Opinion
Index No. 613502/2022 MOT. SEQ. Nos. 001-MD 002-MG
04-06-2023
ROBERT E. CITRANGOLA. JR., Plaintiff, v. ROBERT T. CITRANGOLA, SR, Defendant, v. ALL SEASON RESTORATION. INC., Additional Nominal Defendant on the Counterclaims.
COLE SCHOTZ, P.C. Attorneys for the Plaintiff FARRELL FRITZ, P.C. Attorneys for Defendant/Counterclaim Plaintiff Robert T. Citrangola, Sr.
Unpublished Opinion
COLE SCHOTZ, P.C. Attorneys for the Plaintiff
FARRELL FRITZ, P.C. Attorneys for Defendant/Counterclaim Plaintiff Robert T. Citrangola, Sr.
PRESENT: HON. JAMES HUDSON Acting Justice of the Supreme Court
James Hudson Judge
The Defendant/Counterclaim Plaintiff Robert T. Citrangola, Sr. requests an Order pursuant to CPLR 3212: 1) granting rescission of the May 3rd, 2022 Stock Purchase Agreement, or, in the alternative; 2) granting the Defendant summary judgment on the first counterclaim in the Amended Answer rescinding the Stock Purchase Agreement for failure of consideration, or in the alternative or in addition; 3) granting the Defendant summary judgment on the third counterclaim rescinding the Stock Purchase Agreement for failure of consideration; and 4) upon rescission, adjudging Robert T. Citrangola, Sr. remaining a 49% shareholder of Nominal Defendant All Season Restoration, Inc. The Defendant. Robert T. Citrangola. Sr., has filed a motion (seq. no, 002) requesting an Order pursuant to 22 NYCRR §1200.0 Rules 1.9, 1.10, 3.7, disqualifying Cole Schotz, P.C. from representing the Plaintiff. Robert E. Citrangola. Jr. in this action.
Robert Citrangola, Sr. has moved for the identical relief requested in motion sequence 002 in the related case, Robert T. Citrangola, Sr. individually and derivatively on behalf of All Season Restoration, Inc. v. Robert E. Citrangola, Jr., Index No. 202661/2022.
This is a matter concerning the ownership of the domestic corporation All Season Restoration, Inc. ("All Season''). All Season is a franchisee of Servpro Industries LLC, which commercial services include water, fire and mold remediation services. On August 8Ih. 2017. the Defendant. Robert T. Citrangola, Sr. ("Defendant", "Robert Sr.") and his son, Plaintiff Robert E. Citrangola, Jr. ("Plaintiff, "Robert Jr."), (together the "Parties"), executed a Stockholders Agreement ("2017 Agreement") concerning All Season; which agreement was drawn by its attorney. Cole Schotz, P.C. (Doc. 19). On May 3rd, 2022, the Parties executed a Stock Purchase Agreement ("SPA") concerning the ownership of stock in All Season (Doc. 20). The Complaint alleges breach of contract, requests recission of the 2022 Agreement, and alleges breach of the implied covenant of good faith and fair dealing. Defendant's Answer asserts 13 affirmative defenses and Counterclaims for recission, declaratory judgment, accounting and injunction.
Paragraph 16.12 of the 2017 Agreement states, in part: "Any controversy or claim arising out of or relating to this Agreement or any breach thereof shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association . . . and may not be appealed to any court."
The Court notes that the parties are sophisticated businesspersons who had access to legal counsel regarding the 2017 Agreement. Neither has alleged duress or undue influence with regard to its creation, review, or execution. It is well-settled law that "the contract documents speak for themselves" (Weg v. Kaufman, 159 A.D.3d 774, 776, 72 N.Y.S.2d 135 [2d Dept 2018]). The execution of the agreement triggers a presumption that the signors understood its contents and consent to its terms (Prompt Mart. Providers of North America, LLC v. Zarour. 155 A.D.3d 912. 914. 64 N.Y.S.3d 106 [2d Dept 2017]). Whether or not a contract provision is ambiguous is a question of law to be resolved by the Court (Falanga v. HiUabrant, 208 A.D.3d 1308. 1211, 176 N.Y.S.3d 88 [2d Dept 2022]). The Court finds the language of Paragraph 16.12 to be unambiguous (see Vermont Teddy Bear Co. v. 538 Madison Realty, 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 807 N.E.2d 874 [2004]).
The Court will not consider the relief requested by the Defendant/Counterclaim Plaintiff Robert Sr. in motion sequence 001. The case must proceed to arbitration.
Before releasing the case to arbitration, the Court will address the Defendant's motion (seq. no. 002) which requests the disqualification of Cole Schotz P.C. from serving as counsel for Plaintiff Robert Jr.
Attorney disqualification is a matter which may not be heard by an arbitrator due to public policy considerations, and has been placed beyond the reach of an arbitrator's discretion (see Matter of Associated Teachers of Huntington v. Board of Educ., 33 N.Y.2d 229, 235, 351 N.Y.S.2d 670, 306 N.E.2d 791 [1973]; Glauber v. Glauber, 192 A.D.2d 94, 97, 600 N.Y.S.2d 740 [2d Dept 1993]; Biedermann Indus. Licensing v. Avmar N. K, 173 A.D.2d 401. 401. 570 N.Y.S.2d 33 [1st Dept 1991]). Whether to disqualify an attorney is a matter within the discretion of the Court (Matter of LoPresti v. David, 179 A.D.3d 1067, 1068, 118 N.Y.S.3d 635 [2d Dept 2020]; Matter of Madris v. Oliveira. 97 A.D.3d 823. 825. 949 N.Y.S.2d 696 [2d Dept 2012]).
If disqualification is warranted, it may apply to the entire firm. Assertions by Cole Schotz P.C. of having erected an ethical wall or screen is insufficient unless it is demonstrated that the information possessed by the disqualified attorney is unlikely to be significant or material (see Solow v. W.R. Grace & Co.. 83 N.Y.2d 303, 601 N.Y.S.2d 128, 632 N.E.2d 437 [1994]; Kassis v. Teacher's Ins. and Annuity Ass'n, 93 N.Y.2d 611, 695 N.Y.S.2d 515, 717 N.E.2d 674 [1999]).
Plaintiffs counsel asserts that Cole Schotz P.C. has completely isolated Jonathan Goodelman, Esq. from participating in this 2022 litigation. It is uncontroverted that Attorney Goodelman was the primary Cole Schotz P.C. attorney in dealings with the Plaintiff, Defendant and All Season Restoration, Inc.
The Defendant alleges that, "since 2017, Cole Schotz has repeatedly, and often simultaneously, represented me, my son, and our corporation in a variety of legal matters" (Robert Sr. Affidavit, Doc. 47, para. 4). He alleges that Cole Schotz P.C. provided legal representation concerning personal estate planning, disposition of his corporation stock, the 2017 conveyance of a 51% interest in All Season to the Plaintiff, the 2017 negotiation and drafting of the corporate Stockholders Agreement and the 2022 Conveyance to the Plaintiff of a 49% interest in All Season, among others (para. 9). The Defendant states that "for all intents and purposes, Cole Schotz functioned as All Season's general counsel" (para. 52).
It is well-settled law that a party's entitlement to be represented by counsel of his or her choice is a fundamental right. Disqualification of legal counsel during litigation implicates not only the ethics of the profession by also the parties' substantive rights. Any restrictions must be carefully scrutinized (Valencia v. Ripley. 128 A.D.3d 711.9 N.Y.S.3d 112 [2d Dept 2015]). Disqualification is to be used as a shield, and not as a sword to prejudice an opposing party from obtaining eminent counsel (Bauerle v. Bauerle, 161 Misc.2d 673,615 N.Y.S.2d 954 [Sup Ct Erie County 1994], aff'd. 206 A.D.2d 937,616 N.Y.S.2d 275 [4th Dept 1994]).
There must be a clear evidentiary showing to justify the disqualification of counsel (148 South Emerson Partners, LLC v. 148 South Emerson Associates, LLC, 157 A.D.3d 889, 891, 69N.Y.S.3d 868 [2d Dept 2018]; see S&S Hotel Ventures Limited Partnership v. 777 S.H. Corp.. 69 N.Y.2d 437, 443, 515 N.Y.S.2d 735, 508 N.E.2d 647 [1987]). Attorney disqualification requires a "clear and convincing'" standard of proof (Kramer v. Meridian Capital Group, LLC. 201 A.D.3d 909, 162 N.Y.S.3d 400 [2d Dept 2022]). The Defendant bears the burden of showing sufficient proof to warrant disqualification (Koumantaros v. Hephaistos Developing, LLC, 203 A.D.3d 907, 161 N.Y.S.3d 797, 799 [2d Dept 2022]).
The Court, in addition to applying a higher standard of proof than "preponderance of the evidence" to the evidence submitted, must also consider whether the motion has been made for an improper reason; such as to inflict hardship upon the Plaintiff (Strongback Corp. v. N.E.D. Cambridge Ave. Development Corp., 32 A.D.3d 793, 794, 823 N.Y.S.2d 357 [1st Dept 2006]).
The Defendant must offer sufficient evidence of three (3) criteria: 1) the existence of a prior attorney-client relationship between himself an opposing counsel; 2) that the matters involved in both representations are substantially related; and 3) that the interests of the present client and former client are material ty adverse (Deerin v. Ocean Rich Foods, LLC, 158 A.D.3d 603, 607-608, 71 N.Y.S.3d 123 [2d Dept 2018]). The Plaintiff has made cogent argument in support of all three. It has not been demonstrated that the motion lacks a legitimate basis.
The Defendant cites to three (3) Rules of the New York Rules of Professional Conduct in support of the motion: Rule 1.9 Duties to Former Clients; 1.10 Imputation of Conflicts of Interest: and 3.7 the Witness Advocate Rule. The Rules of Professional Conduct. 22 NYCRR §1200.0 were designed to provide guidance to attorneys and to provide a structure for regulating conduct. They are not binding authority for the Court in determining whether a party should be disqualified during litigation (Falk v. Gallo. 73 A.D.3d 685, 686, 901 N.Y.S.2d 99 [2d Dept 2010]; Strongback, supra, at 794).
The Court will first address Rule 1.9. The Rule provides a per se standard for the disqualification of an attorney. The Defendant has arguably satisfied its three (3) elements: 1) the existence of a prior attorney-client relationship; 2) that the matters involved in the prior and present representations are substantially related; and 3) that the interests of the present client. Robert Jr. and the former client. Robert Sr. are materially adverse (Falk v. Chittenden. 11 N.Y.3d 73. 862 N.Y.S.2d 839, 893 N.E.2d 116 [2008]).
The Court will next consider Rule 1.10. That Rule provides for a more nuanced, imputed assessment of disqualification may be rebutted after a fact-finding hearing or upon proof of the relevant aspects of the former and present client relationships. It provides for a firm to continue its representation of a client where an ethical screen is enforced between the attorney who possesses client confidences and other members of the law firm. The exception requires the written, informed consent of each affected client or former client.
Robert Sr. admits to having signed a release indemnifying Cole Schotz P.C . for its representation (Doc. 4 7. Paras.24-29). He denies having waived "any conflicts of interest of any kind" (para. 26).
Cole Schotz P.C. has not filed any documents that demonstrate that any information acquired by Jonathan Goodelman, Esq. is unlikely to be significant or material in this litigation (Kassis v. Teacher's Ins. and Annuity Ass 'n. 93 N.Y.2d 611, 617, 695 N.Y.S.2d 515, 717 N.E.2d 674 [1999]; Moray v. UFS Industries, Inc., 156 A.D.3d 781. 782-783, 67 N.Y.S.3d 256 [2d Dept 2017]; see Essex Equity Holdings USA, LLC v. Lehman Bros., Inc., 29 Misc.3d 371, 909 N.Y.S.2d 285 [Sup CtNew York County 2010]).
Where a law firm has not demonstrated such proof and has not shown that the attorney in question does not possess knowledge likely to be significant or material in the litigation, taking steps to erect an ethical screen is immaterial (ACP 140 West End Ave. Associates, LP v. Kelleher, 1 Misc.3d 909[A], 781 N.Y.S.2d 622, WL 2319099 [Civil Ct City of New York 2003]).
Last, the Court will consider Rule 3.7 (a), the Witness-Advocate Rule. The Defendant argues for disqualification of Cole Schotz P.C. because he intends to call Attorney Goodelman as a material witness.
An intent to call an attorney as a witness is not dispositive of whether the attorney should be called (Burdett Radiology Consultants v. Samaritan Hosp., 158 A.D.2d 132, 134. 557 N.Y.S.2d 988 [3d Dept 1990]).
Disqualification of a lawyer under Rule 3.7 is only warranted where the lawyer-witness will advocate at trial. It does not bar an attorney from pre-trial representation (see Empire Medical Services of Long Island, P.C. v. Sharma, 189 A.D.3d 1176, 1178. 134 N.Y.S.3d 225 [2d Dept 2020]).
In order to prevail, the Defendant must demonstrate that the testimony of Attorney Goodelman is necessary to his case, prejudicial to the Plaintiff and that the integrity of the judicial system will suffer should counsel not testify (Lombardi v. Lombardi. 164 A.D.3d 665, 667, 83 N.Y.S.3d 232 [2d Dept 2018]; Uribe Bros. Corp. v. 1840 Wash. Ave. Corp., 26 Misc.3d 1235(a), *3, 907 N.Y.S.2d 441 [Sup Ct Bronx County 2010]). The Defendant bears the burden of demonstrating "specifically how and as to what issues in the case the prejudice may occur" and that the "likelihood of prejudice to the witness-advocate's client is substantial" (Murray v. Metropolitan Life Ins. Co., 538 F.3d 173. 178 [2d Cir 2009]). The Defendant has not, at this point sufficiently demonstrate that Attorney Goodelman will be called to testify.
When a movant seeks disqualification of the other party's attorney, the other party, at a minimum, should be afforded a reasonable opportunity to be heard on the issue of disqualification (Doody v. Gottshall 67 A.D.3d 1347. 891 N.Y.S.2d 216 [4th Dept 2009]). "A hearing may be necessary where a substantial issue of fact exists as to whether there is a conflict of interest [Olmoz v. Town of Fishkill. 258 A.D.2d 447, 448, 684 N.Y.S.2d 611 (2d Dept 1999)]."' (Legacy Builders/Developers Corp. v. Hollis Care Group, Inc., 162 AD3 649, 80 N.Y.S.3d 59 [2d Dept 2018]).
Defendant's counsel, in his legal memorandum argues against an evidentiary hearing; arguing 'The Appellate Division routinely holds that an attorney or firm who previously acted as counsel for a corporation, or its shareholder collectively, may not represent an individual shareholder in a litigation where his interests are adverse to the other shareholders" (Doc. 77, p. 12). Among the cases Counsel cites in support: Morris v. Morris. 306 A.D.2d 449, 763 N.Y.S.2d 622 [2d Dept 2003]; and Deerin, supra.. 158 A.D.3d 603, 71 N.Y.S.3d 123 [2d Dept 2018]).
In Morris, the parties each held ownership interest in a corporation. The court disqualified the defendant's attorney who had also been counsel to the corporation in connection with the transactions that were at issue (Id. at 452). The court found that the defendant's interests were adverse to the corporation and the interests of the other shareholders. The court quoted Matter of Greenberg, 206 A.D.2d 963, 976, 614 N.Y.S.2d 825 [4th Dept 1994]: "One who has served as attorney for a corporation may not represent an individual shareholder in a case in which his interests are adverse to other shareholders" (Id.).
In Deerin. the parties were members of an LLC. At issues was the payment of proceeds of a "key mam' insurance policy upon the death of a member. Counsel for the surviving member had also served as counsel for the LLC. The court found that "since the defendants' counsel was 'in a position to receive relevant confidences' from the decedent. whose estate's interests 'are now adverse to the defendant's interests', the Supreme Court should have granted that branch of the plaintiffs cross motion which was to disqualify the defendants' counsel" (Id. at 608; quoting Gordon v. Ifeanyichukwu Chuba Orakwue Obiakor, 177 A.D.3d 683, 683, 985 N.Y.S.2d 279 [2d Dept 2014]).
Defendant's Counsel, pursuant to 22 NYCRR §202.70, Rule 18. advised the Court by January 16, 2023 correspondence (Doc. 98) of post-submission court decisions relevant to the Deerin case. Among these, counsel cited to Poretsky v. Bartelby and Sage, Inc., 203 A.D.3d 523. 161 N.Y.S.3d 760 (1st Dept 2022). In that case, the court disqualified the defendant's counsel. The court determined that it was undisputed that the attorney had previously represented the corporate defendants and the majority shareholder. The court stated: "In view of our disposition of this issue, we need not reach the parties' arguments with respect to whether [the disqualified attorney] was a necessary witness" (Id.).
It is well-settled law that any doubts as to the existence of a conflict of interest must be resolved in favor of disqualification so as to avoid even the appearance of impropriety (Gjoni v. Swan Club, Inc., 134 A.D.3d 896, 897, 21 N.Y.S.3d 341 [2d Dept 2015]; Deerin, supra, at 607-608).
In the case at bar, the interests of the Defendant are diverse to those of the Plaintiff. It is undisputed that the Plaintiffs attorneys. Cole Schotz P.C., have represented the Plaintiff, Robert E. Citrangola, Jr., All Season Restoration, Inc. and the Defendant Robert T. Citrangola, Sr. prior to the filing of the instant action. Upon careful appraisal of the interests involved, the Court finds sufficient cause to disqualify Cole Schotz P.C. from serving as legal counsel to Robert Jr. in this litigation (see Gabel v. Gabel. 101 A.D.3d 676. 676-677, 955 N.Y.S.2d 171 [2d Dept 2012}; quoting Tekni-Plex, Inc. v. Meyer & Landis. 89 N.Y.2d 123. 131. 651 N.Y.S.2d 954, 674 N.E.2d 663 [1996]).
Accordingly, it is
ORDERED, that the motion (seq. no. 001) by the Defendant/Counterclaim Plaintiff. Robert T. Citrangola, Sr. which requests, pursuant to CPLR 3212, recission of the May 3rd. 2022 Stock Purchase Agreement, is denied without prejudice; and it is further
ORDERED, that the request, in the alternative, that summary judgment be granted to the Defendant on the first counterclaim in the amended answer is denied without prejudice; and it is further
ORDERED, that the request, in the alternative, that summary judgment be granted to the Defendant on the third counterclaim in the amended answer is denied without prejudice; and it is further
ORDERED, that the request, that upon recission, Robert T. Citrangola Sr. be adjudged a Forty-nine (49%) percent shareholder of All Season Restoration. Inc., is denied without prejudice; and it is further
ORDERED, that the motion (seq. no. 002) by the Defendant/Counterclaim Plaintiff, Robert T. Citrangola. Sr. which requests, pursuant to 22 NYCRR §1200 Rules 1.9, 1.10, 3.7, that the law firm of Cole Schotz, P.C. be disqualified from representing Plaintiff Robert E. Citrangola, Jr. in this action is granted: and it is further
ORDERED, that this matter is stayed for a period of Forty-five (45) days from the date of this decision to facilitate Robert E. Citrangola, Jr. retaining new counsel; and it is further
ORDERED, that this matter is directed to arbitration before the American Arbitration Association.
This memorandum also constitutes the Order of the Court.