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Kramer v. Scientific Control Corp.

argued: February 11, 1976.

MITCHELL A. KRAMER AND DAVID C. HARRISON
v.
SCIENTIFIC CONTROL CORP.; ARTHUR ANDERSEN & CO.; H. L. FEDERMAN & CO.; W. C. BAKER; W. D. RAY; J. J. BONNESS; L. J. RATNER; NELSON MCKINNEY; R. D. FREEDMAN; HAM SWYTER; R. T. GOWAN; D. A. W. YOUNG; I. C. DEAL AND E. E. SPECKS; KLEINER, BELL AND CO., INC.; JOHN B. BAIRD; DONALD G. O'NEAL; NORMAN C. YOUNG; CLYDE WILLIAMS; VAN CALVIN ELLIS; H. L. FEDERMAN; PATRICK S. MARTIN; WILLIAM C. WEATHERFORD; HENRY W. HOOKER; MERRILL J. WHISTON; ARTHUR E. SPECKHARD; WILLIAM C. LEE; JOSEPH T. JONES AND GEORGE JAGGERS ARTHUR ANDERSEN & CO., APPELLANT IN NOS. 75-1673 AND 75-1849



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 71-1954).

Aldisert, Gibbons and Rosenn, Circuit Judges. Rosenn, Circuit Judge.

Author: Aldisert

ALDISERT, Circuit Judge.

May a member of the bar who is a plaintiff class representative in a class action proceeding under Rule 23(b) (3) of the Federal Rules of Civil Procedure designate as his counsel a member or employee of his law firm? This is the question presented in the appeal at No. 75-1849 from an order denying appellant's motion to disqualify plaintiffs' counsel. Also raised, at No. 75-1673, is the issue whether the district court erred in certifying the class. F.R. Civ. P. 23(a), (c). We answer the first question in the negative; we do not reach the second, for want of an appealable order.

Mitchell A. Kramer and David C. Harrison, then law partners, purchased as joint tenants 50 shares of Scientific Control Corp. stock on January 6, 1969. They sold the stock one month later at a net loss of $438.13. During the summer of 1971, after Kramer and Harrison had dissolved their partnership, Kramer received a four-page questionnaire from the Securities and Exchange Commission requesting information on the transaction in Scientific Control stock. Kramer did not answer the SEC inquiry. Instead, after communicating with Harrison and receiving his permission, Kramer filed suit,*fn1 naming himself and Harrison as plaintiffs. The complaint named as defendants Scientific Control Corp. and certain officers and directors; H. L. Federman & Co., an underwriting firm; and Arthur Andersen & Co., the certified public accounting firm and appellant herein. Robert M. Britton, then an associate in Kramer's office, signed the complaint. Britton later moved to dismiss as to several named defendants, to add several defendants, and to amend the complaint; still later, he moved for a class action determination. Shortly before Britton left the employ of Kramer in July 1972, he withdrew as counsel and Steven Kapustin, then replacing Britton as an associate but now a partner of Kramer, entered his appearance.

On October 1, 1974, the district court granted plaintiffs' deferred motion for a determination that the action proceed as a Rule 23(b)(3) class action. 64 F.R.D. 558 (E.D. Pa. 1974). On April 17, 1975, the district court denied a motion for reconsideration of its class action certification or, in the alternative, for a certification pursuant to 28 U.S.C. § 1292(b). 67 F.R.D. 98 (E.D. Pa. 1975). The appeal at No. 75-1673 followed; appellees have moved to dismiss this appeal for want of jurisdiction.

Two months later, on June 20, 1975, appellant moved the district court, inter alia, to disqualify plaintiffs' counsel because "there exists an irreconcilable conflict of interest between the representation by Kramer & Salus [the firm in which Kapustin is now a partner] of the named plaintiffs and the members of the class purported to be represented by the named plaintiffs; 2. The Code of Professional Responsibility bars such representation . . . ." Appendix at 272a. The district court, treating the motion as one for reargument or reconsideration of its April 17th order and, as such, untimely, denied the motion. Ibid. at 277a. Appellant then noticed the appeal at No. 75-1849.

I.

As we recently stated: "This court has taken a strong position that a class certification decision, per se, is not an appealable final order under 28 U.S.C. § 1291. Hackett v. General Host Corp., 455 F.2d 618 (3d Cir.), cert. denied, 407 U.S. 925, 32 L. Ed. 2d 812, 92 S. Ct. 2460 (1972). To qualify for interlocutory review in this circuit a class certification decision must be attended by special factors which take it outside the ambit of the general rule. Katz v. Carte Blanche Corp., 496 F.2d 747, 756 (3d Cir.) (in banc), cert. denied, 419 U.S. 885, 42 L. Ed. 2d 125, 95 S. Ct. 152 (1974)." Ungar v. Dunkin' Donuts of America, Inc., 531 F.2d 1211, 1213 (3d Cir. 1976). We will review class action certification decisions if the parties satisfy two conditions precedent, neither of which may be expected absent special circumstances -- an order by the district court judge and permission from this court. 28 U.S.C. § 1292(b). See generally Note, Interlocutory Appeals in the Federal Courts Under 28 U.S.C. § 1292(b), 88 HARV. L. REV. 607 (1975). Here, appellant met neither of the conditions. Accordingly, we will grant appellees' motion to dismiss the appeal at No. 75-1673.

The appeal at No. 75-1849 stands on a different footing. Where a serious question of impropriety arises in the context of a motion to disqualify an attorney from proceeding to trial, this court has invoked the collateral rule of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949). Accordingly, we have held that district court orders denying such motions may be appealable under 28 U.S.C. § 1291. Kroungold v. Triester, 521 F.2d 763, 765 (3d Cir. 1975); American Roller Co. v. Budinger, 513 F.2d 982, 983 (3d Cir. 1975); Greene v. Singer Co., 509 F.2d 750 (3d Cir. 1971) (sur motion to dismiss appeal).*fn2 We believe that the questions presented in the appeal at No. 75-1849 are " too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred'". Ibid. at 751. We hold, therefore, that the order denying the motion to disqualify plaintiffs' counsel qualifies for immediate review.

II.

Having established our appellate jurisdiction to review the denial of the motion to disqualify, we now properly turn to the question of the scope of our appellate review. It has been said that a district court's decision to grant or deny such a motion may be reversed only for an abuse of discretion. See Kroungold v. Triester, supra, 521 F.2d at 765 & n.2. Recently, however, we observed that in many contexts disqualification motions present purely legal issues, subject to full appellate review. American Roller Co. v. Budinger, supra, 513 F.2d at 985 n.3. Once again, this possible discrepancy need not detain us here. As previously rehearsed, page 1087 supra, in this case the district court treated the motion to disqualify counsel as a motion to reconsider the class action certification decision. The issue on certifying plaintiffs as class representatives -- whether they would "fairly and adequately protect the interests of the class", F.R. Civ. P. 23(a)(4), when their counsel was an employee (and later a partner) in Kramer's firm -- was related, but not identical, to the issue posed by the disqualification motion. Reducing the distinction to its bare essentials, the former issue relates to who may serve as class representative, while the latter relates to who may serve as counsel. The trial court failed to perceive the difference and consequently erred.

III.

We take as our starting point Lord Herschell's remark to Sir George Jessel: "Important as it was that people should get justice, it was even more important that they should be made to feel and see that they were getting it."*fn3 From this has emerged what may be described as an axiomatic norm, if not a legal doctrine or conception,*fn4 viz., that the appearance of conduct associated with institutions of the law be as important as the conduct itself. Indeed, this notion is at least an implicit predicate of the Code of Professional Responsibility,*fn5 drafted by the American Bar Association and implemented by the courts, including the United States District Court for the Eastern District of Pennsylvania,*fn6 to govern behavior of attorneys. The importance of this notion cannot be gainsaid. Canon 9 of the Code of Professional Responsibility, which Local Rule 11 in the district court made applicable to counsel, declares: "[A] lawyer should avoid even the appearance of professional impropriety." Canon 9 is case law in this court: "[A] court may ...


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