Pesky et al v. United States of America

Filing 53

MEMORANDUM ORDER Re: Motion for a Determination of Conflict of Interest Issues- Defendant's motion is DENIED without prejudice to renewal. Signed by Judge William B. Shubb. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by jm)

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UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF IDAHO

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ALAN PESKY AND WENDY PESKY,
Plaintiffs,

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NO. CIV. 1:10-186 WBS
MEMORANDUM AND ORDER RE:
MOTION FOR A DETERMINATION OF
CONFLICT OF INTEREST ISSUES

v.
UNITED STATES OF AMERICA,
Defendant.
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----oo0oo---Presently before the court is defendant’s motion for a

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determination of conflict of interest issues.

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disqualify counsel are decided under state law.

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Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000); see also Optyl

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Eyewear Fashion Int’l Corp. v. Style Co., Ltd., 760 F.2d 1045,

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1048 (9th Cir. 1985) (“The standards for disqualification of an

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attorney who may be a witness at trial derive from the applicable

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disciplinary rules . . . .”); D. Idaho L.R. 83.5 (“All members of

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the bar of the District Court . . . and all attorneys permitted

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to practice in this Court must familiarize themselves with and

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comply with the Idaho Rules of Professional Conduct of the Idaho
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Motions to
In re Cnty. of

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State Bar and decisions of any court interpreting such rules.

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These provisions are adopted as the standards of professional

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conduct for this Court but must not be interpreted to be

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exhaustive of the standards of professional conduct.”).

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The parties agree that Idaho Rules of Professional

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Conduct 1.7 (conflict of interest with respect to current

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client), 1.10 (imputation of conflict of interest), and 3.7

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(lawyer as witness) are possibly implicated.

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Prof’l Conduct 1.7, 1.10, 3.7.

See Idaho Rules

“Regarding motions to disqualify

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counsel in Idaho generally, it is clear that ‘[t]he moving party

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has the burden of establishing grounds for the

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disqualification.’”

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1088, 1091 (D. Idaho 1996) (quoting Weaver v. Millard, 120 Idaho

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692, 697 (Ct. App. 1991)) (alteration in original).

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“[t]he cost and inconvenience to clients and the judicial system

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from misuse of the rules for tactical purposes is significant.

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Because of this potential for abuse, disqualification motions

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should be subjected to ‘particularly strict judicial scrutiny.’”

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Optyl, 760 F.2d at 1050 (quoting Rice v. Baron, 456 F. Supp.

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1361, 1370 (S.D.N.Y. 1978)).

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I.

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Parkland Corp. v. Maxximum Co., 920 F. Supp.

Moreover,

Plaintiffs’ Counsel’s Representation of Co-Investors
Idaho Rule of Professional Conduct 1.7(a) provides that

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“a lawyer shall not represent a client if the representation

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involves a concurrent conflict of interest.”

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Conduct 1.7(a).

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“there is a significant risk that the representation of one or

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more clients will be materially limited by the lawyer’s

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responsibilities to another client.”

Idaho Rule Prof’l

A concurrent conflict of interest exists if

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Idaho Rule Prof’l Conduct

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1.7(a)(2) (emphases added).

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Comment 8 explains that “[t]he mere possibility of

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subsequent harm does not itself require disclosure and consent.”

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Idaho Rule Prof’l Conduct 1.7 cmt. 8.

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the likelihood that a difference in interests will eventuate and,

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if it does, whether it will materially interfere with the

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lawyer’s independent professional judgment in considering

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alternatives or foreclose courses of action that reasonably

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should be pursued on behalf of the client.”

The crucial issues “are

Id.

“A conflict may

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exist by reason of substantial discrepancy in the parties’

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testimony, incompatibility in positions in relation to an

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opposing party or the fact that there are substantially different

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possibilities of settlement of the claims or liabilities in

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question.”

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interest may exist at the time representation is undertaken or

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may arise thereafter.

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5.

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Idaho Rule Prof’l Conduct 1.7 cmt. 23.

A conflict of

See Idaho Rule Prof’l Conduct 1.7 cmts. 3-

With respect to imputed disqualification, Rule 1.10

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provides that, “[w]hile lawyers are associated in a firm, none of

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them shall knowingly represent a client when any one of them

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practicing alone would be prohibited from doing so by Rules 1.7.”

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Idaho Rule Prof’l Conduct 1.10.
Here, Paul L. Westberg of Westberg, McCabe & Collins

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and David John Thornton, Jr., Justin Jones, and Richard M. Weber,

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Jr., of Thornton Byron LLP are counsel of record for plaintiffs.1

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Plaintiffs appear to have been also advised by other
Thornton Byron attorneys on relevant matters who are not counsel
of record in the instant action. (See Pls.’ Response at 13-15
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According to defendant, “[t]he Sterns (who are not parties to

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this litigation) were co-investors in the property upon which the

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conservation easement at issue was placed, and have also

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claimed similar deductions; the Sterns’ tax returns are also

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under examination by the IRS.”

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No. 32-1).)

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at 6 n.5.)

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(Def.’s Mot. at 2:13-15 (Docket

The same attorneys represent the Sterns.

(See id.

Even though plaintiffs and the Sterns are represented
by the same counsel, this fact alone does not require
disqualification.

See Idaho Rule Prof’l Conduct 1.7(a)(2).

The only additional facts that defendant points to are

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the Sterns not filing suit and the Internal Revenue Service

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reopening its examination to determine whether plaintiffs and the

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Sterns committed fraud, thus warranting harsher penalties than

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already assessed. (See Def.’s Mot. at 15:10-15; Def.’s Reply at

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4:4-10 (Docket No. 37).)

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disclosing one document allegedly protected by plaintiffs’

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attorney-client privilege, (see Hatzimichalis Supplemental Decl.

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Ex. 21 (Docket No. 37-1)), while plaintiffs have not disclosed

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attorney-client communications.

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Defendant also points to the Sterns

(See Def.’s Reply at 5:14-16.)

Plaintiffs’ counsel represented to the court at the

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hearing that they have obtained written consent from their

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clients, which is one of the requirements of Rule 1.7(b), which

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allows representation despite a conflict of interest.

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Rule Prof’l Conduct 1.7(b).

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conclude at this stage that a significant risk of material

Moreover, the court cannot even

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See Idaho

(Docket No. 35).)
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limitation exists.

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possibility of subsequent harm does not itself require disclosure

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and consent.”

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Accordingly, the court will deny defendant’s motion on this

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ground.2

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II.

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As Comment 8 explains, “[t]he mere

Idaho Rule Prof’l Conduct 1.7 cmt. 8.

Plaintiffs’ Reliance on the Advice of Counsel and
Plaintiffs’ Counsel’s Other Involvement in Case
Rule 3.7, the advocate-witness rule, provides:

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A lawyer shall not act as advocate at a trial in
which the lawyer is likely to be a necessary
witness unless:

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(1)

the testimony relates to an uncontested
issue;

(2)

the testimony relates to the nature and value
of legal services rendered in the case; or

(3)

disqualification of the lawyer would work
substantial hardship on the client.

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(a)

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Idaho Rule of Prof’l Conduct 3.7(a)(1)-(3) (emphases added).

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The Comments explain:
Combining the roles of advocate and witness can prejudice
the tribunal and the opposing party and can also involve
a conflict of interest between the lawyer and client.
. . .
The tribunal has proper objection when the trier of fact
may be confused or misled by a lawyer serving as both
advocate and witness.
The opposing party has proper
objection where the combination of roles may prejudice
that party’s rights in the litigation.
A witness is
required to testify on the basis of personal knowledge,
while an advocate is expected to explain and comment on

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Plaintiffs have also raised the issue of whether
defendant has standing to make the instant motion. Even if
defendant does not have standing to move for disqualification
based on conflict of interest grounds, see generally Weaver v.
Millard, 120 Idaho 692, 698 (Ct. App. 1991), there has been no
suggestion that defendant lacks standing to move to disqualify
plaintiffs’ counsel on the alternative ground it raises, the
advocate-witness rule.
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evidence given by others. It may not be clear whether a
statement by an advocate-witness should be taken as proof
or as an analysis of the proof.
Idaho Rule of Prof’l Conduct 3.7 cmts. 1-2.
When an attorney is likely to be a witness, a Rule 1.7

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conflict of interest may also exist or may exist even if a Rule

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3.7 disqualification does not exist.

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Conduct 3.7 cmt. 6.

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conflict of interest exists if “there is a significant risk that

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the representation of one or more clients will be materially

See Idaho Rule of Prof’l

Rule 1.7 specifically provides that a

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limited . . . by the personal interests of the lawyer.”

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Rule of Prof’l Conduct 1.7(a)(2).

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Idaho

Rule 3.7 disqualification is not imputed to the firm.

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See Idaho Rule of Prof’l Conduct 3.7(b).

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imputed disqualification applies to the extent that a Rule 1.7

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conflict of interest exists.

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3.7 cmt. 6.

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However, Rule 1.10

See Idaho Rule of Prof’l Conduct

Here, plaintiffs allege in their Complaint that they

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relied on the advice of counsel in support of Count III.

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Compl. ¶¶ 78-79 (Docket No. 1).)

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to some documents suggesting that Thornton Byron attorneys’

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involvement in this case goes beyond plaintiffs’ reliance on

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their legal advice, such as involvement in the appraisal of the

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conservation easement.

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Reply at 6:10-9:1.)

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(See

Further, defendant has pointed

(See Def.’s Mot. at 10:13-11:1; Def.’s

The defense of reliance on the advice of counsel can

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implicate the advocate-witness or conflict of interest rules.

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See, e.g., Crossroads Sys. (Tex.), Inc. v. Dot Hill Sys. Corp.,

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No. A-03-CA-754, 2006 WL 1544621, at *10 (W.D. Tex. May 31,
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2006); United States v. Swafford, No. 1:04, 2004 WL 5575829, at

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*5 (E.D. Tenn. Sept. 15, 2004); Miller v. Colo. Farms, No. CIV.

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A. 97WY2015WD, 2001 WL 629463, at *3 (D. Colo. Jan. 16, 2001);

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Para Technologies Trust v. C.I.R., 64 T.C.M. (CCH) 922, 1992 WL

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237247, at *4 (1992).

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However, a party ordinarily has the right to choose his

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lawyer, and the courts are very cautious in interfering with that

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right.

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courts should hesitate to impose except when absolutely

“Disqualification is considered ‘a drastic measure which

Microsoft Corp. v. Immersion Corp., No. C07-936RSM,

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necessary.’”

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2008 WL 682246, at *2 (W.D. Wash Mar. 07, 2008) (quoting U.S. ex

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rel. Lord Elec. Co., Inc. v. Titan Pac. Constr. Corp., 637 F.

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Supp. 1556, 1562 (W.D. Wash. 1986)).

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It would be premature at this stage to determine what

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witnesses may testify and which attorneys might participate in

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the trial.

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plaintiffs’ counsel is likely to play at the trial.

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satisfied that plaintiffs’ counsel understand their obligations

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under the attorney-advocate rule and will take the necessary

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steps to avoid violating that rule.

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It is also too early to determine what role any of
The court is

IT IS THEREFORE ORDERED that defendant’s motion for a

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determination of conflict of interest issues be, and the same

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hereby is, DENIED without prejudice to renewal.

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DATED:

July 26, 2011

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