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Keywords

plaintiffdefendantdamageslitigationmotiontrustbankruptcycorporationpunitive damages
plaintiffdefendantattorney

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Trone v. Smith, 621 F.2d 994, Fed. Sec. L. Rep. P 97,557

Facts

This case involves a complex litigation initiated by bankruptcy trustees for Westgate-California Corporation against numerous individuals and entities, seeking significant compensatory and punitive damages. The law firm Wyman had previously represented C. Arnholt Smith, the former chairman and CEO of Westgate, in connection with a proposed secondary offering of stock. The trustees filed a motion to disqualify Wyman based on this prior representation, arguing that it created a conflict of interest due to the interrelated nature of the parties involved.

The pending action was filed in April 1975, after plaintiffs had completed their extensive investigation of Westgate's affairs.

Issue

Whether the law firm Wyman, Bautzer, Rothman & Kuchel should be disqualified from representing the bankruptcy trustees due to its prior representation of a defendant in a related matter.

Whether the refusal was correct on the facts of this case turns upon the effect of the rule against suing a former client.

Rule

The relevant test for disqualification is whether the former representation is 'substantially related' to the current representation, which requires a comparison of the scope of representation in both cases and the potential for the disclosure of confidential information.

The relevant test for disqualification is whether the former representation is 'substantially related' to the current representation.

Analysis

The court found that Wyman's prior representation of Smith was substantially related to the current litigation against him and other defendants. The nature of the inquiries Wyman made during its representation of Smith indicated a likelihood that confidential information could have been disclosed, which would be relevant to the current case. The court emphasized that even the appearance of a conflict of interest warranted disqualification to maintain the integrity of the legal profession.

The court should have compared the scope of representation undertaken by the attorneys in each case. Here, a reasonable probability existed that in the first case Smith relayed confidential information to the attorneys.

Conclusion

The court concluded that Wyman must be disqualified from representing the plaintiffs against Smith and all co-defendants due to the substantial relationship between the prior and current representations. The case was remanded with instructions to order the removal of counsel.

Accordingly, we hold that the Wyman firm must be disqualified from further representation of plaintiffs against Smith.

Who won?

The bankruptcy trustees prevailed in the case as the court ruled in favor of disqualifying Wyman from representing them due to the conflict of interest arising from its prior representation of Smith.

The court concluded that Wyman must be disqualified from representing the plaintiffs against Smith and all co-defendants due to the substantial relationship between the prior and current representations.

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