Opinion
Index No. 809769/2023E
04-29-2024
Jack Dellorusso individually and derivatively as a shareholder of Sal's Metal Corp., Plaintiff, v. Angela Dellorusso, 900 Edgewater Sam Inc. Sal's Metal Corp. and Lorenzo Dellorusso, Defendant.
For the Plaintiff: Murtha, Kelly L, of Cascione, Purcigliotti & Galluzzi, P.C. For Defendant: Paul Zilberfein, Of The Paul Zilberfein Law Firm.
Unpublished Opinion
For the Plaintiff: Murtha, Kelly L, of Cascione, Purcigliotti & Galluzzi, P.C.
For Defendant: Paul Zilberfein, Of The Paul Zilberfein Law Firm.
HON. MARISSA SOTO, J.S.C.
The following e-filed NYSCEF papers read herein:
Papers NYSCEF Doc. #'s/ No.
Notice of Motion, Affidavits/Affirmations, and Exhibits Annexed: 9-18
Opposition Affirmation and Exhibits: 23-26
Reply Affirmation: 27
Plaintiff, Jack Dellorusso (referred to as "Jack"), requests an order (1) disqualifying Paul Zilberfein, Esq. (referred to as "Mr. Zilberfein"), as the attorney for Defendants due to a conflict of interest, along with (2) any other relief deemed appropriate by the Court. In support Plaintiff submits: (i) Attorney's Affirmation; (ii) Affidavit of Jack Dellorusso; (iii) Summons and Complaint; (iv) Stipulation; (v) Federal Docket Sheet; (vi) Federal Settlement Agreement; (vii) Zilberfein letter; (viii) Defendants' Answer, Crossclaims, and Counterclaims. The essence of Plaintiff's Argument is that Mr. Zilberfein must be disqualified in the current matter because he previously represented Jack, his brother, Lorenzo Dellorusso ("Lorenzo"), the family company, Sal's Metal Corp., and other defendants, in a case in the Southern District of New York titled Valencia v. Sal's Metal Corp. (referred to as the "Valencia" or "Federal" matter), and then negotiated a $30,000 settlement. Mr. Zilberfein opposes.
In opposition, Mr. Zilberfein contends that he should not be disqualified because (i) he never represented Jack Dellorusso; (ii) the previous case and the current case are not substantially related; and (iii) he was not privy to internal corporate discussions or documents. In support, Mr. Zilberfein submits: (i) Complaint from the Valencia Matter; (ii) Notice of Appearance from the Valencia Matter; (iii) Affidavit of Giustino Cilenti, Esq. with an attached Damages Spreadsheet.
After reviewing the arguments, the Court finds that the Plaintiff has not provided any specific confidential information that Mr. Zilberfein could use to his advantage. Therefore, the Plaintiff's motion to disqualify Mr. Zilberfein is hereby denied.
Background
The underlying action was initiated on June 23, 2023, with the filing of a Summons and Verified Complaint (NYSCEF Doc. No. 1). This action, initiated by the Plaintiff, who holds a 50% ownership stake in Sal's Metal Corp. (a recycling business), is against his brother Lorenzo, who also 50% of the same business, and their mother, Angela Dellorusso, who possess 900 shares of EDGEWATER SAM INC. (the other family business). The lawsuit alleges various violations including breaches of fiduciary duty, duty of loyalty, diversion of corporate opportunities, self-dealing, corporate waste, faithless employee claims, undisclosed conflicts of interest, and misrepresentation. The Plaintiff seeks damages, disgorgement of profits, return of compensation to the Corporation, and the imposition of a constructive trust.
Legal Standard
The disqualification of an attorney is generally a matter resting within the sound discretion of the court (see Harris v. Sculco, 86 A.D.3d 481 [1st Dept. 2011]; Gulino v. Gulino, 35 A.D.3d 812 [2nd Dept. 2006]). While a party's entitlement to be represented in ongoing litigation by counsel of its choosing is a valued right which should not be abridged absent a clear showing that disqualification is warranted (see S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 N.Y.2d 437, 443 [1987]), doubts as to the existence of a conflict of interest must be resolved in favor of disqualification so as to avoid even the appearance of impropriety" (Mineola Auto.. Inc. v Millbrook Props. Ltd. 118 A.D.3d 680 [2nd Dept. 2014], quoting Seeley v Seeley, 129 A.D.2d 625, 627[2nd Dept. 1987]). A party seeking to disqualify an attorney or a law firm for an opposing party on the ground of conflict of interest has the burden of demonstrating: (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 (Tekni-Plex, Inc. v. Meyner & Landis, 89 N.Y.2d 123, 131, (1996). The movant has the burden of establishing all three elements in order for an irrebuttable presumption of disqualification to arise" (Jamaica Pub. Serv. Co. v. AIU Ins. Co., 92 N.Y.2d 631 [1998]; see Lightning Park, Inc. v. Wise Lerman & Katz, P.C., 197 A.D.2d 52, 55 [1st Dept 1994]). The movant must meet a heavy burden of showing that disqualification is warranted; it is a "heavy burden" (Ullmann-Schneider v. Lacher & Lovell-Taylor PC, 110 A.D.3d 469 [1st Dept. 2013]).
Analysis
Before delving into the intricacies of the analysis, the Court deems it necessary to outline the sequence in which it will address each of the three prongs delineated above. For the sake of expediency and efficacy, the Court opts to tackle the third prong initially, followed by the first prong, and culminating with the second prong, which entails a slightly more substantive analysis of the three.
The Interests of The Present Client and Former Client Are Materially Adverse
In this regard, the Court unequivocally determines that the interests of Mr. Zilberfein's present client, Lorenzo Dellorusso, are materially adverse with those of his former client, Jack Dellorusso. This assertion is glaringly apparent from the fact that Jack is actively litigating against his brother Lorenzo. Thus, the Court swiftly determines that there exists a material adverse conflict of interest between the current client and the former client.
There Exists a Prior Attorney-Client Relationship Between the Moving Party and Opposing Counsel
Turning now to the first prong, the Court must ascertain whether a prior attorney-client relationship existed between Jack and Mr. Zilberfein. As hinted earlier, the Court indeed confirms Jack as Mr. Zilberfein's former client. To evaluate the existence of an attorney-client relationship, courts consider the actions of the involved parties (Wei Cheng Chang v. Pi, 288 A.D.2d 378, 380 [2nd Dept. 2001]). An attorney-client relationship materializes when there is a clear commitment to undertake a specific task (Jane St. Co. v. Rosenberg & Estis, 192 A.D.2d 451 [1st Dept. 1993]; Wei Cheng Chang, 288 A.D.2d 378, 380 [2nd Dept. 2001]). While the absence of a fee or formal agreement does not negate the relationship, it cannot be unilaterally established based on one's beliefs or actions (Pellegrino v. Oppenheimer & Co., 49 A.D.3d 94, 99 [1st Dept. 2008]; Terio v. Spodek, 63 A.D.3d 719, 721 [2nd Dept. 2009]). Courts must scrutinize the words and conduct of the parties to discern the existence of such a relationship (Tropp v. Lumer, 23 A.D.3d 550 [2nd Dept. 2005]; McLenithan v. McLenithan, 273 A.D.2d 757[3rd Dept. 2000]; Moran v. Hurst, 32 A.D.3d 909, 911 [2nd Dept. 2006]). This inquiry, however, is inherently flexible (Elghanayan v. Iannucci, 535 N.Y.S.2d 611, 612 [1st Dept. 1988]). Notably, the provision of legal advice, services, or assistance constitutes the crux of the attorney-client relationship (Brandman v. Cross & Brown Co. of Fla., 479 N.Y.S.2d 435, 437 [NY Sup. Ct. 1984]).
Here, the Court finds Mr. Zilberfein's claim that he did not previously represent Jack in the federal litigation unpersuasive. Initially, Jack was not named as a defendant in the federal case; instead, the plaintiff's attorney mistakenly named "Richard Dellorusso" as a defendant (Federal Settlement Agreement, NYSCEF Doc. No. 14). However, Mr. Zilberfein, upon recognizing this error and deducing that "Richard" likely referred to Jack or, at the very least, referred to the federal plaintiff's former supervisor, Richard Hatfield, proceeded to add Jack (and Hatfield) as a party to the federal case (Aff. In Opp., NYSCEF Doc. No. 23). Subsequently, Mr. Zilberfein entered his appearance on behalf of both Jack and Richard, alongside the other named defendants. Once Mr. Zilberfein became the attorney of record for Jack and Richard, he undertook the specific task of negotiating a settlement on behalf of all the defendants, including Jack, which involved making phone calls and sending emails (albeit in a limited capacity). Irrespective of the absence of direct communications or a formal agreement with Jack, by undertaking and performing that specific task, Mr. Zilberfein effectively represented Jack.
This conclusion-that attorney must undertake to perform a specific task-finds robust support in legal precedent. As delineated in Pellegrino, the establishment of an attorney-client relationship hinges upon the explicit undertaking to fulfill a specific legal task (49 A.D.3d 94, 99 (1st Dept. 2008). Specifically, the First Department determined the absence of an attorney-client relationship because the attorney did not commit to a specific task for the plaintiff. The court therein clarified that although a preliminary consultation could theoretically establish such a relationship, the pivotal distinction lies in the attorney's intent towards retention (Id.). Similarly, examining Volpe v. Munoz & Assocs., LLC, it was deduced that no attorney-client relationship existed when the attorneys' actions unmistakably indicated service solely to the LLC formed by the parties (190 A.D.3d 661, 662 (1st Dept. 2021)). Additionally, Win Hay LLC v. Chin illustrated the necessity of undertaking a specific task to establish such a relationship, emphasizing the attorney's lack of involvement in the application process (83 A.D.3d 450 (1st Dept. 2011)). These cases stand in contrast to the present matter and Rivas v. Raymond Schwartzberg & Assocs., PLLC, 52 A.D.3d 401 (1st Dept. 2008), which underscored the significance of actions and communications with relevant parties in delineating the attorney's role. In Rivas, the defendant's interactions with the trustee and the attorney for the named defendant evidenced his role as the plaintiff's attorney. Similarly, Mr. Zilberfein communicated on Jack's behalf to opposing counsel in negotiating the settlement, presumably informing the court of his representation. Any inquiries regarding Jack from opposing counsel or the court were directed to Mr. Zilberfein, demonstrating his active engagement in Jack's representation. This proactive approach, comprising of such affirmative actions as negotiation efforts, correspondence, and representation to the Court and opposing counsel, aligns with the often-cited case from the Second Department, Wei Cheng Chang v. Pi, which established the basis for determining an attorney-client relationship. The court therein emphasized that the absence of an agreement, payment, or affirmative actions by the attorney precludes such a relationship (288 A.D.2d 378, 380-81 (2nd Dept. 2001)). Collectively, these legal precedents affirm that an attorney-client relationship is not merely assumed but established through explicit actions and commitments. Therefore, based on both the evidence presented and established legal principles, it is undeniable that Jack rightfully held the status of a client during the relevant period. Thus, Plaintiff has satisfied both the first and third prongs necessary to support their claim.
Mr. Zilberfein astutely noted that "individuals who participate in employment decisions can be personally liable" (see Opp., pgh. 8, NYSCEF Doc. No. 23), thereby including Jack as a defendant. Hence, when he engaged in the specific task of negotiating the settlement for all defendants, he implicitly did so in their individual capacities.
The Court finds it prudent to address, in this footnote, Mr. Zilberfein's implicit argument regarding his inability to serve as Jack's counsel due to Jack's existing representation (see Aff. In Opp., pgh. 8, NYSCEF doc. 23). It is crucial to clarify that there is no legal prohibition against individuals being represented by different attorneys simultaneously in distinct legal matters and venues. Thus, Jack's potential representation in another matter does not bar Mr. Zilberfein from representing Jack in the federal litigation. Furthermore, as mentioned earlier, although official minutes are not provided, the Court is confident that upon Mr. Zilberfein's formal appearance after Jack's inclusion as a defendant, he explicitly asserted his representation of all named defendants. It is reasonable to deduce that Mr. Zilberfein would not have deferred responsibility or instructed Jack to seek alternative counsel for addressing issues related to his representation. This indicates clearly that Mr. Zilberfein considered himself Jack's legal representative in the federal matter and was recognized as such.
The Matters Involved in Both Representations Are Not Substantially Related
The Court now delves into what is often considered the most contentious issue in these types of matters: whether the prior matter and the current matter substantially relate to one another. In order to satisfy the "substantial relationship" criterion for disqualification, the issues in the ongoing litigation must be either identical to or 'substantially related' to those in the prior case (Dinger v. Gulino, 661 F.Supp. 438, 444 [E.D.NY]). Mere past representation of plaintiff by counsel does not automatically prohibit his representation of plaintiffs' adversary in the current matter (District Council 37 v. Kiok, 71 A.D.2d 587 [1st Dept. 1979]; Lightning Park, Inc., 197 A.D.2d 52, 55, 609 N.Y.S.2d 904, 906 [1st Dept. 1994]). Furthermore, generalized or mere assertions without specific substantiation are insufficient to warrant disqualification (Jamaica Pub. Serv. Co. v. AIU Ins. Co., 92 N.Y.2d 631 (1998)).
In the present case, the Plaintiff is conspicuously silent regarding the substantial relationship between the two matters. Absent from the Plaintiff's submissions is any mention yet alone analysis of this crucial issue. Consequently, this Court is inclined to construe the Plaintiff's silence as an implicit concession to Mr. Zilberfein's argument. Mr. Zilberfein contends that the Plaintiff "utterly fails" to establish any connection between the Valencia Matter, which involves a Wage and Hour dispute, and the present matter, where the Plaintiff, Jack Dellorusso, has brought forth causes of action against his own mother and brother (Aff. In Opp., NYSCEF Doc. No. 23). These causes of action encompass breaches of fiduciary duty, breaches of the duty of loyalty, diversion of corporate opportunities, self-dealing, corporate waste, faithless employee claims, undisclosed conflicts of interest, and misrepresentation, the relief sough including damages, disgorgement of profits, the return of compensation to the corporation, and the imposition of constructive trusts. Id.
The Plaintiff's failure to provide a clear explanation linking the Valencia Matter to the current case leads the Court to find no discernible connection between them. As a result, and given Mr. Zilberfein's unchallenged stance, the Court finds insufficient evidence for disqualification based on the three prongs. This decision, however, does not mark the end of the inquiry.
No Confidential Information Discussed
"The issue of disqualification motions encapsulates a delicate balance between fundamental principles. On one side, we acknowledge the critical need to uphold the appearance of integrity and fairness within legal proceedings. Conversely, we must also safeguard an individual's fundamental right to be represented by counsel of their choosing, while remaining vigilant against the potential abuse of disqualification motions as strategic tools for litigation advantage" (S & S Hotel Ventures Ltd. Partnership, 69 N.Y.2d 437, 443[1987]). Mere assertions of 'access to confidences and secrets' cannot suffice as the sole basis for disqualification. Such a low threshold would not only render it arduous, if not unfeasible, to substantiate these claims but would also open the floodgates for tactical maneuvering through strategic disqualification motions. Id. The wisdom echoed in Jamaica Pub. Serv. Co. cautions against this, emphasizing the necessity of a more substantial showing (92 N.Y.2d 631, 638 (1998)). Therefore, it is imperative that a movant substantiates their claim with concrete evidence that satisfies all three prongs required for disqualification (Id.). However, even when these prongs are not fully met, the option to pursue disqualification remains viable if the party can demonstrate that counsel received specific confidential information in a previous matter that is substantially related to the current litigation (Pellegrino, 49 A.D.3d 94, 98 [1st Dept. 2008)] [disqualification has been found inappropriate either where there is no substantial relationship between the issues in the current and former litigation or where the party seeking disqualification fails to identify any specific confidential information imparted to the attorney] (quoting Saftler v. Gov't Emps. Ins. Co., 95 A.D.2d 54, 57 (1st Dept. 1983); see also Lightning Park, Inc., 197 A.D.2d 52, 55 (1st Dept.1994)).
Here, the Plaintiff contends that Mr. Zilberfein, in defending the federal Labor claim against the corporation, gained access to internal corporate documents and participated in discussions. See Affidavit, NYSCEF Doc. 11, paragraph 7. Specifically, but generally, the Plaintiff asserts that "In appearing in and negotiating that federal wage claim (for JACK without his knowledge), Mr. Zilberfein would "have had to learn information that is germane to his instant defense of LORENZO and his counterclaims against JACK and his wife (who I believe was brought in by Mr. Zilberfein solely out of spite). That is why he cannot now go forward as counsel against the movant." See Affidavit, NYSCEF Doc. 11, paragraph 13.
In opposition, Mr. Zilberfein argues that he lacks access to confidential information that could provide him with an advantage. He emphasizes that he has not had any contact or communication with Jack, nor has he been exposed to any documents or information that could lead to his disqualification. See Affidavit in Opposition, NYSCEF Document Number 23. Additionally, Mr. Zilberfein highlights the limited nature of his involvement in the Valencia Matter. He describes his involvement as restricted to three activities: negotiating a settlement with the federal plaintiff's attorney, Giustino Cilenti, filing a notice of appearance for the defendants, and reviewing and making minor changes to the settlement agreement prepared by Cilenti (See Federal Settlement Agreement, NYSCEF Doc. No. 15, Aff. In Opp., NYSCEF Doc. No. 23, and Cilenti Aff., NYSCEF Doc. No. 27). To the first point, Cilenti confirms, the conversations between he and Mr. Zilberfein were solely focused on settlement negotiations, and the only document shared by Cilenti was a damages spreadsheet (Cilenti Aff., NYSCEF Doc. No. 26). Based on these arguments and the evidence presented, Mr. Zilberfein maintains that his involvement has been focused and restricted, supporting his claim that he did not have access to confidential information that could compromise the legal proceedings or justify his disqualification.
The Court acknowledges Mr. Zilberfein's prior representation of Jack during the Federal matter, a circumstance that understandably gives the Court pause about potential disclosure of confidences. However, this concern must be balanced against the fundamental right of parties to choose their legal representation in ongoing litigation, a right widely recognized. See S & S Hotel Ventures Ltd. Partnership, 69 N.Y.2d 437, 443 [1987]; Matter of Abrams [John Anonymous], 62 N.Y.2d 183 [1984]). In the Matter of Abrams, the Court of Appeals held that disqualification of counsel constitutes a serious encroachment upon a party's right to be represented by the attorney of its choosing. While this right is not absolute and may yield under certain compelling circumstances, such as safeguarding a critical public interest, it remains a cornerstone of our legal system that requires meticulous scrutiny before any limitations are imposed.
In light of this, this Court is duty-bound to conduct a rigorous analysis of Mr. Zilberfein's previous representation to ascertain whether he was privy to specific confidential information significantly related to the ongoing litigation, thereby necessitating his disqualification. To the extent that the Plaintiff argues for Mr. Zilberfein's disqualification, the Court notes that the argument rests primarily on the above-mentioned assertion that Mr. Zilberfein "would have had to have learned information." This is a mere assertion that is presented in the Reply Affidavit (NYSCEF Doc. 27). It is wholly devoid of any specifics information that render the Court's ability to substantiate these claims arduous, if not unfeasible (S & S Hotel Ventures Ltd. Partnership, 69 N.Y.2d 437, 443[1987]). To grant Plaintiff's motion on this assertion alone would effectively open the floodgates for tactical maneuvering through strategic disqualification motions. Id. This cannot be. Consequently, it falls woefully short of meeting the rigorous standard required to justify disqualification. This conclusion is supported by a substantial body of legal precedent that consistently denies requests for disqualification unless the party advocating for such action can specifically identify confidential information disclosed to the attorney. For instance, in Patane v. Tan, disqualification was deemed unwarranted as the defendants failed to identify any material confidential information obtained by the attorney during prior engagements, referencing only generic legal documents and activities (188 A.D.3d 498 [1st Dept. 2020]). Similarly, in Volo Logistics LLC v. Varig Logistica S.A., the court noted the absence of any specific confidential information divulged to the attorneys, leading to the rejection of the disqualification request (51 A.D.3d 554, 555 [1st Dept. 2008]). The precedent set forth in Solow v. W.R. Grace & Co., further underscores this principle, as the Court of Appeals reversed an Appellate Division order due to the lack of evidence showing that Counsel acquired confidential information (83 N.Y.2d 303, 308-09 [1994]). The case of Saftler (95 A.D.2d 54, 57 [1st Dept. 1983]), reinforces this stance by rejecting disqualification where the record did not reflect any confidential information shared during a meeting concerning coverage inquiries. In Cardinale v. Golinello (43 N.Y.2d 288, 291 [1977]), the Court of Appeals held that it was an abuse of discretion as a matter of law to disqualify Counsel without a finding that it was "reasonably" probable that he gained knowledge of the Golinello confidences.
Considering this extensive legal framework, the Court maintains that without specific identification of confidential information disclosed to Mr. Zilberfein, the threshold for warranting disqualification has not been met.
CONCLUSION
Accordingly, it is
ORDERED that Plaintiff's Motion to Disqualify Mr. Zilberfein is hereby denied.
ORDERED that counsel for Plaintiffs shall serve a copy of this order with notice of entry within thirty (30) days upon all parties; it is further
This constitutes the decision and order of the Court.