Feldman v. Minars
| Decision Date | 24 August 1995 |
| Citation | 166 Misc.2d 29,631 N.Y.S.2d 237 |
| Court | New York Supreme Court |
| Parties | Joel FELDMAN, Mohan Makhija, Barbara Gray, James Buscemi, Elise Becker-Zeller, William L. Topp, M.D. Charles & Yvonne Allen, Walter Zloczower, Donald & Marceline Carl, Ismail Y. Nagarwala, Elias Salama, and Judith S. Seixas, on their own behalf and on the behalf of Madeira Plaza Associates, Plaintiffs, v. Harvey MINARS, James Haber, U.S. Realty Associates, U.S. Realty Corp., L & V Pension Trust, and Madeira Plaza Associates, Defendants. |
Beigel, Schy, Lasky, Rifkind, Goldberg, Fertik & Gelber, New York City (Herbert Beigel, of counsel), for plaintiffs.
Morvillo, Abramovitz, Grand, Iason & Silberberg, P.C., New York City (Edward M. Spiro and Ross N. Herman, of counsel), for defendants James Haber, U.S. Realty Associates and U.S. Realty Corp. HERMAN CAHN, Justice.
Defendants James Haber, U.S. Realty Associates and U.S. Realty Corp. move to disqualify the law firm of Beigel Schy Lasky Rifkind Goldberg Fertik & Gelber from serving as plaintiffs' counsel herein.
Plaintiffs' attorney formerly represented other plaintiffs in an action brought against various defendants, including at least two of the defendants herein. In settling that other action, counsel agreed, as part of the settlement agreement, not to "assist or cooperate with any other parties ... in any action against the ... defendants" as to the matters involved in this action, among others. Defendant-movant seeks to enforce the agreement by disqualifying plaintiffs' attorneys.
Plaintiffs, limited partners in defendant Madeira Plaza Associates, allege that defendants engaged in self-dealing by, inter alia, misleading plaintiffs into selling their limited partnership interests at a discounted price, and converting partnership opportunities for their own personal gain. Plaintiffs assert claims of breach of fiduciary duty and unjust enrichment and seek an accounting and dissolution of the limited partnership, among other relief.
Movants in their counterclaim allege plaintiffs intentionally and tortiously induced the breach of a settlement agreement entered into on July 12, 1990, of an action then pending in Illinois. Beigel & Sandler, Ltd., the predecessor firm of plaintiffs' counsel herein specifically entered into that agreement on its clients' and on its own behalf. The defendants James Haber and Harvey Minars, were also defendants in the Illinois action; and the Settlement Agreement was entered into on their behalf. The claims in the Illinois action which were resolved included claims of securities fraud and RICO violations unrelated to this action. Movants allege that plaintiffs, by retaining the Beigel firm to represent them in the instant action, caused the Beigel firm to breach paragraph 10 of the settlement agreement which prohibits the Beigel firm from representing or assisting claimants asserting certain claims against Haber, such as the claims asserted herein.
Movants seek to disqualify the Beigel firm from serving as plaintiffs' counsel herein on grounds that the agreement not to represent or assist claimants against defendant Haber, among others, is enforceable.
Plaintiffs, in opposition, contend that the prohibition does not encompass representation and, therefore, does not provide a basis for disqualification. If, however, it is found to include a ban of representing claimants against Haber, it would be unenforceable as a matter of law.
The subject clause provides in relevant part:
As an inducement to the settling defendants to enter into this Settlement Agreement, and as a material condition thereof, Beigel & Sandler, Ltd. warrants and represents to the settling defendants that neither such firm nor any of its employees, agents, or representatives will assist or cooperate with any other parties or attorneys in any action against the settling defendants arising out of, or related in any way to the investments at issue in the actions or any other offerings heretofore or hereafter made by the settling defendants ... unless such action is instituted by a governmental agency and such assistance or cooperation is mandated by legal process, nor shall they encourage any other parties or attorneys to commence such action or proceeding. (Illinois action settlement agreement, p 10).
The provision employs clear and unambiguous terms, rendering resort to extrinsic facts to determine the parties' intent unnecessary (see, Amer. Express Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 562 N.Y.S.2d 613). The terms, when accorded their plain meaning and full effect, prohibit the Beigel firm from representing third parties in future actions against the Illinois action defendants, including Haber, relating to certain investments or offerings.
Contrary to the plaintiffs' contentions, the words, "assisting" and "cooperating," have very broad meanings which most certainly encompass representation. Similarly, "other parties" necessarily includes future clients. If the true intent and purpose of the parties are reasonably within the scope of the language used, they must be taken to be as much a part of the agreement as if plainly expressed (Manson v. Curtis, 223 N.Y. 313, 119 N.E. 559). To interpret the provision as prohibiting the Beigel firm from assisting plaintiffs while permitting it to actually represent plaintiffs would be to produce an absurd result. The "parties to an agreement are presumed to act sensibly in regard to it," (River View Assocs. v. Sheraton Corp. of Amer., 33 A.D.2d 187, 190, 306 N.Y.S.2d 153, aff'd 27 N.Y.2d 718, 314 N.Y.S.2d 181, 262 N.E.2d 416).
The issue of the validity of such a provision has not been squarely faced until now by the New York courts, although it has been considered by other jurisdictions. The Court finds that the subject provision is an improper restriction on the Beigel firm's ability to practice law in violation of DR 2-108(B) of the New York Code of Professional Responsibility (22 NYCRR 1200.13[b] and is, therefore, unenforceable.
DR 2-108(B) prohibits lawyers from entering into an agreement in connection with the settlement of a controversy or suit which restricts their right to practice law. The rule was adopted from, and is substantively the same as, rule 5.6(b) of the ABA Model Rules of Professional Conduct , as was rule 5.6(b) of the Illinois Rules of Professional Conduct (Illinois State Bar Assoc. Advisory Op. 92-14).
The ABA Ethics Committee has interpreted the rule as prohibiting a lawyer from entering into a settlement agreement on behalf of present clients which would require the lawyer to decline to represent future clients against a particular defendant (ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion 93-371). The rule reflects the strong public policy of protecting an individual's right to unfettered choice of counsel by prohibiting agreements limiting "the access of the public to lawyers, who, by virtue of their background experience, might be the very best talent to represent these individuals," (Id.). Moreover, such a restriction creates an improper conflict of interest between the attorney and future clients (Id.).
Similarly, the ABA Ethics Committee in an earlier opinion focusing on what would become subsection (a) of the rule concluded restrictive covenants between attorneys were unethical (Cohen v. Lord, Day & Lord, supra, citing ABA Formal Opinion Professional Ethics, No. 300). The Ethics Committee explained its position by citing an opinion issued by the New York County Lawyers' Association, in which the Association stated:
Clients are not merchandise. Lawyers are not tradesmen. They have nothing to sell but personal service. An attempt, therefore, to barter in clients, would appear to be inconsistent with the best concepts of our professional status. (Cohen v. Lord, Day & Lord, 75 NY2d at 98 [551 N.Y.S.2d 157, 550 N.E.2d 410], quoting New York County Lawyers' Assoc., Op. 109).
This rationale clearly underlies subsection (b) of the rule as well (see, Colorado Bar Assoc. Ethics Committee, Formal Op. 92).
Moreover, the state bar associations which have considered...
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