Court Denies Plaintiffs’ Motion to Disqualify Defendants’ Law Firm in Litigation Arising Out of Cooperative Conversion

The plaintiffs had alleged that in 1986, the sponsor had converted an apartment building to ownership as a cooperative. The co-op contained one professional apartment and, “according to the offering plan, the professional apartment was to be leased by the coop to the sponsor for a term of 25 years. Although no shares were immediately allocated to the professional apartment, 176 shares were designated for it.”

The plan provided:

That in the event that the professional unit is altered for residential use and the Certificate of Occupancy amended to reflect such residential use, or in the event a ruling shall be made by the Internal Revenue Service or by a court of competent jurisdiction that the existence of the professional unit in the building will not result in a disqualification of the Apartment Corporation as a “cooperative” under §216 (1) (B) of the Internal Revenue Code, the lessee (i.e. the Sponsor) may surrender the lease for the professional apartment, at which time the Apartment Corporation shall issue to the lessee the 176 shares of the Apartment Corporation allocated to Apartment AA together with the appropriate proprietary lease.

At a board meeting in August 2011, the co-op’s board of directors approved the following resolutions:

1) approval of the installation of new windows; 2) approval of the dimensions of the apartment for conversion to residential use which plans had been approved by the Buildings Department; 3) a mandate that all work for conversion of the professional unit to residential use would be substantially completed by the later of 180 days from August 29, 2011 or the date provided for, if any, in the offering plan and; 4) an agreement that, upon completion of all work and the amendment of the certificate of occupancy in accordance with the time provisions in Resolution 3, the board would issue the 176 shares and the proprietary lease to the Sponsor.

In January 2012, the plaintiffs commenced the subject lawsuit, alleging, inter alia, that the defendants had “breached their obligations in the…Plan,” that the sponsor and the other defendants (Sponsor) breached their fiduciary duties, and that the plaintiffs were entitled to “injunctive relief prohibiting the Coop from transferring the shares allocated for the professional apartment to the Sponsor.”

The plaintiffs asserted that as of the Aug. 29, 2011 board meeting, “the defendants had not met the threshold requirements delineated in the bylaws for issuance of the shares because the professional apartment had not been converted to residential use, the certificate of occupancy had not been amended to reflect such residential use and/or there had not been an affirmative ruling from the IRS or a court regarding the status of a Coop qua Coop upon conversion.” The plaintiffs argued that “when the 25-year lease expired in September 2011, the Sponsor’s option to acquire the shares also expired as it had not met the threshold requirements articulated in the bylaws.” Therefore, the plaintiffs asserted that “the resolution must be set aside as the Sponsor controlled the board and as the resolution violates the Assurance of Discontinuance (AOD) between the Sponsor and New York’s Attorney General prohibiting the Sponsor from purchasing any additional shares in the Coop….”

The plaintiffs had moved to disqualify the sponsor defendants’ lawyer (lawyer) and law firm, arguing that the lawyer is a “necessary witness, or it is likely that his testimony will be necessary, since he was present at the August 29, 2011 board meeting and took the minutes of the meeting; he was the principal drafter of the four resolutions that were accepted at that meeting; he played a pivotal role in negotiating and drafting the AOD and he played an active role in the September 2011 elections, including his supervision of the vote count.” The plaintiffs further argued that even if the lawyer was not a necessary witness, “he may be called as a witness and it is likely that his testimony will be prejudicial to his clients.”

The sponsor countered that the lawyer was “not serving as their advocate in this lawsuit.” They argued that “even if he were their advocate, [the lawyer] [was] not a necessary witness to the events that occurred at the August 29, 2011 board meeting as there were many other individuals present at that meeting; that no one has contested the accuracy of the minutes that [the lawyer] took at the August 29, 2011 meeting; [the lawyer's] testimony will not be necessary regarding the terms of the AOD because the document speaks for itself; and, if testimony is necessary to establish whether exercising the option violated paragraph 13 of the AOD, the proper party to testify is the [AG], not [the lawyer].” The sponsor also denied that the lawyer had anything to do with the election process or tallying the votes.

The court explained:

Rule 3.7 of the New York Rules of Professional Conduct (22 NYCRR 1200.00) set forth circumstances where a lawyer or a law firm, in the court’s discretion, may be disqualified from acting as an advocate before a tribunal.

Rule 3.7 (a), which relates to the disqualification of an individual attorney states:

A lawyer shall not act as an advocate before a tribunal in a matter in which the lawyer is likely to be a witness on a significant issue of fact unless: (1) the testimony relates solely to an uncontested issue; (2) the testimony relates solely to the nature and value of the legal services rendered in the matter; (3) disqualification of the lawyer would work substantial hardship on the client; or (4) the testimony will relate solely to a matter of formality, and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.

Rule 3.7 (b), which sets forth the circumstances for disqualification of a law firm, states:

A lawyer may not act as an advocate before a tribunal in a matter if: (1) another lawyer in the lawyer’s firm is likely to be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony may be prejudicial to the client.

As an initial matter, for disqualification to be available under Rule 3.7 (a), the lawyer-witness must be serving as an “advocate before the tribunal.”…In Murray, four of defendants’ lawyers were likely to be called to testify at trial. Three of them were transactional attorneys and would not be trial advocates. The fourth, a trial attorney, was a member of the litigation team, but he would not act as an advocate before the jury. In that case, the court held that none of the attorney witnesses was properly considered as trial counsel for the purposes of Rule 3.7 (a).

The court noted that the lawyer “will not be serving as the ‘advocate before the tribunal’ for the [Sponsor].” Rather, an attorney who was of counsel to the lawyer’s law firm, would represent the clients before the court. Thus, “disqualification on advocate-witness grounds is not warranted.”

Moreover, even if the lawyer had been serving as an advocate, the plaintiffs had failed to demonstrate that the lawyer would be a necessary witness. The movant had a “heavy burden of establishing that [the lawyer's] testimony [is] necessary.” Further, “because an attorney has relevant knowledge or was involved in the transaction at issue does not make that attorney’s testimony necessary.” Where other witnesses are available or the lawyer’s testimony would be cumulative, disqualification is unwarranted.

Here, “there were nine other individuals, including two nonparties, who attended the August 29, 2011 board meeting and no one has questioned the accuracy of the minutes of that meeting.” Moreover, the attorney general as well as other nonparty witnesses were available to testify regarding the AOD. Thus, the court found that the lawyer’s testimony regarding these issues would be cumulative and therefore, unnecessary.

The court also held that disqualification was unwarranted pursuant to Rule 3.7(b). The plaintiffs had failed to demonstrate that if the lawyer was called as a witness, he would provide testimony that would be prejudicial to his clients. The plaintiffs’ “vague and conclusory statements that [the lawyer's] testimony will prejudice his clients [were] insufficient to warrant imputed disqualification and thus deprive the defendants of their choice of counsel….” Thus, the court denied the plaintiffs’ motion to disqualify the lawyer.

Comment: Courts are well aware that disqualification motions are sometimes made primarily for tactical reasons. A party may try to remove an extremely capable and effective adversary counsel. A party may want an adversary to incur the additional expense of retaining and “educating new counsel” or may simply wish to use a disqualification motion to delay a proceeding. As the subject decision makes clear, the movant on a disqualification motion has a heavy burden.

Hemmings v. Ivy League Apt Corp., 100357/12, NYLJ 1202578452237, at *1 (Sup., NY, Decided Oct. 20, 2012), Madden, J.

Land Use—Court Rejected Plaintiffs’ Claims Based on Alleged “Unwarranted and Illegal Delays” by Municipal Officials

Plaintiffs commenced an action under 42 U.S.C. §1983 against several town defendants, alleging violations of their First, Fifth and Fourteenth Amendment rights. The defendants moved for summary judgment and the plaintiff cross moved to amend the complaint. The court granted the defendants’ motion for summary judgment.

The plaintiffs had “bid for, and then operate[d], residential reentry facilities under contracts with the Federal Bureau of Prisons (BOP).” Before closing on the property, the plaintiffs applied to a town building department for “a commercial zoning verification [CZV]…in order to construct a new building on the site.” The application stated that “the new building would be a ‘Correctional Facility’” that would be a secure facility. Based on such proposed use, the DOB approved the application. However, CZVs state that “the [building department's] approval ‘is subject to review and change if the project is modified at a subsequent date.” Additionally, under the town’s land use law, the building department “must resolve issues of compliance before an application ‘may be granted by any Town official.’”

Although the plaintiffs never sought a building permit to begin construction, it closed on the property. Thereafter, the plaintiffs “changed its plan and decided to modify the existing structure, as this would only require Minor Site Plan Review.” The plaintiffs were then informed that the change would require an application for a new CZV. The new application did not contain the same description of the facility. Rather, it stated “that the building will be ‘a community reentry center, which is a transitional correctional facility.’” The building department approved the CZV approximately a week later.

Thereafter, the plaintiffs submitted a minor site plan application to the town Department of Planning and Economic Development (PEDD). Various public agencies reviewed the project over the next few months. The PEDD sought additional information from the plaintiffs. Although the defendants claimed that “the application was never deemed complete,” the director of the PEDD, stated that the plaintiffs’ application “was finalized as of April 20, 2009.” Although final, “the application was never referred to the Planning Board for consideration.” Additionally, the building permit which the plaintiffs had applied for on March 6, 2009 was not issued.

The plaintiffs alleged that “the delay in considering the application, as well as the denial of its building permit, led it to conclude that the application would not be considered in a timely manner.” The plaintiffs thereafter advised the town that the plaintiff contemplated legal proceedings “to challenge the unwarranted and illegal delays.” Ultimately, the May 25, 2007 and July 28, 2008 CZVs were rescinded by the building department, in separate letters in May 2009. The plaintiffs alleged that “the first rescission on May 5, 2009 was immaterial” since the “initial CZV expired on May 25, 2008.”

The plaintiffs thereafter commenced an Art. 78 proceeding to compel the town to rule on its Minor Site Plan application. Promptly thereafter, the town issued the second letter in which the July 28, 2008 CZV was rescinded. A state court had dismissed the plaintiffs’ petition, finding that the town “possessed the authority to rescind the CZVs, and moreover, that [the plaintiffs'] failure to appeal [the town official's] decision to the [ZBA] precluded judicial review.” Citing its inability to meet its obligations under the contract with the Federal Bureau of Prisons, the plaintiffs “voluntarily withdrew its appeal from the state court decision, and did not resubmit its application to the town.”

The plaintiff asserted claims for deprivation of property without due process of law, deprivation of property without just compensation and First Amendment retaliation. The town argued that the complaint should be dismissed because the Fifth Amendment claim “was not ripe,” the plaintiffs had “no vested property interest in the approval of its Minor Site Plan application,” and the “retaliation claim [failed] as a matter of law.” The plaintiffs had cross moved to amend the complaint to add a claim under the Equal Protection Clause.

The court granted the defendants’ motion for summary judgment. The court found that “[the plaintiffs'] ‘abandon[ment]‘ of the project, and its failure to seek compensation through the ‘procedures provided by the state’ render the Fifth Amendment claim unripe for judicial review.” The court explained:

[A] plaintiff alleging a Fifth Amendment taking of a property interest must satisfy a two-prong test and show that (1) the state regulatory entity has rendered a ‘final decision’ on the matter, and (2) the plaintiff has sought just compensation by means of an available state procedure…. Assuming, without deciding, that…defendants rendered a final decision on [plaintiffs'] application, there is no evidence in the record that [plaintiffs] sought compensation through the state’s procedure…. Given that New York has “a reasonable, certain and adequate provision for obtaining compensation….” [Plaintiffs'] failure to seek redress through that procedure is fatal to its claim. As such, …defendants’ motion is granted as to [plaintiffs'] Fifth Amendment cause of action.

The defendants further contended that the plaintiffs lacked “a vested property interest in its proposed land use,” and therefore, could not state a cause of action under the due process clause. The plaintiffs argued that it did not have to plead a vested property interest because the defendants’ “arbitrary and capricious conduct excuses that requirement.” The court rejected the plaintiffs’ argument and explained:

The existence of a protectable right is an indispensable predicate to a procedural due process claim…. A developer does not have a property interest in its plan application unless, “at the time of submittal and absent any due process violations, there was a very strong likelihood that the application would have been granted.” “Application of the test must focus primarily on the degree of discretion enjoyed by the issuing authority, not the estimated probability that the authority will act favorably in a particular case”…. Even where the denial is arbitrary, “[t]he fact that the permit could have been denied on non-arbitrary grounds defeats the federal due process claim.” Id.

Although the plaintiffs argued that “the consideration and rescission of its CZV was arbitrary,” the court found that the defendants “undoubtedly had the right to rescind the CZV, and/or disapprove the Minor Site Plan application.” The court found that except for “conjecture and allegations of ‘bad faith,’ [the plaintiffs had] offered nothing that demonstrates that…defendants lacked the authority to rescind the CZV.” Therefore, “the [defendants'] ‘discretionary approval powers,’ standing alone, are sufficient to defeat [plaintiffs'] due process claim, as it does not possess a vested property interest.”

A plaintiff asserting a retaliation claim must demonstrate that it has “an interest protected by the First Amendment; (ii) the defendant[s'] actions were motivated by or substantially caused by [its] exercise of that right; and (iii) the defendant[s'] action effectively chilled the exercise of [its] First Amendment rights.” Here, there was “neither evidence, nor even an allegation, that [the town's] rescission of the CZVs chilled [plaintiffs'] speech.” Moreover, after receiving the second rescission letter, the plaintiffs “not only continued to prosecute its Article 78 proceeding, but also pursued an appeal.” Thus, the court dismissed the First Amendment retaliation claim.

The court denied the plaintiffs’ motion to amend its complaint because the “discovery and dispositive motion deadline [had] passed” and the plaintiffs’ counsel had “offered neither explanation nor cause for the amendment.”

Firetree v. Town of Colonie, 1:11-cv-95, NYLJ 1202574722371, at *1 (NDNY, Decided Oct. 9, 2012), Sharpe, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.