Opinion
98 Civ. 926 (CSH)
January 16, 2002
MEMORANDUM OPINION AND ORDER
This opinion considers the motion of plaintiff Klaus Renner to disqualify Donald O. Clark, Esq., and his law firm, Reed Smith LLP, as attorneys for defendant Gerald Townsend and the defendant companies bearing his name. The circumstances of the case are set forth in detail in the Court's prior opinions, familiarity with which is assumed.
See 1999 WL 47239 (Feb. 3, 1999) (Renner I); 2000 WL 781081 (June 16, 2000) (Renner II) 2001 WL 388044 (Apr. 17, 2001) (Renner III); 2001 U.S. Dist. LEXIS 9766 (July 11, 2001) (Renner IV); 2001 WL 1356192 (Nov. 2, 2001) (Renner V); 2001 WL 1356227 (Nov. 2, 2001) (Renner VI) and 2001 WL 1491269 (Nov. 21, 2001) (Renner VII).
Plaintiff originally based his disqualification motion upon Disciplinary Rules ("DR") 5-102(A) and 5-102(B) of the Code of Professional Responsibility as enacted in New York State, to which federal courts sitting in New York look for guidance. DR 5-102 deals with the frequently vexing subject of lawyers as witnesses, and the circumstances under which they should withdraw or be forced to withdraw as trial counsel. "The test under subdivision (A) is whether the attorney's testimony could be significantly useful to his client. If so, he should be disqualified regardless of whether he will actually be called. Subdivision (B) comes into play where a lawyer's testimony would contradict or undermine his client's factual assertions." Lamborn v. Dittmer, 873 F.2d 522, 531 (2d Cir. 1989). An earlier version of DR 5-102 (A) required disqualification of both an attorney and his firm if the attorney should be called as a witness for the client; however, since a revision in 1990, DR 5-102(A) "now permits a law firm to continue representation of a client even if one attorney in the firm is required to testify." Kaplan v. Maytex Mills, 187 A.D.2d 565, 590 N.Y.S.2d 136, 137 (2d Dept. 1992).
The Court heard oral argument on plaintiffs disqualification motion on December 12, 2001. It has become apparent that the principal point of contention involves DR 5-102(B) and 5-102(D), and not DR 5-102(A). That is because even if one assumes that Clark should be called as a witness for his client Townsend, thereby triggering DR 5-102(A), the Reed Smith law firm could continue to represent Townsend. Indeed, such representation would do no more than reflect the firm's present makeup; Mr. Clark appears to be a corporate attorney, while the case at bar is in the hands of Messrs. Ober and Spaulding (the latter having appeared for Townsend at the December 12, 2001 hearing), who are in the litigation department.
The more meaningful question posed by the present motion arises under DR 1-502(B) and its companion subdivision, DR 5-102(D). DR 5-102(B) provides:
Neither a lawyer nor the lawyer's firm shall accept employment in contemplated or pending litigation if the lawyer knows or it is obvious that the lawyer or another lawyer in the lawyer's firm may be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony would or might be prejudicial to the client.
The companion subdivision, DR 1-502(D), deals with the situation where it is not until after accepting employment that it becomes apparent that a lawyer or another lawyer in that lawyer's firm "may be called as a witness on a significant issue other than on behalf of the client." In that circumstance
the lawyer may continue the representation until it is apparent that the testimony is or may be prejudicial to the client at which point the lawyer and the firm must withdraw from acting as an advocate before the tribunal.
The potential probative value of Clark's testimony as a witness "other than on behalf of the client" [Townsend], that is to say, on behalf of the plaintiff [Renner], arises principally out of what Clark is in a position to say about his initial meeting on December 29, 1995 with Townsend, accompanied by Weaver and Atkins, and the advice Clark gave to them with respect to their exercise of due diligence; Townsend's letter dated December 30, 1995 giving certain instructions to Clark; and Weaver's calling Clark several days later to cancel those instructions.
In Renner V, 2001 WL 1356192, at *18-19, I held that the December 30, 1995 letter was discoverable by plaintiff under the crime-fraud exception to the attorney-client privilege. Further particulars with respect to that letter and the events preceding and following it were developed during the December 12, 2001 hearing, during which I directed that affidavits sworn to by Townsend and Clark, purportedly furnished for the Court to consider in camera, had to be revealed to counsel for plaintiff. See Hearing Transcript (hereinafter "Tr.") 2-30.
At Tr. 47-50 I summarized the evidence that could be derived from these sources in a manner prejudicial to Townsend on the issue of his fraudulent intent. I need not reiterate that analysis. It seems to me plain that plaintiffs case for disqualification turns principally upon DR 1-502(D). That is because at the time of Townsend's initial retention of Clark and the Reed Smith firm there was no reason to suppose that Clark might be called as a witness against Townsend by Renner, who at the time of the December 29, 1995 meeting had not yet been defrauded. The possibility that Clark's testimony "is or might be prejudicial to Townsend" arose only in the light of subsequent events; that is the situation with which DR 1-502(D) deals.
In view of the evidence adduced by the end of the December 12, 2001 hearing, counsel for Renner argued: "Is the [Clark] testimony going to be prejudicial or might be prejudicial? And the answer clearly is yes. I don't think that more is needed." Herbst, Tr. 54. Counsel for Renner, in short, contended that Clark and the Reed Smith firm should be disqualified on the basis of the present record. This contrasted somewhat with counsel's view at the beginning of the hearing, namely, that the evidence did no more than entitle plaintiff to depose Townsend and Clark with respect to these events. See Meyerson at Tr. 31:
I frankly say to your Honor that, in order to meet my burden, I believe I am entitled to deposition testimony from both Mr. Clark and Mr. Townsend, particularly on the points at issue, some of the issues raised by the affidavits that we just got today and some of the questions that Mr. Townsend declined to answer upon advice of counsel at his last deposition.
Mr. Spaulding, counsel for Townsend at the December 12 hearing, listened courteously to the evidentiary outline the Court inflicted upon him at Tr. 47-50 and, asked to comment, responded: "your Honor, I believe that if one were to speculate as to the motivations of Mr. Townsend with regard to those facts, that one could draw two conclusions," Tr. 50 — one favorable to Townsend on the issue of fraudulent intent (for which Mr. Spaulding contends) and one unfavorable (for which Messrs. Meyerson and Herbst contend). I understand counsel for Townsend to contend that the record should be enlarged by further depositions before the Court decides the plaintiffs disqualification motion.
Mr. Spaulding, counsel for Townsend, appears to acknowledge the inevitability of those further depositions. At the December 12 hearing Mr. Spaulding said:
Particularly in light of the Court's rulings, I don't believe Mr. Meyerson is going to be precluded from inquiring of Mr. Townsend, if he so chooses to do so, about what occurred during the course of that meeting. I believe in light of the Court's rulings, he is not going to be precluded from inquiring of Mr. Clark what occurred at that meeting.
Tr. 45. In that analysis of the practical effect of the Court's rulings, Mr. Spaulding is awarded a grade of "H" for "Honors" (Yale Law School marking method) and "A" (Harvard Law School method).
Counsel for plaintiff respond that the basis for disqualification under DR 1-502(D) depends not upon speculation but evidence presently in the record, so that the motion should be decided in plaintiffs favor at this time. That argument is not without force; but I conclude that, on balance, it is preferable to decide a motion of this sensitivity and importance on as full a record as the circumstances allow. There is precedent for that preference in the cases. See Norman Reitman Company, Inc. v. IRB-Brasil Resseguros, S.A., No. 01 Civ. 0265, 2001 WL 1132015, at *4 (S.D.N.Y. Sept. 25, 2001) ("It is not clear at this point whether Reiss's testimony would be necessary, as the parties disagree about his role in the formation of the oral contract between the parties. . . . Moreover, the parties have just begun discovery. . . . Accordingly, Plaintiff's motion [to disqualify counsel] is denied in its entiretywithout prejudice.") (emphasis added); Parke-Hayden v. Loews Theatre Management Corp., 794 F. Supp. 525 (S.D.N.Y. 1992) (court considered deposition testimony of member of law firm representing plaintiff in evaluating motion to disqualify the firm under DR 5-102(B)).
In the case at bar, I think it is the better course to have Townsend and Clark submit to depositions, and the parties be given an opportunity to brief the results, before the Court decides the motion, which, if granted under DR 1-502(D), would require the disqualification of Mr. Clark and the Reed Smith firm.
While a more complete analysis of the governing law must await decision on plaintiffs disqualification motion after the depositions discussed in text have been completed, it is appropriate to note at this time that to achieve disqualification of Clark and the Reed Smith firm under DR 5-102(D), plaintiff must show that Clark's testimony "is or may be prejudicial" to Townsend, the client of Clark and Reed Smith. "Prejudicial" in this context means that "the projected testimony of a lawyer or firm member must be sufficiently adverse to the factual assertions or account of events offered on behalf of the client, such that the bar or the client might have an interest in the lawyer's independence in discrediting that testimony." Lamborn v. Dittmer, 873 F.2d 522, 531 (2d Cir. 1989) (citations and internal quotation marks omitted). Plaintiff as moving party "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 occurring is substantial." Id. (citations and internal quotation marks omitted). "Simply showing that the testimony 'might' be prejudicial is not sufficient." Tisby v. Buffalo General Hospital, 157 F.R.D. 157, 166 (W.D.N.Y. 1994) (citations omitted). A lawyer and his firm must be disqualified if the court is convinced that the lawyer's testimony "would likely [be] materially prejudicial to his clients," Lamborn, 873 F.2d at 531.
At the December 12 hearing, counsel for plaintiff forecast strife at such depositions, and suggested that they take place in New York, where the Court would be readily available to resolve disputes. Indeed, were that deemed necessary, I would have counsel conduct the depositions in open court and in my presence. But counsel for Townsend says that such a procedure should not be necessary; and it would certainly add to the expenses visited upon the parties. I think it better, in the first instance at least, to rely upon the professionalism of counsel, in the hope that these depositions may be accomplished without undue strife or interruption.
It may be useful for counsel to know that the Court regards, as legitimate areas of inquiry, the following: (1) the reasons for, and the events leading up to, the December 29, 1995 meeting in Mr. Clark's office; (2) the events occurring at that meeting (in the vernacular, "who said what to whom"); (3) events relevant to that meeting and occurring subsequently to it; and (4) any contacts between Clark and Michael Morelli, including, without limitation, any reference to membership in the Knights of Malta. This list is not intended to be exhaustive, but the maxim ejusdem generis will apply.
These depositions, while desirable for the reasons stated, will have the unfortunate effect of delaying this litigation. Counsel are directed to work together with mutual good faith in order to accomplish the depositions as quickly as possible. In any event, the Court directs that the depositions be completed on or before February 1, 2002, unless the Court extends that time for good cause shown. Counsel for plaintiff are directed to order the transcripts of the depositions on a maximum expedited basis. The plaintiff will bear the cost of transcribing the depositions in the first instance. If defendants wish copies of the transcripts, they must pay for them.
The Court directs counsel to advise Chambers in advance of the date or dates that the depositions will take place. I will then endeavor to make myself available to resolve any disputes that may arise. To that end, the depositions should take place in a room equipped with a speaker phone. I make these directions not in anticipation or in hope of any disputes; on the contrary, I expect counsel to use their best efforts to avoid them.
The Court further directs that the parties simultaneously file and serve further briefs not later than ten (10) calendar days after counsel have received both transcripts. No reply submissions will be allowed unless the Court calls for them.