Hasco, Inc. v. Roche

FIFTH DIVISION
September 11, 1998



No. 1-97-0837

HASCO, INC., a West Virginia Corporation, )
and HAROLD A. SNEDDON, )
)
Plaintiffs-Appellees, ) Appeal from
) the Circuit Court
v. ) of Cook County.
)
MICHAEL B. ROCHE, L. ANDREW BREHM, and )
SCHUYLER, ROCHE AND ZWIRNER, )
)
Defendants-Appellants ) No. 96-CH-11982
)
(Arauca Trading Limited Partnership, an )
Illinois Limited Partnership; Arauca )
General, Inc., an Illinois Corporation; )
Stephen G. Macklem; Henry Gosiene; Brent ) Honorable
Harrison; New Allegheny, Inc.; First Options ) Michael B. Getty,
of Chicago, Inc.; and National Association ) Judge Presiding.
of Securities Dealers, Inc., )
)
Defendants). )

JUSTICE THEIS delivered the opinion of the court:

Appellants, Michael B. Roche, L. Andrew Brehm and Schuyler, Roche
& Zwirner (SRZ) (collectively the Schuyler parties), appeal from the
circuit court's permanent injunction order disqualifying SRZ from
representing certain clients in an arbitration proceeding before the
National Association of Securities Dealers, Inc. (NASD). The clients,
Arauca Trading Limited Partnership (ATLP), Arauca General, Inc. (AGI),
Stephen G. Macklem and Dr. Henry Gosiene (collectively the Arauca
parties), initially were parties to the appeal but voluntarily
withdrew on July 11, 1997.[fn1] Appellees, Hasco, Inc., and Harold
A. Sneddon (Hasco/Sneddon),[fn2] filed a motion to dismiss the appeal
based on mootness and appellants' alleged lack of standing. First
Options of Chicago, Inc. (FOC), filed a motion in support of the
appellees' motion to dismiss the appeal. Although named as a
defendant in the underlying suit, NASD filed no brief in this appeal.
For the reasons that follow, we affirm the order of the circuit court.
To provide context for this appeal from the circuit court's
permanent injunction order disqualifying counsel, we outline the four
distinct and underlying disputes between the parties: (1) the initial
"FOC Dispute"; (2) the later FOC "Settlement Allocation Dispute"; (3)
the related "Settlement Amendment Dispute"; and finally (4) the
"Disqualification Dispute."
The FOC Dispute
In August 1994, ATLP, an Illinois limited partnership engaged in
trading equities and options on the Chicago Board Options Exchange,
Inc. (CBOE), and AGI, an Illinois corporation and the sole general
partner of ATLP, retained the law firm of Schuyler, Roche & Zwirner to
represent them in a dispute with ATLP's clearing broker, FOC. SRZ
represented ATLP, AGI, and Macklem in a series of actions against FOC
including an arbitration before the CBOE, First Options Chicago, Inc.
v. Arauca Trading Limited Partnership, Arauca General, Inc., and
Stephen G. Macklem, case No. 94-M-08; an arbitration before the NASD,
Arauca Trading Limited Partnership and Stephen G. Macklem v. First
Options of Chicago, Inc., et al., case No. 94-03861; and a civil
action in the chancery division of the circuit court of Cook County to
determine the appropriate situs of the arbitration, First Options of
Chicago, Inc. v. Arauca Trading Limited Partnership, Arauca General,
Inc., and Stephen G. Macklem, case No. 94-CH-8402, aff'd, No. 1-95-
0170 (1996) (unpublished summary order under Supreme Court Rule 23).
The parties do not dispute that during these initial maneuvers, Harold
A. Sneddon and Macklem were acting as agents for ATLP and AGI.
In late 1994, the subordinated lenders to Arauca,[fn3] namely,
Macklem, Gosiene, Harrison, Hasco, Inc., and New Allegheny, Inc.,
filed a civil action in the circuit court of Kanawha County, West
Virginia, against FOC. New Allegheny, Inc., Hasco, Inc., Dr. Henry
Gosiene, Dr. Brent Harrison and Stephen G. Macklem v. First Options of
Chicago, Inc., case No. 94-C-2212. Pursuant to a letter agreement
dated November 23, 1994 (retention letter), the subordinated lenders
agreed to retain SRZ and the law firm of Campbell, Woods, Bagley,
Emerson, McNear & Herndon (Campbell Woods) to represent the
subordinated lenders in that suit. The retention letter included a
paragraph regarding waiver of conflict of interest "associated with
the representation by SRZ of Arauca and the representation of Clients
by SRZ with respect to their claims against FOC."
In June 1995, the Arauca parties began negotiations with FOC in
an attempt to settle the underlying dispute as well as the various
outstanding litigations. Sneddon, Macklem, an accountant, two
attorneys from Campbell Woods, and Michael Roche from SRZ all traveled
to New York for the negotiations. Sneddon was one of the chief
negotiators for the Arauca parties. Although Roche did not
participate in the actual settlement negotiations with FOC, he did
participate in discussions regarding allocation of the settlement
proceeds.
Substantial agreement was reached on June 14, but a written
settlement and release agreement (FOC Settlement Agreement) was not
executed until August 11, 1995. The FOC Settlement Agreement required
FOC to pay a specified settlement amount to ATLP and set forth the
terms of the clearing relationship between ATLP and FOC. FOC issued a
check for the specified amount payable to "ARAUCA TRADING LIMITED
PARTNERSHIP AND SCHUYLER, ROCHE AND ZWIRNER C/O SCHUYLER, ROCHE AND
ZWIRNER."
The FOC Settlement Allocation Dispute
On August 17, 1995, SRZ wired the settlement proceeds to ATLP's
West Virginia bank account. A dispute arose between Hasco, Inc., and
the remaining Arauca parties regarding allocation of the FOC
settlement funds and, specifically, payment of the attorney fees.
Attempts to settle the dispute failed. In February 1996, Hasco filed
a civil action in West Virginia to recover its loan to Arauca, Hasco,
Inc., et al. v. Arauca Trading Limited Partnership, et al., No. 96-C-
342.
The Settlement Amendment Dispute
In the meantime, ATLP sought to resume its trading activities
with FOC. In early 1996, the Arauca parties and FOC agreed to an
amendment to the FOC Settlement Agreement concerning the financial
structure of the settlement. FOC believed that the Securities
Exchange Act of 1934 (15 U.S.C. 78g, 78h (1994)) and Regulation T
promulgated thereunder required FOC to obtain signatures from all of
the subordinated lenders. Because Hasco/Sneddon refused to sign the
amendment as requested by FOC, FOC refused to resume clearing trades
for ATLP.
On July 3, 1996, invoking paragraph 24 of the FOC Settlement
Agreement, First Options filed a statement of claim with the NASD
pursuant to the NASD Code of Arbitration Procedure to determine its
rights and liabilities under the FOC Settlement Agreement, First
Options of Chicago, Inc. v. Arauca Trading Limited Partnership, Arauca
General, Inc., Stephen G. Macklem, Dr. Henry Gosiene, Dr. Brent
Harrison, New Allegheny, Inc. and Hasco, Inc., case No. 96-02855
(NASD arbitration). SRZ entered an appearance on behalf of the Arauca
parties, filed an answer to FOC's arbitration claim, and filed a
cross-claim against Hasco and a third-party claim against Sneddon.
The NASD Disqualification Dispute
In August 1996, Hasco/Sneddon filed a statement for declaratory
relief in the NASD arbitration, asking that SRZ be disqualified from
representing the Arauca parties in the NASD arbitration against
Hasco/Sneddon. The NASD arbitration panel declined to rule on the
issue and instructed Hasco/Sneddon to seek relief elsewhere.
Hasco/Sneddon then filed motions to disqualify SRZ in other lawsuits
pending against the Arauca parties, but the NASD panel refused to stay
the arbitration proceedings, pending resolution of those
disqualification motions.
On November 1, 1996, in the circuit court of Cook County,
Hasco/Sneddon filed a motion for temporary restraining order, which
the court granted, enjoining the NASD arbitration pending a
preliminary injunction hearing. The Arauca and Schuyler parties filed
a petition in the appellate court for review and vacatur of the
circuit court's temporary restraining order, which the appellate court
denied.
Also on November 1, Hasco/Sneddon filed a verified complaint for
declaratory judgment and preliminary and permanent injunctive relief
seeking to disqualify SRZ from representing the Arauca parties in the
NASD arbitration and enjoining the Arauca parties from proceeding in
the NASD arbitration as long as SRZ remained their counsel. Hasco,
Inc., and Harold A. Sneddon v. Arauca Trading Limited Partnership,
Arauca General, Inc., Stephen A Macklem, Henry Gosiene, Brent
Harrison, New Allegheny, Inc., First Options Chicago, Inc., Schuyler,
Roche and Zwirner, Michael R. Roche and L. Andrew Brehm, and National
Association of Securities Dealers, Inc., case No. 96-CH-11982. From
the record, no motion was filed to strike the Schuyler parties'
designation as party defendants. Later, the circuit court conducted
an evidentiary hearing on the merits for permanent injunctive relief.
On January 29, 1997, after three days of testimony and exhibits,
the circuit court ordered SRZ disqualified from representing the
Arauca parties in the NASD arbitration and permanently enjoined the
Arauca parties from proceeding in the NASD arbitration as long as they
were represented by SRZ. On February 27, 1997, the Arauca (ATLP, AGI,
Macklem, and Gosiene) and Schuyler (SRZ, Roche, and Brehm) parties
filed a notice of appeal from the circuit court's January 29, 1997,
permanent injunction order pursuant to Supreme Court Rule 303. 134
Ill. 2d R. 303. Appellees filed a motion to dismiss the appeal and
renewed that motion after the Arauca parties voluntarily withdrew from
the appeal on July 11, 1997.
As a threshold matter, we consider this court's jurisdiction over
the instant appeal. Hwang v. Tyler, 253 Ill. App. 3d 43, 45, 625 N.E.2d 243, 245 (1993). Historically, an order disqualifying counsel
was neither an immediately appealable interlocutory order nor a final
and appealable order until a final judgment had been entered on the
underlying merits of the case. In re Estate of French, 166 Ill. 2d 95, 651 N.E.2d 1125 (1995), reaffirming Almon v. American Carloading
Corp., 380 Ill. 2d 524, 44 N.E.2d 592 (1942). In 1996, however, the
Illinois Supreme Court amended Supreme Court Rule 306 to allow for
permissive appeals of orders granting motions to disqualify counsel.
166 Ill. 2d R. 306(a)(7) (amended eff. March 26, 1996). Rule
306(a)(7) recognizes that disqualification of counsel orders, while
collateral to the merits of a given proceeding, nevertheless
implicates the right of a litigant to counsel of his or her own choice
(In re Estate of French, 166 Ill. 2d at 105, 651 N.E.2d at 1130-31
(Freeman, J., dissenting)), and the concomitant interest of a prior
client in preventing the attorney's subsequent and adverse
representation of another. Schwartz v. Cortelloni, 177 Ill. 2d 166,
173, 685 N.E.2d 871, 875 (1997); Skokie Gold Standard Liquors, Inc. v.
Joseph E. Seagram & Sons, Inc., 116 Ill. App. 3d 1043, 1058, 452 N.E.2d 804, 814 (1983). Thus, Rule 306(a)(7) allows for permissive
interlocutory appeal of disqualification orders which typically arise
during pending court proceedings.
In this case, however, the disqualification issue was brought
before the circuit court in a proceeding separate from the underlying
NASD arbitration. From the record, there seemed to be no disagreement
in having the circuit court decide the disqualification issue, which
was collateral to the arbitration. See Roubik v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 181 Ill. 2d 373, 382, 692 N.E.2d 1167,
1171-72 (1998). The verified complaint for declaratory and injunctive
relief named the Arauca parties, FOC, SRZ, Roche, Brehm, and the NASD
as defendants. Count I sought a declaratory judgment: (a) declaring
SRZ unable to act as counsel for Arauca or any other party adverse to
Hasco/Sneddon arising out of the FOC dispute and specifically in the
matter before the NASD; (b) enjoining the Arauca parties and SRZ from
proceeding in the NASD arbitration so long as SRZ remained counsel for
Arauca; and (c) disqualifying SRZ from acting as counsel in the NASD
proceeding. Count II sought to enjoin all defendants from proceeding
in the NASD arbitration for so long as SRZ remained counsel for the
Arauca parties or any other party adverse to Hasco/Sneddon.
After a full evidentiary hearing on the merits and briefing by
the parties, the circuit court entered a written memorandum of opinion
which held:
"Accordingly, the law firm of Schuyler, Roche
& Zwirner is disqualified from representing the
Arauca defendants in the NASD proceeding, and the
Arauca defendants are permanently enjoined from
proceeding in the matter before the NASD so long as
they are represented by the law firm of Schuyler,
Roche & Zwirner."
Noting the procedural distinction of this appeal as compared to other
disqualification orders, we confirm that the Arauca and Schuyler
parties filed a timely notice of appeal from the final permanent
injunction order, pursuant to Supreme Court Rule 303. 134 Ill. 2d R.
303; American Institute of Real Estate Appraisers of the National
Ass'n of Realtors v. National Real Estate Ass'n, 191 Ill. App. 3d 867,
869, 548 N.E.2d 379, 381 (1989). Thus, the circuit court's permanent
injunction order constitutes a final and appealable order over which
we have jurisdiction.
The next issue for our consideration is whether the Schuyler
parties have standing to pursue this appeal. Hasco/Sneddon argues
that, once the Arauca parties withdrew from the appeal, the Schuyler
parties no longer retained a sufficiently appealable interest in the
case. Given the unique facts of this case, we disagree. While the
"right to representation" runs to the litigant (Almon v. American
Carloading Corp., 380 Ill. 524, 530, 44 N.E.2d 592, 595 (1942);
Transamerica Insurance Co. v. Vassilos, 181 Ill. App. 3d 939, 941, 537 N.E.2d 848, 850 (1989) (citing Almon); French, 166 Ill. 2d at 105-06,
651 N.E.2d at 1130-31 (Freeman, J., dissenting)), the Schuyler
parties' designation as "parties of record" in the injunctive
proceeding confers upon them an interest in the potentially binding
effect of the findings of the circuit court as set forth in the
memorandum of opinion. 155 Ill. 2d R. 301; Vece v. De Biase, 31 Ill. 2d 542, 544-45, 202 N.E.2d 482, 483 (1964). In finding that these
attorneys have standing to pursue this appeal, however, we stress the
unique procedural stance of this case: (1) Hasco/Sneddon's filing of
a verified complaint for declaratory and injunctive relief in the
circuit court; (2) the Schuyler parties' designation as defendants "of
record" in that proceeding; and (3) entry by the circuit court of a
final and appealable permanent injunction order disqualifying SRZ from
representing the Arauca parties in the NASD arbitration.
Consequently, even though the Arauca parties chose to voluntarily
withdraw from the appeal, the Schuyler parties, named as defendants by
Hasco/Sneddon, retained an appealable interest in the propriety of the
circuit court's disqualification order.
As an aside, we disagree with Hasco/Sneddon's contention that the
appeal is rendered moot because of the Arauca parties' voluntary
withdrawal from the appeal and their indication through affidavits in
later court proceedings that they would not rehire SRZ to represent
them in the event of a reversal of the circuit court's
disqualification order. We believe the issue of the propriety of the
disqualification remains outstanding and, given the unique procedural
posture of the case, the Schuyler parties are entitled as "parties of
record" to appellate review of the circuit court's decision. Berlin
v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1, 8, 688 N.E.2d 106,
109 (1997). Thus, the motions to dismiss taken with the case are
denied.
We proceed to review the propriety of the circuit court's
permanent injunction order disqualifying SRZ from representing the
Arauca parties and, further, enjoining the Arauca parties from
proceeding with the NASD arbitration as long as they were represented
by SRZ. As the court's permanent injunction order granting
disqualification concerned pure questions of fact, our standard of
review is whether the court's decision is contrary to the manifest
weight of the evidence. Harper v. Missouri Pacific R.R. Co., 282 Ill.
App. 3d 19, 25, 667 N.E.2d 1382, 1386 (1996).
A party seeking permanent injunctive relief must demonstrate:
(1) a clear and ascertainable right in need of protection; (2)
irreparable harm if injunctive relief is not granted; (3) no adequate
remedy at law; and (4) success on the merits. R.L. Polk & Co. v.
Ryan, 296 Ill. App. 3d 132, 142, 694 N.E.2d 1027, 1034 (1998); see
Postma v. Jack Brown Buick, Inc., 157 Ill. 2d 391, 399, 626 N.E.2d 199, 204 (1993). The circuit court determined, and we agree, that
Hasco/Sneddon demonstrated a protectible interest in, irreparable harm
from, and an inadequate legal remedy for SRZ's potential
representation of interests adverse to Hasco/Sneddon. See Hannan v.
Watt, 147 Ill. App. 3d 456, 497 N.E.2d 1307 (1986) (also considering
disqualification in the injunction context). As to the merits,
Hasco/Sneddon was required to show that SRZ's representation of the
Arauca parties in the NASD proceeding would violate Rule 1.9 of the
Illinois Rules of Professional Conduct. 134 Ill. 2d R. 1.9.
Although without guidance by our supreme court's recent opinion
in Schwartz v. Cortelloni, 177 Ill. 2d 166, 685 N.E.2d 871 (1997), the
circuit court nevertheless conducted the proper analysis in
determining whether SRZ's representation of the Arauca parties in the
NASD proceeding would violate Rule 1.9 of the Illinois Rules of
Professional Conduct. Rule 1.9 of the Illinois Rules of Professional
Conduct provides:
"(a) A lawyer who has formerly represented a
client in a matter shall not thereafter:
(1) 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 disclosure; or
(2) use information relating to the
representation to the disadvantage of the
former client, unless:
(A) such use is permitted
by Rule 1.6; or
(B) the information has
become generally known." 134
Ill. 2d R. 1.9.
The party seeking to disqualify the attorney, the former client, has
to prove: (1) the prior attorney-client relationship; and (2) that
the matters involved in the prior representation and the attorney's
present representation of the opposing party are substantially
related. Schwartz, 177 Ill. 2d at 174, 177-78, 685 N.E.2d at 875,
877.
To determine whether the two representations are substantially
related, our supreme court has adopted the three-part inquiry
announced in LaSalle National Bank v. County of Lake, 703 F.2d 252,
255-56 (7th Cir. 1983). Thus, the trial court must determine: (1)
the scope of the former representation; (2) whether it is reasonable
to infer that the confidential information allegedly given would have
been given to a lawyer representing a client in those matters; and (3)
whether the information is relevant to the issues raised in the
litigation pending against the former client. LaSalle, 703 F.2d at
255-56; Schwartz, 177 Ill. 2d at 180, 685 N.E.2d at 878. These are
factual inquiries vested in the discretion of the circuit court.
Schwartz, 177 Ill. 2d at 178, 179, 685 N.E.2d at 878, 879.
In the evidentiary hearing before the circuit court,
Hasco/Sneddon called Michael Roche, Harold Sneddon, Andrew Brehm, and
David Barclay, general counsel of FOC, to testify. The Arauca parties
called Michael Roche, Stephen Macklem, and Andrew Brehm. Both parties
agreed that SRZ provided parallel representation to the Arauca parties
while representing the subordinated lenders, including Hasco, in the
West Virginia lawsuit. The parties disagreed, however, regarding
SRZ's later representation of Hasco and also Sneddon. Andrew Brehm
and Michael Roche testified that they considered Sneddon to be at all
times an agent of Arauca. Brehm further testified that SRZ's
representation of Hasco ended as of August 11, 1995, the date the FOC
settlement was executed and the settlement check disbursed. Roche
testified, however, that SRZ never sent a letter to Hasco/Sneddon to
confirm SRZ's withdrawal. In contrast, Sneddon testified that he
believed SRZ to represent Hasco after the settlement agreement with
FOC. Moreover, Sneddon presented David Barclay, general counsel of
FOC, who testified that FOC had no reason to believe that SRZ was not
negotiating the FOC Settlement Amendment on behalf of all the Arauca
parties.
As to representation of Sneddon personally, Roche conceded that
SRZ briefly represented Sneddon regarding a subpoena served upon
Sneddon during the CBOE arbitration. Moreover, Sneddon testified
regarding his formation of another entity, APCO limited partnership,
which was to provide an alternative trading vehicle for Sneddon while
ATLP was debilitated by the disputes. Hasco/Sneddon introduced a
complaint filed in the circuit court in which SRZ sued Sneddon for
breach of contract to recover its fees associated with the formation
of APCO. Roche acknowledged that SRZ filed suit against Sneddon
personally for breach of contract for fees associated with the
formation of APCO.
There was more than ample evidence before the circuit court to
support Hasco/Sneddon's contention that SRZ had represented both Hasco
and Sneddon, individually. We agree with the circuit court's
determination that "[w]hile SRZ originally may have represented
Sneddon only in his capacity as an agent of Arauca, the evidence is
clear that the representation expanded to include Hasco, and therefore
its `alter ego' Sneddon, as a subordinated lender" and, further, that
SRZ represented Sneddon in an individual capacity. Moreover, these
representations of Hasco and Sneddon all revolved around the FOC
dispute.
The next inquiry is "whether it is reasonable to infer that the
confidential information allegedly given would have been given to a
lawyer representing a client in those matters." Schwartz, 177 Ill. 2d
at 178, 685 N.E.2d at 877, citing LaSalle, 703 F.2d at 256). Citing a
federal decision from the second circuit, Allegaert v. Perot, 565 F.2d 246 (2d Cir. 1977), the Schuyler parties vigorously contend that SRZ's
joint representation of the Arauca parties and Hasco/Sneddon, by
definition, indicates that Hasco/Sneddon could impart no confidential
information to SRZ. We disagree.
First, the joint representations did not fully overlap. SRZ
represented Sneddon individually and the contours of SRZ's
representation of Hasco were less than precise. Moreover, joint
representation alone is not decisive of whether confidences were
imparted by Hasco/Sneddon to SRZ. The circuit court correctly found
the Allegaert decision inapplicable as it does not take into account
the duty of loyalty inherent in Rule 1.9. According to Schwartz, the
issue is whether SRZ's representation of Hasco and Sneddon invites an
inference that SRZ "necessarily obtained confidential information
[about the FOC Dispute] which would be relevant to the present
litigation." Schwartz, 177 Ill. 2d at 181, 685 N.E.2d at 878. We
think such an inference is invited.
In prior Illinois cases, either the nature or the duration of the
representations established that confidential information could not
have been imparted. For example, in Schwartz, the court found that
due to the 40-year lapse between representations and the dissimilarity
of subject matters, no confidential information could have been
imparted. Schwartz, 177 Ill. 2d at 182, 685 N.E.2d at 879. Likewise,
when the subject information of the prior representation is outdated,
the courts have found no relevant confidential information. First
National Bank v. St. Charles National Bank, 152 Ill. App. 3d 923, 932,
504 N.E.2d 1257, 1264 (1987); Hannan v. Watt, 147 Ill. App. 3d 456,
463, 497 N.E.2d 1307, 1312 (1986).
In this case, both the nature and scope of the two matters are
inextricably tied. The prior representations involved FOC on the one
side, and the Arauca parties and Hasco/Sneddon, in various capacities,
on the other side. The present dispute concerns mutations of the same
issues and parties, but realigned. See La Salle National Bank v.
Triumvera Homeowners Ass'n, 109 Ill. App. 3d 654, 665, 440 N.E.2d 1073, 1081 (1982). Roche confirmed that he held telephone
conversations with Sneddon to which no other Arauca parties were
privy. The question is not whether actual confidences were disclosed;
the question is whether such confidences could be revealed, whether
intentionally or inadvertently. La Salle, 109 Ill. App. 3d at 664,
440 N.E.2d at 1080. The circuit court correctly determined that the
nature and scope of SRZ's representation of Hasco and Sneddon were so
intertwined with the later representation of the Arauca parties to
raise the inference that SRZ necessarily was privy to confidential
information from Hasco/Sneddon regarding the FOC settlement.
Thus, the last inquiry regarding whether the confidential
information would be relevant to the present representation has also
been answered. Schwartz, 177 Ill. 2d at 178, 685 N.E.2d at 877.
Because the present matter evolved from and is actually a mutation of
the initial FOC dispute requiring the prior representation, the
initial FOC dispute is part and parcel of the NASD arbitration.
Moreover, as the circuit court noted, in the arbitration proceeding,
the Arauca parties filed a cross-claim against Hasco and a third-party
claim against Sneddon, seeking both compensatory damages and $1
million in punitive damages.
As a final matter, we agree with the circuit court's
determination that the waiver signed by Hasco, Inc., as contained in
the retention letter, constituted a limited waiver regarding conflicts
arising from SRZ's representation of the subordinated lenders in the
West Virginia lawsuit. The waiver provision of the retention letter
stated:
"6. Waiver of Conflict of Interest. Each
of Clients, as a subordinated lender to Arauca, has
a claim against Arauca arising from any default by
Arauca in repayment of the subordinated debt.
Clients have been advised by Arauca that Arauca
presently lacks sufficient resources to repay the
subordinated debt. SRZ is presently representing
Arauca in its pursuit of claims against FOC to
recover lost profits on the Syntex transaction and
for other relief. SRZ is also furnishing other
legal advice to Arauca and its general partner,
Arauca General, Inc. (`AGI'). A conflict exists
between the interests of Arauca, AGI and each of
the Clients. By executing this letter-agreement,
each of the Clients hereby consents to waive any
conflict of interest associated with the
representation by SRZ of Arauca and the
representation of Clients by SRZ with respect to
their claims against FOC. Each Client further
recognizes and acknowledges that SRZ shall have no
obligation to advise any Client with respect to any
actual or potential claim against Arauca."
Although the Schuyler parties argue that this waiver extends to the
NASD arbitration dispute, the circuit court correctly determined that
this conflict waiver was limited to SRZ's representation of the
subordinated lenders in the West Virginia lawsuit.
As testified to by Roche, the conflict waiver contained in the
executed retention letter was a recognition that, at the time the West
Virginia suit was filed against FOC, Arauca was already in default to
its subordinated lenders. Thus, while the waiver referred to claims
by the subordinated lenders "against FOC" and "against Arauca," the
waiver did not address SRZ's representation of Arauca regarding Arauca
and FOC claims against the subordinated lenders and, specifically,
Hasco, Inc. Although Roche testified that the purpose of the waiver
"was to waive all future conflicts of any nature," the circuit court
correctly found that such a broad intention was not contained in the
language of the waiver. The waiver certainly did not address SRZ's
representation of Sneddon individually or the subsequent issues raised
by the global settlement. We agree with the circuit court that the
conflict waiver was a limited one, written and understood to apply
only to the West Virginia lawsuit brought by the subordinated lenders
against FOC.
Based on the foregoing, we find that the circuit court did not
err in its determination that SRZ's representation of the Arauca
parties in the NASD arbitration proceedings would constitute a
violation of Rule 1.9 of the Illinois Rules of Professional Conduct.
134 Ill. 2d R. 1.9. The circuit court's permanent injunction order
was proper.
Affirmed.
HARTMAN and HOURIHANE, JJ., concur.
[fn1] Two other clients, Dr. Brent Harrison and New
Allegheny, Inc., did not participate in the appeal. When discussing
the facts of the underlying case, the six clients will be referred to
collectively as the "Arauca parties."
[fn2] To simplify an already complicated text, where
possible, we adopt the appellees' collective reference of
Hasco/Sneddon.
[fn3] It is unclear from the record whether the
subordinated loans were made to ATLP or AGI. There are references to
each in the record.