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INA UNDERWRITERS INS. CO. v. RUBIN

February 10, 1983

INA UNDERWRITERS INSURANCE COMPANY
v.
EUGENE A. RUBIN, GARY GORDON, TANNERIE WOOD CORPORATION, HONEYRUN CONSTRUCTION COMPANY, MT. PLEASANT BUILDERS, INC., G & R BUILDERS, INC., LORIMER WOODS ASSOCIATES, and GWYNEDD WOODS, INC.


Lord, III, Senior Judge


The opinion of the court was delivered by: LORD, III

Defendants have moved: (1) to disqualify plaintiff's counsel; (2) for a more specific pleading under Federal Rule of Civil Procedure 12(e); and (3) to dismiss defendants Mt. Pleasant Builders, Inc., G. & R. Builders, Inc., Lorimer Woods Associates, and Gwynedd Woods, Inc., under Federal Rule of Civil Procedure 12(b)(6).

 I. Motion to Disqualify

 Defendant Rubin has filed a motion to disqualify plaintiff's law firm, Wolf, Block, Schorr and Solis-Cohen (Wolf Block). Both sides agree to the following facts:

 Defendant Rubin is a builder who was sued for money expended by the plaintiff (INAU) to repair defects in homes in Tannerie Woods, a housing development built by defendant Rubin. Plaintiff claims that it is a third-party beneficiary to a contract between Rubin and the Local Warranty Council of the National Home Warranty Corporation in which Rubin guarantees the quality of construction of his homes and agrees to binding arbitration in the event that any defects in the homes be discovered. INAU's complaint alleges that several homeowners asserted claims against Rubin which were submitted to arbitration, resulting in awards for the homeowners. Because Rubin refused to abide by the arbitration awards, the plaintiff was forced to spend more than one and one-half million dollars.

 The complaint was filed on May 4, 1982. But, due to difficulties in finding Mr. Rubin, it was not served until May 20, 1982. In May of 1982, Eugene Rubin was contacted by the F.B.I. because it was investigating the Tannerie Woods development. Eugene Rubin contacted Gregory Magarity, a partner of Wolf Block who specializes in criminal law. On May 17, 1982, Rubin met with Magarity and discussed issues pertaining to the Tannerie Woods development. Magarity accepted a $1,000 retainer check, but told Rubin that he would hold the check until he found out whether a conflict of interest existed with any of the firm's clients. Immediately after the meeting, Magarity circulated the standard memorandum to the other members of the firm asking whether there was a conflict of interest. Mr. Boote, the attorney representing INAU notified Magarity that a conflict did exist. Magarity, in turn, notified Rubin by phone that a conflict existed and that he could not take the case. By letter dated May 20, 1982, Magarity confirmed that he could not represent Rubin and returned Rubin's retainer check.

 At the argument on defendant's motion to disqualify, defendant conceded that Mr. Magarity did not act improperly. Magarity's affidavit and that of Mr. Boote, stating that they never discussed the substance of Magarity's meeting with Rubin, are uncontroverted. Defendant contends, however, that plaintiff's law firm must be disqualified in order to avoid the appearance of impropriety.

 Canon 9 of the American Bar Association's Code of Professional Responsibility, adopted by Rule 14 of the Local Rules of Civil Procedure for the Eastern District of Pennsylvania, requires that a lawyer avoid even the appearance of impropriety. This canon is especially operative in connection with Canons 4 and 5 of the Code which require that attorneys protect confidences and secrets of their clients and exercise independent professional judgment on behalf of their clients.

 Disciplinary Rule 5-105(A) states:

 
A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing different interests . . .

 Although it would have been more prudent for Mr. Magarity to speak only briefly with Rubin before checking with the rest of the firm for a conflict of interest, he did follow the dictate of Disciplinary Rule 5-105(A). He promptly refused to accept Rubin's employment when he found out that his firm represented INAU.

 Unfortunately, by the time he refused to accept Rubin's employment, Magarity had knowledge of Rubin's confidences and secrets.

 Disciplinary Rule 4-101(B) states:

 
Except when permitted under D.R. 4-101(C), a lawyer shall not knowingly:
 
(1) Reveal a confidence or secret of his client.
 
(2) Use a confidence or secret of his client to the disadvantage of the client.
 
(3) Use a confidence or secret of his client for the advantage of himself or of a third person, unless the client ...

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