PTT, LLC v. GIMMIE GAMES et al
Filing
326
OPINION re 231 MOTION to Disqualify Counsel Pursuant to RPC 1.7 filed by HIGH 5 GAMES, LLC. Signed by Magistrate Judge Mark Falk on 5/18/18. (LM, )
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NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
HIGH 5 GAMES, LLC,
f/k/a PTT, LLC,
Plaintiff,
v.
Civil Action No. 13-7161 (JMV)
DANIEL MARKS; JOSEPH MASCI;
BRIAN KAVANAGH; MARKS STUDIO
LLC d/b/a GIMMIE GAMES;
ARISTOCRAT TECHNOLOGIES, INC.,
JOHN SMITH(s) 1-7; and XYZ
COMPANIES 1-7,
OPINION
Defendants.
FALK, U.S.M.J.
Before the Court is Plaintiff’s motion to disqualify Defendants’ counsel, Foley
& Lardner, LLP (“F&L”), due to an alleged conflict of interest. [ECF No. 231.]
Defendants oppose the motion and have cross-moved for Rule 11 sanctions. [ECF No.
237.] No oral argument was held. Fed. R. Civ. P. 78. For the reasons set forth below,
both motions are DENIED.
BACKGROUND
The background of this case is well-known to the parties and stated in prior
opinions. See, e.g., High 5 Games, LLC v. Marks, 2018 WL 2134038 (D.N.J. May 9,
2018); PTT v. Marks, 2017 WL 349375 (D.N.J. Jan. 24, 2017); PTT v. Gimmie
Games, 2014 WL 5343304 (D.N.J. Oct. 20, 2014). Only what is necessary is repeated
here.
Plaintiff—High Five Games, LLC (at times, “H5G”)—develops, among other
things, slot machine games for the casino gaming industry. The case involves two
H5G-developed gaming methodologies and inventions known as “Super Symbols”
and “Super Stacks.” Defendants Daniel Marks, Joseph Masci, and Brian Kavanagh
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were prior employees of H5G and allegedly privy to confidential information during
their employment. During the time period in which H5G was developing Super
Symbols and Super Stacks, Marks resigned from H5G and founded Defendant Marks
Studios, LLC (d/b/a “Gimmie” Games). Marks then hired Masci and Kavanagh as
Chief Creative Officer and Director of Motion Graphics, respectively.
In 2013, at a gaming industry convention, H5G discovered that another large
game distributor—Defendant Artistocrat Technologies—was featuring two games
called “Mega Symbols” and “Max Stacks,” which had the same look and feel as Super
Symbols and Super Stacks. H5G alleges that Artisocrat had received these games
and/or features by working with the other Defendants who had misappropriated
H5G’s trade secrets.
On November 26, 2013, H5G filed its initial Complaint, alleging trademark
infringement, unfair competition, and breach of contract. H5G asserted that Marks,
Masci, and Kavanagh breached their contractual obligations to H5G by utilizing
H5G’s confidential, proprietary, and trade secret information relating to its “Super
Symbols” and “Super Stacks” games. H5G further alleged that Gimmie, Marks,
Masci, and Kavanagh used H5G’s confidential information relating to the two games
and then unfairly competed with H5G by creating, marketing, and selling games to
companies in the gaming industry (including Aristocrat) under the “Mega Symbols”
and “Max Stacks” names.
Since the original complaint was filed more than 4 years ago, much has
happened. Plaintiff is on its fourth iteration of the Complaint, having thrice-amended
its original pleading. The case has expanded to include two patents (i.e., the ‘223 and
‘852 patents) and patent-related claims, and has drawn into its sphere additional
Aristocrat-related defendants and new claims. The parties have also been involved in a
drawn-out discovery battle that has resulted in innumerable court conferences and the
eventual appointment of a Special Master, who continues to work with the parties.
Motion practice has been routine and non-stop.
Motion to Disqualify
Plaintiff now claims that Defendants’ counsel, F&L, must be disqualified
pursuant to New Jersey Rule of Professional Conduct 1.7, due to an alleged conflict of
interest. In short, Plaintiff claims that two of Defendants’ patent invalidity defenses
create a conflict of interest between Defendant Marks and the other Defendants and
that F&L cannot represent conflicted parties.
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First, Plaintiff contends that there is a conflict because Defendants allege that
the ‘852 patent is invalid due to the “on-sale bar” of 35 U.S.C. § 102.1 Specifically,
Defendants allege that Plaintiff offered the invention that eventually issued as the ‘852
patent for sale to another company in 2009. The supposed conflict is that Plaintiff
claims that Mr. Marks submitted a declaration to the USPTO in 2010 in support of
patentability without mentioning the putative sale.
Second, Plaintiff claims that Mr. Marks signed a declaration that said that the
invention that eventually issued as the ‘852 patent was patentable, but that Defendants
now claim that the patent is invalid because it was based on misappropriated
information copied from Konami Gaming, a H5G competitor.
According to Plaintiff, these two alleged incidents amount to “perjury” and
create a conflict between Mr. Marks and his co-defendants.
Defendants oppose the motion and have filed a cross-motion for Rule 11
sanctions, contending that Plaintiff’s motion is frivolous. They argue that any
allegation of “perjury” is pure fiction, and the product of a distorted chronology
comprised of Plaintiff’s supposition of “facts” that have never been developed or
established. They also contend the motion fails because Plaintiff has unduly delayed
in bringing it. Finally, Defendants contend that even if there was somehow a conflict,
all parties have provided informed consent, pursuant to Rule 1.7(b), to F&L
continuing to represent all Defendants, which remedies any conflict and is dispositive
of the motion. With respect to their cross-motion for Rule 11 sanctions, Defendants’
position is that the motion to disqualify is so lacking in established facts and law that
sanctions are appropriate.
As is explained below, there is absolutely no basis for disqualification on the
facts presented, and the motion is denied. The motion for sanctions is also denied.
This statute provides that for a patent to be invalid, the product embodying the
patent must have been sold or offered for sale more than one year before the filing
date of the patent. 35 U.S.C. § 102(b).
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DISCUSSION
A.
Legal Standard
Local Civil Rule 103.1(a) establishes that the Rules of Professional Conduct
(“RPC”) as revised by the Supreme Court of New Jersey govern the conduct of the
members of the bar admitted before this Court. See United States v. Balter, 91 F.3d
427, 435 (3d Cir. 1996), cert. denied, 519 U.S. 1011 (1996). The party seeking
disqualification must carry a heavy burden and must meet a “high standard of proof
before a lawyer is disqualified.” Phelps v. D&S Consultants, Inc., 2010 WL 3186241,
at *5 (D.N.J. Aug. 10, 2010).
Attorney disqualification is never automatic, even when a disciplinary rule
prohibits an attorney’s appearance in a case. United States v. Miller, 624 F.2d 1198,
1201 (3d Cir. 1980). Motions to disqualify are generally disfavored because they can
have “such drastic consequences.” Rohm & Haas Co. v. American Cyanamid Co., 187
F. Supp. 2d 221, 226 (D.N.J. 2001). “Such disfavor results from the reality that
motions to disqualify are sometimes made solely for ‘tactical reasons,’ and that even
when they are made in good faith, motions to disqualify cause inevitable delay in the
underlying proceedings and create additional hardships to the opposing party.”
Prudential Ins. Co. of Am. v. Chelchowski, 2017 WL 1549466, at *3 (D.N.J. Apr. 28,
2017) (citing Carlyle Towers Condo Assoc., Inc. v. Crossland Savings, FSB, 944 F.
Supp. 341, 345 (D.N.J. 1996)). As a result, careful scrutiny of the facts of each case is
required to prevent unjust results, and “resolution of a motion to disqualify requires
the court to balance the need to maintain the highest standards of the legal profession
against the right to freely choose counsel.” Steel v. General Motors Corp., 912 F.
Supp. 724, 733 (D.N.J. 1995). Notably, “ethical rules should not be blindly applied
without consideration of the relative hardships.” Carlyle Towers, 944 F. Supp. at 345.
Here, Plaintiffs have moved to disqualify F&L based upon RPC 1.7, which
provides:
(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 . . .
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(b) Notwithstanding the existence of a concurrent conflict of interest
under paragraph (a), a lawyer may represent a client if:
(1) each affected client gives informed consent, confirmed in
writing, after full disclosure and consultation . . . .[W]hen the lawyer
represents multiple clients in a single matter, the consultation shall
include an explanation of the common representation and the
advantages and risks involved;
(2) the lawyer reasonably believes that the lawyer will be able to
provide competent and diligent representation to each affected client;
(3) the representation is not prohibited by law;
(4) 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.
Id.
Rule 1.7 arises out of the fundamental proposition that attorneys owe a duty of
undivided loyalty to their clients. Manoir-Electroalloys Corp. v. Amalloy Corp., 711
F. Supp. 188, 192 (D.N.J. 1989). Such loyalty is “diluted by attempting to represent
clients with adverse interests.” Id.
B.
Application
Disqualification is a “drastic measure which courts should hesitate to impose
except when absolutely necessary.” Alexander v. Primerica Holdings, Inc., 822 F.
Supp. 1099, 1114 (D.N.J. 1993). The party seeking to disqualify counsel must show
that it is justified. Id. Plaintiff has shown no justification for disqualification here: in
fact, its motion appears to be a litigation tactic; its loose accusation of perjury by an
adversary is troubling.
1.
Plaintiff’s Argument is a Disputed Litigation Position, not a Basis
for Disqualifying its Adversary
Plaintiff fails to establish any factual basis underpinning the alleged conflict.
According to Plaintiff, the alleged conflict arises because of two of Defendants’
invalidity theories relating to the ‘852 patent. Specifically, Defendants contend the
‘852 patent is invalid, for, among other reasons: (1) the allegation that the invention
was offered for sale in 2009, prior to the application for a patent being filed; and (2)
the allegation that the invention was actually misappropriated from another company,
Kanomi.
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Plaintiff contends the invalidity defenses create a conflict because of tension
between the defenses and two Marks declarations. The first declaration was executed
in 2010 and, according to Plaintiff, “acknowledged the duty to disclose information
which is material to the patentability” of the invention. (Defs.’ Br. 7.) Because
Defendants’ first invalidity defense claims the invention was offered for sale in 2009,
and that was supposedly not disclosed in the 2010 declaration, Plaintiff accuses Mr.
Marks of “perjury.” The second declaration was executed in 2015. Plaintiff claims this
declaration is problematic because Mr. Marks supported patentability of the invention,
even though Plaintiff says Defendants now claim the technology was copied from
Kanomi. In short, Plaintiff claims there is a conflict between and among Defendants
because of the current invalidity theories and the declarations submitted.
Defendants proffer a completely different factual scenario. Defendants say the
alleged “offer for sale” came in the form of a 2009 email by Plaintiff’s then-employee
Grant Bolling to another company – an email of which Mr. Marks was neither the
author or direct recipient. (See Declaration of Anthony Singer, Ex. B.) Defendants
note Mr. Marks has not been deposed or questioned about this email in discovery in
this case, and there is nothing in the record that suggests that Mr. Marks had an
obligation to know and understand the subject of an email he was merely copied on
years earlier. Similarly, Defendants explain that the second declaration was executed
at a time when H5G had not yet produced discovery, including the 2009 email from
Grant Bolling which was produced in October 2016, and before counsel was able to
determine what the impact of the email is alleged to be.
Plaintiff’s conflict argument is the stuff of litigation positions, which may
evolve, which may shift, which may be pleaded alternatively, which may be crossexamined and if appropriate debunked. Even if true, this does not demonstrate a
conflict of interest between the Defendants. In addition, there has not been a showing
of an adverse relationship between Mr. Marks and any of his co-defendants or any
conflict of interests. If anything, it is the opposite: all Defendants are united in
establishing invalidity of the ‘852 patent, as well as defending the other claims in the
case. In addition, Plaintiff’s versions of the events are strongly disputed and countered
by Defendants’ own chronology. Simply saying there is a conflict does not make it so.
There is no conflict here.
2.
All Defendants Consent to the Representation
Clients have a well-established, strongly protected right to choose their own
lawyer. The Defendants here want to retain their counsel. They do not perceive any
conflict of their interests. This should not be forgotten amongst the opaque legal
arguments.
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Rule 1.7(b) provides that a lawyer with a concurrent conflict of interest may
continue to represent a client if, among other things, all clients give informed written
consent and the representation does not involve claims by one client against another.
Id. Here, even if there was some type of conflict (there is not), all Defendants have
provided consent to F&L’s continuing representation. See Defs.’ Br. 14 (citing
Declaration of Andrew Moskin, Ex. A at 1.) Regardless of any conflict, consent to
F&L continuing as counsel is dispositive of the motion. Nevertheless, in about a
paragraph, Plaintiff vaguely alleges that the Defendants have “claims” against each
other because they will disagree about the “perjured” statements. But Plaintiff’s
counsel doesn’t represent Defendants. Its opinion about what claims Defendants have
against each other is blind speculation. Defendants don’t seem to think so. There are
no cross-claims in the case. Even if a conflict did somehow exist, F&L would still be
permitted to remain in the case pursuant to RPC 1.7(b).
3.
The Motion is Late and Plaintiff’s Standing is Debatable
While devoid of merit, the motion should also be denied because it is late—and
filed years into the contentious litigation.
The action was commenced four years ago. In Defendants’ Answer and
Counterclaim, filed on January 11, 2014, the issue of Plaintiff’s alleged copying from
Konami Gaming was expressly raised. (See Answer and Counterclaim ¶¶ 36-38, 48
(“Upon information and belief H5G’s specific embodiment of slot machine reels
having the identical symbol shown in every symbol position on top of one another into
perpetuity was derived directly from Konami’s Moulin Rouge African Diamond
games.”)). Moreover, Plaintiff moved to amend the Complaint to allege infringement
of the ‘852 patent on December 23, 2016, and in doing so, represented that the new
claims “arise out of the same subject matter in the original complaint,” and never
raised the issue that adding these patents could result in an allegation of a conflict. A
conflict can be waived through lengthy inaction. See, e.g., Alexander v. Primerica
Holdings, Inc., 822 F. Supp. 1099, 1114 (D.N.J. 1993). Here, the purported conflict
was discernable from the early stages of the case and was not acted on for years.2
It is questionable whether Plaintiff has standing to raise a conflict entirely
between Defendants and not involving Plaintiff or its counsel. The Third Circuit has
Plaintiff’s claim the conflict was not apparent because Defendants’ Answer and
Counterclaim stated that the ‘852 patent was “derived from” Konami’s games and not
“copied.” In the Court’s view, that is form over substance. The concept is the same,
and Plaintiff has long been on notice that Defendants viewed the patent as invalid
based on some interplay between the invention and the Konami products.
2
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not decided whether a party has standing to raise a supposed conflict between two
adversary parties. See In re Pressman, 459 F.3d 383, 402 n.20 (3d Cir. 2006). There is
non-binding district court authority, often on very different facts, finding that standing
may exist. See, e.g., Delso v. Trustees for Ret. Plan for Hourly Employees of Merck &
Co., Inc., 2007 WL 766349, at *5 (D.N.J. Mar. 6, 2007).2 Other courts have found that
an adversary lacks standing to raise its opponents supposed conflict:
This Court recognizes that a party does not have standing to
bring a motion to disqualify based on a material conflict of
interest unless the party is either a former or current client. As
a general rule, courts do not disqualify an attorney on the
grounds of a conflict of interest unless the former client
moves for disqualification. To allow an unauthorized
surrogate to champion the rights of the former client would
allow that surrogate to use the conflict rules for his own
purposes where a genuine conflict may not really exist.
Shire Labs, Inc. v. Nostrum Pharm., 2006 WL 2129482, at *4 (D.N.J. July 26, 2006);
see also Tibbott v. N. Cambria Sch. Dist., 2017 WL 2570904, at *4 (W.D. Pa. June 12,
2017). The fact that there is disagreement about whether an adverse party even has
standing to raise this sort of alleged conflict demonstrates how drastic a remedy
disqualification is, and how courts strain to avoid it whenever possible. In this case,
any conflict would impact and prejudice only Defendants and their counsel. This is
not a case of a “side-switching” lawyer that could share or expose confidential or
privileged information; it is a one-sided alleged conflict that has no bearing on
Plaintiff’s preparation of its case. It is understandable why courts debate whether
Plaintiff should have standing in this type of case. See id.
4.
Disqualification is Not Warranted in All Events
Even if there was a conflict; even if the conflict wasn’t waived; even if the
conflict was timely raised; and assuming Plaintiff has standing (none of which have
been established), the Court would still not disqualify counsel in the absence of
complaint by Defendants in this case.
Disqualification is never automatic. United States v. Miller, 624 F.2d 1198,
1201 (3d Cir. 1980). Even when a conflict is established, courts are directed to
For example, Delso involved a pro se action in which an attorney continued to write
pleadings for an unrepresented party despite an admitted conflict. Id. Much different
than the sophisticated counsel and subject matter in this case.
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consider certain factors to determine whether the facts of the particular case warrant
disqualification, including: (1) prejudice to the non-moving party; (2) prejudice to the
moving party; (3) the cost – in terms of time and money – to retain new counsel; (4)
the complexity of the issues in the case and the time it would take for new counsel to
acquaint themselves with the facts and issues; and (5) which party, if either, was
responsible for creating the conflict. See Wyeth v. Abbot Labs, 692 F. Supp. 2d 453,
459 (D.N.J. 2010). These factors should be approached with “a keen sense of
practicality.” Id.
Here, the relevant factors do not support disqualification, even assuming a
conflict is present. And it is not a particularly close call.
First, Defendants would be substantially prejudiced. The case has been
pending for more than 4 years. The parties have been battling complex issues for years
and the discovery and motion practice has been voluminous. Counsel is deeply
entrenched. Removing counsel and forcing new lawyers into the case for one or all of
the Defendants would have a palpable prejudicial impact on Defendants.
Second, there is no discernable prejudice to Plaintiff at all. Plaintiff claims that
the Defendants are adverse and that one has committed perjury. That has no direct
bearing on Plaintiff and its claims. Plaintiff can present its version of the facts at the
appropriate time in the case.
Third and Fourth, the time and money associated with retaining new counsel
would likely be substantial. The Court has explained to counsel that this old case must
start moving toward a resolution on the merits. And it is not difficult to imagine
requiring one or more lawyers to get up to speed on 4 years of heavy litigation would
be expensive. Indeed, the docket alone runs more than 300 entries.
Fifth, it has not been shown that either party has created a conflict, especially
because no conflict has been established. That aside, the parties blame each other for
any conflict based on their different chronologies and statements of supposed facts.
*
*
*
Disqualification of counsel is a disfavored and extreme sanction that should not
be lightly imposed. In this case, the Court sees no basis whatsoever to find a
disqualifying conflict. For that reason, Plaintiff’s motion is denied.3
Defendants cross-motion for Rule 11 sanctions is also denied. Rule 11 is designed
to ensure that pleadings and motions are not used for improper purpose such as
3
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CONCLUSION
For the reasons set forth above, Plaintiff’s motion to disqualify L&F [ECF No.
231] is DENIED. Defendants’ cross-motion for Rule 11 sanctions is also DENIED.
[ECF No. 237.]
s/Mark Falk
MARK FALK
United States Magistrate Judge
Dated: May 18, 2018
harassment, delay, or needless increase in litigation expense. See, e.g., Lieb v.
Topstone Indus., Inc., 788 F.2d 151, 157 (3d Cir. 1988). And Rule 11 sanctions
“should not be assessed lightly.” Simmerman v. Corino, 27 F.3d 58, 60 (3d Cir. 1994).
The imposition of Rule 11 sanction is discretionary. The subject of attorney conflicts
is complex and subject to many considerations. This case has been difficult and
contentious. The Court will exercise its discretion and refrain from being sidetracked
with a sanctions inquiry at this time. However, counsel should be aware that the
undersigned will not hesitate to recommend the imposition of sanctions pursuant to
Rule 11 or 28 U.S.C. § 1927 if faced with a clear justification and at the appropriate
time. Counsel are directed to proceed with the case expeditiously according to the
Federal Rules, with the Rules of Professional Conduct and the Guidelines for
Litigation Conduct in mind.
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