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Kramer v. Ciba-Geigy Corp.

August 09, 2004

MARGO KRAMER, INDIVIDUALLY AND AS CLASS REPRESENTATIVE PLAINTIFF; TONI L. BOUZIOTIS, INDIVIDUALLY, AND AS CLASS REPRESENTATIVE PLAINTIFF; AND LLOYD A. MERRIMAN, JR., INDIVIDUALLY, AND AS CLASS REPRESENTATIVE PLAINTIFF, PLAINTIFFS,
v.
CIBA-GEIGY CORP., NOVARTIS CORP., CIBA SPECIALTY CHEMICALS CORP., DEFENDANTS-APPELLANTS/CROSS-RESPONDENTS, AND JAMES A. MCPHERSON, AND WILLIAM P. BOBSEIN, DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS, AND UNITED WATER MANAGEMENT & SERVICES, INC., A/K/A UNITED WATER TOMS RIVER, INDIVIDUALLY AND AS SUCCESSOR TO TOMS RIVER WATER CO., DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2521-01.

Before Judges Stern, A. A. Rodríguez and Lefelt.

The opinion of the court was delivered by: Stern, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 3, 2004

The Ciba-Geigy corporate defendants (collectively"CIBA") appeal from an order of October 29, 2002 which declared that the individual defendants, William P. Bobsein and James A. McPherson,"are deemed fully indemnified from any judgment or settlement in the pending suits by the indemnification provision" of their respective consulting agreements with CIBA and that the individual defendants"are entitled to... conflict-free counsel in accordance with the Rules of Professional Conduct to represent them" in the remaining matter (Janes v. CIBA-GEIGY).*fn1 The order further granted the individual co-defendants'"cross-motion for summary judgment on the breach of contractual indemnification (count one) and declaratory judgment (count three)" claims, and denied CIBA's motion for summary judgment. As a result, Bobsein's counsel was awarded $212,703.33 and McPherson's counsel was awarded $198,023.66 at CIBA's expense.

CIBA does not dispute the individual defendants' right to a defense and indemnification under their respective agreements with CIBA, but asserts that CIBA had the contractual right to select counsel and that the trial judge erred in granting Bobsein and McPherson summary judgment because she failed to apply New York law as governing the agreement, found that a conflict of interest existed, resolved factual disputes without an evidentiary hearing, and improperly relied upon the recommendation of a mediator in making the fee award.

Bobsein and McPherson cross-appeal from the amount of counsel fees awarded. They contend that the trial court erroneously penalized them for retaining separate attorneys, thereby requiring duplicative work by counsel, and further penalized Bobsein because he hired a solo practitioner who had to research the legal issues at his billable rate.

We hold that New Jersey law applies with respect to whether there would be a conflict of interest by counsel, thereby affecting the agreements' enforceability in New Jersey proceedings, and that New Jersey law controls on the question of whether counsel selected by CIBA could represent the individual defendants in the courts of this state. We also hold that the representation by counsel selected by CIBA would pose a conflict of interest and that that the individual defendants were justified in retaining their own counsel. Finally, with respect to the cross-appeal, we hold that the individual defendants did not have to choose the same counsel, each is entitled to recover for his counsel fees, and Bobsein should not have been penalized for hiring a solo practitioner.

I.

Bobsein and McPherson seek counsel fees for defending actions commenced against them for conduct occurring while they were employees of CIBA. The underlying claims by plaintiffs are for personal injuries and medical monitoring stemming from unauthorized disposal of toxic waste over a lengthy period of time at CIBA's plant in Toms River, New Jersey. On October 24, 1984, CIBA, Bobsein, McPherson and two other CIBA employees, Dr. David Ellis and Robert Fesen, were indicted for their illegal conduct. See State v. Ciba-Geigy, 222 N.J. Super. 343, 346 (App. Div.), certif. granted, 111 N.J. 574, 575 (1988). A second indictment was returned after the first one was dismissed and it did not include Ellis or Fesen. On February 28, 1992, Bobsein and McPherson entered guilty pleas to a single fourth degree crime. CIBA also entered a guilty plea and was ordered to pay a criminal penalty of $3,500,000.*fn2

On May 18, 2000, three individuals who sought to serve as class representatives for other Toms River residents commenced the present matter. Plaintiffs claimed no actual physical injury but sought to establish a medical monitoring fund to guard against future injury from exposure to chemical contamination emanating from CIBA's Toms River facility. The complaint asserted common law counts against CIBA related corporate entities, Bobsein, McPherson, Ellis and Fesen. On May 26, 2000, the first amended complaint was filed and asserted the same claims but voluntarily dismissed two of the four individuals, leaving only Bobsein and McPherson.

In response to CIBA's motion to dismiss, plaintiffs filed a second amended complaint on September 6, 2000, to (1) replace the initial plaintiffs with the present plaintiffs as representatives of the class, (2) join defendant United Water Management & Services, Inc. and (3) assert a claim for"concert of action/concerted action" against all defendants.

In their answers to the second amended complaint, filed on November 14, 2000, Bobsein and McPherson raised"cross-claims" against the"co-defendants" for common law and contractual indemnification, contribution and declaratory judgment. McPherson's cross-claims were expressly limited to the CIBA defendants. Both Bobsein and McPherson also sought a declaratory judgment"that the indemnification agreement is valid and enforceable," and that CIBA had to provide"conflict free counsel." Thereafter, on December 4, 2000, CIBA filed an answer which did not assert any cross-claims.

Other personal injury actions, a wrongful death case, and a class action for property damages, were also filed against CIBA and defendants. By order of the Supreme Court dated January 12, 2001, this case was transferred to Middlesex County to Judge Marina Corodemus for case management with approximately 600 other related actions.

By court order dated March 2, 2001 and with the agreement of counsel, a mediator was appointed to assist in resolving the claims. Bobsein and McPherson assert that CIBA agreed to submit the cross-claims regarding their defense costs and indemnification. CIBA claims it did not agree to that aspect of the mediation, although it willingly participated in the mediation on other issues. Judge Corodemus noted in her opinion that"[t]he issue of counsel, counsel fees and indemnification as between co-defendants, Bobsein and McPherson was one such issue agreed to by all co-defendants for mediation...." In any event, the parties were unable to come to an agreement on the subject, and the mediator issued a"recommendation on the CIBA defendants' obligation to indemnify and pay certain defense costs" in favor of Bobsein and McPherson. The mediator concluded that"Ciba-Geigy Corporation did not fulfill its obligation... to provide conflict-free counsel" and"must pay the legal fees" of their attorneys, Henry Furst and Michael Wilbert, for services rendered on behalf of Bobsein and McPherson.

CIBA moved on April 4, 2002 to"vacat[e]" the mediator's recommendation and sought summary judgment on Bobsein's and McPherson's contractual cross-claims. On May 1, 2002, Bobsein and McPherson cross-moved for summary judgment. While those motions were pending, the medical monitoring claims in the underlying case, the Kramer case, and all but one of the other cases (Janes v. CIBA-GEIGY) settled without any financial or other participation by Bobsein and McPherson. Plaintiffs' claims in Kramer were dismissed on July 22, 2002. Thus, as of July 22, 2002, the only remaining case was the Janes matter.*fn3 As already noted, without conducting a plenary or evidentiary hearing, the judge denied CIBA's motion for summary judgment and granted Bobsein and McPherson's cross-motion for summary judgment on the cross-claims. She awarded them $212,703.33 and $198,023.66, respectively, in counsel fees and costs.

No party contends that, notwithstanding the pendency of Janes at least to the corporate defendants, the appeal is interlocutory. We find no indication of consolidation or any other reason not to treat the matter as an appeal from a final judgment.

II.

Bobsein and McPherson are both former employees of CIBA, who during their employment had management positions in the Environmental Technology Department at CIBA's Toms River Plant. When their employment with CIBA ended in the early 1990's, each entered into a consulting agreement with CIBA; Bobsein on December 31, 1991, and McPherson on February 12, 1992.*fn4 Each consulting agreement contained identical indemnification provisions and choice of law provisions, which read as follows:

11. Except for occurrences of your willful misconduct, CIBA-GEIGY will defend and indemnify you in connection with any claims asserted or litigation commenced after the date hereof and based on your prior employment by CIBA-GEIGY or this consultancy, provided that you give prompt notice to CIBA-GEIGY of such claim or litigation. In such instance, CIBA-GEIGY shall have the right to assume the defense thereof with counsel of its choice. You agree to cooperate with CIBA-GEIGY in the defense of any asserted liability and, in any event, shall have the right to participate at your own expense in the defense of the asserted liability.....

16. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York applicable to contracts to be performed entirely within that State. (Emphasis added.)

Both agreements also contained a provision stating that the Agreement constitutes the entire agreement... [and] may be changed only by a written agreement signed by us... [and n]o oral agreement or conversation with any officer, agent or employee of [CIBA], either before or after the execution of this Agreement, shall affect, alter or modify our obligations hereunder.

There is no dispute that the agreement covered claims based on prior conduct, and as already noted, in the criminal proceeding involving their employment at CIBA, both Bobsein and McPherson pled guilty to a fourth degree criminal offense. Both Bobsein and McPherson certified that, in agreeing to plead guilty, they were assured by CIBA that they would be indemnified and provided independent, conflict free counsel in any future litigation arising from their employment with CIBA.

On June 2, 2000, after the first amended complaint was filed in the Kramer matter, James Stewart, a partner at the law firm of Lowenstein Sandler, wrote to Bobsein and McPherson separately advising them that his firm was representing CIBA in connection with the litigation and that CIBA had requested that the firm also represent them at CIBA's expense. The letter further provided that such joint representation"is permissible where the facts and circumstances of the case do not indicate the existence of a conflict between the interests of an individual employee co-defendant and CIBA" and"that [b]ased on [Lowenstein's] present knowledge of the underlying facts of the... claim, we do not believe any such conflict exists between CIBA and you and do not anticipate that any will arise as this matter progresses." However, Stewart requested that Bobsein and McPherson acknowledge and confirm in writing that"no conflict" existed between the interests of Bobsein and McPherson and those of CIBA"which, if disclosed, could preclude" the joint representation. The letter continued"that in the unlikely event such a conflict should develop during the course of [the joint] representation" or if Lowenstein determined that continued representation was"not appropriate," Lowenstein would"resign... representation" of Bobsein and McPherson and"continue to represent CIBA" without their objections. They were further asked to acknowledge and confirm that they had"been given the opportunity to review this letter with separate counsel of [their] own choosing" and did not rely on advice provided by Lowenstein"in agreeing to the terms of [the] letter."

Bobsein consulted Henry Furst, the attorney who had represented him at CIBA's expense in past matters involving his employment at CIBA, to review the offer of representation contained in the June 2, 2000, letter. By letter dated July 19, 2000, Bobsein informed Stewart of his decision to reject representation by Lowenstein, but rather use independent counsel, Furst. Bobsein indicated that having Furst, as"independent counsel of [his] choice, from the start" he"would not have to worry about conflicts" and any resulting effects on the quality of his representation.

McPherson also consulted with the attorney who had previously represented him in the prior litigation involving his employment at CIBA, Michael E. Wilbert. Wilbert advised Lowenstein that he"would not agree to waive the conflict of interest issue or to allow Lowenstein to drop [him] and continue to represent the corporation in the event of a conflict." Lowenstein"refused that request," and McPherson also declined to be represented by Lowenstein.

On July 26, 2000, Stewart wrote Bobsein to inform him that CIBA would not reconsider its choice of Lowenstein to represent him because Lowenstein does"not believe there is any meritorious basis for joining [Bobsein] in [the] litigation" and because neither CIBA nor Bobsein"identified... any realistic threat of a real conflict." Stewart also informed Bobsein that if he"still prefer[ed] separate counsel, [he would] have to pay for [his] own defense costs and bear the risks [him]self."

On October 13, 2000, Douglas Hefferin, CIBA Vice President for Site Remediation, wrote to Bobsein and McPherson regarding their representation and acknowledged CIBA's obligation to indemnify them. He reiterated that CIBA"remain[ed] willing" to pay their defense costs,"but only with counsel of [CIBA's] choice since it will bear all the expense." However, on November 9, 2000, after discussions with them and their"personal attorneys," Hefferin again wrote to Bobsein and McPherson, jointly, and offered to provide a"defense" if they"both" agreed to accept Joseph A. Hayden, Jr. as their counsel. The letter explained that"[o]n the basis of the facts and circumstances known to us regarding your conduct while an employee and/or consultant for [CIBA], you are to be fully indemnified from any adverse judgment or settlement in the pending suits."

Moreover, the letter stated that while CIBA"continue[d] to be of the view that there [was] no conflict" and that Lowenstein could jointly represent the company and them, they were offering the service of Hayden"in recognition of [their] concern that a conflict may arise in the future and your refusal to waive the conflict to permit [Lowenstein] to represent [CIBA] in such an eventuality." The letter further explained that if they objected to Hayden, CIBA would"offer [them] another attorney," but CIBA would not retain their"personal attorneys as defense counsel in the pending suits" as CIBA had the"right to choose counsel and to direct the defense as long as it continues to recognize its duty to indemnify." Finally, the letter acknowledged that Bobsein and McPherson could choose"to be represented and defended by [their] personal attorneys," but that in such circumstances, CIBA would"not pay for such a defense."

Both Bobsein and McPherson rejected CIBA's offer to retain Hayden on the basis of a conflict of interest primarily stemming from Hayden's prior representation of Dr. David Ellis, who was an individual co-defendant in the CIBA criminal matter. See State v. Ciba-Geigy Corp., supra, 222 N.J. Super. at 345. After the first indictment was dismissed, see id. at 356, Hayden negotiated immunity for Ellis, who then testified against Bobsein and McPherson at the second grand jury which returned an indictment against Bobsein and McPherson. In addition, Hayden's firm represented CIBA as trial counsel in related insurance coverage litigation. See In re Envt'l Ins. Declaratory Judgment Actions, 149 N.J. 278, 285 (1997).

Despite the statement in Hefferin's November 9, 2000 letter that another attorney would be offered if Hayden was not acceptable, the record includes uncontested certifications to the effect that CIBA never offered the services of another attorney. Nor is it contested in the statements of"material uncontested facts." In the words of Mr. Furst,"[a]t no time did... [CIBA] propose an attorney for the individual defendants whose representation would not require a written waiver of conflicts or permission to represent conflicting interests."

On March 9, 2001, a preliminary case management conference took place before the mediator. In addition to plaintiffs' counsel, David W. Field from Lowenstein appeared on behalf of CIBA, Furst was present for Bobsein, and Wilbert represented McPherson. At that time there was a"misunderstanding" as to what CIBA had committed to do regarding the representation of Bobsein and McPherson. Furst and Wilbert believed Field agreed to reimburse them for representation of Bobsein and McPherson until the motions to dismiss Bobsein and McPherson were"determined by the court." Furst ...


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