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United States District Court, S.D. New York

July 16, 2004.


The opinion of the court was delivered by: RICHARD CASEY, District Judge


Laura Parkins ("Plaintiff") sues Brad St. John ("St. John") and Shadow Gold Mali, SARL ("Shadow Gold") (collectively, "Defendants") for securities fraud, common law fraud, and breach of fiduciary duty. Defendants move to dismiss the Complaint pursuant to Rules 12(b)(4) and (5) of the Federal Rules of Civil Procedure alleging: (1) Plaintiff failed to properly serve them and (2) Kenneth Lapatine ("Lapatine"), Plaintiff's counsel who initiated this suit, should be disqualified from the case.*fn1 For the reasons set forth below, Defendants' motion is DENIED.


  In June 1999, Plaintiff attended an art opening in New York, where she met St. John, an officer, director, and shareholder of Shadow Gold. At this initial meeting and over the course of several months, St. John encouraged Plaintiff to invest in Shadow Gold, a Malian corporation that purportedly conducted gold mining activities in Korindji, Mali. Plaintiff, however, alleges that she later learned that Shadow Gold served as a vehicle through which St. John defrauded investors to support his lavish lifestyle. In November 1999, Plaintiff became one of those investors, tendering $500,000 to Shadow Gold for a 20% interest in the company. Plaintiff informed Lapatine of the investment agreement for the first time in April 2000.*fn2 In the months thereafter, Lapatine, as Plaintiff's attorney, interacted with Defendants on the following occasions.

  On May 24, 2000, Lapatine wrote to Shadow Gold's Malian counsel, requesting that Shadow Gold's by-laws be amended to incorporate provisions related to Plaintiff's investments in the company. In one provision, Lapatine earmarked a portion of Plaintiff's investment for the purchase of a 6% interest in Shadow Gold, payable to Lapatine. Another provision provided that Lapatine would act as a "consultant" to Shadow Gold for two years without compensation.

  On June 27, 2000, Lapatine wrote to St. John on Plaintiff's behalf requesting information about Shadow Gold's mining permits. He also drafted a note and Pledge Agreement (subsequently executed on August 9, 2000) which secured a $1 million loan Plaintiff made to Shadow Gold.

  In August 2000 and December 2000, Lapatine met with Shadow Gold representatives in Bamako, Mali. Specifically, in August 2000, Lapatine attended Shadow Gold's General Assembly meeting. At that meeting, Shadow Gold's bylaws were amended to reflect and memorialize Plaintiff's investment in the company. Later, in December 2000, Lapatine again traveled to Mali to discuss the restructuring of Shadow Gold with its Malian counsel, Met. Sangare. At the end of his December visit, Lapatine accompanied St. John to Paris to meet with a third-party who claimed to represent investors interested in the project. The third-party, however, failed to appear. Lapatine claims that he made it clear on both occasions that he was in Bamako to represent Plaintiff's interests in Shadow Gold. In December 2000, Lapatine drafted for Plaintiff a demand upon Shadow Gold that it make immediate payment of its debt to her and a Deed in Lieu of Foreclosure seeking title to all of Shadow Gold's assets pledged to her in the August 9, 2000 Pledge Agreement.

  On March 21, 2001, Lapatine drafted an agreement on Plaintiff's behalf providing for surrender of all of St. John's interest in Shadow Gold to Plaintiff. The agreement was executed on March 21, 2001. One week later, on March 28, 2001, Lapatine engaged local Malian counsel to enforce Plaintiff's rights under the agreements described above. Thereafter, Plaintiff commenced this action.

  Eight days after initiating this suit, St. John was served with a copy of the Summons and Complaint at an address he listed with the Connecticut Department of Motor Vehicles. The process server hand-delivered each document to Tonetta Mazziotto, who identified herself as St. John's sister. Thereafter, the process server timely mailed another copy of the Summons and Complaint to St. John at the same address in an envelope marked "Personal and Confidential."

  On January 4, 2002, Plaintiff, through the Clerk of the Court, mailed copies of the Summons and Complaint to Shadow Gold at its address in Bamako, Mali. The Summons and Complaint were sent by registered mail, return receipt requested, but Shadow Gold claims to have never received it. In an attempt to cure any deficiency in the previous attempt to serve Shadow Gold, on September 10, 2002, Plaintiff served Shadow Gold through a local Malian process server.


  A. Service on St. John

  Service upon an individual may be effected in any judicial district of the United States "pursuant to the law of the state in which the district court is located, or in which service is effected, for the service of a summons upon the defendant in an action brought in the courts of general jurisdiction of the State." Fed. R. Civ. P. 4(e)(1). In this case, Plaintiff opted to serve defendant pursuant to New York law. To that end, Plaintiff delivered a copy of the Summons and Complaint to an address listed on St. John's driver's license and mailed another copy thirteen days later to the same address in an envelope marked "Personal and Confidential." These actions conform with the service requirements dictated by New York state law. See N.Y.C.P.L.R. § 313 (McKinney 2003) (providing that a person subject to the jurisdiction of the New York state courts may be served outside the state in the same manner as service is made within the state); id. § 308(2) (permitting personal service by delivery of a copy of the summons to a person of suitable age and discretion at the defendant's usual place of abode and then mailing a copy to the last known address in an envelope marked "personal and confidential"). A person's usual place of abode may be inferred from the address listed on a valid driver's license. See Montes v. Seda, 208 A.D.2d 388, 388 (App. Div. 1994); SEC v. Reynolds, No. 96-6073, 1996 WL 599797, at *6 (2d Cir. Oct. 18, 1996). Therefore, St. John was properly served; Defendants' motion to dismiss the claims against him based on improper service is denied.

  B. Service on Shadow Gold

  Service upon a foreign corporation may be made: (1) "by any internationally agreed means reasonably calculated to give notice, such as those means authorized by the Hague Convention"; (2) "in the manner prescribed by the law of the foreign country for service in that country in an action in any of its courts of general jurisdiction"; or (3) unless prohibited by the law of the foreign country, by "any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the party to be served. . . ." Fed.R.Civ.P. 4(f)(1), (2)(a), (2)(c)(2), and (h). Plaintiff effected service by mail through the Clerk of the Court on January 4, 2002, in accordance with Rule 4(f)(2)(c)(2). Plaintiff offers affidavits discussing inquiries made of Malian government officials as to the legality of such service in Mali and their opinion that service was proper. However, Defendants claim that Shadow Gold never received the Summons and Complaint.

  To correct any alleged insufficiency, Plaintiff retained Malian counsel and re-served Shadow Gold pursuant to Malian law. Such service was completed on September 10, 2002 when a copy of the Summons and Complaint was hand-delivered to Jeanne Saade, Shadow Gold's general manager. The service was documented by the process server in a French language Proof of Service document, which Ms. Saade signed to indicate receipt. Shadow Gold contests the procedural validity of this supplemental service on the basis that the Rule 4(m) time limit for service had expired before September 10, 2002. Courts, however, have consistently recognized that the 120-day time limit does not apply to service in foreign countries of individual or corporate defendants. See Yellowcave Corp. v. Mana, No. 00 Civ. 2267, 2000 U.S. Dist. LEXIS 14813, at *6 (S.D.N.Y. Oct. 11, 2000). Because service of process is not subject to the 120-day time limit, dismissal at this juncture would be inappropriate. Service on Shadow Gold was proper. Therefore, the motion to dismiss the claims against it is denied.

  C. Disqualification

  Defendants assert that Lapatine served as counsel for Defendants, during which time he was exposed to confidential materials such that there exists an inherent conflict of interest necessitating his disqualification. Only in rare cases should a client be separated from his chosen attorney. See First Hawaiian Bank v. Russell & Volkening, 861 F. Supp. 233, 237 (S.D.N.Y. 1994) (citing Bennett Silvershein Assocs. v. Furman, 776 F. Supp. 800, 802 (S.D.N.Y. 1991)). Indeed, the party seeking disqualification carries a heavy burden, and must meet a high standard of proof before a lawyer is disqualified. Id. As stated below, Defendants fail to carry this burden.

  Canon 9 of the New York Code of Professional Responsibility ("N.Y.C.P.R.") admonishes attorneys to avoid even the appearance of impropriety. Standing alone, however, Canon 9 will not serve as the basis for attorney disqualification. See Hartford Accident & Indem. Co. v. RJR Nabisco, Inc., 721 F. Supp. 534, 538 (S.D.N.Y. 1989). Rather, a movant seeking to disqualify opposing counsel on conflict of interest grounds must establish three elements under Canon 4 of the N.Y.C.P.R., namely that: (1) the party is a former client of the attorney; (2) the attorney had access to, or was likely to have had access to, relevant privileged information in the course of the alleged prior representations; and (3) there is a substantial relationship between the subject matter of the (alleged) prior representation and the issues in the instant action. When applying this test, courts must carefully review the relevant facts. See First Hawaiian Bank, 861 F. Supp. at 237-38. Each prong is discussed in turn.

  1. Attorney-Client Relationship

  The parties disagree as to whether Lapatine previously represented Shadow Gold: Plaintiff contends that he did not while Defendants suggest otherwise. There is no single, well-defined test used to determine whether an attorney-client relationship exists; rather, a court must weigh a number of factors, including among others: (1) whether a fee arrangement was entered into or a fee paid; (2) whether a written contract or retainer agreement exists indicating that the attorney accepted representation; and (3) whether the purported client believes that the attorney was representing him and whether this belief is reasonable. See id. at 238. With these factors as a guide, the Court concludes that Defendants have failed to carry their heavy burden of demonstrating that Lapatine was Shadow Gold's attorney.

  Plaintiff asserts that Lapatine at all times served as attorney for her and never for Defendants. In support of her contention, Plaintiff offers evidence that no fee arrangement was ever entered into, nor did Defendants ever pay Lapatine any fee. In fact, all of Lapatine's legal invoices were issued directly to Plaintiff.

  Defendants counter that Lapatine entered into a "retainer arrangement" with Shadow Gold by accepting shares in the company. Even if such an arrangement did exist, its terms were less than clear. Neither party has introduced evidence of a formalized written contract laying-out the terms of the purported arrangement. Defendants contend that Lapatine accepted a twenty-part share, or approximately six percent, of the Shadow Gold corporation in exchange for his commitment to provide future legal services to Shadow Gold for two years. Plaintiff does not contest the fact that Lapatine accepted the shares, but she does assert that Lapatine only agreed to provide business (not legal) advice to Shadow Gold. Lapatine referenced the disputed arrangement in his suggested amendments to the Shadow Gold bylaws, which are attached to his letter dated May 24, 2000. In the suggested amendments, Lapatine indicated that his share in Shadow Gold would derive from a portion of the capital contributed by Plaintiff and that such portion would be issued as a consulting fee. However, the meaning of "consulting" in this context remains unclear. Likewise, whether Lapatine actually agreed to represent Defendants by accepting a retainer is unclear from the record.

  As to whether Defendants reasonably believed that Lapatine served as their legal counsel, the evidence slightly weighs in favor of Plaintiff. Defendants claim that they relied on Lapatine's counsel with regard to fund raising. Defendants allege that Lapatine was privy to confidential company information and that he offered legal advice that Defendants followed. Defendants do not, however, indicate with any specificity the nature of the confidential company information supposedly obtained, nor do they provide any concrete examples of the legal advice Lapatine rendered in support of their allegations. "No attorney-client relationship [may] be inferred from mere access to documents; such access is not necessarily inconsistent with an adversarial relationship." Id. at 239 (citing Evans v. Artek Sys. Corp., 715 F.2d 788, 793 (2d Cir. 1983)).

  Furthermore, Plaintiff urges that Lapatine made his adverse position clear in his communications with Defendants between April 2000 and March 2001. Beginning with his May 24, 2000 letter and continuing through 2001 and 2002, Lapatine made written and oral representations indicating that he represented Plaintiff's interests, adverse to Defendants. Lapatine's behavior and his communications with Defendants enforce the fact that he represented Plaintiff's interests alone. Defendants have failed to carry their heavy burden of demonstrating that under such circumstances it was reasonable for them to believe that Lapatine served as their attorney.

  Therefore, Defendants fail to conclusively establish that Lapatine served as their attorney. For this independent reason, the Court concludes that Defendants have failed to carry their burden of demonstrating that disqualification is warranted.

  2. Confidential Information

  Having determined that Defendants have failed to show a previous attorney-client relationship between Lapatine and them, the Court need proceed no further in its disqualification analysis. Nevertheless, even assuming that Defendants had established that they are Lapatine's former clients, disqualification would still be unwarranted. The second part of the disqualification inquiry requires evidence that the attorney had access to, or was likely to have had access to, relevant privileged information in the course of the alleged prior representations. This inquiry operates at the threshold of prong three: "Before the substantial relationship test is even implicated, it must be shown that the attorney was in a position where he could have received information which his former client might reasonably have assumed the attorney would withhold from his present client." See Cohen v. Acorn Int'l Ltd., 921 F. Supp. 1062, 1064 (S.D.N.Y. 1995).

  Defendants contend that Lapatine was privy to confidential information about Shadow Gold in the course of his alleged prior representation of them that would be relevant in this case. Even assuming Lapatine had represented Defendant at some point, it is indisputable that he represented Plaintiff as well; that he established his relationship with Plaintiff before establishing any relationship with Defendants; and that his representation of Plaintiff was open, continuous, and adverse to Defendants' interests. Under such circumstances, Defendants' disqualification motion must be denied. See C.A.M., s.p.a.v. E.B. Marks Music, Inc., 558 F. Supp. 57, 59 (S.D.N.Y. 1983) (citing Allegaert v. Perot, 565 F.2d 246 (2d Cir. 1977)).

  Because Defendants should have been aware of Lapatine's continuous representation of Plaintiff, they could not have reasonably expected confidentiality with respect to information disclosed to Lapatine. Defendants, therefore, fail to satisfy the second element of the attorney-disqualification test. Such failure is further evidence that Defendants have not met the heavy burden required to warrant attorney disqualification. 3. Substantial Relationship

  The third prong for disqualification requires a substantial relationship between the subject matter of the alleged prior representation and the issues in the instant action. Assuming arguendo that the first two factors had been satisfied, Defendants fail to satisfy the substantial relationship element of the disqualification test. The substantial relationship prong requires a showing that the relationship between the issues in the prior and present cases is "patently clear," that is, that the issues involved are "identical" or "essentially the same." See Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978).

  As a preliminary matter, the Court notes that substantial relationship questions generally involve situations in which an attorney acquired information in the process of defending a client against a lawsuit, and later brought suit against that client on substantially the same issue. See, e.g., id. at 737; GAF Corp. v. Heyman, 559 F. Supp. 748 (S.D.N.Y. 1983). That is not the case in the present situation. Lapatine never served as defense counsel to Shadow Gold in a lawsuit alleging fraud; he never defended Shadow Gold in any lawsuit at all. If Lapatine did in fact render any legal services to Defendants, Defendants concede that such services related exclusively to fund-raising advice and strategy.

  Defendants allege that Plaintiff's case is based on fraudulent fund-raising activities that occurred during Lapatine's alleged involvement as a fund-raising adviser to Shadow Gold. The record, however, does not support this contention. The subject matter of the present action concerns an alleged scheme by Defendants to fraudulently induce Plaintiff to invest in Shadow Gold before April 2000 — the month that Plaintiff first approached Lapatine concerning her dealings with Defendant. Temporally, Lapatine's alleged interactions, advice, or activities concerning fund-raising for Shadow Gold in the months after April 2000 bear no relationship at all — much less a substantial one — to the issue at hand, namely, Defendants' fund-raising interactions with Plaintiff in 1999 and early 2000. Defendants' motion, therefore, would also fail the third prong of the attorney disqualification test.

  4. Advocate-Witness Rule

  Defendants supplement their effort to disqualify Lapatine by arguing that Lapatine will be called as a material witness at trial. "Disqualification motions premised on the advocate-witness rule are subject to strict scrutiny because of the `strong potential for abuse' when a lawyer invokes the need to call opposing counsel as a witness and then acts to disqualify him as counsel." Stratavest Ltd. v. Rogers, 903 F. Supp. 663, 667 (S.D.N.Y. 1995) (quoting Russo v. Friedman, No. 91 Civ. 6913, 1992 WL 196791, at *9 (S.D.N.Y. July 31, 1992)); Parke-Hayden, Inc. v. Loews Theatre Mgmt. Corp., 794 F. Supp. 525, 527 (S.D.N.Y. 1992). To disqualify Lapatine on the basis of the advocate-witness rule, Defendants must demonstrate that Lapatine's testimony is necessary, and that the testimony is substantially likely to be prejudicial to them. See id. The moving party bears the burden of demonstrating how and as to what issues in the case the prejudice may occur and that the likelihood of prejudice occurring is substantial. See April Broad. Inc. v. Smith, No. 95 Civ. 7664, 1996 WL 137487, at *18 (S.D.N.Y. Mar. 27, 1996) (citing Lamborn v. Dittmer, 873 F.2d 522, 531 (2d Cir. 1989)). Defendants offer no definite explanation at this time as to how Lapatine's testimony would bear prejudicially on the issue of Defendants' alleged fraud before April 2000. In any event, disqualification based upon the advocate-witness rule is premature at this point in the case. The rule contemplates withdrawal prior to trial to prevent lawyers from obtaining an improper advantage for their clients at trial by "certifying their own credibility" to a jury by making statements in summation that would be taken by a jury as indistinguishable from testimony. See Suarez v. Washington Beef Co. of New York, No. 91 Civ. 1395, 1992 WL 163186, at *3-4 (S.D.N.Y. June 22, 1992). The rule is not breached simply because the attorney in question commenced the action against Defendants, nor does the rule require withdrawal or disqualification at this point in the case. Accordingly, Defendants motion to disqualify Lapatine under the advocate-witness rule is denied.


  For the foregoing reasons, Defendants' motion to dismiss is DENIED. The parties are directed to appear for a conference on August 13, 2004 at 9:30 a.m.

  So Ordered.

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