Fairfield Financial Mortgage Group, Inc. v. Luca et al
Filing
70
MEMORANDUM OF DECISION AND ORDER - It is hereby: ORDERED, that Lucas 13 motion to disqualify Fairfields counsel, Michael A. Haskel, Esq., is denied, and it is further ORDERED, that the Fairfields 44 motion for sanctions against Luca is denied, an d it is further ORDERED, that Fairfield and Luca are directed to appear for an evidentiary hearing before the Court on the authenticity of the Hold Harmless Agreements on Thursday, August 9, 2012 at 9:00am, and it is further ORDERED, that the Clerk of the Court is directed to mail a copy of this decision and order to the pro se defendants via Certified Mail. Ordered by Judge Arthur D. Spatt on 7/25/2012. (Coleman, Laurie)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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FAIRFIELD FINANCIAL MORTGAGE
GROUP, INC.,
Plaintiff,
MEMORANDUM OF
DECISION AND ORDER
11-CV-3802 (ADS) (ETB)
-againstJAMES R. LUCA, DONATO QUINTO,
CANDICE GIACCONE, MEDALLION
ABSTRACT, LLC, CARLO DELLAPINA,
MICHAEL J. MOBERG, MOBERG &
ASSOCIATES, PLLC, SHAW ELITE, LLC,
SHAW OPERATIONS, LLC, MARIA
TARASCO, AND SPM AGENCY LTD.,
Defendants.
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APPEARANCES:
Law Offices of Michael A. Haskel
Attorneys for the plaintiff
167 Willis Avenue
Mineola, NY 11501
By: Michael A. Haskel, Esq.,
Brandon M. Zlotnick, Esq., Of Counsel
James R. Luca, pro se
2215 Sherman Avenue
N. Merrick, NY 11566
Kenneth S. Pelsinger, P.C.
Attorneys for defendant Candice Giaccone
3601 Hempstead Turnpike, Suite 305
Levittown, NY 11756
By: Kenneth S. Pelsinger, Esq., Of Counsel
LaVallee & Lavallee, P.C.
Attorneys for defendants Medallion Abstract, LLC and Carlo Dellapina
4 West Gate Road
Farmingdale, NY 11735
By: Keith LaVallee, Esq., Of Counsel
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Michael J. Moberg, pro se
157 Putnam Avenue
Freeport, NY 11520
Maria Tarasco, pro se
24 Buckingham Drive
Holbrook, NY 11741
NO APPEARANCE
Moberg & Associates, PLLC, Shaw Elite, LLC, Shaw Operations, LLC
SPATT, District Judge.
I. BACKGROUND
The plaintiff, Fairfield Financial Mortgage Group, Inc. (“Fairfield”), a Connecticut
corporation, was a residential mortgage lender and broker with a branch office located at 333
Earle Ovington Boulevard, Uniondale, New York (“Fairfield Uniondale Branch”). Shaw
Mortgage Group, Inc. (“Shaw”), a New York corporation, was also a residential mortgage
broker, with a branch office located at 2550 Hempstead Turnpike, East Meadow, New York
(“Shaw East Meadow Branch”). Defendant James Luca (“Luca”) is a former employee of both
Fairfield and Shaw.
There is no dispute that, in or about April of 2005, Luca commenced employment at
Fairfield’s Uniondale Branch, and that, as of July of 2006, Luca was employed by Shaw at the
Shaw East Meadow Branch. The facts surrounding whether and to what extent Luca owed duties
to Fairfield, even while employed by Shaw, are disputed, and are the subject of another litigation
currently pending before the Honorable Joanna Seybert, Fairfield Financial Mortgage Group,
Inc. v. Luca, et al., 06-CV-5962 (JS)(WDW), referred to by the parties as the “Disloyalty Case”.
In the Disloyalty Case, Fairfield alleges that, while employed as a branch manager of
Fairfield’s Uniondale Branch, Luca breached his fiduciary duty to Fairfield by utilizing
Fairfield’s resources to divert business to Shaw, as well as other companies he allegedly owned
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and controlled, and to set up the Shaw East Meadow Branch. Also in the Disloyalty Case,
Fairfield asserted a claim directly against Shaw for unfair competition based on the alleged
misconduct of Luca and other former employees of the Fairfield Uniondale Branch. On October
19, 2009, a default was entered against Shaw in the Disloyalty Case.
Following Shaw’s default in the Disloyalty Case, on August 1, 2011, Fairfield and Shaw
entered into an “Agreement and Assignment of Claims”, whereby, Shaw assigned to Fairfield
“all claims, demands, and causes of action of whatever kind and nature that Shaw has had, now
has, or may have against any person or entity, whether based on common law, statute,
agreement, or otherwise (“Assigned Claims”), except that this Assignment shall not include any
claims Shaw may have against Robert Hilsby, Cynthia, or Steven Hilsby”. (Assignment
Agreement ¶ 3.) Although the Disloyalty Case is referenced in the Assignment Agreement, and
the parties state that they “are desirous of settling the various disputes among them”, Fairfield
did not release Shaw from the claims asserted against it in the Disloyalty Case. Rather, the
consideration for the assignment is the release of a judgment against Shaw by Wells Fargo that
Fairfield had obtained through a separate agreement with Wells Fargo; the withdrawal by
Fairfield of a subpoena to depose Shaw in the Disloyalty Case, without prejudice to Fairfield’s
right to renew; and $1,500 payable to Shaw or its attorney within ten days and an agreement by
Fairfield to “not execute upon, restrain, or otherwise impair the use of said funds by Shaw”
(Assignment Agreement ¶ 9).
The Assignment Agreement was executed by Charles Levesque, the CEO and President
of Fairfield, and Robert Hilsby (“Hilsby”), the Executive Vice-President of Shaw. Subsequently,
counsel for Fairfield, Michael A. Haskel, issued a check to Hilsby for $1,500 from his escrow
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account in satisfaction of Fairfield’s payment obligation in the Assignment Agreement (“the
escrow check”).
According to Luca, after Hilsby entered into the Assignment Agreement, on August 23,
2011, he and Hilsby entered in to a “Release and Hold Harmless Agreement”, whereby Hilsby
“authorize[d]” Luca to accept a $1,500 check, and Luca “authorize[d]” the $1,500 check to be
deposited in his account. The check that was the subject of this agreement purportedly was the
$1,500 escrow check written from Haskel’s escrow account. Luca contends that the “Release
and Hold Harmless Agreement” was related to an earlier “Hold Harmless Agreement” that he
and Hilsby signed on December 1, 2008 (collectively the “Hold Harmless Agreements”). In the
Hold Harmless Agreement, Luca and Hilsby both agreed to “indemnify and hold harmless” the
other “from any losses, liability or litigation arising from any financial business dealings and/or
any litigation . . . prior to and/or following the business close of December 1, 2008”.
On August 5, 2011, Fairfield commenced this action as the assignee of Shaw’s claims
against Luca and the other above-named defendants, alleging that they engaged in a fraudulent
scheme to defraud third parties involved in residential loan transactions and to divert Shaw’s
business to companies allegedly owned and controlled by Luca in violation of the Racketeer
Influenced and Corrupt Organizations Act of 1970, 18 U.S.C. §§ 1961-1968 (“RICO”) and New
York state law.
Presently before the Court are two motions. The first is a motion by Luca to disqualify
counsel for Fairfield, Michael A. Haskel, Esq., who also represents Fairfield in the Disloyalty
Case. The second is a motion by Fairfield for sanctions pursuant to Federal Rule of Civil
Procedure 11 based on Luca’s filing of the motion to disqualify Haskel. For the reasons set forth
below, the Court denies both motions.
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II. MOTION TO DISQUALIFY
A. Legal Standard on a Motion to Disqualify
“The authority of federal courts to disqualify attorneys derives from their inherent power
to ‘preserve the integrity of the adversary process.’” Hempstead Video, Inc. v. Incorporated
Village of Valley Stream, 409 F.3d 127, 132 (2d Cir. 2005) (citing Bd. of Educ. v. Nyquist, 590
F.2d 1241, 1246 (2d Cir. 1979)). In exercising this power, the Court must “attempt[ ] to balance
a client's right freely to choose his counsel against the need to maintain the highest standard of
the profession.” Hempstead Video, Inc., 409 F.3d at 132 (internal quotations and citations
omitted). In the Eastern District, ethical standards are governed by the New York State Rules of
Professional Conduct. See Local Civil Rule 1.3.
Whether or not disqualification is warranted is subject to the court's discretion. Cresswell
v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990). In that regard, given 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,”
Nyquist, 590 F.2d at 1246, the Court must demonstrate reluctance in granting motions to
disqualify counsel. See, e. g., W.T. Grant Co. v. Haines, 531 F.2d 671 (2d Cir. 1976). As the
Second Circuit has advised:
when dealing with ethical principles, ... we cannot paint with broad
strokes. The lines are fine and must be so marked. Guideposts can
be established when virgin ground is being explored, and the
conclusion in a particular case can be reached only after
painstaking analysis of the facts and precise application of
precedent.
Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225, 227 (2d Cir. 1977) (quoting
United States v. Standard Oil Co., 136 F. Supp. 345, 367 (S.D.N.Y. 1955)).
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B. Application to Luca’s Motion to Disqualify
On November 23, 2011, Luca filed a motion to disqualify Haskel from representing
Fairfield in the instant case. The first twenty-three paragraphs of Luca’s Affidavit and a large
portion of his motion were directly lifted from a previous motion to disqualify Haskel that Luca
filed in the Disloyalty Case. In that motion, he argued that: (1) Haskel either concurrently or
previously represented Luca and Fairfield in another case pending before Judge Seybert, Tvili v.
Fairfield Financial Mortgage Group, Inc., et al., No. 06-CV-162 (JS)(AKT); and (2) Luca had
confidential conversations with Haskel with respect to his employment with Fairfield, which
were directly related to the dispute. At the time, Luca was represented by an attorney, Alan J.
Reardon, Esq. In an order dated September 30, 2009, Judge Seybert denied the motion to
disqualify Haskel in the Disloyalty Case, stating:
The Court has reviewed Defendant Luca’s arguments and finds
that there is absolutely no basis for disqualification of Plaintiff’s
counsel. At the outset, the Court notes that Tvili was closed on
July 16, 2007, and therefore is not currently pending before the
Court. See Tvili, No. 06-CV-0162, Docket No. 44. Additionally,
Luca was not a named Defendant in the Tvili matter. There is no
evidence to show that Luca was a former client, nor has Luca
shown that the subject matter of the Tvili case is substantially
similar to the subject matter here, or that Haskel had access to
relevant privileged information. Simply put, there is no evidence
of successive representation.
Nor has Luca provided the Court with any other basis for
disqualification. Haskel’s representation of Fairfield at a time
when Luca was an employee at Fairfield does not disqualify
Haskel from representing Fairfield against Luca. “Unless the
parties have expressly agreed otherwise in the circumstances of a
particular matter, a lawyer for a corporation represents the
corporation, not its employees.” Talvy v. American Red Cross,
205 A.D.2d 143, 149 (N.Y. App. Div. 1st Dep't 1994). Luca has
not presented any evidence to dispute the fact that Haskel
represented Fairfield in the Tvili matter, and not Luca. It would be
unreasonable for Luca to believe that any information he provided
to Haskel in the course of Haskel’s representation of the
corporation would be kept confidential. See Wayland v. Shore
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Lobster & Shrimp Corp., 537 F. Supp. 1220, 1223 (S.D.N.Y.
1982) (“[Plaintiff’s] argument that the firm must be disqualified
because it may have been exposed to confidential information from
[plaintiff] while he was employed . . . is unpersuasive since, in the
circumstances of [the law firm’s] representation, it is clear that the
firm was representing the corporation and thus [plaintiff] could not
have reasonably believed or expected that any information given to
the firm would be kept confidential from the other shareholders or
from the corporation as an entity.”). Thus, the Court DENIES
Luca’s motion for disqualification of Plaintiff’s counsel.
(Disloyalty Case, DE 148 at 11–12.) In addition, Judge Seybert granted a motion by Fairfield to
sanction Luca’s attorney for filing a frivolous motion to disqualify. However, Judge Seybert
denied Fairfield’s motion to impose any sanctions on Luca personally. (Id. at 13).
The allegations that served as the basis for Luca’s motion to disqualify Haskel in the
Disloyalty Case are largely irrelevant in this case, where Fairfield is suing Luca as the assignee
of Shaw’s claims, based on injuries to Shaw. Although Fairfield includes factual allegations
regarding Luca’s conduct while employed at Fairfield as background support for the RICO
claims, the fact that Luca’s conduct while at Fairfield might be relevant in this case does not
render Haskel unqualified. The Court agrees with Judge Seybert that “there is no evidence of
successive representation” and that “[i]t would be unreasonable for Luca to believe that any
information he provided to Haskel in the course of Haskel’s representation of [Fairfield] would
be kept confidential”. (Disloyalty Case, DE 148 at 11–12.) Accordingly, the Court similarly
finds that Luca’s prior dealings with Haskel while a Fairfield employee do not provide a basis for
Haskel’s disqualification.
Luca’s newly asserted arguments similarly lack merit. First, Luca argues that because he
was the Operations Manager of the Shaw East Meadow Branch, Shaw cannot assert claims
against him. However, this argument goes to the merits of this case, not to whether Haskel
should be disqualified from representing Fairfield in the pursuit of those claims.
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Next, Luca contends that Haskel should be disqualified from representing Shaw’s interest
because of the overlap between the claims asserted against Shaw and Luca in this case and the
Disloyalty Case. “‘As a matter of professional responsibility, an attorney owes a duty of loyalty
to his client . . . not to divulge confidential communications ... and not to accept representation of
a person whose interests are opposed to the client.’” Ehrich v. Binghamton City Sch. Dist., 210
F.R.D. 17, 23 (N.D.N.Y. 2002) (quoting In re Agent Orange Prod. Liab. Litig., 800 F.2d 14, 17
(2d Cir. 1986)). However, in this case, Haskel is not representing Shaw. Indeed, Shaw remains
a defaulting defendant in the Disloyalty Case. Rather, Haskel is representing Fairfield’s interest
in recovering any damages Luca and the other defendants may have caused to Shaw after August
1, 2007. Arguably, under the Assignment Agreement, Shaw may be required to provide Fairfield
with information for the purposes of prosecuting this case that Fairfield can use against Shaw
and Luca in the Disloyalty Case. Regardless, because Haskel does not represent Shaw or Luca,
this does not create a conflict of interest requiring disqualification.
In addition, by limiting its claims in the instant case to conduct occurring after August 1,
2007, Fairfield has chosen to forgo seeking damages for any alleged injuries to Shaw during an
approximately one year overlap ending July 31, 2007, where Fairfield and Shaw could dispute
whose business Luca allegedly was diverting, and therefore who is entitled to damages.
Although Haskel’s failure to pursue damages for injuries to Shaw during that time period may be
adverse to Shaw’s interest, the Assignment Agreement gave Fairfield the right to decide which
Shaw claims to pursue and the right to pursue its own interests over those of Shaw.
In his reply brief, Luca asserted two new arguments based on the Hold Harmless
Agreements and the escrow check. Luca attached a copy of the “Release and Hold Harmless
Agreement” and the escrow check to his reply affidavit in support of his motion to disqualify
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Haskel. Luca did not provide the Court with a copy of the Hold Harmless Agreement in support
of the instant motion. However, he did attach it as an exhibit to his Rule 56.1 Statement.
Although Luca improperly asserted the arguments based on these documents in his reply
submission, because Fairfield addressed them in their motion for sanctions, the Court discerns no
prejudice to Fairfield in the Court addressing these arguments, particularly where, as here, the
Court finds them to be without merit.
First, Luca argues that Haskel should be disqualified because the Assignment Agreement
assigned Shaw’s claims to him personally, not to Fairfield. There is simply no evidence to
support this claim. The Assignment Agreement was signed by the principals of Fairfield and
Shaw respectively, and clearly states that Shaw’s claims are being assigned to Fairfield. The fact
that Haskel issued a check from his escrow account in connection with the Assignment
Agreement does not raise the appearance of impropriety. To the contrary, it indicates that he was
acting on behalf of Fairfield, not himself. See In Re Robert Plan of New York Corp., 456 B.R.
150, 160 (Bankr. E.D.N.Y. 2011) (“[U]nder New York law, the nature of an escrow account
requires the escrow agent to hold the funds for the benefit of the client and the escrow agent is
precluded from accessing those funds for its own use without the direction of the client.”).
Finally, Luca argues that Haskel’s representation of Fairfield in this action is somehow
improper because Hilsby gave Luca the escrow check in consideration for entering into the Hold
Harmless Agreements. However, Luca does not assert or suggest that Haskel was in any way
involved in this alleged transaction. In addition, as discussed in the context of the sanctions
motion, the parties dispute the authenticity of the documents underlying this claim. However,
even assuming that Hilsby did enter into the Hold Harmless Agreements with Luca, and that
Haskel was aware of or complicit in this action, the proper party to complain would be Fairfield,
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not Luca, as such an agreement to circumvent the Assignment Agreement would be contrary to
Fairfield’s interest. Ultimately, the possibility of a future dispute between the parties to the
Assignment Agreement, or between Fairfield and Haskel, has no bearing on whether Haskel’s
representation of Fairfield in the instant suit against Luca is improper. Accordingly, the Court
denies Luca’s motion to disqualify Haskel.
III. MOTION FOR SANCTIONS
Fairfield seeks sanctions against Luca pursuant to Federal Rule of Civil Procedure 11(b)
(“Rule 11(b)”), alleging that Luca: (1) filed the disqualification motion for the improper purpose
of harassing Fairfield and its counsel in violation of Rule 11(b)(1); (2) advanced legal
contentions in the motion to disqualify that were not warranted by existing law in violation of
Rule 11(b)(2); and (3) made unsupported factual allegations in the motion to disqualify in
violation of Rule 11(b)(3). Based on these alleged violations of Rule 11, Fairfield seeks a
monetary sanction on Luca in the amount of $2,800, constituting the amount spent on attorney’s
fees in responding to the motion to disqualify and filing the motion for sanctions.
Rule 11 governs motions for frivolous filings. “A pleading, motion or other paper
violates Rule 11 either when it has been interposed for any improper purpose, or where, after
reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is
well grounded in fact and is warranted by existing law or good faith argument for the extension,
modification or reversal of existing law.” See Kropelnicki v. Siegel, 290 F.3d 118, 131 (2d Cir.
2002) (internal citations and quotations omitted). Courts impose Rule 11 sanctions with
discretion and caution. See Caisse Nationale de Credit Agricole-CNCA v. Valcorp., 28 F.3d 259,
264 (2d Cir. 1994); Puccio v. Town of Oyster Bay, 229 F. Supp. 2d 173, 178 (E.D.N.Y. 2002).
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The Court has reviewed the parties’ arguments and declines to award sanctions against
Luca based on his filing of the motion to disqualify. Although the Court finds that Luca’s
motion to disqualify is unwarranted, the Court does not find that Luca, who is pro se, filed the
motion with an improper purpose or in bad faith. However, Luca is warned that the filing of
another such motion will be considered to be frivolous and may result in monetary sanctions
under Rule 11.
As a final matter, the Court finds troubling Fairfield’s contention that Luca’s arguments
in the motion to disqualify based on the Hold Harmless Agreements and the escrow check “are,
at best for Luca, frivolous and irrelevant, but are quite possibly based on the fabrication of
documentation filed with this Court”. (Fairfield Br. at 10.) In this regard, Fairfield questions the
authenticity of the Hold Harmless Agreements. The falsification of documents, at the very least,
constitutes sanctionable behavior. However, Fairfield does not provide any evidence to support
this serious accusation other than the fact that Luca has been unable to provide the originals for
expert analysis. Even without an original, Fairfield could have submitted other evidence to
support its contention, such as an affidavit from Hilsby denying that he signed the Hold
Harmless Agreements. Thus, in its discretion, the Court declines to award sanctions on this
ground. Nevertheless, a potential fraud on this Court, or the allegation of one, is not a matter that
this Court takes lightly. Accordingly, the Court finds that an evidentiary hearing is warranted on
the authenticity of the Hold Harmless Agreements.
IV. CONCLUSION
For the foregoing reasons, it is hereby:
ORDERED, that Luca’s motion to disqualify Fairfield’s counsel, Michael A. Haskel,
Esq., is denied, and it is further
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ORDERED, that the Fairfield’s motion for sanctions against Luca is denied, and it is
further
ORDERED, that Fairfield and Luca are directed to appear for an evidentiary hearing
before the Court on the authenticity of the Hold Harmless Agreements on Thursday, August 9,
2012 at 9:00am, and it is further
ORDERED, that the Clerk of the Court is directed to mail a copy of this decision and
order to the pro se defendants via Certified Mail.
SO ORDERED.
Dated: Central Islip, New York
July 25, 2012
__/s/ Arthur D. Spatt_______
ARTHUR D. SPATT
United States District Judge
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