Commercial Division Blog

Posted: April 19, 2017 / Categories Commercial, Law Firms and Professional Ethics

Plaintiff And Defendant’s Counsel Both Disqualified Due To Simultaneous Conflicted Representations

On March 3, 2017, Justice Sherwood of the New York County Commercial Division issued a decision in Georgetown Co., LLC v. IAC/Interactive Corp., 2017 NY Slip Op. 30676(U), granting motions to disqualify both plaintiffs' counsel and defendants' counsel.

Georgetown Co. involves a dispute over a $35 million rights fee associated with development rights to a property in Manhattan.

First, defendant IAC moved to disqualify plaintiff Georgetown's counsel, DLA Piper, on the grounds that DLA Piper had represented IAC in an unrelated action in California. DLA Piper alleged that it had withdrawn from the California engagement, and that a retainer agreement with IAC's subsidiary in the California action contained a conflict waiver that could be attributed to IAC. The Court first noted that an attorney-client conflict "is to be determined as of the time the conflict arises, and not at the time the motion to disqualify is finally brought before the court," and that, when the New York action was filed, DLA Piper was still representing IAC in the California action. Even if this fact, standing alone, did not establish a prima facie conflict of interest, the Court found that DLA Piper's motion to withdraw, which was was made over IAC's objection, was intended to permit DLA Piper to represent an adverse "preferred client." This, in turn, established prejudice to IAC. The Court further held that, by its plain terms, the conflict waiver only applied, not to IAC.

At the same time, non-party Joseph Rose made a motion to intervene and seek disqualification of Kasowitz Benson Torres & Friedman LLP, which was representing IAC. Rose, who had substantial ownership interests in Georgetown and would likely be a significant witness, was simultaneously being represented by Kasowitz in his divorce proceeding. He alleged that Kasowitz had access to his confidential information, including financial information relating to the fee dispute at issue. Kasowitz argued that Rose’s matrimonial lawyers were leaving to start their own firm, taking Rose's file with them, that Rose’s information had not been shared with the rest of the firm, and that the only source of conflict was "simultaneous representation in unrelated matters of clients whose interests are only economically adverse," which did not merit disqualification. The Court disagreed, holding, as above, that the conflict was to be assessed as of its inception, and that Kasowitz's client IAC was "substantially averse" to Rose, and that an ethical wall could not overcome an unwaived conflict between current clients of the same firm. Accordingly, Kasowitz was also disqualified.