Brunswick Corporation

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IN THE MATIER OF BRUNSWICK CORPORATION, ET AL.

Doket 9028. InterWcutqr Orr, Feb. 1980 ORDER DENYING MOTION To DISQUALIFY COUNSEL By motion filed with the Secretary on December 26, 1979, respondents Brunswick Corporation and Mariner Corp. (hereinafter "Movants ) move that the law firms of Mori and Ota and Pettit & Martin be disqualified as counsel for Yamaha Motor Company, Ltd. in this proceeding. ' Movants contend that disqualification is required because of the actions of Ronald J. Dolan, a former Commission employee. For the reasons stated below, this motion is denied. The facts regarding this matter are set forth in Mr. Dolan affidavits of December 14, 1979 ("Dolan Affidavit I") and January 11 1980 ("Dolan Affidavit II"), the accuracy of which arc supported by the December 14, 1979 ("Ferguson Affidavit I") and January 11, 1980 Ferguson Affidavit II") affidavits of John P. Ferguson; the January , 1980, affidavit of Jun Mori; the January 9, 1980, affidavit of Henry Y. Ota; and the December 11, 1979, affidavit of Shigeru Watanabe. Prior to June 8, 1979, Mr. Dolan was an Assistant Director of the Commission s Bureau of Competition, and had served as the Commission s lead trial counsel in Dkt. 9028. Dolan Affidavit I 3. During his employment at the Commission, Mr. Dolan did not discuss with Mori and Ota either his own employment or the possibility that Pettit & Martin might serve as counsel for Yamaha. Dolan Affidavit II 16; Watanabe Affidavit 4. Mr. Dolan left the Commission s employment on June 8, 1979, and became employed by Pettit & Martin as "counsel" on July 2, 1979. In July 1979 an announcement of Mr. Dolan employment by Pettit & Martin was sent to Jun Mori of Mori and Ota. Dolan Affidavit II On September 18, 1979, Mr. Mori telephoned Mr. Dolan and arranged to meet with him. Id. at 4. Mr. Dolan and Mr. Mori dined together on September 20, 1979, and Mr. Dolan "broached the possibility of Pettit & Martin handling some of the Washington legal business for Mori and Ota s clients. Id. at '1 5. Mr. Mori stated that the only Washington 1 By motions of Jarll.1ar 8 and 21, 1980, Movant. sought a slay of the pro-dng until the Commission ruled on their disqualification motion. By orders of January 18 and 23, 1980, the Commission denied thes motioll. 2 The Commission having- founn oral arg-ment on this motion to he unnecry, Movant.' reUC!t for such argument is denied. Movant.' motion for leave to file their reply of JallUary 21 , 1980, is grnte, as is Y RlTha s motion for leave to file it. replyofJanuary22 1980. 324 Interlocutory Order anti-trust business then being handled by his firm was the Brunsick matter, in which Mori and Ota alone had represented Yamaha throughout the initial trial and appeal. Mr. Mori indicated his feeling that because of Mr. Dolan s previous involvement in the proceeding at the Commission, Mr. Dolan could not participate in any such representation. Mr. Dolan responded that Pettit & Martin could handle the matter so long as he personal!1y was screened, and he suggested that John R. Ferguson, a Pettit & Martin partner, be asked to undertake the representation. Mr. Dolan described the nature of Mr. Ferguson qualifications. This was the first discussion between Mr. Mori and Mr. Dolan regarding the possible representation of Yamaha by Pettit & Martin. ld.

At the time, the Commission had under consideration complaint counsel's appeal from the administrative law judge s dismissal of the complaint in this proceeding. At their September 20, 1979, meeting, Mr. Mori asked Mr. Dolan if he knew if the Commission would soon issue its decision, and Mr. Dolan replied that he did not know, but would inform Mr. Mori if he learned anything. Id. On October 3, 1979, Mr. Mori ca!1ed Mr. Dolan to ask again if he knew whether publication the Commission s decision was imminent. Mr. Dolan advised Mr. Mari that "rumor had it that the Commission would soon reverse the Administrative Law Judge s Initial Decision, but that this rumor had surfaced in the past and (had) proven to be unfounded. Id at The Commission s opinion and order remanding this matter to the administrative law judge for the taking of additional evidence was issued on November 9, 1979. Mr. Dolan learned of the Commission decision, and obtained a copy of it, on November 16, 1979. Id. at That same day, Mr. Dolan telephoned Mr. Ota of Mori and Ota to te!1 him of the Commission s decision. Id. at 8. Mr. Ota said he had already learned of the Commission s decision from the administrative law judge s clerk, but "indicated a continuing interest in retaining Pettit & Martin to represent Yamaha. Id. Later that evening, Mr. Dolan informed Mr. Ferguson of his discussion with Mr. Ota, and Mr. Dolan subsequently sent a copy of Mr. Ferguson s resume to Mori and Ota. ld.

Since November 16, 1979, Mr. Dolan has not spoken to anyone at Mori and Ota about this matter. Id. Mr. Dolan s subsequent discussions with Pettt & Martin personnel about this matter have been limited to discussions to enable Pettit & Martin to evaluate the propriety of its participation in this matter. Id. at 'I 14. Since he left the Commission, Mr. Dolan has had no discussion with anyone at either law firm about the pre-complaint investigation in Brunswik the facts or , Interlocutory Order 95 F. theories involved in the litigation, trial tactics, or Commission procedures. Id. at 'I 14; Ferguson Affidavit II 6; Mori Affidavit Based upon a telephone conversation between Mr. Ferguson and Mr. Ota on November 20, 1979, Pettit & Martin agreed to represent Yamaha in this proceeding. Ferguson Affidavit II 'I 4. Yamaha retained Pettit & Martin with full knowledge that Mr. Dolan would not participate. Watanabe Affidavit 5. On November 21, 1979, Mr. Ferguson circulated a memorandum to all Washington, D.C. office personnel of Pettit & Martin' disclosing Pettit & Martin s representation of Yamaha and the fact that Mr. Dolan could not participate. This memorandum directed that: (i) no documents concerning this matter be shown to Mr. Dolan; (ii) no discussions concerning this matter include Mr. Dolan; and (iii) Mr. Dolan not communicate with representatives of Yamaha.

These procedures have been followed. Ferguson Affidavit I 6. Mr. Dolan will receive no added compensation from Pettit & Martin as result of its representation of Yamaha, and if Mr. Dolan becomes a partner during the course of Pettit & Martin s representation of Yamaha a compensation formula wil be devised so as to assure that Mr. Dolan does not share in the fees attributable to such representation." Ferguson Affidavit In 4-5.

We turn first to the broadest issue presented, whether general ethical standards require that the personal disqualification of Mr. Dolan be imputed to his law firm, under the reasoning of Armstrong McAlpin 606 F.2d 28 (2d Cir. 1979) reh. en bane granted (No. 79-7042 Dec. 12, 1979), despite the procedures announced in Mr. Ferguson memorandum of November 21, 1979. We hold that Pettit & Martin enforcement of screening measures that effectively isolate Mr. Dolan from this proceeding permits the law firm to participate. We thus respectfully disagree with the reasoning in Armtrong. The facts and the panel' s holding in Armstrong may be summarized as follows: An attorney at the Securities and Exchange Commission left that agency to join a law firm. While at the SEC, he had been personally involved in an enforcement action against an individual. Later his law firm was engaged to bring a private action against that same individual. The former SEC attorney, who was concededly disqualified from the matter, was screened from any participation in 3 No employe of Pettit & Marin ouwirle the Washingtn office is involved in the N!prentation of Yamaha. rgu80n Affidavit II or 324 Interlocutory Order the firm s representation, in accordance with the procedures set forth in Formal Opinion 342 of the American Bar Association.4 The district court, relying upon the efficacy of the screening, denied a motion to disqualify the firm.

A panel of the court of appeals for the Second Circuit reversed. Finding a risk that the conduct of government investigation and litigation may be influenced by future employment opportunities so long as the attorney has a direct, active, and personal involvement such matters, the panel held that the attorney's disqualification alone was insufficient to forestall that harm, or its appearance. Rather, the individual's disqualification should be imputed to the attorney s firm as well. Screening procedures were deemed by the panel to be unsatisfactory because, in the panel's view, they do not create the appearance " the public, that there wil be no possibility of financial reward" for shaping government action to enhance private employment. 606 F. at 34.

In so concluding, the panel focused on two factors: the possibility that the screened-out lawyer may nevertheless receive some sort of compensatory bonus or indirect share in the firm s earnings from the matter; and the belief that a firm s internal screening procedures are unlikely to be known "to casual observers" or to be persuasive to "the more informed. Id. Although the panel asserted that it was not attempting to formulate a general rule for imputed disqualification of a firm (id. at 33), it nevertheless declared that its decision did not turn on the particular facts, but on its rejection of the view that "the principle of using screening procedures to enforce DR 9-10I(B) is applicable to this type of case. . . . Id. at 34 n.7. Indeed, Movants would have us apply the rationale of the panel's decision in this proceeding. However, the Commission declines to accept this rationale believing it to be incorrect in its underlying assumptions, and contrary to sound public policy.

The panel's rejection of screening procedures rests upon a chain of assumptions. Law firms adopting screening, the panel reasoned, may nevertheless provide some sort of compensation to screened attorneys attributable to the matter in which they are disqualified. Government attorneys, it was said, wil be aware of this prospective benefit, and . Opinion 342, issued On November 25, 1975, and appeng at 62 A.B. J. 517 (1976), clarifies and ameliorate the effects of Disciplinary Rules 5 -101(D) and 9- 101(8). DR 9--101(B) bars an individual lawyer from acpting employment "in a matter in which he had substantial TCpoIlibility while he was a public employee; and DR5-101(D) prohibits a iaw Cirm Crom accepting employment in a matter if any !awycrCirat theis disqualified from that matter. Opinion 342 stat. that the disqualified lawyer s fir nee not be disqualified if it has adopted screning mcasur sufficicnt to "effectively isolate the individual lawyer fmm participating in the paicular matter and sharnK in the fees attributable to it " so long as these measure ar satisfactory to thcgovernment agncy conceed, and so long as there is no appearance of significant impropriety affecting the interest. of the government." The Cinal propol of the District oC Columbia Bar, now pending before the D.C. Court of Appeals, likewise provid€. for a screning mechanism. Propo DR 9-102(BHD); se 3 Ditmt La:W!JII No. , at 56 (April/May 1979). . . .

Interlocutory Order 95 F. thus will continue to perceive an incentive that may influence their official actions even when they know they will be personally disqualified and screened.

The Department of Justice, in its brief amicus cure on rehearing in Armstrong, has argued that these assumptions about lawyers' behavior were unsupported in the record of that case. We find them to be unsupported here. Screening procedures must, under ABA Opinion 34 bar direct or indirect compensation to a disqualified attorney. In view of this, the probability that government lawyers wil nevertheless anticipate some post-employment reward for their official actions is so low as to be without significance. Moreover, our experience does not support the panel's apparent assumption that a significant number of private firms or government attorneys wil seek to evade the strictures of Disciplinary Rule 9-101(B) and Opinion 342. As the Justice Department said in its amicus brief, at 43: Government lawyers engaged in investigation and litigation know that their future employment prospects in private practice depend on other factors. These are chiefly their reputation for professional competence in their chosen specialty, their demonstrate vigor in exercising that competence solely in the public interest, and complete personal integrty. The possibility of either direct or indirect post-mployment compensation for official action is thus to speculative and unsupportd to outweigh the adverse impact that a total rejection r of) screening would have on the recruitment of government attorneys.

We do not share the panel's conclusion that the entire firm must be disqualified because of the "appearance" that internal screening procedures are inadequate. The standard for judging the appearance of impropriety is not governed by what "casual observers" might perceive, or by what may be unpersuasive to a skeptic. It is measured by the perception of a reasonable person. On-the-record public disclosure, as here, that a former government attorney has disqualified himself and has been screened from a firm s participation in a matter is amply sufficient to meet the test of reasonableness. Absent a showing of unethical conduct that would taint the underlying proceeding, " appearance of impropriety is simply too slender a reed on which to rest a disqualification order except in the rarest cases. Board of Education v. Nyquist 590 F.2d 1241, 1247 (2d Cir. 1979). See also Woos Covington County Bank 537 F.2d 904, 813 (5th Cir. 1976); Kesselhaut United States 555 F.2d 791, 793 (Ct. Claims 1977). The panel's holding is, in our view, inconsistent with the conflct-ofinterest restrictions enacted by Congress in amending 18 D. C. 207. This statute specifically covers a former government employee s prior 5 The record before U shows that Mr. Dolan is bar from such compensation. Ferguson Affidavit I "1'14-. , 324 Interlocutory Order involvement, both directly and in a supervisory capacity. Congress declined, however, to extend thestatute g restrjctions, in either cae the former government employee s eurrent associates. In framing the scope of these restrictions, Congress explicitly considered their impact on important policy goals . such as th governme)1t' s recruitment capabilities. S. Rep. No. 95-170, 95th Cong., 1st Sess. 32 (1977); R. Rep. No. 9 I15, 96th COng., 1st Sess. 3- (1979);125 Congo Rec. R3391-3403 (daily ed., May 16;1979); m. at R3689--698 (dailyed., May 24, 1979).

Finally, we. note thatour rejection of any general prophylactic ban on screening devices iSCOllsistentwith other recent expressions on . this subject. On December 14, 1979, the Administrative Conference other Uriited States adopted Recommendation 79--7 Appropriate Restrictions on Participation by a Former Agency Official . in Matters Involving the Agency. " This recommendation contains a section directly addressed to the Armtron issue: (T)he . disqualification oia fonner employee toaet ina matter ordinarly should not extend to his firm . or. organization. Instead the foimer . employee should be barred from both personal partjcipationinthe niatter and reivingeompensation for anyone else work done on it. An affidavit that the formeremployeeis thus screeried" should be submitted by a partnerin the firm notas a basis for government approval, but to ature that the firm has in fact I'ecgniwdthe issue and taken steps to deal with it. Aeourt should retain its authority to decide that the circunistancein a paricularcirequire a. broader disqualification. In considering whether to do so, it should give special weight to the agency s view as to whether the "screening" arangement affords adequate protection to itsiriteri:st. 45 Fed. Reg. 2310 (Jan. 11 1980): In addition, the Federal Legal Council, a forum of fifteen agency general counsels . established by Executive Order, adopted a resolution declaring that:. "(TJhe public interest, the legal profession, and the variolls Federal legal offices are best served by scrupulous adherence to existing laws . . and the existing ethical guidelines .ofthe American Bar Association (particularly Formal Opinion 34 of the B.A.'s Committee OIl Professional Ethics, which sets forth an approved screening procedure to be applied in situations such as found in the Armstrong Cae). ,. ."

Such support for the use of screening mechanisms reflects not only a considered belief in their efficacy but also a proper regard for the detrimental consequences that the Armstrong principle would produce. The Commission believes that a general rule of imputed disqualification without tbe possibility of screening would seriously iIripair its ability to attract. qualified attorneys to its service. As the Senate Committee on Government Operations observed . when it endorsed the ABA screening mechanism:

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0' , cO"",, ,," od ,,c,,. 0"''' ' "'cO cO'"'" .. P' \). 1\o",e \1'g \1' \,ett\t t\o ers01',,\\;I "" s t\ce \,\'le "\1tnot\'b,, ,'" ;i. ,OJ , ..W;. ""0"'. ", ,,. ,.e "d"'" ...,,c . 0 . '0" 'O' \1\e, ,,e o':: o"".,.e' A'''. d''' f\\1\V; "ej ",." .ou"'. eoftJ C01ff(\!;rv90 '''t .. ..at\d\.'hci" ..&.ucc&\"F .. \11\det' .. if\ uot\, ._.._, 324 Interlocutory Order representation of Yamaha, and Pettit & Martin has established procedures to ensure that he will not do so.8 Thus, the issue raised by Movants is not Mr. Dolan s current participation in the proceeding, but that of Pettit & Martin and Mori and Ota. These firms are not literally disqualified by Rule 4.I(b)(1), the terms of which expressly apply only to the activities of former employees themselves. Movants argue, however, that the law firms have violated Rule 4. 1(b)(4), which states that if a former employee is disqualified from a matter his services shall not be utilized in any respect in such matter nor shall the matter be discussed with him in any manner by any partner or legal or business associate. " Any violation of this Rule can only have oceurred on or before November , 1979, because Mr. Dolan s only subsequent activity relating to this proceeding has involved resolution of the disqualification issue, activity that the Commission plainly did not intend to proscribe. The primary objective of Rule 4.1(b)(4) is to require a law firm to adopt screening measures sufficient to prevent any discussion with the disqualified attorney that would aid the firm s participating attorneys in their legal representation. Pettit & Martin has done so, and the record is clear that Pettit & Martin has not utilized Mr. Dolan services in their representation of Yamaha. The record also indicates, however, that it is unlikely that Pettit & Martin would have been retained by Yamaha had it not been for Mr. Dolan s actions. Indeed, we believe that, taken together, Mr. Dolan course of conduct here constituted solidtation of the business in question. Iie "broached" to Mr. Mori the possibility of Pettit & Martin handling some of Mori and Ota s Washington legal business-though we note that this was a reference to legal business in general, and not to the particular matter from which Mr. Dolan was and is disqualified. When Mr. Mori responded that the only Washington antitrust business then being handled by his firm was the Bru.ns'Wick matter and that Mr. Dolan could not participate in that matter because of his prior involvement as a Commission ernployee, Mr. Dolan explained that Pettit & Martin could handle the matter so long as he personally was screened, and he went on to suggest a particular Pettit & Martin partner for the job and to describe the partner s qualifications. At the same meeting, Mr. Mori asked Mr. Dolan whether he knew if the Commission would soon issue its decision in Brunswick. Mr. Dolan replied that he did not know, but would inform Mr. Mori if he heard anything. A few days later Mr. Mori called Mr. Dolan to ask again 8 We also conclude that even if Mr. Dolan " actions prior to Novem r 21, 1979, contrvened Rule 4.1(b)(1), we would reach the !lme determination set forth!ow with re pet 10 disquaHficatioI1 of the firm. " We note that Mon and 01. could not viewed a! "!legal or business asiate" of Mr. Dolan, 88 that phr is used in Rule 4.1(h)(4), fore they retained Pettit & Marin Ilcounsel on November 20 1979. Interlocutory Order 95 F. whether he knew if the publication of the decision was imminent, and Mr. Dolan replied that "rumor had it that the Commission would soon reverse the Administrative Law Judge s Initial Decision, but that this rumor had surfaced in the past and (hadn proven to he unfounded." Mr. Dolan then tc1ephoned Mr. Ota shortly after the Commission decision in Brunswick was issued, and subsequently sent a copy of the previously mentioned partner s resume to Mari and Ota. Given the likelihood that Pettit & Martin obtained the business in question as a result of Mr. Dolan s activities, the question under Rule I(b)(4) is whether Mr. Dolan s solicitation of Mori and Ota constituted services" which Pettit & Martin "utilized in any respect" in the Brunswick matter. The quoted language is ambiguous. The most apparent meaning is that when an attorney is disqualified from participating in a matter he may not aid his firm in any manner in its provision of legal representation in that matter. It is not clear whether the language also means that an attorney who is disqualified in a matter is prohibited from seeking to obtain that matter for his firm. The Commission has not previously construed the language, and the legislative history " of the rule provides no guidance. 10 We decline to find, therefore, that Pettit & Martin violated Rule 1(b)(4)-as the rule would reasonably have been understood-when it obtained the Brunswick matter as a result of Mr. Dolan s solicitations on the firm s behalf. We do so because the vague language of the rule together with the absence of any interpretation of it, fails to provide adequate notice that conduct of the kind under consideration here constitutes a violation. In addition, we note that our decision not to disqualify Pettit & Martin rests on a finding that Mr. Dolan s conduct has resulted in no actual impropriety. Mr. Dolan has provided no aid to Pettit & Martin in its representation of Yamaha in this proceeding. And Movants do not state, nor do we discern, how Mr. Dolan s conduct has itself affected the course of this proceeding in any way or how it has injured them. See Melamed v. ITT Continental Baking Co., 592 2d 290 (6th Cir. 1979); Bowrd of Ed-uat'on v. Nyquist, supra 590 F. at 1246. Moreover, there is no allegation that Mr. Dolan has received additional compensation for having brought this business to his firm or that he pursued his responsibilities at the Commission with anything less than the customary vigor of complaint counsel. When Rule 4. 1(b)(4) was orginaHy adopted, it contained !. pro,dure for Commi!Jion approval of law firm participation in a matter only after review of an affidavit showing 00 use by the law firm of the disqualified attomey rvice in any N'_ pet in uch matter and no feesplitting, and only aftera Commis. ion finding that the firm s participation would entail no "actual or apparent impropriety." 32 FR 84 (June 13, 1967). When the parent hl.gua of th", rule was adopted in 1975, the Federal Register notice simply state that the reviion "eliminate(d) the requirement for filng affidavits ina ca in which a former Commi'!ion member or employee i prohibite from appearing or participating in a Commis:ion proing or investigation, and his paner(s) or 88iates) desire to appear or participate therein without utilizing his service. " 40 FR 1523 (April 4 1975). Dl\Ul'ji:YV IVn. VUn.C., Cd ft.L.

324 Interlocutory Order However, our conclusion here- that disqualification would be unfair given the ambiguous and previously uninterpreted language of Rule 1(b)(4) should not be perceived as approval of Mr. Dolan s behavior and Pettit & Martin s acquiescence in it. To the contrary, serious ethical concerns arise from affirmative actions by a disqualified attorney designed to bring to his firm new business directly related to a matter from which the attorney is disqualified. The appearance of impropriety in such a situation might manifest itself in two ways. An observer might suppose that the attorney had been unwarrantedly solicitous to a potential client while still with the government, to inspire gratitude or good feelings in that client and thereby pave the way toward bringing the client's business to the attorney s new firm. Or, the observer might surmise that if the client retained the disqualified attorney s new firm at the behest of the attorney, it would do so to obtain that attorney s services surreptitiously, notwithstanding supposed screening devices. There is no countervailing policy reason in support of a law firm obtaining business from the active solicitation of an attorney who is disqualified from such business. We do not believe firms should expect that government lawyers wil bring into the firm business from which the former government lawyer is personally disqualified. Similarly, our concern for the rights of clients to counsel of their choice is greatly diminished where they arc led to retain a firm to represent them through the intercession of a former government attorney who is personally disqualified from representing them. The Securities and Exchange Commission has adopted a specific rule dealing with this situation. 17 CFR 200.735-. At such time as we conclude our rulemaking on comprehensive revisions of Rule 4.1(b), we will adopt a comparable rule. In the interim, we shall make the applicability of the current rule clear: If a private party asks a former Commission attorney to provide legal representation in a matter from which the attorney is disqualified, the disqualified attorney may state that he is disqualified and recommend another attorney, even an attorney in his or her own firm. In such a situation, the disqualified attorney is a mere passive recipient of an inquiry, and we see no ethical problem in referring the matter on to someone else. But henceforth any firm which ohtains a matter through the active solicitation of an attorney who is disqualified from that matter, wil he considered to have utilized that attorney s services in the matter in violation of Rule 1(b)(4).

For the foregoing reasons it is ordered That the petition of 11 43 for 3S947 (Aulr. 14 1978); 44 FR45179 (Aug. 1 , 1979). Interlocutory Order 95 F. respondents Brunswick Corporation and Mariner Corp. to disqualify the firms of Mari and Ota and Pettit & Martin is hereby denied. GENERAL MOTORS CORP., ET AL.

335 Interlocutory Order