Gatx/Airlog Co. v. Evergreen International Airlines, Inc.
1998 U.S. Dist. LEXIS 9738, 98 Daily Journal DAR 10085, 8 F. Supp. 2d 1182 (1998)
Rule of Law:
Under California law, a law firm must be disqualified from representing one client if it simultaneously represents another client whose interests are adverse in a related or even separate matter, even if the clients are not adverse parties in the same litigation, unless there is informed written consent from both clients.
Facts:
- In 1986, GATX entered into a contract with Pemco Aeroplex, Inc., for Pemco to design kits to convert 747 passenger aircraft into cargo aircraft.
- In 1988, the Federal Aviation Administration (FAA) granted Supplemental Type Certificates (STCs) to the GATX/Pemco design, concluding that the converted aircraft met airworthiness regulations.
- GATX converted several 747 passenger aircraft for Evergreen International Airlines, Inc. utilizing the Pemco design, and The Bank of New York (BNY) became the beneficial owner of one of these four converted aircraft.
- In late 1995 and early 1996, the FAA reviewed its certification of the GATX/Pemco design and issued an Airworthiness Directive (AD) on January 3, 1996, reducing the permissible payload of the aircraft, effectively grounding them.
- BNY, as an owner, received regular reports from GATX from early 1996 onwards concerning efforts to fix design deficiencies, and advised GATX of its concern that its investment was at risk due to the AD.
- Mayer, Brown & Platt (MBP) represented BNY and various BNY subsidiaries in a variety of transactional matters as BNY’s regular Illinois local counsel from 1995 through mid-January 1998.
- In May 1997, BNY and GATX agreed to toll any statutes of limitations with respect to all of BNY’s claims, as they were involved in settlement negotiations.
- MBP did not inform GATX and BNY of any conflict of interest or seek written waivers until February 1998, despite realizing BNY was an owner of an affected aircraft by May 1997.
Procedural Posture:
- After the FAA’s Airworthiness Directive was issued, Evergreen International Airlines, Inc. sent a demand letter to GATX, prompting GATX to retain the law firm of Mayer, Brown & Platt (MBP) and file an action for declaratory relief.
- An action by Evergreen against GATX was filed in mid-1996.
- The Bank of New York (BNY) filed a complaint against GATX in January 1998, initiating case No. C-98-0385 WHO.
- BNY moved the District Court to intervene in all related actions for the purpose of seeking the disqualification of MBP from representing GATX, and also moved to consolidate BNY's case with the other, related actions for discovery.
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Issue:
Does California Rule of Professional Conduct 3-310(C)(3) require the disqualification of a law firm that simultaneously represents two current clients whose interests are adverse in different matters, even if the adverse client has not yet formally filed suit against the other?
Opinions:
Majority - Orrick, District Judge
Yes, California Rule of Professional Conduct 3-310(C)(3) requires the disqualification of Mayer, Brown & Platt (MBP) from representing GATX because MBP simultaneously represented BNY, a current client, whose interests were adverse to GATX in a matter without obtaining informed written consent from both clients. The Court applied a per se rule of disqualification for simultaneous adverse representation, as established in Flatt v. Superior Court, even when the representations are in unrelated matters and there is no risk of confidential information being used. The duty of loyalty prevents an attorney from accepting any matter adverse to a current client's interests. MBP's actions in advancing assertions and seeking discovery on GATX's behalf, which could provide defenses against claims by BNY and other aircraft owners, were adverse to BNY's interests. The Court rejected MBP’s argument that BNY was not a 'party' until it filed suit, noting that the duty of loyalty applies to a client's interests even if they are not formally a litigant. It also determined that BNY was a current client based on a pattern of repeated retainers creating a continuous relationship, and rejected the 'hot potato rule' argument, which prohibits an attorney from curing a dual representation conflict by ending the relationship with the client who creates the conflict. Furthermore, the Court found MBP was at fault for creating the conflict by accepting GATX’s representation when it knew, or should have known, of BNY’s claims and concerns, especially after the Tolling Agreement.
Analysis:
This case reaffirms the strict duty of loyalty owed by attorneys to their current clients, especially in California, where a per se rule of disqualification applies to simultaneous adverse representations. It clarifies that this duty extends beyond formal litigation, encompassing situations where one client's interests are adverse to another's, even in separate matters or where claims are merely contemplated. The ruling underscores the importance of thorough and ongoing conflicts checks for law firms, rejecting arguments that such a responsibility is undue for large firms or that conflicts can be cured by 'firing' a client. This case serves as a critical reminder that firms cannot prioritize a new, lucrative client over an existing one, even if the matters are unrelated, without proper informed written consent.
