## Facts

- Salomon Brothers Inc. acted as a primary dealer in U.S. government securities and participated in Treasury auctions for itself and customers.
- Plaintiffs (interrelated entities managed through Robert Hickey) traded government securities and sued Salomon based on alleged Treasury-auction misconduct, asserting federal securities, commodities, RICO, antitrust, and state-law claims.
- Before this lawsuit, Salomon retained the law firm Schiff, Hardin & Waite to draft part of a compliance manual and perform legal research and advice over more than a year, including answering compliance-related questions as they arose.
- After Salomon publicly acknowledged rule violations connected to Treasury-auction bids, plaintiffs consulted and then retained Schiff to bring the suit against Salomon.
- Salomon moved to disqualify Schiff on former-client conflict grounds; the court addressed only disqualification, not the merits of plaintiffs’ substantive claims.

## Issues

1. Whether Schiff previously had an attorney-client relationship with Salomon sufficient to trigger duties to a former client.
2. Whether Schiff’s prior compliance-related work for Salomon was substantially related to plaintiffs’ litigation challenging Salomon’s Treasury-auction conduct.
3. Whether, upon a showing of substantial relationship, the court should presume Schiff received Salomon confidences and disqualify Schiff (including firm-wide imputation).

## Decision

- The court granted Salomon’s motion to disqualify Schiff, Hardin & Waite from representing plaintiffs.
- The court found an attorney-client relationship existed based on Salomon’s retention of Schiff for compliance-manual drafting and ongoing regulatory advice.
- The court held the prior representation and the lawsuit were substantially related because both involved Treasury-auction rules, compliance obligations, and the same regulatory setting implicated by plaintiffs’ allegations.
- Given the substantial relationship, the court applied a presumption that Schiff had obtained confidential information that could be used against Salomon and declined to require proof of actual disclosures.
- The conflict was imputed to the entire firm; absent effective screening, firm-wide disqualification was required.

## Legal Principles

- A lawyer may not represent a new client against a former client in a matter that is substantially related to the prior representation.
- Once substantial relationship is established, courts generally presume the lawyer received confidential information material to the later dispute and need not examine the content of privileged communications.
- Disqualification protects the former client’s expectation of loyalty and confidentiality and the fairness of judicial proceedings.
- Conflicts are typically imputed to the entire firm because lawyers within a firm are presumed to share client confidences; timely, effective screening is necessary to avoid firm-wide disqualification where permitted.

## Conclusion

The court disqualified plaintiffs’ counsel because the firm previously represented the defendant on Treasury-auction compliance matters that substantially overlapped with the subject of the later lawsuit, creating a presumed risk that confidential information could be used adversely to the former client.


SWS Fin. Fund A v. Salomon Bros. Inc., 790 F. Supp. 1392 (N.D. Ill. 1992)