ROY D. MERCER, LLC, Petitioner, v. HONORABLE MATTHEW G. REYNOLDS, District Court Judge For The Seventh Judicial District Court, Respondent, and GANDY DANCER, LLC, Real Party in Interest, and BNSF RAILWAY COMPANY, Plaintiff/Counter-Defendant.
Docket No. 33,830
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
December 6, 2012
2013-NMSC-002
Opinion Number: 2013-NMSC-002. ORIGINAL PROCEEDING.
Charles Thomas DuMars
Tanya L. Scott
Albuquerque, NM
for Petitioner
Gary K. King, Attorney General
Scott Fuqua, Assistant Attorney General
Santa Fe, NM
for Respondent
Rodey, Dickason, Sloan, Akin & Robb, P.A.
Charles J. Vigil
Albuquerque, NM
Riley, Shane & Keller, P.C.
Mark J. Riley
Albuquerque, NM
for Real Party in Interest
Butt, Thornton & Baehr, P.C.
Emily A. Franke
Rodney L. Schlagel
Albuquerque, NM
Modrall, Sperling, Roehl, Harris & Sisk, P.A.
Paul T. Halajian
Albuquerque, NM
for Plaintiff Counter-Defendant
OPINION
BOSSON, Justice.
{1} In the practice of law, there is no higher duty than one‘s loyalty to a client. This duty applies to current and former clients alike. In this case, we are called upon to interpret this duty in light of
BACKGROUND
{2} The underlying case in this matter concerns a property dispute between BNSF Railway (BNSF) and Roy D. Mercer, LLC (Mercer). The case centers on the interpretation of an easement. BNSF constructed large berms, dykes, and channels both on and off Mercer‘s property designed to divert water away from BNSF‘s railroad tracks and through Mercer‘s property. BNSF claimed a right to do so pursuant to a 1936 easement granted to BNSF‘s predecessor in interest by Mercer‘s predecessor in interest. BNSF hired a firm, Gandy Dancer, LLC (Gandy Dancer), to construct the new berms, dykes, and channel.
{3} Mercer objected and threatened to remove the earthwork dykes and berms installed by Gandy Dancer so as to return the property to its natural state. Relying upon its claim of an easement, BNSF filed suit in state court against Mercer on June 3, 2008, seeking to enjoin Mercer from removing the earthworks and requesting damages. Mercer filed a counterclaim against BNSF for tort damages and inverse condemnation. Mercer also joined Gandy Dancer as a party defendant for trespass, negligence, and prima facie tort.
{4} Once joined as a party, Gandy Dancer, through its attorneys Riley, Shane & Keller, P.C. (Riley Law Firm), removed the matter to federal court, alleging federal question jurisdiction. Upon removal, Mercer hired the Wagner Ford Law Firm. At that time,
{5} The federal court ultimately granted Mercer‘s motion to remand to state court. Mercer‘s billing records indicate that Ford continued to be actively involved in the case on Mercer‘s behalf. While she never entered an appearance in the state court proceedings, Ford was involved in strategy meetings with Mercer and co-counsel and was active in investigative efforts, discovery, and communication with experts, and also attended court hearings on Mercer‘s behalf. As one of Mercer‘s attorneys, Ford was privy to all strategy and case management decisions, as well as privileged communications from her client.
{6} In January 2010, Mercer added another law firm, Law & Resource Planning Associates, P.C. (the LRPA Law Firm) to represent it in the state court proceeding because of water law issues involved in that case. The Wagner Ford Law Firm ceased representing Mercer in late 2010. In addition, Ford also left the Wagner Ford Law Firm in December 2010.
{7} In late June 2012, while the state court proceeding was ongoing, the LRPA law firm learned via the Riley firm‘s website that the Riley firm had hired Ford as a new associate. LRPA promptly sent a letter to Mark Riley of the Riley firm raising Ford‘s conflict of interest and stating that the Riley firm could no longer represent Gandy Dancer in the litigation with Mercer, Ford‘s former client. The Riley firm then sent a letter to Kerwin Hollowwa, corporate counsel for Mercer, notifying him that Ford would be joining the Riley firm “effective July 2, 2012.” The letter also described the steps the Riley firm would take to screen Ford from any involvement in the Mercer case. In responding to the LRPA letter, the Riley firm attached a copy of its letter to Mr. Hollowwa, stating that the attached letter should “address any concerns you may have regarding a conflict of interest in connection with the Roy D. Mercer, LLC v. Gandy Dancer matter.” LRPA replied that it continued to have concerns about Riley‘s representation of Gandy Dancer and that Mercer would not waive the conflict of interest.
{8} The Riley firm then filed a motion in the state case seeking judicial approval of a
{9} Mercer filed a response to Gandy Dancer‘s screening motion and also filed a cross-motion to disqualify the Riley firm. Mercer pointed to billing records showing that Ford had attended meetings to formulate strategy in both the state and federal cases.
{10} After full briefing on the competing motions, oral argument, and supplemental briefing, the district court issued an Order and a Memorandum Decision. The court found that Ford had previously represented Mercer in the same or a substantially similar matter, her role was substantial, and therefore she had a conflict of interest under
{11} Nevertheless, the district court found that the equities favored Gandy Dancer and declined to disqualify the Riley firm. The court reasoned that Gandy Dancer was an innocent bystander and would be severely harmed if it had to hire substitute counsel given an imminent trial date. The court found that Mercer‘s interest was protected by the Riley firm‘s screening process, which kept Ford segregated from the litigation and protected confidential information. The court concluded that Mercer should file a complaint with the Disciplinary Board against the Riley firm. The court also ordered the Riley firm to pay Mercer‘s attorneys’ fees incurred in bringing the conflict issue before the court.
{12} Mercer then filed a petition for writ of superintending control with this Court. We held oral argument on October 10, 2012 and issued a writ from the bench prohibiting the Riley firm‘s continued representation of Gandy Dancer due to its continuing conflict of interest. We now issue this opinion to further explain our decision.
DISCUSSION
Standard of Review
{13} A ruling on a motion to disqualify is generally reviewed for an abuse of discretion. State v. Barnett, 1998-NMCA-105, ¶ 13, 125 N.M. 739, 965 P.2d 323.
Necessity of Writ
{14} The ability of a lawyer to change sides in a lawsuit is unquestionably an issue of “great public importance.” See State ex rel. Schwartz v. Kennedy, 120 N.M. 619, 624, 904 P.2d 1044, 1049 (1995) (this Court may exercise its power of superintending control “even when there is a remedy by appeal, where it is deemed to be in the public interest to settle the question involved at the earliest moment.” (internal quotation marks and citations omitted)). This case impacts the inviolate relationship of attorney and client and, equally important, the public perception of that relationship and the legal profession. Clients must be secure in their understanding that attorneys will maintain their confidences, even after the termination of an attorney-client relationship. This expectation is put in jeopardy when an attorney switches sides in a lawsuit, no matter what procedures may be put in place to minimize the risk of breached confidences. The perception of divided loyalties remains the same.
{15} This case presents an issue of first impression in New Mexico.
The Law of Imputation and Disqualification in New Mexico
{16} A lawyer must demonstrate undivided loyalty to a client. State v. Almanza, 1996-NMCA-013, ¶ 4, 121 N.M. 300, 910 P.2d 934. When an attorney leaves one law firm and joins another, the attorney continues to owe a duty of confidentiality and undivided loyalty to his or her clients. Id. See
{17}
Subsequent firm associations; screening. When a lawyer becomes associated with a firm, the firm may not knowingly represent a person in a matter in which that [newly associated] lawyer is disqualified under Paragraph A or B of Rule 16-109 NMRA of the Rules of Professional Conduct unless:
(1) the newly associated lawyer has no information protected by Rule 16-106 or 16-109 NMRA of the Rules of Professional Conduct that is material to the matter; or
(2) the newly associated lawyer did not have a substantial role in the matter, is timely screened from any participation in the matter and is apportioned no part of the fee therefrom, and written notice is promptly given to any affected former client to enable it to ascertain compliance with the provisions of this rule.
(Emphasis added.) In practice,
{18}
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 gives informed consent, confirmed in writing.
(Emphasis added.) In other words, a lawyer may not represent a client in a matter in which the current client‘s interests are “materially adverse” to the interests of a former client. Lawyers have a continuing duty to preserve the confidentiality of information about former clients. “[T]he client previously represented by the former firm must be reasonably assured that the principle of loyalty to the client is not compromised” when an attorney moves to a new firm.
{19} Importantly, once there is (a) a conflict, which is (b) imputed to the new law firm, then disqualification under
{20} In practice, it is highly unlikely that a new associate who is disqualified under
{21} This Court amended
{22} New Mexico is not the only state to take such an approach. Arizona, Colorado, Massachusetts, Nevada, and Ohio have all adopted similar rules. See
The District Court‘s Factual Findings
{23} “[T]he burden of establishing that counsel should be disqualified lies with the party seeking disqualification.” Mitchell-Carr v. McLendon, 1999-NMSC-025,
{24} Nevertheless, Gandy Dancer continues to insist that Ford did not play a substantial role in the BNSF litigation while working on the other side. Although the district court was not asked to hold an evidentiary hearing, it did entertain extensive argument of counsel as well as supplemental briefing, after which the court determined that Ford‘s role representing Mercer was in fact substantial. See Mascarenas v. Jaramillo, 111 N.M. 410, 412, 806 P.2d 59, 61 (1991) (“Our duty is to interpret the findings made to determine whether they are sufficient to support the judgment entered thereon.“). While it is not our practice on an extraordinary writ to entertain substantial evidence challenges, we believe it is important to explain the evidence that supported the district‘s court‘s “substantial role” determination, as it is foreseeable that similar situations may occur in the future.
{25} As a preliminary matter, the district court found that Ford played a substantial role “in the prior representation of Mercer.” The court did not explicitly say whether the federal court matter and the state court matter were the same for purposes of the
{26} “The matter” is not defined in
{27} The district court‘s memorandum decision quotes the federal judge‘s reasoning in deciding to remand Gandy Dancer‘s removal action to state court, wherein that court stated “that all claims filed in this controversy are derivative of and dependent on the results of the main [state court] claim, and arise out of the same transactions, occurrences and issues.” Therefore, the federal court appears to have determined that both the state court and the federal court proceedings arose out of the same “matter.” Reviewing the state district court‘s findings in the light most favorable to its decision, we conclude that the finding that Ford played a substantial role “in the prior representation of Mercer” is the same as “the matter” for purposes of
{28} Gandy Dancer continues to argue, as it did unsuccessfully in the district court below, that Ford‘s previous involvement in the representation of Mercer at the Wagner Ford Law Firm was not “substantial” because her involvement was limited to briefing the issue of remanding the federal removal case back to state court. Gandy Dancer notes that Ford did not enter an appearance on behalf of Mercer in the state court action. In addition, Gandy Dancer asserts that Ford did not have decision-making authority, as she was not the lead attorney. Nevertheless, Gandy Dancer admits that Ford attended at least one meeting with Mercer and various Mercer attorneys, including the lead attorney for the state court action.
{29} Gandy Dancer‘s argument is no more persuasive to this Court than it was to the
Disqualification is Required
{30} As a preliminary matter, the Rules of Professional Conduct may form the basis for disqualification. See In re a Comm‘n Investigation Into the 1997 Earnings of U.S. West Commc‘ns, Inc., 1999-NMSC-016, ¶ 46, 127 N.M. 254, 980 P.2d 37; Barnett, 1998-NMCA-105, ¶¶ 15-16 (interpreting
{31} To summarize,
{32} The district court found that Ford had “information protected by Rules 16-106 and 16-109 . . . that is material to the matter,” thus foreclosing the first exception. See
{33} Despite the Riley firm‘s failure to meet the requirements of
{34} United Nuclear was one of the largest and most expensive lawsuits in the history of New Mexico. Id. at 161, 629 P.2d at 237. The litigation arose over a dispute between United Nuclear Corporation (United Nuclear) and General Atomic Company (General Atomic) regarding contracts to supply uranium. Id. Gulf Oil Corporation (Gulf) was a partner in General Atomic, which was on the other side of the litigation from United Nuclear. Id. In 1961, United Nuclear‘s counsel, the Bigbee Law Firm, began to represent United Nuclear in connection with its uranium activities in New Mexico, and the Bigbee firm continued to represent United Nuclear in the United Nuclear litigation. Id. at 242, 629 P.2d at 318.
{35} In 1971, Gulf hired the Bigbee Law Firm to represent it regarding Gulf‘s uranium operations in New Mexico; it continued to represent Gulf until the end of 1976, months after the United Nuclear litigation had begun. Id. at 242-43, 629 P.2d at 318-19. Gulf‘s uranium production activities in New Mexico later became an issue in the United Nuclear litigation. Id. at 243, 629 P.2d at 319. General Atomic claimed a substantial relationship between the Bigbee Law Firm‘s past representation of Gulf and its present representation of United Nuclear, thus creating a danger that confidential information given to the Bigbee Law Firm in its prior representation of Gulf might be used against Gulf‘s interests in the present action. Id. This Court agreed with General Atomic‘s characterization of a substantial relationship between the two, but declined to disqualify the Bigbee Law Firm. Id. at 246, 629 P.2d at 322.
{36} United Nuclear is easily distinguishable from this case. The decision in United Nuclear turned on the issue of Gulf‘s waiver of the Bigbee Law Firm‘s conflict of interest. Essentially, United Nuclear is a laches decision. General Atomic (acting for Gulf) waited almost twenty months after litigation began to raise the conflict of interest issue. Id. at 244, 629 P.2d at 320. During that time the Bigbee Law Firm continued to represent United Nuclear without objection from General Atomic, including representing United Nuclear in various forums such as this Court and the United States Supreme Court. Id. This Court questioned the good faith of the motion to disqualify, noting that it was raised only after a series of adverse actions and decisions in General Atomic‘s state and federal cases against United Nuclear. Id. The Court held that a motion to disqualify should be filed at the onset of litigation or promptly once facts upon which the motion is based have become known. Id. at 245-46, 629 P.2d at 321-22; accord also In re Conservatorship & Guardianship of Pulver, 117 N.M. 329, 332, 871 P.2d 985, 988 (Ct. App. 1994) (same).
{37} In contrast to United Nuclear, the district court in the present case found that Mercer filed a timely and good faith motion to disqualify, taking only a matter of days after discovering the conflict, to first warn Riley of the conflict, and then to file its motion for disqualification. Any reliance on United Nuclear in the present case is misplaced, and in no event should that prior opinion be read as somehow vesting our courts with the equitable power to ignore the clear mandate of our Rules of Professional Conduct.
{38} In Chappell v. Cosgrove, 1996-NMSC-020, 121 N.M. 636, 916 P.2d 836, we also recognized that in certain circumstances a district court can balance the equities in ruling on a motion to disqualify. Curiously, Gandy Dancer does not cite Chappell while Mercer cites Chappell in support of a different proposition. Chappell concerned the application of
{39} Judges do retain some discretion in ruling on motions to disqualify. See
{40} As mentioned earlier, other states have adopted imputation rules similar to our
{41} In Litigation Management., Inc. v. Bourgeois, 915 N.E.2d 342 (Ohio Ct. App. 2009), the Ohio Court of Appeals held that an associate attorney whose law firm represented employees in an action brought by their former employer, who was personally disqualified from representing the employees due to her involvement in a substantially related matter while working for a different law firm that represented the former employer, had substantial responsibility in the earlier matter. Id. at 348-49. Therefore, under Ohio‘s imputation rule, the attorney‘s new law firm was also disqualified from representing the employees. Id. The court also found, as in this case, that the disqualified attorney‘s legal research was especially important to the earlier matter so as to contribute to her substantial role in the case. Id. at 348.
{42} The remedy chosen by the district court in this matter—referring the Riley firm to the New Mexico Disciplinary Board while continuing its representation of Gandy Dancer—was simply inadequate. While Mercer certainly retains the option of filing a disciplinary complaint, the disciplinary process is separate from any individual court proceeding. Disciplinary action is usually taken against an attorney‘s license and operates under a different procedural system. See
{43} The Rules of Professional Conduct lay out a clear and detailed process for law firms that wish to hire an associate. Such firms have an obligation to contact opposing counsel to ascertain whether the prospective associate possesses confidential information material to a particular case or whether the associate played a substantial role in a particular case. If the answer to either of these questions is yes, the hiring law firm should ask the former client for a waiver of the
{44} We recognize that sometimes it may be difficult for a court to determine whether an attorney played a substantial role in the representation of a former client without invading the attorney-client privilege. Since the district court was able to adequately address these issues in this case, we decline to fully address how courts should approach these situations. Nevertheless, possible options may include the appointment of a special master to gather evidence on the matter while restricting what the special master may disclose to the court to protect attorney-client privilege, or ordering the challenged law firm to hire contract counsel.2
{45} We also acknowledge that our ruling may result in limiting the lateral movement of attorneys between law firms. Indeed, our rule recognizes that “[i]f the concept of imputation were applied with unqualified rigor, the result would be radical curtailment of the opportunity of lawyers to move from one practice setting to another and of the opportunity of clients to change counsel.”
CONCLUSION
{46} For the foregoing reasons, this Court issued a writ of superintending control ordering the district court to disqualify the Riley firm from further representation of its client in this case.
{47} IT IS SO ORDERED.
RICHARD C. BOSSON, Justice
WE CONCUR:
PETRA JIMENEZ MAES, Chief Justice
EDWARD L. CHÁVEZ, Justice
PAUL J. KENNEDY, Justice
CELIA FOY CASTILLO, Chief Judge
Sitting by Designation
Topic Index for Mercer v. Reynolds, No. 33,830
APPEAL AND ERROR
Standard of Review
ATTORNEYS
Conflict of Interest
Disciplinary Action
Professional Responsibility
REMEDIES
Writ of Superintending Control