Murray v. Metropolitan Life Insurance Co.
583 F.3d 173 (2009)
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Rule of Law:
A corporation's outside counsel represents the corporate entity, not its constituents such as shareholders or policyholders. Disqualification of an entire law firm under the witness-advocate rule is an extreme remedy that requires clear and convincing evidence that a non-advocate lawyer's testimony will be prejudicial to the client and that the integrity of the judicial system will suffer as a result.
Facts:
- Metropolitan Life Insurance Company (MetLife) was structured as a mutual insurance company, meaning it was owned by its policyholders.
- Debevoise & Plimpton LLP (Debevoise) served as MetLife's long-time corporate counsel.
- In 2000, MetLife underwent a 'demutualization' process, converting from a policyholder-owned mutual company to a shareholder-owned stock company.
- Debevoise represented MetLife as its corporate counsel throughout this demutualization transaction.
- During the process, MetLife provided informational materials to its policyholders concerning the demutualization.
- A group of policyholders alleged that these materials contained misrepresentations and omissions.
- Four Debevoise lawyers who had worked on the demutualization were identified as likely witnesses in the ensuing litigation.
Procedural Posture:
- A class of former policyholders filed a lawsuit against MetLife in the U.S. District Court for the Eastern District of New York, alleging violations of federal securities laws.
- During discovery in 2007, the district court ruled that for purposes of attorney-client privilege, the policyholders were clients of Debevoise during the demutualization.
- Over nine years after the lawsuit was filed and five weeks before the scheduled trial, the plaintiffs moved to disqualify MetLife's counsel, Debevoise.
- The district court granted the plaintiffs' motion, disqualifying Debevoise from the case.
- The district court then immediately stayed its own disqualification order and certified the question for an interlocutory appeal to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Is a law firm that represented a mutual insurance company during its demutualization disqualified from representing the now-public company in a suit by its former policyholders, either because the policyholders were the firm's clients or because the witness-advocate rule requires it?
Opinions:
Majority - Jacobs, Chief Judge
No, the law firm is not disqualified from representing MetLife. An attorney retained by a corporation represents the corporate entity itself, not its individual constituents like shareholders or, in this case, policyholders of a mutual company. The relationship between a mutual insurance company and its policyholders is contractual, not a partnership, and being a beneficiary of legal advice does not create an attorney-client relationship. Furthermore, the witness-advocate rule does not mandate disqualification here because the plaintiffs failed to show that testimony from non-advocate Debevoise lawyers would be sufficiently prejudicial to MetLife or that allowing the firm to continue its representation would harm the integrity of the judicial system, particularly given the plaintiffs' nine-year delay in bringing the motion.
Analysis:
This decision solidifies the principle of entity representation, clarifying that corporate counsel for a mutual company owes its duty to the company, not the policyholder-members. More significantly, it establishes a new, heightened standard in the Second Circuit for disqualifying an entire law firm based on the witness-advocate rule. By requiring 'clear and convincing evidence' of both prejudice to the client and harm to the judicial system, the court aims to curb the tactical use of disqualification motions, especially those brought late in litigation, thereby protecting a client's right to counsel of choice.
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