The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
The plaintiff, Fairfield Financial Mortgage Group, Inc. ("Fairfield"), a Connecticut corporation, was a residential mortgage lender and broker with a branch office located at 333 Earle Ovington Boulevard, Uniondale, New York ("Fairfield Uniondale Branch"). Shaw Mortgage Group, Inc. ("Shaw"), a New York corporation, was also a residential mortgage broker, with a branch office located at 2550 Hempstead Turnpike, East Meadow, New York ("Shaw East Meadow Branch"). Defendant James Luca ("Luca") is a former employee of both Fairfield and Shaw.
There is no dispute that, in or about April of 2005, Luca commenced employment at Fairfield's Uniondale Branch, and that, as of July of 2006, Luca was employed by Shaw at the Shaw East Meadow Branch. The facts surrounding whether and to what extent Luca owed duties to Fairfield, even while employed by Shaw, are disputed, and are the subject of another litigation currently pending before the Honorable Joanna Seybert, Fairfield Financial Mortgage Group, Inc. v. Luca, et al., 06-CV-5962 (JS)(WDW), referred to by the parties as the "Disloyalty Case".
In the Disloyalty Case, Fairfield alleges that, while employed as a
branch manager of Fairfield's Uniondale Branch, Luca breached his
fiduciary duty to Fairfield by utilizing Fairfield's resources to
divert business to Shaw, as well as other companies he allegedly owned
and controlled, and to set up the Shaw East Meadow
Branch. Also in the Disloyalty Case, Fairfield asserted a claim
directly against Shaw for unfair competition based on the alleged
misconduct of Luca and other former employees of the Fairfield
Uniondale Branch. On October 19, 2009, a default was entered against
Shaw in the Disloyalty Case.
Following Shaw's default in the Disloyalty Case, on August 1, 2011, Fairfield and Shaw entered into an "Agreement and Assignment of Claims", whereby, Shaw assigned to Fairfield "all claims, demands, and causes of action of whatever kind and nature that Shaw has had, now has, or may have against any person or entity, whether based on common law, statute, agreement, or otherwise ("Assigned Claims"), except that this Assignment shall not include any claims Shaw may have against Robert Hilsby, Cynthia, or Steven Hilsby". (Assignment Agreement ¶ 3.) Although the Disloyalty Case is referenced in the Assignment Agreement, and the parties state that they "are desirous of settling the various disputes among them", Fairfield did not release Shaw from the claims asserted against it in the Disloyalty Case. Rather, the consideration for the assignment is the release of a judgment against Shaw by Wells Fargo that Fairfield had obtained through a separate agreement with Wells Fargo; the withdrawal by Fairfield of a subpoena to depose Shaw in the Disloyalty Case, without prejudice to Fairfield's right to renew; and $1,500 payable to Shaw or its attorney within ten days and an agreement by Fairfield to "not execute upon, restrain, or otherwise impair the use of said funds by Shaw" (Assignment Agreement ¶ 9).
The Assignment Agreement was executed by Charles Levesque, the CEO and
President of Fairfield, and Robert Hilsby ("Hilsby"), the Executive
Vice-President of Shaw. Subsequently, counsel for Fairfield, Michael
A. Haskel, issued a check to Hilsby for $1,500 from his escrow
account in satisfaction of Fairfield's payment
obligation in the Assignment Agreement ("the escrow check").
According to Luca, after Hilsby entered into the Assignment Agreement, on August 23, 2011, he and Hilsby entered in to a "Release and Hold Harmless Agreement", whereby Hilsby "authorize[d]" Luca to accept a $1,500 check, and Luca "authorize[d]" the $1,500 check to be deposited in his account. The check that was the subject of this agreement purportedly was the $1,500 escrow check written from Haskel's escrow account. Luca contends that the "Release and Hold Harmless Agreement" was related to an earlier "Hold Harmless Agreement" that he and Hilsby signed on December 1, 2008 (collectively the "Hold Harmless Agreements"). In the Hold Harmless Agreement, Luca and Hilsby both agreed to "indemnify and hold harmless" the other "from any losses, liability or litigation arising from any financial business dealings and/or any litigation . . . prior to and/or following the business close of December 1, 2008".
On August 5, 2011, Fairfield commenced this action as the assignee of Shaw's claims against Luca and the other above-named defendants, alleging that they engaged in a fraudulent scheme to defraud third parties involved in residential loan transactions and to divert Shaw's business to companies allegedly owned and controlled by Luca in violation of the Racketeer Influenced and Corrupt Organizations Act of 1970, 18 U.S.C. §§ 1961-1968 ("RICO") and New York state law.
Presently before the Court are two motions. The first is a motion by Luca to disqualify counsel for Fairfield, Michael A. Haskel, Esq., who also represents Fairfield in the Disloyalty Case. The second is a motion by Fairfield for sanctions pursuant to Federal Rule of Civil Procedure 11 based on Luca's filing of the motion to disqualify Haskel. For the reasons set forth below, the Court denies both motions.
A. Legal Standard on a Motion to Disqualify
"The authority of federal courts to disqualify attorneys derives from their inherent power to 'preserve the integrity of the adversary process.'" Hempstead Video, Inc. v. Incorporated Village of Valley Stream, 409 F.3d 127, 132 (2d Cir. 2005) (citing Bd. of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979)). In exercising this power, the Court must "attempt[ ] to balance a client's right freely to choose his counsel against the need to maintain the highest standard of the profession." Hempstead Video, Inc., 409 F.3d at 132 (internal quotations and citations omitted). In the Eastern District, ethical standards are governed by the New York State Rules of Professional Conduct. See Local Civil Rule 1.3.
Whether or not disqualification is warranted is subject to the court's discretion. Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990). In that regard, given the "immediate adverse effect on the client by separating him from counsel of his choice, and that disqualification motions are often interposed for tactical reasons, and inevitably cause delay," Nyquist, 590 F.2d at 1246, the Court must demonstrate reluctance in granting motions to disqualify counsel. See, e. g., W.T. Grant Co. v. Haines, 531 F.2d 671 (2d Cir. 1976). As the Second Circuit has advised: when dealing with ethical principles, ... we cannot paint with broad strokes. The lines are fine and must be so marked. Guideposts can be ...