United States District Court, Southern District of New York
August 19, 1991
JOSEPH LIU, PLAINTIFF,
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.
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
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. The
Court heard oral argument on June 26, 1991.
In the Second Circuit, a motion to disqualify an attorney is
addressed to the discretion of the district court. Cheng v. GAF
Corp., 631 F.2d 1052, 1055 (2d Cir. 1980), vacated on other
grounds, 450 U.S. 903, 101 S.Ct. 1338, 67 L.Ed.2d 327 (1981);
Allegaert v. Perot, 565 F.2d 246, 248 (2d Cir. 1977). Any doubt
should be resolved in favor of disqualification. Hull v.
Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975).
1. Canon 4
Weiss seeks to disqualify Realmuto & D'Alessio on the ground
that the attorneys have violated Canon 4 of the Code which is
entitled "A Lawyer Should Preserve the Confidences and Secrets
of a Client." Disciplinary Rule ("DR") 4-101(B) provides:
B. Except when permitted under DR 4-101(C), a
lawyer shall not knowingly:
1. Reveal a confidence or secret of a client.
2. Use a confidence or secret of a client to the
disadvantage of the client.
3. Use a confidence or secret of a client to the
advantage of the lawyer or of a third person,
unless the client consents after full
(McKinney Supp. 1991). While a client "confidence" is any
information protected by the attorney-client privilege, client
"secrets" include any other information gained in the
professional relationship that the client has requested be held
inviolate or disclosure of which would be embarrassing or would
likely be detrimental to the client. DR 4-101(A) (McKinney
The duty under DR 4-101(B) to preserve client confidences and
secrets generally attaches only when an attorney-client
relationship exists. Premium Prods. Sales Corp. v. Chipwich,
Inc., 539 F. Supp. 427, 433 (S.D.N.Y. 1982). However, an
analogous fiduciary obligation may be implied in the absence of
a formal attorney-client relationship. See Westinghouse Elec.
Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1319 (7th Cir.),
cert. denied, 439 U.S. 955, 99 S.Ct. 353, 58 L.Ed.2d 346
(1978). For example:
It is clear that where an attorney receives
confidential information from a person who, under
the circumstances has a right to believe that the
attorney, as an attorney, will respect such
confidences, the law will enforce the obligation
of confidence irrespective of the absence of a
formal attorney-client relationship.
Nichols v. Village Voice, Inc., 99 Misc.2d 822, 417 N.Y.S.2d
415, 418 (Sup.Ct. 1979). See Rosman v. Shapiro, 653 F. Supp. 1441,
1445 (S.D.N.Y. 1987); Trinity Ambulance Serv., Inc. v. G
& L Ambulance Servs., Inc., 578 F. Supp. 1280, 1283 (D.Conn.
1984). In either case, the duty to preserve confidentiality
extends to preliminary consultation by a prospective client
even though actual employment does not result. Westinghouse,
580 F.2d at 1319 (fiduciary obligation); New York Univ. v.
Simon, 130 Misc.2d 1019, 498 N.Y.S.2d 659 (Civ.Ct. 1985)
The record indicates that Weiss sought legal advice on behalf
of himself and REIG and had adequate grounds for believing that
a confidential relationship existed between himself and
plaintiffs' attorneys. Although there is no indication that the
documentary evidence he shared was confidential, other
information he revealed regarding the inside nature of the
transactions may constitute client secrets.*fn5
Disqualification under these circumstances is rooted in notions
of fundamental fairness: allowing an attorney who is in a
position to use confidential information gained through a
relationship with the client's adversary would give the client
an unfair advantage. United States v. Ostrer, 597 F.2d 337, 340
(2d Cir. 1979).
2. Canon 9
Canon 9 is entitled "A Lawyer Should Avoid Even the
Appearance of Professional Impropriety." The requirement that
a lawyer avoid even the appearance of impropriety reflects the
bar's concern that some conduct which is in fact ethical may
appear to the layman as unethical and thereby erode public
confidence in the judicial system and the legal profession.
SMI Indus. Canada Ltd. v. Caelter Indus., Inc., 586 F. Supp. 808,
818 (N.D.N.Y. 1984) (citing Woods v. Covington County
Bank, 537 F.2d 804
(5th Cir. 1976)). A motion to disqualify
under Canon 9 should be granted if the facts present a real
risk that the trial will be tainted. See Board of Educ. v.
Nyquist, 590 F.2d 1241
, 1246 (2d Cir. 1979).
There are two situations which "raise the specter that
litigation will be tainted," United States Football League v.
National Football League, 605 F. Supp. 1448, 1452 (S.D.N Y
1985), under Canon 9. They are:
when the challenged attorney is concurrently
representing adverse interests so that his vigor
in pursuing the interests of one of them is
questionable, or when the attorney's successive
representation of adverse interests raises the
possibility that in the present matter he will
improperly use confidences gained in the prior
representation to the detriment of his former
Id. (citations omitted). Although this is not strictly a
successive representation problem because R & D consulted with
plaintiffs and Weiss simultaneously, the second situation is
implicated here. R & D's initial involvement with parties
having adverse postures in this litigation raises significant
risks that the trial will be tainted or will appear to laymen
to be tainted. There is a likelihood that R & D will be deemed
to be using confidences or secrets gained from Weiss to Weiss'
detriment or the detriment of the other defendants. Plaintiffs'
right to counsel of their choice, while important, must give
way when required by the fair and proper administration of
justice. See United States v. Ostrer, 597 F.2d at 341.
Accordingly, defendants' motion to disqualify R & D is granted.
IT IS SO ORDERED.