Partnership; Disqualification; Entity; Corporate entity; Conflicting Interest; Dissolved.
By Jeanelle Dawes | Staff Writer
In this action, (“Action One”), Plaintiff sought the dissolution of a partnership, known as Spa 25, Inc., between Plaintiff and Defendant 1, and monetary damages against Defendant 1 for breach of the partnership agreement. Plaintiff also claimed Defendant 2, among others, tortuously interfered with Plaintiff and Defendant 1’s partnership agreement and converted the partnership’s assets. In a separate negligence action (“Tort Action”), that Plaintiff alleged that all named Defendants, failed to perform adequately laser procedures, which caused the Tort Action Plaintiff’s injuries.
In Action One, Defendants moved to disqualify Plaintiff’s attorney from representing Plaintiff. Also, Defendant 2 moved to disqualify Defendant 1’s attorney from representing Defendant 1. Defendant 2 claimed that Plaintiff’s attorney represented Spa 25, Inc. and Defendant 1 in the Tort Action. Defendant 2 stated that although Defendant 1 was not a named Defendant in the Tort Action, as a shareholder of Spa 25 Inc. she was a “de jure” client of Plaintiff’s attorney, whom his client, Plaintiff, sued in Action One. Defendant 2 alleged that because Plaintiff in the Tort Action was seeking a remedy against Spa 25, Inc. assets of which must be held in trust by the corporate shareholders for any Action One judgment, those assets were the only ones available for a judgment against Defendants in the Tort Action. Defendant 2 further alleged that similar causes of action are asserted against Defendants in both actions. Plaintiff’s attorney opposed, stating that Defendant 1 was not a named defendant in the Tort Action, nor did he represent Spa 25, Inc.
Moreover, Defendant 2 claimed that Defendant 1’s attorney had a conflict of interest because Defendant 1’s attorney represented Defendant 2 in the Tort Action and represented Defendant 1 in Action One. Defendant 1’s attorney opposed, stating that no conflict of interest existed because the Tort Action involved claims of personal injury caused by negligence and Action One involved a business dispute. Defendant 1’s attorney also stated that the interests of Defendant 1 in Action One were aligned with the interests of Defendant 2.
The Court held that there were insufficient grounds to disqualify Plaintiff’s attorney from representing Plaintiff in Action One and the Spa 25, Inc. in the Tort Action. Also, the Court held that Defendant 2 sustained its burden to disqualify Defendant 1’s attorney from representing Defendant 1 in Action One. The Court stated that an attorney can be disqualified where a conflict of interest exists, that creates a significant risk that a lawyer’s action on behalf of one client will materially limit the lawyer’s representation of another client in a different action. The Court found that Plaintiff’s attorney represented the corporate entity and not its shareholders in the Tort Action, which is not a case where a conflict of interest exists between the corporate entity and the shareholders. Further, the Court found that any liability against the corporation in the Tort Action was not a basis for a finding that Plaintiff’s attorney represented the shareholders. Additionally, the Court found that Defendant 1’s attorney representation of Defendant 2 in the Tort Action and Defendant 1 in Action One created a conflict of interest. The Court stated that to the extent Defendant 1’s attorney opposes Defendant 2’s motions in Action One on behalf of his client, which opposition would be adverse to Defendant 2’s interest, in the Tort Action. Accordingly, the Court denied Defendants motions to disqualify Plaintiff’s attorney and granted Defendant 2’s motion to disqualify Defendant 1’s attorney.
Tricarico v. Baer, Index No. 30511/2015, 4/1/15 (Pines, J.)