S.E.C. v. Credit Bancorp, Ltd.

• Decision Date: 18 May 2000
• Docket Number: No. 99 CIV. 11395(RWS).,99 CIV. 11395(RWS).
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CREDIT BANCORP, LTD., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

96 F.Supp.2d 357

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CREDIT BANCORP, LTD., et al., Defendants.

No. 99 CIV. 11395(RWS).

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

May 18, 2000.

Robert B. Blackburn, S.E.C., New York City, Thomas M. Melton, Salt lake City, UT, for S.E.C.

James B. Swire, Dorsey & Whitney, L.L.P., New York City, Lyndon Mitchell Tretter, Hogan & Hartson L.L.P., New York City, for Dr. Gene W. Ray.

William A. Maher, Wollmuth, Maher & Deutsch, L.L.P., New York City, for Stephenson Equity Co.

Richard Marmaro, McCambridge, Deixler & Marmaro, Los Angeles, CA, for Richard Jonathan Blech.

Andrew Tomback, Milbank, Tweed, Hadley & McCloy L.L.P., New York City, for Thomas Michael Rittsweger.

Richard A. Getty, Getty, Keyser & Mayo, LLP, Lexington, KY, for Douglas C. Brandon.

Thomas R. Pattison, Pattison & Flannery, New York City, William R. Mait, Mait, Wang & Simmons, New York City, for Certain Underwriters at Lloyds at London, London Market Companies, Gulf Ins. Co., Federal Ins. Co.

Timothy J. Coleman, Assist. U.S. Atty., Mary Jo White, U.S. Atty., New York City, for U.S.

Michael J. Levin, Barger & Wolen, L.L.P., New York City, for Centigram Communications Corp.

MEMORANDUM OPINION

SWEET, District Judge.

At the hearing held on May 16, 2000, pursuant to the Orders of April 5, April 18, April 24, and May 8, the Court heard testimony from Kenneth Lynch, Esq. ("Lynch") and Ira Sorkin, Esq. ("Sorkin") concerning (1) whether Lynch represented defendant Richard Blech ("Blech") in Blech's personal capacity, and (2) whether Blech authorized Sorkin to make certain statements on behalf of Blech to staff counsel of the Securities and Exchange Commission ("SEC") on December 2, 1999, and to this Court on December 3, 1999.¹ Upon conclusion of the hearing on May 16, this Court rendered tentative findings of fact, subject to consideration of further submissions on or before May 17. Submissions were received from Blech and from Carl H. Loewenson, Jr., Esq. ("the Receiver") on May 17, 2000, at which time the matter was deemed fully submitted.

Lynch's Representation

It is undisputed that Lynch served as general counsel for Credit Bancorp, Ltd. ("Credit Bancorp") predating this litigation. The issue in dispute is whether or not Lynch also served as counsel to Blech, who was the sole shareholder, president, and chief executive officer of Credit Bancorp, in his personal capacity.

In his Declaration of March 11, 2000, Blech states that beginning in or about August 1999 he engaged Lynch to provide him with legal advice and representation on a number of personal issues. Blech further stated that, pursuant to that engagement, Blech and Lynch engaged in privileged communications concerning the nature, location, and other details of Blech's personal assets, including those listed in the Receiver's March 3, 2000 letter to the Court seeking a contempt order against Blech.²

The attorney-client privilege vis-a-vis counsel for a corporation generally belongs to the corporation. See United States v. Internat'l Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, AFL-CIO, 119 F.3d 210, 214-15 (2d Cir.1997); United States v. Piccini, 412 F.2d 591, 593 (2d Cir.1969). Corporate employees who assert a personal privilege with respect to communications with corporate counsel have the burden of meeting the following test:

First, [corporate employees] must show that they approached [counsel] for the purpose of seeking legal advice. Second, they must show that when they approached [counsel] they made it clear that they were seeking legal advice in their individual rather than in their representative capacities. Third, they must show that the [counsel] saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise. Fourth, they must prove that their conversations with [counsel] were confidential. And, fifth, they must show that the substance of their conversations with [counsel] did not concern matters within the company or the general affairs of the company. Teamsters, 119 F.3d at 215 (citing In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120, 123 (3d Cir. 1986)).

Lynch denied unequivocally that he had a personal attorney-client relationship with Blech predating this litigation. Transcript of May 16 Hearing ("Tr.") at 51, 56, 67-68, 73-74. Lynch testified that Blech did not tell Lynch he was approaching him for individual legal advice on any issue, Tr. at 51, that Lynch did not provide such advice to Blech, Tr. at 73-74, that Lynch and Blech did not discuss Blech's personal assets, Tr. at 68, and that Lynch did not perceive a conflict of interest between representation of Credit Bancorp and of Blech because in fact Lynch represented only Credit Bancorp, Tr. at 74. This testimony, which the Court finds credible, demonstrates that there was no personal attorney-client relationship between Blech and Lynch. Cf. In re Grand Jury Subpoenas, 144 F.3d 653, 659 (10th Cir.1998) (finding attorney-client privilege between corporate officer and corporate counsel where officer and counsel testified that officer sought advice in his individual capacity and counsel further testified that they recognized a potential conflict of interest).

Blech contends that, even if this Court finds Lynch's testimony to be credible, Lynch's testimony regarding Blech's meetings with counsel in November and December 1999 demonstrates a personal relationship with Lynch at that time. In particular, Blech points to Sorkin's response to the question, "Have you ever heard Richard Blech ask Ken Lynch to provide him with personal legal advice," with the statement, "I [Sorkin] would say that's a fudgy question, because in the context of those meetings ... I think there were times where Mr. Blech may have turned to Mr. Lynch for advice or asked questions." Tr. at 26.

A lack of clarity as to the nature of the advice Blech sought from Lynch, i.e., it was "fudgy," does not satisfy the Teamsters test. Blech must demonstrate, not that there was a lack of clarity, but rather that he "made it clear" that he was seeking personal advice and that Lynch "saw fit to communicate with [him] in [his] individual capacit[y], knowing that a possible conflict could arise". Teamsters, 119 F.3d at 215. Lynch testified to the contrary, see supra, and Sorkin confirmed that "it was clearly understood in my [Sorkin's] mind that Mr. Lynch was there on behalf of CBL". Tr. at 25. Finally, the question is not whether it was reasonable for Blech to assume that corporate counsel was in effect his own counsel because he was the sole shareholder of Credit Bancorp. Thus, Blech's reference to Rosman v. Shapiro, 653 F.Supp 1441 (S.D.N.Y.1987) is inapposite. See Teamsters, 119 F.3d at 215-16 (rejecting "reasonable belief" standard for finding personal attorney-client privilege between corporate counsel and corporate officer).

Sorkin's Authority to Make The Statements on December 2 and 3

On December 2, 1999, Sorkin made certain statements to SEC staff on behalf of Blech in which Sorkin corrected prior representations as to whether securities had been margined by Credit Bancorp.

On December 3, 1999, in a proceeding before this Court, Sorkin again made statements directed at correcting prior representations regarding the margining of securities by Credit Bancorp. Sorkin represented to the Court on December 3 that Blech had authorized him to make these statements to it as well as to the SEC and the Receiver. Subsequently, in a Declaration dated March 15, 2000, Blech denied that he had authorized Sorkin to make these statements.

At the May 16 hearing, Sorkin testified that Blech authorized him to make the statements at issue to the SEC on December 2 and the Court on December 3. Tr. at 18, 25-26. The Court finds Sorkin's testimony to be credible, and that in fact Sorkin was so authorized.

Blech contends that even if Sorkin's testimony is found credible that this Court cannot find that he authorized the statements on December 2 and 3.

Blech avers that Sorkin could not have knowingly and intelligently authorized Sorkin to make incriminating admissions on Blech's behalf due to a conflict of interest arising from Sorkin's simultaneous defense of Blech and defendant Thomas Rittweger ("Rittweger"). The authority cited by Blech, United States v. Blau, 159 F.3d 68 (2d Cir.1998), concerns a different issue, namely, when a criminal defendant's right to effective assistance of counsel under the Sixth...