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Akagi v. Turin Housing Development Fund, Co., Inc.

United States District Court, S.D. New York

March 22, 2017

JOHN SOHEI AKAGI, Plaintiff,
v.
TURIN HOUSING DEVELOPMENT FUND CO., INC., et al., Defendants.

          OPINION AND ORDER

          KATHERINE POLK FAILLA, United States District Judge

         In 2013, Plaintiff John Sohei Akagi brought this housing-discrimination lawsuit, claiming that he had been denied the opportunity to purchase an apartment because of his race. Plaintiff named several entities and individuals as defendants, and those defendants fall into two groups: (i) Turin Housing Development Fund, Co., Inc. (“Turin”), the housing co-operative that owns the building where the apartment in question is located, and several past and present members of Turin's co-op board[1] (together with Turin, the “Turin Defendants”); and (ii) Turin's managing agent, Douglas Elliman, LLC a/k/a Douglas Elliman Property Management (“DE”), former DE employee Dorothy Kern, and current DE employee Lawrence Vitelli (together with DE, the “DE Defendants”). After extensive discovery and failed settlement efforts, the parties have filed cross-motions for summary judgment.

         This Opinion, however, does not resolve the parties' summary-judgment motions on their merits. Rather, it addresses an issue that arose only after summary-judgment briefing concluded: Plaintiff's motion to disqualify the Turin Defendants' counsel, Adam Leitman Bailey, P.C. (“ALB”).

         For the balance of this litigation, the Turin Defendants and the DE Defendants shared counsel. At first, they jointly retained the law firm Schneider Mitola LLP (“Schneider Mitola”). On May 30, 2014, this Court granted the Turin Defendants and DE Defendants' motion to substitute ALB in place of Schneider Mitola. And ALB continued to represent the Turin Defendants and the DE Defendants up until last summer, when it filed summary-judgment briefs on behalf of both groups of defendants.

         But on July 21, 2016, Turin, represented by ALB, sued DE in New York State Supreme Court, alleging that DE negligently mismanaged Turin's property and failed to obtain insurance to cover Turin's legal costs in the instant case. The Court learned about Turin's state-court suit against DE (the “State-Court Action”) on July 29, 2016, when Plaintiff moved to disqualify ALB from representing any defendant in this case. On September 9, 2016, ALB, on behalf of the Turin Defendants, submitted a memorandum in opposition to Plaintiff's motion to disqualify and simultaneously moved to withdraw as the DE Defendants' counsel. After the Court granted ALB's withdrawal motion, the DE Defendants retained new counsel and joined in Plaintiff's motion to disqualify.

         By suing DE on Turin's behalf, Plaintiff and the DE Defendants argue, ALB has conflicted itself out of this lawsuit. ALB retorts that the DE Defendants waived their right to object to this very contingency when they executed a Joint Defense Agreement (the “JDA”) with Schneider Mitola in 2013.

         Plaintiff and the DE Defendants have the better arguments. Between July and September 2016, ALB simultaneously represented and sued the same client: DE. And because ALB did not cure this concurrent-representation conflict by obtaining DE's prior informed consent, ALB cannot represent the DE Defendants or the Turin Defendants in this case. Accordingly, and for the reasons set forth below, the Court grants Plaintiff's motion to disqualify ALB.

         BACKGROUND[2]

         Although the Court will provide a comprehensive overview of the law governing attorney disqualifications infra, one tenet bears mention at the outset: Resolving a disqualification motion requires a “painstaking analysis of the facts” of a case. HLP Props., LLC v. Consol. Edison Co. of N.Y., No. 14 Civ. 1383 (LGS), 2014 WL 5285926, at *5 (S.D.N.Y. Oct. 16, 2014) (quoting Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225, 227 (2d Cir. 1977)).

         With that principle in mind, the Court approaches this part of the Opinion in two sections. First, the Court will recount the facts relevant to Plaintiff's disqualification motion. The Court will begin by considering the claims Plaintiff raised in his September 30, 2013 First Amended Complaint (the “FAC”), the operative complaint in this case (the “Federal Action”). The Court will then review the terms of the JDA into which Turin, the DE Defendants, and Schneider Mitola entered. Next, the Court will explain how ALB came to represent both the Turin Defendants and the DE Defendants, and review the submissions the parties filed after ALB became involved in this case. And finally, the Court will describe the complaint ALB filed against DE in the State-Court Action (the “State-Court Complaint”), which triggered Plaintiff's disqualification motion.

         Second, the Court will review the procedural history of the disqualification motion. The Court will focus on the arguments that the parties have raised in their briefs, and also address ALB's motion to withdraw as the DE Defendants' counsel.

         A. Factual Background

         1. Plaintiff's Claims in the FAC

         On July 29, 2013, Plaintiff brought his initial Complaint against the Turin Defendants and the DE Defendants. (Dkt. #1). Plaintiff also named Emmet Wechsler - the owner of the apartment Plaintiff wished to purchase - as a Nominal Defendant. (Id.). On September 26, 2013, Schneider Mitola entered a notice of appearance on behalf of the Turin Defendants and the DE Defendants. (Dkt. #9). And on September 30, 2013, Plaintiff filed his FAC, the operative complaint in this case. (Dkt. #16).

         In the FAC, Plaintiff alleged the following: Turin is a housing cooperative that owns a 188-residential-unit apartment building on the Upper West Side of New York City (the “Property”). (FAC ¶ 9). Since 1997, DE has managed the Property. (Id. at ¶ 10).[3]

         To develop the Property, Turin obtained loans from the federal government pursuant to Section 221(d)(3) of the National Housing Act, 12 U.S.C. § 1715l (d)(3). (FAC ¶ 9). Construction of the Property concluded in 1972, and in that year Turin began selling cooperative shares “allocated to apartments in the” Property. (Id. at ¶ 25). Because it constructed the Property with proceeds of a 40-year federal-government mortgage, Turin “was subject to the regulatory oversight of the United States Department of Housing and Urban Development (‘HUD')” between 1972 and 2012. (Id. at ¶¶ 24-26). On March 29, 2012, Turin satisfied fully its mortgage obligations, at which point it “was formally released by HUD from all federal regulatory oversight and statutory obligations.” (Id. at ¶ 26).

         When Turin first offered its apartments for sale in 1972, “four families … of Asian Ancestry” purchased apartments. (FAC ¶ 34). But at the time Plaintiff filed the FAC, just two of the Property's 188 apartments were “owned by persons of Asian ancestry.” (Id.). Moreover, Plaintiff alleged, “there ha[d] been no transfers or resales of [apartments] at the [Property] to individuals or families of Asian or Japanese ancestry or descent since [Turin's] creation in 1972 other than to members or relatives of the original Asian families” who purchased apartments in the Property. (Id. at ¶ 35).

         This trend, Plaintiff alleged, was not an accident, but rather was the product of Turin's stated preference for increasing the number of Caucasian residents of the Property while simultaneously decreasing “the number of shareholders of Asian and Japanese descent and ancestry.” (FAC ¶¶ 37-39). Turin's co-op board members (i.e., the Turin Defendants apart from Turin itself) perpetuated this discrimination through “racist policies, practices, procedures[, ] and rules.” (Id. at ¶ 40). And DE, Plaintiff alleged, was complicit in this discrimination: Among other alleged misdeeds, DE marketed and sold Property apartments in a way that maintained a “de minimis percentage of persons of Asian and Japanese descent.” (Id. at ¶¶ 44, 53, 57-58, 62-69).

         Plaintiff additionally alleged that the Turin Defendants and DE Defendants' discrimination violated federal housing laws. As a condition of receiving a mortgage from the federal government, Turin was bound to follow the Fair Housing Act and the National Housing Act for the mortgage's term (1972 through 2012). (FAC ¶ 45). And those statutes required Turin to “carry out an affirmative program to attract buyers or tenants … of all minority and majority groups, ” and to ensure that diversity by “maintain[ing] an affirmative marketing program … throughout the life of the mortgage.” (Id.). But the Turin Defendants and DE Defendants failed to follow these housing laws. (Id. at ¶¶ 47-48). Worse still, “they adopted rules, practices, and/or procedures” in order “to avoid and circumvent … statutory and regulatory requirements.” (Id. at ¶ 49).

         Plaintiff, an elderly man “of Asian and Japanese descent and ancestry, ” (FAC ¶ 8), alleged that he fell victim to the Turin Defendants and DE Defendants' discrimination. In 2012, Plaintiff wished to purchase Apartment 6-I of the Property from Wechsler. (Id. at ¶¶ 74-75). The Turin Defendants and DE Defendants, however, forbade Wechsler from transferring his cooperative shares in Apartment 6-I to Plaintiff. (Id. at ¶ 79). And the various “grounds” that the Turin Defendants and DE Defendants advanced for refusing the sale were just “pretexts to try to mask their unlawful discriminatory purposes.” (Id. at ¶ 81). Their goal, Plaintiff alleged, was to ensure that Apartment 6-I would not be sold to an individual “of Japanese or Asian descent and ancestry.” (Id. at ¶¶ 87-91).

         Plaintiff brought seven causes of action in the FAC, and it appears that he brought all of them against both the Turin Defendants and the DE Defendants. (FAC ¶¶ 99-150). Plaintiff sought recovery under several federal housing and civil-rights statutes: the Fair Housing Act, 42 U.S.C. §§ 3601-3619 (Count One); 42 U.S.C. §§ 1981 and/or 1982 (Count Two); 42 U.S.C. § 1985 (Count Three); and 42 U.S.C. § 1986 (Count Four). (Id. ¶¶ at 99-129). Plaintiff's remaining claims (Counts Five, Six, and Seven) arose under state or local law. (Id. at ¶¶ 130-50).

         2. The Turin Defendants and DE Defendants' JDA with Schneider Mitola

         On September 26, 2013, Schneider Mitola entered a notice of appearance on behalf of the Turin Defendants and the DE Defendants. (Dkt. #9). Between September and October 2013 (the parties executed multiple counterparts), Schneider Mitola, Turin, and the DE Defendants entered into the JDA. (Geller Decl., Ex. 1).[4] Because the JDA anchors ALB's argument that it should not be disqualified in the Federal Action, the Court will review with great care the JDA's terms. And in particular, the Court will scrutinize three types of provisions in the JDA: (i) the JDA's provision outlining how the parties would split the costs of litigating the Federal Action; (ii) the JDA's provisions about sharing confidential information; and (iii) the JDA's conflicts waiver.

         By its terms, the JDA “memorialize[d] [an] understanding” between Turin, Schneider Mitola, and the DE Defendants; although the President of Turin's Board of Directors executed the JDA, the JDA does not appear to have bound any of the Turin Defendants other than Turin itself. (Geller Decl., Ex. 1 at 1, 12). However, the JDA provides that Schneider Mitola would serve as counsel for Turin “and other Defendants therein, ” and the Court assumes that these “other Defendants” are the individual Turin Defendants. (Id. at ¶ 1).

         Pursuant to the JDA, Turin and the DE Defendants agreed that Schneider Mitola would represent both groups of defendants, with Turin covering the totality of the legal costs “on the condition that the DE Defendants … provide all reasonable and customary assistance and cooperation to [Turin] in connection with the [Federal Action].” (Geller Decl., Ex. 1 at ¶ 1). However, the parties agreed that Turin would not “indemnify, defend[, ] and hold harmless the DE Defendants if it is determined, after the exhaustion of all appellate rights, that the DE Defendants acted in a grossly negligent manner or perpetrated willful misconduct with respect to the issues raised in the” Federal Action. (Id. at ¶ 2).

         The parties also agreed that they could, but would not be required to, share confidential information. A section of the JDA titled “Treatment of Shared Confidential, Privileged[, ] or Protected Information” provided:

Each Party, in its sole discretion, may provide confidential, privileged or other protected information to the other Parties to this Agreement which the providing Party believes will further the joint and common efforts in the [Federal Action]. This Agreement permits, but does not require, the Parties' outside counsel to share any information.

(Geller Decl., Ex. 1, ¶ 3). The record in this case does not suggest that either Turin or the DE Defendants ever retained “outside counsel” beyond Schneider Mitola, ALB, and the DE Defendants' current attorney.

         Subsequent provisions of the JDA added additional terms and conditions to this confidentiality provision. Turin and the DE Defendants agreed, for example,

that all past and future information and communications which are confidential, privileged or protected as to any Party will be held in confidence by all other Parties (unless that information ceases to be confidential through no violation of this Agreement), and will remain privileged or protected when communicated among the Parties.

(Geller Decl., Ex. 1, ¶ 3(a)). But the following provision added an important caveat to this confidentiality protection:

The Parties agree that all information provided by one Party to any other Party may be used by counsel for such other Party solely in connection with the [Federal Action] unless such information being provided by any DE Defendant is the property of [Turin] or was obtained by any DE Defendant during [DE's] management of [Turin] and is regarding [Turin] affairs in which event [Turin] may direct how the document may be utilized or otherwise[.]

(Id. at ¶ 3(b)).

         Finally, the JDA contained a “Waiver of Conflicts” provision, which stated:

In the event of any litigation or other dispute between or among the Parties, each Party hereby waives any claim that counsel for any other Party is or should be disqualified from representing any other Party by reason of receipt of confidential, privileged or protected information or documents pursuant to this Agreement or any work performed or representation in furtherance of this Agreement.

(Geller Decl., Ex. 1, ¶ 5). Like the JDA's provision concerning confidential information, its conflicts waiver was followed by several sub-paragraphs. Turin and the DE Defendants acknowledged “that there could be a potential or actual conflict of interest arising out of [Schneider Mitola's] representation of [Turin] and the DE Defendants, ” but agreed that as of the date of signing the JDA, no such “potential or actual conflict of interest” existed in the Federal Action and “the Parties' interest[s] [were] … fully aligned.” (Id. at ¶ 5(a)). Turin and the DE Defendants further agreed “that the potential conflict ha[d] been explained to them, that they underst[ood] such potential conflicts, and that to the extent such conflicts [were] waivable, they [were] waived.” (Id. at ¶ 5(b)). Importantly, the JDA provides no explanation of what this “potential conflict” (or “potential conflicts”) might be.

         But the provision of the JDA that bears most directly on Plaintiff's disqualification motion planned for a different contingency: What would Schneider Mitola do if a non-waivable conflict arose? Turin and the DE Defendants agreed that

[i]n the event that an actual non-waivable conflict arises as between any of the Parties represented by [Schneider Mitola] which would render it inappropriate for [Schneider Mitola] to continue as counsel for all the Parties or if such conflict could be resolved by one or more of the Parties obtaining separate counsel, the DE Defendants agree that the DE Defendants will obtain new counsel, at [Turin's] expense (subject to [Turin's] right to make a good faith claim, that based on the facts, [Turin] is not obligated to pay the expense of counsel for the DE Defendants), and [Schneider Mitola] may continue to represent all of the other Defendants named in the litigation (other than the DE Defendants).

(Geller Decl., Ex. 1, ¶ 5(c)). Nothing in the JDA defined what type of “non-waivable conflict” could trigger this provision. But the following sub-paragraph provided that Schneider Mitola would not advocate a position in the Federal Action that was adverse to either Turin or the DE Defendants:

It is further agreed by the Parties that, with respect to any issue that may arise in the [Federal Action] which you disagree and/or which one of you may wish to pursue a course that benefits one but is detrimental to the interest of the other, [Schneider Mitola] cannot advise or assist any of you in pursuing such course and cannot advocate for any Parties' separate interest at the expense of the other Parties as long as [Schneider Mitola] is representing you.

(Id. at ¶ 5(d)).

         Finally, the JDA's conflicts waiver contained provisos about Turin and the DE Defendants exchanging confidential information. And unlike the earlier, more permissive terms of the JDA, these provisos obligated the parties to exchange confidential information. One sub-paragraph confirmed that the parties would “be required to share confidential information … for the common purpose and benefit of the defense in the [Federal Action] and any and all third-party claims by the Parties to [the JDA] against any others responsible for damage alleged in the [Federal Action].” (Geller Decl., Ex. 1, ¶ 5(e)). And it added that Schneider Mitola “owe[d] an equal duty of loyalty and communication with each” party to the JDA, which required Schneider Mitola to “share all relevant information as it pertain[ed] to the [Federal Action]” and forbade Schneider Mitola from “withhold[ing] relevant information from” any party at any other party's request. (Id.).

         By October 17, 2013, Schneider Mitola, Turin, and the DE Defendants had all signed the JDA. (Geller Decl., Ex. 1 at 9-12).

         3. ALB's Representation of the “Turin Defendants” and the Parties' Subsequent Submissions

         On April 14, 2014, ALB filed a “Consent to Change Attorneys” form on behalf of the Turin Defendants and the DE Defendants. (Dkt. #52).[5] The form provided that both groups of defendants wished to substitute ALB in place of Schneider Mitola. (Id.). On April 29, 2014, ALB (on the Turin Defendants and DE Defendants' behalf) filed a letter announcing its intention to move to disqualify Plaintiff's counsel and counsel for Wechsler (who was still a Nominal Defendant at that point). (Dkt. #57).

         The Court held a pre-motion conference on the Turin Defendants and DE Defendants' motion to disqualify on May 30, 2014. (Dkt. #72). At this conference, the Court formally substituted ALB in place of Schneider Mitola as counsel for both groups of defendants. (Id. at 18-19). Following extensive briefing (see Dkt. #78-82, 86-90, 94-98, 100-01, 103-06), the Court denied the motion to disqualify in an Order dated February 10, 2015 (Dkt. #115). That same Order terminated Wechsler as a party to the Federal Action. (Id.).

         On March 10, 2015, the Turin Defendants and ALB Defendants filed their Answer to the First Amended Complaint. (Dkt. #118). They denied flatly all seven causes of action Plaintiff brought in the FAC. (Id. at ¶¶ 99-150).

         Apart from Plaintiff's disqualification motion, the latest round of briefs in this case concerned the parties' cross-motions for summary judgment. On April 6, 2016, the Turin Defendants and DE Defendants moved for summary judgment dismissing all seven of Plaintiff's claims. (Dkt. #166). Plaintiff cross-moved on May 13, 2016, seeking a converse ruling - summary judgment in favor of his claims. (Dkt. #183). The Turin Defendants and DE Defendants filed their reply on June 25, 2016 (Dkt. #200), and briefing concluded when Plaintiff submitted his reply on July 13, 2016 (Dkt. #207).

         4. Turin's State-Court Complaint Against DE

         On July 21, 2016, Turin, represented by ALB, sued DE, several related Douglas Elliman entities, and Douglas Elliman employee Debora Hassell-Dobies (together, the “DE State-Court Defendants”) in New York State Supreme Court. (Bierman Decl., Ex. D).[6] Turin raises a number of clams in its State-Court Complaint, including claims that arise out of the Federal Action.

         The thrust of Turin's State-Court Complaint is that the DE State-Court Defendants “[i]ntentionally, knowingly, recklessly and/or negligently mismanage[ed] the Property.” (Bierman Decl., Ex. 4, ¶ 3(a)). The State-Court Complaint's allegations are ...


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