United States District Court, Western District of New York
February 24, 2000
FRED SAUER, PLAINTIFF,
XEROX CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Larimer, Chief Judge.
DECISION AND ORDER
This action arises out of a dispute over certain industrial
equipment ("the equipment") between plaintiff Fred Sauer and
defendant Xerox Corporation. In a letter to the court dated
August 31, 1999, Xerox requested that the court issue an order
disqualifying plaintiff's attorney, Gordon Locke, from continuing
to represent plaintiff in this action. The basis for defendant's
request was that Locke had allegedly violated Disciplinary Rules
5-103(a), which prohibits a lawyer from "acquir[ing] a
proprietary interest in the cause of action or subject matter of
litigation he or she is conducting for a client," and 7-104,
which prohibits a lawyer from communicating directly with a party
that he knows is represented by counsel without the prior consent
of that party's attorney.
Pursuant to my previously-issued referral order, Magistrate
Judge Jonathan W. Feldman heard oral argument on the motion to
disqualify on October 28, 1999. On November 22, 1999, Magistrate
Judge Feldman issued a Report and Recommendation recommending
that Locke be disqualified from any further representation of
plaintiff in this action. Basing that recommendation on his
finding that Locke had violated DR 5-103, the Magistrate Judge
found it unnecessary to reach the issue of whether Locke had also
violated DR 7-104.
Plaintiff filed objections to the Report and Recommendation on
December 6, 1999. This Decision and Order constitutes my ruling
on those objections.
The determination of whether a motion to disqualify an attorney
is committed to the discretion of the 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).
The burden is on the movant to demonstrate that an attorney
should be disqualified. Ives v. Guilford Mills, Inc.,
3 F. Supp.2d 191, 202 (N.D.N.Y. 1998); Marshall v. State of New
York Div. of State Police, 952 F. Supp. 103, 106 (N.D.N.Y. 1997).
Because motions to disqualify are generally disfavored, that
burden is a heavy one, and a party moving for disqualification
must satisfy "a high standard of proof." Evans v. Artek Systems
Corp., 715 F.2d 788, 791 (2d Cir. 1983).
The primary reasons that disqualification motions are looked
upon with disfavor are that "disqualification has an immediate
adverse effect on the client by separating him from counsel of
his choice, and that disqualification motions are often
interposed for tactical reasons." Board of Educ. of City of New
York v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979) (citing
Allegaert v. Perot, 565 F.2d 246, 251 (2d Cir. 1977)); J.P.
Foley & Co., Inc. v. Vanderbilt, 523 F.2d 1357, 1360 (2d Cir.
1975) (Gurfein, J., concurring). While courts will accordingly
not lightly grant a motion to disqualify, however, any doubts
must be resolved in favor of disqualification. Hull
v. Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975); Felix v.
Balkin, 49 F. Supp.2d 260, 267 (S.D.N.Y. 1999); Ives, 3
F. Supp.2d at 202. This approach strikes a balance between being
"solicitous of a client's right freely to choose his counsel,"
and protecting the "need to maintain the highest standards of the
profession" and the "integrity of the adversary process."
Evans, 715 F.2d at 792; Government of India v. Cook Indus.,
Inc., 569 F.2d 737, 739 (2d Cir. 1978).
In the instant case, I concur with Magistrate Judge Feldman's
conclusion that Locke has violated DR 5-103(a). The record shows
that during the course of this litigation, Locke and his client,
Fred Sauer, entered into a written agreement ("the agreement") by
which Sauer, in consideration of Locke's representation of him,
stated that he "hereby sells and transfers to Locke, AS-IS,
WHERE-IS, an undivided thirty three and one third percent
interest in the Equipment [that is the subject of this
litigation], and all net proceeds thereof, whether received or
derived from the Equipment or from the assertion of any claims
against Xerox or any other person or party." Affidavit of Gordon
Locke (Docket Item 267) Ex. A. In addition, in a letter to Xerox
dated July 14, 1999, Sauer and Locke stated, "We as the owners
of the equipment hereby repeat the demand previously made upon
you by Mr. Sauer and again make formal demand for the immediate
return of our equipment. . . ." Locke Aff. Ex. B (emphasis
added). The letter was signed by both Sauer and Locke.
The language of these documents could hardly make it any
clearer that it was Locke's and Sauer's intention to give Locke a
one-third ownership interest in the equipment, and that they
believe that he is now a part owner of the equipment. Although
plaintiff characterizes the agreement as essentially a
contingent-fee agreement, nothing in the agreement suggests that
Locke's interest in the equipment is contingent upon anything.
Obviously Locke's interest (as well as Sauer's, for that matter)
is "contingent" upon the court ultimately determining that Sauer,
not Xerox, is the owner of the equipment, but to contend that
this makes the agreement a permissible contingency agreement
would render DR 5-103 virtually meaningless in lawsuits involving
disputes over ownership of property. See Peggy Walz, Inc. v. Liz
Wain, Inc., No. 94 CIV. 1579, 1996 WL 88556 *3 (S.D.N.Y. Mar.1,
1996) (rejecting plaintiff's counsel's contention that
incorporation agreement conferring upon him a direct interest in
the copyrighted designs that formed the subject matter of the
action was analogous to a contingent fee arrangement).
I also reject plaintiff's contention that DR 5-103(a) is not
implicated here because ownership of the equipment is not part of
the subject matter of this litigation. As Magistrate Judge
Feldman noted, one of my prior decisions in this case does
address the issue of title, see Sauer v. Xerox Corp.,
17 F. Supp.2d 193, 206 (W.D.N.Y. 1998) (stating that plaintiff "has
received from Xerox the full purchase price to buy back the
equipment"), and plaintiff's own statement of issues to be raised
on appeal from that decision*fn1 raises issues concerning
whether defendant should be ordered to return the equipment to
plaintiff, and whether defendant's payments to plaintiff fully
satisfied defendant's obligations to plaintiff. See Defendant's
Reply to Plaintiff's Objections (Docket Item 283) Ex. B ¶¶ 15,
I am equally unpersuaded by plaintiff's assertion that
defendant cannot carry its burden of proving a violation of DR
5-103(a) because defendant alleges in this lawsuit that Xerox,
and not plaintiff, is the owner of the equipment. Plaintiff
argues that defendant is in effect estopped from alleging that
Locke has obtained a property
interest in the equipment, since according to defendant,
plaintiff has no power to convey such an interest to Locke. That
logic, too, however, would eviscerate DR 5-103(a) whenever
property ownership is at issue in a lawsuit. Moreover, it puts
the cart before the horse by making resolution of one of the
ultimate issues in this case — ownership rights — a prerequisite
to determining whether Locke is currently in violation of DR
5-103(a). If plaintiff ultimately prevails on that issue, it
would then be too late to retroactively disqualify Locke.
The point, then, is not whether plaintiff or defendant is the
actual owner of the equipment, but that Sauer and Locke believe
that they are now the joint owners. It is not who "really" owns
the equipment that creates a conflict of interest here, but the
perceived ownership. If Locke believes that he is a one-third
owner of the equipment, which his letter to Xerox certainly
indicates that he does, it is that subjective belief that could
affect his judgment in pursuing this action and in defending
against Xerox's counterclaims. See Bianchi v. Mille,
698 N.Y.S.2d 545, 546 (2d Dep't 1999) ("It is well settled that an
attorney must avoid not only the fact, but also the appearance of
representing conflicting interests"); Schmidt v. Magnetic Head
Corp., 101 A.D.2d 268, 276, 476 N.Y.S.2d 151 (2d Dep't 1984)
("the [New York] Court of Appeals has noted that `with rare and
conditional exceptions, the lawyer may not place himself in a
position where a conflicting interest may, even inadvertently,
affect or give the appearance of affecting, the obligations of
the professional relationship'" (citing Matter of Kelly,
23 N.Y.2d 368, 376, 296 N.Y.S.2d 937, 244 N.E.2d 456 (1968))).
Indeed, at page 9 of his memorandum submitted in opposition to
defendant's motion to disqualify, plaintiff states that the July
14, 1999 letter from Sauer and Locke to Xerox did not run afoul
of DR 7-104's proscription against directly communicating with a
party because "Mr. Locke communicated in writing with Defendant
not in his capacity as attorney for Plaintiff, but rather, as the
putative owner of the Equipment." (Emphasis added.) Plaintiff
cannot have it both ways, arguing that no DR 5-103 violation
exists because Locke has no ownership interest in the equipment,
but that Locke did not violate DR 7-104 because he sent the
letter in his capacity as an owner, putative or otherwise.
While I therefore conclude that the Magistrate Judge correctly
determined Locke to be in violation of DR 5-103(a), I am not
convinced that disqualification is the best remedy. This action,
which has been pending since 1995, is in its advanced stages, and
forcing plaintiff to find new counsel at this point would further
delay resolution of the remaining issues, as well as work some
hardship upon plaintiff. Faced with a similar situation, the
court in Landsman v. Moss, 180 A.D.2d 718, 720-21, 579 N.Y.S.2d 450
(2d Dep't 1992), though finding a violation of DR 5-103(a),
In view of the lengthy history of this action, we .
. . conclude that it was improvident of the [lower]
court to disqualify the plaintiff's counsel and
direct her to retain new counsel. This would serve
only to cause greater delay and expense to the
plaintiff. Present counsel may continue to prosecute
this action on the plaintiff's behalf under a new
retainer agreement which shall not contain any
similarly objectionable contingent fee provisions.
I believe that this course of action, rather than outright
disqualification, would be the wisest one to take here as well.
Accordingly, I will not disqualify Locke from continuing to
represent plaintiff in this action, on condition that within
twenty (20) days of entry of this Decision and Order, he divests
himself completely of all interest in the property that is the
subject of this lawsuit. If Locke fails or refuses to divest
himself, then he is disqualified from acting as counsel.
I have reviewed the record concerning the allegations that
Locke also violated
Disciplinary Rule 7-104. Even if there were a technical violation
of that Rule, I decline to impose sanctions.
Plaintiff's objections to the Report and Recommendation of
Magistrate Judge Feldman issued on November 22, 1999 (Docket Item
282) are denied in part and granted in part. I concur with and
adopt Magistrate Judge Feldman's finding that plaintiff's
attorney, Gordon Locke, is in violation of DR 5-103(a), and
plaintiff's objections to that finding are denied. The Report and
Recommendation is modified, however, to the extent that it
recommends that Locke be disqualified from further representation
of plaintiff in this action. If Gordon Locke, Esq. intends to
continue to act as counsel in this proceeding representing Fred
Sauer, he is hereby ORDERED to divest himself of all interest in
the property that is the subject of this lawsuit, within twenty
(20) days of entry of this Decision and Order. Attorney Locke is
further ORDERED to provide the Court with proof of this
divestiture within seven (7) days of its occurrence. If Locke
fails or refuses to divest himself of the property, then he is
disqualified from acting as counsel.
IT IS SO ORDERED.