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Current Developments in the Commercial Divisions of the
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Posted: February 13, 2018

Corporation’s Former Counsel Cannot Represent One Shareholder Against Others

On February 7, 2018, the Second Department issued a decision in Deerin v. Ocean Rich Foods, LLC, 2018 NY Slip Op. 00820, holding that counsel should have been disqualified due to a conflict, explaining:

A party seeking disqualification of its adversary’s counsel based on counsel’s purported prior representation of that party must establish (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. A party’s entitlement to be represented in ongoing litigation by counsel of his or her own choosing is a valued right which should not be abridged absent a clear showing that disqualification is warranted. The party seeking to disqualify a law firm or an attorney bears the burden to show sufficient proof to warrant such a determination. However, doubts as to the existence of a conflict of interest are resolved in favor of disqualification in order to avoid even the appearance of impropriety.

One who has served as attorney for a corporation may not represent an individual shareholder in a case in which his interests are adverse to other shareholders. Here, the plaintiff alleged in an affidavit that the defendants’ counsel was involved in the formation of Ocean Rich, and the defendants’ counsel admitted that he had represented Ocean Rich in various past matters. Counsel’s prior representation of Ocean Rich was in fact representation of its three shareholders, whose competing interests are at issue in this action. Likewise, counsel’s involvement in the formation of Ocean Rich and his representation of it against third parties was substantially related to the present action. Since the defendants’ counsel was in a position to receive relevant confidences from the decedent, whose estate’s interests are now adverse to the defendants’ interests, the Supreme Court should have granted that branch of the plaintiff’s cross motion which was to disqualify the defendants’ counsel.

(Internal quotations and citations omitted).

We both bring and defend motions relating to attorney conflicts and do appeals of the decisions on those motions. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you face a situation where counsel may be–or is accused of being–conflicted.

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