SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
City of Atlantic City v. Trupos (A-23-09)
Argued January 6, 2010 -- Decided April 26, 2010
RIVERA-SOTO, J., writing for a unanimous Court.
The question in this appeal is whether a law firm's representation of a municipality in defense of tax appeals during 2006-2007 is "substantially related" to the law firm's prosecution of individual taxpayers' 2009 tax appeals against the municipality, requiring the law firm's disqualification under RPC 1.9(a).
During 2006 and 2007, Daniel Gallagher, Esq. of Miller, Gallagher & Grimley represented the City of Atlantic City in a number of real estate tax appeals. The law firm served as a non-voting consultant to a City committee charged with implementing a court-ordered revaluation of real estate tax assessments. Ultimately, Certified Valuations, Inc. (CVI) was selected as the City's revaluation company for 2008, and the committee determined to forego revaluations for 2007. The minutes of the committee's meetings do not reflect that Gallagher did anything other than attend the meetings. His and the law firm's representation of the City was limited to tax appeals involving casinos and large commercial properties. The firm had no role in setting the revaluation assessments. CVI and its employees defended the 2008 and 2009 assessments, while a different appraiser had worked with the law firm in defending the 2006 and 2007 assessments.
The law firm ceased most of its representation of the City by March 2008. Thereafter, it was retained to represent several hundred taxpayers challenging their 2009 assessments. The City sought to disqualify the law firm.
The Tax Court ordered that the law firm shall not represent Atlantic City taxpayers in their 2009 tax appeals adverse to the City. The Tax Court stated the issue presented as follows: whether the current and former matters are "substantially related" so that the law firm would be disqualified from representation of the taxpayers under RPC 1.9. City of Atlantic City v. Trupos, 25 N.J. Tax 108 (2009). The Tax Court zeroed in on a concession that "most appeals of tax assessments are resolved by settlement." The court focused on information the law firm may have acquired in the settlement process that could be used against its former client. Acknowledging that the law firm settled only one case during its 2006-2007 representation of the City, the court surmised that the firm must have had the opportunity to discuss settlement and litigation strategy with the mayor, counsel, and assessor, and that this knowledge will give the law firm insight into the thought process of its 2008 and 2009 adversary. Despite the Supreme Court having previously determined that the Reardon v. Marlayne, Inc., 83 N.J. 460 (1980) three-part test no longer controls, the Tax Court nonetheless concluded that Reardon provides the best formulation of the test for determining the disqualification of counsel appearing adverse to a former client. The court thus found that the law firm's representation of the City in 2006 and 2007 was substantially related to the representation of the taxpayers adverse to the City in 2009; and that the fact that the matters were not identical is outweighed by the fact that all matters deal with tax assessments. The Tax Court concluded that the law firm must be disqualified because of the great likelihood that the firm was privy to relevant confidences of the City's assessor, mayor, and council, which can be used against the City.
The Appellate Division granted leave to appeal and summarily affirmed substantially for the reasons set forth in the Tax Court's opinion. The Supreme Court granted leave to appeal. 200 N.J. 363 (2009).
HELD: For purposes of RPC 1.9, matters are "substantially related" if (1) the lawyer for whom disqualification is sought received confidential information from the former client that can be used against that client in the subsequent representation of parties adverse to the former client, or (2) facts relevant to the prior representation are relevant and material to the subsequent representation. Disqualification is unwarranted here because, during its representation of the City in 2006-2007, the law firm did not receive confidential information from the City which can be used against it in the prosecution of the 2009 tax appeals adverse to the City. Also, the facts relevant to the law firm's prior representation of the City are not relevant and material to its representation of the taxpayers in the 2009 tax appeals.
1. The narrow issue in this appeal is whether the law firm's representation of the City in defense of tax appeals during 2006-2007 is "substantially related" to the law firm's prosecution of individual taxpayers' 2009 tax appeals against the City. The City acknowledges that none of the 2009 tax appeals involve any of the properties in respect of which the law firm represented the City in 2006-2007. The City argues that because the law firm was privy to the selection of the revaluation expert on whose assessments the 2009 tax appeals are based, the firm's prosecution of the 2009 tax appeals is "substantially related" to its prior representation of the City. The Court disagrees. (pp. 17-18)
2. RPC 1.9(a) provides that a "lawyer who has represented a client in a matter shall not thereafter represent another client in the same or substantially related matter in which that client's interests are materially adverse to the interests of the former client." When a party moves to disqualify counsel under RPC 1.9(a), the initial burden of production is borne by the party seeking disqualification. If that burden of going forward is met, the burden shifts to the attorneys to demonstrate that the matter in which they represented the former client is not substantially related to the controversy in which the disqualification motion is brought. The burden of persuasion on all elements under RPC 1.9(a) remains with the moving party. The determination of whether counsel should be disqualified is an issue of law subject to de novo plenary appellate review. (pp. 18-21)
3. The law firm formerly represented the City, and the interests of the firm's clients in the 2009 tax appeals are materially adverse to the City's interests in those tax appeals. The only substantive open question is whether the 2006-2007 tax appeals and the 2009 tax appeals are "the same or substantially related matters." That determination must be based in fact because the Court has rejected the "appearance of impropriety" as a factor to consider in determining whether a prohibited conflict of interest exists under RPC 1.9. Since the 2004 overhaul of the Rules of Professional Conduct where the Court eliminated the "appearance of impropriety" language, no reported New Jersey case has spoken directly on what may constitute "substantially related matters." (pp. 21-23)
4. A sampling of how other jurisdictions have defined "substantially related matters" is instructive. For example, construing Pennsylvania's parallel to our RPC 1.9(a), a federal court noted that matters are "substantially related" if there is a substantial risk that confidential facts that would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter. New York's test is whether facts which were necessary to the first representation are necessary to the present litigation. Federal courts in New Jersey have applied New Jersey's RPCs, albeit prior to the 2004 amendments, and have noted that matters are substantially related when, in the course of the former representation, the attorney might have acquired information related to the subject matter of the subsequent representation; or when the adversity between the interests of the former and present clients has created a climate for disclosure of relevant confidential information. (pp. 23-26)
5. Distilling those precepts, the Court adopts the following standard: for purposes of RPC 1.9, matters are "substantially related" if (1) the lawyer received confidential information from the former client that can be used against that client in the subsequent representation of parties adverse to the former client, or (2) facts relevant to the prior representation are both relevant and material to the subsequent representation. (pp. 26-27)
6. In this record, the City has not met its burden of proving that, in fact, the current and former representations are "substantially related." The superficial similarity of the subject matter of both representations -- the propriety of real estate tax assessments -- does not withstand closer scrutiny. The record reflects that the law firm's representation of the City involved exclusively the defense of tax appeals lodged by casino and hospitality entities. In contrast, the firm sought to represent two hundred-plus taxpayers in their tax appeals. The record does not reveal the breakdown between residential versus commercial taxpayers. The record does reveal that the City's sole complaint arises from its concern that the firm may have acquired otherwise privileged information when it participated, on a non-voting basis, in the selection of the revaluation company that produced the assessments subject to the 2009 tax appeals. On this record, that is far too slender a reed to support a disqualification order. The law firm attended two committee meetings. The minutes disclose that the sole point discussed was the selection of the revaluation company; there was no discussion of valuation methodology. Indeed, the appraiser retained by the City whose appraisals were being challenged by the law firm in the 2009 tax appeals was a different appraiser than the one the City used while the law firm represented the City. According to the law firm's uncontested assertions before the Tax Court, no useful and relevant information heard in its earlier work will be useful in prosecuting the 2009 challenges. (pp. 27-29)
7. The City can point to no confidential communications it shared with the law firm that might be used against it in the 2009 tax appeals. The Court discounts the concern that, during 2006-2007, the law firm may have been privy to the City's settlement methodology. There is no proof of any settlement tactics or strategy being shared with the law firm and, because the "appearance of impropriety" standard no longer applies when gauging the propriety of attorney conduct, surmise alone cannot support an order of disqualification. Similarly, there is no record proof that the facts of the prior representation are relevant or material to the 2009 tax appeals. The law firm's work on behalf of the City dealt with large commercial properties appraised by a different appraiser than the one who provided the valuations at issue in the 2009 tax appeals. Other than purely superficial similarity that all of this work involved tax appeals, there are no facts in this record common to the 2006-2007 tax appeals and the 2009 tax appeals. (p. 30)
8. In sum, the Court concludes that (1) during its representation of the City in 2006-2007, the law firm did not receive confidential information from the City which can be used against the City in the prosecution of the 2009 tax appeals adverse to the City, and (2) the facts relevant to the law firm's prior representation of the City also are not relevant and material to its representation of the taxpayers in the 2009 tax appeals. In those circumstances, the order of disqualification entered against the law firm was unwarranted and must be vacated. (p. 31)
The judgment of the Appellate Division is REVERSED, the order of the Tax Court disqualifying the law firm is VACATED, and the case is REMANDED to the Tax Court for further proceedings consistent with the Court's opinion.
CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN, WALLACE and HOENS join in JUSTICE RIVERA-SOTO's opinion. JUSTICE LaVECCHIA did not participate.