Lorber v. Winston et al
Filing
136
MEMORANDUM OF DECISION AND ORDER (REDACTED) - The Court denies Winstons motion to dismiss, but grants his motion to disqualify attorney Ira Lee Sorkin, Esq. The Plaintiff is directed to retain new counsel within 45 days of the date of this Order. Thi s litigation is stayed until the Plaintiff retains new counsel. The Court also prohibits the Plaintiff from using the Probation Memo at the trial or at any other stage of this litigation. Upon receipt of this Order, the Plaintiff, Sorkin and Sorkins firm are directed to immediately return all copies to Winston without retaining any copies. Within five days of the date of this Order, the Plaintiffs Counsel is directed to file an affidavit confirming his, his firms and his clients compliance wit h this Order. For the foregoing reasons, it is hereby: ORDERED, that Winstons motion to disqualify the Plaintiffs counsel, Ira Lee Sorkin, Esq., based on his prior representation of Winston is granted, and it is further ORDERED, that Winstons motion to dismiss based on Sorkins use of privileged materials is denied, and it is further ORDERED, that Winstons motion to disqualify the Plaintiffs counsel, Ira Lee Sorkin, Esq., for using privileged materials is granted, and it is further ORDERED, that the Plaintiff is directed to retain new counsel with 45 days of the date of this Order, and it is further ORDERED, that this litigation is stayed until the Plaintiff retains new counsel, and it is further ORDERED, that the Plaintiff is prohibited fr om using the Probation Memo at trial or at any other stage of this litigation. The Court directs the Plaintiff, Sorkin and Sorkins firm, upon receipt of this Order, to immediately return all copies to Winston without retaining any copies. Within five days of the date of this Order, the Plaintiffs Counsel is directed to file an affidavit confirming his, his firms and his clients compliance with this Order. Ordered by Judge Arthur D. Spatt on 11/26/2012. (Coleman, Laurie)
FILED
CLERK
11/26/2012 10:47 am
U.S. DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
LONG ISLAND OFFICE
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------X
ANNETTE LORBER,
Plaintiff,
MEMORANDUM OF
DECISION AND ORDER
12-CV-3571 (ADS) (ETB)
-againstJONATHAN WINSTON, SHELDON M.
GANZ, SHELDON M. GANZ, CPA, P.C.,
EVA TEHRANI, HSBC BANK USA,
NATIONAL ASSOCIATION, HSBC
SECURITIES (USA) INC.,
Defendants.
---------------------------------------------------------X
APPEARANCES:
Lowenstein Sandler PC
Attorneys for the plaintiff
1251 Avenue of the Americas
New York, NY 10020
By: Ira Lee Sorkin, Esq.
Savannah Stevenson, Esq.
Nicole Pappas DeBello, Esq., Of Counsel
Judd Burstein PC
Attorney for defendant Jonathan Winston
1790 Broadway
Suite 1501
New York, NY 10019
By: Judd Burstein, Esq., Of Counsel
Matalon Shweky Elman PLLC
Attorneys for the defendants Sheldon M. Ganz & Sheldon M. Ganz, CPA, PC
450 7th Avenue 33rd Floor
New York, NY 10123
By: Howard I. Elman, Esq., Of Counsel
1
Law Offices of Eric Franz PLLC
Attorney for defendant Eva Tehrani
747 Third Avenue
20th Floor
New York, NY 10017
By: Eric P. Franz, Esq.
Andrew Leopoldo Mancilla, Esq., Of Counsel
Law Offices of Steven D. Isser
Attorney for defendant Eva Tehrani
1359 Broadway
Suite 2001
New York, NY 10018
By: Steven David Isser, Esq., Of Counsel
Sills Cummis & Gross P.C.
Attorneys for defendants HSBC Bank USA, National Association & HSBC Securities (USA) Inc.
30 Rockefeller Plaza
New York, NY 100112
By: Jonathan Young, Esq.
Andrew W. Schwartz, Esq., Of Counsel
NO APPEARANCE
513 Central Park LLC (Relief Defendant)
SPATT, District Judge.
On July 18, 2012, plaintiff Annette Lorber (“the Plaintiff”) commenced this action by
filing a Complaint against multiple defendants, which was thereafter reduced to the following:
Jonathan Winston (“Winston”); Sheldon M. Ganz (“Ganz”); Sheldon M. Ganz, CPA, P.C.; Eva
Tehrani (“Tehrani”); HSBC Bank USA, National Association; and HSBC Securities (USA) Inc.
(collectively, “the Defendants”). The Plaintiff seeks compensatory and punitive damages under
the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq.
(“RICO”), as well as for common law fraud under New York law; fraudulent inducement under
New York law; conversion under New York law; aiding and abetting conversion under New
York law; negligence under New York law; unauthorized signatures under the New York
2
Uniform Commercial Code Article III; breach of contract under New York law; and commercial
bad faith under New York law.
Specifically, the Plaintiff alleges that the defendants Winston and Ganz, in furtherance of
a fraudulent real estate scheme, defrauded the Plaintiff through an enterprise known as
Winhaven, which included Winhaven Realty LLC; Winhaven Development Corp.; Winhaven
Development of New York Inc.; Winhaven Group LLC; Winhaven Holdings LLC; Winhaven
Management Corp.; Winhaven Management of New York Inc.; Winhaven of New York City
LLC; Winhaven Associates LLC; Winhaven Associates II LLC; Winhaven Capital Partners;
Winhaven 640 Broadway LLC; 640 Broadway Owners LLC; Winhaven Mattituck LLC;
Winhaven Boerum LLC; and Winhaven Westhampton Beach Plaza LLC (collectively,
“Winhaven”).
The Plaintiff subsequently filed a First Amended Complaint on September 14, 2012. The
First Amended Complaint asserted new claims for breach of fiduciary duty and aiding and
abetting breach of fiduciary duty under New York law. The First Amended Complaint also
withdrew the Plaintiff’s previous claim for aiding and abetting conversion under New York law.
Presently before the Court are two motions. The first is a motion by Winston to
disqualify counsel for the Plaintiff, Ira Lee Sorkin, Esq., on the grounds that (1) Sorkin
previously represented Winston in proceedings before the National Association of Securities
Dealers (“the NASD”) and (2) Winston had consulted with Sorkin about Sorkin representing him
when he was being investigated for matters connected with his criminal indictment for securities
fraud, which occurred prior to his alleged defrauding of the Plaintiff. The second is a motion by
Winston to dismiss or, in the alternative, to disqualify counsel for the Plaintiff, Ira Lee Sorkin,
Esq., based on Sorkin’s alleged used of privileged material related to Winston’s abovementioned
3
criminal case. For the reasons set forth below, the Court grants the first motion and grants in
part and denies in part the second motion.
I. BACKGROUND
A. The Underlying Action
The underlying action in this case arises from the following facts alleged in the Plaintiff’s
First Amended Complaint.
In or about January 1999, Winston began dating the Plaintiff’s youngest daughter, Eve.
More than a year later, in April 2000, Eve and Winston married. At about this time, Winston
learned that he and his securities brokerage firm, First United Equities Corporation (“First
United”), were under federal investigation for securities fraud. Following this investigation, in
or about March 2001, Winston was indicted and faced criminal charges before the United States
District Court for the Eastern District of New York (Garaufis, J.) for securities fraud and money
laundering, among other crimes. Winston subsequently pleaded guilty to conspiracy to commit
securities fraud and conspiracy to commit money laundering and was sentenced on May 25,
2005 to ten years of probation. He was also ordered to make restitution in the amount of
approximately $108,988,825.50 and was barred for life by the United States Securities and
Exchange Commisssion from associating with a broker or dealer.
The Plaintiff claims that Winston convinced her, Eve and the rest of their family into
believing that the criminal case against him was unjust and that he was a victim of his business
partners’ fraud.
He also allegedly convinced the Plaintiff that his probation sentence meant that
he was released from his criminal charges. According to the Plaintiff, she was not aware of the
restitution order.
4
On August 13, 2003, the Plaintiff’s husband, Martin Lorber, died after a year-long battle
with lung cancer. One month later, in or about September 2003, the Plaintiff went to Munich,
Germany, for a one-month period in order to provide her mother, who lived in Munich, with fulltime care during her recovery from emergency hip surgery. The Plaintiff alleges that about this
time Winston “saw the opportunity for which he had been waiting to reap the benefits of his
marriage to Eve and his years spent charming her family.” (First Amend. Compl., ¶ 55.) He
thus offered to help the Plaintiff by (1) managing the Plaintiff’s finances, including but not
limited to her checking account, securities and brokerage accounts and her credit line with the
defendant HSBC Bank; (2) maintaining oversight of certain household needs, including
collecting the Plaintiff’s mail; and (3) winding down and dissolving WorldWide Footwear, Inc.
(“Worldwide”), which was Martin Lorber’s business.
According to the Plaintiff, once Winston assumed management of her finances, he abused
his position to fraudulently borrow or outright steal funds from her in the aggregate amount of
approximately $10,000,000. In this regard, Winston allegedly “conspired” with Ganz, Tehrani
and others “to engage in a fraudulent scheme conducted through Winston’s enterprise,
Winhaven, with the objective of purchasing, developing and selling millions of dollars[’] worth
of real estate assets while hiding the same from the federal government and defrauding numerous
lenders, banks, investors and the Internal Revenue Service in the process.” (First Amend.
Compl., ¶ 7.)
This fraudulent scheme involved (1) deceptively inducing the Plaintiff to loan money to
Winston and to Winhaven from her credit lines with the defendant HSBC Bank; (2) fraudulently
advancing money from the Plaintiff’s credit lines to Winhaven by forging her signature without
her knowledge or consent; (3) manipulating securities in the Plaintiff’s brokerage accounts; (4)
5
knowingly providing false financial and tax advice to the Plaintiff in order to disguise and
conceal the fraudulent use of her credit lines; (5) operating checking accounts in the Plaintiff’s
name without her knowledge; (6) completing false statements of net worth for the Plaintiff
without her knowledge or consent in order to secure a sizeable mortgage on a yacht; (7)
continuing to operate WorldWide and using it as a shell to take tax deductions based on business
losses associated with the interest on the funds that were fraudulently advanced from the
Plaintiff’s credit line; (8) deceptively inducing the Plaintiff to loan Winston $500,000 to post a
bond for Winhaven’s purchase of a building in Manhattan; and (9) using at least some of the
Plaintiff’s own money without her knowledge or consent to purchase the Plaintiff’s home for
Winston’s personal use. (First Amend. Compl., ¶ 8.)
On September 18, 2012, Winston moved to dismiss the Plaintiff’s First Amended
Complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the grounds that (a) the Plaintiff’s action was
barred by the statute of limitations, (b) the Plaintiff failed to state a claim upon which relief may
be granted, and (c) the Plaintiff failed to comply with the requirements of Fed. R. Civ. P. 9(b).
The defendants Eva Tehrani; Sheldon Ganz; Sheldon Ganz, CPA, P.C.; HSBC Bank USA,
National Association; and HSBC Securities (USA) Inc. have also filed motions to dismiss the
First Amended Complaint.
B. As to Attorney Sorkin’s Previous Representation of the Defendant Winston
The following facts, which underlie Winston’s motion to disqualify attorney Sorkin based
on Sorkin’s previous representation of Winston, are derived from Winston’s moving and reply
papers and the Plaintiff’s opposition.
6
In 1998, the NASD entered a $625,000 arbitration award against Winston in favor of
Jules and Florine Wachter (“the Wachters”). The arbitration award stemmed from Winston’s
conduct and that of First United in selling Ashton Technologies stock to the Wachters.
As a result of this award, in or about 1999, the NASD began a regulatory investigation
into Winston’s conduct and that of First United. In 1999, Winston retained Sorkin in connection
with this inquiry, and, during the course of this representation, Sorkin allegedly engaged in
extensive discussions with Winston concerning the latter’s business practices at First United.
These discussions also touched upon the conduct that was the subject of Winston’s 2001 criminal
indictment for securities fraud and money laundering, among other crimes.
Sorkin appeared with Winston on two separate occasions for questioning by the NASD,
first on September 22, 1999, and again on October 12, 1999. The scope of the NASD’s
questioning went beyond the Wachters’ case and involved allegations that later appeared in
Winston’s 2001 criminal indictment. Sorkin advised Winston to invoke his Fifth Amendment
privilege against self-incrimination in response to a great number of the NASD’s questions.
Subsequently, Winston learned he was the subject of a criminal investigation. Winston
consulted with Sorkin concerning whether he would represent him and discussed with Sorkin his
understanding of the potential charges against him and the related facts. Sorkin did not
immediately reject the representation, but later called Winston to advise him that he had a
conflict of interest and, thus, could not represent him.
On March 8, 2001, Winston was indicted. The indictment included allegations about
Winston’s conduct concerning the Wachters and Ashton Technologies, as well as the sales of
other stocks, and misrepresentations related to these matters. Winston allegedly discussed these
allegations with Sorkin in connection with the NASD proceedings. He also claims that he
7
discussed these allegations when he consulted with Sorkin about the criminal investigation
against him.
Although Sorkin does not remember representing Winston at the NASD, he does not
dispute that he represented Winston during the abovementioned NASD proceedings. Further,
Sorkin never represented Winston in his criminal case in any capacity or at any time after the
1999 NASD proceedings.
C. As to the Allegations Concerning Attorney Sorkin’s Use of Privileged Material
The following facts which underlie Winston’s motion to dismiss or, in the alternative, to
disqualify attorney Sorkin based on his alleged use of a privileged document, are derived from
Winston’s moving and reply papers and the Plaintiff’s opposition.
From 2006 through 2012, Winston was represented by the law firm of Gerald B.
Lefcourt, P.C. (“Lefcourt”) on a number of matters, including securing the termination of his
probation arising from his prior criminal conviction. Faith A. Friedman, Esq., an attorney with
Lefcourt, worked on this matter. As part of their efforts, Lefcourt prepared a “Memorandum of
Law in Support of Defendant’s Motion for Termination of Probation Pursuant to 18 U.S.C. §
3564(c) and Fed. R. Crim. P. Rule 32.1 and Discharge from Supervision” (“the Probation
Memo”). According to attorney Friedman, her firm had contemplated filing the Probation Memo
with the sentencing court, but in fact, never filed it with the court.
The Probation Memo is attached as an exhibit to both the papers of Winston and the
Plaintiff. Both parties filed it under seal. Although the Probation Memo appears to be formatted
like a memorandum of law that would be filed with a court, there are two blanks on page 3 and
one blank page 5, which have not been filled in. The Probation Memo also contains a signature
line but is unsigned. In addition, the Probation Memo is dated May 26, 2010. However, a
8
review of the docket in Winston’s criminal case, E.D.N.Y. Case No. 00-CR-01248, indicates that
the Probation Memo was never filed with the court either on that date or on any other date. In
fact, the only document filed on May 26, 2010 was a sealed order by the court (Garaufis, J.),
which appears to have been endorsed on a May 17, 2010 letter of Friedman. That letter
requested that the court order the court reporter to release to Lefcourt a copy of the transcript
from Winston’s May 25, 2005 sentencing.
In the Probation Memo,
- REDACTED -
According to Winston, to the best of his recollection, he never authorized Lefcourt to
provide any third party with a copy of the Probation Memo. Winston also claims, to the best of
his recollection, that he did not share the Probation Memo with anyone except his wife, Eve, at a
time prior to their pending divorce and when he believed that their marriage was still a successful
one. Moreover, Winston asserts that he gave the Probation Memo to Eve as a strictly
confidential communication and never authorized her to share it with anyone. However, Eve has
no recollection of ever seeing the Probation Memo or of having a conversation with Winston
concerning its contents until after the Complaint in this case was filed.
On July 18, 2012, the Plaintiff filed her Original Complaint in this action. This
Complaint included a single reference to the Probation Memo. Specifically, paragraph 15 of the
Original Complaint stated:
Defendant Jonathan Winston is a citizen of the State of
New York. He maintains a residence at 59 Cornwells Beach Road,
9
Sands Point, New York 11050 and an apartment located in the
Plaza Hotel at 768 5th Avenue, Apartment 513, New York, New
York 10019. Winston is a recidivist; indeed, he pleaded guilty
before this Court to one count of conspiracy to commit securities
fraud and one count of conspiracy to commit money laundering for
his role as a principal in the boiler-room broker-dealer fraud
involving First United (Case No. 1:00-cr-01248 (NGG)). Winston
was sentenced on May 25, 2005 to a total of 10 consecutive years
of probation and ordered to make restitution in the amount of
$108,988,825.50. Upon information and belief, Winston has
satisfied none of his multi-million-dollar restitution order. Upon
further information and belief, Winston’s probation was lifted by
this Court following the submission of a memorandum of law in
support of his motion to lift his probation (the “Probation Memo”).
The Probation Memo, in fact, contains false and misleading
information, including much of the same false and misleading
information alleged herein.
(Original Compl., ¶ 15.)
Attorney Sorkin has provided the Court with varying accounts of how he obtained the
Probation Memo referenced in his Original Complaint. At the October 5, 2012 conference held
in this matter, Sorkin stated:
The [Probation Memo] was given to a third party. That third party
passed it on to another party and that party gave the document to
me in the presence of the first third party. And there were
conversations had at the time with the third party present, the first
recipient of the memo. Additionally, your Honor, the memo was
known to my client as well.
However, in his opposition papers to Winston’s present motion, Sorkin now claims that
he received the document as an email. In this regard, Sorkin’s affidavit states that he was
introduced to the Plaintiff by Raoul L. Felder, Esq., who had previously represented Eve in a
divorce action against Winston. In or about October 2011, the Plaintiff met with Sorkin and his
associate, Savannah Stevenson, Esq., in order to seek advice concerning the present action.
Following this meeting, the Plaintiff decided to retain Sorkin’s firm. Thereafter, on or about
10
November 1, 2011, Sorkin allegedly received a copy of the Probation Memo via email from the
offices of attorney Felder.
According to Sorkin’s affidavit, after receiving the Probation Memo, Sorkin discussed its
contents with Felder and Felder’s associate, Daniel Nottes, Esq., neither of whom advised Sorkin
that the Probation Memo was a privileged document. Sorkin claims that at some point, Felder
informed him that the Probation Memo had been given to him by either the Plaintiff or Eve.
However, in his affidavit, Felder states that he does not have any recollection concerning the
actual receipt of the Probation Memo. Furthermore, as stated above, Eve asserts that she has no
recollection of ever seeing the Probation Memo. In addition, Sorkin’s affidavit alleges that the
Plaintiff has no recollection of seeing the Probation Memo, although the Plaintiff has not
included her own affidavit in her opposition papers.
On the evening of September 13, 2012, Sorkin reviewed the docket in Winston’s criminal
case and noted that on May 26, 2010, there had been a filing under seal. In order to determine
whether the Probation Memo was actually filed with the court (Garaufis, J.), Sorkin and one of
his associates contacted Friedman by phone to inquire about the Probation Memo. He informed
her that he was in possession of an unsigned document and that he could not find evidence on the
court’s docket that it had been filed with the court. Friedman told Sorkin that she did not believe
Lefcourt ever filed the Probation Memo with the court and that she believed that it was
privileged, but that she would verify that fact. Sorkin also informed Friedman that he had
obtained the Probation Memo from matrimonial counsel, which Friedman understood to mean
counsel for Eve.
According to Friedman, on the morning of September 14, 2012, she spoke to Sorkin’s
associate and advised him again that the Probation Memo had not been filed with the court and
11
that she believed it was privileged. The associate informed her that the Probation Memo and all
copies would be destroyed. However, Sorkin claims that it was Friedman who told him that the
Probation Memo should be destroyed. In any event, Sorkin concedes that his firm did tell
Friedman that the Probation Memo would be destroyed, but that he then decided against doing so
because he believed that even if it was a privileged communication, the privilege had been
waived when Winston gave the Probation Memo to his wife, Eve. He also concluded that the
Probation Memo contained no legal advice, but rather, was filled with what he believed to be
factual misrepresentations, which meant the crime-fraud exception to the privilege was
applicable.
On September 14, 2012, the Plaintiff filed her First Amended Complaint. It contained no
reference to the Probation Memo. On that same date, Winston’s counsel, Judd Burstein, Esq.,
was contacted by Friedman, who informed him that Sorkin had contacted her with regard to the
Probation Memo. Burstein then filed a letter, also on September 14, 2012, in order to notify the
Court that he believed that Sorkin used privileged material. He requested a conference with
respect to this issue. Thereafter, Burstein and Sorkin exchanged a series of emails concerning
whether the Probation Memo was a privileged document and how Sorkin came to obtain it. On
October 3, 2012, the Court granted Winston’s request for a conference scheduled for October 5,
2012.
The conference was held on October 5, 2012. At the conclusion of the conference, the
Court directed Winston to file a formal motion with respect to the Probation Memo and set a
briefing schedule.
12
II. THE MOTION TO DISQUALIFY BASED ON ATTORNEY SORKIN’S PRIOR
REPRESENATION OF THE DEFENDANT WINSTON
A. Legal Standard
“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 “be solicitous of a
client’s right freely to choose his counsel – a right which of course must be balanced against the
need to maintain the highest standards of the profession.” Government of India v. Cook
Industries, Inc., 569 F.2d 737, 739 (2d Cir. 1978); see also Hempstead Video, Inc., 409 F.3d at
132. “In the Eastern District, ethical standards are governed by the New York State Rules of
Professional Conduct.” Fairfield Fin. Mortg. Group, Inc. v. Luca, 11-CV-3802 (ADS) (ETB),
2012 U.S. Dist. LEXIS 104654, at *6 (E.D.N.Y. July 25, 2012) (citing 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). However, 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, “motions to disqualify are subject to a high burden of proof,”
Hickman v. Burlingont Bio-Medical Corp., 371 F. Supp. 2d 225, 229 (E.D.N.Y. 2005). See also
Government of India, 569 F.2d at 739. 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.’” Mitchell v. Metro. Life Ins. Co., 01 Civ.
13
2112 (WHP), 2002 U.S. Dist. LEXIS 4675, at *10-11 (S.D.N.Y. Mar. 20, 2002) (quoting
Armstrong v. McAplpin, 625 F.2d 433, 444 (2d Cir. 1980), vacated on other grounds and
remanded, 449 U.S. 1106, 101 S. Ct. 911, 66 L. Ed. 2d 835 (1981)); see also Glueck v. Jonathan
Logan, Inc., 653 F.2d 746, 748 (2d Cir. 1981).
This Court has recognized three grounds on which an attorney could be disqualified “(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 potential client,” which is based on the New York Code
of Professional Responsibility Rule 1.18. Miness v. Ahuja, 762 F. Supp. 2d 465, 478-479
(E.D.N.Y. 2010) (citations and internal quotation marks omitted).
In cases concerning prior representation, an attorney may be disqualified if the following
three factors are met:
(1) the moving party is a former client of the adverse
party's counsel;
(2) there is a substantial relationship between the subject
matter of the counsel's prior representation of the moving party and
the issues in the present lawsuit; and
(3) the attorney whose disqualification is sought had access
to, or was likely to have had access to, relevant privileged
information in the course of his prior representation of the client.
Hempstead Video, Inc., 409 F.3d at 133 (citing Evans v. Artek Sys. Corp., 715 F.2d 788, 791 (2d
Cir. 1983)). In this context, “substantial relationship” is understood to mean that “the
relationship between issues in the prior and present cases is patently clear or that the issues
involved are identical or essentially the same.” Mitchell, 2002 U.S. Dist. LEXIS at *12 (citing
Government of India, 569 F. 2d at 739-40). In further explanation, “if the facts giving rise to an
14
issue which is material in both the former and the present litigations are as a practical matter the
same, then there is a ‘substantial relationship’ between the representations for purposes of a
disqualification motion.” United States Football League V.. National Football League, 605 F.
Supp. 1448, 1459 (S.D.N.Y. 1985).
With respect to prospective clients, Rule 1.18 of the New York Code of Professional
Responsibility (“NYCPR”) provides in pertinent part:
(a) A person who discusses with a lawyer the possibility of
forming a client-lawyer relationship with respect to a matter is a
“prospective client.”
(b) Even when no client-lawyer relationship ensues, a
lawyer who has had discussions with a prospective client shall not
use or reveal information learned in the consultation . . . .
(c) A lawyer subject to paragraph (b) shall not represent a
client with interests materially adverse to those of a prospective
client in the same or a substantially related matter if the lawyer
received information from the prospective client that could be
significantly harmful to that person in the matter, except as
provided in paragraph (d) [which no party here asserts applies]. . . .
Thus, Rule 1.18 also requires there be a showing that (1) there is a substantial relationship
between the pending matter and the previous matter and (2) that the attorney whose
disqualification is sought has relevant privileged information.
As indicated above, “the issue is whether there is a real risk that the trial will be tainted.”
Hickman, 371 F. Supp. 2d at 229 (citations and internal quotation marks omitted). Thus, “[t]he
appearance of impropriety, standing alone, is insufficient to grant a motion to disqualify.” Id.
Furthermore, “[s]peculation regarding the divulging of client confidences will not suffice to
grant a motion to disqualify” either. Id. In addition, “[t]he risk that an attorney may crossexamine a former client is not sufficient to disqualify an attorney” absent a serious risk of taint or
tangible prejudice. Med. Diagnostic Imaging, PLLC v. CareCore Nat'l, LLC, 542 F. Supp. 2d
296, 315 (S.D.N.Y. 2008).
15
B. Application to the Defendant Winston’s Motion to Disqualify
On August 10, 2012, Winston filed a motion to disqualify Sorkin from representing the
Plaintiff in the instant case. In the motion, he argued that: (1) Sorkin had previously represented
him in proceedings before the NASD, which involved extensive discussions with Sorkin
concerning conduct that later appeared in his 2001 criminal indictment; and (2) Sorkin had
considered representing him during his criminal investigation into, among other crimes,
securities fraud and money laundering, before declining due to a conflict of interest, and
therefore, he had been a prospective client of Sorkin in the latter matter.
1.
As to Sorkin’s Prior Representation of Winston
Neither Winston nor Sorkin dispute that Sorkin represented Winston before the NASD in
1999. However, they do dispute (1) whether Sorkin’s previous representation of Winston is
substantially related to the present case before this Court and (2) whether Sorkin had access to
relevant privileged material during the course of his prior representation of Winston.
Winston argues that the present case is substantially related to Sorkin’s previous
representation of him at the NASD proceedings because the NASD proceedings raised issues
connected to his past criminal conduct and the Plaintiff’s Complaint contains allegations
concerning his indictment, his status as a convicted felon and his misrepresentations to the
Plaintiff about his criminal conduct. He further contends that Sorkin “will be placed in an
impossible position if he is not disqualified,” since it would be improper for him to seek to use
evidence of Winston’s criminal conduct against him. Lastly, Winston argues that Sorkin would
not have advised Winston to invoke his Fifth Amendment Privilege during the NASD
proceedings unless he had received privileged and prejudicial information.
16
The Court finds that the defendant Winston has established that there is a real risk of trial
taint if the Plaintiff is permitted to proceed forward with Sorkin as her attorney. See Hickman,
371 F. Supp. 2d at 229. The facts at issue in the NASD proceedings – and subsequently, in
Winston’s criminal case – involved acts of securities fraud and money laundering, which
Winston committed in connection with a market manipulation scheme involving First United.
Although this past criminal conduct, the NASD proceedings and the criminal conviction all
occurred before Winston allegedly began defrauding the Plaintiff in 2003, the facts at issue in
these past matters will undoubtedly be material to the pending litigation, as Winston’s intent and
credibility will be key issues.
In addition, the First Amended Complaint alleges that Winston convinced the Plaintiff
that the criminal case against him was unjust and that he was a victim of his business partners’
fraud. Certainly, Sorkin obtained useful information from his prior representation of Winston
that he can now use to the Plaintiff’s advantage with respect to whether Winston knowingly
misrepresented the factual allegations underlying his criminal case. See DeVittorio v. Hall, 07
Civ. 0812 (WCC) ECF CASE, 07 Civ. 1956 (WCC) ECF CASE, 2007 U.S. Dist. LEXIS 91496,
at *24 (S.D.N.Y. Dec. 12, 2007) (“Although the issues here are not identical, they need not be in
order to justify disqualification. If it is possible that [plaintiffs’ attorney] obtained substantially
relevant information in his previous representations that could be used to plaintiffs’ advantage
and defendants’ disadvantage in the current litigation, then he and his firm should be disqualified
from representing plaintiffs.”) (citation omitted).
Furthermore, the fact that Sorkin may have to cross-examine Winston about his past
criminal conduct is a sufficient ground for disqualification in this particular case.
Although
courts have previously held that the risk of an attorney cross-examining his former client is
17
generally not a sufficient basis to disqualify an attorney, those courts have also recognized that
the decision of whether to disqualify an attorney “must ultimately be guided by the goal of a trial
process that lacks any hint of a taint Skidmore v. Warburg Dillon Read LLC, 99 Civ. 10525
(NRB), 2001 U.S. Dist. LEXIS 6101, at *14 (S.D.N.Y. May 10, 2001). See also Med.
Diagnostic Imaging, PLLC, 542 F. Supp. 2d at 315 (“[T]he question of taint is the ultimate
question the Court must answer.”).
Here, the possibility for trial taint is clear. Sorkin previously represented Winston at two
NASD proceedings involving allegations of fraud that were ultimately a basis for his criminal
conviction. Through the course of his representation of Winston, Sorkin would have obtained
privileged information concerning these allegations. Yet, Sorkin will undoubtedly question
Winston about these very same allegations during cross-examination in this case. Moreover,
Winston’s past fraudulent conduct – and any privileged information that Sorkin would have
gained with respect to this conduct – is particular relevant in this lawsuit, since (1) the Plaintiff
alleges that Winston misled her about his criminal case and (2) the Plaintiff alleges that she was
defrauded by Winston. Therefore, Winston will be at a significant disadvantage during crossexamination, while the Plaintiff will gain an unfair significant advantage.
These prior criminal conduct issues are ideal subjects for cross-examination, and they are
within the knowledge of attorney Sorkin. His obligation to the Plaintiff is to use this information
against Winston, his former client. If he declines to use this information, he will be violating his
duty to Lorber, his present client. Unfortunately, this serious conflicting dilemma can only be
avoided by removing Sorkin as counsel for the Plaintiff in this case.
Accordingly, as Winston has demonstrated that there is a substantial relationship between
the subject matter of Sorkin’s prior representation of him and the issues in the present matter and
18
that Sorkin is likely to have had access to relevant privileged information, disqualification of
Sorkin is warranted. Accordingly, Winston’s motion to disqualify Ira Lee Sorkin, Esq., as
counsel for the Plaintiff is granted. See Hempstead Video, Inc., 409 F.3d at 133.
2. As to the Defendant Winston’s Prior Communications with Attorney Sorkin as a
Prospective Client
Winston also argues that his prior communication with Sorkin about the possibility of
Sorkin representing him during his criminal investigation is an additional ground for
disqualifying Sorkin as the Plaintiff’s counsel. Winston points to paragraph 40 of the Plaintiff’s
Complaint, which alleges that “sometime during the year 2000 Winston learned that his
brokerage firm, First United, and many First United principals and employees were under
investigation . . . for securities fraud, money laundering and other related criminal activity.” (Pl.
Orig. Compl., ¶ 40.) According to Winston, because of his prior consultation with Sorkin, he
would be prejudiced with respect to this allegation.
The Court finds that this prior communication is sufficiently related to the present case to
justify disqualification because “the information [Winston] disclosed in that earlier consultation
[will be] useful in [this] case.” Bennett Silvershein Assoc. v. Furman, 776 F. Supp. 800, 804
(S.D.N.Y. 1991). Although the two matters are not identical, there is a strong possibility that
Sorkin will be able to “gain some advantage not otherwise available but for the prior confidential
relationship, even if that advantage goes only to background matters.” Id. at 804. Indeed, the
Plaintiff’s First Amended Complaint contains references to Winston’s past criminal conduct in
order to not only provide context, but also to suggest that Winston misrepresented the
seriousness of his criminal case to the Plaintiff. As a result, NYCPR Rule 1.18 provides another
basis for disqualifying attorney Sorkin in this case.
19
III. THE MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO DISQUALIFY
BASED ON ATTORNEY SORKIN’S ALLEGED USE OF A PRIVILEGED DOCUMENT
A. Legal Standard
“It is [] well established that the party invoking a privilege bears the burden of
establishing its applicability to the case at hand.” Mercator Corp. v. United States, 318 F.3d 379,
384 (2d Cir. 2002). In this case, Winston invokes three kinds of privilege with respect to the
Probation Memo: (1) the attorney-client privilege; (2) the work product privilege; and (3) the
marital communications privilege.
“The attorney-client privilege protects communications (1) between a client and his or
her attorney (2) that are intended to be, and in fact were, kept confidential (3) for the purpose of
obtaining or providing legal assistance.” Brennan Ctr. for Justice at New York. Univ. Sch. of
Law v. U.S. Dep’t of Justice, Docket No. 11-4599, 2012 U.S. App. LEXIS 19685, at *59 (2d Cir.
Sept. 19, 2012) (internal citation omitted); see also Sackman v. Liggett Group, 167 F.R.D. 6, 18
(E.D.N.Y. 1996) (“The attorney-client privilege applies to confidential communications between
an attorney and his or her client during the course of employment.”). However, the privilege is
limited to only those confidential communications “that are made for the purpose of obtaining or
providing legal advice.” Kai USA Ltd. v. Camillus Cutlery Co. (In re Kroll), 224 F.R.D. 326,
328 (E.D.N.Y. 2004).
Conversely, “[t] he work product protection is distinct from and broader than the
attorney-client privilege,” Favors v. Cuomo, 11-CV-5632 (DLI)(RR)(GEL), 2012 U.S. Dist.
LEXIS 113076, at *26 (E.D.N.Y. Aug. 10, 2012) (citations and internal quotation marks
omitted), and “applies to documents prepared primarily in anticipation of litigation.” Sackman,
167 F.R.D. at 19; see Fed. R. Civ. P. 23(b)(3)(A). It “is intended to preserve a zone of privacy in
which a lawyer can prepare and develop legal theories and strategy with an eye toward litigation,
20
free from unnecessary intrusion by his adversaries.” United States v. Adlman, 134 F.3d 1194,
1196 (2d Cir. 1998) (citation and internal quotation marks omitted).
Lastly, “the marital communications privilege[] protects private and confidential
communications between spouses from disclosure.” In re Reserve Fund Secs. & Derivative
Litig. v. Reserve Mgmt. Co., 275 F.R.D. 154, 157 (S.D.N.Y. 2011) (citations and internal
quotation marks omitted). Specifically, it “provides that communications between the spouses,
privately made, are generally assumed to have been intended to be confidential, and hence they
are privileged.” Id. (citation and internal quotation marks and altercations omitted). In order for
a party to assert the marital communications privilege, he must show that there was “a valid
marriage at the time of the communication” and that the communication was “made in
confidence, which is presumed.” Id. at 158. Moreover, “the privilege applies only to utterances
or expressions intended by one spouse to convey a message to the other.” Id.
“Voluntary disclosure of confidential, privileged material to a third party generally
waives an applicable privilege.” Sec v. NIR Group, LLC, 283 F.R.D. 127 (E.D.N.Y 2012).
However, “such disclosure does not waive the work product privilege unless the disclosure
substantially increases the opportunity for potential adversaries to obtain the information.” Id.;
see also United States v. Ghavami, 10 Cr. 1217 (KMW) (JCF), 2012 U.S. Dist. LEXIS 80593, at
*20 (S.D.N.Y. June 5, 2012) (holding that “[w]ork product protection is waived only if
disclosure to a third party substantially increases the risk that it will be obtained by an
adversary”). Of importance, the risk that the disclosure may potentially result in the information
being obtained by potential adversaries “must be evaluated from the viewpoint of the party
seeking to take advantage of the doctrine.” Ghavami, 2012 U.S. Dist. LEXIS at *20.
21
Further, “communications that otherwise would be protected by the attorney-client
privilege or the attorney work product privilege are not protected if they relate to client
communications in furtherance of contemplated or ongoing criminal or fraudulent conduct.” In
re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032, 1038 (2d Cir. 1984). “Under this
exception the proponent must establish: (1) probable cause to believe that a crime or fraud has
been attempted or committed; and (2) probable cause to believe that the communications were in
furtherance thereof.” Sackman, 167 F.R.D. at 19. See also Madanes v. Madanes, 199 F.R.D.
135, 147-48 (S.D.N.Y. 2001) (“The burden is on the party invoking the crime-fraud exception to
‘demonstrate that there is a factual basis for a showing of probable cause to believe that a fraud
or crime has been committed and that the communications in question were in furtherance of the
fraud or crime.’”) (quoting United States v. Jacobs, 117 F.3d 82, 87 (2d Cir. 1997)). Likewise,
there is a “partnership in crime exception” or “joint participation exception” to the marital
communication privilege, which provides that a spouse may testify as to confidential
communications when such “testimony is not given under compulsion and the communications
in question were made in furtherance of unlawful joint criminal activity.” United States v. Estes,
793 F.2d 465, 467-68 (2d Cir. 1986).
B. Application to the Defendant Winston’s Motion to Dismiss or, in the Alternative, to
Disqualify
On October 17, 2012, Winston filed the motion to dismiss or, in the alternative, to
disqualify Sorkin from representing the Plaintiff. In the motion, he argued that Sorkin had
unethically relied upon a privileged document in bringing the instant action.
As an initial matter, the Court addresses the November 8, 2012 letters from the Plaintiff
and Winston concerning Winston’s November 16, 2012 reply papers. Specifically, the Plaintiff
argues that (1) Winston’s reply papers improperly raise, for the first time, the new argument that
22
the Plaintiff stole the Probation Memo from Winston’s home and (2) Winston’s reply papers fail
to comply with the Court’s Individual Rule IV(B)(i), because Winston’s Reply Memorandum of
Law was impermissibly supplemented by the reply declaration of Burstein.
Courts generally will not consider arguments raised for the first time in reply. See Pinero
v. Long Island State Veterans Home, 375 F. Supp. 2d 162, 164-165 (E.D.N.Y. 2005); Matera v.
Native Eyewear, Inc., 355 F. Supp. 2d 680, 682-683 (E.D.N.Y. 2005); Domino Media, Inc. v.
Kranis, 9 F. Supp. 2d 374, 387 (S.D.N.Y. 1998). Therefore, to the extent Winston’s reply papers
attempt to allege, for the first time, that the Plaintiff stole the Probation Memo from Winston’s
home, the Court will not consider this argument. However, even if the Court did consider this
argument, the Court would find it without merit, because it is unsupported by any evidence
beyond Winston and Burstein’s conclusory and self-serving assertions. Moreover, the argument
seems to be in contradiction to Winston’s original motion papers, which suggest that Winston
gave the Probation Memo to Eve.
With respect to Burstein’s Reply Declaration, “this Court has discretion to consider
documents filed in violation of procedural rules.” Pagan v. Abbott Labs., Inc., 10-CV4676(ADS)(WDW), 2012 U.S. Dist. LEXIS 159273, at *9 (E.D.N.Y. Oct. 20, 2012) (citation
omitted); Church & Dwight Co. v. Kaloti Enters. of Mich., L.L.C., 07 Civ. 0612 (BMC), 2011
U.S. Dist. LEXIS 110955, at *6 n. 1 (E.D.N.Y. Sept. 27, 2011) (citation and internal quotation
marks omitted). Accordingly, exercising its discretion, the Court will consider Burstein’s Reply
Declaration, as well as Sorkins’s Affidavit in Opposition, which both supplement their respective
Memorandum of Law.
It is clear to the Court that Winston has met his burden of establishing that the Probation
Memo at issue is a privileged document. The Probation Memo is a draft document, which is
23
evident by the fact that it is unsigned, contains blanks that have not been filled, and it was never
filed with any court. Moreover, the document was prepared by Winston’s attorneys with the
view of filing it with the court in his criminal case and contains
- REDACTED Accordingly, the Court finds that the Probation Memo is protected by the work product privilege.
See Sackman, 167 F.R.D. at 19.
The Court also finds that the work product privilege has not been waived in this case.
Although Winston may have given the Probation Memo to his wife, Eve, this alone is not enough
to waive the work product privilege. As explained above, waiver of the work product privilege
requires more than just a voluntary disclosure of a privileged document to a third party; rather,
the voluntary disclosure must result in a substantial increase in the risk that it will be obtained by
an adversary. Ghavami, 2012 U.S. Dist. LEXIS at *20. In this case, Winston gave the
Probation Memo to Eve at a time when their marriage was apparently strong. The Probation
Memo itself even contains
- REDACTED Thus, at that time, Winston would have had no reason to believe that the disclosure of the
Probation Memo to his wife would result in the document being obtained by a potential
adversary. Id.
In addition, Winston’s disclosure of the Probation Memo to Eve is protected by the
marital communications privilege, since at the time of the disclosure, their marriage was still
viable. Accordingly, the disclosure of the Probation Memo is a privileged communication and
no waiver is applicable. See, e.g., Murray v. Board of Education, 199 F.R.D. 154, 155 (S.D.N.Y.
2001); Solomon v. Scientific American, Inc., 125 F.R.D. 34, 28 (S.D.N.Y. 1988).
24
While the Plaintiff argues that “as of May 26, 2010, the date of the Probation Memo,
Winston was fully aware of his ongoing fraud against Annette Lorber, and, thus, should have
reasonably anticipated future litigation relating to his elaborate fraud,” this argument is without
merit. (Pl. Opp., pg. 9.) The Court finds that the Plaintiff has failed to produce any evidence to
support this argument beyond the allegations set forth in her First Amended Complaint.
However, “[t]he complaint is not sworn to, and is not evidence.” In re Omnicom Group, Inc.
Sec. Litig., 02 Civ. 4483 (WHP)(MHD), 2007 U.S. Dist. LEXIS 60298, at *64 (S.D.N.Y. Aug.
10, 2007).
Likewise, the Plaintiff’s arguments concerning the crime-fraud exception and joint fraud
exception are also without merit. Again the Plaintiff relies solely on the allegations in her First
Amended Complaint to argue that any fraud occurred. Indeed, “the allegations in the Complaint
cannot suffice to establish probable cause to believe that a fraud was perpetrated. Otherwise,
through the mere allegation of fraud in a complaint, a party could use the crime-fraud exception
to wholly swallow the [work product] privilege.” Conopco, Inc. v. Wein, 05 Civ. 09899, 2007
U.S. Dist. LEXIS 46945, at *23 (S.D.N.Y. June 27, 2007)
The Probation Memo is clearly protected under the work product privilege and that
privilege has not been waived. Therefore, the Court need not reach the question of whether the
document was also protected by the attorney-client privilege or the marital communications
privilege. However, the Court notes that the attorney-client privilege would not apply here,
because Winston has failed to demonstrate that the communications memorialized in the
Probation Memo were intended to be kept confidential. Indeed, if the Probation Memo was
drafted for the purpose of potentially filing it with the court, it seems that there was no intent for
25
the communications shared between Winston and his attorney to remain confidential. See
Brennan Ctr., 2012 U.S. App. LEXIS at *59.
Although the Court finds that Sorkin improperly used a privileged document in bringing
forth this litigation on behalf of the Plaintiff, the Court declines to dismiss the Plaintiff’s First
Amended Complaint. Rather, the Court determines that Sorkin’s use of the Probation Memo is
an additional ground in support of his disqualification as the Plaintiff’s attorney.
It is clear to the Court that Sorkin should not have used the Probation Memo in the
manner he did. Furthermore, Winston has demonstrated that he has been prejudiced by the
Plaintiff’s use of the Probation Memo in drafting the Original Complaint, thus raising significant
allegations of trial taint. See United States v. Stewart, 294 F. Supp. 2d 490, 494 (S.D.N.Y. 2003)
(requiring allegations of taint when disqualifying an attorney for having reviewed material
protected by the work product privilege). First, Sorkin himself admits that “the Probation Memo
contains misrepresentations and lies that are coextensive with the allegations in the First
Complaint and are pleaded again in the First Amended Complaint.” (Pl. Opp., Sorkin Aff., ¶
28.) Furthermore, as Winston explains, the Probation Memo (1) “was the epicenter of Sorkin’s
alleged ‘months long investigation in Defendant Winston’s conduct’”; (2) “plainly provided
Sorkin with his first description of the business structure through which Mr. and Mrs. Winston
conducted their real estate ventures”; and (3) was used “to develop purported ‘facts’ that he
claims demonstrate that structure to be fraudulent.” (Def. Reply, pg. 7.)
IV. CONCLUSION
The Court denies Winston’s motion to dismiss, but grants his motion to disqualify
attorney Ira Lee Sorkin, Esq. The Plaintiff is directed to retain new counsel within 45 days of
the date of this Order. This litigation is stayed until the Plaintiff retains new counsel. The Court
26
also prohibits the Plaintiff from using the Probation Memo at the trial or at any other stage of this
litigation. Upon receipt of this Order, the Plaintiff, Sorkin and Sorkin’s firm are directed to
immediately return all copies to Winston without retaining any copies. Within five days of the
date of this Order, the Plaintiff’s Counsel is directed to file an affidavit confirming his, his firm’s
and his client’s compliance with this Order.
For the foregoing reasons, it is hereby:
ORDERED, that Winston’s motion to disqualify the Plaintiff’s counsel, Ira Lee Sorkin,
Esq., based on his prior representation of Winston is granted, and it is further
ORDERED, that Winston’s motion to dismiss based on Sorkin’s use of privileged
materials is denied, and it is further
ORDERED, that Winston’s motion to disqualify the Plaintiff’s counsel, Ira Lee Sorkin,
Esq., for using privileged materials is granted, and it is further
ORDERED, that the Plaintiff is directed to retain new counsel with 45 days of the date
of this Order, and it is further
ORDERED, that this litigation is stayed until the Plaintiff retains new counsel, and it is
further
ORDERED, that the Plaintiff is prohibited from using the Probation Memo at trial or at
any other stage of this litigation. The Court directs the Plaintiff, Sorkin and Sorkin’s firm, upon
receipt of this Order, to immediately return all copies to Winston without retaining any copies.
Within five days of the date of this Order, the Plaintiff’s Counsel is directed to file an affidavit
confirming his, his firm’s and his client’s compliance with this Order.
27
SO ORDERED.
Dated: Central Islip, New York
November 24, 2012
___/s/ Arthur D. Spatt_____
ARTHUR D. SPATT
United States District Judge
28
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?