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G.F. Industries Inc. v. American Brands Inc.

Decided: November 28, 1990.


On appeal from the Superior Court Law Division, Middlesex County.

Antell, O'Brien and Scalera. The opinion of the court was delivered by Scalera, J.A.D.


This appeal is taken from an interlocutory order disqualifying the New York law firm of Chadbourne and Parke from representing or performing any legal services on behalf of American Brands, Inc., and also from disclosing or providing any of its work product to American Brands or any of its other attorneys.*fn3

The various certifications submitted in connection with the motion filed for disqualification reveal that Sunshine Biscuits, Inc., (Sunshine) was a wholly-owned subsidiary of American

from 1966 to 1988, at which time Sunshine was sold to G.F. Industries, Inc., (G.F.I). While American has an in-house legal department, for more than 50 years Chadbourne and Parke also has represented American in all facets of its legal affairs. This includes general corporate matters, securities, acquisitions, divestitures, real estate matters, and in various litigation areas including regulatory matters, products liability and contract disputes.

American's in-house legal department handled the vast majority of Sunshine's legal affairs, but was duty bound to bring all its legal matters to the attention of American's General Counsel. Further, no outside counsel was to be retained or consulted by Sunshine without American's prior approval. Settlement of all Sunshine claims was subject to review and approval by American. Additionally, all bills for legal services charged to Sunshine were to be sent directly to American for approval before payment.

James D. Ferber, Director of Human Resources and Assistant Secretary for Sunshine, a large national corporation, has been employed by that company for 29 years in various capacities and for approximately eight years was a liaison between Sunshine and Chadbourne. Generally, when a legal problem developed at Sunshine, Ferber apparently in contravention of American's policy, contacted Chadbourne directly. A Chadbourne attorney then was assigned to the matter and kept in direct contact with Sunshine personnel concerning all the aspects thereof.

Robert L. Austin, Senior Vice-President and Chief Administrative Officer of American certified that Sunshine's counsel was essentially American's legal department. He based this conclusion on his understanding that when a legal matter arose Sunshine personnel would contact American's General Counsel to either handle the matter or retain Chadbourne. In such a case, Chadbourne would always report to American's General Counsel. Therefore, it was Austin's belief that there was

"never any reasonable expectation on Sunshine's part that any information it transmitted to Chadbourne would be kept secret or confidential from American." This was reiterated by Peter N. Millman and Daniel J. O'Neill, members of the Chadbourne firm.

A close relationship of American's legal department and the Chadbourne firm has always existed. Currently, of the seven attorneys working in American's Connecticut legal department, one is a Chadbourne partner and three are Chadbourne associates. Additionally, two attorneys on American's payroll recently came from Chadbourne.

The dispute that initiated the instant lawsuit involves G.F.I.'s acquisition of Sunshine from American in April 1988. Chadbourne represented American in the sale, which was accomplished through the sale of Sunshine's stock to G.F.I. To prepare for the sale, Sunshine had compiled extensive information, the original documents of which were kept at Chadbourne's offices. Chadbourne also arranged conferences with Sunshine during the negotiations stage to discuss the specific terms of the sale and the condition of Sunshine's facilities. Chadbourne sent at least two letters directly to the President and C.E.O. of Sunshine to review a draft of the Stock Sale Agreement.

However, Chadbourne insists that it never represented Sunshine itself in the actual sale transaction. Instead, its position is that Sunshine was merely an asset of American's which was being sold. It claims that its services in reviewing the offering memorandum, preparation of the stock sale agreement, management of American's interest at the closing of the sale and the general rendering of legal advice and guidance to American were all done in its capacity as attorneys for American.

This litigation arose when one year after the sale, the federal Occupational Safety and Health Administration (OSHA) made an inspection of Sunshine's ...

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