SES Trims USA, Inc. v Xross Motors Inc.

[*1] SES Trims USA, Inc. v Xross Motors Inc. 2009 NY Slip Op 52027(U) [25 Misc 3d 1211(A)] Decided on October 7, 2009 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 7, 2009
Supreme Court, Kings County

SES Trims USA, Inc., Plaintiff,

against

Xross Motors Inc., and Billetts America, LLC, d/b/a Billet America and Billetamerica.com, Defendants.



4147/07



Attorney for Plaintiff

Marc J. Held, Esq.

Lazarowitz & Manganillo, LLP

2004 Ralph Ave.

Brooklyn, NY 11234

By Fax: 718-444-5768

Attorney for Defendant

Richard A. Solomon, Esq.

290 Central Ave., Suite 102

Lawrence, NY 11559-8507

Carolyn E. Demarest, J.

Plaintiff SES Trims USA, Inc. (SES) moves to enforce a so-ordered settlement agreement between the parties dated January 22, 2008. Defendant Xross Motors, Inc. (Xross) cross-moves to enforce a purportedly amended settlement agreement which was allegedly reached in 2009 and also cross-moves to disqualify plaintiff's counsel. For the reasons set forth below plaintiff's motion is held in abeyance, defendant's cross-motion to enforce the purportedly amended settlement agreement is denied and the motion to disqualify counsel is granted.

Background[*2]

SES claims to be the exclusive and sole East Coast distributor of custom automotive accessories. According to plaintiff, co-defendant Billetts America, LLC (Billetts) is a subsidiary of defendant Xross and, although disputed by Xross, SES was "instrumental in teaching the business to, starting up and funding XROSS and BILLETS." (Complaint ¶ 15). In 2005, SES allegedly entered into a distribution agreement permitting, inter alia, defendants to act as authorized agents for the purpose of selling SES products.

SES claims that pursuant to the alleged distribution agreement, defendants agreed: to abide by minimum pricing standards; to purchase all custom accessories directly from SES; to not manufacture their own custom parts or directly compete with SES; and keep SES's client list and source of manufacturing protected as trade secrets. Plaintiff and defendants also allegedly agreed that, should the business relationship cease, defendant would no longer sell any products that would cause it to directly compete with SES for one year.

Procedural History

Plaintiff commenced this action on February 2, 2007. Its complaint sought compensatory, liquidated and punitive damages resulting from defendants' alleged misappropriation of trade secrets and proprietary information, breach of fiduciary duties, tortious interference with the plaintiff's business relationships, unfair competition, and alleged conversion of intellectual property.

Initially, plaintiff moved by Order to Show Cause dated February 21, 2007 for a preliminary injunction requesting a temporary restraining order. The Court issued a temporary restraining order and defendants were temporarily enjoined from: (1) discussing the plaintiff's business acumen and/or integrity with any and all customers or potential customers or potential customers of either the plaintiff or defendants, or anyone acting on behalf of same; (2) taking any actions that would cause further injury to the plaintiff's goodwill and business reputation . . . (5) publishing disparaging and/or deceptive claims regarding the plaintiff in their promotional materials and websites; and (6) contacting plaintiff's clients.

The defendants interposed an answer on April 25, 2007. However, after numerous conferences before this Court, the parties settled the matter and the Court so-ordered a stipulation of settlement dated January 22, 2008.

Subsequently, on June 24, 2008, plaintiffs entered a judgement against defendants for their failure to pay one of the installment payments owed pursuant to Paragraph 9 of the settlement agreement. Plaintiff simultaneously filed its pending Order to Show Cause dated June 27, 2008 to enforce the settlement agreement citing numerous violations of its terms. The return date on the Order to Show Cause was set for July 14, 2008. That date was adjourned to August 18, 2008 and, in the interim, defendant Xross filed a cross-motion to vacate the judgment. The cross-motion was adjourned to August 18, 2008 as well.

On the August 18, 2008 appearance, the Court granted defendant's cross-motion to vacate judgment "on condition defendant places in escrow with plaintiff's counsel the full amount of the judgment, $4551.26." (See Order dated August 18, 2008). The Court, by separate written order dated August 18, 2008, referred this matter to a Judicial Hearing Officer to determine whether [*3]defendant had violated paragraphs 8, 9, and 10 of the January 22, 2008 settlement agreement and whether plaintiff gave notice as required by paragraph 12 of the agreement.

The parties subsequently appeared before Hon. Dominic J. Lodato, the JHO assigned to the matter. On January 30, 2009, via written memorandum, Hon. Lodato advised this Court that he had reviewed the settlement agreement and engaged in discussions with counsel on the matter. Hon. Lodato indicated that the attorneys agreed to draft a new settlement agreement which would incorporate the settlement of a Queens County action where SES was a defendant (Xross was not a party to that action). His honor indicated that the attorneys in the Queens County action would be contacted and appear before him on March 5, 2009 for mediation and global settlement of both actions. Subsequently, by memo dated April 29, 2009 Hon. Lodato wrote this Court and indicated that, After a full discussion, it was agreed that the Queens action will be settled for $2,400. payable to the plaintiff solely by SES Trims USA, Inc. It was further agreed that a stipulation of settlement be executed by both sides in the Kings County action; thereafter to be so ordered by Justice Demarest

(Lodato Memo dated April 29, 2009).

However, by memo dated May 20, 2009, Hon. Lodato advised the Court that although "it was previously agreed between the attorneys representing the respective parties herein that the settlement agreement would be executed by both sides and served on the court to be So Ordered on May 13, 2009," the settlement fell through. Therefore, Hon. Lodato referred the parties back to this Court (Commercial Part I) for a conference.

On May 27, 2009, the attorneys for both sides appeared and represented that Hon. Lodato only mediated the matter and did not determine whether the January 22, 2008 settlement had been breached, despite this Court's August 18, 2008 order to do so. On the same date, defendant Xcross filed its instant motions to enforce a purported amended settlement agreement which was allegedly the product of Hon. Lodato's mediation and the motion to disqualify plaintiff's counsel due to an alleged conflict of interest.

Discussion

The Court will address defendant's cross-motions first. Defendant Xross moves to enforce a purported amended settlement agreement that was negotiated before Hon. Lodato. In support of its motion Xross submits a one-page document labeled as "Exhibit B proposed amended settlement agreement." It is this document, dated May 5, 2009, that defendant asks the Court to enforce despite it containing no signatures of any kind. Moreover, the document consists only of four nonsequential paragraphs numbered 8, 9, 10 and 14a which presumably correspond to the numbered paragraphs in the January 22, 2008 written settlement agreement, though the document does not refer back to the January 2008 settlement.

CPLR 2104 provides that "An agreement between parties or their attorneys relating to any matter in an action . . . is not binding upon a party unless it is in a writing subscribed by him or his attorney." Therefore, the plain language of the statute requires that the alleged agreement must be signed by the party or attorney intended to be bound. (Bonnette v Long Island College Hospital, 3 NY3d 281, 286 [2004]). The purportedly amended settlement agreement is not signed by either party, and plaintiff, in opposition to the motion, attests that no agreement was ultimately reached pursuant to Hon. Lodato's mediation. This assertion is buttressed by Hon. [*4]Lodato's memo dated May 20, 2009 which indicates that plaintiff's attorney stated that "his client was in Florida and will not agree to the settlement as recommended by his attorney." (Lodato Memorandum dated May 20, 2009). Therefore, the proposed agreement is unenforceable because it fails to meet the requirements of CPLR 2104 (Bonnette, 3 NY3d at 286; see also Starr v Rogers, 44 AD3d 646, 647 [2d Dept 2007]).

Defendant argues that plaintiff should be estopped from asserting noncompliance with CPLR 2104 as a ground to preclude enforcement of the purported agreement because SES' attorney allegedly engaged in settlement negotiations before Hon. Lodato in bad faith. According to defendant, while this matter was before Hon. Lodato plaintiff agreed to the settlement of this action on condition that a sexual harassment case in Queens County involving SES as defendant was settled. As mentioned earlier, although the Queens action was allegedly settled, the amended settlement of this action fell through. As a result, defendant has not demonstrated that it did anything more than actively negotiate the terms of a settlement which never came to fruition. It was not injured by the settlement of the Queens matter because it was not a party to that action, and it did not compromise its position in this matter since, while before Hon. Lodato, this matter was already settled pursuant to the January 2008 agreement. Indeed, the only issue before the JHO was whether Xross breached that agreement.[FN1] Therefore, the Court finds that there is no basis to estop plaintiff from asserting noncompliance with CPLR 2104 because defendant has not demonstrated that it detrimentally relied on its terms. (Starr, 44 AD3d at 647; Greenidge v City of New York, 179 AD2d 386, 387 [1st Dept 1994]). Defendant's motion to enforce the purported amended settlement agreement is denied.

Defendant also moves to disqualify plaintiff's counsel. "The disqualification of an attorney is a matter that rests within the sound discretion of the court." (Nationwide Associates, Inc. v Targee Street Internal Medicine Group, P.C., 303 AD2d 728, 728 [2d Dept 2003]; Columbus Constr. Co. Inc. v Petrillo Builders Supply Corp., 20 AD3d 383 [2d Dept 2005]). A party seeking to disqualify counsel must establish "(1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and former client are materially adverse" (Nationwide, 303 AD2d at 728-29 [2d Dept 2003] quoting Tekni-Plex Inc. v Meyner, 89 NY2d 123, 131 [1996]; Solow v Grace & Co. 83 NY2d 303, 308 [1994]). Moreover, it is the attorneys duty to preserve a client's secrets and confidences and avoid the appearance of impropriety (Nesenoff v Dinerstein & Lesser, P.C., 12 AD3d 427 [2d Dept 2004]; see Kassis v Teacher's Ins. and Annuity Assn., 93 NY2d 611, 618 [1999]). Thus, in some circumstances "the very appearance of a conflict of interest" is sufficient to warrant disqualification (Galanos v Galanos, 20 AD3d 450, 452 [2d Dept 2005]).

Defendant argues that plaintiff's counsel should be disqualified because1) plaintiff's firm, Lazarowitz & Manganillo, LLP through attorney Marc J. Held, Esq., represented defendant Xross in the negotiation of a Xross lease in Brooklyn; 2) Xross' principal, Kfir Barzilay, alleges that Held represented Barzilay's father in an unrelated tort matter and 3) Barzilay allegedly [*5]retained Held "to draw up an agreement between . . . Xross Motors, Inc. and SES Trims, Inc." (Barzilay affidavit in support of the Motion to Disqualify ¶ 6). In each instance Barzilay claims that "I sought legal advice on behalf of Xross Motors, Inc. and disclosed details about my business to the law firm." (Barzilay Reply affidavit to the Motion to Disqualify ¶ 11).

In support of the allegation that he retained plaintiff's counsel to negotiate the terms of an agreement between Xross and SES, Barzilay annexes to his affidavit a copy of an invoice dated July 19, 2005 from the firm of Lazarowitz & Manganillo, LLP. The invoice is signed by Marc J. Held and specifies that it is "For legal services rendered in connection with [a] business contract between SES Trims and Xross Motors, Inc." (Barzilay affidavit in support of Motion to Disqualify, Exhibit 1). Although Barzilay does not state whether the contract he refers to is the same contract that is the subject of dispute, the timing of this invoice is consistent with allegations in the complaint that SES and Xross entered into an agreement in or around January 2005.

Furthermore, in opposition to the motion, plaintiff's attorney, Marc J. Held, submits an affirmation in which he claims that the invoice submitted by Barzilay was "for drafting a distributor agreement on behalf of the plaintiff," but does not explain why he billed defendant for an agreement allegedly drafted on behalf of plaintiff (Held affirmation in opposition ¶ 28). He argues that defendants' motion must fail because they "have failed to include a retainer agreement, which would have indicated any attorney/client relationship between the parties." (Held affirmation in opposition ¶ 27). He also makes the conclusory assertion that "The plaintiff's law firm, Lazarowitz & Manganillo, L.L.P., has never represented the defendants in any substantially related matter." (Held affirmation in opposition ¶ 26). He goes on to claim that the other matters mentioned by Barzilay (the alleged lease and representation of Barzilay's father) are not substantially related to this matter.

The invoice submitted by Barzilay suggests that Held represented Xross in drafting the agreement that underlies this dispute. Clearly, if Held represented Xross in drafting the agreement that is the very subject matter of this dispute, there is a conflict of interest as Held is representing materially adverse interests in, not a substantially related matter, but the very same matter. Therefore, if Barzilay's allegations are true, disqualification of Held is certainly warranted. (Credit Index, LLC v Riskwise Intl. LLC, 192 Misc 2d 755, 765 [Sup. Ct. NY Co. 2002], affd 296 AD2d 318 [1st Dept 2002][upholding disqualification where firm represented defendant in the past for drafting an operating agreement for plaintiff's predecessor]; see also Castia, LP v Maplewood Equity Partners (Offshore) Ltd., 11 Misc 3d 1054[A][Sup. Ct. NY Co. 2006], affd 34 AD3d 251, 252 [1st Dept 2006][finding that disqualification was warranted where plaintiff's attorney previously drafted defendant's subscription agreement and articles of association]).

However, Barzilay and Held's allegations with respect the invoice conflict with one other. Barzilay claims that Xross retained Held to draft the distribution agreement while Held claims that the invoice was for services rendered on behalf of plaintiff and not Xross. On its face, the invoice clearly states that it is for services rendered in connection with a business contract between plaintiff and defendant Xross. At the very least, this suggests that Held conferred with both sides in drafting the distribution agreement. This, coupled with Barzilay's allegations that he disclosed confidences about the operation of Xross during Held's representation of Xross for a [*6]Xross lease and the prior representation of Barzilay's father, presents a conflict of interest and, at the very least, raises an appearance of impropriety which warrants disqualification. (see Galanos, 20 AD3d at 452 [finding no evidentiary hearing was necessary and disqualification was warranted to avoid the appearance of impropriety where the plaintiff's firm represented defendant's father and plaintiff's firm had access to confidential information relating to defendant's business]; see also Burton v Burton, 139 AD2d 554 [2d Dept 1988][holding that disqualification was warranted to avoid the appearance of impropriety and hearing was unnecessary to establish a conflict of interest]) Plaintiff's firm is disqualified as counsel.

Plaintiff's pending motion to enforce the January 2008 settlement agreement is held in abeyance pending retention of new counsel. This matter is adjourned to December 2, 2009 for appearance of new counsel.

The foregoing constitutes the decision and order of the Court.

ENTER

___________

J.S.C. Footnotes

Footnote 1:Moreover, at the time of these alleged global settlement negotiations, defendant was still in violation of this Court's August 18, 2008 order which conditioned vacatur of an existing judgment upon defendant's deposit of $4551.26 in escrow.