Schlossberg v. State Bar Grievance Board

Williams, J.

This case places one basic issue before this Court: is it an unlawful conflict of *394interests for an attorney to act as a member of a gassi-judicial board hearing cases involving employees of a particular corporation and at the same time be a member of a law firm representing wholly-owned subsidiaries of that corporation?

This case comes to us on appeal from the State Bar Grievance Board and is Supreme Court No. 53.295. For purposes of convenience on appeal it was argued with the case of International Union, United Automobile, Aerospace & Agricultural Implement Workers of America-UAW v Governor, 388 Mich 578 (1972), brought in the Court of Appeals, which arose from the same factual situation. This opinion, however, deals only with the legal issues presented in the State Bar Grievance Board case of Schlossberg v O’Rourke, Supreme Court No. 53,295.

The Grievance Board without an evidentiary hearing rendered its opinion on the following pled facts: The law firm of Elsman, Young and O’Rourke, in which Mr. O’Rourke is a partner, derives income from its representation of certain wholly-owned subsidiaries of Chrysler Corporation,1 namely Chrysler Financial Corporation, Chrysler Credit Corporation, and Car City Insur*395anee Company. At the same time Mr. O’Rourke did not disqualify himself as a member of the Michigan Employment Security Commission (MESC) Appeal Board in the consideration of some claims against the Chrysler Corporation brought before that guas/'-judicial body. The Grievance Board concluded that such failure to disqualify himself did not as a matter of law constitute professional misconduct on the part of Mr. O’Rourke and dismissed appellant’s complaint. We cannot agree.

Article 6, § 5 of our 1963 Constitution states that "[T]he supreme court shall by general rules establish, modify, amend and simplify the practice and procedure in all courts of this state.” Therefore we have the implied power to regulate and discipline the Bar of this state. As early as 1850, this Court recognized and exercised its power to regulate members of our state Bar. In the Matter of Mills, An Attorney, 1 Mich 392 (1850), cited with approval in In re Hartford, 282 Mich 124 (1937).

This Court has recently adopted a new Code of Professional Responsibility, Canons and Disciplinary Rules.2 Actions such as those with which Mr. O’Rourke is charged would constitute professional misconduct even prior to the adoption of this Code,3 and it is alleged he has also persisted in this type of conduct subsequent to ,the adoption of the new Code.4

*396Canon 5 reads: "A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client.” If as alleged Mr. O’Rourke represented Chrysler wholly-owned subsidiaries through his law firm and at the same time decided claims before the MESC involving the parent corporation, Mr. O’Rourke was serving conflicting interests. Such a situation could affect his independent professional judgment in violation of Canon 5.

Canon 9 of the Code reads: "A Lawyer Should Avoid Even the Appearance of Professional Impropriety.” If, as alleged, Mr. O’Rourke failed to disqualify himself from the consideration of the MESC Appeal Board cases involving Chrysler Corporation5 or to disassociate himself from his law firm while that firm represented the Chrysler wholly-owned subsidiaries, Chrysler Financial Corporation, Chrysler Credit Corporation and Car City Insurance Company, there would be an apparent conflict of interests and the appearance of professional impropriety. This would constitute a violation of Canon 9.

This Court has already ruled in an opinion independent of, but supportive of, the Canons that a conflict of interest of the nature of that charged to Mr. O’Rourke is a violation of a fair trial in a fair tribunal as basically required by due process. In Glass v State Highway Commissioner, 370 Mich 482 (1963), this Court held that an employee of the State Highway Commissioner should have disqualified himself from conducting a hearing on the necessity of taking certain property for highway purposes. Writing for a unanimous court, Justice Eugene F. Black stated that the employee was an interested party to the extent of keeping his job by *397implementing the highway planning of his superior, and concluded that public officials must avoid even the appearance of injustice.6

Canon 9 and Glass v State Highway Commissioner, supra, stand for the rule that a public employee and a lawyer cannot lawfully act in judgment where one of the parties may affect his economic interests or may have the appearance of affecting his economic interests.

As the State Highway Department employee was "an interested 'person’; interested to the extent of keeping his job” it may be said that under the alleged facts Mr. O’Rourke had an interest that his firm keep or enlarge the wholly-owned Chrysler subsidiaries’ retainer. This is not to say that Mr. O’Rourke was or would be tempted or that the Chrysler Corporation would or could change the retainer. The rule does not require that. The rule strictly requires that there be no appearance that such things could happen.

Justice Black in Glass v State Highway Commissioner, supra, 487, emphasized this rule by quoting from In re Murchison, 349 US 133, 136; 75 S Ct 623; 99 L Ed 942 (1955), as follows:

" 'Such a stringent rule may some times bar trial by judges who have no actual bias and who would do their very best to weigh the scales of justice equally between contending parties. But to perform its high function in the best way "justice must satisfy the appearance of justice.” Offutt v United States, 348 U.S. 11, 14 [75 S Ct 11, 99 L Ed 11 (1954)].’ ”

The fact that Mr. O’Rourke’s law firm repre*398dented Chrysler Corporation wholly-owned subsidiaries rather than the parent corporation itself does not eliminate the conflict of interest. The State Bar Grievance Board Opinion and Brief in holding that this fact makes a difference miss the big picture and the major thrust of the Canon 9— Glass v State Highway Commissioner rule by looking through the wrong end of the telescope.

That rule looks to whether Chrysler Corporation can reach, or whether there is the appearance that Chrysler Corporation can reach, Mr. O’Rourke’s livelihood. The Grievance Board looks rather to whether Mr. O’Rourke can reach Chrysler Corporation through a lawsuit. Not only is this looking at the matter backwards, but certainly the facts of life are that it is a very different matter whether an outsider can pierce the corporate veil from whether the parent corporation can use its own corporate structure to accomplish its own purposes.7

*399If such conflict of interests exist it can be purged in several different ways: 1) Mr. O’Rourke may disqualify himself from all cases before the MESC Appeal Board involving Chrysler Corporation or its subsidiaries; 2) he may disassociate himself from the law firm of Elsman, Young and O’Rourke; 3) the law firm of Elsman, Young and O’Rourke may terminate its legal representation of the various Chrysler subsidiaries. Any of these three alternatives would terminate the conflict of interests.

In passing, we note that the appellant’s other allegations are either moot or without sufficient merit to require consideration at this time.

The order of the Grievance Board dismissing the complaint and request for investigation is reversed. The Grievance Board is instructed to proceed under Rule 15 to conduct such hearing and *400examine such proofs as appropriate and test whatever decision it decides to render in light of this opinion and the authorities cited, namely Canons 5 and 9, and Glass v State Highway Commissioner, supra, Offutt v United States, supra, and In re Murchison, supra.

Reversed and remanded pursuant to instructions contained herein. Costs to abide final result in this case.

T. M. Kavanagh, C. J., and T. G. Kavanagh, and Swainson, JJ., concurred with Williams, J. Black, J.

(for order of remand with instructions). I agree that the majority has laid down correctly the legal principles that should be applied to the conduct of defendant O’Rourke as charged by plaintiff and denied by defendant, provided those charges or some controlling portion thereof come to substantiation "by a preponderance of the evidence” as in State Bar Grievance Rule 15.13 provided (383 Mich xlvii-lxv). But those charges have not as yet been heard upon what I believe are necessary proofs. Accordingly, I find myself in agreement with Justice T. E. Brennan’s criticism that Mr. O’Rourke has not as yet been accorded that hearing which due process requires.

Defendant O’Rourke’s counsel forensically concludes his brief, with no traverse by any original party or party amicus:

"In the Appellants’ Brief is the suggestion that not only should the determination of the Court of Appeals be reversed and not only should the action of the grievance administrator be reversed, but also that this Honorable Court, without even affording an opportunity to the Appellee to have his 'day in court’, should grant relief in both causes, to-wit, the issuance of a Writ of *401Superintending Control and the issuance of at least a reprimand for the Appellee’s supposed unethical conduct.”

Counsel went on to say that "such a procedure would constitute just about as blatant a disregard of due process as might be imagined.” It is true that the complaint and request for investigation Mr. Schlossberg filed against Mr. O’Rourke was disposed of upon pleadings and that no hearing with proof, within Rule 15, has yet been conducted.* Rule 15 makes plenary provision for such a hearing. Upon the record as it came before the Grievance Board that tribunal should not have dismissed the complaint, nor should the Board have proceeded upon its introductory premise that "The facts giving rise to this complaint are largely undisputed.”

The plethora of letters and other items of factual charges and denials the contenders have filed since oral argument suggest clearly that the facts are not "largely” undisputed.

The Grievance Board should have insisted upon conduct and conclusion of an evidentiary hearing pursuant to the procedures Rule 15 provides. In these circumstances I would enter an order reversing dismissal with instruction that the Grievance Board, upon due resolution of all disputed facts, test whatever decision the Board decides to render in light of the authorities cited in Justice Williams’ opinion, namely Glass v State Highway Com ’r, 370 Mich 482 (1963), the latter applying *402and following Offutt v United States, 348 US 11; 75 S Ct 11; 99 L Ed 11 (1954) and In re Murchison, 349 US 133; 75 S Ct 623; 99 L Ed 942 (1955).

Adams, J., concurred with Black, J.

It appears from the appendices to the complaint in Supreme Court No. 53,217 incorporated by reference in the complaint or request for investigation in this case that Mr. O’Rourke himself was attorney of record in cases involving the Chrysler Corporation subsidiaries.

As to the wholly-owned character of the Chrysler subsidiaries the referenced complaint (Supreme Court No. 53,217)'alleges "Chrysler Financial Corporation is a wholly-owned subsidiary of Chrysler. Car City Insurance Company and Chrysler Credit Corporation are wholly-owned subsidiaries of Chrysler Financial Corporation.” In support thereof there is attached to the brief in No. 53,217 a portion of the Chrysler Corporation 45th Annual Report, December 31, 1969, which includes a Touche Ross & Co. CPA report stating "[w]e have examined the accompanying consolidated balance sheet of Chrysler Financial Corporation (wholly-owned subsidiary of Chrysler Corporation) * * * ” and a reference to Car City Insurance Company as a wholly-owned subsidiary of Chrysler Financial Corporation.

The Code was adopted by this Court on October 4, 1971, and was given immediate effect. The Code is set out in 385 Mich lvi-xc (1971).

See Canons of Professional Ethics, Canon 6, and Canons of Judicial Ethics, Canons 4 and 24 in Honigman & Hawkins Michigan Court Rules (1969 ed).

Mr. O’Rourke participated in the decisions in the cases of Claim of Russell and Chrysler Corporation, App. Docket No. B71-5510-39962, decided November 17, 1971, and Claim of Debucce and Chrysler Corporation, App. Docket No. B71-1104-39565, decided October 11, 1971.

Mr. O’Rourke was requested to disqualify himself, but refused to do so in the case of Taylor and Chrysler Corporation which was before the MESC Appeal Board.

The Supreme Judicial Court of Massachusetts in Beauregard v Dailey, 294 Mass 315; 1 NE2d 481 (1936), held a lawyer serving as a master in a labor dispute should have disqualified himself as he was also attorney of record for one of the parties in an unrelated tort action.

"In determining whether the corporate entity should be disregarded * * * ”, Justice Butzel emphasized the recognized rule that "each case is sui generis and must be decided in accordance with its own underlying facts.” Herman v Mobile Homes Corp, 317 Mich 233, 243 (1947).

The facts in the O’Rourke case relate to whether an attorney who is also a public employee violated a professional or public trust. It is a question of ethics and public policy.

Gledhill v Fisher & Co, 272 Mich 353 (1935), cited by the- Grievance Board relates to whether an owning corporation is liable to a contractor with an owned corporation. These facts obviously bear no similarity to the O’Rourke case. Furthermore, in the Gledhill case plaintiff had not even known of the existence of the owning corporation when it dealt with the owned corporation. Mr. O’Rourke’s relationship with Chrysler Corporation, if that fact were in any way material, was known and protested before the MESC Appeal Board. Incidentally, the Mobile Homes case, supra, considered the Gledhill case and distinguished it from the agency situation in its own facts and found liability.

Burrows v Emery, 285 Mich 86 (1938), relates to whether an individual stockholder in a corporation buying and selling securities was liable for assessment on bank stock held by the securities corporation. These facts equally obviously bear no similarity to the O’Rourke case.

More nearly in point are public rate cases such as People, ex rel. *399Attorney General, v Michigan Bell Telephone Co, 246 Mich 198 (1929), where the agency relation between American Bell Telephone and Michigan Bell Telephone was considered, and without regard to fraud the separate corporate entity theory was disregarded or Chicago, M & S P R Co v Minneapolis Civic & Commerce Ass’n, 247 US 490; 38 S Ct 533; 61 L Ed 1229; (1918), in which certain railroads owned a terminal railway company, and it was held that an agency relation existed. The United States Supreme Court said:

"In such a case the courts will not permit themselves to be blinded or deceived by mere forms or law but, regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require.” 247 US 490, 501.

See also Pfaffenberger v Pavilion Restaurant Co, 352 Mich 1 (1958); Acton Plumbing & Heating Co v Jared Builders, Inc, 368 Mich 626 (1962); Annotation: Disregarding corporate existence, 34 ALR 597, 599.

In Detroit Board of Education v Getz, 321 Mich 676, 678 (1948), we said:

"The interest which will thus disqualify a judge must be such an interest in the subject matter that he will be directly affected through pecuniary or property gain or loss.”

As shown supra this Court in Glass v State Highway Commissioner, 370 Mich 482 (1963) held that keeping a job is such "pecuniary or property gain or loss.” As we have shown this is what is involved in this O’Rourke case.

I do not say that, under Rule 15, an evidentiary hearing must be conducted as a basis for proper disposition of all complaints made under the Rule. New complaints require such'formality or disposition other than by the Administrator or, possibly, by an assigned Hearing Panel. This one though, the charges reviewed, comes fairly within and should have been processed pursuant to sections 15.8 through 15.22 as applicable.