Opinion
Civil No. 97-5666 (JHR).
March 30, 1999
Alan L. Frank, Esquire, Frank Rosen, Cherry Hill, New Jersey, Attorney for Plaintiffs.
Kimberly D. Sutton, Esquire, Obermayer, Rebmann, Maxwell Hippel, LLP, Haddonfield, New Jersey, Attorney for Defendants.
OPINION
Presently before the Court are two motions. Plaintiffs' motion to disqualify Kimberly D. Sutton, Esquire, and the law firm of Obermayer, Rebmann, Maxwell Hippel, LLP, ("Obermayer") from representing Defendants Gregory Saputelli, Esquire, and Gregory D. Saputelli Associates, P.A., (collectively the "Saputelli Defendants"). In response to Plaintiffs' motion to disqualify the Saputelli Defendants' attorneys, the Saputelli Defendants filed a letter brief and a cross-motions seeking sanctions pursuant to Fed.R.Civ.P. 11. Plaintiffs opposed Defendants' motion seeking sanctions.
For the reasons discussed below, Plaintiffs' motion to disqualify the Saputelli Defendants attorneys is granted; and the Saputelli Defendants' cross-motion for an order imposing sanctions against Plaintiffs' counsel pursuant to Fed.R.Civ.P. 11 is denied.
Background and Procedural History
In their second amended complaint, Plaintiffs Ronald Cantor, Edward Cantor, Leroy Kean and Cantor, Cantor Kean allege that Defendants Martin Ettin, Esquire, and Davis, Reberkenny Abromowitz (collectively the "Ettin Defendants"), and the Saputelli Defendants committed legal malpractice in connection with the purchase of land in Mays Landing, New Jersey, the conversion of apartments on the land into condominiums, and the lease-back of a vacant portion of the land to Plaintiffs.
The facts an procedural history of this case are taken from the Order filed by the Honorable Joseph H. Rodriguez on July 8, 1998 granting the Sandiper Condominium Association of Mays Landing ("Sandpiper") and Charles M. Middlesworth, Esquire, and Schultz Middlesworth, P.C.'s motion to dismiss or for summary judgment, and denying the Ettin Defendants' motion to dismiss or for summary judgment. The Court will discuss only those aspects of the case that are relevant to the issues before it.
The transactions giving rise to this action began over 20 years ago in 1977 when the Plaintiffs purchased approximately 15 acres of land in Mays Landing, New Jersey, which contained an apartment complex known as the "Hadley Woods Apartments." At the time they purchased the property, Plaintiffs intended to convert the existing apartments into condominium units and develop the remaining nine acres of vacant land. Plaintiffs retained Gregory Saputelli to prepare the necessary documents to convert the apartment complex into condominiums and to represent them generally in the conversion process. At some point, however, Plaintiffs learned that they would be unable to develop the vacant portion of the land because they could not obtain the requisite sewer permits from the Township of Hamilton.
In order to retain the option of developing the vacant portion of the land while still converting the existing apartments into condominiums, Plaintiffs entered into a lease agreement with the newly formed condominium association, Sandpiper, whereby Plaintiffs leased-back from Sandpiper the vacant portion of the land. To that end, Plaintiffs retained Martin Ettin to draft a lease agreement between Plaintiffs and Sandpiper. Plaintiffs later assigned their rights and obligations under the lease to the Philadelphia College of the Arts.
The terms of that lease agreement later became the subject of a state court action brought by Sandpiper against Plaintiffs in the Superior Court of New Jersey, Atlantic County, seeking increased rent payments. Gregory Saputelli, who represented Plaintiffs in the underlying real estate transactions, and Kimberly Sutton of the law firm Obermayer, Rebmann, Maxwell Hippel represented Plaintiffs in that state court action. On May 23, 1997, the Honorable Marvin N. Rimm granted in part Sandpiper's motion for summary judgment and found that Plaintiffs were liable to Sandpiper for increased rent for all past and future rental payments due under the lease.
Plaintiffs filed the complaint in this action in November, 1997 alleging claims of legal malpractice against Martin Ettin, David Reberkenny Abromowitz, Gregory Saputelli and Obermayer, among others. Plaintiffs voluntarily dismissed their claims against Gregory Saputelli and Obermayer. On July 31, 1998, Plaintiffs filed their second amended complaint and named as defendants Martin Ettin, Ettin's law firm, Davis, Reberkenny Abromowitz, Gregory Saputelli and Saputelli's former law firm, Gregory D. Saputelli Associates. In this action, Obermayer and Kimberly Sutton represent the Saputelli Defendants against their former clients in the state court action.
Discussion
The Court will first address Plaintiffs' motion to disqualify the Saputelli Defendants' attorneys, and then turn to the Saputelli Defendants' cross-motion for sanctions.
I Plaintiffs' Motion to Disqualify the Saputelli Defendants' Attorneys, Kimberly D. Sutton, Esquire, and Obermayer, Rebmann, Maxwell Hippel, LLP .
Plaintiffs seek an order of the Court disqualifying the Saputelli Defendants' counsel, Kimberly D. Sutton, Esquire, and Obermayer because Sutton and Obermayer represented Plaintiffs as defense counsel in the underlying state court action.
The Saputelli Defendants opposed the motion to disqualify their attorneys and filed a cross-motion seeking sanctions under Fed.R.Civ.P. 11 claiming that the motion to disqualify their attorneys is frivolous. Defendants' letter brief submitted in opposition to Plaintiffs' motion purports to contain both their opposition to Plaintiffs' motion and their argument in support of their motion for sanctions under Fed.R.Civ.P. 11.
Plaintiffs claim that disqualification is required here because Obermayer and Sutton's continued representation of the Saputelli Defendants violates Rules 1.9(a)(1), 1.9(a)(2) and 1.9(b) of the Rules of Professional Conduct of the American Bar Association as adopted by the New Jersey Supreme Court ("RPC") because this action is "substantially related" to the state court action in which Sutton and Obermayer represented Plaintiffs as defense counsel, and Sutton and Obermayer now represent in this action interests that are adverse to their former clients. The Saputelli Defendants' opposition appears to be based on Plaintiffs' tacit consent to their former attorneys' representation of the Saputelli Defendants in this action. Defendants' claim that "Plaintiffs never voiced any objection to [Obermayer's] representation of . . . Gregory D. Saputelli . . . [and] actively encouraged [Obermayer] to handle this litigation." Defendants' Letter Brief dated February 12, 1999 submitted in Opposition to Plaintiffs' Motion to Disqualify and in Support of Defendants' Motion for Rule 11 Sanctions ("Defendants' Brief") at 4. Defendants further argue that Sutton's and Obermayer's representation of the Saputelli Defendants against their former clients is permissible because "Plaintiffs sat by, without voicing any protest whatsoever[,] as [Obermayer] represented Mr. Saputelli's interests during a conference before the Court and during numerous depositions." Id. Defendants further argue that Sutton and Obermayer's representation here is not precluded under RPC 1.9 because one of the four Plaintiffs, Ronald Cantor, waived the attorney-client privilege as to his conversations with Defendant Gregory Saputelli and Kimberly Sutton at Saputelli's deposition. Defendants' arguments are without merit.
The Rules of Professional Conduct of the American Bar Association as adopted by the New Jersey Supreme Court apply to the conduct of attorneys appearing in this Court. See Local Rule 103.1(a); Essex Chemical Corp. v. Hartford Accident and Indemnity Co., 993 F. Supp. 241, 245-46 (D.N.J. 1998); Michaels v. Woodland, M.D., 988 F. Supp. 468, 470 (D.N.J. 1997) (Rosen, J.) (citations omitted); Steel v. General Motors Corp., 912 F. Supp. 724, 732 (D.N.J. 1995) (Kugler, J.), aff'd sub nom., Cardona v. General Motors Corp., 942 F. Supp. 968 (D.N.J. 1996) (Orlofsky, J). "This court must look to the New Jersey state courts' interpretation of the RPC as primary authority guiding its determination, subject to such modifications as federal law may require or permit." Steel, 912 F. Supp. at 732; see also Essex Chemical, 993 F. Supp. at 246; Kaselaan D'Angelo Assoc., Inc. v. D'Angelo, 144 F.R.D. 235, 237 (D.N.J. 1992) (Simandle, J.). "Where there is no definitive state court decision interpreting the RPC, a federal court may reach its own conclusion as to the appropriate application." Steel, 912 F. Supp. at 732 (citing Allyn Z. Lite, New Jersey Federal Practice Rules 34 (1995 ed.)).
The relevant New Jersey rule provides in pertinent part:
Conflict of Interest: Former Client.
(a) A lawyer who has represented a client in a matter shall not thereafter:
(1) represent another client in the same or a substantially related matter in which that client's interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation with the former client; or
(2) use information relating to the representation to the disadvantage of the former client except as RPC 1.6 would permit with respect to a client or when the information has become generally known.
(b) The provisions of RPC 1.7(c) are applicable as well to situations covered by this rule.
RPC 1.9. New Jersey courts have strictly construed RPC 1.9's requirements, and all doubts must be resolved in favor of the party seeking disqualification. See Herbert v. Haytaian, 292 N.J. Super. 426, 438-39, 678 A.2d 1183, 1189 (App.Div. 1996) (quoting Reardon v. Marlayne, Inc., 83 N.J. 460, 416 A.2d 852 (1980)); Kaselaan, 144 F.R.D. at 238.
If the Court finds that Sutton's representation of the Saputelli Defendants against her former clients is a violation of RPC 1.9, Obermayer and any attorney in that firm are precluded from representing the Saputelli Defendants in this action. See RPC 1.10(a) ("When lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by . . . RPC 1.9."); Essex Chemical, 993 F. Supp. at 246; Kaselaan, 144 F.R.D. at 238; Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 222, 536 A.2d 243, 253 (1988) ("If the court finds that the attorney has represented the former client, then that attorney and any firm with which he or she has become affiliated should be disqualified from representing the adverse party.") (citing RPC 1.10(a)).
The Court's analysis in deciding this motion must focus on i) whether the case pending before this Court is the "same" or "substantially related" to the state court action in which Sutton and Obermayer represented Plaintiffs as defense counsel, and, if so, whether Plaintiffs consented to their former attorneys representation of their adversaries in this action, see RPC 1.9(a); ii) whether Sutton and Obermayer are using information in this action that they learned in their capacity as Plaintiffs' defense counsel in the state action, see RPC 1.9(a)(2); and iii) whether, in the absence of an actual conflict, Sutton and Obermayer's representation of Plaintiffs rises to the level of an "appearance of impropriety" that would mandate disqualification, see RPC 1.9(b). See Steel, 912 F. Supp. at 734; Kaselaan, 144 F.R.D. at 238. Finally, the Court must balance the competing interests between a party's right to choose his own counsel against "the `need to maintain the highest standards of the profession.'" Dewey, 109 N.J. at 218, 536 A.2d at 251 (quoting Government of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir. 1978)); Steel, 912 F. Supp. at 745. Plaintiffs bear the burden of proof on all of these issues. See Steel, 912 F. Supp. at 733 (holding that the party seeking disqualification "bears the burden of proving that disqualification is appropriate."); Kaselaan, 144 F.R.D. at 238 (citations omitted)(same).
A. Disqualification Under RPC 1.9(a)(1) .
New Jersey Rule of Professional Conduct 1.9(a)(1) prohibits a lawyer who has represented a client in a matter from representing "another client in the same or a substantially related matter in which that client's interests are materially adverse to the interests of the former client unless the former client consents after a full disclosure of the circumstances and consultation with the former client." RPC 1.9(a)(1). Accordingly, the Court must address four issues to determine whether Sutton's and Obermayer's disqualification is warranted here. First, the Court must determine whether Sutton represented Plaintiffs in a previous matter. See Essex Chemical, 993 F. Supp. at 246; Kaselaan, 144 F.R.D. at 238. Second, the Court must determine whether Sutton's current clients', the Saputelli Defendants, interests in this action are materially adverse to her former clients' interests. See id. Third, the Court must determine whether the previous state court action in which Sutton represented Plaintiffs as their defense counsel is the same or substantially related to this action. See id. Finally, the Court must determine whether Plaintiffs consented to their former attorneys' representation of their adversaries in this action.
There appears to be no dispute that Sutton and Obermayer represented Plaintiffs as defense counsel in the state court action that resulted in summary judgment for the plaintiffs in that case. According to Plaintiffs, "Obermayer . . . and Kimberly Sutton, Esquire served as Plaintiffs['] defense counsel in the Atlantic County litigation for over four years. See Plaintiffs' Brief in Support of their Motion to Disqualify Defendants' Attorneys ("Plaintiffs' Brief"). Moreover, the Saputelli Defendants admit that Sutton and Obermayer represented Plaintiffs in the underlying state court action. The Saputelli Defendants candidly admit the following:
In the fall of 1993, approximately a year before Kimberly D. Sutton joined Obermayer . . . as an associate, [Gregory Saputelli, a partner in Obermayer,] represented the Plaintiffs in the underlying State Court litigation [as defense counsel]. . . . After Ms. Sutton joined Obermayer, . . . in the fall of 1994, she assisted [Gregory Saputelli] in the representation of Plaintiffs, under [Saputelli's] supervision. [Saputelli] was fully involved, along with Ms. Sutton, in the underlying State Court litigation, and attended periodic meetings with Mr. Ronald Cantor, along with Ms. Sutton, to discuss strategy and other issues relating to that litigation.
Certification of Gregory D. Saputelli, Esquire, in Opposition to Motion to Disqualify Obermayer, Rebmann, Maxwell Hippel, LLP, as Counsel for Gregory D. Saputelli, Esquire, and Gregory D. Saputelli Associates, P.A. ("Saputelli Certification") at ¶ 3. Sutton herself admits that she represented Plaintiffs in the underlying state court litigation in her sworn certification. See Certification of Kimberly D. Sutton, Esquire, in Opposition to Motion to Disqualify Obermayer, Rebmann, Maxwell Hippel, LLP, as Counsel for Gregory D. Saputelli, Esquire, and Gregory D. Saputelli Associates, P.A. ("Sutton Certification") at ¶ 8.
The Saputelli Defendants appear to place some significance on the fact that both Saputelli and Sutton represented Plaintiffs in the underlying state court action. The fact that Sutton represented Plaintiffs as one of two defense attorneys in the underlying action has no bearing whatsoever on whether the plaintiffs in this case are Sutton's former clients. They clearly are.
Therefore, the Court finds that Sutton and Obermayer represented Plaintiffs in the underlying state court action. Accordingly, the Court further finds that Plaintiffs in this action are "former clients" of Sutton and Obermayer within the meaning of RPC 1.9(a)(1).
The Court must next determine whether Sutton and Obermayer's clients' interests in this action are materially adverse their former clients' interests. There also appears to be little or no dispute on this issue. The Saputelli Defendants' interests in this action are directly adverse to Sutton and Obermayer's former clients' interests. In short, Plaintiffs allege that the Saputelli Defendants' professional negligence caused Plaintiffs to incur substantial liability resulting from the Mays Landing property real estate transaction that was the subject of the underlying state court action. The Court finds that the Plaintiffs' interests in this action are adverse to the Saputelli Defendants' interests.
The Court must next determine whether the underlying state court action is "substantially related" to this action. Again, there appears to be little or no dispute between the parties on this issue.
"Disqualification is mandated where the issues between the former and present suits are practically the same or where there is a `patently clear' relationship between them." Reardon, 83 N.J. at 472, 416 A.2d at 852. Accordingly, "a substantial relationship exists where the adversity between the interests of the former and current clients creates a climate for the disclosure of relevant confidential information and where the issues between the former and present mater are practically the same."Steel, 912 F. Supp. at 736 (citing Kaselaan, 144 F.R.D. at 243-44).
As discussed more fully above, the underlying state court action was a suit brought by Sandpiper, which was the condominium association formed by Plaintiffs with the assistance of their attorney Gregory Saputelli. In that suit, Sandpiper claimed that it was entitled to increased rent payments pursuant to a lease between Sandpiper and Plaintiffs. Sandpiper, the plaintiff in the underlying state court action, was awarded summary judgment against Ronald Cantor, Edward Cantor, Leroy Kean and Cantor, Cantor Kean, and the court entered judgment against them. This action followed alleging that the Saputelli and Ettin Defendants were negligent in executing and advising Plaintiffs in the purchase, conversion into condominiums and lease-back of the property located in Mays Landing, New Jersey. The damages that Plaintiffs allege to have suffered as a result of Defendants' negligence is the amount of the judgment entered by the Superior Court in the underlying state court action. Therefore, the underlying state court action and this action are based upon the same factual predicate — the real estate transactions regarding the Mays Landing property. There can be little doubt that the state court action in which Sutton and Obermayer represented Plaintiffs as defense counsel and this federal action are substantially related.
The Court finds that the underlying state court action and this federal action are "substantially similar" within the meaning of RPC 1.9(a)(1).
Finally, in light of the Court's findings, Sutton's and Obermayer's continued representation of the Saputelli Defendants in this action violates RPC 1.9(a)(1) unless Plaintiffs consented to the representation after full disclosure of the circumstances and consultation with their former attorneys. The burden is on the Saputelli Defendants to prove that Plaintiffs' consented to the conflicted representation by their former attorneys. See In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162 (3d Cir. 1984).
The record before the Court is devoid of any evidence whatsoever that Plaintiffs consented to their former attorneys' representation of the defendants in this action. On the contrary, Plaintiffs claim that they have made several oral demands that their former attorneys withdraw from representing the Saputelli Defendants in this matter. See Plaintiffs' Brief. However, the Saputelli Defendants' dispute Plaintiffs' contention and assert that Plaintiffs never requested, orally or otherwise, that Sutton and Obermayer withdraw from the case. See Defendants' Brief at 4; Sutton Certification at ¶ 7; Saputelli Certification at ¶ 4. Whether or not Plaintiffs demanded orally or otherwise that Sutton and Obermayer withdraw from this case has no relevance whatsoever to the Court's analysis under RPC 1.9. The rule does not merely proscribe conflicted representation against former clients when the former clients protest the representation. The attorneys' ethical obligation to his or her former clients exists whether or not the former client complains of an ethical violation. Accordingly, the Court will disregard Plaintiffs' assertion that they demanded that Obermayer and Sutton withdraw from this matter as the assertion has no bearing on the Court's analysis here.
The Court notes, however, that even if Plaintiffs did not protest Sutton's representation of the Saputelli Defendants at some point in the past, Plaintiffs filed the instant motion to disqualify and obviously protest that representation now. See In re Corn Derivatives Antitrust Litigation , 748 F.2d 157, 163 (3d Cir. 1984).
Although the Saputelli Defendants never cite or even discuss RPC 1.9(a) in their opposition brief, their argument appears to be based on some tacit or implied consent that Plaintiffs allegedly gave to Sutton and Obermayer to represent the defendants in this action. Defendants argue that "Plaintiffs never voiced any objection to [Obermayer's] representation of its partner, Gregory D. Saputelli, Esquire," and allege that "[P]laintiffs actively encouraged [Obermayer] to handle this litigation." Defendants' Brief at 4. According to the defendants, Plaintiffs even "referred to Kimberly D. Sutton, Esq[.,] as defendant's attorney in this action, even when she had not been so authorized by Mr. Saputelli." Id. Defendants' further argue that "Plaintiffs sat by, without voicing any protest whatsoever as [Obermayer] represented Mr. Saputelli's interests during a conference before the Court and during numerous depositions." Id.
All of Defendants' arguments are based on a mistaken assumption that Sutton's and Obermayer's ethical obligations to their former clients under RPC 1.9(a)(1) can be waived through silence or implied consent. The rule requires much more. Rule 1.9(a)(1) allows an attorney to represent interests adverse to a former client only with the consent of the former client after consultation and full disclosure. A non-attorney former client's silence can never rise to the level of the informed consent required under RPC 1.9(a)(1). Moreover, the Court cannot discern from Defendants' opposition papers how it is that Plaintiffs "actively encouraged" Obermayer and Sutton to represent the Saputelli Defendants in this action. In fact, the Court cannot imagine how, or indeed why, a party could or would "actively encourage" an adversary to retain a particular lawyer. Finally, Defendants' suggestion that Plaintiffs consented to the conflicted representation merely by referring to Kimberly Sutton as Defendants' lawyer is ludicrous.
The Court further finds that Plaintiffs did not consent after full disclosure and consultation to Sutton's representation of the Saputelli Defendants in this case.
For the reasons discussed above, the Court finds that Kimberly Sutton and Obermayer's representation of the Saputelli Defendants in this action creates a conflict of interest with their former clients that is prohibited by RPC 1.9(a)(1).
B. Disqualification Under RPC 1.9(a)(2) .
New Jersey Rule of Professional Conduct 1.9(a)(2) prohibits a lawyer who has represented a client in a matter from using "information relating to the representation to the disadvantage of the former client except as RPC 1.6 would permit." RPC 1.9(a)(2). "Rule 1.9(a)(2) does not limit its protection to confidential information." Steel, 912 F. Supp. at 738 (citing G.F. Indus., Inc. v. American Brands, Inc., 245 N.J. Super. 8, 14, 583 A.2d 765, 768 (App.Div. 1990)). The rule simply prohibits an attorney from using any information, not just confidential information within the meaning of RPC 1.6, relating to his or her representation of a former client against that former client in a subsequent action. See G.F. Indus., 245 N.J. Super. at 14, 583 A.2d at 768.
Although the Saputelli Defendants never actually discuss or even cite RPC 1.9(a)(2), it appears from their opposition papers that they are arguing that Ronald Cantor's waiver of the attorney-client privilege at Gregory Saputelli's deposition as to conversations Cantor had with Saputelli and Sutton, his former attorneys, somehow relieves Sutton and Obermayer of their obligations under RPC 1.9(a)(2).
The Saputelli Defendants' argument is without merit. First, Mr. Cantor's waiver of the attorney-client privilege at Gregory Saputelli's deposition is irrelevant to the Court's analysis under RPC 1.9(a)(2) because the rule is a blanket prohibition on attorneys using any information relating to their representation of former clients against those clients. Mr. Cantor's waiver of the attorney-client privilege at Saputelli's deposition does not relieve Sutton of her ethical obligation to refrain from using information she learned during the course of her representation of Plaintiffs in the underlying state court action against those former clients now. Additionally, while RPC 1.6(c)(2) permits Saputelli to divulge client secrets to defend himself against a malpractice claim, it has no impact whatsoever on Sutton's RPC 1.9(a)(2) obligations. Moreover, Ronald Cantor is one of four Plaintiffs/former clients of Sutton involved in this action. Even assuming that Ronald Cantor's waiver of the attorney-client privilege somehow immunizes Sutton from RPC 1.9(a)(2)'s requirements, such a waiver has no impact whatsoever on her obligations to Edward Cantor, Leroy Kean and Cantor, Cantor Kean.
The Saputelli Defendants' argument throughout their opposition places undue emphasis on the fact that the defendants in this action, Gregory Saputelli, possesses and may use pursuant to RPC1.6, any confidential information that Sutton may possess or use. This argument addresses only one of several reasons that Sutton's representation of Defendants here is an impermissible conflict of interest under RPC 1.9. The Third Circuit, while analyzing the Rule 1.9 of the ABA Model Rules of Professional Conduct upon which the RPC's are based, found that there are several reasons underlying the rule against representing interests adverse to former clients. See In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162 (3d Cir. 1984).
It is a prophylactic rule to prevent even the potential that a former client's confidences and secrets may be used against him. Without such a rule, clients may be reluctant to confide completely in their attorneys. Second, the rule is important for the maintenance of public confidence in the integrity of the bar. . . . Finally, and importantly, a client has a right to expect the loyalty of his attorney in the matter for which he is retained.Id. Only the first rationale underlying Rule 1.9 involves the disclosure of clients' secrets, upon which the defendants rely so heavily. The other two reasons — maintenance of public confidence in the bar and a client's right to a duty of loyalty from his former attorney — are wholly unrelated to the disclosure of confidences. The Saputelli Defendants have not addressed these weighty concerns. Stated another way, "[t]he harm to be prevented in such circumstances is the facilitating of the defeat of the former client through counsel's use of information that he or she acquired while being paid by the former client." Kaselaan, 144 F.R.D. at 245. Sutton's ethical obligations to her current clients would necessarily require her to use the information learned in her capacity as Plaintiffs' former attorney to the advantage of the Saputelli Defendants and to the disadvantage of Plaintiffs. See Steel, 912 F. Supp. at 738.
For the reasons discussed above, the Court finds that Kimberly Sutton and Obermayer's representation of the Saputelli Defendants in this action creates a conflict of interest with their former clients that is prohibited by RPC 1.9(a)(2).
C. Disqualification Under RPC 1.9(b) .
Rule 1.9(b) incorporates by reference RPC 1.7(c)'s appearance of impropriety standard into conflict of interest situations involving former clients. See Dewey, 109 N.J. at 215-16, 536 A.2d at 250; Essex Chemical, 993 F. Supp. at 253; Oswall v. Tekni-Plex, Inc., 299 N.J. Super. 658, 667, 691 A.2d 889, 893 (App.Div. 199 7). Rule 1.7 provides in pertinent part:
This rule shall not alter the effect of case law or ethics opinions to the extent that: (1) in certain cases or categories of cases involving conflicts or apparent conflicts, consent to continued representation is immaterial; and (2) in certain cases or situations creating an appearance of impropriety rather than an actual conflict, multiple representation is not permissible, that is, in those situations in which an ordinary knowledgeable citizen acquainted with the facts would conclude that the multiple representation poses a substantial risk if disservice to either the public interest or the interest of one of the clients.
RPC 1.7(a)(2). "New Jersey state and federal courts have consistently held that the appearance of impropriety doctrine is intended not to prevent any actual conflicts, but rather to `bolster the public's confidence in the integrity of the legal profession.'" Essex Chemical, 993 F. Supp. at 253 (quoting Steel, 912 F. Supp. at 740). "At the heart of every `side-switching attorney' case is the suspicion that by changing sides, the attorney has breached a duty of fidelity and loyalty to a former client. . . . It is for this reason that the `appearance of impropriety doctrine' was adopted to protect the public, our profession, and those it serves." Cardona, 942 F. Supp. at 975.
Thus, the question to be determined here is "whether `an ordinary knowledgeable citizen acquainted with the facts' could conclude that" Sutton represented Plaintiffs in the state court action within the meaning of RPC 1.9, and that her representation of the Saputelli Defendants here would pose a "substantial risk of disservice either to the public interest or the interest of one of the clients." Dewey, 109 N.J. at 216, 536 A.2d at 250 (quoting RPC 1.7(c))(2)).
Again, the Saputelli Defendants failed to discuss or even cite RPC 1.9(b) and the appearance of impropriety standard under New Jersey law. The Court has carefully read Defendants' opposition papers but cannot glean from those papers anything that can be construed as even remotely addressing the appearance of impropriety argument that Plaintiffs raise in their moving papers. The Court will assume that Defendants have abandoned any opposition.
The Court finds that an ordinary citizen knowledgeable of the facts of this case would conclude that Sutton's representation of the Saputelli Defendants in this matter is a improper conflict of interest. Sutton represented Plaintiffs as defense counsel in a state court action that directly lead to this action for malpractice. An ordinary citizen would look at the facts of this case and see an attorney who previously stood before a state court and defended her clients in an action involving a real estate transaction, suddenly on the other side of a subsequent federal action relating to that same real estate transaction representing interests directly adverse to those very same clients. That ordinary citizen likely would not appreciate that the state court action involving the real estate transaction was in essence a breach of contract action, while the subsequent federal action was for professional malpractice, nor appreciate the subtleties of privileges and waiver. All the citizen would observe is Plaintiffs' former defense attorney, Kimberly Sutton, on the opposite side of a lawsuit from her former clients advocating for a new client regarding the same or similar subject matter.
Throughout their opposition papers, the Saputelli Defendants seem to place some significance on the fact that Sutton was not the only attorney who represented Plaintiffs in the underlying state court action, but was co-counsel along with Gregory Saputelli. It is not clear from their papers whether the Saputelli Defendants believe that this fact is pertinent to RPC 1.9(a)(1), 1.9(a)(2) or 1.9(b). In any event, whether Sutton was one of two lawyers or one of one hundred lawyers who represented Plaintiffs in the underlying state court action has no relevance to the Court's analysis, or to Sutton's ethical obligations to her former clients. Rule 1.9 contains no numerical exceptions for former clients represented by multiple attorneys at the same firm. Whichever impermissible conflict situation under RPC 1.9 that Defendants argue is impacted by the fact that Sutton and Saputelli both represented Plaintiffs in the state court action, the Court finds that it is not relevant to the resolution of this motion.
The Court further finds that Sutton and Obermayer's representation of the Saputelli Defendants in this action is an impermissible conflict of interest under the appearance of impropriety standard of RPC 1.9(b).
D. Balancing Competing Interests .
Finally, under New Jersey law "a motion for disqualification calls for the [the Court] to balance competing interests, weighing the `need to maintain the highest standards of the profession' against `a client's right freely to choose his counsel.'" Dewey, 109 N.J. at 218, 536 A.2d at 251 (quoting Government of India, 569 F.2d at 739); see also Essex Chemical, 993 F. Supp. at 254 (citations omitted); Steel, 912 F. Supp. at 733 (citations omitted). However, "a person's right to retain counsel of his or her choosing is limited in that `there is no right to demand to be represented by an attorney disqualified because of an ethical requirement.'" Dewey, 109 N.J. at 218, 536 A.2d at 251 (quoting Reardon, 83 N.J. at 477, 416 A.2d at 852.). When engaging in this balancing test, the Court must place great weight on the attorney's ethical obligations to his or her former client and "only in extraordinary cases should a client's right to counsel of his or her choice outweigh the need to maintain the highest standards of the profession." Dewey, 109 N.J. at 221, 536 A.2d at 253.
Neither party addressed in their motion papers the balancing test required under New Jersey law.
In this case and under these facts, the scale upon which the Court must balance the competing interests tips overwhelmingly in favor of disqualification. Sutton's representation of the Saputelli Defendants in this case after representing Plaintiffs in the related state court litigation is a clear and indisputable violation of her ethical obligations under RPC 1.9. Even a casual reading of the text of the rule and any relevant New Jersey state or federal opinion discussing the rule would lead to the inescapable conclusion that her representation of the defendants here is prohibited. Given these facts, the weight on the side of disqualification is heavy indeed. On the other side of the scale, Sutton's client in this matter, Gregory Saputelli, is himself an attorney and a partner at Obermayer and he too should have realized that Sutton's continued involvement in this matter is an ethical violation under RPC 1.9. The Court is not presented here with a situation where it must weigh the impact of disqualification on an innocent non-attorney, who is blissfully unaware of his lawyers' ethical obligations. Mr. Saputelli knew or should have known that Sutton and Obermayer would be disqualified from representing him in this action if their disqualification were sought. The Court finds that Saputelli had notice, and was certainly aware of the possibility, if not the probability, that his attorney, Kimberly Sutton, would be disqualified from this action. The potential prejudice to the Saputelli Defendants from the disqualification of their attorneys given Mr. Saputelli's profession and knowledge barely shifts the weight on the scale in his favor.
Defendants' token opposition contained in their letter brief to the Court, which contains no citation to or discussion of any particular portion of RPC 1.9 and no citation to or discussion of any case from a New Jersey state or federal court, or any court for that matter, addressing RPC 1.9, leads the Court to suspect that Mr. Saputelli may have anticipated the Court's ruling here.
The Court further finds, after balancing the hardship on the Saputelli Defendants against the need to maintain the highest ethical standards of attorneys appearing in this Court, that Sutton and Obermayer's disqualification from representing the Saputelli Defendants in this matter is necessary and just. Any other result under these facts would render meaningless the express ethical requirements of RPC 1.9.
II The Saputelli Defendants' Cross-Motion for Sanctions Pursuant to Rule 11 of the Federal Rules of Civil Procedure .
The Saputelli Defendants filed a cross-motion for an order imposing sanctions against Plaintiffs pursuant to Fed.R.Civ.P. 11 claiming that Plaintiffs' motion to disqualify defense counsel is frivolous. The Saputelli Defendants' cross-motion for sanctions is denied for failure to follow the express procedural requirements of Fed.R.Civ.P. 11.
Rule 11 of the Federal Rules of Civil Procedure provides in pertinent part:
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
(1) How Initiated.
(A) By Motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). It shall be served as provided in Rule 5, but shall not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected. If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney's fees incurred in presenting or opposing the motion. Absent exceptional circumstances, a law firm shall be held jointly responsible for violations committed by its partners, associates, and employees.
Fed.R.Civ.P. 11(c) (emphasis supplied). "The rule provides that requests for sanctions must be made as a separate motion, i.e., not simply included as an additional prayer for relief contained in another motion." Fed.R.Civ.P. 11 (1993 advisory committee's note). "The motion for sanctions is not, however, to be filed until at least 21 days . . . after being served." Id. "These provisions are intended to provide a type of `safe harbor' against motions under Rule 11 in that a party will not be subject to sanctions on the basis of another party's motion unless, after receiving the motion, it refuses to withdraw [the offending pleading or motion]." Id.
Nowhere in Defendants' eight and one-half lines of "argument" in support of their motion for sanctions, which is included in their letter brief in opposition to Plaintiffs' motion to disqualify, do Defendants discuss or even cite Rule 11(c) and its procedural requirements.
The rule, by its express terms, requires that a party seeking sanctions under Rule 11 must file a separate motion. See Fed.R.Civ.P. 11 (1993 advisory committee's note). The Saputelli Defendants instead filed a notice of cross-motion with their opposition papers and incorporated their "argument" in support of the cross-motion into their letter brief to the Court filed in opposition to Plaintiffs' motion to disqualify. The Court finds that the Saputelli Defendants did not comply with Rule 11's procedural requirement that they file a separate motion seeking Rule 11 sanctions.
Moreover, "Rule 11(c)'s `safe harbor' provision . . . provides that a party seeking sanctions must serve the motion papers on his adversary, but not file the motion for 21 days after service to give his adversary an opportunity to withdraw the offending pleading or motion." Cannon v. Cherry Hill Toyota, Inc., Civil Action No. 97-3722(JBS), ___ F. Supp.2d ___, 1999 WL 157684, *12, 1999 U.S. Dist. LEXIS 2906, *34-35 (D.N.J. Feb. 25, 1999) (Kugler, J.) (citing Fed.R.Civ.P. 11(c)(1)(A) and 5A Wright Miller, Federal Practice and Procedure: Civil 2d § 1337 at 69 (West 1998 pocket part)). There is no indication anywhere in the Saputelli Defendants' papers that they even attempted to comply with Rule 11(c)'s safe harbor provisions.
The Court further finds that the Saputelli Defendants failed to comply with Rule 11's procedural requirements that they serve on their adversary the motion seeking Rule 11 sanctions 21 days before filing the motion.
The Court finds that the Saputelli Defendants did not comply with the procedural requirements of Fed.R.Civ.P. 11(c). Defendants' motion for sanctions pursuant Fed.R.Civ.P. 11 is denied.
Although the Court did not reach the merits of Defendants' motion for sanctions, it should be noted that the motion appears to be entirely frivolous on its face. In light of the Court's holding here, the Saputelli Defendants may want to re-evaluate the merits and procedural posture of another notice of cross-motion for Rule 11 sanctions they filed together with their motion for sanctions against Plaintiffs' counsel for obstructing Ronald Cantor's deposition and motion to produce Ronald Cantor for deposition. Counsel are warned that Rule 11 and the Court's inherent authority permit the Court, on its own motion, to impose sanctions on attorneys for filing frivolous motions. See Fed.R.Civ.P. 11(c)(1)(B); Cannon , ___ F. Supp.2d ___, 1999 WL 157684 at *14-15, 1999 U.S. Dist. LEXIS 2906 at *41-42. Additionally, Rule 11 also permits the Court to award costs and attorneys fees to a party who successfully opposes a motion for Rule 11 sanctions. See Fed.R.Civ.P. 11(c)(1)(A); Fed.R.Civ.P. 11 (1993 advisory committee's note). The Saputelli Defendants are warned. The Court can and will invoke this authority if it finds that the Saputelli Defendants filed any other frivolous motions in this case.
Conclusion
For the reasons discussed above, Plaintiffs' motion to disqualify Kimberly D. Sutton and Obermayer from this case pursuant to RPC 1.9 and RPC 1.10(a) is granted, and Defendants' cross-motion for sanctions pursuant to Fed.R.Civ.P. 11 is denied.
ORDER
THIS MATTER having been brought upon motion before the Court by David T. Shulick, Esquire, attorney for Plaintiffs Ronald Cantor, Edward Cantor, Leroy Kean and Cantor, Cantor Kean, for an order disqualifying Kimberly D. Sutton, Esquire, and Obermayer, Rebmann, Maxwell Hippel, LLP, attorneys for Defendants Gregory Saputelli, Esquire, and Gregory D. Saputelli Associates, P.A.; and upon motion before the Court by Kimberly, Esquire, attorney for Defendants Gregory Saputelli, Esquire, and Gregory D. Saputelli Associates, P.A., for an order imposing sanction against Plaintiffs under Fed.R.Civ.P. 11; and the Court having considered the moving papers; and the opposition thereto; and for the reasons discussed in the accompanying opinion;
IT IS this 30th day of March, 1999 hereby
ORDERED that the plaintiffs' motion to disqualify defendants' attorneys is GRANTED; and
IT IS FURTHER ORDERED that the defendants' motion to impose sanctions under Fed.R.Civ.P. 11 is DENIED; and
IT IS FURTHER ORDERED that the parties shall appear before the Court on April 30, 1999 at 11:30 a.m. for a status conference at which time new counsel for the Saputelli Defendants shall enter an appearance in this matter.