Summary
granting a motion that sought “to disqualify the same counsel from representing both the individual defendants and the corporate defendant”
Summary of this case from Naylor v. BAE Sys.Opinion
Index 512764/2021
03-15-2022
PETER LENGYEL-FUSHTMI, Plaintiffs, v. ANTHONY BELLIS, ZACHARY KINNEY, and KINGS COUNTY BREWERS COLLECTIVE, LLC, Defendants, and GREGOR ROTHFUSS, EVANGELOS PEFANIS, and JEFFREY LENGYEL, individually as; well as derivatively on behalf of KINGS COUNTY BREWERS COLLECTIVE, LLC, Intervenor-Plaintiffs,
Unpublished Opinion
PRESENT: HON. LEON RUCHELSMAN, J.
DECISION AND ORDER
HON. LEON RUCHELSMAN, J.
The intervenor plaintiffs have moved seeking to disqualify counsel representing defendant Kings County Brewers Collective LLC as well as the individual defendants Bellis and Kinney. The defendants oppose the motion. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.
As recorded in prior orders this lawsuit concerns. allegations the defendants have acted improperly toward the plaintiff and intervenor plaintiffs regarding the entity Kings-County Brewers Collective LLC. The intervenor plaintiffs seek to disqualify the corporation's counsel on the grounds dual representation of the corporation and the individual managing members: of the corporation constitute a conflict. The defendants dispute those accusations and insist the counsel chosen is impartial and is representing the interests of the corporation without any interferenee or Influence by the individual plaintiffs.
Conclusions of Law
It is well settled that: a party in a civil action maintains an important right to select counsel of its choosing and that such right may not be abridged without some overriding concern (Matter of Abrams, 62 N.Y.2d 183, 476 N.Y.S.2d 494 [1984]). Therefore, the party seeking disqualification of an opposing party's counsel must present .'sufficient proof -supporting-that determination (Schmidt v. Magnetic. Head Corp., 101 A.D.2d 268, 47 6 N.Y.S.2d 151 [2d Dept., 1984]), Rule 1.13(d) of the New York State Rules Of Professional Responsibility states that "a lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents., subject to. the. provisions of Rule 1.7. If the organization's consent to the concurrent representation, is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders''' (id). Rule 1.7(b) states that when a lawyer' is faced with representing clients with different interests a lawyer may represent such client "if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to; each affected client; (.2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one Client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) .each, .affected' client gives informed consent, confirmed in writing" (id). Thus, "simultaneously representing both a corporation and a director, officer or shareholder of that same corporation can create conflicts, but if the conflicts are consentable, then the conflicts, can be cured by obtaining informed, consent, from each affected client, confirmed in writing" (see, N..Y. State 901 [2011]). In Nineteen Twenty Four Inc., v. Parchini, 2015 WL 682814 [Supreme Court New York .County 2015] the Court held that counsel for a corporation could not also represent, an individual shareholder accused of wrongdoing. This was prohibited because "Where serious charges of self-dealing and usurpation of corporate opportunity by a director, and officers of the Corporation, are alleged, a conflict exists between the Corporation and the individual" shareholders (id). Indeed, the court questioned whether this conflict could even be waived since "counsel's representation involves "the assertion of a claim by one client [the Corporation] against another client [the individual plaintiffs] represented by the lawyer in the same litigation' Rule 1.17(a)(3)" (id). Since the representation of the corporation was adverse to the representation of the individual shareholders, plaintiffs, in that case, disqualification was granted.
In this case the intervener plaintiffs have instituted a derivative action against the defendants Anthony Bellis and Zachary Kinney. Although the corporation is a nominal defendant, the purpose of a derivative action is to place in the hands of the individual shareholder a means to protect the interests Of the corporation from the misfeasance and malfeasance of 'faithless directors and managers'" (see, Espinoza ex rel. JPMorgan Chase & Company v. Dimon, 797 F.3d 229 [2d Cir. 2015]). Thus, the interests of the corporation and the interests of the individual defendants cannot possibly be aligned to permit the same counsel to represent them. The mere fact the corporate defendant is not fully participating in the. lawsuit, and did not interpose an answer does not alter this analysis. The defendants argue that dual or concurrent representation is proper since the derivative claim is obviously and patently frivolous. However, at this stage of the litigation' there is no basis to conclude the action is frivolous. In Schwartz v. Guterman, 109 Misc.2d 1004, 441 N.Y.S.2d 597 [Supreme Court New York County 1981] the court, in rejecting an argument the derivative action was frivolous., explained that "at this early stage, the outcome of the litigation cannot be predicted. An examination of the pleadings and motion papers reveals sharply disputed facts and genuine issues. The suit does not appear to be brought for purposes of harassment. A potential for conflict of interest as well as the appearance of impropriety militates against dual representation" (id).
Likewise, in this case, it cannot be established at this time that the primary lawsuit or the third party action are patently frivolous and indeed the court has ruled that various causes of action have survived a motion to dismiss. Therefore, the motion seeking to disqualify the same counsel from representing both the individual defendants and the corporate defendant is granted. Counsel will be permitted to continue to represent the individual defendants. The corporate defendant must secure new and independent counsel.
So ordered.