Rekor Systems, Inc. v. Loughlin

Background

Rekor Systems, Inc., the plaintiff and a counterclaim defendant, asked the court to use its inherent authority—the court’s power to supervise proceedings and attorneys—to direct counsel for the defendants and counterclaim plaintiffs to tell their clients not to communicate with members of Rekor’s board of directors. Rekor also asked the court to require defense counsel to say when they learned about the communications and why they had not told Rekor’s counsel.

Rekor characterized the communications as highly irregular and inappropriate. The communications consisted of packages sent to various Rekor board members containing the summary-judgment motion in the case. Counsel for Satterfield and Rhulen responded that they had not requested, directed, or caused Satterfield to send the letter and packages. They said Satterfield sent them because he wanted to communicate directly with the Rekor board, and that Rhulen only loaned his FedEx account for the shipment. The letter asked board members to review the summary-judgment motion and an email about settlement negotiations. It stated that settlement could eliminate debt, expenses, litigation, and a franchisee arbitration, and could permit Rekor to issue a positive press release about the sale of Firestorm.

Court’s analysis

The court found that the letter was benign and could not reasonably be characterized as threatening or harassing. It also stated that sophisticated business people who are parties to litigation may attempt to settle directly without involving counsel. Although the directors had been voluntarily dismissed from the lawsuit, the opinion stated that they controlled and supervised Rekor, including the litigation. The court said that if the settlement outreach was unwelcome, the board members could ignore it and consult their counsel.

The court explained that it could enforce New York’s professional-conduct rules through its supervisory authority over attorneys. New York Rule of Professional Conduct 4.2 generally restricts a lawyer from communicating with a represented party about the subject of the representation without the other lawyer’s consent or legal authorization. But the rule and its commentary permit parties to communicate directly with each other when the communication is not directed or caused by counsel, subject to the rule’s requirements.

Ruling

Judge Liman found that the uncontroverted evidence showed defense counsel did not cause the communication and that it was initiated entirely by a party. The court therefore found no duty to inform Rekor’s counsel and no ethical violation. The motion is denied.