The opinion of the court was delivered by: SHAPIRO
Presently before the Court is a motion to disqualify Howard Scher, a member of the law firm Montgomery, McCracken, Walker & Rhoads ("MMW & R") as counsel for plaintiff, St. Albans Financial Corp. A motion to disqualify a party's chosen counsel is a most serious matter particularly where, as here, this motion arises in a complex matter with which the counsel has become very familiar. However, the court reluctantly determines that Mr. Scher must be disqualified from further representation of St. Albans in this litigation.
Prior to 1980, movants, Richard and Frances Amelio, Colonial Village Meat Market of 7101 Frankford Avenue, Inc.; Richard and Frances Amelio, John and Francine Leahy, Colonial Village Meat Market of Bryn Mawr, Inc.; Frank and Lois Canknopka, Trenton's Colonial Village Meat Market, Inc.; and Vincent and Grace Basile, Colonial Village Meat Market of Dover, Inc., were franchisees of defendant Colonial Village Meat Market Systems, Inc. ("Systems") and had entered into several agreements with Systems and with the Colonial Village Meat Market Leasing Corporation ("Leasing").
On various dates in November and December, 1978, movants entered into "buy-out" agreements with plaintiff, St. Albans, which previously owned the franchise for each of movants' stores. The buy-out agreements obligated movants to make weekly payments to St. Albans and restricted movants' ability to dispose of or transfer store assets. At the time movants entered into these buy-out agreements, St. Albans was comprised of six partners, Jack Yampolsky, Phillip Mattia, Henry Grothe, Morris Stackhouse, Robert C. Blair and Charles Convery. Robert Blair, one of the partners and a named defendant herein, was also the sole owner of Colonial Village Meat Market, Inc. ("Colonial") and its successor corporation, Systems. All six partners owned, operated or had ownership interests in various stores operating under the trade name, Colonial Village Meat Market.
In 1979, Howard Scher represented several Colonial Village franchisees, not including movants, in an anti-trust suit against Colonial and Systems in which the franchisees prevailed. Louis C. and Phillip L. Bachetti, et al. v. Colonial Village Meat Market, et al., No. 75-2677 (E.D. Pa. Dec. 7, 1979). In December 1979, Scher was contacted by Jack Yampolsky to represent his interests and in that same month, an anti-trust suit was filed on behalf of three Colonial Village Stores in which Yampolsky had an interest. Colonial Village Meat Market of Bala Cynwyd, Inc., et al. v. Colonial Village Meat Market Systems, Inc., et al., No. 79-4586 (E.D. Pa.). On December 30, 1979, Scher met with other franchisees to discuss their agreements with Systems, including the four movants, and in January 1980 a second anti-trust suit was filed on their behalf. Maple Shade's Colonial Village Meat Market, Inc., et al. v. Colonial Village Meat Market Systems, Inc., No. 80-277 (E.D. Pa.).
Both lawsuits were settled shortly after they were instituted. As part of the settlement, in which Scher participated and counseled the movants, the franchise relationship between the franchisees, including movants, and Systems was severed. The buy-out agreements entered between the store operators and St. Albans, which were not at issue in the anti-trust suit, remained intact. MMW & R and six other firms involved in the litigation, were paid out of a common fund to which the store owners contributed on a weekly basis. As a further result of this lawsuit, as well as certain other litigation, the partners of St. Albans split and divided their interests.
For several months after the settlement, Scher continued to represent the movants and the other owners in an unsuccessful attempt to form a trade association. The bills for Mr. Scher's services in this matter were apparently paid by Mr. Yampolsky.
The instant litigation against movants arises out of the buy-out agreements with St. Albans. St. Albans alleges that movants acted in concert with Blair and his corporations to defraud St. Albans out of the money due it under its agreements in violation of the securities laws, the Racketeer Influenced and Corrupt Organizations Act, the Pennsylvania and New Jersey fraudulent conveyance laws, and the bulk transfer provisions of the Pennsylvania and New Jersey commercial codes.
"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." American Roller Co. v. Budinger, 513 F.2d 982, 984 (3d Cir. 1975), quoting, ABA Committee on Professional Ethics, Informal Opinion No. 885 (1965). Disqualification is warranted where there is some chance, albeit a small one, that the lawyer was privy to confidences in his prior representation. Akerly v. Red Barn System, Inc., 551 F.2d 539, 542 (3d Cir. 1977).
Courts have . . . require[d] 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.
The instant litigation in which Mr. Scher represents the plaintiff and the prior lawsuit in which Mr. Scher represented some of the defendants stem from a common source; the set of agreements creating and financing the franchise relationship between movants and the six partners in their various roles in their interrelated corporations. It is clear that the two lawsuits involve different aspects of the agreements; the prior lawsuit challenged movants' relationship with Systems on anti-trust grounds while the instant suit concerns the financial buy-out arrangement ...