Armstrong v. Mcalpin

625 F.2d 433 (2nd. Cir. 1980)

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Nature of the Case

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Facts

Ds' motion to disqualify is based on the prior participation of Theodore Altman, in an investigation of and litigation against Ds conducted by the SEC. The SEC commenced an action in against D for looting millions of dollars from a group of related investment companies. The SEC sought the appointment of a receiver to protect the interests of shareholders. The SEC obtained a default judgment. P was appointed as receiver. P was authorized to initiate litigation in the United States and abroad. P retained as his counsel the New York firm of Barrett Smith Schapiro & Simon. The SEC made its investigatory files available to P. For the next year and a half, we are told, Barrett Smith spent 2,600 hours assisting P. This included the services of five partners and eight associates. P concluded that it was necessary to substitute litigation counsel. P focused on firms already involved in litigation against Robert L. Vesco, who, like D, had fled to Costa Rica rather than face possible prosecution for numerous alleged securities fraud violations. P retained the firm of Gordon Hurwitz because one partner, David M. Butowsky, was then Special Counsel to International Controls Corporation and was involved in legal work in Costa Rica relating to the alleged Vesco defalcations, while another partner had specialized experience in prosecuting complex fraud cases. Theodore Altman ended his nine-year tenure with the SEC to become an associate with the Gordon firm. Altman had supervisory responsibility at the SEC over numerous cases, including the D investigation and litigation. At the time that Altman joined the Gordon firm, P had no reason to know that Altman had left the SEC or to be aware of his new affiliation. Subsequently, upon learning, it was concluded that under applicable ethical standards Altman should not participate in the case. Altman was screened from participation. Two years later, D filed their motion to disqualify the Gordon firm because of Altman's prior activities at the SEC. The judge concluded that there was no threat to the integrity of the trial, and that Ds had suffered no prejudice as a result of the representation. D appealed. A panel reversed and D petitioned for en banc review.