In The Matter Of: PROEDUCATION INTERNATIONAL, INC., doing business as ProEducation Support Services, doing business as Data Dynamics, Inc., doing business as ProEd Venture LLC, Debtor. Kirk Allen Kennedy; Mark D‘Andrea, Appellants-Cross-Appellees, v. Mindprint, Appellee-Cross-Appellant.
No. 08-20398
United States Court of Appeals, Fifth Circuit
Oct. 30, 2009
587 F.3d 296
Before KING, DAVIS and BENAVIDES, Circuit Judges. KING, Circuit Judge:
III. CONCLUSION
We hold that the district court clearly erred by finding that there were exigent circumstances justifying the warrantless search of Menchaca‘s residence. We therefore VACATE Menchaca‘s conviction and REMAND for further proceedings consistent with this opinion.
Kirk Allen Kennedy (argued), Houston, TX, pro se and for D‘Andrea.
Stephen R. Cochell (argued), Epstein, Becker, Green, Wickliff & Hall, P.C., Houston, TX, for D‘Andrea.
Lionel Mark Schooler (argued), Jackson Walker, L.L.P., Houston, TX, for Mindprint.
KING, Circuit Judge:
Kirk A. Kennedy, an attorney, was an associate in the law firm of Jackson Walker L.L.P. from February 2003 to
I. BACKGROUND
A. Factual Background
Attorney Kirk A. Kennedy seeks to represent Dr. Mark D‘Andrea in his efforts to collect a judgment from ProEducation International, Inc. (ProEducation). Kennedy worked in the bankruptcy section of the Houston firm of Jackson Walker L.L.P. from February 2003 to November 2004. His office was located down the hall from Lionel Schooler, who also worked in the bankruptcy section. Unbeknownst to Kennedy, since 1999 Schooler had been representing MindPrint, Inc. (MindPrint) in a state court case against ProEducation. Several shareholders of ProEducation, including D‘Andrea, intervened in the state court suit and took positions adverse to MindPrint. In November 2000, during the pendency of the state court case, ProEducation filed for Chapter 7 bankruptcy. The state court case was removed to bankruptcy court as an adversary proceeding shortly thereafter. Schooler continued to
While Kennedy worked at Jackson Walker, Schooler provided legal services to MindPrint in connection with the bankruptcy case and the adversary proceeding. At the conclusion of the adversary proceeding in July 2005, the bankruptcy court entered judgment in favor of both MindPrint and the shareholders (including D‘Andrea) against ProEducation. MindPrint moved for sanctions against the shareholders, which the bankruptcy court denied. MindPrint appealed the denial of sanctions.
After Kennedy left Jackson Walker in November 2004, the Gulf Coast Cancer Center—where D‘Andrea works as medical director—hired Kennedy as general counsel. In November 2005, during the appeal from the denial of sanctions in the adversary proceeding, Schmidt informed Schooler that he was planning to withdraw from representing D‘Andrea and that Kennedy would replace him. MindPrint objected to Kennedy‘s involvement because of his previous association with Jackson Walker. Kennedy did not officially enter an appearance as D‘Andrea‘s attorney at this point; but despite MindPrint‘s objections, Kennedy contributed to a brief filed on D‘Andrea‘s behalf.
In July 2006, MindPrint discovered that Kennedy was attempting to conduct discovery about the appeal from the adversary proceeding. Schooler emailed Kennedy on two occasions, objecting to his representation of D‘Andrea on the ground of imputed conflict of interest. Kennedy did not respond to either email, and he continued to work on behalf of D‘Andrea in his collection efforts and in the appeal. On September 29, 2006, Kennedy filed a notice to appear on behalf of D‘Andrea in the main bankruptcy case.
B. Procedural Background
In October 2006, MindPrint moved to disqualify Kennedy from representing D‘Andrea in the bankruptcy case and in the appeal. The bankruptcy court granted MindPrint‘s motion to disqualify but did not award any monetary sanctions. The bankruptcy court found that Jackson Walker‘s “knowledge of MindPrint‘s client confidences extends to former employees.” Relying on In re American Airlines, Inc., 972 F.2d 605, 614 & n. 1 (5th Cir.1992), and Kraft, Inc. v. Alton Box Board Co. (In re Corrugated Container Antitrust Litigation), 659 F.2d 1341, 1346 (5th Cir.1981), the bankruptcy court applied two irrebuttable presumptions: first, “confidential information has been given to the attorney actually doing work for the client,” and second, “confidences obtained by an individual lawyer will be shared with the other members of his firm.” The bankruptcy court did not allow Kennedy to attempt to rebut the second presumption, relying on American Can Co. v. Citrus Feed Co., 436 F.2d 1125, 1129 (5th Cir.1971), for the proposition that “in the Fifth Circuit, liability for disqualification extends to former employees of the attorney who established the attorney-client relationship.” Noting that “disqualification alone is a sanction,” the bankruptcy court did not award monetary sanctions against Kennedy or D‘Andrea.
After distribution of the bankruptcy estate, Kennedy appealed the disqualification order to the district court, and MindPrint cross-appealed on the issue of monetary sanctions. The district court affirmed the order on both issues. This appeal was timely filed, and we have juris-
II. STANDARD OF REVIEW
When a court of appeals “review[s] the decision of a district court, sitting as an appellate court, [it] appl[ies] the same standards of review to the bankruptcy court‘s findings of fact and conclusions of law as applied by the district court.” Caillouet v. First Bank & Trust (In re Entringer Bakeries, Inc.), 548 F.3d 344, 348 (5th Cir.2008) (per curiam). The standard of review for a grant or denial of a motion to disqualify counsel is abuse of discretion; however, “in applying this standard, we will review fact-findings for clear error, and we will perform a careful examination, or de novo review, of the [lower] court‘s application of the relevant rules of attorney conduct.” FDIC v. U.S. Fire Ins. Co., 50 F.3d 1304, 1311 (5th Cir.1995) (internal quotation marks omitted).
III. DISCUSSION
A. Disqualification
1. Choice of Law
When considering motions to disqualify, courts should first look to “the local rules promulgated by the local court itself.” U.S. Fire Ins., 50 F.3d at 1312. The Local Rules of the Southern District of Texas provide that “the minimum standard of practice shall be the Texas Disciplinary Rules of Professional Conduct” (Texas Rules), and that violations of the Texas Rules “shall be grounds for disciplinary action, but the court is not limited by that code.” S.D. TEX. LOCAL R.APP. A, R. 1A & 1B. Therefore, the Texas Rules “are not the sole authority governing a motion to disqualify.” In re Am. Airlines, 972 F.2d at 610 (internal quotation marks omitted). A reviewing court also “consid-er[s] the motion governed by the ethical rules announced by the national profession in light of the public interest and the litigants’ rights.” Id. The Fifth Circuit has recognized the ABA Model Rules of Professional Conduct (Model Rules) as the national standards to consider in reviewing motions to disqualify. Id. Therefore, we shall consider both the Texas Rules and the Model Rules.
2. Applicable Standards
The Fifth Circuit‘s approach to ethical issues has remained “sensitive to preventing conflicts of interest.” Id. at 611. Under this approach, a “[d]istrict
Texas Rule 1.09 states:
(a) Without prior consent, a lawyer who personally has formerly represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client:
(1) in which such other person questions the validity of the lawyer‘s services or work product for the former client;
(2) if the representation in reasonable probability will involve a violation of Rule 1.05 [dealing with confidential client information]; or
(3) if it is the same or a substantially related matter.
(b) Except to the extent authorized by Rule 1.10, when lawyers are or have become members of or associated with a firm, none of them shall knowingly represent a client if any one of them practicing alone would be prohibited from doing so by paragraph (a).
(c) When the association of a lawyer with a firm has terminated, the lawyers who were then associated with that lawyer shall not knowingly represent a client if the lawyer whose association with that firm has terminated would be prohibited from doing so by paragraph (a)(1) or if the representation in reasonable probability will involve a violation of Rule 1.05.
The relevant Model Rule, Rule 1.9(b), uses slightly different language than the Texas Rule:
A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter; unless the former client gives informed consent, confirmed in writing.
Although the Texas Supreme Court has yet to expressly address this fact pattern, the Texas Commission on Professional Ethics has published an opinion explicating the impact of Texas Rule 1.09 on this precise issue. See Tex. Comm. on Prof‘l Ethics, Formal Op. 501 (1994). The opinion addresses the following hypothetical:
[Attorney C] was associated with Attorney A in Law Firm ABC [and] leaves that firm to establish or join a different law firm and now the lawyer that left (Attorney C) desires to represent [a husband in a divorce proceeding; however,] Attorney A formerly represented or consulted with [the wife] when Attorney A and Attorney C were in the same law firm.
Id. The Opinion identifies the last sentence of Comment 7 to Texas Rule 1.09 as the controlling law, and it concludes that
Commentators have also interpreted Texas Rule 1.09 to allow migrating lawyers to remove imputation in the absence of a personal representation or acquisition of confidential information. Amon Burton, an Adjunct Professor at the University of Texas School of Law, describes the current version of the Texas Rules as “unquestionably limit[ing] the scope of imputed knowledge after lawyers are no longer associated” with a firm. Burton, supra, at 702 (tracing evolution of Texas ethics rules). Particularly, “[t]here is ample justification in [this] situation[] to permit a lawyer who was formerly affiliated with a personally disqualified lawyer to rebut a presumption that he or she has a conflict of interest or possesses material confidential information as a result of the former association.” Id. at 703. Prof. Burton notes that the danger to a client—here, MindPrint—of revealing confidential information is “de minimis” when a lawyer seeks to establish “lack of knowledge of the client‘s confidential information” or that “he did not personally represent the complaining client.” Id. These considerations justify allowing a departing attorney the opportunity to remove any imputed conflict of interest.6 Id.
In a declaration filed with the bankruptcy court on Kennedy‘s behalf (albeit after the disqualification), Professor Robert Schuwerk of the University of Houston Law Center discusses the application of Texas Rule 1.09 and Comment 7 to these facts and concludes that an irrebuttable presumption that attorneys possess confidential information even after departing from a firm is “both unfair and unworkable.” Prof. Schuwerk considers the Texas Rules, the Restatement, and Fifth Circuit law in reaching the conclusion that departing attorneys have the opportunity to demonstrate that they did not personally represent or acquire information about
Under Texas Rule 1.09(b), Kennedy was conclusively disqualified by imputation from representing D‘Andrea only while he remained at Jackson Walker. When Kennedy ended his affiliation with Jackson Walker without personally acquiring confidential information about MindPrint, his imputed disqualification also ended. See
The evidence reflects that while at Jackson Walker, Kennedy never personally represented MindPrint, nor did he gain any actual knowledge of MindPrint. At the evidentiary hearing before the bankruptcy court, Kennedy testified that he never heard of MindPrint while he was at Jackson Walker and that he never attended any firm meetings where the representation of MindPrint was discussed. He further testified that he had never met Al Winters, the principal of MindPrint, and that he first learned that Schooler was representing MindPrint in “May or June of 2005,” about six months after he left Jackson Walker.
MindPrint did not present any evidence to contradict Kennedy‘s testimony. At the evidentiary hearing, Schooler attempted to exclude Kennedy‘s testimony regarding his lack of knowledge of MindPrint as “irrelevant” and did not present any evidence that Kennedy had personal knowledge of the case. At oral argument before the district court, Schooler was asked: “When did Kennedy have anything to do with MindPrint personally?“; he responded “I don‘t know that he did,” but stated that “[MindPrint‘s] case was discussed at a monthly bankruptcy section meeting [at Jackson Walker], which Mr. Kennedy may or may not have attended.” The district court again inquired: “But at no point did Kennedy work for MindPrint while he was at Jackson Walker?” Schooler replied: “Not to my knowledge .... I don‘t know what he might have heard in the halls or what he saw in the file, but I never asked him to assist in that case.” These equivocal statements were not made under oath, and even if they had been, they do not constitute affirmative evidence that Kennedy acquired material confidential information about MindPrint or Jackson Walker‘s representation of MindPrint. The evidence Kennedy presented was sufficient to demonstrate that he did not operate under a conflict of interest when he undertook the representation of D‘Andrea.
In declining to consider Kennedy‘s evidence, the bankruptcy court relied on In re American Airlines, 972 F.2d at 614 n. 1, for the proposition that the Fifth Circuit applies an irrebuttable presumption that “confidences obtained by an individual lawyer will be shared with other members of his firm.” However, the American Airlines case did not actually involve or apply this presumption, so any statements regarding the presumption are dicta. 972 F.2d at 614 n. 1 (“This presumption is not at issue in this case, for all of the [disqualified] lawyers ... have previously represented [the client seeking dis-
Under both the Texas Rules and the ABA Model Rules, Kennedy should have had the opportunity to demonstrate that he did not obtain confidential information regarding MindPrint during his time at Jackson Walker. Kennedy presented uncontradicted evidence that he was unaware of MindPrint‘s existence—let alone Schooler‘s representation of MindPrint—during his affiliation with Jackson Walker. In light of this evidence, Kennedy successfully showed that his imputed disqualification ended when he left Jackson Walker; therefore, his representation of D‘Andrea did not present a conflict of interest requiring his disqualification.
B. Sanctions
A lower court‘s ruling on a motion for sanctions under its inherent power is reviewed for abuse of discretion. Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991). To support an award of sanctions under its inherent power, “[a] court must make a specific finding that the sanctioned party acted in bad faith.” Matta v. May, 118 F.3d 410, 416 (5th Cir.1997) (citing Dawson v. United States, 68 F.3d 886, 895 (5th Cir.1995)). Our disposition of the disqualification issue in Kennedy‘s favor moots MindPrint‘s appeal from the bankruptcy court‘s decision to decline to award monetary sanctions against Kennedy and D‘Andrea.
IV. CONCLUSION
For the reasons discussed above, we REVERSE the district court‘s judgment affirming the bankruptcy court‘s order disqualifying Kennedy. MindPrint‘s cross-appeal is DISMISSED. MindPrint shall bear the costs of this appeal.
KING
UNITED STATES CIRCUIT JUDGE
UNITED STATES of America, Plaintiff-Appellee, v. Jesusita Felipita GARZA, Defendant-Appellant.
No. 08-41197.
United States Court of Appeals, Fifth Circuit.
Oct. 30, 2009.
Notes
May an associate attorney of law firm A engage in employment discussions with law firm B, while law firm A represents X, which is in litigation with Y, represented by law firm B, where the associate and the partner for whom he worked in law firm A have done no work for X and have no actual knowledge of any matter pertaining to X?
Id. The question was resolved as follows:
While the associate was employed by law firm A, he as well as every other member of law firm A was disqualified from accepting employment against that firm‘s client, X. The associate‘s disqualification would not end upon his leaving law firm A, so he would be disqualified from representing Y, the client of law firm B, in a suit against X.
Id. “The standard for imputed disqualification [applied in Ethics Opinion 453] is not the same as set forth in Rule 1.09 of the [current] Texas Disciplinary Rules.” Burton, supra, at 690 (emphasis added).