National Union v. LE Myers Co. Group

• Decision Date: 05 September 1996
• Docket Number: 84 Civ. 7481 (SWK).
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff-Counterdefendant, v. The L.E. MYERS CO. GROUP, The L.E. Myers Co. and Lemco Engineers, Inc., Defendants-Counterplaintiffs. The L.E. MYERS CO. GROUP, The L.E. Myers Co. and Lemco Engineers, Inc., Third-Party Plaintiffs, v. The EMAR COMPANY, American Risk Management, Inc. and The Walsh Group, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

937 F. Supp. 276

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff-Counterdefendant, v. The L.E. MYERS CO. GROUP, The L.E. Myers Co. and Lemco Engineers, Inc., Defendants-Counterplaintiffs.

The L.E. MYERS CO. GROUP, The L.E. Myers Co. and Lemco Engineers, Inc., Third-Party Plaintiffs, v. The EMAR COMPANY, American Risk Management, Inc. and The Walsh Group, Third-Party Defendants.

84 Civ. 7481 (SWK).

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

September 5, 1996.

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Lester Schwab Katz & Dwyer by Kenneth R. Maguire, Fern Flomenhaft, New York City, for Plaintiff-Counterdefendant.

Bell, Boyd & Lloyd by John P. Scotellaro, David D. Cleary, Chicago, IL, Cleary, Gottlieb, Steen & Hamilton by Evan A. Davis, Barry D. Ford, New York City, for Defendants-Counterplaintiffs and Third-Party Plaintiffs.

Landman Corsi Ballaine & Ford by Stephen Jacobs, Cathleen Giannetta, New York City, for Third-Party Defendant American Risk Management, Inc.

James S. Rowen & Associates by James S. Rowen, New York City, for Third-Party Defendant The Emar Company.

Wilson, Elser, Moskowitz, Edelman & Dicker by Ramon D. Held, New York City, for Third-Party Defendant The Walsh Group.

MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

On June 19, 1996 this Court granted the cross-motion of National Union Fire Insurance Company of Pittsburgh, PA ("National Union") for a jury trial. Trial having been set for September 24, 1996, the parties have filed various motions in limine. Specifically, National Union moves to (1) disqualify counsel of defendants The L.E. Myers Group, The L.E. Myers Co. and Lemco Engineers, Inc. (collectively "Myers"); and (2) exclude any reference to the Frank B. Hall proposal as a "quotation." Myers moves to (1) exclude any evidence that certain brokers referred to the architects and engineers errors and omissions coverage as "incidental"; (2) dismiss National Union's claim for negligent misrepresentation; (3) exclude evidence pertaining to damages determined by the Kentucky Courts; and (4) exclude evidence inconsistent with the Court's October 1995 Opinion. Third-party defendant American Risk Management, Inc. ("American Risk") moves to (1) exclude evidence in support of National Union's argument that the Umbrella Policy rather than the Binder controls; (2) exclude evidence pertaining to National Union's claims against it; (3) exclude evidence regarding the brokers' notifying National Union of the loss; (4) exclude evidence of the brokers' insurance; and (5) exclude any extrinsic evidence as to the meaning of the various policy provisions. Finally, third-party defendant The Emar Company ("Emar") moves to (1) exclude evidence pertaining to the Umbrella Policy; (2) exclude evidence pertaining to the alleged knowledge, acceptance and ratification of the Umbrella Policy; and (3) exclude evidence pertaining to the alleged nondisclosure of material facts relating to the substantial architects and engineers business of Myers.

DISCUSSION¹

I. National Union's Motions

A. Motion to Disqualify Counsel

National Union moves to disqualify Myers' counsel, John Scotellaro ("Scotellaro") as well as his firm, Bell, Boyd and Lloyd, on the ground that both National Union and Myers list Scotellaro in the parties' Joint Pre-Trial Order as a potential witness at trial. Since there is no suggestion that, at the time Scotellaro and Bell, Boyd & Lloyd began representation of Myers in September 1984, there was any reason to believe that Scotellaro "ought to be called as a witness," Disciplinary Rule 5-102(A) of the New York Code of Professional Conduct, rather than Rule 5-101(B), is the correct starting point. Rule 5-102(A) provides, in pertinent part, that

if, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that the lawyer ought to be called as a witness on behalf of the client, the lawyer shall withdraw as an advocate before the tribunal, except that the lawyer may continue as an advocate and may testify in the circumstances enumerated in DR 5-101(B)(1) through (4).

N.Y.Comp.Codes R. & Regs. tit. 22, § 1200.21(a). Several exceptions to this rule are found in Disciplinary Rule 5-101(B), which allows a lawyer to testify: (1) If the testimony will relate solely to an uncontested issue; (2) If the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony; (3) If the testimony will relate solely to the nature and value of legal services rendered in the case by the lawyer or the lawyer's firm to the client; or (4) As to any matter, if disqualification as an advocate would work a substantial hardship on the client because of the distinctive value of the lawyer as counsel in the particular case. N.Y.Comp.Codes R. & Regs. tit. 22, § 1200.20(b).

Attorney disqualification and vicarious disqualification of an attorney's law firm are decisions subject to the discretion of the court. Kubin v. Miller, 801 F.Supp. 1101, 1113 (S.D.N.Y.1992). A court must be wary of disqualification motions imposed solely for tactical purposes. Lamborn v. Dittmer, 873 F.2d 522, 531 (2d Cir.1989); Bennett Silvershein Assocs. v. Furman, 776 F.Supp. 800, 802 (S.D.N.Y.1991). Further, the Court is mindful that the Second Circuit requires a high standard of proof on the part of the party seeking to disqualify an opposing party's counsel. Government of India v. Cook Indus., Inc., 569 F.2d 737, 739 (2d Cir.1978); see also Bennett Silvershein Assocs. v. Furman, 776 F.Supp. at 802 ("the party seeking disqualification must carry a `heavy burden,' and must meet a `high standard of proof' before a lawyer is disqualified" (citations omitted)). This is so because of the delay and additional expense created by substitution of counsel, the potential for abuse inherent in such motions, as well as the disfavor with which the courts view denying a party his counsel of choice. See generally Armstrong v. McAlpin, 625 F.2d 433, 444 (2d Cir.1980) (adopting a restrained approach to disqualification), vacated on other grounds, 449 U.S. 1106, 101 S.Ct. 911, 66 L.Ed.2d 835 (1981). Thus, motions to disqualify counsel are generally disfavored and subject to fairly strict scrutiny. Lamborn v. Dittmer, 873 F.2d at 531; Bennett Silvershein Assocs. v. Furman, 776 F.Supp. at 802.

In the parties' Joint Pre-Trial Order submitted to the Court on April 17, 1996, both Myers and National Union list Scotellaro as a potential witness. Myers states:

Mr. Scotellaro will testify about the OMU litigation, the exhaustion of the Republic Insurance Company limit of liability, attorneys' fees and costs incurred and paid by Myers in this litigation and the OMU litigation, and Myers' damages.

Joint Pre-Trial Order, dated April 17, 1996, at 70. National Union includes Scotellaro as a witness as follows:

Mr. Scotellaro will be called to testify regarding damages: alleged defense costs in the underlying and coverage actions.

Id. at 67.

The Court finds that the present circumstances do not warrant disqualification. Testimony with respect to attorneys' fees fall squarely within the third exception of Rule 5-101(B). In addition, the Court finds that any testimony relating to the Owensboro Municipal Utilities ("OMU") litigation will be corroborative of other testimony and, in any event, will likely relate "solely to an uncontested issue." DR 5-101(B)(1). National Union is bound by the findings in the OMU litigation and cannot contest settled issues here. Finally, the Court finds that the proposed testimony relating to the exhaustion of Republic Insurance Company's ("Republic") limit of liability is largely cumulative, and National Union has failed to show that the narrow scope of Scotellaro's testimony will be disputed.

In addition, the Court finds that disqualification at this late point would work a substantial hardship on Myers for several reasons. Scotellaro and Bell, Boyd & Lloyd have represented Myers since the commencement of this action nearly twelve years ago, as well as through the entirety of the OMU action. National Union's argument that local counsel Cleary, Gottlieb, Steen & Hamilton can adequately represent Myers with a trial scheduled approximately one month away is not persuasive. Scotellaro and Bell, Boyd & Lloyd have been lead counsel throughout the action, and have handled almost all substantive matters. Although not determinative, it is appropriate to consider the financial hardship that would result should counsel be disqualified. See Clark v. Bank of New York, 801 F.Supp. 1182, 1196-97 (S.D.N.Y.1992) ("The Second Circuit has `indeed been loathe sic to separate a client from his chosen attorney.... The delay and additional expense created by substitution of counsel is a factor to which it has attached considerable significance....'" (quoting In re Bohack Corp., 607 F.2d 258, 263 (2d Cir. 1979))).

National Union also argues that Scotellaro and Bell, Boyd & Lloyd should be disqualified under DR 5-102(B). This Rule states:

If after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that the lawyer or a lawyer in his or her firm may be called as a witness other than on behalf of the client, the lawyer may continue the representation until it is apparent that the testimony is or may be prejudicial to the client at which point the lawyer and the firm must withdraw from acting as an advocate before the tribunal.

N.Y.Comp.Codes R. & Regs. tit. 22, § 1200.21(b). In order to disqualify an attorney on the basis of the advocate-witness rule, a party must demonstrate that the testimony is both necessary and substantially likely to be prejudicial. Paramount Communications, Inc. v. Donaghy, 858 F.Supp. 391, 394 (S.D.N.Y.1994); Parke-Hayden, Inc. v. Loews Theatre Management, 794 F.Supp. 525, 527 (S.D.N.Y.1992). National Union fails, however, to...