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Pathways For Youth, Inc. v. Royal Indemnity Co.

August 7, 2006

PATHWAYS FOR YOUTH, INC., PLAINTIFF,
v.
ROYAL INDEMNITY COMPANY, DEFENDANT.



The opinion of the court was delivered by: Haight, Senior United States District Judge

MEMORANDUM OPINION AND ORDER

Having considered the most recent correspondence of counsel, the Court enters the following Memorandum and Order. The present questions arc (1) whether the corporate plaintiff should he allowed to dismiss the captioned action; and (2) whether Plaintiffs law firm, Kelley Drye & Warren LLP ("Kelley Drye) should be allowed to withdraw as counsel of record.

I

Plaintiff Pathways for Youth, Inc. ("PFY") brought this declaratory judgment action against Defendant Royal Indemnity Company ("Royal") following Royal's disclaimer of coverage of PFY for defense and indemnification in underlying actions in the state courts which apparently involve a personal injury. The law firm of Kelley Drye & Warren LLP ("Kelley Drye") filed the complaint on behalf of PFY and currently appears as PFY's counsel of record.

As part of pre-trial discovery, Royal served Requests for Production and Interrogatories on PFY. Royal takes the position that PFY's responses have been insufficient, although no motion to compel discovery has been made.

It appears from an unsigned copy of resolutions adopted by P FY' s board of directors on June 30, 2006 forwarded with Kelley Drye's letter dated July 31, 2006, that PFY ceased operations on June 30, 2005, is insolvent, and resolved to "take all available actions to wind down its operations." To that end, the June 30, 2006 resolutions include resolutions that "the representation of the Corporation by the law firm of Kelley Drye & Warren LLP is hereby terminated" and "the prosecution of any law suit in which the Corporation is the plaintiff shall cease to the full extent allowed by the Court."

A letter from Kelley Drye dated July 31, 2006 says that PFY's June 30, 2005 board resolution "was prepared by PFY's pro bono counsel, Linda Manley, Esq. Ms. Manley is still in the process of securing the signature of Board Chairman, Octavio Cruz. Ms. Manley is a staff attorney at Lawyers Alliance for New York and receives no remuneration from PFY for her services." Id. at 1.

In these circumstances, Kelley Drye made a letter application to the Court for an order "granting PFY leave to withdraw from this action and voluntarily dismiss its complaint" against Royal. Kelley Drye letter dated July 7, 2006 at 1, signed by Jean Y. Park, Esq. In the subsequent letter dated July 31, 2006 at 1, Ms. Park said that "we respectfully request the Court's leave to withdraw from this action pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure." Counsel does not say who "we" refers to, and does not cite the Local Civil Rule governing the withdrawal of counsel of record, but I will construe the Kelley Drye letters as requesting a Court order (a) voluntarily dismissing PFY's complaint under Fed. R. Civ. P. 41(a)(2), and (b) permitting Kelley Drye to withdraw as counsel of record for PFY.

Royal objects, principally upon the ground that permitting PFY to dismiss its action without responding to Royal's pending discovery requests would unfairly prejudice Royal in defending direct actions against it by injured third parties. Such direct actions appear likely, since New York Insurance Law § 3420(a)(2) provides that, if a judgment against an insured remains unsatisfied, a Direct action may be maintained against the insurer under the terms of the policy, and PFY proclaims Itself to be insolvent and ready to dissolve. Of course, Royal could defend against a direct action by asserting the grounds for disclaimer of coverage it asserts in this action; but Royal's concern appears to be that if PFY is allowed to disappear without responding to discovery requests made in an action PFY itself commenced, Royal may be prejudiced in obtaining pertinent evidence at a later time.

Royal would seem to regard with equanimity Kelley Drye's request to withdraw as counsel of record for PFY.

II

Kelley Drye's application to withdraw as counsel for PFY will be granted. There is no basis for doing otherwise. Under the canons of ethics, an attorney must have a sufficient reason for firing a client, but a client can fire its attorney at will, subject only to such lien protection for the attorney's fee as the relevant statute and common law may give, an issue that has not been raised in this case. Here, PFY's determination to discharge Kelley Drye from further professional responsibility is made manifest in the June 30, 2006 corporate board resolutions. I accept that determination, even though the chairman of PFY has apparently not yet signed the resolutions.

III

Kelly Drye's application for an order dismissing PFY's complaint is more complicated. Given the procedural posture of the case, Fed. R. Civ. P. 41(a)(2) requires PFY to obtain an order of dismissal from the Court. The Rule provides that "[a]n action shall not be dismissed save upon order of the court and upon wucn terms and conditions as the court deems proper." In the case at bar, it is proper to condition an order of dismissal ...


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