Salomone v. Abramson
| Decision Date | 03 April 2015 |
| Docket Number | 602866/2008 |
| Parties | Daniel SALOMONE, Plaintiff, v. Steven ABRAMSON, Jodi Dennis, Diane Plateis and Carmen Armor, Defendants. |
| Court | New York Supreme Court |
The Lebowitz Law Office, LLC., Represented plaintiff Salomone.
Rottenberg Lipman Rich, P.C., represented defendants Abramson and Plateis.
Defendants Steven Abramson and Diane Plateis (collectively, Movants) move (Motion Sequence 001) to disqualify plaintiff's counsel—the Lebowitz Law Office, LLC (LLO), Marc Lebowitz, Esq., who is its sole member, and Keith Getz (collectively, Firm). Movants argue that Lebowitz and Getz are necessary witnesses, that their testimony will be prejudicial to their client, and that the Firm's continued representation violates Rule of Professional Conduct 3.7, the advocate witness rule (Rule).
Plaintiff, Daniel Salomone, opposes. He maintains that the Firm is a witness solely on the issue of legal fees, an exception to the Rule. Further, he notes that the Firm was neither involved in drafting the Cross–Indemnification Agreement (IA), the subject of the action, or the related Asset Purchase Agreement (APA) and, as a result, the Firm's testimony is not necessary testimony on the issues of their meaning and defendants' rescission counterclaim. In addition, plaintiff contends that the Firm's testimony will not be prejudicial to plaintiff, the motion is premature because discovery is incomplete, and defendants waived their objection by waiting too long to raise it and by failing to oppose a motion for the Firm's retention as special litigation counsel in Salomone's related Bankruptcy Proceeding.
In the opposing papers, without a cross-motion, plaintiff says that if the Firm is disqualified, then the law firm representing Movants, Rottenberg Lipman Rich, P.C. (Rottenberg Firm), also should be disqualified based on the Rule and because it has a conflict of interest. Movants oppose.
This action arises out of the 2004 sale, pursuant to the APA, of the assets of a medical education business called Current Medical Directions, Inc. (CMDI). CMDI is a wholly owned subsidiary of CMD Holding Corporation (, with CMDI, Sellers). The parties to this action (collectively, Stockholders) were all of the stockholders of Holding. Salomone was the CEO, President and the largest stockholder of Holding. The purchaser was CMD Sudler Acquisition Co., LLC, now known as Current Medical Directions, LLC (Purchaser), a wholly-owned subsidiary of Sudler & Hennessey LLC, whose ultimate parent was WPP Group PLC (collectively, WPP).
The APA appointed Salomone as “Representative” of the Stockholders and empowered him:
in such capacity to act as the agent and true and lawful attorney-in-fact of each Stockholder and with full capacity and authority in his sole discretion, to act in the name of and for and on behalf of each Stockholder in connection with all matters arising out of, resulting from, contemplated by or related or incident to [the APA].
In Article XII of the APA, the Stockholders, also defined as “Representors”, agreed to indemnify WPP1 and assume liability for, inter alia, breach of any representation contained in Article III of the APA; breach of the APA or contemporaneous agreements, excluding employment and non-compete agreements; third-party claims relating to any Retained Liability, a defined term; and any litigation or claim relating to disclosed claims listed on a schedule to the APA. Section 13.15 of the IA allowed the Representative, i.e. Salomone, inter alia, to accept service of process for the Stockholders; to bring, assert, defend, negotiate or settle any indemnity claims arising out of the APA; and to retain legal counsel and be reimbursed by the Representors for all legal fees, expenses and other charges for such counsel. Contemporaneously, the Stockholders entered into the IA, in which they agreed to indemnify Salomone and assume responsibility for liabilities arising pursuant to Article XII of the APA in proportion to the percentage of the stock that they owned, as stated in § 2 of the IA. Defendants now dispute those percentages and counterclaim for reformation of the IA.
In the APA, the Stockholders agreed to indemnify Salomone for:
all liabilities, obligations, losses, damages, penalties, claims, actions, suits, judgments, settlements, out-of-pocket costs, expenses and disbursements that may be imposed on or incurred by the Representative as a consequence, or as a result, of any actions taken by the Representative within the scope of his/her authority.
A Mr. Gersh, who was not, and is not, with the Firm, prepared the APA and the IA. The APA closed on January 1, 2005.
Under Article II of the APA, a large part of the purchase price of up to $65 million was dependent on contingent payments, which were available based upon formulae involving the calculation of operating profit after taxes (OPAT) of the Purchaser in the calendar years ending 2004 through 2008. At the closing, the Stockholders received $5,596,072, which they shared. The Purchaser has not paid any of the contingent payments.
Contemporaneously with the APA, the Stockholders entered into separate employment agreements with the Purchaser. In Salomone's employment agreement, commencing January 1, 2005, he could be terminated only for cause, which included a shortfall in OPAT, as calculated for the calendar year ending December 31, 2005, of less than 75% of the average annual OPAT for 2002 through 2004 (OPAT Shortfall). Salomone's employment agreement also contained a non-compete clause (Restrictive Covenant).
On March, 2006, WPP terminated Salomone's employment, based upon an OPAT Shortfall, and sued him for breach of the APA, fraudulent inducement of the APA, and fraud (WPP Action).2 Salomone retained LLO to represent him. On July 20, 2006, Salomone won a pre-answer motion to dismiss WPP's fraud claim based on failure to state a claim, and WPP voluntarily withdrew its claim for punitive damages. WPP Action, Doc. 17 (Order) & Doc. 6 (Notice of Motion). Salomone filed an answer and counterclaims in the WPP Action in August, 2006. Doc. 21. On February 2, 2010, decision was rendered in Mr. Salomone's favor on a motion for summary judgment on liability for his Termination Claim based upon WPP's breach of his employment agreement, i.e., failure to calculate OPAT. Doc. 22.
There was significant overlap between Salomone's personal counterclaims in the WPP Action and the counterclaims he made on behalf of the Stockholders/Sellers. There were seven counterclaims in all. The first counterclaim was Salomone's claim for wrongful termination of his employment (Termination Claim). Part of the Termination Claim was based upon incorrect calculation of the OPAT Shortfall. Movants contend that, over the objections of the other Stockholders, Salomone chose to litigate a second lawsuit by the Purchaser for a “Working Capital Shortfall,” under Article II of the APA, which required the Seller to pay the Purchaser if Working Capital was less than $1,250,000. Movants say that Salomone employed this strategy because the Working Capital Shortfall was based on the same accounting as the OPAT Shortfall and would have resulted in dismissal of the Termination Claim. Six of the seven counterclaims involved the same allegations as the Termination Claim, i.e., miscalculation of OPAT, interfering with Salomone's management of the business and not permitting Salomone to report to the CEO.3
More than seven years before this disqualification motion was filed, Movants noted their concern with Lebowitz' strategy in the WPP Action. On January 18, 2007, Movant Abramson's counsel, on behalf of Movants, wrote a letter (January 2007 Letter) stating that a substantial portion of WPP's main claims and Salomone's counterclaims were not covered by the IA and questioning his legal strategy. Doc. 33. Abramson's counsel wrote:
Id. The “CEO succession” Action underlay WPP's fraud and fraudulent inducement claims.
In May 2011, WPP brought a second lawsuit against Salomone seeking the Working Capital Shortfall adjustment under the APA (Working Capital Action,4 collectively with the WPP Action, the WPP Cases). Prior to its commencement, on October 5, 2010, Movant Abramson's counsel, on behalf of all of the defendants here except Amor, wrote a letter to Lebowitz complaining that Salomone had rejected a global settlement of the WPP Cases, objecting to Salomone's insistence on proceeding with the Termination Claim, and putting him on notice that the expense going forward was on his shoulders (October 2010 Letter). Doc. 26.
According to Mr. Lebowitz' affidavit filed in opposition to the motion, Salomone was forced, due to the expense of litigation, to stipulate to the entry of a judgment against him in the Working Capital Action.
The only way to dispute WPP's assertion that $851,455.00 was due from the selling stockholders was to institute a complex and expensive expert accounting procedure, set forth in the APA.
Thus, in July 2011, Salomone agreed to the entry of judgment against him for the amount sought in the Working Capital Action, approximately $8.5 million (Judgment). WPP agreed to delay...
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