Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 1 of 7 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES AND EXCHANGE COMMISSION, Plaintiff, EDWARD BRONSON; E-LIONHEART ASSOCIATES, LLC d/b/a F AIRHILLS CAPITAL, -v- -and- F AIRHILLS CAPITAL, INC., Defendants, Relief Defendant. KENNETH M. KARAS, District Judge: : l...i' ' -< - 12-CV-6421 (KMK) ORDER.. ~--.... ~- --~ -~.. _.' On October 20, 2016, Robinson Brog Leinwand Greene Genovese & Gluck P.C. ("Robinson Brog"), Counsel for Defendants Edward Bronson ("Bronson"), E-Lionheart Associates, LLC d/b/a Fairhills Capital ("E-Lionheart"), and Relief Defendant Fair hills Capital, Inc. ("Fairhills," and collectively, "Defendants"), filed a Motion For Leave to Withdraw as Counsel pursuant to Local Civil Rule 1.4 and Rule 1.16( c )(5) of the New York Rules of Professional Conduct and a request for a stay of the proceedings. (See Mot. For Leave to Withdraw as Counsel for Defs. ("Mot. To Withdraw") (Dkt. No. 169).) Plaintiff, the Securities and Exchange Commission ("SEC") does not oppose Robinson Brag's Motion To Withdraw, but opposes the accompanying request for a 30-day stay of the Action. (See Pl. SEC's Partial Opp'n to Mot. For Leave to Withdraw as Counsel for Defs. ("Withdraw Opp'n") 1 (Dkt. No. 171).) On November 1, 2016, Defendant Bronson filed a Notice of Bankruptcy Filing and Enforcement of Automatic Stay, alerting the Court that the previous day, Defendant Bronson had
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 2 of 7 filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Bankruptcy Code. (See Not. of Bankr. Filing and Enforcement of Automatic Stay ("Bronson's Not.") (Dkt. No. 174).) The Notice asserts that pursuant to 11 U.S.C. 362 ofthe Bankruptcy Code, Defendant Bronson is entitled to an automatic stay of the proceedings against him in this Court. (!d.) The SEC filed an opposition to Bronson's Notice. (See Pl. SEC's Opp'n to Def. Edward Bronson's Not. ofbankr. Filing and Enforcement of Automatic Stay ("Bankr. Opp'n") (Dkt. No. 175).) Pursuant to the Court's memo endorsement on October 25, 2016, (see Dkt. No. 172), Defendants were instructed to respond to the SEC's opposition by November 4, 2016, but declined to do so. For the reasons to follow, the Motion To Withdraw is granted and the request to stay the proceedings is denied. Furthermore, as the Bankruptcy Code's automatic stay provision is inapplicable to the instant Action, the case against Defendant Bronson will proceed. 1 A. Motion To Withdraw Local Civil Rule 1.4, which governs motions to withdraw as counsel provides: An attorney who has appeared as attorney of record for a party... may not withdraw from a case without leave of the Court granted by order. Such an order may be granted only upon a showing by affidavit or otherwise of satisfactory reasons for withdrawal... and the posture of the case, including its position, if any, on the calendar, and whether or not the attorney is asserting a retaining or charging lien. S.D.N.Y. & E.D.N.Y. Local R. 1.4. 2 New York Rule ofprofessional Conduct 1.16(c)(5) states 1 Also pending before this Court are the SEC's Motion For Summary Judgment and Motion To Seal, (Dkt. Nos. 146, 152), and Defendants' Motion To Seal, (Dkt. No. 153). Those motions will be the subject of separate rulings. Accordingly, factual background and procedural history relating to these motions is not recounted here. 2 Robinson Brog states that it "will be asserting a retaining lien for any unpaid amounts outstanding on its account owed by Defendants." (Decl. ofwilliam A. Rome in Supp. of Mot. For Leave to Withdraw as Counsel ("Rome Decl.") ~ 8 (Dkt. No. 170).) 2
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 3 of 7 that "a lawyer may withdraw from representing a client when:... the client deliberately disregards an agreement or obligation to the lawyer as to expenses or fees." N.Y. Prof. Conduct 1.16(c)(5). Whether to grant a motion to withdraw "falls to the sound discretion of the trial court," Stair v. Calhoun, 722 F. Supp. 2d 258, 264 (E.D.N.Y. 2010) (internal quotation marks omitted), and pursuant to Local Civil Rule 1.4, the Court must analyze two factors: "the reasons for withdrawal[,] and the impact of the withdrawal on the timing of the proceeding," Callaway Golf Co. v. Corporate Trade Inc., No. 10-CV-1676, 2011 WL 2899192, at *2 (S.D.N.Y. July 6, 2011 ). Robinson Brog seeks to withdraw as counsel for Defendants because Defendants have failed to pay legal fees and expenses Robinson Brog incurred in connection with its representation ofdefendants. 3 Robinson Brog asserts that it "has not been compensated for all the work it performed, but instead has received less than 10% of the amount of its time charged." (Decl. of William A. Rome in Supp. of Mot. For Leave to Withdraw as Counsel ("Rome Decl.") ~ 6 (Dkt. No. 170).) Courts in the Southern and Eastern Districts ofnew York have construed "the term 'satisfactory reasons' [in Local Civil Rule 1.4]... to include failure to pay legal fees." In re Fosamax Prods. Liab. Litig., No. 06-MD-1789, 2012 WL 2122166, at *2 (S.D.N.Y. June 12, 2012) (some internal quotation marks omitted); see also Melnick v. Press, No. 06-CV-6686, 2009 WL 2824586, at *3 (E.D.N. Y. Aug. 28, 2009) ("[l]t is well-settled in the Eastern and Southern Districts ofnew York that non-payment oflegal fees is a valid basis for granting a motion to withdraw pursuant to Local Civil Rule 1.4."). Robinson Brog has therefore demonstrated a satisfactory reason for its requested withdrawal. Robinson Brog has also attested 3 Robinson Brog first appeared on behalf of Defendants in this Action on May 12, 2016. (See Not. of Appearance by William A. Rome (Dkt. No. 144); Not. of Appearance by Michael Allan Eisenberg (Dkt. No. 145).) 3
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 4 of 7 that it has attempted, without success, to collect payment from Defendants. (See Rome Decl. ~ 6 ("[A] balance has been outstanding shortly after retention.... Attempts to reconcile with Defendants have not been fruitful.").) These facts further support Robinson Brog's basis for withdrawing as counsel. See Stair, 722 F. Supp. 2d at 264 (noting that a significant period of nonpayment and a substantial fee may justify withdrawal). With regard to the timing of the case, the Court finds that "the prosecution ofthe suit is [not] likely to be disrupted by the withdrawal of counsel." Thekkek v. LaserSculpt, Inc., No. 11- CV-4426, 2012 WL 225924, at *2 (S.D.N.Y. Jan. 23, 2012) (original alteration and internal quotation marks omitted). As Robinson Brog notes, summary judgment is fully briefed and a decision on that Motion is forthcoming, and the Court agrees that "no additional work is required" by counsel at this time. (Rome Decl. ~ 7.) Robinson Brog has attested that in "the brief period between Robinson Brog's retention by Defendants and the deadline to file opposition to the SEC's motion for summary judgment," Robinson Brog was able to "review[] the four-year-old case file" and familiarize itself with the facts and law relevant to the motion. (!d. ~ 5.) While the time frame may have been less than ideal, in approximately two months, Robinson Brog was prepared to represent Defendants at a critical and demanding stage ofthe litigation. Should oral argument on the motion be necessary, incoming counsel would have sufficient time to prepare. Additionally, while this case is certainly not in the early stages, it is not on the brink oftrial. See Thekkek, 2012 WL 225924, at *2 (granting motion to withdraw where the case was not "on the verge of being tried."). Accordingly, the Court grants Robinson Brog's Motion To Withdraw. As to Defendants' request for a stay of the proceedings to allow Defendants sufficient time to retain new counsel, the Court finds a stay is unwarranted at this time. In considering 4
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 5 of 7 whether to grant a stay of the Action the Court must weigh the impact of the stay on the litigants, attorneys, or the judicial system, see Szulik v. Tag Virgin Is., Inc., No. 12-CV-1827, 2013 WL 6009945, at* 1 (S.D.N.Y. Nov. 13, 2013), and whether they would be "prejudiced, harmed[,] or burdened" were the Court to grant the request, see Bruce Lee Enters., LLC v. A. VE.L.A., Inc., No. 10-CV-2333, 2014 WL 1087934, at *3 (S.D.N.Y. Mar. 19, 2014). Even when granting a motion to withdraw counsel, a stay is not mandatory. See, e.g., Maharaj v. Red Shirt Entm 't., LLC, 2015 WL 5730116, at *3 (S.D.N.Y. Sept. 17, 2015) (granting motion to withdraw, declining to stay the proceedings, and giving client 14 days to find new counsel or proceed pro se); Smith v. New York City Dept. Educ., No. 09-CV-9256, 2011 WL 2081817, at *1 (S.D.N.Y. May 24, 2011) (denying a request for a 90-day stay so that the plaintiff could retain new counsel). As noted, the pending motions require no additional work at this juncture, suggesting future and current attorneys would not be burdened by the continuation of the proceedings. For the same reasons, there would be no detriment to Defendants as they have received vigorous representation to date and future counsel would have adequate time to prepare to represent Defendants. Any harm, in the Court's view, would come from staying a more than four-year-old Action in which Defendants have had three different counsel of record. Therefore, the Court denies the request for a stay of the Action in connection with Defendants' efforts to obtain new counsel. B. Bronson's Stay Notice Bronson's Notice asserts that following the filing of Bronson's petition for relief, "this [A]ction has been stayed" "[p]ursuant to[ ] 362 ofthe Bankruptcy Code." (Bronson's Not.) Section 362 "operates as a stay" of actions proceeding against the debtor, see 11 U.S.C. 362(a), 5
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 6 of 7 however, it excepts from the automatic stay the commencement or continuation of an action or proceeding by a governmental unit... to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power...!d. 362(b)(4). "It is well established that the governmental unit exception of 362(b)(4) permits the entry of a money judgment against a debtor so long as the proceeding in which such a judgment is entered is one to enforce the governmental unit's police or regulatory power." SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000) (emphasis omitted). "[W]here a governmental unit is suing a debtor to prevent or stop a violation constituting fraud or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay." SEC v. Miller, 808 F.3d 623, 631 (2d. Cir. 2015) (alterations and internal quotation marks omitted). While "the general policy behind the automatic stay is to grant complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation ofthe debtor's assets before orderly distribution to creditors can be effected," Brennen, 230 F.3d at 75, a debtor cannot "frustrate[e] necessary governmental functions by seeking refuge in bankruptcy court," id. at 71 (internal quotation marks omitted). It is clear that the SEC's Action against Defendants is a proceeding to enforce its "police and regulatory power," 11 U.S.C. 362(b)(4), and it is well within this Court's authority to grant the injunctive relief, disgorgement, and civil monetary penalties the SEC seeks, (see Compl. ~ 4 (Dkt. No. 1)). This proceeding thus falls clearly within the ambit of the governmental unit exception to the automatic stay provision. See SEC v. Lybrand, 281 F. Supp. 2d 726, 732-33 (S.D.N.Y. 2003) (finding the defendant's bankruptcy filing under Chapter 7 did not stay entry of judgment against defendant for injunctive relief, disgorgement, and civil monetary penalties); SEC v. Friedlander, No. 01-CV-4658, 2002 WL 6
Case 7:12-cv-06421-KMK Document 177 Filed 01/11/17 Page 7 of 7 1628832, at *2 (S.D.N.Y. July 23, 2002) ("Here, the SEC's prosecution of a civil fraud action against the defendants, and its attempt to fix damages for violations by the defendants of the securities laws, which are laws with police or regulatory purposes, fall within the Bankruptcy Code's governmental unit exception and are exempted from the automatic stay of litigation in the instant action.") Accordingly, the SEC's Action against Defendant Bronson may proceed. For the foregoing reasons, Robinson Brog's Motion To Withdraw is granted and the application for a stay is denied. The Action against Defendant Bronson can proceed pursuant to 362(b)(4) ofthe Bankruptcy Code. Defendants are directed to retain new counsel within 30 days of the date ofthis Order. See Genao v. City of New York, No. 14-CV-8122, 2017 WL 57886, at *3 (S.D.N.Y. Jan. 4, 2017) (granting the defendant 30 days to obtain new counsel following withdrawal); Blue Angel Films, Ltd. v. First Look Studios, Inc., No. 08-CV -6469, 2011 WL 672245, at *3 (S.D.N.Y. Feb. 17, 2011) (same). 169.) The Clerk of Court is respectfully directed to terminate the pending motion. (Dkt. No. SO ORDERED. DATED: January If, 2017 White Plains, New York 7