North Carolina Business Litigation Report
Another Disqualification Motion In The Business Court
The efforts to disqualify Defendants' counsel were unsuccessful in Atkinson v. Lackey. In denying the motion to disqualify this week, Judge Murphy gave some insight on Rule 1.9 of the Revised Rules of Professional Conduct.
Rule 1.9 is titled "Duties to Former Clients." It says that:
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 unless the former client gives informed consent, confirmed in writing.
The law firm in question had consulted with one of the Plaintiffs about a lawsuit he later filed against other defendants who were connected to the defendants in the current action. The disqualification issue distilled to whether the two lawsuits were "substantially related" per Rule 1.9.
Judge Murphy, relying on comments to the Rule, held that:
two cases will be deemed “substantially related” when they involve (1) the same transaction, (2) the same legal dispute, or (3) 'if there otherwise is a substantial risk that information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.' N.C. R. Prof’l Conduct R. 1.9, Cmt. 3. “Furthermore, ‘[t]he substantially related test requires a virtual congruence of issues, and the relationship between the issues in the prior
[representation] must be patently clear.’”Classic Coffee Concepts, Inc. v. Anderson,
2006 NCBC 21 ¶ 45 (N.C. Super. Ct., Dec. 1, 2006)(citation and internal quotations omitted).
He moved on to debunk the notion that the two cases were "substantially related," ruling that they "each arose from separate and distinct transactions surrounding potential fraud within different organizations." The fact that there were three overlapping parties in the two actions did "not mandate a finding that the two actions are related." Op. ¶21.
The Plaintiffs didn't give up there. They said that one of them, during consultations with Defendants' law firm about the previous lawsuit, had disclosed information that would advance the Defendants' position in the new litigation. That's a basis for disqualification under Rule 1.9, but lawyers shouldn't be disqualified from representing another client for using "generally known information." Op. ¶22.
Judge Murphy concluded that the information pointed to by the Plaintiffs -- the corporate structure of the Defendants -- would have been within the knowledge of the Defendants and that it therefore was "generally known." Op. ¶22.
He also examined the information contained in the notes of Defendants' counsel's meeting with one of the Plaintiffs regarding the earlier lawsuit, and said that "what little information" was provided "was of a general nature that would be of little or no assistance" to the Defendants. Op. Par. 23.
This is the second time in three months that Judge Murpy has denied a Motion to Disqualify. The last one was in McKee v. James. If you keep the stats of the Business Court on this type of motion, it has disqualified counsel four times (in Flick Mortgage Investors, Inc. v. The Epiphany Mortgage, Inc., 2006 NCBC 3 (N.C. Super. Ct. Feb. 1, 2006)(Diaz); Chemcraft Holdings Corp. v. Shayban, 2006 NCBC 13 (N.C. Super. Ct. Oct. 5, 2006)(Tennille); The Cottages of Stonehenge Condominium Homeowners Association, Inc. v. Dominion Mid-Atlantic Properties II, LLC (Jolly); Ferguson Fibers, Inc. v. Foster (Tennille) and denied disqualification five times (in Classic Coffee Concepts, Inc. v. Anderson, 2006 NCBC 21 (N.C. Super. Ct. Dec. 1, 2006)(Diaz), Wachovia Insurance Services, Inc. v. McGuirt, 2007 NCBC 3 (N.C. Super. Ct. Feb. 13, 2007)(Diaz); International Forest Products Corp. v. Jackson Paper Mfg. Co. (Murphy), McKee v. James (Murphy), and this week's case.
Brooks Pierce, LLP
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Raleigh, NC 27601