FSM Development Bank v Ehsa [2012] FMSC 31; 18 FSM Intrm. 388 (Pon. 2012) (29 August 2012)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2007-035

FSM DEVELOPMENT BANK,
Plaintiff,

vs.

PERDUS I. EHSA and TIMAKYO I. EHSA a/k/a TIMAKIO I. EHSA,
Defendants.
__________________________________

ORDER DISQUALIFYING COUNSEL

Ready E. Johnny
Associate Justice

Decided: August 29, 2012

APPEARANCES:

For the Plaintiff: Nora E. Sigrah, Esq.

P.O. Box M

Kolonia, Pohnpei FM 96941

For the Defendants: Ron Moroni, Esq.

Xerox Building, Suite 203

137 Murray Boulevard

Hagatna, Guam 96910

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HEADNOTES

Attorney and Client - Disqualification of Counsel
Without a former client's consent, a lawyer cannot represent another person in a matter adverse to the former client when the lawyer represented the former client in the same matter or a substantially related matter. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 390 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
Unless the former client has consented after consultation, counsel would be disqualified from appearing in the same or a substantially related matter in which the client's interests are materially adverse to a former client's interests when an opposing party is a former client, but a lawyer who has formerly represented a client is not disqualified from representing an opposing party in another matter when that matter is not substantially related to the previous matter and when the lawyer has not received any confidential information from the former client relating to the current matter. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 390-91 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
Two concerns underlie the substantial relationship test - the duty to preserve confidences and the duty of loyalty to a former client. The existence of the duty of loyalty means that the substantial relationship test is not solely concerned with the adverse use of confidential information. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 (Pon. 2012).

Attorney and Client
Although the court must first look to FSM sources of law, it may look to U.S. sources for guidance in interpreting the Model Rules of Professional Conduct when FSM case law does not provide a complete answer. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 n.3 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
Since the substantial relationship test is concerned with both a lawyer's duty of confidentiality and his duty of loyalty, a lawyer who has given advice in a substantially related matter must be disqualified whether or not he has gained confidences. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
Once the matters are shown to be substantially related, the former client is entitled to a conclusive presumption that confidences and secrets were imparted to the former attorney. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 n.4 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
In order to disqualify a former attorney, the former client need show no more than that the matters embraced within the pending suit wherein his former attorney appears on behalf of his adversary are substantially related to the matters or the cause wherein the attorney previously represented him, the former client. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
When considering disqualification under the substantial relationship test, more general legal representation can be relevant to a later litigation, but only if the later litigation fairly puts in issue the entire background of the movant. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
A court must be cautious when considering a motion to disqualify counsel because of the possibility that the motion may be abused as a technique of harassment. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 391 (Pon. 2012).

Attorney and Client - Disqualification of Counsel
Since an attorney's disqualification is in the public interest, the court cannot act contrary to that interest by permitting a party's delay in moving for disqualification to justify the continuance of a breach of legal ethics. The court has a duty, in accordance with the Model Rules of Professional Conduct, to regulate the conduct of the attorneys who practice before it, and this duty cannot be defeated by a private party's laches, although in an extreme case it may be given some weight. FSM Dev. Bank v. Ehsa, [2012] FMSC 31; 18 FSM Intrm. 388, 392 (Pon. 2012).

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COURT'S OPINION

READY E. JOHNNY, Associate Justice:

This comes before the court on the Plaintiff's Motion to Disqualify Defendants' Counsel Ron Moroni, with supporting affidavit, filed May 28, 2012; the defendants' Opposition to Motion to Disqualify Defendants' Counsel with supporting affidavit, filed June 13, 2012; and the plaintiff's Reply in Support of Motion to Disqualify Defendants' Counsel, with supporting affidavit, filed June 25, 2012. The motion is granted. The reasons follow.

I.

The FSM Development Bank contends that Ron Moroni should be disqualified from representing Perdus I. Ehsa and Timakyo I. Ehsa a/k/a Timakio I. Ehsa because the bank was formerly Moroni's client; because of Moroni's long-term representation of the bank with regard to Pacific Foods and Services, Inc.; and because of Moroni's representation of the bank in numerous cases where he asserted the FSM Supreme Court's jurisdiction over FSM Development Bank cases.

In opposition, the judgment-debtors, Perdus I. Ehsa and Timakyo I. Ehsa a/k/a Timakio I. Ehsa, assert that the bank's disqualification motion is a delaying tactic to avoid or postpone a decision on their motion, recently filed by Moroni on their behalf, to vacate the judgment in this case because, in their view, the FSM Development Bank is an unconstitutional creation of the FSM Congress[1] and therefore any judgments in its favor are void.

The defendants further contend that the matters in which Moroni represented the bank are not substantially related to this collection case, and that Moroni did not obtain any confidential information from the bank while he represented it. They also argue that if Moroni did, over twelve years ago, acquire any confidential information from the bank, it is unlikely that it could be used to the bank's detriment now. The defendants note that Moroni has, without objection by the bank, represented their codefendant, Pacific Foods and Services, Inc., in its bankruptcy application[2] and that therefore the bank should be regarded as having waived any alleged conflict of interest. And the defendants argue that the bank's delay in moving for disqualification should also be considered a waiver. Moroni, in his supporting affidavit avers that he has not maintained an office in the FSM since 2000 and that he no longer has any records relating to his work for the bank from 1994 to 2000.

II.

Without a former client's consent, a lawyer cannot represent another person in a matter adverse to the former client when the lawyer represented the former client in the same matter or a substantially related matter. FSM MRPC R. 1.9(a); seeGeorge v. Nena, [2004] FMSC 9; 12 FSM Intrm. 310, 318-19 (App. 2004). If an opposing party is a former client, then counsel would be disqualified from appearing in the same or a substantially related matter in which the client's interests are materially adverse to the former client's interests unless the former client has consented after consultation. McVey v. Etscheit, [2006] FMSC 17; 14 FSM Intrm. 207, 211 (Pon. 2006). But a lawyer who has formerly represented a client in a matter is not disqualified from representing an opposing party in another matter when that matter is not substantially related to the previous matter and when the lawyer has not received any confidential information from the former client relating to the current matter. Nix v. Etscheit, [2001] FMSC 34; 10 FSM Intrm. 391, 399 (Pon. 2001).

Two concerns underlie the substantial relationship test - the duty to preserve confidences and the duty of loyalty to a former client. In re American Airlines, 972 F.2d 605, 618 (5th Cir. 1992).[3] "[T]he existence of the duty of loyalty means that the substantial relationship test is not solely concerned with the adverse use of confidential information." Id. Since "the substantial relationship test is concerned with both a lawyer's duty of confidentiality and his duty of loyalty, a lawyer who has given advice in a substantially related matter must be disqualified whether or not he has gained confidences." Id. at 619 (emphasis in original).[4] Thus, if Moroni gave advice in a matter substantially related to this case, regardless of whether he gained any confidences, he must be disqualified.

The defendants contend that Moroni's prior representation of the bank was not substantially related to this matter. Moroni avers that he only drafted a general template for a ship mortgage that was then used to secure Pacific Foods & Services, Inc.'s loan. The defendants contend that this does not constitute a substantial relationship.

In order to disqualify a former attorney, "the former client need show no more than that the matters embraced within the pending suit wherein his former attorney appears on behalf of his adversary are substantially related to the matters or the cause wherein the attorney previously represented him, the former client." T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 265, 268 (S.D.N.Y. 1953). The bank has shown that Moroni billed it for eleven and half hours of attorney work related to the Pacific Foods and Services loan and documents (mortgages) to secure that loan. That now defaulted loan is the basis for the bank's judgment in this case and the bank's post-judgment acts are an effort to collect on that loan. This is a substantially related matter. Since Moroni gave advice in a substantially related matter, the bank has a right to expect him to abide by his duty of loyalty and to seek his disqualification when he has not.

Furthermore, when considering disqualification under the substantial relationship test, "[m]ore general legal representation can be relevant to a later litigation, but only if the later litigation fairly puts in issue the entire background of the movant." United States Football League v. National Football League, 605 F. Supp. 1448, 1459 (S.D.N.Y. 1985). In the motion to vacate, Moroni challenges both this court's jurisdiction and the bank's legal existence. These are issues on which Moroni, by the nature of his work, must have advised and represented the bank since he filed suit in the FSM Supreme Court on the bank's behalf on numerous occasions.

While the court must be cautious when considering a motion to disqualify counsel because of the possibility that the motion may be abused as a technique of harassment, Nix, 10 FSM Intrm. at 396, the bank has shown that its former attorney should be disqualified from representing the defendants in this substantially related matter.

Lastly, the defendants contend that the bank has waived any conflict or is barred from moving for Moroni's disqualification because of the passage of time since Moroni first started to represent Pacific Foods and Services, Inc. in its bankruptcy. The bank contends that it promptly moved for Moroni's disqualification after he filed his appearance and a motion to vacate in this case.

The defendants' argument lacks any merit. "Since . .&. disqualification is in s in the public interest, the court cannot act contrary to that interest by permitting a party's delay in moving for disqualification to justify the continuance of a breach of [legal ethics]." Emle Indus., Inc. v. Patentex, Inc., [1973] USCA2 309; 478 F.2d 562, 574 (2d Cir. 1973). The court has a duty, in accordance with the Model Rules of Professional Conduct, to regulate the conduct of the attorneys who practice before it, and this duty cannot be defeated by the laches of a private party, although in an extreme case it may be given some weight. Id.

Therefore Moroni must be disqualified from representing the defendants against his former client, the bank.

III.

Accordingly, the FSM Development Bank's motion to disqualify Ron Moroni as counsel for Perdus I. Ehsa and Timakyo I. Ehsa a/k/a Timakio I. Ehsa is granted. The pending motions filed on their behalf by Ron Moroni may be refiled or adopted by successor counsel.

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^[1] They challenge the constitutionality or validity of FSM Public Law No. 8-47, which reorganized the FSM Development Bank. The court notes, without drawing any inference from it, that Ron Moroni was an FSM Congress staff attorney when Public Law No. 8-47 [30 F.S.M.C. §§101-138] was enacted.

^[2] Since Pacific Foods & Services Inc. filed for bankruptcy protection and since the Bankruptcy Code automatically stays all legal proceedings against an applicant for bankruptcy protection, 31 F.S.M.C. 106, Perdus I. Ehsa and Timakyo I. Ehsa a/k/a Timakio I. Ehsa are the only judgment-debtors left in this case against whom the bank can pursue collection efforts.

^[3] Although the court must first look to FSM sources of law, the court may look to U.S. sources for guidance in interpreting the Model Rules of Professional Conduct when FSM case law does not provide a complete answer. See, e.g., In re Extradition of Jano, 6 FSM Intrm. 26, 27 n.1 (App. 1993).

^[4] Even so, once the matters are shown to be substantially related, the former client "is entitled to a conclusive presumption that confidences and secrets were imparted to the former attorney." NCNB Texas Nat’l Bank v. Coker, 765 S.W.2d 398, 400 (Tex. 1989).