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RELLA v. NORTH ATLANTIC MARINE

November 1, 2004.

FRANK RELLA, Plaintiff,
v.
NORTH ATLANTIC MARINE, LTD d/b/a FREEDOM MARINE, KENNETH TESLER, and GLOBAL YACHTS INTERNATIONAL, LTD., Defendants.



The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

In this action for conversion and breach of a joint venture agreement, plaintiff Frank Rella has brought claims against defendants Global Yachts International Ltd. ("Global") and North American Marine, Ltd., d/b/a Freedom Marine ("Freedom"). Initially aligned together in denial of Rella's claims, Global and Freedom soon brought claims against each other, and now present independent, arguably inconsistent, defenses against Rella's claims. Although the litigation has been pending for over two years, summary judgment motions have been decided, and the case has reached the very eve of trial, at this late date Global has moved to disqualify counsel for Freedom, based on a conflict of interest. The motion will be granted. BACKGROUND

  Many of the facts regarding the underlying litigation are set forth in the Court's earlier opinion on the motions for summary judgment, Rella v. North Atlantic Marine, Ltd., No. 02 Civ. 8573, 2004 WL 1418021 (S.D.N.Y. June 23, 2004), and will not be repeated here. Briefly, Rella contends that Global and Freedom damaged and converted a yacht that he purchased in connection with a joint venture agreement under which Freedom was permitted to use the yacht for demonstration purposes in furtherance of its and Global's efforts to market boats of similar make and model. Summary judgment was awarded against Freedom on Rella's claim for return of his deposit on a second yacht. The claims regarding breach of contract and conversion of Rella's first yacht remain to be tried, and trial has been scheduled for November 29, 2004. In addition to the instant matter, four other lawsuits involving Global and Freedom are pending, in state and federal courts in New Jersey and Florida. (Affidavit of Douglas F. Doyle, dated October 12, 2004 ("Doyle Aff."), ¶ 3.) The record before this Court provides few details of the nature of these actions.

  The facts regarding the disqualification motion are largely undisputed.*fn1 Jay Joseph Friedrich ("Friedrich"), a part owner of Freedom (Certification of Jay Joseph Freidrich, dated October 20, 2004 ("Friedrich Cert."), ¶ 11), initially appeared on behalf of both defendants in this case. (Id. ¶ 3.) At the initial case management conference, however, counsel for plaintiff Rella noted the likely conflict of interest between the two defendants, and suggested that Friedrich reconsider his representation of both parties. (Id.) Friedrich evidently accepted that suggestion, and undertook to represent only Freedom, recommending to Global's principal that he retain Edwards & Caldwell LLC ("E&C"), a law firm where Friedrich's son David was employed as an associate. (Id. ¶ 4.) Douglas Doyle, the managing partner of E&C, entered an appearance on behalf of Global.

  Initially, Global and Freedom appear to have cooperated in opposing Rella's lawsuit, and in negotiating a possible settlement with Rella, although Friedrich acknowledges that there was never a joint defense agreement between the two defendants. (Id. ¶ 7.) In January 2004, in fact, Friedrich formally represented to the Court that the matter had been settled. See Rella, 2004 WL 1418021, at *2. The representation was premature, however, as the settlement was never consummated. See id. at * 3-*4. Following the breakdown in negotiations, the conflict between Global and Freedom ripened into full-blown opposition. (Friedrich Cert. ¶ 14.)

  David Friedrich ("David") actively worked for E&C on behalf of Global in the pending litigation. According to Doyle, David worked on the Rella matter concerning discovery, "strategic decisions about the strengths and weaknesses" of Global's case, preparing "our client's [presumably Gerald Berton, the principal of Global] potential testimony in the event of a trial," and discussing the client's settlement position. (Doyle Aff. ¶ 6.) Billing records submitted by E&C corroborate these assertions, reflecting David's work on discovery, conferences with Berton, engaging in strategy conferences, and drafting motion papers in connection with the summary judgment proceedings. (Id. ¶ 7 & Ex. B.) Freedom does not seriously contest these assertions; significantly, it submits no affidavit or comment of any kind from David Friedrich, and Friedrich père merely asserts some inconsequential quibbles concerning the redaction of the billing records, without indicating any way in which the entirely proper redactions could undermine the uncontested showing of David's work on the case, or otherwise cast light on the matters in question. (Friedrich Cert. ¶ 19.)

  At some point after the breakdown of the settlement discussions and during the course of the summary judgment litigation,*fn2 David Friedrich left E&C and joined his father's law practice, Jay Joseph Friedrich, LLC ("the Friedrich firm").*fn3 While Friedrich asserts that Doyle "understood that [David] would one day join my firm" (Friedrich Cert. ¶ 11), he does not specify when this "understanding" was created, or whether it encompassed the possibility that "one day" would come amidst litigation between clients represented by E&C and Friedrich. Certainly, Friedrich does not contend that either Global or E&C consented to David's participating in litigation against Global that was related to matters on which David had worked at E&C.

  Since joining the Friedrich firm, David has actively worked on litigation in New Jersey in which Global and Freedom are adversaries, and which Freedom itself has characterized as involving similar issues to those in the present litigation. (Doyle Aff. ¶¶ 8, 9.) Although Global has presented no evidence that David has worked directly on the Rella matter, Freedom does not contend that the Friedrich firm has taken any steps to insulate David from the present matter, or to insulate Friedrich from obtaining confidential information about the case from David. Freedom does not dispute Global's assertion that David has worked on other litigation on behalf of Freedom in which Freedom and Global are adversaries, nor does it dispute the accuracy of Global's contention (supported by quotations from Freedom's own papers in that other litigation) that the issues in that case substantially overlap those in the instant case.

  On October 12, 2004, with trial of this case impending, Global moved to disqualify the Friedrich firm from representing Freedom, citing David Friedrich's prior representation of Global in connection with the instant case while employed at E&C, and his apparent active involvement in related litigation adverse to Global since joining the Friedrich firm.

  Friedrich responded to the motion on behalf of Freedom on October 21. That response did nothing to reassure the Court concerning Friedrich's competence or ethical sensitivity. In the first place, the response is scanty and procedurally deficient. It includes no memorandum of law, and indeed refers to no legal authority whatsoever. In its entirety, the response consists of two "certifications," one from Friedrich and one from Kenneth Tesler, the majority shareholder in Freedom. These "certifications" are unsworn, and Tesler's is submitted in the form of a facsimile without an original signature. While unsworn declarations are permitted to substitute for sworn affidavits under federal law, such declarations are required to be attested in "substantially" the form specified by statute, to wit, declaring "under penalty of perjury that the foregoing is true and correct." 28 U.S.C. § 1746. Neither the Tesler nor Friedrich certifications provide this declaration.*fn4

  The substance of the response is equally deficient. As noted above, although the involvement of David Friedrich in this and related litigation is at the heart of this motion, Friedrich submitted no affidavit from David concerning the extent of his work on behalf of Global while at E&C, the extent of his participation (if any) in this matter on behalf of Freedom since joining the Friedrich firm, the nature of his involvement in related matters adverse to Global, or any steps taken by the Friedrich firm to insulate him from this litigation or to prevent the disclosure of any of Global's confidences and secrets to Friedrich or Freedom. Friedrich's own factual response similarly avoids these critical topics, failing to discuss any measures taken to protect Global's confidences, and conspicuously failing to assert that David has not participated in this litigation on behalf of Freedom. Indeed, Friedrich does not even disclose when David joined the Friedrich firm or his status in that firm.*fn5

  In place of a direct response to Global's argument for disqualification, Freedom and Friedrich respond with a melange of allegations about the cozy relations between Freedom and Global while they were united in opposition to Rella, before formally taking opposing positions in this action. (Friedrich Cert. ¶¶ 3-18.) The purported legal significance of these allegations is never made clear, though Freedom appears to be opposing the motion by asserting some combination of waiver, lack of prejudice, and unclean hands.*fn6 Finally, Freedom's response suggests further grounds for concern regarding Friedrich's standard of professional responsibility. First, Friedrich effectively acknowledges that Freedom has failed to comply with this Court's judgment against it and in favor of Rella. (See Friedrich Cert. ¶¶ 21-22; Global Reply Br. 2 n. 1). Friedrich maintains that after trial, the Court will determine that Global must "reimburse" Freedom for the amount of that judgment (Friedrich Cert. ¶ 22), ignoring that fact that Freedom has asserted no claim against Global in this litigation, and has already been ordered to restore the amount of the deposit to Rella. See Rella, 2004 WL 1418021, at *4-*6, *9. Second, while commendably noting that he has taken steps to secure new counsel for Freedom in the event of disqualification (Friedrich Cert. ¶ 24), Friedrich goes on to indicate that if disqualified he nevertheless plans to participate with new counsel in the representation of Freedom, including "sitting at counsel table" during the trial. (Id.) Third, Friedrich inadvertently presents yet another potential ground for disqualification, at least as trial counsel, by indicating that he may well be a relevant witness at the behest of Freedom, Global, and/or Rella. (Id.)

  DISCUSSION

  In considering this disqualification motion, this Court proceeds "cautiously because disqualification represents a drastic measure which has the potential to severely prejudice the client." Siverio v. Lavergne, No. 86 Civ. 6584, 1989 WL 31531, at *3 (S.D.N.Y. Apr. 13, 1989). Nevertheless, courts are obligated both to enforce the ethical standards of the legal profession, and to protect parties from prejudice that may ensue when lawyers who formerly represented them switch sides to represent an adverse party against them. "[A] client's right freely to choose his counsel . . . must be balanced against the need to maintain the highest standards of the profession." Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978). The New York Code of Professional Responsibility specifically provides that "a lawyer who has represented a client in a matter shall not, without the consent of the former client after ...


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