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COMMONWEALTH INS. CO. v. GRAPHIX HOT LINE

October 2, 1992

COMMONWEALTH INSURANCE COMPANY, Plaintiff
v.
GRAPHIX HOT LINE, INC., STEVEN CHADLER, and JOSEPH WEIL, Defendants



The opinion of the court was delivered by: DANIEL H. HUYETT, 3RD

MEMORANDUM & ORDER

 HUYETT, J.

 I. Background

 This diversity action arises out of a fire that occurred on May 24, 1988 in three buildings located at 102, 104, and 106 South 13th Street in Philadelphia, Pennsylvania. The buildings were originally constructed as separate structures, but a passageway was added connecting the second floor levels of 102 and 104 South 13th Street. Plaintiff Commonwealth Insurance Company (Commonwealth) provided fire insurance to the owner of the buildings at that time, Chestnut Associates. There were two tenants in these buildings. Sir Speedy Printing Company (Sir Speedy), not a party in this action, occupied the first floor of 102 South 13th Street. Defendant Graphix Hot Line, Inc. (Graphix) occupied the second floor of 102 and 104 South 13th Street. The properties sustained extensive damage as a result of the fire. Plaintiff alleges that the careless smoking of Defendants' employees caused the fire. Defendants claim that an old electrical fan installed long before Defendant Graphix assumed possession and control of the premises caused the fire. Plaintiff commenced this subrogation action on or about May 22, 1990 against Defendants to recover $ 296,834 it paid to its insured, Chestnut Associates, as a result of the fire.

 In October 1988, while Duffy was representing Fireman's Fund and American against Sir Speedy, George Weber, of the General Adjustment Bureau of Commonwealth Insurance Company, insurer of Chestnut Associates, contacted Duffy and asked him to investigate the possibility of a subrogation action against any potential defendants arising out of the May 24, 1988 fire. Duffy promptly advised Bradshaw of Fireman's Fund that Commonwealth had contacted him concerning the fire. Duffy claims that he fully disclosed to Bradshaw his involvement on behalf of American, of which he was already aware, and the involvement he would have with Commonwealth. (Duffy Affidavit P 10.) Duffy alleges that Bradshaw stated that he had no objection to Duffy's representation of Commonwealth. (Duffy Aff. P 11.)

 In February 1989, after he had settled the Sir Speedy matter for Fireman's Fund, Duffy contacted Gerard Belz, the attorney representing Fireman's Fund in the investigation of the cause and origin of the fire and advised him that he, Duffy, was representing Commonwealth in its potential subrogation action. Also, sometime after January 1989, Duffy learned that Defendant Graphix was a potential defendant in Commonwealth's potential subrogation action.

 In May 1990, Duffy commenced this action on behalf of Plaintiff Commonwealth by filing a complaint against Defendants. After service of the complaint, Maureen Daley (Daley), a recovery specialist for Fireman's Fund, telephoned Duffy to request an extension of time to file an answer to the complaint on behalf of Defendant Graphix and Defendant Chadler. During the telephone conversation, Daley acknowledged that she was aware that Duffy had represented American and Fireman's Fund in the Sir Speedy matter. (Daley Aff. P 9.) After receiving the extension, Daley gave the complaint and file to a liability adjuster to handle. The file reflected that Duffy had represented Fireman's Fund in the Sir Speedy action. (Daley Aff. PP 10, 11.)

 On September 14, 1992, three weeks prior to the scheduled trial date of October 5, 1992 and more than two years after Plaintiff commenced this action, Defendant Graphix filed a motion to disqualify Plaintiff's counsel, Thomas J. Duffy, Esquire from further representation of Plaintiff in this action. Upon consideration of Defendant's motion, Plaintiff's reply, and the oral argument of counsel at the final pretrial conference held in chambers on September 30, 1992, I will deny Defendant's motion for the reasons set forth below.

 II. Positions of the Parties

 Defendant contends that because Duffy previously represented Fireman's Fund in the claim filed against it by one of its insureds, Sir Speedy, and because he now represents Plaintiff in its action against Defendant Graphix, an insured of Fireman's Fund, and both of the actions arise out of the same fire, Pennsylvania law prohibits Duffy's representation of a second client with an interest materially adverse to the interest of the first client where both interests arise out of the same transaction.

 Plaintiff responds first that the Sir Speedy action was not "the same or a substantially related matter" under Pennsylvania Rule of Professional Conduct 1.9 and that therefore disqualification is not warranted. Second, Plaintiff contends that the former client, Fireman's Fund, consented to Duffy's subsequent representation of Commonwealth after a full disclosure of the circumstances and consultation. Finally, Plaintiff claims that Defendant waived its right to seek disqualification of Plaintiff's counsel by its unreasonable delay in raising this issue.

 Defendant replies that Duffy failed to disclose fully to Fireman's Fund the circumstances of the two representations and that, therefore, it could not validly consent to Duffy's representation of Plaintiff.

 III. Discussion

 A. Disqualification Motions

 One of the inherent powers of any federal court is the admission and supervision of the conduct of attorneys practicing before it. In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 161 (3d Cir. 1984), cert. denied sub nom., Cochrane & Bresnahan v. Plaintiff Class Representatives, 472 U.S. 1008, 86 L. Ed. 2d 718, 105 S. Ct. 2702 (1985). Courts have vital interests in protecting the integrity of their judgments, maintaining public confidence in the integrity of the bar, eliminating conflicts of interest, and protecting confidential communications between attorneys and their clients. To protect these vital interests, courts have the power to disqualify an attorney from representing a particular client. The Third Circuit has stated, however, that a court should disqualify an attorney only when it determines, on the facts of the particular case, that disqualification is an appropriate means of enforcing the applicable disciplinary rule. It should consider the ends that the disciplinary rule is designed to serve and any countervailing policies, such as permitting a litigant to retain the counsel of her choice and enabling attorneys to practice without excessive restrictions.

 United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980). The United States District Court for the Eastern District of Pennsylvania has recognized that a party's "choice of counsel is entitled to substantial deference." Hamilton v. Merrill Lynch, 645 F. Supp. 60, 61 (E.D. Pa. 1986). Moreover, "the court must prevent litigants from using motions to disqualify opposing counsel for tactical purposes." Id. Disqualification is a harsh measure, and therefore, "motions to disqualify opposing counsel generally are not favored." Id.

 B. Rule 1.9

 The United States District Court for the Eastern District of Pennsylvania has adopted the rules of professional conduct adopted by the Supreme Court of Pennsylvania as the standards for professional conduct of attorneys admitted to practice in this district. U.S.D.C., E.D. Pa., Local R. Civ. P. 14(IV)(B). Potential conflict of interest arising from an attorney's prior representation of a ...


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