By Kevin M. Hogan and Sean C. McPhee, originally published in The Daily Record on Thursday, March 28, 2019.

Western District Case Notes

Motion to Disqualify

In Ultrapak, LLC v. Laninver USA, Inc., No. 18-CV-561-LJV-HBS (Jan. 17, 2019), an action concerning a contract dispute between a limited liability company and its majority owner, defendants moved to disqualify plaintiff’s attorney, arguing that his role as plaintiff’s “corporate counsel” presented a conflict of interest that precluded him from serving as plaintiff’s litigation counsel in this matter. To resolve that issue, the Court examined Rule 1.7(a) of the New York Rules of Professional Conduct, which prohibits an attorney from undertaking representation where there is a significant risk that the attorney’s professional judgment will be affected by personal interests. The Court then observed that the attorney’s role in creating the company and drafting the contract at the center of the dispute potentially exposes him to personal liability to the company’s minority owner, thereby creating a conflict. The Court also found that disqualification was warranted under the “attorney-witness” rule, which precludes a lawyer from acting as an advocate in a matter where the lawyer is likely to be a witness on a significant issue of fact. As a result, defendants’ motion was granted, and plaintiffs were directed to file a notice of appearance of new counsel within 35 days.

Primary Jurisdiction

In Read, et al v. Corning Inc., et al., No. 18-CV-6131-DGL (Dec. 21, 2018), an action brought under the Comprehensive Environmental, Response, Compensation and Liability Act (“CERCLA”) and various New York State common law theories, plaintiff sought damages and reimbursement of response costs due to alleged contamination of their property by pre-development disposal of wastes by defendants. Defendants moved to dismiss the common law causes of action for failure to state claims upon which relief could be granted, and to stay the CERCLA claim under the doctrine of primary jurisdiction, pending the selection by the New York State Department of Environmental Conservation (“NYSDEC”) of a remedy to be implemented by defendant. After clarifying the distinction between the administrative exhaustion and primary jurisdiction doctrines, the Court granted defendants’ request and stayed further proceedings of plaintiff’s CERCLA claim. The Court concluded that, under the primary jurisdiction doctrine, it would be better “to stay its hand here, in favor of the NYSDEC proceedings” because the questions presented involved technical or policy considerations within the agency’s particular field of expertise and outside the conventional experience of judges, the question how best to remediate the property was one committed to NYSDEC’s discretion by the New York legislature, the relief sought by plaintiffs posed a significant risk of inconsistent rulings, and plaintiffs had not made a prior application to the agency. The ourt also dismissed each of the common law claims — negligence, strict liability for abnormally dangerous activity, and private and public nuisance — because, in each such case, the complaint did not allege sufficient facts to state a claim upon which relief could be granted.

Right to Jury Trial in Adversary Proceeding

In Brick v. Ring, No. 18-cv-932-GWC (Jan. 16, 2019), an adversary proceeding arising out of an involuntary Chapter 7 bankruptcy, defendants moved to withdraw the automatic reference to the bankruptcy court so that the trustee would be required to try his claims to a jury in the district court. After considering a number of factors (such as whether the claims at issue were core or non-core, the prevention of forum shopping, and uniformity in the administration of bankruptcy law), the Court determined that the ultimate issue governing the outcome of defendants’ motion was whether their jury demand prevented the bankruptcy court from trying the proceeding. The Court then concluded that, because many of the trustee’s claims were subject to a Constitutional guarantee of a jury trial and defendants had not consented to a jury trial in bankruptcy court, the trial must be conducted before an Article III judge. As such, the Court held that the reference to the bankruptcy court must be withdrawn prior to trial but, because summary judgment motions had not yet been filed in the adversary proceeding, defendants’ motion would be denied without prejudice to renew when the case is trial-ready.

Expert Testimony

In 51 Webster St., Inc. v. Atlantic Richfield Co., No. 16-CV-468-MJR (Jan. 2, 2019), an action seeking damages caused by petroleum contamination discovered on plaintiff’s property allegedly from historic storage tanks operated by defendant, the parties crossed moved to strike and exclude their respective expert’s testimony. After the Court first determined that the matter would proceed as a non-jury trial, it denied both motions. Plaintiff argued defendant’s first expert was not qualified, his findings were not reliable, and he sought to opine on the ultimate legal issue to be determined by the trier of fact. Each of these arguments were rejected, with the Court concluding that the expert’s credentials could be fully explored during cross examination and would be considered by the Court when determining what weight to afford the testimony, whether the expert’s findings were reliable also was a matter for cross examination rather than a reason to disqualify or strike the testimony, and that, while no expert would be permitted to opine on the ultimate legal issues that was reserved for the court’s determination, there was no risk of jury prejudice here and any such testimony could easily be ignored by the Court. Plaintiff’s complaints concerning defendant’s second expert also failed; according to the Court, whether the expert failed to consider certain essential facts also went to the weight of the testimony rather than it’s admissibility, and the expert’s testimony would not be unduly prejudicial because the matter was to be tried by a judge rather than a jury. The defendant’s motion to exclude the testimony of plaintiff’s experts fared no better, because those arguments — that the opinions would not assist the Court, were not based on sufficient facts, and were not the product of reliable principles and methods — went to the weight and not the admissibility of the testimony.

Default Judgment Damages

In Sky Vapors LLC v. Blazynski,14-CV-1078-RJA (Dec. 19, 2018), a trademark infringement case in which defendant had defaulted, plaintiff sought damages and attorneys’ fees of more than $140,000. The Court, however, ordered that judgment should be entered for damages in the amount of only $40,500, and denied the application for attorneys’ fees. The Court first awarded $40,000 in damages under plaintiff’s trademark infringement claim, finding that defendant’s infringement had been willful, her disregard for the Court’s orders demonstrated a flippant attitude toward her legal obligations, and there was a need to deter similar conduct by the defendant and others in the future, and that a $40,000 award was appropriate notwithstanding that it likely overestimated the amount of plaintiff’s actual damages. The Court next rejected plaintiff’s request for a $50,000 damage award under the Anticybersquatting Consumer Protection Act, and instead awarded only $500 in damages because defendant’s website was far from elaborate, advertised only a single retail store, and was not used for retail sales, and for that reason it was far from likely that plaintiff lost any revenue to defendant’s website. The Court then denied plaintiff’s request for attorneys’ fees, finding that this case was not “exceptional” as required under the Lanham Act because, although plaintiffs infringement was willful, nothing in the record suggested that defendant began using the mark with the intention of infringing on plaintiff’s trademark, or that she had engaged in fraudulent conduct.

Fee Dispute with Discharged Attorney

In Crout v. Haverfield Int’l, Inc., No. 14-CV-6520-EAW-MWP (Dec. 14, 2018), a wrongful death action arising from a helicopter accident, plaintiff filed a motion seeking approval of the settlement that was reached with defendant. She also asked the Court to resolve a fee dispute with her former counsel. Regarding the latter, a week after retaining a firm to represent her, plaintiff decided to substitute her counsel with a lifelong friend who specialized in personal injury and wrongful death litigation. The outgoing firm was then notified that it had been discharged, and was asked for an itemized statement of time and disbursements, which plaintiff offered to promptly pay. In response, the outgoing firm advised that it was electing “to be compensated on a contingent fee basis based on the proportionate share of the work performed by each firm on the whole case.” Shortly thereafter, plaintiff’s new counsel responded and reiterated that plaintiff was electing to compensate the outgoing firm on a quantum meruit basis, and that plaintiff did not consent to a contingent fee payment. After approving the settlement because it was in the best interest of the decedent’s estate and distributees, the Court turned to the fee dispute issue, which it had ancillary jurisdiction to consider because it arose out of a litigation pending before it. The Court then discussed the distinction between attorney retaining liens and charging liens, and held that the outgoing firm had neither. Next, the Court determined that, even if the outgoing firm had a charging lien, it could not insist on a contingent fee in light of plaintiff’s unwavering opposition to such an arrangement. As a result, the outgoing firm’s only right to compensation was on a quantum meruit basis. Finally, the Court found that the 80 hours the outgoing firm allegedly devoted to the case during the less than 30 days it was involved in representing plaintiff was “incredible,” and noted that, while it would be well within the Court’s discretion to award no fees at all, the outgoing firm would be awarded $7,500 in fees even though “it is probably more than the firm is entitled to.”

Kevin M. Hogan is the Managing Partner at Phillips Lytle LLP. He concentrates his practice in litigation, intellectual property and environmental law. He can be reached at khogan@phillipslytle.com or (716) 847-8331. Sean C. McPhee is a partner with Phillips Lytle LLP where he focuses his practice on civil litigation, primarily in the area of commercial litigation. He can be reached at smcphee@phillipslytle.com or (716) 504-5749.