Schiller Kessler & Gomez, PLLC v. Schiller Kessler & Gomez, PLC et al

Filing 51

MEMORANDUM OPINION signed by Senior Judge Charles R. Simpson, III on 3/9/2017, re Plaintiff's 41 MOTION to Disqualify Counsel. cc: Counsel (RLK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
ALAN LANI, on behalf of
SCHILLER KESSLER & GOMEZ, PLLC,
A Kentucky Professional Limited Liability Company

PLAINTIFF
CIVIL ACTION NO. 3:16-CV-00018-CRS

v.
SCHILLER KESSLER & GOMEZ, PLC,
A Florida Professional Limited Company,
MARC SCHILLER; ANDREW KESSLER;
MARCELO GOMEZ;
SCHILLER KESSLER & GOMEZ, PLLC

DEFENDANTS

Memorandum Opinion
I.

Introduction
This matter is before the Court on the motion of Plaintiff Alan Lani to disqualify Stoll

Keenon Ogden PLLC as counsel for Defendants Schiller Kessler & Gomez, PLC, Marc Schiller,
Andrew Kessler, Marcelo Gomez, and Schiller Kessler & Gomez, PLLC (“Defendants”), ECF
No. 41. Intervening Defendant Schiller Kessler & Gomez, PLLC (“the company”) responded,
ECF No. 45. Lani replied, ECF No. 49. For the reasons discussed below, the Court will deny
Lani’s motion to disqualify Stoll Keenon Ogden PLLC as counsel for Defendants. The Court
also will deny Lani’s accompanying requests to order an evidentiary hearing and to compel the
production of all correspondence, file materials, and other similar materials created by Stoll
Keenon Ogden PLLC in the course of its representation of the company.
II.

Background
A.

The Company, the Operating Agreement, and Lani’s Resignation

Before December 1, 2015, Lani owned a 33.33% interest in the company. Schiller Aff. ¶
11, ECF No. 45-1. Schiller Kessler & Gomez, PLC, a Florida limited liability company, owned
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the remaining 66.67% interest. Id. The relationship between the members was governed by the
August 11, 2014 Amended and Restated Operating Agreement (“the operating agreement”). Id.
¶¶ 10–11. Thomas E. Rutledge, a Stoll Keenon Ogden PLLC attorney, drafted the operating
agreement.
The operating agreement provides:
Each Member acknowledges that the Company’s counsel prepared this Agreement on
behalf of and in the course of his/her representation of the Company, and that:
(a) A CONFLICT OF INTEREST MAY AND LIKELY DOES EXIST BETWEEN
ITS/HIS INTERESTS AND THE INTERESTS OF THOSE OF THE COMPANY, THE
OTHER MEMBERS;
(b) THE MEMBER HAS BEEN ADVISED TO SEEK THE ADVICE OF
INDEPENDENT COUNSEL
(c) THE MEMBER HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF
INDEPENDENT COUNSEL . . .
(h) THE MEMBER AGREES AND ACKNOWLEDGES THAT THE COUNSEL WHO
PREPARED THE OPERATING AGREEMENT ARE NOT COUNSEL TO MEMBER
AND THAT THE MEMBER HAS PLACED NO CONFIDENCE IN OR RELIANCE
UPON SAID COUNSEL IN PROTECTING THEIR INTERESTS IN CONNECTION
WITH THE COMPANY AND THEIR PARTICIPATION THEREIN.
Operating Agreement 40, ECF No. 45-2 (all caps in original) (formatting modified). The
operating agreement also provides that members could take action on behalf of the company by a
majority vote. Id. at 14. The operating agreement is signed by Lani and by a representative of
Schiller Kessler & Gomez, PLC. Id. at 40.
On November 18, 2015, Lani tendered his resignation from the company in an email.
Lani email 11/18/2015, ECF No. 45-3. Lani stated in the email that his resignation would be
effective on November 30, 2015. Id. Thus, and, as this Court has already stated, Lani was no
longer a member of the company on December 1, 2015, the date when he filed his purported
derivative suit. See Mem. Op. 10, ECF No. 17.

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B.

Procedural History

As this Court has previously explained, Lani filed a purported derivative action on behalf
of the company’s membership interests in the Jefferson County, Kentucky Circuit Court. Compl.
1, ECF No. 1-1. Lani alleged that the individual defendants—Schiller, Kessler, and Gomez—
began improperly sending fees earned by the company in Kentucky to their Florida business,
Schiller Kessler, & Gomez, PLC, which caused the Kentucky company to suffer financial losses.
Id. ¶ 18–20.
Schiller Kessler & Gomez, PLC, Schiller, Kessler, and Gomez removed the suit to this
Court under diversity jurisdiction. Not. Removal, ECF No. 1. After the Court denied Lani’s
motion to remand, Mem. Op. 14, ECF No. 17, Defendants moved to dismiss the suit with
prejudice for lack of subject matter jurisdiction, for failure to state a claim, and for lack of
personal jurisdiction. Mot. Dismiss, ECF No. 2. The Court found that Lani lacked standing to
bring a derivative action on behalf of the company. Mem. Op. 14, ECF No. 17. The Court thus
granted the Defendants’ motion to dismiss for lack of subject matter jurisdiction and dismissed
the complaint without prejudice. Order 1, ECF No. 18.
Defendants then moved for an award of attorney fees and costs under Kentucky Revised
Statute § 275.337(8)(a) against Lani. Mot. Att’y Fees, ECF No. 19. The Court granted the
motion for attorney fees. Order 12/29/2016, ECF No. 30.
III.

Discussion
Lani now moves to disqualify Stoll Keenon Ogden PLLC as counsel for Defendants.

Mot. Disqualify 1, ECF No. 41. But if “the Court for any reason declines to immediately order
disqualification,” Lani requests that “proceedings in the case be otherwise stayed and an
evidentiary hearing conducted on the question of Stoll Keenon Ogden’s conflict” and that the

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Court compel “the production of all correspondence, file materials, etc. created by Stoll Keenon
Ogden PLLC in the course of its representation” of the company to him. Id. at 2.
A.

Whether Stoll Keenon Ogden PLLC is Disqualified from Representing
Defendants Based on a Conflict of Interest

Lani argues that Rutledge, and by extension Stoll Keenon Ogden PLLC, should be
disqualified from representing the company because he drafted the operating agreement, which
“is at the heart of the current litigation.” Mem. Supp. Mot. Disqualify 2, ECF No. 41-1. He
explains that Rutledge represented multiple parties, not just the company, when he was engaged
in the operating agreement’s drafting. Id. The company argues in opposition that the motion to
disqualify should be denied because (1) Lani waived any conflict of interest by waiting a year to
file the motion, (2) Lani cannot meet his burden of establishing an actual conflict of interest, and
(3) Lani lacks standing to assert a conflict of interest. Resp. Opp. Mot. Disqualify 8–21, ECF No.
45
The party moving for disqualification of the opposing party’s counsel bears the burden of
proof of showing that disqualification is necessary. McCauley v. Family Dollar, Inc., No. 3:10cv-363-S, 2010 U.S. Dist. LEXIS 116636, at *3 (W.D. Ky. Nov. 1, 2010). To disqualify the
opposing party’s counsel, the moving party must show: “(1) a past attorney-client relationship
existed between the party seeking disqualification and the attorney it seeks to disqualify; (2) the
subject matter of those relationships was/is substantially related; and (3) the attorney acquired
confidential information from the party seeking disqualification.” Dana Corp. v. Blue Cross &
Blue Shield Mut., 900 F.2d 882, 889 (6th Cir. 1990).
A district court has discretion in ruling on a motion to disqualify. See United States v.
Dandy, 998 F.2d 1344, 1349 (6th Cir. 1993) (asserting that a denial of a motion to disqualify is
reviewed for an abuse of discretion). The courts should be “sensitive to the competing public
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policy interests of preserving client confidences and of permitting a party to retain counsel of his
choice.” Manning v. Waring, Cox, James, Sklar & Allen, 849 F.2d 222, 224 (6th Cir. 1988). The
courts have a duty to supervise the behavior of the attorneys who are before them and take action
to prevent unethical conduct. Bartech Indus. v. Int’l Baking Co., 910 F. Supp. 388, 392 (E.D.
Tenn. 1996). The courts, however, must recognize that motions to disqualify opposing counsel
can be a “potent weapon” in ligation. Manning, 849 F.2d at 224.
i. Whether Lani waived any conflict of interest by waiting a year to file his motion
to disqualify
The company asserts that Lani’s motion to disqualify should be denied because he
waived any objection to Stoll Keenon Ogden PLLCs’ representation of the company by waiting
to timely file the motion. Resp. Opp. Mot. Disqualify 8–11, ECF No. 45. Lani argues, however,
that the conflict was raised in its motion “to hold in abeyance defendants’ pending motions until
resolution of defense counsel’s conflict of interest,” which was filed in February 2016. Reply 1–
2, ECF No. 49. Lani explains, “In practical effect, the current motion is really a motion to
reconsider the Court’s order denying the relief sought at DE 8” and that his former counsel’s
drafting of the motion to stay, while not artful, can be read to assert a conflict of interest. Id. at 1.
“It is well settled that a former client who is entitled to object to an attorney representing
an opposing party on the ground of conflict of interest but who knowingly refrains from asserting
it promptly is deemed to have waived that right.” Official Unsecured Creditors Comm. of ValleyVulcan Mold Co. v. Ampco-Pittsburgh Corp. (In re Valley-Vulcan Mold Co.), 5 F. App’x 396,
401 (6th Cir. 2001) (citing Tr. Corp. of Mont. v. Piper Aircraft Corp., 701 F.2d 85, 87 (9th Cir.
1983)). In this case, Lani filed his complaint in December 2015. Compl. 1, ECF No. 1-2.
Attorneys from Stoll Keenon Ogden PLLC removed the case to this Court in January 2016. Not.

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Removal 1, ECF No. 1. Thus, Lani had knowledge about the alleged conflict of interest as early
as January 2016.
In February 2016, Lani stated that a conflict could exist in his motion “to hold in
abeyance defendants’ pending motions until resolution of defense counsel’s conflict of interest.”1
Mot. Stay 1–2, ECF No. 8. But he waited until January 2017 to file a motion to disqualify Stoll
Keenon Ogden PLLC. Mot. Disqualify 1, ECF No. 41. Between February 2016 and January
2017, the Court addressed the parties’ arguments concerning a motion to dismiss for lack of
subject matter jurisdiction, personal jurisdiction, and failure to state a claim, a motion to
intervene and realign the parties, a motion to remand, an alternative motion to add a party
defendant and remand, a motion to hold in abeyance the motions to dismiss and to intervene and
realign the parties, and a motion for leave to file a sur-reply in response to the motion to dismiss
and to realign parties. Mem. Op. 8/10/16 at 1, ECF No. 18. The Court also addressed the parties’
arguments regarding Defendants’ motion for attorney fees. Mem. Op. 12/16/16 1, ECF No. 29.
Because Lani did not promptly assert that Stoll Keenon Ogden PLLC should be disqualified on
the grounds of a conflict of interest, he waived that right. Thus, the Court will deny his motion to
disqualify the law firm.
ii. Whether Lani has met his burden of establishing a conflict of interest
The company contends that the Court should also deny Lani’s motion to disqualify Stoll
Keenon Ogden PLLC because he cannot show that (1) there was a personal attorney-client
relationship between the law firm and him, (2) Stoll Keenon Ogden PLLC’s client was the
company, and (3) he has not established that a disqualifying conflict existed. Resp. Opp. Mot.
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The Court declines to read the motion “to hold in abeyance defendants’ pending motions until
resolution of defense counsel’s conflict of interest” as asserting a conflict of interest. The Court
refuses to read into the “less-than-ideal” captions a meaning that is not apparent from the text, as
Lani suggests in his Reply. See Reply 2, ECF No. 49.
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Disqualify 11–20, ECF No. 45. Lani maintains in opposition that Rutledge represented both
Schiller Kessler & Gomez, PLC and him in drafting the operating agreement. Reply 6, ECF No.
49. Lani reasons that, because the operating agreement was not completed when Rutledge
prepared it, that Rutledge represented the parties individually, not just the company. Id.
When Lani signed the operating agreement, he acknowledged and agreed that Rutledge,
in preparing the operating agreement, was not representing him in his personal capacity.
Operating Agreement 40, ECF No. 45-2. Lani also agreed and acknowledged that he did not
place any confidence in or reliance on Rutledge’s preparation of the operating agreement. Id.
Because Rutledge did not represent him in his personal capacity, Lani cannot show that Stoll
Keenon Ogden PLLC is engaged in a conflict of interest warranting disqualification.
Lani alternatively argues that Rutledge engaged in a conflict of interest when he
represented the company and then acted as an agent for Schiller Kessler & Gomez, PLC in
“execut[ing] documents purporting to exclude Alan Lani from [the company’s] membership.”
Reply 7, ECF No. 49. This argument is flawed for several reasons. First, Lani appears to still
believe that he remains a member of the company who can assert a conflict of interest on its
behalf. But this Court has already concluded that Lani is not a member of the company and that
his membership terminated when his resignation became effective on November 30, 2015. Mem.
Op. 10, ECF No. 17.
Second, under the operating agreement, members of the company could take action on
the company’s behalf by a majority vote. Operating Agreement 14, ECF No. 45-2. Because
Schiller Kessler & Gomez, PLC owned the majority 66.67% interest in the company, Schiller
Aff. ¶ 11, ECF No. 45-1, it could instruct Stoll Keenon Ogden PLLC to take action on the
company’s behalf. Thus, when Rutledge executed documents regarding Lani’s membership in

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the company at the direction of Schiller Kessler & Gomez, PLC, he was acting on behest of the
company, and no conflict of interest existed. That Rutledge did not engage in a conflict of
interest provides additional support for this Court’s denying Lani’s motion for disqualification of
Stoll Keenon Ogden PLLC.
iii. Whether Lani lacks standing to assert a conflict of interest on behalf of the
company
The company argues that the Court should deny Lani’s motion to disqualify Stoll Keenon
Ogden PLLC because he is not one of its members and is engaged in litigation against it, and
thus he cannot assert any supposed conflict on its behalf. Resp. Opp. Mot. Disqualify 20–21,
ECF No. 45. Lani does not appear to address this issue.
The Sixth Circuit has not expressly addressed the issue of whether a non-client may bring
a motion to disqualify the opposing party’s counsel on the grounds of a conflict of interest.
Winchester v. Educ. Mgmt. Corp., No. 5:10-CV-00012-TBR, 2010 U.S. Dist. LEXIS 60660, at
*6 (W.D. Ky. June 18, 2010). In Winchester, however, another district court in the Western
District of Kentucky addressed the issue. Id. The district court examined the Sixth Circuit’s test
in Dana Corp., 900 F.2d at 889 that requires a party moving for disqualification to first show that
“a past attorney-client relationship existed between [it] and the attorney it seeks to disqualify.”
Id. at n.2. The district court also examined the Sixth Circuit’s statement in Willis v. First Bank
National Association, 916 F.2d 714, at *1 [published in full-text format at 1990 U.S. App.
LEXIS 18204] (6th Cir. 1990) (unpublished) that “plaintiff's standing to assert opposing
counsel's alleged conflict of interest is questionable at best,” particularly when the plaintiff is a
non-client litigant moving to disqualify opposing counsel. Id. The Winchester court concluded
that the Sixth Circuit would follow the majority of courts and hold that a non-client does not
have standing to disqualify opposing counsel. Id.
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This Court finds the reasoning of the Winchester court persuasive. Accordingly, this
Court concludes that Lani, as a non-client litigant, does not having standing to disqualify Stoll
Keenon Ogden PLLC on behalf of the company based on the conflict of interest. Such provides
additional support for its denial of Lani’s motion to disqualify the law firm.
B.

Whether an Evidentiary Hearing Should Be Held

Lani asserts that the Court should hold an evidentiary hearing on the matters discussed in
his motion to disqualify Stoll Keenon Ogden PLLC. Mot. Disqualify 2, ECF No. 41. The
company argues in opposition that it has provided sufficient evidence to support denying Lani’s
motion to disqualify and thus no hearing is necessary. Mem. Opp. Mot. Disqualify 7–8, ECF No.
45.
In the Sixth Circuit, “a decision for disqualification is adequately founded without an
evidentiary hearing if the ‘factual inquiry’ is conducted in a manner that will allow of appellate
reviews.” Gen. Mill Supply Co. v. SCA Servs., Inc., 697 F.2d 704, 710 (6th Cir. 1982). Given the
record before it, this Court finds that an evidentiary hearing on the disqualification motion is
unnecessary. Thus, the Court will deny Lani’s request for an evidentiary hearing.
C.

Whether Rutledge and/or Stoll Keenon Ogden PLLC Should Be Compelled to
Produce Correspondence, File Material, etc. Created While Representing the
Company

Lani also argues that, if the Court does not grant its motion to disqualify Stoll Keenon
Ogden PLLC, the Court should compel “the production of all correspondence, file materials, etc.
compiled by Thomas Rutledge and/or Stoll Keenon Ogden PLLC in the course of its
representation” of the company to him. Mot. Disqualify 2, ECF No. 41. The company, however,
asserts that the “request is improper on its face as a blatant attempt to invade the attorney-client
privilege and attorney work product doctrine.” Mem. Opp. Mot. Disqualify 21–22, ECF No. 45.

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Federal Rule of Civil Procedure 26(b)(3)(A) provides that generally, “a party may not
discover documents and tangible things that are prepared in anticipation of litigation or for trial
by or for another party or its representative.” These items may be discovered if “they are
otherwise discoverable under Rule 26(b)(1)” or “the party shows that it has substantial need for
the materials to prepare its case and cannot, without undue hardship, obtain their substantial
equivalent by other means.” Id.
In this case, Lani does not show that the correspondence, file materials, and other similar
items that Stoll Keenon Ogden PLLC created while representing the company are discoverable
under Rule 26(b)(1). Nor does he demonstrate that he has a substantial need for the materials to
prepare his case or that he would otherwise be unable to obtain them by other means. Therefore,
this Court will deny Lani’s request to compel Defendants to produce these materials.
V.

Conclusion
The Court will deny Lani’s motion to disqualify Stoll Keenon Ogden PLLC as counsel

for Defendants. The Court also will deny Lani’s requests to order an evidentiary hearing and to
compel the production of all correspondence, file materials, and other similar materials created
by Stoll Keenon Ogden PLLC in the course of its representation of the company. An order will
be entered in accordance with this memorandum opinion.

March 9, 2017

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