Cody v. Cody
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Cody v. Cody (2005-171); 179 Vt. 90; 889 A.2d 733
2005 VT 116
[Filed 07-Oct-2005]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
2005 VT 116
No. 2005-171
Robert and Janice Cody and Supreme Court
Cody Chevrolet, Inc.
Original Jurisdiction
v.
William P. Cody June Term, 2005
Matthew I. Katz, J.
Robert B. Hemley and Andrew D. Manitsky of Gravel and Shea, Burlington, for
Petitioners.
Michael L. Burak and W. Scott Fewell of Burak Anderson & Melloni, PLC,
Burlington, for Respondents.
PRESENT: Reiber, C.J., Dooley and Skoglund, JJ., and
Crawford, Supr. J., Specially Assigned
¶ 1. REIBER, C.J. In this extraordinary relief action, we
consider whether the trial court erred in granting plaintiff William Cody's
motion to disqualify Gravel & Shea from representing defendants Robert
Cody, Janice Cody, and Cody Chevrolet, Inc. in a lawsuit that he filed
against them. The trial court granted the motion after concluding that
William had an objectively reasonable belief that Gravel & Shea had
represented him personally while he worked at Cody Chevrolet. The court
presumed that William had divulged confidential information to Gravel &
Shea in the course of such representation, and it therefore found a
conflict of interest in Gravel & Shea's continued representation of
defendants. Defendants argue that the trial court abused its discretion in
granting the motion because it ignored key facts, and it failed to hold an
evidentiary hearing to resolve disputes of material fact. We agree, and
therefore vacate the court's decision. Within thirty days of the date of
this Court's order, the trial court must hold an evidentiary hearing on the
motion and make findings of fact in deciding whether the motion should be
granted.
¶ 2. We begin with the events that gave rise to this action.
William sued defendants in September 2004, alleging in part that his
parents, Robert and Janice Cody, had reneged on a promise to give him
control of Cody Chevrolet after their deaths. In December 2004, William
filed a motion to disqualify Gravel & Shea from representing defendants.
William stated that he considered Gravel & Shea to have been his personal
attorneys since at least 1994, and because he was a former client, the firm
was ethically prohibited from taking a position adverse to his interests.
Defendants opposed the motion, asserting that Gravel & Shea had never
represented William. The trial court granted the motion in April 2004,
without holding a hearing, after finding that no material dispute of fact
existed that would require the taking of testimony.
¶ 3. In reaching its conclusion, the court relied on the following
facts, which it derived from affidavits provided by William and attorneys
Charles Shea and William Post. Gravel & Shea began representing parents in
1985 primarily for estate planning purposes. The firm also represented
Cody Chevrolet at times, although the scope and duration of the corporate
representation was unclear from the record. In 1985, Gravel & Shea drafted
a stock purchase agreement for parents to allow William and his brother
Robert, Jr. to obtain ownership and control of Cody Chevrolet before or
upon parents' deaths. Under the agreement, parents could make gifts of
stock to brothers, and brothers would be required to transfer funds to
parents' estate upon parents' death.
¶ 4. Robert, Sr. later sought to begin gifting stock, and on
attorney Shea's advice, the gifting of stock was conditioned on certain
stock transfer agreements between Cody Chevrolet and brothers. Shea
drafted the agreements, which William and Robert, Jr. signed in 1994.
Shortly thereafter, Robert, Jr. was terminated from the corporation. He
signed amendments to the 1985 and 1994 agreements to reflect his changed
status. William, who was general manager of the corporation at the time,
signed the amendments on behalf of Cody Chevrolet. Robert, Sr. decided not
to have another person assume Robert, Jr.'s role under the 1985 agreement.
¶ 5. William later became concerned about his rights under the 1985
agreement, fearing that several family members were opposed to his
acquisition of controlling ownership of the corporation. In May 1996,
William contacted attorney Shea and requested a meeting. At the meeting,
which was billed to the corporation, William asked Shea about the status of
stock gifts from his parents. William averred that he and Shea discussed
the various stock purchase agreements in some detail. He stated that,
although he did not quite understand Shea's explanation, Shea told him that
it would be okay, and that there was nothing else that William needed to do
to protect his interests. According to William, Shea advised him that if
Robert, Jr. ever returned to the corporation, Shea would make sure that
documents were drawn up to protect William and the corporation. William
stated that he was comforted by Shea's advice and felt no need to seek
another attorney to protect his interests.
¶ 6. Shea acknowledged that the meeting occurred but disagreed
with William's side of the story. Shea asserted that while he might have
informed William what the stock purchase agreement provided, he would not
have informed William that there was "nothing else he needed to do to
protect his interests." Shea stated that he would not have reviewed the
documents from William's point of view because he was not representing
William and he was not retained to protect his interests.
¶ 7. The following year, according to William, Robert Jr. was
re-employed by Cody Chevrolet, and William again became concerned about his
future ownership rights. William contacted attorney Post, and Post
reassured him that he did not need to do anything to protect his interests.
An agreement was later reached whereby William would receive fifty-five
percent of the stock up front and Robert, Jr. would receive forty-five
percent over time. Attorney Post was to handle the arrangements, including
the transfer of stock. Later, after a dispute with Robert, Jr. over the
nature of their respective rights, William claimed that he contacted
attorney Post again to inquire about his rights. He alleged that Post had
reassured him that with fifty-five percent of the corporation's stock, he
would control the corporation's affairs.
¶ 8. In his affidavit, Post disagreed with William's story. Post
acknowledged having several brief conversations with William regarding
various aspects of stock transfers proposed by parents. He stated,
however, that these conversations had been in the nature of imparting
specific information to William regarding the status of the transfers and
they did not involve administering legal advice. Post also stated that on
several occasions he had informed William, and William had acknowledged,
that parents were the firm's clients, and therefore Post could not get
specific with William regarding anything that parents were doing.
¶ 9. William then contacted another attorney (not affiliated with
Gravel & Shea), who at the time regularly represented the corporation. He
inquired about the implications of owning fifty-five percent of the
corporation stock. The attorney declined to advise William, and informed
him that he should seek his own attorney because he was requesting personal
legal advice. William apparently did so. The agreement regarding stock
transfers evidently fell through, giving rise to the underlying litigation.
¶ 10. Based on these contested facts, and without holding a hearing,
the court in its order considered the question of whether an
attorney-client relationship had developed between William and Gravel &
Shea. To answer this question, it analyzed whether William, a nonlawyer,
believed that Gravel & Shea represented his personal interests, and whether
that belief, in the totality of the circumstances, was objectively
reasonable. The court accepted William's impressions and found the
personal beliefs of attorneys Shea and Post irrelevant to its inquiry.
¶ 11. The court stated that Gravel & Shea's long history of
corporate and family representation had created ambiguity as to whom the
firm represented. It explained that the recurring issues for the firm
related to ownership and control of the corporation as it passed from one
generation to the next, and the representation intermingled corporate and
family issues. Within this context, the court found the 1996 meeting
between William and Shea significant. It explained that William, who was
worried about a family cabal, had asked Shea about the security of his
right to become the controlling shareholder. The court found that, at
minimum, Shea had answered the question by reading from the pertinent
documents. The court indicated that it would be naive to believe that Shea
limited his response to merely reading from the document, but stated that
it was unnecessary to draw such an obvious inference from undisputed facts.
¶ 12. The court also found Post's affidavit vague, explaining that
the affidavit did not indicate that Post had advised William that he did
not represent him or that William should retain his own attorney. The
court also concluded that the affidavit reflected William's belief that
Gravel & Shea represented the Cody family, not just parents. Finally, the
court found it noteworthy that William's conversation with Post had
occurred after the vast majority of William's other contacts with attorneys
Shea and Post.
¶ 13. The court found the ambiguity of the situation worsened by the
longstanding lack of shared interests among family members and stockholders
in the corporation. It explained that William had always wanted control of
the corporation, and that family disagreements threatened that outcome for
a protracted period and eventually prevented it. William had approached
Gravel & Shea several times about his concerns and he had never been
explicitly advised that the firm did not represent him personally. The
court reasoned that, under such circumstances, Gravel & Shea was obligated
to clarify the nature of its representation, and it failed to do so. The
court found that William had offered unrebutted evidence that he
subjectively believed that Gravel & Shea represented him personally, and it
concluded that this belief was objectively reasonable.
¶ 14. After finding that the prior representation involved the same
subject matter as the current litigation, the court presumed that William
had divulged confidential information to Gravel & Shea. It therefore found
a conflict of interest in Gravel & Shea's continued representation of
defendants, and it granted William's motion to disqualify. Defendants
filed a petition for extraordinary relief pursuant to V.R.A.P. 21, and the
Court accepted the petition in June 2005.
¶ 15. Defendants assert that the trial court erred in concluding
that William was a client of Gravel & Shea. They argue that, instead of
analyzing the totality of the circumstances, the court improperly focused
on a few facts and ignored contrary information. According to defendants,
the court should have held a hearing to assess the credibility of William's
assertions and resolve disputed questions of fact.
¶ 16. We review the trial court's decision for abuse of discretion.
Stowell v. Bennett, 169 Vt. 630, 631, 739 A.2d 1210, 1211 (1999) (mem.).
In reaching a decision on a disqualification motion, a court must be
"solicitous of a client's right freely to choose his counsel" and "mindful
of the fact that a client whose attorney is disqualified may suffer the
loss of time and money in finding new counsel, and lose the benefits of
counsel's familiarity with the case." Id. at 632, 739 A.2d at 1212
(quotations omitted); see also First Hawaiian Bank v. Russell & Volkening,
Inc., 861 F. Supp. 233, 237 (S.D.N.Y. 1994) (explaining that motions to
disqualify are disfavored, and stating that "although doubts should be
resolved in favor of disqualification, the party seeking disqualification
must carry a heavy burden, and must meet a high standard of proof before a
lawyer is disqualified") (quotation omitted); Nelson v. Green Builders,
Inc., 823 F. Supp. 1439, 1444 (E.D. Wis. 1993) (stating that motions to
disqualify counsel "should be resolved with extreme caution because they
may be used abusively as a litigation tactic"). As discussed below, we
conclude that the court abused its discretion in granting the motion to
disqualify because it ignored relevant facts and failed to hold an
evidentiary hearing to resolve material factual disputes.
¶ 17. Although the trial court did not identify a particular ethics
rule on which its decision was based, it presumably relied on Rule 1.9(a)
of the Vermont Rules of Professional Conduct. Rule 1.9(a) provides that
"[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 consents after
consultation." The rule is designed to "ensure that a lawyer does not use
confidential information acquired from a former client against that client
and to avoid even an appearance of impropriety." In re Gadbois, 173 Vt.
59, 63, 786 A.2d 393, 397 (2001).
¶ 18. We have not previously addressed when an individual becomes a
"client" for purposes of the rule. Other courts, however, have recognized
that the inquiry is fact-specific. See, e.g., Bieter Co. v. Blomquist, 132 F.R.D. 220, 224 (D. Minn. 1990) ("Disqualification questions are intensely
fact specific, and it is essential that the court approach such questions
with a keen sense of practicality as well as a precise picture of the
underlying facts.") (quotation omitted); Meyer v. Mulligan, 889 P.2d 509,
513-14 (Wyo. 1995) ("The determination of whether there is an
attorney-client relationship is one of fact and, typically, is for the
trier of fact and cannot be resolved by summary judgment."); see also
V.R.Pr.C., Scope ("Whether a client-lawyer relationship exists for any
specific purpose can depend on the circumstances and may be a question of
fact.").
¶ 19. Some courts hold that "[a]n attorney-client relationship is
formed when an attorney renders advice directly to a client who has
consulted him seeking legal counsel." Waggoner v. Snow, Becker, Kroll,
Klaris & Krauss, 991 F.2d 1501, 1505 (9th Cir. 1993) (identifying standard
employed under New York and California law). In a similar vein, the United
States Court of Appeals for the Tenth Circuit has held that to establish
the existence of an attorney-client relationship, subjecting a lawyer to
the ethical obligation of preserving confidential communications, "a party
must show that: (1) it submitted confidential information to a lawyer and
(2) it did so with the reasonable belief that the lawyer was acting as the
party's attorney." Cole v. Ruidoso Mun. Sch., 43 F.3d 1373, 1384 (10th
Cir. 1994) (citing Nelson, 823 F. Supp. at 1445); Meyer, 889 P.2d at 513
("The existence of an attorney-client relationship . . . may be implied
from the conduct of the parties, such as the giving of advice or
assistance, or such as failing to negate the relationship when the advice
or assistance is sought if the attorney is aware of the reliance on the
relationship.") (quotation omitted). It follows that the intent and
conduct of the parties are relevant considerations in determining if an
attorney-client relationship exists. See Waggoner, 991 F.2d at 1505 ("The
court may look to the intent and conduct of the parties to determine
whether the relationship was actually formed."); see also Cole, 43 F.3d at
1384 (explaining that although a court may consider alleged former client's
subjective belief, such a belief is not sufficient to establish an
attorney-client relationship; the subjective belief must be reasonable);
and compare Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311,
1319, 1319 n.14 (7th Cir. 1978) (stating that existence of professional
relationship for purposes of privileged attorney-client communications
hinges on client's belief that he is consulting a lawyer in that capacity
and his manifested intention to seek professional legal advice, and noting
that "deciding factor" is what prospective client thought when making the
disclosure, not what attorney thought).
¶ 20. Specific factors that other courts have employed in
determining whether an attorney-client relationship exists include:
1) whether a fee arrangement was entered into or a fee paid; 2)
whether a written contract or retainer agreement exists indicating
that the attorney accepted representation; 3) whether there was an
informal relationship whereby the attorney performed legal
services gratuitously; 4) whether the attorney actually
represented the individual in one aspect of the matter (e.g., at a
deposition); 5) whether the attorney excluded the individual from
some aspect of a litigation in order to protect another (or a)
client's interest; 6) whether the purported client believes that
the attorney was representing him and whether this belief is
reasonable.
First Hawaiian Bank, 861 F. Supp. at 238 (citing cases).
¶ 21. In this case, the trial court assessed the objective
reasonableness of William's asserted belief that Gravel & Shea began
representing him in 1994. While the court employed an appropriate test, it
abused its discretion in concluding that the facts necessary to resolve
this question were undisputed. The resolution of this question required
fact-finding by the court.
¶ 22. In granting the motion, the court drew unwarranted inferences
from the materials provided by Gravel & Shea and it ignored contrary facts.
For example, Post averred that he had specifically informed William, and
William had acknowledged, that the firm's clients were parents. The trial
court found this statement "vague," and concluded that Post had never
specifically informed William that William was not his client. Assuming
that the attorneys were indeed obligated to clarify who they represented,
the court unreasonably concluded that it was undisputed that Post had
failed to do so.
¶ 23. The court also characterized William's subjective belief that
Gravel & Shea represented him as "unrebutted." In so finding, the court
ignored a letter that William wrote in February 2003 stating that Gravel &
Shea had provided legal services to a number of the corporation's
shareholders other than himself. Moreover, while the court concluded that
William had an objectively reasonable belief that Gravel & Shea had
represented him, it failed to make any findings as to when such
representation began or what it entailed. The court similarly failed to
identify any specific legal advice that was requested or provided by
attorneys Shea and Post, nor did it identify any confidential information
that William provided to the attorneys. This omission is significant,
given the underlying purpose of the disqualification rule. See, e.g.,
Chem. Waste Mgmt., Inc. v. Sims, 875 F. Supp. 501, 503 (N.D. Ill. 1995)
(recognizing that fundamental principle in lawyer-client relationship is
that lawyer will maintain confidentiality of information relating to
representation, and courts must safeguard sacrosanct privacy of
attorney-client relationship so as to maintain public confidence in legal
profession and protect integrity of judicial proceeding). As the Sims
court explained, disqualification of counsel is only one of several avenues
available to a court in its exercise of this duty, and it "is a drastic
measure which courts should hesitate to impose except when absolutely
necessary." Id. (quotation omitted).
¶ 24. In this case, William claimed that Post and Shea had
"reassured him" that his rights were protected. Shea and Post averred
that, at most, they informed William what the stock purchase agreements
provided, and apprised him of the status of stock transfers. Accepting the
assertions by Shea and Post, the attorneys' actions could be considered
consistent with their representation of parents rather than acts that
created an implied attorney-client relationship with William. See M.J.
Woods, Inc. v. Conopco, Inc., 271 F. Supp. 2d 576, 585 (S.D.N.Y. 2003) ("The
simple act of an attorney giving advice to an individual does not
automatically create an attorney-client relationship."). Additionally,
while the court found that confusion and ambiguity had resulted from Gravel
& Shea's longstanding representation of parents and the corporation, its
longstanding representation could also be seen as evidence that William, an
experienced businessperson, held an unreasonable belief that Gravel & Shea
represented him personally. In any event, it is plain from the parties'
affidavits that the facts necessary to resolve the question of whether an
attorney-client relationship existed were in dispute, and that an
evidentiary hearing was required. The trial court therefore abused its
discretion in granting the motion.
¶ 25. Because we conclude that the undisputed facts do not show that
an attorney-client relationship existed between William and Gravel & Shea,
we do not address whether the trial court erred in presuming that William
divulged confidential information to the attorneys.
The trial court's order disqualifying Gravel & Shea from representing
defendants is vacated, and the court is ordered to hold an evidentiary
hearing on the motion within thirty days of the date of this order to
resolve disputed questions of fact.
FOR THE COURT:
_______________________________________
Chief Justice
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