Opinion
No. 3029/11.
2012-07-3
Moses GREENFIELD, Individually and derivatively on behalf of G & G Prepaid, LLC d/b/a King Prepaid, Plaintiff, v. Francis GIAMBALVO, Zurich American Insurance Company, and John and Jane Does No.'s 1–10, Defendants, and G & G Prepaid, LLC d/b/a King Prepaid, Nominal Defendant.
Peretz Bronstein, Esq. Shimon Yiftach, Esq., Bronstein, Gerwitz & Grossman, LLC, New York, NY, Attorney for Plaintiff. Geoffrey W. Heineman, Esq., Jung H. Park, Esq., Diane Fazzolari, Esq., Ropers Majeski Kohn Bentley PC, New York, NY, Attorneys for Defendant Giambalvo.
Peretz Bronstein, Esq. Shimon Yiftach, Esq., Bronstein, Gerwitz & Grossman, LLC, New York, NY, Attorney for Plaintiff. Geoffrey W. Heineman, Esq., Jung H. Park, Esq., Diane Fazzolari, Esq., Ropers Majeski Kohn Bentley PC, New York, NY, Attorneys for Defendant Giambalvo.
Joseph M. Smick, Esq., Jeffrey M. Winn, Esq., Dirk C. Haarhoff, Esq., Sedgwick LLP, New York, NY, Attorneys for Defendant Zurich American Insurance Company.
Marian C. Rice, Esq., L'Abbate, Balkan, Colavita & Contini, L.L.P ., Garden City, NY, Attorney for Proposed Defendant Ropers Majeski Kohn Bentley PC.
CAROLYN E. DEMAREST, J.
In this action, plaintiff Moses Greenfield “Greenfield”), individually and derivatively on behalf of G & G Prepaid, LLC (“G & G”), seeks damages against defendant Francis Giambalvo (“Giambalvo”) for breach of fiduciary duty, waste of assets and mismanagement, and fraudulent conveyances and an accounting of G & G's assets. Plaintiff also asserted insurance coverage and deceptive practice claims against Zurich American Insurance Company (“Zurich”), G & G's insurer, which were all dismissed or settled prior to this decision and order. After plaintiff served Ropers Majeski Kohn Bentley PC (“Ropers”), counsel for Giambalvo and nominal defendant G & G, with a subpoena duces tecum requesting all documents evidencing communications between Ropers and Zurich related to a prior federal action based upon substantially the same facts and allegations ( Hynes v. Giambalvo, U.S. Dist Ct, ED NY, 09 Civ 2599, Ross, J.) (the “Federal Action”), Ropers moved to quash the subpoena and for a protective order, which the Court granted. Plaintiff cross-moved, pursuant to CPLR 3025, to amend his complaint to include additional allegations against Giambalvo and Zurich and to add Ropers as a defendant and, pursuant to CPLR 3124, to compel the production of documents from Ropers and Zurich.
BACKGROUND
On March 20, 2008, Greenfield and Giambalvo formed G & G, a limited liability company that distributes prepaid calling cards to neighborhood convenience stores, groceries, and bodegas. Greenfield is the CEO of Dollar Phone Corp., which purchases minutes from telephone service providers to sell to distributors, and he also had an ownership interest in several other calling card companies, including Alternatel, Happytel, Sigma Prepaid, and Mystic Prepaid. Greenfield claims that he provided all of G & G's outside capital, in the form of a total of $900,000 in loans, and that Giambalvo served as General Manager for an annual salary of $100,000.
Under the initial operating agreement, Greenfield owned 51% and Giambalvo 49% of G & G, but on March 20, 2008, they collectively transferred a 25% interest in the LLC to Rajiv Sethi (“Sethi”), who, plaintiff claims, “was an experienced prepaid calling card distribution manager and was enlisted as a member to assist Giambalvo in saving the business.”
Although Greenfield testified, in the Federal Action, that he was merely a passive investor in G & G and that Giambalvo had full control over the management of the LLC, Giambalvo, in his third-party complaint, stated that “Greenfield was the Majority–in–Interest and had sole control over the operation of G & G” and that Giambalvo “could be terminated at any time for cause.”
Under this amendment to the operating agreement, Greenfield owned 38.5% of G & G and Giambalvo 36.5%.
On February 10, 2009, following an investigation and lawsuit filed by the Federal Trade Commission, alleging that Greenfield, along with other individuals and calling card distribution companies, engaged in deceptive advertising by misrepresenting the number of minutes available on their prepaid calling cards and fees charged for their use, Greenfield and his co-defendants signed a settlement agreement under which, with respect to any business relating to the promotion and distribution of prepaid calling cards in which they had a direct or indirect role, they were required to oversee all sub-distributors and retailers, direct retailers to remove advertisements displaying expired rates, terminate retailers who fail to remove such advertising, and monitor their prepaid calling cards to ensure that the available minutes are consistent with their advertisements ( see Fed. Trade Commn. v. Alternatel, Inc., U.S. Dist Ct, SD Fla, 08 Civ 21433, Jordan, J.).
Greenfield claims that compliance with this settlement agreement would have put him at a comparative disadvantage in the prepaid calling card industry and would have adversely affected G & G. For this reason, Greenfield claims, on March 18, 2009, he created the Calling Card Distribution Trust (the (“CCD Trust”), named Konstantin Thomas Hynes “Hynes”) as trustee, and sought to transfer his interest in various prepaid calling card entities to the CCD Trust. Zurich, with which G & G held a directors and officers liability insurance policy, providing coverage of up to $1,000,000 per claim of third-party liability for the LLC and for any director or officer thereof (the “Policy”), argues, to the contrary, that Greenfield established the CCD Trust in order to circumvent an exclusion in the Policy for legal claims both prosecuted and defended by parties covered under the Policy.
The defendants in the action brought by the Federal Trade Comission also agreed to pay, jointly and severally, a monetary fine of $2,250,000.
On June 18, 2009, Hynes, as trustee on behalf of the CCD Trust, initiated the Federal Action against Giambalvo, seeking, both individually and derivatively, damages for breach of fiduciary duty,
waste of assets, and mismanagement and an accounting of G & G.
Hynes alleged that Giambalvo abandoned G & G to work for a competitor, allowed a different competitor to copy the LLC's retail distribution information, caused G & G to lose a valuable contract with a retail store, and failed to provide the other members with an accounting. Hynes was represented by Peretz Bronstein, Esq., who also serves as Greenfield's counsel in the case at bar. Zurich contends that Hynes was “a mere figurehead” and that “the entire [Federal Action] against Giambalvo was orchestrated by Bronstein.”
Aruna Burgo, G & G's office manager, was also included as a defendant.
During his deposition in the Federal Action, Hynes testified that he deferred all his responsibilities as trustee of the CCD Trust to Bronstein, that he received no compensation from the trust, that his only knowledge of Giambalvo came from discussions with Bronstein, and that he did not see the complaint until nine months after it was filed.
On June 30, 2009, Sethi submitted a claim to Zurich on behalf of G & G and Giambalvo, seeking indemnification and counsel pursuant to the Policy. The Policy states, at Section IV.A:
The Underwriter shall not be liable for Loss on account of any Claim made against Insureds:
* * *
3.brought or maintained by or on behalf of the Company or any Insured Person in any capacity except:
a.a Claim that is a derivative action brought or maintained on behalf of the Company by one or more persons who are not Insured Persons and who bring and maintain the Claim without the solicitation, assistance, or active participation of the Company or any Insured Person, [or]
b.a claim brought or maintained by any Insured Person for contribution or indemnity, if the Claim directly results from another Claim covered under this policy.
(the “Insured Against Insured Exclusion”). On May 14, 2010, Zurich sent Sethi a letter approving coverage but stating that its “preliminary position regarding coverage for this matter is premised upon the allegations in the Charge and presently known facts and is subject to change as additional allegations and facts are developed through the course of discovery and further developments.” Zurich states that it did not know, when it received Sethi's claim, that Hynes or the CCD Trust had any relation to Greenfield, an “Insured Person” under the Policy, describing Sethi as “Greenfield's ally” and suggesting that his submission of the claim was a tactical move to obtain coverage from Zurich that G & G was not entitled to receive under the Policy.
Pursuant to its obligations under the Policy, Zurich retained Ropers to represent Giambalvo in the Federal Action. Ropers also appeared on behalf of G & G, as a nominal defendant, “in order to avoid a potential default,” even though there were no claims asserted against the LLC. On July 6, 2010, Giambalvo filed a third-party complaint against Greenfield and Sethi, seeking indemnity and contribution for their failure to oversee G & G's operations and finances. Greenfield and Sethi submitted a claim to Zurich, and, on August 2, 2010, Zurich sent them a letter denying coverage pursuant to the Insured Against Insured Exclusion. Greenfield argues that he should have received coverage for the third-party claims under Section IV.A.3.b of the Policy, which excepts indemnity and contribution claims from the Insured Against Insured Exclusion, provided that the claims directly result from claims that are covered under the Policy. On October 4, 2010, Greenfield and Sethi initiated a federal court action against Zurich for indemnity, but they withdrew their complaint after Zurich filed a motion to dismiss for lack of subject matter jurisdiction ( see Greenfield v. Zurich Am. Ins. Co., U.S. Dist Ct, ED NY, 10 Civ 4514, Irizarry, J.).
Giambalvo's answer, in the Federal Action, asserted, as an affirmative defense, that Hynes lacked standing. By letter dated August 31, 2010, addressed to Judge Allyne Ross, requesting permission to move to dismiss the third-party defendants' counterclaims against Giambalvo for failure to state a cause of action, the issue of standing was again raised in light of Greenfield's claim to have transferred his interest in G & G to the CCD Trust. In response, the District Court determined, sua sponte, that a hearing was necessary to determine whether Greenfield had properly transferred his interest and referred the matter to Magistrate Judge Lois Bloom to hear and recommend. Hynes brought the Federal Action pursuant to diversity jurisdiction under 28 USC § 1332(a)(1), as he was citizen of Colorado and Giambalvo was and continues to be a citizen of New York. Greenfield was also, and continues to be, a citizen of New York and therefore could not have been substituted as plaintiff, as it would have destroyed diversity and there would have been no other basis for federal jurisdiction. Therefore, the Federal Action could only have proceeded if Greenfield's transfer to the CCD Trust was valid.
Following a hearing, at which Abe Greenfield, Moses Greenfield's brother, claimed that Giambalvo gave him his oral and written consent to the transfer, but could not produce such written consent, and Giambalvo denied having given either oral or written consent, Magistrate Judge Bloom concluded that Hynes lacked standing and recommended that the action be dismissed without prejudice ([Slip Op. 4]Hynes v. Giambalvo, 2011 WL 317979, *1, 2011 U.S. Dist LEXIS 9018, *2 [ED N.Y. 2011] ).
On January 31, 2011, no party having objected to the report and recommendation, the District Court adopted Magistrate Judge Bloom's recommendation and dismissed the Federal Action ( Hynes v. Giambalvo, 2011 WL 346594, *1, 2011 U.S. Dist LEXIS 9065, *1–2 [ED N.Y.2011] ). No party appealed this decision, and the ruling is therefore final, collaterally estopping Greenfield from rearguing the issue as he has attempted to do in his motion.
Magistrate Judge Bloom found that:
[t]he operating agreement requires that the transferring member obtain the prior written consent of a majority interest on a per capita basis.' Although Frank Giambalvo possesses a majority of the non-transferring members' interest, he does not represent a majority interest on a per capita basis. The signatures of both remaining members, Giambalvo and Sethi, were therefore required. Plaintiff's evidence of Giambalvo's consent is specious. Even less evidence has been proffered that Rajiv Sethi consented to the transfer. (2011 WL 317979 at *4, 2011 U.S. Dist LEXIS 9018 at *13).
On February 7, 2011, Greenfield initiated the instant action, which, parallel to the Federal Action, includes claims against Giambalvo for breach of fiduciary duty, waste of assets and mismanagement, and fraudulent conveyances and seeks an accounting of G & G from Giambalvo and Aruna Burgo, G & G's office manager. Greenfield's complaint also includes a claim against Burgo for aiding and abetting breach of fiduciary duty and an individual claim against G & G for breach of contract. On October 31, 2011, upon motion to dismiss pursuant to CPLR 3211(a)(7), the Court dismissed Greenfield's complaint as against Burgo.
Combining the claims raised in the separate federal action against Zurich, Greenfield's complaint also alleges that the insurer denied coverage in bad faith for himself and Sethi as third-party defendants in the original Federal Action. Greenfield initially asserted one cause of action for breach of contract and three causes of action for deceptive practices in violation of General Business Law § 349 against Zurich. By stipulation dated May 31, 2011, after Zurich filed a motion for partial summary judgment, Greenfield agreed to dismiss, with prejudice, his ninth, tenth, and eleventh causes of action, for deceptive practices. Zurich further moved, on April 25, 2012, to sever the insurance coverage cause of action from the underlying claims against Giambalvo and to disqualify plaintiff's counsel in the insurance coverage action. By letter dated June 8, 2012, Zurich's counsel informed the Court that Zurich reached a settlement with Greenfield, rendering Zurich's motion moot.
On August 9, 2011, Greenfield served defendants with a request for the production of documents seeking, inter alia, “[a]ll communications with Ropers [and Zurich] relating to the Zurich claim .” After Zurich returned documents that were heavily redacted, at Ropers' insistence, to protect Giambalvo's attorney-client privilege, on October 31, 2011, Greenfield served Ropers with a subpoena duces tecum requesting “[a]ll documents and communications, including emails and all electronic data, between Ropers and Zurich American Insurance Company relating to the federal action ... that preceded this state action.” Ropers moved to quash the subpoena and for a protective order, which the Court granted on April 25, 2012. Greenfield “cross-moved,” pursuant to CPLR 3124, to compel the production of documents from Ropers and Zurich and, pursuant to CPLR 3025, to amend his complaint to allege four causes of action against Ropers, as an additional defendant, and further allegations against Giambalvo and Zurich.
Greenfield now asserts that Ropers, to whom Zurich “refers significant business,” served to “keep[ ] Zurich happy by vitiating [G & G's] coverage,” which conflicted with the interests of the LLC. Greenfield claims that Bronstein warned Giambalvo's counsel that dismissal of the Federal Action for lack of standing would be against G & G's best interest, because Greenfield would then initiate a state court action, for which Giambalvo would not receive coverage, pursuant to the Insured Against Insured Exclusion, and the LLC's potential recovery would be limited to the extent of Giambalvo's personal assets.
In his proposed amended complaint (the “Amended Complaint”), Greenfield asserts four causes of action against Ropers. For his proposed ninth cause of action, Greenfield claims that Ropers is liable to G & G for legal malpractice, as it purportedly acted to vitiate the LLC's insurance coverage. The proposed tenth cause of action asserts that Ropers breached its fiduciary duty to G & G based upon the same factual allegations. For his proposed eleventh cause of action, Greenfield claims that Ropers violated Rule 1.7 of the Rules of Professional Conduct by representing both Giambalvo and G & G and seeks forfeiture to G & G of the legal fees that Zurich paid to Ropers for the representation. The proposed twelfth cause of action alleges that Ropers aided and abetted Giambalvo's purported breach of fiduciary duty by “colluding to challenge Hynes' standing in the Federal Action.”
The Amended Complaint also contains a new cause of action against Zurich for aiding and abetting breach of fiduciary duty. However, as plaintiff has reached a settlement with Zurich as to all causes of action asserted against the insurer, this proposed amendment is moot.
The Amended Complaint also seeks to add further allegations against Giambalvo Greenfield claims that Giambalvo's alleged recanting of his consent to the transfer of Greenfield's interest in G & G to the CCD Trust constitutes a breach of his fiduciary duty to G & G and to Greenfield, as it caused Greenfield to bring an action for which Zurich would not provide coverage under the Policy. The Amended Complaint also alleges that the Policy was a valuable asset of G & G and that Giambalvo's actions wasted such asset by vitiating coverage.
Greenfield argues that the Court should grant him leave to amend his complaint because no party is prejudiced and because Ropers, having represented Giambalvo in both this action and the Federal Action, “is intimately aware of the facts and allegations in this case and has possession of all discovery produced in this matter.” Greenfield also urges the Court to compel the production of unredacted documents pertaining to communications between Ropers and Zurich regarding the Federal Action, arguing that these documents are highly relevant and that an insurer may not rely on attorney-client, litigation, or work product privilege to prevent the production of documents in a coverage action predicated on bad faith.
Ropers argues that Greenfield should not be allowed to amend his complaint because the proposed allegations are all palpably lacking in merit and fail to state a cause of action. Ropers further claims that the amendment would cause surprise and prejudice for Giambalvo by potentially disqualifying Ropers as counsel and “cloud[ing] the issues to be litigated in the instant lawsuit.” Furthermore, Ropers contends that, contrary to Greenfield's claims, a law firm does not represent conflicting interests by serving as counsel for both a defendant and a nominal defendant entity in a derivative action. Ropers asserts that Greenfield's cross-motion is a mere tactic to gain access to privileged documents that should be denied in its entirety.
DISCUSSION
“Leave to amend a pleading should be freely granted” where “the proposed amendment is not palpably insufficient or patently devoid of merit, and will not prejudice or surprise the opposing party” (Bolanowski v. Trustees of Columbia Univ. in City of NY, 21 A.D.3d 340, 340, 800 N.Y.S.2d 560 [2d Dept 2005], citing CPLR 3025[b]; see G.K. Alan Assoc., Inc. v. Lazzari, 44 A.D.3d 95, 99, 840 N.Y.S.2d 378 [2d Dept 2007] ). “In cases where the proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit, leave should be denied” (Norman v. Ferrara, 107 A.D.2d 739, 740, 484 N.Y.S.2d 600 [2d Dept 1985] ). Ropers and Giambalvo argue that the new allegations and causes of action in the Amended Complaint are all facially devoid of merit and that, accordingly, the Court should deny Greenfield's motion for leave to amend.
The ninth cause of action in the Amended Complaint alleges that Ropers is liable to G & G for legal malpractice. The basis for Greenfield's claim is that, in the Federal Action, Ropers caused Giambalvo to assert an affirmative defense of lack of standing, which resulted in dismissal of the case. Such dismissal, Greenfield argues, caused him to initiate the instant action, for which Zurich would not provide indemnification pursuant to the Insured Against Insured Exclusion. Because the standing defense was purportedly in Zurich's best interest, rather than that of G & G or Giambalvo, Greenfield claims that Ropers' actions were “at least negligent and, upon information and belief, willful” and constitute a breach of its duty to its client G & G, the nominal defendant. This argument is devoid of merit.
“In an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession' and that the attorney's breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages. To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer's negligence” (Pistilli Constr. & Dev Corp. v. Epstein, Rayhill & Frankini, 84 A.D.3d 913, 914, 921 N.Y.S.2d 887 [2d Dept 2011], quoting Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438, 442 [2007] ). “In addition, New York courts impose a strict privity requirement to claims of legal malpractice;' .... absent an attorney-client relationship, a cause of action for legal malpractice cannot be stated” (Fed. Ins. Co. v. N. Am. Specialty Ins. Co., 47 A.D.3d 52, 59, 847 N.Y.S.2d 7 [1st Dept 2007], quoting Lavanant v. Gen. Acc. Ins. Co. of Am., 164 A.D.2d 73, 81, 561 N.Y.S.2d 164 [1st Dept 1990] ).
Contrary to Greenfield's argument, Ropers' true client in the Federal Action was Giambalvo, the actual defendant, rather than G & G, against which Hynes asserted no causes of action. It is well settled that the client of attorneys retained by an insurer pursuant to an insurance policy is not the insurer but the insured (Feliberty v. Damon, 72 N.Y.2d 112, 120 [1988] ). Furthermore, in a derivative suit, the nominal defendant entity is usually a passive litigant and does not ordinarily require representation by independent counsel ( cf. Russo v. Zaharko, 53 A.D.2d 663, 666, 385 N.Y.S.2d 105 [2d Dept 1976] ).
In 207 Second Avenue Realty Corp. v. Salzman & Salzman (291 A.D.2d 243, 244, 737 N.Y.S.2d 88 [1st Dept 2002] ), where there was a similar challenge to joint representation of the individual defendants and the nominal defendant entity, the Appellate Division noted that the “individual defendants in the derivative action, and their lawyers, had no more right to represent' the corporation named therein that did [the] plaintiff.” In the Federal Action, which presented the claims of competing members regarding the failure of the LLC, Ropers' representation of G & G was a mere technicality; the result would have been the same had no attorney appeared on behalf of the LLC ( see id.). Both sides to the true controversy were represented by separate counsel. Accordingly, Greenfield lacks standing, derivatively on behalf of G & G, to assert a cause of action for legal malpractice against Ropers for its representation of the LLC. Greenfield also lacks standing individually, as he clearly never established an attorney-client relationship with Ropers.
The Russo court cautioned that “in particular cases the relief sought may require an appearance and answer by the corporate defendant. Such appearance must be by independent counsel whose interests will not conflict with those of the individual defendants” (53 A.D.2d at 666). In the case before this Court, Greenfield asserts a cause of action against G & G for breach of contract, and it is possible that Ropers could not, as counsel for Giambalvo, adequately represent the LLC's interests. However, in the Federal Action there were no such allegations against G & G and Ropers' appearance for both Giambalvo and the nominal LLC defendant was not conflicted.
Moreover, Ropers' interposition of a standing defense, which was entirely consistent with its duty to Giambalvo to vigorously represent his interests, did not in itself cause dismissal or invalidation of Hynes' claims in the Federal Action. As the basis for federal jurisdiction was diversity, and Greenfield's substitution as plaintiff would have destroyed such diversity, once it was determined that Greenfield's transfer to the plaintiff trust was ineffective, the federal court's authority to entertain the Federal Action evaporated. “[S]ubject matter jurisdiction cannot be ... achieved by agreement of the parties” (In re Duncan, 308 B.R. 138, 145 [Bankr ED N.Y.2004], citing United States v. Cotton, 535 U.S. 625, 630 [2002] ). Therefore, the federal court had no power to adjudicate the derivative claims, even if Ropers had never raised the issue of Hynes' standing, and any judgment in G & G's favor or any damages awarded would have been invalid ( see Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 101 [1998] [stating that, where jurisdiction is uncertain, federal courts can at most render a “hypothetical judgment”] ). Therefore, Ropers' advocacy in obtaining dismissal of the Federal Action did not cause G & G any damages. It is also noted that the federal court explicitly stated that it had raised the issue of standing sua sponte (id. 2011 WL 317979 at *1, 2011 U.S. Dist LEXIS 9018 at *2). Furthermore, because Greenfield, who was a third-party defendant in the Federal Action, had a full and fair opportunity to object to the report and recommendation of dismissal and failed to do so or to appeal the federal court's order dismissing the case, he is collaterally estopped from now asserting that Hynes did in fact have standing ( see Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 349 [1999] ). Therefore, the Court declines to grant Greenfield's request to amend his complaint to include a cause of action for legal malpractice against Ropers.
Similarly, Greenfield's proposed tenth cause of action, alleging that Ropers breached its fiduciary duty to G & G by pursuing the standing defense, is meritless, because Ropers' true client in the Federal Action was Giambalvo, the actual defendant, rather that G & G, the nominal defendant ( see 207 Second Ave. Realty, 291 A.D.2d at 244, 737 N.Y.S.2d 88), and because the standing defense did not cause G & G any damages. Moreover, where a breach of fiduciary duty claim “arose from the same facts and did not allege distinct damages, [it] should be dismissed, as a matter of law, as duplicative of the legal malpractice claim” (Town of N. Hempstead v. Winston & Strawn, LLP, 28 A.D.3d 746, 749, 814 N.Y.S.2d 237 [2d Dept 2006]; see Putnam County Temple & Jewish Ctr., Inc. v. Rhinebeck Sav. Bank, 87 A.D.3d 1118, 1120, 930 N.Y.S.2d 42 [2d Dept 2011]; [Slip Op. 8]Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 A.D.3d 267, 271, 780 N.Y.S.2d 593 [1st Dept 2004] ). Therefore, the Court will not permit Greenfield to amend his complaint to include this cause of action.
The eleventh cause of action in the proposed Amended Complaint, for violation of Rule 1.7 of the Rules of Professional Conduct, is also palpably insufficient as a matter of law. Rule 1.7(a) states that “a lawyer shall not represent a client if a reasonable lawyer would conclude that ... the representation will involve the lawyer in representing differing interests” (22 NYCRR 1200, Rule 1.7[a] ). Greenfield contends that Ropers should not have represented both Giambalvo and G & G in the Federal Action, as they had conflicting interests, and that “[a]s a result of this conflict of interest as well as other misconduct explained in [the Amended Complaint], Ropers should forfeit fees paid to it by Zurich to represent [G & G]” and remit such fees directly to G & G. However, a violation of the Rules of Professional Conduct “does not, in itself, give rise to a private cause of action against an attorney or law firm” (Weintraub v. Phillips, Nizer, Benjamin, Krim, & Ballon, 172 A.D.2d 254, 254, 568 N.Y.S.2d 84 [1st Dept 1991]; see Tabner v. Drake, 9 A.D.3d 606, 610, 780 N.Y.S.2d 85 [3d Dept 2004]; William Kaufman Org., Ltd. v. Graham & James LLP, 269 A.D.2d 171, 173, 703 N.Y.S.2d 439 [1st Dept 2000] ). Moreover, Ropers' nominal representation of G & G did not create a true conflict of interest or in any way prejudice Hynes' ability to represent the LLC derivatively as plaintiff in the Federal Action ( see 207 Second Ave. Realty, 291 A.D.2d at 244, 737 N.Y.S.2d 88). Therefore, Greenfield's request to add this cause of action is denied.
Greenfield also seeks, in his proposed Amended Complaint, to add new allegations against Giambalvo to his first cause of action, claiming that, in the Federal Action, Giambalvo breached his fiduciary duty to G & G and Greenfield by asserting a standing defense and recanting his purported consent to the transfer of Greenfield's interest in G & G to the CCD Trust, and to his second cause of action, claiming that such conduct wasted G & G's “valuable Zurich policy.” Greenfield alleges that Giambalvo should have conceded that the transfer was valid and consented to Hynes' standing because it was purportedly in G & G's best interest.
In light of the Insured Against Insured Exclusion, the essence of this argument is that Giambalvo should have abandoned his own defense to assist Greenfield and G & G in perpetrating insurance fraud upon Zurich and jurisdictional fraud upon the Court. Apart from the obvious violation of Judiciary Law § 487 inherent in this argument, it is also devoid of merit.
Greenfield's argument, that Giambalvo's actions harmed G & G because the LLC would have received coverage for its damages in the Federal Action, but not in this action, is tenuous in light of the fact that Hynes was merely serving as a proxy for Greenfield and Zurich would have likely denied coverage upon finding this connection through discovery in the Federal Action. The language of the Insured Against Insured Exclusion in the Policy is clear and unambiguous in precluding coverage in cases like that herein, in which insured principals of the LLC are claiming against each other. The only reason Zurich initially provided legal counsel is based upon the deception inherent in the identity of the plaintiff in the Federal Action.
The District Court was actually alerted to the defect in federal subject matter jurisdiction by Greenfield's interposition of his own counterclaims against Giambalvo, in response to Giambalvo's third-party action, for which Greenfield would have had no standing if he had relinquished his interest in G & G to the plaintiff trustee. Recognizing the inconsistency in Greenfield's position, the court ordered a hearing regarding the transfer of interest. Upon hearing, the court determined that [Slip Op. 9]the testimony of Abe Greenfield, who claimed to have received Giambalvo's oral and written consent, was “vague and evasive” and that there was no record of any written consent, as is required under G & G's operating agreement (Hynes, 2011 WL 317979 at *4, 2011 U.S. Dist LEXIS 9018 at *12). As the Magistrate Judge noted, even if Giambalvo had given his consent to the transfer, there was nothing indicating that Sethi gave his consent, as is also required under the operating agreement ( see id. 2011 WL 317979 at *4, 2011 U.S. Dist LEXIS 9018 at *13). Greenfield failed to oppose or otherwise challenge the District Court's ruling in the Federal Action. These findings are therefore res judicata as to the validity of plaintiff's transfer of his interest in G & G to Hynes as trustee and collaterally estop him from relitigation of this issue in the instant action ( see Parker, 93 N.Y.2d at 349, 690 N.Y.S.2d 478, 712 N.E.2d 647). As the federal court is vested with only limited jurisdiction and may not adjudicate matters over which it lacks subject matter jurisdiction (Duncan, 308 B.R. at 145), and Hynes' lack of standing was established, Giambalvo could not have consented to jurisdiction in the federal court ( see id.; Cotton, 535 U.S. at 630 [“ “[D]efects in subject-matter jurisdiction require correction regardless of whether the error was raised in district court.”] ).
Moreover, to the extent that Greenfield is suggesting that Giambalvo should have lied under oath to protect G & G's coverage under the Policy, it would be unconscionable to permit litigation upon such theory. Therefore, the Court will not permit Greenfield to amend his complaint to allege that Giambalvo's testimony in the Federal Action, or his assertion of a standing defense, constituted a breach of fiduciary duty or waste of G & G's assets.
Finally, Greenfield alleges, in his proposed twelfth cause of action against Ropers, that the law firm aided and abetted Giambalvo's breach of fiduciary duty by “colluding to challenge Hynes' standing in the Federal Action.” “A claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach” (AHA Sales, Inc. v. Creative Bath Prods., Inc., 58 A.D.3d 6, 23, 867 N.Y.S.2d 169 [2d Dept 2008], quoting Kaufman v. Cohen, 307 A.D.2d 113, 125, 760 N.Y.S.2d 157 [1st Dept 2003] ). Because the Court has determined that Giambalvo's testimony and assertion of a standing defense in the Federal Action did not constitute a breach of his fiduciary duty to G & G, Ropers cannot be liable for aiding and abetting a breach of fiduciary duty based upon its assistance in obtaining dismissal of the Federal Action. Therefore, Greenfield's motion for leave to amend his complaint is denied in its entirety.
Furthermore, Ropers and Giambalvo are correct in noting that Greenfield's addition of Ropers as a defendant would cause Giambalvo great prejudice, surprise, and hardship in that it would lead to Ropers' disqualification as counsel for Giambalvo. “The disqualification of an attorney is a matter which rests within the sound discretion of the court. Although [a] party's entitlement to be represented in ongoing litigation by counsel of his or her own choosing is a valued right which should not be abridged,' such right will not supersede a clear showing that disqualification is warranted.” (In re Marvin Q., 45 A.D.3d 852, 853, 846 N.Y.S.2d 356 [2d Dept 2007] [internal citation omitted], quoting Campolongo v. Campolongo, 2 A.D.3d 476, 476, 768 N.Y.S.2d 498 [2d Dept 2003] ). Were Ropers to become a co-defendant in the instant action, it would be required to withdraw as Giambalvo's attorney ( see22 NYCRR 1200.0, Rule 1.7[a][2] [requiring withdrawal where the lawyer's own interests will adversely affect the lawyer's judgment on behalf of the client] & Rule 3.7 [“A lawyer shall not act as advocate before a tribunal in a matter in which the lawyer is likely to be a witness on a significant issue of fact”]; see also Friia v. Palumbo, 89 A.D.3d 896, 932 N.Y.S.2d 542 [2d Dept 2011] ). Ropers has represented [Slip Op. 10]Giambalvo from the beginning of the Federal Action, and denying him his chosen counsel would hinder his ability to defend the instant action ( see Solow v. Grace & Co., 83 N.Y.2d 303, 310 [1994] [“[M]otions to disqualify are frequently used as an offensive tactic, inflicting hardship on the current client and delay upon the courts by forcing disqualification even though the client's attorney is ignorant of any confidences of the prior client .”] ). The addition of Ropers as a party defendant herein would effect a disqualification of counsel that is clearly unwarranted and would work an injustice upon defendant Giambalvo.
Greenfield also moves, pursuant to CPLR 3124, to compel Zurich and Ropers to produce “all documents and communications” that they exchanged relating to the Federal Action. These documents involve communications between Ropers as Giambalvo's attorney and the insurer that hired the firm on his behalf regarding litigation related to the instant action and thus are privileged and protected against disclosure ( see Grotallio v. Soft Drink Leasing Corp., 97 A.D.2d 383, 383, 468 N.Y.S.2d 4 [1st Dept 1983] [“The contents of an insurer's claim file which have been prepared for litigation ... are immune from disclosure”]; Hauc v. Maryland Cas. Co., 2011 N.Y. Slip Op 31746[U] [Sup Ct, N.Y. County 2011] ). While Greenfield argues that “an insurer may not use attorney-client, litigation or work product privileges to shield it from disclosing relevant information in an action predicated on bad faith” (Diamond State Ins. Co. v. Utica First Ins. Co., 37 A.D.3d 160, 161–62, 829 N.Y.S.2d 465 [1st Dept 2007]; see Woodson v. Am. Tr. Ins. Co., 280 A.D.2d 328, 328–29, 720 N.Y.S.2d 467 [1st Dept 2001]; Zurich Ins. Co. v. State Farm Mut. Auto. Ins. Co., 137 A.D.2d 401, 402, 524 N.Y.S.2d 202 [1st Dept 1988] ), such principle, and the cases that he cites, are inapposite, as Greenfield's purpose here is to intrude into the attorney-client relationship between Ropers and Giambalvo by accessing documents principally concerning the representation of his adversary, under the guise of asserting G & G's rights as Ropers' client. However, Ropers' representation of G & G was merely nominal; its real client has, at all times, been Giambalvo. Moreover, as this action has been settled as against Zurich, Greenfield can no longer rely on bad-faith insurance coverage claims to defeat the privilege. In fact, the settlement of claims against Zurich would appear to render moot plaintiff's discovery demands. Because neither Ropers nor Zurich is currently a party to this action, and because the Court previously granted Ropers' motion to quash, Greenfield is not entitled, under CPLR 3120(1), to the documents he seeks from Ropers and Zurich. Therefore, Greenfield's motion to compel is denied.
CONCLUSION
Accordingly, Greenfield's motion is denied in its entirety. The Court declines to grant plaintiff leave to amend his complaint to add any of the proposed new allegations or causes of action. Furthermore, plaintiff's request that the Court compel the production of documentary communications between Zurich and Ropers regarding the Federal Action is denied.
The foregoing constitutes the decision and order of the Court.