Wausau Underwriters Insurance Company v. Reliable Transportation Specialists, Inc. et al

Filing 219

ORDER denying 186 Motion to Disqualify Counsel for Reliable. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
RELIABLE TRANSPORTATION
SPECIALISTS, INC. and AMARILD
USHE,
Plaintiffs,

CASE NO. 15-12954

vs.

HON. GEORGE CARAM STEEH

WAUSAU UNDERWRITERS
INSURANCE COMPANY,
Defendant.
____________________________/
ORDER DENYING DEFENDANT’S MOTION TO DISQUALIFY
JOHNSON LAW AS COUNSEL FOR RELIABLE [ECF NO. 186]
This matter is before the court on Wausau’s motion to disqualify the
law firm of Johnson Law, PLC (“Johnson Law”) as counsel for Reliable.
Johnson Law represented Burt Holt in the underlying lawsuit from October
2013 through the appeal process and continues to represent Holt with
respect to his outstanding judgment against Reliable and Amarild Ushe.
Although Wausau retained counsel to defend Reliable and Ushe in the
underlying lawsuit, Reliable hired its own counsel, the Scopelitis firm, to
monitor the case on its behalf.
On August 19, 2015, Wausau initiated this action by filing a complaint
for declaratory judgment against Holt, Reliable and Ushe. Wausau sought
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a declaration that it did not act in bad faith when it failed to settle Holt’s
claim within policy limits. Reliable and Ushe were initially represented by
their lawyers from the Scopelitis firm and Holt was represented by Johnson
Law. Reliable, Ushe and Holt entered into a Common Interest
Confidentiality Agreement, by which they cooperate with one another
during the defense of this case. Reliable and Ushe filed counterclaims
against Wausau alleging bad faith failure to settle.
After three years of litigation, Wausau moved to dismiss its complaint
for declaratory judgment without prejudice and dismiss Holt from the
lawsuit. On October 17, 2018, the court granted the motion to dismiss,
conditioned on Wausau paying Holt’s attorney’s fees incurred in defending
against the declaratory judgment action. On November 20, 2018, Wausau
paid $700,000 to Johnson Law to cover Holt’s attorney’s fees incurred in
this action. On December 20, 2018, the court entered an order realigning
the parties and amending the case caption per the parties’ stipulation,
recognizing the dismissal of Wausau’s declaratory judgment complaint and
dismissing Holt as a party.
On January 11, 2019, Reliable filed a substitution of counsel,
providing notice that Johnson Law now represents Reliable through
attorneys Thomas Waun and Michael Freifeld. The Scopelitis firm
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remains as counsel for Ushe. Wausau now moves to have Johnson Law
disqualified from representing Reliable, arguing they have a non-waivable
conflict of interest. One day before the date set for hearing on the motion
to disqualify, the Scopelitis firm filed new appearances as co-counsel on
behalf of Reliable.
A decision on a motion to disqualify counsel is a matter of discretion
for the court. Grain v. Trinity Health, 431 Fed. Appx. 434, 445 (2011).
Michigan Rule of Professional Conduct (“MRPC”) 1.7 provides:
(a) A lawyer shall not represent a client if the representation of
that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will
not adversely affect the relationship with the other
client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation
of that client may be materially limited by the lawyer's
responsibilities to another client or to a third person, or by the
lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will
not be adversely affected; and
(2) the client consents after consultation. When
representation of multiple clients in a single matter is
undertaken, the consultation shall include explanation
of the implications of the common representation and
the advantages and risks involved.

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Wausau argues there can be no reasonable dispute that Johnson
Law’s representation of Reliable and Holt raises potential conflicts of
interest. Holt sued Reliable in the underlying litigation and has an
outstanding judgment against Reliable which remains unsatisfied. Holt
agreed to forego collection on the judgment only until this action is
resolved. In the event Wausau prevails in this action, the expectation is
that Holt will proceed with collection against Reliable.
Wausau provides many examples of potential conflicts of interest
created by Johnson Law’s representation of Reliable in this bad faith failure
to settle action. Johnson Law’s Ven Johnson will testify as a fact witness
in the case. For instance, one subject Mr. Johnson is expected to discuss
is the parties’ attempts to negotiate a high-low settlement of the underlying
action. Mr. Johnson will testify that Mr. Holt made a high-low settlement
demand during trial with $1,250,000 as the “high,” and Wausau told
Reliable that it was willing to commit its full policy limit of $1,000,000 as
part of that “high.” Reliable, however, only agreed to offer $100,000.
Wausau maintains that Johnson Law must argue that the decision by its
client Reliable not to offer its other client Holt the additional $150,000 was
reasonable, while then arguing on behalf of Holt that Reliable’s decision not
to offer the additional $150,000 was unreasonable.
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A bad faith failure to settle case focuses on the state of mind of the
insurance company with regard to settlement opportunities. For this
purpose, Reliable’s and Holt’s interests are fully aligned. Johnson Law will
not have to make the arguments described by Wausau in proving that
Wausau acted in bad faith when it failed to settle the case within policy
limits. It is therefore reasonable for Johnson Law to believe that its
representation of Reliable will not adversely affect its relationship with Holt.
MRPC 1.7(b) prohibits an attorney from representing a client if the
representation is materially limited by the attorney’s responsibilities to
another client or to their own interest. Wausau argues that Johnson Law’s
duty to Holt, as well as its own interest in its attorney fee, materially limit its
representation of Reliable. There is no evidence in this case that leads
the court to question whether Johnson Law is putting its own financial
interests above those of its client. In addition, the Scopelitis firm can
provide Reliable with protection from any perceived limitation on Johnson
Law’s representation due to its duty to Holt.
Wausau raises another conflict due to the fact that damages against
Wausau are limited to Reliable’s collectability. For purposes of litigating
that issue, Reliable may share privileged information with its counsel
pertaining to its assets not exempt from process. However, Reliable
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would want to protect that information from Holt in the context of Holt’s
future efforts to collect the judgment from Reliable. The interests of Holt
and Reliable might be aligned as to Wausau, but Wausau argues there is a
conflict of interest between the two that cannot be waived.
Certainly the same lawyer or law firm could not represent both Holt
and Reliable in an action between those two parties. The pending case is
not one between those two parties. Johnson Law and the Scopelitis firm
are both of the opinion that Johnson Law’s representation of Holt will not
adversely affect its ability to represent Reliable in this action between
Reliable and Wausau. The court is not convinced that this opinion is not
reasonably held. Reliable may waive any conflict of interest after
consultation.
Wausua next argues that Johnson Law must be disqualified pursuant
to MRPC 3.7 which prohibits a lawyer from acting as advocate in a trial
when another lawyer in the same firm is likely to be called as a witness and
there is a conflict under MRPC 1.7. MRPC 3.7(b) states:
(b) A lawyer may act as advocate in a trial in which another
lawyer in the lawyer’s firm is likely to be called as a witness
unless precluded from doing so by Rule 1.7 or Rule 1.9.
The purpose of MRPC 3.7 “is to prevent any problems that would arise
from a lawyer having to argue the credibility and effect of his own
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testimony, to prevent prejudice to the opposing party that might arise
therefrom, and to prevent prejudice to the client if the lawyer is called as an
adverse witness.” Lansing Parkview, LLC v. K2M Grp., LLC, No. 338284,
2018 WL 5276552, at *8 (Mich. Ct. App. Oct. 23, 2018) (citation omitted).
MRPC 3.7 permits attorneys Waun and Freifeld to appear at trial for
Reliable where Ven Johnson is likely to be called as a witness, unless Mr.
Johnson’s testimony is precluded due to a conflict of interest. Wausau
contends that this is the case where attorney Johnson is expected to testify
about his personal knowledge of the events that took place in the
underlying action when he served as Holt’s lawyer. However, a conflict
under MRPC 1.7 has been waived, so Johnson Law is not disqualified
regardless of whether Ven Johnson testifies as a witness at trial.
Finally, Wausau contends that it will not be able to negotiate a
settlement of the bad faith litigation if Johnson Law is representing both
Holt and Reliable. Wausau’s inability to negotiate a settlement is not
directly related to Johnson Law’s involvement, nor is it a reason to prevent
a party from hiring the representation of its choosing.
A conflict of interest can be knowingly waived under MRPC 1.7(a)
and (b). When Johnson Law agreed to represent Reliable, Mr. Holt and
Kevin Lhotak, President of Reliable, signed forms acknowledging and
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authorizing representation and waiving any potential conflicts of interest
that could arise. Reliable was and is represented by the Scopelitis firm,
and that law firm represents it does not believe Reliable will be adversely
affected by Johnson Law’s representation of both Reliable and Holt.
As an additional reason to disqualify Johnson Law from representing
Reliable, Wausau argues that such action is a blatant effort to avoid the
effect of the court’s dismissal order. If Johnson Law is allowed to remain
in the case as counsel for Reliable, Wausau argues that the court should
revise the dismissal order and order reimbursement of the attorney’s fees
paid by Wausau. Federal Rule of Civil Procedure 54(b) permits a court to
revise any order that adjudicates fewer than all claims, that is it may reopen
any part of a case before entry of final judgment. It may do so to correct a
clear error or prevent manifest injustice within the discretion of the court.
Luna v. Bell, 887 F.3d 290, 297 (6th Cir. 2018) (citation omitted).
Holt’s interest in the outcome of this litigation is the same regardless
of who represents Reliable at trial. Second, the court’s award of costs and
fees to Mr. Holt was meant to cure any prejudice to Holt from having to
expend effort and expense in engaging in discovery and litigation as a
party. The fact that Johnson Law now represents Reliable does not

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eliminate the fact that Holt incurred attorney fees because Wausau named
him as a defendant.
The court finds that to the extent Johnson Law’s representation of
Reliable results in a conflict of interest, it is a waivable conflict that has
been waived by Reliable after consultation with counsel. Now, therefore,
IT IS HEREBY ORDERED that defendant’s motion to disqualify
Johnson Law as counsel for Reliable is DENIED.
IT IS SO ORDERED.

Dated: February 13, 2019
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
February 13, 2019, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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