FILED NEW YORK COUNTY CLERK 04/28/2016 0500 PM INDEX NO. 651304/2016 NYSCEF DOC. NO. 5 RECEIVED NYSCEF 04/28/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ----------------------------------------------------------------- X THE GEORGETOWN COMPANY, LLC; GEORGETOWN 19 TH STREET PHASE I, LLC; GEORGETOWN 19 TH STREET DEVELOPMENT LLC; and IAC/GEORGETOWN 19 TH STREET LLC, -against- Plaintiffs, IAC/INTERACTIVECORP; HTRF VENTURES, LLC; and IAC 19 TH STREET HOLDINGS, LLC, Defendants. ----------------------------------------------------------------- X Index No. 651304/2016 IAS Part Mot Seq. No. 1 DEFENDANTS MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO DISQUALIFY DLA PIPER LLP AS COUNSEL TO PLAINTIFFS Marc E. Kasowitz David E. Ross Thomas B. Kelly KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 1633 Broadway New York, New York 10019 Telephone (212) 506-1700 Attorneys for Defendants 1 of 9
Defendants IAC/InterActiveCorp ( IAC ) and its affiliates HTRF Ventures, LLC, and IAC 19 th Street Holdings, LLC, submit this memorandum of law in support of their motion to disqualify DLA Piper LLP ( DLA ) as counsel to plaintiffs The Georgetown Company, LLC, Georgetown 19 th Street Phase I, LLC, Georgetown 19 th Street Development LLC, and IAC/Georgetown 19 th Street, LLC (collectively, Georgetown ). 1 PRELIMINARY STATEMENT In this action, DLA is suing IAC on behalf of Georgetown, which is seeking a declaration that it is contractually or equitably entitled to a substantial part of the $35 million proceeds from IAC s sale of its air rights associated with its headquarters in Manhattan. However, at the time DLA filed this action against IAC, it was also representing IAC indeed, it has represented IAC for the past year, and still represents IAC in a pending suit in California. DLA cannot sue IAC, its own client. DLA s filing of this suit against IAC gives rise to a disabling conflict of interest that is prohibited by the New York Rules of Professional Conduct ( NYRPC ). NYRPC Rule 1.7 expressly bars a lawyer from undertaking a representation adverse to a current client without that client s informed, written consent. DLA has neither sought nor obtained IAC s consent. IAC has demanded that DLA withdraw from its representation of Georgetown in this case, but DLA has refused to do so. Adding insult to injury and tacitly conceding its disabling conflict, DLA is now attempting to drop IAC like the proverbial hot potato in California. Shortly after filing this action against IAC and refusing IAC s request that it withdraw from its representation of 1 Submitted herewith in support of the motion is the affidavit of Edward T. Ferguson ( Ferguson Aff. ), sworn to April 28, 2016. Mr. Ferguson is Vice President and Associate General Counsel of IAC. 1 2 of 9
Georgetown, DLA filed a motion in California for permission to withdraw from its representation of IAC. DLA s withdrawal motion in California lacks merit, inasmuch as in California, like New York, an attorney may not jettison a current client in order to sue it on behalf of another client. But, in any event, that motion s outcome does not affect the analysis or result here, because DLA s representation of IAC at the time it filed this action against IAC constitutes a disabling conflict which cannot be retroactively extinguished under the Rules of Professional Conduct. Accordingly, IAC respectfully submits that DLA should be disqualified in this matter. FACTS I. DLA s Year-Long Representation of IAC in Pending California Litigation IAC is a leading media and internet company with over 150 brands, products, and websites. (Ferguson Aff. 2). IAC is a current client of DLA. Id. Specifically, DLA has represented IAC for over one year as its defense counsel in DeWitt v. Crazy Protocol Communications, Inc., et al., Case No. CGC-12-520809, Superior Court of California, San Francisco County (the DeWitt Litigation ), a case involving marketing emails that allegedly violate California s anti- spam statute, including emails allegedly sent by or on behalf of Match.com, an IAC subsidiary. Id. DLA s representation of IAC began after the plaintiff in the DeWitt Litigation filed for and obtained in March 2015 entry of a default against IAC, which had been sued as a so-called Doe defendant. Id. In March 2015, an attorney from DLA s San Francisco office contacted IAC s Vice President and Associate General Counsel, Edward Ferguson, to inquire whether IAC would like to retain DLA to represent it in seeking to set aside the default entered against IAC in the DeWitt Litigation. (Ferguson Aff. 3). DLA advised IAC that it was then representing another 2 3 of 9
defendant in the DeWitt Litigation and had filed a motion on its behalf to set aside a similar default. Id. DLA offered its services to IAC to seek to vacate the default entered against it and eventually to move to quash the summons purportedly served on it. Id. IAC agreed to DLA s representation of it in the DeWitt Litigation, and thereafter worked closely with DLA first to have the default vacated, and then to obtain an order quashing the summons. (Ferguson Aff. 4). Over the past year, IAC s Associate General Counsel Ferguson has had extensive communications with DLA regarding the DeWitt Litigation, and has submitted two declarations drafted by DLA in support of IAC's motions in the case. Id. IAC has paid the bills DLA has submitted in this matter, which total more than $50,000. Id. Two DLA partners, Edward Totino and Perrie Weiner, and one DLA associate, Elliot Katz, have been and are counsel of record for IAC in the DeWitt Litigation. Id. On October 30, 2015, the plaintiff in the Dewitt Litigation filed a notice of appeal from the order quashing the summons as against IAC. On March 24, 2016, the plaintiff filed his opening brief in the appeal. See DeWitt v. Crazy Protocol Communications, Inc., et al., Case No. A146626, Court of Appeal of the State of California, First Appellate District, Division Two. DLA s Weiner and Katz are counsel of record for IAC in the appeal. (Ferguson Aff. 5). II. DLA Files This Action Against Its Current Client IAC on Behalf of Georgetown On March 11, 2016, during the pendency of the appeal in the DeWitt Litigation, DLA filed the complaint in this action against IAC on behalf of Georgetown. Before filing this suit, DLA did not seek or obtain IAC s consent to sue it. (Ferguson Aff. 6). On March 16, 2016, IAC s counsel in this action wrote to DLA advising it of its conflict of interest in representing both IAC in the DeWitt Litigation and Georgetown in litigation brought against IAC, confirming 3 4 of 9
that IAC does not waive the conflict, and requesting that DLA withdraw as counsel for Georgetown. DLA has refused to withdraw. Id. Having been put on notice by its own client of both its conflict and its client s refusal to waive that conflict, DLA, attempting an end run, proceeded to engage in two unseemly maneuvers, neither of which, even if successful, could have relieved DLA of its disabling conflict. (Ferguson Aff. 7). First, on March 17, 2016, the day after IAC had directly informed DLA of its position on the conflict issue, DLA s Katz contacted the general counsel of IAC subsidiary Match.com, attempting to obtain from Match.com a waiver of DLA s conflict of interest in both representing and suing IAC, or Match.com s consent to or acquiescence in DLA s withdrawal from representation of IAC in the DeWitt Litigation. Id. Match.com is not a party to the DeWitt Litigation, or this litigation, and does not speak for IAC with respect to IAC s representation by DLA in the DeWitt Litigation. Id. Match.com thus declined DLA s requests and referred DLA to IAC. Id. Next, DLA attempted to drop IAC -- like the proverbial hot potato -- as a client in the DeWitt Litigation. On March 28, 2016, two weeks after suing IAC on behalf of Georgetown, and after refusing IAC s request that DLA withdraw from representing Georgetown in this action, DLA filed a motion to withdraw as IAC s counsel in the California Court of Appeal. (Ferguson Aff. 8). California s Rules of Professional Conduct and California s decisional law bar DLA from suing its current client, IAC, on behalf of another client, and likewise bar DLA from jettisoning IAC as its client in an effort to retroactively vitiate the evident conflict. Id. IAC 4 5 of 9
has opposed DLA s withdrawal motion. Id. 2 IAC remains a current client of DLA in the DeWitt Litigation, as it was when DLA filed this suit on behalf of Georgetown. Id. ARGUMENT DLA s filing of this suit against IAC, its current client, is a plain violation of the New York Rules of Professional Conduct which requires DLA s disqualification in this matter. DLA has a disabling conflict of interest, as it represents IAC in litigation in California, and has filed suit against IAC in this Court. IAC has objected to the conflict and demanded DLA s withdrawal, but DLA has refused to withdraw. As DLA has violated the most basic prohibition against suing one s own client set forth in Rule 1.7, IAC s motion to disqualify DLA in this matter should be granted. Subsection (a) of Rule 1.7 provides 22 NYCRR 1200.0 (a) Except as provided in paragraph (b), a lawyer shall not represent a client if a reasonable lawyer would conclude that (1) the representation will involve the lawyer in representing differing interests. What constitutes differing interests is described in Comment 6 to Rule 1.7 2 DLA has offered three arguments to justify its attempted hot potato withdrawal in California. As IAC has advised the court in California, none of those arguments has any merit. First, DLA asserts that IAC consented in an engagement letter to waive all future conflicts. However, DLA never signed any engagement letter with IAC. The engagement letter DLA has invoked is only with Match.com, not with IAC, and expressly excludes applicability to IAC. In addition, broad advance conflict waivers are ineffective in California. Second, DLA contends that IAC implicitly waived DLA s conflict because it did not protest when DLA participated on Georgetown s behalf in a presentation Georgetown made to IAC in an unsuccessful effort to resolve this matter. However, in California, like New York, a conflict waiver cannot arise by implication it must be informed and must be signed by the client. Here, DLA never asked IAC to waive this conflict, and IAC never did so, in writing or otherwise. Third, DLA claims a right to permissive withdrawal under California s professional responsibility code on the basis that IAC has created a fundamental disagreement with DLA. That argument is both perverse and incorrect as it is DLA that created the problem by suing IAC, its current client; IAC has merely requested that DLA adhere to the Rules of Professional Conduct. The disagreement is entirely one of DLA s making, and cannot form the basis for withdrawal under California law. 5 6 of 9
[t]he duty to avoid the representation of differing interests prohibits, among other things, undertaking representation adverse to a current client without that client's informed consent. For example, absent consent, a lawyer may not advocate in one matter against another client that the lawyer represents in some other matter, even when the matters are wholly unrelated. Id. (emphasis added). See also New York State Bar Association, Committee on Professional Ethics, Opinion Number 1008, dated April 24, 2014 ( Rule 1.7(a)(1) generally prohibits a law firm from opposing a current client in any matter, related or unrelated, absent compliance with Rule 1.7(b) ). Here, DLA has clearly violated Rule 1.7(a). IAC has been a client of DLA for over one year, with DLA representing IAC in the DeWitt Litigation ever since March 2015. DLA was still counsel to IAC in that litigation on March 11, 2016, when DLA filed this suit against IAC, and remains counsel to IAC in the DeWitt Litigation to this day. Nor can DLA rely on a Rule 1.7(b) exception. 3 DLA neither sought nor obtained IAC s written (or oral) consent to file suit against IAC, and therefore DLA has not satisfied, as it must, Rule 1.7(b)(4) s condition that each affected client gives informed consent, confirmed in writing to the otherwise prohibited adverse representation. DLA continues to represent IAC in the DeWitt Litigation notwithstanding its improper and unseemly motion before the California Court of Appeal to drop IAC like a hot potato and bury DLA s irreconcilable conflict in this action. Both New York and California prohibit an attorney s attempt to retroactively cure a conflict through the ploy of dropping one client in favor 3 Rule 1.7(b) provides that a lawyer may take on a conflicting representation if all of the following four conditions are satisfied (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. 22 NYCRR 1200.0. 6 7 of 9
of another. Thus, even if DLA s motion to withdraw in California were granted, DLA s withdrawal from the DeWitt Litigation could not retroactively vitiate its disabling conflict here. See Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 209 (S.D.N.Y. 2009) ( [C]ounsel may not avoid a disqualifying conflict by dropping the less desirable client like a hot potato ; otherwise, an attorney could always convert a present client into a former client by choosing when to cease to represent the disfavored client. ); Flatt v. Superior Court, 9 Cal. 4th 275, 288 (Cal. 1994) ( So inviolate is the duty of loyalty to an existing client that not even by withdrawing from the relationship can an attorney evade it. ). DLA s filing of this suit against its current client IAC therefore requires DLA s disqualification. See Abbondanza v. Siegel, 209 A.D.2d 1023, 1024 (4th Dep t 1994) ( A law firm may not represent one client in litigation against another client. ); Chase v. Sullivan's of Middletown, Inc., 108 A.D.2d 713, 713-14 (2d Dep t 1985) (same); Rubinstein v. Foster Bros. Mfg. Co., 52 A.D.2d 597 (2d Dep t 1976) (granting motion to disqualify because [a]t the time the [law firm] instituted this action on behalf of plaintiff, it was representing appellant, although on claims unrelated to the instant action ); Matter of Wenzel, 2009 N.Y. Misc. LEXIS 6524, at *4 (Sup. Ct. Dec. 24, 2009) ( It is virtually axiomatic that it would be ethically inappropriate for an attorney to bring a lawsuit against his or her current client, barring the most extraordinary circumstances. ). Accordingly, because DLA has violated the NYRPC s prohibition against a law firm filing suit on behalf of one client against another client and thereby has breached its most fundamental ethical obligation to IAC, DLA should be disqualified in this matter. 7 8 of 9
CONCLUSION For the foregoing reasons, IAC respectfully requests that the Court grant IAC s motion to disqualify DLA in this matter. Dated New York, New York April 28, 2016 Respectfully submitted, KASOWITZ, BENSON, TORRES & FRIEDMAN LLP By/s/ David E. Ross Marc E. Kasowitz David E. Ross Thomas B. Kelly 1633 Broadway New York, New York 10019 Telephone (212) 506-1700 Attorneys for Defendants 8 9 of 9