Done Right Builders et al v. Kaiser et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
Walter W. Kaiser and
Helen Kaiser,
Debtors.
Done Right Builders,
Plaintiff,
v.
Walter W. Kaiser, et al.,
Defendants.
) 	Case No.: 09-38696
)
) 	Chapter 7
)
) 	Adv. Pro. No. 10-3109
)
) 	Hon. Mary Ann Whipple
)
)
)
)
)
)
)
)
MEMORANDUM OF DECISION AND ORDER
This adversary proceeding is before the court on Plaintiff’s amended motion to disqualify
Defendants’ attorney [Doc. # 21], and Defendants’ amended response [Doc. # 18]. Defendants are debtors
in the underlying Chapter 7 case. In its complaint, Plaintiff seeks a determination that a debt owed to it by
Defendants is nondischargeable under 11 U.S.C. § 523(a)(2)(A). Plaintiff argues that litigation of issues
raised in the complaint will require the testimony of Defendants’ attorney, Charles R. Hall (“Hall”) and that
The court incorporates by reference in this paragraph and adopts as the findings
and orders of this court the document set forth below. This document has been
entered electronically in the record of the United States Bankruptcy Court for the
Northern District of Ohio.
Dated: August 06 2010
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a conflict of interest exists since Hall is also a named creditor in Defendants’ Chapter 7 case. 	For the
following reasons, Plaintiff’s Motion to Disqualify will be denied.
BACKGROUND
The following facts are alleged in Plaintiff’s complaint. Defendants engaged Plaintiff’s services to
tear down and rebuild their residence after they experienced a property casualty loss. [Doc. # 1, Complaint,
¶ 6]. Throughout the course of the rebuild, Plaintiff submitted invoices to Defendants for work completed
that were ultimately paid by Defendants’ insurer, Allstate Insurance Company (“Allstate”). 	Plaintiff
received $99,900 of the total $122,900 billed but did not receive payment of the last invoice of $23,000. [Id.
at ¶¶ 7-9]. Defendants assured Plaintiff that it would be paid throughout the final phase of the rebuild and
Plaintiff relied on those assurances. [Id. at ¶ 25-26]. 	After completion of the rebuild, Defendant Helen
Kaiser called Allstate to inform it that the work was completed and done in a satisfactory fashion. [Id. at
¶ 12]. Defendants then received the $23,000 from Allstate, and filed a lawsuit in state court against Plaintiff
for violating Ohio’s Consumer Sales Practice Act. [Id. at ¶¶ 14-15]. As a result of that litigation, a jury
awarded $27,000 to Plaintiff. [Id. at ¶ 17]. One week later, Defendants filed for Chapter 7 relief. [Id. at ¶
18]. According to Plaintiff, Defendants did not intend to pay it for the work performed in completing the
rebuild. [Id. at ¶ 28].
DISCUSSION
The “rules regulating attorney conduct in federal court are strictly a matter of federal law.” Sheridan
v. Michels (In re Sheridan), 362 F.3d 96, 109 n.16 (1st Cir. 2004); see In re Desilets, 291 F.3d 925, 931 (6th
Cir. 2002). Neither party has directed the court to and the court is not aware of any federal statutes or rules
or common law that provide specific federal standards for attorney disqualification on the grounds of
conflict of interest and status as a witness. The Local Bankruptcy Rules of the Northern District of Ohio
provide that admission to practice and discipline in this court are governed by the Local Civil Rules of the
United States District Court for the Northern District of Ohio. L. Bankr. R. 2090-1, 2090-2. The Local
Civil Rules of the United States District Court for the Northern District of Ohio provide that “[a]ttorneys
admitted to practice in this Court shall be bound by the ethical standards of the Ohio Rules of Professional
Conduct adopted by the Supreme Court of the State of Ohio, so far as they are not inconsistent with federal
law.” L.R. 83.7 (a). Since there are no relevant federal bankruptcy or other standards that govern the issue
before the court, the court will apply the Ohio Rules of Professional Conduct as directed by the applicable
local rules of practice. See In re Desilets, 291 F.3d at 929 (federal courts often reference state rules in their
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requirements, but need not do so); In re Lucas, 317 B.R. 195, 200 (D. Mass. 2004) (applicable federal law
incorporates state law, including Massachusetts Rules of Professional Conduct).
Ohio courts have recognized that “disqualification of an attorney is a drastic measure that should
not be taken unless absolutely necessary.” Brown v. Spectrum Networks, Inc., 180 Ohio App. 3d 99, 103
(2008); Spivey v. Bender, 77 Ohio App. 3d 17, 22 (1991). The burden of proving that disqualification is
necessary is on the moving party. Brown, 180 Ohio App. 3d at 104. Plaintiff moves for disqualification
of Hall under Rules 1.7 and 3.7 of the Ohio Rules of Professional Conduct.
First, Plaintiff argues that Hall should be disqualified under Rule 1.7, which provides that a lawyer’s
continued representation of a client creates a conflict of interest if either of the following applies:
(1) 	the representation of that client will be directly adverse to another current client;
(2) 	there is a substantial risk that the lawyer’s ability to consider, recommend, or carry
out an appropriate course of action for that client will be materially limited by the lawyer’s
responsibilities to another client, a former client, or a third person or by the lawyer’s own
personal interests. (emphasis in original).
Plaintiff contends that an “inherent” conflict of interest exists in that Hall is both counsel for
Defendants in this proceeding and a creditor in their Chapter 7 case. It is presumably Plaintiff’s position
that the fact that Hall is a creditor in the Chapter 7 case is a personal interest that creates a substantial risk
that Hall’s ability to properly represent Defendants in this proceeding will be materially limited. The court
disagrees. Debtors have received their discharge in their Chapter 7 case and any pre-petition debt owed to
Hall has, therefore, been discharged. The mere fact that he was a creditor in the underlying case does not,
without more, create a conflict of interest. As such, disqualification under Rule 1.7 is not appropriate.
Next, Plaintiff argues that Hall must be disqualified because he will be called to provide
documentation and testimony as to when he was retained by Defendants, the nature and scope of his
discussions with Defendants prior to filing their state court action against Plaintiff, and his understanding
and involvement in how the $23,000 insurance check was issued, where it was sent, and how it was spent.
Rule 3.7 provides in pertinent part as follows:
(a) 	A lawyer shall not act as an advocate at a trial in which the lawyer is likely to be a
necessary witness unless one or more of the following applies:
(1) 	the testimony relates to an uncontested issue;
(2) 	the testimony relates to the nature and value of legal services rendered in the
case;
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(3) 	the disqualification of the lawyer would work substantial hardship on the
client. (emphasis in original).
To meet the necessity requirement under Rule 3.7, Plaintiff must demonstrate that Hall’s testimony “is
relevant and material to the determination of the issues being litigated and unobtainable elsewhere.” Brown,
180 Ohio App. 3d at 105.
Hall’s testimony may be relevant and material to Plaintiff’s dischargeability action and, specifically,
to its allegations that Defendants did not intend to pay it for its services in completing the work on their
home. 	However, Plaintiff has not set forth any facts from which the court could conclude that the content
of Hall’s testimony is unobtainable from other sources. At the hearing on its motion to disqualify, Plaintiff’s
attorney acknowledged such testimony could be obtained from Defendants themselves. Although, as
Plaintiff argues, Defendants may indeed invoke the attorney/client privilege, the same privilege issues exist
whether Defendants or their attorney testify and, thus, they do not make Hall a “necessary witness.” Allstate
would also appear to have evidence relating to issuance of the check. Because Plaintiff has not at this time
shown the necessity of Hall’s testimony, the court finds that disqualification under Rule 3.7 is not
appropriate.
THEREFORE, for the foregoing reasons, good cause appearing,
IT IS ORDERED that Plaintiff’s amended Motion to Disqualify Debtors’ Attorney [Doc. # 21] be,
and hereby is, DENIED without prejudice.
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