Tricham Hous. Assoc., L.P. v PanitzAnnotate this Case
Decided on July 15, 2013
Supreme Court, New York County
Tricham Housing Associates, L.P.,
Emanuel Panitz, ALLEN KLEIN, LOBBY DESIGN GROUP, INC., and STEELTECH SA, LLC, Defendants.
Ira M. Schulman, Esq.
Pepper Hamilton LLP
620 Eighth Avenue, 37th Floor
New York, NY 10018
Stuart Kagen, Esq.
Kagen Law Firm
570 Lexington Avenue, Ste 1600
New York, NY 10022
Pro Se Defendant
13325 Crosspointe Drive
West Palm Beach, Florida 33418
Debra A. James, J.
Defendants Allen Klein, Lobby Design Group, Inc., and Steeltech SA, LLC, move to dismiss plaintiff's complaint and for sanctions against plaintiff and its attorneys pursuant to 22 NYCRR 130-1.1. Movants assert that plaintiff's attorneys have violated Disciplinary Rule [22 NYCRR 1200.0] 3.4 (b) which states that a "lawyer shall not . . . offer an inducement to a witness that is prohibited by law or pay, offer to pay or acquiesce in the payment of compensation to a witness contingent upon the content of the witness's testimony or the outcome of the matter."
In this action, plaintiff hired defendants to install door and telephone entry systems upon premises owned and managed by plaintiff and now alleges that defendants have breached their obligations by failing to perform the work as contracted. As is [*2]relevant here, by Order dated October 5, 2010, counsel for defendant Emanuel Panitz was relieved and that defendant continued in this action pro se.
The current motion concerns a December 2, 2011 "Memorandum of Understanding" (MOU) between the plaintiff and defendant Panitz which resolved the claims asserted in this action as between those parties. The MOU provided that 1. Panitz will execute an Assignment to Tricham of all rights, interest, judgments and claims of Panitz against Lobby Design Group Inc., Allen Klein and SteelTech SA LLC in connection with the above-entitled action and the work performed at the Tricham Houses Project.2. In the event that Lobby Design Group, Inc. and/or Allen Klein and/or SteelTech SA LLC recover no sums or judgments on their counterclaims against Tricham, Tricham will reimburse Panitz for legal costs, fees and expenses incurred in connection with the above-referenced action, not to exceed $10,000.00. Panitz will furnish Tricham with copies of all bills for which reimbursement is sought.3. Tricham will execute a stipulation discontinuing the causes of action set forth in the above-reference action against Panitz.4. Panitz will execute a stipulation discontinuing [hi]s counterclaims asserted in the above-referenced action against Tricham.5. Tricham and Panitz will execute and exchange mutual releases.6. Tricham and Panitz will execute such other and further documents as may be necessary to the fulfillment of the parties' agreement as set forth in this Memorandum of Understanding.
The movants argue that the MOU, which was signed Panitz, Tricham and Tricham's counsel, violates the disciplinary rules because it allegedly compensates Panitz, a likely witness in this action who was deposed a week after the execution of the MOU, based upon the outcome of the litigation of the movants' counterclaims against plaintiff.
The prohibition against payments in exchange for testimony as embodied in the disciplinary rule has been recently described by the Court stating
The giving of testimony as to facts within one's knowledge is a matter of public duty; it is an inherent burden of citizenship, which requires no compensation. While CPLR 8001 mitigates to a certain extent the burden [*3]of this public duty, this Court long ago held thatwhere a witness who is not interested in the result of the controversy resides within this State, and is amenable to process therein, an agreement to compensate him in an amount in excess of the legal fees for attending as a witness and testifying only as to facts within his knowledge, is contrary to public policy and void.Such agreements are subversive of the orderly and efficient administration of justice, even where a witness is contracted to tell the truth, rather than to testify falsely. Agreements of this nature, under which witnesses might be permitted to extort unreasonable fees for their testimony, portend to erode equal access to justice, create an incentive, even unconscious, toward biased testimony, and threaten the integrity of the judicial system by giving the appearance that justice is a commodity.
Caldwell v Cablevision Systems Corp., 86 AD3d 46, 50-51 (2d Dept 2011) affd 20 NY3d 365 (2013) (citations and internal quotations omitted). As more succinctly stated by the Court of Appeals in affirming the afore-cited decision: "[w]hat is not permitted and, in fact, is against public policy, is any agreement to pay a fact witness in exchange for favorable testimony, where such payment is contingent upon the success of a party to the litigation." Caldwell v Cablevision Systems Corp., 20 NY3d 365, 371 (2013) (citation omitted).
The terms of the MOU as well as the deposition testimony of Panitz demonstrate that in settlement of the claims between them plaintiff and Panitz agreed to a payment to Panitz contingent upon the outcome of the counterclaims. Were Panitz merely an uninterested witness the MOU would violate public policy as the payment of his legal fees is contingent upon the outcome of the litigation between plaintiffs and movant.
However, the court agrees with the plaintiff that MOU does not violate either the disciplinary rule or public policy. This court prefaces its analysis by observing that payments to participants in the judicial process contingent upon the outcome of a case are always subject to scrutiny and should be avoided so as not to create any appearance of impropriety. Caldwell, 20 NY3d at 370. The Second Department's decision in Caldwell provides useful guidance in resolving the issue raised by the movants. The disciplinary rule as well as the public policy prohibition apply to "a witness who is not interested in the result of the controversy." The Court therefore recognized the inapplicability of the rule to a party who testifies as parties by definition have an interest in the litigation and stand to [*4]benefit from a successful conclusion in their favor. When a party to the litigation testifies the factfinder presumptively understands and views the testimony through the prism of the party's apparent self-interest. If the law were to bar party testimony because a party stands to benefit only from a successful outcome to the litigation in its favor then parties would never be permitted to testify in support of their own case.
The critical distinction in this case is that Panitz is a party to the action. Counsel to Panitz was relieved on the grounds that Panitz could no longer pay his legal fees. Thus a settlement pursuant to which Panitz had his legal fees reimbursed only upon a successful conclusion to the litigation in favor of the plaintiff does not implicate ethical concerns because Panitz had cross-claims against the movants, his fellow defendants. That is, Panitz was already in an adverse position to the movants even though they were all co-defendants. As part of the MOU, Panitz assigned to plaintiff his cross-claims against the movants. Thus Panitz and the plaintiff had an alignment of interests; to the extent that Panitz's cross-claims against the movants were successful they would act as an offset to any award the movants were to obtain on their counterclaims against the plaintiff. To the extent Panitz's cross-claims proved to be meritorious, by eliminating any amount adjudicated to be owed by plaintiff to movants, Panitz's unpaid legal expenses would be reimbursed. This is a logical, if unorthodox, qualification by the plaintiff to insure that it received the contemplated consideration in exchange for its agreement to settle its claims against Panitz by discontinuing the action against him.
As stated by the Court of Appeals, "[a] line must therefore be drawn between compensation that enhances the truth seeking process by easing the burden of testifying witnesses, and compensation that serves to hinder the truth seeking process because it tends to influence' witnesses to remember' things in a way favorable to the side paying them." Caldwell, 20 NY3d at 371 (citation omitted). In this case, the MOU has facilitated settlement of some of the claims in this action without implicating the concerns of undue influence upon a non-party witness. As Panitz is a party to this action with claims against the movants, the MOU does not violate either the disciplinary rule or common law public policy. As stated by the Court in considering an analogous type of settlement agreement in a multi-defendant context When entered into between a plaintiff and a defendant in a single-defendant trial, the high-low agreement affords the parties a means of tempering the significant risks associated with proceeding to trial. In a multi-defendant litigation, however, a high-low agreement between a plaintiff and fewer than all defendants has the potential [*5]of prejudicing the rights of the nonagreeing defendant if all parties are not apprised of the agreement's existence. Indeed, courts and commentators alike have acknowledged that secretive agreements may result in prejudice to the nonagreeing defendant at trial, distort the true adversarial nature of the litigation process, and cast a cloud over the judicial system.
* * * To ensure that all parties to a litigation are treated fairly, we hold that whenever a plaintiff and a defendant enter into a high-low agreement in a multi-defendant action which requires the agreeing defendant to remain a party to the litigation, the parties must disclose the existence of that agreement and its terms to the court and the nonagreeing defendant(s). This result strikes a proper balance between this State's public policy of encouraging the expeditious settlement of claims, and the need to ensure that all parties to a litigation are apprised of the true posture of the litigation so they may tailor their strategy accordingly. Disclosure provides a nonagreeing defendant a meaningful opportunity to place on the record how it intends to use the agreement at trial, if at all, and affords the trial court an opportunity to weigh the interests of all the parties in considering the extent to which an agreement may be utilized in that forum. Of course, the determinations as to what effect, if any, the existence of the agreement will have at trial, including whether such an agreement should be disclosed to the jury, are matters that lie within the sound discretion of the trial court.
In re Eighth Judicial Dist. Asbestos Litigation, 8 NY3d 717, 721-723 (2007). The Court importantly recognized that "it is not uncommon for a plaintiff to have a financial incentive to maximize the liability of one particular defendant in a multi-defendant action" and that fact alone did not overcome the strong public policy favoring settlement. Id. at 722.
The MOU constitutes a settlement agreement and therefore is favored. As the signatories to that agreement are parties to this action there is no ethical bar to the contingency clause at issue here. Nor have the movants demonstrated how Panitz's testimony would be influenced in a manner contrary to his current adversarial position by the terms of the agreement.
The court notes that the agreement was properly disclosed and whether and what effect its possible introduction at trial may have is not decided herein as that issue is not yet ripe for [*6]determination.
Accordingly, it is
ORDERED that the motion is DENIED.
This is the decision and order of the court.
Dated: July 15, 2013