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Keywords

lawsuitjurisdictionlitigationattorneynegligenceinjunctionhearingmotionfiduciarytrustbankruptcyfiduciary dutygood faithbreach of fiduciary duty
plaintifflitigationattorneyhearingmotionwillbankruptcycorporation

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E. F. Hutton & Co. v. Brown, 305 F.Supp. 371, Fed. Sec. L. Rep. P 92,506

Facts

E. F. Hutton & Company, Inc. brought an action against its former regional vice-president, John D. Brown, alleging negligence and breach of fiduciary duty related to a loan made to John Hurbrough, which became problematic after the suspension of trading in Westec stock. Brown authorized a $650,000 loan to Hurbrough, which was secured by Westec stock, but after the stock was suspended, Hutton sought repayment without success. Following the loan's complications and subsequent investigations by the SEC and bankruptcy trustee, Hutton terminated Brown's employment and initiated this lawsuit.

In this litigation Hutton is represented by a Houston law firm (hereinafter called ‘the Houston firm’), which appears as Hutton's counsel of record.

Issue

The main legal issues were whether the attorneys representing Hutton had a conflict of interest due to their prior representation of Brown and whether the court had jurisdiction to disqualify nonresident attorneys.

Whether Brown is a former client; i.e., whether the New York and Houston partners represented him individually, as well as the corporation, at the SEC and bankruptcy hearings.

Rule

The court applied the principle that attorneys must avoid representing conflicting interests and that this duty continues even after the attorney-client relationship has ended. A former client can move to disqualify counsel if the current representation is substantially related to the prior representation.

Many of the issues raised by Brown's motion to disqualify have generated well established rules, for the attorney's duty not to represent conflicting interests nor to discharge inconsistent obligations has long been recognized.

Analysis

The court found that the attorneys had represented Brown individually during prior SEC and bankruptcy hearings, which created a conflict of interest when they continued to represent Hutton in this litigation. The court emphasized that the relationship between the prior and current representations was substantial, thus justifying the disqualification of the attorneys despite their good faith.

The Court answers the first two of these questions in the affirmative, and will direct present counsel for plaintiff to terminate their representation of plaintiff in this case and to refrain from aiding, consulting or advising new counsel retained by plaintiff, except to the limited extent reasonably necessary to the transfer of their duties to new counsel.

Conclusion

The court granted Brown's motion to disqualify the attorneys representing Hutton but denied the request for an injunction against the disclosure of information. The court concluded that the attorneys' prior representation of Brown created an irreconcilable conflict of interest.

The Court granted Brown's motion to disqualify, but denied the requested injunctive relief.

Who won?

John D. Brown prevailed in the case because the court found that the attorneys representing Hutton had a conflict of interest due to their prior representation of him, which warranted disqualification.

The Court answers the first two of these questions in the affirmative, and will direct present counsel for plaintiff to terminate their representation of plaintiff in this case.

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