United States District Court, E.D. New York
September 20, 2004.
UNITED STATES OF AMERICA,
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
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.
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 interest." Wheat,
486 U.S. at 163. With all this said, it is "notoriously hard" for
courts to predict, especially at the pre-trial stage, what future
conflicts might surface during the course of the criminal trial.
Jones, 2004 U.S. App. LEXIS 17878, at *11.
B. The Government's Grounds for Disqualification
In this case, the Government advances several grounds for the
disqualification of Shechtman and his Firm. The Government states
that Count 22 of the Indictment charges Schlesinger and Niederman
with conspiring to defraud creditors, including NYS Tax, and
using the mails to further the unlawful scheme. The Government
further asserts that it will prove that Schlesinger's alleged
effort to defraud creditors was carried forward by his use of the
Firm to reverse the tax assessment imposed by NYS Tax. As a
result, the Government contends that Shechtman may become an
unsworn witness or possibly a sworn witness because of the Firm's
"unwitting" participation in the alleged fraud. In addition, the
Government asserts that Shechtman and the Firm's prior
representation of Schlesinger impedes on Shechtman's ability to
adequately represent Niederman in this case.
Shechtman counters, among other things, that having been
Niederman's attorney for the past eight months, Niederman would
be severely prejudiced if disqualification is granted. Shechtman
urges this Court to require the Government to explain its theory
of admissibility and determine whether the evidence is likely to
be received. In addition, he states that Niederman had no role in
the alleged scheme to defraud NYS Tax in 2000 and that,
therefore, severance of the trial "almost certainly will be
granted." Even if severance is not granted, Niederman states that
he would have no reason to cross-examine witnesses about the
alleged NYS Tax fraud other than to assert that he did not
participate in it. Furthermore, Shechtman contends that
Schlesinger is prepared to waive any conflict and release him
from any ethical obligation that Shechtman might still owe to
him. Shechtman also states that any proof of his Firm's
involvement could be handled by stipulation or by Mitchell's
C. Actual Conflict of Interest
An attorney may be disqualified because of his "prior
representation of a witness or co-defendant." United States v.
Locascio, 6 F.3d 924, 931 (2d Cir. 1993).
An actual conflict of interest exists when "the attorney's and
defendant's interest diverge with respect to a material factual
or legal issue or to a course of action." Schwarz,
283 F.3d at 91. The Court finds that Shechtman and his Firm have an actual
conflict with regard to their representation of Niederman. The
Government states that it will show that NYS Tax is a charged
victim of the creditor fraud and that Schlesinger provided
several NYS Tax judgments to an attorney attempting to negotiate
a settlement of a bankruptcy judgment against Private Brands,
and, as alleged in the Indictment, were submitted "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 further asserts that Shechtman and his
Firm are implicated in the criminal activity.
The Court finds that the Government has established an actual
conflict in Shechtman and the Firm's representation of Niederman.
Shechtman's prior representation of Schlesinger in proceedings
involving the underlying facts in several counts in the
Indictment provide sufficient support to disqualify him and the
Firm. According to the Government, the evidence will show that
Niederman was a principal player in the fraudulent scheme to
conceal PB's assets from the creditors. The Government therefore
contends that Niederman either knew that his name would be used
by Schlesinger on other documents necessary to carry out the
fraudulent scheme, or reasonably understood that it would occur.
Although it is certainly not clear whether Schlesinger will
testify in this case, that possibility must be considered. In
that situation, the prior representation of Schlesinger may
handicap Shechtman's ability to cross-examine his former client
or negatively comment in closing arguments about Schlesinger's
testimony. See United States v. Gotti, 9 F. Supp. 2d 320, 324
(S.D.N.Y. 1998) (explaining that the attorney-client relationship
with a witness or co-defendant can give rise to a continuing
obligation of confidentiality that may be breached when
confidences are exploited during cross-examination or an
ineffective cross-examination may occur if prior confidences are
respected). By virtue of Shechtman and his Firm's ongoing duty of
loyalty to Schlesinger, they would be unable to shift blame from
Niederman to Schlesinger, which would constrain their
representation of Niederman in this case.
Even if Schlesinger waived the conflict and released Shechtman
from any ethical obligation that Shechtman might still owe him,
remaining counsel to Niederman will still place him and his Firm
in a position with duel agendas. The Government has asserted that
it will show that Schlesinger retained Shechtman and his Firm as
part of his overall scheme to defraud creditors and that
Schlesinger provided them with fraudulent documents. Therefore,
Shechtman may have a personal interest in protecting his and the
Firm's reputation based on their involvement with NYS Tax. As a
result, this may influence Shechtman to pursue certain
representational tactics that favor his own personal interests or
that of his Firm, impeding his ability to effectively represent
In addition, Shechtman may have an incentive to minimize his
own involvement in the alleged criminal activity so that he or
other members of his Firm are not called as actual witnesses in
this case. When a lawyer is in a position to be a witness, a
court has an independent responsibility to preserve the ethical
standards that may require an attorney to withdraw from
representing a client when that lawyer is in a position to be a
witness. See, e.g., N.Y. Jud. Law DR 5-102(A) (McKinney
Even if the attorney is not called, however, he can
still be disqualified, since his performance as an
advocate can be impaired by his relationship to the
events in question. For example, the attorney may be
constrained from making certain arguments on behalf
of his client because of his own involvement, or may
be tempted to minimize his own conduct at the expense
of his client. Moreover, his role as advocate may
give his client an unfair advantage, because the
attorney can subtly impart to the jury his first-hand
knowledge of the events without having to swear an
oath or be subject to cross-examination.
Locascio, 6 F.3d at 933. "Indeed, proof at trial about a
lawyer's conduct may be such that his very presence at counsel
table would itself distort the factfinding process by implying to
the jury the court's endorsement or condonation of that conduct."
United States v. Rahman, 861 F. Supp. 266, 276 (S.D.N.Y. 1994)
(citing United States v. Castellano, 610 F. Supp. 1151, 1167
The Court therefore concludes that no rational defendant in
Niederman's position would knowingly and intelligently desire to
be represented by Shechtman and his Firm based on the serious
conflicts of interest in this case. In addition, even assuming
that the conflict is only a lesser actual or potential conflict
and that Niederman would want to waive such a conflict, the Court
would reject such a waiver, as the conflicts would cast doubt on
the integrity of the judicial process. Accordingly, the
Government's motion to disqualify Shechtman and his Firm is
Based on the foregoing, it is hereby
ORDERED, that the Government's motion to disqualify Paul
Shechtman, Esq. of Stillman & Friedman and the Firm from
continuing to represent the defendant Herman Niederman is
GRANTED; and it is further
ORDERED, that Niederman is directed to retain new counsel
within 30 days from the date of this Order.
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