Hagens Berman Sobol Shapiro LLP v. Rubinstein et al, No. 2:2009cv00894 - Document 20 (W.D. Wash. 2009)

Court Description: ORDER granting in part and denying in part 3 Motion for TRO by Judge Ricardo S Martinez.(MKB)

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Hagens Berman Sobol Shapiro LLP v. Rubinstein et al Doc. 20 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 11 HAGENS BERMAN SOBOL SHAPIRO LLP, 12 Plaintiff, 13 14 15 16 v. ERAN RUBINSTEIN and SUSAN M. BOLTZ RUBINSTEIN, Defendants. 17 ) ) ) ) ) ) ) ) ) ) ) ) ) CASE NO. C09-894 RSM ORDER GRANTING IN PART PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 18 I. INTRODUCTION 19 20 This matter comes before the Court on Plaintiff’s Motion for Temporary Restraining 21 Order which the Court has construed as a Motion for Preliminary Injunction. (Dkt. #3). 22 Plaintiff argues that immediate injunctive relief is necessary to protect themselves from 23 Defendants’ unauthorized solicitation of third-party entities, thereby precluding Plaintiff from 24 fulfilling their legal and ethical obligations. Plaintiff also argues that injunctive relief is 25 necessary to protect innocent nonparties whom Defendants may have misled into believing 26 that Plaintiff represents them. 27 28 Defendants respond that an injunction should not issue because this action was improperly filed as an anticipatory defense to a well-documented prospective breach of ORDER PAGE - 1 Dockets.Justia.com 1 contract claim in their favor. Defendants further claim that Plaintiff cannot show success on 2 the merits, irreparable harm, or that the balance of the hardships tips in their favor. 3 For the reasons set forth below, the Court GRANTS IN PART Plaintiff’s motion. 4 II. DISCUSSION 5 A. Background 6 The instant lawsuit arises out of a failed business relationship between Plaintiff Hagens 7 Berman Sobol Shapiro LLP (“Hagens Berman”), a law firm based in Seattle with offices 8 nationwide, and Defendants Eran and Susan Rubinstein, two attorneys who currently reside in 9 Pennsylvania and appear in this action pro se. 10 In the summer of 2008, the Rubinsteins approached Reed Kathrein and Steve Berman, 11 two partners at Hagens Berman, to assist the firm in representing international institutional 12 investors in securities matters. The Rubinsteins apparently had extensive contacts throughout 13 the world, including Israel, Ireland, South Africa, and the United Kingdom. The Rubinsteins 14 represented to Hagens Berman that these contacts would ultimately bolster Hagens Berman’s 15 securities class-action practice. As a result, the parties reached an agreement through a 16 Memorandum of Understanding (“MOU”), effective July 30, 2008, wherein the Rubinsteins 17 were hired as “of counsel” at Hagens Berman for an initial period of 12 months. 18 The MOU specifically provided that the “Rubinstein’s primary duties will be 19 international institutional client outreach, client maintenance and case identification and 20 analysis.” (Dkt. # 5, Decl. of Berman, Ex. A, § B). The MOU also indicated that the 21 Rubinsteins would “be the ‘primary point of contact’ with clients which they have currently 22 or with whom they establish primary relations during the course of this agreement. This 23 means that all communications with the Rubinstein clients will be at the direction or 24 permission of Rubinstein.” (Id., § C). 25 In exchange, the Rubinsteins would be paid $30,000 a month for a period of one year by 26 Hagens Berman. The Rubinsteins were also to be reimbursed for up to $50,000 in travelling 27 expenses for the duration of the MOU, with the potential for additional reimbursement subject 28 to Hagens Berman’s approval. ORDER PAGE - 2 1 Unfortunately, the relationship quickly deteriorated and became extremely contentious. 2 According to Hagens Berman, the Rubinsteins did not appear to have the extensive contacts in 3 the countries mentioned above. Instead, the Rubinsteins pursued contacts in Australia by 4 January of 2009. After Hagens Berman learned of this decision, Mr. Berman, managing 5 partner of Hagens Berman and head of its Executive Committee, asked the Rubinsteins to 6 identify the entities they had contacted. Mr. Berman alleges that the Rubinsteins did not 7 comply, thereby precluding the firm from performing their due diligence and determining 8 whether these entities could become clients. 9 Hagens Berman further indicates that since February of 2009, they have made 10 numerous requests to the Rubinsteins to identify these clients to no avail. It appears that the 11 Rubinsteins withheld this information due to their belief that Mr. Berman was unfairly 12 attempting to negotiate contracts with the Australian entities through a third party. In essence, 13 the Rubinsteins accuse Mr. Berman of using them to gain access to their clients, rather than 14 allowing the Rubinsteins to develop cases on their own in violation of the MOU. 15 Once the Rubinsteins confronted Mr. Berman about these potential contacts, the 16 Rubinsteins allege that Mr. Berman denied such third-party communications. They further 17 claim that Mr. Berman began unilaterally severing the terms of the MOU beginning in March 18 of 2009, and “started a campaign of retaliatory harassment accusing us of nonperformance 19 under the contract while at the same time creating impediments to our performance and 20 attempting to stall us from going to see our clients.” (Dkt. #11 at 11). The Rubinsteins claim 21 that this included: (1) threats by Mr. Berman that he would take legal action; (2) interference 22 with their role in case prosecution by locking them out of the firm billing system and 23 canceling their corporate-issued credit card; and (3) unreasonable requests to obtain 24 preauthorization for travel expenses. 25 The relationship weakened to the point where the Rubinsteins obtained counsel, Nino 26 Tinari, to represent their interests. The Rubinsteins also contacted Tom Sobol, a Hagens 27 Berman partner in Boston, to intervene on two separate occasion. Mr. Sobol did not 28 intervene. ORDER PAGE - 3 1 The Rubinsteins also lodged a disciplinary action with the Washington State Bar 2 Association (“WSBA”) on April 4, 2009. It appears that the Rubinsteins seek Mr. Berman’s 3 disqualification from the case involving the Australian entities based on his failure to inform 4 the Rubinsteins about his third-party contacts, his alienation of the Rubinsteins from the rest 5 of Hagens Berman, a proposed letter to clients drafted by Mr. Berman to create insecurities in 6 clients, and his act of disconnecting the Rubinsteins from firm resources. This disciplinary 7 action remains pending. The relationship reached a boiling point on June 23, 2009, when the Rubinsteins 8 9 provided Mr. Sobol with three, signed “Contingent Fee Agreement[s] for Multi-Plaintiff 10 Group Claims.”1 The agreements purported to bind Hagens Berman to three Australian 11 entities. Mr. Tinari subsequently wrote to Hagens Berman Executive Committee members 12 Mr. Sobol, Tony Shapiro, and Robert Carey that the firm would “receive approximately fifty 13 five (55) signed retainer agreements from Australian institutional investors.” (Decl. of 14 Berman, Ex. V). Mr. Tinari’s letter also threatened the Executive Committee that: I have advised [the Rubinsteins] that, should you continue to refuse to engage with them towards case prosecution within forty-eight (48) hours of your receipt of this correspondence, they would bring this matter to the immediate attention of your respective Disciplinary Boards. 15 16 17 18 (Id.). Shortly after the Rubinsteins submitted this correspondence, Hagens Berman terminated 19 20 the Rubinsteins’ employment on or around July 1, 2009. Significantly, the Australian entities that the Rubinsteins had purportedly established 21 22 23 24 25 contacts with had substantial implications for Hagens Berman’s securities litigation practice. It appears that the Rubinsteins offered contingent fee legal services to between three and 308 Australian institutional investors, including local councils, universities, religious and charitable organizations, and private companies. All these entities lost money because of 26 27 28 1 The Rubinsteins indicate that they provided Mr. Sobol with seven signed retainers. (Dkt. #11 at 21). ORDER PAGE - 4 1 alleged wrongdoing by credit rating agencies and others. The Rubinsteins estimate the 2 investors’ loss exposure at $500,000,000 to $700,000,000. 3 As a result of the Rubinsteins’ alleged refusal to provide Hagens Berman with the 4 information they requested regarding the Rubinsteins’ potential clients, Hagens Berman filed 5 a motion for temporary restraining order in this Court on July 14, 2009.2 The Court found 6 that Hagens Berman failed to meet the requirements of a TRO without notice pursuant to 7 FRCP 65, and allowed the Rubinsteins to respond. The Court construed the motion as one for 8 a preliminary injunction, and set an expedited briefing schedule. 9 Hagens Berman now seeks an order from the Court requiring the Rubinsteins to: 10 (1) Cease and desist from representing to any person or entity that they have any affiliation with or authority to speak or act on behalf of Hagens Berman; 11 (2) Provide within three (3) days the name, address, e-mail address and contact person(s) for each Australian entity with which the Rubinsteins believe they have established an attorney-client relationship, or to which they have communicated an offer of potential representation or spoken about potential representation while associated with the firm; 12 13 14 15 (3) Produce within three (3) days copies of all documents referring or relating to any communications between the Rubinsteins and each purported Australian client or prospective client, including but not limited to e-mails, memoranda, letter, and draft and signed retainer agreements; 16 17 18 (4) Preserve all documents relating to their activities in relation to Hagens Berman; and 19 20 (5) Make themselves available in Seattle within seven (7) days for depositions covering the foregoing topics without prejudice to the right of the firm to take their depositions on the merits of the case at a later time. 21 22 (Dkt. #3, Prop. Order at 2-3). 23 One week after Hagens Berman filed the instant lawsuit in this Court, the Rubinsteins 24 filed a lawsuit in Bucks County, Pennsylvania. Hagens Berman removed the case to the 25 United States District Court for the Eastern District of Pennsylvania, and has moved to 26 dismiss, stay, or transfer the case to this Court. (Dkt. #13, Decl. of Berman, Exs. B and C). 27 2 28 Hagens Berman initially filed its initial complaint in this Court on June 30, 2009. It filed an amended complaint simultaneously with its TRO motion. (See Dkt. #2). ORDER PAGE - 5 1 The Rubinsteins also filed a motion in this Court to dismiss, stay, or transfer this case to the 2 Eastern District of Pennsylvania on July 28, 2009. (Dkt. #17). 3 B. Preliminary Injunction 4 In order to obtain injunctive relief, the party seeking the injunction must demonstrate 5 that “he is likely to succeed on the merits [and] that he is likely to suffer irreparable harm in 6 the absence of preliminary relief.” Winter v. Natural Resources Defense Council, Inc., 129 7 S.Ct. 365, 374 (2008) (emphasis added). The Supreme Court recently imposed this new 8 standard that clarifies the contours of the test previously employed by the Ninth Circuit. This 9 former test required a party seeking an injunction to show “probable” success on the merits 10 and the “possibility” of irreparable harm. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 11 1004, 1013 (9th Cir. 2001). 12 Despite this change, the well-recognized “sliding scale” approach to injunctive relief 13 remains intact. See Winter, 129 S.Ct. at 393 (J. Ginsburg, dissenting) (“This Court has never 14 rejected [the sliding scale] formulation, and I do not believe it does so today.”). This 15 approach requires courts to view success on the merits and irreparable harm as “two points on 16 a sliding scale in which the required degree of irreparable harm increases as the probability of 17 success decreases.” Napster, 239 F.3d at 1013 (internal citation and quotation omitted). In 18 other words, the greater the relative hardship to the party seeking the injunction, the less the 19 probability of success must be shown, and vice versa. See Clear Channel Outdoor, Inc. v. 20 City of Los Angeles, 340 F.3d 810, 813 (9th Cir. 2003). 21 A plaintiff seeking a preliminary injunction must also show “that the balance of equities 22 tips in his favor, and that an injunction is in the public interest.” Winter, 129 S.Ct. at 374 23 (citations omitted). “Because a preliminary injunction is an extraordinary remedy, the 24 movant’s right to relief must be clear and unequivocal.” Wilderness Workshop v. U.S. Bureau 25 of Land Management, 531 F.3d 1220, 1224 (10th Cir. 2008) (citation omitted). The Court 26 addresses each factor in turn. 27 28 ORDER PAGE - 6 1. 1 2 Irreparable Injury As mentioned above, the alleged injury must be likely. Winter, 129 S.Ct. at 374. The 3 Ninth Circuit has also indicated that the injury must be imminent. Caribbean Marine Services 4 Co., Inc. v. Baldrige, 844 F.2d 668, 674-75 (9th Cir. 1988) (citation omitted). The showing of 5 irreparable harm is considered “the single most important prerequisite for the issuance of a 6 preliminary injunction.” Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 7 1256, 1260 (10th Cir. 2004) (collecting cases). 8 Here, the Court unequivocally finds that Hagens Berman has shown the existence of 9 irreparable harm. As the Rubinsteins do not dispute, they submitted at least three separate 10 retainer agreements purporting to bind Hagens Berman to certain Australian entities on June 11 23, 2009. They further indicated to Hagens Berman that “[i]t has been predicted that we will 12 receive approximately fifty (50) more retainer agreements.” (Dkt. #11, Joint Decl. of Eran 13 and Susan Rubinstein, Ex. KK). The Rubinsteins’ attorney, Mr. Tinari, supplemented this 14 correspondence by indicating that same day that the Rubinsteins expected approximately 55 15 retainer agreements. (See Decl. of Berman, Ex. V). However, the Rubinsteins have failed to 16 disclose the identity of these clients. Therefore there can be no dispute that Hagens Berman is 17 currently in the dark about what entities the Rubinsteins purportedly bound them to. 18 The Rubinsteins nonetheless claim that Hagens Berman has all the information it needs 19 to contact the Australian investors. This contention is without merit. In each and every 20 instance the Rubinsteins claim in their pleadings that they provided Hagens Berman with a 21 client list, the Court is unable to locate any direct evidence that they provided Hagens Berman 22 with such a list. In addition, there is no clear or direct acknowledgement from Hagens 23 Berman that they received such a list. It appears that at this time, the only information ever 24 provided to Hagens Berman by the Rubinsteins is a list of 308 institutions that allegedly lost 25 money. However, no contact information was provided for any of these institutions. The 26 Rubinsteins fail to explain why it is the responsibility of Hagens Berman to locate these 27 institutions themselves. 28 ORDER PAGE - 7 1 Furthermore, Hagens Berman faces potential ethics violations if they continue to be 2 unaware of the identity of these clients, because a series of professional rules are implicated in 3 this case. For example, a fundamental canon of ethics reflected in Washington Rule of 4 Professional Conduct 1.3 requires a lawyer to “act with reasonable diligence and promptness 5 in representing a client.” WA RPC 1.3. Failure to know the identity of such a client would 6 obviously constitute a breach of this rule. Washington RPC 1.2(c) also indicates that “[a] 7 lawyer may limit the scope of the representation if the limitation is reasonable under the 8 circumstances and the client gives informed consent.” WA RPC 1.2(c). Washington RPC 9 1.4(b) further indicates that “[a] lawyer shall explain a matter to the extent reasonably 10 necessary to permit the client to make informed decisions regarding the representation.” WA 11 RPC 1.4(b). Hagens Berman faces violations of each of these rules if they do not know which 12 entities the Rubinsteins have bound them to. 13 The Court also agrees with Hagens Berman’s contentions that the need for such 14 information is particularly compelling where a departing lawyer possesses the information. 15 Pursuant to Washington RPC 1.18, law firms and attorneys have continuing duties to potential 16 clients even when no attorney-client relationship is established. See WA RPC 1.18(b). Thus, 17 in order to meet these responsibilities, Hagens Berman must be aware of the scope and depth 18 of the Rubinsteins’ communications with the Australian investors. As Professor David 19 Boerner – an expert in the field of ethics – indicates, “the law firm must be aware of what 20 information was communicated by the prospective client to the lawyer and what the lawyer 21 told the prospective client.” (Dkt. #4, Decl. of Boerner, ¶ 5). The Court finds merit in his 22 contention that “[t]he law firm must be aware of both the identity of all the persons or entities 23 whom the departing lawyer interacted with while the departing lawyer was affiliated with the 24 law firm as well as the nature of that interaction.” (Id.). 25 The need for an injunction based on irreparable harm is further exemplified by both 26 parties’ acknowledgement that statutes of limitation are running on the potential claims of the 27 Australian investors. Hagens Berman’s failure to address their own putative clients could 28 potentially expose them to malpractice claims. ORDER PAGE - 8 1 The Rubinsteins attempt to downplay the irreparable harm that may result if they fail to 2 disclose such information on the grounds that Hagens Berman has no desire in representing 3 the Australian investors. They also suggest that the retainer agreements they submitted are 4 voidable at any time by either Hagens Berman or the client, and that they have already 5 counseled each client that they have severed ties with Hagens Berman. These arguments miss 6 the point. The fact that Hagens Berman is unaware of who may be bound to them in the first 7 instance is the source of their harm. 8 9 In short, there is seemingly no dispute that Hagens Berman is not directly aware of which entities the Rubinsteins potentially bound them to. Moreover, the conduct complained 10 of occurred when the Rubinsteins were employed as “of counsel” attorneys at Hagens 11 Berman. Therefore Hagens Berman faces irreparable harm in the form of serious ethical 12 violations if they are not provided with this information. 2. Success on the Merits 13 14 The Court finds that Hagens Berman has shown that it will succeed on the merits. As 15 discussed above, law firms certainly have a fundamental right to know which clients their 16 attorneys are binding them to in order to fulfill their legal and ethical obligations to such 17 clients. Hagens Berman has an unequivocal right to demand that this information be revealed 18 in order for them to perform their due diligence. 19 Nevertheless, the Rubinsteins argue that they have a valid breach of contract claim 20 against Hagens Berman. They suggest that they have fully performed under the agreement at- 21 issue, whereas Mr. Berman has unilaterally severed the terms of the parties’ MOU. 22 However, an agent’s authority “may be terminated by . . . a manifestation of revocation 23 by the principal to the agent[.]” Restatement (Third) of Agency § 3.06 (2006). “The power to 24 terminate does not depend on the existence of or conformity with an agreement between the 25 agent and the principal.” Id., cmt. c (emphasis added). “It makes no difference whether [a 26 principal’s] termination was rightful or wrongful, for in either case [an agent’s] only 27 remaining right [is] to claim damages against [the principal] for breach of contract.” 28 Debenedictis v. Hagen, 77 Wn. App. 284, 292 (1995). ORDER PAGE - 9 1 Based on these legal principles, it is clear that Hagens Berman’s right to this 2 information is separate and independent of whether the Rubinsteins have a valid breach of 3 contract claim. As Hagens Berman correctly describes, the purpose of this motion “is to 4 prevent unwarranted reliance by potential foreign plaintiffs and to facilitate protecting or 5 mitigating their situations.” (Dkt. #12 at 12). Thus, the limited relief sought by the instant 6 motion has no bearing on whether a valid breach of contract claim exists by either party. The 7 central issue raised by this motion is whether Hagens Berman is justified in requesting the 8 information it seeks. Relatedly, to the extent that the Rubinsteins claim that Mr. Berman 9 simply used their client contacts with no genuine intention to retain the Rubinsteins, the mode 10 11 of redress with respect to this allegation is also through a breach of contract claim. The Rubinsteins also imply that under § C of the MOU, they alone are entitled to 12 communicate with existing or potential clients. This argument is equally without merit. 13 Although § C of the MOU indicates that the Rubinsteins “will be the ‘primary point of 14 contact’ with clients which they have currently or with whom they establish primary relations 15 during the course of this agreement,” (Decl. of Berman, Ex. A, § C), a fundamental 16 prerequisite to becoming a client undoubtedly requires approval by Hagens Berman. Indeed, 17 the Rubinsteins fail to identify anywhere in the agreement that they alone have been given the 18 unilateral authority to determine what information it can withhold from the rest of its law 19 firm. The Court reminds the Rubinsteins that it was they themselves that entered into the 20 contract with Hagens Berman to bolster Hagens Berman’s securities litigation practice. 21 The Court also finds no merit in the Rubinsteins’ arguments that the instant motion is 22 simply an attempt to circumvent their position as natural plaintiffs in this case. In this regard, 23 they claim that they have previously filed a bar grievance described above against Mr. 24 Berman, and that they have also filed a breach of contract claim in Pennsylvania. 25 With respect to the bar grievance, Washington Rules for Enforcement of Lawyer 26 Conduct 5.3(c) suggests that disciplinary counsel may defer an investigation into alleged acts 27 of misconduct by a lawyer if it appears that the allegations are related to a pending civil 28 ORDER PAGE - 10 1 litigation. See WA ELC 5.3(c)(1)(A). Therefore there is no reason for this Court to stay or 2 otherwise defer ruling on this motion due to a pending bar complaint filed by the Rubinsteins. With respect to the breach of contract claim in Pennsylvania, the Rubinsteins cannot 3 4 deny that they filed that claim one week after Hagens Berman filed the instant lawsuit in this 5 Court. “There is a generally recognized doctrine of federal comity which permits a district 6 court to decline jurisdiction over an action when a complaint involving the same parties and 7 issues has already been filed in another district.” Pacesetter Systems, Inc v. Medtronic, Inc., 8 678 F.2d 93, 94-95 (9th Cir. 1982) (citations omitted). This rule, otherwise known as the 9 “first-to-file” rule, “was developed to serve the purpose of promoting efficiency well and 10 should not be disregarded lightly.” Alltrade, Inc. v. Uniweld Products, Inc., 946 F.2d 622, 11 625 (9th Cir. 1991) (internal quotations and citations omitted). The rule would apply in this 12 case. 13 The Court finds that Hagens Berman has shown that it will succeed on the merits 14 insofar as its motion relates to its right to acquire the information at-issue. The Rubinsteins 15 wholly fail to offer any legal justification otherwise. 3. Balance of Hardships and Public Interest 16 17 The Court additionally finds that the balance of the hardships clearly weighs in favor of 18 Hagens Berman. The Rubinsteins possess the information Hagens Berman needs to fulfill its 19 ethical responsibilities. Without such information, the firm has no means of identifying which 20 entities are already bound to Hagens Berman, and which entities may potentially be under the 21 mistaken belief that they are clients of Hagens Berman. This information is vital to protect 22 the claims of Australian investors whose damages are estimated in the hundreds of millions. 23 For these very same reasons, public interests are served by requiring the Rubinsteins to 24 disclose this information to Hagens Berman. See, e.g., Caribbean Marine Servs. Co., Inc. v. 25 Baldrige, 844 F.2d 668, 674 (9th Cir. 1988) (subsuming the public interest factor into the 26 balancing of the hardships); see also Sammartano v. First Judicial Dist. Court, 303 F.3d 959, 27 974 (9th Cir. 2002) (“The public interest inquiry primarily addresses impact on non-parties 28 ORDER PAGE - 11 1 rather than parties.”). The Rubinsteins’ continual withholding of the information at-issue has 2 substantial implications to the Australian investors and their potential claims. Ultimately, and from a practical perspective, the Court finds the Rubinsteins’ position in 3 4 this case to be nonsensical. A law firm certainly has the right to know what entities its 5 lawyers are binding them to. Without such information, a law firm has no way of determining 6 the scope of any potential or existing representation. Again, whether the Rubinsteins have a 7 valid breach of contract claim is a wholly independent inquiry. 8 C. Plaintiff’s Proposed Order 9 Based on the reasoning above, the Court finds that a preliminary injunction shall issue 10 in favor of Hagens Berman. The Rubinsteins are directed to comply with the instructions set 11 forth in Hagens Berman’s proposed order, with the exception of the fifth item listed in the 12 proposed order, which requires the Rubinsteins to make themselves available in Seattle within 13 seven days for depositions. (See Dkt. #3, Prop. Order at 2-3). The Court finds that items one 14 through four of the proposed order will sufficiently ameliorate any and all legal and ethical 15 concerns facing Hagens Berman at this time. III. CONCLUSION 16 Having reviewed the relevant pleadings, the declarations and exhibits attached thereto, 17 18 and the remainder of the record, the Court hereby finds and ORDERS: (1) Plaintiff’s Motion for Preliminary Injunction (Dkt. #3) is GRANTED IN PART. 19 20 Defendants are DIRECTED to comply with parts one through four of Plaintiff’s proposed 21 order. 22 (2) The Clerk is directed to forward a copy of this Order to all counsel of record. 23 24 DATED this 29th day of July, 2009. 25 A 26 27 RICARDO S. MARTINEZ UNITED STATES DISTRICT JUDGE 28 ORDER PAGE - 12

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