Law Firm Disqualified Based on Prior Representation in a Related Matter

On December 23, 2019, Justice Cohen of the New York County Commercial Division issued a decision in Bessemer Trust Co., N.A. v. Hart, 2019 NY Slip Op. 33744(U), disqualifying a law firm based on its prior representation of the plaintiff, explaining:

It is a well-established rule that a lawyer may not represent a client in a matter and thereafter represent another client with interests materially adverse to interests of the former client in the same or a substantially related matter. That rule is codified in Rule 1.9(a) of New York's Rules of Professional Conduct:

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

Thus, a party seeking to disqualify an attorney on the ground that there is a conflict between the current representation and that of a former client must establish not only the existence of the prior attorney-client relationship but also that the former and current representations are both adverse and substantially related.

The Court observes, at the outset, that this analysis must be undertaken with caution. Because disqualification of a law firm during litigation may have significant adverse consequences to the client and others, it is particularly important that the Rules of Professional Conduct not be mechanically applied when disqualification is raised in litigation. Disqualification denies a party's right to representation by the attorney of its choice - a right that, while not absolute, remains a valued right and any restrictions must be carefully scrutinized. And of course, courts must always guard against the use of disqualification motions as an offensive tactic, inflicting hardship on the current client and delay upon the courts without good reason.

With those considerations in mind, the Court turns to the substance of Bessemer's motion to disqualify Olshan. As a threshold matter, the parties do not dispute that for purposes of determining Olshan's duties to its former client, the Estate essentially stands in the shoes of Mr. Kaufman..

Also undisputed is the fact that, over the years, Olshan represented Mr. Kaufman, both in his personal capacity and on behalf of various constituent pieces of his business empire.

Similarly, Olshan's representation in this case is clearly adverse to Mr. Kaufman's - now the Estate's - interests. Bessemer is alleging that Defendants' purchase offers, based on the book-value buyout provisions, shortchanged Mr. Kaufman's Estate by millions of dollars. Moreover, according to the Estate, the Entities are now treating the Estate as having been divested of all rights, title, and interests in the Entities by, among other things, withholding distributions to the Estate, refusing to provide unfettered access to the Entities' books and records, and failing to respond to specific document requests related to the Entities.

Bessemer's motion, then, turns on whether Olshan's prior representation is substantially related to the current action. Comment 3 to Rule 1.9 explains that matters are substantially related for purposes of this Rule if they involve the same transaction or legal dispute or if, under the circumstances, a reasonable lawyer would conclude that there is otherwise a substantial risk that confidential factual information that would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter. Courts have found matters to be substantially related where a law firm represented an individual or entity in the negotiation or drafting of an agreement that later became the subject of the dispute in the action.

This matter is substantially related to Olshan's prior representation because, among other things, Olshan admits to preparing the very agreements and provisions that give rise to this litigation. As in Casita and Credit Index, the law firm's role in drafting the agreements compels disqualification where the litigation puts the language of the agreements squarely in issue. Trying to downplay the significance of this role, Olshan urges that the creation of the operating agreements was "simple," "formulaic," and irrelevant to Bessemer's underlying claims. None of those arguments, however, dispel the concerns raised by Olshan's representation against the estate of its longtime client. Olshan's account confirms Olshan's unique involvement in the drafting process. The Olshan lawyers, including Kearns, know the origins of the language in the operating agreements (it was taken from the old partnership agreements), why it was in there (specific instructions to not "reinvent the wheel"), and that Mr. Kaufman "well understood the operation of these clauses." Those are all topics on which a draftsperson could conceivably be deposed, and on which Defendants may seek to rely, if extrinsic evidence is permitted (more on that below).

In addition, Bessemer cites to evidence that Olshan represented Mr. Kaufman personally in negotiating the purchase of another deceased member's interest in two entities, one of which involved a buyout provision substantially similar to the book-value provisions at issue here. Again, to the extent extrinsic evidence is relevant in determining the parties' intent in this case, the parties may be interested in pursuing Mr. Kaufman's role in similar transactions.

The case law Olshan cites, in opposition, is distinguishable. In Lamotte v. Beiter, 2006 WL 4682182 (Sup. Ct. N.Y. Cty. May 30, 2006), for example, the court denied a motion to disqualify a law firm because the movant failed to establish that a prior attorney-client relationship existed, and alternatively, that no substantial relationship existed between the prior and current representation. On that second point, the court found there was no indication that the law firm negotiated or drafted the operating agreement, or more importantly, the Sections of the Operating Agreements at issue. Here, Olshan did both. Granted, the language of the buyout provisions did not originate with Olshan, who apparently imported them wholesale from previous partnership agreements. But to the extent Olshan argues that this distinction removes them from the role of drafters, that argument fails. Olshan did what drafters often do: compose a legal document, not out of whole cloth, but from an assemblage of preexisting parts adapted to the purpose. The buyout provisions may not be original works, but Olshan's role in transposing them still illustrates the firm's intertwining conflict with Mr. Kaufman's interests in this case.

Disqualification under Rule 1.9 does not, as Olshan suggests, require a showing that counsel has access to specific confidential information relevant to the dispute. If the prior matter were substantially related, that alone would be sufficient to warrant disqualification irrespective of whether or not the lawyer in fact obtained any confidential information in the course of the prior employment. Just as true, absent a substantial relationship disqualification would be warranted only upon a showing that in the prior action Olshan had received specific confidential information substantially related to the present litigation. This distinction is reflected in the text of the Rule, which includes a separate prohibition against divulging confidential information of the former client. See Rule 1.9(c). The two inquiries ask different questions and are not interchangeable.

In addition, Olshan improperly relies on merits arguments about the buyout provisions in order to minimize the significance of its conflict. These arguments, which contend that the provisions are so clear and unambiguous that any Olshan testimony would be irrelevant will be addressed as the litigation proceeds and are central to Defendants' motion for summary judgment. But they do not change the analysis under Rule 1.9. Indeed, the fact that Keams is in a position to aver that Mr. Kaufman well understood the meaning of these terms further supports the conclusion that Olshan is too close to the subject matter of this case to serve as counsel adverse to the Estate.

The case law cited by Olshan on this point is inapposite, since those cases analyze the distinct prohibitions of the advocate-witness rule.

The Court acknowledges Olshan's averments that, to the best of its attorneys' knowledge, Mr. Kaufman did not impart client confidences relevant to this particular dispute. And the Court imputes no bad faith to Olshan here. Still, Olshan' s statements do not negate the risk that, at some point during the course of this litigation, client confidences related to Mr. Kaufman's intent or the language of the operating agreements could surface. In Mr. Kaufman's absence, Olshan's account is necessarily one-sided. And the nature of Olshan' s relationship with Mr. Kaufman raises the threat that confidences were exchanged. It is indisputable that Olshan has been thoroughly enmeshed in the workings of Mr. Kaufman's businesses for decades, and that Keams was a trusted confidante to Mr. Kaufman on matters both business and personal. It is critical that attorneys be acutely alert to situations where the potential for adverse interests may arise, especially since the consequences for both the parties and the attorneys are profound. In a case so closely tied to Mr. Kaufman's intent, prudence counsels in favor of Olshan's disqualification.

Finally, the Court is satisfied that Bessemer's motion is not merely an offensive tactic to disrupt the defense of this case. For the reasons set forth above, the Estate's concerns about Olshan's conflict are warranted in this case. While Bessemer knew about Olshan' s representation of its current clients since at least last year, Bessemer's previous dealings with Olshan came in the context of administering the Estate, not litigating the Estate's interests. Once litigation began, Bessemer acted without undue delay. The instant motion was filed little over a month after the Complaint was filed, and only weeks after Olshan filed a motion for summary judgment on behalf of its clients.

(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.