Peat, Marwick, Mitchell & Co. v. Los Angeles Rams Football Co.

Digges, J., delivered the opinion of the Court. Here, as referee, we are called upon to decide a preliminary dispute that has arisen just prior to the opening kickoff in what portends to be a hard-fought legal spectacle. Although the main contest concerns the alleged negligence of petitioner Peat, Marwick, Mitchell & Company (Peat & Co.) in preparing a financial statement relied on by respondent Los Angeles Rams Football Company (Rams) when it entered into a 1972 franchise exchange agreement with the Baltimore Football Club, Inc., this underlying cause of action has been benched pending settlement of the scrimmage now before us. Instead, the issue that is presented on this appeal is the propriety of permitting the well-known Baltimore law firm of Venable, Baetjer and Howard (Venable) to continue to serve as counsel for the Rams when one of its partners may be called upon to testify in the negligence action.

Peat & Co.’s motion to require withdrawal of Venable as respondent’s counsel was denied by the Circuit Court for Baltimore County (MacDaniel, J.) and it noted an appeal, but the Court of Special Appeals, acting pursuant to Maryland Rule 1035 b 1, dismissed it as “not allowed by law.” We granted certiorari and, likewise having ⁸⁸ reached the conclusion that the circuit court’s decision is not appealable at this time, affirm the judgment of the Court of Special Appeals. The circumstances that form the backdrop for this case, concerning as they do the financial intricacies involved in the exchange of the two professional football franchises, are quite complex; however, in order to resolve the narrow issue presented by this appeal we are here required to relate only a skeletal outline of the facts. In 1967, Johnny Unitas, the legendary quarterback of the Baltimore Colts, negotiated an agreement with Baltimore Football, Inc., the entity that then owned the Colts professional football team, whereby Unitas was to receive the sum of $25,000 per year for a period of ten years beginning immediately after the end of his active playing career. This contract and another amending it in 1970 were allegedly negotiated and drafted to a substantial degree by Jacques T. Schlenger, Esq., a partner in Venable.

Following, but not directly related to the execution of the various agreements with Unitas, Baltimore Football, Inc., entered into negotiations with Nine to Eleven, Inc., the owner of the Los Angeles Rams professional football team, concerning the possibility of a franchise exchange. An agreement for such an exchange was reached in 1972, also allegedly negotiated and drafted to a considerable extent by Mr. Schlenger, through which each corporate entity contracted to acquire the other’s assets and assume its liabilities. As the basis for determining the assets and liabilities of Baltimore Football, Inc., the exchange agreement incorporated by reference a financial report that was prepared and certified by Peat & Co. at the instance of Baltimore. The report, however, did not list the Unitas deferred compensation contract as a liability, or otherwise mention it.

As a consequence of this claimed neglect, Baltimore Football, Inc., which has been renamed the Los Angeles Rams Football Company, concluded it was prohibited from insisting that its obligation under the contract with Unitas was transferred to the new Colt owners, 1 Thus, in ⁸⁹ September 1973 the Rams, represented by Venable, filed a $300,000 damage suit in the Circuit Court for Baltimore County against Peat & Co. alleging that it was negligent in omitting the Unitas obligation from the financiar report. 2 Although the parties engaged in extensive discovery and other pretrial activities over a three-year period following the institution of the suit, it was not until July 1977, just six months before the date trial was scheduled to commence, that Peat & Co. filed its motion to prohibit any member of Venable from acting as counsel to the Rams in the pending litigation. Peat & Co. contended that Mr. Schlenger, who has not appeared as attorney of record or otherwise formally participated in the case, would in all probability be called as a witness which, in turn, required that he and each of the members of his law firm be disqualified in accordance with the dictates of DR 5-102 of the Code of Professional Responsibility. 3 The circuit court found that “substantial hardship” would result for the Rams if Venable was removed at this late date, and, therefore, as authorized by DR 5-101 (B) (4), declined to grant Peat & Co.’s disqualification ⁹⁰ motion. 4 It is the appealability of this order to which we now turn our attention. As the appellate jurisdiction of the courts of this State in both civil actions and criminal causes is at this time delimited by statute, 5 see, e.g., Jolley v. State, 282 Md. 353, 355 , 384 A. 2d 91, 93 (1978); Warren v. State, 281 Md. 179, 182 , 377 A. 2d 1169, 1171 (1977); Criminal Inj. Comp.

Bd. v. Gould, 273 Md. 486, 500 , 331 A. 2d 55, 64 (1975), our analysis of the appealability of the circuit court’s order must begin with an examination of the applicable legislative enactment, found in Md. Code (1974), § 12-301 of the Courts Article. In pertinent part it provides: [A] party may appeal from a final judgment entered in a civil or criminal case by a circuit court. The right of appeal exists from a final judgment entered by a court in the exercise of original, special, limited, statutory jurisdiction, unless in a particular case the right of appeal is expressly denied by law. Our primary task here is to determine whether the order refusing to disqualify Venable from further participation in this case is a “final judgment” within the meaning of section 12-301. 6 The General Assembly has defined a final judgment as “a judgment, decree, sentence, order, determination, decision, or other action by a court ... from which an appeal, application for leave to appeal, or petition for certiorari may be taken,” Md. Code (1974), § 12-101 (f) of ⁹¹ the Courts Article; but, as this definition implies, it is ultimately for this Court to decide which judgments or orders are final and therefore appealable under section 12-301.

Warren v. State, supra, 281 Md. at 183 , 377 A. 2d at 1171 . In our prior attempts at determining if a given trial court action is appealable, this Court has found that the question of “[wjhether a judgment is final is not always readily capable of delineation.” United States Fire Ins. v. Schwartz, 280 Md. 518, 521 , 374 A. 2d 896, 898 (1977). Nonetheless, guided by the principle that piecemeal appeals are to be scorned, e.g., Jolley v. State, supra, 282 Md. at 356 , 384 A. 2d at 93 ; Warren v. State, supra, 281 Md. at 183 , 377 A. 2d at 1171 ; United States Fire Ins. v. Schwartz, supra, 280 Md. at 524 , 374 A. 2d at 900 , we have stated as a general rule that in order to be appealable a “judgment must be so final as to determine and conclude rights involved, or deny the appellant means of further prosecuting or defending his rights and interests in the subject matter of the proceeding.” United States Fire Ins. v. Schwartz, supra, 280 Md. at 521 , 374 A. 2d at 899 (citation omitted). In applying this rule to the present case, it should be remembered that the subject matter of the litigation before the circuit court is the liability, if any, of Peat & Co. emanating from its preparation of the financial report used in the franchise exchange agreement.

Certainly, the trial court’s refusal to disqualify respondent’s counsel has in no way precluded Peat & Co. from fully defending its interest in the pending law suit or concluded the question of its liability and thus in this context is not a final judgment. See Almon v. American Carloading Corporation, 380 Ill. 524 , 44 N.E.2d 592, 596 (1942); Middleberg v. Middleberg, 427 Pa. 114 , 233 A. 2d 889, 890 (1967); Knox v. Long, 228 S.W.2d 367, 368 (Tex. Ct. App. 1950). Peat & Co., however, asserts that this determination does not end the matter because the circuit court’s order is appealable under the so-called “collateral order exception” appended to the final order requirement.

This doctrine, recently applied in the criminal context by this Court in Stewart v. State, 282 Md. 557, 571 , 386 A. 2d 1206, 1213 (1978), ⁹² and Jolley v. State, supra, 282 Md. at 357, 384 A. 2d at 94 , was first articulated by the United States Supreme Court in Cohen v. Beneficial Industrial Loan Corp., 337 U. S. 541, 545-47 , 69 S. Ct. 1221 , 93 L. Ed. 1528 (1949), in dealing with the appealability of an order denying a motion for the posting of security for costs under the federal appeals statute that is similar to section 12-301. The concept is narrow in scope, however, for, as the Supreme Court has articulated, if the order is to come within the “small class” of cases included in the final judgment rule under Cohen it must meet four requirements: “[T]he order must [(1)] conclusively determine the disputed question, [(2)] resolve an important issue [, (3) be] completely separate from the merits of the action, and [(4)] be effectively unreviewable on appeal from a final judgment.” Coopers & Lybrand v. Livesay, 437 U. S. 463, 468 , 98 S. Ct. 2454 , 57 L.Ed.2d 351 (1978) (footnote omitted); see Cohen v. Beneficial Industrial Loan Corp., supra, 337 U. S. at 546 . Supporting Peat & Co.’s contention that the circuit court’s determination was a “collateral order” final under Cohen , is an impressive array of federal and state authorities that have held that a trial judge’s denial of a motion to disqualify counsel is immediately appealable. 7 E.g., Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496 F. 2d 800, 805 (2d Cir. 1974) (en banc); Kroungold v. Triester, 521 F. 2d 763, 765 (3d Cir. 1975); MacKethan v. Peat, Marwick, Mitchell & Co., 557 F. 2d 395, 396 (4th Cir. 1977) (per curiam); Zylstra v. Safeway Stores, Inc., 578 F. 2d 102 , 104 n. 1 (5th Cir. 1978); Melamed v. ITT Continental Baking Co., 534 F. 2d 82, 84 (6th Cir. 1976) (per curiam); Schloetter v. Railoc of Indiana, Inc., 546 F. 2d 706, 709 (7th Cir. 1976); Meat Price Investigators Ass’n v. Spencer Foods, 572 F. 2d 163, 165 (8th Cir. 1978); Fullmer v. Harper, 517 F. 2d 20, 21 (10th Cir. 1975) (per curiam); Meehan v. Hopps, 45 Cal. 2d 213 , 288 P. 2d 267, 270 (1955); Kraus v. Davis, 6 Cal. App. 3d 484 , 85 Cal.

Rptr. 846, 847 (1970); see Borden v. Borden, 277 A. 2d 89, 90 (D.C. 1971); cf. Cord v. Smith, 338 F. 2d 516, 521 (9th Cir. 1964) (denial of ⁹³ motion to disqualify reviewable by writ of mandamus). See generally 11 Ga. L. Rev. 705 (1977); 30 Vand. L. Rev. 259 (1977); 1975 Wash.

U.L.Q. 212. Illustrative of the analysis of those courts that find the denial of a disqualification motion immediately appealable is the leading case of Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., supra. Prior to Silver Chrysler, the United States Court of Appeals for the Second Circuit had distinguished between the appealability of an order refusing to disqualify and one disqualifying an attorney. Compare Harmar Drive-In Theatre v. Warner Bros.

Pictures, 239 F. 2d 555, 556 (2d Cir. 1956) (orders granting and denying motions to disqualify counsel both appealable), cert. denied, 355 U. S. 824 (1957) with Fleischer v. Phillips, 264 F. 2d 515, 517 (2d Cir.) (denial of motion to disqualify counsel, as opposed to order granting motion, not appealable), cert. denied, 359 U. S. 1002 (1959). The en banc court in Silver Chrysler, in determining whether this distinction was indeed viable, found the two types of orders indistinguishable for the purpose of appeal because both types met the prerequisites for an appealable collateral order under Cohen: There is no sufficient basis for distinguishing between the two. In both situations the order is collateral to the main proceeding yet has grave consequences to the losing party, and it is fatuous to suppose that review of the final judgment will provide adequate relief. £496 F. 2d at 805.] 8 Although the authority supporting the appealability of the circuit court’s order is substantial, it is by no means universally accepted. Several other courts have declined to permit appeals from trial court rulings denying motions to disqualify counsel specifically because such dispositions could not fulfill the elements necessary for finality under the Cohen doctrine.

Community Broadcasting of Boston, Inc. v. ⁹⁴ F.C.C., 546 F. 2d 1022, 1027-28 (D.C. Cir. 1976); Gomes v. Heirs of Kauwe, 52 Hawaii 126, 472 P. 2d 119, 120 (1970) (per curiam); see Almon v. American Carloading Corporation, 380 Ill. 524 , 44 N.E.2d 592, 596 (1942); Chicago Title & Trust Co. v. Guaranty Bank, 59 Ill. App. 3d 362 , 375 N.E.2d 522, 523-24 (1978); cf. Middleberg v. Middleberg, 427 Pa. 114 , 233 A. 2d 889, 890-91 (1967). See generally Comment, The Appealability of Orders Denying Motions for Disqualification of Counsel in the Federal Courts, 45 U. Chi. L. Rev. 450 (1978).

After making our analysis as to whether the failure to disqualify an attorney is immediately appealable, we conclude it is not because there are two Cohen elements lacking: first, the order is effectively reviewable on appeal after a final judgment and second, it is not of such importance as to warrant immediate appellate consideration. 9 Focusing initially on whether there can be an effective review of the trial court’s order after a final judgment, we cannot accept as valid the reasoning of those courts that think it “fatuous to suppose that review of the final judgment will provide adequate relief.” Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., supra, 496 F. 2d at 805 . This is not an order such as one involving the posting of pretrial security, Cohen v. Beneficial Industrial Loan Corp., supra, 337 U. S. at 545-47 , or the right to a reduction of bail, Stack v. Boyle, 342 U. S. 1, 6 , 72 S. Ct. 1 , 96 L. Ed. 3 (1951); because error in their disposition is not likely to affect the outcome of the trial, such orders, in effect, become moot if appeal is delayed until entry of a normal final judgment. In the case of orders refusing disqualification, however, if it can be shown on appeal that the movant was prejudiced by the denial of his request, reversal and a new trial will follow. Nor do we accept as correct the argument that review upon appeal from a final judgment will be ineffective because Peat & Co. must bear the cost and inconvenience of a trial, harms that a reversal on appeal will not recompense.

That Peat & Co. will have to ⁹⁵ bear such a burden does not present a better case for the effective unreviewability of an order denying disqualification than could be made for all interlocutory orders. Somewhat akin to this latter