November 13, 2014

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Jack B. Weinstein granted a habeas petition based on ineffective assistance of trial counsel. Judge Nina Gershon imposed sanctions against Arab Bank for improperly persisting in its refusal to produce account information relating to the bank's alleged facilitation of terrorism. And Judge Arthur D. Spatt granted a motion to disqualify defendants' attorney because of confidential knowledge he had acquired from his relationship with plaintiff.

Ineffective Assistance

In Graham v. Portuondo, 01 CV 6911 (EDNY, Aug. 12, 2010), Judge Weinstein, granting a habeas petition, held that trial counsel's failure to develop and present an adequate psychiatric defense seriously prejudiced petitioner and amounted to ineffective assistance of counsel.

Following a 1996 jury trial in Supreme Court, Kings County, petitioner was found guilty of 'depraved indifference' murder and sentenced to the maximum of 25 years to life. The evidence showed that he had entered his former girlfriend's car, became enraged when she did not return his 'respiratory therapist license,' and stabbed her 19 times. The conviction was affirmed on direct review.

In 2001 petitioner sought federal habeas relief, based on ineffective assistance and other grounds. The district court denied the petition after an evidentiary hearing. The U.S. Court of Appeals for the Second Circuit reversed and remanded for assignment of counsel and a second evidentiary hearing.

Newly appointed counsel filed supplemental papers in support of the original habeas petition. The district court conducted another evidentiary hearing, focusing largely on psychiatric issues.

As Judge Weinstein held, defense counsel at trial did not meet minimum Sixth Amendment standards. In light of the full record developed by habeas counsel, Judge Weinstein found that trial counsel never sought important psychiatric records; that these records were obtainable; and that, contrary to trial counsel's testimony at the federal hearing, he never consulted with one Dr. Eshekenazi, a psychiatrist, about whether petitioner had a viable psychiatric presentation or defense. Counsel's failure to pursue such steps that even he admittedly deemed salient to assessing a potential defense could not be excused as 'strategic.' Slip op. 13-16.

The record was equally clear that counsel's deficient performance was prejudicial. At the federal hearing, a defense psychiatrist testified that, at the time of the killing, petitioner was suffering from psychotic rage and believed, in his deluded state, that the victim was withholding his 'respiratory therapist license.' As Judge Weinstein noted, '[t]here was no such license.' But for trial counsel's failure to present psychiatric evidence, the jury would probably have reached a result more favorable to petitioner. Moreover, a presentation of this evidence would likely have led to a lesser sentence. Slip op. 16-18.

Judge Weinstein also found no procedural barriers to habeas relief. Slip op. 8-9, 18-21.

Foreign Bank Secrecy Laws

In Linde v. Arab Bank, PLC, 04 CV 2799 (July 12, 2010), Judge Gershon sanctioned defendant Arab Bank for relying on foreign bank secrecy laws to refuse production of information about its accounts and account holders when that refusal persisted even after the court had ruled that 'defendant's foreign bank secrecy concerns must yield to United States interests in combating terrorism.' Slip. op. 6. The discovery dispute was framed by plaintiffs' underlying claims under the Anti-Terrorism Act, 18 U.S.C. §§2332 et seq., and under analogous foreign laws incorporated through the Alien Tort Claims Act, 28 U.S.C. §1350, seeking recovery for Arab Bank's knowing and intentional facilitation of terrorist attacks through its financial activities. Plaintiffs are victims, or the family members of victims, of such attacks.

Plaintiffs had focused on 11 bank accounts which Arab Bank admitted it maintained on behalf of people or organizations designated by U.S. or foreign authorities as terrorist related. Despite its professed bank secrecy concerns, Arab Bank had produced documents from one of these accounts after obtaining consent from Lebanese authorities. That production, along with other evidence collected by plaintiffs from Arab Bank or other sources, convinced the court that full production of records relating to the remaining 10 accounts would likely have shown facilitation of terrorist activity in each of them, including numerous payments made as part of a 'martyr's' program, rewarding family members for the criminal acts of deceased terrorists. Slip op. 14-15, 21.

Judge Gershon found that, in refusing to produce account records, Arab Bank relied on objections, based on foreign bank secrecy laws, that the court had already rejected. This conduct placed defendant 'in a location approaching willfulness.' Slip op. 20. Moreover, sanctions were warranted, even without a finding of bad faith, because they were necessary to restore plaintiffs to the position they would have been in had defendant complied with its discovery obligations. Slip op. 11.

Judge Gershon granted a permissive adverse inference charge concerning the activities in the accounts for which information was withheld, and concerning Arab Bank's state of mind with respect to those activities. The court also precluded Arab Bank from making arguments or offering evidence that would 'find proof or refutation in the withheld documents,' and awarded plaintiffs attorney's fees and costs, in an amount to be determined, 'incurred as a result of defendant's production failures and the resulting sanctions litigation. ' Slip op. 32.

Attorney Disqualification

In Miness v. Ahuja, 09 CV 2794 (EDNY, July 31, 2010), Judge Spatt disqualified defendants' attorney because of information he had acquired as plaintiff's long-time friend and confidant.

Plaintiff sold his nursing home business, along with its facilities, to defendants. Defendants retained plaintiff as a consultant after the purchase, but fired him within a few months. Plaintiff claimed here that in 2008 defendants had coerced him into accepting unfavorable terms of employment and had fraudulently induced him to sell the business by misrepresenting their intention to improve the facilities.

Plaintiff moved to disqualify defendants' counsel, Michael Schulman, and the court held a hearing on the motion in June 2010.

Plaintiff testified that he and Mr. Schulman had known each other for 12 years. For 10 years they played golf once or twice a week and had breakfast together. During these outings they discussed business interests and other personal financial matters. At one time, plaintiff loaned Mr. Schulman money. While negotiating the sale of his business, plaintiff discussed the sale with Mr. Schulman, who knew plaintiff was having financial problems. Following the sale, plaintiff told Mr. Schulman in specific terms about his problems with defendants. He also discussed the fact that the Crowe, Deegan law firm, his long-time lawyers who had represented him in the sale, would have to be witnesses in his case against defendants.

Plaintiff expressed his fear to Mr. Schulman that defendants could use a certain contract provision to terminate his services, which is what happened. Each time they discussed these matters, Mr. Schulman assured plaintiff that he would be there for him if needed. Shortly after his termination plaintiff met with Mr. Schulman to discuss potential litigation. During ensuing conversations plaintiff solicited Mr. Schulman's advice.

Mr. Schulman denied knowledge of plaintiff's personal situation and contended his friendship with plaintiff diminished in April or May 2009.

As Judge Spatt observed, disqualification of counsel is viewed with disfavor because litigants have the right to retain counsel of their choosing. In the past, federal courts in New York have had two bases upon which to disqualify an attorney: where (1) the attorney's conflict of interest undermined the court's confidence in his or her ability to represent the client, and (2) the attorney was in a position to use privileged information from a prior representation giving his or her present client an unfair advantage.

Since April 2009, when New York adopted the new Code of Professional Conduct, courts have had a third basis for disqualification: where an attorney is in a position to use confidential information obtained from a potential client. Slip op. 28. This ground for disqualification derives from the New York Code of Professional Responsibility Rule 1.18.

Here, the two prongs of Rule 1.18 were satisfied: (1) plaintiff was a prospective client, and (2) Mr. Schulman possessed confidential information obtained from plaintiff relevant to his representation of defendants. In reaching this conclusion, Judge Spatt pointed to the long-term relationship between plaintiff and Mr. Schulman and the confidences plaintiff shared with Mr. Schulman during their conversations about plaintiff's sale of his business, his contract with defendants and his termination. Additionally, the court found it likely that defendants were aware of the relationship between plaintiff and Mr. Schulman and that a reasonable party, before retaining Schulman, even if unfamiliar with the relevant ethical rules, would have considered the potential conflict that Schulman faced in representing the defendants in this matter. Thus, the defendants may well have been aware of the factual basis underlying the Court's present disqualification of Schulman. Slip op. 33.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the September 10, 2010, issue of the New York Law Journal. Copyright © 2010 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]