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International Business Machines Corp. v. Levin

Court of Appeals for the Third Circuit
579 F.2d 271 (1978)
ELI5:

Rule of Law:

An attorney violates the duty of loyalty and the Code of Professional Responsibility by representing one client in a lawsuit against another current client, even if the matters are unrelated, without first making full disclosure of the conflict and obtaining the informed consent of both clients.


Facts:

  • The law firm Carpenter, Bennett & Morrissey (CBM) began representing Howard Levin and his associated companies in 1965.
  • In April 1970, IBM's legal department retained CBM to provide legal opinions on discrete labor law matters, establishing an ongoing, albeit sporadic, attorney-client relationship.
  • In late 1971, CBM assisted Levin in incorporating Levin Computer Corporation (LCC) for the purpose of purchasing and leasing IBM computer equipment.
  • A dispute arose between LCC and IBM regarding IBM's refusal to extend installment credit to LCC on terms LCC considered reasonable.
  • While this credit dispute was ongoing and litigation was contemplated, CBM accepted another labor law assignment from IBM in April 1972.
  • A CBM partner claimed to have obtained verbal consent for the dual representation during a brief phone call with an IBM in-house counsel, a claim the IBM counsel denied.
  • On June 23, 1972, CBM filed an antitrust lawsuit on behalf of Levin and LCC against its other client, IBM.
  • CBM continued to accept several more unrelated labor and regulatory assignments from IBM until July 1976, while actively prosecuting the antitrust case against IBM.

Procedural Posture:

  • Howard Levin and Levin Computer Corporation (LCC) sued International Business Machines Corporation (IBM) in the Superior Court of New Jersey, Chancery Division.
  • IBM removed the action to the U.S. District Court for the District of New Jersey.
  • After several years of litigation and discovery, IBM filed a motion in the district court to disqualify plaintiffs' counsel, the law firm of Carpenter, Bennett & Morrissey (CBM).
  • The district court granted IBM's motion to disqualify CBM but entered an order permitting CBM to turn over its work product to new counsel during a sixty-day consultation period.
  • CBM and the plaintiffs appealed the disqualification portion of the order to the U.S. Court of Appeals for the Third Circuit.
  • IBM appealed the portion of the order permitting the turnover of work product and also filed a petition for a writ of mandamus to prohibit the turnover.

Locked

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Issue:

Does a law firm violate its duty of loyalty under the Code of Professional Responsibility (DR 5-105) when it represents a client in a lawsuit against another current client in a completely unrelated matter, without first obtaining the informed consent of the client being sued?


Opinions:

Majority - Maris, Circuit Judge

Yes. A law firm violates its professional duty of loyalty when it represents one client in a lawsuit against another current client, even in an unrelated matter, without obtaining the sued client's informed consent after full disclosure. The court reasoned that suing a current client creates a likelihood of an "adverse effect" on the attorney's independent professional judgment and breaches the paramount duty of undivided loyalty. The ethical rules impose an affirmative burden on the attorney to provide full and effective disclosure of all relevant facts to obtain informed consent; constructive knowledge on the part of a large corporate client is insufficient. Disqualification is an appropriate sanction not merely to prevent the misuse of confidential information, but to uphold the integrity of the legal profession and maintain public confidence in the justice system, even where no specific prejudice to the client has been shown.



Analysis:

This decision reinforces the stringent nature of the duty of loyalty owed to a current client, distinguishing it from the less restrictive duty owed to a former client. It establishes that suing a current client constitutes a direct, concurrent conflict of interest, creating a nearly per se rule of disqualification if informed consent is not obtained, regardless of whether the legal matters are related. The ruling places the burden of clear, affirmative disclosure squarely on the attorney, rejecting arguments of constructive or imputed knowledge within a client's organization. This precedent emphasizes that maintaining the integrity of the profession and avoiding even the appearance of impropriety can outweigh a client's interest in retaining counsel of their choice.

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