Grafton D. Stine vs. Barbara S. Stine No. 2014-20226

Civil Action-Family Law-Divorce-Professional Responsibility-Disqualification of Counsel-Prior Representation of Adverse Party-Duty of Counsel-Conflict of Interest-Confidential Information-Imputation to Members of Law Firm-Attorney’s Fees

Barbara Stine (“Wife”) filed a Petition to Disqualify the counsel of Grafton D. Stine (“Husband”) in this divorce action in which the parties dispute whether a toy store acquired from Husband’s parents during the marriage entirely constitutes marital property. Wife filed her Petition to Disqualify on the basis that Eric Pierce, Esquire, an attorney who had been a partner with Anthony Nestico, Esquire, another attorney with whom Husband’s counsel, Richard Druby, Esquire, later practiced, had provided legal services to the parties with regard to transfer of stock of the toy store from Husband’s parents to the parties. Husband, in turn, filed a request for attorney’s fees and costs incurred in defending Wife’s Petition for Disqualification.

1. Removal of a litigant’s attorney is a serious remedy that must be imposed with awareness of the important interest of a client in representation by counsel of the client’s choice.
2. An attorney should be disqualified based upon a violation of the Rules of Professional Conduct where disqualification is needed to ensure that the parties receive a fair trial.
3. Under common law, an attorney owes a fiduciary duty to his or her client that demands individual loyalty and prohibits the attorney from engaging in a conflict of interest.
4. The test of whether an attorney has conflicting interests so as to preclude representation of a party is not the presence of an actual conflict, but the possibility that a conflict may arise.
5. An attorney is prohibited from undertaking representation that is adverse to a former client in a matter that is substantially related to that in which the attorney previously had served the client.
6. The finding of a substantial relationship so as to disqualify representation is whether the information acquired by an attorney in his or her former representation substantially is related to the subject matter of the subsequent representation.
7. If the attorney might have acquired confidential information related to the subsequent representation, Pa.R.P.C. Rule 1.9 prevents the attorney from representing the subsequent client.
8. Confidential information gained by one member of a law firm is imputable to other members of the same law firm.
9. A former client seeking to disqualify a law firm representing an adverse party on the basis of its past relationship with a member of the law firm has the burden of proving: (1) an attorney-client relationship existed that was adverse to a subsequent representation by the law firm of the other client; (2) the subject matter of the relationship substantially was related; and (3) a member of the law firm, as attorney for the adverse party, acquired knowledge of confidential information from or concerning the former client actually or by operation of law.
10. Wife failed to carry her burden of establishing that an attorney-client relationship existed between she and Attorney Pierce with regard to the transfer of stock of the toy store, as the record establishes that Wife refused to sign the document signed by Husband and his parents she alleges she retained Attorney Pierce to draft at the time of the transfer of the store stock because she did not want to acquiesce the position that the shares of stock transferred would be considered a gift as opposed to a sale.
11. Even if Wife had established the existence of an attorney-client relationship with Attorney Pierce, Husband’s counsel would not be disqualified from representation of Husband in this matter through his partnership with Attorney Nestico in light of the fact that no evidence was presented that Attorney Nestico acquired any confidential material information relating to Wife’s interests through his professional affiliation with Attorney Pierce.
12. Husband is not entitled to attorney’s fees and costs because Wife had a good faith belief in the accuracy of the facts alleged in support of disqualification.
L.C.C.C.P. No. 2014-20226, Opinion by John C. Tylwalk, President Judge, January 8, 2018.

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY
PENNSYLVANIA
CIVIL DIVISION NO. 2014-20266

GRAFTON D. STINE
v.
BARBARA S. STINE

ORDER OF COURT

AND NOW, this 8th day of January, 2018, upon consideration of Defendant’s Petition to Disqualify Counsel for Plaintiff, the Briefs submitted by the parties, and the evidence adduced at the hearing conducted on October 2, 2017, it is hereby Ordered that said Motion is DENIED. It is further Ordered that Plaintiff’s request for attorney’s fees is DENIED. The parties shall proceed with this action in accordance with the directives of Special Master Ann Kline, Esquire.
BY THE COURT:

JOHN C. TYLWALK, P.J.

APPEARANCES:
RICHARD B. DRUBY, ESQUIRE FOR GRAFTON D. STINE
NESTICO DRUBY, P.C.

DANIEL A. STEPHENSON, ESQUIRE FOR BARBARA S. STINE
LAW OFFICE OF DANIEL A. STEPHENSON

OPINION, TYLWALK, P.J., JANUARY 8, 2018.
This is a divorce action involving a dispute regarding a toy store run by the parties during the marriage. The parties were married on June 3, 1989 and the store, Toys on the Square, was acquired from the parents of Plaintiff Grafton D. Stine (“Husband”) shortly thereafter. Defendant Barbara S. Stine (“Wife”) contends that the parties paid for all of the shares of stock for the store and that this asset is entirely marital property subject to equitable distribution. Husband posits that some of the shares were transferred to him by his parents as a gift and are non-marital property.
Husband filed a Motion for Appointment of Special Master on February 1, 2017 and Ann Kline, Esquire was appointed Special Master by Order dated February 10, 2017. On April 7, 2017, Wife filed a Petition to Disqualify Husband’s counsel, Richard B. Druby, Esquire (“Attorney Druby”). Wife claims that during her review of documents in anticipation of a Special Master’s Hearing, she noticed a document bearing the name of the law firm “Pierce Nestico.” It was only then that she realized that Eric Pierce, Esquire (“Attorney Pierce”) had provided legal services to the parties when he was a law partner of Anthony Nestico, Esquire (“Attorney Nestico”), Druby’s current law partner, with regard to the transfer of the stock for the store from Husband’s parents. Wife contends that the representation of his former partner disqualifies Attorney Nestico which, in turn, disqualifies his current partner, Attorney Druby, from involvement in the parties’ divorce action.
Husband argues that Wife’s Petition is untimely as she has had the document in question in her possession since September 24, 2015 and that Wife has failed to prove that Attorney Pierce represented her in any transaction regarding the transfer of stock for the store. Husband requests that we award him the attorney’s fees and costs incurred in defending Wife’s Petition for Disqualification. We conducted a hearing on Wife’s Petition on October 2, 2017, the parties have submitted Briefs, and the matter is now before us for disposition.
At the hearing, Attorney Nestico testified telephonically. He explained that he has been an attorney since 1990 and that he currently has been a shareholder of the law firm Nestico Druby, P.C. or its predecessor since September 1999. Attorney Druby also joined the law firm in 1999.
Attorney Nestico explained that he has been on extended medical leave for the past three years. Prior to joining his current law firm, he had been a sole practitioner. He had a brief business arrangement with Attorney Pierce approximately twenty years ago from October 1996 through May 1998. He explained that for the first half of that time period, he had simply rented office space from Attorney Pierce. During the last half of the time, he and Attorney Pierce had set up a limited liability partnership. However, they did not routinely share files as Attorney Pierce had his own practice which was very different from that of Attorney Nestico. Attorney Nestico estimated that he might have helped Attorney Pierce on less than a handful of cases during the entire time of their professional relationship.
Attorney Nestico did not recall ever having performed any legal work for the parties, with regard to either Toys On the Green (another toy store owned by Husband’s parents) or Toys on the Square. He was not consulted by Attorney Pierce for any business or domestic work regarding the parties. He never met with or counseled either Husband or Wife and he did not know Husband’s parents. The only familiarity he had with the parties was having seen Husband during a trip to the toy store years ago. When he and Attorney Pierce parted ways, Attorney Nestico did not take any files or work in which Pierce had been involved. He never spoke to Attorney Pierce after the two went their separate ways due to a fee dispute over a personal injury case which Attorney Pierce had referred to him. Attorney Pierce subsequently committed suicide and his files were turned over to the Disciplinary Board of the Supreme Court of Pennsylvania. Attorney John Havas was appointed to deal with the files left by Attorney Pierce and Attorney Nestico did not receive or have access to any of them.
Attorney Druby became involved in Husband’s representation in this case on October 12, 2015. Attorney Nestico became ill on October 19, 2015 and has not returned to his practice since that time. Attorney Nestico’s practice did not overlap with Attorney Druby’s and they never discussed any legal matters concerning the parties. He could have provided no information regarding either party to Attorney Druby because he has no knowledge of either one. The first time he was involved in this matter was when he was asked to prepare an affidavit in opposition to Wife’s Petition seeking Attorney Druby’s disqualification.
On cross-examination, Attorney Nestico admitted that it was conceivable that he might have performed some type of work on the transaction regarding the parties obtaining stock from Husband’s parents, but if he had, it would have been extremely brief – maybe one quarter of an hour at most. At his present firm, he has records to perform conflict checks on any files he brought from his former affiliation with Attorney Pierce; however, he has no way to do a conflict check on the handful of clients he was consulted for Attorney Pierce’s files beyond his own recollection as he would not have brought those files to his practice with him.
At the hearing, Wife confirmed that the ownership of the toy store and whether it was a marital asset is an issue in this matter. She explained that she and Husband had purchased the store after their marriage. She testified that she had hired Attorney Pierce in 1998 when he was a partner of Attorney Nestico regarding the parties’ purchase of the store. She was the first one to contact Attorney Pierce. At first, she met with him alone, but he represented both parties and she and Husband also met with him together. Eventually, Attorney Pierce prepared two versions of an agreement for the purchase of the store from Husband’s parents. One was ultimately signed by Husband and his parents on March 3, 1998; however, Wife had refused to sign it. (Exhibit “10”) Wife explained that the interpretation of this agreement is currently at issue in this divorce matter. Wife believed that the parties were billed by Pierce Nestico for the legal work, but she had no copies of any invoices. She recalled briefly meeting Attorney Nestico during one of her meetings with Attorney Pierce; however, she believes that Attorney Pierce had consulted with him about the transaction and that he was involved in helping to obtain financing for the purchase.
On cross-examination, Wife insisted that the first time she became aware of Attorney Nestico’s involvement was when she reviewed some discovery responses which indicated Husband’s position that some of the shares transferred by Husband’s parents had been gifted to him. Prior to that time, she did not realize that there was a dispute over the marital/non-marital nature of the business. She confirmed her position that no part of the transfer was a gift because they had paid for it. She had no correspondence or invoices from her dealings with Attorney Pierce for this case. She believed that the parties had gone to him for other legal work, too. She acknowledged that she had only been introduced to Attorney Nestico once and that her only contact with him was when she was introduced to him in Attorney Pierce’s office after which Attorney Nestico immediately left the meeting. Wife also acknowledged that in 2007, the parties had retained a different law firm to conduct a review of the corporate books regarding their ownership interest in the store.
Husband testified that he and Wife separated approximately three and a half years ago. He recalled that Attorney Pierce had represented himself and his father. He had drafted the agreement which was signed on March 3, 1998 for Toys On the Green, Inc., the business which was owned by his father. Attorney Pierce had also represented him in another matter regarding his credit, but had not represented him in acquiring the stock from his parents. He had never met Attorney Nestico except as a customer at the toy store. Attorney Nestico never wrote to him and he never received a bill for any of Attorney Nestico’s time. Attorney Nestico had never been involved in transfers of the stock for the business and, to his knowledge, had never had any dealings with Wife. Husband explained that the transfers of the stock between himself and his parents had occurred prior to Attorney Pierces’ involvement and that he had never acted as an attorney for Husband or Wife.
The final witness called was Attorney Druby. He testified as to the amount of legal fees Husband had incurred as a result of this Petition for his disqualification. (Exhibit “9”)
Wife argues that Attorney Druby must be disqualified due to an impermissible conflict of interest. Rule 1.9 and 1.10 of the Pennsylvania Code of Professional Responsibility address an attorney’s duties to their former clients:
Rule 1.9. Duties to Former Clients
(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent.
(b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client
(1) whose interests are materially adverse to that person; and
(2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter; unless the former client gives informed consent.
(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:
(1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or
(2) reveal information relating to the representation except as these Rules would permit or require with respect to a client.
Pa.R.P.C. 1.9.
Rule 1.10. Imputation of Conflicts of Interest: General Rule
(a) While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7, or 1.9, unless the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm, or unless permitted by Rules 1.10(b) or (c).
(b) When a lawyer becomes associated with a firm, the firm may not knowingly represent a person in the same or a substantially related matter in which that lawyer, or a firm with which the lawyer was associated, had previously represented a client whose interests are materially adverse to that person and about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter unless:
(1) the disqualified lawyer is screened from any participation in the matter and is apportioned no part of the fee therefrom; and
(2) written notice is promptly given to the appropriate client to enable it to ascertain compliance with the provisions of this rule.
(c) When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless
(1) The matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and
(2) Any lawyer remaining in the firm has information protecting by Rules 1.6 and 1.9(c) that is material to the matter.
(d) When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless:
(1) the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and
(2) any lawyer remaining in the firm has information protected by Rules 1.6 and 1.9(c) that is material to the matter.
(d) A disqualification prescribed by this Rule may be waived by the affected client under the conditions stated in Rule 1.7.
(e) While lawyers are associated in a firm, a prohibition in paragraphs (a) through (i) of Rule 1.8 that applies to any one of them shall apply to all of them.
(f) The disqualification of lawyers in a firm with former or current government lawyers is governed by Rule 1.11.
(g) The disqualification of lawyers in a firm with a former judge, arbitrator, mediator or other third-party neutral is governed by Rule 1.12.
(h) Where a lawyer in a firm is disqualified from a matter due to consultation with a prospective client pursuant to Rule 1.18(b) and (c), disqualification of other lawyers in the same firm is governed by Rule 1.18(d). The disqualification of a lawyer when another lawyer in the lawyer’s firm is likely to be called as a witness is governed by Rule 3.7.
Pa.R.P.C. 1.10.
Under the common law, an attorney owes a fiduciary duty to his client. Maritrans v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 253, 602 A.2d 1277, 1283 (1992). This fiduciary duty demands individual loyalty and prohibits the attorney from engaging in conflicts of interest. Id. An attorney may not represent conflicting interests. Commonwealth ex rel. Whitling v. Russell, 406 Pa. 45, 176 A.2d 641 (1962). The test of whether an attorney has conflicting interests so as to preclude his representation of a party is not actuality of conflict, but possibility that a conflict may arise. Middleberg v. Middleberg, 427 Pa. 114, 233 A.2d 889 (1967). An attorney will not be permitted to represent conflicting interests unless those interests agree to be so represented. Seifert v. Dumatic Industries Inc., 413 Pa. 395, 197 A.2d 454 (1964).
An attorney is prohibited from undertaking a representation adverse to a former client in a matter “substantially related” to that in which the attorney previously had served the client. Maritrans v. Pepper, Hamilton & Scheetz, supra, 529 Pa. at 256, 602 A.2d at 1284. The fact that the two representations involved similar or related facts is not, in itself, sufficient to warrant the finding of a substantial relationship so as to disqualify the attorney from the representation, but, rather the test is whether information acquired by an attorney in his former representation is substantially related to the subject matter of subsequent representation. Commonwealth Ins. Co. v. Graphix Hot Line, 808 F.Supp. 1200, 1204 (1992). If the attorney might have acquired confidential information related to the subsequent representation, Pennsylvania Rule of Professional Conduct 1.9 would prevent the attorney from representing the second client. Richardson v. Hamilton Int’l Corp., 469 F.2d 1382, 1385 (1972), cert. denied, 411 U.S. 986, 93 S.Ct. 2271, 36 L.Ed.2d 964 (1973). Confidential information gained by one member of a law firm is imputable to other members of the same law firm. See Maritrans v. Pepper, Hamilton & Scheetz, supra, 529 Pa. at 241, 602 A.2d 1277. Therefore, a former client seeking to disqualify a law firm representing an adverse party on the basis of its past relationship with a member of the law firm has the burden of proving: (1) that a past attorney/client relationship existed which was adverse to a subsequent representation by the law firm of the other client; (2) that the subject matter of the relationship was substantially related; (3) that a member of the law firm, as attorney for the adverse party, acquired knowledge of confidential information from or concerning the former client, actually or by operation of law. City of Cleveland v. Cleveland Elec. Illuminating, 440 F.Supp. 193, 207 (1977), affirmed, 573 F.2d 1310 (1977), cert. denied, 435 U.S. 996, 98 S.Ct. 1648, 56 L.Ed.2d 85 (1978); 7A C.J.S. Attorney and Client § 164.
Estate of Pew, 655 A.2d 521, 545-546 (Pa. Super. 1994).
Removal of a litigant’s attorney is a serious remedy which must be imposed with an awareness of the important interests of a client in representation by counsel of the client’s choice. Sutch v. Roxborough Memorial Hospital, 151 A.3d 241 (Pa. Super. 2016). A court’s authority to disqualify counsel based on the Rules of Professional Conduct is limited; an attorney should be disqualified for violations of the Rules where disqualification is needed to ensure the parties receive the fair trial which due process requires. Id.
First and foremost, we are concerned with whether Attorney Pierce ever actually represented Wife as there is a conflict in the testimony as to who was represented by him. Although Wife recalls attending meetings at Attorney Pierce’s office, Husband explained that Attorney Pierce was involved in drawing up documents for the business owned by Husband’s father and that when the agreement in question was drawn up, it was the first time Wife acquired any stock in the business. We believe it is quite telling that Wife refused to sign a document which she claims to have retained Attorney Pierce to draft, while Husband and his parents both signed that agreement. She explained that she did not sign it because if she did so, she would be acquiescing in the position that the shares of stock being transferred should be considered a gift, rather than a purchase. Under these circumstances, we find it extremely unlikely that Attorney Pierce had been retained to represent Wife’s legal interests with regard to acquiring the business. Thus, we find that Wife has failed to establish the existence of an attorney-client relationship between herself and Attorney Pierce which would, in turn, disqualify Attorney Nestico.
Moreover, even if there had been an attorney-client relationship between Wife and Attorney Pierce, we find that Attorney Druby would not be disqualified through his partnership with Attorney Nestico from representation of Husband in this matter. Comment 5 to Rule 1.10 provides:
[5] Rule 1.10(c) operates to permit a law firm, under certain circumstances, to represent a person with interests directly adverse to those of a client represented by a lawyer who formerly was associated with the firm. The Rule applies regardless of when the formerly associated lawyer represented the client. However, the law firm may not represent a person with interests adverse to those of a present client of the firm, which would violate Rule 1.7. Moreover, the firm may not represent the person where the matter is the same or substantially related to that in which the formerly associated lawyer represented the client and any other lawyer currently in the firm has material information protected by Rules 1.6 and 1.9(c).
Pa.R.P.C. 1.10 – Comment 10.
Here, Wife claims to have been represented by Attorney Pierce, who was formerly associated, albeit very briefly, with Attorney Nestico. There was no evidence that Attorney Nestico acquired any confidential material information relating to Wife’s interests either directly, or which could be imputed, through his professional affiliation with Attorney Pierce. Hence, we find no breach of the duties imposed by the Rules of Professional Conduct on the part of Attorney Druby. His continued involvement in this case will pose no infringement on Wife’s right to due process.
Because we find no basis upon which to disqualify Attorney Druby from representing Husband in this matter, we will deny Wife’s Petition for disqualification and direct the parties to proceed in accordance with the directives of the Special Master. We will also deny Husband’s request for attorney’s fees as we find Wife had a good faith belief in the accuracy of the facts she alleged in support of disqualification.