject matter of the prior representation. It reasons that the arbitration involves representations allegedly made by Life Care agents to residents at Keystone's assisted living facility that their monthly rental charges would not increase, a claim that is unrelated to the client services agreement between Keystone and Life Care. Life Care further reasons that Nys was retained to assist Keystone with its organization and a financial transaction, and that he was not involved in the drafting of the client services agreement.
Keystone, on the other hand, asserts that Nys was involved in specific conversations regarding the agreement and confidential financial information of Keystone and its shareholders. Keystone further claims that Nys's knowledge of Keystone's financial background could give an unfair advantage to Life Care during the course of these proceedings.
Based on its review of the evidence, the district court found that Nys was retained to advise Keystone on its financing and proposed contracts. While Nys's affidavit testimony to the contrary certainly seems reasonable, the district court chose to credit the opposing testimony of Thibodeau and Olson, who stated that Nys advised Keystone regarding the very contract that is the subject of the underlying dispute. Because we must defer to the district court's credibility determinations, we cannot conclude that the court's findings on this issue are clearly erroneous. See Minn. R. Civ. P. 52.01; Prod. Credit Ass'n, 410 N.W.2d at 822.
Thus, under rule 1.9(a), the subject matter of the arbitration is arguably the same, or is at least substantially related, to Nys's former representation of Keystone. In addition, in its representation of Life Care, JKS is now advancing a position directly contrary to that of Nys's former client, Keystone. Finally, Keystone has not consented to this arrangement. We therefore conclude that the district court did not abuse its discretion by requiring JKS to withdraw from its representation of Life Care.
Given our decision that the district court's decision was proper under rule 1.9(a), we need not discuss whether disqualification would have been proper under rule 1.9(b) or under Jenson. Affirmed.