Margulies v. Upchurch
In Margulies v. Upchurch, 696 P.2d 1195 (Utah 1985), the law firm Jones, Waldo, Holbrook & McDonough represented the Margulies family as plaintiffs in a medical malpractice action filed in the Third District Court. Id. at 1198.
The defendants in that action included three doctors. These doctors were also limited partners in Diversified Energies/Intermountain Capital Private Drilling Fund 1981-A, a Utah limited partnership. Id.
At the same time the Margulies' medical malpractice action was pending, the Diversified Energies limited partnership was involved in unrelated litigation in federal court with Jones, Waldo serving as its counsel. Id.
In order to become limited partners in Diversified Energy, the three doctors had been required, among other things, "to purchase units in Diversified Energy by paying twenty percent of the value of the units in cash and financing the remaining eighty percent by obtaining individual, personal letters of credit." Id.
Jones, Waldo's representation of Diversified Energies in the federal case "was aimed at preventing foreclosure on the individual letters of credit." Id.
In light of these facts, the defendant doctors in the Margulies' medical malpractice case "attested that . . . their impression and belief" was that Jones, Waldo represented them individually in the Diversified Energies federal case. Id. at 1200.
Accordingly, the three doctors moved to have Jones, Waldo disqualified as plaintiffs' counsel. Id. at 1199. The trial court concluded that Jones, Waldo must either withdraw from the Margulies' action or withdraw from the Diversified Energies' action and not use any information "gained or available in connection with the federal court action." Id.
Jones, Waldo elected to withdraw from its representation of Diversified Energies in the federal action. Id.
The defendants in the Margulies' medical malpractice case appealed the trial court's order allowing Jones, Waldo to continue as the plaintiffs' counsel in that action. Id. at 1198.
The Court agreed and reversed the trial court and ordered that Jones, Waldo be disqualified from serving as the Margulies' counsel in their medical malpractice action. Id. at 1205.
The Court also recognized in Margulies that there could be exceptions to this general rule, however, holding that an implied attorney-client relationship with the individual limited partners may arise under certain circumstances. Id. at 1200-01.
Specifically, the Court concluded that such a situation may arise when the individual limited partners reasonably believe they are individually represented by the limited partnership's legal counsel. See id. at 1200.
The Court went on to state that "when . . . the individual interests of the limited partners are directly involved, . . . there may be sufficient grounds for implying the existence of an attorney-client relationship." Id. at 1201.
Under the circumstances of Margulies, the Court concluded that the three doctors' "impression and belief," id. at 1200, that they were individually represented by Jones, Waldo was reasonable in light of the fact that Jones, Waldo's representation of Diversified Energies directly benefitted the three doctors. See id. at 1200-01.