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Eon Streams, Inc. v. Clear Channel Communications

March 27, 2007

EON STREAMS, INC., PLAINTIFF,
v.
CLEAR CHANNEL COMMUNICATIONS, INC., DEFENDANT.



The opinion of the court was delivered by: H. Bruce Guyton United States Magistrate Judge

(Phillips/Guyton)

MEMORANDUM AND ORDER

This matter is before the undersigned pursuant to 28 U.S.C. § 636(b), the Rules of this Court, and by the Orders [Docs. 22, 48] of the Honorable Thomas W. Phillips, United States District Judge, for disposition of the following motions: Defendant's Motion to Disqualify Herbert S. Sanger, Jr., and Wagner, Myers & Sanger, P.C. [Doc. 20] and Plaintiff's Motion for Costs and Fees [Doc. 24].

These motions were heard by this Court on March 2, 2007. Attorneys Herbert S. Sanger, Jr. and Martin Bailey were present, representing Plaintiff Eon Streams, Inc. ("Eon Streams"). Attorneys Richard Goehler and Patricia Foster were present, representing Defendant Clear Channel Communications, Inc. ("Clear Channel").

I. Introduction*fn1

This case is a breach of contract action. Eon Streams provides streaming services to hosts of internet web-sites. Clear Channel operates radio stations. Clear Channel uses streaming service providers to provide its internet content. In 2004, Clear Channel began using Eon Streams as its streaming services provider pursuant to a contractual agreement. Whether this agreement terminated and/or a new agreement was entered is at the crux of this dispute. [See Docs. 1, 5].

Eon Streams brought suit alleging Clear Channel executed a new contract with Eon Streams and that said contract was breached. [Doc. 1]. Jurisdiction is premised on diversity grounds. [Docs. 1, 5]. Clear Channel argues no new contract was formed, therefore no contract was breached. [Doc. 6]. Both parties agree that the actions of one board meeting, the April 27, 2005 Eon Streams board meeting, are at the center of this dispute.*fn2 At the April 27, 2005 board meeting, the attendees discussed whether Eon Streams and Clear Channel would continue working with one another. According to Eon Streams, a contractual obligation was discussed and agreed to by the parties; Clear Channel asserts the opposite. [ Docs. 1, 6]. The purported signature of attorney Herbert S. Sanger, Jr. ("Sanger") appears at the end of the minutes for the April 27, 2005 board meeting. [Doc. 21, Attachments]. Sanger has assisted Eon Streams on legal matters throughout its corporate existence. [Id.]. At certain times, Sanger has been a director on its board and its corporate secretary or assistant secretary. [Id.].

II. Defendant's Motion to Disqualify Herbert S. Sanger, Jr., and Wagner, Myers & Sanger, P.C.

In Clear Channel's Motion to Disqualify Herbert S. Sanger, Jr., and Wagner, Myers & Sanger, P.C. [Doc. 20], filed January 3, 2007, Clear Channel moves the Court to disqualify Sanger and his law firm, Wagner, Myers, & Sanger, P.C. ("WMS"), from representing Eon Streams. Clear Channel argues [Doc. 21] that Sanger should be disqualified because he is a material witness. Clear Channel argues that Sanger's intimate involvement with Eon Streams, as both an attendee at the board meeting in question and as counsel, makes Sanger a necessary, material witness. Accordingly, he should be disqualified from representation. Additionally, Clear Channel argues that WMS should be disqualified from representing Eon Streams. In support thereof, Clear Channel argues: (1) Sanger's disqualification should be imputed on the firm due to conflict of interest principles and (2) numerous members of the firm own stock in Eon Streams.

In response [Doc. 23], Eon Streams argues: (1) Clear Channel has waived any right to file a motion to disqualify Sanger and WMS by failing to file such a motion earlier in the litigation; (2) Sanger is not a necessary or material witness; (3) even if Sanger is a necessary witness, WMS cannot be disqualified on that basis; (4) disqualification would create substantial hardship, for Eon Streams; and (5) neither Sanger nor WMS can be disqualified for having a proprietary interest in the litigation based on stock ownership.

Clear Channel replied [Doc. 26] by arguing: (1) whether counsel should be disqualified cannot be waived, and, even if it could be, Clear Channel brought the motion at the earliest possible date; (2) based upon produced documents, it appears that Sanger's truthful testimony might prejudice his client; (3) Sanger is likely to be a necessary witness; and that WMS attorneys and Sanger have financial and proprietary interests in this specific litigation. Accordingly, both WMS and Sanger should be disqualified. Eon Streams filed a sur-reply [Doc. 44], reiterating its previous arguments and noting that even direct proprietary interests in litigation, such as contingency fees, are allowed by the ethical rules.

At the hearing, the Court questioned Clear Channel as to whether this motion was brought for tactical advantages. Attorney Goehler ("Goehler") responded that the motion was filed not as a litigation tactic but in an attempt to comply with ethical rules requiring attorney to assure compliance with the ethical rules amongst themselves. Additionally, Goehler argued that Sanger was an integral player in the steps to renew the contract. Therefore, his testimony as to whether a renewal contract was ever signed is necessary and material. In conclusion, Goehler argued that both Sanger and WMS should be disqualified from this matter during pre-trial and trial proceedings.

In response, Attorney Bailey ("Bailey") argued that withdrawal is not merited based on Clear Channel's allegations. Bailey further asserted that the minutes' content is not important. Therefore, Sanger's testimony will not be necessary because other witnesses besides counsel are available to testify as to what occurred at the board meeting in question. Bailey concluded by arguing that Sanger must be proven to be a necessary witness to preclude his representation of Eon Streams at trial and that no rule prohibits pre-trial representation.

A. Disqualification Generally

A motion to disqualify is the proper method for an opposing party to bring potential breaches of ethical conduct to the court's attention. Hamrick v. Union Township, 81 F. Supp.2d 876, 878 (S.D. Ohio 2000) (citing Musicus v. Westinghouse Elec. Corp., 621 F.2d 742, 744 (5th Cir. 1980)). The Court has inherent authority to supervise the professional conduct of attorneys appearing before it. United States v. Miller, 624 F.2d 1198, 1201 (3rd Cir. 1980); Carlsen v. Thomas, 159 F.R.D. 661, 663 (E.D. Ky. 1994). Therefore, the Court has inherent authority to disqualify an attorney. Miller, 624 F.2d at 1201; Carlsen, 159 F.R.D. at 663.

The party seeking disqualification of counsel bears the burden of proof. Wells v. Wharton, 2005 WL 3309651, at *3 (Tenn. Ct. App. Dec. 7, 2005); Hamrick, 81 F. Supp.2d at 880 (citing Standwood Corp. v. Barnum, 575 F. Supp. 1250, 1252 (W.D.N.C. 1983)); Carlsen, 159 F.R.D. at 669. When weighing a motion to disqualify counsel, the Court is tasked with upholding the highest ethical standards of the profession, protecting litigants' interests, and maintaining the integrity of the judicial process. Bartech Indus., v. Int'l Baking Co., 910 F. Supp. 388, 392 (E.D. Tenn. 1996) (citing Manning v. Waring, Cox, James, Sklar & Allen, 849 F.2d 222, 224 (6th Cir. 1988)); General Mill Supply Co. v. SCA Servs., Inc., 697 F.2d 704 (6th Cir. 1982).*fn3 Additionally, a court must balance the competing public interests of requiring professional conduct by an attorney and permitting a party to retain its chosen counsel. Hamrick, 81 F. Supp.2d at 878 (citing General Mill Supply, 697 F.2d at 711). Whether to disqualify an attorney turns on the peculiar factual situation of the case. In re Mechem, 880 F.2d 872, 874 (6th Cir. 1989) (citing Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 377 (1981)). Finally, a court must view a motion for disqualification with extreme caution because it can easily be misused as a harassment technique. Hamrick, 81 F. Supp.2d at 878 (citing Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 722 (7th Cir. 1982)); Carlsen, 159 F.R.D. at 664.

This Court has adopted the Rules of Professional Conduct ("RPC"), adopted by the Supreme Court of Tennessee,*fn4 as its rules of professional conduct for matters within this Court's jurisdiction. L.R. 83.63; Bartech Indus., v. Int'l Baking Co., 910 F. Supp. 388, 392 (E.D. Tenn. 1996). The legal profession is generally self-governing. Tenn. Sup. Ct. R. 8, RPC Preamble 10. Therefore, the profession is responsible for assuring compliance with its regulations. Id. Preamble 12. Due to the various legal premises involved, the disqualification of Sanger and WMS has been bifurcated. Each will be discussed in order.

B. Sanger's Disqualification

Clear Channel has argued for Sanger's disqualification primarily based on the potential necessity of his testimony at trial.*fn5 Realizing that deference is to be accorded to a party's chosen counsel, this Court looks to the RPC, which provide:

(a) A lawyer shall*fn6 not act as an advocate at a trial in which the lawyer is likely to be a ...


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