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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: August 6, 2019

Law Firm Disqualified; Its Prior Representation of Opposing Party Was Substantially-Related to Current Dispute

On July 12, 2019, Justice Borrok of the New York County Commercial Division issued a decision in NL Brand Holdings LLC v. Lepore, 2019 NY Slip Op. 32147(U), disqualifying a law firm because its prior representation of an opposing party was substantially-related to the current dispute, explaining:

In order to disqualify an adversary’s attorney, the movant must prove either (A) (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 or (B) that the attorney previously received confidential information substantially related to the present litigation.

In their papers, the parties concede that the first and third branches of the Tekni-Plex test are satisfied. However, the parties dispute whether Sheppard Mullin’s prior and present representation of Bluestar is substantially related. The Plaintiffs rely on Anonymous v. Anonymous to argue that a substantial relationship exists when there is common subject matter between former and present matters. In Tekni-Plex, the law firm’s former and present representation were substantially related because both implicated the same merger agreement and compliance with certain environmental laws to obtain a permit. In opposition, the Defendants cite Becker v. Perla to argue that a substantial relationship exists between former and present litigation when the issues are identical or essentially the same.

The Plaintiffs argue that the Sheppard Firm’s prior and present representation are substantially related because both involve the Bluestar business and share one similar defense regarding the use of intellectual property whose purchase was facilitated by Bluestar. Putting aside the issue of whether or not there was a substantial relationship, it is unquestionable that the Sheppard Firm received confidential information from Bluestar.

The New York Rules of Professional Conduct define confidential information to consist of “information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney-client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential. The movant seeking disqualification must identify the specific confidential information imparted to the attorney. However, the movant does not have to show that confidential information will be disclosed during litigation, but that there is a reasonable probability of such disclosure.

The Plaintiffs argue that the Sheppard Firm received confidential information during its prior representation of Bluestar. In his affidavit in opposition, Mr. Max described Sheppard Mullin’ s representation of Bluestar in the Tween Litigation to encompass retaining local counsel in Ohio, drafting a sworn declaration of Bluestar’s CEO and suggesting changes to Bluestar’ s website due to the litigation. However, Mr. Max’s representation of Bluestar goes beyond this limited description.

During oral argument, the Plaintiffs offered certain privileged materials including e-mails exchanged between the Sheppard Firm and Bluestar during the Limited Too Acquisition and the Tween Action. The court’s in-camera review of these materials, which are clearly subject to attorney-client privilege, confirm and corroborate the Plaintiffs accounting of the scope of Mr. Max’s and the Sheppard Firm’s representation. Although the Sheppard Firm emphasizes the short duration of the prior representation in the Tween Action, the frequency of communications with Bluestar executives and the legal issues discussed reveal that the Sheppard Firm received confidential information from Bluestar that is substantially related to this action.

The confidential information at issue is substantially related to this case because Mr. Max’s understanding ofBluestar’s business and litigation approach is material to his present defense against Bluestar – i.e., the way that Bluestar conducted its business, its insurance, its litigation strategy in the prior representation including without limitation its positions on discovery. Mr. Max’s previous interactions with Bluestar’s CEO, COO and General Counsel are also relevant and problematic as these same Bluestar executives will be deposed in this case. Under these circumstances, the court finds that the Sheppard Firm is disqualified.

(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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