Butler Fitzgerald & Potter v. Sequa Corp.

• Decision Date: 01 August 2000
• Docket Number: DEFENDANTS-APPELLEES,PLAINTIFFS-APPELLEES,Docket No. 00-7025
• Citation: 250 F.3d 171
• Parties: (2nd Cir. 2001) BUTLER, FITZGERALD & POTTER, A PROFESSIONAL CORPORATION, APPELLANT, v. SEQUA CORPORATION AND SEQUA CAPITAL CORPORATION,, GBJ CORPORATION, TOPAZ CAPITAL CORPORATION AND JEFFREY J. GELMIN,
• Court: U.S. Court of Appeals — Second Circuit

Page 171

250 F.3d 171 (2nd Cir. 2001)

BUTLER, FITZGERALD & POTTER, A PROFESSIONAL CORPORATION, APPELLANT, v. SEQUA CORPORATION AND SEQUA CAPITAL CORPORATION, PLAINTIFFS-APPELLEES, GBJ CORPORATION, TOPAZ CAPITAL CORPORATION AND JEFFREY J. GELMIN, DEFENDANTS-APPELLEES.

Docket No. 00-7025

August Term, 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued September 25, 2000

May 17, 2001

Butler, Fitzgerald & Potter, a professional corporation, appeals the December 22, 1999 order of the United States District Court for the Southern District of New York (Batts, J.) denying its motion to intervene as of right to protect its charging lien after it was discharged as counsel in an underlying action.

Affirmed.

[Copyrighted Material Omitted]

Thomas Butler, New York, New York (Raymond Fitzgerald, Butler, Fitzgerald & Potter, New York, New York, of counsel), for Appellant.

Brooks R. Burdette, New York, New York (Schulte Roth & Zabel LLP, New York, New York, of counsel), for Plaintiffs-Appellees.

James C. Jones, New York, New York (Charles B. Manuel, Jr., Law Offices of Manuel & Jones, P.C., New York, New York, of counsel), for Defendants-Appellees.

Before: Cardamone, Jacobs, and Sack, Circuit Judges.

Cardamone, Circuit Judge

During the course of protracted litigation, one party discharged the law firm that had been representing it, and replaced it with two solo practitioners. Prior to its discharge, the law firm obtained a $2.9 million charging lien that will be extinguished absent a favorable disposition for its former client. It moved therefore to intervene in the continuing litigation as a matter of right. The district court denied the motion.

This appeal from the denial of that motion raises several thorny issues: whether a discharged lawyer who has a charging lien it believes is in jeopardy by ongoing litigation possesses an interest justifying intervention as of right in that litigation; whether the discharged attorney's interests are adequately represented in the ongoing litigation; and whether the former attorney moved timely to intervene. A lawyer, like a laborer, is of course worthy of his hire and is entitled to be paid for his work. Yet, since the attorney/client relationship rests on a foundation of trust and confidence, when a client loses confidence in counsel, public policy generally demands that the client have the prerogative to terminate the relationship at any time, without cause.

Although choosing between these competing notions is not required to resolve this appeal -- resolution of the other issues will resolve the case -- the conflicting policies presented by these competing notions nonetheless give context to the discussion that follows.

BACKGROUND

The underlying dispute in this case is between GBJ Corporation, formerly represented by the professional corporation Butler, Fitzgerald & Potter (Butler, law firm, or appellant) and Sequa Corporation. That dispute arose when Sequa allegedly breached a consulting contract. Under the consulting agreement, GBJ Corporation was to provide consulting services to Sequa on the use of leveraged lease transactions for Sequa to shelter its tax liability. The main suit has been litigated before the district court for the better part of nine years, and now reappears before us following the denial of Butler's motion before the district court to join the suit as a party in its own right. The sole issue is whether the Butler law firm -- GBJ's former counsel in its action against Sequa -- may intervene in the suit to protect its asserted interest in the outcome.

Three years after Butler served the initial complaint upon Sequa on behalf of GBJ, and in the midst of trial, on April 17, 1995 GBJ dismissed Butler as counsel. In June of that year a magistrate judge determined that the dismissal was without cause and, pursuant to New York law, see N.Y. Judiciary Law § 475 (McKinney 1983), fixed a charging lien in the amount of $2,934,695.33 in favor of Butler upon any recovery GBJ had in its action against Sequa. The charging lien is the subject matter of Butler's appeal.

After relieving Butler as lead counsel, GBJ retained two solo practitioners, Charles Manuel, Esq. (Manuel) and James Jones, Esq. (Jones), who tried the case before the district court for 51 days after Butler's dismissal, eventually procuring a sizable verdict for their client on the breach of contract claims. See Sequa Corp. v. Gelmin, No. 91 Civ. 8675, 1996 WL 745448, at *77-78 (S.D.N.Y. Dec. 31, 1996). Attorneys Manuel and Jones subsequently appeared before us when both Sequa and GBJ appealed portions of the district court's decision on the merits, and have since served as GBJ's attorneys of record after we vacated those portions of the district court's judgment relating to the calculation of GBJ's damages (tax recapture issue) and the fiduciary obligations of GBJ's president to Sequa (fiduciary duty issue). See Sequa Corp. v. GBJ Corp., 156 F.3d 136, 150 (2d Cir. 1998). The litigation of the remanded issues continues to date.

Butler contends that a series of incidents indicated its charging lien was in jeopardy. It says that in late 1998, following our August 20, 1998 remand, the newly retained counsel for GBJ contacted the Butler law firm for assistance on the fiduciary duty issue. The law firm asserts that it acquiesced to this request out of a desire to protect its $2.9 million charging lien, realizing that it could only recover upon it if GBJ succeeded in the underlying litigation. Thus, it provided assistance on the fiduciary duty issue, and on March 26, 1999 attempted to submit an amicus curiae brief separate from the one submitted on GBJ's behalf. When the district court rejected the amicus brief in August 1999, a single memorandum, apparently a collaboration between attorney Jones and the Butler law firm, was offered in support of GBJ's position and filed in mid-September.

As litigation of the fiduciary duty issue proceeded, Butler alleges that GBJ's new counsel solicited the firm's aid in litigating the remaining dispute, the apparently more complex tax recapture issue. In a March 31, 1999 order the district court had referred the tax recapture issue to a Special Master, and Butler claims that its subsequent assistance to GBJ on this issue was exhaustive, including: prepping GBJ's counsel on discovery methods and trial techniques in advance of a July 1999 hearing before the Special Master; identifying and arranging for a tax expert to refute Sequa's expert report; purchasing two hearing transcripts for GBJ in the course of the sessions before the Special Master; and drafting GBJ's August 14, 1999 post-hearing memorandum, which was submitted to the Special Master. Butler provided this aid purportedly because it had been forced to make a "Hobson's choice": either expend its own time and money to ensure that GBJ would succeed in its claims against Sequa, so that Butler could later recover its charging lien, or do nothing and likely lose the lien.

Butler avers that as a result of these repeated requests, it became increasingly concerned regarding the ability of attorneys Manuel and Jones to litigate GBJ's claims successfully against Sequa, an adversary the Butler firm describes as possessing "unlimited financial and personnel resources." While purportedly not questioning the competence of the two solo practitioners, Butler maintains they are not receiving adequate financial support from their client, and are either unable or unwilling to litigate the claims without such support. The law firm further notes that it has expended approximately 600 hours on the dispute subsequent to its discharge. Attorneys Manuel and Jones counter that Butler has exaggerated its role in the litigation, and declare that they, not Butler, have performed the lion's share of the work, toiling for a combined 8,000 hours on the case.

Butler declares that two incidents were the proverbial straws that broke the camel's back, and induced it to seek leave of court to cease acting as an outside adviser to GBJ, and instead intervene in the action in its own right. The first incident was a request by GBJ in September 1999 that Butler pay for the Special Master's fee following the hearing on the tax recapture issue. The law firm allegedly balked at this request, viewing it as a further sign of the inability of GBJ to litigate its claims effectively. It cites the second incident as further proof of GBJ's dire financial position, that is, the fact that Sequa, GBJ's adversary, eventually paid the fee. Finally, on September 13, 1999, attorney Manuel and an attorney for Butler had an apparent confrontation when Manuel discovered that Butler was preparing a motion to intervene, after it had previously assured him that it would remain disassociated from the litigation. Four days later, by a letter dated September 17, 1999, Butler sought leave of the district court to move, pursuant to Rule 24(a) of the Federal Rules of Civil Procedure, to intervene in the underlying action. Butler's letter also referenced permissive intervention under Rule 24(b), but the gist of the motion was directed to intervention as of right under Rule 24(a).

At the November 2, 1999 oral argument before District Judge Deborah A. Batts on the motion to intervene, contrary positions were expressed respecting whether GBJ opposed Butler's motion. Attorney Manuel, as counsel for GBJ, represented that GBJ's principal, Jeffrey Gelmin, had "said in no uncertain terms... that he had no intention of seeing Butler, Fitzgerald & Potter intervene in this case." Timothy Butler, who claimed to represent Gelmin on other matters -- and who, although not a member of the Butler law firm, served as an intermediary with that firm -- stated that Gelmin had informed him that he took no position on the motion to intervene. According to Timothy Butler, Gelmin had also said that he did not feel that GBJ was "capable of seeing this through to the end, that we do...