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Posted: October 26, 2015

Attorney Who Formed Corporation Can Represent Shareholder in Dissolution Action

On October 20, 2015, Justice Pines of the Suffolk County Commercial Division issued a decision in Altungeyik v. Ayknat, 2015 NY Slip Op. 51527(U), refusing to disqualify an attorney who formed a corporation from later representing one shareholder against another, explaining:

A party seeking disqualification of its adversary’s lawyer must prove: (1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and former client are materially adverse. Subject to limited exceptions, rule 1.18(c) of the Rules of Professional Conduct prohibits a lawyer from representing a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter. With regard to representation of a corporate entity, no attorney-client relationship exists between that attorney and the corporate employees or shareholders unless such is specifically requested and agreed upon pursuant to Rule 1.13.

As set forth by the Appellate Division, Second Department in Trimarco v. Data Treasury Corp. (91 AD3d 756, 757 [2d Dept 2012]):

Rule 3.7 of the Rules of Professional Conduct provides that, unless certain exceptions apply, a lawyer shall not act as an advocate before a tribunal in a matter in which the lawyer is likely to be a witness on a significant issue of fact. In order to disqualify counsel, a party moving for disqualification must demonstrate that (1) the testimony of the opposing party’s counsel is necessary to his or her case, and (2) such testimony would be prejudicial to the opposing party.

A motion to disqualify should be denied where a delay in making the motion is inordinate and inadequately explained. The moving party’s laches in making a disqualification motion is a relevant consideration, and an inordinate delay in moving for such relief is an indication that the motion has been made to gain a tactical advantage in the litigation.

Here, the Plaintiff fails to meet his burden of establishing the element of a substantial relationship between this action and the prior representation/prospective representation. In Gabel v Gabel, supra, the party seeking disqualification took the position that the attorney who had represented her in connection with the formation of a corporation should be disqualified from representing a co-shareholder in an action concerning determination of the value of the entity. The Second Department rejected the precise argument made by the Plaintiff in the case at bar setting forth that there were simply no facts in the record to support a finding that the prior representation concerned any confidential information regarding the value of the corporation. . . .

Here, the Plaintiff’s delay in making the motion for disqualification is also further affected by the significant time that has elapsed. This Court has now delayed the trial of what should have been an expedited matter, in a form based upon the agreement of counsel, for over one year. Plaintiff has failed to demonstrate that the continued representation by Drobenko will bring forth any harm. Granting the motion to disqualify Drobenko would cause a further inordinate delay in the pending litigation and severe prejudice to the individual Defendant.

Finally, Plaintiff has not made a showing that [counsel’s] testimony is necessary, as there is no evidence that he has any first-hand knowledge of the value of Euro Plant as of the date chosen in the Court’s Decision (ie, June 14, 2014) or any amounts owed between the parties. Plaintiff’s allegation that it will be necessary to call Drobenko as a witness at the trial is thus conclusory and unsupported.

(Internal quotations and citations omitted).

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