Plaintiffs, alleged owners of the IP rights to the “The Game of Life”, want to end up on Millionaire Estates. Defendants, including the toy company that has been making and selling “The Game” for decades, are trying to keep themselves out of the Poor Farm. All of them are lawyered up and “spinning the wheel” of federal district court IP litigation. See Markham Concepts, Inc. v. Hasbro, Inc., Case No. 1:15-cv-419-S-PAS (D.R.I. Oct. 2, 2015).
Just like real life (and frankly The Game of Life itself), the litigation, which has been pending for seven months, recently spawned an unexpected turn. No, it was not the birth of twins or an income tax bill, as might occur in the Game. Instead, defendants have moved to disqualify plaintiff’s IP counsel, the law firm of Greenberg Traurig, for an alleged concurrent client conflict of interest.
At issue in this case is whether a law firm which knows that it is about to become adverse to a current client, and which requested and was denied a waiver of the conflict from its client, can then withdraw from representing the client and promptly represent a party adverse to its “former” client. In ethics parlance, a “withdrawal” under these circumstances is sometimes referred to as a “hot potato drop.” Also at issue is whether a purported advanced waiver of conflicts, which states that a client will not “unreasonably” withhold its consent to a future conflict, is enforceable, and even if it is enforceable, whether the law firm under the facts of this matter “unreasonably” withheld its consent to the waiver.
This action arises from a complaint filed in October 2015 by Lorraine Markham and her company, Markham Concepts in federal district court in Rhode Island. According to the complaint, Ms. Markham’s husband, Bill Markham, was the “creator, designer, developer, inventor, author and owner of the rights” to the iconic board game “The Game of Life” The “Game” was allegedly invented by Mr. Markham in 1959 and has since sold over 30 million copies. The complaint seeks among other things to establish ownership of the intellectual property rights in the Game, terminate all copyright grants related to the Game, and to obtain royalties allegedly owed for breaches of contract relating to the Game.
The main defendant is Hasbro, Inc., which the complaint alleges is the successor-in-interest to Milton Bradley Company’s rights and obligations concerning the Game. Other defendants are family members of, and entities associated with, the late Art Linkletter, including an entity formed by Linkletter to promote various games known as “Link.” Art Linkletter was an early endorser of and spokesman for Milton Bradley, and his picture appeared on “The Game’s” $100,000 bills.
The complaint alleges that in the late 1950s, Link approached Markham and reached “an understanding” that Link would attempt to market The Game of Life to Milton Bradley. Milton Bradly and Link (evidently on behalf of Markham) entered into a license agreement which provided Milton Bradley with exclusive rights to make and market the Game in exchange for a 6% royalty. The complaint alleges that in 1959, Markham assigned Link all rights in and to the Game, including all IP in the Game, “provided that said assignments will revert to Markham upon the termination of this agreement.”
In consideration of this assignment agreement, Link assigned to Markham 30% of all royalties received by Link from the manufacture and sale of the Game. The royalty arrangement was modified in the 1980s as part of settlement of litigation to include royalties on international sales. In 1990, Milton Bradley merged into Hasbro, and Hasbro continued making royalty payments to Markham.
The complaint alleges that there were various commercialization efforts made in connection with the Game, including a TV show, and that Markham is owed $2 million in royalties from Hasbro. In addition, the complaint alleges that the 1950s era assignment agreement was properly terminated and that all IP rights in and to The Game of Life have reverted back to Markham’s successors-in-interest.
The Alleged Conflict of Interest
Plaintiffs are represented by Louis Solomon and Michael Lazaroff. At the time suit was filed, Messrs. Solomon and Lazaroff were associated with the law firm of Cadwalader, Wickersham & Taft LLP. In March 2016, Messrs. Solomon and Lazaroff left Cadwalader and joined Greenberg Traurig. That is when the ethical issues began.
On April 22, 2016, Hasbro moved to disqualify Solomon, Lazaroff, and Greenberg Traurig. The DQ motion alleges that “Hasbro has been Greenberg Traurig’s client since 2008, with Greenberg Traurig actively prosecuting a variety of patent matters on Hasbro’s behalf.” The motion characterizes Greenberg Traurig’s conduct as a “knowing and intentional breach of its duty of loyalty” to Hasbro.
According to Hasbro, instead of recognizing the “clear concurrent conflict of interest in violation of Rule 1.7” and withdrawing as plaintiffs’ counsel, Greenberg Traurig instead attempted to “deflect responsibility for its predicament onto Hasbro, claiming Hasbro ‘unreasonably’ failed to waive the conflict in violation of the terms of its engagement agreement.”
ABA Model Rule 1.7 generally prohibits an attorney from representing one client in a matter directly adverse to an existing client. By comparison, ABA Model Rule 1.9 generally allows an attorney representing one client to sue or otherwise engage in a directly adverse relationship against a former client, provided that the subject matter of the prior and current representation is not substantially related. The Rhode Island rules of ethics applicable in the Hasbro case generally track the text of the ABA Model Rules.
Whether a client is a “current” or “former” client can often be dispositive in evaluating whether a particular engagement is prohibited by a conflict of interest.
The motion alleges that in February 2016, another Greenberg Traurig attorney visited Hasbro to discuss expanding the relationship between the firm and its client. During the course of this meeting, the Greenberg attorney asked a representative of Hasbro if Hasbro would waive a conflict. Hasbro responded, essentially, “It depends.”
On March 7, 2016, several Greenberg attorney held a conference call with Hasbro and advised it that the firm would be hiring Messrs. Solomon and Lazaroff from Cadwalader. They asked Hasbro to waive the conflict of interest. To this, Hasbro expressed surprise given the “contentious” nature of the litigation. Of additional concern was the fact that Greenberg was providing significant IP counsel for Hasbro. Accordingly, Hasbro advised Greenberg that it refused to waive the conflict.
A few days later, Greenberg contacted Hasbro and stated that it was withdrawing from representing Hasbro, including pending patent applications.
Hasbro’s motion argues that:
Greenberg Traurig’s attempt to cure the concurrent conflict of interest by purporting to terminate its relationship with Hasbro must fail. Pursuant to the ‘hot potato rule,’ a prohibited conflict may not be cured by withdrawing from representation of a party or by finishing the work for one of the parties, as it is inappropriate to abandon one client in order to take on the representation of a more lucrative client, where representing both would create a conflict of interest.
According to the motion, Greenberg attempted to justify its conduct by reference to a 2008 engagement agreement with Hasbro. The agreement said in relevant part that Hasbro would not object “unreasonably” to adverse representation in certain circumstances. The motion asserts, however, that the “purported waiver” did not reference litigation and only was related to “transactional” matters.
Furthermore, Hasbro contends that even if the engagement agreement language was applicable, it was not “unreasonable” under the circumstances for Hasbro to object to the adverse representation. Hasbro also asserts in its motion that it never agreed to an advanced waiver of conflicts, which, according to Hasbro, “is one in which a client expressly and affirmatively waives certain conflicts of interest.” In addition, Hasbro argues that even if the engagement agreement language in question was an advanced waiver, then it is not enforceable because it fails to provide specificity and “did not provide Hasbro with sufficient information for Hasbro to give its informed consent to this conflict.”
Greenberg Traurig has not yet filed its response to the motion to disqualify. The case should be of great interest to law firms that include advanced conflict waiver provisions in their engagement agreements.