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Lyon v. Goldstein

September 29, 2006

LOIS D. LYON, ET AL., PLAINTIFFS,
v.
ALLAN M. GOLDSTEIN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hughes, U.S.M.J.

MEMORANDUM OPINION

This matter is before the Court upon the Motion of Plaintiffs AMG Industries Corporation, AMG Holding Corporation and Allan M. Goldstein ("AMG/Goldstein"), to Disqualify Counsel to Rexford R. Lyon ("Rex Lyon"), pursuant to the Rules of Professional Conduct ("R.P.C"). Rex Lyon opposes the Motion. The litigation consists of two consolidated cases. In the first case, Plaintiff Lois D. Lyon ("Lois Lyon") filed suit against Mr. Allan M. Goldstein on March 2, 2004 in New Jersey State Court. Mr. Goldstein removed the action to this Court on July 22, 2004. In the second action, Consolidated Plaintiffs AMG Industries Corporation and AMG Holding Corporation (collectively "AMG") brought suit against Rex Lyon in February 2005 in the Western District of Pennsylvania. In its amended complaint there, Mr. Goldstein was added as a Plaintiff in AMG's action against Rex Lyon. This action was transferred to this Court in November 2005. AMG/Goldstein now seek to disqualify Rex Lyon's counsel, Carl Hanzelik, Esquire, and the law firm Dilworth Paxson. The Court reviewed the written submissions of the parties and conducted oral argument on September 26, 2006. For the reasons that follow, AMG/Goldstein's Motion to Disqualify is denied.

I. BACKGROUND AND PROCEDURAL HISTORY

A. Prior Litigation

Lois D. Lyon ("Lois Lyon") and Allan M. Goldstein ("Mr. Goldstein") practiced law together and engaged in a number of joint business ventures. (See dkt. no. 04-3458, Am. Compl. at 1). In late 1987, Mrs. Lyon and Mr. Goldstein agreed to purchase the detinning operations of Vulcan, a New Jersey Corporation. (Pls.' Corrected Mem. at 2). To accomplish the purchase, Lois Lyon and Mr. Goldstein became officers of Tinplate Scrap, a company through which Lois Lyon and Mr. Goldstein signed an Asset Purchase and Sale Agreement to acquire Vulcan's United States assets. Id. Lois. Lyon invested $300,000 in the detinning business between November 1987 and February 1988. Id.

In March 1988, AMG Industries Ltd. was created to acquire shares of stock in Vulcan's United Kingdom subsidiary, while at the same time, AMG Resources Corporation ("AMG Resources") was incorporated as a subsidiary of AMG Industries Ltd. to acquire the United States assets of Vulcan. Id. In return for her investment, Mr. Goldstein and Lois Lyon signed a Warrant Agreement in 1988 which entitled Lois Lyon to exercise rights for shares in AMG Industries Ltd. at a nominal price for ten years. Id. at 2-3. Rex Lyon, who is Lois Lyon's husband and an attorney, prepared the Warrant Agreement and further served as counsel in the Vulcan transaction and in the formation of AMG Industries Corporation. Id. at 3.

On February 2, 1990, Vulcan filed a lawsuit in state court in Alabama against Tinplate and AMG Resources, claiming in its amended complaint that Tinplate was not a valid and existing corporation at the time of the Asset Purchase and Sale Agreement. (Consol. Pls.' Ex. 3 at ¶¶ 19-20). Vulcan named Mr. Goldstein and Lois Lyon as defendants claiming they were liable as general partners of Tinplate. (Pls.' Corrected Mem. at 3). Ten days later on February 12, 1990, AMG Resources sought a declaratory judgment in the United States District Court for the Western District of Pennsylvania against Vulcan requiring Vulcan to comply with certain environmental obligations. (See Rooney Certif. at ¶ 3, Ex. 2).

Attorney Carl Hanzelik, with the firm Dilworth Paxson, served as counsel of record for AMG Resources in the Pennsylvania case. (Pls.' Corrected Mem. at 3). Mr. Hanzelik was not counsel of record in the Alabama action. Id. at 4. Mr. Goldstein certifies that "Mr. Hanzelik and Dilworth Paxson were . . . counsel to me personally in the Alabama litigation." (Goldstein Certif. at ¶ 2). Specifically, Mr. Goldstein states that "neither Rexford nor Lois Lyon participated in dozens of additional calls between me and Mr. Hanzelik or his associate, in which we discussed relevant factual information as well as strategy with respect to the litigation." Id. at ¶ 3. Rex Lyon certifies that "[i]n addition to frequently discussing with Mr. Goldstein what Mr. Hanzelik's views, opinions or suggestions were as to both cases, I sometimes had telephone conference calls with Mr. Goldstein and Mr. Hanzelik, with others sometimes participating." (R. Lyon Certif. at ¶ 5). In May 1990, both Vulcan cases were settled by the parties. (Pls.' Corrected Mem. at 3).

B. Present Litigation

1. Lyon v. Goldstein

On March 2, 2004, Lois Lyon commenced an action in New Jersey state court against Mr. Goldstein in connection with her detinning investments. (Pls.' Corrected Mem. at 5). The defendants removed the action to this Court on July 22, 2004. (See dkt. no. 04-3458, Notice of Removal). In her amended complaint, Lois Lyon alleged in part that Mr. Goldstein was her partner in the investment and that he breached his duty of loyalty created by the alleged partnership. Id. Specifically, Lois Lyon's amended complaint asserts claims for (1) breach of partnership law, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, (4) constructive trust, (5) conversion, (6) negligent misrepresentation and fraud, and (7) violation of public policy. (See dkt. no. 04-3458, entry no. 14).

2. AMG Industries Corp., et al. v. Lyon

Rex Lyon was corporate counsel to AMG and Mr. Goldstein from 1988 through 1998. (Dkt. no. 05-5555, Am. Compl. at 2; Answer at 1). Rex Lyon was also a director on AMG's board of directors. AMG asserts that Rex Lyon served in this capacity from 1988 until July 2004. (Dkt. no. 05-5555, 2d Am. Compl. at 2). In February 2005, AMG brought suit in the Western District of Pennsylvania against Rex Lyon alleging in part that he breached his fiduciary duties by failing to disclose to AMG his wife's motivations for filing suit against Mr. Goldstein and that she had in fact filed suit. (See 2d Am. Compl.). AMG alleges that Rex Lyon should have informed it that Lois Lyon (1) believed that AMG breached the Warrant Agreement, and (2) intended to bring suit against AMG. Id. at ¶ 1.

Rex Lyon's motion to transfer the action from the Western District of Pennsylvania to federal court was made in July 2005 and granted in November 2005. The two cases were consolidated on December 2, 2005. (Dkt. no. 04-3458, entry no. 30). On May 1, 2006, this Court granted a Motion from AMG for leave to file an amended complaint. (See dkt. no. 04-3458, entry no. 54). The second amended complaint filed by AMG appears to delete (1) all references to Rex Lyon as corporate counsel, and (2) the count against Rex Lyon for breach of duty as legal counsel. (See dkt. no. 04-3458, entry no. 55). Rex Lyon appealed this Court's decision on May 15, 2006, arguing that "Plaintiff's only motivation for seeking leave to amend is to increase the cost of litigation to Defendant's detriment." (See dkt. no. 04-3458, entry no. 57). On August 15, 2006, the United States ...


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