Pfizer, Inc. and Pharmacia Corp. v. Reagan Farr, Commissioner of Revenue, State of Tennessee ( 2012 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
December 14, 2011 Session
PFIZER, INC. AND PHARMACIA CORP.
v.
REAGAN FARR, COMMISSIONER OF REVENUE, STATE OF TENNESSEE
An Appeal from the Chancery Court for Davidson County
Nos. 09-1945-II and 09-1946-II Carol L. McCoy, Chancellor
_________________________________
No. M2011-01359-COA-R10-CV - Filed June 22, 2012
This appeal involves the disqualification of an attorney and the denial of permission to
appear pro hac vice. The plaintiff taxpayer corporations filed two lawsuits against
Tennessee’s Commissioner of Revenue for a refund of franchise and excise taxes. The
Commissioner filed a motion to permit an out-of-state attorney to appear pro hac vice to
assist in representing Tennessee’s Attorney General in the taxpayers’ lawsuits. The attorney
to be admitted pro hac vice is a full-time in-house attorney with a quasi-governmental
multistate tax policy entity. The plaintiff taxpayers objected, arguing that admission pro hac
vice of the multistate tax entity’s in-house attorney was tantamount to allowing the multistate
tax entity to intervene in the lawsuits. The plaintiff taxpayers also argued that the attorney
should be disqualified from representing the Commissioner because such representation
would present an inherent conflict of interest and would give the attorney access to
confidential taxpayer information. The trial court agreed with the plaintiff taxpayers. It
denied the Commissioner’s motion to admit the attorney pro hac vice and disqualified the
attorney from representing the Commissioner in these proceedings. This Court granted the
Commissioner’s application for an extraordinary appeal. We reverse and remand the case
for entry of an order granting permission for the attorney to appear on behalf of the
Commissioner pro hac vice.
Tenn. R. App. P. 10 Extraordinary Appeal; Judgment of the Chancery Court is
Reversed and Remanded
H OLLY M. K IRBY, J., delivered the Opinion of the Court, in which D AVID R. F ARMER, J., and
J. S TEVEN S TAFFORD, J., joined.
Robert E. Cooper, Jr., Attorney General & Reporter; Joseph F. Whalen, Associate Solicitor
General; Charles L. Lewis, Deputy Attorney General; Brad H. Buchanan, Assistant Attorney
General; and Talmage M. Watts, Assistant Attorney General, for the Respondent/Appellant
Richard H. Roberts,1 Commissioner of Revenue, State of Tennessee
Michael D. Sontag, Stephen J. Jasper, and Ashley N. Bassel, Nashville, Tennessee, for the
Petitioners/Appellees Pfizer, Inc., and Pharmacia Corporation
Joseph F. Welborn, III, and Lauren P. Coble, Nashville, Tennessee, for Amicus Curiae The
Council on State Taxation (COST) in support of Appellees
Brett R. Carter, Joseph W. Gibbs, and Patricia Moskal, Nashville, Tennessee, for Amicus
Curiae Tennessee Chamber of Commerce & Industry in support of Appellees
OPINION
F ACTS AND P ROCEEDINGS B ELOW
Introduction
Petitioner/Appellee Pfizer, Inc., and Petitioner/Appellee Pharmacia Corporation, a wholly-
owned subsidiary of Pfizer, Inc., are New York corporations qualified to do business in
Tennessee. This consolidated appeal involves two nearly identical lawsuits for tax refunds,
one filed by Pfizer, Inc., and the other filed by Pharmacia Corporation. For ease of
discussion in this Opinion, we will refer to the two plaintiffs collectively as “Pfizer.” As the
lawsuits have been consolidated for purposes of appeal, we will generally refer to the
consolidated cases in the singular, as the “lawsuit.”
Pfizer is engaged in at least two businesses: (1) the pharmaceutical products business and (2)
the consumer healthcare products business. On December 20, 2006, Pfizer sold its consumer
healthcare products business and recognized a significant capital gain from the sale. In this
Opinion, we refer to the consumer products division gain resulting from this sale as the “CPD
gain.”
1
After this case was filed, Reagan Farr resigned as Tennessee’s Commissioner of Revenue. Successor
Richard H. Roberts was automatically substituted for Farr pursuant to Rule 25.04 of the Tennessee Rules of
Civil Procedure.
-2-
Lawsuit
On October 9, 2009, Pfizer filed the lawsuit against Respondent/Appellee Reagan Farr, the
Commissioner of Revenue for the State of Tennessee (“Commissioner”), seeking a refund
of the franchise and excise taxes allegedly erroneously paid in the years 2006, 2007, and
2008. In Count One of the complaint, Pfizer asserted that it was entitled to a refund of the
taxes it paid on the CPD gain because that gain should have been characterized as
“nonbusiness earnings” under relevant Tennessee statutes and, as such, should have been
allocated entirely outside the State of Tennessee. In Count Two, Pfizer alleged that the State
of Tennessee is constitutionally barred from taxing the CPD gain because Pfizer’s consumer
products division was not part of the same unitary business as the other operations of Pfizer
that were conducted in Tennessee. Alternatively, in Counts Three and Four of the complaint,
Pfizer contended that the Commissioner abused his discretion in denying Pfizer’s application
for a variance from the standard apportionment formulas for its net earnings in order to more
fairly and accurately represent the extent of Pfizer’s activities in Tennessee for the tax years
2006 through 2008.2 Pfizer also argued that the Commissioner’s application of the standard
apportionment formula was unconstitutional. Pfizer sought a total tax refund of
approximately $125 million.
Motion to Admit Counsel Pro Hac Vice
On February 23, 2011, as part of the response to Pfizer’s lawsuit, the Commissioner filed a
“Motion for Admission Pro Hac Vice” pursuant to Rule 19 of the Rules of the Supreme
Court of the State of Tennessee (“Rule 19”),3 seeking permission for attorney Bruce J. Fort
2
Tax statutes contain standard apportionment formulas which are used to divide the earnings and net worth
of a multistate taxpayer among the states in which the taxpayer operates, so that each state gets its
appropriate share of taxes. Pfizer claimed that, under the standard apportionment formula set forth in
Tennessee’s franchise and excise tax statutes, the earnings and net worth of Pfizer apportioned to the State
of Tennessee for each of the tax years at issue were grossly distorted. Pfizer alleged that the variance it had
requested would have more properly sourced its sales to the locations where prescriptions were issued and
where consumers actually purchased Pfizer’s products.
3
Rule 19 provides in pertinent part:
A lawyer not licensed to practice law in Tennessee, licensed in another United States
jurisdiction, and who resides outside Tennessee shall be permitted to appear pro hac vice,
file pleadings, motions, briefs, and other papers and to fully participate in a particular
proceeding before a trial or appellate court of Tennessee if the lawyer complies with the
following conditions:
(continued...)
-3-
(“Mr. Fort”) to appear as co-counsel on behalf of the Commissioner in the lawsuit. Mr. Fort
was employed as in-house counsel for the Multistate Tax Commission (“MTC”), a quasi-
governmental multistate tax policy organization operated pursuant to the Multistate Tax
Compact.4 The Commissioner’s motion for permission for Mr. Fort to appear pro hac vice
3
(...continued)
(a) A lawyer not licensed to practice law in Tennessee and who resides outside Tennessee
is eligible for admission pro hac vice before a trial or appellate court of Tennessee:
(1) if the lawyer is licensed, in good standing, and admitted to practice
before the court of last resort in another state or territory of the United
States or the District of Columbia in which the lawyer maintains a
residence or an office for the practice of law;
(2) if the lawyer is in good standing in all other jurisdictions in which the
lawyer is licensed to practice law; and
(3) if the lawyer has been retained by a client to appear in a particular
proceeding pending before that court.
(b) In its discretion, a trial or appellate court may, in a particular proceeding pending before
it, deny a lawyer’s motion to appear pro hac vice only where:
(1) the applicant’s conduct as a lawyer, including conduct in proceedings
in Tennessee in which the applicant has appeared pro hac vice and conduct
in other jurisdictions in which the lawyer has practiced, raises reasonable
doubt that the lawyer will comply with the Tennessee Rules of Professional
Conduct and other rules and law governing the conduct of lawyers who
appear before the courts of Tennessee; or
(2) the applicant has engaged in such frequent appearances as to constitute
regular practice in this state.
In any proceeding in which a court denies a lawyer’s motion to appear pro hac vice, the
court shall set forth findings of fact and conclusions of law that constitute the grounds for
its action. In addition, the court shall send a copy of the order denying the motion to the
Board of Professional Responsibility of the Supreme Court of Tennessee.
Tenn. Sup. Ct. Rule 19(a) - (b).
4
The MTC is governed by and represents the policy interests of its member states. The MTC was established
by the Multistate Tax Compact, which became effective on August 4, 1967, in order to further the purposes
of the Compact. These purposes include facilitating the proper determination of the state tax liabilities of
multistate taxpayers, promoting uniformity and compatibility in significant components of tax systems,
facilitating taxpayer convenience and ease of compliance in tax administration, and avoiding duplicative
(continued...)
-4-
averred that Mr. Fort was licensed and in good standing in the State of New Mexico, and that
the Governor of Tennessee had commissioned Mr. Fort to assist the Attorney General in this
matter. In support of the motion, the Commissioner attached the affidavit of Mr. Fort, in
which he stated that he is licensed in New Mexico, and he also attached a certificate of Mr.
Fort’s good standing issued by the Supreme Court of New Mexico. The Commissioner also
submitted a November 29, 2010 letter from the Governor of Tennessee appointing Mr. Fort
to assist the Attorney General’s office in Pfizer’s lawsuit. The letter stated that “the interest
of the state requires the appointment of counsel to assist the Attorney General’s office” in
this litigation, and confirmed that Mr. Fort had “agreed to provide the requested legal
services at no charge to the State of Tennessee.”
On March 8, 2011, Pfizer filed a response to the Commissioner’s motion for permission for
Mr. Fort to appear pro hac vice, objecting to Mr. Fort’s representation of the Commissioner.
In its response, Pfizer acknowledged that the MTC often files amicus curiae briefs in state
tax disputes across the country. Pfizer asserted, however, that allowing Mr. Fort to represent
the Commissioner in its lawsuit was a step too far, that it would be tantamount to allowing
the MTC to intervene in the lawsuit and would allow the MTC “to control and attempt to
dictate the outcome of this case by effectively intervening in the case . . . .” Pfizer argued
that the MTC should not be allowed to “shoehorn its way into this case by purporting to lend
its in-house counsel free of charge to serve as ‘co-counsel’ for the [Commissioner] along
with the Attorney General’s office.” Pfizer also argued that Mr. Fort’s representation of the
Commissioner was not authorized under Tennessee Code Annotated § 8-6-106, because the
State was not paying Mr. Fort for his services.5 In addition, Pfizer contended that permitting
4
(...continued)
taxation. Tennessee is not a fully-participating member of the MTC, but it is an associate member of the
MTC.
5
Section 8-6-106 provides:
In all cases where the interest of the state requires, in the judgment of the governor and
attorney general and reporter, additional counsel to the attorney general and reporter or
district attorney general, the governor shall employ such counsel, who shall be paid such
compensation for services as the governor, secretary of state, and attorney general and
reporter may deem just, the same to be paid out of any money in the treasury not otherwise
appropriated, upon the certificate of such officers certifying the amount to the commissioner
of finance and administration. Notwithstanding any provision of this section or any other
law to the contrary, the attorney general and reporter or district attorney general shall inform
the governor of, and consideration shall be given to, whether the person or firm to be
employed as additional counsel:
(continued...)
-5-
Mr. Fort to represent the Commissioner would create a clear and unavoidable conflict of
interest because of Mr. Fort’s loyalty to his employer, the MTC. Finally, Pfizer claimed that
allowing Mr. Fort to serve as co-counsel for the Commissioner would give the MTC access
to highly sensitive and confidential taxpayer information about Pfizer produced in the
lawsuit, information to which the MTC would otherwise not have access. For all of these
reasons, Pfizer argued that the trial court should deny the Commissioner’s motion to admit
Mr. Fort pro hac vice.6 In its response to the Commissioner’s motion to admit Mr. Fort pro
hac vice, Pfizer did not expressly ask for disqualification of Mr. Fort; Pfizer also did not file
a separate written motion to disqualify him.
On March 10, 2011, the Commissioner filed a reply, asserting that because Mr. Fort met the
requirements of Tennessee Supreme Court Rule 19, his admission pro hac vice was
mandatory. The Commissioner explained that he sought Mr. Fort as co-counsel in Pfizer’s
tax refund lawsuit because the case involves an unusually large refund and important
principles in state taxation, and because Mr. Fort has extensive experience in multistate
taxation. The Commissioner disputed Pfizer’s assertion that Mr. Fort’s admission pro hac
vice would be tantamount to allowing the MTC to intervene, and he insisted that there were
no ethical or legal impediments to Mr. Fort’s representation of the Commissioner in Pfizer’s
lawsuit. The Commissioner pointed out that the Department of Revenue and the MTC were
the only parties that could assert the conflict of interest that Pfizer alleged, and that those
parties had mutually agreed to have Mr. Fort assist the Commissioner. In support of the
Commissioner’s reply, the Commissioner filed a supplemental affidavit by Mr. Fort, in which
5
(...continued)
(1) To defend the state in any action is then serving as counsel for a party
in any action by that party against the state and whether the action, if
adjudicated in that party’s favor, is likely to result in an increase in state
expenditures; or
(2) To prosecute any action on behalf of the state is then serving as counsel
in defense of any action against the state.
Tenn. Code Ann. § 8-6-106 (2011).
6
The Council on State Taxation (“COST”) filed an amicus curiae brief with the trial court in support of
Pfizer’s position and in opposition to the Commissioner’s motion to admit Mr. Fort pro hac vice. COST
argued, among other things, that allowing Mr. Fort to assist in representing the State of Tennessee “would
be virtually unprecedented and extremely troubling to COST and its members.” Like Pfizer, COST claimed
that permitting the pro hac vice admission of Mr. Fort would be tantamount to allowing the MTC to
intervene, and would give the MTC “direct access to the discovery machine and the concomitant right to
conduct depositions, issue discovery, argue motions, and engage in other activities that are normally reserved
for actual parties.”
-6-
he stated that his role as co-counsel for the Department of Revenue was “to provide technical
advice and litigation assistance, and [it has been] made clear that [the Attorney General] will
remain solely responsible for the ‘direction and ultimate outcome of the case.’” Mr. Fort’s
supplemental affidavit further stated that he was “not aware of any reason to believe that the
goals of the [MTC] conflict in any way with the goals of the State of Tennessee in this
litigation.” The supplemental affidavit also said that Mr. Fort’s access to Pfizer’s
confidential information in the context of the lawsuit would not present an ethical problem,
because his ethical obligations would prevent him from revealing to the MTC any
confidential taxpayer information that he obtained in the course of the litigation.
Trial Court’s Decision
On March 14, 2011, the trial court conducted a hearing on the Commissioner’s motion to
admit Mr. Fort pro hac vice. The trial court first indicated its belief that the only issue before
it was whether to give Mr. Fort permission to appear pro hac vice, and that disqualification
of Mr. Fort was not an issue. Later in the hearing, the trial court surmised that Pfizer’s
opposition to the Commissioner’s motion was, in effect, a motion to disqualify Mr. Fort from
representing the Commissioner, rather than simply opposition to his admission pro hac vice.
In the course of the hearing, the trial court asked counsel for the Commissioner why it was
not sufficient for the MTC to participate by amicus brief, and why the Commissioner did not
utilize another capable lawyer as co-counsel, such as a former Attorney General. Counsel
for the Commissioner explained that the Department of Revenue particularly wanted the
benefit of Mr. Fort’s special expertise in the taxation of multistate entities in the discovery
phase of Pfizer’s lawsuit. The trial court noted that, from a policy standpoint, the MTC
would have broader policy interests than the State of Tennessee, and it expressed concern
that Mr. Fort’s participation in the litigation would result in broader discovery and more
discovery disputes.7
7
The trial court stated:
. . . I don’t know how Mr. Fort’s participation benefits the Court to let another lawyer come
in . . . . [F]or me, it makes it much broader as far as the scope of what I have to review and
what I have to do. And to be real about it, that’s a real concern for me. When you’re [Mr.
Buchanan for the Attorney General] here, I know you’re trying to collect the tax. That’s
your goal. When Mr. Sontag [counsel for Pfizer] is here, I know what his goal is. He
doesn’t want to pay the tax. When Mr. Fort is here, I don’t know what Mr. Fort’s agenda
is, because if it’s just to collect the tax, then all this broad discovery that has been referenced
I don’t have to pay any attention to because you’re [Mr. Buchanan] not focused as much as
Mr. Fort is focused on what I would call the bigger issues.
-7-
After hearing the arguments of counsel, the trial court acknowledged that Mr. Fort is licensed
in another state and is in good standing, and that his qualifications were not in question. It
recognized that Mr. Fort’s affidavit, submitted in support of the Commissioner’s motion,
stated that he was under no obligation to share with the MTC or another state any
confidential information he learned in the course of the Pfizer litigation. Nevertheless, the
trial court agreed with Pfizer’s argument that Mr. Fort’s representation of the Commissioner
would create ethical issues related to actual conflicts of interest and competing loyalties. The
trial court was concerned that Mr. Fort’s participation would broaden the scope of the
litigation. It was also concerned that Mr. Fort would not be able to maintain confidentiality
with respect to taxpayer information obtained in the course of discovery in the lawsuit:
The issues involved in multi-state taxation are extensive [and] complex . . . .
I do not go so far as . . . to say that the interests of MTC are diametrically
opposed to the interests of the State of Tennessee. . . . I don’t think it’s that
dramatic. I think that it is more extensive than the interests of the State of
Tennessee with regard to the MTC’s broad goals and objectives. . . . Some of
the interests of the State of Tennessee are subsumed into the broad goals and
objectives of the MTC. [Public policy], however, is not the purpose of
litigation . . . .
[I]t should not be the goal of the litigation to emphasize that, and the
Court finds that the direct participation of Mr. Fort in these proceedings as pro
hac vice would raise, in the Court’s mind, the issue of competing loyalties.
The Court finds that the [State v. Culbreath, 30 S.W.3d 309 (Tenn. 2000),]
decision does suggest that there are actual conflicts which caution the Court
not to approve the pro hac vice.
And the issue of confidentiality is one that makes it difficult for the
Court to have confidence that the confidentiality to which either of these
taxpayers are entitled would be protected by the Court. It is readily apparent
that all the documentation that comes forward in discovery will be shared with
Mr. Fort or whoever the Attorney General, in its position as counsel, finds
appropriate and permissible to share it. The concern is the appearance of a
representative whose concerns are much greater and the exposure that the
employees and the operations of the taxpayers would be exposed to. And I
don’t know how to ensure that.
So the Court respectfully declines to allow Mr. Fort to appear as pro
hac vice. The Court does, however, welcome his participation as amicus, and
he may do so in that capacity.
On March 29, 2011, the trial court entered a written order denying the Commissioner’s
motion for permission for Mr. Fort to appear pro hac vice and disqualifying Mr. Fort from
-8-
representing the Commissioner in Pfizer’s tax refund lawsuit. In the order, the trial court
first observed that the MTC would not be entitled to intervene in the case under Rule 24.01
or Rule 24.02 of the Tennessee Rules of Civil Procedure, and added: “To the extent that the
pending Motion includes a request for the MTC’s intervention in this case, it is DENIED.”
The trial court next denied the Commissioner’s motion to admit Mr. Fort pro hac vice for the
reasons stated its oral ruling, specifically citing State v. Culbreath, 30 S.W.3d 309 (Tenn.
2000). The trial court’s order stated:
. . . Mr. Fort’s employment as the full-time, in-house counsel for the MTC, his
receipt of a salary from the MTC, and lack of any payment from the State of
Tennessee for his representation of Defendant in this case, give rise to
inherently competing loyalties and actual conflicts of interest that make his
representation of Defendant improper.
The trial court also found that Mr. Fort’s representation of the Commissioner would
undermine Pfizer’s expectation of confidential treatment of sensitive information that Pfizer
would be required to produce in the lawsuit. For these same reasons, the trial court granted
Pfizer’s request to disqualify Mr. Fort from representing the Commissioner in Pfizer’s
lawsuit. The order reiterated that the MTC could participate in the proceedings as amicus
curiae and file a brief in that capacity. The order concluded by ordering Mr. Fort to “cease
and desist” representing the Commissioner.
Subsequently, as required under Rule 19, the trial court entered an order indicating that its
March 29, 2011 order would be forwarded to the Board of Professional Responsibility of the
Supreme Court of Tennessee.8 At a later hearing, the trial court clarified that, although Rule
19 compelled the trial court to forward a copy of its order to the Board, the trial court
“certainly did not find that[ ] Mr. Fort is anything other than a fine, qualified, upstanding tax
lawyer, ethical in all regards.”
On April 12, 2011, the Commissioner filed a motion to alter or amend the trial court’s
decision. The Commissioner said that, because Pfizer had never filed a motion to disqualify
Mr. Fort, the Commissioner had not filed documents that would be pertinent to a
disqualification decision prior to the previous hearing. Consequently, the Commissioner’s
motion to alter or amend attached several exhibits, including consent forms signed by the
Commissioner and the MTC Executive Director, consenting to Mr. Fort’s representation of
8
Under Rule 19(b) of the Tennessee Supreme Court Rules, if a trial court denies a motion for permission to
appear pro hac vice, “the trial court is directed to set forth findings of fact and conclusions of law that
constitute the grounds for its action” and “send a copy of the order denying the motion to the Board of
Professional Responsibility of the Supreme Court of Tennessee.”
-9-
the Department of Revenue and waiving any conflicts. It also attached affidavits of
employees in the Tennessee Department of Revenue, and the 1993 Federation of Tax
Administrators Uniform Exchange of Information Agreement (the “Uniform Exchange of
Information Agreement”), signed by the MTC and by state representatives, including
Tennessee, in which the parties agreed to exchange information “to enhance and facilitate
tax administration.” The motion to alter or amend emphasized that both the Commissioner
and the MTC had waived any potential conflicts and consented to Mr. Fort’s representation,
and that Pfizer was not the proper party to raise any such conflict. The Commissioner noted
that the attachments to the motion to alter or amend showed that the MTC was often given
access to confidential taxpayer information by member states, including Tennessee, for
routine purposes such as the MTC’s audit contract. Citing In re Youngblood, 895 S.W.2d
322 (Tenn. 1995), the Commissioner argued that Mr. Fort should not be disqualified based
only on potential conflicts. Pfizer filed its opposition to the Commissioner’s motion to alter
or amend, contending that the trial court had already considered and rejected all of the
arguments made by the Commissioner in the motion.
On May 20, 2011, the trial court conducted a hearing on the Commissioner’s motion to alter
or amend. The Commissioner emphasized its right to choose its counsel and the fact that any
perceived conflicts between the MTC and the Department of Revenue had been expressly
waived by both parties. As to the trial court’s concern that Mr. Fort’s participation would
broaden discovery, the Commissioner noted that the basic rules of discovery protect parties
against over-broad discovery. Pfizer contended that the Commissioner had cited nothing new
to support the motion to alter or amend. It argued that granting Mr. Fort permission to
represent the Commissioner would mean that the MTC would in effect be participating in
Pfizer’s lawsuit, making the procedures more “complicated.” Pfizer’s counsel asked
rhetorically, “Why make it more confusing?”
After listening to the parties’ arguments, the trial court acknowledged Mr. Fort to be “a very
ethical individual, highly respected individual.” However, it expressed concern that his
background with the MTC might result in “a discovery process that might be much broader.”
The trial court commented: “I have serious concerns about the extent [of] discovery . . . and
how much time that’s going to consume on my part in trying to parse out if there are requests
for limits on the amount of discovery, how much that’s going to impose on [my] judicial
resources . . . .” The trial court said that it had conducted its own research into the subject
and had determined that pro hac vice admission was discretionary with the trial court, that
“nobody has a right to co-counsel,” and that “so long as it doesn’t affect a substantial right,
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the Court’s discretion generally isn’t considered abuse.”9 The trial court identified factors
relevant to its decision, including the availability of capable alternative counsel admitted to
practice in the state, the nature and complexity of the litigation, the burden on the non-
moving party if pro hac vice admission is allowed, and the prejudice to the moving party if
the motion is denied. Again quoting from its research, the trial court stated: “ ‘And
paramount in all of this where the Court denies pro hac vice is the ability of the Court to
maintain the orderly administration of justice,’ and I have to tell you that really is one of the
more overwhelming aspects of my decision to deny the request and to disqualify Mr. Fort,
is my ability to maintain the orderly administration of justice.” Based on its original reasons
as well as the additional reasons, the trial court denied the Commissioner’s motion to alter
or amend the order denying Mr. Fort permission to appear pro hac vice and disqualifying him
from representing the Commissioner. On June 2, 2011, the trial court entered a written order
denying the motion to alter or amend.
The Commissioner filed an application for an extraordinary appeal pursuant to Rule 10 of
the Tennessee Rules of Appellate Procedure, appealing the orders entered on March 29,
March 31, and June 2, 2011.10 On July 12, 2011, this Court granted the Commissioner’s
application for extraordinary appeal.11
I SSUES ON A PPEAL
On appeal, the Commissioner of Revenue argues that the trial court abused its discretion in
denying his motion for permission for Mr. Fort to appear pro hac vice and in disqualifying
Mr. Fort from representing the Commissioner in these proceedings. The Commissioner
points out that Mr. Fort met all of the conditions established in Tennessee Supreme Court
Rule 19 for pro hac vice admission and has an unblemished ethical record, and he contends
that permission to appear pro hac vice is essentially mandated if those conditions are met.
However, to the extent that other factors may be considered, the Commissioner further argues
that Mr. Fort’s representation presents no conflict of interest and that, even if it did, the
conflict was waived in this case. In addition, he argues that Mr. Fort’s representation of the
Department of Revenue does not present a unique concern over the confidentiality of Pfizer’s
9
Unfortunately, the trial court did not identify the authority from which it quoted and on which it based its
analysis.
10
Rule 19 of the Rules of the Tennessee Supreme Court provides specifically that a trial court’s order denying
a motion to appear pro hac vice pursuant to subsection (b) “may be appealed pursuant to Rule 10, Tenn. R.
App. P.” Tenn. Sup. Ct. Rule 19(h).
11
As we have indicated, the application was granted in both cases, and the cases were consolidated for
purposes of appeal.
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records, nor does it disrupt the orderly administration of justice. Therefore, the trial court’s
decision should be reversed, and Mr. Fort should be admitted to represent the Commissioner
pro hac vice in this case.
In response, Pfizer argues that allowing Mr. Fort to represent the Commissioner would be
tantamount to allowing the MTC to intervene in this case when it has no authority to do so.
Furthermore, Pfizer argues, the trial court acted well within its discretion in denying Mr. Fort
pro hac vice admission and in disqualifying him from representing the Commissioner when
his representation of the Commissioner would create a conflict of interest and would give rise
to significant concerns about the confidentiality of records that Pfizer will be compelled to
produce during discovery.
As indicated by the way the Commissioner of Revenue has framed the issue raised in this
appeal, the trial court’s decision to deny pro hac vice admission to Mr. Fort and the decision
to disqualify Mr. Fort from representing the Commissioner were somewhat conflated in the
proceedings below. Although we perceive the pivotal issue to be the disqualification of Mr.
Fort, we will also consider on appeal the denial of admission pro hac vice, as the trial court
appeared to rely on essentially the same reasons for both.12 Much of our analysis will discuss
both in the same context.13
The standard of review in a Rule 10 extraordinary appeal is “the same standard that would
have been applied to the issue(s) in an appeal as of right.” Peck v. Tanner, 181 S.W.3d 262,
265 (Tenn. 2005). The basis for the denial of the Commissioner’s motion to admit Mr. Fort
pro hac vice was the trial court’s exercise of its discretion under Rule 19(b). Thus, we
review that decision for an abuse of that discretion. An abuse of discretion exists when a
court “applie[s] an incorrect legal standard, or reache[s] a decision which is against logic or
12
We see disqualification as the pivotal issue because, as pointed out by the Commissioner in the trial court,
absent disqualification, Mr. Fort could still provide substantial assistance to the Commissioner and have
access to discovery even without the trial court’s permission to appear pro hac vice.
13
The grounds for denying pro hac vice admission and disqualifying counsel are based in the Tennessee
Supreme Court Rules. An attorney may be disqualified from representing a client “if the representation
involves a concurrent conflict of interest,” pursuant to Tennessee Supreme Court Rule 8, Rules of
Professional Conduct (“RPC”) 1.7(a). By the same token, pro hac vice admission may be denied, in the trial
court’s discretion, where the attorney’s conduct “raises reasonable doubt that the lawyer will comply with
the Tennessee Rules of Professional Conduct and other rules and law governing the conduct of lawyers who
appear before the courts of Tennessee.” Rule 19(b). Therefore, although pro hac vice admission is generally
granted when an attorney is licensed and is in good standing, conduct of the applicant that raises doubts about
his ability to comply with Tennessee’s ethical rules may serve as both a basis for disqualification and for
denial of pro hac vice admission.
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reasoning that cause[s] an injustice to the party complaining.” Eldridge v. Eldridge, 42
S.W.3d 82, 85 (Tenn. 2001) (quoting State v. Shirley, 6 S.W.3d 243, 247 (Tenn. 1999)).
“The standard for reviewing a trial court’s disqualification of an attorney varies depending
on the circumstances of the disqualification.” In re Conservatorship for Allen, No. E2010-
01625-COA-R10-CV, 2010 WL 5549037, at *6 (Tenn. Ct. App. Dec. 29, 2010) (citing In
re Ellis, 822 S.W.2d 602, 606 (Tenn. Ct. App. 1991)). Often a disqualification order is
reviewed on appeal for an abuse of the trial court’s discretion. Id. However,
[t]he same appellate deference is not appropriate when the facts are undisputed
and the conduct at issue does not directly involve conduct in open court. Trial
courts enjoy no particular functional advantage over appellate courts in
formulating and applying the ethical principles governing the attorney-client
relationship. Accordingly, we will review trial courts’ decisions to disqualify
a lawyer based on undisputed facts and conduct not taking place in court using
Tenn. R. App. P. 13(d)’s standard of review.
In re Ellis, 822 S.W.2d at 606 (citations omitted). The trial court has broad responsibility
for the conduct of the lawyers appearing before it; thus, the trial court’s decisions concerning
the conduct of the court’s business are entitled to appellate deference. Id.
We note that the Council on State Taxation (“COST”) and the Tennessee Chamber of
Commerce & Industry (“Chamber of Commerce”) both filed amicus curiae briefs in support
of the position taken by Pfizer, arguing that the trial court’s decision should be affirmed in
all respects. These briefs have been considered in this appeal.
A NALYSIS
Intervention of the MTC
Initially, we must consider the trial court’s holding that, to the extent that the MTC was
seeking to intervene in this case through the participation of Mr. Fort, the request for
intervention was denied. It is undisputed that the MTC filed no motion to intervene in this
cause. We presume that the trial court’s ruling was a response to Pfizer’s argument below
that allowing Mr. Fort to participate in these proceedings would amount to permitting the
MTC to intervene.14 Pfizer reprises that argument in this appeal, contending that Mr. Fort’s
14
The Commissioner does not argue that the MTC meets the requirements for permissive intervention under
Rules 24.01 and 24.02 of the Tennessee Rules of Civil Procedure; rather, he argues that Mr. Fort’s
(continued...)
-13-
representation of the Commissioner would be tantamount to allowing the MTC to intervene,
because “Mr. Fort would join this lawsuit in his capacity as an agent of the MTC and as a
conduit for the MTC’s goals and objectives.” Pfizer claims that, although Mr. Fort’s ethical
duty to represent the Commissioner should take precedence over his status as an MTC
employee, this ideal is “simply a product of [the Commissioner’s] wishful thinking,” given
the fact that the MTC would pay for Mr. Fort’s services. In the amicus briefs, both COST
and the Chamber of Commerce echo Pfizer’s argument that allowing Mr. Fort to represent
the Commissioner would be tantamount to allowing the MTC to intervene in this case, and
they argue strenuously against permitting such intervention .
As no motion to intervene was made, the trial court’s ruling on a non-existent motion is, of
course, a nullity. The substantive argument that underlies the trial court’s ruling appears to
be the trial court’s concern that MTC’s goals and objectives would influence the course of
the litigation if Mr. Fort were allowed to represent the Commissioner, and especially that it
would broaden the discovery requested by the Commissioner, as well as concerns about the
confidentiality of documents produced by Pfizer in discovery. These issues are addressed
below.
Pro Hac Vice
Permission for a lawyer licensed in another state to appear on behalf of a client in a
Tennessee court, i.e. permission to appear pro hac vice, is governed by Rule 19 of the Rules
of the Supreme Court of the State of Tennessee. See Bivins v. Hosp. Corp. of Am., 910
S.W.2d 441, 442-43 (Tenn. Ct. App. 1995). The Rule sets forth multifarious requirements
for a lawyer to obtain permission to appear pro hac vice, including the completion of
numerous forms, the payment of fees, and licensure in good standing in another state. It is
undisputed in this appeal that Mr. Fort had filed all of the required paperwork, paid the
required fee, and is licensed in good standing in his home state.
Nonetheless, as set forth in Rule 19(b)(1), a trial court retains discretion to deny a motion to
appear pro hac vice under some circumstances:
(b) In its discretion, a trial or appellate court may, in a particular proceeding
pending before it, deny a lawyer’s motion to appear pro hac vice only where:
(1) The applicant’s conduct as a lawyer, including conduct in proceedings in
Tennessee in which the applicant has appeared pro hac vice and conduct in
14
(...continued)
representation of the Commissioner is not tantamount to intervention.
-14-
other jurisdictions in which the lawyer has practiced, raises reasonable doubt
that the lawyer will comply with the Tennessee Rules of Professional Conduct
and other rules and law governing the conduct of lawyers who appear before
the courts of Tennessee . . . .
Tenn. Sup. Ct. Rule 19(b)(1).15
In the case at bar, it is undisputed that Mr. Fort did not engage in any “conduct” in Tennessee
or elsewhere that raised ethical concerns. Indeed, both the trial court and Pfizer’s counsel
described Mr. Fort as highly ethical. On appeal, the Commissioner points out the directive
language used in Rule 19, which states that a lawyer “shall” be permitted to appear pro hac
vice if the enumerated requirements are met, and gives a trial court discretion to deny
permission “only where” the lawyer’s “conduct raises reasonable doubt” that the lawyer will
comply with Tennessee’s ethics rules governing attorneys. The Commissioner argues
persuasively that, under the circumstances in this case, the trial court does not have discretion
under Rule 19(b) to deny Mr. Fort’s motion to appear pro hac vice. However, we need not
address this argument because we conclude infra that the reasons given by the trial court
support neither disqualification nor denial of the motion for permission for Mr. Fort to appear
pro hac vice.
Disqualification
This Court has cautioned that courts should be loath to deny a party the lawyer of his choice
by disqualifying the lawyer:
A trial court has a broad range of options available to insure that its
proceedings are fair both in appearance and in fact. Disqualifying an attorney
is the most drastic. It invariably causes delay, increases, costs, and deprives
parties of counsel of their choice. Courts should, therefore, disqualify counsel
with considerable reluctance and only where no practical alternative exists.
In re Ellis, 822 S.W.2d at 605 (internal citations omitted); see also Whalley Dev. Corp. v.
First Citizens Bancshares, Inc., 834 S.W.2d 328, 331-32 (Tenn. Ct. App. 1992) (noting that
courts “should be reluctant to disqualify a litigant’s counsel of choice and should grant
disqualification motions sparingly”); Caudill v. Foley, M2000-01512-COA-R3-CV, 2001
WL 950179, at *3 (Tenn. Ct. App. Aug. 21, 2001) (noting that “[c]ourts should . . . disqualify
15
Rule 19(b) also provides that a lawyer may be denied permission to appear pro hac vice if “the applicant
has engaged in such frequent appearances as to constitute regular practice in this state.” Rule19(b)(2). This
provision is not at issue in this appeal.
-15-
counsel with considerable reluctance and only when no other practical alternative exists”).
In this case, the trial court’s reasons for disqualifying Mr. Fort fell into three categories: (1)
perceived conflicts of interest arising from Mr. Fort’s employment by the MTC, (2)
disruption of the “orderly administration of justice,” and (3) concerns about MTC’s access,
via Mr. Fort, to confidential information produced by Pfizer in discovery. We address each
of these in turn.
Conflicts of Interest
The trial court below held that Mr. Fort’s representation of the Commissioner in this case “is
improper and gives rise to actual conflicts of interest.” It explained:
. . . Mr. Fort’s employment as the full-time, in-house counsel for the MTC, his
receipt of a salary from the MTC, and lack of any payment from the State of
Tennessee for his representation of [the Commissioner] in this case give rise
to inherently competing loyalties and actual conflicts of interest that make his
representation of [the Commissioner] improper. . . .
[T]here is an inherent and unavoidable conflict of interest when counsel
for a trade association or special interest group also purports to serve as
counsel for the State, with such representation creating divided loyalties that
may cause the counsel to consciously or unconsciously pursue the interests of
the association or special interest group rather than the State and, thereby,
prevent counsel from exercising independent professional judgment, free of
compromising influences and loyalties, in his representation of the State. . . .
[T]he Court finds the MTC’s multi-state policy-focused goals to be broader
than [the Commissioner’s] interest in the proper determination of a single
taxpayer’s Tennessee tax liability at issue in this case and that Mr. Fort’s
employment by the MTC creates actual conflicts of interest and divided
loyalties that would prevent him from representing the State free of those
compromising influences and loyalties.
The trial court specifically relied on State v. Culbreath, 30 S.W.3d 309 (Tenn. 2000), also
cited by Pfizer in this appeal. On this basis, the trial court found that Mr. Fort’s
representation of the Commissioner would be contrary to Rule 8, Rules of Professional
Conduct (“RPC”) 1.7, of the Rules of the Supreme Court of the State of Tennessee.
The Rule of Professional Conduct cited by the trial court sets forth the general rule governing
lawyers as to conflicts of interest:
-16-
(a) Except as provided in paragraph (b), a lawyer shall not represent a client
if the representation involves a concurrent conflict of interest. A concurrent
conflict of interest exists if:
(1) the representation of one client will be directly adverse to
another client; or
(2) there is a significant risk that the representation of one or
more clients will be materially limited by the lawyer's
responsibilities to another client, a former client or a third
person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under
paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to
provide competent and diligent representation to each affected
client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim
by one client against another client represented by the lawyer in
the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in
writing.
Tenn. Sup. Ct. Rule 8, RPC 1.7(a) and (b). The comments to the Rule state that, ordinarily,
“clients may consent to representation notwithstanding a conflict,” and that “a government
official or entity, like any other client, may waive a conflict of interest under this Rule.” Id.,
cmts. (14) and (19a). The comments also note that a “lawyer may be paid from a source
other than the client . . . if the client . . . consents and if the arrangement does not
compromise the lawyer’s duty of loyalty to the client.” Id., cmt. (13).
On appeal, the Commissioner argues that there is no conflict of interest between Mr. Fort’s
representation of the Commissioner and his representation of the MTC as its full-time in-
house attorney. He further asserts that the interests of the MTC and the interests of the
Commissioner are aligned in this case. The Commissioner submitted to the trial court a
statement signed by the Executive Director of the MTC stating that “participation by Mr. Fort
as a counsel in the case on behalf of the State of Tennessee would not be inconsistent with
the purposes and goals of the Commission.” The Commissioner points out that both Pfizer
and the trial court stated explicitly that the MTC could file an amicus curiae brief in the case,
which would of course require the MTC to take a position on the issues in the case. The
Commissioner observes that the State of Tennessee is fully competent to determine whether
the MTC’s position is consistent with that of Tennessee. Alternatively, the Commissioner
argues, even if Mr. Fort’s representation of both the MTC and the Commissioner resulted in
-17-
a conflict of interest, the Commissioner filed documentation in which both the MTC and the
Commissioner – the only two parties impacted – waived any conflicts.
The Commissioner also notes that the Tennessee Supreme Court has expressly sanctioned
arrangements whereby a lawyer is paid by a source other than the client, so long as there are
not particular concrete facts that demonstrate an actual conflict of interest, citing In re
Youngblood, 895 S.W.2d 322 (Tenn. 1995). In that case, the Court reviewed an ethics
opinion of the Tennessee Board of Professional Responsibility (“BPR”) which prohibited in-
house counsel for insurance companies from representing insureds in court proceedings that
arose out of the company’s insurance policy.16 In re Youngblood, 895 S.W.2d at 324. The
BPR had opined that “[t]here are few cases where some question does not arise during the
confidential conferences between the attorney and the client-insured . . . that might provide
a conflict between the insured and the insurance carrier,” and that the in-house insurance
company attorney “will not be able to exercise independent judgment or preserve the
confidences and secrets of the insured.” Id. at 328 (emphasis in original). On appeal, the
Supreme Court vacated the opinion of the BPR because it was based “upon the potential for
conflict in the relationship of the employer-employee rather than particular facts which
demonstrate there is, in fact, a conflict of interest.” Id. at 330 (emphasis added). The Court
explained: “The same loyalty is owed the client whether the attorney is employed and paid
by the client, is a salaried employee of the insurer, or is an independent contractor engaged
by the insurer.” It emphasized that “[c]ompliance with the Code in all cases will be
measured against the Code itself, rather than some variation of the ‘outside counsel’
practice.” Id. at 328. In this case, as in In re Youngblood, the Commissioner argues that
there is no evidence that an actual conflict of interest is created by Mr. Fort’s representation
of the Commissioner while being paid a salary by the MTC – there is at most a potential for
conflict.
In response, Pfizer emphasizes the broad discretion of the trial court in disqualification and
admission pro hac vice. It asserts that the “divided and inherently conflicting nature of [Mr.
Fort’s] dual loyalties is undeniable in light of the clearly divergent interests of the MTC and
the State of Tennessee.” As it did in the trial court below, Pfizer notes that the MTC pursues
tax policy goals on behalf of its member states, while the Commissioner is concerned only
with Tennessee’s tax laws. Pfizer contends that “the MTC’s and the [Commissioner’s]
positions directly conflict” with respect to the issues in Pfizer’s lawsuit. As an example,
Pfizer says that, in the lawsuit, it challenges the Commissioner’s decision not to vary the
standard statutory apportionment formula, and the MTC supports broader discretion for such
16
In re Youngblood was decided under the Code of Professional Responsibility, the predecessor to the
current RPC. As noted above, the comments to the current RPC are consistent with the ruling in In re
Youngblood.
-18-
a variance than Tennessee law currently provides. Pfizer also says that the MTC and the
Commissioner “take different approaches to the apportionment of income for purposes of
calculating tax liability of multistate taxpayers.” Thus, it says, the trial court’s finding of
actual conflicts of interest is supported in the record.
In the amicus briefs, both COST and the Chamber of Commerce likewise contend that Mr.
Fort would have “competing duties of loyalty” in simultaneously representing the MTC and
the Commissioner. They emphasize that the MTC’s goals are “broad-based policy
initiatives” while the Commissioner’s are more narrow with a “fundamental difference in the
functions” of both. Pfizer, COST, and the Chamber all cite State v. Culbreath on the issue
of Mr. Fort’s alleged conflicts of interest.
In this case, it is somewhat difficult to see how Pfizer has standing to assert an alleged
conflict of interest between the Commissioner and Mr. Fort’s employer. Pfizer is neither a
client nor a former client of Mr. Fort, and it has not shown how it would be affected by any
“divided loyalties” of Mr. Fort.17 See Crown v. Hawkins Co., 910 P.2d 786, 795 (Idaho Ct.
App. 1996) (“Where the motion to disqualify comes not from a client or former client . . .,
but from an opposing party, the matter should be reviewed with caution.”).
But assuming, without deciding, that Pfizer has standing to assert a conflict of interest
between the MTC and the Commissioner, we have difficulty seeing such a conflict in the
appellate record in this case. The interests of the MTC and the Commissioner need not be
identical in order to be harmonious. Pfizer asserts that there are “actual conflicts” between
the MTC and the Commissioner, and refers to the “divided and inherently conflicting nature”
of Mr. Fort’s “dual loyalties.” While the trial court made a finding of actual conflicts, the
trial court’s description of its perception is not consistent with a finding of actual conflicts
of interest and loyalties. The trial court said that it did “not go so far as . . . to say that the
interests of MTC are diametrically opposed to the interests of the State of Tennessee. . . .
Some of the interests of the State of Tennessee are subsumed into the broad goals and
objectives of the MTC.” Respectfully, this does not sound like a conflict. The trial court’s
description sounds congruent with the Commissioner’s repeated assertions that the goals and
objectives of the MTC and the Department of Revenue in this case are “not inconsistent” and
are “aligned.”
On appeal, Pfizer cites two examples of alleged potential conflicts, and the Commissioner
denies they are conflicts. We need not resolve the precise issues surrounding whether a
17
Supreme Court Justice Antonin Scalia once reduced the doctrine of standing down to the question, “What’s
it to you?” Antonin Scalia, The Doctrine of Standing as an Essential Element of the Separation of Powers,
17 Suffolk U.L. Rev. 881, 882 (1983).
-19-
potential conflict of interest exists, because both the Commissioner and the MTC have stated
on the record in this case that they are fully aware of the Commissioner’s position in this
litigation and that, if there are any conflicts, they are waived. Rule 8, RPC 1.7(b)(4),
provides that, notwithstanding any concurrent conflict of interest, a lawyer may represent a
client if “each affected client gives informed consent, confirmed in writing.” Furthermore,
the comments to RPC 1.7 state specifically that a “government official or entity, like any
other client, may waive a conflict of interest under this Rule.” Tenn. Sup. Ct. Rule 8, RPC
1.7, cmt. (19a). Certainly the Commissioner of Revenue of the State of Tennessee is capable
of evaluating conflicts of interest that may arise from retaining a particular attorney and
making the choice to waive any conflicts.
Pfizer insists that, despite the Commissioner’s waiver of any conflicts, this issue is governed
by the Tennessee Supreme Court’s decision in State v. Culbreath, and that Mr. Fort would
be confronted with the same conflicting loyalties that were present in Culbreath. Pfizer
argues that Culbreath mandates disqualification of Mr. Fort and denial of the motion to
admit him pro hac vice in this case, notwithstanding any waiver of conflicts by the
Commissioner. We must respectfully disagree.
In Culbreath, the Shelby County District Attorney’s office agreed to accept the assistance
of an outside attorney, Larry Parrish (“Mr. Parrish”), in the prosecution of obscenity cases.
Under an agreed arrangement, Mr. Parrish acted as a prosecutor for the District Attorney and
was paid for his work on an hourly basis by “a private, special interest group,” Citizens for
Community Values, Inc. (“CCV”). Culbreath, 30 S.W.3d at 311. Under this arrangement,
over the course of about eight months, Mr. Parrish accumulated over 2,400 hours in
investigating sexually-oriented businesses, accruing a fee of $212,000 and expenses of over
$34,000. Id. After nineteen months, Mr. Parrish had amassed over $100,000 in expenses
and had received fees in excess of $400,000. Id. at 312.
The District Attorney, with Mr. Parrish and based on Mr. Parrish’s investigation, sought
criminal indictments against two defendants; they also filed civil lawsuits against the same
defendants seeking injunctive relief. The criminal trial court found that Mr. Parrish’s
involvement in the prosecution of these cases and his “enormous” compensation from a
private special interest group created a conflict of interest that mandated the disqualification
of both Mr. Parrish and the District Attorney. Id. at 312. The District Attorney appealed,
ultimately to the Tennessee Supreme Court.
On appeal, the Tennessee Supreme Court noted that Tennessee statutes permit the district
attorney general to employ additional private counsel in a given matter. The Culbreath Court
found, however, that the circumstances regarding Mr. Parrish gave rise to an actual conflict
of interest. The Culbreath Court quoted a United States Supreme Court case that
-20-
emphasized the breadth of a prosecutor’s discretion in matters such as “the determination of
which persons should be targets of investigation, what methods of investigation should be
used, what information will be sought as evidence, which persons should be charged with
what offenses, . . . whether to enter into plea bargains . . ., and whether any individuals
should be granted immunity.” Id. at 316 (quoting Young v. U.S. ex rel. Vuitton et Fils S.A.,
481 U.S. 787, 807 (1987)). The Culbreath Court stated: “In sum, . . . the point [is] that the
foundation for the exercise of the vast prosecutorial discretion is freedom from conflict of
interest and fidelity to the public interest.” Id. In Culbreath, Mr. Parrish was being
compensated on an hourly basis for his prosecutorial work by an advocacy group. Under
those circumstances, “the reality is that he acquired a direct financial interest in the duration
and scope of the ongoing prosecution . . . [and] could not exercise his independent
professional judgment free of ‘compromising influences and loyalties.’” Id. On this basis,
the Court affirmed the trial court’s disqualification of Mr. Parrish and of the Attorney
General’s office from the prosecution of the obscenity cases.
Pfizer argues that the reasoning in Culbreath governs the instant case, because while
representing the Commissioner, Mr. Fort would be paid by an outside group with an interest
in furthering certain policies on the taxation of multistate entities. However, similar facts
were present in In re Youngblood, in which the attorney representing the insured was an in-
house attorney for an insurance company with interests that differed somewhat from those
of the insured. This arrangement was specifically approved, in the absence of demonstrated
conflicts. In Culbreath, the factors that compelled disqualification were (1) the fact that Mr.
Parrish was acting as a prosecutor and making the broad discretionary decisions that a
prosecutor must make, while his pay was dependent upon an advocacy group, and (2) the
hourly-wage arrangement gave Mr. Parrish a direct personal financial stake in investigating
and prosecuting as many sexually-oriented businesses as possible. In contrast, in the instant
case, Mr. Fort is not acting as a criminal prosecutor; indeed, the lawsuit that is the subject of
this appeal was initiated by Pfizer. In addition, Mr. Fort does not have the same personal
stake in the litigation as did Mr. Parrish in Culbreath. The record reflects that Mr. Fort will
continue to receive his salary from the MTC, and that he is not being paid any more either
for representing the Commissioner in this matter or in a way that is dependent upon the
outcome. In light of these factual distinctions, we must respectfully disagree that Culbreath
is controlling.
In In re Youngblood, the Court acknowledged that a conflict of interest may arise where an
in-house attorney for an insurance company represents an insured in a matter involving the
insurer’s insurance policy. In re Youngblood, 895 S.W.2d at 328. The Court held, however,
that disqualification is not appropriate where the record shows merely the potential for a
conflict of interest. The Court explained:
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The relationship of employer-employee obviously creates the potential for
conflicts of interest. However, in the situation posed by the inquiry, it is not
a potential conflict that is prohibited, but the “reasonable probability” of a real
conflict. The employment of an attorney by an insurer to represent the insured
does not create the relationship of attorney-client between the insurer and the
attorney, nor does that employment necessarily impose upon the attorney any
duty or loyalty to the insurer which impairs the attorney-client relationship
between the attorney and the insured or impedes the performance of legal
services for the insured by the attorney. Where the employer is not also a
client, a conflict will not occur unless the attorney is obligated by the terms or
circumstances of employment to protect the interest of the employer even to
the detriment of the insured.
Id. at 328 (citation omitted). In the record in this case, the Commissioner insists that Pfizer
has not demonstrated the “reasonable probability” of any conflict resulting from Mr. Fort’s
simultaneous employment by the MTC and his representation of the Commissioner in the
lawsuit. We agree. We must conclude that the potential conflicts which Pfizer asserts are
not a basis for disqualifying Mr. Fort or for denying permission to appear pro hac vice.
Orderly Administration of Justice
The trial court also disqualified Mr. Fort from representing the Commissioner based on the
trial court’s need to maintain the orderly administration of justice. To some extent, the trial
court’s denial of permission to appear pro hac vice was also based on this finding. The trial
court did not clearly explain the basis for holding that Mr. Fort’s participation would interfere
with the orderly administration of justice. However, in comments at the hearings on this
matter, the trial court expressed several concerns; we assume that these concerns underlie the
trial court’s holding on the “orderly administration of justice” and address them in this
context.
Trial courts have very broad authority to control their dockets, control proceedings in court,
and to maintain the orderly administration of justice. The trial court may, for example, order
a court clerk to produce needed files, dismiss cases for failure to prosecute, and establish
comprehensive orders on media access to discovery documents. See In re Lineweaver, 343
S.W.3d 401, 413-414 (Tenn. Ct. App. 2010); In re NHC-Nashville Fire Litigation, 293
S.W.3d 547, 569 (Tenn. Ct. App. 2008) (hereinafter “In re NHC”); Hodges v. Attorney
Gen., 43 S.W.3d 918, 921 (Tenn. Ct. App. 2000). The trial court’s authority includes the
discretion to disqualify an attorney or to deny permission to appear pro hac vice under certain
circumstances. See, e.g., Ross v. Reda, 510 F.2d 1172, 1173 (6th Cir. 1975). This
discretion, however, is not unfettered.
-22-
The trial court below repeatedly noted that the MTC embraces tax policy goals and
objectives. It expressed concern that Mr. Fort’s participation in the litigation would turn
Pfizer’s tax lawsuits into a forum to determine public policy on taxation of multistate entities,
commenting that this “is not the purpose of litigation.” 18
Respectfully, the record in this case does not support either disqualification or denial of
admission pro hac vice based on whether Mr. Fort privately seeks to use Pfizer’s lawsuit to
further particular ideas on tax policy. Parties may have any number of reasons for engaging
in litigation, such as acting on an old grudge, establishing a principle, or effecting social
change. Their private motivations need not be the subject of inquiry by the court unless and
until they manifest in the form of words or deeds that are objectionable or an abuse of the
judicial system. The record contains no indication that Mr. Fort engaged in conduct that in
any way interfered with the trial court’s ability to maintain orderly proceedings.
Perhaps the more pragmatic concern argued by Pfizer and eventually voiced by the trial court
is the spectre of overly broad or complicated discovery as a result of Mr. Fort’s participation
in inherently complex litigation. The trial court candidly expressed concern about whether
overly broad discovery requests or repeated requests for discovery limits would burden the
trial court’s “judicial resources.”
Complex litigation raises a number of valid concerns for a trial court, and near the top of the
list is the trial court’s ability to manage discovery that may involve the production of tens of
thousands of documents. See, e.g., In re NHC, 293 S.W.3d at 569 (nursing home fire
litigation spawned the production of over 35,000 documents in discovery, termed “an
avalanche of documents”). “We recognize that judicial resources are limited, and . . . are
mindful that [Pfizer’s lawsuit] was not the only matter on the trial court’s docket.” Id.
Particularly “in view of the trial judge’s multiple obligations and responsibilities,” the trial
court has wide discretion to issue orders and to establish protocols to manage the litigation.
Id.
The trial court’s arsenal, however, does not include the discretion to disqualify a lawyer
merely because his participation may affect the type or scope of discovery sought. Certainly
Mr. Fort’s extensive experience with the MTC and in the taxation of multistate entities may
affect the discovery sought by the Commissioner in Pfizer’s litigation; that is part of the
Commissioner’s stated reason for retaining him. The Commissioner’s discovery requests
may include some that the trial court deems overly broad. This possibility, however, is no
18
Similarly, in its amicus brief, COST argues that the trial court’s failure to disqualify Mr. Fort would mean
that every lawsuit filed by a COST member “would become an open forum for policy discussion and debate,
subsuming the underlying issues. . . .”
-23-
basis for disqualifying Mr. Fort, any more than Pfizer’s promise to resist such broad
discovery is a basis for disqualifying Pfizer’s counsel. Discovery disputes may be dealt with
as they occur through the issuance of protective orders and other measures, but the mere
prospect of them is not a reason to disqualify a lawyer or to deny permission to appear pro
hac vice.
We must respectfully hold that the appellate record in this cause does not support either
disqualification of Mr. Fort or denial of the motion for permission to appear pro hac vice
based on the trial court’s need to maintain the orderly administration of justice.
Confidentiality
The trial court also denied Mr. Fort permission to appear pro hac vice and disqualified him
from representing the Commissioner because his participation in the litigation would
jeopardize Pfizer’s interest in keeping confidential the sensitive tax and business information
that will be produced in discovery. The trial court noted that “all the documentation that
comes forward in discovery will be shared with Mr. Fort or whoever the Attorney General,
in its position as counsel, finds appropriate and permissible to share it.” The trial court
indicated that allowing this could undermine Pfizer’s expectation that the information
produced in discovery would remain confidential and expressed concern about “the
appearance of a representative whose concerns are much greater and the exposure that the
employees and the operations of the taxpayers would be exposed to. And I don’t know how
to ensure that.” Therefore, based on the risk that Mr. Fort, an employee of the MTC, would
share Pfizer’s confidential information with the MTC or its member states, the trial court
disqualified him from representing the Commissioner in these proceedings.
On appeal, the Commissioner argues that this case does not present a unique concern over
the confidentiality of sensitive information produced in the course of litigation. He argues
that the trial court’s ruling was based purely on speculation and not on any actual dispute
over confidential information that had arisen in this case. Moreover, the Commissioner
claims, the sort of information that will likely be produced in this case is information to
which the MTC already has access. Virtually all states and the MTC are signatories to the
Uniform Exchange of Information Agreement, which permits the exchange of “any
information in the possession of one party which could reasonably be considered useful to
other parties for the facilitation of tax administration,” including “any other relevant
information related to specific transactions or any other data . . . with respect to the
determination of the existence, or possible existence of liability.” In other words, the
information to which Mr. Fort would have access in this litigation is information that the
Commissioner could share with the MTC or its member states, regardless of whether Mr.
Fort represents the Commissioner in this case. In addition, Tennessee participates in the
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MTC’s Joint Audit Program and is currently participating in nineteen joint audits. The
Commissioner argues that MTC auditors are already entrusted with confidential taxpayer
information, so concerns about sharing the information with Mr. Fort, an attorney with an
unblemished ethical record, are unfounded.
In response, Pfizer argues that the trial court’s decision was based on its recognition that the
Commissioner “has considerable authority to compel [Pfizer] to produce extensive financial
information for examination and review.” Pfizer represents that thousands of pages of
documents have already been produced in this litigation, and that the Commissioner “has
expressed a consistent desire to extend the discovery process, making the full extent of
information to be produced in this litigation still unknown.” As examples of sensitive
information produced, Pfizer cites board meeting minutes, distributor agreements,
descriptions of its distribution and manufacturing processes, customer names and order
information, and many documents that reveal the inner workings of Pfizer’s business
operations. If Mr. Fort were permitted to participate as co-counsel to the Attorney General,
Pfizer contends, the MTC would ergo have access to all of this sensitive information.
Despite the Uniform Exchange of Information Agreement cited by the Commissioner, Pfizer
says that Tennessee’s legislature has limited the information that can be shared with the MTC
to “[r]eturns, tax information and tax administration information.” See Tenn. Code Ann. §
67-1-1704(g) (2011). Furthermore, Pfizer has not been audited in the Joint Audit program,
and the information expected to be produced in this litigation is broader than the documents
that would be produced in an audit. Therefore, Pfizer argues, the trial court was correct in
disqualifying Mr. Fort based on concerns over taxpayer confidentiality.19
The record in this cause includes affidavits by Mr. Fort, in which he acknowledged that, as
co-counsel to the Attorney General, he would “have a sole and undivided loyalty to represent
the interest of the State [of Tennessee] in this litigation,” and asserted that he was “under no
duty a[s] counsel for the Commission to share confidential taxpayer information received in
[his] capacity as a Counsel for the State of Tennessee with any other State, or with [his]
employer,” namely the MTC. Mr. Fort stated that he understood that he was “bound by the
taxpayer confidentiality provisions of the State of Tennessee as set forth in Tennessee Code
Annotated, Section 67-1-1704, and other applicable laws,” which prohibit him from
disclosing “returns, tax information or tax administration information” obtained through the
litigation. In addition, Mr. Fort said that he is familiar with Tennessee’s RPC in Supreme
19
In its amicus curiae brief, the Chamber of Commerce also argues that taxpayer confidentiality would be
compromised if Mr. Fort is allowed to participate in these proceedings. It argues that, despite the
requirement in Tennessee Code Annotated § 67-1-1702, the confidentiality that is legitimately expected by
Pfizer is diminished by allowing an MTC attorney to access all aspects of this state tax litigation.
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Court Rule 8, and that he has consented to the disciplinary jurisdiction of the Tennessee
Board of Professional Responsibility.
For purposes of our analysis, we assume that the MTC would have access to much of the
relevant information produced in this litigation through the Uniform Exchange of
Information Agreement. We also assume, however, that some of the confidential information
that will be produced in discovery is not covered by that Agreement. The fact that we find
it necessary to state these assumptions points out a major difficulty with the trial court’s
ruling. The ruling is not based on an actual dispute over the disclosure of identified
information to Mr. Fort; it is instead based on the assumption, however valid, that such
disputes will arise in the future.
Several overriding principles inform our analysis. First, in In re Youngblood, the Court
found that the Board of Professional Responsibility improperly opined that an attorney who
was employed by an insurance company was prohibited from representing an insured based
on a “potential” conflict of interest instead of the “ ‘reasonable probability’ of a real
conflict.” In re Youngblood, 895 S.W.2d at 328. This part of our analysis, of course,
involves confidentiality rather than conflict of interest, and disqualification by a court instead
of an opinion by the Board of Professional Responsibility. However, we glean from In re
Youngblood that decisions such as disqualification should be based on something more than
a potential problem. In the case at bar, while Pfizer cites to general information that is
expected to be produced in discovery, it has not pointed to an actual document to which Mr.
Fort allegedly should not have access.
Next, In re Youngblood also cautions that counsel may be expected to act in compliance with
the Code of Professional Responsibility and devote his loyalty to the client, even if counsel
is paid by someone other than the client. Id. at 328-29. Again, we recognize that the issue
under analysis is not conflict of interest or divided loyalties, as was presented in In re
Youngblood; rather, it involves keeping confidential the sensitive information produced in
discovery. However, from In re Youngblood, we take it that we should assume, unless
shown otherwise, that Mr. Fort will comply with Tennessee Code Annotated § 67-1-1704,
Rule 8, and any applicable orders of the trial court.
Third, under Tennessee’s Rules of Civil Procedure, the trial court may issue a wide array of
protective orders, limiting the scope of discovery or limiting the disclosure of documents and
information. These orders can be tailored to meet the particular circumstance presented.
While we do not minimize the challenges presented, we note that issues regarding sensitive
information produced in discovery arise in many types of litigation, such as business
litigation between rival companies, litigation involving highly personal or medical
information, litigation in which a company produces documents that include customer
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information that could be used by identity thieves, and the like. In all of these, the trial court
is charged with responsibility for taking measures to protect the sensitive information from
misuse by the parties, their attorneys, or third parties. See, e.g., In re NHC, 293 S.W.3d at
573 & n.27 (noting the trial court’s decision to issue protective orders and orders placing
certain documents under seal, which serve to prevent third parties from “using court files to
access personal information for private gain”).
Finally, of the “options available [to trial courts] to insure that the proceedings are fair both
in appearance and in fact . . . [d]isqualifying an attorney is the most drastic.” In re Ellis, 822
S.W.2d at 605. Therefore, courts “should be reluctant to disqualify a litigant’s counsel of
choice,” and should disqualify chosen counsel “only when no other practical alternative
exists.” Whalley Dev. Corp., 834 S.W.2d at 332; In re Ellis, 822 S.W.2d at 605.
These principles indicate clearly that disqualification of a litigant’s chosen counsel is an
inappropriate tool to head off potential disputes over discovery and the confidentiality of
information produced in litigation. There is no showing in this record that “no other practical
alternative [to disqualification] exists.” In re Ellis, 822 S.W.2d at 605.
From Pfizer’s briefs and the amicus briefs, it appears that concerns over the disclosure of
confidential taxpayer information to Mr. Fort is at the heart of their insistence that allowing
Mr. Fort to represent the Commissioner is tantamount to permitting the MTC to intervene.
In essence, they contend that Mr. Fort, as the MTC’s in-house counsel, personifies the MTC,
and disclosure of Pfizer’s confidential information to Mr. Fort is disclosure to the MTC. In
this way, it amounts to de facto intervention by the MTC.
Although Pfizer, COST, and the Chamber of Commerce argue strenuously that permitting
Mr. Fort to participate amounts to intervention by the MTC, and although they cite authority
showing that intervention by the MTC is not appropriate, they offer no authority to support
their assertion that disqualification of Mr. Fort is appropriate or justified. While Mr. Fort is
an in-house attorney for the MTC, he is nevertheless an attorney representing a client, and
Pfizer has cited no authority for treating an in-house attorney differently in this regard from
any other attorney with multiple clients. In fact, in In re Youngblood, the Court indicated
that an in-house attorney for an insurance company should be treated the same as an
independent lawyer when representing the insured. Id. at 328-29. In the case at bar, Mr. Fort
is acknowledged to be a highly ethical lawyer and he has acknowledged that he must comport
with both Tennessee laws and the trial court’s orders as to confidential information disclosed
in discovery. Pfizer has not demonstrated why the trial court should not reasonably expect
Mr. Fort to comply.
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Moreover, while Pfizer, COST, and the Chamber of Commerce all argue that Mr. Fort’s
participation is “tantamount” to intervention by the MTC, it is in fact not intervention. The
issue is disqualification of a litigant’s counsel of choice, and both this Court and the trial
court are obliged to apply the law applicable to disqualification, not intervention. Pfizer has
not demonstrated that its confidential information cannot be adequately protected by
appropriate protective orders. Thus, Pfizer has not shown that there is “no practical
alternative” to disqualification of Mr. Fort.
Therefore, we must conclude that the trial court erred in disqualifying Mr. Fort from
representing the Commissioner in these proceedings, and in denying the Commissioner’s
motion for permission for Mr. Fort to appear pro hac vice.
Accordingly, the trial court’s order must be reversed, and the cause remanded for entry of an
order permitting Mr. Fort to appear on behalf of the Commissioner pro hac vice. On remand,
we note that, in the trial court proceedings, the Commissioner argued repeatedly that it
especially wanted the benefit of Mr. Fort’s expertise to assist in the important discovery
phase of the litigation. While this appeal has been pending, the litigation has not stood still,
and discovery has proceeded. The trial court is authorized on remand to give the
Commissioner leeway to revisit some aspects of discovery if necessary. We recognize some
inefficiencies in this, but that is, after all, why the In re Ellis Court cautioned that
disqualification of a party’s chosen attorney “invariably causes delay, increases costs, and
deprives parties of counsel of their choice.” In re Ellis, 822 S.W.2d at 605.
C ONCLUSION
The trial court’s decision is reversed, and the cause is remanded for further proceedings in
accordance with this Opinion. Costs on appeal are to be taxed to Appellees Pfizer, Inc., and
Pharmacia Corporation, for which execution may issue, if necessary.
_________________________________
HOLLY M. KIRBY, JUDGE
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