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March 9, 2001


The opinion of the court was delivered by: Garaufis, District Judge.

Now before this court are objections to Magistrate Judge Viktor Pohorelsky's recommendation that Defendants' motion for disqualification of counsel on the grounds of ethical violations be denied in its entirety, and objections to Judge Pohorelsky's denial of several orders seeking discovery of the retainer agreements entered into by Plaintiffs and certain of Plaintiffs' counsel in the above-captioned cases and other information in connection therewith. (Dec. 21, 2000 Tr. 91-99; Order dated Jan. 12, 2001; Order dated Feb. 2, 2001.) For the reasons set forth below, this court adopts the magistrate's recommendation, denies Defendants' motion for disqualification. and affirms his discovery orders.

I. Procedural and Factual Background

The above-captioned cases, which are distinct and have been consolidated for administrative purposes, have been brought by numerous political subdivisions of the Republic of Colombia (the "Amazonas Case"), and by the European Community (the "EC Case"), against major global producers of cigarettes. Plaintiffs in the Amazonas Case have sued Philip Morris Companies, Inc. and several of its affiliated corporate entities (the "PM Defendants"), BAT Industries P.L.C. and several of its affiliates, and Brown & Williamson Tobacco Corporation. Plaintiffs in the EC Case have sued Philip Morris Companies, Inc. and several of its affiliates, and several companies related to R.J. Reynolds Tobacco Company. Plaintiffs' claims in both cases are brought under the Racketeer Influenced and Corrupt Practices Act, 18 U.S.C. § 1961-68 ("RICO"). The complaints allege, inter alia. that these tobacco companies have caused injury to Plaintiffs' economic interests by conspiring to sell cigarettes to distributors knowing that they would ultimately be smuggled into Plaintiffs' respective territories without payment of required taxes and duties. In both cases, Plaintiffs allege numerous violations of RICO and state common law, including, but not limited to, racketeering, money laundering, wire and mail fraud, conspiracy, fraud, public nuisance, unjust enrichment, negligence and negligent misrepresentation.

The subject of disqualification was raised for the first time in this case on October 13, 2000 at oral argument on Philip Morris' motion for a stay of the Amazonas Case and on Plaintiffs' motion to preserve evidence. At the outset of that bearing Irvin Nathan, counsel for the PM Defendants, stated that he considered it his obligation to raise, before addressing the issues scheduled to be discussed on that date and with less than one day's notice to Plaintiffs' counsel and without any notice to the court, "serious questions" pertaining to the retainer agreement between the Department of Boyaca, which is one of the Departments*fn1 of the Republic of Colombia which have brought suit against the tobacco companies, and Plaintiffs' counsel (the "Boyaca Retainer").*fn2 (Oct. 13, 2000 Tr. 8.) Noting that such agreements "are filed publicly in Colombia, apparently under Colombian law,"*fn3 (Id.), counsel asserted that the Boyaca Retainer "ha[s] a number of peculiar provisions which are inconsistent and in violation of the Canons of Ethics that are governing in New York, applicable in the Eastern District of New York and also in violation of the New York State Statute against Champerty." (Id. 7-8.) Because both Plaintiffs and this court effectively lacked notice of Defendants' intention to raise alleged ethical violations arising from the Boyaca Retainer, the matter was adjourned pending further correspondence between the parties and deliberation by the court.

Further correspondence between counsel made clear that Defendants would move to disqualify Plaintiffs' attorneys. Thus, on November 1, 2000, I ordered an expedited briefing schedule for the impending motion. The parties were instructed to address the following points, in addition to any other arguments they might have seen fit to make: (1) why the ethical violations alleged in the PM Defendants' letters to Plaintiffs' counsel and to this court should or should not be raised before the Committee on Grievances, as set forth in the Local Rules of the limited States District Courts for the Southern and Eastern Districts of New York; and (2) the applicability to this motion of the standard, adopted by the Second Circuit, calling for disqualification of counsel "only upon a finding that the presence of a particular counsel will taint the trial by affecting his or her presentation of a case." See Bottaro v. Hatton Assocs., 680 F.2d 895, 896 (2d Cir. 1982). (Order dated Nov. 1, 2000 at 1.)

Defendants' motion, styled a "motion to disqualify counsel and dismiss complaints for prejudicial ethical violations by Plaintiffs' attorneys," was fully briefed and submitted as of November 22, 2000. I referred the motion shortly thereafter, at a status conference on November 27, 2000, to Magistrate Judge Pohorelsky for a report and recommendation. In connection with the referral, counsel for Defendants sought an order directing Plaintiffs to submit a copy of the retainer agreement between Plaintiffs and their counsel in the EC Case to Judge Pohorelsky for in camera review, in order to determine whether or not the ethical issues raised in connection with the Amazonas Case were likely to arise in the EC Case also. (Nov. 27, 2000 Tr. 23.) I referred this request to the magistrate as well. (Id. 24.)

In their motion papers, Defendants attacked numerous provisions of the Boyaca Retainer, as well as the BERG Agreement. In general terms, Defendants complained that three aspects of these agreements present ethical problems: (1) provisions of the Boyaca Retainer describing the nature and scope of the attorneys' financial responsibilities; (2) provisions of the Boyaca Retainer describing the degree of control to be exercised by the attorneys over the litigation; and (3) the contingent fee described in the BERG Agreement and its relation to the Boyaca Retainer. In particular, Defendants argued that the following characteristics of the agreements at issue offend the ethical rules governing the conduct of attorneys practicing in this district:

1. The costs covered by the Attorneys encompass all costs and expenses of litigation, including the costs of an investigation firm which had been hired and the fees of additional attorneys.
2. The client bears no responsibility to repay the expenses assumed by counsel unless there is a recovery in the lawsuit, in which case the expenses will be paid from the recovery.
3. The attorneys guarantee payment of other expenses that may arise in connection with the litigation against the tobacco companies, including any court order to pay Defendants' attorneys' fees and costs, and any judgment in a counterclaim brought against the client for defamation, libel or slander or for the abuse of the right to sue, and the costs of defending such a counterclaim.
4. BERG is to receive from the client a contingency fee of three percent, and its expenses during the pendency of this litigation are to be paid by the attorneys.
5. The client is required to maintain the confidentiality of information provided by the attorneys, which is designated as the property of the attorneys.
6. The client cedes to the attorneys control over certain aspects of the strategy to be implemented in conducting this and other, related litigation, grants the attorneys the right to withdraw in the event that the client fails to cooperate substantially with the attorneys in prosecuting the action, and agrees not to interfere with the attorneys' defense of any counterclaim brought against the client in connection with this case.

On December 21, 2000 Magistrate Judge Pohorelsky recommended, from the bench, that Defendants' motion be denied in its entirety. Rejecting Defendants' argument that the standard articulated by the Second Circuit in the Bottaro line of cases had been relaxed to, in effect, require a lesser showing to support disqualification, the magistrate succinctly stated the analysis to be applied to Defendants' motion: "the question before this Court is not whether ethical violations have occurred. The question is whether any ethical violations that may have occurred because of the particular attorneys' representation of the particular clients here are of [such] a character that they taint the trial process." (Dec. 21, 2000 Tr. 92.) Noting that Defendants' allegations of ethical misconduct did not bring this case within either of the categories of cases in which the Second Circuit, "with rare exceptions," has ordered disqualification, see Board of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979), and specifically rejecting the contention that the institution of a lawsuit constitutes prejudice to an adversary, Ceramco, Inc. v. Lee Pharmaceuticals, 510 F.2d 268, 271 (2d Cir. 1975), Magistrate Judge Pohorelsky proceeded to assess each of the alleged ethical violations in light of the "taint" standard espoused by the Second Circuit. In each instance, the magistrate concluded that application of controlling caselaw did not support granting the relief sought.

Prior to the magistrate's issuance of his recommendation, Defendants renewed their request seeking disclosure of the retainer agreement in the EC Case, (Dec. 21, 2000 Tr. 6.), and also sought limited discovery regarding the relationship between the Plaintiffs and counsel in both cases. (Id. 82-88.) The magistrate denied these requests, except for one, ordering submission of the retainer agreement in the EC Case for in camera review. (Id. 99-102.) Upon review of the EC retainer agreement "under the same analysis employed by the court in its earlier ruling regarding the disqualification motion made in this case," the magistrate found no basis for either disclosure of the BC retainer or for the court to take further action regarding the representation of plaintiff in the BC case. (Order dated Jan. 12, 2001 at 1-2.) The Judge further ordered submission of the remaining retainer agreements entered into between counsel and the various Departments of Colombia in the Amazonas Case for in camera review. (Id.) Upon review of those ...

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