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Residences at Bay Point Condominium Assoc., Inc. v. Chernoff Diamond & Co., LLC

United States District Court, D. New Jersey

August 17, 2017

THE RESIDENCES AT BAY POINT CONDOMINIUM ASSOC., INC., Plaintiff,
v.
CHERNOFF DIAMOND & CO., LLC, Defendants.

          OPINION

          HAMMER, UNITED STATES MAGISTRATE JUDGE

         This matter comes before the Court on the motion of Defendants, The Residences at Bay Point, LLC, Albert Dweck and David Schwartz, to disqualify Plaintiff's counsel, Louis J. Lamatina, Esq. See Mot. to Disqualify, D.E. 44. Defendant Chernoff Diamond & Co., LLC, joins in Defendants' motion. Plaintiff opposes the motion. D.E. 50. The Court held oral argument on May 5, 2017, and required the parties to submit supplemental briefing on the movants' arguments under New Jersey Rules of Professional Conduct 1.7(a)(2) and 1.8(i). The Court has considered the parties' submissions, the oral argument, and the law. For the reasons set forth herein, the Court will deny the motion.

         I. BACKGROUND

         This case stems from a flood insurance claim made by Plaintiff, The Residences at Bay Point Condominium Association (“the Association”) for flood damage occurring in the aftermath of Superstorm Sandy in October 2012. See Compl. ¶¶ 15 to 18, Ex. 1 to Not. of Removal, D.E. 1-1. The Association is a “New Jersey not-for-profit corporation…entrusted with the management of the premises known as The Residences at Bay Point (“The Residences”). Id. ¶ 8. The Residences is a forty-eight-unit, “residential condominium complex located at 320 Maryland Avenue, Point Pleasant Beach, New Jersey.” Id. Defendant, The Residences at Bay Point LLC, is the Sponsor of the condominium (“the Sponsor”), meaning that it is the entity which purchased the property and converted it to the condominium form of ownership. Compl. ¶ 10. Defendants Albert Dweck and David Schwartz are managing members of the Sponsor. Id. ¶ 7. The Residences at Bay Point, LLC, Dweck, and Schwartz shall be collectively known as “the Sponsor Defendants.” Dweck and Schwartz were also members of the Plaintiff's Board of Directors by virtue of the Sponsor's ownership of eighteen of the units, with Dweck serving as President of the Board at or around the time of Superstorm Sandy. Declaration of Albert Dweck (“Dweck Decl.”) ¶ 3, Jan. 13, 2017, D.E. 44-1.[1]

         The flood insurance policy in controversy was issued by third party Defendant, The Standard Fire Insurance Company d/b/a Travelers Indemnity and Affiliates (“Standard”). Compl. ¶ 1. Standard acts as an agent of the United States government and issues flood insurance policies administered by the Federal Emergency Management Agency (“FEMA”). Id. ¶ 13. Defendant Chernoff Diamond & Co. (“Chernoff”) is an insurance broker and was retained by Plaintiff for the purpose of procuring proper flood insurance coverage for Plaintiff's condominium complex. Id. ¶ 7. The Association's initial Policies with Standard were written on the National Flood Insurance Program (“NFIP”) General Property Form, which provides coverage on an actual cash value basis.[2] Chernoff Compl. ¶ 15, Exh. 3 to Not. of Removal, D.E. 1-3. In or around 2008, Chernoff became the broker of record in connection with the Policies, which were renewed without change. Id. ¶ 16. In 2009, after the Residences became a condominium, the Association requested that the Policies be amended to provide for reimbursement on a replacement cost basis, which Plaintiff alleges would have been the proper type of insurance for a condominium complex. Id. ¶ 17. Thereafter, Chernoff submitted an application to Standard for the policy to be written on the NFIP Residential Condominium Building Association Policy (“RCBAP”) form, which provides coverage on a replacement cost basis. Id. ¶ 18. Standard made the requested change. Id. ¶ 19.[3]

         Subsequently, the Association, through Dweck, informed Chernoff that it no longer wanted coverage using the RCBAP form. Id. ¶¶ 23-25. Chernoff informed Standard of the requested change, and Standard then re-wrote the coverage back to the General Property Form, meaning that the condominiums were again covered on an actual cash value basis, not on a replacement cash value basis. Id.

         It is undisputed that for all relevant time periods, Plaintiff complied with the terms of the General Property policies in place and paid all required premiums. Compl. ¶ 17, D.E. 1-1. However, after Plaintiff notified Standard regarding the extensive damage to the premises as a result of Superstorm Sandy, “Standard subsequently advised of its refusal to honor the policies as written and its unilateral decision to ‘reform' the policies from the General Property policies it sold to Plaintiff to Residential Condominium Building Association Policies…because General Property policies cannot be issued to residential condominiums.” Id. ¶ 19. Plaintiff alleges that although its damages totaled $602, 828.11, Standard paid only $221, 131.24. Id. ¶ 20. Plaintiff also alleges that Standard charged Plaintiff $361, 696.87 in “co-insurance penalties” for Plaintiff's failure to obtain the correct insurance, the RCBAP policy, for a condominium property. Id.

         Plaintiff filed a lawsuit against Standard in this Court on April 10, 2013 (“the 2013 action”). See The Residences at Bay Point Condominium Ass'n, Inc. v. Standard Fire Ins. Co. et. al., Civ. No. 13-2380. Mr. Lamatina represented Plaintiff.[4] In the 2013 action, Plaintiff alleged that Standard's “unilateral decision to ‘reform' the policies from the General Property Policies it sold to Plaintiff to Residential Condominium Building Association Policies” and the subsequent imposition of the co-insurance penalties constituted a breach of the insurance contract. See generally Complaint in 2013 Action, April 10, 2013 (“2013 Compl.”). Plaintiff also named Chernoff as a defendant in the 2013 case, alleging breach of contract and negligence for Chernoff's failure to “procure adequate and applicable flood insurance for the plaintiff.” Id.

         On January 14, 2014, Plaintiff amended its complaint in the 2013 Action to add the Sponsor Defendants, alleging claims of negligence and breach of fiduciary duty, among other things. See Sec. Am. Compl. in 2013 Action, Jan. 14, 2014. Plaintiff alleged that “[d]uring 2009-2010 and through March 2013, Dweck controlled the Association together with the other Sponsor appointed representative on the three (3) member Board, Schwartz.” Id. ¶ 76. Plaintiff claimed that the Sponsor defendants, in so controlling the Board, failed to procure the proper type of flood insurance. Id. ¶ 83. Plaintiff alleged that it was Dweck who specifically instructed Chernoff to re-write the policy back to the General Property policies, instead of maintaining the proper RCBAP policies. Id. ¶ 72.

         In August 2014, the Court dismissed all claims against Standard, ruling that the General Property policies that Standard had issued could not be honored as written because the premises had been converted to condominium form of ownership, that Standard correctly reformed the policies to Residential Condominium Building Association Policies, and that Standard properly applied the costly co-insurance penalties. See Wolfson Opin., Exh. U to Lamatina Decl., D.E. 51-3. The Court then declined to exercise supplemental jurisdiction over the remaining state law claims, including those made against Chernoff and the Sponsor Defendants, and dismissed the entire action on August 28, 2014. Id.

         On September 25, 2014, Plaintiff filed suit in Ocean County Superior Court, again asserting its state law claims against Chernoff and the Sponsor Defendants for their failure to procure the proper flood insurance for the premises. See generally Compl., D.E. 1-1. Plaintiff brought claims of breach of contract and negligence against Defendant Chernoff. Id. ¶¶ 26-34. As against the Sponsor Defendants, Plaintiff alleged negligence, breach of fiduciary duty, violation of the Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22A-37, and violation of the Consumer Fraud Act, N.J.S.A. 56:8-1. Id. ¶¶ 35-62. The Sponsor Defendants then asserted cross claims against co-Defendant Chernoff for indemnification, contribution, and negligence. See Cross-Claim, Exh. 2 to Not. of Removal, D.E. 1-2. On July 11, 2016, Chernoff filed a Third-Party Complaint against Standard for claims of contribution, and apportionment of liability as to FEMA. Chernoff Compl., D.E. 1-3. FEMA, as a federal agency, removed the case to this Court on August 23, 2016. Not. of Removal ¶ 4, D.E. 1.

         The Sponsor Defendants brought this motion to disqualify on January 13, 2017, more than three years after the Sponsor Defendants were made parties to this lawsuit, and even though Mr. Lamatina represented Plaintiff in the 2013 Action without objection and has represented Plaintiff in this action since its inception. D.E. 44. Chernoff has joined in the Sponsor Defendants' motion to disqualify, but does not assert any additional basis for disqualification than those already advanced by the Sponsor Defendants. D.E. 46.

         II. DISCUSSION

         The movants argue that the Court should disqualify Plaintiff's counsel, Louis Lamatina, Esq., for three reasons: (1) the existence of a prior attorney-client relationship between Lamatina and Defendant Dweck; (2) Lamatina has an improper proprietary interest in the current litigation, because he owns, through his family's company, ten of the condominium units at issue here; and (3) Lamatina's status as a necessary witness. See generally Mot. to Disqualify, D.E. 44. The movants' main argument in support of this motion is premised on the existence of a prior attorney-client relationship between Lamatina and Dweck, which the movants argue warrants disqualification under New Jersey Rule of Professional Conduct 1.9(a). See Br. in Supp. of Mot., D.E. 44-2.

         a. Disqualification Based on RPC 1.9

         Issues of professional ethics in the District Court of New Jersey are governed by L. Civ. R. 103.1(a). See Carlyle Towers Condo. Ass'n v. Crossland Sav., FSB, 944 F.Supp. 341, 344 (D.N.J. 1996). This Rule provides 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 the Rules of Professional Conduct.” See L.Civ. R. 103.1(a). “Thus, to resolve questions of professional ethics, this Court turns to New Jersey's Rules of Professional Conduct.” Carlyle Towers Condo., 944 F.Supp. at 345. In this case, the movants mainly rely on New Jersey RPC 1.9, which provides that a “lawyer who has represented a client in a matter shall not thereafter represent another client in the same or a substantially related matter in which that client's interests are materially adverse to the interests of the former client.”

         “In an application for attorney disqualification…the party who brings a disqualification motion, based on an attorney's successive representations, bears the burden of proving that disqualification is appropriate.” Ciba-Geigy Corp. v. Alza Corp., 795 F.Supp. 711, 714 (D.N.J. 1992). The burden in motions of this nature is considered especially heavy because, in this District, "[m]otions 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) (quoting Schiessle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983)).

         Such disfavor results from the unfortunate reality that motions to disqualify are sometimes made solely for “tactical reasons, ” and that even when they are made in good faith, motions to disqualify cause inevitable delay in the underlying proceedings and create added hardships to the opposing party. Carlyle Towers Condo., 944 F.Supp. at 345 (citing Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 218 (1988)); see also Cohen v. Oasin, 844 F.Supp. 1065, 1067 (E.D. Pa. 1994) (warning that the Rules of Professional Conduct are not indented to be used as a “procedural weapon.”) Therefore, Courts are required to balance "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, 717 F.2d at 420; see also In re Cedant Corp. Sec. Litig., 124 F.Supp.2d 235, 249 (D.N.J. 2000) (advising that a court considering a disqualification motion should “closely scrutinize the facts ... [and] balance the hardships to the client whose lawyer is sought to be disqualified against potential harm to the adversary should the attorney be permitted to proceed").

         In the case at bar, the movants allege that Dweck, while serving in his role as a member of the Association's Board of Directors, had an attorney client relationship with Lamatina in this litigation before Dweck, as an individual, was added as a Defendant in the 2013 Action. The movants assert that Lamatina's prior representation of Dweck in this matter runs afoul of New Jersey RPC 1.9(a), which states “[a] lawyer who has represented a client in a matter shall not thereafter represent another client in the same or substantially related mater in which that client's interests are materially averse to the interests of the former client.” In support of their motion, the movants rely heavily on Dweck's declaration. See generally Br. in Supp. of Mot. to Disqualify, D.E. 44-2.

         Dweck asserts that he first became acquainted with Lamatina in August 2012, at which time Lamatina, through his family's company, Bay Point Investments, LLC, purchased ten condominium units at the Residences. Dweck Decl. ¶ 2, D.E. 44-1. Dweck claims that after Superstorm Sandy hit, he and Lamatina “work[ed] together to have the damage adjusted and submit the claim and…worked together to pursue the initial lawsuit in federal court against the flood insurer.” Id. ¶ 4. Dweck alleges that “[t]his joint endeavor had the added aspect that Lou was an attorney and was providing whatever legal services and advice were relied upon.” Id. Dweck states that “[d]uring the entire time I was working with Lou on the flood insurance claim, my understanding was that Lou, as the attorney providing legal services to assist the pursuit of that claim, was representing…me and the Sponsor as owner of [a] major share of the units, and the Association and Residences as a whole.” Id.

         The Sponsor Defendants also assert that Lamatina and Dweck were working together as attorney and client when Lamatina asked Dweck to sign affidavits in support of the Association's opposition to Chernoff's efforts to dismiss the case at some point in the 2013 Action. Exhs. A & B to Dweck Decl., D.E. 44-1. Those affidavits provide very limited and general information about the condominiums, the insurance policies, and the damages suffered from Hurricane Sandy.[5] Id. The movants also point to multiple communications from Lamatina in which Lamatina identified himself as the attorney for the Board of Directors of the Association, of which Dweck was a member. See generally Reply Br. at 1-7, D.E. 62.

         Dweck also claims in his declaration in support of this motion that he conveyed important communications to Lamatina prior to this Dweck's inclusion in this litigation, which evidence the existence of an attorney client relationship. Dweck Decl. ¶¶ 4, 9-11 Dweck states that he “discussed with Lou my entire history of transactions with Chernoff concerning the purchase of property and flood insurance for the Residences over the years since Chernoff had taken over as the broker which I believe was in 2008…[and] it was my understanding that I was providing this information and having these discussions in the context of an attorney-client relationship.” Dweck Decl. ¶ 4. The movants claim that these communications were significant because the they believe that the information Dweck provided to Lamatina in relation to his history of transactions with Chernoff is “being used against them” in the present lawsuit, insofar as Lamatina, as counsel for the Association, is claiming that the Sponsor defendants controlled the Association's Board of Directors and “caused it to buy the wrong insurance.” Br. in Supp. of Mot. at 9-10, D.E. 44.

         Lamatina, relying heavily on his own declaration, disputes Dweck's characterization of their relationship. See generally Lamatina Decl., 50-1. Lamatina claims that from the inception of the first lawsuit filed against Standard and Chernoff in early 2013, it was “abundantly clear to Dweck, a sophisticated real estate investor, founder and CEO of his own firm that I represented the Association, and not him or his limited liability company.” Id. ¶ 4. Lamatina points to a resolution drafted by the Association's Board, and the subsequent Retainer agreement, both executed in early 2013, which identified Lamatina as counsel for the Association and its Board of Directors only. See Exh. K to Lamatina Decl., D.E. 51-2. (“Be it resolved that the Board of Directors of the Residences at Bay Point Condominium Association, Inc. has met on March 2013 and resolved to retain the Law Offices of Louis J. Lamatina as General Counsel to the Association and to represent the Board in litigation matters including the litigation against Standard”). Furthermore, Lamatina emphasizes that his interactions with Dweck were only in Dweck's “capacity as a member of the Board of Directors of the Association, ” rather than in Dweck's personal capacity. Id. ¶ 25.

         Lamatina also refutes the movants' contention that Lamatina used information disclosed by Dweck as the basis for the present lawsuit against the Sponsor Defendants. Lamatina alleges that he learned of the fact that Dweck directed Chernoff to purchase the wrong insurance by way of an affidavit submitted in the 2013 action by Chernoff's representative, rather than through any confidential communications occurring between Lamatina and Dweck. Lamatina Decl. ¶ 25.[6]

         Based on this information, the Court must determine whether a prior attorney-client relationship existed between Lamatina and Dweck in this litigation. If the answer to this threshold question is no, then the Court need not look any further in analyzing whether disqualification is warranted under NJRPC 1.9. See Host Marriott Corp. v. Fast Food Operators, 891 F.Supp. 1002, 1007 (D.N.J. 1995) (finding that disqualification under RPC 1.9 requires the existence of a prior attorney client relationship).

         An attorney-client relationship can be express or implied. Because the movants do not argue that there was an express attorney-client relationship between Dweck and Lamatina, the Court's analysis will focus on whether the movants can carry their burden of establishing the existence of an implied attorney-client relationship. “To establish an implied attorney-client relationship ‘a party must show (1) that it submitted confidential information to a lawyer, and (2) that it did so with the reasonable belief that the lawyer was acting as the party's attorney.'” Montgomery Academy v. Kohn, 50 F.Supp.2d 344, 350 (D.N.J. 1999) (quoting Pain Prevention Lab, Inc. v. Electronic Waveform Labs, Inc., 657 F.Supp. 1486, 1495 (N.D. Ill. 1987)).[7] To establish the existence of an implied relationship, the party seeking disqualification must show more than his or her subjective belief that the relationship existed. See Ellis v. Ethicon, Inc., Civ. No. 05-726, 2005 U.S. ...


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