Franco v. Lend America, Inc.

Filing 335

MEMORANDUM AND ORDER Re: 323 Letter; For the foregoing reasons, Ashley's motion to (1) stay this matter and remove it from the trial calendar and (2) disqualify Plaintiffs' counsel, or in the alternative, for a hearing on disqualificat ion, is DENIED. Counsel are directed to appear at the pre-trial conference as scheduled. The Clerk of Court is directed to mail a copy of this Order to the pro se Defendants. So Ordered by Judge Joanna Seybert on 11/9/2017. C/ECF; C/M (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
BIENVENIDO FRANCO, WILLIAM FRASER, and
BRIAN McCABE, individually and on behalf
of all others similarly situated,
Plaintiffs,
MEMORANDUM & ORDER
07-CV-3956(JS)(AKT)

-againstIDEAL MORTGAGE BANKERS, LTD., d/b/a
Lend America, Inc., HELENE DeCILLIS,
MICHAEL PRIMEAU, and MICHAEL ASHLEY,

Defendants.
---------------------------------------X
APPEARANCES
For Plaintiffs:
Erik Harald Langeland, Esq.
Erik H. Langeland, P.C.
500 Fifth Avenue, Suite 1610
New York, NY 10110
James B. Zouras, Esq.
Ryan F. Stephan, Esq.
Stephan Zouras, LLP
205 N. Michigan Avenue, Suite 2560
Chicago, IL 60601
For Defendants
Ideal Mortgage:

No appearance

Helene DeCillis:

Helene DeCillis, pro se
6 Norris Lane
East Setauket, NY 11733

Michael Primeau:

No appearance

Michael Ashley:

Robert H. Weiss, Esq.
Law Offices of Robert Weiss
26 Stonywell Court
Huntington Station, NY 11746

SEYBERT, District Judge:
On

September

21,

2007,

Plaintiff

Bienvenido

Franco

commenced this action, individually and on behalf of all others
similarly situated (“Plaintiffs”), alleging that Ideal Mortgage
Bankers, Ltd., d/b/a Lend America (“Lend America”) violated the
Fair Labor Standards Act (“FLSA”), 29 U.S.C § 201, et. seq., by
failing to pay its loan officers minimum wages and overtime.
(Compl., Docket Entry 1, ¶¶ 1 & 4.)

On October 1, 2009, Plaintiffs

amended their Complaint to name as defendants four Lend America
officers: Michael Ashley, Timothy Mayette,1 Helene DeCillis, and
Michael Primeau (“Individual Defendants,” and together with Lend
America, “Defendants”).
11.)

(Sec. Am. Compl., Docket Entry 129, ¶¶ 8-

Plaintiffs argue that each of the Individual Defendants had

sufficient control over Lend America and its employment practices
to render them individually liable under the FLSA. Franco v. Ideal
Mortg. Bankers, Ltd., No. 07-CV-3956, 2011 WL 317971, at *1
(E.D.N.Y. Jan. 28, 2011).

All Defendants filed Answers,2 but as

discussed below, the matter is stayed as to Lend America.

(Docket

1 All claims against Defendant Mayette were dismissed with
prejudice on August 5, 2011. (Dismissal Order, Docket Entry
228.)
2 On December 1, 2009, Defendant Primeau filed his Answer
through counsel. (Primeau’s Answer, Docket Entry 153.) On
March 9, 2010, Magistrate Judge A. Kathleen Tomlinson granted
Primeau’s attorney’s motion to withdraw (Withdrawal Order,
Docket Entry 189.) Primeau has not participated in this
litigation since that time.
2

Entries 134, 153, 155-156, 160; R&R, Docket Entry 227, at 2-3.)
This matter is scheduled for trial on November 27, 2017.
Presently pending before the Court is Ashley’s motion to
(1) stay the action and remove it from the trial calendar and (2)
disqualify Plaintiffs’ counsel, or alternatively, hold a hearing
regarding whether disqualification is appropriate.
Docket Entry 323, at 1.)

(Def.’s Mot.,

For the following reasons, Ashley’s

motion is DENIED in its entirety.
BACKGROUND
I.

Lend America’s Automatic Stay
In

Magistrate

her
Judge

July
A.

29,

2011

Kathleen

Report

Tomlinson

and

Recommendation,

observed

that

“an

involuntary petition pursuant to 11 U.S.C. § 303 was filed against
[Lend America] on November 30, 2010 in the United States Bankruptcy
Court for the Eastern District of New York.”
Tomlinson

explained

that

pursuant

to

(R&R at 2-3.)
11 U.S.C. § 362,

Judge
the

bankruptcy petition operates as an automatic stay with respect to
actions against Lend America (the “Automatic Stay”).

Thus, Judge

Tomlinson recommended that this Court deny Plaintiffs’ motion for
default judgment against Lend America.

On September 14, 2011,

this Court adopted Judge Tomlinson’s Report and Recommendation.
(Mem. & Order, Docket Entry 237, at 1.)

3

While the Automatic Stay

is

in

place,

America.3
II.

Plaintiffs

are

unable

to

proceed

against

Lend

(R&R at 3.)

Communications Regarding Ashley’s Criminal Case
On August 11, 2011, in United States v. Ashley, Docket

No. 11-CR-0516, Ashley pled guilty to an Information charging him
with bank fraud under 18 U.S.C. §§ 1334 and 2.

While Ashley was

awaiting sentencing, 4 Erik Langeland, who together with James
Zouras and Ryan Stephan represents Plaintiffs, exchanged emails
with U.S. Probation Officer Steven S. Guttman.
Docket Entry 324-1.)

(Pls.’ Opp. Ex. A,

Langeland and Guttman discussed whether any

Plaintiffs were interested in providing information about their
losses in this matter, which Guttman stated would be helpful to
the court in sentencing Ashley.

(Pls.’ Opp. Ex. A.)

Thereafter,

Plaintiffs’ counsel emailed Plaintiffs to notify them of the plea
and

inform

them

that,

if

they

wished,

they

could

provide

information relevant to Ashley’s sentencing to the sentencing
court.

(Def.’s Mot. at 5-6.)

3 Lend America’s bankruptcy proceeding remains pending. It is
listed as the debtor in a Chapter 7 proceeding pending before
Judge Louis A. Scarcella, Docket No. 10-79280.
4 Ashley’s sentencing is currently scheduled for December 1,
2017.
4

DISCUSSION
I.

Ashley’s Motion for a Stay
The Court construes Ashley’s motion as a request to

extend the Automatic Stay as to the claims against Lend America to
the Individual Defendants, which would effectively stay the entire
case. (See Def.’s Mot. at 2.) Ashley reasons that he is a “related
part[y]” to Lend America and that “[a] decision against him whereby
he is found to owe a certain amount of money may have a Res Judicata
effect on the Bankruptcy Trustee who is tasked with determining
the

value

of

[Plaintiffs’

the

claims

counsel]

of

filed

class

claims

members
in

(Def.’s Reply, Docket Entry 326, at 1.)

the

on

whose

Bankruptcy

behalf
Court.”

Plaintiffs counter that

there is no basis to stay Plaintiffs’ action against the Individual
Defendants because none of them have filed for bankruptcy.

(Pls.’

Opp., Docket Entry 324, at 2-3.)
A

bankruptcy

petition

filed

under

11 U.S.C. § 303

automatically stays “the commencement or continuation . . . of a
judicial, administrative, or other action or proceeding against
the debtor that was or could have been commenced before the
commencement of the case under this title.”
(emphasis added).

11 U.S.C. § 362(a)(1)

Generally, “the Automatic Stay applies only to

the debtor and does not stay proceedings brought against nonbankrupt co-defendants.”

Millard v. Developmental Disabilities

Inst., Inc., 266 B.R. 42, 44 (E.D.N.Y. 2001).

5

While an automatic

stay can be extended to non-debtor co-defendants, it “normally
does so only when a claim against the non-debtor will have an
immediate adverse economic consequence for the debtor’s estate.”
Queenie, Ltd. v. Nygard Int’l, 321 F.3d 282, 287 (2d Cir. 2003).
“[E]xtensions of the Automatic Stay are the exception rather than
the rule and are not favored absent some usual circumstance.”
Millard, 266 B.R. at 45 (citing CAE Indus. Ltd. v. Aerospace
Holdings Co., 116 B.R. 31, 32 (S.D.N.Y. 1990)).
A court should not extend the automatic stay where the
non-debtor is “independently liable as, for example, where the
debtor and another are joint tortfeasors or where the nondebtor’s
liability rests upon his own breach of duty.”

In re FPSDA I, LLC,

No. 10-75439, 2012 WL 6681794, at *8 (Bankr. E.D.N.Y. Dec. 21,
2012), as corrected (Dec. 26, 2012) (quoting A.H. Robins Co. v.
Piccinin, 788 F.2d 994, 999–1000 (4th Cir. 1986)).

Specifically,

“[c]ourts

stay

have

declined

to

extend

a

bankruptcy

to

co-

defendants in . . . joint employment[] situations” in FLSA cases.
Diaz v. Scores Holding Co., No. 07-CV-8718, 2008 WL 7863502, at *3
(S.D.N.Y. May 9, 2008) (citing Millard, 266 B.R. at 43-45); see
Hernandez v. Immortal Rise, Inc., No. 11-CV-4360, 2014 WL 991715,
at *4-5 (E.D.N.Y. Mar. 13, 2014) (declining to extend automatic
stay to non-debtor defendants in FLSA case).
The Court concludes that the Automatic Stay should not
extend to the Individual Defendants.

6

Ashley has not alleged that

a judgment against him or the other Individual Defendants would
have an immediate adverse economic impact on the debtor’s estate.
Instead, he claims that a decision against him could have a “Res
Judicata effect on [Lend America’s] bankruptcy trustee.”
Reply at 1.)

(Def.’s

However, the Court is not convinced that this

argument requires a deviation from the general rule that automatic
stays will not extend to non-debtors.

In fact, the Second Circuit

rejected a similar argument, writing that it had not “located any
decision applying the stay to a non-debtor solely because of an
apprehended later use against the debtor of offensive collateral
estoppel or the precedential effect of an adverse decision.”
Queenie, 321 F.3d at 288.
Ashley also argues that he is a “related part[y]” to
Lend

America

warranted.

such

that

extension

(Def.’s Reply at 1.)

of

the

Automatic

Stay

is

However, whether the parties are

“related” is not controlling, particularly in a “joint employment”
case under the FLSA.

See Diaz, 2008 WL 7863502, at *3.

Plaintiffs

allege that each Defendant was an “employer” that violated the
FLSA.

(Sec. Am. Compl. ¶¶ 1, 8-11.)

Moreover, this Court held on

summary judgment that “Mr. Ashley functioned as an FLSA ‘employer’
during the period of Mr. Mayette’s employment.”

Franco, 2011 WL

317971, at *9. Thus, he faces--and the other Individual Defendants
potentially face--individual liability under the FLSA, id. at *511, and extending the Automatic Stay in these circumstances would

7

be inappropriate.

See Cano v. DPNY, Inc., 287 F.R.D. 251, 262

(S.D.N.Y. 2012) (“Here, the plaintiffs allege that the Proposed
Defendants are joint employers and, therefore, are jointly and
severally liable to the plaintiffs for violations of the FLSA and
NYLL. Accordingly, the automatic stay in the bankruptcy case would
not

extend

to

the

Proposed

Defendants . . . .”);

see

also

Hernandez, 2014 WL 991715, at *4-5 (denying request to extend
automatic stay to non-debtors in FLSA case); Millard, 266 B.R. at
44-45 (same).
Moreover, the cases cited by Ashley are inapposite. (See
Def.’s Reply at 1-2.)

In A.H. Robins Co. v. Piccinin, the Fourth

Circuit affirmed the extension of a stay to non-debtors in the
“unusual situation” where “a judgment against the third-party
defendant will in effect be a judgment or finding against the
debtor” by virtue of the debtor’s indemnity obligations toward and
insurance policy covering the non-debtors.
1008 (4th Cir. 1986).

788 F.2d 994, 999,

Similarly, in Robert Plan Corp. v. Liberty

Mutual Insurance Co., this Court affirmed a bankruptcy court order
extending a stay to the debtors’ officers.

No. 09-CV-1930, 2010

WL 1193151, at *3-4 (E.D.N.Y. Mar. 23, 2010).

However, in that

case, because of indemnification obligations under applicable law
and under a debtor’s by-laws, it was highly likely that the
contempt suit against the officers would have resulted in a claim-an “immediate adverse impact”--against the debtors’ estate.

8

Id.

at *3-4.

Unlike in Robert Plan Corp., Ashley has not argued that

Lend America must indemnify him or the Individual Defendants.
Ashley also cites In re Adler, a veil-piercing case where
the court extended an automatic stay to the non-debtor alter egos
of the debtor.

494 B.R. 43, 53, 56-58 (Bankr. E.D.N.Y. 2013),

appeal denied, judgment aff’d sub nom. Ng v. Adler, 518 B.R. 228
(E.D.N.Y. 2014).
alter ego.

Ashley has not alleged that Lend America was his

In fact, Ashley referred to himself as merely “a sales

coach and a cheerleader” for Lend America.

(Def.’s Mot. at 2.)

Nor does In re Bailey Ridge Partners, LLC bring Ashley within the
stay’s reach.

There, the automatic stay applied to non-debtors

who guaranteed the debtor’s debt because, among other things, not
halting the litigation would have posed “a strong likelihood of
imminent and irreparable harm to the estate” and the debtor’s
reorganization efforts.

In re Bailey Ridge Partners, LLC, 571

B.R. 430, 439 (Bankr. N.D. Iowa 2017).

Additionally, the Bailey

court found that the stay extended to a third party who took out
a loan solely for the debtor’s benefit and in reliance on the
debtor’s promise to repay the loan because “it [was] almost certain
that ‘a judgment against the third-party defendant [would have
been] in effect . . . a judgment or finding against the debtor.’”
Id. at 440 (quoting In re Panther Mountain Land Dev., LLC, 686
F.3d 916, 923 (8th Cir. 2012)) (first and third alteration in
original).

Ashley has not alleged such facts here.

9

Accordingly, Ashley’s motion to stay this proceeding is
DENIED.5
II.

Ashley’s Motion to Disqualify Counsel
Ashley

argues

that

Plaintiffs’

counsel

should

be

disqualified for emailing Plaintiffs to notify them of Ashley’s
plea and to invite them to provide information to the sentencing
court.
that

(Def.’s Mot. at 3, 5-8.)
this

Court

schedule

a

Alternatively, Ashley requests
hearing

determine

whether

(Def.’s Reply at 4.)

disqualification is warranted.

to

Ashley

submits that the email was sent in violation of New York’s Rules

Ashley also moves for a stay based upon Plaintiffs’ alleged
failure to request seized Lend America corporate and financial
records from the bankruptcy trustee or the federal government.
(Def.’s Mot. at 2-3.) A court “‘may decide in its discretion to
stay civil proceedings pursuant to the power inherent in every
court to control the disposition of the causes on its docket
with economy of time and effort for itself, for counsel, and for
litigants.’” United States v. Town of Oyster Bay, 66 F. Supp.
3d 285, 289 (E.D.N.Y. 2014) (quoting Laumann v. Nat’l Hockey
League, No. 12-CV-1817, 2013 WL 837640, at *2 (S.D.N.Y. Mar. 6,
2013)). The party moving for the stay bears the burden of
establishing “‘a clear case of hardship or inequity in being
required to go forward.’” Id. (quoting Trikona Advisors Ltd. v.
Kai-Lin Chuang, No. 12-CV-3886, 2013 WL 1182960, at *2 (E.D.N.Y.
Mar. 20, 2013)). Courts in this Circuit usually apply the
following factors when deciding a motion to stay in a civil
proceeding: “‘(1) the private interests of the plaintiffs in
proceeding expeditiously with the civil litigation as balanced
against the prejudice to the plaintiffs if delayed; (2) the
private interests of and burden on the defendants; (3) the
interests of the courts; (4) the interests of persons not
parties to the civil litigation; and (5) the public interest.’”
Id. (quoting Trikona Advisors Ltd., 2013 WL 1182960, at *2).
After weighing these factors, the Court finds that Plaintiffs’
purported failure to seek certain seized documents does not
justify staying the case against the Individual Defendants.
5

10

of Professional Conduct, Rule 3.4(e), which provides that “[a]
lawyer shall not: . . . present, participate in presenting, or
threaten to present criminal charges solely to obtain an advantage
in

a

civil

matter.”

Ashley

avers

that

Langeland

should

be

disqualified for sending the email, as “writing an email to
hundreds

of

class

members

and

encouraging

them

to

opine

on

sentencing in case [sic] that is irrelevant to the facts before
this

court

on

prohibition.”

the

Civil

matter

(Def.’s Mot. at 7.)

falls

squarely

within

this

Ashley maintains that Zouras

should be disqualified because he knew or should have known of
Langeland’s alleged ethical violation and “was likely” obligated
to report it to the state bar association.
Plaintiffs’

counsel

argue

that

(Def.’s Mot. at 8.)
they

emailed

their

clients after the Government “advised [them] that their clients
could be considered victims of Ashley’s criminal conduct, that
information about their losses ‘would be helpful to . . . the
sentencing court in the matter,’ and that they had a right to
submit information to the Court.”
alteration in original).)

(Pls.’ Opp. at 4 (second

Further, Plaintiffs’ counsel argue that

the email did not result in any improper advantage to Plaintiffs
in this matter.

(Pls.’ Opp. at 4.)

“Whether or not disqualification is warranted is subject
to the Court’s discretion.”

Spagnuoli v. Louie’s Seafood Rest.,

LLC, 20 F. Supp. 3d 348, 355 (E.D.N.Y. 2014) (citing Cresswell v.

11

Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990)).

Because of

the “immediate adverse effect on the client by separating him from
counsel of his choice, and that disqualification motions are often
interposed

for

tactical

reasons . . . [and]

inevitably

cause

delay,” a party seeking to disqualify counsel faces a high burden
of proof.

Id. (quoting Bd. of Educ. v. Nyquist, 590 F.2d 1241,

1246 (2d Cir. 1979)) (alterations in original).

“Accordingly,

‘[u]nder the restrained approach adopted by the Second Circuit,
relief will be granted only when the facts concerning the lawyer’s
conduct poses a significant risk of trial taint,’ particularly
when the ‘attorney is at least potentially in a position to use
privileged information concerning the other side through prior
representation . . . , thus giving his present client an unfair
advantage.’”

Id. (quoting Mitchell v. Metro. Life Ins. Co., No.

01-CV-2112, 2002 WL 441194, at *4 (S.D.N.Y. Mar. 21, 2002))
(alterations in original).
Generally, an attorney could be disqualified on three
grounds:

“‘(1)

where

an

attorney’s

conflict

of

interests

undermines the court’s confidence in the vigor of the attorney’s
representation of his client[;] (2) where the attorney is at least
potentially in a position to use privileged information concerning
the other side through prior representation thus giving his present
client an unfair advantage[;] . . . [or (3)] where an attorney is
in a position to use confidential information obtained from a

12

potential client.’”

Id. (quoting Miness v. Ahuja, 762 F. Supp. 2d

465, 478-79 (E.D.N.Y. 2010)) (alterations in original).
Ashley has not met this high burden.
Plaintiffs’
improperly

counsel
influence

(Def.’s Mot. at 6.)

behaved
the

unethically

present

matter

He alleges that

“to
before

illegally
this

and

court.”

However, he does not plausibly assert that

the invitation for Plaintiffs to provide information relevant to
Ashley’s sentencing could taint the underlying civil trial, which
is the crux of a motion to disqualify.

Xiao Hong Liu v. VMC East

Coast, LLC, No. 16-CV-5184, 2017 WL 4564744, at *3 (E.D.N.Y. Oct.
11, 2017) (“[T]he ‘[m]ere appearance of impropriety will not alone
serve as a sufficient basis for granting a disqualification motion.
Rather, the motion will be granted only if the facts present a
real risk that the trial will be tainted.’” (quoting Revise
Clothing, Inc. v. Joe’s Jeans Subsidiary, Inc., 687 F. Supp. 2d
381,

388

(S.D.N.Y.

2010)))

(second

alteration

in

original).

Further, Ashley does not articulate any conflicts of interest that
undermine the Court’s confidence in Plaintiffs’ representation or
allege

that

Plaintiffs’

counsel

could

use

privileged

or

confidential information against Ashley or the other Defendants to
gain an unfair advantage.

See Spagnuoli, 20 F. Supp. 3d at 355.

Finally, the Court finds Ashley’s analogy to Meachum v.
Outdoor World Corp. unpersuasive.
1996).

171 Misc. 2d 354 (N.Y. Sup. Ct.

There, the Queens County Supreme Court disqualified class

13

counsel where there was a “potential conflict of interest which
emanates from the employment relationship between plaintiffs and
counsel [and] . . . a degree of control and dependence which poses
a further conflict,” as well as “unethical conduct by counsel[] in
surreptitiously tape-recording the telephone conversation with
defendants’ supervisory employee, at a time when counsel knew or
should have known that the corporation was represented by or acting
through its attorneys.”

Id. at 373-75.

Ashley does not allege

that Plaintiffs’ counsel are conflicted in a similar manner.6
Therefore, Ashley’s request for Plaintiffs’ counsel to
be disqualified, or in the alternative, for this Court to hold a
hearing on the matter, is DENIED.
CONCLUSION
For the foregoing reasons, Ashley’s motion to (1) stay
this

matter

and

remove

it

from

the

trial

calendar

and

(2)

disqualify Plaintiffs’ counsel, or in the alternative, for a
hearing on disqualification, is DENIED.

Counsel are directed to

appear at the pre-trial conference as scheduled.

6 Moreover, Ashley ignores key distinctions between this case
and Meachum, including the problematic relationship between
class counsel and plaintiffs that the Meachum court relied on in
reaching its decision.
14

The Clerk of Court is directed to mail a copy of this
Order to the pro se Defendants.

SO ORDERED.

/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:

November
9 , 2017
Central Islip, New York

15