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Fragoso v. Piao

United States District Court, D. New Jersey

October 9, 2019




         This matter comes before the Court upon Defendants Zhejun Piao ("Piao"), Miyeon Choi ("Choi"), and Massage 4 All N.J. 7, LLC's (the "business") (collectively, "Defendants") Motion to Disqualify Counsel (the "Motion"). (Mot., ECF No. 21.) Plaintiff Richard Fragoso ("Plaintiff) opposed (Pl.'s Opp'n, ECF No. 22), and Defendants did not reply. The Court considers the parties' contentions without oral argument, pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1(b). For the reasons set forth below, Defendants' Motion is granted, and attorney Matthew Jeon, Esq. ("Jeon") is disqualified as Plaintiff's counsel. (ECF No. 21.)

         I. BACKGROUND

         Plaintiff's Complaint alleges that in or around October 2017, Piao entered into an agreement with Plaintiff for the purchase of the entire membership of the business, a limited liability company. (Compl. ¶¶ 1, 7, ECF No. 1.) Later that year, in December 2017, membership of the business was transferred to Piao. (Id.) On January 5, 2018, "a certificate of amendment was filed with the New Jersey Division of Revenue changing the name of the registered agent and member of the Company from Fragoso to Piao." (Id. ¶ 8.) Pursuant to the Sayreville, New Jersey Code of Ordinances, Choi was prohibited from performing massage services, and Piao was prohibited from operating a massage business, without first obtaining proper business registration. (Id. ¶¶ 9-10.) Plaintiff alleges Piao never obtained this business registration. (Id. ¶ 11.) On March 8, 2018, employees of the business were arrested on prostitution-related charges. (Id. ¶ 12.) Plaintiff alleges that when they were arrested, "Defendants had not obtained their business registration, and in fact, still had Plaintiff's outdated information on the wall of the aforementioned premises." (Id. ¶ 13.) Plaintiff claims that he was subsequently investigated for, charged with, and "indicted on two counts of prostitution, one count of money laundering, and one count of operating a sexually oriented business within 1, 000 feet of a child care center." (Id. ¶ 15.) Additionally, Plaintiff claims that his "bank accounts, including but not limited to one in PNC bank which was formerly associated with the [business], were frozen and seized by the State of New Jersey." (Id. ¶ 17.) All criminal charges were dismissed against Plaintiff on January 11, 2019. (Id. ¶ 16.)

         This is a diversity action in which Plaintiff claims violations of the covenant of good faith and fair dealing (Count One); negligent infliction of emotional distress (Count Two); mdprima facie tort (Count Three). (See generally id.)


         Defendants argue that Plaintiff's counsel, Matthew Jeon, Esq., must be disqualified because "Jeon provided transactional legal services to Piao, Choi and the [b]usiness with respect to Piao's acquisition of the [b]usiness from Plaintiff, and that Jeon is now prosecuting a civil lawsuit against []Defendants on behalf of Plaintiff which arises out of the sale of the [b]usiness and Jeon's prior provision of legal services." (Defs.' Moving Br. 7, ECF No. 21-3.) Defendants contend that in accordance with the two-factor test set forth in New Jersey Rule of Professional Conduct[1] 1.9, the instant matter is "'substantially related' to the prior transactional work which attorney Jeon performed for the parties," and that "the interests of Jeon's present client and his former clients are 'materially adverse.'" (Id. (citing Rule 1.9(b)(1)).) Defendants also argue that Piao did not execute a valid and knowing waiver of Jeon's conflict of interest. (Id. Ex. A., ECF No. 23-2.) Defendants state "Piao is from South Korea and has difficulty with English, as attorney Jeon was and is fully aware while attorney Jeon is a fluent Korean speaker." (Id. at 9.) Defendants maintain that because the suit is in its early stages, prejudice to Plaintiff resulting from a requirement to secure new counsel will be minimal. (Id. at 8.) Finally, Defendants argue that Jeon should be disqualified because he will likely act as a necessary witness in the instant matter in contravention of Rule 3.7, as "Plaintiff contends that [] Defendants failed to undertake certain obligations in connection with the purchase and transfer of the [b]usiness from Plaintiff to [] Piao and that Plaintiff was therefore erroneously or wrongfully associated with and arrested as a result of Defendants' business activities." (Id. at 10.)

         While Plaintiff concedes that the parties are materially adverse in accordance with Rule 1.9(b)(1), Plaintiff argues that Defendants have failed to establish that these matters are substantially related under Rule 1.9(b)(2). (Pl.'s Opp'n Br. 4, ECF No. 22.) Plaintiff argues that Defendants have not met their burden to show that attorney Jeon provided legal counsel to Defendants in Defendants' acquisition of the business. (Id. at 5.) Plaintiff states, "Plaintiff's counsel's legal services were only involved in the consummation of the sale of the [b]usiness on behalf of [] Plaintiff and the follow-up work including the amendment of the certificate." (Id.) Plaintiff argues that attorney Jeon "did not obtain any information, whether confidential or not, whether it is pertaining to Defendants' illegal activities, that can be used against Defendants in his representation of Plaintiff for the lawsuit." (Id.) Plaintiff also relies upon Exhibit A, Piao's purported waiver appended to Plaintiff's Opposition, to establish Piao's knowing and voluntary waiver of Jeon's conflict in the instant matter. (Id. Ex. A, ECF No. 22-2.) Plaintiff avers "Piao was fully informed of a possible conflict of interest and recommended to retain his own attorney, which was spoken in Korean so that he could fully understand." (Pl.'s Opp'n Br 6.) Plaintiff emphasizes "[t]he waiver includes a no-contest clause based on Piao's inability to understand English, which was fully explained to him in [the] Korean language and translated into Korean in writing." (Id.) Finally, Defendants assert that the anticipated testimony by counsel relates to an uncontested issue and the nature and value of legal services rendered in the case, and Jeon is therefore not disqualified by Rule 3.7. (Id. at 7.)


         At the outset, it should be noted that "while efforts should be made to avoid inconsistent determinations under [New Jersey's Rules of Professional Conduct], and this Court may certainly look for guidance to the decisions of the New Jersey state courts, our Local Rules do not require that this Court be bound by those decisions." Carlyle Towers Condo. Ass 'n, Inc. v. Crossland Sav., FSB, 944 F.Supp. 341, 345 (D.N.J. 1996). Additionally, "[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." Id. (quoting Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F.Supp. 1121, 1124 (N.D. Ohio 1990)).

         "Although doubts are to be resolved in favor of disqualification, a party seeking to disqualify counsel carries a heavy burden and must satisfy a high standard of proof." Essex Chem. Corp. v. Hartford Ace. & Indent. Co., 993 F.Supp. 241, 246 (D.N.J. 1998) (citations omitted). "In the event a motion is brought to disqualify an attorney because of his or her alleged representation of conflicting interests in the same or substantially related matters, the former client should have the initial burden of proving that by application of [Rule] 1.9 it previously had been represented by the attorney whose disqualification is sought." City of Atlantic City v. Trupos, 992 A.2d 762, 462-63 (N.J. 2010) (quoting Dewey v. R.J. Reynolds Tobacco Co., 536 A.2d 243, 253 (N.J. 1988)). "If the burden of production or of going-forward is met, the burden shifts to the attorney (s) sought to be disqualified to demonstrate that the matter or matters in which he or they represented the former client are not the same or substantially related to the controversy in which the disqualification motion is brought." Id. at 463 (citing Avocent Redmond Corp. v. Rose Elecs., 491 F.Supp.2d 1000, 1007 (W.D. Wash. 2007)).

         Local Civil Rule 103.1 subjects "members of the bar admitted to practice in [federal] court" to "[t]he Rules of Professional Conduct of the American Bar Association as revised by the New Jersey Supreme Court... subject to such modifications as may be required or permitted by Federal statute, regulation, court rule or decision of law." L. Civ. R. 103.1(a). "Unlike the rules that govern concurrent conflicts of interest, see [Rule] 1.7(a) (prohibiting 'representation involving a concurrent conflict of interest' and defining term), a lawyer's duty to a former client is addressed by [Rule] 1.9." Trupos, 992 A.2d at 770-71. Rule 1.9, detailing duties to former clients, explains 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 unless the former client gives informed consent confirmed in writing." Rule 1.9(a).

         The New Jersey Supreme Court has interpreted the substantial relationship element outlined in Rule 1.9 as follows:

[F]or the purposes of [Rule] 1.9, matters are deemed to be "substantially related" if (1) the lawyer for whom disqualification is sought received confidential information from the former client that can be used against that client in the subsequent representation of parties adverse to the former client, or (2) facts relevant to the prior ...

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