The Business Court today granted a motion to disqualify counsel for Plaintiffs, finding their prior representation of the Defendants involved a matter "substantially related" to the matters at issue in the lawsuit.
The law firm representing the Plaintiffs in The Cottages of Stonehenge Condominium Homeowners Association, Inc. v. Dominion Mid-Atlantic Properties II, LLC had been longstanding counsel for the Plaintiff homeowners association. They had first been retained when Defendant Dominion, the former owner of the property, converted it to a condominium and incorporated the HOA.
The Board of the HOA at that time consisted of representatives appointed by Dominion. In 2006, the Dominion-controlled Board sought the law firm's advice about maintenance issues. The advice was sought on behalf of both the HOA and Dominion. The lawyers delivered a written opinion letter on "the maintenance responsibilities between the Unit Owners and the Association."
Over a year later, an owner-controlled Board of the HOA was elected. Issues arose regarding the adequacy of maintenance reserves. The law firm filed a lawsuit for the HOA against Dominion and the former board members for breaching their fiduciary duty by failing to set adequate reserves for common area and maintenance expenses.
After sifting through the positions of the parties, the Court held:
[h]ere, Defendants find themselves in a position in which the very lawyer who advised one or more of them with respect to duties and obligations relating to budgeting for and maintaining Stonehenge common areas now seeks damages against them for breaching their duty to adequately set aside fiscal reserves for the repair and maintenance of those same common areas. The court is forced to conclude that the two are inextricably and substantially related.
Judge Jolly granted the Motion to Disqualify, stating that the prior representation presented the "substantial risks contemplated under Rule 1.9" of the North Carolina Rules of Professional Conduct, and that "it is the court's duty to resolve any and all such risks in favor of disqualification."
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