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Keywords

lawsuitplaintiffattorneydiscoveryinjunctiontrialmarine insurance
plaintiffattorneydiscoveryappealtrialaffidavitbad faithmarine insurance

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Meyerhofer v. Empire Fire & Marine Ins. Co., 497 F.2d 1190, Fed. Sec. L. Rep. P 94,592

Facts

Empire Fire and Marine Insurance Company made a public offering of 500,000 shares of its stock in May 1972. Plaintiffs Meyerhofer and Federman purchased shares and later alleged that the registration statement and prospectus were materially false and misleading. They filed a lawsuit against Empire and its officers, claiming violations of securities laws. The case involved issues of attorney-client confidentiality and the ethical obligations of attorneys who had previously worked for the issuer.

Empire Fire and Marine Insurance Company on May 31, 1972, made a public offering of 500,000 shares of its stock, pursuant to a registration statement filed with the Securities and Exchange Commission (SEC) on March 28, 1972. The stock was offered at $16 a share. Empire's attorney on the issue was the firm of Sitomer, Sitomer & Porges. Stuart Charles Goldberg was an attorney in the firm and had done some work on the issue.

Issue

Did the attorney associated with the law firm representing the issuer violate the Code of Professional Responsibility, and were the plaintiffs' counsel and plaintiffs themselves properly disqualified from the case?

The court of Appeals, Moore, Circuit Judge, held that attorney who had been associated with law firm which represented issuer of securities and who gave affidavit concerning his participation in preparation of prospectus to law firm representing purchasers had not violated Code of Professional Responsibility but was properly enjoined from giving confidential information except on discovery or at trial, and that law firm representing plaintiffs could continue such representation.

Rule

The court applied the Code of Professional Responsibility, particularly Canons 4 and 9, which address the preservation of client confidences and the avoidance of the appearance of impropriety.

The District Court based its holding, not on the fact that the Bernson firm showed bad faith when it received Goldberg's affidavit, but rather on the fact that it was involved in a tainted association with Goldberg because his disclosures to them inadvertently violated Canons 4 and 9 of the Code of Professional Responsibility.

Analysis

The court found that the attorney, Goldberg, had not violated the Code of Professional Responsibility as he had not revealed any confidential information that would have instigated the lawsuit. The court noted that Goldberg's disclosures were necessary for his defense against accusations of wrongful conduct. The relationship between Goldberg and the Bernson firm was not tainted by violations of the Code, allowing the firm to continue its representation.

The District Court recognized that the complaint had been based on Empire's— not Goldberg's—disclosures, but concluded because of this that Goldberg was under no further obligation ‘to reveal the information or to discuss the matter with plaintiffs' counsel.’

Conclusion

The court reversed the dismissal of the action without prejudice and the disqualification of the Bernson firm, affirming only the injunction against Goldberg from disclosing material information except during discovery or at trial.

Order dismissing action without prejudice and enjoining Bernson, Hoeniger, Freitag & Abbey from acting as counsel for plaintiffs herein reversed.

Who won?

The plaintiffs prevailed in part as the court allowed their counsel to continue representation, finding no ethical violations that warranted disqualification.

The court found that the relationship between Goldberg and the Bernson firm was not tainted by violations of the Code of Professional Responsibility, allowing the firm to continue its representation.

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