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Lectric Limited, Inc. v. D G W, Inc.

United States District Court, N.D. Illinois, Eastern Division

March 28, 2017

LECTRIC LIMITED, INC., an Illinois Corporation, Plaintiff/Counter-Defendant,
v.
D G W, INC. d/b/a MELROSE T-TOP INTERNATIONAL, an Illinois Corporation, THE PARTS PLACE, INCORPORATED, an Illinois Corporation, and JVI HOLDINGS, LLC, an Illinois Corporation, Defendants/Counter-Plaintiffs.

          OPINION AND ORDER

          Sara L. Ellis, Judge

         Lectric Limited sued D G W, Inc. d/b/a Melrose T-Top International (“DGW/Melrose”), The Parts Place, Incorporated (“Parts Place”), and JVI Holdings, LLC (“JVI”) (collectively, the “Defendants”) regarding their use and claimed ownership of marks and logos that conflicted with Lectric Limited's common law trademark claims. Lectric Limited then learned that Griffin Williams LLP (“Griffin Williams”) represented each Defendant despite the positions in their answers and counterclaims that might adversely affect other Defendants, if true. Lectric Limited moves to disqualify Griffin Williams from representing any Defendant because of what Lectric Limited alleges are unwaivable conflicts of interest and because one of Griffin Williams' partners will need to testify in this litigation. The Court grants in part and denies in part Lectric Limited's motion [52]. Because there is a question whether Griffin Williams obtained informed consent to represent each Defendant concurrently and because the Court finds that Griffin Williams ceased representation of its first client, DGW/Melrose, in order to continue representing Parts Place and JVI, the Court finds that an ethical violation occurred. The Court will not disqualify Griffin Williams from continued participation in this litigation if each Defendant now provides informed consent, but, as a sanction, the Court strikes Defendants' previous pleadings filed by Griffin Williams. And because Lectric Limited has not shown that Griffin Williams' partner will be a necessary witness in this case, the Court denies without prejudice Lectric Limited's motion to disqualify the individual attorney.

         BACKGROUND[1]

         Lectric Limited produces classic-car replacement parts, including headlights bearing its alleged “T-3” mark, and it sued DGW/Melrose for manufacturing similar headlamps emblazoned with “T-3” and for deceptively labeling DGW/Melrose's “Power Beam” headlights as “Made in America.” DGW/Melrose answered the lawsuit and countersued Lectric Limited, denying that Lectric Limited should have any trademark protection for any T-3 mark and claiming that General Motors Company (“GM”) licenses to DGW/Melrose the right to use “T-3” on headlamps. After discovery commenced, Lectric Limited learned that Parts Place might be commissioning DGW/Melrose to build its headlamps. Lectric Limited also learned that Parts Place's sole owner, Joseph Improta, founded JVI, which obtained trademark registrations for three logos bearing “T-3” and then demanded that Lectric Limited cease using T-3 marks. Lectric Limited then filed an amended complaint against all Defendants, alleging trademark rights in T-3 marks, infringement by the Defendants, and the invalidity of JVI's T-3 logos. In response, JVI answered and DGW/Melrose and Parts Place answered and countersued, all using the same attorney that has represented DGW/Melrose since the beginning of litigation, Griffin Williams.

         Griffin Williams' clients presented a multitude of defenses and counterclaims. Regarding the parties' disputes about T-3-based marks, DGW/Melrose, Parts Place, and JVI maintained that GM has the rights to “T-3” (a position that GM subsequently denied, disclaiming any right in a T-3 mark). DGW/Melrose and Parts Place also alternatively claimed that “T-3” is generic or descriptive and therefore not subject to trademark protection. JVI also denied Lectric Limited's assertions that JVI has no enforceable trademarks in the logos, essentially asserting JVI's right in its registered logos. Lectric Limited further learned that to obtain registration and ownership of its logos, JVI had represented to the United States Patent and Trademark Office (“USPTO”) that it was the owner of the T-3 logos and that no other person had rights in the logos or any close approximation.

         DGW/Melrose and Parts Place alleged in their separate counterclaims against Lectric Limited that Lectric Limited falsely registered a trademark for a “Power Beam” mark that either GM actually holds or that is too generic or descriptive to qualify for trademark protection. Parts Place also contemporaneously filed an opposition to Lectric Limited's Power Beam trademark before the USPTO, claiming that Parts Place actually owns the Power Beam mark and asserting that Power Beam is not generic or descriptive but instead proper for trademark protection. Alleging potential contradictions between the positions taken by Griffin Williams' clients and noting that Griffin Williams partner Richard Williams had represented Parts Place and JVI in their filings before the USPTO, Lectric Limited moved to disqualify Griffin Williams. The Court stayed discovery and allowed supplemental discovery on Lectric Limited's ethical allegations, which the parties completed. Griffin Williams then withdrew its representation of DGW/Melrose and Defendants moved to voluntarily dismiss certain counterclaims and affirmative defenses.

         LEGAL STANDARD

         A motion to disqualify counsel requires a two-step analysis where a court (1) considers whether there is an ethical violation and then, if so, (2) determines whether disqualification is appropriate to remedy the violation. alfaCTP Sys., Inc. v. Nierman, No. 15-cv-9338, 2016 WL 687281, at *4 (N.D. Ill. Feb. 19, 2016). Disqualification of counsel is a “drastic measure” imposed only “when absolutely necessary.” Black Rush Mining, LLC v. Black Panther Mining, 840 F.Supp.2d 1085, 1089 (N.D. Ill. 2012) (quoting Schiessle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983)). Because disqualification deprives a party of the representation of their choosing, disqualification motions-although sometimes legitimate and necessary-are “viewed with extreme caution for they can be misused as techniques of harassment.” Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721 (7th Cir. 1982). “There must be solid evidence to support an allegation of conflict.” Fematt v. Finnigan, No. 11-cv-1530, 2012 WL 3308759, at *2 (N.D. Ill. Aug. 13, 2012). The moving party therefore bears a heavy burden of proving the facts required for disqualification. alfaCTP Sys., Inc., 2016 WL 687281, at *4; Guillen v. City of Chicago, 956 F.Supp. 1416, 1421 (N.D. Ill. 1997).

         ANALYSIS

         Lectric Limited argues that Griffin Williams cannot represent DGW/Melrose, Parts Place, or JVI because (1) Griffin Williams represented each Defendant at the same time despite the fact that each Defendant presented conflicted positions on trademark claims inside and outside this litigation and because (2) Richard Williams will be a necessary witness in Lectric Limited's case against Defendants. The Court analyzes Lectric Limited's motion under the American Bar Association's Model Rules of Professional Conduct (the “Model Rules”), which this district has generally adopted as its rules of professional conduct. N.D.Ill. L.R. 83.50. Local Rule 83.50 establishes one exception to its general adoption of the Model Rules and instructs the Court to turn to the “rules of Professional Conduct in the state in which the lawyer's principal office is located” when the Model Rules are silent on the issue raised or are inconsistent with the state's rules. Id. The Court would turn to the Illinois Rules of Professional Conduct after the Model Rules if necessary, but the Court has not found that the Model Rules lack sufficient guidance or are materially inconsistent with their analogues in the Illinois Rule of Professional Conduct. And because no party requests an evidentiary hearing and because there is no need for such a hearing, Lectric Limited's “motion may be resolved on the papers.” Steines v. Menrisky, --- F.Supp.3d. ----, 2016 WL 7034132, at *1 (N.D. Ill.Dec. 2, 2016).

         I. Violation of Model Rule 1.7

         Model Rule 1.7 states that a lawyer ordinarily “shall not represent a client if the representation involves a concurrent conflict of interest, ” which 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.” Model R. of Prof'l Conduct R. 1.7(a). Notwithstanding the existence of such a concurrent conflict of interest, “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.” Id. R. 1.7(b). Because conflicts of one firm attorney are imputed to the entire firm and because the same Griffin Williams attorneys represented all three Defendants in this litigation, the Court analyzes conflicts as to Griffin Williams. See Id . R. 1.10(a) (“While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rule[ ] 1.7” unless “waived by the affected client under the conditions stated in Rule 1.7”).

         First, the Court resolves the parties' disagreement as to which Defendants are relevant to Lectric Limited's motion. After Lectric Limited filed its motion to disqualify, Griffin Williams ceased representing DGW/Melrose, and DGW/Melrose's attorneys from Griffin Williams, Kristin Stone and Joshua Feagans, moved to withdraw their appearances for DGW/Melrose. Doc. 77.[2] After, DGW/Melrose did not respond to Lectric Limited's motion to disqualify. Parts Place and JVI did respond, and they argue that because Griffin Williams no longer represents DGW/Melrose, the Court should not address Griffin Williams' representation of DGW/Melrose. “Courts generally determine client status (current versus former) at the time of complaint filing.” See alfaCTP Sys., Inc., 2016 WL 687281, at *4. Here, Griffin Williams represented DGW/Melrose until the time came for the Defendants to respond to the motion to disqualify. Further, Griffin Williams' actions raise the “hot potato doctrine, ” which “bars an attorney from representing a more lucrative client in a case against a less lucrative client, which the attorney dropped like a ‘hot potato' when the more lucrative client came along.” See Metro. Life Ins. Co. v. Guardian Life Ins. Co. of Am., No. 06 C 5812, 2009 WL 1439717, at *3 (N.D. Ill. May 18, 2009); ValuePart, Inc. v. Clements, No. 06 C 2709, 2006 WL 2252541, at *2 (N.D. Ill. Aug. 2, 2006). “The ‘hot potato doctrine' clearly applies to those instances in which a lawyer drops a current client, for which the representation continued, in order to turn that client into a former client as a means of curing a simultaneous representation of adverse interests.” Metro. Life Ins. Co., 2009 WL 1439717, at *5 (citations omitted). When the doctrine applies, the former client is treated as a current client for the client conflicts analysis. See ValuePart, Inc., 2006 WL 2252541, at *2 (“A lawyer's withdrawal from representing a client only renders the client a former client when: (1) it occurs at a time when the lawyer and the client had contemplated the end of the representation; and (2) the lawyer's primary motivation for terminating the relationship was not his desire to represent the new client.”). Because it appears that Griffin Williams stopped representing DGW/Melrose because of a potential conflict and “not because of any natural conclusion or closure of the pending matters in which [Griffin Williams] was representing [DGW/Melrose], ” the Court treats DGW/Melrose as a current client for purposes of this motion. See Id . (finding concurrent conflict of interest between current client and former client because former client was dropped to represent the current client).

         Parts Place and JVI also argue that there can be no adversity between them because one person, Mr. Improta, wholly owns both of them. The Model Rules do not bar a lawyer from representing a party adverse to a client's corporate affiliate in unrelated matters “unless the circumstances are such that the affiliate should also be considered a client of the lawyer, there is an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client's affiliates, or the lawyer's obligations to either the organizational client or the new client are likely to limit materially the lawyer's representation of the other client.” Model R. of Prof'l Conduct R. 1.7 cmt. 34; see also Standard Ret. Servs., Inc. v. Ky. Bancshares, Inc., No. CIV.A. 514-026-DCR, 2014 WL 4783016, at *6 (E.D. Ky. Sept. 24, 2014) (rejecting argument that common ownership barred adverse representation against corporate affiliate that lawyer did not represent). If the Model Rules prohibit a lawyer being adverse to a client's corporate affiliate in an unrelated matter when the affiliate is also a client or when the representation would be materially limited, then surely the Model Rules also prohibit a lawyer being adverse to such a corporate affiliate in the same matter. From either the viewpoint of Parts Place or JVI, Griffin Williams represents the client's affiliate in the same matter. Other than averring that Mr. Improta owns both companies, Parts Place and JVI do not present any argument or case law ...


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