On September 29, 2022, Justice Ruchelsman of the Kings County Commercial Division issued a decision in ZW Acquisition LLC v. Volkov, 2022 NY Slip Op. 33295(U), refusing to disqualify a company’s former transactional counsel from representing a shareholder in an inter-shareholder dispute, explaining:
It is well settled that a party in a civil action maintains an important right to select counsel of its choosing and that such right may not be abridged without some overriding concern. Therefore, the party seeking disqualification of an opposing party’s counsel must present sufficient proof supporting that determination.
The former client conflict of interest rule is codified in the New York Rules of Professional Conduct, Rule 1.9. Specifically, Rule 1.9(a) provides: a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client. Although a hearing may be necessary where a substantial issue of fact exists as to whether there is a conflict of interest, mere conclusory assertions are insufficient to warrant a hearing.
Thus, a party seeking disqualification of counsel must demonstrate that: (1) there was a prior attorney client relationship; (2) the matters involved in both representations are substantially related; and (3) the present interests of the attorneys past and present clients are materially adverse. Once the moving party demonstrates that these three elements are satisfied an irrebuttable presumption of disqualification follows.
The defendant relies upon the retainer agreement to establish the law firm represented Ms. Volkov personally, thus an examination of the retainer agreement is necessary. The retainer agreement is addressed to Ms. Volkov and Mr. Turk. The agreement commences by stating that “we are pleased that you and Zelda Wigs, Inc. (together, “Client”) have retained Schwartz Sladkus Reich Greenberg Atlas LLP (‘”SSRGA”) in connection with the stock purchase and redemption of a 50% share of Zelda Wigs, Inc.. The defendant argues that the letter expressly defines the client to include both the individuals and the Company. However, while the letter is addressed to Ms. Volkov as an individual, and indeed, there is no other way to address any correspondence to any person, there can be no reasonably basis to conclude the law firm represented Ms. Volkov in an individual capacity.
First, the retainer letter only contains signature blocks for Mr. Turk and Zelda Wigs Inc. by Zelda Volkov. Thus, the. retainer letter did not contain any individual signature opportunity on behalf of Ms. Volkov permitting her to sign it an individual capacity. Thus, the clear intent of the retainer agreement, notwithstanding any language in the agreement addressing Ms. Volkov indicates that no representation of Ms. Volkov was agreed upon. In Fitzpatrick v. American International Group Inc., 272 F.R.D. 100 [S.D.N.Y. 2010] the court explained that because the corporation is inanimate, its decisions and communications as a client, as well as for other purposes must be made by its chosen representatives, typically its Board acting collectively or, in appropriate circumstances, its senior officers and ‘although Board members may make decisions that are binding on the corporation, in doing so they act in their corporate capacities rather than as non-corporate individuals. Thus, any personal reliance Ms. Volkov placed upon counsel is based upon a failure to appreciate the legal nuances of the corporate structure. This is particularly true in this case where there is no assertion by Ms. Volkov that she ever received personal advice from counsel.
In addition, there are no ambiguities contained in the retainer agreement that should be construed against the drafter.
The defendant next argues that she reasonably believed that Mr. Kobre was her personal attorney. However, in O.S. v. International Brotherhood of Teamsters et., al., 119 F3d 210 [2d Cir. 1997] the court declined to adopt a reasonable belief standard thus, objectively no attorney client relationship existed. As the court observed in S.E.C. v. Credit Bancorp, Ltd., 96 F. Supp 2d 357 [S.D.N.Y. 2000] the question is not whether it was reasonable for a corporate officer to assume that corporate counsel was in effect his own counsel because he was the sole shareholder of the entity. Rather, the individual must have made it clear that he was seeking personal advice. Since there is no such clarity regarding Mr. Kobre’s representation, no reasonableness on the part of Ms. Volkov’s subjective belief can create an attorney client relationship. Therefore, no such relationship existed and consequently; the motion seeking to disqualify Mr. Kobre and his firm is denied.
(Internal quotations and citations omitted).