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U.S. v. SCHLESINGER

September 20, 2004.

UNITED STATES OF AMERICA,
v.
NAT SCHLESINGER, HERMAN NIEDERMAN, and GOODMARK INDUSTRIES, INC., Defendants.



The opinion of the court was delivered by: ARTHUR SPATT, District Judge

MEMORANDUM OF ORDER AND DECISION

This case involves charges of fraud, among other things. The Government moves to disqualify Attorney Paul Shechtman ("Shechtman" or "counsel") of Stillman & Friedman (the "Firm") from representing defendant Herman Niederman ("Niederman") because of Shechtman's prior representation of co-defendant Nat Schlesinger ("Schlesinger").

I. BACKGROUND

  The superceding indictment ("Indictment") alleges that Schlesinger and Niederman devised and executed a scheme to defraud creditors and various lien and judgment holders of a publicly traded company known as Private Brands ("PB"). The Indictment charges the defendants with engaging in a series of fraudulent business transactions to give the false appearance to creditors that title to PB's assets had been conveyed to C.C. Calabria ("Calabria") and thereafter to defendant Goodmark Industries ("Goodmark"), and that both were independent entities unrelated to PB. According to the Government, the actual nature of these transactions was to conceal the true ownership of PB's assets. Niederman's alleged participation in the overall scheme involved opening bank accounts and signing letters to PB's creditors as "secretary" of Goodmark to give creditors the impression that PB and Goodmark were unrelated entities by representing that Goodmark had taken over PB's business.

  The Indictment alleges that one of the creditors defrauded by Schlesinger's scheme to defraud was the New York State Department of Taxation and Finance ("NYS Tax"). Counts 22-24 of the Indictment allege that, in February 2000, NYS Tax found Schlesinger "a responsible person" of PB and personally assessed him for taxes owed by PB to New York State.

  To reverse the tax assessment and contest the finding that he was responsible for PB's unpaid taxes, Schlesinger retained Shechtman and his Firm. As evidenced by correspondence with NYS Tax on behalf of Schlesinger, both Shechtman and his partner James Mitchell ("Mitchell") represented Schlesinger. The Government has obtained five letters to NYS Tax between March 2000 and December 2001 written by Mitchell, and one letter to NYS Tax, dated November 22, 2000, written by Shechtman. In Shechtman's letter, he referred to prior correspondence between Mitchell and NYS Tax, which evinces his familiarity with the history of communications between the parties regarding the assessment. The Shechtman letter referred to Schlesinger as "my client" and commented on the "numerous" phone calls "we" had made to NYS Tax. The Government contends that the letter indicates that Shechtman was fully apprised of the facts of Schlesinger's case. The Government also claims that, based upon false information provided by Schlesinger, the Firm was able to reverse the assessment. In addition, the Government states that the Firm's submissions to NYS Tax falsely represented that Schlesinger did not have any responsibility or role in the financial or tax related affairs of PB.

  The Government states that NYS Tax was one of the lien and judgment holders of PB and that it will prove that NYS Tax is a charged victim of the creditor fraud. In addition, the Government asserts that its evidence will show that Schlesinger provided several NYS Tax judgments to an attorney attempting to negotiate a settlement of a bankruptcy judgment against PB. The Indictment alleges that Schlesinger submitted these "for the purpose of delaying enforcement of the Bankruptcy Judgment against Private Brands and Bali Jewelry until SCHLESINGER could complete the fraudulent transfer of title to the PB Collateral to Calabria." The Government claims that Schlesinger retained the Firm as part of his overall scheme to defraud PB creditors, and that letters written by Shechtman and Mitchell on Schlesinger's behalf were in furtherance of the charged mail fraud conspiracy.

  II. DISCUSSION

  A. The Right to Conflict-Free Counsel

  The Sixth Amendment guarantees that "in all criminal prosecutions, the accused shall enjoy the right . . . to have the Assistance of Counsel for his defense." U.S. Const. amend. VI. However, a defendant's right to be represented by the counsel of his own choice is not absolute. Wheat v. United States, 486 U.S. 153, 159, 100 L. Ed. 2d 140, 108 S. Ct. 1692 (1988); United States v. Locascio, 6 F.3d 924, 931 (2d Cir. 1993). As the Supreme Court explained, "[t]he essential aim of the Amendment is to guarantee an effective advocate for each criminal defendant rather than to ensure that a defendant will inexorably be represented by the lawyer whom he prefers." Wheat, 486 U.S. at 159.

  Included in the Sixth Amendment right to assistance of counsel is the right to be represented by counsel who is free of conflict. United States v. Schwarz, 283 F.3d 76, 90 (2d Cir. 2002). Thus, while a defendant's choice of counsel is presumptively favored, "such presumption will be overcome by a showing of an actual conflict or a potentially serious conflict." United States v. Jones, Nos. 01-1001, 01-1668, 2004 U.S. App. LEXIS 17878, at *10 (2d Cir. Aug. 23, 2004). Once the district court has been informed of the possibility of conflict of interest, it has a duty to "to investigate the facts and the details of the attorney's interest to determine whether the attorney in fact suffers from an actual conflict, a potential conflict, or no genuine conflict at all." United States v. Levy, 25 F.3d 146, 153 (2d Cir. 1994).

  An attorney has an actual conflict of interest if his "and the defendant's interests `diverge with respect to a material factual or legal issue or to a course of action,' or when the attorney's representation of the defendant is impaired by loyalty owed to a prior client." Jones, 2004 U.S. App. LEXIS 17878, at *11 (quoting United States v. Feyrer, 333 F.3d 110, 116 (2d Cir. 2003)). A potential conflict of interest exists if "the interests of the defendant may place the attorney under inconsistent duties at some time in the future." United States v. Kliti, 156 F.3d 150, 153 n. 3 (2d Cir. 1998).

  If the court determines that counsel has a conflict of interest, it must eliminate it through either disqualification or waiver. Id. at 153. Where an actual or severe conflict is so strong that "no rational defendant would knowingly and intelligently desire the conflicted lawyer's representation," the court is obligated to disqualify the attorney. Levy, 25 F.3d at 153. Such conflicts are unwaivable. Kliti, 156 F.3d at 153. If a lesser actual or potential conflict exists, a district court may accept the defendant's knowing and intelligent waiver of his right to a non-conflicted lawyer. United States v. Perez, 325 F.3d 115, 125-28 (2d Cir. 2003). In obtaining a defendant's waiver, a district court follows the procedures outlined in United States v. Curcio, 680 F.2d 881, 888-90 (2d Cir. 1982). However, if the attorney's conflict jeopardizes the integrity of the judicial proceedings, the district court has "substantial latitude in refusing waivers of conflicts of ...


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