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litigationattorneytrustbankruptcyappellant
lawsuitlitigationattorneylawyermotiontrustpatentbankruptcycorporationappellant

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Allegaert v. Perot, 565 F.2d 246

Facts

The appellant, the trustee in bankruptcy of duPont Walston Incorporated, sought to disqualify two law firms, Weil, Gotshal & Manges and Leva, Hawes, from representing corporate clients involved in a realignment agreement that allegedly harmed Walston. The realignment agreement allowed DGF and Walston to retain separate identities while imposing mutual obligations, but the trustee claimed it was unconscionable and led to Walston's bankruptcy. The law firms had represented the Perot interests and DGF, while Walston was represented by a different firm until its bankruptcy.

Appellant is the trustee in bankruptcy of duPont Walston Incorporated (Walston), formerly one of the largest Wall Street brokerage firms. His motion in the district court sought disqualification of two law firms, Weil, Gotshal & Manges (Weil, Gotshal) and Leva, Hawes, Symington, Martin & Oppenheimer (Leva, Hawes).

Issue

Whether the attorneys for the corporate parties should be disqualified from representing them due to a prior representation of the bankrupt entity.

The basis for the disqualification motion is that, after the realignment, Weil, Gotshal and Leva, Hawes purportedly represented Walston on matters substantially related to this lawsuit.

Rule

An attorney may be disqualified if they have accepted employment adverse to the interests of a former client on a matter substantially related to prior litigation, but this requires a showing that the attorney was in a position to receive confidential information.

Our rule, made plain by NCK Organization Ltd. v. Bregman, supra, 542 F.2d at 133-34; Hull v. Celanese Corp., supra, 513 F.2d at 571-72; and Emle Industries, Inc. v. Patentex, 478 F.2d 562, 570-71 (2d Cir. 1973), is that an attorney may be disqualified pursuant to Canon 4 if he has accepted employment adverse to the interests of a former client on a matter substantially related to the prior litigation.

Analysis

The court found that the substantial relationship test was not applicable because Walston was aware that any information given to the law firms would be shared with their primary clients. The attorneys had not changed sides from a former client to a current, adverse client, and the representation of Walston was done with the knowledge that the firms were still representing the Perot interests.

Because Walston necessarily knew that information given to Weil, Gotshal and Leva, Hawes would certainly be conveyed to their primary clients in view of the realignment agreement, the substantial relationship test is inapposite.

Conclusion

The court affirmed the district court's decision, concluding that the attorneys were not disqualified as there was no expectation of confidentiality regarding the information shared.

Finding no expectation of confidentiality, Judge Knapp concluded that the appellant is not now entitled to claim it, and that accordingly the attorneys' primary clients may enjoy the continued services of the lawyers upon whose advice they have been relying for many years.

Who won?

The attorneys for the corporate parties prevailed because the court found no basis for disqualification, emphasizing the lack of expectation of confidentiality from the bankrupt.

The court held that the attorneys for the corporations were not subject to disqualification on the theory that they had previously represented the bankrupt in connection with a realignment agreement executed between the bankrupt and the corporate clients where any representation of the bankrupt was done with the bankrupt's knowledge that any information given to the counsel would certainly be conveyed to their primary corporate clients.

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