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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 4)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ITT CORPORATION
(Name of Subject Company)
ITT CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, no par value
(including the associated Series A Participating
Cumulative Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
RICHARD S. WARD, Esq.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") originally filed on February 12, 1997, by ITT Corporation, a
Nevada corporation (the "Company"), relates to an offer by HLT Corporation, a
Delaware corporation ("HLT") and a wholly owned subsidiary of Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), to purchase 61,145,475 shares of
the common stock, no par value (including the associated Series A Participating
Cumulative Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set forth in
the Schedule 14D-9.
Item 8. Additional Information to be Furnished.
The response to Item 8 is hereby amended by adding the following
after the final paragraph of Item 8:
On February 26, 1997, Hilton and HLT filed a motion for a
preliminary injunction (the "Hilton Annual Meeting Motion") seeking to require
the Company to hold its annual meeting in May 1997. A copy of the Hilton Annual
Meeting Motion is filed as Exhibit 29 hereto and is incorporated herein by
reference.
Also on February 26, 1997, attorneys for Hilton and HLT filed a
letter (the "Hilton Postponement Request") requesting that the U.S. District
Court for the District of Nevada (the "Court") postpone the scheduled March 5,
1997, hearing on the Hilton Preliminary Injunction Motion. On February 28, 1997,
the Company filed a memorandum in opposition (the "ITT Memorandum in Opposition
to Postponement") to the Hilton Postponement Request. Copies of the Hilton
Postponement Request and the ITT Memorandum in Opposition to Postponement are
filed as Exhibits 30 and 31 hereto, respectively, and are incorporated herein by
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reference. On February 28, 1997, the Court issued an order denying the requested
postponement.
On February 28, 1997, Hilton and HLT filed a memorandum in
opposition (the "Hilton Memorandum in Opposition to the Counsel Motion") to the
Counsel Motion. Also on February 28, 1997, Latham & Watkins filed (i) an
application for special appearance (the "Latham Special Appearance Application")
in the Court; (ii) a motion to strike the Fischkin Affidavit (the "Latham Motion
to Strike Fischkin Affidavit"); and (iii) a response to the Counsel Motion (the
"Latham Counsel Motion Response"). Copies of the Hilton Memorandum in Opposition
to the Counsel Motion, the Latham Special Appearance Application, the Latham
Motion to Strike Fischkin Affidavit and the Latham Counsel Motion Response are
filed as Exhibits 32, 33, 34 and 35 hereto, respectively, and are incorporated
herein by reference.
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding the following new
exhibits:
29. Hilton and HLT Motion for Preliminary Injunction Requiring ITT to Conduct
its Annual Meeting in May 1997 dated February 26, 1997.
30. Letter of Schreck Morris requesting postponement of the Hilton Preliminary
Injunction Motion hearing dated February 26, 1997.
31. ITT Memorandum in Opposition to the Hilton Postponement Request dated
February 28, 1997.
32. Hilton Memorandum in Opposition to the ITT Motion for an Injunction
Requiring Hilton to Discharge Latham & Watkins dated February 28, 1997.
2
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33. Latham & Watkins Application for Special Appearance dated February 28,
1997.
34. Latham & Watkins Objection to, and Motion to Strike, the Affidavit of
Theodore J. Fischkin dated February 28, 1997.
35. Latham & Watkins Response to the ITT Motion for an Injunction Requiring
Hilton to Discharge Latham & Watkins dated February 28, 1997.
3
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of March 5, 1997
4
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EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
(29) Hilton and HLT Motion for Preliminary Injunction Requiring ITT
to Conduct its Annual Meeting in May 1997 dated February 26,
1997............................................................
(30) Letter of Schreck Morris requesting postponement of the Hilton
Preliminary Injunction Motion hearing dated February 26,
1997............................................................
(31) ITT Memorandum in Opposition to the Hilton Postponement Request
dated February 28, 1997.........................................
(32) Hilton Memorandum in Opposition to the ITT Motion for an
Injunction Requiring Hilton to Discharge Latham & Watkins dated
February 28, 1997...............................................
(33) Latham & Watkins Application for Special Appearance dated
February 28, 1997...............................................
(34) Latham & Watkins Objection to, and Motion to Strike, the
Affidavit of Theodore J. Fischkin dated February 28,
1997............................................................
(35) Latham & Watkins Response to the ITT Motion for an Injunction
Requiring Hilton to Discharge Latham & Watkins dated February
28, 1997.........................................................
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[Exhibit 29]
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
300 S. Fourth Street, #1200
Las Vegas, Nevada 89101
(702) 474-9400
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
ALEXANDER SHAKNES
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION and HLT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION )
and )
HLT CORPORATION, )
)
Plaintiffs, )
)
-vs- )
)
)
ITT CORPORATION, ) CV-S-97-00095-PMP (RLH)
)
Defendant. ) MOTION FOR PRELIMINARY
) INJUNCTION REQUIRING
- ------------------------------------------- ) ITT TO CONDUCT ITS
ITT CORPORATION, ) ANNUAL MEETING IN MAY
) 1997
Defendant and )
Counterclaimant, ) MEMORANDUM OF POINTS
) AND AUTHORITIES IN
-vs- ) SUPPORT OF MOTION
)
HILTON HOTELS CORPORATION ) AFFIDAVIT OF DANIEL H.
and HLT CORPORATION, ) BURCH AND EXHIBITS
) THERETO
Plaintiffs and )
Counterdefendants. ) [ORAL ARGUMENT
) REQUESTED]
- -------------------------------------------
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2
MOTION FOR PRELIMINARY INJUNCTION
Pursuant to Rule 65 of the Federal Rules of Civil Procedure,
plaintiffs Hilton Hotels Corporation ("Hilton") and HLT Corporation ("HLT")
hereby move this Court for an order preliminarily requiring defendant ITT
Corporation ("ITT") to conduct its 1997 annual meeting for the election of
directors in May in accordance with the requirements of Sections 1.2 and 1.3 of
the ITT by-laws and principles of common law that prohibit an incumbent board
from manipulating the corporate machinery to extend its term of office.
This motion is based upon the accompanying Memorandum of Points and
Authorities, the Affidavit of Daniel H. Burch and the Exhibits thereto, matters
of which the Court may take judicial notice, including the Court's own file in
this matter, and arguments and other evidence that may be presented prior to the
decision on this Motion.
RESPECTFULLY SUBMITTED this 26th day of February, 1997.
By:/s/ Steve Morris
-----------------------------------
STEVE MORRIS
KRISTINA PICKERING
300 S. Fourth Street, #1200
Las Vegas, Nevada 89101
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
ALEXANDER SHAKNES
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION
and HLT CORPORATION
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3
MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION
For each of the last 20 years, ITT and its predecessor have
conducted their annual meeting and election of directors in mid-May. This year,
however, ITT is threatening to delay the election. The reason is that this year,
the incumbent board is faced with the prospect of being voted out of office by
shareholders who disagree with the directors' decision to reject Hilton's
premium offer for ITT shares. This is not a lawful justification for failing to
hold an annual meeting on a timely basis.
Section 1.2 of ITT's by-laws requires that ITT conduct an "annual"
meeting for the election of directors and the transaction of any other proper
business. Section 1.3 of the by-laws provides that the directors' term of office
is one "year." Case law confirms that the by-laws mean what they say: ITT must
hold an annual meeting for the election of directors and any other proper
business once every twelve months. Common law principles governing the
directors' exercise of their fiduciary duty also confirm that the incumbent ITT
board cannot unilaterally extend its term of office by refusing to call an
annual meeting.
If the incumbent ITT directors believe that the shareholders would
be best served by their remaining in office, then they should make their case to
the shareholders. The decision as to who should guide ITT in the coming year,
however, is for the shareholders to make, not the incumbent board.
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4
II. STATEMENT OF FACTS
Hilton announced its $55 per share offer for ITT on January 27,
1997. ITT formally rejected the offer on February 12, and has repeatedly refused
Hilton's requests that the parties meet to discuss the offer. Instead, ITT has
abandoned its previous corporate strategy of combining diverse hotel and gaming,
education, entertainment and other businesses and embarked on a plan of
"monetization" of all assets other than its "core" hotel and casino operations.
As part of this shift in strategy, ITT sold approximately one-half of its stake
in Alcatel Alstholm for approximately $300 million, and has undertaken an effort
to sell its interests in Madison Square Garden, WBIS+, ITT Educational Services
and ITT World Directories. According to press reports, ITT expects to sell more
than $3 billion worth of assets. The ITT board has made clear, however, that it
is not pursuing a sale of Sheraton hotels and Caesars gaming, and that it is
committed to remaining independent--that is, it is committed to have its
incumbent board of directors continue to run the company. Burch Aff. P. 7; Exs.
I-K.
In the face of ITT's opposition, Hilton has determined to take its
case directly to the owners of the corporation: its fellow shareholders. On
February 11, in accordance with the requirements of ITT by-law Section 2.2,
Hilton submitted a notice of intention to nominate directors at ITT's annual
meeting and a notice that it intends to present a resolution urging the ITT
board to arrange a sale of the company to Hilton or any higher bidder. The
Hilton slate is committed to remove obstacles to the consummation of
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5
Hilton's proposed tender offer and merger. Hilton has also filed preliminary
proxy materials with the SEC so that it will be able to solicit proxies for
ITT's annual meeting. Id. Exs. A, C.
ITT held last year's annual meeting on May 14, 1996. This was in
keeping with a practice -- begun by ITT's corporate predecessor at least 20
years ago -- of holding its annual meetings in May. It appears, however, that
the incumbent ITT board intends to delay the annual meeting and thereby
perpetuate itself in office. ITT has failed to take the routine steps that would
ordinarily have been taken by this time of year to go forward with a May meeting
and has entered into a fee agreement with its financial advisors that expressly
contemplates that the annual meeting may not go forward before September 30,
1997. The objective apparently is to turn the takeover battle into a "marathon,
giving the company the time to complete the [asset] sales" that ITT has
undertaken as part of its strategy to remain independent. Burch Aff. P. P. 4-8,
Exs. G-L.
ARGUMENT
III. ITT'S BY-LAWS REQUIRE THAT THE 1997 ANNUAL MEETING GO FORWARD IN MID-MAY
It is well-established that by-laws are contracts between the
corporation and its shareholders, and that shareholders can sue to enforce their
contractual rights under the by-laws. See, e.g., ER Holdings, Inc. v. Norton
Co., 735 F. Supp. 1094, 1097 (D. Mass. 1990) ("The corporate by-laws constitute
a contract between the corporation's owners -- the shareholders -- and its
managers, the Board."); Centaur
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6
Partners, IV v. National Intergroup, Inc., 582 A.2d 923, 928 (Del. 1990)
("Corporate charters and by-laws are contracts among the shareholders of a
corporation and the general rules of contract interpretation are held to
apply."). See also Rotary Club of Chicago v. Harry F. Shea & Co., 458 N.E.2d
1002, 1009 (Ill. App. Ct. 1983); Delmarmo Assocs. v. New Jersey Eng'g & Supply
Co., 424 A.2d 847, 848 (N.J. Super. Ct. App. Div. 1980).
Building on this authority, courts have ordered directors to abide
by the terms of by-laws that require the corporation to hold an annual meeting
for the election of directors. See, e.g., ER Holdings, 735 F. Supp. at 1103;
Silver v. Farrell, 450 N.Y.S.2d 938, 942 (N.Y. Sup. Ct. 1982); Albert E.
Touchet, Inc. v. Touchet, 163 N.E. 184, 188 (Mass. 1928). Cf. Holly Sugar Corp.
v. Buchsbaum, [1981-82 Transfer Binder] Fed. Sec. L. Rep. P. 98,366 (D. Colo.
Oct. 28, 1981) (ordering board to reconvene annual meeting where previous
meeting did not comply with by-law quorum requirements).(1)
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(1) See also Nevada ex. rel. Flagg v. Board of Trustees, 4 Nev. 400, 406
(1868) (ordering board to hold meeting pursuant to statutory requirement);
Tullos v. Parks, 915 F.2d 1192, 1194 (8th Cir. 1990) (issuing mandatory
injunction ordering election and annual meeting); Danaher Corp. v. Chicago
Pneumatic Tool Co., Nos. 86 Civ. 3499 (PNL), 86 Civ. 3638 (PNL), 1986 WL 7001,
at *13 (S.D.N.Y. June 19, 1986) ("The law is clear that when a board of
directors has improperly postponed or manipulated the timing of the shareholders
annual meeting, courts have the authority to compel the board to promptly hold
such a meeting."); Studebaker Corp. v. Allied Prods. Corp., 256 F. Supp. 173,
192 (W.D. Mich. 1966); Silverman v. Gibert, 185 So. 2d 373, 376 (La. Ct. App.
1966); Penn-Texas Corp. v. Niles-Bement-Pond Co., 112 A.2d 302, 307 (N.J. Super.
Ct. Ch. Div. 1955); 55 C.J.S. Mandamus ss. 221 (1948).
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7
ITT's threatened postponement of its meeting violates its by-laws.
By-law Section 1.2 provides: "An annual meeting of stockholders shall be held at
such place (within or outside the State of Nevada), date and hour as shall be
determined by the Board and designated in the notice thereof." (Emphasis added.)
Section 1.3 adds: "At each annual meeting, the stockholders shall elect the
members of the Board for the succeeding year." (Emphasis added.) Section 1.3
also permits the conduct of any other proper business at the annual meeting.
Furthermore, Sections 1.3(b) and 2.2 contemplate that ITT will
conduct its annual meeting at the same time each year by requiring shareholders
to submit director nominations and proposed resolutions to the corporation "not
later than 90 days in advance of the anniversary date of the immediately
preceding annual meeting." (Emphasis added.) Requiring that new business and
director nominations be proposed 90 days before the anniversary date of the
prior year's meeting reflects the understanding that each year's meeting will be
held on or about that anniversary date.
Controlling Nevada authority confirms the common sense proposition
that "annual" means "yearly," that a "year" means "twelve months," and that a
by-law that requires an "annual meeting" every "year" means just that. In Nevada
ex. rel. Curtis v. McCullough, 3 Nev. 202 (1867), a board of trustees purported
to extend their term of office to 15 months by amending a by-law requiring that
annual meetings be held in July to provide that annual meetings be held in
October.
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8
Holding that this purported amendment was "utterly unauthorized and void," 3
Nev. at 227, the Nevada Supreme Court explained:
The law requires an annual election of Trustees. Annual,
from the Latin annus, usually means yearly, or every twelve
months.
Wherever used in contracts, it is construed to mean
every twelve calendar months. Annual interest is interest
payable every twelve months. Annual rent is construed in the
same way . . . .
[T]o amend the by-laws so as to deprive the stockholders
of that control or supervision over the affairs of the
corporation which the right to elect their officers annually
gives them, or to interfere with that right in any way, would
certainly seem to be incompatible with the relations existing
between the Trustees and stockholders. It is like an agent
taking advantage of his position to deprive his principal of
the power of removing him. . . . How can it be said the
Trustees acted within the legitimate scope of their authority
when they assumed the power of continuing themselves in office
three months beyond the term fixed by the stockholders?
We announce, as a general principle, that no elective
officer should be allowed to do any act which will prevent the
election of his successor at the time and in the manner fixed
by law, or by the persons having the power or right of
election; or to do any act which will continue him in office
beyond the time for which he was elected. 3 Nev. at 224- 27
(italics in original; emphasis added).
The fact that Section 1.2 gives the ITT Board the authority to set
the precise date and time of the annual meeting does not change the analysis. As
the Nevada Supreme Court held in Nevada ex rel. Flagg v. Board of Trustees, 4
Nev. 400, 406 (1868), board discretion to determine the
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9
"time and place" of the corporation's "annual election" does not license the
directors to materially extend their term in office. The only function of a
statutory provision providing such discretion, the Court explained, is that the
term "might expire on the Sabbath or some holiday upon which the election could
not well be held -- hence it becomes necessary to designate some day, and the
time of day when it shall be held. . . . [T]his is the extent of the authority
given them" by the "time and place" provision.(2)
Nor can ITT legitimately argue that the statutory remedy provided by
NRS 78.345 limits Hilton's right to require ITT to comply with its by-laws.(3)
NRS 78.345 by its terms addresses annual meetings "required by NRS 78.330" -- it
says nothing about meetings that are mandated by a by-law provision. Moreover,
both the courts of Nevada and the courts of other jurisdictions with similar
provisions have held that the statutory remedy is not exclusive. See Double O
Mining
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(2) McCullough also recognizes that an "annual" meeting could not always
occur exactly 365 days after the previous meeting, but that only material
divergences were permitted: "It would perhaps be impossible to fix a period
which would always recur within twelve months exactly, and upon which an
election might be held, because the calendar day may be the Christian Sabbath,
and a given day in the week in any month would not always agree precisely with
the solar year. . . . However, to extend the term of office to fifteen months .
. . would seem to be irregular." 3 Nev. at 225.
(3) Nevada Revised Statutes 78.345 provides in relevant part:
If any corporation fails to elect directors within 18 months after
the last election of directors required by NRS 78.330, the district court
has jurisdiction in equity, upon application of any one or more
stockholders holding stock entitling them to exercise at least 15 percent
of the voting power, to order the election of directors in the manner
required by NRS 78.330.
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10
Co. v. Simrak, 61 Nev. 431, 439, 132 P.2d 605 (1942) (Section 1634 of the Nevada
Compiled Laws, the predecessor statute to NRS 78.345, created a "new right",
distinct from the right of shareholders in equity, to petition a court to compel
a meeting); Ocilla Indus. v. Katz, 677 F. Supp. 1291, 1301 (E.D.N.Y. 1987)
("Although Section 603 provides a remedy for shareholders when directors fail to
call annual or special meetings within the contemplated time, this is not
exclusive," particularly where statutory remedy would result in meeting being
held 16 months after previous year's annual meeting). Cf. Danahar Corp. v.
Chicago Pneumatic Tool Co., Nos. 86 Civ. 3499 (PNL), 86 Civ. 3638 (PNL), 1986 WL
7001, at *7 (S.D.N.Y. June 19, 1986) (statutory provision allowing the holders
of 10% of the stock to apply to a court for an order compelling a meeting does
not replace the "alternative" mechanism of allowing the shareholders to act by
written consent).
Whatever the effect of NRS 78.345 on a claim that a Nevada
corporation has a statutory obligation to conduct an annual meeting every twelve
months, the statute does not relieve ITT of its contractual obligation under its
by-laws to hold an annual meeting on a timely basis. See Silver v. Farrell, 450
N.Y.S.2d 938, 940-41 (N.Y. Sup. Ct. 1982) (statutory provision entitling 10% of
shareholders to call special meeting is not exclusive remedy where directors
fail to call annual meeting as required by the by-laws); Ocilla Indus. v. Katz,
677 F. Supp. at 1301 (same).
Any effort by the incumbents to postpone ITT's "annual" meeting and
to extend their own one-year term would
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11
violate the contract that ITT's by-laws create with its shareholders. ITT's
shareholders have a right to hold their annual meeting, elect new directors and
vote on Hilton's proposed resolution in May 1997.
IV. ANY ATTEMPT BY THE ITT BOARD TO DELAY THE MAY 1997 ANNUAL MEETING WOULD BE
AN UNLAWFUL MANIPULATION OF THE CORPORATE MACHINERY
Even apart from being a violation of ITT's by-laws, the incumbent
board's threatened postponement of ITT's annual meeting would constitute a
breach of fiduciary duty. As this Court made clear in Shoen v. Amerco, 855 F.
Supp. 1332, 1340 (D. Nev. 1994), modified on other grounds, No. CV-N-94-0475-
ECR, 1996 WL 904199 (D. Nev. Oct. 24, 1994), vacated by stipulation, (D. Nev.
Feb. 9, 1995), the business judgment rule does not protect the actions of
directors of a Nevada corporation when they seek to manipulate the timing of a
shareholders' meeting:
[O]ne of the justifications for the business judgment rule's
[protections] is that unhappy shareholders can always vote the
directors out of office. . . . Put another way, "the ordinary
considerations to which the business judgment rule originally
responded are simply not present in the shareholder voting
context," because when a board interferes with shareholder
voting it interferes with the very "allocation, between
shareholders as a class and the board, of effective power with
respect to governance of the corporation." 885 F. Supp. at
1340-41 (citations omitted).
As a consequence, the courts have uniformly held that incumbent
directors may not postpone or advance a shareholder meeting in order to avoid an
electoral defeat. In Shoen, for example, this Court, applying Nevada law, held
that
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12
it was "very clearly" a breach of fiduciary duties for a shareholder "meeting
[to be] advanced for the purpose of interfering with free and fair voting by the
shareholders, by incumbent managers afraid that they would lose an election."
885 F. Supp. at 1344.(4)
Neither Shoen nor Nevada law stands alone in enforcing this
fundamental principle of corporate law. Federal courts applying the laws of
other states have consistently subjected board action implicating the
shareholder franchise to strict scrutiny. In Danaher Corp. v. Chicago Pneumatic
Tool Co., No. 86 Civ. 3499, 3638 (PNL), 1986 WL 7001 (S.D.N.Y. June 19, 1986),
twelve days after a hostile tender offer resulted in the bidder acquiring 67% of
the target company's outstanding stock, the incumbent board postponed the
company's annual stockholders' meeting by a month, and claimed the right to
postpone it further. Applying New Jersey law, the court granted preliminary
injunctive relief against postponement:
It has long been established that a board of directors may not
manipulate the timing of the shareholders' annual meeting to
perpetuate its reign of control. "Special scrutiny" is to be given
where directors, bent on entrenchment, allegedly use their powers to
restrict the ability of shareholders to replace them. The law is
clear that when a board of directors has improperly postponed or
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(4) While ITT can be expected to argue that the 1991 amendments to the
Nevada General Corporation Law empower its board to delay the annual meeting to
protect the corporation from Hilton's tender offer, the legislative history of
those amendments completely undercuts any such assertion. See Reply Memorandum
of Points & Authorities in Support of Plaintiffs' Motion for Preliminary
Injunction, filed Feb. 21, 1997, at 10 (shareholder "power to vote out
management" is the check on board's power to reject tender offers).
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13
manipulated the timing of the shareholders annual meeting,
courts have the authority to compel the board to promptly hold
such a meeting. Id. at *13 (citations omitted; emphasis
added).
To the same effect is Holly Sugar Corp. v. Buchsbaum, [1981-82
Transfer Binder] Fed. Sec. L. Rep. P. 98,366 (D. Colo Oct. 28, 1991), where the
incumbents refused to hold a valid shareholders meeting after one meeting had
been conducted without a quorum. The court issued a preliminary injunction
against the directors' unlawful actions:
The evidence indicates a likelihood that present management
has improperly employed the corporate machinery and by- laws
to the advantage of incumbent management. . . . The obvious
and intended effect of these actions has been to deprive Holly
shareholders of their valid right to vote in an election of
directors in 1981. . . . Such behavior by fiduciaries is per
se wrongful. Id. at 92,238 (citations omitted; emphasis
added).
The federal courts have also enjoined board interference with the
shareholder franchise where, as here, a proxy fight and tender offer have been
waged simultaneously. Thus, in Norfolk Southern Corp. v. Conrail, Inc., Civ.
Action Nos. 96-7167, 96-7350 (E.D. Pa. Dec. 17, 1996) (Exhibit 1 hereto), a case
applying Pennsylvania law, the court entered a preliminary injunction requiring
the target of an unsolicited takeover bid to proceed with a special meeting of
shareholders. The court held that the board's position that it could refuse to
proceed with the meeting if it were not assured of success "effectively
disenfranchises" shareholders
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14
who opposed managements' position, and made "practically a sham" of the election
process. Ex. 1 at 68-69.
Thus, the federal courts have been consistently vigilant in
preventing manipulations of the corporate electoral process, for "one of the
most sacred rights of any shareholder is to participate in corporate democracy."
ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094, 1100 (D. Mass. 1990). Here
the stockholders are being entirely deprived of their contractual right to
participate in a democratic election on an annual basis; ITT is not only
"'interfering with the effectiveness of a stockholder vote,'" Shoen, 885 F.
Supp. at 1341 -- which by itself would be illegal -- it is taking away the
annual vote altogether.
The Delaware courts have also subjected board efforts to manipulate
meeting dates to special scrutiny. In the leading Delaware case of Schnell v.
Chris-Craft Indus., 285 A.2d 437 (Del. 1971), the directors advanced, by only
one month, an annual meeting date established by the company's by-laws, to gain
an advantage in a proxy fight. The Delaware Supreme Court held that this was
squarely a violation of fiduciary duty:
management has attempted to utilize the corporate machinery
and the Delaware Law for the purpose of perpetuating itself in
office; and, to that end, for the purpose of obstructing the
legitimate efforts of dissident stockholders in the exercise
of their rights to undertake a proxy contest against
management. These are inequitable purposes, contrary to
established principles of corporate democracy. The advancement
by directors of the by-law date of a stockholders' meeting,
for such purposes, may not be permitted to stand. 285 A.2d at
439.
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15
The Schnell court also rejected the argument that the directors' inequitable
actions could be justified by their technical compliance with statutory
procedures: "The answer to that contention, of course, is that inequitable
action does not become permissible simply because it is legally possible". Id.
The Schnell doctrine prohibits board actions postponing stockholder
meetings as well as advancing them. In Aprahamian v. HBO & Co., 531 A.2d 1204
(Del. Ch. 1987), an annual stockholders' meeting that should have been held in
April was rescheduled by the directors for late September. The incumbents argued
that their action should be sustained because a special committee of the board
thought the postponement necessary to give the board time "to examine
alternatives for maximizing stockholder value." 531 A.2d at 1206. The Delaware
Chancery Court held the directors' actions unlawful:
The corporate election process, if it is to have any
validity, must be conducted with scrupulous fairness and
without any advantage being conferred or denied to any
candidate or slate of candidates. In the interests of
corporate democracy, those in charge of the election machinery
must be held to the highest standards in providing for and
conducting corporate elections. The business judgment rule
therefore does not confer any presumption of propriety on the
acts of the directors in postponing the annual meeting. 531
A.2d 1206-07 (emphasis added).
As for the argument that the incumbent directors should be allowed
to "oversee the transactions necessary to enhance the value of the corporation,"
the Aprahamian court had this to say: "Incumbent directors do not have any
<PAGE>
16
preemptory right to continue to serve as directors." 531 A.2d at 1207. The court
accordingly granted preliminary injunctive relief against the directors'
actions.
The Delaware Supreme Court has held that the Schnell doctrine
applies where, as here, an acquiror launches both a tender offer and a proxy
fight to remove the board to facilitate the offer. Analyzing the interaction
between Schnell and the related Unocal doctrine (which requires takeover
defenses to be "reasonable in relation to the threat posed," Unocal Corp. v.
Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1986)), the Supreme Court stated
that:
A [target] board's unilateral decision to adopt a defensive
measure touching "upon issues of control" that purposefully
disenfranchises its shareholders is strongly suspect under
Unocal, and cannot be sustained without a "compelling
justification." Stroud v. Grace, 606 A.2d 75, 92 n.3 (Del.
1992).
The ITT board cannot meet this burden. Hilton's tender offer does
not present a "threat" to ITT. ITT has abandoned its previous corporate strategy
and the ITT board itself is presiding over a break-up of the company. By the
time of a May annual meeting, ITT will have had four months to implement its
plan. The only material difference between ITT's plan and Hilton's plan is that,
under ITT's plan, an independent ITT remains under the control of incumbent
management. Burch Aff. P. P. 7, 8. Under these circumstances, there can be no
"compelling justification" for depriving ITT's shareholders of the opportunity
to decide which management team they would prefer to "oversee the transactions
necessary
<PAGE>
17
to enhance the value of the corporation." Aprahamian, 531 A.2d at 1207.(5)
V. HILTON IS ENTITLED TO AN INJUNCTION REQUIRING ITT TO PROCEED WITH THE 1997
ANNUAL MEETING IN MID-MAY
To prevail on this motion requiring ITT to follow its normal
procedure and conduct its 1997 annual meeting in May, Hilton must show either:
(1) a likelihood of success on the merits and the possibility of irreparable
injury; or (2) the existence of serious questions going to the merits and the
balance of hardships tipping in the movant's favor. Shoen, 885 F. Supp. at 1338
(quoting MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 516-17 (9th
Cir. 1993)).(6)
As shown above, Hilton has established not only a likelihood, but
certainty of success. ITT's by-laws and basic principles of corporate law give
ITT shareholders the right on
- ----------
(5) ITT may seek to rely on Stahl v. Apple Bancorp, Inc., 579 A.2d 1115
(Del. Ch. 1990), to justify its failure to call a meeting. The Stahl court
refused to compel the board to hold an annual meeting in mid-May at the behest
of an offeror that had commenced a tender offer in late March. The court noted
that, despite the delay, the meeting would still "go forward at a time
consistent with the company's by-laws," 579 A.2d at 1123, and that delay would
allow the board to explore "the advisability of pursuing an extraordinary
transaction, including the possible sale of the company" in response to the
recently-announced tender offer. 579 A.2d at 1117 (emphasis added). Accordingly,
the board in Stahl was able to argue that its conduct was authorized by the
company's by-laws and that delay would not necessarily have the effect of
perpetuating itself in office because the board was considering a sale of the
company. Neither of these arguments is available to ITT, which has committed to
remain independent.
(6) It is well-established that a federal court sitting in diversity is
able to afford a plaintiff relief under its traditional equity power where the
plaintiff is entitled to relief under state law. Stern v. South Chester Tube
Co., 390 U.S. 606, 609 (1968).
<PAGE>
18
an annual basis to select the individuals they want to guide their company and
to vote on resolutions that involve matters of concern to them. A board cannot
delay an annual meeting to perpetuate itself in office or to deprive the
shareholders of their right to express their will.
Further, "'the denial or frustration of the right of shareholders to
vote their shares or obtain representation on the board of directors amounts to
an irreparable injury.'" Shoen, 885 F. Supp. at 1352 (citations omitted). Accord
AHI Metnall, L.P. v. J.C. Nichols Co., 891 F. Supp. 1352, 1359 (W.D. Mo. 1995)
("'Courts have consistently found that corporate management subjects
shareholders to irreparable harm by denying them the right to vote their shares
or unnecessarily frustrating them in their attempt to obtain representation on
the board of directors'") (quoting International Banknote Co. v. Muller, 713 F.
Supp. 612, 623 (S.D.N.Y. 1989)); Beztak Co. v. Bank One Columbus, N.A., 811 F.
Supp. 274, 284 (E.D. Mich. 1992) (loss of stock voting rights constitutes
irreparable harm); ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094, 1101 (D.
Mass. 1990) (delay in holding annual meeting constitutes irreparable harm).(7)
- ----------
(7) See also Aprahamian v. HBO & Co., 531 A.2d 1204, 1208 (Del. Ch. 1987)
(postponement of annual meeting constitutes irreparable harm); Danaher, 1986 WL
7001, at *14 ("It is well settled in law that corporate management subjects
shareholders to irreparable harm by denying them the right to vote their shares
and to exercise their rightful control over the corporation"); Treco, Inc. v.
Land of Lincoln Sav. and Loan, 572 F. Supp. 1447, 1450 (N.D. Ill. 1993)
("plaintiffs would be irreparably harmed if a preliminary injunction [requiring
the directors to convene a special meeting] were denied because plaintiffs would
be unnecessarily frustrated in their attempt to obtain representation on
[defendants'] Board of Directors at the October 26, 1983 annual meeting"); Holly
Sugar Corp. v.
<PAGE>
19
Finally, the balance of hardships tips decidedly in Hilton's favor.
The incumbent directors have no right to perpetuate themselves in office, and
ITT can suffer no injury if the annual meeting proceeds on the timetable that
has been followed for each of the last 20 years. Aprahamian, 531 A.2d at 1208
("The incumbent directors have no vested right to continue to serve as directors
and therefore will suffer no harm if they are defeated."). Delay, however, will
infringe on the right of ITT shareholders to determine the future of their
company at an annual meeting. Delay will also deprive Hilton of its right to
make its case to its fellow shareholders at the time prescribed by ITT's
by-laws. See Coalition to Advocate Pub. Util. Responsibilities, Inc. v. Engels,
364 F. Supp. 1202, 1207 (D. Minn. 1973) (granting injunction against board's
changes in election process where plaintiffs had expended substantial sums of
money and labor "in the expectation that this election would be conducted in the
same manner as such elections had been conducted since 1902").
Any argument that delay is justified because ITT management has a
"better plan" that needs time to be realized cannot be countenanced. No delay is
needed. ITT management can present its "better plan" to the shareholders. ITT
can also argue to its shareholders that it needs more time to implement its
"better plan." The shareholders are fully
- ----------
Buchsbaum, [1981-82 Transfer Binder] Fed. Sec. L. Rep. P. 98,366
(D. Colo. Oct. 28, 1981) ("Defendants will also be irreparably injured by the
continued denial of their right to take their case to the Holly shareholders in
a proper corporate election").
<PAGE>
20
capable of deciding at a May annual meeting whether they want to permit the
incumbent board to remain in control of their company, or whether they want to
elect a board that will pursue a sale to Hilton.
VI. CONCLUSION
For the reasons set forth above, the injunction sought by Hilton to
ensure that ITT proceeds with its annual meeting in May should be granted.
RESPECTFULLY SUBMITTED this 26th day of February, 1997.
SCHRECK MORRIS
By:/s/ Steve Morris
-----------------------------
STEVE MORRIS
KRISTINA PICKERING
300 S. Fourth Street, #1200
Las Vegas, Nevada 89101
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
ALEXANDER SHAKNES
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION
and HLT CORPORATION
<PAGE>
21
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I certify that I am an employee of
SCHRECK MORRIS and that on this day I served a true copy of the enclosed MOTION
FOR PRELIMINARY INJUNCTION REQUIRING ITT TO CONDUCT ITS ANNUAL MEETING IN MAY
1997; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION; AFFIDAVIT OF
DANIEL H. BURCH AND EXHIBITS THERETO [ORAL ARGUMENT REQUESTED] in a sealed
envelope.
VIA HAND DELIVERY:
Thomas F. Kummer, Esq.
Kummer, Kaempfer Bonner & Renshaw
7th Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
VIA U.S. MAIL
Philip Gelston
Cravath, Swain & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Dated this 26th day of February 1997.
/s/Jeana M. Hart
------------------------------
Jeana M. Hart
<PAGE>
[Exhibit 30]
SCHRECK MORRIS
Attorneys at Law
1200 Bank Of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702)382-2101
FAX (702) 474-9422
February 26, 1997
VIA HAND DELIVERY
Honorable Philip Pro
U.S. District Court Judge
UNITED STATES DISTRICT COURTHOUSE
300 Las Vegas Boulevard South
Las Vegas, NV 89101
RE: Hilton Hotels Corp., et al. v. ITT Corp.
CV-S-97-00095-PMP (RLH)
Dear Judge Pro:
Enclosed please find a courtesy copy of a motion filed today on behalf of
our client, Hilton Hotels Corporation, in support of its request for a
preliminary injunction requiring ITT Corporation to conduct its annual meeting
in May 1997. As Your Honor will see, the issues raised by the enclosed motion
overlap with the issues raised by the motion for a preliminary injunction filed
by Hilton on January 27, 1997.
Accordingly, Hilton respectfully requests the Court to adjourn the March 5
hearing on the original motion to the last week of March or the first week of
April, and combine the hearing on the original motion with the hearing on the
enclosed motion. We will, of course, be prepared to proceed on March 5 if the
Court wishes.
Respectfully submitted,
/s/Steve Morris
-----------------------
Steve Morris
SM/Lml
Enclosure as stated
cc: Thomas Kummer, Esq. (via hand delivery)
<PAGE>
[Exhibit 31]
THOMAS F. KUMMER
VON S. HEINZ
KUMMER KAEMPFER BONNER & RENSHAW
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(702) 792-7000
Attorneys for Defendant
ITT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- ---------------------------------------
HILTON HOTELS CORPORATION and )
HLT CORPORATION, ) Case No. CV-S-97-95-PMP (RLH)
)
Plaintiffs, )
)
vs. )
)
ITT CORPORATION, )
)
Defendant. )
- ---------------------------------------
ITT CORPORATION'S OPPOSITION TO
HILTON HOTELS CORPORATION AND HLT CORPORATION'S
LETTER REQUEST FOR ADJOURNMENT OF ORAL ARGUMENT ON
MOTION FOR PRELIMINARY INJUNCTION
Defendant ITT Corporation submits the following memorandum of points and
authorities to the February 26, 1997 letter request of plaintiffs Hilton Hotels
Corporation and HLT Corporation (collectively "Hilton") to "adjourn" the hearing
of Hilton's motion for preliminary injunction, set by Court order for hearing on
Wednesday, March 5, 1997.
<PAGE>
MEMORANDUM OF POINTS AND AUTHORITIES
In contravention of LR 7-2(a) (which requires all motion to be in writing
and supported by a memorandum of points and authorities, unless made during a
hearing or trial), Hilton delivered by hand a letter dated February 26, 1997 to
the Court seeking to continue the March 5, 1997 hearing set by the Court's
January 28, 1997 order for the consideration of Hilton's motion for a
preliminary injunction (a true and correct copy of Hilton's February 26, 1997
letter is attached as Exhibit 1). Although ITT does not believe that Hilton
should ever have brought the motion that is the subject of the March 5, 1997
hearing and that Hilton should withdraw its motion, for the reasons that follow,
Hilton's informal request must be denied.
First, Hilton has failed both to submit a written motion requesting the
continuance of the March 5, 1997 hearing and to offer any authorities for its
motion, in contravention of LR 7- 2(a). Under the circumstances present, these
failures are fatal: the local rules of practice expressly forbid the manner by
which Hilton is seeking exception to the court's January 28, 1997 order, and,
without authorities, there is no legal basis upon which the court may consider
the relief Hilton seeks. In Kennedy v. United States, 115 F.2d 624 (9th Cir.
1940), the court denied a petition which, in reality, was a motion and which
also failed to state points and authorities and therefore violated the circuit
rule requiring motions to be supported by points and authorities. The Ninth
Circuit has made clear that local procedural rules with respect to the
submission of motions are to be construed according
-2-
<PAGE>
to the mandatory directions of their language. Hoptowit v. Spellman, 753 F.2d
779, 782 (9th Cir. 1985) (affirming the district court's refusal to consider a
motion deemed deficient because of its failure to follow the applicable local
rule of procedure requiring the filing of a memorandum of points and authorities
with the motion).
Second, Hilton's simple suggestion that the issues in its January 27, 1997
motion for preliminary injunction overlap with its February 26, 1997 motion for
preliminary injunction is inaccurate. The first of Hilton's preliminary
injunction motions relates to the size of ITT's board of directors and Hilton's
efforts to replace the current ITT board with new members of its own selection
and who have Hilton's motivation to force the Hilton Offer and Proposed Squeeze
Out Merger upon ITT and its shareholders. It also seeks to enjoin ITT from
"amending the ITT By-Laws to impede in any way the effective exercise of the
stockholder franchise at the 1997 annual meeting of ITT stockholders." As
demonstrated in ITT's opposition to Hilton's January 27, 1997 preliminary
injunction motion, there never was any basis for Hilton's motion and, in any
event, Hilton's own subsequent actions have rendered moot its purported factual
and legal bases for the motion. Moreover, this Court can deal with any challenge
to unspecified future by-law amendments if and when they were to occur. Hilton's
February 26, 1997 letter request seeking the continuation of the hearing on that
motion may realistically be viewed as an acknowledgment that no basis exists for
the relief sought in that motion and that Hilton wishes to avoid a formal
hearing of it. It is patently clear that the two issues raised in
-3-
<PAGE>
Hilton's January 27 preliminary injunction motion are specifically not at issue
in Hilton's February 26, 1997 preliminary injunction motion (relating to when
the ITT annual meeting is to occur), and Hilton's argument that the issues
"overlap" is inaccurate.
For the reasons expressed above, ITT respectfully requests that the relief
sought in Hilton's February 26, 1997 "letter motion" be denied and that the
March 5, 1997 hearing on Hilton's January 27, 1997 motion for preliminary
injunction go forward as established by the Court's January 28, 1997 order,
unless Hilton withdraws that motion.
DATED this 28th day of February, 1997.
KUMMER KAEMPFER BONNER & RENSHAW
By /s/ Von S. Heinz
-----------------------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorneys for Defendant
ITT CORPORATION
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing ITT CORPORATION'S OPPOSITION TO HILTON HOTELS CORPORATION AND HLT
CORPORATION'S LETTER REQUEST FOR POSTPONEMENT OF ORAL ARGUMENT ON MOTION FOR
PRELIMINARY INJUNCTION was made this date by facsimile and by depositing a true
copy of the same for mailing at Las Vegas, Nevada, addressed to the following:
Steve Morris
-4-
<PAGE>
Kristina Pickering
Schreck Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
DATED this 25th day of February, 1997.
/s/ Elizabeth Moulton
--------------------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
-5-
<PAGE>
[Exhibit 32]
STEVE MORRIS
KRISTINA PICKERING
SCHRECK MORRIS
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION and HLT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- ---------------------------------------------
HILTON HOTELS CORPORATION and HLT CV-S-97-00095-PMP
CORPORATION, (RLH)
Plaintiffs, MEMORANDUM OF POINTS
AND AUTHORITIES IN
-vs- OPPOSITION TO ITT'S
MOTION FOR A
ITT CORPORATION, PERMANENT (OR A
PRELIMINARY)
Defendant. INJUNCTION REQUIRING
HILTON TO DISCHARGE
LATHAM & WATKINS AS
- --------------------------------------------- COUNSEL; AFFIDAVIT
ITT CORPORATION, OF MATTHEW HART
Defendant and
Counterclaimant,
-vs-
HILTON HOTELS CORPORATION and
HLT CORPORATION,
Plaintiffs and
Counterdefendants.
- ---------------------------------------------
-1-
<PAGE>
Hilton opposes ITT's motion for an injunction. The separate
submission of Latham & Watkins addresses ITT's legal ethics contentions. Hilton
wishes to underscore three points.
First, because of the obvious "concern about 'tactical use of
disqualification motions'" and their "potential for abuse," the Ninth Circuit
has emphasized that "disqualification motions should be subjected to
'particularly strict judicial scrutiny.'" Shurance v. Planning Control Int'l,
Inc., 839 F.2d 1347, 1349 (9th Cir. 1988) (quoting Richardson-Merrell, Inc. v.
Koller, 472 U.S. 424, 436 (1985), and Optyl Eyewear Fashion Intern. Corp. v.
Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985)). The California courts have
similarly recognized that "motions to disqualify counsel often pose the very
threat to the integrity of the judicial process that they purport to prevent. .
. . [I]t is widely understood by judges that attorneys now commonly use
disqualification motions for purely strategic purposes." Gregori v. Bank of
America, 207 Cal. App. 3d 291, 300-01 (1989) (internal quotation omitted); see
also H.F. Ahmanson & Co. v. Salomon Bros., Inc., 229 Cal. App. 3d 1445, 1454
(1991) (disqualification motions "are commonly used for purely strategic
purposes").*
- ----------
* As explained in Latham & Watkins' submission, the legal ethics issues
raised by this motion are governed by California law.
-2-
<PAGE>
Second, ITT's motion goes well beyond the normal disqualification
motion. ITT is not seeking the usual relief of disqualifying an attorney or firm
practicing before the court. Rather, ITT -- recognizing that Latham & Watkins is
not practicing before this Court -- seeks an injunction against the firm's
client (Hilton), requiring it to dismiss the firm from non-litigation work.
There is simply no basis for such relief. A court's power to disqualify
attorneys for ethical violations stems solely from its authority to protect the
integrity of its own processes and police the bar practicing before it. E.g.,
Gregori, 207 Cal. App. 3d at 299 ("The trial court's power to control in
furtherance of justice, the conduct of its ministerial officers is the basis
upon which it may disqualify an attorney.") (internal quotation omitted). That
power does not extend to attorneys who are not practicing before the court, or
to legal work that is not part of the litigation before it.
Nor can ITT fall back on its "ethics" counterclaim against Hilton
(Count One of ITT's Counterclaims) as a basis for an injunction. Alleged
violations of legal ethics rules simply do not state a claim for relief even
against an attorney, let alone against the attorney's client. See Miami Int'l
Realty Co. v. Painter, 841 F.2d 348, 353 (10th Cir. 1988) ("[A] Code violation
does not create a private right of action."); Weiszmann v. Kirkland & Ellis, 732
-3-
<PAGE>
F. Supp. 1540, 1544 (D. Colo. 1990) ("Disciplinary rules . . . do not create a
private cause of action."); Smith v. Bateman Graham, P.A., 680 So.2d 497, 498
(Fla. App. 1996) (declining to issue injunction; "the ethics rules themselves
preclude a private cause of action arising from a violation of the rules.").
Accordingly, there is no basis for an injunction against Hilton.
Third, the present motion is a perfect illustration of why the
courts subject efforts to disqualify counsel to "particularly strict judicial
scrutiny," Shurance, 839 F.2d at 1349. ITT has brought on this motion seeking
unprecedented relief even though ITT has suffered absolutely no prejudice by
virtue of the purported "conflicts" it cites. Although Hilton is not privy to
the details of Latham's representation of ITT, none of the lawyers identified by
ITT as having provided it with legal advice has given any advice to Hilton in
connection with its takeover bid, and Hilton has made its bid for ITT solely on
the basis of publicly available information. Hart Aff. P. 3.
-4-
<PAGE>
ITT's motion cannot survive the "particularly strict" scrutiny it
must receive. Accordingly, the motion should be denied.
RESPECTFULLY SUBMITTED this 28th day of February, 1997.
SCHRECK MORRIS,
By: /s/ Kristina Pickering
------------------------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION and
HLT CORPORATION
-5-
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that on the 28th day of February, 1997, that I placed
true and correct copies of MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
ITT'S MOTION FOR A PERMANENT (OR A PRELIMINARY) INJUNCTION REQUIRING HILTON TO
DISCHARGE LATHAM & WATKINS; AFFIDAVIT OF MATTHEW HART in a self-addressed
envelope, and served via hand delivery to:
Thomas Kummer, Esq.
KUMMER KAEMPFER BONNER & RENSHAW
3800 Howard Hughes Parkway, 7th Floor
Las Vegas, NV 89109
and by U.S. Mails, with postage prepaid and affixed thereto:
Philip Gelston
CRAVATH, SWAIN & MOORE
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
/s/ Trina Langley
------------------------------------
Trina M. Langley
-6-
<PAGE>
[Exhibit 33]
Donald J. Cambell, Esq. (SBN 1216)
DONALD J. CAMPBELL & ASSOCIATES
300 So. Fourth Street, Suite 1409
Las Vegas, Nevada 89101
Telephone: (702) 382-5222
Attorneys for Latham & Watkins
Specially Appearing
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- ----------------------------------------
HILTON HOTELS CORPORATION and Case No. CV-S-97-95-PMP (RLH)
HLT CORPORATION,
APPLICATION FOR SPECIAL
Plaintiffs, APPEARANCE IN CONNECTION
WITH LATHAM & WATKINS'
vs. RESPONSE TO ITT'S MOTION
REQUIRING HILTON TO
ITT CORPORATION, DISCHARGE LATHAM &
WATKINS AS COUNSEL
Defendant.
- ----------------------------------------
ITT CORPORATION
Defendant and Counterclaimant,
vs.
HILTON HOTELS CORPORATION AND
HLT CORPORATION,
Plaintiffs and Counterdefendants.
- ----------------------------------------
Defendant/counterclaimant, ITT Corporation ("ITT"), has moved this Court
for injunctive and other relief requiring plaintiffs\counterdefendants, Hilton
Hotels
<PAGE>
2
Corporation and HLT Corporation (collectively "Hilton"), to discharge Latham &
Watkins ("Latham") as counsel. ITT's moving papers make inaccurate and
disparaging charges against Latham and the firm hereby applies for permission to
make a special appearance to respond to ITT's unfounded accusations. Latham is
not a party or counsel in this action and a special appearance to respond to
ITT's falsehoods appears to be the only available vehicle for the firm to
present its views to the Court.
In response to ITT's moving papers, Latham seeks to file the expert
opinions of Justice Armand Arabian, a retired California Supreme Court Justice,
and a national ethics authority, Stephen Gillers, both of whom dispose of ITT's
erroneous interpretations of the California ethics laws and confirm that
Latham's conduct was entirely ethical and proper. In addition, Latham seeks to
file the declarations of its four attorneys who actually worked on the matters
cited by ITT in its moving papers, which declarations refute the conclusory and
false generalities of ITT's moving papers and establish that there has been no
misuse of ITT information, that there is no "substantial relationship" between
any ITT representation and the Hilton takeover and that there is no ethical
violation whatsoever by Latham. Finally, Latham concurrently seeks permission to
file a memorandum of points and authorities and evidentiary objections in
response to
<PAGE>
3
ITT's moving papers. All such papers are submitted concurrently herewith and
have been served upon the counsel for the parties, as reflected on the attached.
Dated: February 28, 1997 Respectfully submitted,
Donald J. Campbell & Associates
DONALD J. CAMPBELL & ASSOCIATES
By /s/ Donald J. Campbell
------------------------------
Donald J. Campbell
Attorney for Latham & Watkins,
Specially Appearing
<PAGE>
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of
the foregoing APPLICATION FOR SPECIAL APPEARANCE IN CONNECTION WITH LATHAM &
WATKINS' RESPONSE TO ITT'S MOTION REQUIRING HILTON TO DISCHARGE LATHAM & WATKINS
AS COUNSEL was made this date by delivering by hand a true copy of the same to
the following:
Steve Morris
Kristina Pickering
Schreck Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
Thomas F. Kummer
Von S. Heinz
Kummer Kaempfer Bonner & Renshaw
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
any by delivering by overnight mail a true copy of the same to the following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
DATED this 28th day of February, 1997.
/s/ Mary J. Pizzariello
----------------------------------
An Employee of the Law Firm
<PAGE>
[Exhibit 34]
Donald J. Campbell, Esq. (State Bar No. 1216)
DONALD J. CAMPBELL & ASSOCIATES
300 So. Fourth Street, Suite 1409
Las Vegas, Nevada 89101
Telephone: (702) 382-5222
Attorneys for Latham & Watkins
Special Appearing
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION ) Case No. CV-S-97-95-PMP (RLH)
and HLT CORPORATION, )
)
Plaintiffs, ) LATHAM & WATKINS' OBJECTIONS
) TO, AND MOTION TO STRIKE,
vs. ) THE AFFIDAVIT OF THEODORE J.
) FISCHKIN IN CONNECTION WITH
ITT CORPORATION, ) LATHAM & WATKINS' RESPONSE
) TO ITT CORPORATION'S MOTION
Defendant. ) REQUIRING HILTON HOTELS TO
) DISCHARGE LATHAM & WATKINS
) AS COUNSEL
- ----------------------------------)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION )
and HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
)
- ----------------------------------
Latham & Watkins ("Latham") objects to, and moves to strike, the
affidavit of Theodore J. Fischkin on the grounds and to the extent set forth
below.
<PAGE>
2
1. Paragraph 3, at page 2, in its entirety.
Objection: Hearsay; Mr. Fischkin does not testify that he attended the
meeting where the alleged statement was made (Federal Rules of Evidence Rule
802). Hearsay as to Hilton's alleged statement (Federal Rules of Evidence Rule
802). Lacks foundation.
2. Paragraph 4, at page 1, in its entirety.
Objection: Inadmissible opinion testimony as to whether Latham continues
to represent ITT for purposes of the applicable ethical standards (Federal Rules
of Evidence Rule 701).
3. Paragraph 5, at pages 2-3, in its entirety.
Objection: Relevancy as to Latham's representation of ITT's former parent,
ITT Industries, Inc., ITT Hartford Group, Inc. and ITT's subsidiaries (Model
Rule 1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal
Opinion 1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695;
Federal Rules of Evidence Rules 401, 402, 403). Inadmissible opinion testimony
as to whether an attorney-client relationship exists between Latham and ITT for
purposes of the applicable ethical standards and as to "usefulness" of alleged
confidential information (Federal Rules of Evidence Rule 701). Lacks personal
knowledge (Federal Rules of Evidence Rule 602;
<PAGE>
3
Federal Rules of Civil Procedure 56(e)). Lacks foundation. Argumentative.
4. Paragraph 6, at page 3, lines 4-11:
"Since June 1995, Latham has been representing ITT and its subsidiary, ITT
Educational Services, Inc. ("ESI"), in Elredge, et al. v. ITT Educational
Services, Inc., ITT Technical Institute, ITT Corporation, et al. filed in
California Superior Court, San Diego. The letter that confirmed the retention on
June 16, 1995 (attached hereto as Ex. 1) neither waives any conflicts nor limits
the scope or term of the retention."
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Inadmissible opinion testimony as to
whether Latham continues to represent ITT for purposes of the applicable ethical
standards (Federal Rules of Evidence Rule 701). Violates Best Evidence Rule
(Federal Rules of Evidence Rule 1002).
5. Paragraph 7, at page 3, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules
<PAGE>
4
of Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal Rules of
Evidence Rule 1002).
6. Paragraph 8, at page 4, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Inadmissible opinion testimony as to
whether Latham continues to represent ITT for purposes of the applicable ethical
standards (Federal Rules of Evidence Rule 701). Violates Best Evidence Rule
(Federal Rules of Evidence Rule 1002). Much of the Paragraph states conclusion,
not facts.
7. Paragraph 9, at pages 4-5, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Inadmissible opinion testimony as to
whether Latham continues to represent ITT for purposes of the applicable ethical
standards (Federal Rules of Evidence Rule 701). Lacks foundation.
Speculative. Argumentative.
<PAGE>
5
8. Paragraph 10, at page 5, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal
Rules of Evidence Rule 1002). Lacks foundation.
9. Paragraph 11, at page 5, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal
Rules of Evidence Rule 1002).
10. Paragraph 12, at page 5, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal
Rules of Evidence Rule 1002).
11. Paragraph 13, at pages 5-6, in its entirety.
Objection: Relevancy as to Latham's representation of ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390;
<PAGE>
6
California State Bar Formal Opinion 1989-113; Restatement of Law Governing
Lawyers 212, Comment D at 695; Federal Rules of Evidence Rules 401, 402, 403).
Inadmissible opinion testimony (Federal Rules of Evidence Rule 701). Lacks
personal knowledge (Federal Rules of Evidence Rule 602; Federal Rules of Civil
Procedure 56(e)). Lacks foundation. Argumentative. Much of the Paragraph states
conclusions, not facts.
12. Paragraph 14, at pages 6-7, in its entirety.
Objection: Relevancy as to Latham's representation of WBIS and Dow Jones &
Co. (Model Rule 1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar
Formal Opinion 1989-113; Restatement of Law Governing Lawyers 212, Comment D at
695; Federal Rules of Evidence Rules 401, 402, 403). Hearsay (Federal Rules of
Evidence Rule 802). Lacks personal knowledge (Federal Rules of Civil Procedure
56(e)). Lacks foundation. Argumentative.
13. Paragraph 15, at pages 7-8, in its entirety.
Objection: Relevancy as to Latham's past representation of ITT on
antitrust matters insofar as ITT expressly waived any conflict which such
representation might cause (Declaration of J. Thomas Rosch; Federal Rules of
Evidence Rule 401, 402, 403). Inadmissible opinion testimony as to whether
Latham continues to represent ITT for purposes of the applicable legal standards
(Federal
<PAGE>
7
Rules of Evidence Rule 701). Violates Best Evidence Rule (Federal Rule of
Evidence Rule 1002). Inadmissible opinion testimony as to whether alleged
confidential information would be germane to advising a potential bidder for ITT
(Federal Rules of Evidence Rule 701). Lacks personal knowledge (Federal Rules of
Evidence Rule 602; Federal Rules of Civil Procedure Rule 56(e)). Lacks
foundation. Argumentative.
14. Paragraph 16, at pages 8-9, in its entirety.
Objection: Relevancy as to Latham's refusal to disclose the details of its
representation of Hilton to ITT (Model Rule 1.6(a); Nevada Rule 156; Federal
Rules of Evidence Rules 401, 402, 403). Hearsay (Federal Rules of Evidence Rule
802). Inadmissible opinion testimony as to "the disclosure to which any client
is entitled" (Federal Rules of Evidence Rule 701). Lacks foundation.
Argumentative.
15. Paragraph 17, at page 9, in its entirety.
Objection: Violates Best Evidence Rule (Federal Rules of Evidence Rule
1002). Relevancy as to Latham's representation of ITT-ESI (Model Rule 1.13; Ca.
3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion 1989-113;
Restatement of Law Governing Lawyers 212, Comment D at 695; Federal Rules of
Evidence Rules 401, 402, 403). Inadmissible opinion testimony as to whether
Latham
<PAGE>
8
faced any "ethical problem" (Federal Rules of Evidence Rule 701). Argumentative.
16. Paragraph 18, at pages 9-10, in its entirety.
Objection: Relevancy as to Latham's representation of ITT-ESI (Model Rule
1.13; Ca. 3-600; ABA Formal Opinion 95-390; California State Bar Formal Opinion
1989-113; Restatement of Law Governing Lawyers 212, Comment D at 695; Federal
Rules of Evidence Rules 401, 402, 403). Relevancy insofar as Latham had no duty
to represent ITT on appeal. (Mizrahi v. Miscione, 252 Cal. App. 2d 673, 60 Cal.
Rptr. 680 (1967); 7 Cal. Jur. 3d at ss. 126; Federal Rules of Evidence Rules
401, 402, 403). Violates Best Evidence Rule (Federal Rules of Evidence Rule
1002).
17. Paragraph 19, at page 10, in its entirety.
Objection: Relevancy as to Latham's refusal to disclose the details of its
representation of Hilton to ITT (Model Rule 1.6(a); Nevada Rule 156; Federal
Rules of Evidence Rules 401, 402, 403). Relevancy as to Wachtell's actions
(Federal Rules of Evidence Rules 401, 402, 403). Violates Best Evidence Rule
(Federal Rules of Evidence Rule 1002).
18. Paragraph 20, at pages 10, in its entirety.
Objection: Relevancy as to Latham's refusal to disclose the details of its
representation of Hilton to ITT (Model Rule 1.6(a); Nevada Rule 156; Federal
Rules of
<PAGE>
9
Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal Rules of
Evidence Rule 1002).
19. Paragraph 21, at pages 10-11, in its entirety.
Objection: Relevancy as to Latham's refusal to disclose the details of its
representation of Hilton to ITT (Model Rule 1.6(a); Nevada Rule 156; Federal
Rules of Evidence Rules 401, 402, 403). Violates Best Evidence Rule (Federal
Rules of Evidence Rule 1002).
20. Paragraph 22, at pages 11, in its entirety.
Objection: Relevancy as to Wachtell's actions (Federal Rules of Evidence
Rules 401, 402, 403).
Dated: February 28, 1997 Respectfully submitted,
Donald J. Campbell
DONALD J. CAMPBELL &
ASSOCIATES
By /s/Donald J. Campbell
---------------------------
Donald J. Campbell
Attorneys for Latham &
Watkins,
Special Appearing
<PAGE>
10
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing LATHAM & WATKINS' OBJECTIONS TO, AND MOTION TO STRIKE, THE AFFIDAVIT
OF THEODORE J. FISCHKIN IN CONNECTION WITH LATHAM & WATKINS' RESPONSE TO ITT'S
MOTION REQUIRING HILTON TO DISCHARGE LATHAM & WATKINS AS COUNSEL was made this
date by delivering by hand a true copy of the same to the following:
Steve Morris
Kristina Pickering
Schreck Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
Thomas F. Kummer
Von S. Heinz
Kummer Kaempfer Bonner & Renshaw
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
any by delivering by overnight mail a true copy of the same
to the following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Dated this 28th day of February, 1997.
/s/ Mary J. Pizzariello
------------------------------------
An Employee of the Law Firm
<PAGE>
[Exhibit 35]
Donald J. Campbell - State Bar No. 1216
DONALD J. CAMPBELL & ASSOCIATES
300 S. Fourth Street, Suite 1409
Las Vegas, Nevada 89101
(702) 382-5222
Attorneys for Latham & Watkins
Specially Appearing
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- ----------------------------------------
) Case No. CV-S-97-95-PMP (RLH)
)
) LATHAM & WATKINS' RESPONSE
) TO ITT'S MOTION REQUIRING
) HILTON TO DISCHARGE LATHAM
HILTON HOTELS CORPORATION and ) & WATKINS AS COUNSEL
HLT CORPORATION, )
)
plaintiffs, ) ATTACHED DECLARATIONS OF:
)
vs. ) (1) JUSTICE ARMAND ARABIAN;
) (2) STEPHEN GILLERS;
) (3) J. THOMAS ROSCH;
ITT CORPORATION, ) (4) GARY M. EPSTEIN; AND
) (5) KRISTINE WILKES
)
defendant. )
)
- ----------------------------------------) ACCOMPANYING DECLARATION
ITT CORPORATION, ) OF JOSEPH J. WHEELER
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
- ----------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
I INTRODUCTION............................................................ 1
II SUMMARY OF THE ARGUMENT................................................. 4
III ARGUMENT................................................................ 5
A. As Latham is Neither Counsel Nor a Party in This Action, the
Relief Sought is Procedurally Improper............................... 5
B. The National Trend is Away From Requiring Disqualification in
Motions Brought by Big Corporations Involving the Duty of
Loyalty and in Which No Confidential Information is Involved......... 6
C. The Three Specific Matters Raised by ITT Create No Conflict.......... 7
1. The Antitrust Counseling.......................................... 7
2. The Representation of WBIS+, an Entity in Which an ITT
Subsidiary Has a Less than Controlling Interest, Does Not
Create a Conflict................................................. 10
3. The Representation of ESI Poses No Conflict....................... 13
a. ESI is a Separate and Distinct Entity From ITT and the
Representation of One Does Not Constitute the
Representation of the Other.................................... 13
b. Latham is Not Engaged in Any Representation Adverse
to WBIS+ or ESI and ITT Has No Standing to Raise
This Issue..................................................... 13
D. There is No Ethical Reason Why Latham Cannot Be Adverse to
ITT.................................................................. 15
1. Latham's Representation of ITT in the Eldredge Matter Has
Concluded Because the Contemplated Services Have Been
Completed. Therefore, Latham No Longer Owes ITT the
Duty of Loyalty Due a Current Client.............................. 15
2. Even if ITT Were a Still a Current Client in the Eldredge
Matter, the Revised California Conflict Rules Would Still
Not Prevent Latham From Being Adverse to ITT...................... 18
3. There is No Substantial Relationship Between the Eldredge
Matter and the Hilton Dispute and Latham Has No
Confidential Information from ITT Which is Material to the
Hilton Dispute.................................................... 21
IV CONCLUSION.............................................................. 24
i
<PAGE>
TABLE OF AUTHORITIES
CASES Page(s)
- ----- -------
Bodily v. Intermountain Health Care Corp.,
649 F. Supp. 468 (D. Utah 1986)......................................... 7
Doctors' Company v. Superior Court,
49 Cal. 3d 39, 260 Cal. Rptr. 183 (1989)................................ 6
Edlund v. Los Altos Builders,
106 Cal. App. 2d 350, 235 P.2d 28 (1951)................................ 17
Erickson v. Newmar Corp.,
87 F.3d 298 (9th Cir. 1996).............................................. 5
Estate of Hultin,
29 Cal. 2d 825, 178 P.2d 756 (1947).................................... 17
Fidelity & Deposit Co. v. Madson,
70 A.L.R. 832 (1930).................................................... 17
Fireman's Fund Ins. Co. v. McDonald, Hecht & Solbert,
30 Cal. App. 4th 1373, 36 Cal. Rptr. 2d 424 (1994)....................... 5
Franke v. Zimmerman,
526 S.W. 2d 257 (Tx 1975)............................................... 17
Gas-A-Tron v. Union Oil Co.,
534 F.2d 1322 (9th Cir.)
cert. denied, 429 U.S. 861 (1976)....................................... 22
Global Van Lines v. Superior Court,
144 Cal. App. 3d, 483, 192 Cal. Rptr. 609 (1983)........................ 21
Goldstein v. Lees,
46 Cal. App. 3d 614, 120 Cal. Rptr. 253 (1975).......................... 15
H.F. Ahmanson & Co. v. Salomon Bros.,
229 Cal. App. 3d 1445 (1991)................................. 8, 9, 21, 23
Hoffman-La Roche, Inc. v. Promega Corp.,
33 U.S.P.Q. 2d 1641 (N.D.Ca. 1994)................................... 9, 23
Jacuzzi v. Jacuzzi Bros. Inc.,
218 Cal. App. 2d 24, 32 Cal. Rptr. 188 (1963)........................... 15
Maxwell v. Superior Court,
30 Cal. 3d 606, 180 Cal. Rptr. 177 (1982) ............................... 8
Mirabito v. Liccardo,
4 Cal. App. 4th 41, 46, 5 Cal. Rptr. 2d 571 (1992)....................... 6
Mizrahi v. Miscione,
252 Cal. App. 2d 673 (1967)............................................ 17
ii
<PAGE>
Page(s)
-------
Neel v. Magana, Olney, Levy, Cathcart & Gelfand,
6 Cal. 3d 176, 98 Cal. Rptr. 837 (1971)................................. 16
Research Corp. Technologies, Inc. v. Hewlett-Packard Co.,
936 F. Supp. 697 (D. Ariz. 1996)......................................... 7
Seifert v. Dumatic Industries,
197 A.2d 454 (Pa. 1964)................................................. 11
SWS Financial Fund A v. Salomon Brothers, Inc.,
790 F. Supp. 1392 (N.D. Ill 1992)........................................ 6
Truck Ins. Exchange v. Fireman's Fund Ins. Co.,
6 Cal. App. 4th 1050, 8 Cal. Rptr. 228 (1992)....................... 15, 16
Young v. Bridwell,
437 P.2d 686 (1968)..................................................... 17
Zambrano v. City of Tustin,
885 F.2d 1473 (9th Cir. 1989)............................................ 5
OTHER AUTHORITIES
- -----------------
1 G. Hazard & W. Hodes, The Law of Lawyering ss. 1.7:207 at 239.............. 6
ABA Formal Opinion 95-390................................................ 12, 14
ABA Formal Opinion 91-361.................................................... 11
California Business and Professions Code Section 6076-77..................... 19
California Rule of Professional Conduct 1-100(A)....................... 5, 6, 19
California Rule of Professional Conduct 3-310............................ 19, 20
California Rule of Professional Conduct 3-310(E)......................... 20, 23
California State Bar Formal Opinion 1989-113...........................12-14, 21
California State Bar Formal Opinion 1989-115.................................. 8
D.C. Bar Ethics Opinion 216.................................................. 21
Model Rule of Professional Conduct 1.6(a)..................................... 3
Nevada Rule of Professional Conduct 156....................................... 3
Preamble to Model Rules....................................................... 6
Request that the Supreme Court of California Approve Amendments to the
Rules of Professional Conduct of the State Bar of California, and
Memorandum of Supporting Documents in Explanation....................... 19, 20
iii
<PAGE>
Page(s)
Restatement of the Law Governing Lawyers (Proposed Final Draft No. 1),
Section 43 at page 124....................................................... 16
Restatement of the Law Governing Lawyers (Proposed Final Draft No. 1),
Section 212, Comment d at 695................................................ 11
iv
<PAGE>
I
INTRODUCTION
Solely to gain strategic advantage in the takeover dispute, ITT has
brought a motion to enjoin Hilton from using the services of Latham & Watkins.
Latham, however, has no role of any kind in this lawsuit and has made no
appearance as counsel in this case for any party. ITT has presented no evidence
of any ethical violation and there is no such violation. ITT simply is wrong on
its basic premise that Latham is improperly adverse (or even adverse) to ITT
within the meaning of the applicable authorities. This motion is an improper
attempt to misuse the California rules of attorney conduct as an offensive
weapon against Hilton.
ITT's unprecedented maneuver is backed by a legal brief in the guise
of an "opinion" by a professor who purports to argue issues of California law
without even analyzing the text of the applicable California conflict rules. The
attached expert opinions of Justice Armand Arabian, the California Supreme Court
Justice (now retired) who wrote the very decision upon which ITT's professor
relies, and national ethics authority Stephen Gillers, easily dispose of ITT's
interpretation of California ethics law and confirm the propriety of Latham's
conduct. Further, the detailed and specific declarations of Joseph J. Wheeler,
Thomas Rosch, Gary Epstein and Kristine Wilkes, the Latham lawyers who actually
worked on the matters cited by ITT, refute the conclusory generalities of ITT's
sole declarant and establish that there has been no misuse of ITT information,
there is no substantial relationship between the matters ITT cites and the
proposed Hilton takeover and there has been no ethical violation whatsoever.
ITT attempts to support its assertions by pointing to three minor
representations by Latham, none of which pose any conflict and some of which are
not even ITT representations. In the first matter, antitrust counseling lasting
about 10 hours where all consultation has been completed, ITT gave Latham a
written consent in what was termed a "limited representation" that Latham was
free to represent "another client on an unrelated matter in which ITT is an
adverse party." ITT's papers are silent on this
<PAGE>
consent, even though the same person who signed the consent submitted ITT's
declaration in support of its motion. Such consents are totally effective and
proper. Moreover, the antitrust counseling at issue related to minor and now
dated issues which have no relationship whatsoever to the ITT/Hilton dispute and
provides no basis for ITT's extraordinary motion.
The second matter, Latham's representation of television station
WBIS+, in which an ITT subsidiary has a 50% ownership interest along with Dow
Jones, Latham's preexisting client, similarly presents no conflict. Latham's
retention letter makes clear that WBIS+, not ITT, was the client in this
representation. Indeed, ITT even has its own outside counsel with regard to
WBIS+. The authorities are universal -- not only Model Rule 1.13 and California
Rule 3-600, but also opinions from the ABA (Formal Opinion 95-390), the
California State Bar (Formal Opinion 1989-113) and even the Restatement (Section
212, Comment d) -- that affiliated entities are to be treated as separate and
distinct entities for conflict purposes, especially when, as is the case here,
they have their own separate managements and boards.
The same authority disposes of ITT's argument regarding the third
and final matter it raises -- Latham's representation of ITT Educational
Services, Inc. ("ESI") in the Eldredge suit in San Diego. This public
corporation has its own board of directors and legal department to which Latham
reports. Though it is a partially-owned subsidiary, ESI is separate and distinct
from ITT. The authorities make clear without exception that the representation
of ESI is not the representation of ITT for ethics purposes.
The piggyback representation of ITT by Latham in the Eldredge suit
concluded with the order granting judgment n.o.v. in ITT's favor. As Justice
Arabian's expert opinion makes clear, California law provides that the entry of
that order makes ITT a former client of Latham. There has been no "hot potato"
withdrawal to render ITT a former client; this result occurred with the
completion of the contemplated services.
With ITT a former client, the only issue remaining is whether there
is a "substantial relationship" between the representation of ITT in the
Eldredge suit and the Hilton takeover matter. The Eldredge suit was brought by
some disgruntled students who
2
<PAGE>
alleged that they could only obtain work at McDonalds as dishwashers and table
cleaners after completing the ESI hospitality management program. So weak and
tangential was the case against ITT that no ITT witnesses were deposed or called
at trial, no ITT documents were produced and the trial judge entered j.n.o.v. in
ITT's favor. Latham's representation of ITT in this matter was incidental to the
representation of the plaintiffs' real target, ESI. ITT's primary defense was
that its status as a shareholder of ESI provided no basis to include it in the
case and the trial judge agreed. The case would have essentially developed the
way it did with or without ITT. This is a textbook example of a matter with no
substantial relationship -- indeed no relationship whatsover -- to the
ITT/Hilton dispute.
The theme which appears throughout ITT's papers is hyperbole and
over- argument. Time and again in its effort to gain unwarranted strategic
advantage, ITT attempts to portray the insignificant and irrelevant as
earth-shattering and cataclysmic. The true facts belie the ITT cacophony and
demonstrate that there is no merit to ITT's accusations or motion.(1)
- ----------
(1) ITT will no doubt argue that its attempts to pry information about
Hilton from Latham have been rebuffed and that this excuses the duty to
present any evidence to support its motion. Hilton is in fact a
pre-existing and substantial client of Latham for whom the firm has done
and does general corporate work. See, e.g., attached public and debt
offering filings. Although Latham has acknowledged to ITT that Hilton is a
client, all Latham will otherwise say, ITT laments, is that Latham is
adhering to all ethical duties and has no conflict with ITT.
What else would ITT have Latham say? What else could Latham say
without violating its duties to maintain client confidences about
unrelated Hilton work? Do either ITT or its advisors seriously suggest
that ITT had carte blanche to inquire into Hilton's affairs so they could
attempt to use whatever privileged information they learned to Hilton's
detriment? It is black letter law that "a lawyer shall not reveal
information relating to the representation of a client..." Model Rule
1.6(a); Nevada Rule 156. Latham said everything to ITT that it could under
the circumstances: it verified that there was no conflict and its
compliance with all ethical duties. Nothing else could or should be
disclosed. Gillers Decl. at P. 34.
3
<PAGE>
II
SUMMARY OF THE ARGUMENT
1. ITT's motion is procedurally not well taken.
2. As described more fully in the expert declarations of Professor
Stephen Gillers and Retired California Supreme Court Justice Armand Arabian,
there is absolutely no basis for barring Hilton from using Latham, based upon
the prior limited representations of ITT and/or based upon the past and present
representations of partially-owned ITT subsidiaries. This conclusion is
compelled based upon all of the following:
a. For conflict purposes, affiliated entities are to be treated as
separate and distinct clients, unless they are as a practical matter
alter egos of one another.
b. ITT's written consent permitting prospective adversity by Latham
is perfectly valid and sufficient to allow Latham to be adverse to
ITT under these circumstances.
c. Counsel is not generally obligated to accept an engagement on
appeal after the conclusion of that matter through the trial court
level, unless there has been an agreement to do so. A declination of
such engagement is not tantamount to a "hot potato" withdrawal under
California law.
d. ITT's conclusory allegations wholly fail to meet its burden or to
establish a "substantial relationship" between the prior ITT
representations and the Hilton takeover requiring imputation to
Latham of confidential information.
e. Latham has no confidential information of ITT related to the
takeover matter and no ITT information of any kind has been given to
Hilton.
4
<PAGE>
III
ARGUMENT
A. As Latham is Neither Counsel Nor a Party in This Action, the Relief Sought is
Procedurally Improper
To strengthen its hand in the dispute with Hilton, ITT is in effect
asking this Court to act as a roving ethics enforcement arm, curing alleged
violations of other states' ethics rules by lawyers who have no role in the
matter pending before the Court. The record clearly reveals that Latham has not
been involved in any litigation against ITT and has filed no documents with the
SEC relating to the takeover. The attempt here by ITT to enforce duties against
lawyers by suing non-lawyers is entirely improper and should be rejected.(2)
Rules of professional ethics "are intended to regulate professional
conduct of members of the State Bar..." Rule 1-100(A), California Rules of
Professional Conduct. It is widely recognized, as noted in the Preamble to the
Model Rules of Professional Conduct, that "the Rules can be subverted when they
are invoked by opposing parties as procedural weapons." ITT and its counsel are
attempting precisely such a subversion of the rules in this motion. If ITT truly
had a legitimate complaint or grievance against Latham & Watkins, there would be
ample adequate legal remedies in the judicial and administrative proceedings
that ITT could institute in California. There is no need to bring an injunction
proceeding against Hilton. Moreover, basic principles of privity and common
sense dictate that ITT cannot enforce Latham's duties through a lawsuit directed
at Hilton -- a third party to the attorney-client relationship at issue. See
Fireman's Fund Ins. Co. v. McDonald, Hecht &
- ----------
(2) The Court's jurisdiction to regulate attorney conduct is both
statutory and inherent in nature. Zambrano v. City of Tustin, 885 F.2d
1473, 1478-1480 (9th Cir. 1989). In particular, the Rules Enabling Act (28
U.S.C.ss. 2071) (1988)) and F.R.C.P. 83 authorize district courts to
promulgate local rules. Id. at 1479. "Federal courts have inherent powers
to manage their own proceedings and to control the conduct of those who
appear before them." Erickson v. Newmar Corp., 87 F.3d 298, 303 (9th Cir.
1996) (citation omitted). The power to disqualify derives from those two
jurisdictional bases. Id. at 300-01 (Nevada District Court's jurisdiction
to disqualify stems from Local Rule IA 10-7 and inherent "duty and
responsibility of supervising the conduct of attorneys who appear before
it").
5
<PAGE>
Solbert, 30 Cal. App. 4th 1373, 1383, 36 Cal. Rptr. 2d 424 (1994) (lawyer's
duties owed only to client and the only person who may bring an action against
the lawyer is the client).
Finally, applicable ethics rules also are clear that they "are not
intended to create new civil causes of action." California Rule 1-100(A);
Preamble to Model Rules; Mirabito v. Liccardo, 4 Cal. App. 4th 41, 46, 5 Cal.
Rptr. 2d 571 (1992). Therefore, ITT should not be permitted to allege only
violations of the ethics rules and no independent claim for relief. Moreover, a
third party who does who does not owe the alleged duty cannot be found liable
for civil conspiracy to violate it. See Doctors' Company v. Superior Court, 49
Cal. 3d 39, 44, 260 Cal. Rptr. 183 (1989). Accordingly, this motion should be
denied.
B. The National Trend is Away From Requiring Disqualification in Motions Brought
by Big Corporations Involving the Duty of Loyalty and in Which No
Confidential Information is Involved
Recent cases and prominent ethics authorities such as Professor
Hazard have warned of the methods by which large corporations, such as ITT, can
manipulate the loyalty rules for their strategic advantage. Professor Hazard has
cautioned that a huge corporation such as ITT has "both the incentive and the
ability to spread legal work over many law firms, thus assuring that it is the
'current client' of all of them and immunizing itself from suit at their hands."
1 G. Hazard & W. Hodes, The Law of Lawyering ss. 1.7:207 at 239.
The Court in SWS Financial Fund A v. Salomon Brothers, Inc, 790 F.
Supp. 1392 (N.D. Ill 1992), denied disqualification on this very basis and
described the need to prevent the following abuse of the loyalty rules:
Clients of enormous size and wealth, and with a large demand for
legal services, should not be encouraged to parcel their business
among dozens of the best law firms as a means of purposefully
creating the potential for conflicts. With simply a minor
"investment" of some token business, such clients would in effect be
buying an insurance policy against the law firm's adverse
representation.
Id. at 1402. Other courts faced with such facts likewise have not hesitated to
deny
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disqualification. See, e.g. Research Corp. Technologies, Inc. v. Hewlett-Packard
Co., 936 F. Supp. 697 (D. Ariz. 1996) (although 3 hours of advice to litigation
rival on unrelated matter created technical breach of duty of loyalty,
disqualification denied); Bodily v. Intermountain Health Care Corp., 649 F.
Supp. 468 (D. Utah 1986) (disqualification denied when conflict was only
technical one involving no confidential information).
As Justice Arabian declares:
[T]o allow ITT for its own tactical reasons to preclude Hilton from
using Latham on the basis of two very limited and unrelated Latham
representations of ITT (i.e., Latham's now-concluded, ancillary
representation in the Eldredge litigation and 10.3 hours of discrete
antitrust advice, on which an appropriate waiver was specifically
requested and given), would be exactly the type of tactical abuse of
the professional rules of conduct which is and should be strongly
discouraged as a matter of public policy and efficient
administration of law. Arabian Declaration at P. 2 e.
C. The Three Specific Matters Raised by ITT Create No Conflict
1. The Antitrust Counseling
ITT attempts to create a conflict out of the limited antitrust
counseling of 10.3 hours provided by Thomas Rosch of Latham's San Francisco
office for two concluded matters. ITT ignores the explicit understanding between
Mr. Rosch and Mr. Fischkin of ITT that this minor representation would not be
used as a basis of disqualification, and ITT's express written consent, signed
by Mr. Fischkin, that it would not be. Before the initiation of the antitrust
counseling, which amounted in total to about $4,000 in fees, ITT and Mr.
Fischkin signed a consent letter which provides as follows:
As you and I have discussed, given the lack of clarity as to the
matters with respect to which you seek antitrust counseling, we do
not want that limited representation of ITT to prevent us from
representing other clients with respect to a matter unrelated to the
subject on which our antitrust advice is sought, including
representation of another client in an unrelated matter in which ITT
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is an adverse party. I understand that you agree that this
representation would not prevent us from representing other clients
on such unrelated matters.
In view of this express and unambiguous consent, ITT cannot now in good faith
argue, contrary to its consent letter, that Latham is in fact precluded from
representing other clients adverse to ITT. Gillers Decl. at P. 31.
ITT presents no evidence that Mr. Rosch's counseling involved
matters related to the ITT/Hilton takeover. Without any support or specifics,
ITT's Mr. Fischkin would have this Court believe that the 10.3 hours involved
"significant antitrust matters and advice." Though Mr. Fischkin is silent on the
nature of the advice, Mr. Rosch's declaration makes clear that the minor matters
involved were far removed from any ITT/Hilton issues. Rosch Declaration at P. P.
5-6; Arabian Decl. at P. 33. The minor issues on which Latham was consulted were
precisely the kind of "unrelated matters" referred to in the written consent on
which Latham was to be free, if it chose, to have a role in such representations
as the takeover. There is no conflict here. Gillers Decl. at P. 32-33.
ITT also ignores California State Bar Formal Opinion 1989-115, which
holds that such waivers, particularly when given by large sophisticated clients,
are valid. See also Maxwell v. Superior Court, 30 Cal. 3d 606, 180 Cal. Rptr.
177 (1982) (policy of California law favoring consent to conflicts is so strong
that even a capital defendant facing a potential death sentence can give a
prospective conflict consent). ITT will be hard-pressed to take issue with the
California State Bar or to argue that ITT should have a more lenient standard
applied to it than a defendant on trial for his life.
Even if there were no consent, disqualification would still not be
proper on these facts. In the case of H.F. Ahmanson & Co. v. Salomon Bros., 229
Cal. App. 3d 1445 (1991), the California appellate court denied disqualification
on strikingly similar facts to those here even where there was no consent. In
Ahmanson, a law firm gave brief and limited advice to a client on discrete legal
issues regarding credit protection strategies. When that client later sought the
law firm's disqualification in a subsequent suit against it involving the
cancellation of interest rate protection, the Court denied disqualification even
though the
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general subject matter of the two representations was credit risk protection.
Noting the practical manner in which California courts apply the substantial
relationship test, the Court undertook an extremely detailed analysis into
whether the two representations were factually and legally related. Id. at
455-57. In declining to find a substantial relationship, the Court noted the
lack of similarity between the specific factual and legal issues involved in the
two representations. It declared, in language directly applicable here:
Novikoff entered into a brief relationship with Bowery Savings Bank
related solely to legal questions on the credit risk of repo
transactions, a matter clearly on the periphery of Bowery's overall
business policies and strategies.
Id. at 622.
In Ahmanson, the party seeking disqualification also submitted
inflated declarations attempting to establish that the attorney learned "highly
confidential information by virtue of his attendance at meetings where Bowery's
business plans were discussed and analyzed." Id. Compare Fischkin Decl. at P. 15
(Latham allegedly provided with "confidential business information as to
competitive strategy, expansion plans and pricing strategy") and at P. 11
(information allegedly provided regarding "overall strategy"). The Ahmanson
decision reveals just how closely these assertions are scrutinized by the courts
when there is no substantial relationship and how readily the courts will
dismiss the generalized, unsubstantiated and unsupported assertions that a party
such as ITT will usually make under these circumstances, particularly when, as
here, the attorneys who actually did the work submit detailed and specific
declarations showing no such information was ever imparted. See Hoffman-La
Roche, Inc. v. Promega Corp., 33 U.S.P.Q. 2d 1641, 1654-55 (N.D.Ca. 1994)
(conclusory declarations will not carry "formidable" burden of establishing
attorney actually received confidential information, particularly in view of
specific attorney declarations which refuted the charge).
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2. The Representation of WBIS+, an Entity in Which an ITT Subsidiary
Has a Less than Controlling Interest, Does Not Create a Conflict
ITT Corporation and television station WBIS+ are two separate legal
entities. WBIS+ is a partnership owned half by a subsidiary of Dow Jones,
Latham's pre-existing client, and half by a subsidiary of ITT. Epstein Decl. at
P. 3. WBIS+ is managed by its own Board of Directors and has its own full staff.
Id. at P. 5. Latham & Watkins has represented only WBIS+ with regard to certain
communications-related issues. It has never represented ITT in this matter. Id.
at P. 4. In fact, ITT has its own outside counsel to advise it, the well- known
communications firm of Dow Lohnes & Albertson. Id. at P. 5. Latham has always
provided its services directly to the entity it represents, not to ITT. Id. at
P. 8. An engagement letter spelling out that the representation is only of WBIS+
(and which ITT has not provided to the Court) makes all of these facts clear.
Epstein Decl. at P. 4 and Exhibit 1. From the beginning of the engagement,
Latham's key contact has been a Dow Jones attorney who has handled the
day-to-day legal matters for WBIS+. Id.
Two major bar opinions -- from the ABA and California State Bar --
have exhaustively analyzed the issue of whether the representation of one
company constitutes the representation of the other companies in which the first
company has an ownership interest. Each opinion has emphatically concluded that
affiliated companies constitute separate entities for conflict purposes. Accord
D.C. Bar Ethics opinion 216.(3) The universally-held view was summarized in the
Restatement of the Law Governing Lawyers as follows:
When a lawyer represents two or more organizations with some common
ownership or membership, whether a conflict exists is determined
primarily on the basis of formal organizational
distinctions...[W]hen ownership or membership of two organizations
is not identical, the lawyer must respect the
- --------
(3) The law in California and the District of Columbia is exactly the
same on this issue, as noted in D.C. Bar Ethics Opinion 216. The WBIS+
representation is the only matter cited by ITT which is outside of
California, and it is in the District of Columbia.
10
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boundaries of each and analyze possible conflicts on the basis that
the organizations are separate entities. This is true even when a
single individual or organization has sufficient ownership or
influence to exercise working control of the organizations...
Section 212, Comment d at 695. In spite of this clear, bright-line test drawn in
the authorities and the Restatement, ITT and its expert now argue, without
citation of authority, that if it can help ITT achieve its strategic ends
against Hilton, then for this one time only affiliated companies should be
treated as one for conflict purposes.
As noted in ABA Formal Opinion 95-390, the lawyer-client
relationship is principally a matter of contract. The entities who are to be
considered as clients should be specifically set out in the retention agreement.
That is precisely what was done here. WBIS+ was specifically identified in the
engagement letter as the client; ITT was not so identified. Also instructive in
this regard is ABA Formal Opinion 91-361, which sets out the circumstances under
which the representation of a partnership can constitute the representation of
an individual partner. Virtually all of the factors set out in the opinion --
the identity of the entity named in the engagement letter (here only WBIS+, not
ITT), whether a partner is represented by its own outside counsel (as ITT is
here), whether the attorney had a pre-existing relationship with one of the
partners (as Latham did with Dow Jones but not ITT) and reliance on the lawyer
as the partner's individual counsel (as there was none by ITT here),
conclusively establish that Latham's client was WBIS+ and that Latham owed no
duty to ITT.
The Restatement endorses this result. Indeed, in the Reporter's Note
to Comment c of Section 212 at page 703, the Reporter cites with approval a case
with remarkably similar facts to those regarding WBIS+ and concluded there was
no conflict. In Seifert v. Dumatic Industries, 197 A.2d 454 (Pa. 1964), two 50%
shareholders of a corporation had a dispute which resulted in a suit to dissolve
the company. The court ruled that corporate counsel could represent both the
company and the shareholder who opposed dissolution. If the law were as ITT
would have this Court believe, and the representation of
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the entity constituted the representation of both owners, the lawyer could not
have represented one partner against the other.
Faced with this authority against its position, which ITT does not
discuss or even acknowledge, ITT is reduced to arguing (based on its hearsay
information from some unnamed source) that someone -- it is not clear who, since
Mr. Fischkin uses the indefinite term "we" at page 7, line 1 -- has "disclosed
to Latham business plans for increasing station coverage beyond the immediate
metropolitan area." This, in Mr. Fischkin's view, can have a potential impact on
the value of WBIS+. This precise issue was considered and rejected both in the
ABA Opinion and California State Bar Opinion. The argument advanced was that
acting adversely to an affiliate should be considered an adverse representation
to the parent since a successful result could diminish or destroy the parent's
investment in the affiliate. Each opinion dismissed this argument. Taking
actions against a company in which another has an investment -- even a
substantial investment -- is not a directly adverse representation against the
company with the investment and is not ethically precluded. See ABA Formal
Opinion 95-390; California State Bar Formal Opinion 1989-113. Yet ITT's only
argument with regard to ESI and WBIS+ is that ITT's investment in these separate
entities somehow gives it standing to raise these issues. See Fischkin Decl. at
P. 9 (Eldredge suit may be "vital to the future...of ITT's investment..."); P.
14. ITT's argument is misplaced and should be rejected.
ITT also argues that Latham is in possession of confidential
information regarding the station's attempt to go nationwide and expand its
services. Yet all of this information has been public for some time, as
established in the Epstein Declaration at P. 7. Moreover, it is most unlikely
that ITT entrusted Latham with any such information, as ITT retained the firm of
Dow, Lohnes & Albertson to represent it with regard to these national
distribution issues. Id. at 5. It is clear that Latham does not represent ITT in
the WBIS+ representation. Although ITT has attempted to blur the distinction
between it and its investments, the distinction is crucial and controlling for
conflict purposes.
The Epstein Declaration also makes clear that Latham has no
confidential ITT
12
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information in this representation and that nothing has ever been given to
Hilton. Id. at 8.
3. The Representation of ESI Poses No Conflict
a. ESI is a Separate and Distinct Entity From ITT and the
Representation of One Does Not Constitute the Representation
of the Other
ESI, the principal defendant in the Eldredge case, is a public
company in which ITT owns 83% of the stock and the public owns the remainder.
Wheeler Decl. at P. 4. This affiliate has its own legal department (to which
Latham reports), its own management, board of directors and officers. Id. In
short, this company meets all of the requirements set out in the ABA Opinion and
California State Bar Opinion for constituting an entity separate and distinct
from ITT for conflict purposes.
The State Bar of California has set out a bright-line rule in Formal
Opinion 1989-113 for determining when a subsidiary is to be considered the same
as its parent for conflict purposes. This rule was characterized in the opinion
as the "alter ego exception." As the State Bar Committee noted:
In determining whether there is a sufficient unity of interests to
require an attorney to disregard separate corporate entities for
conflict purposes, the attorney should evaluate the separateness of
the entities involved, whether corporate formalities are observed,
the extent to which each entity has separate and distinct
managements and boards of directors, and whether, for legal
purposes, one entity could be considered the alter ego of the other.
Opinion 1989-113 at page 3. Applying each of these factors to ITT's relation
with ESI can lead to only one result. Each requires that ITT and ESI be treated
as distinct and separate entities for conflict purposes. There is no ambiguity
and no grey area. The representation of ESI is not the representation of ITT.
ITT has no standing to raise any issues concerning ESI or WBIS+.
b. Latham is Not Engaged in Any Representation Adverse to WBIS+
or ESI and ITT Has No Standing to Raise This Issue
ITT assumes that an attempt to takeover a company is a
representation directly
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adverse to all entities in which the target company has investments. This
assertion is just flat wrong. No effort is being made to takeover ESI or WBIS+.
The fact that there might be indirect effects on ESI and WBIS+ if the Board of
an investor changes or if an investor merges with another company does not
constitute the "direct adversity" which is required under Rule 1.7 to create the
potential for conflict. As noted by the ABA, it is direct, not indirect,
adversity which creates the potential for conflict. Formal Opinion 95-390.
Actions which may change the identity or stock ownership of an investor in a
client are not directly adverse to the client. Thus, in California State Bar
Formal Opinion 1989-113, the fact that an attorney's lawsuit against the
wholly-owned subsidiary of a client could have a material impact on the
subsidiary and the value of the client's investment in the subsidiary was held
to create only an "indirect impact" would did not create a conflict as to the
parent, which was not a party to the suit.
The ABA has also rejected ITT's position. As it stated in Formal
Opinion 95- 390:
Rule 1.7(a) thus establishes a per se rule, but its reach is
appropriately limited to cases in which a lawyer is asked to
undertake a matter that is "directly adverse" to an existing client.
In all other cases, the client's only recourse is to fire the lawyer
who undertakes a matter that displeases the client. Moreover, we see
no principled way otherwise to draw a line short of the point where
any discernible economic impact on a client arising from another
representation (however slight or remote) must be treated as direct
adverseness...
There is clearly no conflict as to WBIS+ or ESI.(4)
- --------
(4) Interestingly, ITT in its own right would have substantial
difficulty raising any adversity. ITT's expert strains to find any
authority even for the fundamental proposition underlying ITT's motion:
that a takeover contest is an adverse representation to the target
corporation. The most that ITT's expert can muster is some scattered
"discussion with corporate lawyers" who are unnamed. Wolfram Decl. at P.
16. The resolution of this basic issue is not as elusive as ITT would have
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D. There is No Ethical Reason Why Latham Cannot Be Adverse to ITT
1. Latham's Representation of ITT in the Eldredge Matter Has Concluded
Because the Contemplated Services Have Been Completed. Therefore,
Latham No Longer Owes ITT the Duty of Loyalty Due a Current Client.
ITT rushes to the conclusion that Latham has attempted a "hot potato
withdrawal" from the piggyback representation of ITT in the Eldredge matter.
This contention is without merit as confirmed by the expert opinion of the
California Supreme Court Justice who wrote the Supreme Court decision that
discusses such withdrawals. As verified by Justice Arabian, Latham has not
resigned from a representation of ITT without cause to cure a conflict, as was
the case in Truck Ins. Exchange v. Fireman's Fund Ins. Co., 6 Cal. App. 4th
1050, 8 Cal. Rptr. 228 (1992). Arabian Decl. at P. 36. Latham agreed to see ITT,
the parent corporation, through resolution of the Eldredge matter in the trial
court, and that is exactly what Latham has done. Latham's representation of ITT
effectively ended on December 20, 1996, when the Court signed its Statement of
Decision granting judgment n.o.v. for ITT. Wheeler Decl. at P. 7. Final judgment
has now been entered and the
- ----------
the Court believe. ITT's expert need have looked no further than Goldstein v.
Lees, 46 Cal. App. 3d 614, 120 Cal. Rptr. 253 (1975), a case which he cites
three times in his treatise. There the California Court of Appeal reached a
different conclusion from the one urged by ITT. The Court declared:
There is no basis in the record which would permit an appellate
court to conclude that the proxy fight itself was adverse to the
interests of the corporation. This conclusion follows even though
Hirshman and Lees failed in their attempt to gain control of the
corporation. We cannot say that this exercise in corporate democracy
was inimical to the interest of the corporation.
Id. at 619. The Goldstein court did find that the substantial confidential
information relating to the proxy contest possessed by the former general
counsel of the company precluded him from representing a minority shareholder.
The Court made clear, however, that in the absence of such material confidential
information, there would be no impediment to the representation. See id. at 620
n.43. See also Jacuzzi v. Jacuzzi Bros. Inc., 218 Cal. App. 2d 24, 29, 32 Cal.
Rptr. 188 (1963).
15
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representation of ITT has concluded.(5)
Before Plaintiffs appealed, Latham notified ITT that Latham would
not undertake a new representation of ITT in the appeal. When a lawyer declines
to undertake a new engagement after the conclusion of an existing
representation, that is not a "hot potato" withdrawal, but the cessation of
services on the completion of the engagement. Arabian Decl. at P. P. 34-38.
There is no duty of loyalty to a former client who became such through the
conclusion of the engagement. The duty of loyalty does not outlast the
representation of the client. This principle renders ITT's citation of the
decision in Truck irrelevant. Id. at P. 36. See also Gillers Decl. at P. P.
21-25.
The Restatement provides that a representation ends in the normal
course when "the lawyer has completed the contemplated services." Section 43 at
page 124. ITT and its expert cite no contrary authority. The scope of an
attorney's representation is contractual in nature and it is the contract which
sets out the parameters of the representation. See Neel v. Magana, Olney, Levy,
Carthcart & Gelfand, 6 Cal. 3d 176, 181, 98 Cal. Rptr. 837 (1971). The letter
sent at the beginning of the Eldredge matter is silent as to Latham's
undertaking any appeal. All that is discussed is work at the lower court level:
discovery, motion practice and trial. No mention is made of representing ITT
should there be an appeal after judgment. Arabian Decl. at P. 34.
Under these circumstances in California, the duties of an attorney
end with the entry of judgment in the trial court. Id. As stated by the
California Court of Appeal:
When a judgment has been entered the duties of an attorney are at an
end unless the terms of his employment require him to take some
action to collect the judgment. If he does proceed, as by taking an
appeal, or having execution issued, his authority will be presumed.
But if he takes no action to enforce collection it will not be
presumed from the fact that he obtained the judgment that he had
authority and a duty to do so.
- ----------
(5) California law clearly governs this question. See Gillers Decl. at
P. 22.
16
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Mizrahi v. Miscione, 252 Cal. App. 2d 673, 677, 60 Cal. Rptr. 680 (1967)
(citations omitted).
This is not a rule unique to California. The "general rule" is
stated as follows in ALR:
it seems to be the general rule that an appeal from a judgment is
such a new proceeding as to authorize the appearance of a new
attorney without formal substitution. A scire facias is a new
action, and requires a new warrant of attorney; so that, if an
attorney different from the one in the original suit issues it, a
rule and notice to change the attorney are not necessary.
Fidelity & Deposit Co. v. Madson, 70 A.L.R. 832, 834 (1930). See also Young v.
Bridwell, 437 P.2d 686, 690 (1968) (attorney not required to represent client on
appeal after judgment in the trial court absent an agreement to do so); Franke
v. Zimmerman, 526 S.W.2d 257 (Tx 1975) (contract of employment and duty of
further representation terminates on the rendering of judgment in the trial
court; no duty to represent client on appeal); Edlund v. Los Altos Builders, 106
Cal. App. 2d 350, 357, 235 P.2d 28 (1951) (appellate counsel appearing for the
first time on appeal need not even effect a substitution of counsel. All that
need be done is to file a notice of appeal under the new firm's name.); Estate
of Hultin, 29 Cal. 2d 825, 178 P.2d 756 (1947).
In addition to providing his expert opinion supporting these
principles, Justice Arabian also points out that it is the custom and practice
in California engagements that the trial work is considered a separate and
distinct representation from the representation on appeal. Arabian Decl. at P.
37. ITT's actions here comport with the custom and practice that trial and
appeal are distinct representations. Particularly noteworthy is the fact that
ITT had already retained the firm of Gibson, Dunn & Crutcher as advisor on the
post-trial motions in the Eldredge case and notified Latham that the Gibson firm
would be involved in all respects of the appeal. Wheeler Decl. at P. 7; Wilkes
Decl. at P. P. 2, 6. The Gibson, Dunn firm has also been engaged to handle
related suits which have arisen since the trial in the Eldredge case. Wheeler
Decl. at P. 11. The notion that ITT has been prejudiced by the
17
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completion of Latham's engagement is without foundation. Arabian Decl. at P. 38.
ITT would have this Court believe that it fully entrusted Latham
with the appeal before it was even filed. The reality is to the contrary. Even
while post-trial motions were pending in the trial court in the Eldredge matter,
ITT had already engaged the services of Gibson, Dunn and Crutcher as "advisor."
Wheeler Decl. at P. 7; Wilkes Decl. at P. 2. Only now, when it is strategically
advantageous to do so, does ITT argue that it really wanted Latham all along to
handle the appeal. No agreement or commitment was ever reached for Latham to do
the ITT appellate work, and Latham has never made any appearance in the court of
appeal on behalf of ITT after judgment n.o.v.. Wheeler Decl. at P. 8. Indeed,
the first and only instruction from ITT regarding the appeal did not arrive
until after ITT had already filed this motion and after Latham had notified ITT
that it would not accept such a new engagement. Wheeler Decl. at P. 12. There
was simply no reason to make the offer in ITT's February 19 letter (which was
rejected the same day) until an appeal was actually filed. ITT is a former
client. See Gillers Decl. at P. 25.
2. Even If ITT Were a Still a Current Client in the Eldredge Matter,
the Revised California Conflict Rules Would Still Not Prevent Latham
From Being Adverse to ITT
The California conflict rules underwent substantial revisions in
late 1992. The fundamental flaw in the analysis of ITT's expert is that it is
based on the old California rules, which have been completely re-written and
supplanted. ITT's expert proceeds on the assumption that the following language
appears in the California Rules of Professional Conduct:
A member shall not, without the informed written consent of each
client, accept employment in a matter by one client adverse to
another party being represented by the member of the member's law
firm in another matter, whether or not the matters are related.
There is just one problem with Professor's Wolfram's assumption. The above
language is not in the California Rules. In fact, the Board of Governors of the
State Bar of
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California considered adding precisely the above language to the California
conflict rules in 1992 when they were re-written, and recommended against the
addition on the basis that it was "a major, last minute change to the rule." See
Request that the Supreme Court of California Approve Amendments to the Rules of
Professional Conduct of the State Bar of California, and Memorandum of
Supporting Documents in Explanation (December 1991) at 8. To this date no such
language or requirement appears in the California Rules of Professional
Conduct.(6)
The California State Bar acknowledged in 1992 that the basic
conflict rule, 3- 310, was being "amended substantially," id. at 29, and that
the State Bar was specifically removing the requirement of client consent in
many situations where it had previously been imposed. This was a conscious
decision. The State Bar explained its rationale for the elimination of client
consent in many contexts as follows:
This requirement is deleted in response to developments in the legal
profession. With the increase in law firm acquisitions and mergers
and the development of national and international firms with offices
in numerous locations, conflicts screening is increasingly
difficult. Many large firms, undertaking simultaneous individual,
corporate and governmental representations, cannot act on behalf of
one client without potentially impacting (however tenuously) the
representation of other clients. It is argued that to obtain each
client's informed written consent with respect to every relationship
the attorney or law firm has with other affected clients (who could
- --------
(6) Another proposal to add such a rule is again considered by the Board
of Governors of the California State Bar and one possible version was sent
out for public comment last year. At the conclusion of the public comment
phase, the Board of Governors was still considering several different
versions of a potential new rule, but had not even come to a conclusion as
to which version, if any, on which to solicit additional public comment.
If the Board of Governors ever does adopt such a new rule, it would not go
into effect until approved by the Supreme Court of California. California
Rule 1-100; California Business and Professions Code Section 6076-77. The
addition of such a new rule, if it ever occurs, could be years away.
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be affected theoretically but are frequently not affected in any
real or practical sense) is onerous.
Id. at 29. The State Bar continued:
This problem is compounded in situations where the client is a
corporation or governmental entity and written consent is required.
Obtaining written consent from such organizational clients can
require these clients to engage in time-consuming and costly
actions, including scheduling additional board or agency meetings in
order to authorize written conflict waivers. The time lost acquiring
written conflict waivers is these situations can impact upon the
client's representation prejudicially.
Id. Because of these concerns, the conflict rules which went into effect in late
1992 and which are still operative require written consent only in four
instances which are embodied in Rule 3-310(C) and (E).(7)
It is clear that none of the four instances in Rule 3-310(C) and (E)
where client consent is still required is involved here. There is no concurrent
representation in the same matter (Rule 3-310(C) (1) and (2)) and no
representation of a new client who is adverse to a preexisting client on a
matter handled by the firm. (Rule 3-310(C)(3)). As verified in the Rosch,
Wheeler and Epstein Declarations, Latham & Watkins has no confidential
information
- --------
(7) The text of the rules is as follows:
(C) A member shall not, without the informed written consent of each
client:
(1) Accept representation of more than one client in a matter in
which the interests of the clients potentially conflict; or
(2) Accept or continue representation of more than one client in a
matter in which the interests of the clients actually
conflict; or
(3) Represent a client in a matter and at the same time in a
separate matter accept as a client a person or entity whose
interest in the first matter is adverse to the client in the
first matter.
. . . .
(E) A member shall not, without the informed written consent of the
client or former client, accept employment adverse to the client or
former client where, by reason of the representation of the client
or former client, the member has obtained confidential information
material to the employment.
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material to the takeover matter. It is clear that there is no conflict under
California law and no need for ITT's consent.
The current California conflict rules make clear that even if ITT
were a current client of Latham (which it is not), there would be no conflict
and no basis to disqualify Latham. The legislative history makes clear that
ITT's remedy, if it is displeased, is to take its work elsewhere, which it has
already done.(8)
3. There is No Substantial Relationship Between the Eldredge Matter and
the Hilton Dispute and Latham Has No Confidential Information from
ITT Which is Material to the Hilton Dispute
Given ITT's status a former client, the only remaining issue is
whether the representation of Hilton in the takeover would be substantially
related to Latham's concluded representation of ITT in the Eldredge matter. The
answer must be an emphatic no. In California, a substantial relationship will
only be found:
when it appears by virtue of the nature of the former representation or
the relationship of the attorney to his former client confidential
information material to the current dispute would normally have been
imparted to the attorney...
Global Van Lines v. Superior Court, 144 Cal. App. 3d, 483, 489, 192 Cal. Rptr.
609 (1983). Courts look at the "practical consequences of the attorney's
representation of the former client. The courts ask whether confidential
information material to the current dispute would normally have been imparted to
the attorney by virtue of the nature of the former representation." H.F.
Ahmanson, supra, 229 Cal. App. 3d at 454. An examination
- --------
(8) Although the California rules differ on this point from other
jurisdictions, there does not appear to be any serious dispute that the
California Rules of Professional Conduct govern this motion given Latham's
substantial presence in California and the California bases of all but one
of the matters cited by ITT. ITT's expert appears to concur as all but one
of the cases he cites in his declaration are from California. The only
representation at issue outside of California is the WBIS+ matter, which
is being handled in the District of Columbia. The law of California and
the District of Columbia are in complete agreement on the relevant legal
principles governing the WBIS+ representation. See D.C. Bar Ethics Opinion
216; California State Bar Opinion 1989-113.
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of the complaint and issues in the Eldredge matter reveals no relationship
whatsoever with the ITT/Hilton dispute. Arabian Decl. at P. 40; Gillers Decl. at
P. 27. ITT does not attach the Eldredge complaint as an exhibit to its
voluminous papers nor did it apparently give a copy to its expert. The reason
for this camouflage is obvious when one sees just how far removed the Eldredge
suit is from the takeover.
To the extent that any allegations were leveled at ITT in the
Eldredge suit, it was that ITT "had no part in developing any of the courses at
ITT Tech..." No depositions of ITT persons were taken. Wheeler Decl. at P. 5. No
ITT documents were produced. Id. Neither party called any ITT representative as
a witness at trial. Id. That this was a piggyback representation of ITT, and
would have been the same basic case if ITT were in it or out of it is verified
by the fact that ESI paid all of Latham's bills in the matter (id. at P. 4) and
the trial judge found ITT's role in the case so tangential that she granted
ITT's motion for j.n.o.v. Id. at P. 7. See Gillers Decl. at P. P. 26-28.
Faced with this lack of any relationship between ITT/Hilton dispute
and the disgruntled hamburger flippers' suit, ITT is reduced to arguing that ESI
provided Latham with confidential information regarding ESI's business plans.
Since the business plans belonged to ESI and not ITT, ITT has no standing even
to raise this issue. Yet even if ITT could assert that the separateness between
it and ESI should be disregarded in spite of the vast authority and its own
argument to the contrary at trial, there would still be no conflict. ITT
misconceives the role of the substantial relationship test. To determine whether
there is a substantial relationship between the Eldredge suit and the takeover,
the scope and subject matter of the former and present representations must be
examined to determine whether the subsequent representation is adverse to the
matters at issue in the previous representation. See Gas-A-Tron v. Union Oil
Co., 534 F.2d 1322 (9th Cir.), cert. denied, 429 U.S. 861 (1976). If a former
client nevertheless asserts in the absence of a substantial relationship, as ITT
does here, that it provided the lawyer with information that is only
tangentially related to the suit, the former client is not entitled to invoke
any presumption that such information was given. An inquiry will be made about
whether information was actually imparted and
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whether it is material to the current representation. See H.F. Ahmanson, supra,
229 Cal. App. 3d 459-60; California Rule 3-10(E).
"The standard for proving an attorney possesses actual confidences
is a formidable one." Hoffman-La Roche, Inc. v. Promega Corp., 33 U.S.P.Q. 2d
1640, 1654 (N.D.Ca. 1994). The former client must show that the attorney "in
fact possesses confidential information." Id. at 1654-55 (emphasis in original).
In this regard, generalized or conclusory allegations will not carry the former
client's burden of proof. Id. at 1655. The declarations of the former client
must set out the information at issue with some specificity and will be
submitted to close examination. Id. As the Hoffman-LaRoche court declared in
applying the Ahmanson standard:
Mr. Limbach's vague and conclusory declarations fall short of
establishing a genuine conflict of interest here. Nothing in these
declarations assists the court's determination of the extent to
which confidences were actually conveyed to Mr. Hulluin or the
materiality of those 'confidences' to this litigation.
Id. Here, the allegation that such confidential information was imparted is made
only in the most conclusory and general terms in Mr. Fischkin's Declaration. ITT
has not come close to carrying its formidable burden. Moreover, its allegations
are refuted by the Declaration of Latham attorney Wheeler, who declares that
nothing other than public information was ever provided to him by ITT in the
piggyback representation (Wheeler Decl. at P. 9), and by the declarations of the
other Latham attorneys, who specifically refute any allegation that they have
confidential ITT information related to the takeover.
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IV
CONCLUSION
For the reason set forth above the accompanying declarations, ITT's
claims against Latham should be rejected.
Dated this 28th day of February, 1997.
Donald J. Campbell & Associates,
By: /s/ Donald J. Campbell
------------------------------
Donald J. Campbell, Esq.
Donald J. Campbell & Associates
300 S. Fourth Street, Suite 1409
Las Vegas, Nevada 89101
Attorneys for Latham & Watkins
Specially Appearing
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