Centerboard Securities LLC v. Benefuel Inc

Filing 129

Memorandum Opinion and Order denying 97 MOTION Disqualify Husch Blackwell LLP as Counsel for Non-Party Witnesses:Robert Green, Suncor Energy, Itochu International Inc., and BA Securities LLC. (Ordered by Senior Judge A. Joe Fish on 6/3/2016) (mem)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

CENTERBOARD SECURITIES, LLC,
Plaintiff,
VS.
BENEFUEL, INC.,
Defendant.

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CIVIL ACTION NO.
3:15-CV-2611-G

MEMORANDUM OPINION AND ORDER

Before the court is the plaintiff’s motion to disqualify Husch Blackwell LLP
(“HB”) as counsel for non-party witnesses (docket entry 97). For the reasons stated
below, the plaintiff’s motion to disqualify HB as counsel for non-party witnesses is
denied.
I. INTRODUCTION
This dispute arises out of a contract in which the plaintiff, Centerboard
Securities, LLC (“Centerboard”), agreed to provide the defendant, Benefuel Inc.
(“Benefuel”), with financial advisory services. See generally Centerboard’s Amended
Complaint (docket entry 44). In this suit, HB represents Benefuel and four non-

party witnesses, Suncor Energy (U.S.A.) Inc., Robert K. Green, BA Securities, Inc.
and Itochu International Inc. See Motion to Disqualify HB as Counsel for Non-Party
Witnesses (“Motion”) ¶¶ 1-3 (docket entry 97).
In its motion to disqualify HB as counsel for non-party witnesses, Centerboard
contends that HB’s representation of these non-party witnesses “not only has the
appearance of impropriety . . . but also runs the risk of a potential conflict of
interest.” Id. ¶ 4. Centerboard avers that Benefuel has used HB’s “representation of
non-party witnesses as a tactical weapon to restrict Centerboard’s access to
discovery,” and therefore, HB “should be disqualified as counsel for the non-party
witnesses.” Id. ¶ 5.
HB filed a timely response to Centerboard’s motion to disqualify HB as
counsel for non-party witnesses (docket entry 119), to which Centerboard served a
timely reply (docket entry 125). The motion is thus ripe for decision.
II. ANALYSIS
Disqualification cases are guided by state and national ethical standards
adopted by the Fifth Circuit. In re American Airlines, Inc., 972 F.2d 605, 610 (5th Cir.
1992), cert. denied, 507 U.S. 912 (1993). In the Fifth Circuit, one of the sources for
the standards of the profession is the canon of ethics developed by the American Bar
Association. In re Dresser Industries, Inc., 972 F.2d 540, 543 (5th Cir. 1992).
Additionally, courts are to consider the Texas Disciplinary Rules of Professional

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Conduct because they govern attorneys practicing in Texas generally. See Federal
Deposit Insurance Corporation v. United States Fire Insurance Company, 50 F.3d 1304,
1312 (5th Cir. 1995). Lastly, the court also considers, when applicable, local rules
promulgated by the court itself. Id. Because motions to disqualify are substantive
motions which affect the rights of the parties, a party cannot be deprived of its choice
of counsel on the basis of local rules alone. In re Dresser Industries, Inc., 972 F.2d at
543.
The court must give careful consideration to motions to disqualify because of
the potential for abuse. Galderma Laboratories, L.P. v. Actavis Mid Atlantic LLC, 927
F. Supp. 2d 390, 394-95 (N.D. Tex. 2013) (Kinkeade, J.). Parties may use
disqualification motions as “procedural weapons” to advance purely tactical purposes.
In re American Airlines, Inc., 972 F.2d at 611. “A disqualification inquiry, particularly
when instigated by an opponent, presents a palpable risk of unfairly denying a party
the counsel of [its] choosing.” United States Fire Insurance Company, 50 F.3d at 1316.
A party seeking to disqualify opposing counsel on the ground of a former
representation must establish two elements: (1) an actual attorney-client relationship
between the moving party and the attorney he seeks to disqualify and (2) a
substantial relationship between the subject matter of the former and present
representations. In re American Airlines, Inc., 972 F.2d at 614 (quoting Johnston v.
Harris County Flood Control District, 869 F.2d 1565, 1569 (5th Cir. 1989), cert. denied,

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493 U.S. 1019 (1990)). The party seeking disqualification bears the burden of
proving the present and prior representations are substantially related. National
Oilwell Varco, L.P. v. Omron Oilfield & Marine, Inc., 60 F. Supp. 3d 751, 760 (W.D.
Tex. 2014). Usually, courts may only disqualify attorneys for a conflict of interest if
the former client moves for disqualification. In re Yarn Processing Patent Validity
Litigation, 530 F.2d 83, 88 (5th Cir. 1976). However, there are a few “narrow
exceptions,” such as if there is an “unethical change in sides . . . [that is] manifest and
glaring.” Id. at 89; Clemens v. McNamee, No. 4:08-CV-00471, 2008 WL 1969315, at
*3 (S.D. Tex. May 6, 2008).
Centerboard moves to disqualify HB from continuing to represent non-party
witnesses on grounds that HB’s representation has the appearance of impropriety,
Centerboard’s Brief in Support of its Motion to Disqualify HB as Counsel for NonParty Witnesses at 2 (docket entry 98), HB is trying to influence the non-party
witnesses, id., HB’s representation runs the risk of potential conflicts of interest, id. at
4-5, and HB’s representation restricts Centerboard’s access to discovery. Id. at 2.
Centerboard maintains that there is a possible conflict of interest if any of the four
non-party witnesses produce evidence favorable to Centerboard, leaving HB “in the
position of questioning the practices or credibility of its own client(s) and will unable
to maintain loyalty to all of its clients.” Id. at 4. Centerboard cites an opinion from
the Eastern District of Arkansas to support its contention that HB’s representation of

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the non-party witnesses creates “significant concerns.” Id. at 3-4 (citing Mid-State
Aftermarket Body Parts, Inc. v. MQVP, Inc., No. 4:03-CV-00733-JLH, 2009 WL
1211440, at *1 (E.D. Ark. May 4, 2009)).
In response, HB contends that Centerboard has no standing to seek
disqualification of HB, as it is not -- and has never been -- HB’s client. HB’s
Response in Opposition to Plaintiff’s Motion to Disqualify it as Counsel for NonParty Witnesses (“Response”) ¶ 1 (docket entry 119).
As a general rule, courts do not disqualify an attorney on the grounds of
conflict of interest unless a client moves for disqualification. In re American Airlines,
972 F.2d at 614 (requirement that a movant establish “an actual attorney-client
relationship between the moving party and the attorney [it] seeks to disqualify”).
There are a few narrow exceptions to this rule, see Clemens, 2008 WL 1969315, at *3,
but Centerboard does not argue that one of those narrow exceptions applies. Instead,
Centerboard contends that the “substantial relationship” test does not apply to this
situation because Centerboard is not seeking to disqualify HB from representing the
defendant in this matter, only seeking to disqualify HB from representing the nonparty witnesses. Plaintiff’s Reply Brief in Support of its Motion to Disqualify HB as
Counsel for Non-Party Witnesses (“Reply”) at 1, n.1 (docket entry 125).
Centerboard does not cite any authority to support its contention that this

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distinction makes this case different from those that apply the “substantial
relationship” test. See id.
The court is not persuaded by Centerboard that it should apply a different test
to determine whether it can file a motion to disqualify the chosen counsel for a nonparty witness. Centerboard fails to offer an alternative test, and fails to cite any
specific local rule, state rule, or any provision of the Model Rules of Professional
Conduct that it claims HB has violated. See generally Motion; Reply. The substantial
relationship test ensures that those seeking to disqualify counsel have genuine
concerns regarding the risk of disclosure of confidential information or the creation of
conflicts of interest. In re American Airlines, Inc., 972 F.2d at 611. When counsel
formerly represents one party and then represents an opposing party in a subsequent
matter, there is an inherent risk of disclosure of confidential information or a conflict
of interest. Duncan v. Merrill Lynch, Pierce, Fenner & Smith, 646 F.2d 1020, 1028 (5th
Cir.), cert. denied, 454 U.S. 895 (1981). Here, HB has never represented Centerboard.
Response ¶ 1. Therefore, Centerboard has failed to prove the first step of the
“substantial relationship” test and has no standing to seek HB’s disqualification from
representing the non-party witnesses. Clemens, 2008 WL 1969315, at *2-3.
Furthermore, Centerboard has not shown that HB’s representation of the nonparty witnesses and Benefuel creates a conflict of interest that requires HB’s
disqualification. If a conflict of interest arises at a later juncture, disqualification may

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become necessary. Yet, at this moment, Centerboard cannot move to disqualify the
non-party witnesses’ counsel of choice because it is not HB’s current or former client.
In re American Airlines, Inc., 972 F.2d at 614; Clemens, 2008 WL 1969315, at *2.
Lastly, a motion to disqualify HB as counsel for non-party witnesses is not the
appropriate procedural vehicle to redress Centerboard’s charges that HB has restricted
its access to discovery or committed other discovery abuses.
III. CONCLUSION
For the reasons stated above, the plaintiff’s motion to disqualify HB as counsel
for non-party witnesses (docket entry 97) is DENIED.
SO ORDERED.

June 3, 2016.
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A. JOE FISH
Senior United States District Judge

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