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Quinn v. Yip

Superior Court of Rhode Island, Kent

July 20, 2018

DAVID L. QUINN, individually and derivatively on behalf of SILVERMINE BAY, INC., Plaintiff,
v.
LOUIS YIP; TZE PING NG; ERIC LEUNG; PON-SANG CHAN, M.D.; PUI-O, INC.; TAI-O, INC.; TAI-O ASSOCIATES, L.P.; 501 ROOSEVELT, LLC; 501 LESSEE, LLC; 501 DEVELOPER, LLC; 521 ROOSEVELT AVENUE, LLC; T-O HC, LLC; HONG KONG NEW TERRITORIES, LLC; and E-O, INC., Defendants.

          For Plaintiff: Jeffrey H. Gladstone, Esq. Steven E. Snow, Esq.

          For Defendant: Jeffrey B. Pine, Esq.; William J. Lynch, Esq.; Stephen P. Sheehan, Esq.; Max Wistow, Esq.

          For Interested Parties: Mark T. Buben, Esq.; Stephen F. DelSesto, Esq.; James A. Hall, Esq.

          DECISION

          STERN, J.

         Three of the fourteen Defendants-Tai-O Associates, L.P. (Tai-O), Louis Yip (Yip), and Tze Ping Ng (Ng) (collectively, the Movants)-move to disqualify Partridge Snow & Hahn, LLP (PS&H) from representing the Plaintiff, David L. Quinn, individually and derivatively on behalf of Silvermine Bay, Inc. (Plaintiff) in this litigation involving a corporate ownership dispute. Plaintiff has timely objected to the motion.

         I

         Facts and Travel

         Plaintiff filed a Verified Complaint on March 30, 2015 to enforce his rights as a twenty percent minority shareholder of Silvermine Bay, Inc. (Silvermine Bay). Verified Pet. for Appointment of Special Master and Compl. for Damages (Verified Compl.) ¶ 1. He also sued derivatively on behalf of Silvermine Bay against the remaining shareholders: Yip, Ng, and Eric Leung (Leung) (collectively, the Shareholder Defendants), whose combined interest in the company was eighty percent. Id. Specifically, the action was brought to appoint a special master to secure and preserve the assets of Silvermine Bay and, if necessary, appoint a permanent receiver to liquidate its assets and business pursuant to a decree of dissolution. Id. at ¶ 5. Additionally, Plaintiff sought (1) access to and review of the corporate books and records pursuant to G.L. 1956 § 7-1.2-1502; (2) a full and complete accounting of the business affairs of Silvermine Bay; (3) restitution of any and all diverted corporate funds and opportunities; (4) damages deriving from Yip's alleged wrongful conduct; and (5) an award of the costs of bringing the litigation including attorneys' fees. Id.

         Specifically, Plaintiff alleged in his Verified Complaint that the Shareholder Defendants failed to comply with demands for information made in 2011 for the purpose of evaluating his interest in Silvermine Bay and reviewing its past business activities. Id. at ¶¶ 17-22. Plaintiff also alleged that the Shareholder Defendants refused to provide information involving a number of business entities controlled by Yip and Ng, including but not limited to Tai-O. Id. at ¶ 19. Furthermore, Plaintiff also claimed that the information he was able to obtain prior to filing suit showed that the Shareholder Defendants managed and controlled the affairs of Silvermine Bay to the advantage of other various enterprises in which Yip had an ownership interest, but Plaintiff did not. Id. at ¶ 23. According to Plaintiff, there also appeared to be money that was transferred from Silvermine Bay, without Plaintiff's knowledge or approval, to Yip's other business organizations with no interest being charged. Id. at ¶ 24.

         After the Shareholder Defendants answered the Verified Complaint and this Court appointed an examiner of Silvermine Bay, the Shareholder Defendants elected to purchase Plaintiff's shares of the company. Discovery then ensued, and Plaintiff, in or about March 2017, issued a subpoena ducestecum to Tai-O seeking relevant documents. According to Plaintiff, during discovery, it was revealed that there was an unauthorized transfer of $151, 632.72 from Silvermine Bay's accounts on or about July 31, 2012, allegedly to pay off a tax lien on a property owned by Tai-O in order to avoid a tax sale. Steven E. Snow Aff. (Snow Aff.) ¶ 5. There were also two other transfers from Silvermine Bay to Tai-O: one made on or about December 23, 2013 for $200, 000; and the other occurred on or about January 6, 2009 for $46, 350. Id.

         After this discovery, Plaintiff amended his Verified Complaint on September 5, 2017, which included a new legal claim that an implied partnership exists between Plaintiff and the Shareholder Defendants regarding a real estate development business under the fictitious name the Tai-O Group. Id. at ¶ 4. The Amended Verified Complaint also added a number of related business entities comprising the Tai-O Group as named parties, as well as one additional individual Defendant, Pon-Sang Chan, M.D. (Chan). Id. On November 2, 2017, the Movants then filed the instant motion to disqualify PS&H from this matter.

         The Movants argue in their motion to disqualify that PS&H previously represented them in real estate transactions and other matters concerning Tai-O and Defendant 521 Roosevelt Avenue, LLC (521), including the acquisition of the same real estate in which Plaintiff is now claiming an interest in his Amended Verified Complaint. Specifically, Plaintiff is now seeking a twenty-five percent interest in, inter alia, Tai-O and 521 at the expense of the Movants, each of whom effectively owns a one-third interest in these two entities.

         Beginning in 2004, Defendants Yip and Ng consulted and hired Attorney John Boehnert (Attorney Boehnert), a partner at PS&H at the time. According to Attorney Boehnert, PS&H provided (1) legal services in preparing agreements and preparing and submitting corporate filings to the Secretary of State; (2) legal services regarding the purchase, sale, financing, and development of real estate; (3) legal services in assisting with environmental issues and compliance; and (4) legal services regarding the creation of a land condominium. John M. Boehnert Aff. (Boehnert Aff.) ¶ 6. Specifically, in 2004, PS&H represented Yip and Ng in acquiring and developing the real property located at 521 Roosevelt Avenue, Pawtucket, Rhode Island. Id. at ¶ 8. According to the Movants, in June and July of 2005, PS&H then advised Yip and Ng regarding the appropriate business structure for this project and advised the creation of three entities: Tai-O General Partner, Inc., Tai-O Limited Partner, Inc., and Tai-O Associates, L.P. (the Tai-O Entities). Id. at ¶ 9. Yip and Ng were owners and shareholders of all three entities. On December 22, 2006, while PS&H was still representing the Movants, Tai-O purchased the real estate located at 521 Roosevelt Avenue, Pawtucket, Rhode Island, as well as real estate located at 555 Roosevelt Avenue, Pawtucket, Rhode Island. Id. at ¶ 10. Then, on May 18, 2007, PS&H represented Tai-O at a closing of loans from Cathay Bank. This transaction consisted of a construction loan of $6, 547, 500, as well as a bridge loan of $1, 468, 871, which were used to develop the property located on 555 Roosevelt Avenue. Id. at ¶ 11. At this closing, Yip, Ng, their wives, and Chan's wife each executed personal guaranties in connection with the loans from Cathay Bank. Id.

         Attorney Boehnert represented the Movants through August 2009, and left PS&H that same month. Id. at ¶¶ 3, 7. However, he has continued to represent the Movants through this present date. Id. at ¶ 6. The Movants also allege that PS&H-through attorneys other than Attorney Boehnert-continued to represent Tai-O through September 2010. Defs.' Mot. to Disqualify (Defs.' Mot.), Ex. B.

         The crux of the Movants' motion to disqualify PS&H from representing Plaintiff hinges on the following claims from Plaintiff's Amended Verified Complaint: (1) that Yip, Ng, and Chan allegedly did not include Plaintiff as a shareholder in Tai-O and a participant in the purchase and development at the 521 Roosevelt Avenue property; and (2) that the loans were allegedly made by Silvermine Bay to Tai-O and to another entity, Pui-O-where Yip, Ng, and Chan were also shareholders-which in turn lent money to Tai-O. With respect to the first claim, the Movants argue that PS&H's representation of the Movants included creating Tai-O and financing, purchasing, and developing Tai-O's property-the same property in which Plaintiff seeks an ownership interest. Regarding the second claim, the Movants contend that many of the loans which form the basis for Plaintiff's claims against the Movants and 521 occurred while PS&H was representing and advising the Movants regarding the purchase, development, and financing of the property at issue. According to the Movants, they have not consented to PS&H's representation of Plaintiff in the instant action.

         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. See, e.g., In re Yashar, 713 A.2d 787, 790 (R.I. 1998) (party seeking disqualification of a judge based on alleged prejudice carries a substantial burden of establishing that the actions of the judge were affected by facts and events which were not pertinent nor before the court); Olivier v. Town of Cumberland, 540 A.2d 23, 27 (R.I. 1988) (quoting Sellers v. Superior Court, 154 Ariz. 281, 289, 742 P.2d 292, ...


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