The opinion of the court was delivered by: Walls, District Judge.
Ernst & Young, LLP ("E & Y") moves for declaratory judgment that
Theodore Wells, Esq., may represent E & Y in this litigation despite that
(1) Mr. Wells left Lowenstein Sandler, PC ("Lowenstein") in January 2000
to join Paul, Weiss, Rifkind, Wharton and Garrison ("Paul Weiss"); (2)
Paul Weiss has for the last two years represented Amy N. Lipton, former
Vice President and General Counsel of CUC and former Executive Vice
President and Deputy General Counsel of Cendant; and (3) Ms. Lipton has
not consented to the simultaneous representation of her and E & Y by Paul
Weiss. The motion is opposed by Cendant Corporation ("Cendant") and Ms.
Lipton. The motion is denied.
Since April 1998, the Paul Weiss firm has represented Amy N. Lipton,
former Vice President and General Counsel of CUC and former Executive
Vice President and Deputy General Counsel of Cendant. Ms. Lipton had been
Vice President and General Counsel of CUC before it merged with HFS to
form Cendant in 1997. After the merger, she served as General Counsel of
Cendant's CUC Division and as Deputy General Counsel and Executive Vice
President of Cendant. Before she became General Counsel to CUC, Ms.
Lipton had served as outside counsel to CUC beginning in the early
1980s. Ms. Lipton was named as a defendant in one of the numerous
Cendant actions, Deutch v. Silverman, but in August 1999 was dismissed
from the action by this court because of a lack of personal
jurisdiction. See In re Cendant Corporation Derivative Action
Litigation, 189 F.R.D. 117 (D.N.J. 1999).
Ms. Lipton's representation by Paul Weiss has continued since her
dismissal as a defendant in the Silverman matter. Recently, she was
served (through Paul Weiss) with a subpoena which requested documents
relating to various aspects of the alleged fraud in this matter. Ms.
Lipton will be represented by Paul Weiss with regard to her responses to
this subpoena. See Cendant Brief at 10. Cendant asserts that this
representation is likely to continue in connection with investigations by
the SEC and the United States Attorney's Office. See Cendant Brief at
10. Ms. Lipton asserts in her Certification that she has disclosed to
Paul Weiss privileged and confidential matters of CUC, Cendant, and its
CUC Division and has discussed in confidence with Paul Weiss activities
of E & Y and communications between E & Y and Cendant. Lipton Cert.
Earlier this year, E & Y, through Lowenstein, reached out to Ms.
Lipton's counsel to inquire whether Ms. Lipton would consent to Mr.
Wells' representation of E & Y in the litigation between E & Y and
Cendant. See Lipton Cert. ¶ 8. Ms. Lipton retained Daniel Bookin,
Esq. of O'Melveny & Myers to advise her on this issue. Id. Ms. Lipton
states that she also consulted Cendant's counsel with regard to her
decision. Ultimately, Ms. Lipton declined to give her consent to the
representation by Mr. Wells in the Cendant litigation.
E & Y contends that to avoid any possible inference of impropriety,
Paul Weiss instituted ethical protections immediately upon Mr. Wells'
arrival at the firm.*fn1 These protections include: (1) a prohibition on
any communication between Mr. Wells and anyone at the firm concerning
"the substance" of the firm's representation of Ms. Lipton (and
conversely, a prohibition against Mr. Wells' sharing information
regarding the representation of E & Y with attorneys who represent Ms.
Lipton); (2) a prohibition on Mr. Wells' access to any files regarding
Ms. Lipton; (3) a requirement that Mr. Wells remain "disassociated" with
any aspects of the case which directly involve Ms. Lipton; and (4) an
arrangement that co-counsel for E & Y, and not Mr. Wells, will conduct
any future discovery regarding Ms. Lipton or cross-examination of her.
Although E & Y consented to the dual representation, Ms. Lipton did
not. E & Y argues that as evidenced by a July 6, 2000 letter from Carl
Greenberg, Cendant "undermined" the discussions by persuading Ms. Lipton
to withhold her consent. E & Y argues that this conduct by Cendant is
nothing more than "a vexatious attempt to deprive E & Y of its existing
counsel of choice." E & Y Brief at 4. E & Y argues that Ms. Lipton's
consent is not necessary and that it only sought her consent out of an
abundance of caution. E & Y now asks this Court to find that there is no
impermissible conflict of interest between Ms. Lipton and E & Y that
would prevent Paul Weiss from representing both Ms. Lipton and E & Y
(or, if there is such a conflict, it can be removed by the use of the
ethical safeguards described above). E & Y argues that Ms. Lipton has
never been a "party adverse" to E & Y and is "at most" a potential
witness. E & Y Brief at 9.
E & Y frames the issue before the Court as follows:
. . . whether an attorney who has relocated his
practice to a large firm may continue to represent a
party to complex securities proceedings where one (or
more) of his new partners represents a non-party
witness, where stringent ethical safeguards were
established at the outset of the situation, where the
party/client has consented to the arrangement but
where the potential witness/client has withheld such
consent at the insistence of her former
E & Y Brief at 6, n. 6. E & Y's simple answer is that there would be no
ethical violation under these circumstances.
Cendant argues that the proposed dual representation by Paul Weiss of
both E & Y and Ms. Lipton is unprecedented and would violate the
following four provisions of the New Jersey Rules of Professional Conduct
("RPC" or "RPCs"):
1. Rule 1.7(a), which prohibits a lawyer from
representing one client whose interests are
"directly adverse to another client" absent the
consent of both clients;
2. Rule 1.7(b), which prohibits a lawyer from
representing one client when such representation
would "materially limit" the ability of the lawyer
to represent the first client, absent the consent
of both clients;
3. Rule 1.9, which Cendant says prohibits a lawyer
from representing a party's former lawyer and a
party's adversary on the same or a substantially
related matter; and
4. Rule 1.7(c), which prohibits dual representation
in circumstances that would create an "appearance
of impropriety," regardless of the consent of the
Cendant Brief at 2-3. Cendant further claims that the "firewall" erected
by Paul Weiss, which according to E & Y is sufficient to overcome any
potential conflict, cannot solve any of the potential conflicts because
(1) New Jersey does not allow the use of such ethical screens for private
lawyers with conflicts of interest; and (2) such safeguards would not
overcome the conflict even if they were permitted. Cendant Brief at 4.
This is because Cendant expects Ms. Lipton to be a critical witness in
the litigation and believes Paul Weiss cannot represent at the same time
both interests without risking to compromise the interests of either Ms.
Lipton or E & Y. Ms. Lipton asserts that she was within her rights to
decline consent to the dual representation. She believes that her
testimony is likely to be adverse to E & Y and she
has a legitimate concern to protect the confidences of her former clients
(CUC and Cendant). She further advances that:
[Ms. Lipton] is entitled to attorneys who will
represent her without inhibition with respect to [E &
Y], especially during discovery. Such representation
may well include assertions of privilege, objections
to discovery requests, and the multitude of other
disputes that arise during hotly contested cases such
as this one.
Lipton Brief, at 1. She maintains that "the danger that Ms. Lipton's
attorneys may (even subconsciously) pull their punches against Mr. Wells'
client is one that the Rules of Professional Conduct are designed to
guard against." Id. (emphasis added). Like Cendant, Ms. Lipton contends
that E & Y's proposed dual representation would violate Rules 1.7(a) and
(b). She objects to the proposal of E & Y's co-counsel maintaining
responsibility for all aspects of E & Y's representation that deal with
her, arguing that "[e]ven if such legal gymnastics were possible, Paul
Weiss cannot avoid its duty of loyalty to Ms. Lipton by having another
law firm question her or address her role in the case." Lipton Brief at
I. The Declaratory Judgment Act
The Declaratory Judgment Act allows: In a case of
actual controversy within its jurisdiction, . . . any
court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such
declaration, whether or not further relief is or could
28 U.S.C. § 2201 (emphasis added). The Act requires that "there must
be a dispute which 'calls, not for an advisory opinion upon a
hypothetical basis, but for an adjudication of present right upon
established acts.'" Ashcroft v. Mattis, 431 U.S. 171, 172, 97 S.Ct.
1739, 52 L.Ed.2d 219 (1977) (citation omitted). At the outset, Cendant
argues that E & Y's current motion presents a nonjusticiable issue to the
Court and seeks an impermissible advisory opinion because Mr. Wells has
not filed a notice of ...