155 North High, Ltd. v. Cincinnati Insurance

[This opinion has been published in Ohio Official Reports at 

72 Ohio St.3d 423

.]




      155 NORTH HIGH, LIMITED., APPELLANT, v. CINCINNATI INSURANCE
                                 COMPANY, APPELLEE.
        [Cite as 155 N. High, Ltd. v. Cincinnati Ins. Co., 

1995-Ohio-85

.]
Attorneys at law—DR 5-101(B)(4) is an exception to the general rule of DR 5-
        102(A) that an attorney cannot serve as both an advocate and witness—
        Attorney has burden to prove his services provide a distinctive value and
        that his disqualification would work a substantial hardship on his client.
DR 5-101(B)(4) is an exception to the general rule of DR 5-102(A) that an attorney
        cannot serve as both an advocate and witness. The attorney who intends to
        invoke this exception has the burden to prove that his or her services provide
        a distinctive value and that his or her disqualification would work a
        substantial hardship on his or her client. Neither familiarity with the case
        nor mere added expenses are sufficient to prove this exception. Once the
        trial court makes its independent determination as to whether the exception
        applies, the ruling must stand unless the trial court abused its discretion.
        (No. 93-2371—Submitted March 22, 1995—Decided July 5, 1995.)
      APPEAL from the Court of Appeals for Franklin County, No. 93AP-45.
                                  __________________
        {¶ 1} 155 North High, Limited ("155 North High"), appellant, and the
Cincinnati Insurance Company ("Cincinnati"), appellee, were parties to an
insurance contract. This commercial policy, covering the years 1984 to 1987,
provided property loss coverage and contained a special endorsement for rental
value insurance. On July 25, 1987, a fire totally destroyed the building insured
under the policy. Because of the suspicious nature of the fire, 155 North High's
general partner, Charles J. Ruma, immediately called his attorney, James M. Wiles
                             SUPREME COURT OF OHIO




("Wiles").1 Within days of the fire, Wiles was in contact with Stephen Schwartz,
the claims adjuster for Cincinnati. Wiles continued to deal with Schwartz up to the
filing of the complaint.
       {¶ 2} In December 1987, Cincinnati paid 155 North High $1,030,000, the
full policy amount for property loss coverage. Also, by this date, Cincinnati had
disbursed approximately $92,000 for the rental value insurance. However, the
parties continued to dispute the amount still owing, if any, for this coverage.
       {¶ 3} In December 1988, 155 North High filed suit against Cincinnati
alleging, inter alia, a bad-faith breach of the insurance contract because of
Cincinnati's alleged delay and intentional mishandling of the insurance claims.
After filing an answer, Cincinnati moved for summary judgment. In May 1989,
155 North High submitted a memorandum contra the summary judgment motion
and attached Wiles's affidavit to support its claim that the insurance company
breached its duty of good-faith claims handling. The trial court denied the summary
judgment motion.
       {¶ 4} In May and June 1989, Wiles took the depositions of Schwartz and
Michael J. Gagnon, Schwartz's superior from home office. Schwartz's deposition
was replete with lack of knowledge, memory, recall, and certainty of answers.
After these depositions, Wiles listed himself as a potential witness in the case.
       {¶ 5} Trial before a common pleas court referee began on August 28, 1989.
On the first morning of trial, counsel for Cincinnati advised the referee that Wiles
had implied that he might testify on behalf of his client. Wiles responded by stating
that he could not answer definitively until he heard the testimony of Cincinnati's
witnesses (Schwartz and Gagnon). However, he assured the referee that he had




1. Although arson was suspected from the beginning, 155 North High was cleared of any
wrongdoing early in the investigation.




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                                January Term, 1995




considered the Disciplinary Rules and did not feel there would be any violations if
he testified.
        {¶ 6} Wiles served as lead trial counsel. In addition to conducting the direct
examination of many of the witnesses, Wiles conducted the cross-examination of
four of the witnesses, which included Schwartz and Gagnon. He cross-examined
the men about contacts and conversations he had had with them, beginning shortly
after the fire up to the time the lawsuit was filed. At the close of the fourth day of
trial, Wiles announced his intention to testify the following day.
        {¶ 7} When Wiles took the stand, counsel for Cincinnati objected to Wiles's
serving as both trial counsel and witness. In responding to the objection, Wiles
again assured the referee that the matter had been fully considered. The referee
deferred to Wiles's judgment, and overruled the objection.
        {¶ 8} Wiles then testified at length regarding his many conversations and
contacts with Cincinnati claims adjuster, Schwartz. Unlike Schwartz, who had
testified he could not recall many things that were said and done on the claims,
Wiles was able to testify in great detail about what Schwartz had said and what
Cincinnati had done.
        {¶ 9} After testifying, Wiles stepped down, called 155 North High's final
witness to the stand, conducted direct examination, and then rested. Cincinnati
presented three witnesses in its case-in-chief. Wiles conducted the cross-
examination of each.
        {¶ 10} The referee found in favor of 155 North High and issued a report and
recommendation that 155 North High be awarded $25,000 in compensatory
damages and $100,000 in punitive damages. Without reviewing the transcript, the
trial court adopted the referee's report and recommendation, and entered judgment
for 155 North High.
        {¶ 11} Upon appeal, the court of appeals affirmed in part and reversed in
part, and remanded two issues: (1) whether the referee erred by permitting Wiles to




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testify; and (2) whether the record supported the referee's finding that Cincinnati
breached its duty of good-faith claims handling.
         {¶ 12} Upon remand, the trial court reviewed the record, adopted the
referee's report and recommendation, and again entered judgment in 155 North
High's favor.
         {¶ 13} Cincinnati appealed for the second time. This time, the court of
appeals found that the trial court committed prejudicial error in allowing Wiles to
testify as a witness on behalf of his client. The court awarded a new trial to
Cincinnati.
         {¶ 14} The cause is now before this court pursuant to the allowance of a
motion to certify the record.
                                    __________________
         Wiles, Doucher, Van Buren & Boyle Co., L.P.A., James J. Brudny, Jr. and
James M. Wiles; Baker & Hostetler and Bradley Hummel, for appellant.
         Lane, Alton & Horst, Gregory D. Rankin and Karen Krisher Rosenberg, for
appellee.
                                    __________________
         FRANCIS E. SWEENEY, SR., J.
         {¶ 15} A trial court has the duty and responsibility to supervise the conduct
of attorneys who appear before it and its rulings will be upheld unless the court
abused its discretion. Royal Indemn. Co. v. J.C.Penney Co. (1986), 

27 Ohio St.3d 31

, 27 OBR 447, 

501 N.E.2d 617

; Mentor Lagoons, Inc. v. Rubin (1987), 

31 Ohio St.3d 256

, 31 OBR 497, 

510 N.E.2d 379

. Thus, our inquiry in this case is whether
the trial court abused its discretion by allowing 155 North High's attorney to serve
as both an advocate and witness at trial.2 For the following reasons, we find an
abuse of discretion and, accordingly, affirm the court of appeals.

2. This case does not deal with the issue of an attorney's testimony against his or her client (DR 5-
102[B]). Courts will closely scrutinize this situation because an adverse party may try to call an




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                                   January Term, 1995




        {¶ 16} At first blush, our job appears more difficult because the referee
deferred to the judgment of the attorney and completely abdicated his responsibility
to make an independent determination as to whether the Disciplinary Rules were
violated. Moreover, without consideration of the record, the trial court then adopted
the referee's report and recommendation. However, on remand, a different trial
court reviewed the record and made an independent determination that the
Disciplinary Rules were not violated. It is this ruling that we now review subject
to the abuse-of-discretion standard.
        {¶ 17} The Code of Professional Responsibility sets forth the legal
standards relating to the practice of law. The Code is comprised of three parts:
Canons, Ethical Considerations, and Disciplinary Rules.                   The Canons are
"statements of axiomatic norms, expressing in general terms the standards of
professional conduct expected of lawyers in their relationships with the public, with
the legal system, and with the legal profession."                  Preface.     The Ethical
Considerations "are aspirational in character and represent the objectives toward
which every member of the profession should strive." 

Id.

 The Disciplinary Rules,
however, are "mandatory in character," because they "state the minimum level of
conduct below which no lawyer can fall." 

Id.

        {¶ 18} Within this framework, Canon 5 provides that, "A Lawyer Should
Exercise Independent Professional Judgment on Behalf of a Client." In part, this
Canon is enforced by DR 5-102(A), which states the general rule that "[i]f *** a
lawyer learns or it is obvious that he *** ought to be called as a witness on behalf
of his client, he shall withdraw from the conduct of the trial and *** shall not
continue the representation in the trial, except that he may continue the
representation and he *** may testify in the circumstances enumerated in DR 5-


opposing lawyer as a witness simply to disqualify that lawyer, thus creating an unfair tactical
advantage, or to harass opposing counsel. Sargent Cty. Bank v. Wentworth (N.D. 1993), 

500 N.W.2d 862

.




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                              SUPREME COURT OF OHIO




101(B)(1) through (4)." EC 5-9 provides the rationale for the witness-advocate
rule: "*** The roles of an advocate and of a witness are inconsistent; the function
of an advocate is to advance or argue the cause of another, while that of a witness
is to state facts objectively." EC 5-10 also declares that "[w]here the question
arises, doubts should be resolved in favor of the lawyer testifying and against his
becoming or continuing as an advocate."
        {¶ 19} DR 5-102(A), unlike other rules3 in the Code of Professional
Responsibility, makes no provision for client waiver of its application. This is so
because the rule against a lawyer serving in the dual role of witness and advocate
is designed to protect three distinct interests: those of the client, those of the adverse
party, and that of ensuring the institutional integrity of the legal system as a whole.
See 6 Wigmore on Evidence (Chadbourn Rev.Ed.1976), Section 19; United States
v. Johnston (C.A. 7, 1982), 

690 F.2d 638, 643

. As eloquently stated by the court
in GAC Commercial Corp. v. Mahoney Typographers, Inc. (1976), 

66 Mich. App. 186, 191

, 

238 N.W.2d 575

, 577: "As members of a profession in which public
reliance and trust is so essential and whose members' integrity must be assured to
maintain vital public respect, we as attorneys must recognize the importance of a
high standard by which our conduct is measured. Even where there is no thought
of or an intent to do wrong, if our conduct appears to be unethical, we weaken that
respect and trust just as surely as if we had purposely violated a specific rule."
        {¶ 20} Courts have uniformly shared the legal profession's disapproval of
the dual role of advocate-witness. See United States v. Birdman (C.A. 3, 1979),

602 F.2d 547, 553

, and cases cited therein. See, also, Annotation (1985), 

35 A.L.R.4th 810

.
        {¶ 21} In Ohio, the only Supreme Court case to discuss these Disciplinary
Rules has been Mentor Lagoons, Inc. v. 

Rubin, supra.

 However, in Mentor

3. E.g., DR 5-101(A).




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                                January Term, 1995




Lagoons, the issue before us was whether a lawyer was incompetent as a witness.
In deciding that DR 5-102 does not automatically render a lawyer incompetent, we
set forth a procedure for the court to follow in reaching its determination as to
whether a lawyer can serve as both an advocate and a witness: the court must first
determine the admissibility of his testimony without reference to the Disciplinary
Rules; if the court finds the testimony admissible, the party or court may move for
the attorney to withdraw or be disqualified and the court must then consider whether
any exceptions to the Disciplinary Rules are applicable, thus permitting the attorney
to testify and continue representation. 

Id.

 at paragraph two of the syllabus.
       {¶ 22} Applying this procedure to the instant case, we find it obvious not
only that Wiles's testimony was admissible, but also that it was clear that he "ought
to be called as a witness on behalf of his client." Wiles had personal knowledge
regarding the alleged acts of bad-faith claims handling.          He was an active
participant in dealings and negotiations beginning shortly after the fire and
continuing up to the time the lawsuit was filed. He testified to conversations and
actions taken by the insurance company. Thus, his testimony was necessary to
prove his client's claims. Moreover, this was not a sudden development. Wiles had
known early on that he was a key witness. This fact is attested to in his affidavit
which was attached to appellant's memorandum contra Cincinnati's motion for
summary judgment. Additionally, the situation became glaringly obvious after
Cincinnati's company representatives were deposed, and Wiles knew that these
representatives, especially Schwartz, could not recall several key events and
discussions. By testifying at trial, the lawyer was able to fill in gaps created by
Schwartz's lack of recall of these events and discussions. Moreover, Wiles directly
contradicted other facts as testified to by the insurance representatives.
       {¶ 23} But this does not end our inquiry. Having found Wiles's testimony
admissible, we must decide whether any of the exceptions contained within DR 5-
101(B) would permit his testimony.




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                                 SUPREME COURT OF OHIO




        {¶ 24} Appellant argues that DR 5-101(B)(4)4 applies. This exception
provides that a lawyer may testify "[a]s to any matter, if refusal would work a
substantial hardship on the client because of the distinctive value of the lawyer ***
as counsel in the particular case." At trial, Wiles failed to make any argument as to
why this exception applied. However, the referee apparently found that the
exception applied because Wiles had been involved in a meaningful way
throughout the development of the case, and disqualification of Wiles would have
worked a substantial hardship on 155 North High.
        {¶ 25} DR 5-101(B)(4) requires a showing of two elements: distinctive
value resulting in substantial hardship. While Mentor Lagoons mentioned this
exception in a footnote, it did not define it. Thus, we consider cases from our
appellate courts and those from other jurisdictions.
        {¶ 26} In a case strikingly similar to ours, involving an insurer's breach of
good faith and fair dealing in failing to pay a claim, a Texas appellate court found
that DR 5-101(B)(4)5 was inapplicable and held that the trial court abused its
discretion in failing to disqualify the trial attorney who also testified as a material
witness against the insurer. The Texas court noted that: "This exception generally
contemplates an attorney who has some expertise in a specialized area of law such
as patents, and the burden is on the attorney seeking to continue representation to
prove distinctiveness." Warrilow v. Norrell (Tex.App. 1989), 

791 S.W.2d 515, 520

, citing Supreme Beef Processors, Inc. v. American Consumer Indus., Inc.
(N.D.Tex. 1977), 

441 F.Supp. 1064, 1068-1069

. Since the case was relatively




4. The first three exceptions concern uncontested testimony, formalities, and legal fees, and have
no application to this matter.

5. The Texas version of DR 5-101(B)(4) is identical to ours.




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                                      January Term, 1995




straightforward and did not involve complex matters, the Texas court found that the
case did not require the sort of expertise envisioned by DR 5-101(B)(4).6
         {¶ 27} In Mentor Lagoons, Inc. v. Teague (1991), 

71 Ohio App.3d 719

, 

595 N.E.2d 392

, the Eighth District Court of Appeals also required a showing of
specialized knowledge in establishing the attorney's distinctive value. The appellate
court rejected the notions that intimate familiarity with the case or mere increased
expenses met this standard. See, also, Schaub v. Mentor Lagoons Marina (May 25,
1990), Lake App. No. 89-L-14-054, unreported, affirmed (1991), 

60 Ohio St.3d 68

,

573 N.E.2d 69

; In the Matter of Richardson v. Board of Revision of Cuyahoga Cty.
(Mar. 15, 1979), Cuyahoga App. Nos. 38566, 38567, 38569, 38570, unreported.
         {¶ 28} We agree with the reasoning employed by these courts. We
recognize, of course, the importance of a party's right to be represented by his or
her chosen counsel, and we are not unmindful of the inconvenience that may be
visited upon that party by reason of counsel's disqualification. However,
"distinctive value resulting in substantial hardship" requires more than a showing
of mere financial hardship or long time familiarity with the case. These must be
some proof of specialized expertise. Placing the burden of proof upon the attorney
seeking the exception is appropriate, as the attorney is in the best position to show
why his or her services provide a distinctive value and that the disqualification
would result in a substantial hardship to the client. Moreover, once an objection
has been entered or a motion made, a trial court must make an independent
determination as to whether the exception applies. Once such a ruling has been
entered, it can be reversed only if the court abused its discretion.
         {¶ 29} Accordingly, we hold: DR 5-101(B)(4)is an exception to the general
rule of DR 5-102(A) that an attorney cannot serve as both an advocate and witness.
The attorney who intends to invoke this exception has the burden to prove that his


6. Although finding an abuse of discretion, the Texas court did not reverse on this issue.




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or her services provide a distinctive value and that his or her disqualification would
work a substantial hardship on his or her client. Neither familiarity with the case
nor mere added expenses are sufficient to prove this exception.
       {¶ 30} Applying our holding to the present case, we find that Wiles's
testimony was necessary to 155 North High's assertion that Cincinnati breached its
duty to its insured to act in good faith. Wiles, the principal contact and negotiator
for 155 North High, knew or ought to have realized his importance as a witness in
the case. Moreover, Wiles knew or should have known this well in advance of trial.
Additionally, Wiles did nothing to prove that he had expertise in a specialized area
of law. In fact, this civil action was neither particularly complex nor involved.
Thus, we find the general prohibition applies, and it is mandatory: a lawyer cannot
be both advocate and witness.        The trial court abused its discretion in not
disqualifying Wiles from representing 155 North High.
       {¶ 31} The judgment of the court of appeals is affirmed.
                                                                  Judgment affirmed.
       MOYER, C.J., DOUGLAS, WRIGHT, RESNICK, PFEIFER and COOK, JJ., concur.
                               __________________




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