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DOMINICA MGMT, v. AM. UNIV. OF ANTIGUA COLLEGE OF MEDICINE

June 13, 2005.

DOMINICA MANAGEMENT, INC., Plaintiff,
v.
AMERICAN UNIVERSITY OF ANTIGUA COLLEGE OF MEDICINE, NEAL S. SIMON and SOL WELTMAN, Defendants.



The opinion of the court was delivered by: FRANK MAAS, Magistrate Judge

MEMORANDUM DECISION AND ORDER

This lawsuit involves two competing medical schools in the Carribean: Ross University School of Medicine ("RU"), located on the island of Dominica, and the American University of Antigua College of Medicine ("AUA"), on the island of Antigua. The suit was commenced by Dominica Management, Inc. ("DMI"), which previously had a management contract to provide services to, and now is also an indirect owner of, RU. The matter comes before the Court on DMI's motion to disqualify Leonard A. Sclafani, Esq., and his firm, Polatsek & Sclafani ("P&S"), from any further representation of one of the defendants in this case. For the reasons set forth below, that motion is denied. I. Background

  RU has been in operation for 27 years. (Aff. of John T. St. James, sworn to Feb. __, 2005 ("SJ-I"), ¶ 5).*fn1 AUA was formed in 2001, held its first classes in 2004, and can fairly be described as an unwelcome competitor of RU. (See id. ¶ 9). The complaint names three defendants: AUA; Neal S. Simon ("Simon"), the President of AUA, who previously served as President and General Counsel of RU and as an employee of DMI; and Sol Weltman ("Weltman"), whom the complaint describes as a former computer programmer in the information technology department of DMI. (Compl. ¶¶ 5, 24-28, 38-40).

  The complaint alleges, inter alia, that AUA and Simon (a) wilfully infringed RU's 2002 Student Handbook, which was copyrighted by DMI; (b) misappropriated a proprietary DMI computer system developed by Weltman and other DMI trade secrets; (c) aided and abetted breaches of the duty of loyalty owed to DMI by its employees; and (d) engaged in unfair competition. (Id. ¶¶ 47-85). Because the parties agreed to engage in limited document and deposition discovery so that DMI could determine whether there was a basis to seek a preliminary injunction, the defendants have not answered and their counsel have yet to enter formal notices of appearance in this case. The first witness deposed by AUA was Weltman. At the outset of that deposition, Mr. Sclafani stated for the record that the full scope of his engagement had yet to be determined, but that he was representing Simon "[f]or the purposes of this deposition" because there appeared to be a conflict between Simon and AUA. (SJ-I, Ex. B at 9-10). The other attorneys attending the deposition — including AUA's counsel — appear not to have voiced any objection to this arrangement. (See id.). Thereafter, however, DMI's counsel wrote to Mr. Sclafani to ask that he and P&S withdraw from the case because they previously had represented both RU and DMI. (Id. Ex. C). The letter from DMI's attorney noted that Simon himself also had been "of counsel" to P&S. (Id.). After Mr. Sclafani declined the request, (id. Ex. D), DMI filed this motion to disqualify him and his firm from further representation of Simon.

  The motion is now fully submitted. (See Docket Nos. 11-17). Because the parties agree as to the applicable legal principles, Simon has not submitted a memorandum of law as part of his opposition papers.

  II. Relevant Facts

  Mr. Sclafani began to represent RU in the mid-1980s, at first individually, and soon thereafter through P&S, his newly-formed firm. (Affirm. of Leonard A. Sclafani, Esq., dated Mar. 4, 2005 (Sclafani Affirm."), ¶ 21). At the outset, the firm's work for RU consisted of bringing collection actions, dealing with landlord-tenant matters, and the prosecution and defense of suits involving suppliers. (Id. ¶ 22). Over time, the firm added to its repertoire the defense of civil rights actions brought by students, tax advice, and corporate work. (Id. ¶ 23). This representation continued until the spring of 2000. (Id. ¶ 24).

  In 1997, P&S incorporated DMI in New York State at the request of Dr. Robert Ross, the President of RU. (See id. ¶¶ 27-28; SJ-I ¶¶ 24, 28 & Ex. E). Dr. Ross was also the sole shareholder of DMI. (SJ-II at ¶ 6).

  In 2000, Dr. Ross sold his controlling interest in both RU and DMI to The Leeds Group ("Leeds"), an investment banking firm. (Sclafani Affirm. ¶ 34; SJ-II ¶ 6). Some time prior to the sale, Dr. Ross entered into a retainer agreement ("Retainer Agreement") with P&S on behalf of RU.*fn2 (SJ-I Ex. G). The Retainer Agreement provided for P&S to act as RU's "general outside counsel and legal representative." (Id.). The Agreement further provided for RU to pay P&S $10,000 per month over a five-year period for legal services, and stated that it could be terminated only for "cause," which was defined as "malpractice, fraud, deceit or dishonesty," or the death or disability of Mr. Sclafani. (Id.). The Agreement was prepared on P&S letterhead, which discloses that, in addition to his other roles, Simon was "of counsel" to P&S. (Id.).

  Although Mr. Sclafani alleges that the sale of RU was expressly made subject to the Retainer Agreement, The Leeds Group declined to continue the retainer arrangement following its acquisition of RU. (Sclafani Affirm. ¶¶ 43, 49). As a consequence, by early summer 2000, P&S had ceased all representation of RU and DMI. (Sclafani Affirm. ¶ 52). Indeed, the only potential legal matter that tied them together was a dispute as to P&S's entitlement to recover the legal fees that it contends remain unpaid pursuant to the Retainer Agreement. (Id.).

  In 2003, Leeds sold RU and DMI to DeVry, Inc. (Id. ¶ 53; SJ-II ¶ 10). It appears that Simon left RU after this second sale occurred and began the steps necessary to form AUA. (Sclafani Affirm. ¶¶ 55-56). Ross remained and was a DMI employee until October 6, 2000, when he was terminated. (SJ-II at 17 & Ex. C). The termination letter states that Ross was fired because of his "dishonesty in submitting a fraudulent [Retainer A]greement to [DMI] and asking [DMI] to honor that [A]greement." (Id. Ex. C).

  II. Discussion

  A. Disqualification

  As the Second Circuit has noted, disqualification motions interfere with the ability of parties to choose their own counsel, often are employed for tactical reasons, and, even in the best of circumstances, cause delay. Bd. of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979); Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978). Accordingly, a party moving for disqualification carries a "heavy burden," Evans v. Artek Sys. Corp., 715 F.2d 788, 794 (2d Cir. 1983), and must satisfy a "high standard of proof." Gov't of India, 569 F.2d at 739. Although the conclusion in any particular case "can be reached only after painstaking analysis of the facts and precise application of precedent," United States v. Standard Oil Co., 136 F. Supp. 345, 367 (S.D.N.Y. 1955), the question ultimately is one of preserving the public's trust in the ...


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