Polycast Technology Corp. v. Uniroyal, Inc.
129 F.R.D. 621, 1990 U.S. Dist. LEXIS 1537, 1990 WL 19055 (1990)
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Rule of Law:
The Code of Professional Responsibility's prohibition against ex parte communications with a represented party (DR 7-104(A)(1)) does not automatically extend to former employees of an opposing corporate party, and attorneys may generally engage in such communications and represent them unless specific, current privileged attorney-client information is shown to be at risk.
Facts:
- In October 1986, Uniroyal, Inc. sold its wholly owned subsidiary, Uniroyal Plastics Company, Inc. (Plastics), to Polycast Technology Corporation.
- Polycast later initiated litigation, alleging that it entered into the transaction in reliance on misleading financial information about Plastics supplied by Uniroyal.
- Peter J. Petropoulos was a Uniroyal employee from 1962 until 1987.
- During 1985 and 1986, Petropoulos served as Director of Strategic Planning and Business Development for Uniroyal’s Engineered Products Group (EPG), a subdivision that included the Plastics Products Division.
- In this capacity, Petropoulos participated in formulating the 1986 budget for Plastics, which served as part of the basis for an earnings estimate Polycast alleges was false and misleading in the Plastics Offering Memorandum.
- Petropoulos also reviewed portions of the draft offering memorandum and coordinated Uniroyal’s responses to inquiries made by prospective bidders, including Polycast, for further information about Plastics.
- After the sale of Plastics in 1986, Petropoulos remained with Uniroyal until early 1987, then worked as a consultant for Polycast from February 1987 to January 1988, was employed by Polycast until September 1988, and subsequently consulted for a Plastics subsidiary until July 1989.
Procedural Posture:
- Polycast Technology Corporation commenced litigation in federal district court, charging that it relied on misleading financial information from Uniroyal, Inc. during the sale of Uniroyal Plastics Company, Inc.
- Uniroyal, Inc. filed a motion for a protective order pursuant to Rule 26(c) of the Federal Rules of Civil Procedure in the U.S. District Court for the Southern District of New York.
- Uniroyal's motion sought to prevent Polycast's counsel from engaging in ex parte communications with Peter J. Petropoulos, a former Uniroyal employee, and from representing him at his upcoming deposition; the deposition was then adjourned pending resolution of this dispute.
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Issue:
Does the Code of Professional Responsibility, specifically DR 7-104(A)(1), prohibit a plaintiff's counsel from engaging in ex parte communications with or representing a former managerial employee of the defendant corporation, when that employee was involved in the underlying transactions but is no longer employed by the defendant?
Opinions:
Majority - James C. Francis IV
No, the Code of Professional Responsibility, specifically DR 7-104(A)(1), does not prohibit a plaintiff's counsel from engaging in ex parte communications with or representing a former managerial employee of the defendant corporation, even if that employee was involved in the underlying transactions. The court determined that the Code of Professional Responsibility, not the Model Rules, governs attorney conduct in this federal court, though federal courts retain independent interpretative authority. DR 7-104(A)(1) prohibits communications with a 'party' known to be represented by counsel. The court reasoned that the traditional interpretation of DR 7-104(A)(1) does not include former employees within the definition of a corporate 'party.' It found that the policies underlying the rule—such as preventing exploitation of legal skill disparities, preserving attorney-client relationships, and facilitating settlement—have little relevance to former employees, who no longer act on behalf of the corporation or have a current attorney-client relationship with their former employer's counsel. While former employees might possess privileged information, this concern does not justify a blanket ban and is best addressed on a case-by-case basis. The court explicitly rejected the argument that the comments to Model Rule 4.2 (which describe an organizational 'party' as including managerial employees, those whose acts create liability, or whose statements are admissions) extend to former employees. Instead, these comments were intended to cover current employees. Expanding the definition of 'party' to include former employees would increase litigation costs, reduce judicial efficiency by compelling formal discovery, and deter the disclosure of information by former employees who might be reluctant to speak in the presence of the corporation’s attorney. Since Uniroyal failed to identify any specific privileged communications to which Mr. Petropoulos was privy, a protective order based on attorney-client privilege was not warranted.
Analysis:
This case provides crucial guidance for federal litigators on the scope of ethical rules regarding contact with former corporate employees, particularly within the Second Circuit. By affirming a narrow interpretation of 'party' under DR 7-104(A)(1) that generally excludes former employees, the court prioritizes informal information gathering, which can reduce litigation costs and promote efficiency. The decision emphasizes that the burden is on the moving party to demonstrate actual risks to privileged information, rather than relying on a former employee's status alone, thereby limiting a corporation's ability to 'barricade' former employees from opposing counsel. This approach encourages broader access to potential witnesses while maintaining safeguards for genuinely privileged communications.
