An order denying a litigant's motion to disqualify opposing counsel is immediately appealable as a final order affecting the substantial rights of a party, the Oklahoma Supreme Court ruled April 2 (Miami Business Services LLC v. Davis, Okla., No. 111141, 4/2/13).
Moreover, the court stood by previous Oklahoma decisions holding that a trial court must conduct an evidentiary hearing before deciding whether to disqualify a party's counsel. That requirement was not abrogated by a comment recently added to the ethics rule on former-client conflicts of interest, Justice Yvonne Kauger declared.
Miami Business Services LLC was formerly involved in a joint venture with Asset Group Inc. and J2ES Inc. The law firm of Phillips Murrah served as general counsel for the companies and their joint venture. In addition, a principal in AGI who served as chief operating officer of Miami sought legal advice from Phillips Murrah during the joint venture.
Miami ultimately terminated that individual as its chief operating officer and sued her, along with AGI, J2ES, and another individual.
When Phillips Murrah showed up in the litigation as counsel for the defendants, Miami moved to disqualify the firm on the ground that its representation of the defendants violated Oklahoma Rules of Professional Conduct 1.7 (current-client conflicts) and 1.9 (former-client conflicts).
Rather than hold an evidentiary hearing on the plaintiff's motion, the trial court considered affidavits, documents, and other materials the parties submitted on the disqualification issue. It also conducted an in camera review of Phillips Murrah's billing records for a particular time period.
The trial court ultimately denied Miami's disqualification motion without making any findings of fact or conclusions of law. When Miami sought the high court's review, the defendants moved to dismiss the appeal, contending that an order denying a motion to disqualify a lawyer is a nonappealable interlocutory order.
The supreme court concluded that the order was appealable, but then remanded for an evidentiary hearing and factual findings without reaching the question whether the Phillips firm should be disqualified.
Okla. Stat. tit. 12, §953 defines a final order as one “affecting a substantial right in an action, when such order, in effect, determines the action and prevents a judgment.”
The court previously held in several cases, including Arkansas Valley State Bank v. Phillips, 171 P.3d 899, 23 Law. Man. Prof. Conduct 549 (Okla. 2007), that an order granting a motion to disqualify is a final order subject to appellate review under that statute.
Finding that the same goes for an order denying a motion to disqualify, the court held that “the denial of a motion to disqualify opposing counsel is an immediately appealable final order pursuant to 12 O.S. 2011 §953, in the same manner and for the same reasons as an order granting a motion to disqualify opposing counsel.”
The court reasoned that even though denial of a motion to disqualify does not require either party to immediately select new counsel, it still substantially affects the rights of the moving party. If the opponent's choice of counsel is improper, “the moving party has the right to have the situation corrected and their rights are substantially affected if the trial court fails to do so,” Kauger wrote.
“It makes no sense to waste the time and money of the judiciary and the litigants on protracted litigation when the irreparable harm caused by not disqualifying counsel for a party is clearly demonstrated at the outset,” the court added.
The court warned, however, that motions to disqualify for alleged violations of professional conduct rules must not be used as procedural weapons. To ensure fairness and prevent misuse of disqualification motions, trial courts should strongly consider exercising their discretion to stay proceedings pending appeal of an order granting or denying a motion to disqualify, the court instructed.
Arkansas Valley State Bank and other Oklahoma cases require a trial court to hold an evidentiary hearing before deciding whether to disqualify an attorney, the court pointed out.
The trial court's failure to do so in this case, it said, apparently stemmed from confusion over the impact of a third comment added to Rule 1.9 as part of rule amendments that went into effect Jan. 1, 2008. The language in question, drawn from Comment  to ABA Model Rule 1.9, states:
A former client is not required to reveal the confidential information learned by the lawyer in order to establish a substantial risk that the lawyer has confidential information to use in the subsequent matter. A conclusion about the possession of such information may be based on the nature of the services the lawyer provided the former client and information that would in ordinary practice be learned by a lawyer providing such services.
The court decided that the new comment did not affect the established procedure. “[T]he requirement for an evidentiary hearing for motions to disqualify opposing counsel for conflict of interest or improper possession of confidential information was not altered by the adoption of ORPC Rule 1.9, Comment 3, adopted after this Court's decision in Arkansas Valley State Bank v. Phillips, supra,” Kauger wrote.
The comments are intended as guidance only, whereas the text of the rules is dispositive, the court noted, citing the Scope section of the rules. It was unswayed by two Oklahoma federal district court cases that accorded the new comment more weight.
Kauger made clear that judges still must follow the procedural dictates of Arkansas Valley State Bank by holding an evidentiary hearing and then making specific factual findings, in the order granting or denying disqualification, that the attorney either had or did not have knowledge of material confidential information about the moving party.
Without such findings, the party appealing the order will have no meaningful basis to challenge the trial court's decision, Kauger pointed out.
Chief Justice Tom Colbert and Justices James Winchester and Steven W. Taylor dissented without filing an opinion.
Conly J. Schulte, Martha L. King, and Eduardo A. Provencio of Fredericks Peebles & Morgan in Louisville, Colo., represented Miami Business Services, along with Samuel R. Fulkerson, McAfee & Taft, Oklahoma City.
Asset Group Inc., J2ES, and the individual defendants were represented by Thomas G. Wolfe and Catherine L. Campbell of Phillips Murrah, Oklahoma City, and Michael D. Germain of Watt, Tieder, Hoffar & Fitzgerald in Irvine, Cal.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-96epu2.
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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