The Harms Caused by Hines's Conflicts of Interest

 

A. The covenants restricting Hines’s right to practice law.

From 1976 through August 1988 Jeffrey Hines represented Purity Products, Inc. in a series of unfair competition suits in Maryland federal court. See Other Litigation, §A.

In July 1988 Hines and his client executed a settlement with American Citrus Products Corp. that included a covenant whereby Hines agreed not to represent any client who had claims against American Citrus or its predecessor, Home Juice Co., arising out of any acts or omissions occurring prior to July 15, 1988.

In August 1988 Hines and his client executed a settlement with Holiday Juice Ltd. that included a covenant barring Hines from representing any client who had claims against Holiday Juice or Everfresh Juice Co. or John Labatt Ltd. arising out of any acts or omissions occurring prior to August 10, 1988. 

B. The economic dilemma posed by Hines’s covenants.

In September 1988 Grove Fresh contacted Hines and asked him to investigate claims against six competitors, including Everfresh, American Citrus, and, indirectly, Holiday Juice, which was co-packing products for the Flavor Fresh label.  Grove Fresh was agreeable to paying Hines a 40% contingent fee on any recoveries.

Grove Fresh’s interest in retaining Hines presented him with an economic dilemma:  Adhering to the covenants would require him to forego contingent fees on claims for the period from 1972 to the summer of 1988.  Ignoring the covenants, on the other hand, might embroil him in protracted and costly disputes with well-heeled corporations and their high-powered lawyers.

Hines’s economic dilemma was further complicated by a three-sided ethical dilemma:

  1. The covenants violated DR 2-108(b) in both Illinois and Maryland.  Under a 1987 Appellate Court case, the covenants were probably unenforceable as contrary to the public policy implicit in DR 2-108(b). O’Hara v. Ahlgren, Blumenfeld and Kempster, 158 Ill. App. 3d 562, 511 N.E. 2d 879 (1st Dist. 1987), affirmed, 127 Ill. 2d 333, 537 N.E.2d 730 (1989).   Publicly repudiating the covenants, however, might call to the attention of the Maryland disciplinary authorities the undeniable fact that he had executed the unethical covenants in the first place.
  2. If he decided to adhere to the covenants, the rules on conflicts of interest obliged him to tell Grove Fresh about them, since the covenants constituted material personal interests that would adversely limit the scope of the work he could perform for Grove Fresh.
  3. On the other hand, the covenants included a secrecy clause that barred him from even telling Grove Fresh that he was subject to the restrictions.  Disregarding the secrecy clause would subject him to contempt proceedings in the Maryland court that had jurisdiction over the covenant. 

Hines opted to adhere to the covenants in all respects—he did not tell Grove Fresh about them and he did not explicitly allege any claims precluded by them. 

C. Hines’s omission to allege the full scope of Grove Fresh’s claims against Everfresh and Home Juice, or to allege any claims at all against Holiday Juice or Labatt.

1. Hines’s omission to allege continuous tort claims against Everfresh dating back to at least 1973. 

As of February 1989 Hines knew the following facts regarding Everfresh’s history of manufacturing practices: 

These facts provided a good-faith basis for invoking the continuous tort doctrine and seeking Lanham Act damages from Everfresh dating back to at least 1973. See Legal Theories §B.  Due to Hines’s conflicts of interest, however, the complaint he filed for Grove Fresh did not allege any of Everfresh’s prior bad acts, nor did it invoke the continuous tort doctrine.

2. Hines’s omission to allege continuous tort claims against American Citrus dating back to at least 1973. 

As of February 1989 Hines knew the following history regarding the manufacturing practices at American Citrus and its predecessor, Home Juice: 

These facts provided a good-faith basis for invoking the continuous tort doctrine and seeking Lanham Act damages from American Citrus dating back to 1973.  Due to Hines’s conflicts of interest, however, the complaint he filed for Grove Fresh did not allege any of American Citrus/Home Juice’s prior bad acts, nor did it invoke the continuous tort doctrine.

3. Hines’s omission to join Holiday Juice as a defendant and co-conspirator in the 89c1114 case against Flavor Fresh.

From 1979 to 1988, Flavor Fresh’s retail products were co-packed by Holiday Juice, among others.  Their co-packing arrangement provided a good-faith basis for alleging a civil conspiracy between Flavor Fresh and Holiday Juice. See M. Polelle & B. Ottley, Illinois Tort Law 389 (1985).

Due to Hines’s conflicts of interest, however, the complaint he filed in 89c1114 did not name Holiday Juice as a co-defendant, much less allege a civil conspiracy involving that firm. 

D. Hines’s omission to assert joint and several liability claims against Labatt. 

As of February 1989 Hines knew or should have known the following facts regarding Labatt’s knowledge and approval of Everfresh’s and Holiday Juice’s illegal practices: 

These facts supported a claim that Labatt had conspired with its subsidiary corporations to make and sell adulterated orange juice products.  Due to Hines’s conflicts of interest, however, the complaint he filed for Grove Fresh did not allege any conspiracy claims against Labatt. 

E. Hines’s unauthorized statements limiting the claims in 89c1113, 89c1114, and 89c1117.

1. Hines’s unauthorized FRCP 36 admission limiting Grove Fresh’s claims in 89c1117 to acts or omissions occurring after July 14, 1988.

After American Citrus was served with the 89c1117 complaint, attorney Kowal called Hines to ascertain whether Hines had told Grove Fresh about the restriction on his right to practice law.  If Grove Fresh knew about the restriction, Kowal wanted written confirmation that it had consented to limit its claims in accordance with that restriction.  According to Kowal, Hines declared that Mr. Troy: (a) knew about the covenant restricting Hines’s right to practice law and (b) had agreed to limit Grove Fresh’s claims to the period after July 14, 1988. (Kowal’s account of his conversation with Hines is set forth at p. 4 of Response of American Citrus to Plaintiff’s Motion to Overrule Objections to Time Period, filed in 90c5009 on March 2, 1992.) 

Hines promised to send Kowal an affidavit from Mr. Troy confirming the alleged limitation on Grove Fresh’s claims, but he never did. (Id.)  On April 4, 1989, Kowal served Hines with a FRCP 36 request to admit that Grove Fresh’s claims in 89c1117 were limited to acts or omissions occurring after July 14, 1989.

On May 5, 1989, Hines signed a response admitting the request and mailed it to Kowal.  He did not send Mr. Troy a copy of the admission, nor did he tell me about the admission when he recruited me to work on Grove Fresh’s cases. Affidavit of Cecil Troy ¶12 (January 3, 1990).

2. The long-lasting effects of Hines’s unauthorized admission in 89c1117.

Hines’s unauthorized FRCP 36 admission had long-lasting impact.  American Citrus refused to provide any discovery in 89c1117 for the period prior to July 15, 1988.  Grove Fresh filed a motion to vacate the admission as unauthorized; the motion was supported by an affidavit from Mr. Troy.  The motion languished; Judge Moran never ruled on it.

An FRCP 36 admission is “for the purposes of the pending action only;” it “cannot be used against the party in any other proceeding.”  Nevertheless, in 90c5009 Kowal invoked the FRCP 36 admission in 89c1117 as grounds for refusing to provide any discovery in 90c5009 regarding Home Juice’s manufacturing practices prior to July 15, 1988. 

3. Hines’s unauthorized limits on the 89c1113 and 89c1114 claims.

As noted earlier, in March 1989 Hines acceded to a McDermott Will & Emery demand that the claims in both 89c1113 and 89c1114 would be limited to orange juice packed or co-packed at Everfresh’s Franklin Park plant after August 10, 1988. 89c1114 Tr. of Proceedings, p. 7 (February 21, 1990). By agreeing to this demand, Hines drastically reduced the scope of the discovery that Grove Fresh could conduct.

Hines never explained why he ever agreed to this demand.

Hines’s alleged concessions were certainly material to all of the participants in the 89c1113 and 89c1114 cases.  Nevertheless, the concessions were never memorialized in any writing that was ever submitted to the court, to Grove Fresh, to Robert Langendorf (Hines’s local counsel), or to me. 

4. Defense counsel’s inquiry notice that Grove Fresh did not authorize any limits on its claims. 

As discussed earlier, in March 1989 Hines promised to send Kowal an affidavit wherein Mr. Troy would confirm his alleged knowledge of, and consent to, the limits Hines had orally placed on 89c1117.  Hines reneged on that promise, however; he never sent any affidavit.

Hines’s failure to send Kowal the promised affidavit put defense counsel on inquiry notice that Grove Fresh had not, in fact, consented to any limitations on any of the cases supposedly subject to the restrictive covenants.