Plaintiff’s counsel violated the Rules of Professional Responsibility by contacting a former employee of the defendant, who had participated substantially in the legal representation of the defendant before his termination. The Court struck the affidavit from the witness proferred by the plaintiff, and ruled that he could not be presented by the plaintiff as a witness going forward. The Court denied, however, the motion to disqualify plaintiff’s counsel.
Plaintiff’s former employee was subject to restrictive covenants in an Amended Employment Agreement. He was also subject, however, to what he claimed were conflicting restrictions in a subsequently executed Stock Purchase Agreement. The former employee asserted that the claims under the Amended Employment Agreement should be dismissed.
The Court denied the Motion and struck the employee’s defense on this basis. It held that the restrictive covenants, although not consistent, could be enforced concurrently, and that there was not a novation or a substitution of the contract. Nor did the merger clause in the subsequent agreement eliminate the restrictions in the earlier agreement.
The Court also addressed plaintiff’s motion to disqualify defendant’s counsel, who had represented him in connection with the Stock Purchase Agreement. It denied the Motion, holding that plaintiff had to meet a high standard of proof to obtain disqualification. The issue was whether the prior representation was "substantially related" to the matter before the Court. The Court found that it was not, since plaintiff’s claims were lodged under the Amended Employment Agreement, not the Stock Purchase Agreement. The standard for whether a matter is substantially related to another is that there must be a "virtual congruence of issues."
Also, there was no risk that the law firm had obtained confidential information in its prior representation, which had occurred five years earlier, which would have materially advanced its new client’s interest in the litigation. The Court contrasted cases in which there was a high risk of the lawyer having access to such information.
Defendant, who was a director, shareholder and former employee of the corporate plaintiff, moved to disqualify the corporate plaintiff’s counsel. He argued that he reasonably believed that the law firm had represented him with regard to the agreements at issue and a guaranty agreement. He also argued that disqualification was appropriate because the corporation’s lawyers had "responsibilities" to him as a shareholder and director of the company.
The Court denied the motion. It found that although the law firm had represented defendant with regard to the guaranty agreement, the former representation was not substantially related to the claims before the Court so as to warrant disqualification under Rule 1.9 of the Rules of Professional Conduct. The Court also found that the law firm had not obtained any information in the course of that representation that would advance its defense of the corporation in the case before it.
Considering multiple factors, it determined that defendant could not have reasonably believed that the law firm was representing him in his individual capacity. On the argument regarding "responsibilities," the Court held that a corporation can be represented by its regular corporate counsel when the corporation is adverse to one of its constituents.
The Court dismissed the defendant’s counterclaim that the Stockholders Agreement requiring him to tender his shares back to the corporation was unconscionable, finding that the claim failed under either North Carolina or Delaware law.
Before reaching this issue, the Court expressed doubt about whether the choice of law provision specifying North Carolina law in the Agreement was enforceable, given that the corporation was a Delaware corporation and in consideration of the internal affairs doctrine.
The Court expressly refused to apply North Carolina law to plaintiff’s claim for dissolution, "because a claim for judicial dissolution goes to the very core of a corporation’s internal affairs [so] it is properly governed by the law of the state of incorporation." If North Carolina law had been applicable, however, the Court held that dissolution would not be appropriate.
Defendant’s claim that he had reasonable expectations of continued employment was belied by the terms of his employment agreement, which provided for termination at any time after twelve months, without cause.
Plaintiff’s counsel had verbal discussions with the defendant, before litigation began, about the possibility of representation against his former employer. In the course of those discussions, the defendant sent counsel an email containing confidential information about the potential litigation. Plaintiff’s counsel had never looked at the contents, and thereafter represented the employer.
Defendant moved to disqualify plaintiff’s counsel. The Court granted the motion, notwithstanding its finding that there had been no unethical conduct and no violation of the Rules of Professional Conduct. It held that the attorney had an obligation of determining that he had no conflict at the outset of the representation, that he was responsible for having read what was sent to him, and that "the goal of maintaining public confidence in our system of justice demands that courts prevent even the appearance of impropriety and thus resolve any and all doubts in favor of disqualification."
The Court also considered Rule 1.18 of the North Carolina Rules of Professional Conduct, which deals with duties of attorneys to prospective clients. It held that "[t]he aim of Rule 1.18 is to prevent a lawyer who acquires strategic information from a prospective client from using that information against the client. On the battlefield, stumbling upon an opponent’s secret plans may determine the outcome of an engagement; but in the courtroom, Rule 1.18 protects litigants from this fate by prohibiting an attorney from using confidential information to the detriment of a prospective client. The type of information prohibited by Rule 1.18 is exactly the type of information to which [the lawyer] has had access since receiving [the] email—a client’s personal thoughts and impressions regarding the facts of his case and possible strategies for a lawsuit. The Court cannot allow Plaintiffs to be represented by counsel who has had access to such potentially damaging information."
Defendant’s counsel had formerly been a lawyer at the law firm of the plaintiff. Plaintiff moved to disqualify him as counsel. Although the firm-changing lawyer had only been minimally involved in the matter before his departure, the Court held that an important factor to be considered was the subjective belief of the client whether the lawyer had represented him. Given that the lawyer had been one of only three in his old firm, the Court found the client’s belief about representation to be reasonsable when coupled with the lawyer’s acutal involvement. This warranted disqualification. The Court also "inferred" that the lawyer had had access to his former client’s confidential information, and found that to be another basis for disqualification.