Summary
disqualifying an attorney who "is clearly a necessary witness for Plaintiff, as he is the only witness to [a critical] conversation, and had an active role in many of the transactions at issue. Plaintiff lacks evidence, aside from [the attorney's] testimony, to establish some of his claims."
Summary of this case from C.B. Fleet Co. v. Colony Specialty Ins. Co.Opinion
No. C2-97-218
March 22, 2001
MEMORANDUM AND ORDER
This matter is before the Court on Plaintiff George Hood's motions for reconsideration (Record 72, 80) of two of the magistrate judge's orders (Record 69, 79).
Plaintiff's second motion (Record 80) seeks reconsideration of the magistrate judge's May 10,2000 order (Record 79) in which the magistrate judge denied Plaintiff's motion to reconsider a previous order which established a deadline for Plaintiff to make witness Fred Renault available for a deposition, and ruled that if Mr. Renault could not be produced for the deposition, his affidavit would be stricken.
It appears from the record that Mr. Renault was ultimately located and that Defendant deposed Mr. Renault on July 18, 2000. Therefore, Plaintiff's motion for reconsideration (Record 80) of the magistrate judge's May 10, 2000 order (Record 79) is MOOT.
The Court now turns to Plaintiff's first motion for reconsideration (Record 72) of the magistrate judge's February 24, 2000 order (Record 69).
Procedural Background
In the February 24, 2000 order (Record 69), Magistrate Judge Abel granted Defendant's motion to disqualify Plaintiff's counsel, Thomas Henderson (Record 49). Magistrate Judge Abel ordered Henderson to "promptly withdraw from the representation" of Plaintiff and to show cause as to why he should not personally satisfy the attorneys' fees and costs reasonably incurred by Defendant in preparing its motion and reply memorandum. (Record 69 at 24).
Plaintiff filed a motion for reconsideration of this order on March 9, 2000 (Record 72), and on March 13, 2000, Henderson responded to the show cause order (Record 73). Defendant filed a response to the motion for reconsideration (Record 75) and a reply (Record 76) to Henderson's show cause response.
Factual Background
In his amended complaint (Record 42), Plaintiff asserts that Defendant engaged in racially discriminatory conduct or "redlining" in connection with a construction loan he obtained from Defendant. Plaintiff contends that Defendant denied his first application for a construction loan, and subsequently breached its contract with him after deciding to grant his loan request. Plaintiff asserts claims under several federal and state statutes, and also brings claims for breach of contract, fraud and promissory estoppel.
Plaintiff contacted Henderson sometime in May of 1996 for legal assistance with the loan process. (Henderson Dep. at 7-9). Although Henderson did not have contact with Defendant prior to the closing, he attended the June 16, 1996 closing with Plaintiff. (Henderson Dep. at 10). Henderson's presence at the closing is relevant because several of Plaintiff's claims are based on conduct which occurred at the closing and the closing documents with which Plaintiff was presented, as well as subsequent communications with Defendant regarding the terms of the loan. Defendant has deposed Henderson, and Plaintiff relies on Henderson's deposition testimony in his memorandum in opposition to Defendant's pending motion for summary judgment. See Plaintiff's Memorandum Contra, Record 57 at 13-20. Henderson's co-counsel, Mr. Spater, entered his appearance for Plaintiff on December 19, 1997. (Record 14).
On May 10, 1999, Defendant filed a motion to disqualify Henderson as Plaintiff's counsel, or in the alternative, to prohibit Henderson from testifying at trial. (Record 49). Defendant argued that pursuant to Disciplinary Rules 5-101 and 5-102 of the Ohio Code of Professional Responsibility, Henderson should be disqualified or prohibited from testifying at trial. Defendant's motion was premised on its assertions that Henderson's testimony is the sole basis for Plaintiff's promissory estoppel claim, and that in his deposition, Henderson gave testimony adverse to Plaintiff's fraud and breach of contract claims. (Record 49 at 3). Defendant also sought to recover its costs and attorneys' fees related to the motion for disqualification under 28 U.S.C. § 1927.
Disciplinary Rule 5-101, "Refusing Employment When the Interests of the Lawyer May Impair the Lawyer's Independent Professional Judgment" provides in part:
(B) A lawyer shall not accept employment in contemplated or pending litigation if the lawyer knows or it is obvious that the lawyer or a lawyer in the firm ought to be called as a witness, except that the lawyer may undertake the employment and the lawyer or lawyer in the firm may testify:
(1) If the testimony will related solely to an uncontested matter.
(2) If the testimony will related solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.
(3) If the testimony will related solely to the nature and value of legal services rendered in the case by the lawyer or the firm to the client.
(4) As to any matter, if refusal would work a substantial hardship on the client because of the distinctive value of the lawyer or the firm as counsel in the particular case.
Disciplinary Rule 5-102, "Withdrawal as Counsel When the Lawyer Becomes a Witness," provides:
(A) If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm ought to be called as a witness on behalf of his client, he shall withdraw from the conduct of the trial and his firm, if any, shall not continue representation in the trial, except that he may continue his representation and he or a lawyer in his firm may testify in the circumstances enumerated in DR5-101(B)(1) through (4).
(B) If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm may be called as a witness other than on behalf of his client, he may continue the representation until it is apparent that his testimony is or may be prejudicial to his client.
In response to Defendant's motion, Plaintiff argued that although DR 5-102 might prohibit him from representing Plaintiff at trial, the rule does not bar his representation of Plaintiff during discovery and pretrial litigation. (Record 55). Additionally, Plaintiff asserted that no decision had been made as to whether Henderson would testify at trial. Thus, Plaintiff suggested that the issue would not ripen until the time of trial.
In his order (Record 69) Magistrate Judge Abel granted Defendant's motion to disqualify Henderson (Record 69 at 13), and ordered Henderson to show cause as to why he should not personally satisfy the attorneys' fees and costs incurred by Defendant in preparing and defending its motion. (Record 69 at 17). This matter is before the Court on Plaintiff's motion for reconsideration of this order (Record 72).
Standard for Reconsideration
Under 28 U.S.C. § 636(b)(1)(A) and Federal Rule of Civil Procedure 72(a), a district court's review of a magistrate judge's nondispositive pretrial order is limited to whether the order is "clearly erroneous" "contrary to law." See Farley v. Farley, 952 F. Supp. 1232, 1235 (M.D. Tenn. 1997). Motions for disqualification of counsel and imposition of sanctions such as those at issue are nondispositive. See e.g., Howe Inv., Ltd. v. Perez Y Cia. de Puerto Rico Inc., 96 F. Supp.2d 106, 113 (D.P.R. 2000) (disqualification); Weeks Stevedoring Co., Inc. v. Raymond Int'l Builders, Inc., 174 F.R.D. 301, 303-304 (S.D.N.Y. 1997) (disqualification and sanctions); Gray v. Rhode Island Dep't of Children, Youth and Families, 937 F. Supp. 153, 156 (D.R.I. 1996) (disqualification). Thus, orders on these matters are subject to the standard set forth in § 636(b)(1)(A).
See United States v. Curtis, 237 F.3d 598, 603 (6th Cir. 2001):
"[Section] 636(b) creates two different standards of review for district courts when a magistrate court's finding is challenged in district court. A district court shall apply a `clearly erroneous or contrary to law' standard of review for the `nondispositive' preliminary measures of§ 636(b)(1)(A). Conversely, `dispositive motions' excepted from § 636(b)(1)(A), such as motions for summary judgment or for the suppression of evidence, are governed by the de novo standard" (internal citations omitted).
A magistrate's decision is "clearly erroneous" only if the district court is "left with the definite and firm conviction that a mistake has been committed." See United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948); Crocker v. Runyan, 207 F.3d 314, 318 (6th Cir. 2000). A magistrate's judge's decision is "contrary to law" if the magistrate has "misinterpreted or misapplied applicable law." See Pharm. Sales and Consulting Corp. v. J.W.S. Delavau Co., Inc., 106 F. Supp.2d 761, 764 (D.N.J. 2000). The "contrary to law" standard permits a district court to conduct an independent review of a magistrate judge's purely legal determinations. See FDIC v. Fidelity Deposit Co. of Maryland, 196 F.R.D. 375, 378 (S.D. Cal. 2000).
Discussion
A. Disqualification
In his order, Magistrate Judge Abel provided several grounds for Henderson's disqualification pursuant to DR 5-102. First, Henderson's testimony is needed to support Plaintiff's promissory estoppel claim, (Record 69 at 11). Second, Henderson was an active participant in the loan transaction and has personal knowledge regarding the terms of the loan agreement and statements made by Defendant's employees both before and after the parties entered into the loan agreement. (Record 69 at 11-12). Third, in opposing Defendant's motion for summary judgment, Plaintiff relies heavily upon Henderson's deposition testimony to establish that: (1) Defendant did not provide a settlement statement or other closing documents to Plaintiff prior to the closing; (2) the closing documents did not reflect the loan agreement; (3) Defendant agreed to disburse the first draw of the loan if Plaintiff provided documentation of work completed, and (4) Defendant's employee Frank Niven agreed to disburse the first draw of the loan if Plaintiff made payment on the mortgage. (Record 69 at 12). Finally, Defendant intends to use Henderson's testimony to contradict Plaintiff's fraud and breach of contract claims. (Record 69 at 12).
Magistrate Judge Abel rejected Plaintiff's assertion that although DR 5-102(A) prohibits Henderson from serving as Plaintiff's counsel at trial, it does not prohibit him from representing Plaintiff during discovery and pretrial proceedings. (Record 69 at 13) Magistrate Judge Abel also found that Henderson's disqualification would not work a substantial hardship on Plaintiff because Plaintiff is represented by co-counsel.
In his motion for reconsideration of this order (Record 72), Plaintiff focuses nearly exclusively on the sanctions aspect of the order, and only vaguely addresses the issue of disqualification. In his response to the show cause order (Record 73) Henderson argues that his deposition testimony is not prejudicial to Plaintiff, and cannot, as Defendant has asserted, be used to contradict Plaintiff's fraud and breach of contract claims.
The testimony of Henderson which Defendant argues is contradictory to Plaintiff's claims is set forth below. See Henderson Dep. at 36 (line 13)-38 (line 20):
Q: Were you there the whole time that your client was at the closing?
A: Yes.
Q: Did you raise any question at this closing, as your client's attorney, as to how the escrow agreement was going to be documented?
A: No.
Q: Why not?
A: Because it was explained by the closing officer. Based upon my previous testimony, the closing officer stated to both George and I after she had gotten off the phone with the bank that apparently there was an understanding about disbursements under the loan between the bank and George that were not reflected in the documents.
Q: And you had no concern that that was not reflected in a written document?
A: Yes, I had a concern.
Q: But you allowed your client to proceed to close the loan without documenting the escrow arrangement?
A: I wouldn't use the word "allowed," but I was aware that the loan was being closed without documentation on how the money was being disbursed.
Q: And you took no steps to advise your client not to close on the loan?
A: No, I discussed the matter with my client.
Q: Did you advise him not to close on the loan?
A: I advised my client that it was his decision whether or not to close on the loan.
Q: And he decided to close on the loan?
A: That's correct.
Q: Did you suggest to him that he should not close on the loan?
A: I believe that I did not try to — I did not try to strongly influence his decision other than communicating what I perceived as a risk at that time.
Q: And what did you identify as the risk at that time?
A: That I was concerned that he was executing documents that did not reflect the basic understanding of the loan.
Q: Did your client understand your concern?
A: I believe that he did.
Q: And am I correct that he did choose to execute the loan documents?
A: Yes.
In his response (Record 73) to the magistrate judge's show cause order, Henderson argues that contrary to Defendant's assertion, none of his deposition testimony is prejudicial to Plaintiff, and that the magistrate was "interpreting deposition testimony, which is, by its very nature, one sided" (Record 73 at 3). See Henderson Dep at 37-38. The Court will not engage in a determination of whether this testimony is or is not prejudicial to Plaintiff. Plaintiff's own reliance on Henderson's testimony to establish and/or support his claims is sufficient to mandate Henderson's disqualification. Defendant's reliance on Henderson's testimony simply reinforces the Court's decision that Henderson's disqualification is absolutely necessary.
The Court finds that the magistrate judge's order disqualifying Henderson was neither clearly erroneous nor contrary to law. Even if, as Plaintiff argues, Henderson's testimony does not contradict Plaintiff's fraud and breach of contract claims, Plaintiff's reliance upon Henderson's testimony alone mandates Henderson's disqualification. See DR 5-102(A). Henderson is clearly a necessary witness for Plaintiff, as he is the only witness to the Niven conversation, (Hood Dep. at 68-70) and had an active role in many of the transactions at issue. Plaintiff lacks evidence, aside from Henderson's testimony, to establish some of his claims. Cf. Banque Arabe Et Internationale D'Investissement v. Ameritrust Corp., 690 F. Supp. 607, 613 (S.D. Ohio 1988) (attorney who was potential witness not disqualified because he was not a "necessary, essential or sole witness to the transactions at issue," and plaintiffs had "ample evidence" other than attorney's testimony to sufficiently present and resolve their claims). See also Baker v. BP America, Inc., 768 F. Supp. 208, 214 (N.D. Ohio 1991) (attorney disqualified because of his "significant involvement" in the events underlying the lawsuit, and likelihood that attorney would be an important trial witness for several of the parties); 155 North High, Limited v. Cincinnati Insur. Co., 72 Ohio St.3d 423, 428, 650 N.E.2d 869, 872-73 (1995) (attorney who testified to conversations and alleged acts of bad-faith claim handling by defendant insurance company should have been disqualified; his testimony was necessary to prove his client's claims and he knew early on that he was a "key witness").
The Court is not persuaded by Plaintiff's argument that DR 5-102(A) allows Henderson to continue as Plaintiff's counsel through the pretrial phase, until the actual, formal trial commences. In fact, there is case law to the contrary. In General Mil Supply Company v. SCA Services, Inc., 697 F.2d 704, 715-16 (6th Cir. 1982), the Sixth Circuit Court of Appeals addressed the issue of whether an attorney's disqualification extends to all phases of the litigation or only to the actual trial. Although the case dealt with the ABA Code of Professional Responsibility, the provision at issue is identical to Ohio's DR 5-102(A). The Court concluded that the term "trial" includes pretrial proceedings, and affirmed the trial court's decision to extend disqualification to all phases of the litigation. See id.
None of the exceptions enumerated in DR 5-101(B) which would allow Henderson to continue to represent Plaintiff are applicable. Henderson's testimony does not relate to an uncontested matter, a matter of formality, or the nature or value of legal services. See DR 5-101(B)(1), (2) and (3). Additionally, this is not a situation in which disqualification of counsel will "work a substantial hardship on the client because of the distinctive value of the lawyer . . . as counsel in the particular case." See DR 5-101(B)(4). Plaintiff has made no attempt to show that Henderson is uniquely qualified to serve as his counsel, and probably cannot do so given the claims involved in this matter. Additionally, Plaintiff is represented by co-counsel, Mr. Spater, who has been involved in this litigation since December of 1997, and became involved specifically because of Defendant's concern regarding Henderson's representation of Plaintiff. (Record 73 at 1-2). Although Henderson's disqualification may not be desirable of Plaintiff, it certainly does not work a substantial hardship on Plaintiff who had the option not to pursue the claims for which Henderson's testimony is crucial.
For the reasons set forth, the Court finds that Magistrate Judge Abel's order (Record 69) disqualifying Henderson from representing Plaintiff was neither clearly erroneous nor contrary to law. The Court hereby ORDERS attorney Thomas L. Henderson to promptly withdraw from the representation of George S. Hood in this matter.
B. Sanctions
In his order, (Record 69), Magistrate Judge Abel found that it should have been apparent to Henderson both before and after the commencement of litigation, that he would be needed as a witness and that his testimony may be prejudicial to Plaintiff (Record 69 at 16-17). Pursuant to 28 U.S.C. § 1927, Magistrate Judge Abel ordered Henderson to show cause as to why he should not satisfy personally the attorneys' fees and costs reasonably incurred by Defendant in the preparation of its motion to disqualify and its reply memorandum. (Record 69 at 17). Henderson responded to the show cause order (Record 73), and Defendant filed a reply to the order (Record 75).
This matter is before the Court on Plaintiff's motion for reconsideration of the "decision" to sanction Henderson for his failure to withdraw from the representation of Plaintiff. (Record 72 at 1). However, with respect to the issue of sanctions, the magistrate judge's order was merely a show cause order, which is not a final decision to impose sanctions. See Cook v. American Steamship Co., 134 F.3d 771, 776 (6th Cir. 1998). Thus, at this dine, there is no decision or order for the Court to "reconsider." Should the magistrate judge ultimately impose sanctions, Henderson may file a motion for reconsideration at that time.
See Cook, 134 F.3d at 776:
[A] show cause order only acts as notice to the relevant party by informing the party what conduct is alleged to be sanctionable, and allows the party an opportunity to respond; by presenting evidence and arguments why sanctions should not be imposed, the party has the opportunity to "persuade" the court that sanctions are not warranted. This is a well established procedure in dealing with § 1927 sanctions and we see no reason to repudiate the procedure now.
Conclusion
Plaintiff's motion for reconsideration (Record 80) of the magistrate judge's May 10, 2000 order (Record 79) is MOOT.
With respect to Plaintiff's motion for reconsideration (Record 72) of the magistrsite judge's order (Record 69) disqualifying attorney Thomas L. Henderson, the Court finds that the order was neither clearly erroneous nor contrary to law. The Court hereby ORDERS attorney Thomas L. Henderson to promptly withdraw from the representation of George S. Hood in this matter.
With respect to Plaintiff's motion for reconsideration (Record 72) of the magistrate judge's order (Record 69) requiring Mr. Henderson to show cause as to why he should not be sanctioned, the Court finds that the issue is not ripe for reconsideration, because the magistrate judge has not imposed the sanctions contemplated in the show cause order.