Opinion
604219/2004.
Decided January 23, 2007.
Kramer Levin Naftalis Frankel LLP, New York, New York, For Defendant/Third-Party Plaintiff.
J. Jeffrey Weisenfeld, New York, New York, (By: Marshall H. Fishman, Jeremy A. Cohen) For Third-Party Defendant.
Third-party defendant Adam Hochfelder moves for an order: (1) quashing a subpoena, pursuant to CPLR 2304 and 3103 ; and (2) disqualifying the law firm of Kramer Levin Naftalis Frankel LLP (Kramer Levin) from continuing to represent defendant/third-party plaintiff Anthony Westreich in these actions.
The branch of Hochfelder's motion which seeks an order quashing a subpoena has already been decided and will not be addressed herein.
The complaint in the main action alleges that Hochfelder and Westreich together owned a real estate investment company named Max Capital Management Corporation (Max Capital), which owned an interest in a property located at and adjacent to 260 Park Avenue South (260 Park) ( see Complaint, ¶¶ 11-12, 21). Westreich — and certain of his family members through an entity named DTT Park Avenue South LLC (DTT) — allegedly held a share of Max Capital's interest in 260 Park ( see id., ¶ 22). According to the complaint, plaintiffs are persons and entities who became creditors of Max Capital, Hochfelder and/or Westreich by investing money in, and/or loaning money to, any or all of them ( see id., ¶¶ 15-25).
Hochfelder and Westreich allegedly began to negotiate an arrangement whereby Westreich would acquire all of Hochfelder's interest in Max Capital, and assume all of Max Capital's, and certain of Hochfelder's, liabilities ( see id., ¶ 29). The complaint alleges that, in anticipation of Hochfelder's separation from Max Capital, and pursuant to a letter dated August 11, 2004 (the August 11 letter): Hochfelder agreed to execute, and did execute, a consent to the sale and/or refinancing of 260 Park and certain other properties; and Westreich agreed that the net proceeds which he and DTT earned from the sale of 260 Park (the Proceeds) would be paid to Hochfelder's creditors, as Hochfelder should direct, on the condition that Hochfelder and Westreich had executed and implemented an agreement carrying out the separation of their business affairs on mutually acceptable terms ( see id., ¶ 30).
On or about November 12, 2004, Westreich and Hochfelder allegedly executed a separation agreement (the Separation Agreement), pursuant to which Westreich acquired Hochfelder's entire interest in Max Capital ( see id., ¶ 36). By letter to Westreich dated November 22, 2004 (the November 22 letter), Hochfelder allegedly designated plaintiffs as the creditors to whom, in accordance with the August 11 letter, the Proceeds should be paid ( see id., ¶ 39). Westreich allegedly rejected the designation of creditors set forth in Hochfelder's letter, and asserts that he has no obligation to pay any of the Proceeds to plaintiffs, on the ground that the August 11 letter was abandoned by the parties and superseded by the Separation Agreement ( see id., ¶¶ 42, 43, 45). Plaintiffs' complaint seeks a judgment declaring that the August 11 letter requires Westreich to pay the Proceeds to creditors designated by Hochfelder, and that the November 22 letter properly designated plaintiffs as the creditors to whom the Proceeds must be paid.
Westreich's amended answer and third-party complaint (Answer) alleges that the August 11 letter was intended to be effective only in the event that 260 Park was sold to a particular individual named Yitzchak Tessler, and that Westreich and Hochfelder abandoned the August 11 letter because that sale never occurred ( see Answer, ¶¶ 79, 105, 112). Westreich also alleges that the August 11 letter was superseded by the Separation Agreement, which provided for Westreich to make payments to certain of Hochfelder's creditors who were specifically identified in a schedule to the Separation Agreement, and which contained a broad merger or integration clause and a general release of claims as against Westreich ( see id., ¶¶ 84-86, 112). The Answer asserts two claims against Hochfelder: a claim for breach of contract, which alleges that Hochfelder breached various provisions of the Separation Agreement, including certain of the representations and warranties and the general release contained therein; and a claim for fraud and fraudulent inducement, which alleges — in the event that it is determined that the August 11 letter was not abandoned or superseded by the Separation Agreement — that Westreich knowingly made false representations to Westreich in order to induce him to execute the August 11 letter ( see id., ¶¶ 97, 110, 113).
Hochfelder argues that Kramer Levin should be disqualified from representing Westreich, because Paul Selver, Esq., an attorney who now works with Kramer Levin, formerly represented Belfonti Capital Partners (Belfonti), an entity of which Hochfelder was president. Hochfelder allegedly formed Belfonti with another individual in early 2005, after his separation from Max Capital ( see Hochfelder Affid., ¶ 20). According to Hochfelder, Belfonti subsequently purchased an interest in a property located at 485 Fifth Avenue (485 Fifth), and retained the law firm of Paul, Hastings, Janofsky Walker, LLP (Paul Hastings) in order to "secure the rezoning" of that property ( see id., ¶¶ 21-22). Hochfelder alleges that he was the individual through whom Belfonti always or most often contacted Paul Hastings, and that most of his significant conversations with that firm were conducted with Selver, who was Paul Hastings's lead counsel on the matter ( see id., ¶¶ 23-24).
Selver allegedly left Paul Hastings after June 20, 2005 to begin working at Kramer Levin, but continued to work on the 485 Fifth matter for Belfonti until approximately January or February 2006 ( see id., ¶¶ 26-28). Hochfelder asserts that he had many private conversations with Selver during the period when Selver worked on the 485 Fifth matter ( see id., ¶ 28). During his discussions with Selver, Hochfelder allegedly disclosed personal matters relating to his prior finances and real estate dealings, including his prior transactions with Westreich relating to Max Capital and "the very arrangements that form the basis of this action" (Hochfelder Affid., ¶¶ 29-31).
Hochfelder argues that Kramer Levin should be disqualified because its representation of Westreich in these actions violates the prohibitions on attorney conduct that are set forth in subsections (A) (1), (A) (2) and/or (B) of Disciplinary Rule 5-108 of the Code of Professional Responsibility ( 22 NYCRR 1200.27), as applied in conjunction with principles of imputed law firm disqualification. However, Hochfelder has failed to establish that disqualification is warranted on the basis of any of those provisions.
Disciplinary Rule 5-108 (A) (1) provides, in relevant part, that:
. . . a lawyer who has represented a client in a matter shall not, without the consent of the former client after full disclosure:
(1) Thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client.
A party who seeks disqualification of its adversary's lawyer pursuant to DR 5-108 (A) (1) "must prove that there was an attorney-client relationship between the moving party and opposing counsel, that the matters involved in both representations are substantially related, and that the interests of the present client and former client are materially adverse" ( Jamaica Pub. Serv. Co. v AIU Insurance Co., 92 NY2d 631, 636).
Hochfelder has failed to establish any of those three prerequisites for disqualification. First, Hochfelder has not established that an attorney-client relationship formerly existed between him and Selver, Paul Hastings or Kramer Levin. Selver is the only attorney whom Hochfelder identifies by name so that, insofar as Hochfelder had an attorney-client relationship with Paul Hastings or Kramer Levin, presumably, it could only have been through Selver. Hochfelder apparently concedes that Selver did not represent him individually, but contends that he was Selver's client, for purposes of the instant motion to disqualify, because Selver represented Belfonti, an entity of which Hochfelder was president, and/or Aligned Capital (Aligned), the entity to which Paul Hastings issued its invoices for the work it performed for Belfonti ( see Hochfelder Mem. of Law, at 3-4).
However, Hochfelder has failed to establish that he was Selver's client, for purposes of his motion to disqualify, by reason of Selver's representation of either Belfonti or Aligned. Hochfelder himself asserts that it was Belfonti which retained Paul Hastings, and that the purpose of the representation was to secure the rezoning of 485 Fifth, a property in which Belfonti, rather than Hochfelder himself, owned an interest ( see Hochfelder Affirm., ¶¶ 21-22). Hochfelder does not indicate what sort of entity Belfonti is, although an affirmation submitted by Selver describes Belfonti as a limited liability company ( see Selver Affirm., ¶ 1). As regards Aligned, Hochfelder has failed to set forth the nature of his relationship to Aligned, the nature of Aligned's relationship to Belfonti, or, again, what sort of entity Aligned is. In any event, it has generally been held that, in the absence of an agreement by the parties to the contrary, a lawyer for a business entity represents the entity and not its officers, employees or members ( see e.g. Omansky v 64 North Moore Assoc., 269 AD2d 336, 336 [1st Dept 2000]; Polovy v Duncan, 269 AD2d 111, 112 [1st Dept 2000]; Talvy v American Red Cross in Greater New York, 205 AD2d 143, 149 [1st Dept 1994], affd 87 NY2d 826). Hochfelder has failed to establish the existence of any agreement between him and Selver, or any other circumstance, which would indicate that Selver — in the course of his performance of services for Belfonti and/or Aligned, with the goal of obtaining a rezoning of 485 Fifth — was acting as an attorney for, or representing, Hochfelder individually.
Second, Hochfelder has not established that the matters which were involved in Selver's prior representation of Belfonti and/or Aligned are substantially related to the matters which are involved in Kramer Levin's representation of Westreich in this litigation. The main and third-party actions here concern the business separation between Hochfelder and Westreich which occurred in 2004, and, more specifically, the effect which should be given to the provisions of the August 11 letter, the Separation Agreement and the November 22 letter. Selver's representation of Belfonti and/or Aligned did not begin until 2005, after the business relationship between Hochfelder and Westreich had already been severed, and concerned the substantially unrelated matter of Belfonti's attempts to secure the rezoning of 485 Fifth.
Third, Hochfelder has failed to establish that, in this litigation, the interests of Selver's former client(s), Belfonti and/or Aligned, and Kramer Levin's current client, Westreich, are in any manner adverse. Neither Belfonti nor Aligned is a party to this litigation, and Hochfelder has not demonstrated that either entity has any interest in this litigation or in the subject of this litigation. Accordingly, Hochfelder has not established any of the prerequisites for the disqualification of Kramer Levin under DR 5-108 (A) (1). [*5]
DR 5-108 (A) (2) provides, in relevant part, that "a lawyer who has represented a client in a matter shall not, without the consent of the former client after full disclosure . . . [u]se any confidences or secrets of the former client except as permitted by [DR 4-101 (C)]," or under certain other circumstances not applicable here. In order to succeed on a motion to disqualify an adversary's attorney pursuant to DR 5-108 (A) (2), a movant must demonstrate "the existence of a reasonable probability of disclosure or use of a former client's confidences and secrets" ( Waehner v Northwest Bay Partners, Ltd., 30 AD3d 799, 800 [3rd Dept 2006] [citation and internal quotation marks omitted]; see also Jamaica Pub. Serv. Co. v AIU Insurance Co., 92 NY2d at 637).
Hochfelder has failed to make the requisite showing for disqualification under DR 5-108 (A) (2). That provision, by its own terms, protects the confidences and secrets only of a "former client," and Hochfelder has not established that the information which he seeks to have protected — i.e., any information he may have communicated to Selver concerning his own prior relations with Max Capital and/or Westreich — is a confidence or secret of Selver's former client(s), Belfonti and/or Aligned. As defined in DR 4-101 (A) ( 22 NYCRR 1200.19 [a]):
"[c]onfidence" refers to information protected by the attorney-client privilege under applicable law, and "secret" refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.
Insofar as Hochfelder may have disclosed any information to Selver concerning his prior relations with Max Capital and/or Westreich, such information was neither (1) a confidence, because it was not within the scope of the attorney-client relationship between Selver and Belfonti and/or Aligned, or "protected by the attorney-client privilege," nor (2) a secret, because it was not "gained by [Selver] in the professional relationship" between him and Belfonti and/or Aligned. Accordingly, Hochfelder has failed to establish that Kramer Levin's representation of Westreich in this litigation would entail a reasonable probability of the disclosure or use of a former client's confidences or secrets.
DR 5-108 (B) provides, in relevant part, that:
Except with the consent of the affected client after full disclosure, a lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client:
(1) Whose interests are materially adverse to that person; and
(2) About whom the lawyer had acquired information protected by [DR 4-101 (B)] that is material to the matter.
Hochfelder has not established that disqualification of Kramer Levin is warranted under DR 5-108 (B) because, as previously stated, he has not established: (a) that he, rather than Belfonti and/or Aligned, was formerly a client of Selver or Paul Hastings; (b) that the matters involved in Selver's and Paul Hastings's prior representation of Belfonti and/or Aligned are substantially related to the matters involved in Kramer Levin's current representation of Westreich; or (c) that the interests of Belfonti and/or Aligned are materially adverse to the interests of Westreich in [*6]this action.
Hochfelder has also failed to establish, as required for disqualification under DR 5-108 (B), that Selver, while he was a partner of Paul Hastings, acquired any information which is both "protected by [DR 4-101 (B)]" and "material" to the matter of this litigation. Insofar as Hochfelder may have communicated information to Selver concerning Hochfelder's own prior relations with Max Capital and/or Westreich, such information might be material to this litigation, but would not be protected by DR 4-101 (B) — which concerns the protection of a client's confidences and secrets — because Hochfelder has not established that he was a client of Selver's and/or Paul Hastings's. Conversely, insofar as Selver, in the course of his representation of Belfonti and/or Aligned, may have obtained information concerning Belfonti and/or Aligned which would be protected by DR 4-101 (B), Hochfelder has not established that any such information would be material to this litigation.
Finally, inasmuch as Hochfelder has failed to establish that Selver himself would be disqualified from representing Westreich in this litigation, if he attempted to do so, there is no basis for imputing such a disqualification to Selver's current firm, Kramer Levin.
For the foregoing reasons, it is hereby
ORDERED that the branch of third-party defendant Adam Hochfelder's motion which seeks to disqualify Kramer Levin Naftalis Frankel LLP from continuing to act as counsel to defendant/third-party plaintiff Anthony Westreich is denied.