Huntington v. Great Western Resources, Inc.

• Decision Date: 18 March 1987
• Docket Number: 86 CIV 6886 (LBS) and 86 CIV 6887 (LBS).,No. 86 CIV 3320 (LBS),86 CIV 3320 (LBS)
• Citation: 655 F. Supp. 565
• Parties: Thomas P. HUNTINGTON, et al., Plaintiffs, v. GREAT WESTERN RESOURCES, INC., et al., Defendants. Dario CIOTI, et al., Plaintiffs, v. GREAT WESTERN ENERGY CORPORATION, Defendants. Dario CIOTI, et al., Plaintiffs, v. GREAT WESTERN ENERGY CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

655 F. Supp. 565

Thomas P. HUNTINGTON, et al., Plaintiffs, v. GREAT WESTERN RESOURCES, INC., et al., Defendants.

Dario CIOTI, et al., Plaintiffs, v. GREAT WESTERN ENERGY CORPORATION, Defendants.

Dario CIOTI, et al., Plaintiffs, v. GREAT WESTERN ENERGY CORPORATION, et al., Defendants.

Nos. 86 CIV 3320 (LBS), 86 CIV 6886 (LBS) and 86 CIV 6887 (LBS).

United States District Court, S.D. New York.

March 18, 1987.

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Fischer Kagan Fredericks Ascione Zaretsky & Scarinci, Clifton, N.J., for plaintiffs; Barry Fredericks, of counsel.

Baskin Flaherty Elliott Mannino & Gordon, P.C., Washington, D.C., for moving defendants; Gene Schleppenbach, of counsel.

SAND, District Judge.

Defendants Amtax Management Corp. ("Amtax"), Petroleum Income Associates ("PIA") and M. Walter Levine (collectively, the "Amtax defendants") move to disqualify attorney Barry Fredericks and Certilman Haft Lebow Balin Buckley & Kremer ("Certilman"), the firm of which Fredericks was a member when the motion was made, from representing the plaintiffs in three related lawsuits. The motion arises in an unusual and somewhat complex factual context. For the reasons explained below, we are compelled to grant the motion to disqualify.

In deciding a motion to disqualify, a court is called upon to apply principles that will preserve the delicate balance between an individual's right to choose his own attorney and the court's obligation to maintain high professional standards and to ensure that the trial of the claims in the case will be free from taint. See Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 564 (2d Cir.1973); see also Armstrong v. McAlpin, 625 F.2d 433 (2d Cir.1980) (en banc), vacated on other grounds and remanded, 449 U.S. 1106, 101 S.Ct. 911, 66 L.Ed.2d 835 (1981).

Ethical issues, of course, "cannot be resolved in a vacuum." Emle, supra, 478 F.2d at 565. Disqualification questions "are intensely fact specific." Miller and Warren, Conflicts of Interest and Ethical Issues for the Inside and Outside Counsel, 40 Bus.Lawyer 631, 633 (Feb.1985). It is essential, therefore, to approach problems such as those presented in the defendants' motion with a keen sense of practicality as well as a precise picture of the underlying facts.¹ As Judge Kaufman wisely cautioned as a district judge:

When dealing with ethical principles, it is apparent that we cannot paint with broad strokes. The lines are fine and must be so marked. Guideposts can be established when virgin ground is being explored, and the conclusion in a particular case can be reached only after painstaking analysis of the facts and precise application of precedent.

United States v. Standard Oil Company, 136 F.Supp. 345, 367 (S.D.N.Y.1955) (footnote omitted). We turn, therefore, to the peculiar context in which we decide this motion.

Background

A brief review of the nature of the lawsuits is an appropriate starting point. The underlying actions were instituted by investors in certain oil and gas limited partnerships. The investors charge in the complaints that the defendants violated an array of federal securities laws as well as other federal statutes and common law principles in connection with the organization and operation of three oil and gas investment projects: (i) Great Western Energy 1982 ("GWE 1982"), (ii) Great Western Energy 1983-I ("GWE 1983-I"), and (iii) Great Western Energy 1983-II ("GWE 1983-II") (collectively, the "Programs").²

At all relevant times, defendant Levine controlled the corporate defendants, Amtax and PIA. Levine and Amtax, it is alleged, were the selling agents for the Programs. See, e.g., Complaint, 86 Civ. 6886, at ¶ 20. Defendant PIA allegedly played a somewhat different role; it is alleged to be a joint venturer with the lead defendant, Great Western Energy Corporation ("GWEC"), in GWE 1982 and GWE 1983-I. The complaints charge that the Amtax defendants failed to satisfy legal duties they owed to the investors. For example, plaintiffs allege that Amtax and Levine failed to fulfill the obligation to make a diligent investigation to ensure the truth of statements contained in the offering material. See, e.g., Amended Complaint, 86 Civ. 3320, at ¶ 89; Complaint, 86 Civ. 6886, at ¶ 56; Complaint, 86 Civ. 6887, at ¶ 56.

Turning to the circumstances that bear directly on the motion to disqualify, it is clear that Certilman (then "Wofsey, Certilman, Haft & Lebow") represented one or more of the Amtax defendants before, during and after the formative period of GWE 1982 and GWE 1983-I. Defendant Levine, in an affidavit, states that the firm represented both him and Amtax on a variety of general corporate and tax matters. See Affidavit in Support of Motion for Disqualification ("Levine Affidavit") at ¶ 3. Indeed, the firm considered itself in February 1982 to be Amtax's "legal counsel," a designation which Certilman permitted Amtax to use in a corporate brochure. See Levine Affidavit, Exh. B.

More specifically, the record indicates that the Certilman firm assisted the movants in a broad range of transactions that led to the assumption of their respective roles in GWE 1982 and GWE 1983-I. Levine affirms, and the circumstances suggest, that during the course of this representation, Certilman became familiar with the operations of Amtax as well as certain aspects of the relationship between the Amtax defendants and the Programs that may be relevant to the ultimate disposition of these suits. See, e.g., Levine Affidavit at ¶ 4. The relevant invoices indicate, for example, that in 1982, lawyers with Certilman assisted in the preparation of a broker-dealer agreement which, the movants claim, sets forth the rights and duties of Amtax and GWEC with respect to the offering of limited partnership units. See Levine Affidavit at ¶ 7 and Exh. D. Certilman attorneys played a part in negotiating and drafting a "fee and expense sharing letter agreement" between Amtax and GWEC. See Levine Affidavit at ¶ 6 and Exh. D. The firm also represented PIA in the formation of its 1982 joint venture with GWEC. Furthermore, in the summer of 1982, Certilman "reviewed for form and substance the Confidential Private Offering Memorandum of Great Western Energy, Ltd. 1982 Oil and Gas Program," one of the documents which plaintiffs allege Levine and Amtax failed to review adequately. See Levine Affidavit at Exh. C.

Certilman's representation of the Amtax defendants in reference to the Programs terminated sometime in early to mid-1983. It appears that Certilman's representation of defendant Levine, however, continued until sometime in 1985. In this period, the firm represented Levine in a litigation matter, apparently unrelated to the present actions, then pending in the Eastern District of New York. Evan Gordon, a Certilman litigation partner, handled the case. By that time, Certilman's representation of investors who would ultimately become plaintiffs in the present actions had commenced.

Barry Fredericks, the individual attorney whose representation of the plaintiffs movants challenge here, joined Certilman as a partner in November 1984 and continued his affiliation through December 31, 1986. His membership in the firm therefore originated approximately twenty months after the end of Certilman's representation of the Amtax defendants with respect to GWE 1982 and GWE 1983-I. Fredericks was, however, with the firm at the time of its representation of Levine in the Eastern District litigation. At that point, it appears that Fredericks was the head of Certilman's litigation department.

Soon after Fredericks joined the firm, he became involved in a series of discussions with investors who were dissatisfied with the Programs. These discussions eventually led Fredericks and the Certilman firm, on behalf of certain of the investors, to commence the present actions.

The genesis of these discussions is not altogether clear. It appears that Fredericks first met in December 1984 with two investors: Dario Cioti, and his accountant, Norman Greene. Cioti, it seems, was "an ongoing client" of the Certilman firm and Fredericks' initial contact with Cioti occurred through the offices of other Certilman lawyers. See Transcript of Proceedings ("Transcript"), 86 Civ. 3320, at 4 (Feb. 19, 1987). It is not clear, however, who at Certilman introduced client Cioti to attorney Fredericks. Nor is it clear whether the lawyers who attended the initial meeting with Fredericks and Cioti—or any other Certilman lawyers—performed any work in connection with the present cases.³ At oral argument, Mr. Fredericks stated:

Cioti was an ongoing client of Certilman Haft. When I joined them in—I joined them in November of 1984. In December, or January of '85, I was the head of the litigation department. They called me in and said, `Meet Mr. Cioti, Mr. Levine, Mr. Green and Mr. Letewka. They've got some problems concerning some oil and gas investments that they made several years ago.'

Transcript at 4-5. Fredericks affirms that the initial discussions with the investors "were in general terms concerning the investors' inability to obtain information from the project and certain representations made to them which they believed were false." Affidavit of Barry Fredericks in Opposition to Defendants' Notice of Motion to Disqualify Plaintiff's Counsel ("Fredericks Affidavit") at ¶ 3.

In early 1985, soon after Fredericks and his firm commenced the representation of Cioti with respect to his Great Western investments, there followed a flurry of activity relative to the composition of the partnerships and possible ways to settle the investors' potential claims. There were, for example, several meetings between disgruntled investors and individuals who would ultimately become defendants in these actions. Levine himself was represented at these meetings by attorneys from Stroock, Stroock & Lavan. Fredericks, too, attended the meetings at Cioti's request. In late 1984 and early 1985, the record indicates...