Securities and Exchange Commission v. Gibraltar Global Securities, Inc. et al

Filing 64

MEMORANDUM AND ORDER denying 56 Motion to Withdraw as Attorney. In light of the disruption DOR's withdrawal would cause under the present circumstances, DOR's motion (Docket no. 56) is denied without prejudice to any future applicati on made upon a showing that: (1) Gibraltar and Mr. Davis have produced the required discovery, (2) Mr. Davis and Gibraltar's witnesses have appeared for deposition, and (3) the SEC has been provided with Mr. Davis' e-mail address, phone number, and physical address, as well as a physical address at which Gibraltar may be served. (Signed by Magistrate Judge James C. Francis on 5/8/2015) Copies Mailed By Chambers. (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
SECURITIES AND EXCHANGE COMMISSION,:
:
Plaintiff,
:
:
- against :
:
GIBRALTAR GLOBAL SECURITIES, INC. :
and WARREN A. DAVIS,
:
:
Defendants.
:
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

13 Civ. 2575 (GBD) (JCF)
MEMORANDUM
AND ORDER

This is an action (the “Gibraltar” action) brought by the
Securities and Exchange Commission (the “SEC”) alleging violations
of the federal securities laws by Gibraltar Global Securities, Inc.
(“Gibraltar”), a Bahamian broker-dealer, under the direction of its
president and sole shareholder, Warren A. Davis.

The SEC is also

suing Gibraltar and Mr. Davis, as well as several other defendants,
in a separate action that has been consolidated with Gibraltar for
discovery purposes.

See Securities and Exchange Commission v.

Carrillo Huettel LLP, No. 13 Civ. 1735.

De Feis O’Connell & Rose,

P.C. (“DOR”), which presently represents Gibraltar and Mr. Davis in
both Gibraltar and Carrillo Huettel, now moves pursuant to Rule 1.4
of the Local Rules of the United States District Courts for the
Southern and Eastern Districts of New York (the “Local Rules”) to
withdraw as counsel of record in both cases.
follow,

the

motion

is

denied

without

For the reasons that

prejudice

to

application upon the satisfaction of certain conditions.

1

a

future

Background
The SEC commenced the Carrillo Huettel action on March 15,
2013, and the Gibraltar action on April 18, 2013.
ongoing in both cases.

Discovery is

(Memorandum of Securities and Exchange

Commission in Opposition to Motion of Defendants’ Counsel to
Withdraw (“SEC Opp.”)1 at 2).
In early April 2015, I ordered that Mr. Davis and Gibraltar
produce certain documents identified in their initial disclosures
no later than April 15, 2015; that their depositions take place in
New York; and that the SEC bear the reasonable cost of travel and
accommodation for the depositions.

SEC v. Gibraltar, No. 13 Civ.

2575, 2015 WL 1514746, at *6 (S.D.N.Y. April 1, 2015); (Memorandum
Endorsement dated April 2, 2015). To date, the defendants have not
produced the ordered documents or responded to inquiries from the
SEC’s counsel regarding the scheduling of their depositions.
Opp. at 3-4).

(SEC

Mr. Davis now represents that he does not intend to

defend either action or to participate in discovery, and that no
party is willing to fund the defense of Gibraltar, which has no
assets. (Affidavit of Warren A. Davis dated April 23, 2015 (“Davis
Aff.”), attached as Exh. A to Letter of Philip C. Patterson dated
April 24, 2015 (“DOR Reply”), ¶¶ 2, 5).

1

This memorandum was filed by the SEC in the Gibraltar case,
and is incorporated by reference in the opposition letter filed by
the SEC in the Carrillo Huettel case. (Letter of Todd D. Brody
dated April 20, 2015, Carrillo Huettel, 13 Civ. 1735, ECF No. 227
(“Brody Letter”) at 1).
2

Discussion
A.

Legal Standard

Withdrawal of counsel is governed by Local Rule 1.4, which
states:
An attorney who has appeared as attorney of record for a
party . . . may not withdraw from a case without leave of
the court granted by order. Such an order may be granted
only upon a showing by affidavit or otherwise of
satisfactory reasons for withdrawal or displacement and
the posture of the case, including its position, if any,
on the calendar . . . .
When considering whether to grant a motion to dismiss, district
courts

must

therefore

analyze

two

factors:

the

reasons

for

withdrawal and the impact of the withdrawal on the timing of the
proceeding.

“Whether to grant or deny a motion to withdraw as

counsel ‘falls to the sound discretion of the trial court.’” Stair
v. Calhoun, 722 F. Supp. 2d 258, 264 (E.D.N.Y. 2010) (quoting In re
Albert, 277 B.R. 38, 47 (Bankr. S.D.N.Y. 2002)).
B.

Reasons for Withdrawal

DOR provides two reasons that they should be permitted to
withdraw.

First, they argue that their withdrawal is appropriate

because neither Mr. Davis nor Gibraltar can afford to defend the
action (nor do they intend to do so), and because, consequently,
DOR is owed six months’ worth of legal fees.

(Memorandum of Law in

Support of Motion to Withdraw as Counsel (“DOR Memo.”) at 2-3; DOR
Reply at 2). Non-payment of legal fees constitutes a “satisfactory
reason” for allowing withdrawal. See, e.g., Sentient Flight Group,
LLC v. Klein, No. 09 Civ. 7170, 2011 WL 1431987, at *1 (S.D.N.Y.
Jan. 6, 2011) (“Non-payment of attorney’s fees is a proper basis
3

for a withdrawal of counsel.”); Century Jets Aviation, LLC v.
Alchemist Jet Air, LLC, Nos. 08 Civ. 9892, 09 Civ. 7659, 2009 WL
4035642, at *2 (S.D.N.Y. Nov. 23, 2009) (“It is well-settled that
non-payment of counsel fees is a proper basis for withdrawal.”);
Melnick v. Press, No. 06 CV 6686, 2009 WL 2824586, at *3 (E.D.N.Y.
Aug. 28, 2009) (“[I]t is well-settled in the Eastern and Southern
Districts of New York that non-payment of legal fees is a valid
basis for granting a motion to withdraw pursuant to Local Civil
Rule 1.4.”); Team Obsolete Ltd. v. A.H.R.M.A. Ltd., 464 F. Supp. 2d
164, 166 (E.D.N.Y. 2006) (“Courts have long recognized that a
client’s

continued

refusal

to

pay

legal

fees

constitutes

a

‘satisfactory reason’ for withdrawal under Local Rule 1.4.”).
However, in the absence of proof that an attorney’s client is truly
unable to fulfill the payment obligations in question, courts have
found non-payment of attorney’s fees alone not to be a sufficient
basis for withdrawal.

See, e.g., Ellis v. Jean, No. 10 Civ. 8837,

2013 WL 662454, at *1 (S.D.N.Y. Feb. 20, 2013) (finding non-payment
to be insufficient reason for withdrawal in absence of evidence
that

client

“deliberately

disregarded”

financial

obligations,

evidence of failure to cooperate with counsel, or non-hearsay
evidence of client’s inability to pay in future); Rophaiel v. Alken
Murray Corp., No. 94 Civ. 9064, 1996 WL 306457, at *1-2 (S.D.N.Y.
June 7, 1996) (requiring financial statements from corporate client
and tax returns from individual clients demonstrating inability to
pay before considering withdrawal motion).

As the SEC contends,

DOR has not made a “sufficient showing of its clients’ purported
4

financial delinquency.”

(SEC Memo. at 5-6).

The firm has not

specified how much Mr. Davis and Gibraltar currently owe in fees,
submitted affidavits accounting for the clients’ current assets, or
provided any evidence of the clients’ future inability to pay other
than Mr. Davis’ one-page affidavit, which is devoid of any detail.
This reason therefore does not, on its own, justify withdrawal.
However, the second reason proffered for the withdrawal, which
is that Mr. Davis has discharged DOR, is generally satisfactory.
(DOR Memo. at 4-5; DOR Reply at 2; Davis Aff., ¶ 1).

Pursuant to

Rule 1.16(b)(3) of New York’s Rules of Professional Conduct, an
attorney is required to “withdraw from the representation of a
client” if, among other circumstances, “the lawyer is discharged.”
N.Y. Comp. Codes R. & Regs. tit. 22, § 1200.0.

This rule governs

the conduct of attorneys in federal courts sitting in New York as
well as in New York state courts.

Ritchie v. Gano, No. 07 Civ.

7269, 2008 WL 4178152, at *3 (S.D.N.Y. Sept. 8, 2008) (“New York’s
Code of Professional Responsibility . . . establishes appropriate
guidelines for the professional conduct of attorneys in the United
States District Courts in this state.”); King v. Fox, No. 97 Civ.
4134, 2005 WL 741760, at *2 (S.D.N.Y. March 31, 2005) (“The
American

Bar

Association

Code

of

Professional

Responsibility

. . . , as adopted by the New York courts, establishes the
appropriate guidelines for the professional conduct of attorneys in
the United States District Courts in this state.”); see also Local
Rule 1.5(b)(5) (listing conduct violating New York’s Rules of
Professional Conduct as grounds for discipline of attorneys).
5

Thus, “when counsel has been discharged -- and agreed to the
termination -- the order to withdraw should issue except under the
most compelling circumstances.”

Casper v. Lew Lieberbaum & Co.,

No. 97 Civ. 3016, 1999 WL 335334, at *4 (S.D.N.Y. May 26, 1999).
C.

Impact of Withdrawal

In addition to considering the reasons for withdrawal, I must
assess whether “‘the prosecution of the suit is [likely to be]
disrupted by the withdrawal of counsel.’”

Whiting v. Lacara, 187

F. 3d 317, 320-21 (2d Cir. 1999) (alteration in original) (quoting
Brown v. National Survival Games, Inc., No. 91 CV 221, 1994 WL
660533, at *3 (N.D.N.Y. Nov. 18, 1994)).

The SEC argues that the

motion should be denied because DOR’s withdrawal would prejudice
the

SEC

by

further

complicating

discovery

communication with the defendants difficult.

and

by

making

(SEC Opp. at 1-2, 6-

7; Brody Letter at 3-4).
To date, Gibraltar and Mr. Davis have several unfulfilled
discovery

obligations.

These

obligations

include

those

unambiguously set forth in my April 1, 2015 order, which compelled
them to produce documents by April 15, 2015.
Brody Letter at 3-4).

(SEC Opp. at 2-4;

Instead of complying with my order -- and

without any advance notice to the SEC -- DOR filed the instant
motion.

(SEC Opp. at 2-3).

DOR explains that “[s]ince Mr. Davis

will not be defending these actions, [he] believes the document
production [ordered on April 1] is or should be moot.”
at 2 n.1).

Mr. Davis is incorrect.

(DOR Memo.

Regardless of whether he

intends to defend these cases in the future, no default judgment
6

has been entered against him and he continues to be bound to comply
with

discovery

obligations

and

court

orders.

His

continued

insistence that he lacks custody or control over the documents I
ordered him to produce -- a contention that I rejected -- also does
not

excuse

him

from

these

obligations,

see

Fed.

R.

Civ.

P.

37(d)(2), nor does the filing of this motion the day before the
production was due.

Furthermore, none of these circumstances

excuses Mr. Davis from appearing for his deposition, which, as I
previously ordered, will take place in New York at the SEC’s
expense.

(Order dated April 2, 2015).

In cases where discovery has not yet closed and trial is
months away, the impact of withdrawal is typically not substantial
enough

to

counsel

against

it.

See,

e.g.,

Karimian

v.

Time

Equities, Inc., No. 10 Civ. 3773, 2011 WL 1900092, at *3 (S.D.N.Y.
May 11, 2011) (granting motion to withdraw where discovery not yet
closed, trial several months away, and new attorney would have
sufficient time to become familiar with case); Freund v. Weinstein,
No. 08 CV 1469, 2009 WL 750242, at *1 (E.D.N.Y. March 19, 2009)
(“[W]ithdrawal at this juncture will not substantially disrupt this
litigation since discovery is in the early stages.”); Brown, 1994
WL 660533, at *3 (“In the case at bar, although the parties have
already commenced discovery, it is not complete and the case is not
presently scheduled for trial.

Thus, granting the instant motion

will not likely cause undue delay.”).
Here, however, it is clear that DOR’s withdrawal would further
delay -- perhaps indefinitely -- the already overdue production of
7

documents

and

the

scheduling

of

the

defendants’

depositions.

Indeed, the withdrawal appears to be designed for that purpose.
The

defendants

and

their

counsel

have

already

delayed

the

depositions of Mr. Davis and Gibraltar by failing to cooperate with
the SEC regarding scheduling.

(SEC Memo. at 4).

DOR then filed

this motion the day before the defendants were required to produce
documents pursuant to my order, without requesting an extension of
time to produce such documents or notifying the SEC that they would
not be timely produced.

Mr. Davis professes that he does not

believe he is obligated to engage with the litigation, that he does
not intend to do so, and that he will not hire replacement counsel.
(DOR Memo. at 1-2 & n.1; Davis Aff., ¶¶ 5-7).

The SEC’s efforts to

obtain discovery and testimony would be further frustrated in the
event of withdrawal because they have no means of communicating
directly with Mr. Davis or Gibraltar.2
It would be inappropriate to reward these dilatory tactics and
Mr. Davis’ disregard for the court’s authority by granting the
withdrawal motion at this time, thereby significantly disrupting
the prosecution of both Gibraltar and Carrillo Huettel. See SEC v.
Great American Technologies, Inc., No. 07 Civ. 10694, 2009 WL
4885153, at *5 (S.D.N.Y. Dec. 15, 2009) (denying motion to withdraw
where

party

in

question

had

disobeyed

discovery

orders

and

willfully delayed scheduling of deposition, finding withdrawal
2

DOR contends that the SEC is able to communicate with both
defendants through Bahamian counsel. (DOR Reply at 3). However,
no Bahamian attorney has appeared in this litigation nor, to my
knowledge, has such an attorney been designated as Mr. Davis’ and
Gibraltar’s agent for the purpose of service.
8

would "necessarily lead to further delays

in the completion of

th[e] case"); Small v. Regalbuto, No. 06 CV 1721, 2009 WL 1911827,
at *2

(N.D. Ohio June 29,

2009)

(denying motion to withdraw that

appeared to be "a delaying tactic to again avoid providing the
discovery"

that

the

defendant

had

already

delay[ed]" in case where counsel was fired);
F.3d 8, at *2 (Table)

(4th Cir. 1995)

"substantial[ly]

Towns v. Morris,

50

(finding denial of withdrawal

motion pending compliance with discovery obligations in case where
attorney was discharged "consistent with the court's responsibility
to fairly and effectively administer the litigation").
Conclusion
In light of the disruption DOR's withdrawal would cause under
the present circumstances,

DOR's motion

(Docket no.

56) is denied

without prejudice to any future application made upon a showing
that:

( 1)

discovery,

Gibraltar
(2)

Mr.

and

Mr.

Davis

have

produced

the

required

Davis and Gibraltar's witnesses have appeared

for deposition, and (3) the SEC has been provided with Mr. Davis'
e-mail address, phone number,

and physical address,

as well as a

physical address at which Gibraltar may be served.

SO ORDERED.

JAMES C. FRANCIS IV
UNITED STATSS MAGISTRATE JUDGE
Dated: New York, New York
May 8, 2015

9

Copies mailed this date:
Kevin P. O'Rourke, Esq.
Douglas C. McAllister, Esq.
Gerald W. Hodgkins, Esq.
Robert A. Giallombardo, Esq.
Securities and Exchange Conun].ssion
100 F Street N.E.
Washington, D.C. 20549
Nicholas M. DeFeis, Esq.
Philip C. Patterson, Esq.
Allison S. Menkes, Esq.
De Feis O'Connell & Rose, P.C.
500 Fifth Ave., 26th Floor
New York, NY 10110

10