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CARLYLE TOWERS CONDO. ASS'N, INC. v. CROSSLAND SAV

June 26, 1996

CARLYLE TOWERS CONDOMINIUM ASSOCIATION, INC., et al., Plaintiffs,
v.
CROSSLAND SAVINGS, FSB, et. al., Defendants.



The opinion of the court was delivered by: CHESLER

 STANLEY R. CHESLER, U.S. Magistrate Judge

 I. Introduction.

 This matter comes before the Court on the motion of Defendants to disqualify Plaintiffs' counsel. This matter was referred to the undersigned by the Honorable Harold A. Ackerman, U.S.D.J. Oral argument was heard on June 24, 1996. For the reasons stated below, the motion is denied.

 II. Background.

 This matter arises from the construction and sale of condominium units at Carlyle Towers Condominium. Current counsel for Plaintiff Carlyle Towers Condominium Association, Inc. ("Association" or "Carlyle"), is Greenbaum, Rowe, Smith, Ravin, Davis & Himmel ("Greenbaum Rowe"). This firm was approached in 1992 to represent an ad hoc group of the Carlyle Towers Condominium owners. Subsequently, the Association also retained Greenbaum Rowe.

 Defendants claim that Greenbaum Rowe should be disqualified from representing the Association in this matter because of a perceived conflict with another client of Greenbaum Rowe. This other representation began in 1985, when Greenbaum Rowe was retained by Coronet Properties Company, L. P. ("Coronet"), regarding the conversion of apartments at Woodcliff Gardens to co-ops. Coronet's interests in these apartments were subsequently assigned to Woodman 8300 Corp. ("Woodman"), then a subsidiary of Manhattan Savings Bank ("Manhattan Savings"). In 1991, Greenbaum Rowe was specifically retained to continue to perform transactional work for both Woodman and Manhattan Savings regarding the Woodcliff Gardens apartments. The majority of the work involved preparing and filing Public Offering Statements ("POS's") and amendments to such statements.

 Through a complex series of mergers and acquisitions over the years, both Woodman and Manhattan Savings have now become corporately related to CrossLand Federal Savings Bank ("CrossLand"), a defendant in the matter before this Court. Defendants allege that Greenbaum Rowe is prohibited under RPC 1.7 from suing CrossLand while representing its corporate relation, Woodman, and must, thus, be disqualified from representing Plaintiffs here. Defendants further allege that even if Woodman and Manhattan Savings are found to be former clients, Greenbaum Rowe is still disqualified under RPC 1.9, because of the substantial relationship between the Woodman condominium conversion matter and the matter now before this Court. The specific facts leading up to the current corporate relationships between the parties are as follows:

 When Coronet assigned its interests in the Woodcliff Gardens apartments to Woodman in 1990, Woodman was, as noted above, a subsidiary of Manhattan Savings which was, in turn, a wholly owned subsidiary of Republic New York Corp. ("Republic Holding"), a bank holding company *fn1" that was also the sole owner of Republic National Bank of New York ("Republic National"). Manhattan Savings changed its name to Republic Bank for Savings ("Republic Savings") in 1993. Greenbaum Rowe thus represented both Woodman and Manhattan Savings, turned Republic Savings, regarding the Woodcliff Gardens apartments in transactional matters dealing with converting the apartments to co-ops and with selling those units. This was the state of affairs when Greenbaum Rowe filed suit for Carlyle, its client in this action, against the defendants, including CrossLand, in 1995. No conflicts of interests were present at that time.

 The relationships can be diagramed as follows: acquired Republic Holding Brooklyn Bancorp Republic merged into CrossLand National Federal Woodman

 Thus, Greenbaum Rowe was, indeed, in the unenviable position of representing Woodman, a subsidiary of Republic National regarding one transactional matter, and of suing Republic National, standing in the shoes of CrossLand Federal, in this lawsuit.

 On April 16, 1996, Gerald A. Liloia, attorney for Defendant CrossLand/Republic National, wrote a letter to Dennis A. Estis, attorney for Plaintiff at Greenbaum Rowe, indicating that because of Republic National's acquisition of CrossLand, and Greenbaum Rowe's concurrent representation of Woodman, "it appears that RPC 1.7 precludes [Greenbaum Rowe] from acting in a manner adverse to Republic." (Letter from Liloia to Estis of April 16, 1996 at 2, attached to Certification of Gerald Liloia [hereinafter Liloia Cert.] as Ex. A.) Furthermore, Mr. Liloia demanded that Greenbaum Rowe "cease activities that are adverse to [Republic], including withdrawal from representing the plaintiffs in the Carlyle Towers matter." (Id.)

 Greenbaum Rowe handled this conflict by letter dated May 17, 1996, in which Mr. Kerry Brian Flowers of Greenbaum Rowe indicated to Mr. John S. Pancetti, Jr. of Woodman 8300 Corp, that "inasmuch as Republic has made it clear, through its counsel, that it deems a conflict to exist by virtue of the Bank's recent acquisition of Crossland Federal, our firm is obligated to advise you that we can no longer represent the interests of Woodman 8300 Corp. We ask that you arrange for alternative counsel to handle any matters involving Woodman 8300 Corp. in the future." (Letter from Flowers to Pancetti of May 17, 1996 at 1, attached to Certification of Kerry Brian Flowers [hereinafter "Flowers Cert."] as Ex. A, [hereinafter "Flowers Ltr."].) Greenbaum Rowe asserts that from the sending of this letter, Woodman was no longer its client. (Pl. Br. at 9.)

 On May 24, 1996, Defendant CrossLand filed this motion requesting Greenbaum Rowe's disqualification as Plaintiffs' counsel.

 III. Discussion.

 The Local Rules for the District of New Jersey provide that

 
the Rules of Professional Conduct of the American Bar Association as revised by the New Jersey Supreme Court shall govern the conduct of the members of the bar admitted to practice in this Court, subject to such modifications as may be required or permitted by federal statute, regulation, court rule or decision of law.

 This motion to disqualify Plaintiffs' counsel must be carefully scrutinized because "motions to disqualify are viewed with 'disfavor' and disqualification is considered a 'drastic measure which courts should hesitate to impose except when absolutely necessary." Alexander v. Primerica Holdings, Inc., 822 F. Supp. 1099, 1114 (D.N.J. 1993)(citing Schiessle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983)). "Disqualification motions are often made for tactical reasons, but . . . 'even when made in the best of faith, such [disqualification] motions inevitably cause delay' in the underlying proceedings." Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 218, 536 A.2d 243, 252 (1988). Therefore, close judicial scrutiny of the facts of each case is "required to prevent unjust results." Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126 (N.D. Ohio 1990). Accord, Reardon v. Marlayne. Inc., 83 N.J. 460, 469, 416 A.2d 852, 857 (1980)(indicating that when dealing with ethical problems, "the conclusion in a particular case can be reached only after 'painstaking analysis of the facts and precise application of precedent.'") "Disqualification questions are intensely fact-specific, and it is essential to approach such problems with a keen sense of practicality as well as a precise picture of the underlying facts." Gould, 738 F. Supp. at 1124 (citing Huntington v. Great Western Resources, Inc., 655 F. Supp. 565, 567 (S.D.N.Y. 1987)).

 Furthermore, these situations do not arise in a vacuum. "The ethical rules should not be blindly applied without consideration of relative hardships." Id. When considering motions to disqualify, there will most likely be hardships for one client if their attorney is disqualified, as well as possible hardships for the other if their attorney is allowed to proceed against them. Thus, a delicate balance must be maintained between "the sacrosanct privacy of the attorney-client relationship (and the professional integrity implicated by that relationship) and the prerogative of a party to proceed with counsel of its choice." Schiessle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983). Besides weighing these factors, the court must also consider "the court's obligation to maintain high professional standards and to ensure that the trial of the claims in the case will be free from taint." Huntington v. Great Western Resources, Inc., 655 F. Supp. 565, 567 (S.D.N.Y. 1987). See also, Steel v. General Motors Corp., 912 F. Supp. 724, 733 (D.N.J. 1995)("Resolution of a motion to disqualify requires the court to balance 'the need to maintain the highest standards of the [legal] profession' against 'a client's right to freely choose his counsel.'").

 When pondering the proper outcome for a specific case, "courts must exercise extreme caution not to act under the misguided belief that disqualification raises the standard of legal ethics and the public's respect; the opposite effect is just as likely--encouragement of vexatious tactics, which increase public cynicism about the administration of justice." Gould, 738 F. Supp. at 1126.

 "Although doubts are to be resolved in favor of disqualification, the party seeking disqualification must carry a 'heavy burden' and must meet a 'high standard of proof' before a lawyer is disqualified." Alexander, 822 F. Supp. at 1114.

 Application of RPC 1.7

 Defendant claims that "Greenbaum Rowe should be disqualified under RPC 1.7 because its representation of plaintiffs is directly adverse to a current client and creates an impermissible appearance of impropriety." (Mem. of Law in Supp. of Mot. to Disqualify Pl. Counsel [hereinafter D. Mem.] at 6.) New Jersey's rule regarding conflicts between current clients states that

 
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client unless:
 
(1) the lawyer reasonably believes that representation will not adversely affect the relationship with the other client; and
 
(2) each client consents after a full disclosure of the circumstances and consultation ...

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