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The Putnam Group, LLC v. First Citizens Bank and Trust Co. Inc.

United States District Court, M.D. Georgia, Macon Division

January 16, 2018

FIRST-CITIZENS BANK AND TRUST COMPANY, INC., assignee and successor in interest to the FDIC as receiver for Georgian Bank, Defendant.



         The Putnam Group, LLC has moved to disqualify First-Citizens Bank and Trust Company, Inc. (the “Bank")'s counsel, Stokes Carmichael & Ernst, LLP. Docs. 24; 25. On December 21, 2017, the Court held a telephone conference to address primarily the motion to disqualify. Doc. 52. For the following reasons, the motion is DENIED.

         I. BACKGROUND

         On August 25, 2014, the Bank filed a complaint in the United States District Court for the Northern District of Georgia against N.D. Horton Jr. and other affiliated businesses of Horton to collect a debt. Doc. 1 ¶ 5; First-Citizens Bank & Trust Co. v. N.D. Horton, Jr., et al., No. 1:14-cv-02751, Doc. 1 (August 25, 2014) (the “Atlanta Case”). Notably, Putnam was not a party to that case.

         On March 30, 2016, after the Bank obtained a judgment and writ of execution against all Horton defendants, the Bank's lawyers filed a “Joint Motion to Sell Certain Assets, ” in which the parties agreed[1] to auction off certain assets and remit the proceeds to the court. Doc. 1 ¶ 6; First-Citizens, No. 1:14-cv-02751, Doc. 91 at 4-5 (March 30, 2016). The motion, which was later granted, stated that the “Horton Defendants, acting through the instrumentalities of Defendant Horton, and Horton Iron Works, LLC and The Putnam Group, LLC, have authorized the sale of certain personalty and realty.” First-Citizens, No. 1:14-cv-02751, Doc. 92 at 3 (March 31, 2016).

         Putnam agrees that Horton was authorized to sell its assets, but not for the benefit of the Bank. Doc. 50 at 82:20-83:4, 103:22-104:10. According to Horton, the proceeds from the sale of Putnam's assets were to be used to pay Putnam's federal taxes. First-Citizens, No. 1:14-cv-02751, Doc. 111-2 at 18:13-19:5 (April 15, 2016). Indeed, Horton testified at an April 15, 2016 deposition in the Atlanta Case that he owned “no part of Putnam Group, ha[s] never owned any part of it, and ha[s] nothing to do with the management of it.” Id. at 18:9-12. Horton then testified that because Putnam never received the proceeds from the sale of its property, he believed the Bank “opened [itself] to a lawsuit from Putnam Group.” Id. at 30:1-9. In short, according to Putnam, Horton made clear to the Bank's lawyers in the Atlanta Case that he was not authorized to sell Putnam's assets for the Bank's benefit. Doc. 25 at 2.

         Despite Horton's testimony, on May 2, 2016, the Bank's lawyers filed a “Motion to Disburse Proceeds” to collect all proceeds from the auction sale. First-Citizens, No. 1:14-cv-02751, Doc. 107 (May 2, 2016). In that motion, the Bank's lawyers represented to the court that “Putnam Group never owned the Personalty and [is] not entitled to any of the Proceeds.” Id. at 17. The Bank's motion to disburse went unopposed, and the court ultimately granted the motion in a proposed order, which stated, in relevant part, that “The Putnam Group, LLC do[es] not have and ha[s] never had any interest in both the Personalty and the Proceeds.” First-Citizens, No. 1:14-cv-02751, Doc. 118 at 3 (June 2, 2016).


         Putnam contends that Stokes Carmichael & Ernst, LLP should be disqualified because, under Rule 3.7 of the Georgia Rules of Professional Conduct, there is an apparent conflict of interest and lawyers from the Stokes firm will be necessary fact witnesses “as to what transpired in putting together consent orders in the Atlanta Case that resulted in the theft of property belonging to The Putnam Group, LLC.” Doc. 24 at 3-6. The local rules of this Court and federal common law govern motions to disqualify. Herrmann v. GutterGuard, Inc., 199 F. App'x. 745, 752 (11th Cir. 2006). The movant bears the burden to prove the grounds for disqualification. In re BellSouth Corp., 334 F.3d 941, 961 (11th Cir. 2003). If a court bases disqualification on an ethical violation, “the court may not simply rely on a general inherent power to admit and suspend lawyers, without any limit on such power.” Schlumberger Techs., Inc. v. Wiley, 113 F.3d 1553, 1561 (11th Cir. 1997). Rather, the court must identify a rule and conclude that the lawyer violated it. Id. Because a litigant is presumptively entitled to counsel of its choosing, only a compelling reason will justify disqualification. Id. Moreover, because disqualification is a “harsh sanction, often working substantial hardship on the client, ” it “should be resorted to sparingly.” Norton v. Tallahassee Mem'l Hosp., 689 F.2d 938, 941 n.4 (11th Cir. 1982).

         This Court's local rule, M.D. Ga. R. 83.2.1(A), provides that lawyers practicing in this Court “shall be governed by this Court's Local Rules, by the Rules of Professional Conduct adopted by the [Georgia Supreme Court], . . . [and] the American Bar Association Model Rules of Professional Conduct.” The Georgia Supreme Court and the ABA Model Rules employ an identical Rule 3.7. Georgia Rule 3.7 provides, in pertinent part, that:

(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services ...

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