Opinion
653573/2016
01-09-2017
In the Matter of the Application of CDM Smith f/k/a Camp, Dresser & McKee, Inc., Petitioner, v. Mutual Redevelopment Houses, Inc., Respondent.
For Petitioner: Michael J. Vardaro, Esq. Joeann E. Walker, Esq. Michael J. Slotnick, Esq. Zetlin & DeChiara LLP 801 Second Avenue, 17th Floor New York, NY 10017 (212) 682-6800 For Respondent: Geoffrey S. Pope Welby, Brady & Greenblatt, LLP 11 Martine Avenue, 15th Floor White Plains, NY 10606 (914) 428-2100
For Petitioner: Michael J. Vardaro, Esq. Joeann E. Walker, Esq. Michael J. Slotnick, Esq. Zetlin & DeChiara LLP 801 Second Avenue, 17th Floor New York, NY 10017 (212) 682-6800 For Respondent: Geoffrey S. Pope Welby, Brady & Greenblatt, LLP 11 Martine Avenue, 15th Floor White Plains, NY 10606 (914) 428-2100 Kathryn E. Freed, J.
RECITATION, AS REQUIRED BY CPLR 2219 (a), OF THE PAPERS CONSIDERED IN THE REVIEW OF THIS PETITION: PAPERS NUMBERED ORDER TO SHOW CAUSE, VERIFIED PETITION AND EXHIBITS ANNEXED 23, 14-22 AFF. IN OPP. 24 MEMO OF LAW IN OPP 25 REPLY AFF. IN FURTHER SUPP. 27 REPLY MEMO OF LAW 26 UPON THE FOREGOING CITED PAPERS, THIS DECISION AND JUDGMENT ON THE PETITION IS AS FOLLOWS:
Unless otherwise indicated, the papers are referred to according to the document numbers assigned to them by the New York State Courts Electronic Filing System (NYSCEF).
It is noted that Doc. Nos. 14-22 were uploaded to NYSCEF as an "affidavit or affirmation in support of proposed OSC" and the exhibits annexed thereto. They are, in fact, the verified petition and supporting exhibits in this proceeding. They are substantially identical to the initial documents that were uploaded simultaneously with the order to show cause under motion sequence No. 001, which this Court declined to sign. (Doc. Nos. 1-8.) The only difference between the two sets of filings - and an important difference, since the initial proposed order to show cause was found to be defective based upon the omission - is that the second set of filings included a notice pursuant to Uniform Rules for Trial Cts (22 NYCRR) § 202.7 (f) indicating that injunctive relief was being sought in conjunction with the proposed order to show cause. (Doc. No. 22.) This Court considers and treats Doc. Nos. 14-22 as the commencing documents in this proceeding. Any irregularity has not caused prejudice, and will therefore be ignored. CPLR 2001.
In this special proceeding pursuant to CPLR article 75, commenced by petition and order to show cause, petitioner seeks to disqualify Welby, Brady & Greenblatt, LLP (hereinafter WBG) as counsel for respondent in an underlying arbitration, entitled Mutual Redevelopment Houses, Inc. v CDM Smith, Inc., bearing Case Number: 01-160000-0095, due to an alleged conflict of interest. Petitioner claims that Thomas Welby, Esq., a partner at WBG, served as a mediator for a dispute to which both petitioner and respondent were parties. Respondent submits written opposition. After oral argument, and following a review of the papers submitted as well as the relevant statutes and case law, the petition is granted.
FACTUAL AND PROCEDURAL BACKGROUND
Respondent is a cooperative corporation consisting of ten residential buildings. (Doc. No. 14.) In 2009, it engaged several professionals, including petitioner, to upgrade the HVAC systems and fan coil units in 1,221 residential units. Petitioner prepared design drawings for the project. The dispute between the entities who participated in the project centers around the fan coil units. It is claimed that the newly installed units were smaller than the ones previously installed and, as a result, many residents complained that they caused a draft.
In September 2015, in an attempt to resolve the dispute, several of the entities agreed to participate in a mediation, which was unsuccessful. In December 2015, some of the entities, including petitioner and respondent, made another attempt at mediation with Welby. In preparation for the mediation, petitioner provided Welby with a mediation statement that was also circulated to all of the other parties thereto. According to petitioner, its counsel, Michael Vardaro, discussed its position with Welby by telephone on two occasions, and the conversations encompassed confidential thoughts concerning respondent's claims against the design team. Before an in-person session with Welby could be held, petitioner withdrew from the mediation. (Doc. No. 17.)
At the end of December 2015, respondent sent petitioner an arbitration demand. (Doc. No. 16.) Respondent retained WBG as its counsel on February 26, 2016 which fact, according to the affirmation submitted by Michael E. Greenblatt, Esq., a member of WBG, became known to petitioner no later than March 3, 2016. On March 30, 2016, Vardaro sent an email to a representative of the organization providing arbitration services, in which he stated that there was "little to discuss at this point given that [Welby] was the mediator for this matter and thus his firm would be conflicted from representing [respondent]." (Doc. No. 17.)
On July 8, 2016, petitioner commenced this proceeding by filing a petition and order to show cause. (Motion Sequence No. 001.) This Court declined to sign the initial order to show cause because it contained a request to stay arbitration but lacked the requisite notice pursuant to Uniform Rules for Trial Cts (22 NYCRR) § 202.7 (f). (Doc. No. 12.) On July 12, 2016, petitioner made a second attempt to commence the proceeding, by order to show cause, which order this Court signed that same day. In conjunction with the order to show cause, this Court granted a temporary restraining order staying the arbitration pending the outcome of this proceeding.
POSITIONS OF THE PARTIES
Petitioner contends that Welby's participation in the mediation precludes his firm from representing respondent pursuant to Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.12. Petitioner further argues that, despite WBG's attempt to isolate Welby from the other lawyers and staff at WBG, it is too small of a firm to do so satisfactorily.
Respondent argues, in response, that petitioner's delay of four months before bringing this proceeding constitutes laches. It also contends that petitioner's participation in the mediation before Welby was too inconsequential to give rise to a conflict. Finally, respondent maintains that, notwithstanding the potential conflict, WBG has adequately isolated Welby from any participation in the arbitration such that WBG may nevertheless represent respondent in the arbitration.
Respondent's argument that Welby did not "participate[] personally and substantially" in the mediation, since petitioner did not participate in it, is without merit. This clause of the rule is meant to weigh the lawyer's participation as a mediator, not that of the parties. The factors relevant to the determination are whether the lawyer "formally or informally interacted with the parties or the lawyers regarding the matter [or] made any decision on the merits in the matter (as opposed to an administrative issue such as a routine or uncontested scheduling)." Roy Simon, Simon's New York Rules of Professional Conduct Annotated, rule 1.12(b) at 810-811 (2016); see NY State Bar Op. 748 (2001); ABA Formal Op. 342 (1975). The controlling facts under this clause are that (1) there was a mediation and (2) Welby acted as the mediator.
LEGAL CONCLUSIONS
Initially, it is undisputed that, since the issue of the disqualification of an attorney from representing a client is a matter " 'intertwined with overriding public policy considerations' and therefore beyond the reach of arbitrators' discretion," the instant petition is properly before this Court. Merrill Lynch, Pierce, Fenner & Smith v Benjamin, 1 AD3d 39, 44 (1st Dept 2003), quoting Bidermann Indus. Licensing v Avmar N. V., 173 AD2d 401, 402 (1st Dept 1991). Further, the proceeding is not barred by laches, since the delay of about four months, between March 2016 and July 2016, was not substantial, and respondent failed to show that it was actually prejudiced thereby, particularly in light of the March 30, 2016 email from Vardaro stating that there was a problem with WBG's representation of respondent. See Adams v Lehrer McGovern Bovis, 208 AD2d 377, 378 (1st Dept 1994).
Turning to the merits, pursuant to the Rules of Professional Conduct, as is relevant here, "unless all parties to [a] proceeding give informed consent, confirmed in writing, a lawyer shall not represent anyone in connection with a matter in which the lawyer participated personally and substantially as . . . a mediator." Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.12 (b) (1). "The phrase 'in connection with a matter' is much broader than the phrase 'in a matter,' because the added words 'in connection with' sweep in matters that are related to the specific matter in question." Roy Simon, Simon's New York Rules of Professional Conduct Annotated, rule 1.12 (b) at 810 (2016); see generally Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.9, comment (3). The phrase may apply "to matters that are less than substantially related but are nevertheless connected in some ways, such as matters that have overlapping facts or that arise from the same investigation." Simon's New York Rules of Professional Conduct Annotated, rule 1.12 (b) at 810.
Here, the fact that petitioner withdrew from the mediation and did not provide confidential information to Welby is not dispositive, since this rule is viewed more expansively than as advanced by respondent. The mediation constituted an attempt to resolve some aspects of the disputes arising from the 2009 HVAC and fan coil unit upgrades on respondent's buildings. Even in petitioner's absence, the mediation would necessarily have encompassed the design of the project, and the parties thereto would have discussed which entity was most at fault for the problems with the upgrades. Thus, even though petitioner was not present, its role in the project — the very issue at the center of the underlying arbitration — would necessarily have been discussed at the mediation. Indeed, Greenblatt conceded that, shortly after petitioner withdrew from the mediation, Welby stated to him that he "was puzzled as to how to proceed without such a party participating." (Doc. No. 18, ¶ 6.) For this reason, although petitioner's participation in the mediation before Welby was brief and, for the sake of argument, inconsequential, and even though it may not have divulged any confidential information to Welby, his service as a mediator implicates rule 1.12 for purposes of WBG's representation of respondent in the underlying arbitration.
To that end, the rule goes on to provide that:
"[w]hen a lawyer is disqualified from representation [thereunder], no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter unless: (1) the firm acts promptly and reasonably to: (i) notify, as appropriate, lawyers and nonlawyer personnel within the firm that the personally disqualified lawyer is prohibited from participating in the representation of the current client; (ii) implement effective screening procedures to prevent the flow of information about the matter between the personally disqualified lawyer and the others in the firm; (iii) ensure that the disqualified lawyer is apportioned no part of the fee therefrom; and (iv) give written notice to the parties and any appropriate tribunal to enable it to ascertain
compliance with the provisions of this Rule; and
(2) there are no other circumstances in the particular representation that create an appearance of impropriety.
Where a screen is required, timing is of the utmost importance, and "notification [must] be given and screening procedures implemented promptly." Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.12, comment (4C). A delay in implementing a screen may render any subsequent attempts insufficient if "the opportunity for the dissemination of information had already been extant" for too lengthy a time. Matter of Kaufman, 44 Misc 3d 1216(A); 2014 NY Slip Op 5113(U), *3 (Sur Ct, Nassau County 2014). Even if timely implemented, "[t]he size of [a] firm may be considered as one of the factors affecting the firm's ability to institute and maintain effective screening procedures, [but] it is not a dispositive factor." Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.11, comment (7). Courts are particularly wary of screening attempts at small firms, with the concern "that the disqualified attorney, in his day-to-day contact with [others at the firm], may unintentionally transmit information learned in the course of," in this case, the mediation. Crudele v N.Y.City Police Dept., 2001 WL 1033539; 2001 US Dist LEXIS 13779 (SD NY 2001).
Here, WBG has 20 attorneys. According to Greenblatt, although Welby chairs the periodic meetings at WBG, all in attendance are instructed that the arbitration is not to be discussed in his presence. The physical file from the mediation is kept in Welby's office, rather than in WBG's general files. Further, Welby has been blocked within WBG's internal server from accessing the arbitration file. (Doc. No. 24, ¶ 22.) Greenblatt further averred that "[t]he arbitration will in no way involve Mr. Welby; [e]veryone in the firm (nonlawyers included) has been cautioned that this matter cannot involve Mr. Welby, and is not to be discussed with him, or in his presence; [t]he attorneys working on the arbitration have not had, nor will they have, access to whatever meager paper as Mr. Welby may have from the mediation; [t]he arbitration files are in [Greenblatt's own] office, and Mr. Pope's, and not where they could be readily accessed by Mr. Welby; and [WBG's] computer system has been set, with Mr. Welby being unable to access materials having to do with the arbitration on WBG's computer server."
Notably absent from respondent's papers are the precise date on which it commenced these screening procedures and a physical, dated notice circulated within WBG advising everyone there that Welby had to be screened from participation in the arbitration. The lack of these two essential details leads to an almost complete lack of confidence in the efficacy of the proposed screen. Moreover, Greenblatt conceded that, at one point, the attorneys at WBG "thought the issue [of disqualification] had been dropped." (Doc. No. 24, ¶ 20.) Considering the small size of WBG, that Welby chairs its meetings, that WBG never circulated a formal memorandum within the firm fixing a precise date and memorializing that Welby had to be screened from participation in the arbitration and, finally, that respondent's arguments and Greenblatt's representations to this Court demonstrate that the attorneys at WBG have misunderstood the ethical implications of Welby's service as a mediator, the danger of a possible breach of the screen and the appearance of impropriety are too substantial to permit WBG to continue to represent respondent in the arbitration.
Therefore, in accordance with the foregoing, it is hereby:
ADJUDGED that the petition is granted, and Welby, Brady & Greenblatt, LLP is disqualified as counsel for respondent in the arbitration, entitled Mutual Redevelopment Houses, Inc. v CDM Smith, Inc., bearing Case Number: 01-160000-0095; and it is further
ADJUDGED that the arbitration remains stayed until a period of 30 days after this judgment is entered, to allow respondent the opportunity to obtain new counsel, and counsel for petitioner is directed to serve a copy of this judgment with notice of its entry within 20 days after it is entered; and it is further
ADJUDGED that this constitutes the decision and judgment of the court. Dated: January 9, 2017 KATHRYN E. FREED, J.S.C.