IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 92-7493

IN RE: AMERICAN AIRLINES, INC., AMR CORPORATION, Petitioners.

Petition for Writ of Mandamus to the United States District Court for the Southern District of Texas

( September 4, 1992 )

Before POLITZ, Chief Judge, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

American Airlines, Inc. petitions for a writ of mandamus

directing the district court to disqualify its former counsel

Vinson & Elkins from representing plaintiff Northwest Airlines,

Inc. We hold that the district court erred in denying American's

motion and issue the requested writ.

I

Continental Airlines filed a complaint against American in the

United States District Court for the Southern District of Texas on

June 8, 1992, charging American with attempted monopolization by

predatory pricing in violation of the Sherman Act. American filed a declaratory judgment action against Continental and Northwest in

the United States District Court for the Northern District of

Illinois the following day. Three days later, Northwest sued

American in the Southern District of Texas. The Continental and

Northwest suits have been consolidated by order of the district

court.

On June 9, 1992, the day after Continental filed its

complaint, David Schwarte, American's in-house counsel, asked

Alison Smith, a VE partner, if VE would represent American in this

case. Smith accepted the American representation on June 10,

unaware that four days earlier Harry Reasoner, another VE partner,

had promised Joe Jamail, Northwest's counsel, that VE would not

consider representing another airline until Jamail and Reasoner had

discussed joining forces. When Smith informed Reasoner of her

acceptance of the American representation, Reasoner directed her to

inform Schwarte that "there might be a problem with Northwest" and

that Reasoner would make the final decision the next day. On June

11 Reasoner accepted the Northwest representation.

American asserted that VE's prior representation of American

and its agreement to do so in this case made its representation of

Northwest improper. It requested that VE withdraw from the case in

letters sent on June 12 and June 19. Northwest refused and on

July 1 American moved to disqualify VE. The parties at this time

became aware that Weil, Gotshal & Manges, American's lead counsel,

had previously represented Northwest and Continental. An exchange

of "conflicts" was briefly considered. When American indicated

2 that it would not withdraw its motion to disqualify VE, Northwest

moved to disqualify Weil, Gotshal on July 13.

American rests its motion to disqualify Vinson & Elkins on

VE's representation of American in prior antitrust matters and its

alleged agreement to represent it in this case. According to

American, Vinson & Elkins has served as its "Houston" antitrust

counsel since 1987. In this role VE defended American in suits by

Continental and a Continental affiliate. VE also provided

antitrust advice in connection with American's possible acquisition

of Continental.

On July 24, after extensive briefing and the submission of

numerous affidavits, the district court denied both motions to

disqualify counsel. The court held that VE's initial acceptance of

the American representation was a "mixup," that the past matters in

which VE had represented American were only "tangentially related

to this litigation," and that any confidential information

possessed by VE was "not sufficient to cause any material prejudice

to [American]." The court directed the parties to submit a plan

for a Chinese Wall to safeguard against adverse use of confidential

information in the case. American then filed the petition for writ

of mandamus now before us.

II

We must first determine our jurisdiction. Orders denying

motions to disqualify counsel are not appealable before final

judgment under

. Firestone Tire & Rubber Co. v.

Risjord,

(1981); see also Richardson-Merrell,

3 Inc. v. Koller,

(1985) (extending rule to orders

granting motions to disqualify). While holding that

disqualification orders are not immediately appealable as a matter

of course, the Firestone Court indicated that a writ of mandamus

might be available "in the exceptional circumstances for which it

was designed." Firestone,

n.13; Koller,

. American contends that this case presents the requisite

"exceptional circumstances."

The standards are well established: "[P]etitioners must show

that they lack adequate alternative means to obtain the relief they

seek . . . and carry the 'burden of showing that [their] right to

issuance of the writ is "clear and indisputable."'" Mallard v.

United States Dist. Ct. for the S. Dist. of Iowa,

(1989) (citations omitted); In re Fibreboard Corp.,

(5th Cir. 1990); In re Willy,

(5th Cir.

1987). The test contains two prongs, one procedural and one

substantive, and unless American demonstrates that it lacks an

adequate alternative means to obtain relief, we need not consider

whether its right to a writ of mandamus is "clear and

indisputable."

Courts confronting this question have suggested that "[d]enial

of a motion to disqualify counsel will rarely justify the issuance

of a writ of mandamus." In Re Ford Motor Co.,

(8th Cir. 1984); see also In re Mechem,

(6th Cir.

1989); In re Bushkin Assocs., Inc.,

(1st Cir.

1989). We agree that frequent use of the writ would "'undermine[]

4 the policy against piecemeal appellate review,'" Mechem,

(quoting Allied Chemical Corp. v. Daiflon, Inc.,

(1980) (per curiam)), and thus we have stressed that

"mandamus may not serve as a substitute for appeal." Warren v.

Bergeron,

(5th Cir. 1987). We also have

recognized, however, that the standard governing the availability

of mandamus is not "never," but "hardly ever." Allied Chemical,

. Thus, this court has recently held that a writ

of mandamus will be available in certain cases to obtain immediate

review of a district court's denial of a disqualification motion.

In re Dresser Industries, No. 92-2199 (5th Cir. Aug. 21, 1992).

See also In re American Cable Publications, Inc.,

(10th Cir. 1985) (issuing writ on petition to review a grant of

disqualification motion); Merle Norman Cosmetics, Inc. v. United

States Dist. Ct., Central Dist. of Cal.,

(9th Cir.

1988) (recognizing that "if petitioners' claims were wellfounded

[sic], the damage would be irremediable," but denying writ on other

grounds). As in Dresser, we find the special circumstances of the

present dispute sufficient to place it within that narrow class of

cases warranting mandamus review.

American claims that immediate review of its disqualification

motion is appropriate because it will otherwise suffer "irreparable

harm" and also because "attorneys and clients throughout Texas need

the benefit of this Court's guidance on this issue of grave

importance." We agree. First, the nature and size of this

litigation would seem to preclude effective appellate review upon

5 final judgment. In addition, this case raises several questions

pertaining to the proper interpretation and application of ethical

standards in disqualification cases. As illustrated by our recent

Dresser opinion, it is relevant to mandamus review that the

"district court's order was not a mere discretionary one but rather

turns on legal questions appropriate for appellate review." In re

Burlington N., Inc.,

, 523 (5th Cir. 1987). It is also

relevant that, as in Dresser and Burlington, "[t]he issues here

also have importance beyond the immediate lawsuit." Id. at 523; In

re EEOC,

(5th Cir. 1983). For these reasons,

we hold that American has demonstrated the absence of an adequate

alternative to mandamus review.

Having met the "procedural" requirement for a writ of

mandamus, American must also demonstrate that its right to the

issuance of the writ is "clear and indisputable." This test goes

to the merits, and we pause only to set out the standard of review.

The Supreme Court has indicated that "[w]here a matter is committed

to discretion, it cannot be said that a litigant's right to a

particular result is 'clear and indisputable.'" Allied Chemical,

. In accord with these dictates, this court has

held that a writ of mandamus should not issue merely because we

believe that "we might have exercised the discretion vested in that

court differently than the district court exercised it." Matter of

Hester,

, 367 (5th Cir. 1990).

In this circuit, however, a district court's ruling upon a

disqualification motion is not a matter of discretion. Rather, the

6 appellate court "review[s] findings of fact for clear error 'while

carefully examining the district court's application of relevant

ethical standards.'" Johnston v. Harris County Flood Control

Dist.,

(5th Cir. 1989) (quoting Cossette v.

Country Style Donuts, Inc.,

(5th Cir. 1981)).

Conceding that abuse of discretion review is not appropriate,

Northwest asserts that this case centers on disputed factual

matters, and that the district court's findings deserve deference.

Assuming arguendo that the district court made findings on these

contested questions of fact, it is clear that the court was guided

by a particular reading of the Texas Disciplinary Rules in making

these relevant factual determinations. Whatever deference due the

court's factual findings, little or no deference is proper in

reviewing its interpretation of ethical rules. We have recently

held that a "district court's interpretation of the state

disciplinary rules [is] an interpretation of law, subject

essentially to de novo consideration." Dresser, No. 92-2199, slip

op. at 6975-76. In accord with Dresser, our review of the district

court's reading of the relevant ethical standards will be de novo.

III

We turn to the applicable law. The Local Rules of the

Southern District of Texas provide that "[t]he Code of Professional

Responsibility adopted by this court is the Code of Professional

Responsibility of the State Bar of Texas, as amended from time to

time." Tex. Rules of Court, Federal App. A, Rule 4B. Texas

replaced the Texas Disciplinary Code with the Texas Disciplinary

7 Rules of Professional Conduct in 1990. Recognizing the new Rules

as an amendment of the old Code, this Court has applied the Rules.

See In re Medrano,

, 102 n.3 (5th Cir. 1992). The

parties do not contest application of the Rules.

We have recently held, however, that the Texas Rules, as

adopted by the Southern District of Texas, are not the "'sole'

authority governing a motion to disqualify." Dresser, No. 92-2199,

slip op. at 6976. In reviewing a motion to disqualify, "we

consider the motion governed by the ethical rules announced by the

national profession in light of the public interest and the

litigants' rights."

As Dresser indicates, our precedents have

applied the ethical canons contained in the ABA Model Code. See,

e.g., Brennan's Inc. v. Brennan's Restaurants, Inc.,

(5th Cir. 1979); Woods v. Covington County Bank,

(5th

Cir. 1976).

The parties' extensive citation of this court's precedents

applying the ABA Model Code suggests their recognition that the

Texas Rules, as adopted by the Southern District of Texas, are not

the "sole" authority governing this case. Moreover, we do not

believe that our holding in Dresser has rendered the parties'

arguments grounded in the Texas Rules irrelevant to our decision.

The Texas Rules were patterned after the ABA Model Rules of

Professional Conduct, which the Dresser court cited along with the

Model Code as the national standards utilized by this circuit in

ruling on disqualification motions. Since the relevant ABA Rules

do not differ materially from the corresponding Texas Rules, the

8 parties' interpretations of the Texas Rules are equally applicable

in this case. Our discussion will therefore center on the Texas

Rules.

As we confirmed in Dresser, "[m]otions to disqualify are

substantive motions affecting the rights of the parties and are

determined by applying standards developed under federal law."

Dresser, No. 92-2199, slip op. at 6976; see also In re Snyder,

, 2881 n.6 (1985); In re Finkelstein,

(11th Cir. 1991); United States v. Miller,

(3d

Cir. 1980); Cord v. Smith,

(9th Cir. 1964).

Federal courts may adopt state or ABA rules as their ethical

standards, but whether and how these rules are to be applied are

questions of federal law. We stress this because Northwest

contends that the Texas Rules control the discretion of a district

court. According to Northwest, "a trial court is not forced by

literalism or mechanical standards to do injustice serving the mere

litigation tactics of a party. Rather, a trial court, according to

the Rules, is to determine if there is actual prejudice or

threatened interference with the fair administration of justice."

See Texas Rule 1.06 Comment 17; ABA Rule 1.7 Comment.

As we have indicated, disqualification cases are governed by

state and national ethical standards adopted by the court. We

disagree with Northwest's suggestion that these sources also

determine the discretion of a district court applying these rules.

That issue is one governed by federal law.

9 Some courts have taken the position Northwest advances, namely

that "[t]he business of the court is to dispose of litigation and

not to act as a general overseer of the ethics of those who

practice here unless the questioned behavior taints the trial of

the cause before it." W.T. Grant Co. v. Haines,

(2d Cir. 1976); Board of Educ. v. Nyquist,

, 1246 (2d

Cir. 1979); Armstrong v. McAlpin,

(2d Cir

1980). See also Sutton, How Vulnerable is the Code of Professional

Responsibility?, 57 N.C.L.Rev 497, 514-16 (1979). An attorney's

ethical violation by itself does not warrant disqualification under

this approach. Rather, disqualification is proper only in cases

where a court also finds that the unethical conduct threatens to

taint the trial. This more limited test largely rests on a belief

that disqualification motions are often made for tactical reasons

such as delay or harassment. While the "taint" standard "fails to

correct all possible ethical conflicts," Armstrong,

, it is argued that this limited disqualification rule serves to

deter many meritless, tactical motions that would otherwise be

filed.

This circuit, however, has struck a different balance,

electing to remain "sensitive to preventing conflicts of interest."

Matter of Consolidated Bankshares, Inc.,

(5th

Cir. 1986). We have squarely rejected this hands-off approach in

which ethical rules "guide" whether counsel's presence will "taint"

a proceeding, holding instead that a "[d]istrict [c]ourt is obliged

to take measures against unethical conduct occurring in connection

10 with any proceeding before it." Woods v. Covington County Bank,

(5th Cir. 1976) (emphasis added); Musicus v.

Westinghouse Elec. Corp.,

(5th Cir. 1980); E.F.

Hutton & Co. v. Brown,

(S.D. Tex. 1969);

see also Kevlik v. Goldstein,

(1st Cir. 1984)

("the district court has the duty and responsibility of supervising

the conduct of attorneys who appear before it"); Trust Corp. v.

Piper Aircraft Corp.,

, 87 (9th Cir. 1983) (same);

United States v. Agosto,

(8th Cir. 1982) (same).

For this reason, we have emphasized that "[a] motion to disqualify

counsel is the proper method for a party-litigant to bring the

issues of conflict of interest or breach of ethical duties to the

attention of the court." Musicus,

. We recognize

of course that disqualification motions may be used as "procedural

weapons" to advance purely tactical purposes. But we do not

believe that a priori assumptions concerning the motivations

underlying disqualification motions in general justify a more

relaxed ethical rule. Our prior cases disclose that a careful and

exacting application of the rules in each case will separate proper

and improper disqualification motions.

Our rejection of the "taint" standard finds additional support

in the questionable nature of the assumptions underlying the test.

First, the "taint" standard rests on a belief that "ethical

conflicts surfacing during a litigation are generally better

addressed by the 'comprehensive disciplinary machinery' of the

state and federal bar." Armstrong,

(quoting

11 Nyquist,

)). It is not not clear that the vitality

of state enforcement is relevant to the judicial duty of the

federal courts to clean its own house. Policy aside, it is equally

uncertain that the disciplinary boards have performed this role.

Moreover, clients and fellow attorneys have little incentive to

file formal complaints with disciplinary boards, and the evidence

suggests that they in fact do not. This is especially true in

cases of alleged conflicts of interest. See David B. Wilkins, Who

Should Regulate Lawyers?,

, 827-28 (1992);

Note, Developments in the Law--Conflicts of Interest in the Legal

Profession,

, 1496-1500 (1981). To a very

large extent, unless a conflict is addressed by courts upon a

motion for disqualification, it may not be addressed at all. More

to the point, it is our business--our responsibility.

Second, we believe that today there is less reason to suspect

tactical motivations behind disqualification motions than at the

time the "taint" standard was initially formulated in the 1970's.

This is not due to any moral transformation of the bar, but to the

relative absence of tactical advantages that might be secured by

disqualification orders under today's law. At that time,

disqualification orders were immediately appealable; the greatest

tactical advantage offered by these motions was delay, as the trial

proceedings were halted while the motion went up on appeal. See,

e.g., Nyquist,

. Under the Firestone regime,

however, disqualification motions are not appealable prior to final

judgment, thus severely limiting any advantages a party might have

12 achieved through delay. See Armstrong,

n.2

(Newman, J., concurring in part and dissenting in part).

Accordingly, we will rigorously apply the relevant ethical

standards in reviewing American's disqualification motion, just as

we have done in the past. See, e.g., Johnston v. Harris County

Flood Control Dist.,

(5th Cir. 1989); Doe v. A

Corp.,

(5th Cir. 1983); In re Corrugated

Container Antitrust Litigation,

(5th Cir. Unit A Oct.

1981); Duncan v. Merrill Lynch Pierce, Fenner & Smith, Inc.,

(5th Cir. Unit B June 1981). We will now examine the

three arguments offered by American in support of its motion to

disqualify Vinson & Elkins from representing Northwest.

IV

American first argues that VE must be disqualified from

representing Northwest because a law firm may not switch sides in

the same case. According to American, a binding attorney-client

relationship between VE and American was formed when Alison Smith,

a VE partner, agreed to represent American on June 10. VE's

withdrawal from the American representation and acceptance of the

Northwest representation on June 11 was a switch of sides in the

same case, a clear violation of legal ethics.

Texas Rule 1.06(a) provides that "[a] lawyer shall not

represent opposing parties to a litigation." As American

indicates, this rule applies even in cases where an attorney-client

relationship has not been formed: A lawyer may not "switch[] sides

and represent[] a party whose interests are adverse to a person who

13 sought in good faith to retain the lawyer." Texas Rule 1.09

Comment 4A; see also Hazard & Hodes, The Law of Lawyering § 1.9:111

(1991). The parties agree that Alison Smith agreed to represent

American on behalf of VE on June 10, and that Harry Reasoner

formally agreed to represent Northwest on June 11. There are

significant differences, however, on several points that bear on

the dispositive question of whether American sought to retain VE in

good faith.

On June 5, 1992, Northwest, through Joe Jamail, spoke to Harry

Reasoner, managing partner of VE, about the possibility of VE

serving as Northwest's co-counsel in a suit against American.

After checking to see whether American was a current client and

reviewing the matters that VE had handled for American in the past,

Reasoner promised Jamail that VE would accept no other

representation of an airline until he had the chance to discuss the

matter further.

On June 9, David Schwarte of American, after first attempting

to reach Reasoner, called Alison Smith, another VE partner.

Schwarte asked Smith if VE would represent American in a suit that

Continental had filed against it in Galveston. Unaware of the

previous discussion between Jamail and Reasoner, Smith stated that

she would be "delighted" to take on the case, but added that she

would first have to run a conflicts check. American sent VE copies

of the complaints filed against it later that day.

Smith called Schwarte at around 9:00 a.m. the next morning,

June 10. When Smith stated that the conflicts question had not yet

14 been resolved, Schwarte asked if there was a problem with

Northwest. Smith responded that no such conflict was apparent.

Smith and Schwarte then discussed American's possible litigation

strategy, focusing on American's desire to transfer the Galveston

case to Chicago.

A disputed conversation between David Boies of Cravath, Swaine

& Moore, lead counsel for Continental, and Ira Millstein of Weil,

Gotshal & Manges, lead counsel for American, occurred at about 9:30

a.m. According to Boies, Millstein stated that he hoped to retain

VE to represent American in the Galveston case. Boies responded

that this probably was not possible, for it was his understanding

that VE would be representing Northwest in a suit against American.

Millstein, however, asserts that he told Boies that VE would be

representing American in Galveston, and that Boies responded that

VE might have a conflict with Northwest, not that VE was going to

sue American on Northwest's behalf.

At 10:30 a.m., Smith informed Schwarte that there were no

conflicts that might prevent VE from representing American. Upon

hearing this, Schwarte asked Smith if there was any reason why "we"

could not begin to act as a team. Smith responded that she did not

see why not. The two again spoke of American's desire to transfer

the Galveston case to Chicago. Schwarte asked Smith to begin

thinking about this question and told her that he would send her a

memorandum on the subject prepared by Weil, Gotshal attorneys.

After the call, Smith left Reasoner a note in his office, stating

15 that she had accepted the American representation in the Galveston

case.

Reasoner learned of Smith's acceptance of the American

representation when he called his office at around 12:30 p.m. He

advised Smith to explain to Schwarte that until Smith and Reasoner

were able to discuss the matter, it was uncertain whether VE would

be able to accept. Smith called Schwarte at 2:20 p.m. The

contents of this conversation are in dispute. According to Smith,

she told Schwarte that Reasoner had informed her that there was a

problem with VE representing American. Schwarte responded that he

was not surprised, for he had learned from Millstein that Reasoner

had spoken to Northwest about suing American. According to

Schwarte, however, Smith stated only that she had received a

"cryptic note" from Reasoner indicating that "there might be a

problem with Northwest." Schwarte swears that he made no mention

of the possibility that VE might represent Northwest. At 3:45

p.m., VE received a copy of the memorandum prepared by Weil,

Gotshal that Smith and Schwarte had discussed earlier.

Schwarte and Smith spoke again at 5:30 p.m. Smith informed

Schwarte that the "problem with Northwest" had not yet been

resolved. Schwarte stated that he needed to know as soon as

possible in order to make other arrangements if it turned out that

VE could not represent American. At 5:45 p.m., Reasoner told Smith

that he planned to read the complaints in the case and would speak

to American the next day. Smith called Schwarte to convey this

information.

16 Northwest alleges that Irv Terrell, a partner at Baker &

Botts, informed Joe Jamail this same afternoon that Baker & Botts

would be representing American. Both Terrell and Schwarte,

however, sharply contradict this account, asserting that American

did not retain Baker & Botts until the afternoon of June 11, after

VE told American that it would be representing Northwest.

The next afternoon, June 11, Reasoner and Jamail agreed that

VE would serve as co-counsel for Northwest. Reasoner then called

various members of American's legal team with this news. Millstein

at this time asked Reasoner if he could recommend other Houston

counsel. Reasoner told him that Baker & Botts would be a good

choice. On Reasoner's instructions, Smith returned unread the

Weil, Gotshal memorandum she had received the day before.

According to American, American retained Baker & Botts later that

afternoon.

The parties' respective accounts of these events diverge at

several significant points. The rule barring lawyers from

switching sides in the same case applies only where the complaining

party sought in good faith to retain the lawyer. Texas Rule 1.09

Comment 4A. Northwest's version of events might lead a court to

question American's good faith. According to Northwest, American's

lead counsel was informed that VE would be representing Northwest

in a suit against American before Alison Smith, who, unlike

American, had no knowledge of VE's previous commitment to

Northwest, agreed to represent American. Northwest also contends

that American hired Baker & Botts during the afternoon of June 10,

17 before VE's final decision that it would not represent American.

Northwest alleges that American sent VE the confidential memorandum

prepared by Weil, Gotshal after these two events, that is, with

knowledge that VE would likely be representing Northwest and after

it had hired Baker & Botts. These alleged facts, if accepted as

true, might establish that American's efforts were motivated

primarily by a desire not to secure representation from VE, but to

ensure that VE would not, or could not, represent Northwest.

American, of course, contests Northwest's account, insisting

that it had no knowledge of VE's prior commitment to Northwest and

that it hired Baker & Botts on June 11, only after it was informed

that VE would be representing Northwest. When American learned of

VE's commitment to Northwest is a factual issue crucial to

determining whether American sought VE's representation in good

faith, as Texas Rule 1.06 requires. The district court made no

factual findings on this issue. We need not remand for further

fact finding because we hold that VE must be disqualified on other

grounds.

V

American's final two contentions rest on VE's prior

representations of the airline in antitrust matters. American

contends that VE must be disqualified because VE has represented

American in matters substantially related to the present case and

VE's representation of Northwest in this case will likely involve

the use to American's disadvantage of confidential information

obtained during this earlier representation. We will first discuss

18 the applicable ethical standards. We will then apply these

standards to the prior representations alleged by American to

warrant VE's disqualification.

A.

American contends that VE's prior representations of American

make disqualification appropriate under this court's precedents and

the Texas Rules. Our review in previous cases involving prior

representations has been governed by the "substantial relationship"

test:

A party seeking to disqualify opposing counsel on the ground of a former representation must establish two elements: 1) an actual attorney-client relationship between the moving party and the attorney he seeks to disqualify and 2) a substantial relationship between the subject matter of the former and present representations.

Johnston v. Harris County Flood Control Dist.,

(5th Cir. 1989); In re Corrugated Container Antitrust Litigation,

(5th Cir. 1981); Duncan v. Merrill Lynch,

Pierce, Fenner & Smith,

(5th Cir.), cert.

denied,

(1981). Because it is not disputed that VE

represented American in the matters under consideration, the sole

issue is whether these prior representations are substantially

related to the present case. Our inquiry may be narrowed to this

single question because the substantial relationship test is

governed by an irrebuttable presumption. Once it is established

that the prior matters are substantially related to the present

case, "the court will irrebuttably presume that relevant

confidential information was disclosed during the former period of

19 representation." Duncan,

; Corrugated,

.1

The test is categorical in requiring disqualification upon the

establishment of a substantial relationship between past and

current representations. But we have never applied the test in a

mechanical way that might "prevent[] an attorney from ever

representing an interest adverse to that of a former client."

Duncan,

. Rather, a substantial relationship

may be found only after "the moving party delineates with

specificity the subject matters, issues and causes of action"

common to prior and current representations and the court engages

in a "'painstaking analysis of the facts and precise application of

precedent.'" Duncan,

(quoting Brennan's, Inc. v.

Brennan's Restaurants, Inc.,

(5th Cir. 1979)).

Finally, the party seeking disqualification bears the burden of

proving that the present and prior representations are

substantially related. Duncan,

.

This circuit adopted the substantial relationship test before

the promulgation of the Rules of Professional Conduct. We must

decide the application of the substantial relationship test under

these new Rules. Texas Rule 1.09 provides in relevant part:

(a) Without prior consent, a lawyer who personally has formally represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client:

1 A second irrebuttable presumption is that confidences obtained by an individual lawyer will be shared with the other members of his firm. See Corrugated,

. This presumption is not at issue in this case, for all of the VE lawyers involved have previously represented American.

20 . . . (2) if the representation in reasonable probability will involve a violation of Rule 1.05; or

(3) if it is the same or a substantially related matter.

Rule 1.09(a)(2) incorporates Rule 1.05, which prohibits a lawyer's

use of confidential information obtained from a former client to

that former client's disadvantage. Rule 1.09 thus on its face

forbids a lawyer to appear against a former client if the current

representation in reasonable probability will involve the use of

confidential information or if the current matter is substantially

related to the matters in which the lawyer has represented the

former client.2

In providing two distinct grounds for disqualification, the

Rules expand the protections for former clients beyond those

afforded by the substantial relationship test. The Rules are not,

however, broader than the protections provided by our precedents.

While the focus of our cases has been on the substantial

relationship test, we have indicated that a former client could

2 ABA Rule 1.9 is identical to Texas Rule 1.09 in all important respects:

(a) A lawyer who has formally represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation . . . . (c) A lawyer who has formally represented a client in a matter . . . shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client . . . .

ABA Rule 1.9.

21 also disqualify counsel by showing that his former attorney

possessed relevant confidential information in the manner

contemplated by Rule 1.09(a)(2). As Duncan, for example, stated:

"[The moving party may disqualify counsel on the basis of prior

representations] either by establishing that the present and

previous representations are substantially related or by pointing

to specific instances where it revealed relevant confidential

information regarding its practices and procedures." Duncan,

. Thus, it does not appear that the Texas Rules make

material addition to the basic approach we have used in the past.

But do the Rules take something away? That is, do the Rules

offer less protection to former clients than our precedents?

Northwest offers two related arguments on this score. First,

Northwest contends that a substantial relationship between past and

current matters exists only where the two cases are so closely

related that the risk of adverse use of the former client's

confidences threatens to "taint" the trial. Northwest also argues

that a close relation between a past and current representation is

irrelevant if the attorney relied on publicly available information

in advising the former client. These two arguments are rooted in

Northwest's larger assertion that the substantial relationship test

is solely concerned with protecting a former client's confidences.

Northwest offers three distinct grounds in support of its

"taint" standard. It first makes a brief attempt to locate this

more demanding standard in Duncan. According to Northwest, Duncan

provides that a party may establish a substantial relationship

22 between past and current representations only by demonstrating that

the two matters are so closely related that there is a "genuine

threat that confidences revealed to his former counsel will be

divulged to his present adversary." Duncan,

.

Duncan, however, stands for a different proposition, for we held

that a "genuine threat" of adverse use of confidences is

established by showing that a prior representation is substantially

related to the present case.

Under Duncan, a party demonstrates

a "genuine threat" by establishing a substantial relationship

between past and present cases, not, as Northwest would have it,

the other way around.

Northwest's other two arguments rest on its interpretation of

Texas Rule 1.09's substantial relationship language. First,

Northwest contends that the commentary to Rule 1.09 makes

"abundantly clear" that the Rule's substantial relationship

language is directed to "actual and genuine threats to the

integrity of the trial process." Comment 8 to Rule 1.09 provides:

Although not required to do so by Rule 1.05 or this Rule, some courts, as a procedural decision, disqualify a lawyer for representing a present client against a former client when the subject matter of the present representation is so closely related to the subject matter of the prior representation that confidences obtained from the former client might be useful in the representation of the present client. See Comment 17 to Rule 1.06.

Comment 17 provides that alleged conflicts should be raised by an

opposing party only where the alleged "conflict is such as clearly

to call in question the fair or efficient administration of

justice." Northwest concludes that this commentary reveals that

23 "the substantial relationship language of Rule 1.09 is bottomed on

a concern about the actual fairness of the proceedings in which

disqualification is sought."

Northwest also contends that the Texas Rules' conscious

omission of the "appearance of impropriety" standard contained in

Canon 9 of the Model Code independently establishes "taint" as the

appropriate disqualification standard. Northwest points out that

some of our broader substantial relationship cases, notably In re

Corrugated Container Antitrust Litigation,

(5th Cir.

1981), were decided under Canon 9. Northwest asserts that

Corrugated's broad language was intimately tied to Canon 9's

"appearance of impropriety" standard. Since the Texas Rules

eliminated this rule, "disqualification is no longer appropriate

unless counsel's continued involvement threatens to taint the

underlying trial: a mere appearance of impropriety will not

suffice."

We reject both of Northwest's arguments. A party seeking to

disqualify counsel under the substantial relationship test need not

prove that the past and present matters are so similar that a

lawyer's continued involvement threatens to taint the trial.

Rather, the former client must demonstrate that the two matters are

substantially related. Second, we adhere to our precedents in

refusing to reduce the concerns underlying the substantial

relationship test to a client's interest in preserving his

confidential information. The second fundamental concern protected

by the test is not the public interest in lawyers avoiding "even

24 the appearance of impropriety," but the client's interest in the

loyalty of his attorney.

Northwest's argument that the Texas Rules' commentary bottoms

Rule 1.09's substantial relationship language on a concern for

"actual fairness" rests on its general interpretation of the Texas

Rules. Northwest suggests that courts' use of disciplinary

standards in disqualification matters is "understandable in courts

that have not yet developed their own specific procedural

disqualification rules or standards." Courts may borrow from the

rules, with two important qualifications: "First, any violation of

a disciplinary standard must be demonstrated by movant to have been

actually prejudicial to movant; and, second, disqualification

should be denied unless the litigation will be 'tainted' by the

continued participation of a lawyer or firm that may have violated

a disciplinary standard."

This argument is closely related to Northwest's larger

assertion that the Texas Rules are "guides" for courts and are not

to be "literally" applied in disqualification cases. We addressed,

and rejected, this general argument in Part III. We understand

this particular argument concerning the substantial relationship

test to be something more than a reiteration of this general point.

Northwest's initial argument was that a breach of an ethical

standard does not by itself require disqualification; an additional

showing of taint is needed. Here, Northwest appears to concede

that such a breach requires disqualification, but asserts that the

rule barring representation in substantially related matters is not

25 violated unless the cases are so similar that there is a genuine

threat of taint. We reject this argument. The substantial

relationship test, as applied in this circuit and elsewhere, does

not have its source in disciplinary rules. To the contrary, the

test was developed at common law. Our precedents did not rely on

the Model Code or Model Rules in formulating the substantial

relationship test, but on the landmark T.C. Theatre Corp v. Warner

Bros. Pictures, Inc.,

(S.D.N.Y. 1953), which

predated the Model Code and of course the Model Rules. See, e.g.,

Wilson P. Abraham Construction Corp. v. Armco Steel Corp.,

(5th Cir. 1977); In re Yarn Processing Patent Validity

Litigation,

(5th Cir. 1976).

The actual development of Rule 1.09's substantial relationship

provision is the just the opposite of the version Northwest gives.

The initial drafts of both the ABA and Texas Rules did not include

a rule barring representation in substantially related matters. In

both cases, the substantial relationship rule was added as a

reflection of case law. See Robert P. Schuwerk & John F. Sutton,

Jr., A Guide to the Texas Disciplinary Rules of Professional

Conduct, 27A Hous. L. Rev. 1, 152 n.20, 153 n.34 (1990); Note, In

Defense of the Double Standard in the Rules of Ethics: A Critical

Reevaluation of the Chinese Wall and Vicarious Disqualification, 20

U. Mich. J.L. Ref. 245, 257 & n.66 (1986) (ABA Rules). Schuwerk &

Sutton's account is instructive:

[T]he Texas committee originally avoided [the substantial related matter language] in proposed Texas Rule 1.09 . . . . Subsequently, however, a difficulty emerged as a result of failure to employ the substantial relationship

26 test in a disciplinary context. A lawyer might accept or continue employment in a matter against a former client believing (correctly) that no disciplinary violation was involved under the initially proposed version of Rule 1.09, only to be disqualified subsequently--perhaps at great cost and expenses to the client--by a court employing the traditional substantial relationship test . . . . The drafting committee, therefore, concluded that the danger of having its narrowly drawn Rule 1.09 turn into a trap for the unwary outweighed its objections to the substantial relationship test as a standard of discipline. It would be in keeping with the committee's thinking, however, to construe "substantially related" narrowly for disciplinary purposes.

Schuwerk & Sutton, supra, at 153 n.34 (emphasis added); see also

Rule 1.09 Comment 9.

As this account suggests, the difficulty posed by Rule 1.09

does not concern the "literal and mechanical" application of a

disciplinary rule in disqualification cases. Rather, the concern

is the transfer of the substantial relationship test developed by

courts to the disciplinary context. See also Charles W. Wolfram,

Modern Legal Ethics 366 (1986) (discussing ABA Rules' "adoption of

the substantial relationship standard as a disciplinary rule").

Contrary to Northwest's contentions, the Rules did not supplant,

but adopted, the common law substantial relationship test. The

argument thus provides no basis for applying the substantial

relationship test through the "taint" filter it proposes.

Northwest's argument concerning the Rules' deletion of Canon

9's appearance of impropriety standard has more purchase.

Northwest argues that the Model Rules' omission of the "appearance

of impropriety" standard contained in the Model Code indicates that

the substantial relationship test should be solely concerned with

ensuring "actual fairness" in the proceedings. But Northwest does

27 not mention loyalty, itself a substantial addition under the Rules.

As several commentators have noted, the Model Code provided no

express protection to the former client's interest in loyalty.

See, e.g., Geoffrey C. Hazard & W. William Hodes, The Law of

Lawyering 292 (1991); Wolfram, supra, at 363 (1986). This interest

is singled out only under the Rules. See Texas Rule 1.06 Comment

1 ("Loyalty is an essential element in the lawyer's relationship to

a client"); ABA Rule 1.9 Comment ("The second aspect of loyalty to

a client is the lawyer's obligation to decline subsequent

representations involving positions adverse to a former client

arising in substantially related matters"); Hazard & Hodes, supra,

at 292-93; Wolfram, supra, at 361; Sutton, supra, at 147; Stephen

Gillers, What We Talked About When We Talked About Ethics: A

Critical View of the Model Rules,

, 250-55

(1985).

The Rules' express establishment of loyalty and

confidentiality as the interests protected by the substantial

relationship test is a return to T.C. Theatre Corp. v. Warner Bros.

Pictures, Inc.,

(S.D.N.Y. 1953), where the

court held that once it is established that the two representations

are substantially related,

[t]he court will assume that during the course of the former representation confidences were disclosed to the attorney bearing on the subject matter of the representation. It will not inquire into their nature and extent. Only in this manner can the lawyer's duty of absolute fidelity be enforced and the spirit of the rule relating to privileged communications be maintained.

(emphasis added).

28 We believe the replacement of the "appearance of impropriety"

with loyalty provides no basis for altering the substantial

relationship test found in our precedents. This is because we read

our cases involving Canon 9 as protecting the same interest in

loyalty now explicitly provided for under the Rules. As the

Comment to ABA Rule 1.9 notes, "[r]epresentation adverse to a

former client was sometimes dealt with under the rubric of Canon 9

of the Model Code." This was true of this court as well as others.

The link between loyalty and the appearance of impropriety is

most evident in Brennan's Inc. v. Brennan's Restaurants, Inc.,

(5th Cir. 1979), where the court disqualified a former

counsel even though there was no chance that confidential

information might be used against the former client. We held:

The obligation of an attorney not to misuse information acquired in the course of representation serves to vindicate the trust and reliance that clients place in their attorneys. A client would feel wronged if an opponent prevailed against him with the aid of an attorney who formerly represented the clients in the same matter. As the court recognized in E.F. Hutton & Co. v. Brown,

(S.D. Tex. 1969), this would undermine public confidence in the legal system as a means for adjudicating disputes.

. As Professors Hazard and Koniak observe: "In

Brennan's, the Court recognizes two underlying concerns of the

substantial relationship test: the duty to preserve confidences

and the duty of loyalty to a former client." Geoffrey C. Hazard &

Susan P. Koniak, The Law and Ethics of Lawyering 658 (1990). See

also E.F. Hutton & Company v. Brown,

(S.D.

Tex. 1969) ("If courts protect only a client's disclosures to his

attorney, and fail to safeguard the attorney-client relationship

29 itself--a relationship which must be one of trust and reliance--

they can only undermine the public's confidence in the legal system

as a means for adjudicating disputes."); Duncan,

("the integrity of the judicial system would be sullied if courts

tolerated such abuses by those who profess and owe undivided

loyalty to their clients") In re Yarn Processing Patent Validity

Litigation,

(5th Cir. 1976) (prohibition of

representation of conflicting interests rests on lawyers duties of

loyalty and confidentiality); Cf. In re Corn Derivatives Antitrust

Litigation,

(3d Cir. 1984); In re Agent Orange

Product Liability Litigation,

(2d Cir. 1986).

As these decisions suggest, the existence of a lawyer's duty

of loyalty means that the substantial relationship test is not

solely concerned with the adverse use of confidential information.

What the duty of loyalty adds to the duty of confidentiality is

clearly presented in Corrugated:

Container's complaint is that the district court failed to explain how [the lawyer's] advice would be relevant or substantially related to this action. The advice does not need to be "relevant" in the evidentiary sense to be "substantially related." It need only be akin to the present action in a way reasonable persons would understand as important to the issues involved.

Corrugated,

(emphasis added).

We emphasize "advice" because a court solely concerned with

the possible adverse use of confidential information might not be

obliged to protect legal advice. As at least one court has noted,

"the concern of the Confidentiality Rule and the case law is the

protection of what the client tells his attorney, not what the

30 attorney tells the client." Laker Airways Ltd. v. Pan American

World Airways,

(D.D.C. 1984) (emphasis added).

We agree that the confidentiality rule was historically concerned

with disclosures, but we are also persuaded that the substantial

relationship test cannot be reduced to a confidentiality rule. See

Texas Rule 1.07. That is, because the substantial relationship

test is concerned with both a lawyer's duty of confidentiality and

his duty of loyalty, a lawyer who has given advice in a

substantially related matter must be disqualified, whether or not

he has gained confidences.

We agree with Northwest that the "appearance of impropriety"

has no relevance to our probe of ethical restraints. It does not

follow, however, that the focus of the substantial relationship

test now becomes the "actual fairness" of the trial. Such a shift

is premised on the view that eliminating the appearance of

impropriety reduces the substantial relationship test to a concern

for confidential information. We believe that such a reduction is

precluded by a lawyer's duty of loyalty. Because Canon 9 was

primarily interpreted by the court as a way to protect a client's

loyalty interests, we believe that our application of the

substantial relationship test under the Rules is the same as it was

under the Code.

We believe that disqualification of VE would be appropriate

even under the relaxed "actual prejudice" or "taint" standard

Northwest urges this court to adopt. As we explain below, the

relationship between the matters in which VE has represented

31 American and the instant litigation is so intimate that VE's

continued involvement does threaten to compromise the integrity of

the present trial. Our continued adherence to the substantial

relationship test rests on our belief that the ethical prohibition

against successive representation cannot be reduced to the

protection of clients' confidences, let alone protecting these

confidences only to the extent that their adverse use might "taint"

the trial, as Northwest's proposal would provide. Rather, a

lawyer's obligation of confidentiality must be seen as part of the

lawyer's primary duty of loyalty, a duty that is not exhausted by

the preservation of a former client's secrets. We believe that a

single inquiry into whether past and present representations are

substantially related provides the best means to protect these two

interests of clients.

Because it recognizes these two interests, the substantial

relationship test serves not only to ensure the fairness of

particular trials, but also to safeguard the integrity of the

attorney-client relationship. If the sole focus of the substantial

relationship test was the possible adverse use of confidences,

prior representations in which the attorney advised the client but

received no confidential information would not warrant

disqualification. Even if the subject matter of case one and case

two is identical, a former client's adversary is not inevitably

advantaged by virtue of his attorney's prior representation of the

client. And yet this court has held that the provision of legal

advice on a substantially related matter by itself requires

32 disqualification. See Corrugated,

; Brennan's,

.

Disqualification rules not only preserve the purity of

particular trials but also unavoidably affect relationships among

attorneys and clients in general. This court bars attorneys from

appearing in substantially related matters not only to protect

individual parties against the adverse use of information but also

"to aid the frank exchange between attorney and client." Wilson P.

Abraham Const. Corp. v. Armco Steel Corp.,

(5th

Cir. 1977); see also In re Yarn Processing Patent Validity

Litigation,

(5th Cir. 1976). A post hoc inquiry

into whether a particular attorney's involvement in a particular

suit might "taint" the case in no way provides the breadth and

"predictability of confidence [that] is central to the role of the

attorney." In re LTV Securities Litigation,

(N.D. Tex. 1981); cf. Upjohn Co. v. United States,

(1981) (recognizing that confidentiality is essential to

frank discussions between attorneys and clients or client's

employees). The trust a lawyer's duty of loyalty inspires in

clients encourages them freely to confide in the lawyer and freely

to rely on the advice provided by the lawyer. The substantial

relationship test aims to protect the adversary process but also,

or as part of this concern, seeks to provide conditions for the

attorney-client relationship. As such, our central concern remains

the application of the rule to the actual relationship of lawyers

and clients, but in the process we consider also what they might

33 have done. What credence, for example, might American have

attached to VE's December 1990 counsel that the airline's interests

would be better served by postponing the acquisition of Continental

for at least a year if it even suspected that VE itself might soon

be representing one of its competitors in a suit against American,

charging that it had abused its market power to the detriment of

competition in the airline passenger service markets?

These considerations preclude us from accepting Northwest's

final argument. Northwest claims that because VE relied primarily

on public, not confidential, information in advising American,

these prior matters cannot be considered substantially related to

the present case. It contends that "'[f]acts that are community

knowledge or that are not material to a determination of the issues

litigated do not constitute "matters involved" within the meaning

of the law' governing the substantial relationship test" (quoting

J.K. & Susie L. Wadley Research Inst. & Blood Bank v. Morris,

(Tex. App.--Dallas 1989, orig. proceeding)). The

record sharply contradicts Northwest's claim that all of the

material obtained by VE was publicly available. As we discuss

below, VE was privy to many of American's secrets. But Northwest's

argument would fail even if it could show that all of the

information provided by American was public knowledge. Our

precedents, the Texas Rules, and the ABA Rules all reject the

position Northwest advances. This court has held that

"[i]nformation [provided by a client] is sheltered from use by the

attorney against his client by virtue of the existence of the

34 attorney-client relationship. This is true without regard to

whether someone else may be privy to it." Brennan's, Inc. v.

Brennan's Restaurants, Inc.,

(5th Cir. 1979).

"'This ethical precept . . . exists without regard to the nature

or source of information or the fact that others share the

knowledge.'"

(quoting Model Code EC 4-4); Doe v. A Corp.,

(5th Cir. 1983) (same). See also Emle Industries,

Inc. v. Glen Raven Mills, Inc.,

, 572-73 (2d Cir. 1973)

("[t]he client's privilege in confidential information disclosed to

his attorney `is not nullified by the fact that the circumstances

to be disclosed are part of a public record, or that there are

other available sources for such information'" quoting Henry S.

Drinker, Legal Ethics 135 (1953); NCK Organization Ltd. v. Bregman,

(2d Cir. 1976) (same).

The Texas and ABA Rules supply the same standard. The Rules

do contain an exception for public information, but in each case

this exception applies only to the provision prohibiting the use of

confidential information, not the rule prohibiting successive

representation in substantially related matters. Texas Rule 1.05

provides that "a lawyer shall not knowingly

(3) [u]se confidential information of a former client to the disadvantage of the former client after the representation is concluded unless the former client consents after consultation or the confidential information has become generally known."

Texas Rule 1.05 (b) (3) (emphasis added). This provision, however,

is incorporated by Rule 1.09(a) (2), not the substantial

relationship rule contained in Rule 1.09 (a) (3). The same

35 distinction exists between Rules 1.9 (a) and 1.9(c) of the ABA

Rules, as commentators have indicated. See, e.g., Charles W.

Wolfram, Modern Legal Ethics 360, 365 (1986).

We believe that our application of the substantial

relationship test under the Rules is the same as it was under the

Code. Thus, as in our past cases, our inquiry is limited to the

single question of whether VE's prior representations of American

are substantially related to the present case.

B.

VE represented American in several matters in recent years,

earning fees in excess of $676,000. Our review will be limited to

three of VE's prior representations. VE defended American in two

suits brought by Continental in Texas. The focus of each case, as

in the larger California litigation to which they were related, was

SABRE, American's computerized reservation system. The first case,

System One Direct Access, Inc v. American Airlines Inc., was an

antitrust suit brought by a Continental affiliate in Houston

federal court. VE served as counsel from November 1987 until

withdrawing in July 1988 when the case was transferred to Dallas.

VE also served as lead counsel in Continental Airlines, Inc.

v. American Airlines, Inc., a Texas state court case. Continental

alleged that American had breached contractual relationships and

committed other acts of misconduct in operating its CRS. VE

represented American from March 1989 until the case was settled as

part of the global settlement between Continental and American in

May 1990.

36 In late 1990, VE advised American concerning whether the

Antitrust Division of the Department of Justice would approve

"Project Armadillo," a proposed acquisition of Continental

Airlines. The primary question was whether a merger of the two

airlines would run afoul of the Department's merger guidelines.

The representation ended in January 1991, when American apparently

chose not to pursue the merger.

The two Texas cases were related and subsidiary to a larger

suit by Continental and Northwest, among others, against American

and United Airlines in California federal district court in 1985.

Continental and Northwest charged American and United with

monopolization of both computerized reservation systems and various

air transportation markets.3 In particular, they charged predatory

pricing of CRS systems and air transportation, closely related to

the claim advanced by Northwest and Continental here.

American asserts, and Northwest appears to concede, that the

California case is substantially related to the present case.

However, Gibson, Dunn & Crutcher, not VE, represented American in

California, so the similarities between the California case and the

present one are no basis for disqualification. American's argument

that VE's prior representations are substantially related to this

case rests largely then upon its claim that the Texas cases are

substantially related to the California case.

3 See In re Air Passenger Computer Reservations Systems Antitrust Litigation,

(C.D. Cal. 1988); aff'd Alaska Airlines, Inc. v. United Airlines, Inc.,

(9th Cir. 1991), cert. denied,

(1992).

37 Northwest argues that the Texas cases are not substantially

related to this case because the allegations in these cases, unlike

in California, pertained only to CRS services, not air

transportation services. We disagree. While the focus was

certainly CRS systems, the plaintiffs also raised claims involving

air transportation markets. Moreover, as we will explain, the

Texas cases involved two particular matters at issue in the present

case.

(1) Fort Bend

Fort Bend involved the state-law claims over which the

California district court, upon American's motion to dismiss, had

declined to exercise pendent jurisdiction. Continental alleged

breach of contract, duress, tortious interference,

misrepresentation, and violation of the Texas Deceptive Trade

Practices Act. As in California, Continental's petition focused on

American's CRS operations. But also as in California, Continental

asserted that American's power in the CRS market could not be

considered apart from its position in the air transportation

market. Continental claimed that "American and United, by

leveraging their dominance as air carriers and the enormous secret

profits they received from bias-diverted revenues, established

themselves as the dominant CRS providers." Continental charged

that American, having achieved dominance in the CRS market, in turn

used SABRE to "exclude[] Continental in whole or in part from

specific airline passenger markets."

38 Continental's claims were stated in a similar manner.

Continental claimed that American had breached its contract by

"secretly accessing TXI's [a Continental affiliate] data base and

using it to study passenger traffic flow through the Dallas/Fort

Worth hub. Reports developed by American through the use of the

TXI data contributed to American's successful exclusion of TXI from

the Dallas/Fort Worth hub and elsewhere." In its tortious

interference claim Continental alleged that American had

"interfered with Continental's prospective contractual relations

with its travel agents and air passengers," causing damages in the

form of "lost airline bookings through bias diversions and total

exclusion from certain air passenger markets." Finally,

Continental noted that the California district court had cited

American President Robert Crandall's alleged 1982 price-fixing

solicitation of Braniff as "a textbook example of anticompetitive

conduct" in ruling that "Continental could proceed to trial on its

claim that American illegally attempted to monopolize the Dallas-

Fort Worth airport."

Continental's allegations and its reference to Crandall's

alleged price-fixing solicitation apparently supplied the basis for

the belief among VE and Gibson, Dunn lawyers that American's

alleged attempted monopolization of DFW would be at issue in the

case and that Continental might seek to introduce the price-fixing

incident as evidence on this score. As such, they believed that

Fort Bend was intimately related to the California case. For

example, a VE partner stated at the time that the California and

39 Fort Bend suits "involve the same parties, the same alleged acts,

and the same alleged damages." Another VE lawyer noted that the

two suits could be seen as "largely identical": "[The Fort Bend

petition] asserts that AA and UA used their purported CRS

monopolies to obtain monopoly power in certain air transportation

markets. This claim is intertwined with both the CRS

monopolization and DFW attempted monopolization claims pending in

California." The perceived similarities between Fort Bend and the

California case led VE and Gibson, Dunn to spend considerable time

exploring the possibility of an abatement of the Fort Bend case

until the California proceedings had concluded.

VE argues that Crandall's alleged price-fixing solicitation

and Continental's claim that American had used its CRS to exclude

it from the DFW market were not at issue in Fort Bend. This

contention is contradicted by the accounts of Gibson, Dunn lawyers

and by notes taken by a VE lawyer during one meeting between VE and

Gibson, Dunn. While it is difficult to reconstruct a conversation

from this distance, we are struck by the first two comments on the

first page of notes: 1) "There is no admissible evidence of the

Crandall telephone conversation on Braniff; may use it on a

consequential damages theory that Continental excluded from DFW

market." 2) "We should argue that the exclusion claim is being

litigated in California and should not be litigated in Texas."

Given the allegations in the complaint, the statements of VE's

lawyers at the time, and this evidence it is difficult to maintain

that these matters were not at issue in Fort Bend.

40 The charges of monopolization of DFW and Crandall's alleged

solicitation are prominently featured in Northwest's current

complaint. Northwest alleges that American has monopolized or

attempted to monopolize five different air transportation markets.

Dallas-Fort Worth is included as an "illustrative example" in three

of the five markets cited by Northwest: origin and destination

city pair markets, O & D airport-airport pair markets, and O & D-

based hub markets. It cannot be denied that one focus of the case

will be American's DFW operations, the very market at issue in Fort

Bend.

Similarly, Northwest contends in its complaint that "AA and

its current chief executive officer have previously engaged in

anticompetitive conduct with open contempt for the antitrust laws."

Northwest prominently cites Crandall's alleged price-fixing

solicitation, the same allegation that VE lawyers were charged with

excluding in the Fort Bend case. VE suggested at oral argument

that Crandall's alleged solicitation is not substantially related

to the present case because this ten-year old incident would not be

admitted as evidence. This is helpful but not dispositive. As the

Corrugated court stated, the subject matter "does not need to be

'relevant' in the evidentiary sense to be 'substantially related.'

It need only be akin to the present action in a way reasonable

persons would understand as important to the issues involved."

Corrugated,

. Northwest included the incident

under the heading "Conduct Giving Rise to Violations Alleged" in

its complaint. This is not easily explained away, especially given

41 Northwest's heavy reliance on the location of the Crandall

allegation in the Fort Bend petition's "procedural history" in

attempting to prove that the incident was not at issue in that

case.

We are persuaded that VE's representation of American in the

Fort Bend case is substantially related to the present case.

2) System One

In System One, Continental affiliate System One, a CRS vendor,

charged that American had violated antitrust laws in its provision

of CRS services. System One alleged that American had engaged in

a variety of acts designed to exclude it from the CRS market. But

as in Fort Bend, plaintiff presented the CRS and air transportation

markets as inextricably linked. The System One complaint alleged

that "AA has used its monopoly power in the provision of air

carrier services in various geographic markets to obtain, retain,

and enhance its power in the provision of CRS systems." Again, "AA

has achieved its dominant position in the market for CRS services,

and continues to enforce anticompetitive practices in an effort to

maintain that position, not only to reap monopoly profits from the

sale and use of CRS systems, but to enhance profits from the

provision of air transportation services."

The record reflects extensive discovery regarding SABRE's

effects on air transportation revenues. System One requested all

documents relating to the "incremental revenues," the general

effect of "airline ownership of a CRS on the airline's sale of air

transportation services," and "any actual or possible loss of

42 revenue or other detriment to any commercial air carrier as a

result of the operation or installation of SABRE." In response,

American agreed to produce all documents "that discuss, study, or

analyze whether, and the extent to which, any airline (including

American) which owns a CRS obtains incremental airline revenue as

a consequence of automating travel agencies with its CRS" as well

as "documents discussing whether American has a 'premium share' of

the traffic in a particular region or market and whether this is

attributable to the presence of SABRE in that region or market."

In the absence of this prior litigation, there is little doubt

that Northwest would seek to introduce evidence of the incremental

revenues generated by SABRE in support of the predatory pricing

claims it raises in this case. Northwest's General Counsel

recently asserted in congressional testimony that American's

ability

to restructure and reduce its fares dramatically is directly related to American's long-term, advantageous use of its CRS . . . . DOT studies repeatedly have documented the flow of hundreds of millions of dollars of incremental revenue diverted from other carriers to American and United as a result of their CRS market power . . . [I]n a very real sense, American has launched its predatory attack on the industry using our own money.

It is the case that challenges by Northwest and Continental of

American's CRS use have been earlier terminated in ways restricting

their present assertion, Continental by settlement and Northwest by

a final judgment. Pointing to these outcomes, VE states that it

will not, because it cannot, raise any issues relating to CRS in

this case. Any attempts to redress perceived CRS abuses by

American will be confined, as the congressional testimony suggests,

43 to the legislature. Since American's CRS operation will not be at

issue, VE contends that its representation of American on this

matter cannot be substantially related to this case. Northwest in

particular claims that the issues of incremental revenue and costs

addressed in System One relate to CRS use and are quite different

from the general airline revenue and cost issues at the center of

this case.

We recognize that several possible claims relating to CRS

might be barred by res judicata and we do not question Northwest's

representations in this court and below that the present litigation

will involve no attacks on American's CRS use. We are not

persuaded, however, by Northwest's argument that a party's

representation that matters in which a lawyer represented a former

client cannot, or will not, be introduced in the present case

precludes a court from finding these matters substantially related

to the prior representations. The exact scope of categories such

as "CRS matters," especially at the early stage of the litigation

when motions to disqualify are often considered, is unclear, and

leaves much room for good faith dispute among the parties. The

party who either lost in the previous case or represented to the

court that certain matters will not be raised will attempt to

define the sphere of these issues narrowly, while the party who

prevailed in the earlier case or filed an unsuccessful

disqualification motion will naturally attempt to define the

precluded matters quite broadly. In the particular case of res

judicata, it places the former counsel in the position of

44 attempting to minimize the beneficial results of her prior

representations by limiting their effect in the present case.

The facts of this case disclose how such a dispute might

arise. Northwest claims that System One involved the particular

matter of incremental revenues obtained by American through

ownership of a CRS. Northwest states that the focus in this case

will be on wholly different matters such as American's marketing

strategy, ticket pricing, and general airline costs and revenues.

The line between incremental revenues and general revenues,

however, does not appear as distinct as VE suggests. Moreover,

American hotly disputes VE's contention that discovery in System

One was limited to the narrow issue of incremental revenues. To

the contrary, American asserts that the VE lawyers reviewed and

discussed documents relating to marketing strategy and general air

transportation revenues and costs, the very matters Northwest

identifies as the heart of the instant case.

There is another matter involved in System One that Northwest

has indicated will be at issue in this case. Northwest must focus

at trial upon barriers to entry into the relevant markets. In its

complaint, Northwest lists among these barriers "the role of travel

agents in the industry and incentive commissions paid by airlines

to travel agents and other marketing programs and devices."

Incentive or override commissions in particular were at the center

of the System One case.

System One charged that American used override commissions as

a means to exclude it from the CRS market: "AA conditioned the

45 payment to travel agents of commissions on AA ticket sales on their

agreement to use the SABRE system." As System One explained, this

arrangement worked especially well in those areas where American

was the dominant air carrier. In connection with this claim,

American agreed to produce and searched for "[d]ocuments that

describe or discuss American's policies and procedures regarding

participation by travel agencies in any override, special incentive

or 'soft dollar' commission program offered by American." American

asserts, and Northwest does not appear to contest, that VE lawyers

reviewed much of this material. A VE lawyer and several VE

paralegals spent more than ten weeks reviewing documents at

American's offices. Gibson, Dunn lawyers who were involved claim

that a VE lawyer personally reviewed documents relating to

marketing strategy and air transportation issues. The materials

submitted with the Gibson, Dunn affidavits provide additional

support for these claims. VE's description of its work on the case

does little to contradict these accounts. Its response is limited

to a statement by the lawyer that he has no specific recollection

of documents reviewed and that he does not believe, "given the

nature of the case," that he "reviewed any documents relating to

American's pricing of airline transportation."

Northwest contends that the presence of the issue of override

commissions in System One and the instant case does not make the

two representations substantially related. Northwest argues that

the two cases are not related because in System One the commissions

were alleged to be a barrier to entry into the CRS market, while

46 here they represent a barrier to entry into the air transportation

market. Regardless of the direction of the block the trial must

focus on the exclusionary force of CRS--its power to exclude

competition in CRS is the handmaiden of its exclusionary force on

airline passenger service.

We therefore find Northwest's purported distinction

unavailing. Corrugated and Duncan provide that two representations

need only involve the same "subject matter" in order to be

substantially related. See

As

the summary of the document request quoted above discloses, VE

lawyers reviewed documents relating to travel agency commissions in

general, not simply those documents referring to the alleged

practice of tying such commissions to CRS use. A substantial

relationship exists when the prior representation concerns "the

particular practices and procedures which are the subject matter of

[Northwest's] suit. Duncan,

. Both System One and

the present case involve American's travel agency commission

"practices and procedures." Given that the two cases sharing this

"subject matter" allege similar antitrust violations, we find VE's

representation of American in System One substantially related to

its present representation of Northwest.

3) Project Armadillo

VE represented American most recently in "Project Armadillo,"

an American proposal to acquire Continental. VE provided American

with antitrust analysis of the proposal, focusing on whether a

merger of the two airlines could avoid challenge under the

47 Department of Justice antitrust merger guidelines. VE's

representation began in late November 1990 and concluded in early

January 1991, when American chose not to pursue the acquisition.

As a memorandum prepared by American explained, the Department

of Justice merger guidelines' main concern is "whether the merger

will likely create, enhance or facilitate the exercise of market

power--the ability to raise prices to supracompetitive levels--by

the remaining participants in the relevant market." Market power

is more easily inferred under narrowly defined markets, and it was

therefore in American's interest to avoid "[a] market definition

that is improperly narrow," for this would "result in such a high

level of concentration that, inevitably, a court will conclude the

merger poses an incipient threat to competition."

These same issues are at the heart of the present case.

Northwest alleges that American has monopolized or attempted to

monopolize the national air transportation market as well as four

smaller geographic markets involving city pairs and regions.

Because American enjoys a greater share of particular regional

markets, Northwest will no doubt attempt to prove at trial that

these smaller markets are relevant. To this end, Northwest cites

four instances where American has allegedly indicated that O & D

and regional passenger markets are relevant markets.

VE asserts that its "narrow, limited, and brief" role in

Project Armadillo cannot serve as the basis for disqualification in

the present case. Northwest contends that some VE lawyers alleged

by American to have worked on Project Armadillo were not in fact

48 involved. A VE memorandum summarizing the initial meeting between

American and VE lawyers, however, includes a notation directing

that a copy of the memo be sent to these same lawyers whose

involvement in the matter VE denies. Similarly, VE attempts to

minimize the significance of the materials it received from

American by suggesting that the materials were not even read by

certain VE lawyers involved in the representation. The billing

statements submitted by VE to American, however, disclose that each

of the VE lawyers in question devoted time to "review[ing]

materials furnished by [the] client."

We have no reason to suggest that VE's misstatements are other

than oversights, and, because they pertain only to the degree of

its involvement in Project Armadillo, are secondary to the main

question of the subject matter of VE's representation. Northwest

contends that VE's representation of American does not warrant

disqualification for two related reasons. Northwest asserts that

VE was charged with a single "narrow, straightforward question" to

which the answer was "obvious": Would the Justice Department

oppose a complete merger of Continental and American on antitrust

grounds? Northwest claims that the problem posed to VE required

little detailed analysis and that all the information needed by VE

to reach its conclusion "was and is publicly available." Because

VE required no confidential information to determine that the

merger would not be approved by the Justice Department, Northwest

contends that VE's representation provides no basis for

disqualification.

49 The record sharply contradicts Northwest's claim that all of

the material supplied by American to VE was publicly available. But

Northwest's argument would fail even if it could show that all of

the information provided by American was a matter of public

knowledge. As we explained above, the substantial relationship

test, as set out in our precedents and the Rules, contains no

exception for prior representations in which an attorney's advice

was based on public information. Accordingly, the question is not

whether VE's representation of American in Project Armadillo

involved matters of public knowledge but whether the subject matter

of the prior representation is substantially related to the present

case.

American argues that the primary issue in Project Armadillo,

as in this case, was market definition. Not only did VE represent

American on this same issue, but VE was also in a position to

obtain information regarding American's views on the proper measure

of markets, views which Northwest's complaint suggests are relevant

to the present case. Northwest recognizes that market definition

will be crucial in this case, but argues that VE's treatment of

this issue in Project Armadillo was superficial and limited. While

conceding that "[m]ore difficult questions could have been raised

had American been interested in a partial acquisition," Northwest

contends that the "only issue with which American was concerned was

whether it would be challenged if it attempted to acquire all of

Continental's operations." According to Northwest, "[t]he answer

to American's question was obvious . . . Anyone familiar with

50 American's hub operations in Dallas and Continental's Houston hub

operations would realize that American and Continental are major

competitors in this region and that their combination would be

subject to challenge."

The record demonstrates, however, that the subject matter was

far more complex, and VE's analysis far more extensive, than

Northwest's account suggests. A VE partner's notes from the first

meeting between VE and American indicate that American was

interested in a partial acquisition from the very start: "AA would

be interested in the entire company but there are certain

operations that are particularly important . . . They would be

willing to divest some operations." VE's investigation could not

have "rested largely" on Continental's strong Houston presence, for

when this question was brought up in the first meeting, VE noted

that "AA could sell the Houston hub." Thus, sometime after the

meeting a VE partner sent a memo to American explaining that he had

"spoke[n] at some length" with American's economist and asked that

the market share data be rerun on the assumption that American

would not acquire Continental's Houston hub. While Northwest now

asserts that VE's advice was based largely on the Houston hub, a VE

partner at the time stated in yet another memo that even when

Houston is removed from consideration, "substantial problems are

created by Continental's other hubs--particularly New York City,

Chicago, Cleveland, and Denver," as well as by the "substantial

overlaps between Continental and American on flights to Mexico."

Northwest's contention that Project Armadillo involved the single

51 question of a complete merger and required study of only a few

markets is simply belied by the record.

Similarly, it does not appear that market definition and the

Justice Department's opposition to the merger were as "obvious" as

Northwest now asserts. Northwest argues that market definition

cannot be a common issue between this matter and the present case

because unlike in the present case, where market definition will be

hotly disputed, the Department of Justice merger guidelines left

little room for discussion. A VE lawyer's notes from the first

Project Armadillo meeting, however, disclose a different picture:

[American is] reluctant to take positions in connection with a Continental merger that might be inconsistent with the positions they are taking elsewhere. This issue came up in connection with the discussions of markets. Apparently they have developed a variety of different views about what are relevant markets. (It appears to me that maybe their argument is there are no relevant markets). Evidently the material that they will be sending us discusses relevant markets, discusses the "city pair" analysis and competition among hubs. . . . Apparently they have taken the position that hubs are not markets . . . .

In addition, Northwest contends that the Department of Justice's

merger guidelines made the answer obvious. This is not the

position that VE took during the representation, however. Upon

receiving a memo prepared by American setting out the difficulties

to merger under the city-pair analysis, a VE partner responded that

the memo was "only the beginning of the analysis in my view." The

VE lawyer then went on to suggest that American might be able to

acquire Continental even though the merger might "violate" the

guidelines.

52 We are forced to the conclusion that the question of market

definition in Project Armadillo was more complex than Northwest now

asserts. VE's representation of American necessarily required a

detailed evaluation of American's operations in the various markets

that might be deemed relevant. The instant case will involve

similar issues.

VE was also privy to American's views of the relevant air

transportation markets, a related matter that will also be at issue

in the present case. American provided VE with materials

reflecting AA's position on antitrust issues in prior

merger/acquisition cases. Included in these materials were

confidential "white papers" filed by American with the Justice

Department.

In support of its claim that markets other than the national

market are relevant in the present case, Northwest's complaint

asserts that American "has repeatedly urged that O & D markets and

regional airline passenger markets are relevant economic markets."

Three of the examples cited by Northwest in support of this

allegation appear to be taken from public testimony. The fourth is

different: "AA argued to the Department of Justice in 1989 that

city pair markets to and from O'Hare Airport constitute relevant

markets." Northwest does not deny that this statement is contained

in the materials obtained by VE from American during Project

Armadillo. Nor does Northwest claim that this statement is a

matter of public knowledge. Rather, Northwest states that it

simply copied Continental's complaint in drafting its own. Since

53 Northwest's complaint did not involve any independent research by

VE, the argument seems to run, the allegation cannot possibly be

based on confidential information supplied by American. We would

first point out that Northwest's explanation remains plausible only

so long as the complaint remains the sole document involved in the

case. Northwest will eventually have to address the issues,

including American's alleged views on the relevant market, on its

own. More importantly, the answer given by Northwest is precisely

one the substantial relationship test forbids. Once a substantial

relationship has been established, former counsel is precluded from

attempting to prove that he did not receive confidences. See,

e.g., Corrugated,

. Northwest's response here--

that VE might have obtained the information, but did not use it--is

plainly barred by our precedents.

We appreciate Northwest's concern that an overly broad reading

of "subject matter" can leave antitrust counselors with one client

per industry--a result with little redemptive value. The nexus

here is far more than case one and case two both presenting claims

of attempted monopolization. Northwest contends that cases like

Laker Airways Ltd. v. Pan American World Airways,

(D.D.C 1984), preclude us from disqualifying VE. But American's

showing in this case goes far beyond the same field, same party

"points of contact" found insufficient in that case. See

. Rather, American has succeeded in "delineat[ing] with

specificity the subject matters, issues and causes of action"

54 common to prior and present representations in the manner demanded

by our precedents. Duncan,

.

VI.

We hold that VE's prior representations of American in

substantially related matters require the disqualification of VE in

this case. We therefore issue a writ of mandamus directing the

district court to vacate its order denying American's motion and

enter an order disqualifying VE from representing Northwest.

55