MJK FAMILY v. CORP. EAGLE MANAGEMENT SERVICES

• Decision Date: 21 December 2009
• Docket Number: Civil No. 09-12613.
• Citation: 676 F. Supp.2d 584
• Parties: The MJK FAMILY LLC, Air Banks, LLC, Windsong LLC, Mark II Aviation, LLC, Convenienso, LLC, S4air LLC, National City Bank as Trustee for The David L. Hayes IRA, Robert Skandalaris, and Don Defosset, Plaintiffs, v. CORPORATE EAGLE MANAGMENT SERVICES, INC., and Richard M. Nini, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

676 F.Supp.2d 584

The MJK FAMILY LLC, Air Banks, LLC, Windsong LLC, Mark II Aviation, LLC, Convenienso, LLC, S4air LLC, National City Bank as Trustee for The David L. Hayes IRA, Robert Skandalaris, and Don Defosset, Plaintiffs, v. CORPORATE EAGLE MANAGMENT SERVICES, INC., and Richard M. Nini, Defendants.

Civil No. 09-12613.

United States District Court, E.D. Michigan, Southern Division.

December 21, 2009.

Michael C. Simoni, P. Rivka Schochet, Richard C. Sanders, Miller, Canfield, Detroit, MI, for Plaintiffs.

Frederick A. Berg, Kotz, Sangster, Rebecca M. Decoster, Kotz, Sangster, Wysocki and Berg, P.C., Detroit, MI, for Defendants.

OPINION AND ORDER DENYING PLAINTIFFS' MOTION TO DISQUALIFY DEFENDANTS' COUNSEL 17 AND DENYING DEFENDANTS' MOTION TO STRIKE PLAINTIFFS' REPLY 25

JOHN FEIKENS, District Judge.

Plaintiffs are Members of Corporate Eagle Jet, LLC ("CEJ"), a company formed and managed by Defendants. Compl. ¶¶ 20-24. Defendant Corporate Eagle Management Services ("CEMS") retained the law firm of Kotz, Sangster, Wysocki, and Berg, P.C. ("KSWB") in connection with the capitalization of CEJ and "matters relating to" CEJ. Subscription Agreement ¶ 8. Plaintiffs contend that KSWB also represented Plaintiffs, as Members of CEJ. Motion at 4. Plaintiffs specifically allege that two named partners of KSWB—Frederick A. Berg¹ and Greg Wysocki—engaged in conduct that mandates disqualification of KSWB as counsel for Defendants in this action. First, Plaintiffs contend that at least some of the Plaintiffs believed that KSWB was representing Plaintiffs' interests, as Members of CEJ. Alternatively, Plaintiffs allege that Mr. Wysocki acted as a negotiator "on behalf of Plaintiffs, CEJ and Nini, either formally or informally," which role Plaintiffs claim must bar his firm, KSWB, from representing Defendants in this action. Finally, Plaintiffs assert that Mr. Wysocki is a "key witness" in this action, and that, as such, the entire KSWB firm must withdraw its representation of Defendants.

I. BACKGROUND

A. Plaintiffs' Allegations

In support of their Motion, Plaintiffs assert the following, by way of affidavits supplied by the Principals of three named—Plaintiff entities:²

1. Michael J. Kowalski³ claims that, while he was a member of CEMS's Board of Directors, "Richard Nini and others represented to Kowalski on several occasions that Gregory Wysocki was the attorney for CEJ." Kowalski Aff. ¶ 8.

2. Mr. Wysocki participated in a December 19, 2008 conference call, in which Mr. Nini and some members of CEJ also participated, to discuss CEJ's financial condition and outlook. On January 22, 2009, Mr. Wysocki sent a follow—up letter to the Members of CEJ. Plaintiffs contend that in that letter Mr. Wysocki "appeared to act as a mediator between Nini and the Members of CEJ" and "provided advice to the Members of CEJ with respect to CEJ's financial condition and partial liquidation." Kowalski Aff. ¶¶ 10-11; Hayes⁴ Aff. ¶¶ 7-8; Boll Aff. ¶¶ 7-8 3. March 4, 2009, Minutes of a Special Meeting of the Board of Directors of CEMS state that Lucy R. Benham represented CEMS, and Gregory Wysocki was present as "attorney for Corporate Eagle Jet, LLC."

4. At an April 29, 2009, CEMS Board of Directors meeting, Lucy Benham identified herself as CEMS's attorney, and Mr. Wysocki allegedly stated, "I represent the members of Corporate Eagle Jet." Hayes Aff. ¶¶ 12-14.

5. Greg Boll⁵ also attended the April 29, 2009 meeting. Mr. Boll does not allege that Mr. Wysocki told him that he represented the Members' interests, but Mr. Boll nevertheless "had the impression that Mr. Wysocki was representing his interests as a Member of CEJ" at that meeting, based on the following: (a) Ms. Benham's status as CEMS's attorney at that meeting; (b) his knowledge that Mr. Wysocki was an attorney; and (c) the contents of the January 22, 2009 letter from Mr. Wysocki.

6. It is "apparent" to some Plaintiffs that KSWB drafted the Subscription Agreement, "including the provisions that are alleged to be misleading in the Plaintiffs' Complaint." Plaintiffs claim that KSWB's role in drafting that agreement supports their position that Mr. Wysocki will be a key witness in this action. Motion at 5 n. 8; Kowalski Aff. ¶¶ 4-5; Boll Aff. ¶¶ 4-5; Hayes Aff. ¶¶ 4-5.

Plaintiffs submit that these events demonstrate that they "worked closely with Mr. Wysocki and relied upon his and his firm's legal representation." Motion at 10. Accordingly, they argue, the Plaintiffs, as individual Members of CEJ, are or were clients of KSWB, and KWSB is therefore barred from representing Defendants in this action. Plaintiffs rely upon five Michigan Rules of Professional Conduct to support their Motion:

Rule 1.7 generally prohibits a lawyer from representing a client if the representation will be directly adverse to another existing client. Plaintiffs argue that CEJ is an existing client because KSWB "provided legal advice to CEJ and its Members with respect to the formation, operation, and management of CEJ." They further submit that, "whether or not the attorney-client relationship was formal, and whether or not Plaintiffs were billed for these services is of no import." Motion at 7. Rule 1.9 prohibits a lawyer from representing a client in the same or substantially related matter in which that client's interest is materially adverse to that of a former client without first obtaining the former client's consent. Plaintiffs contend that they are, "at a minimum former clients" of KSWB, which they believe bars KSWB from representing Defendants in this matter. Motion at 11.

Rule 2.2 establishes ethical rules related to attorneys who act as intermediaries. If an attorney acts as an intermediary for two clients, and the clients fail to reach a resolution, the lawyer shall withdraw as an intermediary. Plaintiffs do not allege that there was a specific agreement under which Mr. Wysocki agreed to serve as an intermediary between the parties. Instead, Plaintiffs claim that Mr. Wysocki should be deemed to have acted as an intermediary because he "in effect, negotiated on behalf of all interested parties" through his attendance at CEMS board meetings "as counsel to CEJ" and his alleged attempts "to bring the parties together and advise them" about possible resolutions to their differences. Specifically, Plaintiffs refer to Mr. Wysocki's letter dated January 22, 2009, as evidence of his role as intermediary. Motion at 12. Rule 3.7 generally prohibits a lawyer from acting as an advocate at a trial in which he is likely to be a necessary witness. Plaintiffs contend that Wysocki is a "key witness"—"perhaps the only witness who has knowledge of a number of business activities relating to management of CEJ by Defendants, actions taken by the Defendants, and those taken by the Plaintiffs, and ... the discussions regarding the ... sale of the aircraft owned by CEJ." Motion at 14.

Rule 1.10 imputes disqualification on a law firm if a lawyer in that firm is disqualified under Rule 1.7, 1.8(c), 1.9(a) or (c), or 2.2. Plaintiffs contend that Mr. Wysocki is prohibited from representing Defendants under Rules 1.7(a) and (b), 1.9(a), and 2.2(c)—each of which, they claim, requires disqualification of the entire KSWB firm. Motion at 15.

B. Defendants' Factual Allegations⁶

Defendants assert the following relevant facts in opposition to Plaintiffs' Motion:

1. Plaintiffs S4AIR, LLC (and its principal Greg Boll) and Windsong LLC (and its principal Walter Knysz) had separate legal counsel, which they consulted in connection with their investment in CEJ. Nini Aff. ¶¶ 23, 25.

2. Plaintiffs each signed the Subscription Agreement and Operating Agreement "without ever having spoken to any representative of KSWB." See Response at 6; Wysocki Aff. ¶ 9. Indeed, no attorney at KSWB had any contact with any Member of CEJ until the December 19, 2008 teleconference. Id.

3. On or about February 10, 2009, several Plaintiffs sent a letter by Federal Express to Defendants. The Federal Express label listed Plaintiffs' current counsel, Miller Canfield Paddock and Stone ("Miller Canfield"), as the return address. Thus, Defendants argue that Plaintiffs had "engaged Miller Canfield to give legal assistance and advice to them as members of CEJ at that time...." Wysocki Aff. ¶ 18; Response, Ex. 7.

4. Plaintiffs did not consult with KSWB regarding letters they sent to Defendants on February 10, 2009, and February 27, 2009, nor did Plaintiffs consult with KSWB regarding "any of the concerns and proposals" set forth therein. Wysocki Aff. ¶¶ 18-19.

5. Mr. Wysocki "clearly and unequivocally" told the CEJ Members that he "represented CEMS in its capacity as the sole manager of CEJ." Wysocki Aff. ¶ 13.

6. Mr. Wysocki states that, at no time did any CEJ Member (i) ask him to represent them in any matter; (ii) provide him with any confidential information; (iii) have a private meeting or communication with him. Wysocki Aff. ¶ 29.

7. Mr. Wysocki states that an unidentified Member or Members of CEJ accused him personally of participating in securities fraud against the Members of CEJ. Wysocki Aff. ¶ 13. In light of this accusation, Mr. Wysocki submits that it is "incomprehensible" that any Plaintiff would have "any understanding or desire that Wysocki was or should be representing any individual .Member of CEJ...." Wysocki Aff. ¶

8. Mr. Wysocki had no personal contact with any Member of CEJ between the December 2008 call and the January 22, 2009 letter. He was not asked to, nor did he choose to "undertake the role of mediator between Nini/CEMS and the Members of CEJ." No Member of CEJ requested that Mr. Wysocki provide CEJ with legal representation, and no Member of CEJ provided Mr. Wysocki with confidential information. Wysocki Aff. ¶ 17.

9. Contrary to the affidavits of Mr. Hayes and Mr. Boll, each of whom claim that Mr. Wysocki told them at the April 29, 2009 CEMS Board Meeting that he represented their individual interests, Mr. Wysocki states he did

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