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M&T Mortgage Corp. v. White

September 26, 2007

M&T MORTGAGE CORP., PLAINTIFF,
v.
LEO WHITE, ET AL., DEFENDANTS.
LEO WHITE, THIRD-PARTY PLAINTIFF,
v.
BETTER HOMES DEPOT, MADISON HOME EQUITIES, INC., NADINE MALONE, MICHAEL RINDENOW, ET AL. THIRD-PARTY DEFENDANTS.



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

DECISION AND ORDER

Before this court is a motion filed by Leo White, the third-party plaintiff in this action, seeking to disqualify The Law Office of Steven Cohn, P.C. ("Cohn") from its representation of several third-party defendants due to what White contends are irreconcilable conflicts of interest. For the reasons discussed below, the motion is denied.

BACKGROUND

The court presumes familiarity with the facts underlying the present action and sets forth only those facts relevant to deciding White's motion which are adduced from the parties' submissions as well as from a transcript of a hearing held by this court in connection with the motion to disqualify.

Briefly stated, in the third-party action, which is the one of relevance at the moment, White contends that the third-party defendants were involved in a fraudulent scheme to sell houses of dubious value to unwitting consumers -- White allegedly being one of them. This scheme involved among other things the alleged fabrication of loan applications which were used in securing mortgages for the consumers who purchased these allegedly overvalued houses from the third-party defendants. Madison Home Equities, Inc., a mortgage originator, Nadine Malone, its owner and principal, and Michael Rindenow, a former employee of Malone, all third-party defendants here, are alleged to have been involved in the mortgage component of the fraudulent scheme. These three parties are represented by the firm of Steven Cohn, P.C. ("Cohn"), with whom Malone has had a long-standing relationship both as a client and in other business matters as well.

The core of the motion to disqualify involves what White argues are the "irreconcilable conflicts of interest" inherent in Cohn's dual-representation of Malone and Rindenow because they once had an employer-employee relationship during the period in which the fraudulent acts allegedly took place. As a result, White contends that Cohn cannot represent fully the interests of either Malone or Rindenow. Specifically, White argues that Cohn is unable to assert various available defenses on behalf of Malone and Rindenow, and has not pressed available cross-claims that they have against each other, because to do so on behalf of one would conflict with the interests of the other.

After the motion was fully briefed the court held a Dunton hearing,*fn1 which was attended by, among others, Malone, Rindenow, and Steven Cohn, who was there in his capacity as counsel to both Malone and Rindenow. At the hearing the court sought to determine whether Malone and Rindenow were fully aware of the potential conflicts inherent in Cohn's representation of them both, and, given such potential conflicts, whether they were willing to have Cohn continue in its representation of their interests. The court took testimony from Malone and Rindenow as to their understanding of these potential conflicts, after which both parties consented to Cohn's continued representation. Malone and Rindenow also waived the right to use any potential conflicts that may arise from Cohn's dual-representation as grounds to attack a final judgment or any other kind of formal resolution in this matter.

DISCUSSION

I. Legal Standard

Federal courts have the inherent authority "to disqualify attorneys in litigation pending before them" when such disqualification is "necessary to preserve the integrity of the adversary process . . . ." Bd. of Educ. v. Nyquist, 590 F.2d 1241, 1245-46 (2d Cir. 1979). While courts may turn to the American Bar Association (ABA) and state disciplinary rules for guidance in such matters, because the power to disqualify counsel is derived from the federal courts themselves, " 'the only truly binding authority on disqualification issues is [Second] Circuit precedent.' " Solow v. Conseco, Inc., No. 06 CIV 5988, 2007 WL 1599151, at *3 (S.D.N.Y. June 4, 2007) (citation omitted). In that regard and as the Second Circuit has made clear "not every violation of a disciplinary rule will necessarily lead to disqualification," Hempstead Video, Inc. v. Incorporated Vill. of Valley Stream, 409 F.3d 127, 132 (2d Cir. 2005) (citation omitted), and the decision of whether or not to disqualify counsel is left to the sound discretion of the trial court, Cmty. Programs of Westchester Jewish Cmty. Servs. v. City of Mount Vernon, No. 06 Civ. 3332, 2007 WL 1484037, at *1 (S.D.N.Y. May 21, 2007) (citation omitted).

Judge Garaufis has elaborated on the standards and principles governing disqualification of attorneys, observations this court finds instructive in deciding the present motion:

Motions for disqualification require a delicate balancing of interests. Ensuring that court proceedings are conducted with the utmost integrity and that counsel act in accordance with the highest standards of professional ethics must be weighed against judicial economy and a party's right to retain counsel of its own choosing. The Second Circuit has clearly articulated the standard district courts must apply in balancing these interests. That standard, while recognizing the need to check certain egregious forms of misconduct, promotes the aim of judicial economy by leaving less serious allegations of ethical impropriety to the "federal and state comprehensive disciplinary machinery."

European Cmty. v. RJR Nabisco, Inc., 134 F. Supp. 2d 297, 303 (E.D.N.Y. 2001) (Garaufis, J., Pohorelsky, Mag. J.) (quoting Nyquist, 590 F.2d at 1246) (affirming Magistrate Judge Pohorelsky's denial of motion for disqualification).

To that end, courts have recognized that a party seeking to disqualify counsel "bears a heavy burden of proving facts required for disqualification," a key concern being that "disqualification motions are often interposed for tactical reasons [and] [e]ven when made in the best of faith . . . cause delay." In re Joint Eastern and Southern Dist. Asbestos Litig. 133 F.R.D. 425, 429 (E. & S.D.N.Y. 1990) (Weinstein, J.) (quoting Evans v. Artek Sys. Corp., 715 F.2d 788, 791-92, 794 (2d Cir. 1983)). Therefore, "[a]lthough the objective of apprehending all violations, regardless of their severity, is a laudable goal, it is unattainable without inviting the wholesale filing of motions for tactical reasons. The result would be needless disruption and delay of litigation, thereby ...


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