Opinion
02 Civ. 4489 (KMW)(FM)
January 22, 2003
MEMORANDUM DECISION
I. Introduction
Defendants Anthony Sicari Apparel Group Industries, Inc. ("ASAGI") and Anthony Sicari ("Sicari")(together, "Defendants") have moved to disqualify the law firm of Schaeffer and Krongold LLP ("SK"), which serves as counsel to Plaintiff Cleverly Minded Limited ("CML") in this action. The Defendants contend that SK has a conflict of interest because Elliot Schaeffer, Esq., a principal of SK, previously represented ASAG I and continues to represent Sicari. Additionally, both sides seek to recover certain legal expenses, and CML seeks sanctions against Sicari and his counsel. For the reasons set forth below, the disqualification motion is denied, as are the applications for related relief.
II. Relevant Facts
A. Background
The complaint, as originally filed, alleged that Sicari, through ASAGI and other corporate entities, had engaged in a pattern of racketeering activity, the object of which was to obtain goods without paying for them. (Compl. ¶¶ 41-42, 53-57). With respect to the specific shipments that gave rise to this suit, the complaint also alleged that Sicari made fraudulent representations to CML regarding ASAGI's intention to pay. (Id. ¶¶ 59-63). Stripped of its RICO and fraud verbiage, which evidently was included for its perceived in terrorem effect, the complaint in fact does little more than seek to recover approximately $370,000 from ASAGI on breach of contract and account stated theories. (Id. ¶¶ 68, 73, 78, 83).
On September 17, 2002, the Defendants moved to dismiss the RICO and fraud claims, (see Docket No. 11), which were the only claims in which Sicari was named. Thereafter, by letter dated October 15, 2002, the Defendants sought to disqualify SK and stay discovery pending the Court's determination of their motion to dismiss. (See letter from Sheldon Eisenberger, Esq., to the Court, dated October 15, 2002 ("Eisenberger Letter"), at 1). As part of its October 30, 2002 letter-response to the disqualification motion, CML voluntarily withdrew its RICO and fraud claims. (See letter from M r. Schaeffer to the Court, dated October 30, 2002 ("Schaeffer Letter"), at 1). Thereafter, by order dated December 6, 2002, Judge Wood denied the Defendants' motions to dismiss and to stay discovery on the ground that they were moot, but referred the case to me for general pretrial management, including resolution of the disqualification motion. (See Docket No. 24).
B. Basis for Motion
The Defendants seek to disqualify SK on several grounds. First, they contend that Mr. Schaeffer was the attorney who formed St. Anthony Enterprises, Inc. ("St. Anthony"), one of the companies through which Sicari allegedly carried out his racketeering scheme. (See Eisenberger Letter at 2; Compl. ¶ 41). They further allege that, since then, Mr. Schaeffer has "become knowledgeable concerning the details of Sicari's business, his business practices, the corporate structure of Sicari's companies, and Sicari's own personal financial assets." (Eisenberger Letter at 2.) Additionally, the Defendants maintain that M r. Schaeffer represented Sicari in connection with his purchase of some "dot-com" stock in 1999, and still continues to do so, as evidenced by the fact that Mr. Schaeffer holds Sicari's stock in escrow for him. (Eisenberger Letter at 2; Declaration of Anthony Sicari, dated October 15, 2002 ("Sicari Decl."), ¶ 10). Finally, the Defendants contend that Mr. Schaeffer represented ASAGI in its defense of "a lawsuit" in 2000-01. (Eisenberger Letter at 2; Sicari Decl. ¶ 14).
As set forth in further detail below, the Defendants have provided no details concerning this suit, other than an SK bill for legal services which describes it as the "Belsky" matter. (See Sicari Decl. ¶ 14 Ex. E).
III. Discussion
A. Disqualification
As the Second Circuit has noted, disqualification motions interfere with the ability of parties to choose their own counsel, often are employed for tactical reasons, and, even in the best of circumstances, cause delay. Board of Educ. v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979); Gov't of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978). Accordingly, a party moving for disqualification carries a "heavy burden," Evans v. Artek Sys. Corp., 715 F.2d 788, 794 (2d Cir. 1983), and must satisfy a "high standard of proof," Gov't of India, 569 F.2d at 739. Although the conclusion in any particular case "can be reached only after a painstaking analysis of the facts and precise application of precedent," United States v. Standard Oil Co., 136 F. Supp. 345, 367 (S.D.N.Y. 1955), the question ultimately is one of preserving the public's trust in the "scrupulous administration of justice and in the integrity of the bar." Hull v. Celanese Corp., 513 F.2d 568, 572 (2d Cir. 1975). For that reason, any lingering doubt must be resolved in favor of disqualification. Cheng v. GAF Corp., 631 F.2d 1052, 1059 (2d Cir. 1980), vacated on other grounds, 450 U.S. 903, 101 S.Ct. 1338, 67 L.Ed.2d 327 (1981); Hull, 513 F.2d at 571.
In this case, as noted above, the Defendants allege that disqualification is mandated because Mr. Schaeffer, who now represents CML, previously served as counsel for both Sicari and ASAGI. To prevail on such a claim, the Defendants must make a three-part showing that:
(1) the moving party is a former client of the adverse party's counsel;
(2) there is a substantial relationship between the subject matter of the counsel's prior representation of the moving party and the issues in the present lawsuit; and
(3) the attorney whose disqualification is sought had access to, or was likely to have had access to, relevant privileged information in the course of his prior representation of the client.
Evans, 715 F.2d at 791.
The Defendants contend that removal also is necessary because Sicari remains a client of SK to this day. It is settled law that the substantial relationship test is an insufficient safeguard when an attorney is alleged to be suing his present client. See Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1387 (2d Cir. 1976). Accordingly, in such circumstances, counsel must withdraw even if the subject matter of the two representations is unrelated. Id. at 1386-87. Following CML's withdrawal of its RICO and fraud claims, however, the only remaining defendant in this lawsuit is ASAGI. Thus, even if Sicari were a current SK client, the Defendants would be unable to show that SK has breached its ethical obligations by simultaneously representing and bringing suit against a party to this suit.
This "substantial relationship" test was first promulgated by Judge Weinfeld in T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 265, 268 (S.D.N.Y. 1953). Leber Assocs., LLC v. Entm't Group Fund, Inc., 2001 WL 1568780, at *3 n. 5 (S.D.N.Y. Dec. 7, 2001). The test gives effect to the proscriptions in Canons 4 and 5 of the New York Code of Professional Responsibility against an attorney improperly using the confidences of a former client to the former client's disadvantage. See Leber, 2001 WL 1568780, at *3; N.Y. Code of Prof. Resp. Canons 4 5, D.R. 4-101(B) 5-108(A).
1. Former Client a. ASAGI
The first element of the substantial relationship test requires that the party seeking disqualification be a former client of the firm whose disqualification is sought. Evans, 715 F.2d at 791. As proof that Mr. Schaeffer previously represented ASAGI, the Defendants offer (i) a November 1, 2000 memorandum that Sicari and his business partner at the time, Carmine L. Capone, sent to Mr. Schaeffer and his law firm which instructs them to file a motion for summary judgment in some unnamed case (Sicari Decl. Ex. D); (ii) a copy of two March 2001 bills submitted by SK to ASAGI, one regarding "Belsky" and the other "Corporate Matters" (id. Ex. E); and (iii) a copy of a $2,500 check drawn on ASAGI's account to the order of Mr. Schaeffer. (Reply Declaration of Anthony Sicari, dated November 5, 2002, Ex. A at 6; Letter from Mr. Schaeffer to Sicari, dated April 9, 2001 ("Sicari Letter"), at 6). None of this documentation even remotely meets the Defendants' burden.
For example, it appears that the memorandum has nothing to do with a suit involving Sicari or ASAGI. Rather, as Capone's affidavit and the attachments thereto make clear, the memorandum actually concerns a case captioned Belsky v. Carest, Ltd., et al., Docket No. 7161/99 (Sup.Ct. Queens County). The defendants that Mr. Schaeffer represented in that action were Capone, his former business partner Esther Bruno, and two of their business ventures. (Affidavit of Carmine Capone, sworn to on October 29, 2002 ("Capone Aff."), ¶¶ 4-6 Ex. A). Mr. Schaeffer did not represent Sicari. (Id.; see also Schaeffer Letter at 4-5). Moreover, the complaint in the Belsky action, which presumably is also on file in state court, confirms that the suit had nothing to do with Sicari or ASAGI. (Capone Aff. Ex. A).
Turning to the bills for legal services, it appears that as Capone moved from one company to the next, he would have SK forward its bills to his new place of business. Thus, in January 2001, SK sent its bills for the Belsky case and "corporate matters" to Carest, Inc., which was Capone's former company. (Schaeffer Letter Exs. I J). Then, in February 2001, when Capone and Sicari formed ASAGI, the SK bills were addressed to that entity. (Id.). Finally, in April 2001, after Capone decided to withdraw from ASAGI, SK sent Capone's bills to his new company, Jamith, Ltd. (Id.; see also Ex. D (reflecting Capone's resignation from ASAGI effective April 13, 2001)). The fact that ASAGI's name appears on four bills is consequently no indication that SK ever represented ASAGI. The only bill that even mentions Sicari or ASAGI is a "corporate matters" bill addressed to Jamith, Ltd., (id. Ex. J), which seems to confirm CML's contention that SK represented Capone during his resignation from ASAGI. (See Capone Aff. ¶ 10; Schaeffer Letter at 5). Furthermore, even a cursory review of the time entries on the Belsky bills shows that they make no mention whatsoever of, and do not appear to reflect any communications with, Sicari or ASAGI. (See Schaeffer Letter Ex. I).
The first two bills relating to "corporate matters" are addressed to a company Caresta, Inc., which appears to be the same company as Carest, Inc. (Id. Ex. J).
Finally, Mr. Schaeffer states that the $2,500 ASAG I check constituted a payment made in consideration of his efforts to resolve certain business disputes between Sicari and a third party named Steve Grossman. (See Letter from Mr. Schaeffer to the Court, dated November 7, 2002). That his efforts were not undertaken on behalf of ASAG I is confirmed by a letter that Mr. Schaeffer sent to Sicari in April 2001, which states, in part:
As per our conversation last week, I again wish to acknowledge receipt of and thank you for [the] check from [ASAGI] for Twenty Five Hundred ($2,500.00) Dollars. . . . [T]his payment was your way of showing your gratitude for helping arrange a meeting with Steve Grossman to settle your outstanding issues. . . . I reviewed this with Sheldon [Eisenberger] and he agreed that this was appropriate, particularly in light of the fact that neither I nor my firm have ever represented you or [ASAGI]. . . . Therefore, by executing a copy of this letter where indicated, you acknowledge the foregoing and that the acceptance of the check does not create a conflict of interest as outlined above nor by reason of my acceptance of the check will you seek to disqualify me in my representation of Steve Grossman, or any other party that may have any claims, controversies[,] actions or proceedings involving you or [ASAGI].
(Sicari Letter at 1) (emphasis added).
In sum, there does not appear to be any basis for the Defendants' suggestion that SK has represented ASAGI in the past.
b. Sicari
The Defendants also contend that Mr. Schaeffer had a "long-standing attorney-client and personal relationship" with Sicari which mandates disqualification. (Eisenberger Letter at 1; Sicari Decl. ¶ 2). Specifically, they allege that (i) Mr. Schaeffer was the attorney who "set up" Sicari's company, St. Anthony, in February 1998; (ii) since then, Mr. Schaeffer has become knowledgeable about Sicari's companies, his business practices, and his personal financial assets; and (iii) Mr. Schaeffer continues to represent Sicari in connection with Sicari's purchase of some "dot-com" stock in 1999. (Eisenberger Letter at 2).
While Mr. Schaefferadm its that he and his law firm incorporated St. Anthony, he contends that they performed their services (including the drafting of a shareholders agreement) on behalf of Sicari's business partner Steven Grossman, rather than Sicari. (Schaeffer Letter at 2). Here again, Mr. Schaeffer's position is confirmed by a contemporaneous writing. On December 2, 1997, Mr. Schaeffer's law firm at the time, Schaeffer and Zapson LLP, sent a letter to Sicari which enclosed a copy of the shareholder agreement and suggested that Sicari forward it to his own attorney for review. (Id. Ex. A). While this letter is not dispositive, it certainly supports Mr. Schaeffer's assertion that Sicari was not his client.
Although Mr. Schaeffer apparently continues to hold the dot-com stock certificates issued to Sicari, he contends that this was merely a courtesy that he extended at Sicari's request. (Schaeffer Letter at 6). Sicari takes a considerably different view. (Sicari Decl. ¶¶ 8-10). Nonetheless, there is no need to determine whether Mr. Schaeffer in fact represented Sicari in connection with the dot-com offering because, as set forth below, the Defendants have failed to establish a substantial relationship between that alleged engagement and the issues in this suit.
2. Substantial Relationship
The second showing that the Defendants must make is that there is a "substantial relationship" between the issues in this case and Mr. Schaeffer's alleged prior engagement. See Gov't of India, 569 F.2d at 739. This requirement, which is strictly applied in the Second Circuit, is only met when the issues involved are "identical" or "essentially the same." Id. at 740. Although the Defendants contend that Mr. Schaeffer represented Sicari in connection with the formation of St. Anthony and the purchase of the dot-com stock, neither of these alleged engagements bears any relationship to the narrow issues remaining in this lawsuit, which, after the withdrawal of CML's RICO and fraud claims, is, in reality, simply an action to recover damages for goods sold and delivered.
As noted above, the Defendants also contend that, in the course of representating Sicari, Mr. Schaeffer acquired knowledge about his companies, business practices, and personal assets. "[G]eneral legal representation can be relevant to a later litigation, but only if the later litigation fairly puts in issue the entire background of the movant." U.S. Football League v. Nat'l Football League, 605 F. Supp. 1448, 1459 (S.D.N.Y. 1985) (internal citation omitted). "Thus, knowledge of a former client's financial and business background is not in itself a basis for disqualification if the client's background is not in issue in the later litigation." Id. at 1460. Here, as a result of CML's voluntary withdrawal of its RICO and fraud claims, the background of ASAGI and Sicari is no longer at issue. Rather, the only question is whether ASAGI received goods for which it improperly failed to pay. Given that narrow focus, the Defendants have not established, as they must, that there is a substantial relationship between Mr. Schaeffer's alleged prior representation and this suit.
3. Access to Privileged or Confidential Information
Finally, even if the first two elements of the substantial relationship test were satisfied, the Defendants have utterly failed to show that Mr. Schaeffer had, or was likely to have had, access to their confidences and secrets.
* * *
For the foregoing reasons, the Defendants' motion to disqualify SK is denied.
B. Sanctions
After the Defendants filed their motion, CML voluntarily withdrew its fraud and RICO claims, stating to Judge Wood that its decision did not constitute an implicit acknowledgment that they were baseless, but, instead, was simply "a means to get on with the heart of the case." (Schaeffer Letter at 1). The Defendants argue that, despite this self-serving assertion, CML should be required to pay the costs and expenses associated with the Defendants' opposition papers. (See letter from M r. Eisenberger to the Court, dated November 6, 2002, at 2). Conversely, CML argues that the Defendants and their counsel have perpetrated a fraud upon the Court by knowingly bringing a frivolous disqualification motion in an attempt to delay this action. (Schaeffer Letter at 8). As a consequence of this alleged impropriety, CML also seeks sanctions. (Id.).
Suffice it to say, neither side can fairly be characterized as a true victim here. CML plainly stretched the limits of good faith pleading by interposing its RICO and fraud claims in its complaint. However, the Defendants' disqualification motion stands on no firmer ground. In these circumstances, neither side should be awarded sanctions or fees of any sort.
IV. Conclusion
For the foregoing reasons, the motion to disqualify SK from further service as counsel for CML, as well as the parties' requests for sanctions, are denied.
CML's overly zealous pleading, and the Defendants' decision to respond in kind with a baseless disqualification motion, have led to virtually no progress being made in this suit in the six months since it was commenced. Now that the underbrush has been cleared away, however, there is no reason for this suit to languish any longer. Accordingly, the parties are instructed to appear for a pretrial conference in Courtroom 11C on February 4, 2003 at 3:30 p.m., at which time the Court will set a discovery schedule. Given the narrow claims remaining in this suit, counsel should anticipate that the period allotted for discovery will be brief.
SO ORDERED.