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MONTGOMERY ACADEMY v. KOHN

December 30, 1999

MONTGOMERY ACADEMY, PLAINTIFF,
v.
CAROLYN KOHN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Lifland, District Judge.

  MEMORANDUM AND ORDER

Presently before the Court are plaintiff's appeal of Magistrate Judge Chesler's May 24, 1999 order disqualifying Diane K. Weeks, Esq., as counsel for plaintiff and plaintiff's motion to vacate the Magistrate Judge's order pursuant to Rule 60(b) of the Federal Rules of Civil Procedure and Local Civil Rule 83.3. For the reasons set forth herein, the decision of the Magistrate Judge will be affirmed and plaintiff's motion to vacate the order will be denied.

BACKGROUND

Magistrate Judge Chesler heard oral argument on the motion of defendant Carolyn Kohn ("Kohn") to disqualify Diane K. Weeks ("Weaks") as counsel for plaintiff Montgomery Academy ("the Academy" or "the school") on January 11, 1999 and held an evidentiary hearing on March 15, 1999.

Magistrate Judge Chesler found that on June 17, 1996 Weeks and Kohn agreed that Weeks would represent the school to negotiate its lease renewal, but there was no letter of retention or other written agreement to that effect. Weeks informed Kohn that the Academy's Board of Directors ("the Board") would have to vote to retain her on their behalf before she would be officially hired. On June 27, 1996, Kohn called Weeks to discuss her discovery that the school's pension plan money may have been lost in "Hemlock Investments," a "Ponzi Scheme." Kohn and Weeks spoke on June 28, 1996 and Kohn told Weeks what had transpired. They met two days later, on June 30, 1996, at Weeks' house. Kohn shared with Weeks what she had learned about the Hemlock Investments ("Hemlock") and they listened to an audio tape that Kohn had made of a Hemlock meeting on June 27, 1996. Kohn shared with Weeks her knowledge, feelings, concerns, and worries about the investment scheme.

The Magistrate Judge found that at this time and in the days to follow, Kohn reasonably considered Weeks to be her personal lawyer and thought that Weeks would protect her interests. They met several times and discussed the pension plan problem and discussed the possibility of Weeks representing both Kohn and the Academy. On July 8, 1996, the Board of the Academy met and considered hiring Weeks as counsel. Weeks was later hired and has since represented the Academy in this lawsuit against Kohn and others, which was filed in August 1998.

After hearing testimony regarding the June 30, 1996 meeting between Weeks and Kohn, Magistrate Judge Chesler found that an implied attorney-client relationship existed. The Magistrate Judge found that Kohn reasonably believed that Weeks would represent her or her and the Academy jointly, based on Kohn's view that her interests and the Academy's interests were aligned. Magistrate Judge Chesler also had "no doubt that confidential information was provided to Weeks by Kohn indicating that Kohn had potential liability for, at the least, nonfeasance for failing to exercise her fiduciary obligations." In support of that finding, the Magistrate Judge highlighted a "to do" list created by Weeks and Kohn during the June 30, 1996 meeting that referenced Kohn's personal investments, Kohn's personal insurance policy, and documents which related to Hemlock that Kohn and Weeks needed to review. Magistrate Judge Chesler found that the evidence "clearly shows that Kohn's personal concerns were, at a minimum, discussed and considered by Kohn and Weeks during the meeting."

Based on the testimony at the evidentiary hearing, the Magistrate Judge found that Weeks' claims that she told Kohn that she represented the Academy only and could not represent Kohn "ring hollow." The Court determined that Weeks needed Kohn's support to be hired by the Board and that Weeks could not have felt that she represented the Board prior to the July 8, 1996 Board meeting. The Court found that Weeks' own testimony that she told Kohn that she "might need separate counsel" or should retain "new" counsel indicated that an attorney-client relationship had indeed existed between Weeks and Kohn.

Magistrate Judge Chesler found that Weeks should have been aware that there was an inherent conflict between Kohn and the Academy such that she could not represent either of them. The Court concluded that Weeks "was not free, under the applicable ethics rules and decisions, to accept this [confidential] information, choose which client to represent, and then to utilize the information against one of the two prospective clients."

Based on the certifications submitted by the parties and the testimony at the evidentiary hearing, the Magistrate Judge found: (1) An implied attorney-client relationship existed between Weeks and Kohn between June 28, 1996 and July 8, 1996 before Weeks informed Kohn that she was representing the Academy only; (2) Kohn imparted confidential information to Weeks relating to the subject matter of this lawsuit during that relationship; and (3) Rules 1.7(a) and 1.9(a)(1) of the New Jersey Rules of Professional Conduct, as well as state and federal law regarding attorney ethics, precluded Weeks from representing the Academy in this action against Kohn. See Montgomery Academy v. Kohn, 50 F. Supp.2d 344 (D.N.J. 1999) (setting forth in full the Magistrate Judge's factual determinations and conclusions of law). The Academy made a motion for reargument of the disqualification decision, which was denied by Magistrate Judge Chealer on August 16, 1999.

Plaintiff now appeals the Magistrate Judge's decision to this Court and has also made a motion to vacate the Magistrate Judge's decision under Federal Rule of Civil Procedure ("FRCP") 60(b) and Local Civil Rule 83.3.

STANDARD OF REVIEW

A district court may reverse a Magistrate Judge's order only if it finds the ruling clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R.Civ.P. 72(a); L. Civ. R. 72.1(c)(1)(A). The district court is bound by the clearly erroneous rule as to findings of fact; the phrase "contrary to law" indicates plenary review as to matters of law. See Haines v. Liggett Group Inc., 975 F.2d 81, 91 (3d Cir. 1992). According to the Supreme Court, "a finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the ...


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