By: Eric Caligiuri
In Lanard Toys Limited v. Toys “R” Us, Inc. et al, 3-15-cv-00849 (FLMD December 16, 2016, Order) (Barksdale, MJ), a patent infringement matter in Florida District Court, the court denied defendants’ motion to disqualify plaintiff’s new counsel for simultaneously representing defendant in an unrelated case. Four months after lawyers with Gordon & Rees Scully Mansukhani LLP (“Gordon & Rees”) began representation of Lanard Toys Limited (“Lanard”) against Toys “R” Us-Delaware, Inc. (“TRU”), other lawyers with Gordon & Rees began representation of TRU in a California state case. Upon discovering the conflict of interest, Gordon Rees withdrew from representing TRU in the California matter. However, Gordon Rees refused to withdraw from the Florida case, so TRU filed a motion seeking disqualification.
Gordon Rees asserted the dual representation was a result of an “inadvertent input error,” wherein the names of some of the parties where inadvertently omitted from the conflict tracking software during the conflicts check, and not because Gordon & Rees deliberately disregarded the duty of loyalty to a client. Gordon Rees was only acting as local counsel to TRU in the California matter. The only activity in which Gordon & Rees participated on behalf of TRU in the California Case was the finalization and filing of TRU’s answer to the complaint at the direction of the Palter Firm, who was TRU’s primary counsel in the California matter. According to the attorneys, Gordon & Rees and TRU never spoke with each other prior to TRU raising the conflict issue; there was no retention agreement entered into between the parties and no confidential information relevant to the Florida case was exchanged, nor was any confidential information relating to TRU’s strategic approach for defending against cases, in general, exchanged. Gordon & Rees’s sole tasks with respect to TRU in the California Case during the time of the representation, according to them, were to propose edits to a draft Answer for TRU that was prepared by lead counsel, the Palter Firm, and to inform the Palter Firm that a TRU officer had to verify it.
In contrast, in the Florida matter, Gordon Rees is Lanard’s primary counsel, has spent hundreds of hours reviewing documents, has taken depositions in two states, and has represented Lanard in numerous prior cases. Therefore, according to Lanard and Gordon Rees, it would take substantial effort and cost to bring new counsel up to speed on the Florida case.
In analyzing the issue and ruling on TRU’s disqualification motion, the Court first noted that because a litigant is presumptively entitled to counsel of its choosing, only a compelling reason will justify disqualification. Disqualification is a “harsh sanction, often working substantial hardship on the client,” so it “should be resorted to sparingly.” And, because a disqualification motion may be used to harass or for tactical advantage, it should be viewed with caution. The Florida Court further noted disqualification is not mandatory, even if a court finds a lawyer is violating a conflict-of-interest rule. Instead, a “court should be conscious of its responsibility to preserve a reasonable balance between the need to ensure ethical conduct on the part of lawyers appearing before it and other social interests, which include the litigant’s right to freely chosen counsel.” In undertaking the balancing, pertinent factors may include the nature of the ethical violation, the age of the case, the prejudice to the parties, the effectiveness of counsel in light of the violation, the public’s perception of the profession, whether the attempt to disqualify is a tactical device or a means of harassment, and whether any screening measures have been implemented.
The Florida Court then found that by undertaking representation of TRU in the California case while simultaneously undertaking representation against TRU in the Florida case, Gordon & Rees did violate Florida’s conflict of interest laws. However, it was an inadvertent input error—not a deliberate disregard of the duty of loyalty—that caused that violation. In addition, the Florida Court also found Lanard would suffer a substantial hardship by having to retain new counsel to repeat or review work. As to the California matter, the Florida Court found the Gordon & Rees lawyers did not directly communicate with TRU or, as stated in the declarations, receive any TRU confidences. With no sharing of TRU confidences and able counsel on both sides, the violation will not diminish counsel’s effectiveness. And Gordon & Rees’s active representation of TRU lasted less than a month, during which it was not TRU’s primary counsel. Thus, the Florida Court concluded “[b]alancing the interests and mindful that Lanard is presumptively entitled to counsel of its choosing and disqualification is a harsh sanction to be resorted to sparingly, disqualification is unwarranted.”
Although the court denied the disqualification motion, this case is still a strong cautionary warning to consider potential conflict issues when selecting counsel. Otherwise, at best, a costly disqualification motion can result, and at worst, new counsel may need to be hired in the middle of litigation at substantial additional cost and effort.