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LIU v. REAL ESTATE INV. GROUP. INC.

August 19, 1991

JOSEPH LIU, PLAINTIFF,
v.
REAL ESTATE INVESTMENT GROUP, INC., SIMON S. MILNE, MARTIN ENDER, MAX R. WEISS, STANLEY Z. WANT, KENNETH PELSINGER, 6209-15 BOULEVARD EAST CORP., CREATIVE CAPITAL GROUP, ERIC KAUFMAN AND JOAN KAUFMAN, DEFENDANTS. PABLO A. POBLETE, PLAINTIFF, V. REAL ESTATE INVESTMENT GROUP, INC., SIMON S. MILNE, MARTIN ENDER, MAX R. WEISS, STANLEY Z. WANT, KENNETH PELSINGER, 6209-15 BOULEVARD EAST CORP., CREATIVE CAPITAL GROUP, ERIC KAUFMAN AND JOAN KAUFMAN, DEFENDANTS. JENNY W. LUM AND SAMSON LUM, PLAINTIFFS, V. REAL ESTATE INVESTMENT GROUP, INC., SIMON S. MILNE, MARTIN ENDER, MAX R. WEISS, STANLEY Z. WANT, KENNETH PELSINGER, 6209-15 BOULEVARD EAST CORP., CREATIVE CAPITAL GROUP, ERIC KAUFMAN AND JOAN KAUFMAN, DEFENDANTS.



The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.

OPINION AND ORDER

These are identical actions alleging misrepresentations and omissions in violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and common law fraud in connection with the sale of cooperative apartments to plaintiffs. Defendants Real Estate Investment Group ("REIG"), Martin Ender ("Ender"), Max R. Weiss ("Weiss"), Stanley Want ("Want") and Kenneth Pelsinger ("Pelsinger") move to disqualify plaintiffs' attorneys on the ground that they have breached confidences and otherwise engaged in improper conduct in prosecuting this action in violation of the Code of Professional Responsibility ("the Code"). For the reasons set forth below, defendants' motions are granted.

BACKGROUND

Sometime prior to August 1988, defendants Weiss, Ender, Want and Simon Milne ("Milne") formed a New Jersey corporation known as Real Estate Investment Group, Inc. ("REIG"). REIG purchased eighteen cooperative apartments located in West New York, New Jersey from 6209-15 Boulevard East Corporation ("6209"). Defendants Eric and Joan Kaufman ("the Kaufman defendants"), both principals in 6209, were the co-op sponsors from whom the apartments were purchased. After their purchase, REIG offered the apartments for sale to investors.

Weiss has served as Joseph Liu's ("Liu") and Jenny and Samson Lum's personal accountant since 1984. Liu Aff. ¶ 3; Lum Aff. ¶ 3.*fn1 Weiss has served as plaintiffs Pablo Poblete's ("Poblete") personal accountant since at least 1989. Poblete Aff. ¶ 3. In August 1988 Weiss recommended that plaintiffs invest in the cooperative apartments REIG had purchased. Liu Aff. ¶¶ 3-6. Weiss allegedly also recommended plaintiffs to Kenneth Pelsinger ("Pelsinger"), an attorney, who ultimately acted as plaintiffs' mortgage broker and represented plaintiffs at their closings. Liu Aff. ¶¶ 13, 15. Plaintiffs purchased two apartment*fn2 apiece, allegedly sight unseen, and closed in March 1989. Liu Aff. ¶¶ 8, 12, 16.

In mid-1989 or early spring 1990, plaintiffs contacted Weiss to express dissatisfaction with aspects of their purchase and to inquire as to how they might be relieved from its obligations. Weiss Aff. ¶ 7; Liu Aff. ¶ 20. Plaintiffs allege that the maintenance fees were higher than originally quoted to them and that "major renovations" were necessary. Liu ¶¶ 12, 19. Plaintiffs claim Weiss blamed the misrepresentations on the Kaufman defendants and also expressed dissatisfaction with his former associates Ender and Want. Liu Aff. ¶¶ 20, 25.

Because Weiss had in the past referred clients to the law firm of Realmuto and D'Alessio ("R & D"), Weiss Aff. ¶ 9 n. 5, he contacted R & D on plaintiffs' behalf. Weiss claims he also sought to explore avenues for bringing an action on behalf of himself and REIG against the Kaufman defendants, 6209 and another entity, Creative Capital Group. Id. ¶¶ 3(b), 9.

A series of discussions ensued involving Weiss, R & D, plaintiffs and various defendants. The first meeting was held April 2, 1990 at the law offices of R & D. Weiss, Richard Realmuto ("Realmuto"), Matthew D'Alessio ("D'Alessio") and all four plaintiffs attended. Weiss claims the discussion that day centered on the possibility of plaintiffs voiding their mortgages and potential claims against them by the bank which held the mortgages. Weiss Aff. ¶¶ 10-11. Weiss claims he also raised questions regarding actions by the Kaufman defendants in the sale of apartments to REIG. Id.

Weiss claims he disclosed his potential conflict of interest to Realmuto and D'Alessio up front but that he received assurances that any information he provided would be kept confidential*fn3 and that he would not be named as a defendant in any future action by plaintiffs. Weiss Aff. ¶¶ 9, 13, 14. Realmuto and D'Alessio deny ever having given Weiss any such assurances. Realmuto Aff. ¶ 8; D'Alessio Aff. ¶ 8. Realmuto claims that after reviewing the matter, he advised Weiss that Weiss was subject to a lawsuit but that Weiss insisted on continuing to be involved in the meetings based on "his obligation and duty as the longtime accountant" for plaintiffs. Realmuto Aff. ¶¶ 9, 10.

After the April 2, 1990 meeting Weiss provided R & D with documents, allegedly at the attorneys' request, including plaintiffs' sales contracts, REIG's underlying contract with 6209, the prospectus, assignment agreements, amendments of the offering and copies of loan documents. Weiss Aff. ¶ 13.

On May 7, 1990 Realmuto and D'Alessio held a second meeting involving Weiss and the plaintiffs. Weiss claims they further discussed plaintiffs' mortgages and actions taken by the Kaufman defendants. Weiss Aff. ¶ 13.

On May 17, 1990 R & D held a third and final meeting attended by Weiss, Pelsinger, Ender and Want. Weiss claims that at this meeting he explained the "inside nature" of the transactions from the defendants' viewpoint. Weiss Aff. ¶ 15. Realmuto then informed Pelsinger, Ender, Want and Weiss that plaintiffs would file suit against them if no settlement could be reached. Realmuto Aff. ¶ 16.

In November 1990 plaintiffs filed separate complaints alleging that defendants knowingly made false and misleading statements and omissions to plaintiffs concerning the co-op investments, that together defendants engaged in a pattern of racketeering activity and that defendants devised a fraudulent scheme to deprive plaintiffs of their property by inducing them to purchase the cooperative apartments.*fn4 Plaintiffs seek compensatory and punitive damages.

On April 17, 1991 defendants REIG, Ender, Weiss, Want and Pelsinger moved to disqualify Realmuto & D'Alessio pursuant to Canons 4 and 9 of the Code of Professional Responsibility. ...


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