The New York Supreme Court disqualified a close corporation’s general counsel this past week for, in essence, failing to ask: “who’s my client?” When one shareholder of a successful restaurant group sought to be bought out, the corporation’s outside “general counsel” seemingly represented the other two individual shareholders in the negotiations. (For example, the lawyer referred to his “clients,” rather than “client,” in the negotiations.) When the negotiations broke down, the corporation terminated the shareholder (who was also a director and officer) for cause and redeemed his shares. On behalf of the corporation and the two other shareholders, outside general counsel then brought suit against the former shareholder, seeking (among other relief) to enjoin his interference with the restaurant’s affairs. The shareholder struck back with counterclaims, including derivative claims against the other two shareholders for self-dealing and usurpation of corporate opportunity, and a motion to disqualify their counsel.
The court’s order disqualifying counsel lacks nuance in its reasoning about entity conflicts and derivative claims, but the court’s strongest point was: “where serious charges of self-dealing and usurpation of corporate opportunity by a director and officers of the Corporation are alleged, a conflict exists between the Corporation and the individual plaintiffs.” The court cited New York’s version of Model Rules 1.7 and 1.13 in noting this conflict, concluding that no waiver had occurred, suggesting that the conflict was unwaivable in any event, and disqualifying counsel. The decision is available here: Nineteen Twenty Four, Inc. v. Parachini, No. 653984/2014, 2015 WL 682814 (N.Y. Sup. Ct. Feb. 17, 2015).
Another interesting opinion last week was issued in the criminal disqualification context, and it exemplifies how civil litigants can have stronger rights to counsel of choice than criminal defendants (even though criminal defendants are supposed to enjoy added Sixth Amendment protections). The lawyer at issue previously represented a codefendant during the government’s investigation of alleged Medicaid-billing fraud. After the codefendant terminated the relationship and received court-appointed counsel, the lawyer began representing the defendant. The codefendant consented to the lawyer’s representation of the defendant, waiving any former client conflict of interest. (Importantly, though, the codefendant declined to waive the privilege or confidentiality of the information he had imparted to the lawyer.) The defendant also waived any conflict stemming from the lawyer’s former representation of the codefendant.
Notwithstanding these waivers, the prosecution moved to disqualify the lawyer from representing the defendant. At several hearings on the motion, the district judge directly questioned both the codefendant and defendant and explained their rights to them, and they both adhered to their previous waivers. Indeed, the defendant even received independent counsel to advise him on his constitutional rights and the prudence of his waiver, and he still stuck to his original choice of counsel. In a fairly paternalistic portion of the opinion, the judge nevertheless declined to honor the waivers and the choice of counsel. Even though she questioned both the former and current client in open court, and even though they both received independent counsel, the judge doubted the voluntariness of their waivers. In disregarding the waivers and disqualifying the lawyer, the judge cited, among other factors, (1) the risk that the lawyer might have to cross-examine his former client (and the judge refused to entertain the idea of conflicts counsel to handle that cross-examination if the codefendant decided to testify) and (2) the lawyer’s limitations in thoroughly defending the defendant (given that the lawyer could not use information obtained from the codefendant during their prior attorney-client relationship). The opinion is available here: United States v. Bikundi, No. CR 14-0030-2 (BAH), __ F. Supp. 3d __, 2015 WL 632363 (D.D.C. Feb. 13, 2015).