Petition — McAlpin v. Armstrong
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IN THE
Suprene Court of the United
OCTOBER TERM, 1980
Crovis McAurin and
Capita GrowTH Reau Estate Funp, Inc.,
Petitioners,
—against—
MicHaeL F, Armstrona, as Receiver of Capita, GrowTH
Company, 8.A. (Costa Rica) and Capita GrowtH Com-
pany, S.A. (Panama), Rosert Moorz, suing on his own
behalf and derivatively on behalf of Carita GrowtH
Funp and Francesco GaLoraro, suing on his own behalf
and derivatively on behalf of CaprraL GrowrH Rea
Estate Funp, Inc.,
Respondents.
On Writ or CERTIORARI TO THE UNITED STATES
Court oF APPEALS FOR THE SeEconp Circuit
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
J. Ropert Lunney
Lunngey & Crocco
641 Lexington Avenue
New York, New York 10022
(212) 355-0800
Attorneys for Petitioners
Supreme Court of the United States
No.
October Term, 1980
4
v
Crovis McAupin and
CapitaL GrowtH Reau Estate Funp, Inc.,
Petitioners,
—against—
MicuaEL F. Armstrone, as Receiver of CaprraL GROWTH
Company, S.A. (Costa Rica) and Capita, GrowtH Com-
pany, S.A. (Panama), Rosertr Moors, suing on his own
behalf and derivatively on behalf of Capita, GrowTH
Funp and Francesco GaLoraro, suing on his own behalf
and derivatively on behalf of Capitan GrowtH REAL
Estate Funp, Inc.,
Respondents.
a
vv
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Questions Presented
1. Whether an order denying a motion to disqualify
counsel is a final decision in a collateral matter as to qualify
for appeal pursuant to 28 U.S.C. § 1291 under the “col-
iil
lateral order” doctrine as set forth in Cohen v. Beneficial
Industrial Loan Corp., 337 U.S. 541 (1949).!
2. Whether the law firm of a former government lawyer
who, while employed by the government, had substantial
direct, personal and supervisory involvement in a directly
related case, may build a “Chinese Wall” between itself
and the former government lawyer who is personally dis-
qualified from acting as counsel and thus create a double
ethical standard for former government lawyers and
lawyers in private practice.
' The importance of this question is highlighted by the fact that the
Court has granted certiorari on a similar question. Jn Re Multi-Piece
Rim Products Liability Litigation, 612 F.2d 377 (8th Cir. 1980),
cert. granted sub nom. Tite Firestone Tire & Rubber Company v.
Risjord, 48 U.S.L.W. 3726 (U.S. May 13, 1980). In fact, the
Second Circuit discussed the grant of certiorari in Firestone Tire but
chose to make its current view on disqualification known and not
await this Court’s guidance.
TABLE OF CONTENTS
Peer ree eee tree
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Reasons for Granting the Writ ..................
I. Certiorari Is Required to Resolve a Conflict
Among the Circuits as to the Appealability of
an Order Denying Disqualification of Counsel
II. This Court in Exercise of Its Supervisory
Power Should Clarify the Ethical Standards
Governing Former Government Lawyers and
Their Law Firms When the Former Govern-
ment Lawyer Had Substantial Direct, Personal
and Snpervisory Involvement in a Matter Di-
rectly Related to a Matter Now Being Prose-
Deere rea een
RE ES SARE AG PR I RE SSR Te A OROEN Sete
APPENDIX
Appendix A—En Bane Decision of the Court of
Appeals for the Second Circuit, Decided June
EE = CUS 0h 0 Chee Okay cee nae ebeo ea eeeees
Appendix B—Panel Decision of the Court of Ap-
peals for the Second Circuit, Decided September
EEE CORR eee Pee er are Se
Appendix C—Decision of the United States Dis-
trict Court for the Southern District of New
York, Dated December 5, 1978 .............
10
19
Al
A50
iv
PAGE
TABLE OF AUTHORITIES
Cases
Aetna Casualty and Surety Co. v. United States,
570 F.2d 1197 (4th Cir. 1978), cert. denied, 439 U.S.
A, | ee Oe eee ee ee rae 8
Armstrong v. McAlpin, 461 F. Supp. 622 (S.D.N.Y.
1978), 606 F.2d 28 (2d Cir. 1979), —— F.2d ——
$B Me tg PoTTEReREE TTT eT Tee 2
Armstrong v. McAlpin, [1978 Transfer Binder] CCH
Fed.Sec.L.Rep. 96,323 (S.D.N.Y. February 1,
SASS nae vue es nee uhinss LANTERN SEES AOE EES 3,7
Brown & Williamson Tobacco Corp. v. Daniel Inter-
national Corp., 563 F.2d 671 (5th Cir. 1977) .... 8
Central Milk Producers Cooperative v. Sentry Food
Stores, Inc., 573 F.2d 988 (8th Cir. 1978) ........ 14
Cheng v. GAF Inc., Slip Op., No. 1199 (2d Cir., Docket
No. 80-7264, August 26, 1980 ......c.cscesccecces 13
Cinema 5 Ltd. v. Cinerama Inc., 528 F.2d 1384 (2d
EE Se ea ade aaa Aaah < eaae saaan eens 13
Cohen v. Beneficial Industrial Loan Corp., 337 U.S.
I ae Cages 6 ici van bho, whieh wats. ii, 8
Community Broadcasting of Boston, Inc. v. Federal
Communications Commission, 546 F.2d 1022 (D.C.
Ree aeG ios ee teen aks wo ateee awake os 8
Cord v. Smith, 338 F.2d 516 (9th Cir. 1964), clarified,
Poe ee | ee ee 9
Fleisher v. Phillips, 264 F.2d 515 (2d Cir. 1959),
cert. denied, 359 U.S. 1002 (1959) .............. 9
Fullmer v. Harper, 517 F.2d 20 (10th Cir. 1975) .... 8
Fund of Funds, Ltd. v. Arthur Andersen & Co., 435
F. Supp. 84 (S.D.N.Y. 1977), aff’d in pertinent
part, 567 F.2d 225 (2d Cir. 1977) .............. 12, 13
Greene v. Singer Co., 509 F.2d 750 (3rd Cir. 1971) .. 8
PAGE
Harmar Drive-In Theater v. Warner Bros. Pictures,
239 F.2d 555 (2d Cir. 1956), cert. denied, 355 U.S.
We SRGED 04k knvdcacdsscvannchwudkasesbinesies 9
In re Continental Investment Corporation, Civil No.
80-1362 (1st Cir. argued September 4, 1980) .... 7
In re Multi-Piece Rim Products Liability Litigation,
612 F.2d 377 (8th Cir. 1980), cert. granted sub nom.
The Firestone Tire € Rubber Company v. Risjord,
48 U.S.L.W. 3726 (U.S. May 13, 1980) .......... ii, 8-9
Kesselhaut v. United States, 555 F.2d 791 (Ct. Cl.
BOE so cnkinssccanawaheecenans deus eee 13
Laskey Bros. of W. Va. v. Warner Bros. Pictures,
224 F.2d 824 (2d Cir. 1955), cert. denied, 350 U.S.
Be CE sis 0's nd vans ka he deeaRctascaueereues 13
Marco v. Dulles, 268 F.2d 192 (2d Cir. 1959) ....... 9
Melamed v. ITT Continental Baking Co., 592 F.2d
ee Cr SE EE bv chun a Ghsueuess cues enasuens 8
Roadway Express Inc. v. Piper, 48 U.S.L.W. 4836
Cen: ee: Wk EN oé cd ewGns busca beeeceee ben ll
Sapienza v. New York News, Inc., 481 F. Supp. 676
Cs SUE KaAN NA sd ane sasnaceceuesaebaemes 13
Silver Chrysler Plymouth, Inc. v. Chrysler Motors
Corp., 496 F.2d 800 (2d Cir. 1974) (en banc) .... 9
Telos, Inc. v. Hawaiian Telephone Co., 397 F. Supp.
rrr re nrc 12
Traylor v. City of Amarillo, Texas, 335 F. Supp. 423
Cee NR ED 6 5 oe daha cansads eaeeiaeenes 12
United States v. Kitchin, 592 F.2d 900 (5th Cir. 1979),
cert. denied, 444 U.S. 843 (1979) ............... 18
United States v. McDonnell Douglas Corp., Criminal
No. 79-516 (D.D.C. filed June 4, 1980) .......... 13-14
United States v. Standard Oil Company, 136 F. Supp.
See GURNEE SND ines wiewcavcukcocenccumenea 11
Westinghouse Electric Corp. v. Kerr-McGee Corp.,
580 F.2d 1311 (7th Cir. 1978), cert. denied, 439 U.S.
SEE Shea ioe cine eh baeObr nda sees ceness
Statutes and Regulations
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Other Authorities
ABA Code of Professional Responsibility
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ce EAP RC cH Ae eas Or eb oP
ara bade ace he eke k ede CAG Seed oes
Model Rules of Professional Conduct 1.11 (Diseus-
sion Draft), American Bar Association Commis-
sion on Evaluation of Professional Standards
(January 30, 1980)
o¢ 4.242 2 2't 6.8.04 68 2.0-6.6.3.60 646 02:08 6 @
Note, “Conflicts of Interests and the Former Govern-
ment Attorney,” 65 Geo. L.J. 1025 (1977)
Rule 5, Local Rules of Southern and Eastern Dis-
tricts of New York
C.2° 8 36.26.98 6 6' 4.0 6:8
PAGE
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16
Opinions Below
The Memorandum Decision of United States District
Judge Henry F. Werker (Southern District of New York)
on the motion of Clovis McAlpin and Capital Growth Real
Estate Fund, Inc.,? to disqualify the law firm of Gordon
Hurwitz Butowsky Baker Weitzen & Shalov is reported at
461 F. Supp. 622 (S.D.N.Y. 1978) and appears at Appendix
C3 The opinion of a panel of the United States Court of
Appeals by Judges Jon O. Newman, Ellsworth A. Van
Graafeiland and Dudley B. Bonsal‘ is reported at 606 F.2d
28 (2d Cir. 1979) and appears at Appendix B. The opinion
of the United States Court of Appeals en banc is reported at
—— F.2d —— (2d Cir. 1980) and appears at Appendix A.
Jurisdiction
The en banc opinion of the Court of Appeals is dated and
was entered on June 20, 1980. (App. A, p. 1) Jurisdiction
of this Court is invoked under 28 U.S.C. § 1254(1).
Statute Involved
United States Code, Title 28 § 1291.
“Final decisions of the district courts. The courts of ap-
peals shall have jurisdiction of appeals from all final deci-
sions of the district courts of the United States, the United
States District Court for the District of the Canal Zone, the
District Court of Guam, and the District Court of the Virgin
2 Defendants HS Equities, Inc, EHG Enterprises, Inc., Ariel E.
Gutierrez, Enrique H. Guttierrez and Bradford Trust Company also
joined in the motion but did not join in the appeal.
3 References to the various appendices to this Petition will be
designated as ‘‘App. .” References to the Joint Appendix in
the Second Circuit Court of Appeals, submitted herewith are desig-
nated “——_ a”,
4 ye Bonsal, United States District Judge for the Southern Dis-
trict of New York, was sitting by designation.
Islands, except where a direct review may be had in the
Supreme Court.’’
Statement of the Case
This proceeding involves a motion to disqualify Gordon
Hurwitz Butowsky Baker Weitzen & Shalov (‘‘Gordon
Hurwitz’’) as counsel for respondents in the context of an
action alleging violations of the federal securities laws.
Gordon Hurwitz should be disqualified because one of its
members had direct personal supervision of the related
matter when with the Securities and Exchange Commission
(“SEC”). Jurisdiction in the United States District Court
allegedly rests on Section 27 of the Securities Exchange Act
of 1934, 15 U.S.C. § 78aa; Section 214 of the Investment
Advisers Act of 1940, 15 U.S.C. § 80-1 et seq.; 28 U.S.C.
§ 1331(a); 28 U.S.C. § 1832; 28 U.S.C. § 1337.
(a) Underlying Action
On September 17, 1976, more than two years after the
Receiver was appointed, respondents commenced this
action, which seeks damages in excess of $24,000,000 and
asserts that 30, mostly foreign, defendants, including peti-
tioners, committed fraudulent acts in violation of Section
10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78j(b), Rule 10b-5 promulated thereunder, 17 C.F.R.
§ 240.10b-5, Section 206 of the Investment Advisers Act,
15 U.S.C. § 80b-6 and Bahamian, Costa Rican and common
law. These alleged acts occurred outside the United States
and essentially involved foreign individuals and corpora-
tions having no connection with the United States.’
On April 22, 1977, respondents filed an amended com-
plaint. All or part of eight claims of the amended complaint
> Petitioners prosecute this petition without prejudice to their rights
to move to dismiss the second amended complaint on the ground that
the District Court lacks subject matter jurisdiction.
were dismissed by the Court. Armstrong v. McAlpin [1978
Transfer Binder], CCH Fed. Sec. L. Rep. {| 96,323 (S.D.N.Y.
Feb. 1. 1978).®
On April 3, 1978, respondents filed a second amended com-
plaint. This complaint too has been attacked on numerous
grounds by motions which are currently pending before the
District Court.
(b) Facts Underlying Disqualification
The Second Circuit is entitled to its own opinion but is
not entitled to its own facts. The Court, apparently reacting
to the so-called ‘‘amicus’’ briefs from ‘‘revolving door’’
lawyers, obscures the facts. Specifically, the Court’s “facts,”
unsupported by the record, equat: petitioners with Robert
L. Vesco and wrongfully accuse petitioners of fleeing to
Costa Rica to avoid prosecution.’ As a result, this Court
should look to the record to determine the real facts of this
action.
The following facts are undisputed:
1. From 1967 to October 1975 Theodore Altman, Esq.
(“Altman”) served on the staff of the SEC and during the
last three years was Assistant Director of the Division
of Enforcement.
2. While Assistant Director at the SEC, Altman directly
and personally supervised the investigation and SEC en-
forcement proceeding against the petitioners, including
6A more comprehensive statement of the underlying claims is set
forth in this opinion.
7 Indeed, if, as the Second Circuit stated, the activities of McAlpin
and Vesco are related, respondents’ argument that they have built a
“Chinese Wall” around Altman is without merit since respondents
admit that Altman, while with the government and at Gordon Hur-
witz, was and is substantially involved in Vesco matters. (174a)
McAlpin, which proceedings are the basis of the instant
action.®
3. Michael F. Armstrong, respondent, was appointed Re-
ceiver at the specific request of the SEC while Altman was
in direct and personal supervision of the matter.
4. Immediately after leaving the SEC in October 1975
Altman joined Gordon Hurwitz, respondents’ attorneys.
5. Shortly thereafter, in March 1976, Armstrong, the
Receiver, requested Altman’s firm to represent him.
6. Altman is disqualified from acting as counsel.
7. All of Altman’s confidential SEC records and work
product consisting of thousands of pages of documents,
files and testimony relating to this action have been turned
over to his firm but have been denied to petitioners.
8. Gordon Hurwitz has held numerous conferences with
Altman’s SEC staff which conducted and which continues
to prosecute the SEC enforcement proceeding.
9. On June 1, 1978, petitioners having obtained court-
approved extensions of time to respond, first appeared in
this action. On that day they filed their motion to dis-
qualify Gordon Hurwitz.’
8 The Solicitor General on behalf of the United States in his amicus
brief to the Court of Appeals admits that Altman ‘‘supervised and had
direct personal involvement in the investigation of the defendants
in the present action.”” Memorandum of the Solicitor General in his
Petition for Rehearing and Suggestion for Rehearing en banc, pp.
1-2, dated October 1979.
9 As Judge Newman properly stated in his dissent to the en banc
decision, “the onus [for any delay] quite properly rests with [re-
spondents counsel], which undertook a representation in the face of
the Code’s clear prohibition.” App. A, p. 48. In any event, the most
substantial delay was by the Receiver who, although appointed in
September 1974, did not file this action until two years later, Sep-
tember 1976. To date issue has not been joined and minimal dis-
covery has taken place.
From 1972 to 1975 Altman conducted” and had direct,
personal supervision of the SEC investigation of In the
Matter of Clovis W. McAlpin, Capital Growth Fund,
Capital Growth Company, S.A., New Providence Securities,
Ltd. and New Providence Securities, Ltd., S.A., which is
directly related to this action. Clovis W. McAlpin, Capital
Growth Fund, New Providence Securities, Ltd. and New
Providence Securities, Ltd., S.A. are all named as de-
fendants by the Receiver. In connection with the SEC’s
investigation and subsequent litigation, SEC staff attorneys
reported to Altman and he in turn “advised and gave
direction” to them and “signed documents, including cor-
respondence.” (150a-15la)
During the SEC investigation, Mr. McAlpin, an alien
residing in Costa Rica, received demands (98a, 103a) from
Altman seeking compliance with an SEC subpoena which
had been purportedly served by mail on May 13, 1974.
(98a-99a) On August 6, 1974, less than a month before
the SEC enforcement action was commenced, Altman again
demanded that McAlpin comply with the subpoena. (105a)
Altman stated:
“I should point out that we have already gathered
substantial information in this investigation. Your
testimony would add to that body of information.”
On September 3, 1974, as a result of the investigation,
the enforcement proceeding, SEC v. Capital Growth Com-
pany, S.A, (Costa Rica), 74 Civ. 3779 (CES), was com-
menced (181a) and is still pending in the Southern District
10 The SEC by ee Order Designating Additional Officers
dated January 30, 1974, authorized Altman to take evidence and
perform all other duties in connection with the conduct of the investi-
gation of /n the Matter of Clovis McAlpin, et al. (100a)
of New York." Altman appears us an attorney of record
on the SEC comp’ nt as follows:
“Theodore Altman
Assistant Director
Securities and Exchange Commission
Division of Enforcement
Washington, D.C. 20549.” (198a)
On September 24, 1974, the District Court in SEC v.
Capital Growth Company, S.A. (Costa Rica), et al.," and
at the specific request of Altman’s staff, appointed Michael
F. Armstrong, respondent, the Receiver of the Capital
Growth Companies. (88a) On October 23, 1974, the District
Court appointed the Receiver’s own law firm, Barrett Smith
Shapiro Simon & Armstrong, “the Armstrong Firm”, to
act as counsel to the Receiver. (13la) Indeed, it is apparent
that for the next year Armstrong and his firm worked
closely with Altman’s SEC staff concerning this litigation.
Upon leaving the SEC in October 1975, Altman niamedi-
ately joined Gordon Hurwitz. (15la) Shortly thereafter,
: . March 1976, the Receiver requested Altman’s firm to act
as litigation counsel because the Armstrong firm had a
conflict of interest. Despite this conflict, the Armstrong firm
continues in this action along with Altman’s firm. App.
A, p. 2.
The Court, the Receiver, Gordon Hurwitz and the SEC
all knew of Altman’s direct and substantial responsibility
in the SEC proceedings against McAlpin and other de-
'! McAlpin, contending that the Court lacked jurisdiction, as he
does in the instant action, did not appear and a default judgment was
entered against him.
12 All the defendants in the SEC action are parties in this action.
~]
fendants.” Nevertheless, the Receiver’s application to re-
tain Gordon Hurwitz was granted on May 13, 1976. (127a)
Although some discussion was had in the moving papers
concerning screening, the order (127a) required absolutely
no screening, set up no safeguards for the benefit of the
judiciary, public or parties, nor provided any policing of
violations by Gordon Hurwitz. In short, the order approved
the Receiver’s retention of Altman’s firm without any guide-
lines.
In addition to having Altman as a member of the firm,
Gordon Hurwitz has been given all of Altman’s confidential
SEC records with respect to the investigation and enforce-
ment proceeding conducted and supervised by him. (82a)
Petitioners, on the other hand, have been denied access
to these files by the SEC which stated that “these records
would not be further disclosed without prior Commission
approval.” * (110a) Further, Gordon Hurwitz has held
numerous conferences with Altman’s SEC staff which con-
ducted and which continues to prosecute the SEC proceed-
ing. (82a)
13 Apparently the en banc decision takes comfort in the fact that
the SEC “approved” the retention of Altman’s firm by the Receiver.
(147a) However, even the District Court which denied the motion
to disqualify dismissed this contention by stating “. . . the SEC cannot
waive for [petitioners their objections to the qualifications of [re-
spondents’] counsel here.” Armstrong v. McAlpin, App. C, p. 71.
Interestingly, the author of the “I’m OK, you’re OK” letter from the
SEC, Marvin Jacob and his law firm, are now ‘the subject of a motion
to disqualify because of Jacob’s activities while an SEC lawyer. /n re
Continental Investment Corporation, Civil No. 80-1362 (1st Cir.,
argued September 4, 1980). Further, the en banc decision overlooks
the fact that the ‘‘appearance of impropriety .. . results when govern-
ment agency attorneys, who later may seek private employment, make
waiver decisions for their own agency.” Note, “Conflicts of Interest
_ ~ Former Government Attorney,” 65 Geo.L.J. 1025, 1051
(1977).
14 This material, denied to defendants by both the SEC and Gordon
Hurwitz (109a, 156a) consists of ‘‘thousands of pages of documents,
files and testimony .. .” (82a).
Despite Altman’s direct and substantial participation in
the SEC proceedings related to this action and the complete
integration of the SEC and Gordon Hurwitz, the Court of
Appeals for the Second Circuit en banc refused to disqualify
Gordon Hurwitz from acting as respondents’ counsel.
Reasons for Granting the Writ
I.
Certiorari Is Required to Resolve a Conflict Among
the Circuits as to the Appealability of an Order Deny-
ing Disqualification of Counsel.
There is a sharp division among the circuits as to the
appealability of an order denying disqualification of
counsel.
Of the circuits which have considered the question of
appealability, five have held an order denying disqualifica-
tion of counsel to be appealable as of right pursuant to
28 U.S.C. § 1291 and the “collateral order” doctrine set
forth in Cohen v. Beneficial Industrial Loan Corp., 337 U.S.
541 (1949). Greene v. Singer Co., 509 F.2d 750 (3d Cir.
1971); Aetna Casualty and Surety Co. v. United States,
570 F.2d 1197 (4th Cir. 1978), cert. denied, 439 U.S. 821
(1978) ; Brown & Williamson Tobacco Corp. v. Daniel Inter-
national Corp., 563 F.2d 671 (7th Cir. 1976); Fullmer v.
Harper, 517 F.2d 20 (10th Cir. 1975).
Five circuits, however, have coneluded that such an
order is not appealable. Community Broadcasting of
Boston, Inc. v. Federal Communications Commission, 546
F.2d 1022 (D.C. Cir. 1976); Melamed v. ITT Continental
Baking Co., 592 F.2d 290 (6th Cir. 1979); In re Multi-Piece
Ltiim Products Liability Litigation, 612 F.2d 377 (8th Cir.
1980), cert. granted, sub nom. The Firestone Tire & Rubber
Company v. Risjord, 48 U.S.L.W. 3726 (U.S. May 13, 1980) ;
Cord v. Smith, 338 F.2d 516 (9th Cir. 1964), clarified, 370
F.2d 418 (9th Cir. 1966).
The importance of this issue is highlighted by this Court’s
decision to grant certiorari in the Firestone Tire case. In-
deed, the Second Circuit’s own checkered history on the
appealability of orders denying disqualification of counsel
cries out for final resolution.
Over the past 25 years the Second Circuit has flip-flopped
three times on the issue of appealability of motions to dis-
qualify counsel. In Harmar Drive-In Theater v. Warner
Bros. Pictures, 239 F.2d 555 (2d Cir. 1956) the Court
squarely faced the issue and found such orders appealable.
However, in Fleischer v. Phillips, 264 F.2d 515 (2d Cir.
1959), cert. denied, 359 U.S. 1002 (1959) the Court chose
not to follow Cohen or Harmar and rejected appealability.
The Fleischer opinion was followed that same year by
Marco v. Dulles, 268 F.2d 192 (2d Cir. 1959). In Marco
the Second Circuit again held that orders denying motions
to disqualify were not appealable.
A unanimous en bane Second Cireuit in Silver Chrysler
Plymouth Inc. v. Chrysler Motors Corp., 496 F.2d 800 (2d
Cir. 1974) overruled the Fleischer and Marco decisions and
treated orders granting and denying motions to disqualify
counsel in the same manner. The en banc Court by Chief
Judge Kaufman stated:
“Now in 1974 we believe that Cohen requires a return
to the wisdom of Harmar and so we uphold the ap-
pealability of an order denying disqualification, just
as we have long upheld the appealability of an order
granting this. There is no sufficient basis for dis-
tinguishing between the two. In both situations the
order is collateral to the main proceeding yet has
10
grave consequences to the losing party, and it is
fatuous to suppose that review of the final judgment
will provide adequate relief.” Jd. at 805.
In the instant case, however, the Second Circuit has
again chosen to change course and hold that orders denying
motions to disqualify counsel are no longer appealable.
This Court’s grant of certiorari in the J’irestone Tire case
indicates its concern that this important procedural ques-
tion be decided once and for all.
However, ,the granting of certiorari in Firestone Tire
should not preclude review of the instant case by the
Court since the failure to hear this appeal would preclude
review of the important substantive issue in this case,
namely the abuse by government lawyers of the “revolving
door” between government and private practice. This issue
of critical importance to both the bar and the public
deserves this Court’s attention.
This Court in Exercise of Its Supervisory Power
Should Clarify the Ethical Standards Governing
Former Government Lawyers and Their Law Firms
When the Former Government Lawyer Had Substan-
tial Direct, Personal and Supervisory Involvement in
a Matter Directly Related to a Matter Now Being
Prosecuted by His Firm.
Despite the undisputed fact that Altman supervised and
had direct personal involvement in the SEC investigation
and action related to the instant case, the Second Circuit
refused to disqualify Gordon Hurwitz from acting as re-
spondents’ counsel. This holding misapplies the Code of
Professional Responsibility and the well settled case law
11
holding that disqualification of one member of the firm dis-
qualifies the entire firm. Indeed the Second Circuit has
created a double standard of ethical conduct, one for gov-
ernment lawyers and another for private practitioners. This
Court in its exercise of supervisory powers over the ethical
conduct of attorneys, Roadway Express Inc. v. Piper, 48
U.S.L.W. 4836 (U.S. June 24, 1980), should grant this peti-
tion to correct the uncertainty which the Second Circuit’s
en banc decision has created and to give guidance to the
bench and bar concerning this serious question.
Disciplinary Rule 9-101(B) of the Code of Professional
Responsibility provides that:
“Ta] lawyer shall not accept private employment in
a matter in which he had substantial responsibilty
while he was a public employee.”
Further, Disciplinary Rule 5-105(D) of the Code of Pro-
fessional Responsibility provides that:
“Ti]f a lawyer is required to decline employment or
to withdraw from employment under a Disciplinary
Rule, no partners, or associate, or any other lawyer
affiliated with him or his firm may accept or continue
such employment.”
In United States v. Standard Oil Company, 136 F. Supp.
345 (S.D.N.Y. 1955), then District Judge Kaufman, on a
motion to disqualify defendant’s counsel who previously
served as government counsel for the Paris office of the
Economie Cooperation Administration, stated:
“(ijf he [the former government attorney] is not
qualified to act, his firm [Sullivan & Cromwell] would
be disqualified regardless of his participation, under
the partnership-imputed knowledge theory [of
Laskey Bros.|” Id. at 366, n. 43.
12
Further, in J'elos, Inc. v. Hawatian Telephone Co., 397 F.
Supp. 1314 (D. Hawaii 1975) the court disqualified plain-
tiff’s attorney and his firm from participating in a civil
action when the attorney formerly had been employed by the
State, as a Deputy Attorney General, and took part in an
antitrust action substantially related to the civil action. In
disqualifying the firm as well as the individual attorney,
the court stated:
‘‘Ti]t is axiomatic that what one member of a firm
cannot do, the firm cannot do.’’ Jd. at 1318
See also, Traylor v. City of Amarillo, Texas, 335 F. Supp.
423 (N.D. Texas 1971).
Further, in Fund of Funds v. Arthur Andersen & Co.,
435 F. Supp. 84 (S.D.N.Y. 1977), aff’d in pertinent part,
567 F.2d 225 (2d Cir. 1977), Judge Stewart in disqualifying
counsel rejected screening by a Chinese Wall, and stated:
‘*fijt is apparent from reading the deposition testi-
mony of the Morgan Lewis attorneys, that Morgan
Lewis takes the position that such adverse repre-
sentation within a firm of their size does not require
disqualification because a ‘Chinese Wall’ was built in
the firm between those attorneys representing Fund
of Funds and those representing Andersen. They
assert that no information passed between the two
groups of attorneys and thus that no confidential
information was disclosed. First, the Court finds
that such a ‘Chinese Wall’ cannot be built within a
single law firm.’’ 7d. at 96
On appeal, the Second Circuit, by then Chief Judge Kauf-
man, approved the District Court’s conclusion:
‘*Morgan Lewis argued below that it built a Chinese
Wall within the firm and that no information passed
13
between the two groups of attorneys and thus that
no confidential information was disclosed. The Court
below [Judge Stewart] found that no such ‘Chinese
Wall’ could be created in a single firm. We incline
to agree.’’ Fund of Funds, Ltd. v. Arthur Andersen
& Co., 567 F.2d 225, 229 n.10 (2d Cir. 1977)
The rationale for disqualifying a firm when one member
of the firm is disqualified is delineated in Laskey Bros. of
W. Va. v. Warner Bros. Pictures, 224 F.2d 824 (2d Cir.
1955), cert. denied, 350 U.S. 932 (1956). In Laskey Bros.
the court, by Chief Judge Clark, stated:
‘*{wJithin the framework of [a] partnership the fact
of access to confidential information through the
person of the partner with such specialized knowledge
is sufficient to bar the other partners, whether or not
they actually profit from such access.” Jd. at 826-827
The rejection of the Chinese Wall theory has been clear
and consistent. Laskey Bros. of W. Va. v. Warner Bros.
Pictures, supra; Cinema 5 Ltd. v. Cinerama Inc., 528 F.2d
1384 (2d Cir. 1976); Westinghouse Electric Corp. v. Kerr-
McGee Corp., 580 F.2d 1311 (7th Cir. 1978), cert. denied,
439 U.S. 955 (1978); Sapienza v. New York News Inc., 481
F. Supp. 676 (S.D.N.Y. 1979). By adopting the Chinese
Wall the Second Circuit has erased the clear bright line
established by Canon 9 which provides that ‘‘[a] lawyer
should avoid even the appearance of professional im-
propriety.”
In spite of the overwhelming precedent, the Second Cir-
cuit has now chosen to treat former government lawyers
more favorably than private practitioners."
15 This double standard has also been erroneously adopted by the
Court of Claims in Kesselhaut v. United States, 555 F.2d 791 (Ct.
Cl. 1977) and the District Court for the District of Columbia, United
(footnote continued on following page)
14
The Second Cirecuit’s unseemly double standard is
clearly manifested in Cheng v. GAF Corporation, Slip Op.,
No. 1199 (2d Cir., Docket No. 80-7254, August 26, 1980). In
Cheng the Second Circuit disqualified the firm representing
GAF because one of the attorneys employed by the firm had
been previously employed by a legal services office which
represented Cheng. In disqualifying GAF’s counsel the
Second Circuit by Judge Meskill totally rejected the
“Chinese Wall” stating:
“Although Gassel may not be personally involved in
the Cheng defense, he is a member of a relatively
small firm. The matter involved in his prior exposure
to Cheng while at [legal services] is still being
actively pursued by attorneys for GAF at the Ep-
stein firm. Despite the Epstein firm’s protestations,
it is unclear to us how disclosures, admittedly in-
advertent, can be prevented throughout the course of
this representation. Unlike many disqualification
motions that appear before this Court, here there
exists a continuing danger that Gassel may uninten-
tionally transmit information he gained through his
prior association with Cheng during his day-to-day
contact with defense counsel. Citations omitted. If
after considering all of the precautions taken by the
(footnote continued from preceding page)
States v. McDonnell Douglas Corp., Criminal No. 79-516 (D.D.C.,
filed June 4, 1980). Cf., Central Milk Producers Cooperative v.
Sentry Food Stores, Inc., 573 F.2d 988 (8th Cir. 1978) in which the
court refused to disqualify a firm when two of the firm’s associates
had previously worked on a related matter at the Justice Department
since the moving party approved the use of screening procedures. In
the instant case, however, no defendant approved any alleged “screen-
ing procedure.” In addition, the Court in Central Milk by Chief
Judge Stephenson, concluded :
“Ta]lthough we have determined that disqualification was not
required in this case, our opinion should not be construed as
an approval of the practice involved in this case which necessi-
tates a probe of the outer limits of what constitutes permissible
professional conduct.” Jd. at 993.
15
Epstein firm this Court still harbors doubts as to
the sufficiency of these preventive measures, then we
can hardly expect Cheng or members of the public
to consider the attempted quarantine to be impene-
trable. Although we do not question Mr. Gassel’s
integrity or his sincere efforts to disassociate himself
from the Cheng case, we are not satisfied that under
the facts of this case the screening will be effective,
thus we look to Disciplinary Rule 5-105(D) and order
the district court to disqualify the Epstein firm.”
Id. at 8.
The principal justification asserted for such a double
standard is that the government’s efforts to hire qualified
attorneys may be hampered. However, not only is this
justification without foundation,'’® it does not cure the
public perception of impropriety by former government
attorneys.
Indeed, the main thrust of the recently enacted Ethics
in Government Act, 18 U.S.C. § 207, has been to eliminate
the “revolving door” between government service and
private practice. The legislative history of the Act justifies
this conclusion:
“18 U.S.C. 207 like other conflict of interest statutes,
seeks to avoid even the appearance of public office
being used for personal or private gain. In striv-
ing for publie confidence in the integrity of govern-
ment, it is imperative to remember that what
appears to be true is often as important as what is
true. Thus government in its dealings must make
every reasonable effort to avoid even the appearance
of conflict of interest and favoritism.
16 Even the Second Circuit deemed this argument “overly apocalyp-
tial” yet denigrated Canon 9 r4 ado a the arguments of the “re-
volving door” lawyers. App. A
16
“Today publie confiidence in government has been
weakened by a widespread conviction that federal
officials use public office for personal gain, particu-
larly after they leave government service. There is
a sense that a ‘revolving door’ exists between in-
dustry and government; that federal officials ‘go easy’
while in office in order to reap personal gain after-
ward. That in turn leads to a suspicion that personal
profit was the motivation for the appointment in the
first instance. All of this is repulsive to universally
held principles of public service.” 1978 U.S. Code
Cong. and Adm. News, p. 5998.
The en banc decision seriously undermines this legislation
and the Code of Professional Responsibility by cutting the
heart out of Canon 9.
Further, the Chinese Wall has been rejected by the new
Model Rules of Professional Conduct (Discussion Draft)
released by the American Bar Association Commission on
Evaluation of Professional Standards (“Model Rules”).
Model Rule 1.11 (Government Lawyer Conflict of Interest)
states in pertinent part:
(a) “A LAWYER SHALL NOT REPRESENT A
PRIVATE CLIENT IN CONNECTION WITH
A MATTER IN WHICH THE LAWYER PAR-
TICIPATED PERSONALLY AND SUBSTAN-
STANTIALLY AS A PUBLIC OFFICER OR
EMPLOYEE.
(e) “IF A LAWYER IS REQUIRED BY THIS
RULE TO DECLINE REPRESENTATION
ON ACCOUNT OF PERSONAL AND SUB-
STANTIAL PARTICIPATION IN A MAT-
TER, EXCEPT WHERE THE PARTICIPA-
TION WAS AS A JUDICIAL LAW CLERK,
NO LAWYER IN A FIRM WITH THE DIS-
17
QUALIFIED LAWYER MAY ACCEPT SUCH
EMPLOYMENT.”
The Comments to Model Rule 1.11, in sharp contrast to
the en banc decision, state that since a government attorney
maintains a position of public trust, his conduct should be
more strictly scrutinized than that of a private attorney.
“(t]he risk exists that power or discretion vested in
public authority might be used for the special benefit
of a private client. That risk exists even if the inter-
ests of the public and the private client are ap-
parently in accord. ... A lawyer should not be in a
position where benefit to a private client might affect
performance of the lawyer’s professional functions
on behalf of the public authority.”
The blatant abuse of the Code of Professional Responsi-
bility in this case justifies the need for a definitive ethical
guideline.” This Court need only focus on the complete
turnover of Altman’s entire SEC file consisting of thousands
of pages of confidential documents, files and testimony to
Altman’s firm, all of which have been denied to petitioners.
Further, Altman’s firm has had extensive conferences with
Altman’s SEC staff which prosecuted and which continues
to prosecute the SEC action related to this case. The in-
cestuous relationship between Gordon Hurwitz and the SEC
points out the abuses meant to be prevented by Model Rule
1.11.
17 The choice of the Gordon Hurwitz firm in the face of Altman's
resence can only be explained by favoritism. In all of the Southern
istrict of New York, is there no other firm of the capability of
Gordon Hurwitz that could prosecute the Receiver’s action? The
answer is self-evident. Judge Bonsal at oral argument observed that
there were ‘thousands of lawyers in the Southern District competent
to handle this type of action.” Despite the fact that only very limited
discovery has taken place and issue has not been joined, Gordon
Hurwitz has been awarded interim fees totaling $146,480.91.
18
Many government agencies submitted self-serving amicus
briefs urging the Second Circuit to adopt the Chinese Wall
and thus perpetuate the “revolving door” system. However,
the government apparently only supports screening when
it suits its needs. In United States v. Kitchin, 592 F.2d 900
(Sth Cir. 1979), cert. denied, 444 U.S. 843 (1979), the gov-
ernment’s opposition to screening was upheld by the Court
which said:
“[flinally, given the presumed interplay among law-
yers who practice together, the rule applies not only
to individual attorneys but also requires disqualifica-
tion of the entire firm as well as all employees there-
of.” Id. at 904
While the en banc Court disingenuously proclaims no
need to “enter fully into the fray” over what is ethical,'®
its decision clearly sidesteps its duty to enforce ethical
standards. (App. A, p. 25)
The en bane decision creates a double standard of pro-
fessional conduct, one for government lawyers and another
for private practitioners. Indeed, the dual standard ob-
scures any clear guidelines necessary to govern the ethical
conduct of the bar. Such a dual standard is unworkable,
illogical and inconsistent with the Code of Professional
Responsibility.
18 This statement overlooks its responsibility to the District Courts
which “have charge of all matters relating to the discipline of members
of the bar.” Rule 5, General Rules of Southern and Eastern Districts
of New York.
19
Conclusion
Certiorari should be granted to resolve once and for all
the confiict among the circuits concerning the important
procedural question of appealability of orders denying mo-
tions to disqualify counsel.
In addition, this Court should review the important sub-
stantive issue of disqualification of former government law-
yers and correct the double standard which the en banc
opinion endorses.
Dated: September 18, 1980
Respectfully submitted,
J. Ropert LunNery
Lunnrgy & Crocco
641 Lexington Avenue
New York, New York 10022
(212) 355-0800
Attorneys for Petitioners
Of Counsel:
MicHakEL J. MCALLISTER
JAMES J. DeLuca
APPENDIX
APPENDIX A
En Banc Decision of the United States Court of
Appeals for the Second Circuit.
UNITED STATES COURT OF APPEALS
For tHE Seconp Circuit
No. 745—September Term, 1979
(Submitted to the En Banc
Court February 22, 1980 Decided June 20, 1980)
Docket No. 79-7042
MicHaeL F. Armstrong, et al.,
Plaintiff-Appellees,
—against—
Crovis McA.prin, et al.,
Defendant-Appellants.
*
Before:
KaurMan, Chief Judge,
FrernBerG, MansFIELD, MULLIGAN, OAKES
TimpBers, VaN GRAAFEILAND, MESKILL,
and Newman, Circuit Judges.*
Appeal en bane from order entered in the United States
District Court for the Southern District of New York,
Henry F. Werker, J., denying defendants’ motion to dis-
qualify plaintiffs’ counsel.
* The order granting en banc reconsideration of this appeal was
filed on December 12, 1979. Judge Gurfein, who was a member
of the en banc court, unfortunately died on December 16, 1979.
Prior to his death, he did not have the opportunity to vote on the
merits of the appeal. Judge Kearse, subsequent to December 12,
1979, disqualified herself.
A2
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Affirmed, Prior opinion of the panel, 606 F.2d 28 (2d
Cir. 1979), vacated. Silver Chrysler Plymouth, Ine. v.
Chrysler Motors Corp., 496 F.2d 800 (2d Cir. 1974),
overruled.
Gorvon Hurwitz Burowsky Baker WEITZEN & SHALOV,
New York, NY (Franklin B. Velie, Paul D. Wexler,
Bruce Siegel, of Counsel), for Plaintiffs-Appellees.
Barrett Smith ScHapiro Simon & Armstrone, New
York, NY (Michael F. Armstrong, Martin F.
Richman, Erie T. Singer, Susan L. Gotbetter (not
yet admitted), of Counsel), for Receiver Michael
F. Armstrong.
Lunney & Crocco, New York, NY (J. Robert Lunney,
Michael J. McAllister, James J. DeLuca, of
Counsel), for Defendants-Appellants.
AuiceE Danie, Assistant Attorney General, Wash-
ington, DC (Robert E. Kopp, Frederick D. Cohen,
Attorneys, Civil Division, Department of Justice,
Washington, DC, of Counsel), for the United
States as Amicus Curiae.
Ratpx C. Ferrara, General Counsel, Securities and
Exchange Commission, Washington, DC (Paul
Gonson, Solicitor, John P. Sweeney, Assistant
General Counsel, Anne C. Flannery, Special
Counsel, Harlan W. Penn, Attorney, of Counsel),
for the Securities and Exchange Commission as
Amicus Curiae.
Rosert 8S. Burk, Acting General Counsel, Interstate
Commerce Commission, Washington, DC (Fred-
erick W. Read, ITI, Associate General Counsel, of
Counsel), for the Interstate Commerce Com-
mission as Amicus Curiae.
A3
Appendia A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Brien E. Kenor, General Counsel, Federal Maritime
Commission, Washington, DC (Edward G. Gruis,
Deputy General Counsel, John C. Cunningham,
Attorney, of Counsel), for the Federal Maritime
Commission as Amicus Curiae.
Joun G. Garnz, General Counsel, Commodity Futures
Trading Commission, Washington, DC for the
Commodity Futures Trading Commission as
Amicus Curiae.
Erwin N. Griswotp, Washington, DC (Donald I.
Baker, Griffin B. Bell, Robert H. Bork, Calvin J.
Collier, Jr., Ronald J. Dolan, Michael J. Egan,
Ralph E. Erickson, John R. Ferguson, Rudolph
W. Giuliani, Robert B. Hummel, Owen M. John-
son, Thomas F. Kauper, Edward H. Levi,
Michael R. McQuinn, Gerald P. Norton, Jonathan
Rose, Jonathan C. Rose, William D. Ruckelshaus,
Antonin Scalia, Laurence H. Silberman, Joe Sims,
William E. Swope, Donald F. Turner, Harold R.
Tyler, Jr., Alan S. Ward, of Counsel), for Certain
Lawyers as Amicus Curiae.
,
vv
Frersperc, Cireuit Judge (with whom Kaufman, Chief
Judge, and Mansfield, Oakes and ‘Timbers, Circuit
Judges, concur) :
In this en bane proceeding, we are called upon to consider
two significant issues: the appealability of orders denying
a motion to disqualify an attorney and the standard to be
applied by the trial judge in ruling upon such motions.
Clovis MeAlpin and Capital Growth Real Estate Fund,
A4
Appendix A—En Banc Decision of the United States
Court of Appeals fer the Second Circuit
Ine., two of numerous defendants in a suit seeking over
$24 million for violation of federal securities laws, appeal
from an order of the United States District Court for the
Southern District of New York, Henry F. Werker, J.,
denying their motion to disqualify the law firm represent-
ing plaintiffs. The appeal was first heard by a panel of
this court, which concluded that the trial judge had erred
in denying defendants’ disqualification motion. 606 F.2d
28 (2d Cir. 1979). A majority of this court voted to grant
en bane reconsideration of the appeal, and directed the
parties to brief both the merits of the appeal and also
the question whether an order granting or denying a dis-
qualification motion should be appealable. Subsequently,
the parties and a number of amici filed comprehensive
briefs on the issues before the en bane court. After full
consideration, we affirm the order of the district court and
vacate the earlier decision of the panel. We also hold that
henceforth orders denying disqualification motions will not
be appealable, thus overruling our en bane decision in
Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp.,
496 F.2d 800 (1974). The reasons for these rulings are
fully set forth below.
I. The Facts
Appellants’ motion to disqualify is based on the prior
participation of Theodore Altman, now a partner in the
law firm representing plaintiffs-appellees, in an investiga-
tion of and litigation against appellants conducted when
he was an Assistant Director of the Division of Enforce-
ment of the Securities and Exchange Commission (the
SEC). In September 1974, after a nine-month investiga-
tion, the SEC commenced an action in the United States
Ad
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
District Court for the Southern District of New York
against Clovis McAlpin and various other individual and
institutional defendants. The complaint alleged that
McAlpin and the other defendants had looted millions of
dollars from a group of related investment companies, re-
ferred to here collectively as the Capital Growth com-
panies; McAlpin was the top executive officer of these
companies. The SEC suit sought, among other things, the
appointment of a receiver to protect the interests of share-
holders in the Capital Growth companies. When McAlpin
fled to Costa Rica and certain other defendants failed to
appear, the SEC obtained a default judgment; in Sep-
tember 1974, Judge Charles E. Stewart appointed Michael
F. Armstrong, the principal appellee in this appeal, as
receiver of the Capital Growth companies. See SEC v.
Capital Growth Company, S.A. (Costa Rica) et al., 391
F. Supp. 593 (S.D.N.Y. 1974).
One of Armstrong’s principal tasks as receiver for the
Capital Growth companies is to recover all moneys and
property misappropriated by defendants; to further this
task, Armstrong was authorized to initiate litigation in
the United States and abroad. In October 1974, Judge
Stewart granted Armstrong’s request to retain as his
counsel the New York firm of Barrett Smith Shapiro &
Simon.’ Shortly after the appointment of Armstrong, the
SEC made its investigatory files available to him, in
accordance with its practice, we are informed in its brief,
of assisting “the efforts of receivers who have been ap-
pointed by the courts in Commission law enforcement
1 Armstrong was a partner of that firm, which is now Barrett
Smith Shapiro Simon & Armstrong.
A6
Appendix A—En Bane Decision of the United States
Court of Appeals for the Second Circuit
actions.” Cf. SEC v. Everest Management Corp., 475 F.2d
1236, 1240 (2d Cir. 1972). The Barrett Smith firm re-
viewed these files, conducted its own investigation for the
receiver, and assisted him in taking possession of various
Capital Growth properties in the continental United States
and in Puerto Rico. For the next year and a half, we are
told, Barrett Smith devoted approximately 2,600 hours
to assisting the receiver, which included the services of
five partners and eight associates; a little over half of this
time was spent preparing for litigation.
In early 1976, however, the receiver and Barrett Smith
became aware of a potential conflict of interest involving
an institutional client of Barrett Smith that might become
a defendant in litigation brought by the receiver. Thus,
despite Barrett Smith’s substantial investment of time, the
receiver concluded that it was necessary to substitute
litigation counsel. The task, however, was not an easy
one; McAlpin had fled to Costa Rica with most of the assets
of the Capital Growth companies and hence the funds
available to Armstrong to secure new counsel were quite
limited.2, It was therefore necessary to find a firm that
could not only handle difficult litigation in Costa Rica and
in the United States, but would also commit itself to con-
clude the task, even if little or no interim compensation
was available.? Moreover, it was important to retain a law
firm large enough to cope with the immense paper work
2 Cash on hand was then about $200,000; it is apparently not
much more now.
3 Up to that time, neither Barrett Smith nor the receiver had
been awarded any fees: subsequently, there were some interim
allowances for Barrett Smith but Armstrong as yet has received
no compensation.
AG
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
soon to be generated by the firms that would probably
represent the institutional defendants.‘
Because of these considerations, appellees assert, the
receiver focused on firms already involved in litigation
against Robert L. Vesco, who, like McAlpin, had fled to
Costa Rica rather than face possible prosecution for
numerous alleged securities fraud violations. After abor-
tive negotiations with two such firms, the receiver in April
1976 retained the law firm of Gordon Hurwitz Butowsky
Baker Weitzen & Shalov, the firm that is the target of
appellants’ disqualification motion. According to Arm-
strong, the Gordon firm was chosen in part because one
partner, David M. Butowsky, was then Special Counsel to
International Controls Corporation and was involved in
legal work in Costa Rica relating to the alleged Vesco
defaleations, while another partner had specialized ex-
perience in prosecuting complex fraud cases. In accepting
the representation, the Gordon firm agreed to “conduct all
Capital Growth litigation through to a conclusion” even
if the receiver could not compensate the firm as the litiga-
tion progressed.
In October 1975, some seven months before the receiver
obtained substitute counsel for Barrett Smith, Theodore
Altman ended his nine-year tenure with the SEC to be-
come an associate with the Gordon firm. At the time of
his resignation, Altman had been an Assistant Director
of the Division of Enforcement for three years, and had
about twenty-five staff attorneys werking under him. As
‘ — After the receiver’s complaint was subsequently filed, some of
the largest and most prestigious New York firms appeared for
the various defendants.
A8
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
a high-ranking enforcement officer of the SEC, Altman had
supervisory responsibility over numerous cases, including
the Capital Growth investigation and litigation. Although
he was not involved on a daily basis, he was generally
aware of the facts of the case and the status of the
litigation. The SEC’s complaint was prepared and filed
by the staff of the New York Regional Administrator, and
the litigation was handled by the New York office. Altman’s
name appeared on the SEC complaint, although he did not
sign it.
At the time that Altman joined the Gordon firm, the
receiver had no reason to know that Altman had left
the SEC or to be aware of his new affiliation. Subsequently,
during the initial meetings with the Gordon firm, Arm-
strong first learned that Altman had recently become
associated with the firm. Both the Gordon firm and Barrett
Smith researched the question of the effect of Altman’s
prior supervisory role in the SEC suit. The two firms
concluded that under applicable ethical standards discussed
in Part IV of this opinion, Altman should not participate
in the Gordon firm’s representation of the receiver, but
that the firm would not be disqualified if Altman was
properly screened from the case. The matter was broug!)'
to the attention of Judge Stewart, who nonetheless au-
thorized the receiver to retain the Gordon firm. Shortly
thereafter, the firm asked the SEC if it had any objection
to the retention, and was advised in writing that it did not,
so long as Altman was screened from participation.
Barrett Smith then turned over its litigation files to the
Gordon firm, including those received from the SEC; in
September 1976, the receiver filed the action by plaintiffs-
A9
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
appellees against defendants-appellants that gave rise to
this appeal.
In June 1978, almost two years after the commence-
ment of this action, appellants filed their motion to dis-
qualify the Gordon firm because of Altman’s prior activities
at the SEC. In December 1978, Judge Werker, to whom
the case had been reassigned, denied the motion. In his
opinion, the judge concluded that the Gordon firm had
carried out the letter and spirit of the relevant bar associa-
tion ethical rulings, that the firm’s representation of the
receiver was not unethical and did not threaten the
integrity of the trial, and that appellants had suffered no
prejudice as a result of the representation. 461 F. Supp.
622 (S.D.N.Y. 1978). As already indicated, in September
1979 a panel of this court reversed the decision of the
district court; in December 1979, this en bane proceeding
was ordered and a briefing schedule fixed. We now turn
to the issues before us.
II. Appealability
On our own motion, we asked the parties to brief the
question of appealability because we have become con-
cerned over the practical effects of our decision six years
ago in Silver Chrysler Plymouth, Inc v. Chrysler Motors
Corp., 496 F.2d 800 (2d Cir. 1974) (en banc), which over-
ruled our prior practice and allowed immediate appeals
from orders denying disqualification. That concern now
5 A more complete statement of the underlying facts in this ac-
tion is set forth in Armstrong v. McAlpin, [1978 Transfer
Binder] Fed. Sec. L. Rep. ] 96,323 (S.D.NY. 1978), which deals
with defendants’ motion to dismiss the complaint.
A10
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
leads us to re-examine the conceptual basis of Silver
Chrysler.
As we pointed out recently in Eckles v. Furth, 557 F.2d
953, 955 (2d Cir. 1977), “[t]he appealability of disqualifica-
tion orders has had a checkered history in this court.”
Before Silver Chrysler, orders granting a motion to dis-
qualify were generally held to be appealable, albeit with-
out much discussion. See, e.g., W.E. Bassett Co. v. H.C.
Cook Co., 302 F.2d 268 (2d Cir. 1962) (per curiam). The
rationale was stated to be that “[a]n order granting dis-
qualification seriously disrupts the progress of the litiga-
tion and decisively sullies the reputation of the affected
attorney ... .” Fleischer v. Phillips, 264 F.2d 515, 517
(2d Cir.), cert. denied, 359 U.S. 1002 (1959). On the other
hand, orders denying a motion to disqualify were usually
viewed as nonappealable. Id. However, our unanimous
en bane opinion in Silver Chrysler changed the latter rule
so that orders granting and orders denying disqualification
motions were henceforth both immediately appealable as
a matter of right.
The result of obtaining that surface symmetry soon
manifested itself. In recent opinions, many members of
this court have noted that the availability of an immediate
appeal has seemingly contributed to the proliferation of
dioveniibintion motions and the use of such motions for
purely tactical reasons, such as delaying the trial. See, e.g.,
Allegaert v. Perot, 565 F.2d 246, 251 (2d Cir. 1977) ;° W.T.
Grant Co. v. Haines, 531 F.2d 671, 677-78 (2d Cir. 1976) ;?
6 The panel consisted of Judges Lumbard, Oakes and Meskill.
7 __The panel consisted of Judges Anderson, Feinberg and
Mulligan.
All
Appendiz A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Lefrak v. Arabian American Oil Co., 527 F.2d 1136, 1138-39
(2d Cir. 1975) ;° J.P. Foley & Co., Inc. v. Vanderbilt, 523
F.2d 1357, 1359 (2d Cir. 1975) (Gurfein, J., concurring) ;
see also Van Graafeiland, Lawyer’s Conflict of Interest—A
Judge’s View (Part II), N.Y.L.J., July 20, 1977, p. 1, col. 2.
While we cannot determine with precision the amount of
the increase in such motions, we are left with the clear
impression that they have substantially grown in number.’
More significantly, we see in microcosm in this appeal the
The panel consisted of Judges Mulligan, Van Graafeiland and
Meskill.
As to the accurancy of this impression, we note that the ‘‘posi-
tion” Judge Mulligan has taken is, in his words, “one of ter-
giversation.” Despite his present view, not long ago he observed
that “[s]ince this court had reversed our prior rule and held that
denials of motions to disqualify counsel are directly appealable
to this court . . . such motions and appeals have proliferated.”
W.T. Grant Co., supra, 531 I'.2d at 677-78; see also Lefrak,
supra, 527 F.2d at 1138-39. In any event, we continue to believe
that the use of disqualification motions has increased. For its
statistical analysis, the dissent relies primarily on eleven opinions
of this court published in the six-year period since Silver
Chrysler. However, the number of published opinions is an in-
adequate measure of the prevalence of appeais (particularly
meritless ones) from denials of disqualification motions, for it
fails to account for the substantial number of appeals that are
dismissed prior to a hearing on the merits or are disposed of by
a summary order of affirmance. We have no doubt that a careful
canvassing of these cases since 1974 would reveal a significant
number of appeals from denials of disqualification motions. Thus,
a cursory examination of calendared appeals terminated during
one year of the six-year period revealed three such cases. See
Kennecott Copper Co. v. Curtiss-Wright Corp., 78-7165 (appeal
withdrawn December 19, 1978); CITC Industries, Inc. v.
Manow Int'l Corp., 78-7135 (affirmed by order September 7,
1978) ; Banque de Financement, S.A. v. Interphoto Corp., 78-
7130,-7131 (affirmed by order November 16, 1978). We remain
convinced that appeals from denials of disqualification motions
are neither scarce nor as meritorious as Judge Mulligan’s dissent
assumes.
Al2
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
practical effect on the progress of a litigation of a rule al-
lowing appeals from denials of disqualification motions.
Since June 1978, when appellants moved to disqualify the
Gordon firm, the litigation in the district court has been
frozen in its tracks. We recognize that the en banc pro-
cedure has inevitably contributed to the period of delay,
but the bulk of the delay has stemmed from the initial appeal
of the denial of disqualification. Such a prolonged interrup-
tion in a litigation charging serious abuses of the securities
laws raises grave questions of judicial administration. And
while such concerns by themselves do not justify a conclu-
sion that Silver Chrysler was improperly decided, they do
suggest that a careful reconsideration of the issue of ap-
pealability is appropriate. The reconsideration, we find,
reveals that the conceptual basis of Silver Chrysler was
flawed.
The basis of our decision in Silver Chrysler was that
appeals from denials of disqualification motions fell within
the narrow exception to the final judgment rule recognized
by the Supreme Court in Cohen v. Beneficial Loan Corp.,
337 U.S. 541, 545-47 (1949). Cohen held that certain orders
were immediately appealable (1) if they were collateral to
the merits; (2) if denial of an immediate appeal would re-
sult in irreparable damage to the party seeking review;
and (3) if the issue raised was ‘‘too important” to ‘‘be
deferred until the whole case is adjudicated.’’ In concluding
that denials of disqualification motions were immediately
appealable, Silver Chrysler simply noted that ‘‘[a]ll three
prerequisites of Cohen are met’’ without providing any
detailed analysis. 496 F.2d at 805. While it is clear that
rulings on disqualification motions are collateral to the
Al13
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Court of Appeals for the Second Circuit
merits, thus satisfying the first requirement of Cohen, the
second and third requirements are not so easily disposed of,
With regard to the adequacy of review on appeal after
final judgment, Silver Chrysler flatly concludes that it would
be ‘‘fatuous to suppose that [such] review . . . will provide
adequate relief.’’ 496 F.2d at 805. It is true that a party
whose disqualification motion is denied will be forced, if
denied an immediate appeal, to bear the time and expense
involved in a trial that may possibly be tainted. Nonethe-
less, we do not think the harm caused by erroneous denial
of a disqualification motion differs in any significant way
from the harm resulting from other interlocutory orders
that may be erroneous, such as orders requiring discovery
over a work-product objection or orders denying motions
for recusal of the trial judge. In those situations, we have
held that no immediate appeal is available as a matter of
right. American Express Warehousing, Ltd. v. Trans-
america Ins. Co., 382 F.2d 277, 281-82 (2d Cir. 1967) ; Rosen
v. Sugarman, 357 F.2d 794, 796 (2d Cir. 1966). Moreover,
the harm caused by an erroneous denial of a disqualification
motion is usually not irreparable since this court retains its
traditional power to grant a new trial if the district court’s
ruling ultimately turns out to be incorrect. Furthermore, in
those rare cases where irreparable harm is truly threatened,
an immediate appeal might be available through certifica-
tion pursuant to section 1292(b) or, possibly, through a
writ of mandamus. See Note, The Appealability of Orders
Denying Motions for Disqualification of Counsel in the
Federal Courts, 45 U. Chi. L. Rev. 450, 468-80 (1978) (here-
after referred to as Chicago Note). Finally, it should be
remembered that the trial judge also retains power to
protect the trial against taint, either through the issuance
a
“%
Al4
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
of protective orders or, if necessary, through reconsidera-
tion of the need for disqualification.”
Similarly, we now think that Silver Chrysler miscon-
strued the third Cohen requirement that the issue to be ‘‘too
important to be denied review” by an immediate appeal.
Cohen dealt with the legal issue whether defendants in
stockholder derivative actions had the right to require piain-
tiffs to post security for costs; the Court, however, specifi-
cally noted that its decision did not mean that ‘‘every order
fixing security is subject to appeal.’’ 337 U.S. at 547. Thus,
the Cohen exception to the final judgment rule appears to
have been primarily, though perhaps not exclusively, di-
rected towards interlocutory appeals raising potentially
decisive legal, as opposed to factual, questions."" In con-
10 Of course, our discussion of the potential harm to a party
whose disqualification motion is denied assumes that the denial
was erroneous. In an analogous situation, however, we have
stressed that a significant safeguard against irreparable harm to
the parties is the “wise discretion of experienced trial judges.”
American Express, supra 380 F.2d at 282.
11 While the issue is perhaps not settled, we disagree with Judge
Mulligan’s conclusion that the legal significance of the issues
sought to be raised on appeal is not relevant to a determination
of whether an order is appealable under Cohen. As noted in the
text, the language of Cohen clearly implies that such a factor
should be considered. Moreover, at least half the circuits have
joined this court in construing Cohen generally to require con-
sideration of the legal and public significance of the issues raised
by the district court’s order. See, “. Steering Comm. v. Mead
Corp., 611 F.2d 86, 87 (Sth Cir. 1980) ; Jicarilla Apache Tribe
v. United States, 601 F.2d 1116, 1124 (10th Cir.), cert. denied,
100 S.Ct. 530 (1979) ; First Wisconsin Mortgage Trust v. First
Wisonsin Corp., 571 F.2d 390, 393 (7th Cir.), rev'd en bane on
other grounds, 584 F.2d 201 (1978): Van-S-Aviation Corp. v.
— Aircraft Corp., 551 F.2d 213, 217 (8th Cir. 1977) ; Grin.
nell Corp. v. Hackett, 519 F.2d 595, 597-98 & n.4 (1st Cir.)
(criticizing Silver Chrysler on this ground), cert. denied sub nom.
Al5
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
trast, most disqualification motions involve primarily fac-
tual, rather than legal, determinations, e.g., is there a threat
of taint; is the screening adequate; is there a “substantial
relationship’’ between prior and present representations.
Such determinations therefore do not usually present ‘‘seri-
ous and unsettled question[s]” within the meaning of
Cohen. 337 U.S. at 547. Cf. Weight Watchers of Philadel-
phia, Ine. v. Weight Watchers Int’, Inc., 455 F.2d 770, 773
(2d Cir. 1972); Donlon Industries, Ine. v. Forte, 402 F.2d
935, 937 (2d Cir. 1968). Furthermore, in disqualification
cases that do raise important and unresolved legal issue .
immediate review under section 1292(b) or by mandamus
might be available.’ See Community Broadcasting of
Boston, Ine. v. F.C.C., 546 F.2d 1022, 1028 & n.40 (D.C. Cir.
Chamber of Commerce v. United Steelworkers of America, 423
U.S. 1033 (1975). See also 9 Moore’s Federal Practice {| 110.10
(2d ed. 1975) ; Chicago Note, supra, at 461-64. And while it is
of course true that the Cohen rule has been applied to yeipee
immediate appeals from some orders involving primarily factual
as opposed to legal issues, such cases often involve the threatened
destruction of very important, and in some cases constitutional,
rights. See, e.g., Abney v. United States, 431 U.S. 651, 656-62
(1977) (double jeopardy claim) ; Stack v. Boyle, 342 U.S. 1, 6-7
(1951) (order refusing to reduce bail); Roberts v. United
States District Court, 339 U.S. 844 (1950) (order denying leave
to proceed in forma pauperis). In such circumstances, the threat
of irreparable harm alone is sufficient to justify the right to an
immediate appeal. However, in cases such as this, where the
likelihood of irreparable harm is hardly so certain, a court in con-
sidering the question of appealability should also give attention
to the importance of the legal issues being raised.
12 In this regard, it is important to note that the certification
proedure now embodied in 28 U.S.C. § 1291(b) was not avail-
able at the time of the Cohen decision,
It should also be remembered that special rules govern appeal-
ability in bankruptcy proceedings, the category of cases which
appear to be of paritcular concern to Judge Mulligan. See, e.g.,
1979) Arlan’s Department Stores, Inc., 615 F.2d 925 (2d Cir.
Al6
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
1976). Finally, we do not think that the public importance
of the ethical questions raised by disqualification motions
requires the right to an immediate appeal. The normal
appellate process, coupled with the judicious use of certifica-
tion and mandamus, is perfectly adequate to vindicate this
interest, as it has been held to be in the related, but more
serious, situation when a district judge has denied a motion
for his recusal. See Rosen, supra, 357 F.2d 794.
Thus, because we conclude that the requirements of
Cohen are not met, we overrule Silver Chrysler and hold
that orders denying disqualification motions are not im-
mediately appealable.’? We realize that in doing so we
13, In concluding that orders denying disqualification motions are
not immediately appealable under Cohen, we have considered and
rejected the rule ot speerentty limited appealability suggested in
Judge Mulligan’s dissent on this issue. Under this constricted
reading of Silver Chrysler, only those orders denying disqualifica-
tion that “involv[e] the integrity of the trial” are immediately
appealable. Slip op. at ——. We regard this approach to juris-
diction, however, as vague and unworkable. Such a rule would
necessarily involve a detailed examination of the merits of each
appeal in order to determine whether the threshold criterion of
appealability—a possible threat to the integrity of the trial—is
present. Moreover, the inquiry to determine jurisdiction would
duplicate the inquiry necessary to resolve the issue on the merits
under the substantive standards of this court. See section IV
infra. Judge Mul gle dissent asserts that such careful scrutiny
is unnecessary and that a cursory ‘consideration of which Dis-
ciplinary Rule is implicated” will generally suffice to screen out
improper appeals. Slip. op. at no.3. We are unpersuaded,
however, for several reasons. Claims of unethical conduct are
varied and often complex, and the extent to which such allega-
tions, if true, implicate the integrity of the trial simply cannot be
accurately determined by a mechanical reference to which Dis-
ciplinary Rules are mentioned in appellant’s brief. Moreover, we,
should not underestimate the ability of the ‘‘artful movant... to
fore unwarranted expenditure of judicial and opponent resources”
by casting his appeal in terms of threat of taint where more exists.
Chicago Note, supra, at 467-68. And when an appellant does
so argue, in the face of a contrary ruling by the district court,
Al7
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
part company with several circuits that have accepted the
Silver Chrysler rule. See, e.g., Schloetter v. Railoc of
Indiana, Inc., 546 F.2d 706 (7th Cir. 1976); Fullmer v.
Harper, 517 F.2d 20 (10th Cir. 1975). However, we are
more persuaded by the arguments against the Silver
Chrysler rule raised by other courts, see, e.g., In re Multi-
Piece Rim Products Liability Litigation, 612 F.2d 377 (8th
Cir.) (en banc), cert. granted sub nom. Firestone Tire &
Rubber Co. v. Risjord, 48 U.S.L.W. 3726 (U.S. May 13,
1980) ;'4 Melamed v. ITT Continental Banking Co., 592
14
this court would be faced with two equally unattractive options
in making the necessary preliminary determination on the merits
to decide whether jurisdiction exists to determine the merits:
either devote much time and effort to deciding appealability or
adopt a lax approach to the issue. Thus, the proposed rule would
either pose major administrative problems or be an ineffective
bar to frivolous appeals.
The present case, if anything, proves the point. Appellants
vigorously urge taint, claiming that the use of screening is im-
proper in this case, that the screening has already been violated,
and that the trial will be tainted if the Gordon firm continues as
the receiver’s counsel. The district court, after a careful analysis,
rejected appellant’s claim that the integrity of the trial was
threatened, and the panel of this court that originally heard the
appeal did not disturb that finding. Judge Newman, the author
of that panel opinion, now believes that a threat of taint may
exist, slip op. at , but a majority of the en banc court has
concluded that the district court correctly found that the integrity
of the trial was not threatened. Thus, after full consideration by
the district court, the panel, and the en banc ccurt, there is still
disagreement over whether a threat of taint exists, can it reason-
ably be assumed that examination of the question of taint for the
purposes of ascertaining jurisdiction will prove a simpler and
more straightforward task? We think not, and instead believe
that the test of jursidiction should be less elusive.
Certiorari was granted in Firestone Tire after the en banc
order in this case had been issued and the so-proposed en banc
majority opinion had been circulated. Since seven of the nine
active judges considering this en banc appeal do not approve of
the rule of appealability announced in Silver Chrysler, we believe
that we should make known our current view.
A18
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
F.2d 290 (6th Cir. 1970) ; Community Broadcasting, supra,
546 F.2d 1022, and by such commentators as Professor
Moore. See 9 Moore’s Federal Practice, 7 110.13[10] at
p. 190 (2d ed. 1975) (approving 2d Circuit pre-Silver
Chrysler rule).
We do not reach the same conclusion, however, with
respect to orders granting disqualification motions. In such
eases, the losing party is immediately separated from
counsel of his choice. If the order is erroneous, correcting
it by an appeal at the end of the case might well require a
party to show that he lost the case because he was im-
properly forced to change counsel. This would appear to
be an almost insurmountable burden. In addition, permit-
ting an immediate appeal from the grant of a disqualifica-
tion motion does not disrupt the litigation, since the trial
must be stayed in any case while new counsel is obtained.
Moreover, the grant of a disqualification motion may effec-
tively terminate the litigation if the party whose counsel is
disqualified cannot afford to hire new counsel to begin the
litigation anew. Such considerations are obviously per-
tinent, for example, in this case. See notes 2-3 and accom-
panying text supra. Furthermore, the granting of a dis-
qualification motion by a district judge is a fair indication
that a nonfrivolous issue has been raised; there is no simi-
lar assurance that appeals from denials of disqualification
motions will raise a substantial question. Thus, it is far
less likely that appeals from orders granting disqualifica-
tion motions will be taken purely for tactical reasons,
Finally, disqualification ofter impairs the reputation of the
disqualified firm or attorney, and this injury may never be
corrected on appeal if the party is satisfied with the per-
formance of his new counsel. For all these reasons, we now
A19
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
agree with then Chief Judge Clark’s view, expressed well
before Silver Chrysler, that grants of disqualification!
motions are more important and potentially more harmful
than denials of such motions and should therefore be im-
mediately appealable as a matter of right. See Fleischer
v. Phillips, supra, 264 F.2d at 517."
III. Advisability of reaching merits
Since we conclude that orders denying disqualification
motions are not immediately appealable, it would ordinarily
be appropriate for us merely to dismiss the appeal in this
case and allow the litigation to continue in the district court
to its conclusion. At that time, of course, the defendants
could appeal any adverse judgment to this court and could
raise, among other things, the argument that Judge
Werker’s failure to disqualify the Gordon firm prejudiced
them and that therefore the judgment should be reversed.
Nevertheless, we believe there are strong reasons in the
unusual context of this case to reach the merits of the appeal
rather than to dismiss it.
15 We recognize the force of Judge Mulligan’s claim that some
inconsistency exists between our conclusion that denials of dis-
qualification motions are not immediately appealable while grants
of such motions are. However, legal rules do not depend on
logic alone. The final judgment rule embodied in 28 U.S.C.
§ 1291 should be given a “practical rather than technical construc-
tion,” Cohen, supra, 337 U.S. at 546, and, as we have noted, the
practical consequences of granting a disqualification motion are
sufficiently more serious and final than those stemming from the
denial of such a motion that the right of an immediate appeal in
the former case is justified. Thus, along with all the other
circuits that have held denials of disqualification motions not to
be immediately appealable, we are willing to endure whatever
appearance of inconsistency arises from an opposite conclusion
regarding the appealability of grants of disqualification motions.
A20
Appendix A—En Bane Decision of the United States
Court of Appeals for the Second Circuit
We note, to begin with, that in In re Multi-Piece Rim
Products Liability Litigation, supra, 612 F.2d at 379, and
in Melamed v. ITT Continental Baking Co., supra, 592 F.2d
at 295, the Highth and Sixth Circuits both held denials of
disqualification motions to be nonappealable but nonethe-
less decided the merits of the appeals before them. More-
over, given the procedural posture of this case, there are
particularly compelling reasons to reach the merits. First,
a refusal to do so will leave the law of the circuit on attorney
disqualifications in a mudled state. Although the effect of
our en banc decision will be to vacate the panel’s earlier deci-
sion in this case, the panel’s opinion will nonetheless suggest
that this circuit is split on the applicable standard for dis-
qualification motions, particularly when the panel decision
is read in conjunction with Board of Education v. Nyquist,
590 F.2d 1241 (2d Cir. 1979). In addition, if we hold denials
of such motions to be nonappealable but do not resolve the
substantive question here presented, we shall effectively cut
the district courts adrift, with no clarification of the law
of the circuit, and a greatly diminished opportunity in the
future to obtain necessary guidance. Moreover, failure to
reach the merits will leave the district court supervising this
litigation in a particularly untenable position; it must either
adhere to its original ruling and proceed with a law firm
that a panel of this court has said should not be in the case,
or it must rescind its prior ruling and disqualify the firm,
thereby precipitating another pretrial appeal, which might
well result in reversal by a different panel. Finally, it would
be an enormous waste of judicial resources simply to dis-
miss the appeal, now that all judges of the court have had
an opportunity to consider the merits and defendants will
undoubtedly appeal the identical issue if they are unsuccess-
ful at trial.
A21
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Accordingly, we conclude that we should address the
merits of the appeal before us.
IV. The Merits
In his thorough opinion refusing to disqualify the Gordon
firm, Judge Werker reviewed the facts set forth in Part I
of this opinion and carefully analyzed the ethical problem
defendants had raised. He noted that Altman was conced-
edly disqualified from participating in the litigation under
Disciplinary Rule 9-101(B) of the American Bar Associa-
tion Code of Professional Responsibility. That Rule pro-
hibits an attorney’s private employment in any matter in
which he has had substantial responsibility during prior
public employment.’® The judge then considered the effect
of Disciplinary Rule 5-105(D), which deals with disqualifi-
cation of an entire law firm if one lawyer in the firm is
disqualified.'7 This issue had been considered by both the
American Bar Association (the ABA) and the Committee
on Professional and Judicial Ethics of The Association of
the Bar of the City of New York (the Association). The
ABA, in its Formal Opinion No. 342, had recognized that
“(plast government employment creates an unusual situ-
ation in which an inflexible application of D.R. 5-105(D)
would actually thwart the policy considerations underlying
16 ~—- Disciplinary Rule 9-101(B) provides:
A lawyer shall not accept private employment in a matter in
which he had substantial responsibility while he was a public
employee.
17“ Disciplinary Rule 5-105(D) provides:
If a lawyer is required to decline employment under a Dis-
— Rule, no partner, or associate, or any other lawyer
affiliated with him or his firm, may accept or continue such
employment.
A22
Appendix A-—En Banc Decision of the United States
Court of Appeals for the Second Circuit
D.R. 9-101(B),” 62 ABA Journal 517, 520 (1976), and con-
cluded that, absent an appearance of significant impro-
priety, a government agency vould waive Rule 5-105(D),
if adequate screening procedures effectively isolated the
former government lawyer from those members of his
firm handling the matter. Id. at 521. The Association
similarly rejected an absolute rule of disqualification for
a law firm because of disqualification of a former govern-
ment attorney, if the latter is “effectively isolated from
the handling of [the] matter.” Opinion No. 889, 31 The
Record 552, 566 (1976).
Judge Werker then carefully examined the screening of
Altman by the Gordon firm, noting that:
Altman is excluded from participation in the action,
has no access to relevant files and derives no re-
muneration from funds obtained by the firm from
prosecuting this action. No one at the firm is per-
mitted to discuss the matter in his presence or allow
him to view any document related to this litigation,
and Altman has not imparted any information con-
cerning Growth Fund to the firm.
[N]othing before this court indicates that Altman,
while employed by the SEC, formed an intent to
prosecute a later action involving Growth Fund.
Indeed, sworn affidavits reveal that he has never
participated in any fashion whatever in the Gordon
firm’s representation of the Receiver, nor has he
shared in the firm’s income derived from prosecu-
tion of this action. And . . . Altman and his two
partners Velie and Butowsky have attested under
penalty of perjury that Altman has never discussed
A23
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
the action with other firm members. These state-
ments are uncontradicted by defendants and provide
a basis for not imputing Altman’s knowledge to
other members of the firm.
461 F. Supp. at 624-25 (emphasis in original). Under all
the circumstances, the district judge concluded that “the
proper screening of Altman rather than disqualification of
the Gordon firm is the solution to the present dispute.” Id.
at 626. Accordingly, the motion to disqualify was denied.
On appeal, as already indicated, a panel of this court re-
versed the order of the district court, apparently on the
ground that disqualification was required “as a prophylactic
measure to guard ‘against misuse of authority by govern-
ment lawyers.” 606 F.2d at 34.
On this rehearing en banc, we are favored with briefs
not only from the parties but also from the United States,"
the Securities and Exchange Commission, the Interstate
Commerce Commission, the Federal Maritime Commission,
the Commodities Futures Trading Commission and twenty-
six distinguished former government lawyers now employed
as practicing attorneys, corporate officers, or law professors,
all attesting to the importance of the issues raised on
appeal. Thus, the United States asserts that a “decision
to reject screening procedures is certain to have a serious,
adverse effect on the ability of Government legal offices
to recruit and retain well-qualified attorneys”; this view
18 The brief of the United States also states that is presents the
views of the Federal Trade Commission, the Civil Aeronautics
Board, the Federal Energy Regulatory Commission, and the
Federal Legal Council, a committee consisting of the General
Counsels of fifteen executive branch agencies and chaired by the
Attorney General of the United States.
A24
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
is seconded by the other government amici. And the former
government lawyers, including two former Attorneys Gen-
eral of the United States and two former Solicitors General
of the United States, state that they are all “affected at
least indirectly, by the panel opinion’s underlying assump-
tion that government lawyers cannot be trusted—trusted
to discharge their public responsibilities faithfully while
in office, or to abide fully by screening procedures after-
wards.” While the tone of these assertions may be overly
apocalyptic, it is true that a decision rejecting the efficacy
of screening procedures in this context may have significant
adverse consequences. Thus, such disapproval may hamper
the government’s efforts to hire qualified attorneys; the
latter may fear that government service will transform
them into legal “Typhoid Marys,” '? shunned by prospective
private employers because hiring them may result in the
disqualification of an entire firm in a pcessibly wide range
of cases. The amici also contend that those already em-
ployed by the government may be unwilling to assume
positions of greater responsibility within the government
that might serve to heighten their undesirability to future
private employers. Certainly such trends, if carried to an
extreme, may ultimately affect adversely the quality of
the services of government attorneys.
Not only is the panel decision possibly of great practical
importance; the ethical issues it addresses are also complex
and are currently being hotly contested by various groups.
As previously noted, the ABA in its Formal Opinion No.
342 and the Association of the Bar of the City of New York
both approved the use of screening devices in the case of
19 Kesselhaut v. United States, 555 F.2d 791, 793 (Ct. Cl. 1977)
(per curiam).
A25
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
former government attorneys; the Administrative Con-
ference of the United States has also recently sanctioned
the use of screening.”® In contrast, an ABA committee in
a recent draft proposal for Model Rules of Professional
Conduct apparently omits any provision for relief from
‘disqualification through screening.”! The issues thus raised
have also provoked significant scholarly commentary. See,
e.g., Kaufman, The Former Government Attorney and the
Canons of Professional Ethics, 70 Harv. L. Rev. 657 (1957) ;
Lacovara, Restricting the Private Practice of Former Gov-
ernment Lawyers, 20 Ariz. L. Rev. 369 (1978); Note, The
Chinese Wall Defense of Law Firm Disqualification, 128
U. Penn. L. Rev. 677 (1980) and commentry collected at
nn.9 & 16 [hereafter referred to as Pennsylvania Note];
Note, Ethical Problems for the Law Firm of a Former
Government Attorney: Firm or Individual Disqualification,
1977 Duke L. J. 512; Comment, Conflicts of Interest and
the Former Government Attorney, 65 Geo. L. J. 1025 (1977).
We do not believe that it is necessary or appropriate
for this court to enter fully into the fray, as the panel
opinion did.” Indeed, the current uncertainty over what
20 See Administrative Conference of the United States, Recom-
mendation 79-7 (Dec. 14, 1979), reprinted in Legal Times of
Washington, Dec. 31, 1979, at 27.
21 ABA Commission on Evaluation of Professional Standards,
Discussion Draft of the Model Rules of Professional Conduct
§ 1.11 (Jan. 30, 1980), reprinted in U.S.L.W., vol. 48, no. 32
(Feb. 19, 1980).
22 «Judge Newman, dissenting from this portion of the en banc
opinion, aserts that the present provisions of the Code of Profes-
sional Responsibility should be “appl{ied] as written.” Slip op.
at——. We regard this “plain meaning” approach to disqualifica-
tion motions to be | 9 cca ill-advised in light of the continu-
ing uncertainty and disagreement over the meaning and applica-
tion of the Code’s provisions,
A26
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
is “ethical” underscores for us the wisdom, when consider-
ing such issues, of adopting a restrained approach that
focuses primarily on preserving the integrity of the trial
process. We expressed this view in Board of Education v.
Nyquist, 590 F.2d 1241 (2d Cir. 1979), in which we reviewed
at length our precedents on attorney disqualification and
pointed out:
Our reading of the cases in this circuit suggests
that we have utilized the power of trial judges to
disqualify counsel where necessary to preserve the
integrity of the adversary process in actions before
them. In other words, with rare exceptions dis-
qualification has been ordered only in essentially two
kinds of cases: (1) where an attorney’s conflict of
interest in violation of Canons 5 and 9 of the Code
of Professional Responsibility undermines the
court’s confidence in the vigor of the attorney’s
representation of his client, ... or more commonly
(2) where the attorney is at least potentially in a
position to use privileged information concerning
the other side through prior representation, for
example, in violation of Canons 4 and 9, thus giving
his present client an unfair advantage .... But in
other kinds of cases, we have shown considerable
reluctance to disqualify attorneys despite misgivings
about the attorney’s conduct .... This reluctance
probably derives from the fact that disqualification
has an immediate adverse effect on the client by
separating him from counsel of his choice, and that
disqualification motions are often interposed for
tactical reasons .... And even when made in the
best of faith, such motions inevitably cause delay.
A27
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Id. at 1246 (citations and footnotes omitted). Judge
Mansfield, concurring in Nyquist, pointed out that a trial
could also be tainted because:
... the former Government attorney might in the
later private action use information with respect to
the matter in issue which was gained in confidence
as a public employee and was unavailable to the
other side.
Id. at 1247 n.l. We ended our review in Nyquist by
adopting a restrained approach to disqualification.
Weighing the needs of efficient judicial adminis-
tration against the potential advantage of immedi-
ate preventive measures, we believe that unless an
attorney’s conduct tends to “taint the underlying
trial” . . . by disturbing the balance of the
presentations in one of the two ways indicated
above, courts should be quite hesitant to disqualify
an attorney. Given the availability of both federal
and state comprehensive disciplinary machinery,
see, e.g., Local Rules of the United States Court of
Appeals for the Second Cireuit § 46(h) (1978),
there is usually no need to deal with all other kinds
of ethical violations in the very litigation in which
they surface. See Lefrak v. Arabian Am. Oil Co.,
527 F.2d 1136, 1141 (2d Cir. 1975); Ceramco, Ine.
v. Lee Pharmaceuticals, supra, 510 F.2d at 271. Cf.
United States v. Pastore, 537 F.2d 675 (2d Cir.
1976).
Id. at 1246 (citation omitted).
We believe that this approach is dispositive here and
requires our affirmance of the ruling of the district court.
It is apparent from a close reading of Judge Werker’s
opinion that he saw no threat of taint of the trial by the
A28
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Gordon firm’s continued representation of the receiver.
Nor did the panel opinion in this case challenge that view.
Although appellants assert that the trial will be tainted
by the use of information from Altman, we see no basis
on the record before us for overruling the district court’s
rejection of that claim.” Using the Nyquist analysis, there
is certainly no reason to fear any lack of “vigor” by the
Gordon firm in representing the receiver, this is not a case
where a law firm, by use of a “Chinese wall,” is attempting
to justify representation of conflicting interests at the
same time. Cf. Fund of Funds, Ltd. v. Arthur Andersen &
Co., 567 F.2d 225 (2d Cir. 1977); Cinema 5 Ltd. v.
Cinerama, Inc., 528 F.2d 1384 (2d Cir. 1976). See also,
Pennsylvania Note, supra, at 684-85, 687-91, 715. Nor
is the Gordon firm “potentially in a position to use
privileged information” obtained through prior representa-
tion of the other side. And finally, the receiver will not
be making unfair use of information obtained by Altman
as a government official, since the SEC files were turned
over to the receiver long before he retained the Gordon
firm and Altman has been entirely screened from all
participation in the case, to the satisfaction of the district
court and the SEC.¥ Nor is there any reason to believe
23 Judge Newman, author of the panel opinion, now asserts that
the trial may be tainted if the Gordon firm continues as receiver's
counsel. However, as we state in the text, we perceive no basis
in the record for overruling the district court on this issue.
24 ‘The case therefore is entirely distinguishable from General
Motors Corp. v. City of New York, 501 F.2d 639 (2d Cir.
1974), where an attorney who had substantial responsibility over
an antitrust litigation against General Motors Corporation while
he was employed by the Antitrust Division of the Justice Depart-
ment later accepted employment as plaintiff’s attorney in a
private antitrust action against the same defendant for substan-
tially the same conduct.
A29
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
that the receiver retained the Gordon firm because Altman
was connected with it® or that Altman had anything to do
with the retention. If anything, the presence of Altman
as an associate at that time was a problem, not a benefit,
for the Gordon firm, as the district court, the receiver and
the Gordon firm all apparently recognized.
Thus, because the district court justifiably held that the
Gordon firm’s representation of the receiver posed no threat
to the integrity of the trial process, disqualification of the
firm can only be based on the possible appearance of impro-
priety stemming from Altman’s association with the firm.
However, as previously noted, reasonable minds may and
do differ on the ethical propriety of screening in this con-
text. But there can be no doubt that disqualification of
the Gordon firm will have serious consequences for this
litigation; separating the receiver from his counsel at this
late date will seriously delay and impede, and perhaps
altogether thwart, his attempt to obtain redress for defen-
dant’s alleged frauds. Under the circumstances, the possible
“appearance of impropriety is simply too slender a reed
on which to rest a disqualification order ... particularly ...
where ... the appearance of impropriety is not very clear.”
Nyquist, supra, 590 F.2d at 1247. Thus, we need not resolve
the ethical propriety of the screening procedure used here
at this time as long as the district court justifiably regarded
it as effective in isolating Altman from the litigation.
We recognize that a rule that concentrates on the threat
of taint fails to correct all possible ethical conflicts. In
adopting this approach, we do not denigrate the importance
of ethical conduct by attorneys practicing in this courthouse
25 Altman was then an associate, although he is now a partner.
A30
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
or elsewhere, and we applaud the efforts of the organized
bar to educate its members as to their ethical obligations.
However, absent a threat of taint to the trial, we continue
to believe that possible ethical conflicts surfacing during a
litigation are generally better addressed by the “comprehen-
sive disciplinary machinery” of the state and federal bar,
see Nyquist, supra, 590 F.2d at 1246,% or possibly by
legislation.2”, While there may be unusual situations where
the “appearance of impropriety” alone is sufficient to war-
rant disqualification, we are satisfied that this is not such
a case. Nor do we believe, as Judge Newman asserts, that
a failure to disqualify the Gordon firm based on the possible
appearance of impropriety will contribute to the “public
skepticism about lawyers.” While sensitive to the integrity
of the bar, the public is also rightly concerned about the
fairness and efficiency of the judicial process. We believe
those concerns would be disserved by an order of disqualifi-
cation in a case such as this, where no threat of taint exists
and where appellants’ motion to disqualify opposing counsel
has successfully crippled the efforts of a receiver, appointed
at the request of a public agency, to obtain redress for
alleged serious frauds on the investing public. Thus, rather
26 = The Reporter for the ABA Committee that drafted the Code
of Professional Responsibility recently noted that the Code’s
Disciplinary Rules were drafted for use in disciplinary proceed-
ings and were not intended to be used as rules governing dis-
qualification motions. Sutton. How Vulnerable Is the Code of
Professional Responsibility ?, 57 N.C.L. Rev. 497, 514-16 (1979).
The Code nevertheless will continue to provide guidance for the
courts in determining whether a case would be tainted by the
participation of an attorney or a firm, See Fund of Funds, supra,
567 F.2d at 227 n.2; NCK Organization, Ltd. v. Bregman, 542
F.2d 128, 129 n.2 (2d Cir. 1976).
27 Cf. 18 U.S.C. § 207.
A31
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
than heightening public skepticism, we believe that the
restrained approach this court had adopted towards at-
tempts to disqualify opposing counsel on ethical grounds
avoids unnecessary and unseemly delay and reinforces pub-
lic confidence in the fairness of the judicial process.
Accordingly, we vacate the panel opinion in this case and
affirm the judgment of the district court.
a
_
Mu .uia@an, Circuit Judge, concurring in part and dissenting
in part.
I concur in that part of the majority opinion which holds
that no attorney disqualification was required in this case
but I respectfully dissent from the majority’s overruling
Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp.,
496 F.2d 800 (2d Cir. 1974) (en bane).
The position of this court on this subject has been one
of tergiversation. In Harmar Drive-In Theatre, Inc. v.
Warner Bros. Pictures, Inc., 239 F.2d 555 (2d Cir. 1956),
reh. den., 241 F.2d 937 (2d Cir. 1977), cert. denied, 355
U.S. 824 (1957) Judge Swann, with the concurrence of
Judge Learned Hand (Clark, C.J., dissenting), held that
denials of motions to disqualify counsel fall within the
collateral order doctrine of Cohen v. Beneficial Industrial
Loan Corp., 337 U.S. 541 (1949). Harmar was implicitly
overruled by Fleischer v. Phillips, 264 F.2d 515 (2d Cir.
1959), cert. denied, 359 U.S. 1002 (1959) but was resur-
rected by our unanimous decision en bane in Silver Chrysler
in 1974. Today we inter Silver Chrysler but I refuse to
participate in the sepulture.
In addition to our own agonizing over this problem, the
A32
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
conflict of opinion among the circuits ' attests to the difficul-
ties which are inherent in reaching a solution. The issue is
whether or not the denial of a motion to disqualify counsel
is appealable within the so-called “collateral order” excep-
tion to the final judgment rule first announced in Cohen.
My disagreement with the majority is based upon several
of its premises.
1
Interlocutory appeals of denials of disqualification are per-
mitted under Cohen in five circuits: the Third Circuit, see Akerly
v. Red Barn System, Inc., 551 F.2d 539 (3d Cir. 1977) ; Kramer
v. Scientific Control Corp., 534 F.2d 1085 (3d Cir.), cert. denied,
429 U.S. 830 (1976) ; Greene v. Singer Co., 509 F.2d 750 (3d
Cir. 1971), cert. denied, 409 U.S. 848 (1972) (adopting a case-
by-case approach to appealability ) ; the Fourth Circuit, see Aetna
Casualty & Surety Co. v. United States, 570 F.2d 1197 (4th
Cir.), cert. denied, 439 U.S. 821 (1978) (grants of disqualifica-
tion also appealable) ; MacKethan v. Peat, Marwick, Mitchell &
Co., 557 F.2d 395 (4th Cir. 1977) (per curiam) ; the Fifth
Circuit, see Brown & Williamson Tobacco Corp. v. Daniel Int'l
Corp., 563 F.2d 671 (5th Cir. 1977) ; the Seventh Circuit, see
In re Special February 1977 Grand Jury, 581 F.2d 1262 (7th
Cir. 1978) ; Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580
F.2d 1311 (7th Cir.), cert. denied, 439 U.S. 955 (1978) ; and
the Tenth Circuit, see State of New Mexico v. Aamodt, 537 F.2d
1102 (10th Cir. 1976), cert. denied, 429 U.S. 1121 (1978);
Fullmer v. Harper, 517 F.2d 20 (10th Cir. 1975).
The Sixth Circuit has recently held ‘that:
“where a District Court has heard a motion to disqualify an
opposing party’s counsel, has denied said motion on the merits
after [sic] evidentiary hearing, and has (as here) entered a
finding to the effect that the moving party cannot be injured
by the challenged representation,”
it will dismiss appeals from denials of disqualification. Melamed
v. ITT Continental Baking Co., 592 F.2d 290, 295 (6th Cir.
1979) (motion to disqualify based on prior representation of a
competitor). See also General Electric Co. v. Valeron Corp., 608
F.2d 265 (6th Cir. 1979), cert. denied, 100 S.Ct. 1318 (1980).
Although the court in Melamed considered itself to be departing
from Silver Chrysler, Melamed v. !.T.T. Continental Baking Co.,
supra at 295, the rule announced in Melamed seems identical to
A33
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
I
The majority has the clear impression that the avail-
ability of an immediate appeal has contributed to the pro-
liferation of disqualification motions and the use of such
motions for delay and other purely tactical purposes. The
only available evidence on this question is the opinions
which this court has issued in response to interlocutory
appeals under Silver Chrysler. It seems there have been
eleven such opinions. In six of these we affirmed the court
below. I cannot characterize this as a serious problem of
calendar congestion. The majority contends that a prior
ruling in favor of disqualification will give some assurance
that appeals of grants of disqualification raise nonfrivolous
issues, but that “there is no similar assurance that appeals
from denials of disqualification motions will raise a sub-
stantial question.” (maj. op. p. 14) It should be noted,
however, that the affirmance rates of the two categories of
this court’s clarification of Silver Chrysler in W.T. Grant & Co.
v. Haines, 531 F.2d 671 (2d Cir. 1976).
In addition to this court, three circuits now do not permit
interlocutory appeals of denials of disqualification: the D.C.
Circuit, see Community Broadcasting of Boston, Inc. v. FCC,
546 F.2d 1022 (D.C. Cir. 1976) ; the Eighth Circuit, see Jn re
Multi-Piece Rim Products Liability Litigation, 612 F.2d 377
(8th Cir. 1980), cert. granted sub nom. Firestone Tire & Rub-
ber Co. v. Risjord, 48 US.LW. 3726 (May 13, 1980) ; and the
Ninth Circuit, see Chugach Elec. Ass'n v. United States District
Court for the District of Alaska, 370 F.2d 441 (9th Cir. 1966),
cert. denied, 389 U.S. 820 (1967) (stating that denials are not
appealable but granting petition for mandamus without citing
Cohen) ; Cord v. Smith, 338 F.2d 516 (9th Cir. 1964), clarified,
370 F.2d 418 (1966) (stating that denials are not appealable
without citing Cohen but granting petition for mandamus).
A34
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
published opinions—appeals from grants and appeals from
denials—are not significantly different.?
But more to the point, a proliferation of appeals, if such
there be, has no logical bearing on the test set forth in
Cohen. Appealability under Cohen does not depend upon
the quantum of appellate business which might be gen-
erated by a holding in favor of appealability. This point
was addressed recently in Abney v. United States, 431 U.S.
651, 662 n.7 (1977). There a unanimous Court held that
pretrial orders rejecting claims of former jeopardy were
final decisions within Cohen and thus immediately appeal-
able. The Solicitor General had argued that such a holding
might encourage dilatory appeals. Mr. Chief Justice
Burger rejected this argument, noting that it is “well within
the supervisory powers of the courts of appeals to estab-
lish summary procedures and calendars to weed out frivo-
lous claims of former jeopardy.” Id.
2 _—-‘ The eleven appeals from denials of disqualification are /n the
Matter of Bohack Corp., 607 F.2d 258 (2d Cir. 1979) (order
denying disqualification reversed) ; Armstrong v. McAlpin, 606
F.2d 28 (2d Cir. 1979) (order denying disqualification re-
versed) ; Jn re Hartford Textile Corp., 588 F.2d 872 (2d Cir.
1978) bo curiam) (order affirmed), cert. denied, 100 S.Ct.
473 (1979) ; Fund of Funds, Ltd. v. Arthur Andersen & Co.,
567 F.2d 225 (2d Cir. 1977) (order reversed) ; Allegaert v.
Perot, 565 F.2d 246 (2d Cir. 1977) (order affirmed) ; SEC v.
Sloan, 535 F.2d 679 (2d Cir. 1976) (per curiam) (order
affirmed), cert. denied, 430 U.S. 966 (1997) ; W.T. Grant &
Co. v. Haines, 531 F.2d 671 (2d Cir. 1976) (order affirmed) ;
Lefrak v. Arabian American Oil Co., 527 F.2d 1136 (2d Cir.
1976) (order affirmed); J.P. Foley & Co. v. Vanderbilt, 523
F.2d 1357 (2d Cir. 1975) (case remanded); Ceramco, Inc. v.
Lee Pharmaceuticals, 510 F.2d 268 (2d Cir. 1975) (order
affirmed) ; General Motors Corp. v. City of New York, 501 F.2d
639 (2d Cir. 1974) (order reversed). Counting the reversal in
Armstrong which this court now vacates, six of eleven appeals
from denials of disqualification resulted in affirmance.
A35
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Aside from this observation, in appeals from denials of
disqualification we have the power to award counsel fees
and costs, which provide ample sanctions against those
whose intention is to create delay. See, e.g., 28 U.S.C.
§§ 1912, 1927 Fed.R.App.P. 38. I conclude that the majority
has failed to provide any empirical support for the premise
which it believes requires a reexamination of Silver Chrys-
ler that conceptually this premise, even if true, is irrele-
vant; and that practically, if abuse occurs, there are means
to curtail it better tailored to the abuse than the draconian
alternative of denying all interlocutory appeals.
There are nine opinions arising from appeals of grants of dis-
qualification. United States v. Aaron 97 F.2d 337 (2d Cir.
1979) (order granting disqualification affirmed) ; Board of Edu-
cation v. Nyquist, 590 F.2d 1241 (2d Cir. 1979) (order re-
versed) ; In re Taylor, 567 F.2d 1183 (2d Cir. 1977) (order
reversed and remanded as premature) ; Government of India v.
Cook Industries, Inc., 569 F.2d 737 (2d Cir. 1978) (order
affirmed) ; NCK Organization, Ltd. v. Bregman, 542 F.2d 128
(2d Cir. 1976) (order affirmed) ; Cinema 5, Ltd. v. Cinerama,
Inc., 528 F.2d 1384 (2d Cir. 1976) (order affirmed) ; /nter-
national Electronics Corp. v. Flanzer, 527 F.2d 1288 (2d Cir.
1975) (order reversed); United States v. Armedo-Sarmiento,
524 F.2d 591 (2d Cir. 1975) (order reversed) ; Hull v. Celanese
Corp., 513 F.2d 568 (2d Cir. 1975) (order affirmed). Five of
nine appeals of grants of disqualification resulted in affirmance.
Any conclusions drawn from the above facts are obviously
subject to several caveats. The sample may be too small to reveal
a statistically significant difference. Grants of disqualification
in criminal cases, see, e.g., United States v. Armedo-Sarmiento,
supra, may result in a higher percentage of reversals because
Sixth Amendment values are implicated, see Faretta v. California,
422 U.S. 806 (1975). That there are equal percentages of
affrmances among published opinions does not necessarily imply
that there are equal percentages of affirmances without opinions.
Nevertheless, considering the information available to us, it is
fair to say that the existence of roughly equivalent percentages
of affirmances of grants and denials does not support the major-
ity’s premise.
A36
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
II
Cohen established three criteria for determining when
an order is a “final decision” under 28 U.S.C. § 1291. The
order must (1) involve an important issue entirely collateral
to the merits; (2) have been conclusively decided by the
court below; and (3) be effectively unreviewable after final
judgment. Id. at 546-47.
The majority concedes that rulings on disqualification
motions are collateral within the meaning of Cohen. Nor
is there any doubt that such orders are conclusive. Al-.
though the original dispute in this court over this question
was framed in terms of finality, compare Harmar Drive-In
Theatre, Inc. v. Warner Bros. Pictures, Inc., supra, with
Fleischer v. Phillips, 264 F.2d 1002 (2d Cir. 1959), it seems
clear that such denials are no less conclusive than other
orders which the Court has found appealable under Cohen.
See, e.g., Stack v. Boyle, 342 U.S. 1 (1951) (motion for re-
duction of bail), Abney v. United States, 431 U.S. 651
(1977) (motion to dismiss on double jeopardy grounds).
The facts which are relevant to a decision whether to dis-
qualify will generally be fully available at the outset of
litigation. There is no particular reason to anticipate a
reversal of position by the district court.
The majority finds that denials of disqualification motions
do not satisfy two aspects of the Cohen criteria. It argues
that the harm caused by an erroneous denial of a dis-
qualification motion is usually not irreparable because this
court retains its traditional power to grant a new trial if
the district court’s ruling is found after final judgment to
be incorect. (maj. op. p. 11) We respectfully disagree.
I do not read Silver Chrysler as the majority does, to
permit appealabiiity in all cases where there has been a
A37
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
denial of disqualification. We suggested in Lefrak v. Ara-
bian American Oil Co., 527 F.2d 1136, 1139-40 (2d Cir.
1975) and W.T. Grant v. Haines, 531 F.2d 671, 678 (2d
Cir. 1976) that for an order to be appealable under Silver
Chrysler, it is necessary that the issue appealed from relate
to a taint of the trial. If issues not involving the integrity
of the trial are involved, there should be no appeal under
Silver Chrysler. See, e.g., Lefrak v. Arabian American Oil
Co., supra (improper solicitation of a client); W.T. Grant
& Co. v. Haines, supra (improper communication with an
adverse party).2 The ethical problems involved in such
cases can be handled by a bar association grievance com-
mittee or by the courts in separate proceedings. Where
there is a conflict of interest, however, and counsel sought
to be disqualified is in possession of privileged information
which may be utilized against a former client, I cannot
agree that an appeal from the final judgment and the
granting of a new trial protect the interests of the client,
much less the public interest in the integrity of the judicial
process. We have supported an order of disqualification,
3 This restriction on appealability does not involve this court in
any elaborate consideration of the merits in order to determine
appealability or in any elaborate factual inquiry such as that
ecsererr f by the “death knell” approach to the appealability
of class certification denials which was recently disapproved in
Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978). In many
cases it will involve little more than a consideration of which
Disciplinary Rule is implicated. It is much more akin to the
inquiry we must make in applying 28 U.S.C. § 1292(a)(1)
which facially permits interlocutory appeals from orders refusing
injunctions. In Gardner v. Westinghouse Broadcasting Co., 437
U.S. 478, 480 (1978) the Ccurt construed the section to be
limited to those orders involving “serious, perhaps irreparable,
consequences.”
A38
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
in the words of Chief Judge Kaufman, because “[t]he
stature of the profession and the courts, and the esteem in
which they are held, are dependent upon the complete
absence of even a semblance of improper conduct.” Emle
Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 575 (2d Cir.
1973). If on appeal from final judgment this court deter-
mines that counsel for the successful party had a conflict
which contaminated the trial, the interests of the unsuccess-
ful party are probably irremediably injured. The record has
been made and it is a public record. The extent to which it
has been poisoned by the use of privileged information may
not be readily apparent. Retrial with new counsel becomes
the empty ritual act which is characteristic of attempts to
remedy the effects of erroneously decided Cohen-type or-
ders after final judgment. Swift @ Co. Packers v. Compania
Colombiana del Caribe, S.A., 339 U.S. 684, 688-89 (1950).
Moreover, the integrity of the judicial process has been
sacrificed and that certainly is not redeemed by a second
trial with qualified counsel. These are the elements of
irreparable harm which are involved, The harm is not
simply, as the majority would have it, the need “to bear
the time and expense involved in a trial that may possibly
be tainted.” (maj. op. p. 11)
In urging that orders granting disqualification do in-
volve irreparable harm and therefore are appealable under
Cohen, the majority suggests that the trial will be delayed
until new counsel is obtained, the client will be separated
from counsel of his choice and counsel himself will be
stigmatized. We are of course dealing with imponderables,
but even assuming all of these eventualities, they are less
weighty than those which may well afflict the litigant
A39
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
forced to trial where his opponent is represented by an
attorney who may have been privy to privileged informa-
tion which can be now utilized against him.‘
III
The majority also contends that Silver Chrysler, in per-
mitting interlocutory appeals from orders denying dis-
qualification, offended the Cohen requirement that the issue
on appeal be “to important to be denied review.” Cohen v.
Beneficial Industrial Loan Corp., supra, 337 U.S. at 546.
The majority reads Cohen to be directed to those inter-
locutory appeals “raising potentially decisive legal, as op-
posed to factual, questions. In contrast, most disqualifica-
tion motions involve primarily factual, rather than legal
determinations [which] do not present ‘serious and un-
settled question[s].’” (maj op. p. 12) Assuming this to be
a correct analysis of Cohen, how then can the majority at
the same time argue that orders granting disqualification
are appealable under Cohen? There is no question that
4 We have, of course, noted our reluctance to separate a client
from counsel of his choice and will not where the professional
misconduct charged does not prejudice the opposing party or
taint the litigation. W.T. Grant & Co. v. Haines, 531 F.2d 671
(2d Cir. 1976). However, where the conflict of interests ex-
poses a former client to prejudice and this taints the trial, we
have not hesitated to order disqualification. In the Matter of
Bohack, 607 F.2d 258 (2d Cir. 1979), See also Hull v. Celanese
Corp., 513 F.2d 568 (2d Cir. 1975). In cases involving bank-
rupts or debtors-in-possession it has become routine to appoint
prior counsel as counsel in the proceedings in bankruptcy. This
creates a clear danger of conflict of interest. In Bohack we
depended upon Silver Chrysler for appellate jurisdiction. To-
day’s opinion is particularly regrettable in that it shields these
cases for immediate review. The affront to the integrity of the
judicial process is especially serious since appointment of counsel
has been routinely approved by the bankruptcy court. See Jn
re Arlan’s Department Stores, Inc., 615 F.2d 925 (2d Cir. 1979).
A40
Appendix A--En Banc Decision of the United States
Court of Appeals for the Second Circuit
such orders are appealable as Cohen exceptions to 28 U.S.C.
§ 1291. See Emle Industries, Inc. v. Patentex, Inc., supra,
at 570 n.5. Precisely the same factual and legal issues are
involved whether the district court grants or denies the
motion to disqualify. The majority cannot have it both
ways. If, as my brothers contend, disqualification motions
do not raise any potentially decisive legal issues in un-
settled areas of the law then they cannot reasonably con-
tend that orders granting disqualification are appealable
under Cohen.
Whether Cohen does in fact require that the order sought
to be appealed involve a serious legal question which has
not been settled has not been as clear as a mountain lake
in springtime. The statement of the Cohen criteria which
we have recited above and which has been repeated in
Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978) and
Abney v. United States, 431 U.S. 651, 658 (1977) simply
provides that the issue be “important” or “too important
to be denied review.” The Court in Cohen did state that the
issue in that case presented a serious and unsettled ques-
tion. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. at
547. That this created a requirement beyond the normaliy
stated criteria apparently was first suggested by Judge
Friendly in Donlon Industries, Inc. v. Forte, 402 F.2d 935,
937 (2d Cir. 1968) and again in Weight Watchers of Phila-
delphia, Inc. v. Weight Watchers Int’l., Inc., 455 F.2d 770,
773 (2d Cir. 1972). It was applied also in International
Business Machines Corp. v. United States, 480 F.2d 293,
298 (2d Cir. 1973) (en bane) (Mulligan, J.), cert. denied,
416 U.S. 980 (1974).
This so-called “public importance” gloss on Cohen, how-
ever, has not been applied consistently in this circuit. Thus
it has been noted that “many collateral order cases, includ-
A41
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
ing recent decisions from the Second Circuit, allow appeals
that will not settle general questions, and that threaten to
invite a large number of similar appeals. The recent ruling
[citing Silver Chrysler] that orders granting or denying
motions to disqualify counsel are appealable provides ample
illustration” (emphasis supplied). Wright, Miller & Cooper,
Federal Practice and Procedure § 3911 at 496. See also
Note, The Appealability of Orders Denying Motions for
Disqualification of Counsel in the Federal Courts, 45 U.Chi.
L.Rev. 450, 461 (1978).
Having found no post-Cohen Supreme Court authority
which has turned upon this “public importance” factor or
indeed has even mentioned it, I am now compelled to con-
clude that it is not a Cohen requirement. In Abney v. United
States, supra, the Court held that there was a right to
appeal from an order denying a motion to dismiss an
indictment on double jeopardy grounds under Cohen.
Whether or not double jeopardy applies in a particular
case, however, will depend upon its facts. Jd. at 664, It is
now apparent that such orders are all within Cohen despite
the fact that they will normally involve no unsettled issues
of law on appeal but rather will primarily require a factual
determination. The issue of whether a litigant should be
required to go to trial where his opponent is represented
by counsel who is privy to confidential and privileged in-
formation presents a serious issue too important to be
denied review and is thus within Cohen. So long as the
unethical conduct exposes the trial to taint there is a
public as well as a private interest that this collateral
matter be given prompt appellate review. Appeal from
the denial of such disqualification presents an even stronger
case for Cohen treatment than an order granting disqualifi-
cation, which precludes any possibility of a tainted trial.
A42
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
The suggestion that § 1292(b) certification or mandamus
will adequately protect the party who has lost the motion
to disqualify is not persuasive. If these were sufficient
remedies then they would equally bar resort to Cohen where
disqualification is ordered. Appeal under § 1292(b) requires
certification by the district court that an order involves a
controlling question of law. But the majority argues that
this seldom occurs because cases such as the one which we
have today decided on the merits involve primarily the
application of facts to established law. See also Trone v.
Smith, 553 F.2d 1207 (9th Cir. 1977) (§1292(b) is not a
proper avenue for review of denials of disqualification).
Mandamus provides even less assurance of protection. Will
v. United States, 389 U.S. 90, 95 (1967) makes it plain that
error, even gross error, as distinguished from a calculated
and repeated disregard of governing rules, does not suffice
to support issuance of the writ.
For these reasons we should adhere to Silver Chrysler.
In any event, if the majority is correct that the “public
importance” factor is inherent in Cohen, then we must
also refuse to hear appeals from motions granting dis-
qualification. We conclude that it is not an inherent factor
and that both the grant and the denial of disqualification
motions are appealable under Cohen.
,
v
MESKILL, Circuit Judge (concurring in part and dissenting
in part):
I concur in that part of the majority opinion which holds
that no attorney disqualification was required, but dissent
from the overruling of Silver Chrysler and concur in Judge
Mulligan’s separate opinion.
&
vv
A43
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
Van Graareitanp Circuit Judge, concurring in part and
dissenting in part:
The refusal of a district court to disqualify counsel
leaves neither court nor opponent without remedy. The
court may order disqualification at any later time if
subsequent events make it appropriate. Disbarment, see
United States v. Costen, 38 F. 24 (C.C.D. Colo. 1889),
reversal, see United States v. Bishop, 90 F.2d 65 (6th
Cir. 1937), injunctive protection, see United States v.
Mahaney, 27 F. Supp. 463 (N.D. Cal. 1939), and denial
of compensation, see Gessellschaft Fur Drahtlose Tele-
graphie M.B.H. v. Brown, 78 F.2d 410 (D.C. Cir.), cert.
denied, 296 U.S. 618 (1935), are also available remedies.
I agree, therefore, that the collateral order doctrine of
Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541
(1949) does not give this Court jurisdiction to hear appeals
of this nature. Because the provisions of the Code of
Professional Responsibility are presently in a state of flux, '
and we shed little permanent light by our discussion of
the merits, I would simply dismiss the instant appeal for
lack of jurisdiction.
,
ad
Newman, Circuit Judge, concurring in part and dissenting
in part:
I concur with the majority’s conclusions that orders deny-
ing disqualification are not reviewable on an interlocutory
1 A Discussion Draft of the Model Rules of Professional Con-
duct is presently being circulated by the American Bar Associa-
tion and a final version of the Rules will be submitted to the
House of Delegates at its February 1981 meeting.
A44
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
appeal’! and that this ruling on appealability should be
given only prospective effect; on the merits, however, I
respectfully dissent.
The majority’s opinion dves not deal with the ultimate
issue on the merits: whether a law firm’s representation
violates Disciplinary Rule 5-105(D) when one of its part-
ners is disqualified under Disciplinary Rule 9-101(B). In-
stead the majority concludes that, whether or not the firm’s
representation violates the Code of Professional Responsi-
bility, a trial court should not disqualify the firm unless (a)
the firm’s representation would taint the trial or (b) the
case is one of those “unusual situations where the ‘appear-
ance of impropriety’ alone is sufficient to warrant disquali-
fication.” —— F.2d at ——. In this case the majority finds
neither a threat of taint nor a sufficient basis to disqualify
to avoid the appearance of impropriety. I disagree with
both this standard for disqualification and its application
to this case.
As expressed by the majority, this standard makes trial
taint the primary and nearly exclusive basis for disqualifi-
cation, relegating “appearance of impropriety” to a remote
1 My conclusion that orders denying disqualification are not
within the collateral order doctrine of poe v. Beneficial Indus-
trial Loan Corp., 337 U.S. 541 (1949), rests entirely on the
failure to meet Cohen’s requirement that review after final judg-
ment will be ineffective. T do not agree with the suggestion in
the majority opinion that Cohen’s requirement of an issue “too
important” to be deferred encompasses only decisive legal ques-
tions and not the application of settled legal rules to particular
facts. As Judge Mulligan points out, supra at , this limita-
tion would preclude interlocutory review of most orders granting
disqualification. “Importance” relates to the consequences to the
parties (or their lawyer), not to whether the issue has public
significance.
A45
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
and uncertain role at best.2 In my view, the judiciary
should be much more willing to use the sanction of disquali-
fication to make sure that the canons of ethics are not
violated in the court room. I can agree that not every
violation of the Code should result in disqualification.
Especially when a violation occurs after litigation has
begun, it will sometimes be fairer to the interests of both
the public and the client to permit the trial to continue to
conclusion and then use the grievance procedures for appro-
priate discipline. But when the alleged violation concerns
the propriety of undertaking representation at the outset,
a court should inquire into whether a lawyer and his firm
are violating the Code by appearing in the litigation,
whether or not such representation will taint the trial.’
2 Limiting disqualification to instances of trial taint may have
been somewhat more justified prior to today’s decision, when
denials of disqualification were subject to interlocutory appeal.
It may be that fear of dilatory interlocutory appeals played some
part in the emergence of the “trial taint” standard, limiting the
grounds for court-enforced disqualification. It is somewhat ironic
that a “‘trial taint” standard should now become virtually abso-
lute at the very time that interlocutory appeals from denial of
disqualification are being prohibited.
3s ‘It is clear that trial courts could appropriately enforce, at the
outset of litigation, disqualification rules that are not concerned
only with trial taint. However, such an approach would pose
different issues for an appellate court considering a trial court's
denial of disqualification on appeal from a final judgment after
trial. At that point reversal of the judgment might sometimes
be an excessive penalty for violation of the canons, too costly to
both the litigants and the public. Perhaps the penalty for repre-
sentation in violation of the canons, where trial taint has not
occurred should be simply forfeiture of attorney’s fees. Even if
reversal of a judgment were inappropriate, appellate rulings on
whether the representation was proper would increase observance
of the canons and provide useful guidance for trial courts. What-
ever sanctions might be appropriate for an appellate court to
impose when, after judgment, denial of disqualification is held
to have been erroneous, the disqualification sanction, not limited
to instances of trial taint, should be available for use by trial
courts when the canons are violated at the outset of litigation.
A46
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
The appropriateness of such inquiry is especially high
when the Code provision at issue regulates the ethical con-
duct of government attorneys. DR 9-101(B) is not con-
cerned solely with the trial taint that may occur if an
attorney handles a matter for which he previously had
substantial responsibility as a government lawyer. It also
seeks to avoid “the manifest possibility that ... [a former
Government lawyer’s] action as a public legal officer might
be influenced (or open to the charge that it had been in-
fluenced) by the hope of later being employed privately to
uphold or upset what he had done.” General Motors Corp.
v. City of New York, 501 F.2d 639, 648-49 (2d Cir. 1974).
Courts traditionally have been most sensitive to the enforce-
ment of standards designed to limit governmental power.
They should be at least as sensitive to the enforcement of
standards specifically designed to protect against the misuse
of such power. The purposes of DR 9-101(B) cannot be fully
achieved unless there is no possibility that the government
attorney can be (or seem to be) influenced by the prospect
of later private employment. To remove that possibility
requires disqualification not only of the attorney, when
handling a related matter, but also of his firm.‘
Even under the majority’s limited standard for dis-
qualification, Altman’s firm should be disqualified in this
case. First, if threat of taint is accepted as the primary
ground for disqualification, such threat is present here.
In Board of Education v. Nyquist, 590 F.2d 1241 (2d Cir.
4 In this case there is no reason to doubt that Altman acted
fairly and uprightly as a government attorney. But the canons
of ethics, it has been properly pointed out, are designed as guid-
ance for the honorable attorney, not simply as a proscription
against misconduct. General Motors, supra, 501 F.2d at 649.
A47
Appendix A—-En Banc Decision of the United States
Court of Appeals for the Second Circuit
1979), it was recognized that a former Government at-
torney’s possession of confidential information unavailable
to the other side would risk trial taint sufficiently to war-
rant his disqualification. Jd. at 1247-48 n.1 (Mansfield, J.,
concurring). That risk is not eliminated by screening the
lawyer from his firm. In Fund of Funds, Ltd. v. Arthur
Andersen & Co., 567 F.2d 225, 229 n.10 (2d Cir. 1977), a
Chinese Wall within a law firm was thought to be inadequate
protection against the risk that information from one of
the firm’s clients, with interests adverse to another of the
firm’s clients, would be transmitted from one partner to
another. If in this litigation it should become crucial to the
outcome for the lawyers representing the plaintiff to know
some confidential information learned by Altman while in
government employ, I do not see why a Chinese Wall should
be thought more impervious to information that originated
from a government investigation than to information
learned from a client with adverse interests.°
Second, this case should be deemed to meet the majority’s
exception to the taint standard for an unusual situation
where the appearance of impropriety warrants disqualifica-
tion. In addition to the need to disqualify the firm to avoid
all risk that a government attorney might misuse his
authority in hope of later private gain, appearance of
5 The majority opinion suggests that the absence of risk of taint
is a factual finding of the District Court, not shown to be clearly
erroneous. I would agree that whether a Chinese Wall within
a law firm has been breached would be an issue of fact. However,
whether such a device is ane Hoeagee a sufhicent safeguard to
ange a representation forbidden by the Code is an issue of
aw. That issue was not considered in the panel opinion because
disqualification of the firm was thought to be required by the
Code and the principle of the General Motors case, regardless
of whether a Chinese Wall could adequately prevent taint.
A48
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
impropriety exists here because of the further risk that
the screening procedure will not be effective. It may well
be that no matter how this litigation develops, Altman will
in fact not disclose to his partners anything he learned
while exercising substantial government responsibilities for
related matters. But the public will not believe it. Of
course, the rules of law, including the rules of disqualifica-
tion, cannot cater to all the often unfounded apprehensions
of the public. But we do not deal here with just a gen-
eralized public skepticism about lawyers. The _policy-
making body of the legal profession’s largest and most
influential membership organization has adopted a Code
of Professional Responsibility that bars Altman from
representing the plaintiff in this case (DR 9-101(B)) and
bars his partners as well (DR 5-101(D)). The public
understandably will see an appearance of impropriety
when, despite the clarity of these prohibitions, Altman’s
law firm is allowed to continue its representation because
of the assurance that Altman and his partners will not
discuss this case. The public will also justifiably perceive
impropriety when, despite the prohibition of the canons,
a government lawyer handles a matter and the law firm he
subsequently joins is not disqualified from representation
in a substantially related matter.° To allow such repre-
6 The majority opinion suggests that countervailing considera-
tions are to be found in the public expectation of efficiency in the
judicial process, and that further delay resulting from disqualifi-
cation of the Gordon firm should not be tolerated. I do not think
efficiency, even in the pursuit of alleged wrongdoing, justifies a
failure to enforce a rule of ethics that is specifically designed to
remove the te:aptation and opportunity for misuse of govern-
mental authority. Moreover, I cannot agree that the delay to
date and subsequently, if disqualification were ordered, is charge-
able to appellants. The onus quite properly rests with the Gordon
firm, which undertook a representation in the face of the Code’s
clear prohibition.
A49
Appendix A—En Banc Decision of the United States
Court of Appeals for the Second Circuit
sentation leaves the government lawyer open to the charge
that this action as a public legal officer might have been
influenced by the hope of later being employed to uphold
what he had done, as this Court warned in General Motors,
supra. The appearance of impropriety should be avoided
by disqualification of Altman’s firm.
Whether the Code of Professional Responsibility should
maintain its present rule requiring the disqualification of
the former government attorney’s firm is a matter on which
reasonable minds may differ. Serious concerns have been
expressed that the Code, as now written, may unduly re-
strict private employment opportunities of government law-
yers and thereby impair the government’s ability to attract
competent attorneys. That issue is now receiving attention
by those charged with responsibility for reviewing and per-
haps revising the content of the Code. But until some con-
crete evidence of adverse consequences supplies grounds for
changing the Code’s present provisions, I would apply them
as written, find Altman’s firm to be in violation of the Code
by its representation in this case, and grant the motion to
disqualify to maintain the important ethical principles on
which the Code is based.
APPENDIX B
Panel Decision of the United States Court of Appeals
for the Second Circuit.
UNITED STATES COURT OF APPEALS
For tHE Seconp Circuit
No. 1010—August Term, 1978.
,Argued June 13, 1979 Decided September 12, 1979.)
Docket No. 79-7042
,
v
MicuarEL F. Armstrona, et al.,
Plaintiff s-A ppellees.
—V,—
CLovis McA.p1n, et al.
Defendants-A ppellants.
Before:
Van GraaFEILAND and Newman,” Circuit Judges,
and Bonsat, District Judge.**
Appeal from a ruling of the United States District Court
for the Southern District of New York (Hon. Henry F.
Werker, Judge), denying motion of defendants-appellants
to disqualify plaintiffs’ law firm.
Reversed and remanded.
* Judge Newman was United States District Judge for the Dis-
trict of Connecticut, sitting by designation, at the time of oral
argument.
** The Honorable Dudley B. Bonsal, United States District
Judge for the Southern District of New York, sitting by designa-
tion.
[50]
A5l
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
J. Ropert Lunney, New York, New York (Lun-
ney & Crocco, New York, New York, on the
brief), for appellants.
Frankun B. Vette, New York, New York (Gor-
don Hurwitz Butowsky Baker Weitzen &
Shalov, New York, New York, on the brief),
for appellees.
THE Securities AND Excoancre Commission (Paul
Gonson, Principal Assoc. Gen. Counsel, John
P. Sweeney, Sp. Counsel, Anne C. Flannery,
Atty., on the brief) submitted a brief as
amicus curiae.
Newman, Circuit Judge:
This appeal from denial of 2 motion to disqualify the law
firm that represents the plaintiffs raises an important issue
of legal ethies: whether and in what circumstances the dis-
qualification of a lawyer because of his prior role as a gov-
ernment lawyer requires the disqualification of his law firm.
Theodore Altman, Esq. served on the staff of the Securi-
ties and Exchange Commission from 1967 to October, 1975.
For the last three years of his government service Altman
was Assistant Director of the Division of Enforcement. Alt-
man supervised and had direct, personal involvement in an
SEC investigation of Clovis McAlpin, Capital Growth Com-
pany, S.A. (Costa Rica) (“Capital”), and other companies.
SEC File No. N.Y.—5035. The investigation resulted in the
filing of a complaint by the SEC on September 3, 1974,
against McAlpin, Capital, and the other companies. Securi-
ties & Exchange Commission v. Capital Growth Co. (Costa
Rica), 74 Civ. 3779 (S.D.N.Y.). The complaint sought in-
juctive relief for violations of § 10(b) of the Securities and
A52
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5,
17 C.F.R. § 240.10b-5, and also the appointment of a
receiver. On September 24, 1974, Michael F. Armstrong
was appointed receiver for Capital by Judge Charles
EK. Stewart, Jr.
Immediately after leaving the SEC in 1975 Altman be-
came an associate with the New York firm of Gordon
Hurwitz Butowsky Baker Weitzen & Shalov, of which he
is now a partner. In March, 1976, Armstrong approached
David M. Butowsky, a partner of the Gordon firm, and
requested the firm to act as litigation counsel. Butowsky
promptly pointed out to Armstrong the possible issue that
might arise because of Altman’s prior role with the SEC
in the investigation of Capital and the related companies.
Both the law firm and the Receiver studied the matter and
ultimately concluded that the firm could represent the
Receiver provided appropriate screening procedures were
instituted to prevent Altman’s participation. This followed
the course outlined in Formal Opinion 342 of the Committee
on Professional Ethics of the American Bar Association.
Acting cireumspectly, the firm presented the issue to Judge
Stewart, who authorized the Receiver to retain the firm.
In pursuance of the procedure suggested in Opinion 342,
the firm also presented the issue to the SEC and was in-
formed that the SEC had no objection to the Receiver’s
retention of the firm provided Altman was screened from
any participation. The Receiver then retained the Gordon
firm.
On September 17, 1976, the Receiver, represented by the
Gordon firm, filed the suit in which the pending controversy
has arisen. The suit seeks damages in excess of $24 million
for violation of federal securities laws. There is no dispute
that the alleged wrongful conduct detailed in the Receiver’s
A53
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
complaint substantially overlaps the matters alleged in
the SEC’s enforcement action. Clovis McAlpin, defendant-
appellant, alleged to be the principal beneficiary of the
alleged fraud, was served in July, 1977. He and defendant-
appellant Capital Growth Real Estate Fund, Ine. obtained
extensions of time to appear and plead. On June 2, 1978,
on their initial court appearance these two defendants
moved to disqualify the Gordon firm because of Altman’s
prior SEC activity. Other defendants subsequently joined
in the motion. The motion was denied by Judge Henry F.
Werker on December 5, 1978. From that decision McAlpin
and Capital Growth Real Estate Fund, Ine. appeal.'
While the standards of conduct governing attorneys
practicing in the federal courts are ultimately matters for
oversight by the federal judiciary, the American Bar
Association’s Code of Professional Responsibility has been
recognized in this Circuit as a principal source of pertinent
guidance. Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384,
1386 (2d Cir. 1976); Hull v. Celanese Corp., 513 F.2d 568,
571 n.12 (2d Cir. 1975). Canon 9 of the Code provides:
“A lawyer should avoid even the appearance of professional
impropriety.” Ethical Consideration 9-3 provides: “After
a lawyer leaves judicial office or other public employment,
he should not accept employment in connection with any
matter in which he had substantial responsibility prior to
his leaving, since to accept employment would give the ap-
pearance of impropriety even if none exists.” Finally,
Disciplinary Rule (DR) 9-101(B) provides: “A lawyer
' __Denial of a motion to disqualify counsel remains appealable,
Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496
F.2d 800 (2d Cir. 1974) (en banc), despite “rumbles of discon-
tent,” Board of Education v. Nyquist, 590 F.2d 1241, 1247, n.8
(2d Cir. 1979).
Ad4
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
shall not accept private employment in a matter in which
he had a substantial responsibility while he was a public
employee.”
It is acknowledged in this case that Altman’s activity
with the SEC in connection with the Capital investigation
disqualifies him from the Receiver’s lawsuit. The issue is
whether the disqualification extends to his law firm.
Prior to 1974, DR 5-105(D) provides that affiliated law-
yers were disqualified whenever the lawyer in question was
disqualified by DR 5-105, which concerns conflict of in-
terests. At the February, 1974 mid-year meeting of the
ABA, DR 5-105(D) was broadened to disqualify affiliated
lawyers when the lawyer in question is disqualified by any
of the disciplinary rules. The amended version provides:
“Tf a lawyer is required to decline employment or to with-
draw from employment under a disciplinary rule, no
parner, or associate, or any other lawyer affiliated with him
or his firm, may accept or continue such employment.”
Though the textual relationship between DR 9-101(B)
and amended DR 5-105(D) seems evident, it has been re-
ported that the ABA committee that proposed the amend-
ment did not consider the impact upon firms that included
former government lawyers. Moskowitz, Can D.C. Lawyers
Cut the Ties that Bind? Juris Doetor (Sept. 1976), at 34.?
Shortly after DR 5-105(D) was amended, the ABA’s Com-
mittee on Ethies and Professional Responsibility was asked
to consider the impact of the amended Disciplinary Rule
2 __—-It seems evident that the broadening of DR 5-105(D) was not
intended to require law firm disqualification in every instance
where a lawyer in the firm is disqualified by a disciplinary rule.
For example, DR 2-110(B)(3) requires a lawyer to withdraw
from employment if his ‘‘mental or physical condition renders it
——— difficult for him to carry out the employment effec-
tively.
A55
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
on DR 9-101(B). On November 24, 1975, the Committee
issued Formal Opinion 342, 62 A.B.A.J. 517 (1975).
Opinion 342 concludes that a lawyer’s disqualification under
DR 9-101(B) does not inevitably extend to his law firm.
The Opinion requires “screening measures” that will
“effectively isolate the individual lawyer from participat-
ing in the particular matter and sharing in the fees attribut-
able to it.” Jd. at 521. The Opinion permits the firm to
accept or continue representation if the government agency
with which the attorney in question was formerly employed
approves the screening procedures and is satisfied that
there is “no appearance of significant impropriety affecting
the interests of the government.” Jbid. In addition, the law
firm must make “its own independent determination as to
the absence of particular circumstances creating a signi-
ficant appearance of impropriety.” Jbid.
The issue has also received additional thoughtful con-
sideration. The Committee on Professional and Judicial
Ethics of the Association of the Bar of the City of New
York has issued Opinion No. 889, agreeing with the ABA
Opinion that for most cases screening of the former govern-
ment lawyer will afford adequate protection. 31 The
Record 552 (1976). The New York City Bar Opinion, how-
ever, would not leave the adequacy of screening procedures
to the government agency, but would require approval by
the tribunal before which the private lawsuit is pending.
Id, at 566. In the District of Columbia, a draft report of the
Committee on Legal Ethies of the District of Columbia
Bar initially expressed the view that screening procedures
could not suffice to prevent disqualification of a firm with
which an attorney disqualified by DR 9-101(B) was
affiliated. See Tentative Draft Opinion for Comment,
Inquiry 19, District Lawyer (Fall 1976), at 39. Later the
Ad6
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
D.C. Committee recommended amendments to the Code
that would permit screening when approved by the govern-
ment agency that employed the disqualified attorney.
District Lawyer (Aug.-Sept. 1978),* at 44. Recently the
Board of Governors of the D.C. Bar has recommended to
the District of Columbia Court of Appeals adoption of
Code amendments that would permit screening subject to
challenge in court, but without the need for approval by
the government agency. District Lawyer (Apr.-May 1979),
at 47. That proposal is awaiting consideration by the
District of Columbia Court of Appeals. Support for screen-
ing procedures has also been expressed to the D.C. Bar
by the SEC, the Internal Revenue Service, and the Depart-
ment of Justice, and the SEC supports that position in its
amicus brief filed in this case.
In the courts disqualification of a lawyer because of his
prior government employment on a related matter has been
strictly enforced under DR9-101(B), General Motors Corp.
v. City of New York, 501 F.2d 639 (2d Cir. 1974); Telos,
Inc. v. Hawaiian Telephone Co., 397 F. Supp. 1314 (D.
Haw. 1975); Handelman v. Weiss, 368 F. Supp. 258 (S.D.
N.Y. 1973) ; see also United States v. Ostrer, F.2d ——
(2d Cir. 1979); Traylor v. City of Amarillo, Texas, 335
F. Supp. 423 (N.D. Tex. 1971); and under its predecessor,
Canon 36 of the former Canons of Professional Ethics,
Allied Realty, Inc. v. Exchange National Bank, 408 F.2d
1099 (8th Cir.), cert. denied, 396 U.S. 823 (1969); United
States v. Trafficante, 328 F.2d 117 (5th Cir. 1964); Hilo
Metals Co. v. Learner Co., 258 F. Supp. 23 (D. Haw. 1966) ;
Empire Linotype School, Inc. v. United States, 143 F. Supp.
627 (S.D.N.Y. 1956). Since disqualification of a lawyer
normally disqualifies his firm, Cinema 5, Ltd. v. Cinerama,
Inc., supra, 528 F.2d at 1387; American Can Co. v. Citrus
A57
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
Feed Co., 486 F.2d 1125, 1128-29 (5th Cir. 1971); Laskey
Brothers v. Warner Brothers Pictures, 224 F.2d 824, 826
(2d Cir. 1955), cert. denied, 350 U.S. 932 (1956), disqualifi-
cation under DR 9-101(B) has been extended to the former
government lawyer’s firm, Jelos, Inc. v. Hawaiian Tele-
phone Co., supra; Handelman v. Weiss, supra; see also
Traylor v. City of Amarillo, Texas, supra, with one notable
exception, Kesselhaut v. United States, 555 F.2d 791 (Ct. Cl.
1977), to be discussed infra.
In the pending case, both sides seek to draw support
from observations in two recent disqualification decisions
of this Court. In Fund of Funds, Ltd. v. Arthur Andersen
& Co., 567 F.2d 225 (2d Cir. 1977), a firm resisting dis-
qualification, which it faced because of a conflict of interest
between some of its lawyers, contended that the lawyers
with conflicting interests were effectively screened from
each other. This Court rejected the use of a screening ar-
rangment. “Morgan Lewis argued below that it built a
Chinese Wall within the firm and that no information
passed between the two groups of attorneys and thus that
no confidential information was disclosed. The court below
found that no such ‘Chinese Wall’ could be created in a
single firm. We incline to agree.” Jd. at 229 n.10; see also
Cinema 5, Ltd. v. Cinerama, Inc., supra, 528 F.2d at 1387
n.l. Sereening, appellants contend, has been prohibited.
Appellees, on the other hand, draw comfort from Board
of Education v. Nyquist, 590 F.2d 1241 (2d Cir. 1979), in
which an attorney was sought to be disqualified under the
general “appearance of impropriety” standard of Canon 9.
The attorney for parties on one side of the dispute was
paid in part by a portion of union dues contributed by the
opposing parties. This Court reversed the order of dis-
A5d8
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
qualification, finding no risk that the circumstances con-
cerning use of union dues would taint the trial. Courts
were advised to be “quite hesitant” to disqualify an attor-
ney unless his continued representation would taint the
trial by risking violation of the conflict of interest standards
of Canons 5 and 9, or the confidentiality standards of
Canons 4 and 9. Jd. at 1246. Disqualification, appellees
contend, has been limited to circumstances not present in
this case.
Neither decision is dispositive here. Rejection of screen-
ing as a device to prevent exchange of information within
a law firm between attorneys with conflicting interests is
not necessarily a rejection of screening in all circum-
stances. On the other hand, Board of Education recognizes
that its focus on Canon 4 and 5 considerations does not
inevitably preclude disqualification for violation of other
standards.’ Moreover, that decision was not at all con-
cerned with the extent of a disqualification.
We have been well cautioned to proceed in these ethical
matters with care, United States v. Standard Oil Co., 136
F. Supp. 345, 367 (S.D.N.Y. 1955) (Kaufman, J.), mindful
of the concerns of the parties, the profession, and the
public, Emle Industries, Inc. v. Patentex Inc., 478 F.2d
562, 575 (2d Cir. 1973). The formulation of standards
concerning the future employment of government attorneys
involves a careful weighing of competing concerns. See
generally, Kaufman, The Former Government Attorney
3 Judge Mansfield’, concurring opinion in Board of Education v.
Nyquist, 590 F.2d 1241 (2d Cir. 1979), recognized that a viola-
tion of DR 9-101(B) would be a proper occasion for disqualifica-
tion, id. at 1247-48 n.1. In his view participation by the former
government attorney risked the use of confidential information
unavailable to the other side, which would taint the trial.
A59
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
and the Canons of Professional Responsibility, 70 Harv. L.
Rev. 657 (1957) ; Note, Conjlicts of Interest and the Former
Government Attorney, 65 Geo. L.J. 1025 (1977).
An overly strict approach to disqualification of the for-
mer government attorney and especially to disqualification
of his firm impairs the client’s choice of counsel and can
impair the government’s ability to attract non-career at-
torneys, if they come to believe that their post-government
employment opportunities will be unduly restricted. These
considerations themselves implicate ethical values concern-
ing the availability of professional services.
On the other hand, the prohibition of DR 9-101(B) serves
important values, which require appropriate enforcement.
Chief among these, as this Court recognized in General
Motors Corp. v. City of New York, supra, 501 F.2d at
648-49, is avoiding “the manifest possibility that... [a
former Government lawyer’s] action as a public legal officer
might be influenced (or open to the charge that it had been
influenced) by the hope of later being employed privately
to uphold or upset what he had done” (quoting Formal
Opinion 37 of the ABA Committee on Professional Ethics).
Other concerns, not present in all cases, are that the former
government lawyer might take a position adverse to the
government agency, might disclose confidential government
information, might make unfair use of undisclosed con-
fidential information, might receive or appear to receive
favored treatment from the agency, or might be or appear
to be pursuing a governmental objective in private prac-
tice, free of restrictions imposed upon government per-
sonnel, |
With these concerns in mind, we conclude that it would
he entirely inappropriate to attempt to formulate a rule
of general application respecting the law firm of a lawyer
A60
Appendix B—Panel Decision of the United States
Court of Appeals for the Second Circuit
disqualified under DR 9-101(B) because of prior govern-
mental activity. Variables along at least two dimensions
might affect the result. First, is the “matter” for which the
disqualified lawyer had “substantial responsibility” the
kind of matter where the risks against which DR 9-101(B)
guards are present? For example, in Kesselhaut v. United
States, supra, the former government lawyer, as general
counsel of the Federal Housing Authority, had some con-
tact with a request for tax abatement that a New Jersey
law firm was seeking to obtain for the FHA on an FHA
property. The general counsel subsquently joined a Wash-
ington, D.C. firm that the New Jersey firm later retained
to collect its legal fee for the successful handling of the
tax abatement matter. In that context, the Court of Claims
concluded, in accordance with Opinion 342, that screening
of the former general counsel would be a sufficient safe-
guard to permit his firm to represent the New Jersey firm
in its dispute with the government. While we express no
opinion on that result, we note that the opportunity to
handle a governmental matter so as to enhance the prospect
of private employment was virtually non-existent in Kessel-
haut. It is difficult to imagine anything the general counsel
could have done (or been accused of doing) in overseeing
the New Jersey firm’s handling of the tax abatement matter
that might have enhanced his employment by a firm later
retained to collect the New Jersey firm’s fee. There was no
claim that he played any role in the fee arrangement.
In the pending case, however, the conduct of govern-
mental investigation and enforcement litigation is precisely
the sort of activity where the risk of being influenced by
the prospect of future employment is very real.
A second appropriate inquiry is whether the “substantial
responsibility” that disqualifies the former government law-
A61
Appendix B—Punel Decision of the United States
Court of Appeals for the Second Circuit
yer results from his active, personal participation in the
matter or only from the nominal relationship of a super-
visory official, such as an agency general counsel. In the
latter case, knowledge of matters handled in his name is
imputed to him. United States v. Standard Oil Co., supra;
Porter v. Huber, 68 F. Supp. 132 (W.D. Wash. 1946) ; see
also ABA Formal Opinion 37, and this imputed knowledge
suffices to disqualify him under DR 9-101(B). But whether
it should disqualify his firm is an issue quite different from
the issue in the pending case. The appearance of impro-
priety is substantial if a firm is permitted to prosecute or
defend a matter with which an affiliated lawyer had direct,
personal involvement as a government attorney.* But
if his relationship to the matter was the formal one of a
senior supervisor, the apperance of impropriety, though
sufficient to disqualify him from handling the matter, would
be greatly lessened for his firm by an appropriate screening
procedure.
We leave for another day determination of whether
screening procedures as contemplated by ABA Opinion 342
might be appropriate when the matter handled by the
former government lawyer afforded no realistic opportunity
for enhancing the prospect of private employment, or when
the government lawyer had only a formal supervisory re-
lationship to the matter. But in the case before us, we
conclude that screening procedures, however, faithfully ob
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