Opinion
27255/2010.
Decided August 12, 2011.
Alison Greenberg, Esq., New York, NY, Attorney for Plaintiff.
John DiBella, Esq., New York, NY, Attorney for Defendant Devitt.
David Pohl, Esq., New York, NY, Attorney for Defendants Jean Vincent and Vincent Brothers, Inc.
Defendant Paul Devitt moves, inter alia, for the disqualification of Alison Greenberg, Esq., as counsel for plaintiffs David Keating and Michael Stewart, based upon his counterclaims against those plaintiffs, alleging that they participated in the decisions upon which plaintiffs base their suit and that Ms. Greenberg is necessarily confronted with a conflict among the interests of her various clients. In the alternative, defendant Devitt moves, pursuant to 22 NYCRR1200, Rule 1.7, to disqualify Ms. Greenberg's representation of all plaintiffs. Defendant Devitt further moves (a) to dismiss the derivative action pursuant to CPLR 3211 (a) (2) and (3); (b) to direct the removal of Big Brows LLC ("Big Brows") as plaintiff pursuant to CPLR 3211 (a) (2) for failure to comply with appropriate procedures in commencing a derivative action; (c) to declare Devitt a member of Big Brows pursuant to CPLR 3001; (d) to declare the August 2010 amendment to the Operating Agreement void; (e) to stay discovery pending the retention of new counsel; and (f) to dismiss the second, third, and fifth causes of action. Plaintiffs cross-move to dismiss Devitt's counterclaim for prima facie tort pursuant to CPLR 3211 (a) (1).
BACKGROUND
Big Brows, a domestic limited liability company, was formed in 2009 for the purpose of investing in a "beauty bar," an establishment that would function as both a beauty salon and a bar. Section 11 of Big Brow's Operating Agreement, dated April 1, 2009, provided that defendant Devitt and plaintiff Keating would act as general managers and that plaintiff Stewart would act as assistant manager. In April of 2009, Big Brows signed an Asset Purchase Agreement with defendant Vincent Brothers, Inc. ("Vincent Brothers"), whereby Big Brows agreed to purchase a business, known as the Black Bean Café, for $125,000. The Agreement provided that $15,000 was to be paid on or before April 1, 2009, and an additional $80,000 was to be paid upon the approval of a temporary liquor license from the New York State Liquor Authority ("SLA"), after which, twenty-four consecutive payments of $1,250 would be made.
In May of 2009, the SLA denied Big Brow's application for a temporary liquor license. Defendant Devitt claims that, after consulting with legal counsel, believing that the liquor license would ultimately be issued, the managers of Big Brows decided to continue construction of the Black Bean Café to transform it into a beauty bar. In April of 2010, the SLA denied Big Brow's application for a liquor license in its entirety. Plaintiffs have alleged that the liquor license was denied due to Devitt's involvement in the project and a prior involvement he had had with another bar. In August of 2010, some of the members of Big Brows amended the Operating Agreement to eliminate Devitt's membership, without the participation of Devitt or the Devitt-related member Jinx Proof LLC.
On November 4, 2010, plaintiffs commenced this action, alleging inter alia fraud, breach of fiduciary duty and breach of contract claims against Devitt and claiming that defendant Devitt failed to notify them when the temporary license was denied and, instead, improperly paid Vincent $80,000 so as to continue construction on the business, thus wasting their investment. On May 24, 2011, defendant Devitt made the instant motion, and on June 6, 2011, plaintiffs cross-moved. On June 29, 2011, this court heard oral argument on the motions and granted defendant Devitt's motion from the bench to the extent of declaring Devitt a member of the Big Brows pursuant to CPLR 3001 and the August 2010 amendment to the Operating Agreement to be void as not having been voted in compliance with the terms of the Operating Agreement, reserving decision on the matter of disqualification and plaintiff's cross-motion to dismiss, which is addressed herein.
DISCUSSION
Defendant Devitt moves to disqualify Ms. Greenberg pursuant to 22 NYCRR1200, Rule 1.7 on the grounds that an unwaivable conflict of interest exists among the plaintiffs. Rule 1.7 of the Rules of Professional Conduct provides:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if a reasonable lawyer would conclude that either:
(1) the representation will involve the lawyer in representing differing interests; or
(2) there is a significant risk that the lawyer's professional judgment on behalf of a client will be adversely affected by the lawyer's own financial, business, property or other personal interests.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
Ms. Greenberg asserts that her continued representation is proper as she has complied with the four requirements set forth in Rule 1.7 (b), the exception to the general rule prohibiting dual representation of clients with conflicting interests. She has stated in her affidavit that she believes she can competently and diligently continue her representation and has submitted affidavits from each plaintiff consenting to her continued representation and acknowledging that they have been advised as to any potential conflict. Ms. Greenberg insists that her clients have not asserted any claims directly against each other and that there is, therefore, no basis to disqualify her. However, in his Answer, defendant Devitt has interposed counterclaims against plaintiffs David Keating, as general manager with Devitt, and Michael Stewart, as assistant manager, alleging that they concurred with Devitt's decisions with respect to payments made to co-defendant Vincent and continued construction on the premises, notwithstanding the denial of a temporary liquor license, which gave the LLC the right to cancel the contract of sale under the terms of the Asset Purchase Agreement between Big Brows LLC and defendant Vincent Brothers, Inc. Under the Operating Agreement, defendant Devitt and plaintiffs Stewart and Keating are all managers and thus owe a fiduciary duty to the other members of the LLC, including the other individual plaintiffs ( Out of Box Promotions, LLC v Koschitzki , 55 AD3d 575 , 578 [2d Dept]). Defendant Devitt's counterclaim for contribution from plaintiffs Keating and Stewart for the fraud, breach of contract and breach of fiduciary duty that has been alleged against Devitt by the plaintiffs places Keating and Stewart in conflict with the other plaintiffs. Though the claims are not interposed directly by the plaintiffs themselves, litigation of the issues presented in the complaint will necessarily require plaintiffs Stewart and Keating to defend themselves against their fellow plaintiffs' claims.
"The disqualification of an attorney is a matter that rests within the sound discretion of the court" " Nationwide Assoc. v Targee St. Internal Medicine Group, 303 AD2d 728 [2d Dept 2003]). The right to be represented by counsel of one's choice is not be lightly abridged by disqualification (see S S Hotel Ventures Ltd. Partnership v 777 S. H. Corp., 69 NY2d 437; Horn v Mun. Info. Serv., Inc., 282 AD2d 712 [2d Dept 2001]). However, in the instant action, Devitt has alleged that Keating and Stewart were made aware of the denial of the temporary liquor license in May of 2009, approved Devitt's decision to continue construction of the premises and advised the other LLC Members of such decision. Devitt's allegations of Michael Stewart's and David Keating's active participation in the alleged improper decisions are supported by the affidiavit of Jean Vincent. Although plaintiffs dispute Devitt's allegations, Devitt's counterclaim has raised a direct conflict and created adverse interests among plaintiffs. Like Devitt, Keating and Stewart are also fiduciaries to the remaining plaintiffs. If it is determined that Devitt breached his fiduciary duty, it is possible that Stewart and Keating have also breached their fiduciary duties and will ultimately be liable to their fellow plaintiffs as well, placing them in an untenably adverse relationship with the remaining plaintiffs. The same attorney cannot both prosecute and defend.
Plaintiffs, whose pecuniary interests are in conflict with one other, can not be represented by the same attorney as such irreconcilable conflict in the professional allegiance of counsel cannot be waived. ( Alcantara v Mendez, 303 AD2d 337, 338 [2d Dept 2003]). In Alcantara, the Appellate Division, Second Department disqualified plaintiffs' counsel from representing both an injured passenger and the children of the driver who were also injured passengers. Because the guardian of the plaintiff children was the driver, though not herself a plaintiff, and defendant had asserted a counterclaim for negligence against her, the court found the attorney representing all of the plaintiffs disqualified from representing any of the plaintiffs, directing the appointment of a guardian ad litem as well. In such circumstances, analogous to those here, the court found that the assertion of the counterclaim against the plaintiff children's guardian created a conflict such that "continued representation of the plaintiffs violates the Code of Professional Responsibility DR-5-105 (b) [now Rule 1.7])" ( id. at 338; see also Quinn v Walsh , 18 AD3d 638 [2d Dept 2005] (denying an attorney legal fees for services rendered during his conflicted representation of plaintiffs, in violation of DR 5-105 (a) (now, Rule 1.7); Caravousanos v Kings County Hosp. , 27 Misc 3d 237 [Sup Ct, Kings 2010]).
Ms. Greenberg's reliance upon Govias v Tejada, 2010 WL3528869 at *2 [SD NY 2010]), is unavailing. In Govias, the court permitted a firm's concurrent representation of the driver of a leased vehicle and the lessor, finding that any conflict which may arise on the grounds of vicarious liability would be a waivable conflict. The case is easily distinguished by the fact that, unlike here, in Govias, the defense based on vicarious liability would necessarily be identical to that of the driver, alleged to be actively negligent. The counterclaim here is based upon Stewart's and Keating's actual participation in the allegedly improper activities.
Ms. Greenberg's claims that the plaintiffs would be severely prejudiced by her disqualification are also without merit. This action was commenced last year, but a preliminary conference order was signed in April of 2011 and discovery has only recently begun. This court finds no prejudice resulting from the disqualification of plaintiffs' counsel at this early stage in the litigation, other than the additional costs to be incurred in retaining separate counsel. While such resultant cost is not without consequence, it cannot be avoided here.
Accordingly, defendant Devitt's motion to disqualify Ms. Greenberg as counsel for plaintiffs is granted. Because Ms. Greenberg has been privy to the confidential information of all plaintiffs, she will not be able to represent any of them ( Alcantara, 303 AD2d at 338). The action, including discovery, is stayed for 45 days to enable plaintiffs to retain new counsel. The matter is adjourned to October 5, 2011, at which time Stewart and Keating shall appear by new counsel separate from the remaining plaintiffs. All remaining issues raised in defendant Devitt's motion are reserved pending appearance of new counsel for plaintiffs.
With respect to plaintiffs' cross-motion, Devitt's counterclaim for prima facie tort asserts that plaintiffs failed to re-apply for a liquor license or follow the procedures established in the Operating Agreement or the New York State Limited Liability Act to address their grievances, and instead brought this action improperly. A claim of prima facie tort is not a catch-all for the redress of grievances that are not actionable on their merits ( Curiano v Suozzi, 63 NY2d 113, 118). To establish a claim for a prima facie tort, a plaintiff must allege the following elements: "(1) intentional infliction of harm, (2) causing special damages, (3) without excuse or justification, (4) by an act or series of acts that would otherwise be lawful" ( id. at 117). Devitt has failed to allege any of the requisite elements. In particular, he has not alleged that plaintiffs were motivated by malice, with the intent to harm defendant, in bringing this action. Contrary to defendant's arguments, malice can not be inferred from plaintiffs' commencement of an allegedly improper derivative action based upon procedural irregularities, particularly in light of Devitt's own email acknowledgment of responsibility. Accordingly, plaintiff's cross-motion to dismiss defendant Devitt's counterclaim alleging a prima facie tort is granted.
This constitutes the decision, order, and judgment of the court.