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Team Obsolete Ltd. v. A.H.R.M.A. Ltd.

July 18, 2006

TEAM OBSOLETE LTD., ET AL., PLAINTIFFS,
v.
A.H.R.M.A. LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Levy, United States Magistrate Judge

MEMORANDUM AND ORDER

Plaintiffs Team Obsolete Ltd., Team Obsolete Products, Ltd., Team Obsolete Promotions Inc. and Robert T. Iannucci ("plaintiffs") move for an order disqualifying Edward M. Bendelow, Esq.*fn1 and the Bendelow Law Firm, P.C. (including its predecessors and successors) from acting as outside counsel for defendant A.H.R.M.A. Ltd. in this case, from communicating with counsel for defendants, and from participating in this case in any manner other than as a witness. Oral argument took place before me on May 31, 2006. For the reasons stated below, plaintiffs' motion is denied.

BACKGROUND AND FACTS

Plaintiffs commenced this case in March 2001 asserting claims for, inter alia, breach of contract, tortious interference with business relations, trademark infringement, tortious interference with contract, negligent interference with economic advantage, and violation of the California Unfair Competition statutes. (See Third Amended Complaint, dated Oct. 15, 2004 ("Compl.").) Defendant A.H.R.M.A. Ltd. d/b/a American Historic Racing Motorcycle Organization ("defendant" or "A.H.R.M.A.") is an Ohio not-for-profit corporation that was established in 1989 to provide a venue for racing historic motorcycles. (Id. ¶¶ 12, 13; Declaration of Edward M. Bendelow, Esq., dated May 5, 2006 ("Bendelow Decl."), Ex. G.) Plaintiff Robert T. Iannucci claims to be "the creator and primary promoter of the sport of racing historic motorcycles in the USA." (Affidavit of Robert T. Iannucci, sworn to Apr. 25, 2006 ("Iannucci Aff."), ¶ 6.) He collects and races rare, vintage motorcycles and is the principal shareholder of Team Cuisine d/b/a Team Obsolete Racing ("Team Cuisine"), a New York "Sub S" corporation. (Compl. ¶¶ 5, 14; Reply Affidavit of Robert T. Iannucci, sworn to May 19, 2006 ("Iannucci Reply Aff."), ¶ 5.)

In the late 1970's or early 1980's, Team Cuisine, with the assistance of an "associate and financial sponsor,"*fn2 formed A.H.R.M.A. as a privately held business corporation, with the purpose of popularizing historic motorcycle racing. (Iannucci Aff. ¶¶ 10, 13.) Iannucci held no official position or title with A.H.R.M.A. (Iannucci Reply Aff. ¶ 9.) In 1989, A.H.R.M.A. was reorganized into a member-owned not-for-profit association governed by a 12-member Board of Trustees, which is elected from among the membership. See http://www.ahrma.org/rulebook/sec16.htm. (last visited July 7, 2006). A.H.R.M.A. has a national office in Tennessee, which coordinates various national-championship events and series. (Id.)

To establish A.H.R.M.A. as a not-for-profit association, Iannucci claims to have hired attorney Edward M. Bendelow, who allegedly gave Iannucci legal advice, including recommending creating the position of "Special Advisor" for Iannucci. (Iannucci Aff. ¶¶ 18, 20, 25.) Iannucci states that he believed this position would entitle him to sit on and participate in all meetings of the Board of Trustees, including executive sessions. (Id. ¶ 25.) He understood that this position would not give him a vote, but claims the position was intended to allow him to participate in discussions of all issues and be informed of board actions. (Id.)

Upon the formation of A.H.R.M.A., Iannucci was made Special Advisor to the Board. (Id. ¶ 26.) He claims that he was later "forced out" of this position by Bendelow and Jeffrey Smith, who became Executive Director of A.H.R.M.A. in 1991. (Id.)

Iannucci maintains that, because of his bad experience with the associate-sponsor -- who allegedly claimed to be the sole owner of Team Obsolete and "made a very strong play" to take away all of Iannucci's prized motorcycles -- he was very concerned about preserving his interests and ability to participate in motorcycle racing. (Id. ¶¶ 19, 21.) He claims that he stressed this concern in his private discussions with Bendelow, who allegedly assured Iannucci that his interests would be protected. According to Iannucci, Bendelow said, "You are the number 1 creator. No one is going to lock you out" and "You are the benefactor." (Id. ¶ 23.) Iannucci and Bendelow also allegedly discussed making Iannucci a permanent voting member of the Board of Trustees, something Bendelow supposedly advised against. (Id. ¶¶ 24, 25.)

Iannucci also alleges that, during their conversations about the formation of A.H.R.M.A. and other business matters, he revealed "detailed confidential financial information" to Bendelow, including information about how he earned money and how he financed Team Obsolete. (Id. ¶¶ 23, 24, 27.) Iannucci states that his relationship with Bendelow "was a close and confidential one, based upon the belief and understanding that he was my lawyer, and as such I was entitled to having my confidences respected." (Id. ¶ 29.) He further maintains that he continued to have a "close and confidential" relationship with Bendelow until Smith took over A.H.R.M.A. in 1991 and began a "campaign" to drive Iannucci out. He claims that, after 1992, Bendelow "became a more active partisan" against him and ultimately became A.H.R.M.A.'s "strategist and architect of the long series of conflicts targeted" at him. (Id. ¶ 34.) Eventually, Bendelow allegedly drafted the "Team Owner Assessment Rule,"*fn3 which, according to Iannucci, was specifically designed to exclude Iannucci and Team Obsolete from participating in A.H.R.M.A.'s racing events. (Id. ¶ 35.)*fn4

In this case, A.H.R.M.A. is represented by the law firm of Westerman Ball Ederer & Sharfstein, LLP. Bendelow, who is not affiliated with that firm, serves as "co-counsel" or "associate counsel" in his capacity as outside general counsel for A.H.R.M.A. He is not, however, counsel of record in this matter. Nor has he appeared before the court in this action. (Bendelow Decl. ¶ 3.) According to plaintiffs, Bendelow "has played an active role in the litigation and is apparently directing defendant's counsel of record." (Memorandum of Law in Support of Motion to Disqualify Edward [M.] Bendelow and the Bendelow Law Firm, P.C., dated Apr. 25, 2006 ("Pl.'s Mem."), at 11.) Indeed, Iannucci claims that Bendelow is "orchestrating this litigation, just as he orchestrated the multiple controversies that preceded it." (Iannucci Aff. ¶ 37.)

In response, Bendelow argues that Iannucci's "purpose in this litigation is to bleed A.H.R.M.A.'s resources by delaying resolution of this case and forcing A.H.R.M.A. to expend resources responding to his improper and abusive litigation tactics." (Bendelow Decl. ¶ 2.) Bendelow insists that he was never Iannucci's attorney. Rather, he states that he was retained to represent A.H.R.M.A, and that Iannucci was "actually represented by separate counsel at the time this for-profit entity sold assets to A.H.R.M.A. in 1989." (Id. ¶ 4.) Bendelow also claims that he "made clear to Iannucci in writing" that his firm represented A.H.R.M.A. and not Iannucci. (Id.) He states unequivocally: "I have never represented Iannucci, personally or in any of his business activities." (Id. ¶ 9.)

Bendelow further argues that, even if the court were to find that his firm represented Iannucci, the matters that were at issue in 1989 during the formation of the "new" A.H.R.M.A. "bear no relationship to the claims in this lawsuit." (Id. ¶ 5.) He also points out that his firm was counsel of record for A.H.R.M.A. in two other lawsuits against Team Obsolete (one involving the SUPERMONO trademark claims, also at issue in this case), and that Team Obsolete never moved to disqualify him in those cases. (Id. ¶ 6.) He emphasizes that plaintiffs did not complain of a conflict until five years after the inception of this case, and argues that the instant motion is simply a delay tactic designed to "drive up the costs for A.H.R.M.A." (Id. ¶ 7.)

DISCUSSION

Disqualifying a party's counsel is a "drastic measure" that requires the balancing of two important considerations. A.V. by Versace, Inc. v. Gianni Versace, S.p.A.,160 F. Supp. 2d 657, 662-63 (S.D.N.Y. 2001). On one side is the deference the system gives a party in selecting counsel of its choice, and on the other side is the need for the profession to maintain the highest degree of fiduciary and professional standards. Hempstead Video, Inc. v. Incorporated Vill. of Valley Stream, 409 F.3d 127, 132 (2d Cir. 2005); Evans v. Artek Sys. Corp., 715 F.2d 788, 791 (2d Cir. 1983). Disqualification of an attorney imposes a substantial transaction cost on a party. The affected party usually incurs the costs associated with finding a new attorney who must then become familiar with the matter. Government of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978); Siemens Energy & Automation, Inc. v. Coleman Elec. Supply Co., Inc., ...


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