Ponte v. Indep. Bank

1

JOHN C. PONTE; and GREENWICH BUSINESS CAPITAL, LLC, formerly known as PONTE INVESTMENTS, LLC v. INDEPENDENCE BANK; ROBERT S. CATANZARO, individually and in his official capacity; ROBERT A. CATANZARO, individually and in his official capacity; HEATHER MARSHALL, individually and in her official capacity; BENJAMIN ANDREW, individually and in his official capacity; JENNIFER L. HOFFMAN-BRION, individually and in her official capacity; KAREN H. BASSETTE, individually and in her official capacity; JESSICA MELENDEZ, individually and in her official capacity; AMERICO PINHEIRO, individually and in his official capacity; THOMAS M. BAIN, individually and in his official capacity; and ROBERT FARIS, individually and in his official capacity

C. A. No. KC-2023-0536

Superior Court of Rhode Island, Kent

April 8, 2024

Kent County Superior Court, Licht, J.

For Plaintiff: Christopher M. Mulhearn, Esq.

For Defendant: Kevin Hagan, Esq. Charles A. Tamuleviz, Esq. William Wynne, IV, Esq

DECISION

LICHT J.

Pursuant to Rule 1.9 of the Rhode Island Rules of Professional Conduct, Defendant Independence Bank (Independence) has moved to disqualify attorney Christopher Mulhearn (Attorney Mulhearn) from representing Plaintiffs John C. Ponte (Ponte) and Greenwich Business Capital, LLC (GBC), formerly known as Ponte Investments, LLC (collectively, Plaintiffs). Plaintiffs object to Independence's motion. For the reasons stated herein, this Court denies Independence's Motion to Disqualify.

I Facts and Travel

Beginning in 2009, Attorney Mulhearn represented Independence in connection with "certain collections efforts, workouts and receiverships." Catanzaro Aff. ¶ 4. During this time, specifically in late 2013, Independence developed a unique business, financial, and operating model in which it would originate, process, underwrite, close, fund, and service Small Business Administration (SBA) loans under a streamlined SBA loan program (the SBA Loan Program). Id. ¶ 3. Independence would also sell portions of those loans on the secondary market. Id. To increase its lending volume under this model, Independence sought relationships with third-party loan referral sources. Id.

On or about December 28, 2014, Attorney Mulhearn connected Independence with Ponte and his company, GBC.^[1] Mulhearn Aff ¶ 2. Following Independence and Plaintiffs' conversations about the SBA Loan Program, Independence engaged Attorney Mulhearn to discuss how the terms of such referral relationships would be set out. Catanzaro Aff. ¶ 7. Further, Independence claims that it confidentially disclosed to Attorney Mulhearn the specifics of the SBA Loan Program, including details of its operational model and the risks of working with third parties. Id. ¶¶ 7, 10.

Thereafter, in March 2015, Independence and/or Ponte instructed Attorney Mulhearn to memorialize the terms of the referral relationship between Independence and Plaintiffs in a contract entitled the "Non-Exclusive Independent Selling Agreement" (the 2015 Contract).^[2] Catanzaro Aff. ¶¶ 5, 7; Mulhearn Aff. ¶ 5. The parties formally entered into the 2015 Contract on or about April 3, 2015. Catanzaro Aff. ¶ 6; Mulhearn Aff. ¶ 5. The 2015 Contract specifically addressed and reflected Independence's SBA Loan Program, Catanzaro Aff. ¶ 5, the parties' respective rights and obligations, and the compensation structure for Plaintiffs. Mulhearn Aff. ¶ 7.

Years later, on or about July 3, 2023, Plaintiffs filed the present action seeking damages arising out of the named Defendants', including Independence, alleged breach of contract, amongst other noncontract claims. See generally Compl. The 2015 Contract serves, in part, as the basis for the breach of contract claim in this suit. Id.

On or about August 29, 2023, Plaintiffs filed their First Amended Complaint. See Am. Compl. Thereafter, on or about October 23, 2023, Plaintiffs filed their Second Amended Complaint. See Second Am. Compl. In response to the Second Amended Complaint, on or about December 14, 2023, Independence and some of the other Defendants, including Robert S. Catanzaro, the Chief Executive Officer of Independence (Catanzaro), filed respective motions to dismiss the Second Amended Complaint. See Mot. to Dismiss Second Am. Compl. Due to now-Plaintiffs' counsel, Attorney Mulhearn, indicating to the Court at a chambers conference that he intended to file a Third Amended Complaint, the December motions to dismiss were deemed moot. On or about February 5, 2024, Plaintiffs filed their Third Amended Complaint. See Third Am. Compl.

After more than seven months of litigation, Independence now alleges for the first time that it recently discovered that the 2015 Contract was in fact drafted and negotiated by Attorney Mulhearn in his prior role as counsel to Independence. For this reason, Independence filed the present motion to disqualify Plaintiffs' counsel with the Court.^[3]

II Standard of Review

"Though the Rhode Island Supreme Court has not expressly adopted a standard of review for a motion to disqualify an attorney from a case, it has expressed on numerous occasions that the proponent of a motion to disqualify has a high burden to meet." Quinn v. Yip, No. KC-2015-0272, 2018 WL 3613145, at *3 (R.I. Super. July 20, 2018); see also Weetamoe Condominium Association v. Town of Bristol, No. PB 02-2517, 2003 WL 21296848, at *2 (R.I. Super. May 7, 2003) ("In order to obtain disqualification of counsel, a moving party carries a heavy burden and must satisfy a high standard of proof."). "[T]o determine whether a situation requires attorney disqualification under Rule 1.9, a court needs to determine '(i) whether there is an attorney-client relationship and (ii) if so, whether there is a substantial relationship between the former representation and present relationship.'" Ageloff v. Noranda, Inc., 936 F.Supp. 72, 75 (D.R.I. 1996) (quoting Polyagro Plastics, Inc. v. Cincinnati Milacron, Inc., 903 F.Supp. 253, 236 (D.P.R. 1995)). "[M]otions to disqualify are generally disfavored because they separate a client from a chosen attorney, inevitably cause delay, and are often made only for tactical reasons." Fregeau v. Deo, No. PC 03-4179, 2005 WL 1837011, at *3 (R.I. Super. Aug. 2, 2005).

III Analysis

Rule 1.9(a) of the Rhode Island Supreme Court Rules of Professional Conduct states that "[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing." Sup. Ct. R. Prof Conduct 1.9(a). Therefore, "[t]o establish a violation of Rule 1.9, Plaintiff must demonstrate that: (1) she was a former client; (2) the current action is substantially related to the prior representation; and (3) Defendant's interests in this matter are materially adverse to Plaintiff's interests." Cronan v. Cronan, No. PC-2022-01255, 2022 WL 17669064, at *3 (R.I. Super. Dec. 5, 2022); see also Audette v. WD & Associates, Inc., No. PC-2021-03727, 2021 WL 5492866, at *3 (R.I. Super. Oct. 29, 2021).

It is undisputed that Independence was a former client of Attorney Mulhearn and that Independence's interests in this case are materially adverse to his current client. Therefore, what is left for this Court to determine is whether this case is the same or substantially related to Attorney Mulhearn's prior representation of Independence.

"[The Rhode Island Superior Court] recognizes that Rhode Island's Rule 1.9 carries with it an irrebuttable presumption that client confidences were obtained in a prior matter if that prior matter and the current matter are the same or substantially related." Quinn, 2018 WL 3613145, at *8. "According to our Supreme Court, the test for determining whether matters are substantially related has . . . honed in its practical application to grant disqualification only upon a showing that the relationship between the issues in the prior and present cases is 'patently clear' or when the issues are 'identical' or 'essentially the same.'" Fregeau, 2005 WL 1837011, at *2; (quoting Brito v. Capone, 819 A.2d 663, 665 (R.I. 2003)). "When a lawyer has been directly involved in a specific transaction, subsequent representation of other clients with materially adverse interests in that transaction clearly is prohibited." Sup. Ct. R. Prof. Conduct 1.9 n.2.

"Matters are 'substantially related' for purposes of this Rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter." Id. n.3. "In the case of an organizational client, general knowledge of the client's policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation." Id.

Several Rhode Island cases have contemplated what facts and circumstances satisfy the element of substantial relation to warrant disqualification of counsel. See 6 Blackstone Valley Place, LLC v. Prime Healthcare Services Landmark LLC, No. PC-2019-4524, 2022 WL 2313764, at *14-16 (R.I. Super. June 3, 2022) (refusing to disqualify attorney where the attorney worked only 5.5 hours over the course of three years on a former client's basic corporate maintenance filings that had no connection to lease in dispute); see also Fregeau, 2005 WL 1837011, at *4 (refusing to disqualify attorney where the new case involved distinct factual...