Meyerhofer v. Empire Fire and Marine Ins. Co.

The law firm of Sitomer & Porges (Sitomer firm) (defendant) provided legal representation to Empire Fire and Marine Insurance Company (Empire) (defendant) in order for Empire’s stock to be sold publically. A Sitomer attorney, Stuart Charles Goldberg, assisted Empire during various phases of the stock registration process. After the Sitomer firm rejected Goldberg’s concern regarding information that was not disclosed in Empire’s registration document, Goldberg resigned. The same day, Goldberg delivered a sworn affidavit regarding the knowledge he had to the Securities and Exchange Commission (SEC). The law firm of Bernson, Hoeniger, Freitag & Abbey (Bernson firm) represented Dietrich Meyerhofer (plaintiff), Herbert Federman (plaintiff), and others who had lost money after purchasing Empire stock and filed suit on their behalf in federal district court against Empire, the Sitomer firm, and others. Plaintiffs’ complaint alleged that the Empire stock had been issued under false and misleading terms in violation of the federal Securities and Exchange Act of 1934 and state law. Later, Goldberg learned by telephone that he was a defendant and met with Bernson firm members to demonstrate that he lacked knowledge of any wrongdoing. Additionally, Goldberg provided Bernson with an affidavit similar to the one provided to the SEC. Included in the affidavit was detailed information concerning how the firm covered up the non-disclosure of specific information. Bernson removed Goldberg as a defendant. After receipt of Goldberg’s affidavit, Bernson amended its complaint to add more specific facts but did not change the theory or substance of the claims. Defendants filed a motion to disqualify the entire Bernson firm from further representing plaintiffs. The district court granted defendants’ motion and barred the Bernson firm and Goldberg from further representation of plaintiffs. The court also dismissed plaintiffs’ complaint without prejudice. Bernson and plaintiffs’ appealed.