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Pu v. Greenthal Management Corp.

March 10, 2009

RICHARD PU, ET AL., PLAINTIFFS,
v.
GREENTHAL MANAGEMENT CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Ronald L. Ellis, United States Magistrate Judge

OPINION AND ORDER

I. INTRODUCTION

This action arises from a special assessment by Trafalgar House Condominium Association ("Trafalgar House") that Plaintiff, Richard Pu, alleges was collected in knowing violation of the building's bylaws. Pu brings claims individually and on behalf of others similarly situated, but also asserts this action is in part derivative. He alleges that Defendants have violated the federal racketeering statute, 18 U.S.C. § 1961 et seq. ("RICO") and the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("FDCPA"); and have committed the following state law violations: breach of fiduciary duty, breach of the Trafalgar House bylaws, breach of the management agreement, breach of the duty of good faith and fair dealing, fraud, aiding and abetting fraud, deceptive business practices, negligent misrepresentation, negligence, conversion, and trespass.

On or about December 4, 2008, Pu moved to disqualify Seyfarth Shaw LLP ("Seyfarth") from representing any defendant other than itself in this case. For the reasons set forth below, Pu's motion is DENIED.

II. BACKGROUND

On November 20, 2008, Pu filed his Complaint in the instant case. Pursuant to the federal and local rules and the personal practice rules of District Judge Holwell, Defendants wrote to the Court on December 11, 2008, requesting a pre-motion conference to file a Motion to Dismiss in lieu of answering the Complaint. In his Complaint, Pu identifies himself as a lawyer living and working out of his condominium apartment, a unit within Trafalgar House Condominium. (Compl. ¶ 2.) He asserts that he brings this claim as an individual unit owner, in a representative capacity on behalf of the condominium association, and on behalf of a class of one hundred (100) other unit owners. (Compl. ¶ 1, App. at 3.) Pu maintains that Trafalgar House violated its bylaws by failing to obtain the consent of the mortgagee banks which financed the purchase of individual units as is required before imposing an assessment greater than $100,000. (Pls.' Mem. in Supp. of Mot. to Disqualify ("Pls.' Mem."), Dec. 4, 2008 at 3 (referencing Compl. ¶ 10, App. at 7).) Among the Defendants named in this case are: 1) Trafalgar House Condominium Association; 2) Charles H. Greenthal Management Corporation ("Greenthal"), management for Trafalgar House; 3) Michaele McCarthy, a Greenthal employee; 4) Mark Adkins, President of the Board of Managers of Trafalgar House; and 5) Seyfarth Shaw LLP ("Seyfarth"), Trafalgar House's counsel during part of the relevant period.*fn1 Seyfarth has indicated its intent to represent these five Defendants. It is this representation that Pu challenges, arguing that Seyfarth must be disqualified as its representation would violate the New York Lawyer's Code of Professional Responsibility, namely Disciplinary Rules 5-101 and 5-102, presently codified as N.Y. COMP. CODES R. & REGS. tit. 22, §§ 1200.20 & 1200.21 (1999), respectively.

Because of the current posture of this case, the only information on the record comes to the Court through Pu's Complaint, a few brief communications from Defendants' respective counsel, and the briefing papers for the instant motion. Following are the relevant allegations presented to the Court.

Pu asserts that Defendants have perpetrated a scheme "to collect an unauthorized assessment to finance certain renovations" that is actionable under the RICO Statute. (Pls.' Mem. at 3.) This alleged scheme is the result of a special assessment of $380,000 imposed by Trafalgar House in the fall of 2007 to repair its common hallways, which had not been repaired for nearly fifteen years. (Compl. ¶¶ 22 & 26; Mem. of Law on Behalf of Defs. Greenthal, McCarthy, Trafalgar House, Adkins & Seyfarth in Opp'n to Pls.' Mot. to Disqualify Seyfarth Shaw LLP ("Defs.' Opp'n"), Jan. 9, 2009 at 4.) The bylaw at issue requires Trafalgar House to obtain the approval of more than two-thirds (2/3) of unit owners and their mortgagees for expenditures in excess of $100,000 for "alterations, additions or improvements." (Defs.' Opp'n at 4-5 (referencing Compl. ¶¶ 10, 11 & 14).) Pu alleges that Trafalgar House and Greenthal attempted to comply with the bylaw by securing the consent of the mortgagees and failed, but went forward and imposed the assessment on the unit owners anyway. Defendants argue the repair was just that, restoration of existing common elements, and did not implicate the bylaw provision. However, they argue that prior to the assessment being imposed, in an "abundance of caution," Trafalgar House, with the assistance of Greenthal, and its then counsel, Defendant White, sought and obtained the approval of 76% of the common interests, in writing. (Defs.' Opp'n at 5.) Seyfarth was retained by Trafalgar House between June and July of 2008.*fn2 (Id.; Declaration of Barry H. Mandel ("Mandel Decl."), Jan. 8, 2009, ¶ 4; Declaration of Mark Adkins ("Adkins Decl."), Jan. 8, 2009, ¶ 2; see also Pls.' Mem. at 4; Compl. ¶ 6, App. 6.) Pu states that he became aware on or around September 26, 2008, that the mortgagee consent had not been obtained. (Pls.' Mem. at 4; Compl. ¶ 44, App. at 17.) He alleges that Seyfarth was complicit in Trafalgar House's collection of some of the final monthly installments of the assessment at issue, in particular the October 2008 collection. (Pls.' Mem. at 5.) Pu argues that Seyfarth then took charge of the coverup of the illicit assessment and collection and participated in key conversations with Trafalgar House's Board at board meetings attended by McCarthy, who Pu asserts is a "stranger to [Seyfarth]'s attorney-client relationship." (Id.) He argues that as a result of these various communications and Seyfarth's own actions, Seyfarth is a crucial witness. Further, Pu alleges Seyfarth was "instrumental in gaining access to Pu's apartment through use of extortionate threats" (id. at 5-6) and was aware of the wrongdoing of Trafalgar House and Greenthal, and orchestrated a coverup, including directing individuals not to communicate with Pu. (Id.)

Barry Mandel, a partner in Seyfarth's Real Estate Transaction Department, provided legal advice to the Trafalgar House Board on various matters related to Trafalgar House. (Defs.' Opp'n at 5-6; Mandel Decl. ¶ 2; Adkins Decl. ¶¶ 3-4.) Defendants assert that as a result of numerous communications from Pu to a member of the Board of Mangers of Trafalgar House and an employee of Greenthal, it was determined that Pu's complaints were likely to result in litigation and all communications should be routed through Mandel, as counsel for Trafalgar House. (Defs.' Opp'n at 6; Mandel Decl. ¶ 5.)

Pu argues that Seyfarth's past conduct serves to disqualify the firm from representing any party other than itself in the instant action. Specifically, he posits three general bases for disqualification: 1) Seyfarth's own interests conflict with those of the other Defendants; 2) the interests of some Defendants represented by Seyfarth conflict; and 3) Seyfarth should be called as a witness on significant issues of fact. (Pls.' Mem. at 2-3.) In sum, Pu argues that Seyfarth is disqualified under the "lawyer as witness" rule, Disciplinary Rule 5-102 ("DR 5-102"), and for conflicts of interest in the representation of defendants other than itself, pursuant to Disciplinary Rule 5-101 ("DR 5-101"). In the collective response of Defendants presently represented by Seyfarth, they argue that this motion to disqualify is merely the "latest tactic in an on-going and nearly three year effort by [Pu] . . . to wreck havoc with the entire Trafalgar House Condominium Association, their managing agent (Greenthal) and their previous and current attorneys arising out of a $380,000 condominium assessment on all the unit owners of Trafalgar House for the repair of the condominium's common hallways and lobby." (Defs.' Opp'n at 2.) Defendants assert that Pu's argument for disqualification is meritless.

III. DISCUSSION

A. Legal Standard For Disqualifying Counsel

Federal courts derive their authority to disqualify attorneys from their responsibility to maintain the integrity of the judicial process. See Occidental Hotels Management B.V. v. Westbrook Allegro L.L.C., 440 F. Supp. 2d 303, 308 (S.D.N.Y. 2006)(quoting Hempstead Video, Inc. v. Incorporated Village of Valley Stream, 409 F.3d 127, 132 (2d Cir. 2005) (quoting Board of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979))); see also Shabbir v. Pakistan International Airlines, 443 F. Supp. 2d 299, 303-04 (E.D.N.Y. 2005) (noting that district courts have the responsibility "to uphold the applicable ethical precepts of the district in which it sits."). The Second Circuit recognizes that, while disqualification motions frequently refer to state disciplinary rules for direction, "'such rules merely provide general guidance and not every violation of a disciplinary rule will necessarily lead to disqualification.'" See Occidental Hotels, 440 F. Supp. 2d at 309 (quoting Hempstead Video, 409 F.3d at 132). This Circuit has concluded that, "unless an attorney's conduct [would] taint the underlying trial . . . , courts should be quite hesitant to disqualify an attorney." Nyquist, 590 F.2d at 1246; see also Occidental Hotels, 440 F. Supp. 2d at 309; Ritchie v. Gano, No. 07 Civ. 7269 (VM) (JCF), 2008 WL 4178152, at *3 (S.D.N.Y. Sept. 8, 2008); Paretti v. Cavalier Label Company, Inc., 722 F. Supp. 985, 988 (S.D.N.Y. 1989) ("[V]iolations of the Model Code, as literally read, should not result in removal of counsel unless the conduct 'does . . . violence to . . . the fundamental values which the [C]anons were written to protect . . . .'" (quoting Ceramco, Inc. v. Lee Pharmaceuticals, 510 F.2d 268, 271 (2d Cir. 1975))); see also Renner v. Townsend Fin. Servs. Corp., No. 98 Civ. 926 (CSH), 2002 WL 1013234, at *6 (S.D.N.Y. May 20, 2002) (noting that the Second Circuit has indicated that the New York disciplinary rules need not be rigidly applied).

The Court's practical task is to determine whether any alleged or actual conflict of interest would undermine its confidence in the attorney's representation of his client. See Occidental Hotels, 440 F. Supp. 2d at 309. Because disqualification is a severe sanction and results in limiting a litigant's right to retain the counsel of their choice, motions for disqualification require a high standard of proof by the moving party, id., and "[m]ere speculation will not suffice." Paretti, 722 F. Supp. at 987 (internal citations and references omitted); see also Int'l Union, United Automobile Aerospace & Agricultural Implement Workers of America (UAW) v. Nat'l Caucus of Labor Comms., 466 F. Supp. 564, 570 (S.D.N.Y. 1979). In reviewing motions to dismiss, the Court must consider this balance of interests: "the client's right to freely choose his counsel against the need to maintain the standards of the legal profession." See Occidental Hotels,440 F. Supp. 2d at 309; ...


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