Gozone LLC et al v. Amtax Holdings 303, LLC et al
Filing
20
ORDER AND REASONS denying 9 Motion to Disqualify Counsel. Signed by Judge Ivan L.R. Lemelle on 6/23/2014. (ijg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GOZONE, L.L.C. & MAC-RE L.L.C.
CIVIL ACTION
VERSUS
NO. 13-6159
AMTAX HOLDINGS 303, LLC
AMTAX HOLDINGS 430, LLC
&
SECTION “B”(4)
ORDER AND REASONS
NATURE OF THE MOTION
Before
Plaintiff's
the
Court
Counsel,
is
Defendants'
Plaintiff's
brief
Motion
in
to
Disqualify
opposition,
and
Defendants' reply thereto (Rec. Docs. 9, 15, & 19);
IT IS ORDERED that the Motion is DENIED. (Rec. Doc. 9).
FACTS AND PROCEDURAL HISTORY
This case arises from a dispute between several partner
entities within two limited partnerships, Live Oak Manor Limited
Partnership ("LOM I"), and Live Oak Manor Subdivision II, L.P.
("LOM II" ; collectively, the "Partnerships"). The Partnerships own
and operate residential housing complexes in Waggaman, Louisiana.
Plaintiff Gozone, LLC ("Gozone") served as general partner for
both LOM I and II; whether Gozone remains or should remain a
general partner is the subject of this suit. Plaintiff MAC-RE, LLC
provided property management services for the Waggaman, Louisiana
properties. Again, whether MAC-RE continues or should continue to
manage the Waggaman properties is the subject of this suit.
Defendants Amtax Holdings 303, LLC ("AMTAX 303")and Amtax Holdings
430 ("AMTAX 430") are the investor limited partners in LOM I and
II, respectively.
Problems within the Partnership arose after August 29, 2012,
when Hurricane Isaac passed through the Waggaman area causing roof
damage to the Waggaman properties. Thereafter, the parties began a
tortuous dispute over who was responsible for payment of repair
costs and from which source the necessary funds should be drawn.
The
AMTAX
entities
asserted
that
the
relevant
partnership
agreements obligated Gozone to cover such costs with an "Operating
Deficit Loan." Gozone argued that, among other things, the AMTAX
entities wrongfully withheld insurance payments and wrongfully
created a deficit in the first place. These disputes ultimately
gave rise to several suits in state court.
First, in April of 2013, non-party JF&A, LLC, a contractor
that completed repairs at each of the Waggaman facilities, filed
suits in state court against LOM I, LOM II, Gozone, and MAC-RE
seeking payment for such repairs. (the "JF&A Actions"). Apparently,
the dispute between Gozone and the AMTAX entities delayed payment
to JF&A, with each party arguing that the other should foot the
bill.
Shortly after initiation of those suits the AMTAX entities
endorsed several checks from the properties' insurer, which Gozone
then
used
in
conjunction
with
funds
from
the
Partnerships'
"Replacement Reserve" account to pay JF&A, and JF&A voluntarily
dismissed both suits with prejudice.
Despite resolution of the JF&A suit, the parties continued to
argue over finances. The AMTAX entities continued to demand that
Gozone
replenish
the
"Replace
Reserve"
account,
provide
an
"Operating Deficient Loan," and threatened removal of Gozone as
general partner if it did not comply. Gozone responded by letter
several days later on August 21, 2013, with accusations that the
AMTAX entities forfeited their partnership interests by failing to
fund
certain
capital
installments
under
their
respective
partnership agreements. Roughly two weeks later, on September 6,
2013, Gozone filed two suits in state court, one against each AMTAX
entity, with each complaint purporting to initiate suit on behalf
of the respective Partnerships "by and through its General Partner,
Gozone." The following day the AMTAX entities sent Gozone letters
purporting to remove Gozone as general partner from each partnership
for
breaching
the
relevant
partnership
agreements.
They
then
purported to replace Gozone as general partner with another entity,
Plan B, Inc., which in turn purported to remove MAC-RE as manager
of the Waggaman facilities.
Several weeks later Gozone and MAC-RE initiated the instant
suit in state court, seeking monetary damages and declaratory
relief that the each plaintiff was improperly removed from their
respective roles. The Defendants timely removed the case and now
move
to
alleged
disqualify
Plaintiff's
counsel,
David
Culpepper,
for
conflicts of interest.
In support of their motion to disqualify, the Defendants make
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three primary contentions–they essentially argue that Culpepper
faces three conflicts. First, they argue that Culpepper has a
concurrent conflict because he represents the Partnerships in the
initial state actions while simultaneously representing one partner,
Gozone, against another, each of the AMTAX entities. Next, they
contend in general terms that because the Partnerships retained
Culpepper as their counsel "in the payment dispute with JF&A," any
subsequent suit against individual partners involving partnership
matters creates a conflict arising from prior representation.
Finally, the Defendants contend that MAC-RE's interests are adverse
to the Partnership and therefore give rise to conflict. Each of
these contentions, of course, rest on the claim that Culpepper had
a client attorney relationship with the Partnerships.
LAW AND ANALYSIS
“Motions to disqualify are substantive motions affecting the
rights of the parties and are determined by applying standards
developed under federal law.” In re American Airlines, Inc., 972
F.2d 605, 610 (5th Cir.1992). The party seeking disqualification
bears the burden of proving a conflict of interest requiring
disqualification. See, e.g. United States v. DeCay, 406 F.Supp.2d
679, 683 (E.D.La.2005) (citing F.D.I.C. v. U.S. Fire. Ins. Co., 50
F.3d 1304, 1316 (5th Cir.1995)). "As a general rule, courts do not
disqualify an attorney on the grounds of conflict of interest unless
the former client moves for disqualification." In re Yarn Processing
4
Patent Validity Litig., 530 F.2d 83, 88 (5th Cir. 1976). In any
event, Ethical motions are guided by both state and national
standards. F.D.I.C. v. U.S. Fire Ins. Co., 50 F.3d 1304, 1311-12
(5th Cir. 1995).
The relevant standards in this case are set forth
in the Local Rules of the Eastern District of Louisiana, the Rules
of Professional Conduct for the Louisiana Bar, and the American Bar
Association's Model Rules of Professional Conduct. None of these
standards materially differ with respect to the instant motion.
Under each standard for a conflict to arise there must, of course,
have been a client-attorney relationship between the attorney in
question and each of the "clients" with conflicting interests.
Here,
there
is
nothing
in
the
record
substantiating
an
attorney-client relationship between Culpepper and the Partnerships,
either past or present. To the extent the Defendants assert that
Culpepper
previously
represented
the
partnerships
in
payment
disputes with JF&A, they have produced no evidence. The only
"evidence" they provide in support of their claim is the pleading
in the JF&A Action. (See Rec. Doc. 19-1). However, that JF&A named
the Partnerships in a state action, however, does nothing to show
that the Partnerships retained or otherwise developed a clientattorney relationship with Culpepper with respect to that action.1
1
In their reply brief, the Defendants contend that the Plaintiffs concede
that Culpepper represented the Partnerships. (Rec. Doc. 19 at 2). This contention
is perplexing considering that the Plaintiffs expressly contradict that claim on
the very page cited by Defendants for such "concession." (See Rec. Doc. 15 at 9).
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Moreover, that Culpepper filed suit against the AMTAX entities
"on behalf" of the respective Partnerships "by and through its
General Partner," Gozone, does not give rise to an attorney-client
relationship with the Partnerships per se. The Plaintiffs' state
suits are only nominally on behalf the partnerships, a point that
each of the AMTAX entities have essentially argued in state court
in filing their Exceptions of Lack of Procedural Capacity. (See Rec.
Doc. 15-1 at 4, 13).
Simply put, this case quite clearly arises from an intrapartnership dispute between general and limited partners. The
Defendants have failed to satisfy their burden of showing that
Culpepper
formed
an
attorney-client
relationship
with
the
Partnerships in the first place. Accordingly,
IT IS ORDERED that Defendants' Motion to Disqualify is DENIED.
New Orleans, Louisiana, this 23rd day of June, 2014.
____________________________
UNITED STATES DISTRICT JUDGE
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