Goodrich v. Goodrich

158 N.H. 130

960 A.2d 1275

Peter GOODRICH and another.

v.Morgan GOODRICH and another.

No. 2007–867.

Supreme Court of New Hampshire.

Argued: June 18, 2008.

Opinion Issued: Dec. 4, 2008.

Wiggin & Nourie, P.A., of Manchester (Thomas J. Pappas & a. on the brief, and Mr. Pappas orally), for the plaintiffs.

Clauson Atwood & Spaneas, of Hanover (George E. Spaneas on the brief and orally), for the defendants.

BRODERICK, C.J.

This case comes before us on interlocutory appeal from an order, see Sup.Ct. R. 8, by the Superior Court (Vaughan, J.) denying a motion filed by the plaintiffs, Jeffrey and Peter Goodrich, that sought to disqualify the law firm of Clauson Atwood & Spaneas from representing the defendants, Morgan Goodrich, Crystal Goodrich and Attorney K. William Clauson, in the instant litigation. Two questions were transferred:

A. Did the trial court err, as a matter of law, [by] applying [an] incorrect legal standard [in] determining whether defendants' legal counsel should be disqualified where defendants' counsel had previously represented one of the plaintiffs in the same matter?

B. Did the trial court err as a matter of fact and law[, when it] determin [ed] that there was no valid attorney-client relationship between defendants' counsel and the corporate plaintiff based upon its finding that the nature of the corporate plaintiff's business today is not sufficiently similar to the nature of its business under its prior ownership when defendants' counsel represented the corporate plaintiff in the same matter?

We answer the first question in the negative, the second question in the affirmative, and vacate both the trial court's order denying the plaintiffs' motion to disqualify and its order denying the plaintiffs' motion to reconsider. We remand for further proceedings consistent with this opinion.

I

The following facts are taken from the interlocutory appeal statement, see Alonzi v. Northeast Generation Servs. Co., 156 N.H. 656, 657, 940 A.2d 1153 (2008), from the trial court's order, or from our prior opinion involving the same parties, T & M Assocs. v. Goodrich, 150 N.H. 161, 834 A.2d 369 (2003). The plaintiffs are the sons of defendant Morgan Goodrich and currently own the corporate plaintiff, T & M Associates, Inc. Defendant Crystal Goodrich is Morgan's wife, and defendant Clauson is an attorney at the law firm of Clauson Atwood & Spaneas (CAS). CAS represents the three defendants and is the law firm that the plaintiffs seek to disqualify.

In 1987, Morgan owned fifty percent of a small surveying firm known as T & M Surveying, Inc. That year, Morgan, Jeffrey, Peter, and three other organizers agreed to create a new company, plaintiff T & M Associates, Inc. (T & M), to provide a broad range of engineering and surveying services. The six organizers of T & M agreed that Morgan would purchase the outstanding shares of T & M Surveying, Inc., transfer fifty-one percent of plaintiff T & M stock to Jeffrey, and retain the remaining forty-nine percent. By agreement, T & M's profits were entrusted to Morgan to invest in retirement accounts for the benefit of each of the organizers. Morgan, Jeffrey and Crystal served as the board of directors of T & M from 1990 until December 2000.

In 1994, Morgan and his two sons entered into a written agreement confirming the earlier agreement that Morgan transfer fifty-one percent of T & M's stock to Jeffrey, and further agreeing that Morgan would transfer the remaining forty-nine percent to Peter at a price to be determined. Morgan did not honor the agreement. In 1998, he told Jeffrey and Peter that he had retained all of T & M's stock as well as all of the company's profits for his own benefit. In November, Morgan and his two sons agreed to negotiate the purchase and sale of his shares in T & M by the end of 2000. If negotiations were unsuccessful, they agreed to revert to the terms of their 1994 agreement with an amendment. In early December 2000, Morgan removed Jeffrey from T & M's board of directors, and later appointed Attorney Clauson as his son's replacement. A week later, the board, which now consisted of Morgan, Crystal and Clauson, voted to terminate both sons from T & M's employment.

T & M then brought an equity action against Jeffrey and Peter alleging, among other things, that they had misappropriated company funds. The sons counterclaimed, alleging misrepresentation, breach of contract, promissory estoppel and quantum meruit. In February 2001, Jeffrey and Peter initiated the civil suit underlying this appeal against T & M, Morgan, Crystal and Clauson, claiming that the vote of the board of directors to terminate their employment was in breach of each board member's fiduciary duties. The suit was stayed pending final resolution of the equity action. CAS represented T & M in both the equity action and the civil action. In 2002, the trial court dismissed T & M's equity claims and ruled in favor of Jeffrey and Peter on their counterclaims, awarding them approximately $1,600,000 in damages. The trial court's decision was affirmed on appeal. See T & M Assocs., 150 N.H. at 166, 834 A.2d 369. Morgan and Crystal thereafter initiated bankruptcy proceedings, and the bankruptcy court granted summary judgment in favor of Jeffrey and Peter on civil claims involving Morgan's breach of their 1994 and 1998 agreements. In 2004, the superior court entered judgment against Morgan on the same claims. That December, Morgan transferred T & M's stock to his sons. Jeffrey and Peter later dismissed T & M as a defendant in the present litigation, originally filed in 2001, and added it as a plaintiff. (Hereinafter, T & M under Morgan's ownership is referred to as "old T & M," and T & M under Jeffrey and Peter's ownership is referred to as "new T & M.")

During a deposition of Attorney Clauson in January 2007, he asserted an attorney-client privilege for certain conversations he had had with old T & M and Morgan while serving as their counsel. In April, the plaintiffs moved to disqualify CAS from further representation of Morgan, Crystal and Clauson pursuant to Rule 1.9 of the New Hampshire Rules of Professional Conduct, alleging that CAS had a conflict of interest due to new T & M's status as a former client of the law firm. At that point, CAS had represented the defendants for more than six years. The trial court denied the plaintiffs' motion, ruling that new T & M, then owned by Jeffrey and Peter, was not a former client of CAS and that the attorney-client privilege had not transferred from old T & M to new T & M in the stock transfer from Morgan to his sons in 2004.

II

Attorneys in this state owe a duty to former clients to preserve confidences. They also owe a duty of loyalty. Sullivan Cnty. Reg. Refuse Dist. v. Town of Acworth, 141 N.H. 479, 483, 686 A.2d 755 (1996). In particular, the applicable version of Rule 1.9(a) of the New Hampshire Rules of Professional Conduct provides that:

A lawyer who has formerly represented a client in a matter shall not thereafter 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 consultation and with knowledge of the consequences.

N.H. R. Prof. Conduct 1.9(a) (amended 2007). While Rule 1.9(a) was amended in 2007, the change is not relevant to this appeal. We have established the following test under Rule 1.9(a) to determine whether a disqualifying conflict of interest exists:

First, there must have been a valid attorney-client relationship between the attorney and the former client. Second, the interests of the present and former clients must be materially adverse. Third, the former client must not have consented, in an informed manner, to the new representation. Finally, the current matter and the former matter must be the same or substantially related.

Sullivan Cnty., 141 N.H. at 481–82, 686 A.2d 755 (citations omitted) (decided under former version). "[U]pon a finding that all of the elements of [former] Rule 1.9 have been satisfied, a court must irrebuttably presume that the attorney acquired confidential information in the former representation." Id. at 483, 686 A.2d 755. "Disqualification then becomes mandatory." Id.

The rule of disqualification is designed to protect "a client's secrets and confidences by preventing even the possibility that they will subsequently be used against the client in related litigation." Tekni–Plex, Inc. v. Meyner and Landis, 89 N.Y.2d 123, 651 N.Y.S.2d 954, 674 N.E.2d 663, 667 (1996). Disqualification, however, "conflicts with the general policy favoring a party's right to representation by counsel of choice, and it deprives current clients of an attorney familiar with the particular matter." Id.; see also McElroy v. Gaffney, 129 N.H. 382, 390, 529 A.2d 889 (1987). We must, therefore, seek to ensure that the trust and loyalty owed by lawyers to their clients are not compromised, while preserving the ability of clients to freely engage counsel of their choice. See, e.g., Ramada Franchise v. Hotel of Gainesville, 988 F.Supp. 1460, 1463–64 (N.D.Ga.1997) ; Federal Deposit Ins. Corp. v. Amundson, 682 F.Supp. 981, 985 (D.Minn.1988) ; In re I Successor Corp., 321 B.R. 640, 647 (Bankr.S.D.N.Y.2005).

No doubt, the potential for abuse exists when a party seeks to disqualify opposing counsel. McElroy, 129 N.H. at 390, 529 A.2d 889. We share the concern of other jurisdictions that, at times, ethical rules may be used to gain a strategic advantage, rather than as a guide to virtuous and professional behavior, tempering an attorney's zeal for his client. See id. at 391, 529 A.2d 889; Amundson, 682 F.Supp. at 985; In re I Successor Corp., 321 B.R. at 647; Tekni–Plex, 651 N.Y.S.2d 954, 674 N.E.2d at 667. Ultimately, "[e]thical questions cannot be resolved by a scientific application of principles and precedents because no code of ethics could establish unalterable rules governing all...