On an Order to show cause why respondents should not be disbarred or otherwise disciplined.
Wilentz, Clifford, Handler, Pollock, O'Hern, Garibaldi, Stein
This attorney disciplinary matter arose from a formal complaint charging two attorneys, partners in a large law firm, with representing two parties with actual or potentially adverse interests. One of the parties was a manufacturing concern whose operations were threatened by a proposed land development sought by the other party.
The case presents the issue whether two attorneys, aware of the different concerns of their respective clients, violated our rules of ethics in failing to recognize and to resolve the possible conflict of interest between the clients. That issue must be addressed in light of the fact that the lawyers were partners in the same law firm and the additional circumstance that one of the attorneys had a personal proprietary interest in a business venture of his client -- the client whose interests were adverse to another client of the firm.
The respondents are Bernard S. Berkowitz and James P. Dugan, partners in the law firm known as Hannoch Weisman. A formal complaint was filed by Lewis Ripps. The complaint alleged that Berkowitz represented Palmer Asphalt ("Palmer"), a New Jersey corporation that manufactures roofing materials, in
which Ripps was a principal. Berkowitz represented Palmer at the same time Berkowitz's partner Dugan represented Bay Bridge Associates ("Bay Bridge"). The complaint charged that Bay Bridge had been the proponent of a zoning ordinance to authorize the residential development of property that was contiguous to the land on which Palmer's warehouse was situated, and that during that time Dugan had had a business interest in Bay Bridge. The complaint claimed that respondents had been in violation of the Rules of Professional Conduct ("RPC"), specifically, RPC 1.7(a) and RPC 1.8(a).
The District Ethics Committee ("DEC") found that RPC 1.8(a), which provides generally that a lawyer shall not enter into a business transaction with a client or knowingly acquire an interest adverse to a client, was inapplicable. The DEC also found no violation of RPC 1.7(a), which provides that a lawyer shall not, without consent, represent a client if the representation of that client will be directly adverse to another client. The DEC determined that: (1) Ripps had not retained Berkowitz to challenge a zoning ordinance proposed by Bay Bridge; (2) neither Berkowitz nor Dugan had known of Ripps' intention to oppose the rezoning until February 13, 1989, the date of the meeting among Berkowitz, Dugan, and Ripps; (3) neither had known, until February 13, 1989, that the representation of Palmer and Bay Bridge would be directly adverse; and (4) the representation of a client who was engaged in the rezoning of areas surrounding the property owned by another client did not necessarily involve "directly adverse" representation. The DEC recommended that the complaint be dismissed.
Following an appeal by Ripps, on a de novo review of the record, the Disciplinary Review Board ("DRB") recommended that the DEC's finding be reversed. In the DRB's view, the evidence clearly and convincingly established that respondents' conduct was unethical. The DRB determined that respondents' conduct, through the application of RPC 1.10 (which provides that a lawyer shall not represent a client if any attorney in the same firm,
practicing alone, would be prohibited from doing so) violated RPC 1.7. The DRB apparently agreed, however, with the DEC's Conclusion that RPC 1.8(a) was inapplicable. After balancing the impropriety of respondents' conduct with what it saw as the lack of evil motives on respondents' part and the absence of harm to the client, a five-member majority of the DRB recommended that each respondent receive a public reprimand. One member recommended a private reprimand.
The facts are critical to the issue of whether respondents improperly represented clients with actual or potential conflicts of interest sufficient to constitute unethical conduct. Although many of the facts are not disputed, the parties proffered decidedly different versions of the events that gave rise to the charge of unethical conduct.
In 1988, when the relevant events began to unfold Berkowitz had been Palmer's corporate counsel for twenty-five years. He had also represented its principals, Ripps and Alton Adler, in other legal matters of a personal nature. On December 12, 1988, Palmer held its annual meeting at Hannoch Weisman's offices. Present were Berkowitz, Ripps, Adler, and Martin Goldstein, Palmer's accountant. Palmer's agenda contained sixteen items. The eleventh item on the agenda was a newspaper article announcing that Bay Bridge proposed building a high-rise complex, marina, shopping area, and restaurant on a twenty-acre site. The proposed development surrounded the Palmer warehouse facility on three sides. The article also stated that Bay Bridge would be seeking to rezone the property from heavy industrial to residential and mixed use to accommodate the marina, restaurant, and possibly a theater. The article disclosed that Bay Bridge would be represented by Dugan.
According to Ripps, at Palmer's annual meeting of December 12, 1988, he showed the article to Berkowitz. He described that conversation as follows:
I brought the article to [Berkowitz's] attention and I told him that I am very much concerned about what I read in the paper, because it seems to be apparently that there's an attempt to rezone an area in which my company is included within the boundaries, because it talks about a proposed 20 acre development which would border North Street on the north, Avenue A on the east and 5th Street on the south. And our plant, all right, our warehouse facility was on 5th Street within those borders. And I was concerned because the article talks about rezoning it for residential use, that I was going to be a nonconforming use, and in addition to which they talk about the fact that the project is going to include 525 residential units, 10 houses, etcetera, etcetera. And I was very alarmed about this, probably because I had the feeling that you bring in 525 residential units in a cooperative ownership, now, I'm going too far, not a single home owners, but 525 people cooperatively working to do whatever it is they could to protect their interests against the interests of my company. . . . I asked Mr. Berkowitz to, if he could, please help us with this matter, because it was critical to our company, certainly the value of our property. We could not sell our property if it were rezoned for residential use, other than for residential use. And it certainly would not bring the value to our company that the property is worth. And we have a petrol chemical business, I cannot pick up and move it someplace else. This thing was business threatening to me, and the worse [sic] experience I have had in the years I've been in the business.
Ripps further testified that the 13,000-square foot warehouse was crucial to the operation of Palmer's manufacturing business, located across the street, because Palmer had no other place to store raw materials. Ripps also testified that aside from being concerned about the rezoning of the property, he had been worried that the residents of the development would perceive asbestos -- used as a raw material in Palmer's compound and stored in the warehouse -- as hazardous because of its "terrible reputation." Ripps added that although Palmer had frequently been inspected by the Occupational Safety and Health Administration and had complied with all its regulations, "we still have to confront the public's fears and the public's apprehension."
Ripps stated that he had not then specifically informed Berkowitz that he wanted to oppose the proposed rezoning ordinance because he had been unaware, until February 13, 1989, that a zoning ordinance had actually been proposed. Ripps testified that although he had considered the rezoning and the residential development as a serious threat to his business, he had believed, at that time, that the proposal for an ordinance had been in its
preliminary stages and that, in addition, he would have received formal notice about any changes from the Board of Adjustments, because he owned property affected by the ordinance.
Still, according to Ripps, he requested that Berkowitz handle the zoning matter on Palmer's behalf and Berkowitz agreed. Ripps also understood that Berkowitz would undertake further activities with respect to the proposed zoning change, such as communicating with local authorities and determining from Dugan what the residential development actually entailed. According to Ripps, he expected Berkowitz to handle the matter personally on behalf of Palmer, albeit Berkowitz might seek the assistance of other members of Hannoch Weisman to work with him. That expectation was based on Berkowitz's statement, at the December 12, 1988, meeting, that some attorneys at Hannoch Weisman were land-use experts, and on the fact that, in the past, several attorneys from Hannoch Weisman had handled legal matters on behalf of Palmer that were outside of Berkowitz's legal expertise. Ripps concluded by saying that he had not expressed panic, at the December 12, 1988, annual meeting, because he had turned over the matter to the attention of Berkowitz, who, although professing no knowledge of the residential development and of Dugan's representation of Bay Bridge, nevertheless assured Ripps that he would ask Dugan about it. In fact, Berkowitz suggested that Ripps meet with Dugan to determine if the residential development would affect Palmer's property. Also on December 12, 1988, after Palmer's annual meeting, Berkowitz discussed the matter with Dugan, who informed him that the firm had represented Bay Bridge for a number of years.
That day or the next, Berkowitz discussed with Dean Gaber, Esq., the Chairperson of Hannoch Weisman's executive committee, and the person whom Berkowitz consulted on conflict-of-interest issues, whether the firm could continue to represent Palmer in other matters that were being handled by the firm, should Palmer object to the zoning ordinance. According to Berkowitz, he and Gaber "poured over the ethics rules" and
concluded that so long as the firm did not represent Palmer "in opposition to one of our clients," the firm could continue to ...