Opinion
CIVIL ACTION 02-8442
August 30, 2004
MEMORANDUM
This case involves a claim by an employee profit-sharing plan that defendants mismanaged its investments. Defendant Forefront Capital Advisors, LLC seeks to disqualify plaintiff's counsel from also representing third-party defendants Alvin and James Gutman, who are the principals of plaintiff Pressman-Gutman Co., Inc.
A court's power to disqualify an attorney is based on its inherent authority to supervise the professional conduct of attorneys appearing before it. U.S. v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980) (citations omitted). In considering a motion to disqualify, the court should determine if disqualification "is an appropriate means of enforcing the applicable disciplinary rule." Id. The court "should consider the ends that the disciplinary rule is designed to serve and any countervailing policies, such as permitting a litigant to retain the counsel of his choice and enabling attorneys to practice without excessive restrictions." Id. (citations omitted). The party seeking to disqualify opposing counsel must clearly demonstrate that continued representation would be impermissible, Cohen v. Oasin, 844 F.Supp. 1065, 1067 (E.D.Pa. 1994) (citation omitted), but doubts as to the existence of a conflict of interest should be resolved in favor of disqualification. See Int'l Bus. Mach. Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978) (citations omitted).
The Rules of Professional Conduct adopted by the Supreme Court of Pennsylvania serve as the standards for professional conduct that attorneys appearing before this court must comply with.Commonwealth Ins. Co. v. Graphix Hot Line, Inc., 808 F.Supp. 1200, 1203 (E.D.Pa. 1992); E.D.Pa.R. 83.6(IV)(B). Rule 1.7 of the Pennsylvania Rules of Professional Conduct, entitled Conflict of Interest: General Rule, states:
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after full disclosure and consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
Plaintiff brought this ERISA action on behalf of its profit-sharing plan and all of its participants and beneficiaries against defendants to recover losses sustained by the plan. Plaintiff first presents a breach of fiduciary duty claim against defendant First Union National Bank, the trustee of the plan, and defendant Forefront, defendant First Union's "sub-advisor." According to plaintiff, defendants failed to utilize proper research and analysis in the management of the plan's assets, causing substantial losses. Plaintiff also presents an equitable estoppel claim, stating that it reasonably and detrimentally relied on defendants' misrepresentations that they were skilled, knowledgeable, professional, and conscientious in the management of the plan's assets. Plaintiff alleges that its reliance on defendants' misrepresentations resulted in substantial losses.
On April 22, 2003, defendant First Union filed a third-party complaint against third-party defendants Alvin and James Gutman, individually and as officers of the plaintiff company and its profit-sharing plan. Defendant First Union argues that to the extent its management of the plan was imprudent, third-party defendants breached their fiduciary duties and were negligent by breaching their duties to issue instructions to defendants which would not injure, jeopardize, or impair the plan's assets. Defendant First Union demands judgment in its favor and against third-party defendants for contribution and/or indemnity in the event that it is found liable to plaintiff.
On August 1, 2003, defendant First Union filed a motion to disqualify Hamburg and Golden, P.C. from jointly representing both plaintiff and third-party defendants under the conflict of interest rule. On September 11, 2003, the court denied the motion, indicating that there was insufficient evidence to disqualify counsel at that time. On March 4, 2004, defendant Forefront filed a renewed motion to disqualify Hamburg and Golden from the joint representation.
This court finds that plaintiff's potential claims against third-party defendants present directly adverse interests. Plaintiff's settlement opportunities may well be adversely affected by joint representation. Plaintiff's avenues of obtaining recovery are adversely affected by Hamburg and Golden's joint representation of plaintiff and third-party defendants because third-party defendants may, in fact, be responsible for the plaintiff plan's losses.
This court finds it unreasonable for Hamburg and Golden to believe it can adequately represent both plaintiff and third-party defendants. Plaintiff is an employee profit-sharing plan, comprised of a group of employees and former employees. This group has in excess of a hundred member and includes Alvin and James Gutman, the principals of the company. There is no question that the Gutmans worked with defendants on the plan's investments. Defendant First Union has introduced the claim that the Gutmans' investment choices, not defendants' investment choices, are responsible for the plan's alleged losses. The court's review of the record reveals that plaintiff has not consented to Hamburg and Golden's joint representation of plaintiff and third-party defendants. Therefore, Hamburg and Golden is disqualified from representing third-party defendants in this action.