Finkelman v Greenbaum (2007 NY Slip Op 50063(U))

Finkelman v Greenbaum

2007 NY Slip Op 50063(U) [14 Misc 3d 1217(A)]

Decided on January 10, 2007

Supreme Court, Nassau County

Austin, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and will not be published in the printed Official Reports.

Plaintiff Perry Finkelman ("Finkelman") moves to disqualify Doyle and Broumand, LLP ("Doyle Firm") as attorneys for the Defendants. Defendants Harry J. Greenbaum ("Greenbaum") and Greenbaum Family Holdings, L.P. ("Family Holdings") cross-move to dismiss the amended complaint, to compel the Court to report the actions of Finkelman's attorneys to the Disciplinary Committee and to strike scandalous material from the amended complaint.

Finkelman, Howard Klaus ("Klaus") and Harry Kotowitz ("Kotowitz") were partners in the Kay Organization. The Kay Organization is a real estate business that acquired, developed, constructed, managed and sold real estate.

Greenbaum was an attorney. By order of the Appellate Division, First Department dated July 13, 1995, Greenbaum was suspended from practice for a period of two years subject to further order of the court. Matter of Greenbaum, 212 AD2d 143 (1st Dept. 1995).^[FN1] [*2]

In 1997, Greenbaum made application for reinstatement to the bar. His application was referred to the First Department's Disciplinary Committee to determine by clear and convincing evidence if he had complied with the terms of the suspension and possessed the character and fitness to resume the practice of law. In re Greenbaum, 244 AD2d 207 (1st Dept. 1997). In 1998, Greenbaum moved to withdraw his application for reinstatement. The application was granted. He was deemed ineligible for reinstatement of two years. Matter of Greenbaum, 254 AD2d 60 (1st Dept. 1998). The application to confirm the Hearing Panel's report was dismissed as academic. Id. Greenbaum has not reapplied for reinstatement and remains suspended from the practice of law.

Finkelman alleges that even after his suspension from the Bar Greenbaum provided legal advice and represented the Kay Organization and him. Finkelman alleges Greenbaum prepared agreements, negotiated loan documents, handled refinancing and managed litigation involving the properties owned by The Kay Organization. Finkelman further alleges that even after Greenbaum's suspension, he continued to provide legal services in connection with properties owned by the Kay Organization in that he prepared partnership agreements and amendments to partnership agreements, prepared sales and loan documents and attended closing involving the refinance of Kay Organization properties.

According to Plaintiff, after Greenbaum's suspension, he continued to "represent" the Kay Organization in litigation. Finkelman alleges that although the Kay Organization was represented by outside counsel, Greenbaum prepared the documents and directed the litigation. Outside counsel simply signed or placed their name on the papers Greenbaum prepared or followed the directions given to them by Greenbaum regarding the litigation.

Finkelman alleges that the Kay Organization has paid and continues to pay Greenbaum for legal services, even though he is suspended from the practice. Finkelman points to the fact that Greenbaum has never been an employee of the Kay Organization. He is paid "non-employee" compensation for which he receives a "1099." Finkelman also points to disbursements made to Greenbaum

In 2001, Klaus and Kotowitz decided to reduce or eliminate Finkelman's interest in the Kay Organization and the properties that it owned. Finkelman claims that Klaus and Kotowitz initially represented they only wanted to reduce his share of the distributions from certain properties. When Finkelman refused, Klaus and Kotowitz threatened to dissolve the partnerships.

Finkelman alleges that Klaus and Kotowitz had Greenbaum speak to Finkelman to counsel him to give up his interest in the partnerships in exchange for preserving the

partnerships. Finkelman claims that Greenbaum indicated he would be investing substantial sums in these partnerships.

To effectuate this scheme, Klaus, Kotowitz and Finkelman entered into an agreement dated October 4, 2001 ("Disparity Agreement"). Klaus, Kotowitz, Finkelman and Greenbaum were parties to the Disparity Agreement. The Disparity Agreement relates to six properties; to wit: 47 Thames Realty, LLC, Kay 321 Washington Properties LLC, Kay Bridge Properties LLC, Kay Water Properties, LLC, Kay Broadway Realty Associates LLC and 376 East 94th Realty Associates, LLC.

The Disparity Agreement provided:1. If Finkelman's capital contribution to the properties exceeded his pro rata membership interest, the excess amount would be refunded to [*3]him no later that 18 months from the date of the agreement;

2. If the properties were sold or refinanced within 18 months of the date of the agreement, Finkelman would be paid his share from the net proceeds of sale or refinance before any distributions were made to any of the other parties to the agreement;

3. In the event that Finkelman had not been paid in full as of March 1, 2003, all sums then due and owing would accrue interest at the rate of 10 ½ % per year:

4. In the event the agreement relating to 376 East 94th Realty Associates, LLC was not subject to Internal Revenue Code §1031 tax free exchange treatment, the other members of the company would indemnify Finkelman for any capital gains tax owed by Finkelman as a result of the disallowance.

Finkelman claims that Greenbaum prepared the Disparity Agreement as part of the Klaus and Kotowitz scheme to drive Finkelman out of the Kay Organization. When Greenbaum induced Finkelman to enter into the Disparity Agreement, Greenbaum knew that Klaus and Kotowitz had no intention of continuing the partnership. Furthermore, Greenbaum knew that he would never be required to make a capital contribution to acquire an interest in the properties that were the subject of the Disparity Agreement.Finkelman has commenced an action that is presently pending before this Court against Klaus, Kotowitz and several Kay Organization partnerships and limited liability

companies ("Finkelman v. Klaus")^[FN2] involving some of the same issues as are raised in this action relating to the Disparity Agreement.

Defendants move, prior to joinder of issue, to dismiss each and every cause of action alleged in the amended complaint. Despite this, Defendants fail to indicate in their notice of motion under which provisions of CPLR 3211(a) they are proceeding as a basis for dismissal and which specific causes of action are facially defective or otherwise dismissible as a matter of law. The papers submitted in support of the motion do not specifically place before the Court any reasons why the first, third and fifth causes of action should be dismissed. Despite this, the Court will address each cause of action separately.

The first cause of action alleges a breach of the Disparity Agreement by Greenbaum. The Disparity Agreement provided that, should any of the properties be sold, Finkelman would receive a return of his capital contribution before any other parties would receive a distribution.

The complaint alleges Greenbaum received significant distributions on the Disparity Properties before Finkelman was paid the money due to him.

The party pleading a cause of action for breach of contract must allege the existence of a contract between the parties, consideration, performance by the plaintiff, breach by the defendant and damages resulting from the breach. Furia v. Furia, 116 AD2d 694 (2nd Dept. 1986).

When deciding a motion to dismiss, the court must accept as true all of the facts plead in [*4]the complaint. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); and Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409 (2001). The complaint must be liberally construed and the plaintiff must be given the benefit of every favorable inference which can be drawn from the complaint. Leon v. Martinez, 84 NY2d 83 (1994); and Paterno v. CYC, LLC, 8 AD3d 544 (2nd Dept. 2004).

The first cause of action states a cause of action for breach of contract. The complaint alleges distributions were made to Greenbaum before Finkelman was paid the money due him. If proven, such payment would constitute a breach of the Disparity Agreement.

The second cause of action alleges that Greenbaum fraudulently induced Finkelman into executing the Disparity Agreement. To establish a cause of action for fraud a plaintiff must allege with specificity "representations of a material existing fact, falsity, scienter, deception and injury." Channel Master Corp. v. Aluminium Ltd. Sales, 4

NY2d 403, 407 (1958). A contract that is fraudulently induced is voidable. Dalessio v. Kressler, 6 AD3d 57 (2nd Dept. 2004).

Finkelman alleges he entered into the Disparity Agreement based upon representation made to him by Greenbaum that, if Finkelman agreed to the Disparity Agreement, he would continue to share equally in the other partnerships in the Kay Organization. Shortly, if not immediately, after the execution of the Disparity Agreement, Klaus and Kotowitz demanded Finkelman accept a reduced role and interest in the Kay Organization. Finkelman alleges Greenbaum knew of Klaus and Kotowitz' plan to exclude him when Greenbaum induced him to execute the Disparity Agreement. Finkelman alleges he would not have executed the Disparity Agreement had Greenbaum not materially misrepresented Klaus and Kotowitz' intentions.

In addition to alleging Greenbaum breached the Disparity Agreement, Finkelman alleges he was fraudulently induced into executing it. See, 767 Third Avenue, LLC v. Greble & Finger, LLP, 8 AD3d 75 (3rd Dept. 2004). Thus, the second cause of action sets forth a claim upon which relief can be granted and should not be dismissed.

The third cause of action asserts that Greenbaum breached his fiduciary duty to Finkelman in connection with his activities as the managing member of various limited liability companies in which Greenbaum and Finkelman are members. The managing member of a limited liability company owes a fiduciary duty to the other members. Salm v. Feldstein, 20 AD2d 469 (2nd Dept. 2005). To the extent that Greenbaum misused or misappropriated funds of the limited liability companies in which Finkelman and he were members, the complaint states a cause of action upon which relief can be granted.

The fourth cause of action alleges that Greenbaum aided and abetted Klaus and Kotowitz in breaching their fiduciary duty owed to Finkelman.

In order to establish a claim for aiding and abetting a breach of fiduciary duty, a plaintiff must prove that the primary fiduciary committed a violation of its fiduciary duty, that the aider and abettor had knowledge of the violation and that the aider and abettor substantially assisted in the violations. Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57 (2nd Cir. 1985); and Briarpatch Limited L.P. v. Geisler Roberdeau, [*5]Inc., 2002 WL 31426207 (S.D.NY 2002). See also, Snyder v. Puente De Brooklyn Realty Corp., 297 AD2d 432 (3rd Dept., 2002).

Klaus and Kotowitz owed a fiduciary duty to Finkelman as his partners in the Kay Organization. See, Birnbaum v. Birnbaum, 73 NY2d 461 (1989). Klaus and Kotowitz also owed Finkelman a fiduciary duty as co-members of limited liability companies. See, Salm v. Feldstein, supra.

Finkelman has alleged Klaus and Kotowitz violated their fiduciary duty to him. At the pleading stage of the litigation, given the relationship between Greenbaum and Klaus and Kotowitz and Greenbaum's alleged involvement in the Kay Organization, the Court must assume that Greenbaum knew or should have known or reasonably expected that Klaus and Kotowitz were violating their fiduciary duty to Finkelman. The extent to which Greenbaum aided and abetted them, if at all, in violating their fiduciary duty will be fleshed out during discovery.

This cause of action will be dependent upon Finkelman prevailing on his causes of action for breach of fiduciary duty in Finkelman v. Klaus. Thus, this cause of action must survive dismissal.

The fifth cause of action seeks recovery for unjust enrichment. To the extent Finkelman's claim is premised upon his compliance with and Greenbaum's breach of the Disparity Agreement, the claim is based upon a written contract.

"[W]here the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which covers the dispute between the parties", a party may not maintain an action in both quasi-contract and breach of contract. Clark-Fitzpatrick v. Long Island Rail Road Co., 70 NY2d 382, 389 (1987). See also, Battery Park Realty, Inc. v. RKO Delaware, Inc., 18 AD3d 690 (2nd Dept. 2005); and Cooper, Bamundo, Hecht, & Longworth, LLP v. Kuczinski, 14 AD3d 644 (2nd Dept. 2005).

To successfully plead a cause of action for unjust enrichment, a plaintiff must allege that he/she performed services for the defendant which resulted in the defendant being unjustly enriched. Clark v. Daby, 300 AD2d 732 (3rd Dept. 2002); and Kagan v. K-Tel Entertainment, Inc., 172 AD2d 375 (1st Dept. 1991). Plaintiff must establish that the services were performed at the request or behest of the defendant. Clark v. Daby, id.; Prestige Caterers v. Kaufman, 290 AD2d 295 (1st Dept. 2002); and Lakeville Pace Mechanical , Inc. v. Elmar Realty Corp., 276 AD2d 673 (2nd Dept. 2000). Finkelman does not allege Greenbaum performed any services on his behalf or at his behest.

The deficiencies in the amended complaint are not remedied by any of the papers submitted in connection with the motion. See, Rose Lee Mfg., Inc. v. Chemical Bank, 186 AD2d 548 (2nd Dept. 1992); and Components Direct, Inc. v. European American Bank and Trust Co., 175 AD2d 227 (2nd Dept. 1991).

Plaintiff fails to allege facts sufficient to sustain a cause of action for unjust enrichment. Therefore, the fifth cause of action fails to state a claim upon which relief can be granted and must be dismissed.

The sixth, seventh and eight causes of action allege causes of action for fraudulent conveyances in violation of Debtor and Creditor Law Article 10.

The sixth cause of action is premised upon Debtor and Creditor Law §273 which makes [*6]fraudulent any conveyance made by a person who is or will be rendered insolvent thereby and if the conveyance is made without fair consideration.

Debtor and Creditor Law Article 10 permits a creditor to set aside fraudulent conveyances. Conveyances are "... every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." Debtor and Creditor Law § 270. Creditors are broadly defined as "... a person having a claim, whether mature or unmatured, liquidated or unliquidated, absolute, fixed or contingent." Id.

A creditor does not have to reduce a claim to a judgment to avail him or herself of the right to set aside a fraudulent conveyance. Bernheim v. Burden, 253 App.Div. 232 (2nd Dept. 1938). A creditor whose claim is dependent or contingent upon the outcome of litigation becomes a creditor of the purposes of Debtor and Creditor Law Article 10 when the cause of action accrues. See, Shelly v. Doe, 249 AD2d 756 (3rd Dept. 1998).

Finkelman alleges Greenbaum has transferred all of his assets to Family Holdings without consideration, thus rendering him insolvent. This is sufficient, for pleading purposes, to sustain a cause of action to set aside a transfer as a fraudulent conveyance.

Greenbaum seeks dismissal of this cause of action on the ground that it is without merit. In deciding a motion to dismiss, the court must determine whether plaintiff has pled a cause of action, not whether plaintiff will ultimately prevail. EDC I, Inc. v. Goldman, Sachs & Co., 5 NY3d 11 (2005); and Jacobs v. Macy's East, Inc., 262 AD2d 607 (2nd Dept. 1999). Since Plaintiff has properly and adequately pled the requisites of the cause of action, the motion to dismiss the sixth cause of action must be denied.

The seventh cause of action alleges a violation of Debtor and Creditor Law §275. This statute makes fraudulent, as to present and future creditors, transfers made or obligations incurred without fair consideration when the person making the transfer or incurring the obligation believes that he/she will incur debts beyond his/her ability to pay as the obligations mature.

As with the sixth cause of action, Greenbaum attacks the merits and not the substance of the allegations constituting the cause of action. If, after completion of discovery, Defendants believe Plaintiff will be unable to establish facts sufficient to sustain the claim, Defendants may then move for summary judgment dismissing this cause of action.

(c)Eighth Cause of Action - Debtor & Creditor Law §§ 276, 276-aThe eight cause of action is premised upon Debtor and Creditor La §§276, 276-a. Debtor and Creditor Law §276 requires the creditor to prove that the debtor made the conveyance with intent to hinder, delay or defraud present or future creditors. Debtor and Creditor Law §276-a permits a creditor who successfully prosecutes an action to set aside a transfer made with actual intent to defraud to recover the reasonable attorney's fees incurred in the prosecution of such an action.

The complaint specifically alleges Greenbaum knowingly and intentionally conveyed without consideration, all or substantially all of his assets to Family Holdings, in an attempt to hinder, delay or frustrate the enforcement of any judgment entered in the within action. This is sufficient to sustain a cause of action under §§ 276 and 276-a. See, Nonas v. Romantini, 271 AD2d 292 (1st Dept. 2000).

As with the sixth and seventh causes of action, Greenbaum attacks the merits of the [*7]action; not the sufficiency of the pleading. If from the facts alleged in the complaint and the inferences which can be drawn from the facts the court determines that the pleader has stated a cognizable cause of action, the motion must be denied. Sokoloff v. Harriman Estates Development Corp., supra; and Stucklen v. Kabro Assocs., 18 AD3d 461 (2nd Dept. 2005). Since Plaintiff has pled sufficient facts to establish a cognizable cause of action, the motion to dismiss the eighth cause of action must also be denied.

B.Waiver or Ratification

Defendants assert the complaint should be dismissed because Finkelman ratified the Disparity Agreement or waived any objections to its terms by accepting payments made under the terms of that agreement. Additionally, Greenbaum asserts Finkelman had the various agreements which give rise to this litigation reviewed by his own attorney prior to executing them.

The court must have a statutory basis for granting a motion to dismiss. Siegel, New York Practice 4th §258. Waiver, ratification and/or estoppel are not bases for dismissal of an action set forth in CPLR 3211(a).

Defendants appear to be arguing that the complaint is dismissible because it is barred by documentary evidence. CPLR 3211(a)(1). If the party moving to dismiss designates the wrong grounds for dismissal, the court may consider the motion as having been made on the proper grounds provided it does not cause prejudice. Siegel, New York Practice 4th §258.

CPLR 3211(a)(1) permits the court to dismiss an action based upon documentary evidence. A cause of action will be dismissed when the documentary evidence submitted in support of the motion conclusively resolves all factual issues and establishes a defense as a matter of law. Leon v. Martinez, supra; Montes Corp. v. Charles Friehofer Baking Co., Inc., 17 AD3d 330 (2nd Dept. 2005); 730 J & J LLC v. Fillmore Agency, Inc., 303 AD2d 486 (2nd Dept., 2003); and Berger v. Temple Beth-el of Great Neck, 303 AD2d 346 (2nd Dept., 2003).

The documents upon which Defendants rely relate to Kay Bridge Properties, LLC, Kay 138 Broadway Realty Associates, LLC and Kay Property Ownership Group, LLC. The only entity in this group that is subject to the Disparity Agreement is Kay Bridge Property LLC. Additionally, Defendants submit only portions of some the documents upon which they rely. Thus, the documentary evidence upon which Defendants rely does not resolve all factual issues and dispose of the case as a matter of law.

The court may strike allegations in a complaint if the allegations are "...scandalous or prejudicial matter unnecessarily inserted in a pleading." CPLR 3024(b). See, Koos v. D.K. Ludwig, 22 AD2d 666 (1st Dept. 1964); and Mid-Point Apartments v. Town of Poughkeepsie, 59 Misc 2d 845 (Sup.Ct. Dutchess Co. 1969).

An allegation is scandalous if it is immaterial and reproachful. 1 New York Civil Practice: ¶ 3024.11. See, Hurley v. Hurley, 266 App.Div. 701 (3rd Dept. 1943).Allegations in a pleading will be stricken as prejudicial if the allegation is irrelevant and impairs a party's substantial right. 1 New York Civil Practice ¶ 3024.13.

See, Gerety v. Aryeh, 273 App.Div. 974 (2nd Dept. 1948).

Greenbaum moves to strike all of the allegations in the complaint indicating that he is suspended from the practice of law. He does not, and cannot, challenge the factual accuracy of this allegation

While this fact is alleged more than may be necessary, the allegations relating to [*8]Greenbaum continuing to practice law while under suspension are not utterly irrelevant to the complaint. The causes of action alleged in the complaint are premised, in large part, upon the Disparity Agreement, a legal document alleged to have been prepared by Greenbaum while under suspension. The allegations do not substantially impair Greenbaum's rights.

Therefore, Defendants' motion to strike the allegations in the complaint that Greenbaum has been suspended from the practice of law or that Greenbaum has been practicing law while under suspension must be denied.

Finkelman asserts the Doyle Firm must be disqualified from representing the Defendants because (1) it has performed legal services for several partnerships and limited liability companies that are presently subject to litigation between Finkelman and Klaus and Kotowitz; (2) it has represented the entities that are the subject of the Disparity Agreement; and (3) it presently represents an entity in which Finkelman is a managing member.

Finkelman also argues that Doyle will necessarily have to be called as a witness in this action as well as in Finkelman v. Klaus. Additionally, information or documentation contained in the Doyle Firm's files will establish Greenbaum's unauthorized practice of law.

An attorney should not accept employment in a matter if the lawyer knows or it is obvious that a lawyer will be called to testify on a significant issue on behalf of a client. 22 NYCRR 1200.21(a) [DR5-102(a)]. The attorney may represent the client and testify if the testimony relates solely to uncontested matters, matters of formality which are not in dispute, the testimony relates to the nature and value of legal services rendered on behalf of the client in the action or the disqualification would work a substantial hardship to the client due to the distinctive value of the attorney's services in the case. 22 NYCRR § 1200.21(a)(1)-(4) [DR5-102(a)(1)-(4)].

Neither an attorney nor his/her firm should accept employment in contemplated or pending litigation if the attorney knows or it is obvious that the specific attorney or another attorney with the firm may be called as a witness on a significant issue "...other

than on behalf of the client, and it is apparent that the testimony would or might be prejudice to the client." 22 NYCRR §1200.21(b) [DR 5-102(b)].

The party seeking to disqualify an attorney bears the burden of establishing that the attorney will be called as a witness at trial and that the attorney's testimony is necessary. Eisenstadt v. Eisenstadt, 282 AD2d 570 (2nd Dept. 2001); and Morgasen v. Federated Consultant Services, Inc., 174 AD2d 656 (2nd Dept. 1991). See also, Luk Lamellen U. Kupplungsbau GmbH v. Lerner, 167 AD2d 451 (2nd Dept. 1990). When determining if the attorney's testimony is necessary, the court must take into account factors such as "...the significance of the matters, weight of the testimony, and the availability of other evidence." S & S Hotel Ventures Ltd. Partnership v. 777 S.H. Corp., 69 NY2d 437, 446 (1987). See also, Eisenstadt v. Eisenstadt, supra.

The primary issue on which the Doyle Firm is expected to be questioned relates to whether Greenbaum practiced law after he was suspended from practice. Finkelman further asserts the files and records of the Doyle Firm will have to be produced in this matter and in Finkelman v. Klaus to establish his claims.

Finkelman has failed to meet his burden to warrant disqualification of the Doyle Firm on this basis. Greenbaum most certainly can and will be examined regarding his alleged practice of [*9]law during his suspension. Documents supporting this claim may very well be obtained from the records of the Kay Organization via either a non-party subpoena in this action or through discovery in Finkelman v. Klaus. Klaus and Kotowitz

will be questioned regarding the nature of services rendered by Greenbaum to the Kay Organization for which Greenbaum was compensated.

Finkelman has not submitted an affidavit in support of this application stating specifically what information he intends to elicit from the Doyle Firm that cannot be

obtained from other sources. Therefore, the attorney-witness rule does not provide a basis for the Doyle Firm's disqualification.

The first conflict posed as a basis for disqualification is that the Doyle Firm has represented several limited liability companies and/or partnerships in which Finkelman has an interest.

The party seeking to disqualify counsel for a party bears the burden of establishing that a there is a conflict of interest. An attorney will not be disqualified unless there is a clear showing that disqualification is warranted. Horn v. Municipal Information Services, Inc., 282 AD2d 712 (2nd Dept. 2001); and Olmoz v. Town of Fishkill, 258 AD2d 447 (2nd Dept.1999).

In deciding whether a conflict requiring disqualification exists, the court must consider if the lawyer or firm has previously represented the party or entity which is seeking to disqualify that attorney and/or if the attorney has obtained, in the course of that representation, confidential information which would be disclosed or could be used against the former client in the current litigation. See Wissler v. Ashkinazy, 299 AD2d 352 (2nd Dept. 2002); Ogilvie v. McDonald's Corp., 294 AD2d 550 (2nd Dept. 2002); and Sirianni v. Tomlinson, 133 AD2d 391 (2nd Dept., 1987). See gen'lly, Tekni-Plex, Inc, v. Meyner and Landis, 89 NY2d 123 (1996).

The Doyle Firm has represented several Kay Organization partnerships and limited liability companies in which Finkelman has an interest. Thus, the real issue is whether the Doyle Firm received confidential information in its representation of these entities which could be used against Finkelman in this action. Finkelman fails to present to the court any evidence establishing the Doyle Firm obtained any information while representing the Kay Organization partnerships or limited liability companies which could be used against Finkelman in this litigation. In fact, Finkelman did not provide the Court with an affidavit indicating how information obtained by the Doyle Firm could be used against him in this litigation. See, Landa v. Bleier, 1 Misc 3d 902(A), (Sup.Ct. Nassau Co. 2003).

Attorneys have a fiduciary duty of loyalty and confidentiality to their clients. Tekni-Plex, Inc. v. Meyner and Landis, supra; and Solow v. Grace & Co., 83 NY2d 303 (1994). An attorney may not place him/herself in a position where a conflict of interest may affect or appear to affect his/her obligations to their client. Matter of Kelly, 23 NY2d 368 (1968).

Where a conflict or potential conflict exists, the duty shifts to the attorney to establish that an actual or apparent conflict of loyalties does not exist. Leonardo v. Leonardo, 297 AD2d 416 (3rd Dept. 2002).

At the present time, an additional conflict arises in that the Doyle Firm represents HPS Holding LLC ("HPS"), a limited liability company, in which Finkelman owns a 20% interest and is the co-managing member, in an action pending in Supreme Court, Bronx County. The cause of action in which the Doyle Firm represents HPS seeks to void a lease. The Doyle Firm's [*10]representation of HPS pre-dates its representation of Greenbaum in this action.

Once the Doyle Firm realized that a potential conflict existed, it sought to obviate the conflict by voluntarily withdrawing as counsel for HPS. Under the terms of the HPS operating agreement, the co-managing members must act with unanimity. While Sally Love, the co-managing member, has agreed to permit the Doyle Firm to withdraw, Finkelman has refused to consent to their withdrawal.

The Doyle Firm asserts it did not know Finkelman was a co-manager of HPS when it undertook to represent it in the Bronx County action.

The Doyle Firm is breaching its duty of loyalty to HPS by seeking to withdraw as its attorney so that it can represent Greenbaum in this action. It had an affirmative obligation to determine if any potential conflicts existed before it undertook to represent Greenbaum in this action. See, 22 NYCRR 1200.24(E) [DR 5-105(E)], which requires law firms to keep records of its prior engagements so that it can determine if potential conflicts exist.

Additionally, the Doyle Firm has represented 47 Thames Realty LLC, which is one of the limited liability companies that is subject to the Disparity Agreement. The Court cannot determine whether the Doyle Firm has represented other entities that are subject to the Disparity Agreement. However, the Doyle Firm has unquestionably represented other limited liability companies that are part of the Kay Organization in which Finkelman is a member.

An attorney who has been the attorney for a limited liability company may not represent a member of that limited liability company in a case where the member's interest is adverse to that of other members. See, Morris v. Morris, 306 AD2d 449 (2nd Dept. 2003); and Dembitzer v. Chera, 285 AD2d 525 (2nd Dept. 2001).

By seeking to withdraw as counsel for HPS while continuing to represent Greenbaum in this action, the Doyle Firm is placing its duty of loyalty to Greenbaum ahead of its duty of loyalty to HPS. Under the circumstances, the Doyle Firm should not have undertaken the representation of Greenbaum and Family Holdings in the first instance.

Under these circumstances, a conflict or potential conflict exists that mandates the disqualification of the Doyle Firm.

This Court is well aware of its obligation to report unethical or illegal conduct to the proper authorities. See 22 NYCRR 100.3(D)(2)[Code of Judicial Conduct, Canon 3(D)(2)]. See, In re Probst, -A.D.3d-, 2006 WL3378247 (2nd Dept. 2006). However, the Doyle Firm cannot, by motion, compel the Court to perform its independent ethical obligation.

The Doyle Firm asserts that the statement in the affirmation of Bijan Amini, Esq. ("Amini") contains false and, therefore, perjurious statements. They point to two specific allegations, that the Doyle Firm received a legal fee in excess of $875,000 for legal

services rendered to the Kay Organization and that the Doyle Firm presently represents an entity in which Finkelman is the managing member.

The Doyle Firm asserts that Amini included as a legal fee the sum of $764,030.99 which it received in escrow in regard 245 46th Street. The papers submitted to the Court reflect a receipt by the Doyle Firm of $681,530.98 in connection with this property. Nothing in the papers submitted to the Court, other than the statement contained in the affirmation of Michael B. Doyle, Esq., reflects that this sum was received in escrow. Additionally, the accountant who [*11]reviewed the documents on Finkelman's behalf avers that the records of the Kay Organization do not contain any indication that these sums were paid to the Doyle Firm in escrow. He further asserts that he has not received the back-up requested that would support such an assertion. He further asserts that if the money was paid to the Doyle Firm, as escrowee, the transfer would not qualify as a 1031-exchange for tax purposes. Amini certainly had the right to rely upon the records of the Kay Organization and the opinion of an expert who reviewed relevant records when preparing his papers.

While the nature of these funds may have been mischaracterized, it is undisputed that the Doyle Firm provided services to entities in which Finkelman had an interest. Furthermore, even deducting this sum, the Doyle Firm received payments in

excess of $100,000 from the Kay Organization during the period 2000-2005 for legal services rendered.

The Court notes that Doyle has the same obligations as does the Court to report illegal or unethical conduct to the appropriate authorities. See, 22 NYCRR 1200.4 [DR1-103].

A good argument could be made that the affirmation, affidavits and memoranda or law submitted by the Doyle Firm in opposition to Finkelman's motion and in support of its cross-motion violate the Standards of Civility. See, 22 NYCRR 1200 Appendix A (1)(B), which provides that lawyers should refrain from antagonistic or acrimonious behavior and should avoid disparaging personal remarks leveled at other counsel and parties.

This Court does not believe the statements of Amini were perjurious or placed there in an effort to mislead the Court. This Court does not believe that it is required to report this matter to either the Disciplinary Committee or the District Attorney for further investigation. Advisory Comm. on Judicial Ethics, Opinion 06-106.

ORDERED, that Plaintiff's motion to disqualify the firm of Doyle & Broumand, LLP from representing the Defendants is granted; and it is further,

ORDERED, that Defendants are granted thirty (30) days from the date of service of a copy of this order with notice of entry to obtain new counsel; and it is further,

ORDERED, that no action shall be taken against the Defendants within the aforesaid period without prior permission of Court; and it is further,

ORDERED, that Defendants' cross-motion to dismiss the amended complaint is granted to the extent of dismissing the fifth cause of action and is otherwise denied; and it is further,

ORDERED, that Defendants' cross-motion to compel the Court to report Bijan Amini, Esq. to the appropriate authorities is denied; and it is further,

ORDERED, that counsel for the parties shall appear for a preliminary conference on February 16, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________