Consumer Class Action Blog

News, analysis and commentary on state and federal consumer class action litigation

Motions to disqualify: Move early or not at all

Posted by Philip Kay on October 10, 2009

In Murray v. Metropolitan Life Ins. Co., 2009 WL 3080462 (2nd Cir., Sept. 29, 2009), the 2nd Circuit denied class counsel’s motion to disqualify defense counsel based on conflict of interest, but the Court raised more questions than it answered with its broad-brush treatment of the “identity” of defense counsel’s corporate client.

Plaintiffs in this securities class action were policyholders of Metropolitan Life Insurance Company back when it was a mutual insurance company. They filed suit in 2000 alleging they were misled and shortchanged in the transaction by which the company demutualized to become a stock insurance company.  MetLife’s corporate counsel in the demutualization, Debevoise & Plimpton, also served as its lead counsel in this litigation.

Trial was set for September 8, 2009.  Five weeks before trial (i.e., nine years after this action was commenced), plaintiffs moved to disqualify Debevoise because it was MetLife’s corporate counsel in the underlying demutualization. The district court granted the motion to disqualify on September 1, 2009 holding that Debevoise’s representation of MetLife in the demutualization made it counsel to the owner-policyholders as well such that it cannot now represent interests adverse to the policyholders. The district court then stayed its order and immediately certified the issue to the 2nd Circuit.

The 2nd Circuit reversed, finding Debevoise did not have an attorney-client relationship with MetLife’s owner-policyholders by virtue of its representation of MetLife.  The Court held that it was “well-settled” that outside counsel to a corporation represents the “corporation,” not its shareholders or other constituents.

I think the 2nd Circuit should have analyzed this issue a little more thoroughly.  While it may be “well settled” that corporate counsel does not represent the shareholders in their individual capacities, it does not follow that corporate counsel does not represent the shareholders as a collective.  The 2nd Circuit failed to make this distinction, and a closer reading of the “well settled” authority it relied upon reveals merely that corporate counsel does not have an attorney-client relationship with the shareholders individually.   The Court didn’t distinguish between shareholders’ individual vs. collective capacities and in the process distorted the definition of “corporation.”

Who is a “corporation” if not the collective of its shareholders?  The board and officers of a corporation are merely conduits (and fiduciaries) of the shareholders and cannot in any sense be considered “the corporation,” so who exactly did Debevoise represent in the demutualization if not the collective owners-policyholders of MetLife?  The 2nd Circuit was not clear on this point, merely holding that Debevoise represented “the corporation.”  The Court should have engaged in a more thorough analysis of the “identity” of the corporation and who, exactly, Debevoise represented.

The real reason the Court denied class counsel’s motion was because Debevoise had been defense counsel for nine years and class counsel waited until a mere 5 weeks before trial to file its motion to disqualify.  The Court wasn’t about to let class counsel get away with this:

“In this case, disqualification would require MetLife to retain new counsel. Appreciable time and money would be spent to bring new counsel to the state of readiness that Debevoise attained after more than nine years of work. And other circumstances intensify the harm to MetLife: several billions of dollars are at stake, the legal issues are complex, pretrial litigation has been ongoing for more than nine years, and disqualification occurred on the eve of trial.”

Class counsel clearly should have moved for disqualification sooner and their decision to wait until the eve of trial indeed “suggests opportunistic and tactical motives.”  This case is a good reminder that the longer you hold off on a motion to disqualify, the less likely your odds of success.  That said,  MetLife is not an innocent here – the district court ruled back in 2007 that the plaintiff policyholders were the owners of the mutual company and were therefore clients of Debevoise during the demutualization.  Yet, MetLife continued to stick with Debevoise up to the eve of trial instead of obtaining new counsel 2 years ago when it knew this issue was in play.

This Court’s decision in this case raises more questions than it answers and will likely have to be clarified when the 2nd Circuit is inevitably forced to re-examine the issue of corporate “identity,” and its decision in this case, more closely.

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