A law firm that wants to stop representing for free an imprisoned ex-lawyer has been rebuffed for a second time by a state judge.

After Mildred Didio was convicted in 2011 in connection with a real estate scam, her professional liability insurer notified her that it would no longer pay her legal bills. But when Traub Lieberman Straus & Shrewsberry of Hawthorne, the firm retained by the insurer under Didio’s professional liability policy to defend her in civil suits stemming from the fraud, offered Didio a retainer agreement, she failed to execute it.

In Traub Lieberman’s second attempt to be relieved as counsel, Supreme Court Justice Francesca Connolly in Westchester County (See Profile) ruled that the firm must continue representing Didio until a court issues a declaratory judgment that the insurer’s obligation to Didio was at an end.

“Traub Lieberman owes Didio a duty of good faith and may not take a position adverse to her interests,” the justice wrote. “Since its undeviating and single allegiance is owed to Didio, until such time a judgment is entered declaring that the insurer is not obligated to defend and indemnify Didio, Traub Lieberman should be pursuing payment of its legal fees from the insurer, and not from Didio directly.”

Didio’s insurer is Zurich North America, which informed Didio on Nov. 16, 2011, that due to her convictions, it was denying the payment of her legal fees and expenses. A retainer agreement extended to her by Traub Lieberman after the insurer’s notification was never executed.

Didio, 47, is serving a one-to-three-year sentence for grand larceny, scheming to defraud and conspiracy. She was automatically disbarred upon her felony convictions.

Authorities in Westchester County said Didio was among eight people involved in a scheme to defraud four families and two mortgage lenders of $1.4 million. Officials alleged the defendants induced desperate property owners who feared foreclosure to deed their homes to “investors” under the false promise they would be able to arrange the financing to buy their homes back within two years.

Two other attorneys, David Reback of Rye Brook and Eileen Potash of Mount Vernon, were also convicted of felony charges in connection with the scheme and disbarred.

Jonathan Harwood, a Traub Lieberman partner, said the firm was hired by Zurich North America to represent Didio in three civil suits filed against various participants in the real estate scheme. The suits are in abeyance, he said, as Didio and the firm have fought over the question of representation.

Connolly’s July 30 ruling echoed a Jan. 23 determination by Supreme Court Justice Joan Lefkowitz in Westchester County (See Profile), who also declined to let Traub Lieberman be removed as counsel.

Connolly found in Jessamy v. The Doran Group, 30693/10, that the firm has “presented nothing” in its latest motion that would convince the court to grant the firm’s request in the absence of a declaratory judgment that Didio’s professional liability insurance carrier no longer had to provide her with legal representation.

“Apart from conclusory allegations of irreconcilable differences between Didio and Traub Lieberman in another action in Westchester County Court, its arguments are essentially the same as they were in its first application for this relief and as such, warrant the same conclusion,” Connolly wrote.

Harwood said in an interview that the law firm “disagreed” with the ruling and will appeal.

He argued before Connolly that a nearly identical set of circumstances arose in Alvarado-Vargas v. 6422 Holding, 85 AD3d 829 (2011), in which a law firm filed a motion to be relieved as counsel after an insurer terminated coverage for its client. A panel of the Appellate Division, Second Department, affirmed the law firm’s request to withdraw from the case, citing the “undisputed fact that the insurer will no longer pay the law firm’s legal fees.”

Harwood argued that Alvarado-Vargas represented “exactly the situation” Traub Lieberman encountered in being forced to represent Didio against its will.

“Ms. Didio unequivocally refused to pay a retainer and adviser that she has no ability to pay this firm to represent her in this action,” Harwood said. “Ms. Didio’s position constitutes a repudiation of any obligation to pay reasonable attorneys fees and Traub Lieberman should not be obligated to finance the litigation and render gratuitous services.”

Harwood said he did not have an estimate of the amount the firm is owed.

The law firm also argued before Connolly that in one of the other two matters stemming from the real estate scheme in which it is also obligated to represent Didio, Westchester County Court, Viehl v. The Doran Group, 16966/08, “significant and irreconcilable differences of opinion” had developed over strategy. Such tensions would likely spill over to its relations with Didio in the Jessamy matter, he said.

Connolly said the firm provided insufficient evidence to support its contention that irreconcilable differences had developed and she rejected the firm’s offer to meet with her ex parte to discuss those differences and how to protect information that could prove prejudicial to Didio.

“Given that Didio is incarcerated and therefore, she is unable to be present in court to hear and respond to Traub Lieberman’s allegations, this offer of proof is unacceptable,” Connolly wrote.