Commercial Division Blog

Posted: April 17, 2014 / Categories Commercial, Law Firms and Professional Ethics

Chinese Wall Does Not Prevent Law Firm From Being Disqualified

On April 4, 2014, Justice Friedman of the New York County Commercial Division issued a decision in Manus v. Family M. Foundation Ltd., 2014 NY Slip Op. 30921(U), disqualifying the defendants' long-time law firm.

In Manus, the current plaintiff, Ninotchka Manus, was substituted in as plaintiff based on her acquisition of shares from a previous holder.  Among the issues in the action were the validity of the transfer to Manus as well as the validity of a prior transfer to her predecessor-in-interest.

Manus moved to disqualify the defendants' law firm, which had represented them since 2004, because an attorney who previously had represented Manus's predecessor in 2005 had joined the firm as a partner.

Justice Friedman granted the motion based upon the following rulings:

  • Manus had standing because the attorney had represented her predecessor on the issue of the validity of the share transfers, which is still a central issue in the case, and because Manus was the assignee of her predecessor's legal claims. Justice Friedman distinguished this case from one involving "the mere assignment of property."
  • Although the law firm had imposed a "Chinese Wall," it must still be disqualified, because "the party seeking to avoid disqualification [of its law firm] must prove that any information acquired by the disqualified lawyer is unlikely to be significant or material in the litigation. Only in that factual scenario will an ethical screen be sufficient to avoid firm disqualification."
  • Disqualification was warranted even though this was the fourth disqualification motion brought by Manus against the firm, and even though disqualification would "pose a hardship" for the defendants, because of "the critical nature of the confidences disclosed . . . and the firm’s resulting conflict of interest . . . . disqualification is mandated in order to avoid the appearance of impropriety and to protect the integrity of the judicial process."

This opinion is consistent with other opinions discussed in this blog, in that although courts frown on tactical disqualification motions, and recognize the potential hardship to litigants, they will not hesitate to disqualify counsel if they see even the appearance of an ethical violation.