More on the con games of $NEWL manifests itself in Court Document 324
I. Preliminary Statement
Reed Smith’s “Emergency” motion to withdraw and stay this action should be denied because it is a transparent ploy to delay these proceedings and frustrate the discovery process. It is no coincidence that despite Reed Smith’s admission that “a portion of [the unpaid fees] has been outstanding since August, 2014”, (See Emergency Affirmation in Support of Order to Show Cause of Evan Farber, “Farber Aff.” at Para. 4), Reed Smith waited to file its motion to withdraw until after this Court ordered individual Defendants Zolotas and Berkowitz to appear in New York for their depositions no later than July 15, 2015.1 It is also no coincidence that Reed Smith’s motion to withdraw comes days after TransAsia sent Reed Smith a Rule 130 - 1.1 letter, highlighting the frivolous nature of Defendants’ counterclaims, and threatening sanctions unless those counterclaims were withdrawn within 7 days. See Letter dated May 29, 2015, attached as Exhibit A. The only “emergency” here is that Defendants have run out of other delay tactics and are now playing the withdrawal of counsel card, all to avoid being questioned under oath and answering for their fraud. Accordingly, Reed Smith’s bad faith, strategically timed withdrawal motion should be denied. Reed Smith’s request for leave to withdraw is based entirely on the factual averments of the Farber Affirmation. But that sworn affirmation is insufficient to justify Reed Smith’s withdrawal, and serves only to raise serious questions about what is really going on here.
First, why has a situation that has, according to Mr. Farber, festered for ten months suddenly become an “emergency”? How can Reed Smith simultaneously aver that they are not being paid, while vaguely acknowledging elsewhere in the Farber Affirmation that “some payments” and “partial payments” have been received from Defendants since January 2015. Reed Smith’s withdrawal motion is notably silent as to the amounts or dates of these “partial payments” and attaches no correspondence at all with Defendants on the topic of fees. Second, the Farber Affirmation alleges that Reed Smith has unsuccessfully sought the Defendants’ consent to withdraw as counsel of record (Farber Aff., at Para. 8). But this sworn averment has already been contradicted by the Defendants themselves, whose spokesperson informed a reporter for an on-line publication that “NewLead together with Reed Smith decided that finding an alternative less expensive legal firm was the best way forward for both parties. Third, and of great importance, the Farber Affirmation seeks a retaining lien on the case file until payment of their fees is tendered. (See Farber Aff., at Para. 10) Of course, allowing Reed Smith to have a retaining lien until such time as they are paid in full is but one more way for NewLead to ensure that this case enters an indefinite state of suspended animation. All they need do is not pay Reed Smith, and no new firm (assuming, arguendo, that they actually intend to ever retain new counsel) will ever be ready to proceed with the defense of this case. The perfect Catch - 22! Fourth, that Reed Smith’s motion to withdraw is tactical is further established by the incontrovertible fact that Defendants’ have the means to pay Reed Smith. The individual defendants, Zolotas and Berkowitz, hold positions with NewLead entities that pay them millions of dollars a year. According to an employment agreement Defendant Zolotas has with Defendant NewLead Holdings, Ltd. dated January 1, 2013 and effective through 2018, Zolotas earns a “base salary” of $1.5 million per year, plus an aggregate annual bonus of $4.5 million. See Employment Agreement of Michael Zolotas, attached as Exhibit “D”. Under the terms of his employment agreement with Defendant NewLead JMEG, dated April 19, 2012, Berkowitz is paid a salary of $600,000 per year, through 2022. Berkowitz is also eligible for a bonus of 150% of that amount, or an additional $900,000 per year. See Employment Agreement of Jan Berkowitz, attached as Exhibit “E”. In short, Zolotas and Berkowitz both have the means to pay Defendants’ legal bills, as does Defendant NewLead Holdings. Specifically, on June 1, 2015, a few days before Reed Smith filed its motion to withdraw, NewLead Holdings, in a presentation in California delivered by Defendant Zolotas, held itself out as a profitable shipping entity that currently owns and operates at least ten (10) ocean going vessels. The presentation boasts of Defendant NewLead Holdings’ “Cash flow stability” and its “Sustainable revenues” (Ex. F, at 7); it touts its “long lasting commercial relationships with leading dry bulk charters” (id. at 8); and highlights its growth and company leadership experience (id. at 27–33). Indeed, NewLead Holdings intends in 2015 to “double its fleet to 20 vessels” under its “diversified business model across two major shipping sectors[.]” Id. at 35. Together, these statements made by and on behalf of Defendants belie any contention by Reed Smith or the Defendants that they lack the wherewithal to pay Reed Smith. This begs thequestion; why have they chosen to not pay their lawyers in full? Of course, the only way to know this for certain is to hear directly from the Principals of the Defendants, Mr. Zolotas and Mr. Berkowitz, both of whom, for purposes of this motion, have been glaringly silent. For that reason, TransAsia respectfully requests that unless this Court denies Reed Smith’s Motion outright, (which is fully justified under these circumstances) any decision on the withdrawal motion should be held in abeyance pending an in-person appearance by Mr. Zolotas and Mr.
Berkowitz, at which time they can be questioned under oath about why they have not paid Reed Smith in full. At the same time, the Court can also inquire about statements in the public filings of Defendant NewLead Holdings, indicating that the company maintains Directors & Officers Insurance coverage, which may pay the costs of defense and indemnity for the type of claims
being asserted in this case. Defendants can also be questioned at that time about whether they continue to employ Reed Smith on several other pending matters and ongoing litigations. The
Court can also inquire as to how many New York firms the Defendants currently employ and whether any of those law firms have sought to withdraw for non-payment of fees.
TransAsia emphasizes that Reed Smith’s motion to withdraw is wholly devoid of any evidentiary support, and thus cannot meet the standard applicable on a motion to withdraw. Beyond the bare assertion that Defendants have paid some, but not all, fees incurred by Defendants since August of 2014, the motion contains no supporting documentation regarding the amounts outstanding, Reed Smith’s collection efforts, and the hardship Reed Smith is allegedly suffering. Mere failure to pay some portion of Reed Smith’s fees, without more, is insufficient for withdrawal under New York law. Finally, TransAsia urges this Court to bear in mind the fact that Defendants’ breach of contract and fraud destroyed TransAsia’s business and forced it into administration proceedings in the United Kingdom. TransAsia has been litigating this action for eighteen (18) months, confronting at every turn Defendants’ strategy to delay the discovery process, in what is clearly the hope of bleeding TransAsia dry. Any further delay will be highly prejudicial to TransAsia. A stay on the eve of Defendants’ depositions will indefinitely delay discovery and the resolution of this matter, which has already been pending for eighteen months without a single party deposition having occurred. In this case, more than most, the adage that “justice delayed is justice denied” is completely applicable.
II. Argument and Authorities
New York CPLR § 321(b) permits counsel to withdraw with consent of the client or by order of the Court. As noted in the Farber Affirmation, the Defendants in this case have not indicated to this Court that they consent to Reed Smith’s withdrawal. See Mot. to Withdraw and Stay ¶ 8 (Reed Smith emailed Defendants that it planned “to withdraw as counsel of record, and seeking [Defendants’] consent to the same, which was not provided.”). Consequently, withdrawal is only permissible by this Court’s order. See N.Y. CPLR § 321(b). As noted above, the only statement by Defendants is what their spokesperson told a reporter – a statement which contradicts the Farber Affirmation. Under New York law, in order to terminate its representation of Defendants, Reed Smith must “make a showing of good or sufficient cause and reasonable notice.” Kaufman v. Kaufman, 880 N.Y.S.2d 491, 491 (1st Dep't 2009) (quoting George v. George, 629 N.Y.S.2d 602 (4th Dep’t 1995)). “The mere fact that a client fails to pay an attorney for services rendered does not, without more, entitle the attorney to withdraw.” Id. (citations omitted); George v. George, 629 N.Y.S.2d 602, 603 (N.Y. App. Div. 4th Dep't 1995); Jessamy v Doran Group, 959 N.Y.S.2d 89 (N.Y. Sup. Ct. 2012); Klein v. Klein, 800 N.Y.S.2d 348 (N.Y. Sup. Ct. 2005). Moreover, the record must establish that the basis for withdrawal, the client’s conduct, renders it unreasonably difficult for counsel to carry out his employment effectively. Cashdan v. Cashdan, 663 N.Y.S.2d 271, 272 (2d Dep't 1997). It is within the Court’s sound discretion to grant a motion to withdraw as counsel. See Haskell v. Haskell, 586 N.Y.S.2d 630, 630–31 (N.Y. App. Div. 2d Dep't 1992); Jessamy v Doran Group, 959 N.Y.S.2d 89 (N.Y. Sup. Ct. 2012). Courts applying New York law have denied motions to withdraw where, as here, the effect of a withdrawal would improperly delay discovery. In SEC v. Gib. Global Secs., Inc., No. 13 Civ. 2575 (S.D.N.Y. May 8, 2015), a case in the Southern District applying New York law to decide a motion to withdraw as counsel, the court held as follows:
Here, however, it is clear that DOR's withdrawal would further delay—perhaps indefinitely—the already overdue production of documents and the scheduling of the defendants' depositions. Indeed, the withdrawal appears to be designed for that purpose. The defendants and their counsel have already delayed the depositions of Mr. Davis and Gibraltar by failing to cooperate with the SEC regarding scheduling. DOR then filed this motion the day before the defendants were required to produce documents pursuant to my order, without requesting an extension of time to produce such documents or notifying the SEC that they would not be timely produced. Mr. Davis professes that he does not believe he is obligated to engage with the litigation, that he does not intend to do so, and that he will not hire replacement counsel. The SEC's efforts to obtain discovery and testimony would be further frustrated in the event of withdrawal because they
have no means of communicating directly with Mr. Davis or Gibraltar. It would be inappropriate to reward these dilatory tactics and Mr. Davis' disregard for the court's authority by granting the withdrawal motion at this time, thereby significantly disrupting the prosecution of both Gibraltar and Carrillo Huettel. See SEC v. Great American Technologies, Inc., No. 07 Civ. 10694, 2009 U.S. Dist.LEXIS 117589, 2009 WL 4885153, at *5 (S.D.N.Y. Dec. 15, 2009) (denying motion to withdraw where party in question had disobeyed discovery orders and willfully delayed scheduling of deposition, finding withdrawal would "necessarily lead to further delays in the completion of th[e] case"); Small v. Regalbuto, No. 06 CV 1721, 2009 U.S. Dist. LEXIS 55033, 2009 WL 1911827, at *2 (N.D. Ohio June 29, 2009) (denying motion to withdraw that appeared to be "a delaying tactic to again avoid providing the discovery" that the defendant had already "substantial[ly] delay[ed]" in case where counsel was fired); Towns v. Morris, 50 F.3d 8, 1995 U.S. App. LEXIS 11455 (Table) [published in full-text format at 1995 U.S. App. LEXIS 5798 at *7] (4th Cir. 1995) (finding denial of withdrawal motion pending compliance with discovery obligations in case where attorney was discharged "consistent with the court's responsibility to fairly and effectively administer the litigation").
Conclusion
In light of the disruption DOR's withdrawal would cause under the present circumstances, DOR's motion is denied without prejudice to any future application made upon a showing that: (1) Gibraltar and Mr. Davis have produced the required discovery, (2) Mr. Davis and Gibraltar's witnesses have appeared for deposition, and (3) the SEC has been provided with Mr. Davis' e-mail address, phone number, and physical address, as well as a physical address at which Gibraltar may be served.” SEC v. Gib. Global Secs., Inc., No. 13 Civ. 2575, 2015 U.S. Dist. LEXIS 60937, *8–12 (S.D.N.Y. May 8, 2015) (internal record citations omitted). Here, there can be no doubt that the Reed Smith motion to withdraw is a delaying tactic to avoid providing discovery; the depositions of Defendants Zolotas and Berkowitz. Like the court in SEC v. Gib. Global Securities, supra, this Court has the discretion to fashion an Order denying the Motion to Withdraw without prejudice to a future application after Messrs. Zolotas and Berkowitz have been deposed. All of the circumstances outlined above bespeak a carefully choreographed tactical move
designed to stop this case in its tracks at the most critical point in the discovery process. In fact, the limited information supplied by Reed Smith demonstrates that payments by Defendants were ongoing (see Mot. to Withdraw and Stay ¶¶ 5–6), making withdrawal inappropriate. See, e.g., Cashdan, 663 N.Y.S.2d at 272 (denying withdrawal motion because “Although counsel has asserted that the defendant refuses to pay her legal fees, the record demonstrates that the defendant was making regular installment payments to counsel toward her balance”). While the
client in the Cashdan case asserted that the law firm had agreed to such an arrangement, Defendants’ failure to consent to Reed Smith’s withdrawal may indicate that an agreement to pay
Reed Smith’s fees in installments does exist. In any event, Reed Smith’s motion to withdraw lacks any evidentiary basis beyond bare, unsupported allegations of Defendants’ failure to pay.
Under New York law, this is not sufficient, fails to meet the applicable standard, and in and of itself warrants a denial of the motion. Based on the foregoing, TransAsia respectfully requests that this Court deny Reed Smith’s motion to withdraw and for a stay. In the alternative, if this Court is considering allowing Reed Smith to withdraw, the Court should first order Defendants Zolotas and Berkowitz to appear in person to explain how much they have paid Reed Smith to date on account of this litigation, why they are not paying some or all of Reed Smith’s bills, and whether they have in fact entered into an agreement with Reed Smith regarding the firm’s withdrawal as reported in the press this week. This action should not be stayed, and Defendants Zolotas and Berkowitz should be ordered to appear for their depositions in New York City on or before July 15, 2015.
III. Conclusion
For the foregoing reasons, TransAsia respectfully requests this Court deny Reed Smith’s motion to withdraw and stay this case, order Defendants to appear on or before July 15, 2015 to be deposed in New York City, in accordance with the Court’s prior order, and for such other relief to which the Court deems TransAsia entitled.
Dated: New York, New York
June 12, 2015
Cozen O’Connor
/s/ Melissa Brill
Melissa Brill
45 Broadway 16th Floor
New York, New York 10006
212.509.9400
mbrill@cozen.com
Eric D. Freed
1900 Market Street
Philadelphia, PA 19103
215-665-3724
efreed@cozen.com
Admitted pro hac vice
Attorneys for Plaintiff
TransAsia Commodities Investment Limited
