Ciao-Di Rest. Corp. v Paxton 350, LLC

[*1] Ciao-Di Rest. Corp. v Paxton 350, LLC 2008 NY Slip Op 52642(U) [22 Misc 3d 1117(A)] Decided on December 18, 2008 Supreme Court, New York County Lowe, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 18, 2008
Supreme Court, New York County

Ciao-Di Restaurant Corporation, Plaintiff

against

Paxton 350, LLC and Alan Friedberg, Defendants



602863/07



Plaintiff

Rosenberg Feldman Smith LLP

551 Fifth Ave

New York, NY 10176

Defendant

Jeffrey D. Taub, Esq

230 Park Avenue, Suite 2525

New York, NY 10169

Richard B. Lowe, J.

The defendants, Paxton 350, LLC ("Paxton") and Alan Friedberg ("Friedberg"), move to disqualify the plaintiff's attorney, Richard Feldman ("Feldman"), and his firm Rosenberg Feldman Smith, LLP pursuant to DR 5-102 and DR 5-105.

BACKGROUND

This action involves a contractual dispute between the plaintiff Ciao-Di Restaurant Corporation ("Ciao-Di") and the defendants. The parties entered into a joint venture agreement whereby the defendants were retained to manage a project to develop the plaintiff's property. Essentially, under the agreement Paxton was to arrange financing for and management of the project's development in exchange for a construction management fee.

Several disputes arose which led to the deterioration of the parties' relationship. Eventually, the plaintiff terminated the defendants and brought this suit to recover damages [*2]resulting from the defendants' alleged breach of the agreement. The defendants counterclaimed alleging it is the plaintiff who breached the contract. In this instant motion, the defendants move to disqualify Ciao-Di's attorney.

The facts that are relevant to this motion for disqualification are as follows: On August 16, 2007, the Yvonne Rainero ("Rainero"), the shareholder and treasurer of Ciao-Di, and Feldman appeared at Paxton's construction office. The defendants allege that Feldman approached David Gruber ("Gruber"), a member of Paxton, and both questioned him about Paxton's activities and also threatened him. Shortly afterwards, Friedberg arrived at the office. Feldman informed Friedberg that the plaintiff had terminated Paxton, and a letter of termination was handed to Friedberg. Thereafter, Friedberg and Gruber were asked to vacate the premises. The police were called in the midst of these events which the defendants characterize as an "ousting" by the plaintiff.

After the police departed, the parties met and attempted to resolve some of their differences. Feldman was present at this meeting. The defendants allege that during this meeting, the plaintiff agreed to an interim distribution, together with payment of construction fees to Paxton in the amount of $425,000. The parties agreed that neither party was to have access to books and records related to the venture until the propriety of Paxton's termination was resolved or an order was issued by the court. The records and books were kept in the construction office and a lock was put in place. Feldman was made the sole repository of the key to the lock. The defendants allege that the plaintiff violated this agreement whereby the Rainero had access the office, despite the fact that Feldman was the only one who held the key.

The defendants now move to disqualify Feldman from representing the plaintiff based on DR 5-102(a) and DR 5-105.

DISCUSSION

It is well settled that because "disqualification of a party's attorney denies a party's right to representation by the attorney of its choice", motions to disqualify opposing counsel are disfavored, must be "carefully scrutinized", and require a high standard of proof (S & S Hotel Ventures Limited Partnership v 777 S.H. Corp., 69 NY2d 437, 443 [1987]). "A party's entitlement to be represented in ongoing litigation by counsel of its own choosing is a valued right which should not be abridged absent a clear showing that disqualification is warranted" (Dominguez v Community Health Plan of Suffolk, Inc., 284 AD2d 294 [2nd Dept 2001]).

Delay in Bringing the Motion

Delay in making a motion to disqualify will support a finding that it is brought in bad faith, in order to delay proceedings or otherwise secure an advantage (See Eisenstadt v Eisenstadt , 282 AD2d 570 [the fact that the defendant waited over two years before moving to disqualify the plaintiff's attorney belies any genuine claim that he was prejudiced or that the motion was not a dilatory tactic]).

The defendants have known about the events of August 16, 2007 from the outset. This action was filed on August 24, 2007 and there has been substantial motion practice and in court appearances. There have been several status conferences held and motions for preliminary injunction, contempt, and intervention filed and decided.The parties have also participated in mediation with one another. The defendants do not explain how over a year in the case, they [*3]now make this instant motion which would require removing Feldman after substantial events have taken place.

Therefore, the motion is denied as it appears that the motion is brought solely to delay the proceedings and to secure an advantage over opposing counsel.

The court will, however, continue to analyze the merits of the motion.

Advocate-witness Rule

An attorney must withdraw from representation when it becomes necessary for him/her to serve as a witness in matters pertaining tohis/ her client's interest. DR 5-102(a) states:

(a) A lawyer shall not act, or accept employment that contemplates the lawyer's acting, as an advocate on issues of fact before any tribunal if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client, except that the lawyer may act as an advocate and also testify:

(1) If the testimony will relate solely to an uncontested issue.

(2) If the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.

(3) If the testimony will relate solely to the nature and value of legal services rendered in the case by the lawyer or the lawyer's firm to the client.

(4) As to any matter, if disqualification as an advocate would work a substantial hardship on the client because of the distinctive value of the lawyer as counsel in the particular case.

A party's entitlement to be represented in ongoing litigation by counsel of its choice is a valued right. (Hudson Valley Marine, Inc. v Town of Cortlandt, 54 AD3d 999 [2nd Dept 2008]. Disqualification of a party's counsel may be required "only when it is likely that the testimony to be given by the witness is necessary" to the party's case (S & S Hotel Ventures 69 Ny2d at 445-446). The burden of demonstrating the necessity of the attorney's testimony is on the party seeking his or her disqualification (Id.). When determining whether the subject testimony is necessary, the court should take into account such factors as the significance of the matter, the availability of other evidence, and the weight of the testimony. (Brooks v Lewin, 48 AD3d 289} [1st Dept 2008]). An attorney cannot disqualify his adversary merely by calling him to the witness stand (Lefkowtiz v Mr. Man, Ltd, 111 AD2d 119 [1 st Dept 1985]).

The defendants argue that the events on August 16, 2007 were significant to the matters of this litigation and that Feldman was an active participant to the events. Therefore, according the defendants, he will likely be called on to testify as a witness. In particular, defendants allege that Feldman prepared and handed the letter of termination to Friedberg. While this may be true, the defendants fail to establish how the testimony of Feldman, who on behalf of his client prepared and delivered a letter of termination, is necessary with respect to the causes of action [*4]raised in the complaint and in the counterclaims - - specifically, for a breach of the development agreement.

The defendants also argue that it is necessary for Feldman to testify regarding his actions taken in an attempt to oust the defendants from the Paxton construction office. Even if the defendants' allegations are true, the fact that Feldman, as attorney for plaintiff, took steps to oust the defendants out of the office is not a significant matter to this litigation surrounding breaches of the joint venture agreement and therefore it has not been established that his testimony is necessary. The defendants also allege that Feldman attempted to give legal advice to and receive information from Gruber, a party represented by counsel. Therefore, according to defendants, Feldman has engaged in conduct which evidences a personal interest in the matter which will affect his advocacy (See DR 5-101). The defendants cite to Papanicolaou v Chase Manhattan Bank, N.A, 720 Fsupp 1080 [SDNY 1989]) where there was an ex parte communication between defense counsel and the plaintiff during which they discussed the merits of the case for an hour and a half. Other than the conclusory statement that a conversation was had , the defendants in this matter provide no evidence as to the substance of those conversations and whether they rise to the level of those in the Papanicolaou matter where disqualification was warranted.

Finally, the defendants argue that the records and books were kept in Paxton's offices, and that the plaintiff took all the records and books out of the office, despite an escrow agreement that states neither the defendants or the plaintiff are to remove the records and books until the defendants' termination is resolved or until there is a court order. The defendants stated that Feldman was the only one with the keys and access to the office, yet the plaintiff was able to remove the records and books from the office. Therefore, according to the defendants, this is a violation of the escrow agreement, and Feldman, being the only one with the keys, is a necessary witness to testify how the plaintiff gained access. However, it is the principal of plaintiff Yvonne Rainero, who can testify at a deposition as to how she gained access to the office, which is probative and any testimony of Feldman will be duplicative. Therefore, the defendants' motion to disqualify Feldman pursuant to DR 5-102(a) is denied.

The defendants' also rely on the same set of facts in support of their argument that Feldman's representation is a violation of DR 5-102(D) whereby his testimony may be prejudicial to his client. However, as already discussed, the facts which defendant assert Feldman will be called to testify on are not highly relevant to the causes of action contained in the complaint and the counterclaims. Therefore, the motion to disqualify pursuant to DR 5-102(D) is denied.

Motion to disqualify based on simultaneous representation

After the instant motion was fully submitted, the parties agreed to allow the defendants to make supplemental submissions within this motion. Specifically, they submit the letterhead of the firm Krass, Snow & Schmutter, P.C ("Krass Snow") (Friedberg Supplemental Aff Ex A). The letterhead lists Feldman as "of counsel. Friedberg submits an affidavit asserting that he is currently represented by Krass Snow. Therefore, the defendants also seek to disqualify Feldman pursuant to DR 5-105.

A lawyer cannot simultaneously represent two opposing parties in the same litigation if the [*5]interest of each party conflicts. DR 5-105(b) states:

A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer's representation of another client, or if it would be likely to involve the lawyer in representing differing interests . . .

Furthermore, this rule extends to law firms. DR 5-105(d) states:

While lawyers are associated in a law firm, none of them shall knowingly accept or continue employment when any one of them practicing alone would be prohibited from doing so . . . .

In addition, attorneys must avoid even the appearance of impropriety.

(1) A lawyer shall not represent a private client in connection with a matter in which the lawyer participated personally and substantially as a public officer or employee, and no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter unless:

(ii) there are no other circumstances in the particular representation that create an appearance of impropriety.

(Code of Professional Responsibility DR 9-101 [b] [1] [ii]) (emphasis added).

In support of the motion, the defendant cites to Cinema 5 Ltd v Cinerama, Inc., 528 F2d

1384, 1387 [2d Cir 1976]) which held that "where an attorney represents a client, the attorney is per se disqualified from concurrently representing a party adverse to that client". The Second Circuit, however, later rejected a per se rule treating all "of counsel" attorneys as "associated" attorneys for the purpose of DR 5-105 (Hempstead Video, Inc. v Incorporated Village of Valley Stream, 409 F3d 127 [2nd Cir 2005]). The court held that "[t]he first step . . .is to determine whether an attorney is associated' with the firm. If he is, a rebuttable presumption arises that the attorney and the firm share client confidences, and the court then proceeds to the second step, which involves determining whether the presumption has been rebutted. If the attorney is not associated' with the firm, no presumption of confidential sharing arises . . ."(Id at 134).

The ruling in Hempstead Video is in line with the New York Courts which have not adopted such a per se rule found in Cinerama and have held that a " per se rule of disqualification' . . . .is unnecessarily preclusive because it disqualifies all members of a law firm indiscriminately, whether or not they share knowledge of former client's confidences and secrets'" (Kassis v Teacher's Ins. and Annuity Ass'n, 93 Ny2d 611, 616 [1999], quoting Solow v W.r. Grace & Co 83 NY2d 303, 309 [1999]). " [D]isqualification of a law firm during litigation may have significant adverse consequences to the client and others, it is particularly important that the Code of Professional Responsibility not be mechanically applied when disqualification is raised in litigation'" (Kassis, 93 NY2d at 617, quoting S & S Hotel Ventures v 777 S.H. Corp, 69 NY2d 437, 444 [1987]). [*6]

Feldman submits an affidavit affirming that in late 2001 he was retained by the Krass Snow firm and its partners to defend them in a judicial dissolution proceeding brought by their former partner (Feldman Aff ¶ 3). In April 2003, Feldman joined the law firm of Todtman Nachamie Spizz & Johns, but Krass Snow wanted to be able to refer litigation matters to him for handling (Id ¶4). The relationship between Feldman and Krass Snow was at all times one whereby the firm would refer matters to Feldman (Id ¶ 5). At no time did Feldman and Krass Snow share office space (Id¶ 6). Feldman never had access to Krass Snow's files and never discussed Friedberg's affairs with the firm (Id ¶ 7). Only two matters were referred to Feldman between 2003-2005 (Smith Aff ¶ 2; Feldman Aff ¶ 5). No matters have been referred to Feldman since 2005 (Id).

While there is an association between Feldman and the Krass Snow firm, plaintiff has successfully rebutted the presumption that Feldman possesses confidential information and must necessarily be disqualified. There is no nexus between Krass Snow's representation of Friedberg and Feldman's representation of plaintiff in this matter. Further there is no real threat that there will be a disclosure of confidential information despite Feldman's representation in the action as there is no support in the record that Feldman, as "of counsel" to Krass Snow, acquired any material confidences made by Friedberg (See Jamaica Pub Serv 92 NY2d 631, 638 [1998]). The relationship between Feldman and Krass Snow is too attenuated from the instant matter to present a potential conflict.

CONCLUSION

Therefore, based on the foregoing, the motion to disqualify Feldman as counsel for plaintiff is denied.

Dated: December 18, 2008ENTER:

_______________________

J.S.C.