Flushing Nat. Bank v. Municipal Assistance Corp. for City of New York

• Decision Date: 30 June 1976
• Parties: FLUSHING NATIONAL BANK, on Behalf of Itself and All Other Holders of Notes of the City of New York Maturing on or Before
• Court: New York Supreme Court

Page 662

397 N.Y.S.2d 662

90 Misc.2d 204

FLUSHING NATIONAL BANK, on Behalf of Itself and All Other Holders of Notes of the City of New York Maturing on or Before June 30, 1976, Plaintiff, v. MUNICIPAL ASSISTANCE CORPORATION FOR the CITY OF NEW YORK New York State Emergency Financial Control Board, City of New York, and Harrison J. Goldin, as Comptroller of the City of New York, Defendants Martin Aaron, Fanny Y. Beck, Jean Neininger, John J Mitchell and Douglas M. Roberts, Individually and on Behalf of All Others Similarly Situated, Proposed Intervenors.

Supreme Court, Special and Trial Term, New York County, Part 28.

June 15, 1977.

Richenthal, Abrams & Moss, New York City, for Flushing Nat. Bank, plaintiff.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Robert L. Laufer, New York City, of counsel), for Municipal Assistance Corp., defendant.

Louis J. Lefkowitz, Atty. Gen. (Shirley Seigel, New York City, of counsel), for New York State Emergency Financial Control Bd., defendant.

W. Bernard Richland, Corp. Counsel, New York City (James Greilsheimer, and Lorna B. Goodman, New York City, of counsel), for City of New York, defendant.

A. Lawrence Washburn, Jr., New York City (Robert A. Burstein, New York City, of counsel), for proposed intervenors.

Earle C. Bastow, Utica, amicus curiae.

DECISION: MOTIONS BY AARON ET AL. AND CROSS MOTION BY CITY

JAMES GIBSON, Justice.

The court has for decision related motions in connection with the continuing litigation involving the City's short term notes, as follows:

Motion No. 1 by Martin Aaron et al. to intervene in this action on the grounds set forth in paragraphs 2 and 3 of subdivision (a) of CPLR 1012.

Motion No. 2 by Martin Aaron to intervene in this action on the ground set forth in paragraph 2 of subdivision (a) of CPLR 1012, for the limited purpose stated.

Cross motion by defendant City of New York to disqualify movants' attorney A. Lawrence Washburn, Jr. from serving as counsel in this or any related action.

The motions and cross motion were argued on June 7, 1977 and decision thereof was reserved.

This action, in which movants seek to intervene, was brought to recover judgment declaring unconstitutional the New York State Emergency Moratorium Act for the City of New York (L. 1975, ch. 874, as amd. by ch. 875) whereby the payment of certain short term anticipation notes issued by the City of New York was purportedly postponed. The Court of Appeals found the act in violation of section 2 of article VIII of the State Constitution, under which the City was prohibited from contracting any indebtedness unless it should pledge its faith and credit for the payment thereof (40 N.Y.2d 731, 390 N.Y.S.2d 22, 358 N.E.2d 848). The determination by the Court of Appeals was implemented by its remittitur issued February 8, 1977 (40 N.Y.2d 1094, 392 N.Y.S.2d 424, 360 N.E.2d 1106) followed by this court's decision determining interest rate (88 Misc.2d 1047, 391 N.Y.S.2d 969) and its decision awarding judgment (NYLJ, Mar. 9, 1977, p. 11, col. 2) upon which judgment was signed on March 10, 1977. The instant motions must be decided in context of these judicial determinations and of subsequent related decisions of this court, and in light of the ongoing nature of Flushing wherein additional appropriate relief may be awarded from time to time at the foot of the judgment and the remittitur recalled upon appropriate application.

MOTION NO. 1

As appears by their notice of motion, movants seek to intervene "on the ground that the movants' interest may not be adequately represented by the present parties and the movants are or may be bound by the relief to be rendered herein, and on the ground that the action involves the disposition and distribution of, and a claim of damages for injury to property and movants may be affected adversely by the relief herein". The grounds thus conclusorily stated are those appearing in the statute (CPLR 1012 (a) (2) and (3)) but the motion papers do not factually support them. The moving affidavit does make clear that "(t)he purpose of intervention is to propose an offer of settlement to the City of New York" and that "(t)he motivation for the offer of settlement is to benefit the City by arranging for the immediate payment to class members electing the same and deferred payment at higher than 6% interest for class members consenting thereto." This purpose is not within the intendment of the statute or that of the remittitur; the City has disapproved movants' proposals; this court has no authority in the premises; and, in any event, the motion, as bottomed on movants' ephemeral project has been rendered academic, in practical effect, by this court's order of administration No. 1, signed March 15, 1977 (NYLJ, Mar. 17, 1977, p. 10, cols. 5, 6; p. 11, col. 1), providing method of payment, deferments, safeguards and remedies consistent with the remittitur. Further, the delay attendant upon movants' intervention and the consideration of their proposals would serve only to disrupt the presently accelerated progress of the processing of the noteholders' applications for judgments and the entry and payment of the resultant judgments. ¹ It seems not inappropriate to note, in this context, that the proposed intervenor Aaron has made application for judgment which has been approved, subject to production of his notes, which he has chosen not to produce; and that with respect to the remaining intervenors four in number at least two have recovered judgments which have been paid.

Motion No. 1 denied.

MOTION NO. 2

This second motion for intervention, assertedly "for the limited purpose of filing notice of appeal" from this court's determination of interest rate (88 Misc.2d 1047, 391 N.Y.S.2d 969, supra ), seeks class action status to prosecute that appeal. Indeed the two motions, Nos. 1 and 2, while ostensibly seeking intervention for different reasons, are both inextricably geared to the attainment of class action status for the intervenors. That status was sought in the original action itself by plaintiff Flushing and was, by implication, denied by the Court of Appeals, which noted that "plaintiff may speak only for itself" (40 N.Y.2d 1088, 392 N.Y.S.2d 392, 360 N.E.2d 1075). In this court, intervention has been sought by others and has been consistently denied (see Pyramid Serv. Co. v. City of New York, 89 Misc.2d 342, 393 N.Y.S.2d 873, per Fraiman, J.; Aaron v. City of New York, NYLJ, Feb. 7, 1977, p. 7, col. 2, per Asch, J.; Flushing Nat. Bank v. Municipal Assistance Corp. for City of N.Y. (Pyramid Serv. Co.), 89 Misc.2d 342, 393 N.Y.S.2d 873, per Gibson, J.; rearg. den. Misc. (NYLJ, May 5, 1977, p. 7, cols. 5-6)). This court adheres to those decisions.

It is true that on the second Pyramid application (89 Misc.2d 342, 346-347, 393 N.Y.S.2d 873, 877, supra ) this court stated that plaintiff Pyramid might "move, upon appropriate papers, to intervene in Action No. 1 for the limited purpose of taking an appeal from the determination of interest rate (citation); this in consideration of the fact that there has thus far been no indication that any other party contemplates such an appeal (see CPLR 1012, subd. (a))." Thereafter, however, plaintiff Flushing did file timely notice of appeal; and, finally, judgments have been entered in favor of some 11,561 noteholders (supra, p. ---, n. 1), including most if not all of the proposed intervenors other than Aaron, and, so far as appears, none has sought review of the interest rate determination (88 Misc.2d 1047, 391 N.Y.S.2d 969, supra ) by appeal from so much of his judgment as awarded 6% interest, rather than the face rate, from the date of maturity.

Motion No. 2 denied.

CROSS MOTION

The City defendants oppose motions Nos. 1 and 2 and, further, apply for an order disqualifying movants' attorney, A. Lawrence Washburn, Jr., from serving as counsel in this or any related proceeding. The defendant MAC, appearing by counsel and participating in the oral argument, joined in the application and here supports the City's position in all respects. The amicus curiae appeared on the oral argument, in which he did not participate, and filed a brief contesting movants' claim of res judicata and refuting their denial of an attorney-client relationship between Mr. Washburn and the City. ²

The denial of motions Nos. 1 and 2 hereinbefore announced does not moot the cross motion, inasmuch as the proceedings pursuant to these motions are not necessarily concluded and, further, there are in progress in this court other litigated City matters presented by Mr. Washburn as attorney and closely, if not, indeed, inextricably, related to these motions and to the Flushing litigation generally.

The cross motion asserts violations by Mr. Washburn of Canons 4 and 9 of the Code of Professional Responsibility, as approved by the American Bar Association and adopted by the New York State Bar Association, effective January 1, 1970.

Canon 4 requires that the a lawyer "Preserve the Confidences and Secrets of a Client" and the subjoined EC 4-5 and EC 4-6 are cited against Mr. Washburn's conduct. ³ Canon 9 requires that a lawyer avoid "Even the Appearance of Professional Impropriety" and cited here are EC 9-3 and DR 9-101. ⁴ The courts will not be indifferent to these strictures (Matter of Weinstock, 40 N.Y.2d 1, 6, 386 N.Y.S.2d 1, 3, 351 N.E.2d 647, 649). The salient facts are not disputed and are, indeed, in large part expressly conceded.

Thus, it is clear that the law firm of Hawkins, Delafield & Wood acted as bond counsel to defendant MAC during the period here in question, and that during that time Mr. Washburn was an associate of the firm. Mr. Washburn was assigned to, and did work on legal matters related to MAC's and the City's budget, borrowing and other fiscal matters, all in close association and consultation not merely with MAC's officers and staff, but with the City's officers and their respective legal staffs as...