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McCarthy v. John T. Henderson Inc.

Decided: February 21, 1991.

JOHN F. MCCARTHY, III AND ROBIN L. MCCARTHY, PLAINTIFFS-APPELLANTS,
v.
JOHN T. HENDERSON, INC., MARGARET A. HENDERSON AND ELAINE PILSHAW, DEFENDANTS-RESPONDENTS



On appeal from the Superior Court of New Jersey, Law Division, Mercer County.

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

Keefe

[246 NJSuper Page 226] The issue to be decided is whether the law firm of Shanley & Fisher, P.C., who previously represented Benson & Henderson Enterprises, a closely held corporation, is disqualified from representing plaintiffs John F. McCarthy, III and Robin McCarthy in litigation brought against another closely held corporation, defendant John T. Henderson, Inc., and two of its employees because the principal shareholders and officers of both

corporations are the same. The trial judge held that the firm was disqualified under R.P.C. 1.9(a)(2) and further refused to erect a "Chinese wall" to screen the attorneys in Shanley & Fisher who represented Benson & Henderson Enterprises from the attorneys in the same firm who now represent the plaintiffs. We conclude from our analysis of the Rules of Professional Conduct and the facts of this case that there is no actual conflict of interest evidenced by these facts and that the facial appearance of conflict is no more than a "'fanciful possibility'" without any "'reasonable basis'". Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 216, 536 A.2d 243 (1988), quoting from Higgins v. Advisory Committee on Professional Ethics, 73 N.J. 123, 129, 373 A.2d 372 (1977). Thus, we reverse the judgment under review.

John T. Henderson and defendant Margaret A. Henderson are the sole shareholders and officers of Benson & Henderson Enterprises (Benson & Henderson) and John T. Henderson, Inc. Benson & Henderson is apparently the owner of a building located in Princeton, New Jersey. John T. Henderson, Inc. is a real estate company.

John F. McCarthy, III, is an attorney and a partner in the firm of McCarthy & Schatzman. McCarthy and his firm personally represented the Hendersons and their corporations since the mid 1960's.

In or about 1979, Benson & Henderson constructed an office building on Witherspoon Street in Princeton. When the construction was nearly completed, the adjacent property owner brought suit against Benson & Henderson and obtained a temporary restraining order against further construction. The plaintiff in that case alleged that Benson & Henderson encroached on plaintiff's property and created a nuisance. For reasons not clear from the record, McCarthy referred the matter to Shanley & Fisher for representation of Benson & Henderson. Arthur R. Schmauder and John D. Clemen, members of the Shanley & Fisher law firm, undertook the defense

of Benson & Henderson. Shanley & Fisher was successful in having the temporary restraining order dissolved. The matter subsequently proceeded to trial which resulted in a dismissal of the case against Benson & Henderson at the end of the plaintiff's proofs. The litigation was apparently protracted inasmuch as Shanley & Fisher billed Benson & Henderson $38,000 for legal representation. The file was closed in 1982. Shanley & Fisher did not thereafter represent either Benson & Henderson or John and Margaret Henderson. The only record of the 1979-82 representation remaining in the Shanley & Fisher archives is a card reflecting that the firm represented a company identified as Benson & Henderson Enterprises.

The current litigation was filed by the firm of McCarthy & Schatzman on behalf of the plaintiffs herein in October, 1989. The suit arose out of plaintiffs' efforts to purchase certain real estate in Princeton, using John T. Henderson, Inc. as their agents to effect the purchase. In short, the McCarthys contend that their confidential offer to purchase the property was conveyed by one agent employed by John T. Henderson, Inc. to another member of the agency for the purpose of inducing the second agent's client to bid-up the property. Shortly thereafter, plaintiffs asked John J. Degnan, Esq. of Shanley & Fisher to represent their interests. Shanley & Fisher filed an amended complaint in December 1989. The amended complaint named John T. Henderson, Inc., Margaret A. Henderson, and Elaine Pilshaw as defendants. The amended complaint asserts counts for breach of fiduciary duty, tortious interference with prospective advantage, misrepresentation, fraud and negligence.

Defendants in this action moved to disqualify Shanley & Fisher from representing plaintiffs. The certification in support of the motion for disqualification was signed by John T. Henderson as president of John T. Henderson, Inc. In his certification he claimed: Shanley & Fisher "represented me and my firm" in connection with the boundary dispute litigation; they "became intimately familiar with all the workings of my

business;" they "gained confidential knowledge of its operation," and two partners in the firm "worked very closely with me and my wife . . . ." Henderson concluded that those facts indicated a "real appearance of impropriety."

Mr. Henderson did not specify which of the two relevant corporations he was referring to in the certification. However, the trial judge concluded from the record before him, and we agree, that Shanley & Fisher learned nothing about the operations of the realty company known as John T. Henderson, Inc.. Moreover, the record does not reveal any basis to conclude from the prior representation ...


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