The opinion of the court was delivered by: SHIRLEY WOHL KRAM
MEMORANDUM OPINION AND ORDER
SHIRLEY WOHL KRAM, U.S.D.J.
In this diversity action involving claims of fraud, conversion, breach of contract, and breach of fiduciary duty, defendants move, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, for an order dismissing the complaint for lack of subject matter jurisdiction. In the alternative, defendants move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing the complaint for failure to state a claim upon which relief can be granted. Plaintiff Michael Kubin ("Kubin") opposes the motions and cross-moves for an order disqualifying defendants' counsel, Parker Chapin Flattau & Klimpl ("Parker Chapin"). Kubin also cross-moves, pursuant to Rule 11 of the Federal Rules of Civil Procedure, for sanctions against defendant Larry Miller ("Miller") for filing a false affidavit. Defendants oppose the motions. For the reasons set forth below, defendants' motion, pursuant to Rule 12(b)(1), is denied. Kubin's cross-motion, pursuant to Rule 11, for sanctions against Miller, is denied. Kubin's cross-motion for the disqualification of Parker Chapin is denied. Defendants' motion, pursuant to Rule 12(b)(6), is granted in part and denied in part.
Plaintiff Kubin, a Connecticut domiciliary, entered into an oral agreement with defendant Miller and Robert Ingram ("Ingram") in late 1987 ("late 1987 oral agreement")
in which the parties agreed to merge their media businesses, Corinthian Media Buying, Inc. ("CMBI"), Corinthian Advertising, Inc. ("CAI"), defendant Corinthian Media, Inc. ("CMI"), and defendant Broadcast Buying Service, Inc. ("BBS"), into a single entity. Complaint, at P 12. Prior to this agreement, the ownership of the above companies was as follows: Kubin, CMI's executive vice-president, owned 24.5 percent of the stock of CMI, Complaint, at P 1, Ingram owned 24.5 percent of CMI, and Miller owned fifty-one percent of CMI's stock, Complaint, at PP 2, 3; Miller and Kubin co-owned CMBI with Miller controlling fifty-one percent of CMBI's equity and Kubin controlling forty-nine percent, Complaint, at P 9; Miller and Ingram owned the equity of CAI with Miller owning fifty-one percent and Ingram owning forty-nine percent, Complaint, at P 10; CAI's profits were divided among Miller (fifty percent), Ingram (thirty-five percent), and Kubin (fifteen percent). Id. Additionally, at all relevant times, Miller has controlled and operated BBS and another media company, Ari Trading, Inc. ("Ari"). Complaint, at P 2.
According to the complaint, the late 1987 oral agreement among Kubin, Miller, and Ingram provided, inter alia, that Kubin would forfeit his interest in CMBI and CAI, thus facilitating the merger of CMBI, CAI, CMI, and BBS, in exchange for the performance of the following promises by Miller:
(1) Miller would distribute twenty-five percent of the operating income of the surviving company and Ari to Kubin on an annual basis,
(2) Kubin would receive 24.5 percent of the stock of the surviving company,
(3) a shareholders agreement for the surviving company would be created which would include a buy-out clause in case any shareholder should decide to leave the company, and
(4) Miller would merge BBS, CMBI, and CAI into one surviving company.
On January 1, 1988, CMBI and CAI were merged with CMI to create a single entity under the name CMI. Complaint, at P 15. According to the complaint, however, Miller refused to merge BBS into CMI. Miller repeatedly explained to Kubin that he was unwilling to complete the merger and finalize the shareholders agreement because his divorce settlement was incomplete.
Complaint, at PP 18, 19. Instead, he continued to operate BBS and Ari in direct competition with CMI and diverted CMI's assets to BBS, Ari, and his own personal use, thereby violating the late 1987 oral agreement. Complaint, at PP 16, 28. Specifically, Kubin alleges that Miller "engaged in a deliberate scheme to divert assets from CMI to other companies he owned or controlled, including [BBS] and Ari." Complaint, at P 26.
On October 25, 1989, however, Miller's attorney drafted a buy-sell agreement (the "buy-sell agreement") containing details of the contemplated merger. Thereafter, on December 12, 1989, Kubin and Miller signed an interim letter agreement (the "letter agreement") which acknowledged Kubin's ownership of 24.5 percent of the newly formed CMI and contained Miller's promise to fulfill his original promise to create a shareholders agreement. See Plaintiff's Exhibit "A", attached to Kubin Affidavit, sworn to April 2, 1992 ("Kubin Aff."). Despite the letter agreement, in January 1990, Miller informed Kubin that he would not sign a shareholders agreement. Complaint, at P 24. Miller also refused to furnish any CMI shares or income to Kubin and balked at merging BBS into CMI. Id.
In early April 1991, Kubin and Miller entered into another oral agreement. Specifically, Miller, as the controlling partner in CMI, orally promised Kubin a finder's fee (the "finder's fee agreement") if Kubin would introduce the DeMoss Foundation ("DeMoss") to CMI as DeMoss was considering a television campaign. Complaint, at PP 30, 31. Although Kubin fulfilled his promise by introducing DeMoss to CMI (DeMoss became a client of CMI thereafter), Miller has refused to pay the promised finder's fee to Kubin. Complaint, at PP 32, 33.
As a result, Kubin seeks damages for fraud, conversion, breach of contract, and breach of fiduciary duty. He also seeks mandatory injunctions requiring Miller to issue CMI and BBS stock to Kubin, and declaratory judgments proclaiming Kubin's entitlement to future CMI commissions from the DeMoss account, declaring Kubin's entitlement to 24.5 percent of CMI stock, voiding the December 12, 1989 interim letter agreement, proclaiming Kubin to be a 24.5 percent shareholder of BBS, and declaring Kubin's entitlement to twenty-five percent of the net income of CMI, BBS, and Ari.
Defendants now move for an order dismissing the complaint for lack of diversity on the grounds that Kubin and Miller are Connecticut domiciliaries and Ari's principal place of business is located in Connecticut. Kubin opposes the motion and cross-moves for the disqualification of Parker Chapin on the grounds that its continued representation of defendants constitutes a violation of Canons 4, 5, and 9 of the American Bar Association's Code of Professional Responsibility ("Model Code"). Kubin also moves for sanctions against Miller for filing a false affidavit. Defendants oppose the motions, and move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing all but Kubin's breach of written contract claim (Fourth Claim for Relief).
I. Subject Matter Jurisdiction
District courts have original jurisdiction over civil actions where "the matter in controversy exceeds the sum or value of $ 50,000, exclusive of interest and costs, and is between . . . citizens of different states." 28 U.S.C. § 1332. It is well-settled that the diversity of citizenship requirement is not met when any opposing parties are citizens of the same state. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806). The citizenship of the parties is to be determined by the court as of the time the action is commenced. See, e.g., Dullard v. Berkeley Associates Co., 606 F.2d 890, 893 (2d Cir. 1979); Caldararo v. Au, 570 F. Supp. 39, 40 (S.D.N.Y. 1983). The party seeking to invoke diversity jurisdiction must sustain the burden of proving that complete diversity existed at the time the action was commenced. See, e.g., Boyd, Weir & Sewell Inc. v. Fritzen-Halcyon LIJN, Inc., 709 F. Supp. 77, 78 (S.D.N.Y. 1989) (citing Willis v. Westin Hotel Co., 651 F. Supp. 598, 601 (S.D.N.Y. 1986)).
A. Citizenship of Larry Miller
Defendants contend that this action should be dismissed for lack of subject matter jurisdiction as both Kubin and Miller are citizens of Connecticut. Specifically, defendants contend that Miller's numerous contacts with Connecticut support the assertion that Connecticut is his domicile, thus destroying diversity jurisdiction. The Court disagrees.
For diversity purposes, an individual's citizenship is defined as his domicile. See Hawes v. Club Ecuestre El Comandante, 598 F.2d 698, 701 (1st Cir. 1979). Justice Holmes explained that every individual may have only one domicile because the law must assign to each person a "technically preeminent headquarters . . . in order that certain rights and duties that have been attached to it by the law may be determined." Hawes, 598 F.2d at 701 (citing Williamson v. Osenton, 232 U.S. 619, 625, 58 L. Ed. 758, 34 S. Ct. 442 (1914)). An individual's domicile is determined by physical presence in the place combined with intent to remain there. Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48, 104 L. Ed. 2d 29, 109 S. Ct. 1597 (1989) (citing Texas v. Florida, 306 U.S. 398, 83 L. Ed. 817, 59 S. Ct. 563 (1939)). When the plaintiff has shown that the defendant had a former domicile, the burden shifts to the defendant to prove that his domicile has changed. Kaiser v. Loomis, 391 F.2d 1007, 1009-10 (6th Cir. 1968) (citing Stine v. Moore, 213 F.2d 446, 448 (5th Cir. 1954)). To sustain this burden, the defendant must show that he has acquired a new residence and intends to remain there. Kaiser, 391 F.2d at 1009 (citing Mitchell v. United States, 88 U.S. (21 Wall.) 350, 353, 22 L. Ed. 584 (1874)).
In the present case, the parties do not dispute that Miller was originally domiciled in New York. Defendants contend, however, that Miller's domicile changed in 1981 when he purchased a home in South Kent, Connecticut. In support of this contention, Miller points to many factors suggesting that Connecticut is his true domicile, including: he renovated the Connecticut home and installed a pool, married in Connecticut in 1983, rented a condominium there during his divorce, uses an office in Connecticut, lists Connecticut as his principal residence on his tax returns, carries a Connecticut driver's license, services and registers his cars in Connecticut, maintains a safe deposit box in Connecticut, receives bills in Connecticut, lists Connecticut as his residence on contracts, his passport, and hotel registrations, and spends more than half the year in Connecticut. See Miller Affidavit, sworn to April 20, 1992, at PP 2-11.
Kubin claims that, although Miller has established an additional residence, he is still a New York domiciliary. Thus, Kubin points out that Miller lived in New York with his first wife, remarried in New York and currently lives there with his second wife in an apartment at 101 West 79th Street, owns an adjoining apartment in the same building, works full-time in New York
and therefore does not spend more than half the year in Connecticut, uses physicians, accountants, lawyers, and stock brokers in New York, and attends a weekly men's group in New York. See Kubin Aff., at PP 19-22.
Although the facts indicate that Miller did acquire a second residence in Connecticut, the Court finds that Miller has failed to sustain the burden of proving that his domicile changed from New York to Connecticut. See Kaiser, 391 F.2d at 1009-10. Miller's contention that he spends more than half the year in Connecticut, a matter in dispute between the parties and inconsistent with other established facts, is given little weight by the Court. See Korn v. Korn, 398 F.2d 689, 691 (3d Cir. 1968) (testimony about domicile "is subject to the infirmity of any self-serving declaration" and cannot prevail when contradicted by other facts). Further, given Miller's strong ties to New York, Miller has failed to establish facts which indicate his intent to remain in Connecticut. See Mitchell, 88 U.S. (21 Wall.) at 353.
Most notably, however, Miller's own admissions to this Court belie his claim that he is a Connecticut domiciliary. In 1989, Miller, relying upon his status as a New York citizen, invoked this Court's diversity jurisdiction in an action against Michael Weingarten and Video Ventures, Inc. (89 Civ. 0364). See Plaintiff's Exhibit "B", attached to Kubin Aff. Under well-established law, Miller is estopped from claiming New York citizenship in one federal civil action and then declaring Connecticut citizenship in order to defeat diversity jurisdiction. See National Westminster Bank v. Ross, 130 Bankr. 656, 672 (S.D.N.Y. 1991), aff'd, 962 F.2d 1 (2d Cir. 1992) ("a litigant should not be permitted to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise"); Environmental Concern, Inc. v. Larchwood Constr. Corp., 101 A.D.2d 591, 593, 476 N.Y.S.2d 175, 176-77 (2d Dept. 1984) ("the doctrine of estoppel against inconsistent positions precludes a party from framing his pleadings in a manner inconsistent with a position taken in a prior proceeding"). Defendants have failed to present any evidence that would lead this Court to find a change in domicile after Miller's 1989 declaration to the Court. Thus, defendants' motion to dismiss for lack of subject matter jurisdiction based upon Miller's domicile is denied.
Defendants also argue that Kubin has improperly invoked diversity jurisdiction as both Kubin and Ari are citizens of Connecticut. Defendants' claim rests on the assertion that Ari's principal place of business is located in Connecticut. Again, the Court disagrees with defendants' contention.
For purposes of diversity jurisdiction, a corporation "shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c). Determination of a corporation's principal place of business is relatively straightforward when the corporation generally conducts its business policy and makes management decisions in a single state. Egan v. American Airlines, Inc., 324 F.2d 565, 565-66 (2d Cir. 1963). When a corporation's activities are "far-flung and varied," however, it is more difficult to determine its principal place of business. In such instances, a court will determine the principle place of business by locating "the nerve center from which [the corporation] radiates out to its constituent parts and from which [the corporation's] officers direct, control, and coordinate all activities." Scot Typewriter Co. v. Underwood Corp., 170 F. Supp. 862, 865 (S.D.N.Y. 1959).
In the present case, it is clear that Ari's principal place of business is New York. Defendants claim that Connecticut is Ari's principal place of business because the company's executive decisions are made there and permanent records are maintained in the Connecticut office. The Court finds, however, that defendants cannot substantiate their position.
Defendants' statement that Ari's executive decisions are made in Connecticut is inconsistent with the facts. First, it is clear that Ari's executive officers work full-time in New York. Miller's February 15, 1992 affidavit submitted to Judge Freeh in opposition to a motion to transfer or dismiss the complaint proclaims that both he and Ingram, two of Art's top officers, work full-time in New York. See Miller Feb. 10 Aff. It is incredible that Ari's executive officers work full-time in New York yet avoid making most business decisions there. Second, some of Ari's stationary and business cards do not even include the Connecticut office address.See Plaintiff's Exhibits "N", "O", "P", attached to Kubin Aff. Thus, even if the Court concluded that Ari's principal place of business could be located in more than one state, it is clear that New York is the "nerve center" of Ari's operations. See Scot Typewriter, 170 F. Supp. at 865. Accordingly, defendants' motion for an order dismissing the complaint for lack of subject matter jurisdiction based upon Ari's citizenship is denied.
Kubin cross-moves for an order disqualifying Parker Chapin from representing defendants in this action. Kubin bases his claim on Canons 4, 5, and 9 of the Model Code.
Specifically, Kubin argues that Parker Chapin should be disqualified because (1) Charles P. Greenman, Esq. ("Greenman"), a Parker Chapin partner, ought to be called as a witness on behalf of defendants, (2) Parker Chapin formerly represented Kubin in matters substantially related to this action, (3) Parker Chapin is counsel for CMI, and (4) Parker Chapin's representation of defendants would create an appearance of impropriety. Defendants oppose the motion, arguing that Parker Chapin's continued representation of defendants is consistent with both the American Bar Association and the New York Bar Association's rules of professional conduct. For the reasons set forth below, the Court finds that disqualification of Parker Chapin is inappropriate in the present case.
At the outset, the Court notes that courts must be wary of disqualification motions interposed solely for tactical purposes. Lamborn v. Dittmer, 873 F.2d 522, 531 (2d Cir. 1989) (citing Board of Education v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979)). Further, the Court is mindful that the Second Circuit requires a high standard of proof on the part of the party seeking to disqualify an opposing party's counsel in order to protect a client's right to freely choose counsel. Government of India v. Cook Industries, Inc., 569 F.2d 737, 739 (2d Cir. 1978).
A. Canon 5: Attorney as Witness
Rule 5-102(A) of the Model Code provides, in pertinent part, that "if, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm ought to be called as a witness on behalf of his client, he shall withdraw from the conduct of the trial and his firm, if any, shall not continue representation." Model Code of Professional Responsibility DR 5-102(A) (1990). Thus, the rules of professional conduct of the American Bar Association are clear that an attorney must be disqualified if he ought to testify on behalf of his client. An attorney ought to testify on behalf of his client if his testimony could be significantly useful to his client, MacArthur v. Bank of New York, 524 F. Supp. 1205, 1208 (S.D.N.Y. 1981), and it is necessary to the client's case. S & S Hotel Ventures Ltd. Partnership v. 777 S.H. Corp., 69 N.Y.2d 437, 445, 515 N.Y.S.2d 735, 739, 508 N.E.2d 647 (1987). A court should examine factors such as "the significance of the matters, weight of the testimony, and availability of other evidence" when considering the necessity of the testimony. Id. at 446, 515 N.Y.S.2d at 739. Of course, an attorney whose testimony would merely corroborate the testimony of others may not be subject to disqualification. MacArthur, 524 F. Supp. at 1209. In cases in which the attorney's knowledge is highly relevant and peculiarly in his possession, however, it is clear that he must be disqualified under 5-102(A). See Wickes v. Ward, 706 F. Supp. 290, 292-93 (S.D.N.Y. 1989) (attorney who participated in sidebar conference at issue in current action between litigants must be disqualified); Paretti v. Cavalier Label Co., 722 F. Supp. 985, 986 (S.D.N.Y. 1989) ("if a lawyer negotiates, executes, and administers a contract, and is the key witness at trial, then he must be disqualified").
In the present case, it is clear that Greenman ought to be called as a witness on behalf of defendants. Greenman has unique knowledge about the parties' decision to create a shareholders agreement and Miller's alleged repudiation of that agreement. Greenman personally drafted written agreements among the parties concerning ownership of the various corporations and the proposed mergers which are now contested in this action. See Kubin Aff., at P 47. Accordingly, Greenman is disqualified from further representation of defendants in this action.
Kubin further argues that Rule 5-102(A) of the Model Code warrants disqualification of Parker Chapin as counsel for defendants. Attorney disqualification and vicarious disqualification of the attorney's firm is in the discretion of the court. Freight Drivers, etc. Local No. 375 v. Kingsway Transp., Inc., 1991 U.S. Dist. LEXIS 15801, at *2 (W.D.N.Y. Oct. 22, 1991) (citing U.S. v. Perlmutter, 637 F. Supp. 1134, 1137 (S.D.N.Y. 1986)). Nonetheless, courts do look for guidance from the American Bar Association and New York Bar Association. See, e.g., Freight Drivers, 1991 U.S. Dist. LEXIS 15801, at *3 Under Rule 3.7 of the Model Rules of Professional Responsibility ("Model Rules"),
Model Rules of Professional Responsibility 3.7 (1992), and New York's Code of Professional Responsibility ("New York Code"),
N.Y. Judiciary Law § 5-102(A) (McKinney 1992), vicarious disqualification is no longer necessary when an individual attorney is disqualified under Rule 5-102(A) of the Model Code.
As stated above, Rule 5-102(A) of the Model Code provides, in pertinent part, that "if, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm ought to be called as a witness on behalf of his client, he shall withdraw from the conduct of the trial and his firm, if any, shall not continue representation." Model Code of Professional Responsibility DR 5-102(A) (1990). Rule 3.7 of the Model Rules provides, in pertinent part, however, that "[a] lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9 (conflict of interest rules)." Model Rules of Professional Responsibility DR 5-102(A) (1990). Thus, while Rule 3.7 recognizes the ...