Commercial Litigation and Arbitration

Disqualification: While Prior Representation of Adversary’s Predecessor in Interest May Warrant Disqualification, Representation of Assignor of Rights Does Not — Burden of Proving Specific Confidential Information Posses

My First Shades v. Baby Blanket Suncare, 2012 U.S. Dist. LEXIS 19881 (E.D.N.Y. Feb. 16, 2012):

Plaintiffs My First Shades ("MFS") and Venetian Holdings, LLC ("Venetian") brought this action against defendants Baby Blanket Suncare and the Mercer Group, Ltd. ("Mercer"), claiming that defendants have committed, and are continuing to commit, patent infringement in violation of the Patent Act, 35 U.S.C. § 271(a)-(c), as well as asserting additional claims pursuant to the Lanham Act, 15 U.S.C. §§ 1114, 1125(a), N.Y. Gen. Bus. L. § 360-1, and New York common law. Plaintiff MFS now moves to disqualify defendants' counsel - namely the law firm of Kudman Tachten Aloe ("KTA") because, according to MFS, KTA represented MFS or its predecessor for four years prior to the instant action and possesses confidential information relevant to the action. ***

MFS argues that KTA should be disqualified because KTA represented MFS's predecessor in interest on matters bearing a substantial relationship to the present action and possesses confidential and privileged information relevant to the lawsuit. Mercer argues that (1) any rights SLP may have had which arose out of its relationship with KTA did not flow to MFS, (2) there is no showing that KTA's representation of SLP is substantially related to the instant action, and (3) MFS has not shown that KTA possesses relevant privileged information.

As set forth below, the Court concludes that MFS has not met the "high standard of proof" for disqualification of KTA. Evans, 715 F.2d at 791.

a. Rules of Professional Conduct 1.6 and 1.9

The two key provisions of the New York Rules of Professional Conduct are Rule 1.6 and 1.9. Rule 1.6 provides, in relevant part, that "a lawyer shall not knowingly reveal confidential information, as defined in this Rule, or use such information to the disadvantage of a client or for the advantage of the lawyer or a third person."

The Rules of Professional Conduct define "confidential information" as "information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential. 'Confidential information' does not ordinarily include (i) a lawyer's legal knowledge or legal research or (ii) information that is generally known in the local community or in the trade, field or profession to which the information relates." Rule 1.6(a)(3).

The Rules of Professional Conduct analyze the duties owed by an attorney to a former client. Specifically, Rule 1.9 provides that "[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing." Rule 1.9(a). Further, an individual lawyer's conflicts are ordinarily imputed to his firm based on the presumption that "associated attorneys share client confidences." Hempstead Video, Inc., 409 F.3d at 133 (internal citations omitted); see also Rule of Prof. Conduct 1.10; Kassis v. Teacher's Ins. & Annuity Ass'n, 93 N.Y.2d 611, 616, 695 N.Y.S.2d 515, 717 N.E.2d 674 (N.Y. 1999) ("[W]here 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."). The Second Circuit has held that an attorney may be disqualified if:

(1) the moving party is a former client of the adverse party's counsel; (2) there is a substantial relationship between the subject matter of the counsel's prior representation of the moving party and the issues in the present lawsuit; and (3) the attorney whose disqualification is sought had access to, or was likely to have had access to, relevant privileged information in the course of his prior representation of the client.

Hempstead Video, Inc. 409 F.3d at 133. As set forth below, under this standard, the Court finds in its discretion that disqualification is not warranted based on the evidence presented.

The first prong of this test requires an attorney-client relationship between the movant and the law firm sought to be disqualified. MFS has not produced sufficient evidence to demonstrate that there was an attorney-client relationship between MFS and KTA. MFS has produced evidence that establishes that SLP, doing business as "My First Shades," and KTA engaged in an attorney-client relationship, but plaintiff has not produced evidence that (1) plaintiff MFS, as the movant, engaged in an attorney-client relationship with KTA, or (2) that plaintiff MFS is a successor-in interest to, or the same entity as, SLP. It may be the case that MFS is related to SLP in a manner sufficient to assert an attorney-client relationship based on SLP's dealings with KTA. At this juncture, however, the plaintiffs have not provided any evidence to demonstrate that MFS is a successor-in-interest to SLP. The plaintiffs bear the burden in demonstrating that an attorney-client relationship existed between plaintiff MFS and KTA, and the Court concludes that this burden has not been met.

Footnote 5. The Court notes that defendants have submitted a purchase agreement between SLP and "David Scheinberg/Newco Inc." with their sealed motion to dismiss. (Defs.' Mot. Dismiss Ex. F, Nov. 13, 2009, ECF No. 36.) At present, the relationship between SLP and MFS is unclear, and the nature of the relationship will affect whether MFS is categorized as a prior client of KTA. See SMI Indus. Canada Ltd v. Caelter Indus., 586 F. Supp. 808, 815 (N.D.N.Y. 1984) ("Indeed, plaintiff has failed to cite a single case in support of the proposition that an assignee of assets stands in the shoes of its assignor for purposes of Canon 4. The court has, however, located several cases that hold an assignment of intellectual property does not assign the assignor's attorney to the assignee.""Assignment of the patent does not assign [attorney] along with it."). The Court need not address this issue as MFS, the party carrying the burden in the instant motion, has not submitted sufficient evidence for the Court to determine the relationship between SLP and MFS.

The next prong of the test requires that there be a "substantial relationship" between the issue in the pending case and those in the prior representation. At this stage in the litigation, it is unclear whether the prior representation bears a substantial relationship between the issues here: patent infringement, Lanham Act claims, and state law fraud and injury to business reputation claims. With respect to Stuart Kudman's knowledge of the patents, it is unclear at this time how this is substantially related to the claims of patent infringement against the defendants. In addition, the Court notes that defendants have requested to brief the issue of whether MFS even has standing to assert patent claims against defendants. (Defs.' Letter, Aug. 8, 2011, ECF No. 53.) With respect to potential damages, KTA's representation of SLP on corporate matters may be related to the damages at issue in this case. Assuming arguendo that the second element is satisfied, this prong cannot warrant disqualification alone; the first and third prongs must also be satisfied.

The final requirement under the test articulated in Hempstead Video is that "the attorney whose disqualification is sought had access to, or was likely to have access to, relevant privileged information in the course of his prior representation of the client." Hempstead Video, Inc., 409 F.3d at 133. MFS has failed to demonstrate the specific, privileged information that was allegedly divulged to Stuart Kudman and KTA. Tilton's statement that KTA "was given information regarding a prior lawsuit between SLP and Baby Banz" does not indicate that privileged information was exchanged. In addition, with respect to attempts to find a strategic partner, it is unclear whether this involved the exchange of confidential information. Information regarding profits, pricing, and other financial information is not privileged information without more specific allegations regarding communications between SLP and KTA.

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