Freivogel on Conflicts
 
 
 

 
Zero Sum Games

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        From time-to-time the author will find a case where two parties appear to be fighting over the same pot of money, the same piece of property, the same government contract, and so on.  The issue becomes whether a lawyer, or law firm, can represent Party A and Party B in their competition for the same prize.  Attempting to represent both parties in the competition, without their respective waivers, may violate Rule 1.7(a), although, as shown by the cases below, the courts have not been consistent on that point.  In some cases such a conflict may not be waivable.  For example,  Illustration 1 to Restatement § 121, cmt. c(i) stands for the proposition that the same law firm may not assist two clients in seeking the same broadcast license, even with a waiver.  However, illus. 1 to Restatement § 128, cmt. d(i) says that where a law firm represents two plaintiffs in a suit against a defendant with limited funds, the law firm may proceed on behalf of both if it makes disclosure and obtains waivers from both.

        What if a lawyer represents Client A in an attempt to win a broadcast license?  Current Client B is also seeking the same license, but is using another lawyer for the application.  The author is aware of at least one large law firm that has taken the position that Rule 1.7(a) is not implicated if the same lawyer is not representing both clients in the same proceeding.

        Two Clients Vying for Deal.  D.C. Op. 356 (Nov. 2010).  This is the application of D.C. Rules 1.7 and 1.6 to the situation where Law Firm represents one bidder for an acquisition while another bidder happens to be a client of Law Firm, not in the acquisition, but on other matters.  Because of the uniqueness of D.C.'s Rule 1.7, we will not detail the analysis here.  It is worth noting that the opinion is one of the few to hold unequivocally that this situation is a conflict of interest.  (A more clear conflict would be where the same law firm represented both bidders in the acquisition matter.)

       D.C. Op. 301 (2000).  A law firm represents a class of 3,000 special education students against D.C. They are seeking better transportation and other benefits.  A member of the class was injured on his way to school, and the issue is whether the law firm can represent him in a damage case against D.C. because of its unsafe transportation services.  Analyzing the case under D.C.'s unique version of Model Rule 1.7, the Committee opined that the law firm could take the case.  Moreover, the Committee opined that the likelihood of a conflict between the class and the individual student was so remote, the law firm would not need anyone's consent.  The Committee distinguished the situation where a law firm might be representing two different plaintiffs against the same defendant or fund, where the success of one plaintiff might affect the recovery of the other.  It cited North Carolina State Bar v. Whitted, 347 S.E.2d 60 (N.C. App. 1986), where a lawyer was disciplined for doing just that.  The Committee also cited Fiandaca v. Cunningham, 827 F.2d 825 (1st Cir. 1987), in which the court held that a law firm had a conflict where the relief  it was seeking in two different class actions might cause one class to benefit at the expense of the other.

       In re Cardinal Health, Inc. ERISA Lit., 225 F.R.D. 552 (S.D. Ohio 2005).  Consolidated ERISA cases.  Law Firm is attempting to be appointed Lead Counsel for the plaintiffs.  Several plaintiffs objected because Law Firm is handling other litigation against the same defendants.  Law Firm responds that it would be suing a parent corporation in one and a subsidiary of that parent in the other.  It claims further that any recovery against the subsidiary would not subject the parent to liability in that case.  The court agreed that, in such a case, there would not be a “common pool” conflict.  But, the court also said the relationship between the two corporations had not been sufficiently established.  For that reason, and because of Law Firm’s misconduct in another case, the court rejected Law Firm as Lead Counsel.  Other cases cited in Cardinal Health articulating the “common pool” issue are Kuper v. Quantum Chem. Corp., 145 F.R.D. 80, 83 (S.D. Ohio 1992) (citing Jackshaw Pontiac, Inc. v. Cleveland Press Publ'g. Co., 102 F.R.D. 183, 192 (N.D. Ohio 1984)); and, Dietrich v. Bauer, 192 F.R.D. 119, 126 (S.D.N.Y. 2000).

        In re Continental Illinois Securities Litigation, 750 F. Supp. 868 (N.D. Ill. 1990).  In an opinion on fees the court noted that it had ruled six years earlier that the same lawyers could not represent plaintiffs in both a derivative action and a class action, particularly with respect to settlement, because the funds available to pay both were "limited."

        N.Y. Op 778 (2004) discusses the circumstances under which a lawyer might represent both the driver and passenger of a vehicle that had been involved in an accident.

        N.Y.C. Op. 2001-3 (undated).  This opinion discusses ways in which law firms can agree with clients to limit the scope of their services in order to avoid conflicts.  At one point the opinion says:

Adversity of position in litigation is not a necessary precondition for the existence of a direct conflict. If, for example, two businesses were competing for the same Government contract, and each engaged the same lawyer to prepare bids, Rule 1.7(a) would surely be applicable.

       Patent Prosecution: Representing Competing Applicants.  Sentinel Products Corp. v. Platt, 64 U.S.P.Q.2d (BNA) 1536, 2002 U.S. Dist. LEXIS 13217 (D. Mass. July 22, 2002).  The court held that even though the same law firm was representing competing applicants, to sustain a cause of action the losing applicant must show the result would have been different if the applicants had different law firms.

        Kittay v. Kornstein, 230 F.3d 531 (2d Cir. 2000).  Kornstein represented a limited partner in state court in a fraud suit against the general partner.  The limited partnership entity also had a claim against the general partner.  Kornstein was also defending the limited partnership in an unrelated foreclosure action.  The limited partnership filed a Chapter 11 proceeding.  At that point, the state court action was on appeal.  The parties raised with the bankruptcy judge the fact that Kornstein was representing the limited partner and that the limited partnership and the limited partner would be chasing the same funds.  The court ordered that any recoveries by the limited partner be placed in escrow in the court, and that the court would later rule on apportionment of the funds.  That way Kornstein could continue representing the limited partner and defending the debtor/limited partnership in the unrelated foreclosure action, without a conflict.  The Chapter 11 was then converted into a Chapter 7, and the new trustee sued Kornstein for having a conflict of interest.  The court of appeals affirmed the district court's ruling that the escrow arrangement freed Kornstein of a conflict of interest, at least until the state court appeal had concluded.  The court of appeals also ruled that the trustee had stated a claim insofar as Kornstein's post-appeal conduct was concerned.  He allegedly had assisted the limited partner in pocketing some of the funds and by-passing the escrow.

       In re Big Mac Marine, Inc., 326 B.R. 150 (8th Cir. Bankr. App. Panel 2005).  Individuals A and B owned the stock in Co. C.  A and B filed a Chapter 11 proceeding for themselves, with Lawyer X as debtors’ counsel.  This is a separate proceeding involving Co. C as debtor.  Lawyer X attempted to be approved as debtor’s counsel for Co. C in this proceeding.  However, because A and B were Co. C’s largest creditor, the district court and this court held that X was not disinterested and had a conflict.  The court reasoned that in the A and B proceeding, A and B, represented by X, would be trying to maximize their recovery from Co. C in this proceeding.  Yet, debtor’s counsel in this proceeding would be charged with evaluating claims and seeing that all creditors were treated fairly.  This, the court held, X could not do.

        Straubinger v. Schmitt, 792 A.2d 481 (N.J. App. 2002).  A lawyer represented both the driver and passenger of an automobile, who were injured in a collision with a drunk driver.  The drunk driver had a single limit liability policy of $300,000.  At a hearing on fees the court held that conflict between the driver and passenger was “inconsequential,” because everyone agreed that the drunk driver was 100% responsible for the accident.  However, because of the single limit policy, the court held the lawyer should have disclosed the conflict and gotten the clients’ knowing consent.  He had not done so, and the court reduced his fees accordingly.

        Gentile v. Hart Limousine & Entertainment, N.Y. S. Ct., N.Y. County.  This case appeared in the March 16, 2001, online law.com.  The author is unable to provide the case number or the exact date of the opinion.  It is a fee dispute.  A lawyer took on the representation of multiple passengers who were injured in a limousine accident.  It turned out that the limousine company was insolvent and only had $1 million in insurance coverage.  In a windy and unsatisfactory opinion the court suggested that representing multiple plaintiffs where the pot available was limited was a conflict.

        In Mandell & Wright v. Thomas, 441 S.W.2d 841 (Tex. 1969), the court held that it was not a conflict for a lawyer to represent two claimants where the targeted fund might be inadequate to satisfy both.  It was a maritime death case.  The court said simply:

. . . if the district court determines that the fund is inadequate to pay the total amount of damages which  may be awarded, then the court will enforce a concursus and reduce proportionately the amount awarded each claimant.

        We had never seen "concursus" before, so he did some digging.  Concursus is an interpleader-type proceeding in admiralty where the total of all claims exceeds the value of the vessel.  The purpose of the proceeding is to ensure that the available funds are distributed equitably.  It may be that the court felt that such protections removed the potential for the lawyer to favor one client over the other.

        Tex. Op. 500 (1994) held the opposite of Mandell, cited just above.  The opinion says that where the defendant has limited funds (or insurance coverage), a lawyer cannot represents two plaintiffs.  The opinion did not cite any cases.  SMU Professor Walter Steele has written a thoughtful article disagreeing with Tex. Op. 500, focusing primarily on Texas law.  Walter W. Steele Jr., Finessing the Conflict among Multiple Plaintiffs: Must a Plaintiffs’ Attorney Withdraw when Her Clients’ Interests Conflict because the Defendant Has Inadequate Resources to Compensate them All Adequately?, 12 Texas Lawyer (May 20, 1996).

        Krim v. pcOrder.com, Inc., 210 F.R.D. 581 (W.D. Tex. 2002) (W.D. Tex. October 21, 2002).  Milberg Weiss attempted to be class counsel in this action.  The court denied them that status, because (1) they had not informed the class representatives that they represented other classes in other courts against the same defendants, and (2) because of the possibility that defendants may not be able to satisfy all the claims (in essence, a “zero sum” argument).  Milberg Weiss attempted to counter the latter argument by noting that the court could supervise the allocation of any settlement or award.  The court in this case countered by noting that it would not have control over the courts in which the other cases against these defendants are pending.

        Sullivan v. Chase Investment Services of Boston, Inc., 79 F.R.D. 246 (N.D. Cal. 1978).  In certifying a class the court ruled that it would not approve class counsel until it withdrew from its status a counsel in another class action against the same defendants.

       Linden v. Siamas, 2002 Cal. App. Unpub. LEXIS 4309 (Cal. App. Jan. 31, 2002).  A lawyer was representing two plaintiffs against the same defendant in unrelated and separate proceedings.  He achieved a settlement for one of them involving installment payments.  Before the settlement could be completely paid, the defendant went bankrupt.  The settling plaintiff sued the lawyer for malpractice.  One of the claims was that the lawyer had a conflict of interest by representing two plaintiffs against the same defendant.  As to that claim, the court held that if failed as a matter of law.  The court held that the settling plaintiff had made no showing that at the time of the representations the lawyers had any reason to believe the defendant would be unable to pay both claims.

        Cruz v. Olympia Trails Bus Co., 2002 U.S. Dist. LEXIS 14680 (S.D.N.Y. August 8, 2002).  In a fee dispute the court, in analyzing whether a lawyer had acted ethically, made the following statement:

Plaintiff's theory here is that the firm's representation of multiple clients all seeking recovery from a single, limited policy of insurance necessarily created a conflict. Although, it is theoretically possible that a conflict could arise in this situation, plaintiff has not provided sufficient information to determine whether there was an actual conflict here. For example, if the defendant's insurance policy and assets was sufficient to cover the claims of all plaintiffs represented by [Law Firm], there would be no conflict. Based on the limited information currently available to me, I cannot determine if [Law Firm] committed an ethical violation, and I decline to speculate on the issue.

        Shayesteh v. Shayesteh, 2003 Cal. App. Unpub. 6274 (Cal. App. June 27, 2003).  William Wilburn represents the wife in a divorce proceeding.  He also represents the wife and Mike Noushfar in other litigation against the husband, seeking, among other things, money from the husband.  The husband moved to disqualify Wilburn, claiming that Wilburn has a conflict of interest, because the wife and Noushfar are going after the same pot of money.  The wife and Noushfar had signed a waiver, in which the “same pot” problem was explained.  The wife and Noushfar agreed in the waiver to a priority of distribution.  The husband claimed that the waiver was not adequate.  The trial court denied the motion, and the appellate court affirmed.

       Ackerman v. Miotke, 2006 Mich. App. LEXIS 942 (Mich. App. April 4, 2006).  Client wanted to sell land to a casino development company.  Client hired Lawyer to represent Client in selling the land.  Client ultimately sold the land for $10 million.  Under the contingent fee agreement Lawyer was entitled to $875,000.  Client refused to pay, and Lawyer sued.  The trial court found for Lawyer, and Client appealed.  In this opinion the appellate court affirmed.  From our perspective the most interesting defense put up by Client was that Lawyer had a conflict of interest.  The alleged conflict was that Lawyer was representing not only Client but other landowners in the vicinity wishing to sell their land to the same casino developer.  The court held that that was not a conflict because the parcels of land in question were not contiguous, and the city, over which neither Lawyer nor any of his clients had any control, would decide upon which land the casino would be located.

        Miess v. Port City Trucking, Inc., 2010 U.S. Dist. LEXIS 58290 (E.D. Mo. June 14, 2010).  This is a wrongful death action.  Plaintiff A is the natural mother of three deceased children.  Plaintiff B is the natural father of one of the deceased children.  Plaintiff B is being represented by Lawyers X and Y.  X and Y had earlier represented both A and B in this action, but had been disqualified from representing A.  A now moves to disqualify X and Y from representing B.  In this opinion the court granted the motion.  The court found that A and B would be adverse because they would be arguing over the apportionment of a single recovery permitted under the Missouri wrongful death law.

        Doe v. Yeshiva & Mesivta Torah Temimah, Inc., 2010 N.Y. Misc. LEXIS 5997 (N.Y. Sup. Ct. Dec. 14, 2010).  Lawyer brought two separate actions against a privately-owned religious school, on behalf of two boys who had allegedly, on separate occasions, been molested by a male teacher.  This opinion dealt with a motion by Lawyer to consolidate the two cases.  In denying the motion, the court noted that Lawyer may have a conflict of interest because the school had no insurance, and the assets may be insufficient to satisfy judgments in favor of both boys.  On the conflicts point the court cited In re New York Drug Lit., 15 Misc. 3d 1114 [A], 2007 N.Y. Slip Op. 50647 [U].  The court noted that neither party had addressed the issue and concluded by saying, "no more will be said about it now."

        In re Oreck Corp. Halo Vacuum & Air Purifiers Mktg. & Sales Practices Litig., 2012 U.S. Dist. LEXIS 54600 (C.D. Cal. April 17, 2012).  Motion to consolidate related class actions.  In this opinion the court granted the motion.  One objection was that the proposed interim class counsel would have a conflict because the classes might be competing for limited funds.  The court rejected that objection saying that such conflicts could be resolved "at the remedy stage."

        Herron v. Chisolm, 2012 U.S. Dist. LEXIS 180297 (S.D. Ga. Dec. 19, 2012).  In this case, three women, represented by Lawyer, sued the county prosecutor for sex discrimination in hiring an investigator.  The prosecutor moved to disqualify Lawyer, because the three plaintiffs are suing over one position.  In this opinion the magistrate judge denied the motion, citing cases that have held that in such instances multiple plaintiffs would share one full monetary recovery pro rata.  The judge did require Lawyer to obtain waivers including a full disclosure to the plaintiffs how the sharing of any recovery would work.  The prosecutor also claimed that because Lawyer had previously represented a prosecutor's employee in a sexual harassment case, Lawyer might violate Georgia's version of MR 1.6 in using that employee's information in this case.  The court added that Lawyer's disclosure to the plaintiffs should explain that Lawyer could not use such information.

        In In re Griffith, 748 P.2d 86, 100 (Ore. 1987) the court noted a lawyer might have a conflict when favoring one creditor over another in collecting assets from a common debtor (not so in this case).

        In In re Whitman, 101 B.R. 37 (N.D. Ind. 1989) the court held that the same lawyer could not represent the committee of unsecured creditors and a secured creditor.  However, the lawyer would be permitted to drop one representation and continue in the other.

        In re Seastreak, LLC, 2014 U.S. Dist. LEXIS 41741 (D.N.J. March 27, 2014). Admiralty case. In January 2013 a ferry carrying 327 passengers collided with a pier in New York City, injuring a number of passengers. The boat’s owner filed this action under the Limitation Act to establish the limit of its liability at $7.6 million, the value of the boat. The defendant passengers are arguing that under the “flotilla” exception the funds available would be the value of the entire fleet. Law Firm represents fourteen passengers and eleven spouses. The plaintiff moved to disqualify Law Firm. In this opinion the court denied the motion. The court held that, in effect, it was too early to say whether the passengers would be fighting over a limited fund or whether they would be testifying against each other. However, the court ordered each law firm representing multiple passengers to certify within 60 days that they have informed consent from their clients.

        Spagnuoli v. Louie’s Seafood Rest., LLC, 2014 U.S. Dist. LEXIS 67019 (E.D.N.Y. May 15, 2014). Plaintiffs filed this action making claims under the FLSA as well as related state law claims. The conflict issue in the case arises from Law Firm’s handling a state court sexual harassment case against the same defendants, thus raising “the same pool of money” or “zero sum” issues. The court rejected that basis for disqualification noting that, in class actions, the Second Circuit had never recognized it, and at least one district court had specifically rejected it, Sriram v. Pittore, 1992 WL 367106 (S.D.N.Y. Nov. 24, 1992). Presumably, the court was saying that zero sum is not a problem either in “collective actions” under FLSA or in “class actions” under Rule 23.

        Living Cross Ambulance Serv., Inc. v. New Mexico Pub. Reg. Comm’n, 2014 N.M. LEXIS 303 (N.M. Sept. 8, 2014). An ambulance company (“AmbCo. 1”) sought permission from the state Public Regulatory Commission (“PRC”) to serve a county. Another ambulance company (“AmbCo. 2”), already licensed, appeared to contest the application. AmbCo 1 was being represented by Lawyer. AmbCo. 2 moved to disqualify Lawyer because Lawyer had earlier represented AmbCo 2 in matters arguably related to this one. Before she was disqualified, Lawyer was able to present evidence at an emergency preliminary hearing. The full commission then held a hearing using the evidence developed by Lawyer and approved the application. In this direct appeal, the court held that the proceedings had gone too far before Lawyer’s exit, and the court vacated the commission’s grant of AmbCo 1’s application. The court stressed the importance of state regulatory agencies’ enforcing lawyer ethics rules.

        Smith v. Ga. Energy USA, LLC, 2014 U.S. Dist. LEXIS 133899 (Sept. 23, 2014). This is a class action by gasoline consumers against an owner of three gas stations, which had been using miscalibrated gas pumps. Class Counsel also represents non-class members in individual suits in state courts against the same owner. In this opinion the court noted a possible zero sum problem and gave Class Counsel a deadline to produce a “plan to address the problem.”

        Foltz v. Columbia Cas. Co., 2016 WL 4734687 (W.D. Okla. Sept. 9, 2016). A and B were in a truck, which collided with an auto driven by C. Evidently, the accident was C’s fault. A and B hired Lawyer who filed suit against A and B’s uninsured motorist carriers and against C. Lawyer’s retention agreement provided that A and B waive any “actual or potential conflict of interest which currently exist or may arise” out of Lawyer’s representation of them both. A fired Lawyer and then moved to disqualify Lawyer from representing B. In this opinion the court denied the motion, and, parsing the quoted language, relied upon contract law. The court noted that A seemed to have realized that he and B would be competing for the “same funds.” In a footnote the court also noted that A had not shown any prejudice by Lawyer’s continuing in the case and had not shown that he shared confidences with Lawyer before firing him.

        In re Sea Star Line, LLC, 2017 WL 485700 (M.D. Fla. Feb. 6, 2017). Law Firm, with conflict waivers, is representing three wrongful death claimants in a matter arising out a ferry crash at Staten Island. The ferry owner moved to disqualify Law Firm. In this opinion the court denied the motion because the three estates are aligned as to establishing the ferry owner’s liability and application of the admiralty Limitation Act. The court seemed to believe that Law Firm may have conflict issues during the “damages phase.”

        N.C. Op. 2001-6 (2001) would not allow a lawyer to represent multiple claimants in a worker's compensation case where one could win at the expense of the others.

        Fla. Op. 02-3 (2002) discusses circumstances under which a lawyer may represent both the passenger and driver in an accident involving another vehicle.  First, the insurance must be adequate to pay for both.  Second, there cannot be a claim of comparative fault by one client against the other.

        Ill. Op. 04-01 (Nov. 2004).  This ethics opinion assumes that a lawyer has a collection case for Client A against Debtor B.  Debtor B owns a piece of real estate, which would, of course, be potentially useful in collecting any judgment Client A may obtain against Debtor B.  During the collection proceedings Client C comes to the lawyer and asks him to represent Client C in purchasing the aforementioned real estate from Debtor B.  The committee opined that representing Client C in such a matter would be a non-waivable conflict.

        Canada.  A court enjoined a lawyer from representing one cab company vying for licenses in same location as the lawyer's other cab client, in Richmond Taxi Co. Holdings Ltd. v. Robbins, 2007 BCSC 1680 (CanLII) (B.C. S. Ct. Nov. 20, 2007).

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