Opinion
340612.
Decided March 31, 2009.
R. Bertil Peterson, Esq.(for petitioners), NY.
Hahn Ford Hundertmark(co-counsel for petitioners) NY.
Mahon, Mahon, Kerins O'Brien(for respondents), NY.
In this miscellaneous proceeding, respondents Frank Galluzzo ("Frank") and Empire State Land Surveyor, P.C. ("Empire") have moved for an order (i) disqualifying J. Randolph Hundertmark, Esq. as co-counsel for petitioner in this matter and (ii) permitting respondents, pursuant to CPLR 3025(b), to amend their answer to add the affirmative defenses of mutual mistake and unilateral mistake. Petitioner Gloria Bianco ("Gloria"), executor of the estate of her deceased husband, Albert A. Bianco, opposes the motion for disqualification and has cross-moved for leave to amend her petition to include a demand for an award of attorney's fees and out-of-pocket expenses against respondents.
This action involves the sale of a surveying business known as Albert A. Bianco, Professional Land Surveyor. The business was owned by the decedent at the time of his death on January 8, 2006. The decedent's will dated December 31, 1993 was admitted to probate by this court by decree dated April 26, 2007 and letters testamentary issued to his wife Gloria Bianco.
On December 12, 2007, an Asset Purchase Agreement (the "Agreement") was entered into between Gloria and Frank. Frank agreed to purchase the decedent's business and all of the assets used in connection with the business. The purchase price was $375,000.00. On December 14, 2007, Frank executed a promissory note in the sum of $200,000.00. The note was guaranteed by Empire Land Surveyor, P.C. The terms of the promissory note provide that Frank will pay the sum of $200,000.00, together with interest thereon at the rate of 5% per annum, in sixty consecutive monthly payments of principal and interest, each of which, except the last, was required to be in the sum of $3,774.25, the first payment to be made before January 14, 2008. A bill of sale was executed on December 14, 2007 by Gloria in favor of Frank. Gloria was represented in the sale of the business and in post-closing disputes concerning the sale by J. Randolph Hundertmark. No payment was made and, by written notice dated January 25, 2008, Gloria exercised her option to declare the unpaid principal balance of the promissory note, together with interest, to become immediately due.
Frank alleges that Gloria breached the Agreement by failing to provide adequate documentation to allow him to collect on the accounts receivable. According to Frank, Gloria fraudulently misrepresented the value of the accounts receivable, either by intentionally keeping the necessary documentation from him or by misrepresenting that said documentation ever existed. Frank also contends that Gloria fraudulently misrepresented that Frank would be receiving as part of the sale business assets such as cars, documents and files and other significant assets of the business. As a result, Frank has refused to make payment on the note.
Gloria's attorney in this proceeding, R. Bertil Peterson, has advised that J. Randolph Hundertmark is serving as "co-counsel" to him in this proceeding. Frank argues that Mr. Hundertmark should be disqualified from serving as Gloria's co-counsel on the grounds of the advocate-witness rule ( see 22 NYCRR 1200.21[b]) because he is a material and necessary witness to this proceeding. According to Frank, Mr. Hundertmark served as Gloria's attorney throughout the negotiation and sale of the business. Frank claims Mr. Hundertmark has intimate knowledge regarding the assets of the business and what was promised to Frank as part of the sale. He will be deposed and questioned as to the existence of the accounts receivable and his role in furnishing the necessary documents to allow Frank to collect on those accounts. In addition, Mr. Hundertmark is a material and necessary witness because he was involved in negotiations, meetings and drafting of documents in connection with the sale.
Frank also asks for leave of court pursuant to CPLR 3025(b) to amend respondents' answer to add two affirmative defenses, since Gloria's counsel has declined to stipulate to allow the amendment. Counsel argues that the amendment, which seeks to add two affirmative defenses — one alleging mutual mistake concerning the disputed invoices and the value of the accounts receivable and one alleging unilateral mistake by Frank caused by fraudulent conduct on the part of Gloria — does not create any prejudice or cause any surprise to Gloria. These defenses arise out of the same set of facts previously set forth in the petition. Moreover, the case is in the early stages of discovery. No depositions have taken place, and, thus, Gloria will have opportunity to seek discovery on these new defenses.
Gloria opposes the motion for the disqualification of Mr. Hundertmark and leave to amend the answer. In addition, Gloria cross-moves for leave to amend her petition to include a demand for attorney's fees and out-of-pocket expenses. Gloria argues that Mr. Hundertmark should not be disqualified at all, and certainly not prior to trial. Moreover, Gloria argues that because she is not only the executor under the decedent's will, but also a trustee, residuary beneficiary and beneficiary of the credit shelter trust, it is appropriate that she be represented by separate counsel in these capacities. As to the request for leave to amend the answer, Gloria argues that provisions of the Agreement include a "general merger clause," which bars reformation of a contract. Gloria claims that the respondents' proposed amended answer fails to set forth allegations of the essential elements of fraud.
Frank has submitted reply papers in which he argues that Gloria is attempting to gain an unfair advantage by seeking to have Mr. Hundertmark act as her co-counsel. If he is permitted to participate in court conferences and pretrial proceedings, he will be able to tailor his deposition to the testimony of other witnesses (if his deposition is not conducted first) or counsel the other witnesses to conform their testimony to his (if his deposition is conducted first). He further argues that permitting Mr. Hundertmark to participate in conferences will be highly prejudicial to him.
As to the request for leave to amend, Frank argues that the revised amended answer annexed to his motion specifically lays out the elements of Gloria's alleged fraudulent conduct. Frank asserts that Gloria intentionally misrepresented to him the value and ability to collect on the accounts receivable, which misrepresentations he relied upon in purchasing the business to his detriment. Respondents claim that since these are viable defenses, leave to amend should be granted. Moreover, they contend that Gloria's opposition has been rendered moot because she has cross-moved seeking to amend her petition to assert a claim for attorney's fees under the promissory note, which is unopposed. Thus, as a matter of right, respondents will be able to file an amended answer to the amended petition.
ANALYSIS
DISQUALIFICATION
Whether or not to disqualify an attorney is a matter which rests in the sound discretion of the court ( Gulino v Gulino , 35 AD3d 812 [2d Dept 2006]). A party seeking disqualification bears the burden of demonstrating that disqualification is warranted ( see Jamaica Pub. Serv. Co. v AIU Ins. Co., 92 NY2d 631, 636). Moreover "[d]isqualification of a law firm during litigation implicates not only the ethics of the profession but also the substantive rights of the litigants. Disqualification denies a party's right to representation by the attorney of its choice. The right to counsel of choice is not absolute and may be overridden where necessary. . .but it is a valued right and any restrictions must be carefully scrutinized" ( S S Hotel Ventures Ltd. Partnership v S.H. Corp., 69 NY2d 437, 443). "A determination of the issue requires a balancing of one party's interest in retaining counsel of his [or her] own personal choice against [the other party's] right to be free from the apprehension of prejudice" ( Murphy v Colbert, 203 AD2d 619, 620"( Matter of Lambrou, 208 AD2d 1093, 1094 [3d Dept 1994]).
Concerning the advocate-witness rule, an attorney will be disqualified from representing a client when the attorney's testimony is "necessary" and he or she "ought to be called as a witness" ( Old Saratoga Square Partnership v Compton , 19 AD3d 823, 824 [3d Dept 2005]). Where a party's attorney was an active participant in and has personal knowledge of the underlying circumstances, and ought to be called as a witness on behalf of his or her client, it is improper for such attorney to continue the representation, and any doubt concerning the necessity for the attorney's testimony should be resolved in favor of disqualification ( see Zagari v Zagari, 295 AD2d 891 [4th Dept 2002]). Generally, the roles of an advocate and of a witness are inconsistent making it "unseemly" for a lawyer in a trial to argue his own credibility as a witness ( S S Hotel Ventures Ltd. Partnership, 69 NY2d 437, 444). Moreover, the "party seeking to disqualify an attorney bears the burden of establishing that the attorney will be called as a witness at trial and the attorney's testimony is necessary. . .When determining if the attorney's testimony is necessary, the Court must take into account such factors as. . .the significance of the matters, the weight of the testimony, and the availability of other evidence" ( Feinstein v Carl, 2004 NY Slip Op 50770[U] [Sup Ct, Nassau County 2004] [internal citations omitted]).
In Matter of John E. O'Malley, Sr., the court chose to extend the disqualification under the advocate-witness rule to the pretrial stages of the action ( 141 Misc 2d 863 [Sur Ct, Rensselaer County 1988]). The court stated that "[a]s an essential witness, proponent's counsel might not only be called upon to answer interrogatories or to be orally examined in pretrial stages, but he may also need to make factual affidavits in defense or in prosecution of motions to dismiss or for summary judgment" ( id. at 866). "Since all of these events may occur in pretrial stages, the continued representation of proponent by present counsel poses the danger that proponent's counsel will be in the unseemly situation of arguing his own credibility" ( id.). The court in O'Malley refused to follow the contention that disqualification should not take place until the time of the actual trial which has been the holding in some cases ( see Matter of Bender, NYLJ, May 20, 1986, at 14, col 5 (Sur Ct, Nassau County); Matter of May, NYLJ, Aug. 24, 1988 (Sur Ct, Nassau County); Matter of Wolther, NYLJ, June 3, 1997, at 32, col 6 [Sur Ct, Nassau County]).
Gloria cites Matter of Giantasio ( 173 Misc 2d 100, 102 [Sur Ct, Bronx County 1997]) for the proposition that disqualification should not take place prior to trial; however, what the court actually stated was that it declined to follow automatic disqualification where an attorney might be called as a witness at trial. Specifically, the court stated as follows:
"This court declines to follow Matter of O'Malley (supra) to the extent that it holds that the advocate-witness disqualification rule requires that counsel in a probate proceeding be automatically disqualified at the pretrial stage and instead follows the majority view that counsel for proponent should not be automatically disqualified at the pretrial stage of a probate proceeding. Automatic disqualification at the pretrial stage would undoubtedly in some instances be used as a tactic to try to bludgeon a settlement based on the additional expenditure that the estate would have to immediately incur to retain new counsel who would have to spend time to attain the knowledge that counsel of proponent's choice already possesses. This would create more of a hardship in probate proceedings than in some other matters both because counsel frequently does not know whether the probate proceeding would be contested at the time that the probate petition is filed and because the overwhelming majority of probate contests are ultimately settled prior to trial."
In Kattus v Sherman ( 32 AD3d 496, 497 [2d Dept 2006], the plaintiffs entered into a contract with the defendant to purchase a house. The contract required the defendant to obtain a letter in lieu of a certificate of occupancy. The plaintiffs alleged that the defendant refused to obtain the letter and repudiated the contract. The defendant moved to disqualify plaintiff's counsel. The court held as follows:
"The defendant is correct that the counsel for the plaintiffs should have been disqualified. The plaintiffs' counsel is a potential witness in the determination of the breach of contract issue, and was intimately involved in the failed purchase of the property. He dealt with the defendant directly during the latter's application for the letter, and the defendant alleges that plaintiffs' counsel failed to submit the application as they had previously agreed. In addition, the defendant conversed directly with the plaintiffs' counsel via phone when the defendant indicated that he would obtain the letter after his alleged prior refusal to do so. Under these circumstances, the plaintiffs' counsel became a witness with information about relevant and material facts and thus should have been disqualified."
Moreover, in Skiff — Murray v Murray ( 3 AD3d 610, 613 [3d Dept 2004]), the Third Department pointed out that "disqualification may be premature where discovery is needed to establish the substance and necessity of the attorney's expected testimony" but not where there is "little doubt as to the substance of the [attorney's] testimony or the need for it to establish [his client's] cause of action."
Here, Frank claims that Mr. Hundertmark was directly and personally involved in the transaction between Gloria and him relating to the sale and negotiations of the Agreement. Frank represents that he intends to depose Mr. Hundertmark and call him as a witness at trial. In view of the fact Mr. Hundertmark has personal knowledge of the facts relating to the transaction in this case and will almost certainly be called as a witness at trial, it is appropriate that he be disqualified. His testimony is not only material, but necessary. The court agrees with Frank that Mr. Hundertmark's testimony is material and necessary by virtue of his intimate involvement in the transaction and negotiations. Accordingly, the motion for disqualification is granted.
AMENDMENT
The court has the discretion to allow a party to amend a pleading at any time, and it is well-settled that such discretion should be exercised freely ( Matter of Mashie, 65 AD2d 917 [4th Dept 1978]; Bilhorn v Farlow, 60 AD2d 775 [4th Dept 1977]). In exercising its discretion, the court will consider (1) how long the amending party was aware of the facts upon which the amendment is predicated and whether a reasonable excuse for the delay has been offered ( Matter of Goggins, 231 AD2d 634 [2d Dept 1996]); (2) whether the proposed amendment lacks merit ( Matter of Carvel, NYLJ, Apr. 16, 2002, at 23, col 3 [Sur Ct, Westchester County]; Seaman Corp. v Binghamton Sav. Bank, 243 AD2d 1027 [3d Dept 1997]; Sharapata v Town of Islip, 82 AD2d 350 [2d Dept 1981]); and (3) whether the proposed amendment would cause prejudice to the other party ( Matter of Carvel, NYLJ, Apr. 16, 2002, at 23, col 3 [Sur Ct, Westchester County]; Seaman Corp. v Binghamton Sav. Bank, 243 AD2d 1027 [3d Dept 1997]; Matter of Goggins, 231 AD2d 634 [2d Dept 1996]; Wyso v City of New York, 91 AD2d 661 [2d Dept 1982]; Matter of Mashie, 65 AD2d 917 [4th Dept 1978]).
Leave to amend will not be granted where to do so would cause prejudice to the other party. The type of prejudice required to defeat a proposed amendment is the loss of a special right in the interim, a change of position or significant trouble or expense which could have been avoided had the original pleading included what the party seeks to add by way of amendment ( Wyso v City of New York, 91 AD2d 661 [2d Dept 1982]; Siegel, New York Practice, § 237). The prejudice must directly arise from the omission in the original pleading. Prejudice does not arise simply because the proposed amendment sets forth an additional theory ( Bilhorn v Farlow, 60 AD2d 755 [4th Dept 1977]) or because the amendment may defeat the other party's claim ( Leary v Punzi, 179 Misc 2d 1025 [Sup Ct, Suffolk County 1999]; DeGradi v Coney Island Med. Group, P.C., 172 AD2d 582 [2d Dept 1991]).
Here, Gloria's request for leave to amend the petition will not cause prejudice to the respondents. The request is unopposed. Accordingly, leave to amend the petition is granted. As a result, respondents may amend their answer not only as matter of right, but also because there has been no significant delay nor will the necessary type of prejudice result to the petitioner.Settle order.