United States District Court,

S.D. Texas,

Houston Division.

NIPPONKOA INSURANCE CO., LTD. and Toshiba International Corporation, Plaintiffs,

v.

PORT TERMINAL RAILROAD ASSOCIATION, Defendant.

 

Civil Action No. H–10–0284.

March 23, 2011.

 

OPINION AND ORDER

MELINDA HARMON, District Judge.

Pending before the Court in the above referenced cause, seeking under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706, to recover up to or more than $2,600,000 for damage to a large industrial generator during rail transit within the Port of Houston, is Claimant Caterpillar Americas, C.V.’s (“Caterpillar’s”) opposed motion to intervene (# 22).

 

I. Factual Allegations of Plaintiffs’ Amended Complaint

According to the Amended Complaint (# 11), Plaintiff NipponKoa Insurance Company, Ltd. (“NipponKoa”) is an insurance company incorporated in Japan, with its principal place of business in Tokyo, Japan, and the insurer of the shipment in dispute. Plaintiff Toshiba International Corporation (“TIC”), a subsidiary of Toshiba Corporation in Japan, is a corporation organized under the laws of California, with its principal place of business in Texas. TIC develops and sells large industrial generators. It was the shipper and owner of the shipment at issue. Defendant PTRA is organized and exists under the laws of Texas with its principal place of business in Houston, Texas. PTRA operates trains in the Port of Houston and controls, operates, maintains and/or manages the rail tracks at the American Yard in Houston.

 

Plaintiffs sue on their own behalf and as agent, trustee, assignee and/or subrogee on behalf of and for the interest of all parties interested in, and who were injured as a result of the damage to, the shipment.

 

Plaintiffs allege that a Steam Generating System for production of electricity was shipped in good condition on or about December 1, 2008 from Yokohama, Japan and delivered to the M/V Rickmers Hamburg for transport to Houston, Texas. It arrived in Houston on or about December 31, 2008, and the Generator Assembly component of the Steam Generating Set (“the shipment”) was delivered in good order and condition to the care and custody of, and was accepted by, PTRA. PTRA agreed to transport and carry the shipment within the Port of Houston, for ultimate transport to Hastings, Nebraska.

 

Plaintiffs assert that on or about February 1, 2009 around noon in clear weather, the shipment was resting at the American Yard when a PTRA-operated train was negligently moved on the track next to it, carrying a variety of cargo, including an oversized Caterpillar dump truck weighing approximately 245,000 kilograms. The Caterpillar dump truck struck the generator and substantially damaged it. Plaintiffs claim that PTRA was negligent in operating the moving train and/or operating the American Yard, particularly because the train was traveling on the wrong track and the operator did not exercise due care in making sure there was sufficient distance between the Caterpillar dump truck and the shipment. PTRA delivered the shipment damaged up to and exceeding $2,600,000, in violation of its obligations and duties as a carrier of merchandise for hire to perform its services in a careful, workmanlike manner. All portions of the carriage were part of an international and interstate transportation.

 

II. Caterpillar’s Motion to Intervene (# 22)

Moving to intervene permissively under Federal Rule of Civil Procedure 24(b)(1)(B), Claimant Caterpillar, seeking to recover for damages to its cargo of a 797B Off–Highway Truck and related components in Houston on February 1, 2009, argues that it has a valid claim for cargo damage against PTRA that arises from the same occurrence described in Plaintiffs’ complaint and shares common facts and legal issues. Moreover, Caterpillar maintains that no other party here can adequately represent its interests. Caterpillar further states that it is not aware of any undue delay or prejudice to the adjudication of the parties’s rights that would occur if it is permitted to intervene, while allowing it to intervene would prevent duplicative litigation, inconsistent rulings and unnecessary costs, would conserve judicial resources, and would promote comprehensive disposition of litigation for all of the parties and interests.

 

The Original Complaint in Intervention attached to Caterpillar’s motion (# 22–1) states that the Court has diversity jurisdiction over its claim under 28 U.S.C. § 1332(a)(2). The common factual and legal issues with the main action are (1) the collision of the railcar on which Caterpillar’s cargo was stowed with the rail car stowing Plaintiffs’ steam generator and (2) Defendants’ alleged negligence.

 

III. Relevant Law

A. Intervention and Fed.R.Civ.P. 24

“The purpose of intervention is to admit, by leave of court, a person who is not an original party into a proceeding. The intervening party then becomes a ‘party’ for the purpose of protecting some right or interest alleged by the intervenor to be affected by the proceeding.” Deus v. Allstate Ins. Co., 15 F.3d 506, 525 (5th Cir.1994), cert. denied, 513 U.S. 1014 (1994). Intervention “is intended to prevent multiple lawsuits where common questions of law or fact are involved, but is not intended to allow the creation of whole new lawsuits by the intervenors.” Id.

 

Federal Rule of Civil Procedure 24 establishes two kinds of intervention: intervention of right (Rule 24(a)) and permissive intervention (Rule 24(b)). Here Caterpillar seeks permissive intervention.

 

Federal Rule of Civil Procedure 24(b)(1) provides, “On timely motion, the court may permit anyone to intervene who: (A) is given a conditional right to intervene by a federal statute; or (B) has a claim or defense that shares with the main action a common question of law or fact.” To intervene permissibly a party must have independent jurisdictional grounds except when the action is a class action. Harris v. Amoco Production Co., 768 F.2d 669, 675 (5th Cir.1985) (it is “well established” that “a party must have independent jurisdictional grounds to intervene permissibly under Rule 24(b)”); Johnson v. Riverland Levee Dist., 117 F.2d 711, 714–15 (8th Cir.1941); Moore’s Federal Practice § 24.11 (Matthew Bender & Co.2010). Rule 24(b)(3) states, “In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights.” The court should consider, among other factors, whether the intervenors are adequately represented by other parties and whether they are likely to contribute significantly to the development of the underlying factual issues. League of United Latin American Citizens, Council No. 4434 v. Clements, 884 F.2d 185, 189 (5th Cir.1989) (“Rule 24(b)(2) provides for permissive intervention when (1) timely application is made by the intervenor, (2) the intervenor’s claim or defense and the main action have a question of law or fact in common, and (3) intervention will not unduly delay or prejudice the adjudication of the rights of the original parties.”); Cal Data Systems, Inc. v. NCS Pearson, Inc., Civ. A. No. H–07–1390, 2008 WL 1730539,(S.D.Tex. Apr.10, 2008). Where permissive intervention would further complicate the case without any added benefit, the court may deny a motion to intervene. Farouk Systems, Inc. v. Costco Wholesale Corp., Civ. A. No. 09–cv–3499, 2010 WL 1576690,(S.D.Tex. Apr.20, 2010) (refusing permissive intervention because it “could add considerable complication and delay to this case.”). Permissive intervention is at the discretion of the court even if the potential intervenor satisfies the requirements of Rule 24(b). Kneeland v. Nat’l Collegiate Athletic Ass’n, 806 F.2d 1285, 1289 (5th Cir.1987); Newby v. Enron Corp., 443 F.3d 416, 424 (5th Cir.2006).

 

B. Carmack Amendment

The Carmack Amendment, enacted in 1906 as part of the former Interstate Commerce Act, altered and recodified through the years, and now codified at 49 U.S.C. § 11706, created a national scheme to compensate shippers for goods damaged or lost during interstate shipping. Schoenmann Produce Co. v. Burlington Northern and Santa Fe Railway Company, 420 F.Supp.2d 757, 759 (S.D.Tex.2006), citing New York, New Haven & Hartford R.R. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953). Congress intended the Carmack Amendment “to provide the exclusive cause of action for loss or damages to goods arising from the interstate transportation of those goods by a common carrier.” Gulf Rice Arkansas, LLC v. Union Pacific Railroad Co., 376 F.Supp.2d 715, 719 (S.D.Tex.2005), citing Hoskins v. Bekins Van Lines, 343 F.3d 769, 776–78 (5th Cir.2003). The complete preemption doctrine applies to cases for common carrier liability under it, and thus common law and state-law claims such as negligence and breach of contract are preempted. Id., citing Hoskins, Inc., 343 F.3d at 772–78. See, e.g., American Railway Express Co. v. Levee, 263 U.S. 19, 44 S.Ct. 11, 68 L.Ed. 140 (1923); Air Products & Chemicals, Inc. v. Illinois Central Gulf Railroad Co., 721 F.2d 483 (5th Cir.1983) (“the Carmack Amendment, as judicially interpreted, provides an exclusive remedy for a breach of contract of carriage provided by a bill of lading …”).

 

The Hoskins panel explained that the preemptive effect of the Carmack Amendment is based on Congress’s intent in enacting it, i.e., to provide a uniform, national remedy against common carriers, which “were being subjected to such a diversity of legislative and judicial holding that it was practically impossible for a shipper engaged in a business that extended beyond the confines of his own State, or for a carrier whose lines were extensive, to know, without considerable investigation and trouble, and even then oftentimes with but little certainty, what would be the carrier’s actual responsibility as to goods delivered to it for transportation from one State to another.” Id. at 776, quoting Adams Express Co. v. Croninger, 226 U.S. 491, 505, 33 S.Ct. 148, 57 L.Ed. 314 (1913).

 

No one contends that any of the five common law defenses (act of God, act of shipper, inherent vice, public enemy, and public authority) applies here.

 

Section 11706(a) provides in relevant part,

 

(a) A rail carrier providing transportation or service subject to the jurisdiction of the [Surface Transportation Board] … shall issue a receipt or bill of lading for property it receives for transportation … [and is] liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this subsection is for the actual loss or injury to the property caused by—

 

(1) the receiving rail carrier;

 

(2) the delivering carrier; or

 

(3) another rail carrier over whose line or route the property is transported in the United States or from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading.

 

Failure to issue a receipt or bill of lading does not affect the liability of a rail carrier. A delivering rail carrier is deemed to be the rail carrier performing the line-haul transportation nearest the destination, but does not include a carrier providing only a switching service at the destination.

 

(b) The rail carrier issuing the receipt or bill of lading under subsection (a) of this section or delivering the property for which the receipt or bill of lading was issued is entitled to recover from the carrier over whose line or route the loss or injury occurred the amount required to be paid to the owners of the property, as evidenced by a receipt, judgment, or transcript, and the amount of its expenses reasonably incurred in defending a civil action brought by that person.

 

(c) (1) A rail carrier of passengers may not limit its liability imposed under subsection (a) of this section except as provided in this subsection. A limitation of liability or of the amount of recovery or representation or agreement in a receipt, bill of lading, contract, or rule in violation of this section is void….

 

(3) A rail carrier providing transportation or service subject to the jurisdiction of the Board under this part may establish rates for transportation of property under which—

 

(A) the liability of the rail carrier for such property is limited to a value established by written declaration of the shipper or by a written agreement between the shipper and the carrier; or

 

(B) specified amounts are deducted, pursuant to a written agreement between the shipper and the carrier, from any claim against the carrier with respect to the transportation of such property….

 

49 U.S.C. § 11706.

 

Courts have held that the requirement that the carrier must issue a receipt or bill of lading before it moves the cargo may be met by an agreement regarding the major terms of the contract of carriage before shipment as long as the shipper manifests assent to the terms of the bill before the shipment began and where a course of dealings indicates a pricing agreement and rate schedule had been in place between the parties for years. Hyundai Corp. v. Contractors Cargo Co., Civ. A. No. H–07–2625, 2008 WL 4178188,(S.D.Tex. Sept.5, 2008).

 

To make a prima facie case for damage to goods arising from the interstate transportation of goods by a common carrier, the shipper must show (1) delivery of the goods in good condition, (2) receipt by the consignee of damaged goods, and (3) the amount of damages. Gulf Rice, 376 F.Supp.2d at 719, citing Hoskins, 343 F.3d at 778. See also Mo. Pac. R.R. Co. v. Elmore & Stahl, 377 U.S. 134, 138, 84 S.Ct. 1142, 12 L.Ed.2d 194 (1964) (“[U]nder federal law, in an action to recover from a carrier for damage to a shipment, the shipper establishes his prima facie case when he shows delivery in good condition, arrival in damaged condition, and the amount of damages.”). After the shipper makes a prima facie case of negligence, for purposes of this action  the carrier may assert as an affirmative defense that an agreed upon limitation of liability on alternative terms applies. Schoenmann Produce, 420 F.Supp.2d at 762. Even if the shipper and carrier have contracted for different rates and conditions, the Carmack Amendment still preempts all state law and common law claims for goods damaged by the carrier. Id. at 762–63, citing Gulf Rice, 376 F.Supp.2d at 719.

 

Usually, after a prima facie case is made by the shipper, the carrier can overcome the presumption of negligence by demonstrating that it was not negligent and that the damage was due to the inherent nature of the goods or attributable to an act of God, public enemy, the shipper, or public authority. Mo. Pac. R.R. v/ Elmore & Stahl, 377 U.S. 134, 137, 84 S.Ct. 1142, 12 L.Ed.2d 194 (1964). Here, however, the issue is whether the carrier limited its liability.

 

In what has become known as the “Hughes test,” developed by the Seventh Circuit in 1987 and adopted by the Fifth Circuit, to limit its liability under the Carmack Amendment a carrier must (1) maintain a tariff within the prescribed guidelines of the Interstate Commerce Commission (now the Surface Transportation Board); (2) obtain the shipper’s written agreement as to its choice of liability; (3) give the shipper a reasonable opportunity to choose between two or more levels of liability; and (4) issue a receipt or bill of lading before the transport. Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1415 (7th Cir.1987), cert. denied, 485 U.S. 913, 108 S.Ct. 1068, 99 L.Ed.2d 248 (1988); adopted, Rohner Gehrig Co., Inc. v. Tri–State Motor Transit, 950 F.2d 1079, 1082 (5th Cir.1992) (en banc ) (adopting Hughes test for limitation of liability). The Fifth Circuit explained in Rohner Gehrig,

 

… [U]nder the I.C.C. scheme, if a carrier desires to limit its liability it must file one or more tariffs that set forth terms and conditions of shipment, freight rates available, and information relevant to shipping, including limitation of liability. Central to the scheme of limitation of liability is the requirement that each rate listed in the tariffs specify a “released rate,” which is the maximum dollar liability per unit of weight for which the carrier will be liable. Also central to the I.C.C.’s liability limitation scheme is the requirement that there be a written agreement between the shipper and the carrier. The B.O.L. [bill of lading] is the form most frequently used for such agreements. If the carrier is to limit its liability, the written agreement between shipper and carrier must contain a so-called “inadvertence clause.” The inadvertence clause specifies the released rate and states that such rate will apply unless the shipper declares otherwise.

 

Rohner Gehrig, 950 F.3d at 1082.

 

With deregulation, the first prong of the Hughes test has been modified since the Interstate Commerce Commission was replaced by the Surface Transportation Board under the ICC Termination Act of 1995, 49 U.S.C. § 702. Gulf Rice, 376 F.Supp.2d at 721. Tariffs are no longer filed, so instead the shipper now bears the burden of requesting a copy of the carrier’s tariff. Id., citing Firemen’s Fund McGee v. Landstar Ranger, 250 F.Supp.2d 684, 689 (S.D.Tex.2003), citing EFS National Bank v. Averitt Express, Inc. ., 164 F.Supp.2d 994, 1002 (W.D.Tenn.2001). Regarding the third prong, a “fair opportunity means that the shipper had both reasonable notice of the liability limitation and the opportunity to obtain information necessary to make a deliberate and a well informed choice…. In addition, any limitation of liability must be brought to the attention of the shipper before the contract is signed, and the shipper must be given a choice to contract, with or without, the limitation of liability in the movement of his goods .” Hughes, 829 F.2d at 1419–20. Finally, the Fifth Circuit has held that a bill of lading that substantially, but not strictly, complies with the related tariffs filed by the carrier may support limitation of the carrier’s liability. Rohner Gehrig Co., Inc. v. Tri–State Motor Transit, 950 F.2d 1079, 1083 (5th Cir.1992). The sophistication of the shipper for purposes of the “reasonable opportunity” prong has no relevance to substantial compliance of the carrier’s bill of lading with its tariff, nor with the second and third prongs of the Hughes test. Id. at 1083. Among factors to consider in determining whether the carrier gave the shipper a “fair opportunity to choose among various levels of liability” are whether the limitation clause was in boldface type or set off in an enclosed block or box, printed in distinctively large or small type size, and conspicuously located. Rohner Gehrig, 950 F.2d at 1084. The carrier has the burden of proving that it has met the four Hughes requirements. Id. at 1081. Moreover, the general rule of contract construction that an ambiguous contract is to be construed against the drafter (in limitation of liability under the Carmack Amendment, the carrier) applies. Hyundai Corp. (USA), v. Contractors Cargo Co., No. H–07–2625, 2008 WL 4178188,(S.D.Tex.2008).

 

Response to Caterpillar’s Motion (# 23)

NipponKoa did not file a response to the motion.

 

In its response in opposition, PTRA points out that Caterpillar’s motion is for permissive intervention under Rule 24(b)(1)(B), not intervention of right under Rule 24(a). Rule 24(b)(1)(B) recites, “On timely motion, the court may permit anyone to intervene who … has a claim or defense that shares with the main action a common question of law or fact.” In the Fifth Circuit, unlike a denial of a motion to intervene of right, a denial of a motion for permissive intervention is not appealable unless there is an abuse of discretion. Bush v. Viterna, 740 F.2d 350 (5th Cir.1984); Woolen v. Surtran Taxicabs, Inc., 684 F.2d 324 (5th Cir.1982).

 

PTRA insists the only common question of law or fact is the accident, i.e., that TIC’s generator/transformer, while in PTRA’s possession, collided with the Caterpillar mining machines. The focus on this case is on limitation of liability under the Carmack Amendment. Plaintiffs and Caterpillar have different bills of lading from different railroads (BNSF and Norfolk Southern Railway (Ex. A to # 23), respectively). They also claim very different kinds and amounts of damages (approximately $2,600,000 and $1,103,112.14) to very different types of equipment (generator/transformer manufactured in Japan and in route to Halloran, NE, and Caterpillar mining machines shipped from Decatur, IL to Houston Texas, to the Jacintoport Terminal, and ultimately to Antofagasta, Chile, respectively), and would thus require different experts to testify to reasonable costs of repair. The only thing in common is the facts of the accident.

 

Court’s Decision

After considering the matter, this Court agrees with PTRA and finds that the issues not in common are those that make up most of the remaining issues. PTRA has conceded that the accident was its fault. The focus is therefore on the extent and amount of damages to the cargoes involved. That Caterpillar’s claims would involve a entirely different bill of lading, different kinds and amounts in damages (approximately $2,600,000 and $1,103,112.14) to very different types of equipment (generator/transformer manufactured in Japan and in route to Halloran, NE, and Caterpillar mining machines shipped from Decatur, IL to Houston Texas, to the Jacintoport Terminal, and ultimately to Antofagasta, Chile, respectively), different discovery and different experts, thus complicating this lawsuit and delaying the litigation, leads the Court to conclude that the motion to intervene should be denied. Where permissive intervention would further complicate the case without any added benefit, the court may deny a motion to intervene. Farouk Systems, Inc. v. Costco Wholesale Corp., Civ. A. No. 09–cv–3499, 2010 WL 1576690,(S.D.Tex. Apr.20, 2010) (refusing permissive intervention because it “could add considerable complication and delay to this case.”). The Court finds that permitting intervention here would only serve to complicate this lawsuit without any added benefit.

 

Accordingly, the Court

 

ORDERS that Caterpillar’s motion to intervene (# 22) is DENIED.

United States District Court,

D. Nevada.

SENTRY SELECT INSURANCE CO., Plaintiff,

v.

Dean MEYER, et al., Defendants.

 

No. 2:07–cv–01049–RLH–LRL.

March 23, 2011.

 

Laurence J. Rabinovich, Lorienton N.A. Palmer, Schindel, Farman, Lipsius, Gardner & Rabinovich LLP, New York, NY, Lyssa S. Anderson, Fox Rothschild LLP, Las Vegas, NV, for Plaintiff.

 

Bradley J. Biggs, The Doyle Firm, P.C., Phoenix, AZ, Amy B. Honodel, Chasey Honodel, William H. Doyle, Doyle Berman Murdy, P.C., Christine Roberts, Elizabeth E. Stephens, Sullivan Hill Lewin Rez & Engel, Dustin L. Dingman, Galian Wilcox Welker Olson & Beckstrom LC, Las Vegas, NV, James P. Hill, San Diego, CA, Michael I. Welker, Gallian, Wilcox, Welker & Olson, L.C., Mesquite, NV, for Defendants.

 

DECISION and ORDER

LAWRENCE R. LEAVITT, United States Magistrate Judge.

This case comes before the court on plaintiff Sentry Select Insurance Company’s (“Sentry’s”) Motion to Disqualify the Doyle Firm and Attorneys William Doyle and Amy Honodel (# 185). The court has considered the motion, defendants Michael Thieman (“Thieman”) and Insurance Company of Hannover’s (“Hannover’s”) Response (# 190), Amy Honodel’s separate Response (# 189), and plaintiff’s Reply (# 191). For the reasons that follow, the motion is granted in part.

 

BACKGROUND

This is a declaratory relief action in which Sentry seeks a determination that it is not obligated to provide coverage for Mr. Thieman or anyone else in connection with a $5.5 million judgment in favor of Lance Otterstein and against Mr. Thieman in an underlying Nevada state personal injury action. In the alternative, if the court were to determine that under an MCS– 90 endorsement Sentry is obligated to pay all or some portion of the underlying judgment, Sentry seeks a determination that it may recover the payment from Mr. Thieman and/or his insurer, Hannover.

 

The underlying action arose out of a November, 2001 vehicular accident in which a tractor-trailer rig driven by Mr. Thieman collided with a motorcycle driven by Mr. Otterstein, resulting in significant bodily injury to Mr. Otterstein. It appears that at the time of the accident Mr. Thieman was employed by Murray Transportation, which had leased the tractor-trailer rig from Dean and Billie Meyer (collectively “the Meyers”). The Meyers operated as a federally certified interstate motor carrier, and were the owners of the tractor-trailer rig in question. Murray Transportation, which was a federally certified interstate motor carrier, insured the leased tractor-trailer rig through Hannover. The Meyers’ vehicles were insured by Sentry. The Meyers allege, however, that when Murray Transportation leased the rig and insured it through Hannover, the Meyers removed the rig from the Sentry policy. Sentry therefore contends that at the time of the accident the policy it issued to the Meyers did not cover the rig in question .

 

Hannover alleges that prior to the accident Murray Transportation’s lease of the rig from the Meyers had been terminated, and control of the rig had been returned to the Meyers.

 

In April, 2003, Mr. Otterstein filed the underlying personal injury action against Murray Transportation and Mr. Thieman in the Eighth Judicial District Court. Hannover retained the Doyle Firm to represent both Murray Transportation and Mr. Thieman. Attorneys William Doyle and Amy Honodel were assigned to defend both defendants. The limit of Hannover’s liability policy was $1 million. Mr. Otterstein’s medical specials well exceeded $300,000.

 

Murray Transportation is not a defendant in the action sub judice.

 

Ms. Honodel is no longer affiliated with the Doyle Firm.

 

In February, 2005, Mr. Otterstein’s counsel, Matthew Aaron, offered to release all defendants in exchange for Hannover’s policy limits of $1 million. Defendants did not respond to the offer. Following an attempt at mediation on March 17, 2006, during which Hanover disclosed that the Doyle Firm would defend Murray Transportation and Mr. Thieman under a reservation of rights, Mr. Aaron faxed a letter to Ms. Honodel on March 22, 2006, in which he noted that “[i]t is certainly clear now, as I have stated in the past, that in order to avoid the appearance of a conflict of interest, your clients need the advice of personal counsel.” Exhibit 7 to Sentry’s Motion to Disqualify (# 185–3). On the very next day, March 23, 2006, Mr. Doyle advised Hannover in an email that although Hannover’s reservation of rights as to Mr. Thieman “may not technically create a conflict, … on a practical level there is no question a conflict exists.” Exhibit 4 to Sentry’s Motion (# 185–1). Mr. Doyle went on to say:

 

For example, since Hannover is controlling the defense of Murray I can only assume that you will be directing us to defend Murray on the basis that there (sic) are not involved as a result of no ownership of the vehicle. This potentially leaves Thieman exposed on several fronts. In addition the ROR potentially gives Thieman a right to cut a deal with the Pltfs to protect himself. This deal is potentially adverse to Murray since Murray may be vicariously liable if the jury concluded that Murray still owned the truck. I can’t see how I can represent Thieman and do what is necessary to protect him while at the same time represent Murray…. There (sic) interest are potentially adverse and I don’t think we can represent both.

 

Id.

 

Nevertheless, during the same period of time, the Doyle Firm was, in Mr. Doyle’s words, engaged in “continuing” settlement discussions with Otterstein’s counsel on behalf of Murray Transportation and Mr. Thieman “concerning Mr. Thieman stipulating to a judgment and assigning his rights against Sentry for its failure to defend and protect him.” Exhibit 6 to Sentry’s Motion (# 185–3).

 

On or about May 7, 2006, attorney Jerry Busby substituted into the state case and became Mr. Thieman’s attorney of record instead of Mr. Doyle and Ms. Honodel. Nevertheless, at his deposition in November, 2009, Mr. Doyle testified that he (Mr. Doyle) negotiated the settlement of the state case on behalf of both Murray Transportation and Mr. Thieman. Mr. Doyle admitted that during the negotiations he didn’t speak with Mr. Busby or with Mr. Thieman.

 

On June 14, 2006, Otterstein entered into a written settlement agreement with Murray Transportation and Hannover according to which, in return for Hannover’s payment of $500,000.00 to Otterstein, Otterstein would dismiss all claims against Murray Transportation and Hannover. See Exhibit 1 to Sentry’s Motion to Disqualify (# 185–1). The agreement expressly provided that the parties acknowledge that “other arrangements exist governing the claims made by OTTERSTEIN against MICHAEL THIEMAN, … and understand the agreement between OTTERSTEIN against MICHAEL THIEMAN will be incorporated into separate written representations and agreements apart from this Agreement. OTTERSTEIN agrees not to compromise on a policy limits demand to any carrier providing coverage to MICHAEL THIEMAN and/or MEYER TRANSPORTATION.” Id. at ¶ 4.

 

With regard to Mr. Thieman, Mr. Otterstein signed a Covenant Not to Execute and Release on August 4, 2006. See Exhibit 2 to Sentry’s Motion to Disqualify (# 185–1). Paragraph 9 of the Recitals states: “Based upon the facts and circumstances regarding the claim, it is determined that there is a reasonable likelihood that a verdict could be rendered in favor of Plaintiff and against Thieman and that the range of such verdict could be $4.7 million.” Under the Covenant, Mr. Otterstein agreed not to execute “under any circumstances and for any purpose” upon any judgment stemming from the state action. Id. at 2. “In order to mitigate the risk associated with litigation,” id. at 3, the Covenant provided that Mr. Thieman accepted an offer of judgment from Mr. Otterstein in the amount of $5.5 million, and agreed to pursue a claim against Sentry for the benefit of Hanover. The Covenant further provided, however, that if Mr. Thieman “fails to cooperate in the pursuit of any claim against Sentry Select Insurance Company or affiliated companies, [Otterstein] has the right to execute against the entire judgment of … $5,500,000.” Id. at 5–6. The Covenant provided that it shall be binding and effective as to Mr. Otterstein and Mr. Thieman “upon execution of this agreement by [Otterstein] solely.” Id. at 6. The Covenant was signed by Mr. Otterstein. It did not call for Mr. Thieman’s signature. Six months later, on February 5, 2007, Ms. Honodel of the Doyle firm signed an Acceptance of Plaintiff’s Offer of Judgment on behalf of Mr. Thieman. The judgment was in the amount of $5,500,000.00. See Exhibit 3 to Sentry’s Motion to Disqualify (# 185–1). This document didn’t call for Mr. Thieman’s signature either.

 

Mr. Thieman was deposed in October, 2008. Notwithstanding that the Doyle Firm had filed an answer on Mr. Thieman’s behalf in September, 2007, Mr. Thieman testified he was unaware that Sentry had sued him until July or so of 2008. Thieman deposition at p. 27, l.15 to p. 28, l.6, attached as Exhibit 5 to Sentry’s Motion to Disqualify (# 185–2). He learned of the suit when Ms. Honodel of the Doyle Firm called him one day, and told him she represented him. Id. at p. 22, ll. 5–14. But he didn’t know that the Doyle Firm also represented Murray Transportation. Id. at p. 71, l.22 to p. 72, l.3. Mr. Thieman further testified that toward the end of the litigation he had another lawyer named Jerry Busby, with whom he spoke on the phone three or four times but never met. Id. at p. 23, l.9 through p. 24, l.13. On May 7, 2006, Mr. Thieman signed a Substitution of Attorneys whereby Mr. Busby substituted for the Doyle Firm as to Mr. Thieman only. Id. at p. 37, l.15. Mr. Thieman testified that Mr. Busby was supposed to be representing him “on the latter half of the lawsuit,” and Ms. Honodel was no longer supposed to be representing him from that point on. Id. at ll. 11–20.

 

Mr. Thieman testified that when the lawsuit ended, Mr. Busby told him the parties agreed to settle for $5.5 million, and that “I had to sign a paper and it was a done deal, and that they couldn’t come after me for anything else, as far as I remember.” Id. at p. 25, l.15 through p. 26, l.6; id. at p. 96, l.22 through p. 97, l .1. On December 21, 2006, Mr. Thieman signed another Substitution of Attorneys, this time reversing the original substitution, with the Doyle Firm substituting back into the case on Mr. Thieman’s behalf, and Mr. Busby withdrawing as his lawyer. Id. at 62, l.10 through p. 63, l.2. Mr. Thieman didn’t know why the lawyers were substituting in and out of the case; nobody ever talked to him about it. Id. at p. 63, l.16 through p. 64, l.10. He didn’t know until the day of his deposition in this case that Sentry could go after him for money if Sentry ends up owing money to Mr. Otterstein. Id. at p. 110, ll. 7–21. He didn’t recall ever seeing the above-referenced Covenant. Id. at p. 39, l.18 to p. 40, l.11. Nor did anyone ever tell him he was required to assist in bringing a lawsuit against Sentry, and that if he didn’t do so, Mr. Otterstein could execute on the entire $5.5 million judgment against Mr. Thieman. Id. at p. 57, l.19 to p. 58, l.14.

 

Ms. Honodel was deposed on November 11, 2009. She was asked how Mr. Busby came to represent Mr. Thieman in or about May of 2006.

 

A. I believe Jerry Busby assumed representation of Michael Thieman because we believe there potentially may have been a conflict in our continued representation of Bob Murray and the representation of Mr. Thieman.

 

I don’t know how Jerry Busby came to be the attorney who did that. I just know that there was that potential conflict. We wanted to make sure that Thieman had counsel who was just representing him.

 

Q. Okay. What were the issues that you identified as a potential conflict of interest?

 

A. Essentially the coverage issues, at least in my mind. I wanted to make sure that if I was going to be arguing on behalf of Bob Murray, I did not need to worry about whether or not Thieman had coverage or whatever was going to happen at trial.

 

Honodel deposition at p. 108, l.20 through p. 109, l.9, attached as Exhibit 9 to Sentry’s Motion to Disqualify (# 185–4). In connection with the Covenant Not to Execute—which Mr. Thieman did not sign, and which provided that if Mr. Thieman didn’t cooperate in pursuing a claim against Sentry, Otterstein would have the right to execute on the entire $5.5 million judgment against Mr. Thieman—Ms. Honodel was asked whether she understood why the agreement wasn’t signed by Mr. Thieman. She testified that she did not.

Q. At any time after you resumed the representation of Mr. Thieman, did you discuss with him the contents of this document?

 

A. I don’t recall having a discussion with him about the contents of this document.

 

Q. Okay. To your knowledge, did Mr. Busby make any demands on Hannover to settle the case on Mr. Thieman’s behalf when the $5.5 million offer of judgment was made?

 

A. I don’t know if Jerry did that or not.

 

Id. at p. 135, ll. 1–10. With regard to Mr. Thieman’s Acceptance of Plaintiff’s Offer of Judgment, Ms. Honodel testified as follows:

Q. I’ve handed to you Michael Thieman’s Acceptance of Plaintiff’s Offer of Judgment, which is dated February 5, 2007, and this was signed by you?

 

A. Yes, that’s my signature.

 

Q. After you substituted back in as counsel of record for Mr. Thieman?

 

A. That’s correct.

 

* * *

 

A. Yes, the acceptance of offer of judgment is signed after the covenant not to execute was signed.

 

Q. And then turning back to page 3 under 2(a), it was signed after the recital that Thieman agrees to accept an offer of judgment from plaintiff in the amount of $5,500,000?

 

A. Yes.

 

Q. Okay. At what point in time did Michael Thieman consent to the acceptance of this offer of judgment?

 

A. I don’t know.

 

* * *

 

Q. Okay. The offer of judgment was sent while he was represented by other counsel?

 

A. Correct.

 

Q. But it was accepted when he was represented by you. Who discussed the offer of judgment with him and got his consent to enter into the offer of judgment?

 

A. I would assume it was Jerry Busby.

 

* * *

 

Q. How did you know it was acceptable for you to sign this acceptance on Mr. Thieman’s behalf?

 

A. I was instructed to sign it.

 

Q. And who instructed you to sign it?

 

A. Mr. Doyle instructed me to sign it after he resumed control of the file.

 

Q. Okay. Did you have any discussions with Mr. Thieman at all about the fact that in accepting this offer of judgment, that Hannover … had not paid any moneys on his behalf to resolve the case?

 

A. I did not have those discussions with Mike Thieman prior to signing this.

 

Id. at p. 135, l.16 through p. 138, l.11.

 

Mr. Doyle was deposed on November 12, 2009. He testified that he negotiated the settlement of the underlying case on behalf of Murray Transportation and Mr. Thieman. Doyle deposition at p. 124, l.1–3, attached as Exhibit 10 to Sentry’s Motion to Disqualify (# 185–5). He was asked why he would represent Murray Transportation and Mr. Thieman “when there was a conflict of interest and you had Jerry Busby representing Thieman?”

 

A. Because there was no conflict of interest as it related to negotiating a settlement because the settlement was going to result in protecting both of them. And if the settlement never occurred, then Mr. Thieman had separate counsel.

 

Q. Do you know why this covenant not to execute was not signed by Michael Thieman?

 

A. Why would it have to be signed by Mr. Thieman? It was the plaintiff who was giving him a covenant and releasing him.

 

* * *

 

Q. Well, it’s also a release, isn’t it?

 

A. Well, but it’s Otterstein releasing, not Thieman releasing anybody. Why would he sign it?

 

Q. Because he’s agreeing to allow himself to be exposed for 5.5–million–dollar judgment if he doesn’t cooperate.

 

A. There would be no reason for him to sign it and that’s part of the reason when you asked me earlier if he was exposed, my answer was no.

 

Q. So you don’t think he’s bound by this?

 

A. Oh, I think he’s bound by it but I think that anyone that tried to enforce that judgment against him for lack of cooperation would have a difficult problem in light of the fact that he never signed the agreement.

 

* * *

 

Q. … I don’t understand. This paragraph number 6 says that the plaintiff can execute against Thieman, but Thieman didn’t agree to that.

 

A. It doesn’t say the plaintiff can execute against Mr. Thieman. It says Mr. Thieman will cooperate in pursuit of the claim against Sentry, and that if he does not cooperate they could try and execute.

 

Q. Exactly.

 

A. So that’s not they can execute against him.

 

Q. How is it different?

 

A. Because he controls it by cooperation.

 

Q. What if he doesn’t?

 

A. Then I guess they could try and execute against him, but as I just pointed out, that seems to me it would be fairly difficult in light of the fact that Mr. Thieman wasn’t required to sign the agreement. The plaintiffs never asked for that.

 

Q. So to better understand the opinion that you’ve just expressed, is it your opinion that if Mr. Thieman decided not to cooperate that the plaintiffs would have no recourse against him?

 

A. I don’t have an opinion one way or another. I said it would be difficult.

 

Id. at p. 124, l.4 through p. 126, l.13. Mr. Doyle further testified that he did not talk to Mr. Thieman or Mr. Busby about the Covenant Not to Execute or its terms, including its requirement that Mr. Thieman agree to accept an offer of judgment in the amount of $5 .5 million. Id. at p. 115, ll. 6–15; p. 117, ll. 1–5.

 

DISCUSSION

Federal courts apply state law in determining whether attorney disqualification is warranted. In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir.2000) (“Because we apply state law in determining matters of disqualification, we must follow the reasoned view of the state supreme court when it has spoken on the issue.”) (citations omitted). Nevada Rule of Professional Conduct 1.7 provides:

 

Conflict of Interest: Current Clients.

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest 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.

 

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), 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.

 

The burden of proof is on the moving party to present sufficient facts justifying disqualification. Colyer v. Smith, 50 F.Supp.2d 966, 967 (C.D.Cal.1999); Weeks v. Samsung Heavy Indus. Co., 909 F.Supp. 582, 583 (N.D.Ill.1996); see also Frazier v. Superior Court, 97 Cal.App.4th 23, 36, 118 Cal.Rptr.2d 129 (2002) (“the courts should start off with the presumption that … lawyers will behave in an ethical manner”). The Supreme Court of Nevada has stated that “[c]ourts deciding attorney disqualification motions are faced with the delicate and sometimes difficult task of balancing competing interests: the individual right to be represented by counsel of one’s choice, each party’s right to be free from the risk of even inadvertent disclosure of confidential information, and the public’s interest in the scrupulous administration of justice.” Brown v. Eighth Judicial Dist. Court, 116 Nev. 1200, 1205, 14 P.3d 1266 (Nev.2000) (citation omitted). Close cases are resolved in favor of disqualification. Palmer v. Pioneer Inn Assocs., 19 F.Supp.2d 1157, 1162 (D.Nev.1998) (“Where disqualification is contemplated, ‘any doubt is resolved in favor of disqualification.’ “ (citing Faison v. Thornton, 863 F.Supp. 1204, 1216 (D.Nev.1993))), overruled on other grounds, 338 F.3d 981 (9th Cir.2003). To be sure, the court may “disqualify an attorney from representing a particular client in order to preserve the integrity of its judgment, [and] maintain public confidence in the integrity of the bar,….” Coles v. Arizona Charlie’s, 973 F.Supp. 971, 973 (D.Nev.1997).

 

Disqualification, however, is a “drastic measure which courts should hesitate to impose except when absolutely necessary[,]” Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721–22 (7th Cir.1982), because it takes away one party’s ability to choose his own representation, and it is often a tactic used to create delay or harassment. Miller v. Alagna, 138 F.Supp.2d 1252, 1258–59 (C.D.Cal.2000). Motions to disqualify are therefore subject to strict judicial scrutiny. Optyl Eyewear Fashion International Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1050 (9th Cir.1985). Courts have wide discretion in furthering the interests of fairness to all parties.   International Business Machines Corp. v. Levin, 579 F.2d 271, 279 (3d Cir.1978).

 

In its Response (# 190) to Sentry’s Motion to Disqualify, Hannover points out correctly that as a general rule, only current and former clients have standing to seek disqualification of counsel due to a conflict of interest. In re Yarn Processing Patent Validity Litigation, 530 F.2d 83, 88 (5th Cir.1976). Plainly, Sentry is neither a current nor former client of the Doyle Firm. Hannover therefore concludes that Sentry is without standing to seek the disqualification of Mr. Doyle and his firm. Hannover acknowledges that as an exception to the general rule a nonclient may have standing to seek disqualification, if but only if the non-client demonstrates an injury that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Colyer v. Smith, 50 F.Supp.2d 966, 971 (C.D.Cal.1999). Hannover contends that Sentry’s argument ignores Mr. Doyle’s own testimony, contains assertions that are “baseless” and “conclusory,” and fails to meet Sentry’s burden of demonstrating that the alleged conflict has caused or will cause any sort of injury to anyone. Response (# 190) at 6. Hannover also notes that neither it nor Mr. Thieman has objected to Mr. Doyle and his firm’s joint representation of them.

 

1. Standing

Generally, courts will not disqualify an attorney for conflict of interest unless the client, whether former or current, moves for disqualification. In re Yarn, 530 F.2d at 88. A non-client may, however, move to disqualify an attorney under limited circumstances.

 

The current standard applied to non client motions to disqualify articulated in Colyer v. Smith requires a non client to show they have a “personal stake in the motion,” id. at 971, because of an “ethical breach [that] so infects the litigation … that it impacts the moving party’s interest in a just and lawful determination of her claims….” Id. This is a two-step inquiry, and the alleged injury to the non client movant must be “(a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Id. at 973. This standard assures that non clients will not abuse the state rules of professional responsibility by using them as tactical measures to harass the opposition or cause delay.

 

United States v. Walker River Irrigation District, 2006 WL 618823 (D.Nev.2006).

 

There is an additional ground on which a non-client may have standing to seek an attorney’s disqualification. The court may “disqualify an attorney from representing a particular client in order to preserve the integrity of its judgment [and] maintain public confidence in the integrity of the bar.”   Coles v. Arizona Charlie’s, 973 F.Supp. 971, 973 (D.Nev.1997). Moreover, as noted in Colyer v. Smith, supra, 50 F.Supp.2d at 970, under the Model Rules of Professional Conduct, opposing counsel has an independent obligation to bring to the attention of the court “facts justifying a disqualification of counsel,” even if opposing counsel does not represent the aggrieved client.   United States v. Clarkson, 567 F.2d 270, 271 n. 1 (4th Cir.1977). See also Brown & Williamson Tobacco Corp. v. Daniel International Corp., 563 F.2d 671, 673 (5th Cir.1977)(“Appellant has standing to seek disqualification even though it is not an aggrieved client because its attorneys are authorized to report any ethical violations in the case.”); In re Gopman, 531 F.2d 262, 265 (5th Cir.1976)(“When an attorney discovers a possible ethical violation concerning a matter before a court, he is not only authorized but is in fact obligated to bring the problem to that court’s attention.”). The Nevada Rules of Professional Conduct impose such an obligation. Rule 8.3(a) provides that “[a] lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.” Rule 8.4(d) provides that “[i]t is professional misconduct for a lawyer to … engage in conduct that is prejudicial to the administration of justice.” And Rule LR IA 10–7(a) of this court’s Local Rules of Practice provides, in pertinent part:

 

An attorney admitted to practice pursuant to any of these rules shall adhere to the standards of conduct prescribed by the Model Rules of Professional Conduct as adopted and amended from time to time by the Supreme Court of Nevada, except as such may be modified by this court. Any attorney who violates these standards of conduct may be disbarred, suspended from practice before this court for a definite time, reprimanded or subjected to such other discipline as the court deems proper.

 

Here, there is clear and convincing evidence that in the underlying state case and in this case the Doyle Firm had and continues to have a conflict of interest warranting disqualification, and that Sentry and Sentry’s counsel have standing to move for disqualification. In March, 2006, after an unsuccessful effort to settle the state case, Mr. Doyle was aware he had a conflict of interest that precluded him from continuing to represent both Murray Transportation and Mr. Thieman. As he said in an email to Hannover, which had hired him to represent Murray Transportation and Mr. Thieman, “[O]n a practical level there is no question a conflict exists…. I can’t see how I can represent Thieman and do what is necessary to protect him while at the same time represent Murray.” Exhibit 4 to Sentry’s Motion (# 185–1). Nevertheless, Mr. Doyle continued to engage in settlement discussions with Otterstein’s counsel on behalf of Murray Transportation and Thieman concerning, among other things, “Mr. Thieman stipulating to a judgment and assigning his rights against Sentry for its failure to defend and protect him.”

 

As settlement discussions were nearing fruition in May, 2006, arrangements were made for Jerry Busby to substitute in as counsel for Mr. Thieman in place of the Doyle Firm in order to avoid the appearance of conflict. Although the appearance may have been temporarily avoided, the reality wasn’t. Mr. Doyle continued to serve two clients whose interests he believed were potentially adverse. Although Mr. Busby was Mr. Thieman’s attorney of record, it wasn’t Mr. Busby who represented Mr. Thieman at the negotiating table; it was Mr. Doyle. Mr. Doyle continued to negotiate on behalf of Mr. Thieman and Murray Transportation until a settlement was reached. At no time during the course of those negotiations did Mr. Doyle consult with or speak to Mr. Thieman or Mr. Busby. The settlement agreement with Mr. Otterstein required Hannover to pay $500,000.00 to Mr. Otterstein in return for dismissal of all claims against Murray Transportation and Hannover. The agreement expressly noted that as to Mr. Otterstein’s claims against Mr. Theiman, “other arrangements” had been made that would be contained in a separate agreement between Mr. Otterstein and Mr. Theiman.

 

Not surprisingly, Mr. Thieman didn’t fare as well as Murray Transportation. On August 4, 2006, Mr. Doyle, who had been hired and paid by Hannover for his representation of Murray Transportation and Mr. Thieman, albeit under a reservation of rights, approved Mr. Otterstein’s Covenant Not to Execute against Mr. Thieman, in which Mr. Otterstein agreed not to execute on any judgment stemming from the state action, provided that Mr. Thieman accept an offer of judgment from Mr. Otterstein in the amount of $5.5 million, and agree to pursue a claim against Sentry for the benefit of Hannover. The Covenant expressly provided that if Mr. Thieman didn’t cooperate in pursuing any claim against Sentry, Otterstein had the right to execute against the entire judgment of $5,500,000. The Covenant was signed by Mr. Otterstein. It didn’t call for Mr. Thieman’s signature. Six months later—on February 5, 2007—after the Doyle Firm had substituted back into the case as Mr. Thieman’s attorney of record in place of Mr. Busby, Ms. Honodel of the Doyle firm signed on Mr. Thieman’s behalf an Acceptance of Plaintiff’s Offer of Judgment in the amount of $5.5 million. This document didn’t call for Mr. Thieman’s signature either. Ms. Honodel testified that she signed the Offer of Judgment because Mr. Doyle instructed her to do so. She did so without discussing it with Mr. Thieman. All Mr. Thieman was told by Mr. Busby was that the case had settled for $5.5 million, and nobody could “come after him” for any money. In short, all claims against Murray Transportation were dismissed, and Mr. Thieman was saddled with a $5 .5 million judgment. It was not until he was deposed in this federal case more than two years later that Mr. Thieman learned that Mr. Otterstein could “come after him” if he didn’t cooperate with Hannover in seeking reimbursement from Sentry.

 

Mr. Doyle’s attempt during his November 12, 2009 deposition to explain away his continued representation of Mr. Thieman was disingenuous at best. On March 23, 2006, Mr. Doyle correctly advised Hannover in an email that “I can’t see how I can represent Thieman and do what is necessary to protect him while at the same time represent Murray,” and that the interests of Thieman and Murray “are potentially adverse and I don’t think we can represent both.” In his deposition Mr. Boyle was asked why he would continue to represent both Mr. Thieman and Murray Transportation during the settlement negotiations when there was a conflict of interest and, in any event, Mr. Busby was Mr. Thieman’s attorney of record. Mr. Doyle responded:

 

Because there was no conflict of interest as it related to negotiating a settlement because the settlement was going to result in protecting both of them. And if the settlement never occurred, then Mr. Thieman had separate counsel.

 

In other words, while he was defending the two clients against Mr. Otterstein’s complaint, the clients’ competing interests were such that Mr. Doyle couldn’t see how he could “do what is necessary to protect [Mr. Thieman] while at the same time represent Murray [Transportation].” But, according to Mr. Doyle, those same competing interests would not prevent him from fully protecting Mr. Thieman while representing Murray Transportation during settlement discussions with Mr. Otterstein. Aside from this explanation defying common sense and logic on its face, the end result of the negotiations belies Mr. Doyle’s rationale: all claims were dismissed against Murray Transportation, and Mr. Thieman was subject to a $5.5 million judgment.

 

During his deposition Mr. Doyle took the position that Mr. Thieman wasn’t really exposed to a $5.5 million judgment because he (Mr. Thieman) didn’t sign the Covenant Not to Sue, which was signed only by Mr. Otterstein. When asked why Mr. Thieman didn’t sign it, Mr. Doyle at first said, “Why would it have to be signed by Mr. Thieman? It was the plaintiff who was giving him a covenant and releasing him.” The examiner, Lisa Zastrow, responded, “Because he’s agreeing to allow himself to be exposed for a 5.5–million–dollar judgment if he doesn’t cooperate.” When Mr. Doyle repeated that there would be no reason for Mr. Thieman to sign the Covenant, Ms. Zastrow asked, “So you think he’s not bound by this?” Mr. Doyle’s response:

 

Oh, I think he’s bound by it but I think that anyone that tried to enforce that judgment against him for lack of cooperation would have a difficult problem in light of the fact that he never signed the agreement.

 

The rest of this exchange bears repeating.

Q. … I don’t understand. This paragraph number 6 says that the plaintiff can execute against Thieman, but Thieman didn’t agree to that.

 

A. It doesn’t say the plaintiff can execute against Mr. Thieman. It says Mr. Thieman will cooperate in pursuit of the claim against Sentry, and that if he does not cooperate they could try and execute.

 

Q. Exactly.

 

A. So that’s not they can execute against him.

 

Q. How is it different?

 

A. Because he controls it by cooperation.

 

Q. What if he doesn’t?

 

A. Then I guess they could try and execute against him, but as I just pointed out, that seems to me it would be fairly difficult in light of the fact that Mr. Thieman wasn’t required to sign the agreement. The plaintiffs never asked for that.

 

Q. So to better understand the opinion that you’ve just expressed, is it your opinion that if Mr. Thieman decided not to cooperate that the plaintiffs would have no recourse against him?

 

A. I don’t have an opinion one way or another. I said it would be difficult.

 

After evasively going round in circles trying to show that the $5.5 million judgment did not put Mr. Thieman in harm’s way financially, Mr. Doyle ducked Ms. Zastrow’s pointed question: is Mr. Thieman free and clear even if he doesn’t cooperate with Hannover? Mr. Doyle responded simply that he didn’t have an opinion “one way or another.” Such testimony hardly supports Mr. Doyle’s current view that there was and is no conflict of interest.

 

Finally, as Sentry points out, Sentry itself faces potential injury as a result of the Doyle Firms’ conflicted representation of Hannover and Mr. Thieman. That Thieman was inadequately represented in the underlying case and has been inadequately represented in this case due to the Doyle Firm’s conflict has an adverse impact on Sentry. Instead of attempting to settle Mr. Otterstein’s claims against Mr. Thieman within Hannover’s $1,000,000 policy limits, the Doyle Firm (without Mr. Thieman’s knowledge) agreed to accept an offer of judgment on Mr. Thieman’s behalf in the amount of $5.5 million. If the Doyle Firm had been conflict free in its representation of Mr. Thieman, it could have advised Mr. Thieman to file a bad faith action against Hannover for failing to settle with Mr. Otterstein within Hannover’s $1,000,000 policy limits. Instead, on behalf of Mr. Thieman, the Doyle Firm filed a counterclaim for bad faith against Sentry, the success of which would substantially benefit Hannover under the terms of the underlying settlement agreement and covenant not to execute.

 

For all of these reasons, and for good cause shown,

 

IT IS ORDERED that to the extent the Motion to Disqualify (# 185) seeks an order disqualifying William Doyle and Mr. Doyle’s law firm from representing Michael Thieman and the Insurance Corporation of Hannover, it is granted.

 

IT IS FURTHER ORDERED that to the extent it seeks an order disqualifying Amy Honodel, the Motion to Disqualify (# 185) is denied as moot.

 

The Clerk of Court is directed to mail copies of this order to defendants Thieman and Hannover at the following addresses:

 

 

Donna Lister   Michael Thieman

Insurance Corporation of Hannover   5865 Pierce Street

P.O. Box 49129          Arvada, CO 80003

Greensboro, NC 27419