Tydings v. Berk Enterprises

GILBERT, Chief Judge. We are asked in this appeal whether a court may appoint counsel for a solvent on-going corporate business entity notwithstanding the corporation’s desire to obtain counsel of its own choosing. There are, to be sure, a number of instances where a court is empowered, by statute, to appoint counsel in civil cases. For example, the court may appoint an attorney —for the representation of a child or children in an adoption proceeding (Md. Fam.

Law Code Ann. § 5-323; Md. Rule R74); —for an incompetent (Md. Rule R75); —where “a person in emergency management and civil defense service, or a person suffering injury or damage is a party” in a court proceeding and does not personally appear, “or is not represented by an authorized attorney” (Md.Ann.Code art. 16A, § 17(c)); ⁶³⁶ —in a condemnation proceeding which may affect the interest of a defendant in gestation, not in being, under a disability or whose identity or whereabouts is unknown (Md. Rule U10); —for a minor or person under a disability who has an interest in a fiduciary estate other than a guardianship of the property of the minor or disabled person (Md. Rule V71(e)); —for a minor in a guardianship proceeding (Md. Est. & Trusts Code Ann. § 13-211(b)); —for the child or children in a custody case (Md. Fam. Law Code Ann. § 1-202(1)); —where a veteran of World War II is aggrieved by an action of the State involving rights or privileges granted to such veterans (Md.Ann.Code art. 96V2 § 18). The Legislature, realizing the need to “protect” individuals who are unable to protect themselves, granted the civil courts power to appoint counsel under the doctrine of “parens patriae.” With the exception of the veterans provision, all of the above statutory provisions were promulgated for persons under a fiscal, legal, mental, or physical disability. The veterans provisions may be perceived as political.

We have neither found nor been directed to any Maryland statutory provision that empowers a court to appoint counsel for a corporation. There is, however, case law in other jurisdictions, pro and con, on the subject. We shall discuss those cases, infra, but first we shall provide a factual backdrop so as to place the instant matter in proper perspective. The Facts Montgomery Golf Corporation owns and operates the Montgomery Country Club in Laytonsville, Maryland. 1 The ⁶³⁷ corporation’s stockholders consist of two warring factions.

The minority faction — owners in the aggregate of 48 percent of all outstanding voting stock — is composed of Berk Enterprises, Maurice Berk, Duffy Bros., Inc. and Top of the Park Corporation. For purposes of convenience we shall refer to the minority collectively as “Berk.” The majority — owners of the remaining 52 percent of the outstanding voting stock — are Warren E. Tydings Sr., Warren E. Tydings Jr., Anne Marie Tydings, George R. Tydings, and Eleanor T. Reynolds, all of whom we shall refer to collectively as “Tydings.” Berk has filed a suit in the Circuit Court for Montgomery County against Tydings and Montgomery Golf. The suit alleges that Tydings breached an oral contract to share control of Montgomery Golf. The complaint further avers that Tydings has looted the corporation and seeks recompense for that alleged raid on the corporate treasury.

Additionally, Berk has sued Montgomery Golf for services purportedly rendered to the corporation by Berk. Tydings and Montgomery Golf responded through their attorney, David Manoogian, Esq. Berk moved to disqualify Mr. Manoogian and his law firm from representing Montgomery Golf because of a conflict of interest. 2 For the same reason, Berk sought Mr. Manoogian’s removal as counsel for Tydings. Oral argument was heard on the motion, and the court properly granted Berk’s motion.

Mr. Manoogian and his firm were disqualified from representing Montgomery Golf. 3 The judge deferred ruling on whether Mr. Manoogian could continue to represent Tydings. Addressing the need for Montgomery Golf to be represented by separate counsel, the hearing judge directed both Berk and Tydings to attempt to agree on another counsel for the corporation. The judge said that, in the event the ⁶³⁸ parties could not agree, each was to submit the names of nominees from which the court would appoint an attorney for the corporation. The list of nominees was to be submitted to the judge no later than January 6, 1989.

No agreement was reached between the parties, and Berk nominated one lawyer. Tydings did not submit any names for consideration. The judge appointed Berk’s sole nominee, John R. Dugan, Esq., as counsel for Montgomery Golf. Mr. Dugan was never formally notified of his appointment but was told of it by Berk’s counsel.

No order of appointment is in the record. A hearing was scheduled for January 19, 1989, at which time the court was to rule on whether Mr. Manoogian could continue to represent the Tydings. Prior thereto, Mr. Manoogian withdrew as counsel, and Albert D. Brault, Esq. entered his appearance on behalf of Tydings. Jacob A. Stein, Esq. entered his appearance on behalf of Montgomery Golf. 4 Mr. Brault and Mr. Stein then submitted to the court a joint motion for reconsideration of Mr. Dugan’s appointment as counsel for the corporation, but the judge orally affirmed his appointment of Mr. Dugan as counsel for Montgomery Golf.

Disappointed, dissatisfied, and disgruntled, Tydings appealed. 5 The Issue Tydings argues that the hearing judge possessed neither the authority nor the inherent power to appoint counsel for the corporation. Tydings reasons that Montgomery Golf is a viable corporation and not in need of judicial protection or supervision. Montgomery Golf’s board of directors, Tyd ⁶³⁹ ings asserts, has the right to choose the corporation’s counsel. The hearing judge, in ruling that he had the authority to appoint counsel, said: “I recognize full well that, in doing so, I am also addressing myself to the question ... the constitutional question that is raised by Mr. Brault, which is a first rate issue, and which also gets mixed up in all of this and needs to be, perhaps, addressed by an Appellate Court.” The judge’s perception of the problem was correct.

His resolution of it was not. I. The Law The hearing court was fully attuned to Montgomery Golf’s need for independent counsel. “The test for determining whether there is an impairing conflict is probability, not certainty.” Pirillo v. Takiff, 462 Pa. 511, 529 , 341 A.2d 896, 905 (1975). See also Middleberg v. Middleberg, 427 Pa. 114, 115 , 233 A.2d 889 (1967); Seifert v. Dumatic Industries, Inc., 413 Pa. 395, 398 , 197 A.2d 454 (1964). Once the probability of conflict is recognized by the court, the judge may “restrain conduct which has the potential for evolving into a breach of ethics before such conduct becomes ripe for disciplinary action.” Pirillo, supra, citing Slater v. Rimar, Inc., 462 Pa. 138 , 338 A.2d 584 (1975); Kremer v. Shoyer, 453 Pa. 22 , 311 A.2d 600 (1973); Middleberg v. Middleberg, supra.

The hearing judge, as we have said, correctly disqualified Mr. Manoogian from representing Montgomery Golf and trying to serve two masters. Representation of a corporation as an entity and the majority of its directors, individually, creates a possible conflict of interest for the attorney, particularly where the corporation’s interests are adverse to those of the directors. The majority of the Supreme Court of Iowa said in Rowen v. LeMars Mut. Ins.

Co. of Iowa, 230 N.W.2d 905, 914-15 (Iowa 1975): ⁶⁴⁰ “It is also well established that a potential conflict of interest exists when the same law firm attempts to represent the nominal corporate defendant in a derivative action while at the same time representing the corporate insiders accused of wrongdoing. Murphy v. Washington American League Baseball Club, Inc., 116 U.S. App. D.C. 362 , 324 F.2d 394 (1963); Lewis v. Shaffer Stores Company, 218 F.Supp. 238 (S.D.N.Y.1963); 13 Fletcher, Cyclopedia of Private Corporations § 6025 (1970); see also Yablonski v. United Mine Workers, [ 145 U.S. App. D.C. 252 , 448 F.2d 1175 (1971), cert. denied 406 U.S. 906 , 92 S.Ct. 1609 , 31 L.Ed.2d 816 (1972);] ... Milone v. English, [ 113 U.S.App.D.C. 207 , 306 F.2d 814 (1962);] and International Brotherhood of Teamsters, Etc. v. Hoffa, ... [ 242 F.Supp. 246 (1965) ].” Rule 1.7 of the Maryland Rules of Professional Conduct 6 provides: “(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation. (b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation.” The American Bar Association Model Code of Professional Responsibility Ethical Consideration 5-18 declares: ⁶⁴¹ “A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity.

In advising the entity, a lawyer should keep paramount its interests and his professional judgment should not be influenced by the personal desires of any person or organization. Occasionally a lawyer for an entity is requested by a stockholder, director, officer, employee, representative, or other person connected with the entity to represent him in an individual capacity; in such case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present.” (Emphasis