ZERO SUM GAMES
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Zero-sum games are games where the amount of "winnable goods"
(or resources in our terminology) is fixed. Whatever is gained by one
actor, is therefore lost by the other actor: the sum of gained (positive)
and lost (negative) is zero.
Francis Heylighen
Principia Cybernetica
http://pcp.lanl.gov/ZESUGAM.html
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. (As to what
conflicts are not waivable, go to that part of this site entitled
"Non-Waivable Conflicts," by clicking here.)
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.
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.
The author of
this site 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.
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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