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Tradewinds Airlines, Inc. v. Soros

May 12, 2009

TRADEWINDS AIRLINES, INC., PLAINTIFF,
v.
GEORGE SOROS AND PURNENDU CHATTERJEE, DEFENDANTS.



The opinion of the court was delivered by: John F. Keenan, United States District Judge

OPINION & ORDER

I. INTRODUCTION

Plaintiff TradeWinds Airlines, Inc. ("TradeWinds"), holds a $54.87 million default judgment in North Carolina state court against C-S Aviation Services, Inc. ("C-S Aviation"). It brings this action to pierce the corporate veil of C-S Aviation and recover the default judgment from the company's alleged alter egos, defendants George Soros ("Soros") and Purnendu Chatterjee ("Chatterjee").

This action currently is stayed pending a motion by C-S Aviation in North Carolina state court to vacate the judgment. See Tradewinds Airlines, Inc. v. Soros, No. 08 Civ. 5901 (JFK), 2009 WL 435298 (S.D.N.Y. Feb. 23, 2009). The stay has been partially lifted for the purpose of resolving the instant disqualification motion. Id. at *4. Soros moves to disqualify plaintiff's attorney, Violet Elizabeth Grayson, Esq. ("Grayson"), on the grounds that her participation in this case violates a protective order and a settlement agreement she signed during a prior veil-piercing action against Soros and Chatterjee. For the reasons below, the motion is DENIED.

II. BACKGROUND

A. The Prior Veil-Piercing Action

From 2001 until 2003, Grayson represented a company called Jet Star Enterprises ("Jet Star") against C-S Aviation and another defendant in a breach of contract action ("Jet Star I"). See Jet Star Enters. v. CS Aviation Services, No. 1:01-cv-6590 (DAB) (S.D.N.Y. filed July 19, 2001). Ultimately, Jet Star obtained a default judgment against C-S Aviation in the amount of $3,432,867.

In 2005, Grayson brought a second action on behalf of Jet Star ("Jet Star II"), naming Soros, Chatterjee, and six other parties as defendants. See Jet Star Enters. v. Soros, No. 1:05-cv-6585 (HB) (S.D.N.Y. filed July 20, 2005). Among the claims Jet Star asserted was one to pierce C-S Aviation's corporate veil and hold Soros and Chatterjee personally liable for the default judgment obtained in Jet Star I. The case was assigned to United States District Judge Harold Baer, Jr.

All parties to Jet Star II and their counsel executed a Stipulation and Protective Order Governing the Use of Confidential Material (the "Protective Order"), which was "so ordered" by the court.*fn1 (See Fitzgerald Aff. Ex. F.) The Protective Order provided that "Litigation Materials"-defined broadly to include anything produced during or derived from discovery-were to "be used by the parties solely for the prosecution and defense of [Jet Star II], and not for any other purpose." (Id. ¶¶ 1-2.) The order permitted any party to designate as "confidential" any "non-public" Litigation Materials containing trade secrets or commercially-sensitive information. (Id. ¶ 3.) Litigation Materials designated as confidential could not be disclosed to third parties. (Id. ¶ 4.) If filed with the Court, they were supposed to be filed under seal unless otherwise agreed. (Id. ¶ 11.)

The Protective Order further provided that, after the conclusion of Jet Star II, all Litigation Materials were to be destroyed or returned to the party that produced them. (Id. at ¶ 12.) However, counsel could retain copies of all deposition transcripts, work product, and papers filed with the Court. (Id.) The provisions of the Protective Order were to continue in force without end "insofar as they restrict the disclosure and use of Confidential Litigation Material." (Id. at ¶ 6.)

In spring 2006, after the close of discovery, all remaining defendants moved for summary judgment. Soros filed his motion papers publicly on PACER/ECF, attaching numerous exhibits and deposition transcripts that were marked as confidential. (See Docket Entry Nos. 63-83, 98-100, Jet Star Enters. v. Soros, No. 1:05-cv-6585 (HB) (S.D.N.Y.). Grayson electronically filed Jet Star's opposing memorandum of law and Rule 56.1 statement and sent a hard copy of the exhibits to Judge Baer's chambers. (Id. Nos. 93-94, 102; Grayson Sur-Reply Decl. ¶ 2.) The opposition papers contained many confidential materials. (Fitzgerald Reply Aff. ¶¶ 5-6, Ex. P.) Neither party sought to have its papers filed under seal.

On August 9, 2006, Judge Baer issued an opinion and order (the "Jet Star II Opinion") granting defendants summary judgment on all claims except the veil-piercing claim against Soros and Chatterjee. See Jet Star Enters. v. Soros, No. 1:05-cv-6585 (HB), 2006 WL 2270375 (S.D.N.Y. Aug. 9, 2006). The opinion contains a detailed summary of the evidence produced in discovery that, the court found, "suffice[d] to create triable issues of fact regarding whether Soros and Chatterjee operated CS Aviation as an alter ego." Id. at *7. Trial of the veil-piercing claim was scheduled to begin on September 11, 2006.

On or about August 22, 2006, the parties and their counsel entered into a Settlement and Confidentiality Agreement, (the "Settlement Agreement"). (Fitzgerald Aff. Ex. G.) In it, the parties settled the veil-piercing claim. They and their counsel agreed to keep confidential "the existence, provisions and substance of this Agreement, and the claims for relief sought against Mr. Soros and/or Dr. Chatterjee and the bases or asserted bases therefore," and not to disclose that information "to any person or entity for any purpose." (Id. ¶ 3.A.) The Settlement Agreement further provided that the parties and their attorneys "may disclose the fact that this action has been settled (but may not disclose the terms hereof) and state in substance that such person is not at liberty to disclose the terms of the agreement." (Id. ¶ 3.B(i).) If plaintiff or its counsel breached these confidentiality provisions, the breaching party would have to repay the portion of the settlement received by it or her. (Id. ¶ 3.C.) The agreement contained no restriction on Grayson's ability to represent clients in future litigation against Soros or Chatterjee.

On August 29, 2006, Judge Baer signed and filed an order stating that "the matter has been settled," "the parties have executed a stipulation of discontinuance," and that the "stipulation has been filed under seal." (See Docket Entry No. 106, Jet Star Enters. v. Soros, Chaterjee et al., No. 1:05-cv-6585 (HB) (S.D.N.Y. filed Aug. 29, 2006)).

After the settlement of Jet Star II, Grayson claims to have destroyed all Litigation Materials produced during discovery, but retained in the basement of her home copies of deposition transcripts, attorney work product, and papers filed with the Court, all in conformity with the Protective Order.

B. The Instant Action

On June 27, 2008, TradeWinds obtained a $54.87 million default judgment against C-S Aviation in North Carolina state court.*fn2 TradeWinds was represented in North Carolina by the law firm of Tuggle Duggins & Meschan ("Tuggle Duggins"). About ten weeks earlier, on April 10, 2008, TradeWinds had retained Grayson for the purpose of commencing the instant action to pierce C-S Aviation's corporate veil and hold Soros and Chatterjee liable for the default judgment. (See Fitzgerald Aff. Ex. J.) The retainer agreement resulted from negotiations between her and Tuggle Duggins. The agreement acknowledges that Grayson has "unique expertise" because she "previously represented another airline in a Southern District of New York action to pierce the corporate veil of C-S Aviation to reach Soros and Chaterjee." (Id. at 2.) Her contingency fee is 25% of whatever portion of the $54.87 million judgment TradeWinds can recover in this action. (Id. at 1.)

Grayson commenced this action on June 30, 2008. She affirms in a declaration that, "In preparing [the] Complaint, in preparing all subsequent papers in this case, and in otherwise conducting the business of this case, I have made no use of any confidential documents produced to me during the Jet Star Litigation, and have relied exclusively upon the extensive documentation which is a matter of record." ...


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