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GUZEWICZ v. EBERLE

February 4, 1997

HENRY J. GUZEWICZ and ELEANORE G. GUZEWICZ, Plaintiffs
v.
RICHARD J. EBERLE, et. al., and STAINLESS ENTERPRISES OF PENNSYLVANIA, Defendants; HENRY J. GUZEWICZ and ELEANORE G. GUZEWICZ, Plaintiffs v. RICHARD J. EBERLE, et. al. and STAINLESS BROADCASTING COMPANY



The opinion of the court was delivered by: VANARTSDALEN

 VanARTSDALEN, S.J.

 February 4, 1997

 Defendants have moved to disqualify the law firm of Blank, Rome, Comisky and McCauley (Blank Rome) from representing the plaintiffs in the two above captioned consolidated civil actions pending in this court. An evidentiary hearing and oral argument was held on the motion on December 18, 1996. The parties filed extensive briefs both before and after the hearing. Upon consideration of all the submissions of record, the motion to disqualify Blank Rome will be denied.

 Alexander B. Stein, Esq. a partner in the Blank Rome law firm has for many years represented the plaintiffs, Henry J. Guzewicz and Eleanore G. Guzewicz, his wife, *fn1" as well as other members of plaintiffs' family in both personal and business matters. Plaintiffs and other family members own approximately forty per cent of the corporate stock of the defendants, Stainless Enterprises of Pennsylvania, Inc. (SEPA) and a lesser but substantial percentage of the voting stock of Stainless Broadcasting Company (SBC), a Delaware corporation that is separate and independent of SEPA, but has many of the same shareholders as SEPA. SBC owns a television station in Binghampton, N.Y. (Station WICZ - a Fox network affiliate). SEPA is purely a holding company. SEPA is the sole shareholder of Stainless of Delaware (SED), a Delaware Corporation. SED has two wholly owned subsidiary corporations: (1) Stainless, Inc., a Pennsylvania Corporation that is engaged in the tower construction and fabrication business and (2) Resort Broadcasting, Inc., an Oregon corporation that owns a television station (KTVz) in Oregon.

 In addition to representing individual members of the Guzewicz family, Mr. Stein and Blank Rome have for many years prior to November 9, 1995 been corporate counsel for both SEPA and SBC. *fn2"

 On July 3, 1996 plaintiffs filed Civil Action 96-4791 in this court. On the same day, plaintiffs filed in the District of Delaware, a civil action that, except for substituting SBC (a Delaware Corporation) for SEPA (a Pennsylvania Corporation) as a named defendant, contained essentially the same allegations and sought the same relief as the case filed in this district, Civil Action 96-4791. The action filed in the District of Delaware was later transferred by stipulation to this district where it was assigned as Civil Action 96-7740, and has been consolidated with Civil Action 96-4791.

 Both actions allege violations of the Federal Security Laws by the defendants in issuing notices of the respective shareholders annual meetings and in the proxy solicitations contained therein, that allegedly sought approval of a proposed sale of stock and/or assets of SEPA and SBC to another corporation, Northwest Broadcasting, L.P. and/or Northwest Broadcasting, Inc. (Northwest Broadcasting). The complaints seek damages against the individually named defendants, all of whom are shareholders, officers and/or directors of either or both SEPA and SBC. In addition the complaints sought to enjoin the convening of the respective annual shareholders meetings, both scheduled to occur at the same place on July 10, 1996. The plaintiffs withdrew the claims for injunctive relief. Consequently, the injunction motions were denied as moot and the shareholders meetings were held as scheduled.

 The complaints expressly identify the named corporate defendants SEBA and SBC as "nominal defendants". The amended complaint filed in Civil Action 96-4791 contains two counts that are derivative on behalf of SEPA against the individual defendants for alleged violations of Section 10b of the Securities Exchange Act of 1934 (15 U.S.C. ยง 78j and Rule 10b-5 promulgated thereunder) (Count II) and for breach of fiduciary duties (Count III). Count I is a claim against only the individual defendants for alleged Section 10b-5 violations. The remaining counts are against only the individual defendants for common-law state court claims; namely, negligent misrepresentation (Count IV), intentional misrepresentation (Count V) and negligence (Count VI). Civil Action 96-7740 contains the same counts, except that the corporate entity is therein at all times identified as SBC and, in addition contains a seventh count alleging violations of Delaware corporate statutory law (one vote per share) against only the individual defendants. Except for possible declaratory relief as to the validity of the shareholders meetings held on July 10, 1996, the only relief that plaintiffs seek is money damages against the individual defendants and the usual request for "such other and further relief as the Court shall deem just and proper". In plaintiffs' brief in opposition to the motion to disqualify, Blank Rome states in part: "Plaintiffs do not claim any damages or seek any relief against SEPA or SBC, in any Count in either of the Amended Complaints." Plaintiffs have, through statements of counsel on the record, given up any attempt to set aside or invalidate any corporate action taken by either SEBA or SBC in regard to the sale or exchange of stock or assets to Northwest Broadcasting. (NT *fn3" 57 and 59).

 Realistically, neither of these consolidated actions is against either of the named corporate defendants. Even though the evidence establishes that Blank Rome represented both SEPA and SBC for a long period of time prior to the commencement of these actions, the issue of when and whether an attorney may represent a party in litigation against a former client need not be decided because this litigation is not against or adverse to either corporate defendant. Neither action is against or adverse to a former client except as a nominally named defendant. Plaintiffs' counsel apparently thought it necessary to name the respective corporations as defendants because of the derivative shareholders claims contained in certain of the counts of the complaints. These derivative claims are brought, at least in theory, on behalf of, and not against, the respective corporations, named as nominal defendants. Any recovery in money damages on the derivative claims would ordinarily be recoverable by the corporations. Thus, these law suits are not being brought by Blank Rome, representing the plaintiffs, against or adverse to a former client, SEBA and/or SBC.

 Defendants contend that representation by Blank Rome violates Rule 1.9 of the Pennsylvania Rules of Professional Conduct. That Rule provides:

 
A lawyer who has formerly represented a client in a matter shall not thereafter:
 
(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation, or
 
(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when ...

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