Rick P. Calpitano et al., Trustees v. LLC (2011)

MEMORANDUM OF DECISION RE MOTION TO DISQUALIFY # 102

BACKGROUND

On July 29, 2010, the plaintiffs, Rick P. Calpitano arid Liliana Calpitano, Trustees of the Calpitano Family Living Trust, brought the present foreclosure action against the debtor-defendants, Fountain Pointe, LLC (Fountain Pointe) and Rick P. Calpitano, in his individual capacity (Calpitano), and naming subsequent interest holders Rotundo Developers, LLC and Fountain Pointe Holdings, LLC as additional defendants.   In their complaint, the plaintiffs allege that on January 11, 2007, the debtor-defendants executed a promissory note to the trust promising to pay $600,000 plus interest accruing at a rate of 15 percent annually on or before January 11, 2009.   The plaintiffs further allege that, to secure payment of the note, Fountain Pointe executed a mortgage to the trust on certain real property it owned.   The plaintiffs finally allege that they own both the note and the mortgage and that the note became due and payable on January 11, 2009.   They seek a foreclosure of the mortgage and a deficiency judgment.

On August 18, 2010, the firm of Weinstein & Wisser, P.C. (firm) entered an appearance in this action on behalf of Fountain Pointe only.   On August 19, 2010, the plaintiff Rick P. Calpitano Trustee (Calpitano Trustee), filed the present motion seeking to disqualify the firm.

THE MOTION TO DISQUALIFY

Calpitano Trustee alleges in the motion that prior to April 8, 2010, Calpitano and Richard Rotundo (Rotundo) were each 50 percent owners of Fountain Pointe, the operation of which was governed by an operating agreement signed March 3, 2006.   Rotundo served as the manager of Fountain Pointe prior to April 23, 2010.   At some point in time, Rotundo misappropriated property belonging to Fountain Pointe by transferring the property to himself or to Rotundo Developers without fairly compensating either Fountain Pointe or Calpitano.

On April 23, 2010, Calpitano obtained a majority interest in Fountain Pointe when Rotundo failed to satisfy a capital call and, as a result, was subjected to a reduction in his membership interest.   Then, on April 23, 2010, Calpitano, as majority owner, removed Rotundo as manager and terminated the services of the firm.

Trustee Calpitano claims that disqualification of the firm is required because it has been discharged.   The trustee also argues that because the firm in fact simultaneously represents both Rotundo individually and Fountain Pointe, there is a conflict of interest that violates Rule 1.7 of the Rules of Professional Conduct.

It is the duty of the Superior Court to enforce the canons of ethics.   In its execution of this duty, the Superior Court has broad discretionary power to determine whether an attorney should be disqualified for an alleged breach of confidentiality or conflict of interest ․ The party moving to disqualify bears the burden of proof that there are grounds for disqualification ․ In light of the serious consequences of a disqualification motion, some of which include denial of counsel of choice, tactical advantage and delay, disqualification motions are carefully scrutinized.  (Citations omitted;  internal quotation marks omitted.)

People's Bank v. 418 Meadow Street Associates, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 07 5007172 (December 7, 2007, Maiocco, J.T.R.).

A

Rule 1.16 - Declining or Terminating Representation

Calpitano Trustee argues that the firm's representation of Fountain Pointe was terminated by Calpitano, who acquired managerial control of Fountain Pointe when Rotondo failed to satisfy a capital call pursuant to the operating agreement.

Rule 1.16 of the Rules of Professional Conduct provides in pertinent part, “[A] lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:  (3) The lawyer is discharged.”   A client has the right to discharge a lawyer at any time, with or without cause.   See Commentary to Rule 1.16.

The issue before the court is whether the firm was discharged by the client, Fountain Pointe.   That depends on whether Calpitano had the authority to discharge the firm, and that depends on whether Calpitano was a member/manager of the firm at the time of the alleged discharge.   This aspect of the claim for disqualification rests on Calpitano's claims that Rotundo's interest in Fountain Pointe was reduced below 50% as a result of capital calls in April 2010, that Calpitano terminated Rotundo as Manager, and that Calpitano, as Manager, terminated the firm's representation of Fountain Pointe.

The movant has not sustained his burden to prove that the firm has been terminated by a person with authority.   The evidence surrounding Calpitano's authority to discharge the firm is unreliable and equivocal, particularly as to whether Calpitano was a member of Fountain Pointe at the time of the capital call or whether he had transferred his interest to Liliana Calpitano, and, as to whether the capital call, based on a disagreement over the distribution of profits, was in any event valid.   The evidence includes a capital call made on April 8, 2010, signed by “Rick P. Calpitano and/or Liliana Calpitano, 50% Managing/Members Fountain Pointe LLC” purportedly thereby reducing Rotundo's capital account from 50% to 25.81%. There is also an agreement dated January 11, 2007, entitled “Transfer and Return of Membership Interest Open Ended Agreement,” which characterizes Rick P. Calpitano as current member of Fountain Pointe LLC and Liliana Calpitano as interim future member of Fountain Pointe LLC. There are tax documents and Fountain Pointe resolutions identifying Liliana as a 50% member.   There are tax returns of Fountain Pointe with Schedule K–1 showing Liliana as a 50% member of Fountain Pointe and Rotundo as a 50% member.   Attached to the complaint are two identical notes, each for $600,000 and each dated January 11, 2007.   One note is signed by Rick P. Calpitano, Member/Manager, on behalf of Fountain Pointe and the other is signed by Liliana Calpitano, Member/Manager, on behalf of Fountain Pointe.

As to who had authority to discharge the firm, the law does not require this court to pick and choose between proffered possibilities which are based on equivocal and unreliable evidence.   It is Trustee Calpitano's burden to persuade and to prove his claim by a preponderance of the evidence that the firm has been terminated.

B

Rule 1.7(a)(1)-Conflict of Interest:  Current Clients

Trustee Calpitano claims that Attorney Wisser of the firm has represented at various times that he simultaneously represents Rotundo, individually, and Fountain Pointe.   He further argues that, due to Rotundo's misappropriation of property from Fountain Pointe, Rotundo's interest is adverse to that of Fountain Ponte.

Rule 1.7 provides in relevant part:

(a) Except as provided in subsection (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.   A concurrent conflict of interest exists if:  (1) the representation of one client will be directly adverse to another client;  or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.1

1) Rule 1.7(a)(1)-Representation of Client with Interests Directly Adverse to Another Client

If Rotundo is determined to be a client of the firm along with Fountain Pointe, there would be a conflict of interest if their interests are “directly adverse” to each other.

Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client's informed consent.   Thus, absent consent, a lawyer may not act as advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated ․ Similarly, a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, when the testimony will be damaging to the client who is represented in the lawsuit.Directly adverse conflicts can also arise in transactional matters.   For example, if a lawyer is asked to represent the seller of a business in negotiations with a buyer represented by the lawyer, not in the same transaction but in another, unrelated matter, the lawyer could not undertake the representation without the informed consent of each client.

Rules of Professional Conduct 1.7, commentary.

If Rotundo is not a client of the firm, then there can be no conflict of interest under Rule 1.7(a)(1).   The issue that arises in the present case is whether, as claimed by Trustee Calpitano, representations by Attorney Wisser that Rotundo is the firm's client are sufficient to find the existence of an attorney-client relationship.  “[F]or purposes of determining the lawyer's authority and responsibility, principles of substantive law external to [the Rules of Professional Conduct] determine whether a client-lawyer relationship exists.”   Rules of Professional Conduct, Scope.  “An attorney-client relationship is established when the advice and assistance of the attorney is sought and received in matters pertinent to his profession ․ The burden of establishing an attorney-client relationship is on the party claiming the existence of such a relationship.”  (Citation omitted;  internal quotation marks omitted.)  DiStefano v. Milardo, 276 Conn. 416, 422 (2005).

Whether an attorney-client relationship exists depends on the relevant facts and circumstances, including the existence of a retainer agreement or contract.  Id., 422–24.   For example, in DiStefano v. Milardo, 82 Conn.App. 838, 845 (2004), aff'd, 276 Conn. 416 (2005), which involved a breach of fiduciary duty claim, the Appellate Court held that the plaintiff failed to present sufficient evidence of the existence of an attorney-client relationship between her attorney and her son in order to compel the trial court to submit the issue to the jury.   The facts found by the court to be insufficient included the following:  The son, whom the plaintiff had asked to sell two parcels of real property for her, faxed relevant documents to the plaintiff's attorney, discussed those documents with him, reviewed two quitclaim deeds executed by the plaintiff that the attorney had given to him to review, listened to “fatherly advice” from the attorney about the plaintiff's alcoholism, and did not hire separate counsel to review the quitclaim deeds.   See id., 846–47.

In the present case, the evidence relied upon by the movant of an attorney-client relationship between the firm and Rotundo is a statement or statements made by Attorney Wisser to Calpitano that he represents Fountain Pointe and Richard Rotundo.   It is unclear from the context whether the statement(s) relied upon by the movant were made on behalf of Rotundo as member/manager of Fountain Pointe or of Rotundo, individually.   The firm's representation of Fountain Pointe, a company of which Rotundo is a member, does not mean that the firm automatically represents Rotundo personally.   See Rules of Professional Conduct 1.13;  Fairfax Properties, Inc. v. Lyons, 72 Conn.App. 426.   FN 3 (2002).   The movant has not shown that Rotundo, acting in his personal capacity, sought and obtained legal advice from the firm or that Rotundo has a contract or retainer agreement with the firm.   Previous statements made by Attorney Wisser that the firm represents Rotundo are insufficient by themselves to sustain the finding of an attorney-client relationship between the firm and Rotundo personally.   As such, there cannot be a conflict of interest based on Rule 1.7(a)(1).   Furthermore, even if Attorney Wisser's statements could establish such a relationship, there is no evidence of any direct adversity between Fountain Pointe and Rotundo.   Rotundo is not a party to this lawsuit, and there is no indication that Rotundo is an opponent of Fountain Pointe in this or in any other action.   Trustee Calpitano has claimed a fraudulent transfer of Fountain Pointe's property by Rotundo.   While Calpitano and Rotundo may have fraud claims inter sese, and while Fountain Pointe has claimed fraud in the loan at issue, the evidence presented does not indicate that Fountain Pointe has such a claim against Rotundo.

2) Rule 1.7(a)(2)-Representation That May Be Materially Limited by Other Responsibilities or Interests of an Attorney

Because the evidence does not support a finding of an attorney-client relationship, now or in the past, between Rotundo and the firm or that Attorney Wisser has a disqualifying personal interest, conflict could arise under Rule 1.7(a)(2) based on some duty or responsibility that the firm owes to Rotundo as a “third person.”

Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests.   For example, a lawyer asked to represent several individuals seeking to form a joint venture is likely to be materially limited in the lawyer's ability to recommend or advocate all possible positions that each might take because of the lawyer's duty of loyalty to the others.   The conflict in effect forecloses alternatives that would otherwise be available to the client.   The mere possibility of subsequent harm does not itself require disclosure and consent.   The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.

Rules of Professional Conduct 1.7, commentary.

There is no indication of the nature of the relationship between the firm and Rotundo other than Attorney Wisser's “statements.”   Trustee Calpitano refers to Rotundo's alleged misappropriation of property from Fountain Pointe as the basis for a conflict of interest but points to no reason to believe that Rotundo's alleged misappropriation would affect or limit the firm's ability to use the best strategy and tactics available to defend Fountain Pointe in this foreclosure, especially in light of the history of foreclosure litigation and its defense.²

CONCLUSION

It is the movant Calpitano's burden to establish the existence of the disqualifying interest in order to prevail on his motion.   Because there is insufficient evidence to establish an attorney-client relationship between the firm and Rotundo, individually, Trustee Calpitano has failed to establish a conflict of interest under Rule 1.7(a)(1).   Furthermore, because there is insufficient evidence of the nature of the relationship, if any, between the firm and Rotundo, individually, Calpitano has failed to establish that there is a significant risk that the finn's representation of Fountain Pointe would be materially limited by a responsibility of the firm arising from such relationship, which would constitute a conflict of interest under Rule 1.7(a)(2).   Finally, the plaintiff has failed to sustain his burden to prove that Fountain Pointe through a duly authorized member/manager terminated the firm's representation of Fountain Pointe in this foreclosure action.

Disqualification is not warranted under the facts presented.   The motion to disqualify is denied.

Tanzer, J.T.R.

FOOTNOTES

FN1. Even if there is a concurrent conflict of interest, under Rule 1.7(b), “a lawyer may represent a client if:(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 client represented by the lawyer in the same litigation or the same proceeding before any tribunal;  and(4) each affected client gives informed consent, confirmed in writing.”.  FN1. Even if there is a concurrent conflict of interest, under Rule 1.7(b), “a lawyer may represent a client if:(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 client represented by the lawyer in the same litigation or the same proceeding before any tribunal;  and(4) each affected client gives informed consent, confirmed in writing.”

FN2. This is the second action seeking to foreclose the Fountain Pointe mortgage to the Calpitano Family Living Trust.   The first, entitled Calpitano Family Living Trust v. Fountain Pointe, LLC et al., HHB CV 10–6004007 S was, unbeknownst to Rotundo, filed on March 9, 2010, and served upon Rick P. Calpitano as the “Manager/Member” of Fountain Pointe and Rick P. Calpitano, individually.   No appearance was filed on behalf of either Fountain Pointe or Calpitano, and defaults were entered against them on March 25, 2010.   By happenstance, the action came to the attention of Rotundo who then retained the firm to represent Fountain Pointe in the litigation.   It was subsequent to the firm's appearance on April 4, 2010, to defend the first foreclosure action that Calpitano and/or Liliana Calpitano initiated the April 8, 2010 capital calls and “discharged” the firm.   The first foreclosure action was dismissed for lack of subject matter jurisdiction;  this second foreclosure action ensued..  FN2. This is the second action seeking to foreclose the Fountain Pointe mortgage to the Calpitano Family Living Trust.   The first, entitled Calpitano Family Living Trust v. Fountain Pointe, LLC et al., HHB CV 10–6004007 S was, unbeknownst to Rotundo, filed on March 9, 2010, and served upon Rick P. Calpitano as the “Manager/Member” of Fountain Pointe and Rick P. Calpitano, individually.   No appearance was filed on behalf of either Fountain Pointe or Calpitano, and defaults were entered against them on March 25, 2010.   By happenstance, the action came to the attention of Rotundo who then retained the firm to represent Fountain Pointe in the litigation.   It was subsequent to the firm's appearance on April 4, 2010, to defend the first foreclosure action that Calpitano and/or Liliana Calpitano initiated the April 8, 2010 capital calls and “discharged” the firm.   The first foreclosure action was dismissed for lack of subject matter jurisdiction;  this second foreclosure action ensued.

Tanzer, Lois, J.T.R.