Jerry Gradl Motors, Inc. v. ACV Auctions, Inc.

UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF NEW YORK

JERRY GRADL MOTORS, INC. and )

LIFETIME MOTOR CARS, INC., )

individually and on behalf of all others )

similarly situated, )

)

Plaintiffs, }

)

Vv. ) Case No. 1:21-cv-00409

)

ACV AUCTIONS, INC., )

SUN CHEVROLET, INC., )

WHOLESALE CARS ONLINE.COM, L.L.C. )

d/b/a SUN AUTO WAREHOUSE, )

WHOLESALE CARS ONLINE.COM, L.L.C. )

d/b/a SUN AUTO WAREHOUSE OF )

CORTLAND, and BRIAN M. MALCHAK, )

)

Defendants, )

OPINION AND ORDER DENYING DEFENDANT ACV AUCTIONS INC.’S

MOTION FOR SANCTIONS AGAINST PLAINTIFFS’ COUNSEL

(Doc. 67)

Plaintiffs Jerry Gradl Motors, Inc. and Lifetime Motor Cars, Inc. bring this action,

individually and on behalf of all others similarly situated, against Defendants ACV

Auctions, Inc. (“ACV”); Sun Chevrolet, Inc., Wholesale Cars Online.com, L.L.C. d/b/a

Sun Auto Warehouse, Wholesale Cars Online.com, L.L.C, d/b/a Sun Auto Warehouse of

Cortland (together, “Sun Auto”); and Brian M. Malchak (collectively, “Defendants”).

Plaintiffs contend that Defendants used the ACV online car auction platform to engage in

“shill bidding[,]” a practice by which prices for automobiles were artificially inflated to

the detriment of consumers. (Doc. 84 at 1, 7 1.)

Plaintiffs are represented by Steven M. Cohen, Esq. and Edward P. Yankelunas,

Esq. Defendant ACV is represented by John A. Jurata, Jr., Esq., Jonathan Direnfeld, Esq.,

Michael L. McCabe, Esq., and Myriah Valentina Jaworski, Esq. Defendant Sun Auto is

represented by Myriah Valentina Jaworski, Esq. and Timothy W. Hoover, Esq. Defendant

Brian M. Malchak is represented by Jon P. Devendorf, Esq. and Myriah Valentina

Jaworski, Esq.

L The Pending Motion for Sanctions Against Plaintiffs’ Counsel.

On September 10, 2021, Defendant ACV filed the pending motion for sanctions

against Plaintiffs’ counsel, alleging improper in-person solicitation of prospective class

members in violation of New York Rule of Professional Conduct 7.3. (Doc. 67.)

Specifically, ACV asserts that on July 22, 2021, Nathan McMurray, a former attorney at

Hogan Willig, PLLC (“Hogan Willig”), the law firm representing Plaintiffs, contacted the

Certified Auto Brokers (“CAB”) dealership in Grand Island, New York in person “under

false pretenses, and, once in the door, tried to coerce that business to join this lawsuit.”

(Doc. 67-1 at 5.)

Defendant ACV contends this court is authorized to sanction unethical conduct

pursuant to its supervisory authority regarding attorney professional responsibility and

that it may restrict pre-certification communications with class members. It requests an

order restricting Plaintiffs’ counsel from contacting prospective class members; requiring

Plaintiffs’ counsel to “disclose whether they have engaged in any other in-person or other

solicitations of prospective plaintiffs, and, if so, provide the specifics of those

solicitations[;]” and requiring Plaintiffs to pay attorney’s fees incurred in relation to the

investigation of and briefing this issue. (Doc. 67 at 1.)

On September 29, 2021, Plaintiffs opposed ACV’s motion for sanctions and

requested an award of attorney’s fees for the costs incurred in responding to ACV’s

motion. On October 6, 2021, ACV filed a reply. A hearing was held on October 14, 2021,

during which the court determined that an evidentiary hearing was required. The

evidentiary hearing was held on January 3, 2022, On January 18, 2022, after the court’s

submission deadline for supplemental briefing expired, the court took the pending motion

under advisement.

Il. = Factual Findings.

Based on the preponderance of the evidence, the court makes the following

findings of fact:

1. Plaintiffs are represented by Hogan Willig, From July 2021 until approximately

November of 2021, Nathan McMurray, Esq. was employed by Hogan Willig and

was working on this lawsuit. In that capacity, he met with witnesses and others to

obtain information in support of Plaintiffs’ claims.

2. Attorney McMurray is licensed to practice law in the State of New York and is

familiar with New York’s Rules of Professional Conduct. He formerly served as

Town Supervisor for the Town of Grand Island, New York.

3, Christopher Taylor is a co-owner of CAB, located on River Road, Grand Island,

New York. CAB sells used cars both online and on its premises. It typically has

approximately 150 used vehicles on its lot. Timothy Renzoni is a salesperson

employed by CAB.

4, Prior to July 2021, Attorney McMurray, in his capacity as Grand Island’s Town

Supervisor, was acquainted with Mr. Taylor through a number of professional

interactions. For example, Mr. Taylor invited Attorney McMurray to participate in

a ribbon cutting ceremony at CAB in 2016 to celebrate an expansion of its

facilities. Attorney McMurray was one of several representatives of local

government present. In addition, Attorney McMurray and Mr. Taylor worked on a

war memorial together which was spearheaded by Mr. Taylor in honor of one of

his relatives.

5. Attorney McMurray and Mr. Taylor offer divergent accounts of their other

professional interactions. Attorney McMurray testified that Mr. Taylor was a

frequent advocate regarding Grand Island town issues, appeared before him on

numerous occasions, and was a vocal opponent of a trail which Attorney

McMurray supported, and which transformed a parkway in front of Mr. Taylor’s

home into a public bike path. In his affidavit dated September 27, 2021, Attorney

McMurray avers that Mr. Taylor, whose residence abuts the trail, on one occasion

yelled at him that he was “ruining his dream home.” (Doc. 73-1 at 2, 4 6) (internal

quotation marks omitted). Mr. Taylor, in contrast, testified that he supported the

trail although he concedes that many of his neighbors did not. He does not recall

an altercation with Attorney McMurray and believes Attorney McMurray may

have him confused with another individual. He denies being active in local

politics.

6. On July 22, 2021 at approximately 7:00 p.m. in the evening, Attorney McMurray

stopped at CAB which he passed to and from work. He met with Mr. Renzoni and

discussed his interest in purchasing a pick-up truck for a project he was doing with

his brother in Niagara County. The parties offer divergent accounts of the

conversation and also offer divergent accounts of how Mr. Taylor became

involved in the Renzoni-McMurray conversation. Although Attorney McMurray

may have asked whether Mr. Taylor was at the dealership, the court finds that Mr.

Taylor was not summoned by either Attorney McMurray or Mr. Renzoni but

instead happened to walk into the dealership at approximately 7:00 p.m., saw

Attorney McMurray and Mr. Renzoni talking in Mr, Renzoni’s office, and stopped

by, as is his custom, to greet Attorney McMurray as a potential customer.

7. After discussing the pick-up truck for approximately five to ten minutes, Attorney

MeMurray initiated a conversation about a lawsuit he was working on at

Hogan Willig. He asked Mr. Taylor questions about Joseph Neiman, who is a

former Defendant in this lawsuit and a principal of Defendant ACV.! Mr. Taylor

testified that he was one of the first dealers to sign up with Mr, Neiman and they

started their businesses around the same date, but has had no contact with him in

the interim.

8, Attorney McMurray and Mr, Taylor discussed, among other things, Mr. Neiman’s

alleged aggressive sales tactics, ACV’s alleged use of shill bidding, and ACV’s

alleged provision of lavish gifts to auto dealers.

9. Attorney McMurray advised Mr. Taylor that he was representing a client in a

lawsuit against Mr. Neiman’s company and, if the lawsuit was successful, there

would be a substantial amount of money to be made. He stated something to the

effect that if Mr. Taylor joined in the lawsuit, it stood to benefit him.

10, The conversation between Mr. Taylor and Attorney McMurray about the lawsuit

lasted approximately ten to fifteen minutes. It ended with a discussion of the pick-

up truck although Attorney McMurray did not ask to see used trucks on the lot.

11.Mr. Renzoni was present for the conversation between Attorney McMurray and

Mr. Taylor. He felt it was “improper” because it appeared more important to

Attorney McMurray to have “face time” with Mr. Taylor to discuss the lawsuit

' While this motion was pending, Plaintiffs filed a Third Amended Complaint which removed

Mr. Neiman from this lawsuit. (Doc. 84.)

.

than to buy a truck. In his affidavit, he avers that: “[i]t is very unusual for a

customer to bring up .. . competing dealerships or lawsuits, and it felt like

[Attorney] McMurray was doing something that was not appropriate or right.”

(Doc. 67-3 at 3, § 17.)

12.Mr. Renzoni credibly testified that he did not recall an offer by Attorney

McMutray to represent Mr. Taylor or CAB in a lawsuit. In his affidavit, which he

acknowledged reflected a more accurate recollection of the encounter, he stated

that Attorney McMurray “stated that it would be very good for Mr. Taylor if CAB

became involved in the lawsuit [Attorney] McMurray was handling, and stated

that Mr. Taylor would gain financially if he joined the lawsuit.” Jd. at § 15.

13. Attorney McMurray did not affirmatively offer to represent Mr. Taylor or CAB in

a lawsuit. Mr. Taylor’s testimony and affidavit to the contrary is an overstatement

of what took place.

14, Although both Mr. Taylor and Mr. Renzoni in their affidavits claim Attorney

McMurray stated he had already spoken to other dealerships about joining the

lawsuit, no details were provided and Hogan Willig does, in fact, represent other

dealerships.

15. It is undisputed that Attorney McMurray did not discuss attorney’s fees or a fee

structure, did not discuss the terms and conditions of any legal representation, and

did not present a retainer agreement or make any other effort to represent Mr.

Taylor or CAB.

16. Toward the end of the July 22, 2021 encounter, Attorney McMurray proposed that

he meet with Mr. Taylor at Hogan Willig to discuss the matter further. Mr. Taylor

provided his contact information to Attorney McMurray on Mr. Renzoni’s

business card. Although Mr. Taylor initially denied providing Attorney McMurray

with his contact information (in part, because he does not use business cards), the

court finds that he did so.

17. Mr. Taylor did not express his discomfort with the encounter at the time although

in his affidavit he avers that he was “physically shaking by the end of the

conversation with Mr. McMurray.” (Doc. 67-2 at 3, ] 26.) Mr. Taylor

acknowledged it is typical for him to react in this manner to an uncomfortable

situation and he demonstrated to the court that his hand was shaking during his

testimony.

18. Although the court found both Attorney McMurray and Mr. Taylor to be generally

credible, the court finds Mr. Taylor’s declaration filed in support of ACV’s motion

could reasonably be interpreted to create a false impression that he met Attorney

McMurray for the first time on July 22, 2021 by stating: “[w]hen I walked in [to

Mr. Renzoni’s office at the CAB dealership], I saw Nate McMurray, who I know

now to an attorney with Hogan[]Willig, speaking with one of CAB’s sales people,

Tim Renzoni.” (Doc. 67-2 at 2, 7 4.) The Affidavit contains no mention of a pre-

existing relationship or even acquaintance. In addition, it does not mention that

Mr. Taylor wrote his name and cell phone number on Mr. Renzoni’s business card

and gave it to Attorney McMurray to facilitate further communication, As Mr.

Taylor was not solely responsible for selecting the information that would be

contained in his affidavit, and as he credibly testified that he does not know why

his prior relationship with Attorney McMurray was not mentioned, the court finds

no intent to deceive on his part.

19.On balance, the court finds that, prior to July 22, 2021, Attorney McMurray and

Mr. Taylor had several encounters and that, at least from Attorney McMurray’s

perspective, there had been a “falling out’ between them over a public trail and

Attorney McMurray wanted to mend the relationship.

20. Attorney McMurray purchased a new pick-up truck on the day after the July 22,

2021 encounter. He did not respond to Mr. Renzoni’s texts and calls regarding

whether he was still interested in a pick-up truck.

21.On an unspecified date, Mr. Taylor received a call on his cell phone which he did

not recognize. He investigated the number and determined it was from

Hogan Willig. No voicemail was left, and Mr, Taylor did not return the call. The

court finds that while Mr. Taylor’s affidavit attributes this call to Attorney

McMurray, this is merely a reasonable inference on Mr. Taylor’s part.

22.Mr. Taylor subsequently instructed one of his employees to contact Defendant

ACV and advise it of the July 22, 2021 encounter. He agreed to talk with ACV’s

counsel and sign an affidavit regarding his interaction with Attorney McMurray.

Mr. Taylor and Mr, Renzoni have not been compensated for their involvement in

this lawsuit and both testified at the court’s hearing pursuant to subpoenas.

23. The court finds that Attorney McMurray initiated the July 22, 2021 encounter with

a mixed motive. He sought to repair his relationship with Mr. Taylor which he

perceived to be broken and he was genuinely interested in purchasing a pick-up

truck. When he saw Mr. Taylor at CAB, he sought to obtain information from him

that might prove helpful to his client’s lawsuit. He further sought to encourage

CAB to participate in the lawsuit by stating it might prove lucrative if successful

and by inviting Mr. Taylor to discuss the matter further.

Ill. Conclusions of Law and Analysis.

A. Whether Sanctions are Appropriate Based on an Ethical Violation.

“The federal courts [may] enforce professional responsibility standards pursuant to

their general supervisory authority over members of the bar.” United States v. Hammad,

858 F.2d 834, 837 (2d Cir. 1988) (citing In re Snyder, 472 U.S, 634, 645 n.6 (1985)). The

Western District of New York’s Local Rules state that “{a]ttorneys practicing in this

[cjourt shall faithfully adhere to the New York Rules of Professional Conduct.” L.R, Civ.

P, 83,3(a). The New York Rules of Professional Conduct prohibit in-person solicitation

where the recipient is not a “close friend, relative, former client or existing client].]”

N.Y.R. Prof, Conduct 7.3(a)(1). Solicitation is defined in Rule 7.3(b) as:

any advertisement initiated by or on behalf of a lawyer or law firm that is

directed to, or targeted at, a specific recipient or group of recipients, or their

family members or legal representatives, the primary purpose of which is

the retention of the lawyer or law firm, and a significant motive for which is

pecuniary gain. It does not include a proposal or other writing prepared and

delivered in response to a specific request.

(emphasis supplied). According to an American Bar Association (“ABA”) Formal

Opinion, the ABA’s similar rule applies to collective actions, including class actions, in

which the goal is to secure representation of a putative class member, See ABA Formal

Op. 07-445 (2007). The ABA rule contains an exception for solicitation of a person with

“a family, close personal, or prior business or professional relationship with the lawyer or

law firm[.]” ABA Model R. Prof. Conduct 7.3(b)(2). The parties agree that New York’s

version of Rule 7.3 does not contain an exception for a prior professional relationship.

(Doc, 74 at 5.)

The Supreme Court has observed that “[t]he solicitation of business by a lawyer

through direct, in-person communication with the prospective client has long been

viewed as inconsistent with the profession’s ideal of the attorney-client relationship and

as posing a significant potential for harm to the prospective client.” Ohralik v. Ohio State

Bar Ass’n, 436 U.S. 447, 455 (1978); see also Shapero v. Kentucky Bar Ass’n, 486 U.S.

466, 476 (1988) (explaining the importance of an attorney’s mode of communication

when assessing solicitation).

In this case, Attorney McMurray had several motives when he initiated in-person

contact with a potential client, including encouraging CAB’s participation in a putative

class action lawsuit. Attorney McMurray did not provide Mr. Taylor or Mr. Renzoni with

a copy of his business card and did not discuss a retainer agreement or attorney’s fees

while at CAB. Instead, he gathered information. The court finds that obtaining

information useful to this lawsuit was Mr. McMurray’s primary purpose. See Pagan v.

CI. Lobster Corp., 2021 WL 3009656, at *3 (S.D.N.Y. July 16, 2021) (finding that

attorney contacting potential plaintiffs about a lawsuit shortly after they received text

messages from a named plaintiff that referenced “get{ting] this money” did not constitute

improper solicitation where attorney stated under oath that he made contact “for the

purpose of gathering information and interviewing witnesses”) (internal quotation marks

omitted) (alteration in original). Although a close question, the court does not find that

Attorney McMurray violated applicable ethical standards because his primary purpose

was not Mr. Taylor’s retention of Hogan Willig as his counsel for purposes of pecuniary

gain. The court finds the evidence that Attorney McMurray engaged in other in-person

direct solicitations also insufficient.

B. Whether the Court Should Ban Future Communications with Potential

Class Members.

As a prophylactic measure, ACV requests a restriction on Plaintiffs’ ability to

communicate with potential class members before any class has been certified.

“'Cjommunications with putative class members prior to certification may... implicate

ethical rules[,]” Austen v. Catterton Partners V, LP, 831 F. Supp. 2d 559, 569 (D. Conn.

2011), and courts may impose limitations on this type of communication. “[A] court’s

authority to control... communications [between counsel and class members] can apply

even before an attorney-client relationship is created with a potential class member.”

Scott v. Chipotle Mexican Grill, Inc., 2014 WL 4852063, at *2 (S.D.N.Y. Sept. 29, 2014),

The court must, however, tread lightly so as to strike an appropriate balance between

ethical concerns and the right to communicate with potential class members.

In Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981), the Supreme Court recognized the

“potential problems” that can arise out of communications with potential class members

and that this “potential for abuse” provides district courts “the duty and the broad

authority to exercise control over a class action and to enter appropriate orders governing

the conduct of counsel and parties.” Jd, at 100-01. Noting this discretion is “bounded”

and “not unlimited,” the Supreme Court cautioned that any “order limiting

communications between parties and potential class members should be based on a clear

record and specific findings that reflect a weighing of the need for a limitation and the

potential interference with the rights of the parties.” Jd. (footnote omitted), In other

words, a court “must not interfere with any party’s ability to communicate freely with

putative class members, unless there is a specific reason to believe that such interference

is necessary.” Austen, 831 F. Supp. 2d at 567. Any restrictions on communications must

reflect whether “potential problems” that arise specifically in class or collective actions

require such restrictions. Guif Oil, 452 U.S. at 101.

As this court has previously explained:

{e]xamples of abusive conduct by parties to a class action in

communicating with prospective class members that may be subject to

judicial remedies include providing false, misieading or intimidating

information, or other misconduct such as concealing material information

or conducting communications with a represented party.

Gordon v. Kaleida Health, 737 F. Supp. 2d 91, 96-97 (W.D.N.Y, 2010) (internal

quotation marks and citations omitted). Correspondingly, “[w]hen . . . district courts have

imposed significant pre-certification communications—for example, requiring prior court

approval of all communications with putative class members—they have done so because

the parties engaged in serious abuses such as ‘giv[ing] false, misleading, or intimidating

information, concealing material information, or attempting to influence the decision

about whether to seek exclusion from a class.’” Austen, 831 F. Supp. 2d at 568 (citations

omitted); see also Brown v. Mustang Sally's Spirits and Grill, Inc., 2012 WL 47645835, at

*5 (W.D.N.Y. Oct. 5, 2012) (concluding the court was “precluded from any significant

restraint on the parties’ communications with potential class members because this record

[did] not support a finding of actual abuse.”).

ACV has not established an ethical violation, a clear record of abuse, or the

potential for specific problems. Although it relies heavily on Shibetti v. Z Rest., Diner

and Lounge, Inc.,, 2021 WL 1738315, at *6-7 (E.D.N.Y, May 3, 2021), that case is

inapposite. There, the court found that phone calls to certain individuals requesting that

they “give [counsel] a call back” if they had “any interest in joining this lawsuit”

constituted a “[d]irect solicitation by telephone[.]” /d. The court acknowledged that while

there are legitimate reasons to contact potential plaintiffs, including to obtain information

regarding the merits of a case, telephone calls soliciting them to join a lawsuit does not

constitute a permissible reason, /d, at *7. As a result, the district court awarded a

monetary sanction against the plaintiffs’ counsel. Jd. at *10. In contrast, Attorney

McMurray sought relevant information regarding the Defendants in this lawsuit and

mentioned the potential benefits for those who joined the lawsuit. He did not directly ask

Mr. Taylor or CAB to join the lawsuit or offer to represent them. While Attorney

McMurray may have hoped for further communications with Mr. Taylor, when they did

not transpire, he ceased contacting him,

“Plaintiffs have a right to seek information from putative class members[,]”

including evidence in support of their claims. Gordon, 737 F. Supp. 2d at 102 (citing Gulf

Oil, 452 U.S, at 101), The Supreme Court has condemned orders that “made it more

difficult for respondents, as the class representatives, to obtain information about the

merits of the case from the persons they sought to represent.” Gulf Oil, 452 U.S. at 101.

The “mere possibility of abuses” does not justify sanctions in the form of a

communications ban that could “interfere[] with the formation of a class or the

prosecution of a class action[.|” Jd at 104.

Where appropriate, courts may consider “less burdensome remedies” such as “an

order requiring parties to file copies of nonprivileged communications to class members

with the court[.]” Gulf Oi/, 452 U.S, at 104 n.20. Even this restriction is not justified by

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the record before the court. Attorney McMurray is no longer employed by Hogan Willig

or involved in this lawsuit. A single instance of in-person communication supported by a

mixed motive does not warrant court intervention.

Cc. Whether to Award Attorney’s Fees and Costs.

Plaintiffs request an “award of attorney’s fees and the costs incurred to Plaintiffs’

counsel in responding to ACV’s motion[.]” (Doc. 73 at 8.) Defendant ACV also requests

“attorney’s fees incurred in uncovering [Attorney] McMurray’s unethical conduct[.]”

(Doc. 74 at 14.) Because there is no clear record of unethical conduct before the court,

and, conversely, because the motion for sanctions was not frivolous and presented a close

question, an award of attorney’s fees, for either party, is not warranted. Cf Shibetti, 2021

WL 1738315, at *9-10 (“reserv[ing] judgment on whether to reduce plaintiffs’ fee

awards” in the future based on the finding of an unethical solicitation by plaintiffs’

counsel and refusing to award defense counsel! fees for their work on the pending motions

where they were “not without blame”).

CONCLUSION

For the foregoing reasons, Defendant ACV’s motion for sanctions against

Plaintiffs’ counsel (Doc. 67) is DENIED. The court also DENIES Plaintiffs’ request for

an award of attorney’s fees.

SO ORDERED.

Dated this 30 ay of March, 2022.

LE

LZ

Citistiia Réiss; District Judge

United States District Court

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