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DUCA v. RAYMARK INDUS.

September 12, 1986

JOSEPH J. DUCA, SR. and ELAINE DUCA
v.
RAYMARK INDUSTRIES, et al.



Per Curiam

 The case under consideration was initiated before the creation of the Facility. Ten of the original defendants became members of the Facility. Two of those defendants, Owens-Corning Fiberglas Corp. and Owens-Illinois, Inc., entered into settlement agreements with plaintiffs before the Facility became involved in the case. *fn1" The remaining eight Facility members are represented in this case by the firm of White and Williams. White and Williams has stated that it intends to bring cross-claims on behalf of its eight clients (so-called "unsettled defendants") against the two members of the Facility who have settled ("settled defendants"), despite the fact that White and Williams represents the settled defendants in other asbestos cases in which it has been hired by the Facility. Plaintiffs have challenged this conduct as a violation of the applicable standards of legal ethics. They ask this court to disqualify White and Williams or, in the alternative, to bar White and Williams from pursuing cross-claims against the settled defendants. Because this motion raises novel issues and has been filed in numerous cases in this court, oral argument was heard by a panel of three judges.

 In order to evaluate plaintiffs' claim that the conduct of White and Williams violates standards of legal ethics, we must closely examine the nature of the interests involved in this case. "'Ethical problems cannot be resolved in a vacuum.' . . . Nor can judges exclude from their minds realities of which fair decision would call for judicial notice." Silver Chrysler Plymouth v. Chrysler Motors Corp., 518 F.2d 751, 753 (2d Cir. 1975) (citation omitted) (quoting Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 565 (2d Cir. 1973). In this case, our attention is drawn to the nature of cross-claims in modern complex tort litigation and to the effect of the Wellington Agreement on the interests of the various defendants. Both of these "realities" cause the true interests of the settled and of the unsettled defendants in this case to diverge from those suggested by the legal form of the cross-claim. Cf. Seifert v. Dumatic Industries, Inc., 413 Pa. 395, 197 A.2d 454 (1964) (looking behind the form of a stockholder derivative action to recharacterize it as a suit between two shareholders). And both suggest that this type of litigation has diverged in significant respects from the traditional "adversarial" model out of which our disciplinary rules emerged and to which they have most often been applied. Cf. In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 165 (3d Cir. 1984) (Adams, J., concurring) (discussing multiple representation in class actions).

 Statutory developments in the areas of comparative negligence and contribution among joint tortfeasors, and judicial precedents concerning the effect of partial settlements on the rights of the remaining parties, have, in some states, realigned the interests of the parties in the cross-claim setting. *fn2" Asbestos defendants have embraced the strategy of using comparative negligence principles (even in strict liability cases) to "reduce the plaintiff's award of damages [at trial] on the basis of the percentage share [of fault] attributed to the settling defendants." Alcorn & Erway, Comparative Negligence and Apportionment of Damages, in Asbestos Litigation: Insurance Issues, Liability, Damages 142, 147 (W.B. Alcorn, ed. 1982). In some states, defendants who have settled are immune from claims for contribution, but the total damage award against the remaining defendants will be reduced by the amount of the total damages attributable to those settled defendants who are joint tortfeasors. See, e.g., Riccio v. Prudential Property and Casualty Insurance Co., 195 N.J. Super. 167, 478 A.2d 785, 787 (N.J. Super. App. Div.) certification granted, 99 N.J. 221, 491 A.2d 714 (1984); Dimogerondakis v. Dimogerondakis, 197 N.J. Super. 518, 485 A.2d 338, 340 (N.J. Super. L. Div. 1984).

 In this situation, plaintiffs are generally faced with the responsibility of "defending" their settlements, on their own behalf, by refuting the evidence the non-settling defendants put forward to prove, in essence, that the plaintiffs settled with the settled defendants for too small a sum. In this situation, the settled defendants are completely shielded from contribution claims, and thus have no financial interest in the matter (leaving aside problems of collateral estoppel). The battle is entirely between plaintiffs and the non-settling defendants, and the casus belli is the size of the damage award at trial.

 The Wellington Agreement goes several steps further in realigning the interests of the defendants in asbestos cases. When the Asbestos Claims Facility is involved in a case from its outset, the Facility will not enter into settlements "on behalf of fewer than all of the member defendants." Wellington Agreement at para. VII(1). Once a case is settled or a verdict is entered, liability payments made by the Facility to plaintiffs are assessed against the member defendants pursuant to formulae based upon each member's past experience in the tort system. See Wellington Agreement Appendix A-1. *fn3" The Agreement further provides that "Each Subscribing Producer and each Subscribing Insurer shall forgo all claims for contribution or indemnity . . . against other Subscribing Producers and Subscribing Insurers with respect to all asbestos-related claims . . . ." Wellington Agreement at para. VIII(2). Thus, the Wellington Agreement envisions that members of the Facility who are co-defendants in a given case will, in general, present a unified defense and settlement strategy, and will adjust the apportionment of liability through processes established by the Facility, rather than through the process of contribution among joint tortfeasors. As a result, the interests of co-defendants who are members of the Facility are not as adverse as are the interests of co-defendants in ordinary tort litigation.

 The scheme of joint representation under the Wellington Agreement affects the alignment of interests among co-defendants even when, as in the case before us, the Facility becomes active in the case only after some Facility members have reached settlements. The Facility has interpreted the language of the "no contribution" provision that we discussed above, Wellington Agreement at para. VIII(2), to permit the bringing of cross-claims against its settled members, as a method of proving that they were joint tortfeasors and that they were responsible for a larger proportion of the total damages than the amount of their settlements would suggest. *fn4" White and Williams has represented to this court that the Facility would do so purely for the purpose of reducing the total damage award at trial, and that it has no intention of enforcing the cross-claim judgments against the settled Facility members. *fn5" Defendants' Memorandum of Law at 19; Transcript of Oral Argument at 58. The settled members would appear to have no reason (again, leaving problems of collateral estoppel aside) to oppose the cross-claims. *fn6" The interests of the co-defendants are thus closely aligned, notwithstanding the adversarial posture of the cross-claims.

 The Code of Professional Responsibility

 In light of this discussion, we must now turn to the Code of Professional Responsibility and the violations plaintiffs claim will occur if White and Williams is permitted to pursue the cross-claims of the unsettled defendants.

 As a preliminary matter, White and Williams has challenged plaintiffs' "standing" to object to its conduct. We reject this challenge. Courts have routinely considered challenges raised by opposing counsel. See, e.g., Kramer v. Scientific Control Corp., 534 F.2d 1085 (3d Cir. 1976); Rice v. Baron, 456 F. Supp. 1361 (S.D. N.Y. 1978). *fn7" In any event, it is the responsibility of the court to supervise the conduct of members of its bar, and courts may raise questions of professional ethics sua sponte. Universal Athletic Sales Co. v. American Gym, Recreational & Athletic Equipment Corp., 357 F. Supp. 905, 908 (E.D. Pa. 1973); Seifert v. Dumatic Industries, Inc., 413 Pa. 395, 197 A.2d 454, 456 n.5 (1964).

 Under Rule 14(IV) of our Local Rules of Civil Procedure, practice before this court is governed by the "Code of Professional Responsibility adopted by the Supreme Court of Pennsylvania." See In re Eastern Sugar Antitrust Litigation, 697 F.2d 524, 529 (3d Cir. 1982) (discussing local rule); 42 Pa.C.S.A. (codifying ABA Code of Professional Responsibility). *fn8"

 Canon 4. First, plaintiffs invoke Canon 4 of the Code, which states that "A Lawyer Should Preserve the Confidences and Secrets of a Client." In this circuit, a showing that the confidences of a client or prior client were actually disclosed need not be made. Rather, the test is whether the cases in which the clients are represented by the same attorney concern subject matters that are substantially related, such that the attorney might have the opportunity to disclose or use the confidences of one client in representing the other. American Roller Co. v. Budinger, 513 F.2d 982 (3d Cir. 1975).

 Plaintiffs contend that in the course of representing the settled defendants in other litigation and participating in the exchange of information concerning matters of interest to all Facility members and their counsel, White and Williams has been in the position to gain confidential information from the settled defendants that is highly relevant to the cross-claims against the settled defendants. We agree that this is a problem (albeit a lesser one than would present itself in the more usual cross-claim context), and White and Williams' claim that it can prove the cross-claims of the unsettled defendants without using confidential information is of no avail. Id. at 986.

 We note, however, that both the ethical considerations and disciplinary rules under Canon 4 contemplate that an attorney may disclose the confidences or secrets of a client if the client consents. See EC 4-2; DR 4-101. We reject plaintiffs' argument that "even if the attorney-client privilege were waivable in this case, plaintiffs have the exclusive right to waive or exercise the privilege as the direct result of the written settlement agreement with the settled defendants," Plaintiffs' Memorandum of Law at 13 (capitalization omitted), in which plaintiffs agree to indemnify and defend the settled defendants against any claims related to this case. The attorney-client privilege, and Canon 4, aim to safeguard the flow of information between client and attorney. See EC ...


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