Opinion
99 CIV 9385 (DLC).
January 23, 2001.
APPEARANCES:
For Plaintiff: Gregory Antollino 588 Broadway, Suite 904 New York, N.Y. 10012.
For Defendants: Clyde Jay Eisman 200 East 23rd Street, Suite 307 New York, N.Y. 10010.
OPINION AND ORDER
Plaintiff Ricky Baker ("Baker") brought this action to enforce a final amended judgment of $403,483.55 obtained in this Court in April 1999, against David A. Dorfman ("Dorfman"), an attorney, for malpractice and fraud. By Opinion and Order of July 20, 2000, this Court granted plaintiff's motion for summary judgment and declared defendant David A. Dorfman, P.L.L.C. ("PLLC") to be the successor in interest to Dorfman; appointed plaintiff, through his attorney, receiver of the PLLC; and assigned plaintiff a 75% interest in the PLLC. See Baker v. Dorfman, 99 No. 9385, 2000 WL 1010285, at *10 (S.D.N.Y. July 21, 2000) (DLC). This case was referred to Magistrate Judge Fox for the resolution of several outstanding issues, including the appointment of plaintiff's counsel as receiver of the PLLC. On August 4, 2000, Magistrate Judge Fox appointed Gregory Antollino ("Antollino"), plaintiff's counsel, as the receiver ("Receiver"), and described the terms of Antollino's receivership ("Receiver Order").
On November 7, 2000, the Second Circuit affirmed this Court's July 20, 2000 Opinion and July 25, 2000 Judgment, and the associated orders of Magistrate Judge Fox in all respects, but raised concerns, sua sponte, regarding the impact of the sixth, eleventh, twelfth, thirteenth, and twenty-third paragraphs of the Receiver Order on defendants' attorney-client relationships. The Second Circuit vacated these five paragraphs of the Receiver Order and remanded this case for possible modification of the Receiver Order "appropriate to accomplish the purpose of the receivership while maintaining compliance with the relevant law and rules of legal ethics." Baker v. Dorfman, 232 F.3d 121, 124 (2d Cir. 2000).
On November 8, 2000, this Court ordered that the parties propose modifications to the five paragraphs of the Receiver Order that were vacated. Defendants did not submit proposed modifications to the five paragraphs but, instead, in a letter dated November 20, 2000, proposed that the paragraphs remain vacated in their entirety. On November 28, 2000, plaintiff submitted proposed modifications to the five paragraphs of the Receiver Order and suggested that an additional paragraph be included in the Receiver Order. Following is a description and analysis of the relevant paragraphs of the Receiver Order, the concerns raised by the Second Circuit, and plaintiff's proposed modifications.
Sixth Paragraph
The sixth paragraph of the Receiver Order provides that:
the Receiver, as an attorney admitted to the Courts of the State of New York, shall be privy to those client confidences that are necessary solely for him to effectuate the purposes of the receivership; however the Receiver shall not reveal to any third parties any of the PLLC's client confidences, and the clients of the PLLC shall not be clients of the Receiver; and the Receiver shall have no responsibility for supervising or otherwise overseeing the legal work performed by Dorfman; such work shall remain Dorfman's responsibility solely.
In light of the Second Circuit's concern that the Receiver's ability to be "privy to . . . client confidences . . . breaches clients' right to have confidential communications with an attorney protected from disclosure to third parties," see Baker, 232 F.3d at 123, plaintiff has suggested that the sixth paragraph be modified to provide: "that the clients of the PLLC shall not be clients of the Receiver; and the Receiver shall have no responsibility for supervising or otherwise overseeing the legal work performed by Dorfman; such work shall remain Dorfman's responsibility solely." Plaintiff's proposed modification of the sixth paragraph eliminates the Receiver's ability to be privy to any attorney-client confidences, thereby avoiding any possible violation of defendants' clients' rights to confidential communications with their attorneys. Plaintiff's proposed modification of the sixth paragraph of the Receiver Order is, therefore, adopted.
Eleventh Paragraph
The eleventh paragraph of the Receiver Order provides that:
said Receiver is hereby authorized and directed to collect and take possession of all financial records, leases, general business records, and all documents pertaining to the business of the PLLC; Dorfman, the PLLC and its employees and agents are hereby directed to deliver, or, at the receiver's sole discretion, otherwise make such records available to the said Receiver for his inspection.
(Emphasis supplied.) In light of the Second Circuit's concern that the Receiver's access to the PLLC's financial and business records "violates the confidentiality that generally protects from disclosure client documents and information," Baker, 232 F.3d at 123, plaintiff has suggested that the paragraph be modified to allow that "bills showing services, conversations, and conferences between attorneys of the PLLC and clients, or other client confidences, may be redacted from such documents before provision to the Receiver."
The attorney-client privilege protects confidential client information that is contained in legal bills, but fee statements that do not contain "detailed accounts of the legal services rendered" are not protected from disclosure. Eisic Trading Corp. v. Somerset Marine, Inc., 622 N.Y.S.2d 728, 729 (1st Dept. 1995).See also Elliott Associates, L.P. v. The Republic of Peru, 176 F.R.D. 93, 97-98 (S.D.N.Y. 1997); De La Roche v. De La Roche, 617 N.Y.S.2d 767, 769 (1st Dept. 1994); Licensing Corp. of America v. National Hockey League Players Assn, 580 N.Y.S.2d 128, 129 (N Y Supt. Ct. 1992). Paragraph eleven will be modified to provide that "documents pertaining to the business of the PLLC may be redacted by the PLLC to the extent that they reflect the substance of any attorney-client communication."
Twelfth Paragraph
The twelfth paragraph of the Receiver Order provides that:
the Receiver is empowered to administer, collect, improve, sublease, or repair the PLLC in such manner as the Receiver deems necessary and appropriate to increase the profits of the PLLC. Such powers include, but are not limited to the hiring and discharge of PLLC staff; making compensation decisions regarding said staff; making compensation decisions regarding Dorfman; and entering into any contracts on behalf of the PLLC, including employment contracts.
In light of the Second Circuit's concern that the Receiver's authority — to take any actions "necessary and appropriate to increase the profits of the PLLC" and to make operational and personnel decisions, including decisions about the level of Dorfman's compensation — will result in "undue outside influence on the professional judgment" of defendants, Baker, 232 F.3d at 123, plaintiff has proposed that paragraph twelve be modified to include:
nothing in this provision shall allow the Receiver to render legal service for the PLLC's clients or to direct or regulate the PLLC's professional judgment in rendering such legal service. Insofar as a PLLC client need may require staffing beyond the staffing capabilities of the PLLC, such need may be effectuated by hiring per diem or other personnel at the client's expense and at the client's and Dorfman's sole discretion.
Plaintiff's proposed modification eliminates the ability the Receiver might have had to "render legal service" to defendants' clients or "direct or regulate" defendants' professional judgment. The only remaining issue is whether the Receiver's authority to make compensation and other business-related decisions would unduly influence defendants' professional judgment.
"A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render service for another to direct or regulate his or her professional judgment in rendering such legal services." Lawyer's Code of Prof'l Responsibility DR 5-107, N.Y. Comp. Codes R. Regs. tit. 22, § 1200.26(b). These provisions are meant to ensure that an attorney's loyalty to his client is "unquestioned," and the interests of the client are "paramount." Nelson Electrical Contracting Corp. v. Transcontinental Insurance Co., 660 N.Y.S.2d 220, 222 (3rd Dept. 1997) (quotation omitted). The obligation is on the lawyers, in this case Dorfman and the PLLC, to prevent their professional judgment from being compromised by a third party who makes decisions about their compensation. See U.S. Underwriters Ins. Co. v. TNP Trucking Inc., 44 F. Supp.2d 489, 491-92 (E.D.N.Y. 1999). It will not be assumed that they will allow their professional judgment to be compromised. See id.
Defendants have suggested, and the Court has found, no reason to believe that the authority granted the Receiver in the twelfth paragraph of the Receiver Order — as modified by the plaintiff — would unduly influence defendants' professional judgment. The Receiver is not paying defendants from his own pocket: rather, he is controlling payment of the funds earned by defendants themselves. The Receiver's interests will not likely conflict with the interests of defendants' clients: because the Receiver's goal is to satisfy the Judgment entered July 25, 2000 against defendants, the Receiver has every incentive to encourage defendants to provide their clients with competent legal assistance so that they get paid. Cf. U.S. v. Duran-Benitez, 110 F. Supp.2d 133, 151-52 (E.D.N.Y. 2000). Accordingly, plaintiff's proposed modifications are adopted.
Thirteenth Paragraph
The thirteenth paragraph of the Receiver Order states:
the "Management Committee" of the PLLC is hereby discontinued, and all decisions regarding the operation of the PLLC shall be made by the Receiver after consultation with Dorfman.
In light of the Second Circuit's concern that the Receiver's authority to make "all decisions regarding the operation of the PLLC" will result in the Receiver having undue influence over the PLLC for the same reasons articulated regarding paragraph twelve, plaintiff has proposed that the thirteenth paragraph be modified to provide that: "all management decisions regarding the business operation — as opposed to legal decisions concerning PLLC clients — shall be made by the Receiver after consultation with Dorfman." For the reasons stated above, plaintiff's suggested amendment to paragraph thirteen is adopted.
Twenty Third Paragraph
The twenty-third paragraph of the Receiver Order provides that:
the Receiver shall be authorized to sue for all unpaid debts owed to the PLLC; to institute and carry on all legal proceedings necessary for the protection of the whole or any part of the PLLC, the Receivership, and the interests of the Judgment Creditor; and to retain counsel when it is apparent to the Receiver that extensive and extraordinary legal proceedings will have to be instituted or maintained to enable the Receiver to meet his responsibilities and fulfill his obligations to the Court.
In light of the Second Circuit's concern that this paragraph may violate "the rules of legal ethics governing when attorneys may sue their own clients — or have third parties sue for them," Baker, 232 F.3d at 123, plaintiff has suggested that the paragraph be modified to allow that: "the Receiver shall not be permitted to sue any PLLC client for a fee unless the PLLC declines in its own discretion to take such steps as to collect the fee, and unless such suit is necessary to prevent fraud or gross imposition by the client upon the PLLC."
In the first instance, it is worth noting that a lawyer may reveal "[c]onfidences or secrets necessary to establish or collect the lawyer's fee." Lawyer's Code of Professional Responsibility DR 4-101(c)(4); N.Y. Comp. Codes R. Regs. tit 22, § 1200.19(c)(4). See also Feeley v. Midas Properties, Inc., 604 N.Y.S.2d 240, 241 (2d Dept. 1993) (a lawyer is entitled to "reveal the confidences of [a client] in [a] separate fee collection action, albeit only to the extremely limited extent necessary to establish and collect its fees"). Accordingly, it is unclear that defendants' clients' rights would be compromised by the twenty-third paragraph of the Receiver Order as it is currently written. Nevertheless, plaintiff's proposed modification further protects the defendants' clients' privacy and is, therefore, adopted.
Additional Paragraph
Plaintiff proposes an additional paragraph, that provides:
The parties, consistent with their obligations under Rule 11, may present any disputes to the Magistrate assigned to this case in the event that the purposes of the Receivership or the decisions of the Receiver seem to conflict with Dorfman's (or another PLLC attorney's) legal judgment concerning an existing PLLC client. The parties are required to exhaust every effort to resolve any such disputes on their own, and attorney's fees shall be awarded to the prevailing party in the event that the Magistrate determines that a party's position was not substantially justified.
This provision, which further protects the rights of defendants' clients while allowing the Receiver to perform his obligations, is adopted.
CONCLUSION
The sixth, eleventh, twelfth, thirteenth, and twenty-third "ORDERED" paragraphs of the Receiver Order are modified, and an additional "ORDERED" paragraph is added, in the manner and for the reasons provided in this Opinion. An Amended Order Appointing Receiver ("Amended Receiver Order") is issued with this Opinion. In accordance with the twenty-fifth ordered paragraph of the Amended Receiver Order, future disputes between defendants and the Receiver regarding the purposes of the Receivership or the decisions of the Receiver shall be referred to Magistrate Judge Fox after every effort to resolve any such disputes on their own has been exhausted.
SO ORDERED: