St. Barnabas Hosp. v. New York City Health and Hospitals Corporation

• Decision Date: 08 April 2004
• Docket Number: 1378N.
• Citation: 7 A.D.3d 83,775 N.Y.S.2d 9,2004 NY Slip Op 02672
• Parties: ST. BARNABAS HOSPITAL, Respondent, v. NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, Appellant.
• Court: New York Supreme Court — Appellate Division

7 A.D.3d 83

775 N.Y.S.2d 9

2004 NY Slip Op 02672

ST. BARNABAS HOSPITAL, Respondent, v. NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, Appellant.

1378N.

Appellate Division of the Supreme Court of the State of New York, First Department.

April 8, 2004.

APPEAL from an order of the Supreme Court, Bronx County (Albert J. Emanuelli, J.), entered December 24, 2002. The order granted plaintiff's motion to disqualify the law firm representing defendant in this action from continuing its representation.

Katten Muchin Zavis Rosenman (Peter F. Nadel, Joseph Zuckerman and Diane da Cunha of counsel), for appellant.

Garfunkel Wild & Travis, P.C. (Michael J. Keane and Elizabeth A. Dore of counsel), for respondent.

OPINION OF THE COURT

FRIEDMAN, J.

The issue presented by this appeal is whether Supreme Court properly granted the motion by plaintiff St. Barnabas Hospital (St. Barnabas) to disqualify the law firm of Katten Muchin Zavis Rosenman (hereinafter, the Rosenman firm) as counsel to defendant New York City Health and Hospitals Corporation (HHC) in this action. The action concerns St. Barnabas's former affiliation with Lincoln Hospital, an HHC institution in the Bronx. The IAS court disqualified the Rosenman firm on the ground that, about a year before this action was commenced, the firm briefly represented St. Barnabas in a dispute with a billing vendor, Shared Medical Systems (SMS).

We conclude that the motion — which was not made until a year after the Rosenman firm first appeared for HHC in this action — should have been denied on the ground that St. Barnabas has waived the firm's alleged conflict of interest. Such waiver arises, not only from the unexplained delay in making the motion, but, more fundamentally, from St. Barnabas's express written consent to the firm's continuing adverse representation of HHC in matters concerning Lincoln Hospital — the very matters that are at issue in this lawsuit. St. Barnabas's consent to such adverse representation was given to the Rosenman firm two full years before the inception of the firm's brief representation of St. Barnabas in the SMS matter, from which the firm's conflict of interest in this action is said to arise. In view of these undisputed facts, the Rosenman firm's representation of HHC in this action cannot be said to create any appearance of impropriety. To fail to give effect to St. Barnabas's consent under these circumstances would constitute an unwarranted interference with a client's right to retain counsel of its choice, and with a law firm's ability to retain a longstanding client. Accordingly, we reverse the order of the IAS court, and deny the motion to disqualify the Rosenman firm.

Factual Background

Lincoln Hospital, as a unit of HHC, does not directly employ the physicians and other health care professionals who serve its patients. Such professionals are provided by an "affiliate" institution selected by HHC. In December 1996, HHC selected St. Barnabas to serve as Lincoln Hospital's affiliate for the period from July 1997 to June 2000.

The relationship between HHC and St. Barnabas with regard to Lincoln Hospital did not go smoothly. Although the affiliation became effective in July 1997, HHC and St. Barnabas apparently were never able to agree on all of the terms of the relationship. From April 1997 through September 1999, and then again from December 1999 to April 2001, the parties engaged in negotiations regarding the terms of the affiliation. The lengthy negotiations produced a September 1999 settlement agreement, and a May 2000 addendum to that agreement, but no final resolution of the parties' disputes. In all such negotiations, HHC was represented by the Rosenman firm, which has been HHC's outside counsel since 1976, and St. Barnabas was represented by Garfunkel Wild & Travis, P.C. (the Garfunkel firm), the same firm that represents St. Barnabas in this action.

HHC and St. Barnabas now characterize their negotiations concerning Lincoln Hospital differently. HHC describes the negotiations as contentious and, at times, even hostile. In contrast, St. Barnabas describes the negotiations as having been "amicable" up to the point this action was commenced. What cannot be disputed is that the negotiations, in which each party was advised by its own counsel, were adversarial and concerned matters of substantial disagreement between the parties, including the disputes at issue in the present lawsuit.

In March 1998 — while the Rosenman firm was representing HHC in the Lincoln Hospital negotiations with St. Barnabas — St. Barnabas retained the Rosenman firm to represent it in certain employment litigation matters (hereinafter, the employment matters). The terms of this retention were set forth in a letter agreement between St. Barnabas and the Rosenman firm, dated March 4, 1998. As here relevant, the retention letter provides:

"As you [St. Barnabas] know, we [the Rosenman firm] have represented [HHC] in connection with the Affiliation Agreement with St. Barnabas for the provision of health care services at the Institutions as therein defined [apparently referring to Rikers Island and Manhattan Detention Center], and will continue to do so with respect to any issue that may hereafter arise under that Agreement. We are also representing [HHC] in connection with the current negotiations of a new Affiliation Agreement with St. Barnabas for health care services at Lincoln [Hospital]. Although we do not believe that any actual conflict of interest is presented by our present and future representation of [HHC] and our proposed retention by St. Barnabas with respect to employment matters, we request that you hereby consent to our representation of [HHC]. Should we determine that an actual conflict of interest has arisen, we reserve the right to discontinue our representation of St. Barnabas, as to the particular matter in issue or generally, and to continue to represent [HHC]" (emphasis added).

From the execution of the March 1998 retention letter until June 2002, the Rosenman firm represented St. Barnabas in 12 different employment matters. It appears from the record that these matters chiefly concerned discrimination, harassment and retaliation claims asserted against St. Barnabas by former employees. It is undisputed that none of these employment matters was substantially related to the disputes between HHC and St. Barnabas concerning Lincoln Hospital.

From March to May of 2000, while the Rosenman firm was still representing HHC against St. Barnabas in the Lincoln Hospital negotiations, the Rosenman firm represented St. Barnabas in a dispute with SMS, the aforementioned billing vendor.¹ St. Barnabas had retained SMS to bill for the services St. Barnabas physicians rendered at Lincoln Hospital. SMS complained that St. Barnabas was not paying SMS's invoices, while St. Barnabas claimed that SMS's collection efforts were deficient. In response to St. Barnabas's complaints about its collection efforts, SMS asserted that its collection difficulties were caused, in part, by HHC's alleged failure to provide SMS with full and accurate patient identification data. The provision of such data to the billing vendor was HHC's responsibility under the terms of St. Barnabas's affiliation with Lincoln Hospital.

It is undisputed that the vast majority of the Rosenman firm's three-month representation of St. Barnabas in the SMS matter was conducted by two former Rosenman attorneys, namely, David Ross, Esq. (then a Rosenman partner) and Alan Scheiner, Esq. (then a Rosenman associate). According to Ross, when he first met with St. Barnabas officials to discuss the SMS matter, he told them that the Rosenman firm had "represented [HHC] for a long time, that Lincoln was one of its hospitals, and that [he], Mr. Scheiner and the [Rosenman f]irm could not be involved in any matter that was adverse to HHC or Lincoln." Ross states that St. Barnabas's then-president, who was present at the meeting, responded that "he and his colleagues were well aware of the fact that the [Rosenman] firm represented HHC and he knew [that the Rosenman firm] could not be involved in anything adverse to HHC." St. Barnabas has not submitted any affidavit denying that this exchange took place.

In May 2000, SMS commenced a breach-of-contract action against St. Barnabas in federal court. At that point, the Rosenman firm withdrew from representing St. Barnabas in the SMS matter. As explained by Ross, the reason for the Rosenman firm's withdrawal was that St. Barnabas needed to consider joining HHC in the SMS action in order to litigate SMS's contention that HHC was not providing full and accurate patient data. Accordingly, St. Barnabas was defended in the SMS action by the Garfunkel firm, which, again, is the same law firm that had represented St. Barnabas in the Lincoln Hospital negotiations, and that now represents St. Barnabas in this action.²

After the Rosenman firm's withdrawal from its representation of St. Barnabas in the SMS matter, Ross and Scheiner, the two attorneys who had been principally responsible for that representation, left the firm. Ross left the firm at the end of August 2000, months before the commencement of the instant action, and Scheiner left the firm in the spring of 2001, either just before or just after this action was commenced.

On or about May 1, 2001, St. Barnabas, represented by the aforementioned Garfunkel firm, commenced this action against HHC by filing the summons and verified complaint with the Supreme Court, Bronx County. The complaint asserts, among other claims, that HHC breached its obligation to provide St. Barnabas with identification data for Lincoln Hospital patients that would enable St. Barnabas to bill successfully for the services of its physicians. The Rosenman firm appeared for HHC, and filed an answer, dated June 28, 2001, which, inter alia, asserts counterclaims for various alleged breaches by St. Barnabas of the September 1999 settlement...