UBS Fin. Servs. Inc. v Luboja & Thau Empl. Profit Sharing Plan
Annotate this CaseDecided on December 17, 2009
Supreme Court, New York County
UBS Financial Services Inc. and Robert Abrams, Petitioners,
against
Luboja & Thau Employee Profit Sharing Plan, Respondent.
101884/09
Emily Jane Goodman, J.
Petitioners UBS Financial Services Inc. (UBS) and Robert Abrams
(Abrams) move, by order to show cause, for an order disqualifying the law firm of Luboja &
Thau, LLP (L & T) as counsel to respondent Luboja & Thau Employee Profit Sharing Plan (the
Plan), and temporarily staying the arbitration of Luboja & Thau Employee Profit Sharing
Plan v UBS Financial Services Inc. and Richard Abrams (FINRA Case No. 08-04923)
which is before the Financial Regulatory Authority (FINRA).
FACTS
UBS is a financial services corporation formed under the laws of the State of Delaware, and maintains an office at 200 Park Avenue, New York, New York. Abrams, a senior vice president of UBS, is a financial advisor and broker at UBS. The Plan is an employee benefits organization formed for the benefit of L & T. L & T retained Abrams as an advisor to the Plan in 1996, and Abrams and UBS have managed and serviced the Plan since that time.
L & T is a law firm which consists of four general partners and several associates. L & T is legal counsel to the Plan in the FINRA arbitration between UBS, Abrams and the Plan. UBS and Abrams contend that L & T, and specifically Jonathan C. Thau (Thau), a name partner of the firm, represented Abrams in multiple legal matters over many years, in Abrams's capacity as a financial advisor and securities broker. Petitioners aver that L & T obtained confidential information regarding Abrams and his business practices in the course of its representation of Abrams, including information that has a bearing on the Plan's current claims against UBS. In fact, petitioners assert that the Plan revealed confidential information and communications obtained from Abrams in its Statement of Claim in the arbitration.
The underlying claim at issue in the arbitration is the Plan's contention that Abrams purchased a Lehman Brothers product, known as a structured note, for $142,000, for the Plan. Petitioners allegedly failed to disclose to the Plan the nature of the investment, the amount of the [*2]commission that petitioners derived from the sale, or the risks involved. The Plan maintains that Abrams did not reveal the true nature of the investment until after it became all but worthless, when Lehman Brothers filed for bankruptcy in September 2008. The Plan commenced a FINRA arbitration proceeding against petitioners in December 2008.
Petitioners maintain that L & T's representation of the Plan violates Disciplinary Rule 5-108
(conflict of interest) as well as 5-102 (attorney will be called as a material fact
witness)[FN1], and that it
should be disqualified from representing the Plan under either or both of those rules.
DISCUSSION
Abrams contends that since the early 1990's, Thau has represented him in multiple legal matters in his capacity as a financial advisor and securities broker. While he asserts that he has consulted L & T on a multitude of legal issues, he maintains that he cannot recall all of them, but provides a brief summary, in which he sets out four specifics. First, in 2001 or 2002, L & T represented him in connection with a Securities and Exchange Commission (SEC) investigation of mutual fund producers, including him. Second, in or about 2001 or 2002, L & T represented him as a potential witness in connection with an SEC investigation of another broker relating to that broker's business practices. Third, in or around 2005 or 2006, Abrams requested that L & T represent him in connection with an employment matter regarding a defecting broker from UBS; however, L & T was retained by another party in that litigation and did not represent Abrams. Fourth, at unspecified times, L & T assisted Abrams with the review of certain contracts and other documents and provided him with other general business and employment-related legal advice.
Abrams asserts that he also repeatedly consulted with and informed L & T of various professional and personal legal issues in which he was involved, and disclosed that he was having certain child-custody issues in connection with his divorce.
Abrams contends that L & T retained his services as an advisor to the Plan based upon the parties' longstanding attorney-client relationship, and the knowledge that Thau had obtained about him during his representation. Abrams asserts that L & T revealed confidential information in the Statement of Claim in the FINRA arbitration, including statements regarding his child-custody dispute (which L & T contends was provided to the Plan as Abrams' excuse as to why he could not meet with them immediately after the allegedly unauthorized investment was discovered), statements regarding grievances arising in connection with the sale of products known as auction rate securities, and references to Abrams as one of the largest retail producers of business at UBS.
Abrams also contends that Thau will be a material witness in front of FINRA, and, therefore,
should not be permitted to represent the Plan.
DR 5-108
DR 5-108 (A) (1) provides that an attorney who has represented a client may not represent another person in "the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client." Abrams contends that Thau represented him in a substantially related matter because he has represented Abrams in business [*3]matters.
In order to demonstrate the propriety of disqualifying an attorney, a party seeking disqualification must show the existence of a prior attorney-client relationship between the moving party and the adversary's attorney, that the matters involved in both representations are substantially related, and that the interests of the present client and the former client are materially adverse. Solow v W.R. Grace & Co., 83 NY2d 303, 306 (1994). Here, Abrams (although not UBS) has demonstrated that there is a prior attorney-client relationship, and that the interests of the present client, the Plan, and Abrams are materially adverse. However, other than vague, conclusory assertions, petitioners have failed to demonstrate how Thau's representation of Abrams in an investigation before the SEC is related to the Plan's complaint that Abrams invested a large amount of money inappropriately. Nor has Abrams convincingly demonstrated that his retention of L & T extended beyond that matter. L & T has produced evidence that it has represented Abrams only during that investigation (which it states was in 2003). It states when Abrams contacted it regarding other potential representation, but that only the 2003 incident resulted in any legal work. L & T asserts that those other consultations were so de minimis that L & T did not even bill Abrams for the time. L & T denies ever obtaining confidences regarding Abrams's general sales practices, or regarding structured notes or Lehman Brothers products, which are at issue in the arbitration.
The only allegedly confidential information that Abrams points to is the fact that he was having a child-custody dispute, not any details regarding that dispute. According to L & T, that information was provided to the trustees of the Plan, Thau and John Luboja (Luboja), as an excuse for why Abrams could not meet with them immediately after the problem with the allegedly unauthorized investment was discovered. That is not confidential information, nor was it revealed in the context of an attorney-client relationship. Similarly, any other information that L & T revealed in the statement of claim was information that was publicly available, and does not constitute confidential information that L & T obtained in the course of representing Abrams. Further, according to L & T, their records demonstrate that L & T represented Abrams only once, for a two-week period in 2003, and that it has not billed Abrams at any other time for any legal work. Abrams inquired about L & T's willingness to represent him on a few other occasions, but no representation ensued. Abrams has not provided any evidence of L & T's representation of him other than his unsupported assertions that he has been a continuing client of L & T. Nor has he offered any evidence to support his allegations that his position as a former client has resulted in L & T having confidential information. Finally, the name partners of L & T are the trustees of the Plan. Any information which they might have obtained would be still be available to any other attorney representing the Plan, because the trustees would be communicating with that attorney.
Abrams has, thus, failed to demonstrate that L & T should be precluded from representing
the Plan based upon a conflict of interests.
DR 5-102
Petitioners contend that Thau and Luboja will both have to be material witnesses in the arbitration, and that, therefore, they should not be permitted to represent the Plan. In opposition, L & T submits affidavits from the other employees of the firm who participate in the Plan, stating that they want L & T to represent the Plan, because they have confidence in the firm to represent [*4]them properly, and because if they are forced to engage outside counsel, much, if not all, of the benefit of pursuing their remedies is likely to be lost to attorney's fees.
L & T analogizes the situation to one in which an attorney is representing himself, since the Plan is the employee profit-sharing plan of the firm. Petitioners object to that analogy, pointing out that the Plan is a separate entity. Petitioners further contend that no other attorney at L & T should be permitted to represent the Plan, because L & T is a small firm and it is unlikely that Thau and Luboja can be effectively screened from participation in L & T's representation of the Plan. As a result, petitioners contend that there would be, at the very least, the appearance of impropriety.
DR 5-102 (A) states that 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." Further, if the lawyer knows that he or she, or another lawyer in the firm, "may be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony would or might be prejudicial to the client," neither the lawyer nor his firm should accept employment in the contemplated litigation. DR 5-102 (B).
Dealing with subsection (B) first, there is no reason to believe that the testimony of either Thau or Luboja would be prejudicial to the Plan. On the contrary, Thau and Luboja would both be testifying for the Plan, to establish the claim that the Plan brought against petitioners. Therefore, subsection (B) is not a basis to disqualify L & T from representing the Plan.
There is no question that either Luboja or Thau, or both, will have to be called as a witness at the arbitration, since they are the trustees of the Plan, and, therefore, they are the ones who have information regarding their interaction with Abrams. L & T contends, however, that the advocate-witness rule is not applicable in this matter because L & T is, essentially, seeking to represent itself. L & T maintains that the L & T attorneys have a direct financial interest as litigants, and are representing their own interests as trustees/participants in the Plan. L & T argues that the right to represent itself trumps disqualification under the advocate-witness rule. L & T cites to cases involving partners of a law firm representing themselves.
L & T also relies on DR 5-102 (A) (4), which permits an advocate to testify where disqualification "would work a substantial hardship on the client because of the distinctive value of the lawyer as counsel in the particular case." Since Thau has irreplaceable familiarity with the affairs of the Plan, and is also highly experienced in handling investment dispute cases, L & T argues that it should not be disqualified.
L & T points out that the justification for the advocate-witness rule is to protect the integrity of the profession from public perception of impropriety. Here, the arbitration is a private proceeding, not a trial in front of a jury. Therefore, the dangers associated with the appearance of impropriety are not implicated.
The Court of Appeals has held that the "advocate-witness disqualification rules contained in the Code of Professional Responsibility provide guidance, not binding authority, for courts in determining whether a party's law firm, at its adversary's instance, should be disqualified during litigation." S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437, 440 (1987). Other factors to consider are the party's right to choose its own counsel, and the fairness in the particular factual setting of granting or denying disqualification. Id. Disqualification implicates [*5]the substantive rights of the litigants to counsel of its choice. Id. at 443. While that right is not absolute, there must be a necessity to override it, such as a compelling public interest. Any attempt to restrict the right to counsel of choice must be carefully scrutinized. Id.
Here, petitioners contend that there is a compelling public interest, but fail to delineate what that interest is, other than the potential for the appearance of impropriety. However, if that were sufficient to require disqualification, there would be no discretion in determining whether disqualification is proper. Rather, the disciplinary rules would constitute binding authority, contrary to the holding of the Court of Appeals.
In this case, while it is true that respondent is the Plan, not L & T, the interests of the Plan and of L & T are virtually identical, since the Plan is L & T's benefit plan. Thus, unlike in Matter of Walsh (17 Misc 3d 407 [Sur Ct, Bronx County 2007]), upon which petitioners rely, Thau and Luboja have a direct financial interest in the outcome of the arbitration. In addition, the fact that the proceeding is an arbitration, rather than a trial, means that any public perception of L & T's representation of the Plan while Thau and Luboja may be required to testify is minimized.
The court notes that, even if Thau were disqualified (which he is not), it would not require disqualification of L & T. This is not a situation in where it has been shown that confidential information was used or will be used. Rather, it is only the potential appearance of impropriety resulting from an attorney testifying while, at the same time, arguing in favor of his or her client. Therefore, another attorney at the firm would be permitted to represent the Plan in the arbitration even if Thau could not.
In conclusion, petitioners have not demonstrated that there is a compelling public interest in
disqualifying L & T from representing the Plan under the circumstances of this case.
CONCLUSION
Accordingly, it is hereby
ADJUDGED that the Petition to disqualify Luboja & Thau, LLP as counsel is denied and the proceeding is dismissed.
This Constitutes the Decision and Judgment of the Court.
Dated: December 17, 2009
ENTER:
_________________________
J.S.C.
Footnotes
Footnote 1: The Disciplinary Rules have
subsequently been revised, effective April 1, 2009, and the new rules are, respectively, Rules of
Professional Conduct 1.9 (a) and 3.7.
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