Opinion ID: 2031306
Heading Depth: 1
Heading Rank: 5

Heading: Attorney fault and conflict of interest

Text: The defendants assert that it was error for the trial court to strike their pleadings and enter default judgment against them because it was their attorney who failed to respond to the discovery requests, particularly when their attorney's inherent conflicts of interest are taken into consideration. Under the extremely unusual circumstances presented in this case, we agree. In his affidavit in support of the Bank's motion for relief from the judgment attorney Shaft in effect shouldered the blame for the failure to comply with discovery, attempting to excuse the misconduct because there were objections to disclosure of certain information and because, in his view, no further discovery could take place after he had filed the certificate of readiness. [3] Shaft also attempted to explain his view on the conflict of interest issue which had been raised. Even at that late date Shaft failed to fully comprehend the inherent conflicts of interest which arose from his representation of the defendants. Shaft should have been aware from the outset that he was representing clients with conflicting interests and that he was likely to be called as a witness. The first count of the complaint alleges that the individual defendants fraudulently diverted the assets of the Bank to themselves through excessive salaries and bonuses. The relief sought under count one was for the individual defendants to account for, restore, and pay over to Citizens State Bank of Lankin the excessive salaries and bonuses. If the plaintiffs prevailed on this theory the individual defendants would be required to return excess salaries and bonuses, and any recovery would inure to the benefit of the Bank. Shaft should have realized the adverse positions his clients had been placed in and withdrawn his representation. Additionally, because Shaft served on the Bank's board of directors and acted as legal counsel throughout the period of alleged mismanagement of the Bank, there was a likelihood that Shaft would be called as a witness by either his clients or the plaintiffs, and his testimony would not have related solely to uncontested matters, mere formalities, or the value of legal services rendered to the Bank. Under these circumstances, Shaft should not have undertaken the representation. We have previously indicated that conflicts of interest of counsel might, under appropriate circumstances, require reversal of a judgment. Southern Valley Grain Dealers Ass'n v. Board of County Commissioners, 257 N.W.2d 425, 432 (N.D. 1977). Under the unusually compelling circumstances presented in this case, where the attorney had obvious, inherent conflicts of interest and the clients assert that the attorney failed to aggressively represent their interests because of those conflicts, we conclude that it was inappropriate to strike the defendants' answer and counterclaim and enter default judgment as a sanction for discovery abuses. We find that the trial court abused its discretion in imposing the harshest allowable sanctions under the circumstances presented in this case.