Opinion
107360/09.
March 4, 2010.
MEMORANDUM DECISION
Defendants Enver Kesti ("Kesti") and Mohammed Jemel Feknous ("Feknous") (collectively, "defendants") move to disqualify attorney Lawrence Lonergan, Esq. ("Lonergan") from representing plaintiff Andrew Poma ("plaintiff") on the ground that Lonergan's law firm partner is a former partner of a law firm which previously represented Kesti in negotiating the agreement at issue. For the reasons set forth, below defendants' motion is granted.
Background
Plaintiff asserts a claim of breach of contract arising out of a stock purchase agreement (the "agreement") pursuant to which plaintiff purchased defendants' shares in a gourmet store "Amish Market" (the "corporation"). According to the complaint, despite the representations by defendants in the agreement executed on August 15, 2006, that the corporation did not have any outstanding tax obligations, it later appeared that the corporation owed $168,162.75 in New York State sales taxes (complaint, ¶ 14). During the above sale transaction (the "corporate transaction") in 2006, Kesti was represented by attorney Marc Verzani ("Verzani") of the then two-partner firm Woods Verzani, LLP. Kesti allegedly disclosed to Verzani confidential information regarding the operation of the business.
In August 2008, attorneys James Woods ("Woods"), Verzani and Lonergan purportedly formed a new partnership "Woods Verzani Lonergan, LLP," which existed through October 2008. As a result of this short-lived partnership, Lonergan moved in and started using the computer previously used by Verzani.
In November 2008, Woods and Lonergan formed a new two-partner firm "Woods Lonergan, LLP," which they presently operate. Lonergan undertook representation of plaintiff in or about May 2009, in the present litigation against defendants who now move to disqualify him as plaintiff's counsel based on a claimed conflict of interest.
Thus, the transformation of the partnerships in short can be described as Woods Verzani-Woods Verzani Lonergan — Woods Lonergan. According to Verzani's affidavit, all three firms share the same computer network, client database, office space, support staff, phone number and location (Verzani Affidavit, ¶ 5).
In their motion, supported by the affidavits of Verzani and defendants Kesti and Feknous, defendants argue that, pursuant to the Court of Appeals precedents and disciplinary rules DR 5-105 (D) ( 22 NYCRR 1200.24 (d)) and DR 5-108 ( 22 NYCRR 1200.27 (a)(1)), Lonergan should be disqualified. Defendants contend that through his former partner Verzani, Woods became familiar with the facts of the corporation's business affairs, specifically, the issues of the employees' wages, withholding of sales tax and cash distribution among the shareholders, which are substantially related to the subjects that are at issue in this breach of contract suit. Therefore, defendants contend, Woods has a personal conflict of interest pursuant to the Code of Professional Responsibility. Defendants further contend that, since Woods personally must be disqualified, this disqualification is imputed to the entire Woods Lonergan firm, including attorney Lonergan. Defendants contend that there is a presumption of disqualification here because (1) there is a prior attorney client relationship between Lonergan's current partner Woods and defendants; (2) the current proceeding is based on the very same agreement upon which they are being sued, and (3) plaintiff's interests in the current litigation are materially adverse to those of the defendants in the previous representation. In this regard, defendants assert, the implementation of ethical screening procedures would not be sufficient to preclude Woods Lonergan LLP from disqualification.
Further, defendants contend that Lonergan should not be permitted to defeat this preclusion by signing the pleadings in his individual name rather than by the "Woods [] Lonergan, [LLP]" firm. In support of this contention, defendants submit a letter from Lonergan to defendants' counsel dated August 11, 2009, in which Lonergan acknowledges that he is "associated with James F. Woods in [their] partnership Woods Lonergan, LLP" (exhibit D to motion).
Relying on the Verzani Affidavit, defendants argue that Woods and Verzani, as former members of a two-partner firm, inevitably had "confidential discussions" about the way the co-shareholders operated the company, and Lonergan, after moving into Verzani's office and using Verzani's computer, had an "unfettered access to [Kesti's] files, [which] remained on the networked computers" (Verzani Affidavit, ¶ 6-8). Thus, defendants conclude, such appearance of conflict of interest should warrant disqualification.
In his affidavit, Verzani attests that Lonergan was previously his partner at Woods Verzani Lonergan, LLP (id., ¶ 4) and after Verzani's departure from the firm, Lonergan took over his desk and computer, on which Kesti's file remained and that the closing file still remains on the networked server to which Lonergan has easy access. Verzani also states that the day following the closing, he met with Woods to discuss the transaction (id. ¶ 13), on which he updated Woods on a regular basis (id. ¶ 17), and that now Lonergan can discuss the transaction with Woods.
Thus, defendants request that the Court disqualify plaintiff's counsel and immediately stay the discovery proceedings until new counsel is retained by plaintiff.
Plaintiff opposes the motion arguing that Woods's former partnership with Verzani, who had previously represented defendants, is insufficient to impute the conflict to Lonergan. In support of its opposition, plaintiff submits an affirmation of Lonergan who states that he has never been associated with Woods Verzani, LLP, the firm that had previously represented defendants in the corporate transaction, nor has he ever met or spoken to defendants. Lonergan also disputes any association by partnership with Verzani at Woods Verzani Lonergan, LLP, since the firm, while contemplated by the three attorneys, never actually came into existence (Lonergan Affirmation, ¶¶ 3-5). Thus, Lonergan claims to have never shared office space or worked on a matter with Verzani, or seen defendant Kesti's file, and he believes that upon leaving Woods Verzani, LLP, Verzani took the file with him.
Further, Lonergan asserts that at the time of Woods Verzani, LLP's representation of defendants in the negotiation of the agreement, his current partner Woods was not involved in the work on the transaction, since Verzani alone performed all the work (id. ¶ 7). Lonergan further states that Verzani's affidavit is motivated by animosity toward his former partner Woods and anyone currently associated with him.
Plaintiff also contends that any claimed confidential information from the prior representation is not material to the present litigation because, in any event, the confidential information sought to be protected by defendants — the documents related to the closing of the stock purchase agreement — will be exchanged during the discovery process. Moreover, there is no presumption of disqualification here because defendants did not show the existence of "a risk that [Woods] acquired any client confidences from the prior representation" (id. ¶ 11).
Additionally, plaintiff contends that defendants, by their motion, seek to delay the litigation of this action and the repayment of the money owed by them to plaintiff, and that the delays in conducting discovery caused by bringing the instant motion unfairly prejudice plaintiff. Finally, plaintiff maintains he has a right to choose his own counsel and there is no compelling public interest here to override this right.
In reply, defendants argue that Lonergan acknowledged his partnership in Woods, Verzani Lonergan, LLP in a letter dated October 2008 in which the three attorneys agreed to nullify and void their partnership agreement (exhibit G). Further, defendants argue that Lonergan commenced this action under his individual name rather than Woods Lonergan, LLP because he indeed perceived that Woods's conflict of interest might disqualify him from representing Poma in this action. As to the alleged delay tactics, defendants argue that, prior to filing the instant motion, they made several oral and written requests for counsel to voluntarily withdraw (exhibit C). Further, plaintiff himself has been dilatory by failing to present proof of the alleged indebtedness by refusing to produce the documents related to the transaction (exhibit H). Finally, defendants argue that, since the three-prong test of disqualification is met here, it overrides the right of plaintiff to choose his own counsel. Discussion
The court is presented with an issue of disqualification, the purpose of which is to protect the ethical concerns implicated by successive representation. The Code of Professional Responsibility (the "Code") imposes a continuing obligation on attorneys to protect their clients' confidences and secrets. Even after representation has concluded, a lawyer may not reveal information confided by a former client, or use such information to the disadvantage of the former client or the advantage of a third party (Code of Professional Responsibility, DR 4-101 [B] [ 22 NYCRR 1200.19 (b)]; DR 5-108 [A][2] [ 22 NYCRR 1200.27 (a)(2)]).
In accordance with these duties, the Code precludes attorneys from representing interests adverse to former clients on matters substantially related to prior representation ( Cardinale v Golinello, 43 NY2d 288, 295-296; Hernandez v Paoli, 255 AD2d 130, [1st Dept 1998]). Pursuant to DR 5-108 [A] [1], an attorney who has formerly represented a party shall not then represent another person in the same or substantially related matter in which the person's interests are materially adverse to the interests of the former client (Code of Professional Responsibility DR 5-108 [A] [1] [ 22 NYCRR 1200.27]). Further, Rule DR 5-108 [B] provides that a lawyer "shall not knowingly represent a person in the same or substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client" whose interests are materially adverse to that person and the lawyer acquired confidential information that is material to the matter (Code of Professional Responsibility DR 5-108 [B] [ 22 NYCRR 1200.27], emphasis added). Where there is a conflict of representation, doubts as to the existence of a conflict of interest are to be resolved in favor of the disqualification ( Lammers v Lammers, 205 AD2d 432, 613 NYS2d 906 [1st Dept 1994]). Generally, an attorney must avoid not only the fact but even the mere appearance of impropriety ( Tekni-Plex, Inc. v Mayner Landis, 89 NY2d 123, 130-131).
These same principles give rise to the general rule that, where an attorney working in a law firm is disqualified from undertaking a subsequent representation opposing a former client, all the attorneys in that firm are likewise precluded from such representation ( Kassis v Teachers' Insurance and Annuity Association et al., 93 NY2d 611, citing Cardinale v Golinello; Code of Professional Responsibility DR 5-105 [D] [ 22 NYCRR 1200.24 (d)]), emphasis added). Disciplinary Rule 5-105 essentially imputes the personal conflict of interest of the lawyer to his or her current firm ( see Cardinale v Golinello, supra).
In Cardinale v Golinello ( 43 NY2d 288 [1977]), the Court of Appeals held that, if one attorney in a firm is disqualified, then all attorneys in that firm are disqualified as a matter of law. This was based on the irrebuttable presumption of shared confidences among attorneys employed at the firm, and due to their ethical obligation to avoid the appearance of impropriety. This rule was later modified in Solow v W.R. Grace Company ( 83 NY2d 303 [1994]) to provide that, in certain large firms, depending on the nature of the firm's practice and its ability to insulate lawyers from sharing clients' confidences, imputed disqualification was not an irrebuttable presumption as it indiscriminately disqualified all members of a law firm.
However, the Court of Appeals cautioned, that the imputed disqualification rule should not be applied mechanically. Such a rule "is unnecessarily preclusive because it disqualifies all members of a law firm indiscriminately, whether or not they share knowledge of the former client's confidences and secrets, [. . . it] imposes `significant hardships' on the current client and is subject to abusive invocation purely to seek tactical advantages in a lawsuit, and it conflicts with public policies favoring the client's right to representation by counsel of choice and restricts an attorney's ability to practice ( Kassis, at 616-617, quoting Solow v W.R. Grace Company, 83 NY2d 303).
Moreover, the imputed conflict of interest rule is not a mandatory disqualification rule, and thus, where one attorney is disqualified as a result of having acquired confidential client information at a former law firm, the presumption that the entirety of the attorney's current firm must be disqualified may be rebutted ( Cummin v Cummin, 264 AD2d 637 [1st Dept 1999]; Kassis). To raise the presumption of disqualification, a party seeking disqualification must show that (1) there was an attorney-client relationship between the moving party and opposing counsel, (2) the matters involved in both representations are substantially related, and (3) the interests of the present client and former client are materially adverse ( Jamaica Pub. Serv. Co. Ltd. v AIU Ins. Co., 92 NY2d 631, 636).
"[N]o presumption of disqualification will arise if either the moving party fails to make any showing of a risk that the attorney changing firms, or the non-moving party disproves that the attorney had any opportunity to acquire confidential information in the former employment. In either case, it would not have been established that the side-switching attorney actually `represented the former client in a matter' and neither the attorney nor the firm would need to be disqualified" ( Kassis, at 617). It is not necessary for a party seeking disqualification to show that "confidential information necessarily will be disclosed in the course of the litigation; rather, a reasonable probability of disclosure should suffice" ( Jamaica Pub. Serv. Co. Ltd. v AIU Ins. Co., at 637; Greene v Green, 47 NY2 447, 453 [1979], emphasis added).
"Where the presumption is raised, however, the party seeking to avoid disqualification must prove that any information acquired by the disqualified lawyer is unlikely to be significant or material in the litigation" ( Kassis, at 617). If the presumption is rebutted, a Fire Wall or screening procedure of insulating the disqualified lawyer would be sufficient to avoid the firm disqualification ( id., citing Solow v W.R. Grace; Restatement, op. cit., § 204 [2][a]-[c]; see also id., § 204 [2], illustration 4).
To determine whether presumption of shared confidences and disqualification has been rebutted, consideration must be given to the particular facts of each case. Factors to be considered as to whether the presumption of shared confidences has been rebutted include: (1) the size of the law firm; (2) the formality or informality of discussion among the attorneys on matters handled by the firm; (3) whether the attorney's office was physically isolated, and (3) whether all firm files are open and available to all attorneys of the firm ( Kassis [where the "switching" attorney "played an appreciable role as counsel for plaintiff while at the former firm, was sufficiently knowledgeable and steeped in the files of the case to conduct several depositions resulting in extensive transcripts, appeared as sole counsel for the client in two mediation sessions, conversed regularly with the client," the court found that defendants' conclusory statements failed to rebut that presumption that [the attorney] did not acquire client's confidences during the prior representation. Thus, the court held that disqualification was required as a matter of law]).
In Cardinale v Golinello, a partner in a small firm had represented the defendant in connection with the purchase of corporate stock. After the transaction had been completed, attorney Schiller joined the firm. The firm continued representing the defendant after Schiller's arrival, but Schiller was not involved in the representation on the defendant's behalf. Schiller subsequently left the firm and became associated with another law firm, which was retained by the plaintiff for a suit against the defendant arising out of the earlier stock purchase. The Court of Appeals reasoned that, while the size of the firm was not determinative, the nature of the firm and the character of its practice were such that there was "understandable informality," conducive to "constant cross-pollination" and a "cross-current of discussion and ideas" among all attorneys on all matters handled by the firm; thus, there was a greater likelihood of acquiring material client confidences. Importantly, the court noted that it was of "no moment" that Schiller had never personally rendered legal services to the defendant, because, being associated with the defendant's attorney, the possibility was simply too great that he had wittingly or unwittingly acquired confidential information. Thus, the court granted the motion to disqualify Schiller.
Similarly, here, like in Cardinale, although neither Woods nor Lonergan had been personally involved in the representation on behalf of defendants in the negotiation of the underlying agreement, there is such a conflict of interest that mandates disqualification of both Lonergan individually and the entire Woods Lonergan, LLP firm. Clearly, if Woods Verzani, LLP represented defendants in negotiating the agreement that is the very subject matter of this dispute involving a breach by defendants, there is a conflict of interest as the new Woods's firm is now representing materially adverse interests in a substantially related matter ( Casita v Maplewood Equity Partners (Offshore) Ltd., 11 Misc 3d 1054 [Sup Ct New York County 2006], aff'd 34 AD3d 251, 252 [1st Dept 2006] (disqualification was warranted where plaintiff's attorney had previously drafted defendant's subscription agreement and articles of association); Credit Index, LLC v Riskwise Intl., LLC, 192 Misc 2d 755, 765 [Sup Ct New York County 2002], aff'd 296 AD2d 318 [1st Dept 2002] (upholding disqualification where a firm represented defendant in the past for drafting an operating agreement for plaintiff's predecessor)). Indeed, it is clear that the prior legal services in negotiating the stock purchase agreement constitutes a matter substantially related to the instant litigation which challenges the validity of the representations and warranties provision of the underlying agreement.
Further, defendants have shown that it was likely that Woods, while a partner at Woods Verzani, LLP, a two-member firm, became privy to the information shared by defendant Kesti with Verzani (Verzani Affidavit, ¶ 13). And, while the size of the firm is not determinative, based on the record, it is clear that the nature of the two-partner firm and the character of its practice were such that there was "understandable informality," conducive to "constant cross-pollination" and a "cross-current of discussion and ideas" between Woods and Verzani ( id.). Thus, there was a greater likelihood of acquiring by Woods material client confidences. And, like in Cardinale, here, it does not matter that Woods never personally rendered legal services to the defendant, because, being associated with the defendants' attorney, the possibility was simply too great that he had wittingly or unwittingly acquired confidential information. Therefore, the imputation of knowledge as a matter of law, "arises simply from the fact that the firm of which [Woods] was then a partner, represented the former client in matters related to the subject matter of the current representation ( Cardinale, at 295; Code of Professional Responsibility DR 5-108 [B] [ 22 NYCRR 1200.27]).
It is urged by plaintiff, that even if Woods is disqualified, such disqualification should not extend to Lonergan because he has never been associated with Woods Verzani, LLP, the firm that had previously represented defendants in this action, nor has he ever met or spoken to defendants. This court is not prepared to set aside the logic and the precedent established by the Court of Appeals and accept the assumptions advanced by plaintiff. It is true that, since Lonergan was not associated with Woods Verzani, LLP at the time of the first representation, and Verzani had left the firm before the current litigation started, the ethical consideration may "have less force and be more subject to being overridden by competing policy considerations" ( Solow, at 313). And in this circumstance, to rebut the presumption that the rights of defendants will be jeopardized by Lonergan's representation, Lonergan must establish that there is no reasonable possibility that "the firm's remaining attorneys," including Woods here, possess [relevant] confidences or secrets of the former client, i.e., defendants in this action ( id.) Lonergan failed to make such a showing; his conclusory submission that he has never shared office space or worked on a matter with Verzani or seen defendant Kesti's file is insufficient to rebut the presumption of disqualification. The imputed disqualification of the remaining lawyers at the firm did not disappear upon Verzani's departure from the firm. Rather, disqualification still extends to Woods and to the entire firm, now Woods Lonergan, LLP, which is characterized by the same kind of informality as Woods Verzani LLP, and occupies the same offices as Woods Verzani LLP, using the same computer network.
Moreover, the movants have shown the reasonable likelihood that Lonergan had access to Kesti's files, which remained on the networked computers at the time when Lonergan was, even if for a short time, a member of Woods Verzani Lonergan, LLP, and moved into Verzani's office. It is indeed difficult to expect that the attorneys associated by a two-member partnership are not so "intimately acquainted with all the work in the office" and do not "share client confidences and ideas about how to handle client problems as a matter of course" ( Solow, at 312, citing Cardinale).
This is not the case like Solow v W.R. Grace Company, where the nature of the firm and the character of the practice allow attorneys to be insulated from each other in their everyday practice. In Solow, the court declined to disqualify a 372-lawyer firm, representing the plaintiffs, but which had formerly represented the defendants in another litigation. The court held that, because the attorneys who actively participated in the previous action had left the firm long before the current litigation, the sworn affidavits by the remaining attorneys, corroborated by the firm's computerized billing records, established that their involvement in the prior litigation was at most limited, and the large, compartmentalized firm lacked the informality usually found in small firms, the disqualification was unwarranted.
Further, even assuming that Lonergan did not in fact obtain any confidential information in connection with the first representation, it cannot be said that defendants will be "free [. . .] from apprehension and certain [. . .] that [their] interests will not be prejudiced" if their adversary is represented by their former firm or its partner ( Cardinale, at 296). First, by being associated with the partner of defendants' attorney, the possibility is simply too great that he had wittingly or unwittingly acquired confidential information from Woods. And second, even a mere impropriety must be avoided, for if Lonergan were allowed to represent plaintiff in the current action, "laypersons might well believe that he was being hired not only because of his legal talent, but also because of confidential information" that his partner Woods possesses and might share ( Cardinale, at 296).
Importantly, that Lonergan brought this suit under his individual name as Lonergan, P.C., while Woods and Lonergan hold themselves out to the public as a partnership, Woods Lonergan, LLP, suggests the appearance of impropriety here in contradiction to the attorney's ethical obligation and thus, requires disqualification on that ground alone.
Further, the court disagrees with plaintiff's contention that any confidential matter from the prior representation is not material to the present litigation because, in any event, it will be exchanged during the discovery. This is not the case where a law firm acquired only general information, not relevant to the current breach of contract suit, or previously represented a client in a few settlement discussions unrelated to the current suit ( Mathews v LeBoeuf, Lamb, Green MacRae, 902 FSupp 26 [SDNY 1995]; Vestron, Inc. v National Geographic Soc'y, 750 FSupp 586 [SDNY 1990]). Rather, here, defendants showed that the confidential information they shared included the relevant facts of managing the company employment and financial affairs, which are substantially related to the claims of a breach of the warranties and representations provision under the agreement.
And, the court cannot conclude that defendant's motion is being used as a litigation tactic to delay the litigation and repayment of the money allegedly owed to plaintiff. Rather, it is the plaintiff's choice of the attorney of the firm, likely possessing confidences of his adversaries, and Lonergan's attempt to obviate this potential conflict that suggest an unfair advantage to plaintiff, which is the very appearance of impropriety that the disqualification rule is aimed to prevent.
Thus, even though Lonergan had not previously represented defendants and was not associated with the firm representing defendants at the time of the transaction, because of Woods's imputed conflict, the current law firm's informal setting, which includes discussions between the attorneys and fully accessible files, disqualification is warranted here. Conclusion
Accordingly, it is hereby
ORDERED that the motion by defendants Enver Kesti and Mohammed Jemel Feknous to disqualify Lawrence R. Lonergan as counsel for plaintiff Andrew Poma, is granted in its entirety; and it is further
ORDERED that within twenty (20) days, said defendants shall serve a copy of this order with notice of entry upon said counsel and said counsel shall serve plaintiff at his last known address by certified mail, return receipt requested within five (5) days of receipt of a copy of this order; and it is further
ORDERED that no further proceedings may be taken against plaintiff without leave of this court for a period of 45 days after service on plaintiff of this order.
This constitutes the decision and order of the Court.