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May 30, 1979

THOMAS J. HOLT, et al.

The opinion of the court was delivered by: NEWCOMER


The defendants have moved to disqualify plaintiffs' counsel from further representation of the plaintiffs in this action, on the grounds that the plaintiffs' counsel are in a position to use information acquired in their earlier representation of certain of the defendants to the disadvantage of those defendants. For the reasons that follow, disqualification of the plaintiffs' principal counsel will be required, but local counsel will be permitted to remain in the case.

 This action is a large commercial suit by seven *fn1" named corporate plaintiffs against fourteen individual and corporate defendants. The case arose out of an alleged breach of contract. The plaintiffs are lessors of seagoing cargo containers, which are used in containerized freight shipping. Marine Transport Service (M.T.S.), a named defendant, is alleged to have leased a number of these containers from the plaintiffs. It is further alleged that M.T.S. failed to pay the agreed rental; that it lost or failed to return many of the containers; and that it returned others in a damaged condition. Altogether, the plaintiffs seek $ 2,019,407.79 and an award of punitive damages.

 The presence in this suit of defendants other than M.T.S. is based on allegations that, broadly speaking, M.T.S. was seriously undercapitalized, had no genuine separate corporate existence, and served merely as a conduit for the personal business dealings of Thomas J. Holt and certain named associates. The corporate defendants named in the Third Amended Complaint are all allegedly owned or controlled, in whole or in part, by Thomas Holt himself or by other Holt companies, and are likewise alleged to have no genuine separate corporate existence. The plaintiffs claim that the Holt interests are a single entity that has been established to conduct foreign and interstate transportation of goods solely or primarily for Holt's personal benefit. The plaintiffs seek to recover the alleged debt of M.T.S. from Holt himself, from the other individual defendants, and from any or all of the named corporate defendants.

 The plaintiffs are represented by the Baltimore, Maryland, firm of Ober, Grimes and Shriver. Mr. Kieron Quinn is lead counsel in the case for that firm. Ober, Grimes and Shriver has retained the Philadelphia firm of Hecker and Maginnis as local counsel in the case, as required by Rule 10 of the Local Rules of Civil Procedure of the Eastern District of Pennsylvania. *fn2"

 Sometime on or before September 26, 1978 counsel for the defendants learned that Ober, Grimes and Shriver, through Geoffrey Tobias, Esquire, had at one time represented certain of the present defendants, including Worldwide Marine Trading Corporation (Worldwide). The instant motion to disqualify plaintiffs' counsel followed.

 Worldwide was the charterer of the vessel M/V FINN BUILDER which had reportedly grounded while docking at the "Holt Marine Terminal" in Gloucester City, New Jersey, on October 21, 1976. Mr. Tobias was retained to represent Worldwide's interests in any disputes that arose out of the incident. At about the same time that he began his representation of Worldwide, Mr. Tobias agreed to represent the terminal also, an entity he knew as "Thomas Holt Terminals, Inc." *fn3" Mr. Tobias later learned that the ship might have caused damage to the pier during docking.

 The complaint in the instant action was filed on November 30, 1977.


 The basic ethical principle that the defendants allege to have been violated is Canon 4 of the Code of Professional Responsibility: "A lawyer should preserve the confidences and secrets of a client."

 By Local Rule, the Code of Professional Responsibility has been adopted as the standard of conduct for attorneys practicing before this Court. Rule 11, Local Rules of Civil Procedure.

 Disqualification from continued representation is a prophylactic measure that courts have invoked in appropriate circumstances to prevent improper disclosure of clients' confidences, or to ameliorate the effects of such disclosures where they have occurred:

"Canon 4 of the Code of Professional Responsibility imposes upon an attorney an obligation to preserve the confidences and secrets of one who has employed him and extends this obligation beyond termination of the employment. Indeed, an attorney is prohibited from accepting a subsequent representation where there "may be the appearance of a possible violation of confidences' even though this may not be true in fact. ABA Committee on Professional Ethics, Informal Opinion No. 885 (1965). Courts have enforced these precepts by requiring disqualification of counsel where it appears that the subject matter of a pending suit in which the attorney represents an interest adverse to a prior employer is such that during the course of the former representation the attorney "might have acquired substantially related material.' Richardson v. Hamilton Int'l Corp. 469 F.2d (1382) at 1385 (3d Cir. 1972); T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 265 (S.D.N.Y.1953). . . ."

 American Roller Company v. Budinger, 513 F.2d 982, 984 (3d Cir. 1975).

 If an attorney is prohibited by the Code from representing a particular client in a particular action, all the members of his law firm are similarly disqualified. DR 5-105(D); American Can Co. v. Citrus Feed Co., 436 F.2d 1125, 1128 (5th Cir. 1971). If Mr. Tobias acquired any "substantially related material" in the prior matter, and is ethically prohibited from serving as counsel to the plaintiffs in this case, Ober, Grimes and Shriver must be disqualified as a firm.

 The "substantial relationship" standard must be used, as Budinger, Supra, indicates, to test the likelihood that certain "material" in the former and present actions is substantially similar. There is no requirement that the former and present suits involve similar causes of action; the two cases may be entirely dissimilar. However, the Court must attempt to prevent confidential information that might have been gained in the first representation from being used to the detriment of the former client in the subsequent action.

 If the client in the prior representation might have imparted confidential information to his lawyer to aid the lawyer in dealing with particular issues, and if issues arise in the second suit which would permit the use of such confidences Against the original client, the substantial relationship test is met, and disqualification is required.

 This Court should make clear, however, what it means when it applies the "might have acquired" standard set forth in Budinger, supra. "Might" is a very broad word, and were it applied liberally, virtually any prior representation of a current adversary could serve as grounds for disqualification. Lawyers and clients talk to each other, and they "might" talk about almost anything, especially when it is understood that the communications are confidential.

 Ober, Grimes and Shriver argues vigorously that it did not acquire Any confidential information from its former clients that is of use to the plaintiffs in the instant suit. The Court can assume that that representation is truthful, accurate and made in good faith. The issue framed by Ober, Grimes and Shriver's argument is whether a showing of actual disclosure of confidences is necessary, or whether a standard based on potential disclosure is more appropriate.

 In the narrow area of protection of confidences, an analysis restricted to legal (as opposed to actual) prejudice is essential:

"The (substantial relationship) rule does not necessarily involve any inquiry into the imponderables involved in the degree of relationships between the two matters but instead involves a realistic appraisal of the possibility that confidences had been disclosed in the one matter which will be harmful to the client in the other. The effect of the Canons is necessarily to restrict the inquiry to the possibility of disclosure; it is not appropriate for the court to inquire into whether actual confidences were disclosed (footnote omitted)".

 Westinghouse Electric Corp. v. Gulf Oil Corp., 1978-2 Trade Cases, P 62,372.

 Were actual prejudice the determining factor, a party's attempts to protect its confidences would necessarily cause further disclosure. If a court were required to investigate whether particular confidences passed between the former client and the lawyer, some sort of evidentiary development would be essential. The client's confidences (or at the very least a discussion of those confidences in the briefs and arguments of the parties) would end up on the public record and perhaps on the pages of the Federal Supplement as a by-product of the effort to keep them from being divulged. That kind of Hobson's Choice is not one to which the legal profession ought to submit its clients. *fn4"


 To determine whether the prior representation bears a substantial relationship to the instant representation, it is necessary to examine the facts, circumstances and legal issues that faced Mr. Tobias when he was retained to represent Worldwide Marine Trading Corporation in October of 1976. *fn5"

 Mr. Tobias was retained by Worldwide through its agent, George Bakalakis, in October of 1976 to represent its interests against the owners of the M/V FINN BUILDER, which was then under charter to Worldwide. Mr. Tobias was informed that the FINN BUILDER had grounded while docking at Pier 8 in Gloucester City, New Jersey, on the Delaware River near Philadelphia. The ship reportedly sustained a damaged rudder in the incident, and it was sent to a Baltimore drydock for repairs. Mr. Tobias began his investigation of the incident within a few days after being retained.

 On December 21, 1976, Mr. Tobias met with Mr. Holt to discuss the case. At that time Mr. Holt informed him that the FINN BUILDER had apparently collided with Pier 8, causing some damage to the pier. Mr. Tobias had already been retained to represent the ...

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