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Calise v. Brady Sullivan Harris Mills, LLC

United States District Court, D. Rhode Island

March 28, 2019

WILLIAM CALISE, et al., Plaintiffs,
v.
BRADY SULLIVAN HARRIS MILLS, LLC, et al., Defendants. JOSEPH M. RACHIELE, et al., Plaintiffs,
v.
BRADY SULLIVAN HARRIS MILLS, LLC, et al., Defendants.

          REPORT AND RECOMMENDATION

          PATRICIA A. SULLIVAN, UNITED STATES MAGISTRATE JUDGE.

         Virtually all difficult ethical problems arise from conflict between a lawyer's responsibilities to clients, to the legal system and to the lawyer's own interest in remaining an ethical person while earning a satisfactory living.

         R.I. Rules of Professional Conduct, Preamble ¶ 9.

         This wise precept, established by the Rhode Island Supreme Court as a guide for attorneys in discharging their competing responsibilities, supplies the motif that recurs throughout the unfortunate tale told in this report and recommendation. Pending before the Court is the motion of Defendants Brady Sullivan Harris Mill, LLC, and Brady Sullivan Properties, LLC, (“Brady Sullivan”) seeking a permanent injunction.[1] ECF No. 65. The motion arises in both of these consolidated cases (“the Cases”), [2] which are based on an alleged mold infestation in a renovated mill building. Brady Sullivan is the real estate development corporation that renovated and manages the building; Plaintiffs are tenants in two of the apartment units. The motion veers off course from the merits of the Cases. Its focus is on the conduct of the two attorneys - Artin Coloian and Daniel Calabro, Jr. - who filed both of the Cases but withdrew on the eve of the Court's bench decision on Brady Sullivan's motion to disqualify them. Plaintiffs are now represented by other counsel.

         The pending motion is based on Brady Sullivan's well-founded assertion that Attorneys Coloian and Calabro accepted as clients two of its former employees, an engagement fraught with undisclosed and unresolved conflicts of interests, as a result of which the Attorneys came into possession of Brady Sullivan's contractually protected confidential information, attorney-client information and related attorney work product (collectively, “Confidential Information”) without authorization or consent in violation of Brady Sullivan's legal rights. Having acted promptly and worked aggressively to stuff the genie back in the bottle, Brady Sullivan now seeks to bring the matter to a close for good with a permanent injunction banning Plaintiffs and Attorneys Coloian and Calabro from using, reviewing, discussing, communicating and/or forwarding the Confidential Information to anyone (including successor counsel) and prohibiting Attorneys Coloian and Calabro from receiving or otherwise participating in any attorneys' fees associated with the Cases.

         The Court's task in resolving the motion is eased by the absence of any dispute over the remedy: Plaintiffs (acting through their new counsel) and Attorneys Coloian and Calabro agree that Brady Sullivan may have the requested relief. The sticking point is whether the Court will issue the permanent injunction based a reasoned decision that includes findings of fact based on violations of the Rhode Island Rules of Professional Conduct, particularly R.I. Rules 1.7, 4.3 and 4.4(a).[3]

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The motion arises from events that occurred mostly in March 2018, which may be briefly summarized.[4] At its heart are two former management-level employees of Brady Sullivan: Julio Basabe, Maintenance Manager, and Christina Rahn, Property Manager (the “former employees”).

         As a condition of their employment with Brady Sullivan, both of the former employees signed confidentiality agreements barring them from, inter alia, disclosing certain information related to Brady Sullivan's products or services. At least one of them, Rahn, was privy to extensive confidential attorney-client communications directly related to the issues in the Cases and related matters pertaining to other tenants and former tenants of Brady Sullivan. While still employed at Brady Sullivan, Rahn surreptitiously printed, copied on thumb drives or CDs and/or emailed to her home email account Brady Sullivan documents that included substantial quantities of Brady Sullivan's confidential attorney-client information. Shortly after the Cases were filed by Attorneys Coloian and Calabro, the former employees abruptly resigned from Brady Sullivan and immediately engaged Attorneys Coloian and Calabro to represent them in connection with matters pertaining to Brady Sullivan. Attorneys Coloian and Calabro undertook this engagement and provided legal advice to the former employees despite the obvious conflict between the interests of the former employees and their existing clients, Plaintiffs and other tenants or former tenants of Brady Sullivan contemplating or already in litigation against it.

         Over several days in March 2018, having formed an attorney-client relationship with the former employees, Attorneys Coloian and Calabro obtained information from Basabe and Rahn. They accepted documents from Rahn that she had secretly taken while employed at Brady Sullivan. Among these documents were many clearly reflecting Brady Sullivan's attorney-client communications. Attorneys Coloian and Calabro reviewed at least a handful of these documents, which constituted bulls-eye attorney-client communications between Brady Sullivan and its counsel regarding matters directly pertaining to the Cases and related matters.

         There is no evidence that Attorneys Coloian and Calabro advised Basabe or Rahn about the jeopardy posed to them by breaching the confidentiality agreements or any duty of loyalty they might owe to their former employer. There is no evidence that Attorneys Coloian and Calabro advised Rahn about the jeopardy posed to her by her actions in taking and making a wholesale disclosure of Brady Sullivan's attorney-client information to the attorneys for the parties opposing it in litigation. There is no evidence that Attorneys Coloian and Calabro instructed either Rahn or Basabe not to disclose Brady Sullivan Confidential Information or took any steps to avoid an unwarranted intrusion into Brady Sullivan's privileged relationships. There is no evidence that Attorneys Coloian and Calabro advised or obtained a written waiver from Basabe or Rahn regarding limitations on the Attorneys' ability to represent the former employees in light of the Attorneys' concurrent representation of Plaintiffs and their other tenant clients. Relatedly, Attorneys Coloian and Calabro did not advise or obtain a written waiver from Plaintiffs or any of their other tenant clients on their acceptance of a materially limiting competing engagement. Instead, despite the conflicts, in derogation of their duty to Basabe and Rahn and likely animated by the competing duty owed to Plaintiffs and the other tenant clients, the Attorneys communicated with the former employees without regard to the confidentiality of the information being provided, and accepted documents from Rahn that they knew Rahn had taken from Brady Sullivan during her employment, among which they found (and accessed) Brady Sullivan's purloined attorney-client information.

         Beginning on March 5, 2018, Brady Sullivan was alerted to the possibility of the breach through comments Attorney Coloian made to one of its attorneys. After further investigation, it promptly sued the former employees, Basabe and Rahn, in a separate action filed on March 15, 2018, and removed to this Court on March 22, 2018. Brady Sullivan v. Rahn, C.A. No. 18-133WES (“18-133”).[5] On April 12, 2018, the Court entered an injunction mandating that Basabe and Rahn comply with the confidentiality agreements, as well as that they and their attorneys (Attorneys Coloian and Calabro, and Attorney Sean Doherty, who briefly entered an appearance on behalf of Basabe and Rahn) must return all of the Brady Sullivan Confidential Information, including the attorney-client privilege information, to Brady Sullivan. 18-133 ECF No. 20.

         Because the Confidential Information taken by Rahn had been delivered in various electronic formats and in hard copy, the Court's April 12, 2018, Order included specific requirements to ensure its return. This triggered a flurry of collateral activity in 18-133, as Brady Sullivan worked diligently to recover all of the Confidential Information. However, through no fault of Basabe, Rahn or Attorneys Coloian and Calabro, all of whom cooperated in good faith to comply with the Court's April 12, 2018, Order, this effort was not entirely successful. Most recently, at the hearing of February 28, 2019, it was revealed that two thumb drives containing thousands of documents taken by Rahn appear to be irretrievably lost. Transcript Feb. 28, 2019, at 24, 26, 34 (18-133 ECF No. 69).[6] Meanwhile, Basabe and Rahn are no longer actively defending themselves in 18-133; as a result, the clerk has entered default against them. 18-133 ECF No. 66.

         Returning to the Cases, on April 13, 2018, based on R.I. Rules 4.4(a) and 1.7(a), Brady Sullivan moved to disqualify Attorneys Coloian and Calabro from representing Plaintiffs; the motion was supported by the depositions of Rahn and Basabe and the affidavits of one of Brady Sullivan's attorneys and its Information Technology (“IT”) Manager. Following a hearing at which both parties declined the Court's offer to hear testimony, the Court scheduled the motion to disqualify for a bench decision to be delivered on July 25, 2018; this date was extended to September 25, 2018, at the request of the parties. Less than one week before the bench decision, Attorneys Coloian and Calabro filed notices of their withdrawals and substitute counsel entered for Plaintiffs. At the September 25 hearing, the Court found that the motion to disqualify had become moot but that serious issues remained to be resolved. To allow Brady Sullivan time to consider its options and with no objection from Plaintiffs, the Court entered a non-disclosure order barring Attorneys Coloian and Calabro from using or forwarding any of the Confidential Information to successor counsel or any other person, with a deadline of October 25, 2018, for Brady Sullivan to file a motion seeking an injunction or sanctions for permanent relief.[7] Text Order of Sept. 26, 2018.

         On October 25, 2018, the current motion was filed. As directed by the Court, Brady Sullivan supplemented the motion with proposed findings of fact and conclusions of law. In response, Plaintiffs and Attorneys Coloian and Calabro made clear that they did not object to entry of the permanent injunction sought by Brady Sullivan. However, Attorneys Coloian and Calabro objected vigorously to the Court's issuance of a reasoned decision, arguing that there is no Article III case or controversy because Brady Sullivan's injury is speculative and hypothetical and that the motion amounts to an improper interference with the contractual agreement between Attorneys Coloian and Calabro and their former clients, Plaintiffs and the other tenants and former tenants. The Court offered the parties the opportunity to have an evidentiary hearing; Attorneys Coloian and Calabro declined, while Brady Sullivan reserved the right to present testimony on any material fact as to which the Court was inclined to sustain an objection asserted by Attorneys Coloian and Calabro. For the reasons stated infra, no evidentiary hearing was deemed necessary.

         II. STANDARD OF REVIEW

         “[T]he district court has the duty and responsibility of supervising the conduct of attorneys who appear before it.” Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir. 1984). This power continues “after that lawyer is no longer representing a party in the proceedings.” SPV-LS, LLC v. Transamerica Life Ins. Co., CIV 14-4092, 2017 WL 3668765, at *4 (D.S.D. Aug. 23, 2017), aff'd in relevant part, reversed in part on separate issue, 912 F.3d 1106 (8th Cir. 2019); Andrew, Merritt, Reilly & Smith, LLP v. Remote Accounting Sols., Inc., 626 S.E.2d 204, 206 (Ga.Ct.App. 2006). The Court's inherent authority extends to addressing the consequences of improper ex parte contact with a party's former employee. Zachair, Ltd. v. Driggs, 965 F.Supp. 741, 755 (D. Md. 1997) (finding “wrongly obtained knowledge ‘can never be erased from [counsel's] mind'” and ordering disqualification and exclusion of information). It extends to prohibiting predecessor counsel from communicating with successor counsel with respect to the subject litigation when such a restriction is necessary to protect confidential information. Levi Strauss & Co. v. Abercrombie & Fitch Trading Co., No. C 07-03752 JSW, 2007 WL 3203056, at *5 (N.D. Cal. Oct. 29, 2007) (“[Disqualified attorney] also is prohibited from communicating or forwarding to successor counsel any work product created in the course of this action or in matters related to this action that is based upon or derived from [the company's] confidential information possessed by [disqualified attorney].”). It is also clear that the need for protection against turning over to successor counsel the “tainted” work product of disqualified or withdrawn counsel is a separate and distinct question from whether the attorney should have been disqualified in the first place. Milford Power Ltd. P'ship by Milford Power Assocs., Inc. v. New England Power Co., 896 F.Supp. 53, 57 (D. Mass. 1995).

         “An injunction is an exercise of a court's equitable authority, to be ordered only after taking into account all of the circumstances that bear on the need for prospective relief.” KG Urban Enters., LLC v. Patrick, 693 F.3d 1, 27 (1st Cir. 2012) (citing Salazar v. Buono, 559 U.S. 700, 714 (2010)). A party “seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. [The party] must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the [parties], a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 156-57 (2010). Equitable relief is not granted as a matter of course, and injunctions in particular should be used sparingly due to their potential scope and duration. Hekking v. Hekking, C.A. No. 14-295JJM, 2018 WL 6583845, at *2 (D.R.I. Dec. 14, 2018); see Me. Educ. Ass'n Benefits Tr. v. Cioppa, 842 F.Supp.2d 386, 388 (D. Me. 2012), aff'd, 695 F.3d 145 (1st Cir. 2012) (“[T]he Court must bear constantly in mind that an [i]njunction is an equitable remedy which should not be lightly indulged in, but used sparingly and only in a clear and plain case.”).

         Rule 65 of the Federal Rules of Civil Procedure governs the issuance of injunctions.[8] It mandates that the contents of an order granting an injunction must “state the reasons why it issued, ” “state its terms specifically, ” and “describe in reasonable detail - and not by referring to the complaint or other document - the act or acts restrained or required.” Fed.R.Civ.P. 65(d)(1)(A-C). “Rule 65(d)(1)(A) must be given a commonsense construction, not a hypertechnical one.” Watchtower Bible & Tract Soc'y of N.Y., Inc. v. Municipality of San Juan, 773 F.3d 1, 10 (1st Cir. 2014). It is sufficient if a court makes “the essence of its reasoning plain before ordering injunctive relief.” Id.

         When a motion for an injunction is referred to a magistrate judge under the Federal Magistrates Act, 28 U.S.C. § 631, et seq., the magistrate judge must address it through the issuance of a report and recommendation. See 28 U.S.C. § 636(b)(1)(B-C). In so doing, the magistrate judge must “submit to a [district] judge of the court proposed findings of fact and recommendations for the disposition.” Id. § 636(b)(1)(B). And the district judge “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.” Id. § 636(b)(1)(C). In this context, the magistrate judge “does not rule directly on such a motion, but rather must file a report containing findings of fact and recommendations for the assistance of the district judge who makes the ruling.” Brown v. Wesley's Quaker Maid, Inc., 771 F.2d 952, 954 (6th Cir. 1985).

         Based on the foregoing, it is clear that Fed.R.Civ.P. 65(d)(1)(A-C) and 28 U.S.C. § 636(b)(1)(A-C) require more than the undeveloped statement that Attorneys Coloian and Calabro came into possession of Confidential Information and that Brady Sullivan has proffered enough to meet the legal standard for an injunction. Such a truncated approach would not adequately “state the reasons why [the injunction should be] issued.” Fed.R.Civ.P. 65(d)(1)(A); see Watchtower Bible, 773 F.3d at 10 (“essence” of court's reasoning must be “plain”). Nor would it fulfill my statutory obligation to provide the district judge with “proposed findings of fact and recommendations for the disposition.” 28 U.S.C. § 636(b)(1)(B). Accordingly, I find that a more fulsome set of proposed facts is required, well beyond what Attorneys Coloian and Calabro contend is sufficient.

         III. APPLICABLE ETHICAL STANDARDS

         The Rhode Island Rules of Professional Conduct implicated by the motion may be briefly summarized.

         First, R.I. Rule 1.7(a), titled, “Conflict of interest: Current clients, ” governs conflicts of interest and provides that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” A conflict is presented not only when there is direct adversity, but also if the concurrent representation of a client gives rise to a significant risk that the representation of another client will materially limit the lawyer's ability to represent either or both clients. Id. 1.7(a)(1-2). In the latter circumstance, the Rule carves out an exception if the lawyer believes that she will be able to provide competent and diligent representation of each affected client; nevertheless, such an engagement is permitted only if each affected client gives informed consent, which must be confirmed in writing. Id. 1.7(b)(4). Related to R.I. Rule 1.7 is R.I. Rule 4.3, which bars a lawyer from giving legal advice to an unrepresented person (other than the advice to secure counsel) if the lawyer knows that it is reasonably possible that the interests of such a person are in conflict with the interests of an existing client.

         The most significant of the Rules implicated by the events in issue is R.I. Rule 4.4, titled, “Respect for rights of third persons.” Subsection (a) of R.I. Rule 4.4 provides:

In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person.

         The Rhode Island Rules of Professional Conduct permit a lawyer to communicate with the former employee of a represented party-opponent. R.I. Rule 4.2, comment [7]. However, the relevant comment warns that such communications must be done with due regard for R.I. Rule 4.4(a). R.I. Rule 4.2, comment [7] (“In communicating with a current or former constituent of an organization, a lawyer must not use methods of obtaining evidence that violate the legal rights of the organization.”) (citing R.I. Rule 4.4). The comment to R.I. Rule 4.4 echoes this caution, providing that the lawyer may not willfully disregard the rights of a third party, such as the former employer of a witness, including the right to be free from “unwarranted intrusions into privileged relationships, such as the client-lawyer relationship.” See R.I. Rule 4.4, comment [1].

         While Rhode Island courts have not interpreted R.I. Rule 4.4(a), at the time of the initial adoption of the Rules, it was noted that the Rules of Professional Conduct should be read consistently with the American Bar Association (“ABA”) Model Rules of Professional Conduct, “unless there was a good reason for not doing so.” See § 11.2 Authority for Ethics Considerations, 2011 WL 5027363 (quoting Memorandum of Transmittal of Proposed Rules of Professional Conduct to the Rhode Island Supreme Court (Jan. 6, 2006)). Therefore, it is appropriate for the Court to look to the interpretations by other states of analogous rules derived from the ABA Model Rules. For example, the Bar Association for the District of Columbia has interpreted its analog to R.I. Rule 4.4:

The most significant concern in [communication with former employees of a party opponent] is the possibility that the former employees were privy to privileged information and that, without counsel present, they might be inclined to reveal this information to the opposing lawyer. This concern is serious and a lawyer may not solicit information when communicating with former employees of a party-opponent that is reasonably known or which reasonably should be known to the lawyer to be protected from disclosure . . . by an established evidentiary privilege. We based this conclusion on Rule 4.4, which requires lawyers to refrain from using “methods of obtaining evidence ...

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