Barmash v Perlman

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Barmash v Perlman 2013 NY Slip Op 32460(U) October 3, 2013 Sup Ct, New York County Docket Number: 650417/2013 Judge: Melvin L. Schweitzer Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 10/11/2013 1] INDEX NO. 650417/2013 NYSCEF DOC. NO. 82 RECEIVED NYSCEF: 10/11/2013 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HE1-\lf ~ L.. SC.HUgineR- '-IS" PART Justice INDEX NO. ~l.Il'7/71:si., MOTION DATE _ _ __ -y- .J'CF AtS't fEIU.MAtJ ~ 6tlSi4T t'o~e~,INc,. MOTION SEQ. NO. 00, AH() CNEfl6A(seottS<:A~,J:tiC=. U&OM,N&L. bE~t$) The following papers, numbered 1 to _ _ , were read on this motion to/for _ _ _ _ _ _ _ _ _ _ _ __ Notice of Motion/Order to Show Cause - Affidavits - Exhibits Answering Affidavits - Exhibits _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Replying Affidavits _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ I No(s).,_ _ _ __ I No(s). _ _ _ __ I No(s). _ _ _ __ w () i= en .., :J Pr P ~ c r { \', "" ~ " .. " ' ( CO,",r\-{r ~ c.t W 0:: 0:: w u.. w 0:: *~ r II - 2 5" - (~ c. + 2- F('I\ \S S" cL eJ v It + 2<0 c ¢ ¢ B'-DGo0w' ,( 10 ~ f/bV r )--- ..J!e. ..J z :J 0 u.. en t; ~ W J 0:: 3;(!) W z 0:: en ~ - 0 W en ..J ..J ~ 0 () u.. Z o i= o W J: I- 0:: 0 :IE u.. 1. CHECK ONE: .. ¢...... ¢. ¢.. ¢ ¢. ¢.. ¢.. ¢. ¢.... ¢ ¢ ¢. ¢ ¢ ¢ ¢ ¢ ¢.. ¢. ¢.. ¢... ¢ ¢... ¢. ¢.......... 0 2. CHECK AS APPROPRIATE: ¢ ¢. ¢. ¢ ¢. ¢ ¢ ¢ ¢ ¢. ¢. ¢ ¢. ¢ ¢. ¢. ¢. ¢ MOTION IS: ~RANTED 3. CHECK IF APPROPRIATE: ................................................ 0 C~DISPOSED 0 SETILE ORDER DDONOTPOST DENIED D SUBMIT ORDER D FIDUCIARY APPOINTMENT D REFERENCE [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 45 ------------------------------------------------------------------------x JEAN BARMASH, an individual, for himself And derivatively on behalf of nominal defendant ENERGYSCORECARDS, INC., Plaintiff, Index No. 65041712013 DECISION AND ORDER -againstJEFFREY PERLMAN and BRIGHT POWER, INC., Motion Sequence No. 00 I Defendants, -andENERGYSCORECARDS, INC., Nominal Defendant. ------------------------------------------------------------------------x MELVIN L. SCHWEITZER, J.: Jean Barmash (Mr. Barmash) moves to disqualify Greenberg Traurig LLP as counsel to Jeffrey Perlman (Mr. Perlman), Bright Power, Inc. (BP) and EnergyScoreCards, Inc. (ESC). Background Mr. Barmash is a software developer. In December 2008, Mr. Perlman, who is the President and majority shareholder of BP, an energy consulting firm based in New York, approached Mr. Barmash with the idea of creating a software that would allow building owners to monitor and audit their buildings' energy usage. Cities around the country, including New York, had recently passed la.ws requiring buildings to periodically provide detailed energy usage information to them. Mr. Perlman believed that energy audit software would be in high demand , and presented a major business opportunity for BP. After the two parties signed a Letter of Intent, Mr. Barmash began developing the suggested software product in April 2009. ~ [* 3] Mr. Perlman and Mr. Bannash agreed to found a company, ESC, to commercially exploit the software that Mr. Barmash was developing. In lieu of payment, Mr. Bannash agreed to receive founder's stock in ESC. Around January 2010, Mr. Perlman secured the software's first customer. On February 10, 2010, ESC was incorporated in Delaware. At the time of incorporation, ESC had two directors, Mr. Bannash and Mr. Perlman. Mr. Perlman acted as ESC's President, Treasurer and Secretary, while Mr. Barmash acted as the company's Chief Technology Officer (CTO). ESC has two shareholders, BP and Mr. Bannash. BP owns approximately 75% of ESC's stock, and Mr. Barmash owns approximately 25%. The software that Mr. Bannash developed is ESC's sole asset and is a trade secret. Around November 2011, Mr. Barmash resigned from his position as CTO at ESC, but continued working on the software as a consultant from January 2012 to June 2012. He also helped groom his successor, who started at ESC in early April 2012. Around September 2012, Mr. Perlman removed Mr. Barmash from ESC's board of directors. Since 2010, Mr. Perlman and BP have successfully marketed and licensed ESC's software to building owners throughout New York City. Mr. Barmash alleges that ESC has been looted by its controlling shareholder, BP, and the President, Secretary, Treasurer, and Director Mr. Perlman. Furthennore, Mr. Barmash alleges that these parties have misappropriated ESC's intellectual property, and treated it as the property of BP. Discussion It is accepted that "[0 ]ne who has served as an attorney for a corporation may not represent an individual shareholder in a case in which his interests are adverse to other shareholders." Morris v Morris, 763 NYS2d 622, 624-25 (2d Dept 2003). Indeed, "[t]he mere appearance that an attorney is representing conflicting interests is sufficient to warrant 2 [* 4] disqualification" Phoenix Elec. Contr. Corp. v New York Tel. Co., 155 Mise 2d 250, 251 (Sup Ct 1992). Where a law firm has served as corporate counsel to an entity, it cannot then represent one shareholder against another with regard to underlying corporate tr'lnsactions concerning that self-same corporate entity. Furthermore, "[a]ny doubts as to the sufficiency of the showing of an asserted conflicf of interest are to be resolved in favor of disqualification." Lammers v Lammers, 205 AD2d 432, 433 (lst Dept 1994). There is considerable evidence that a conflict of interest doe's exist. First, it is undisputed -that Greenburg Traurig has represented, and currently represents, the corporation ESC. Additionally, it is also undisputed that, in addition to representing ESC, Greenburg Traurig also concurrently represents ESC's majority shareholder, BP. Furthermore, it is undisputed that this action is in relevant part a dispute between two shareholders, ESC and Mr. Barmash, concerning ESC's corporate governance. Rule of Professional Conduct 1.13 provides that "[a] lawyer representing an organization may also represent any of its directors, officers ... [or] shareholders, subject to the provisions of Rule 1.7" NY ST RPC Rule 1.13(d). Rule 1.7 governs conflict of interests with current clients. It states that there is a concurrent conflict of interest if "the representation will involve the lawyer representing differing interests" NY ST RPC Rule 1. 7(a)(l). Representing both the corporation and an officer or director charged with breaching fiduciary duties to the corporation involves the lawyer in such a prohibited representation. In Campbell v McKeon (75 AD3d 479 [1st Dept 2010]) the First Department held that as counsel to the company, the law finn "could not also represent [the majority shareholder] in an action in which his interests would be adverse to the [company] ... " Id. at 480. In Campbell, a minority member of a limited liability corporation (Campbell) ~ued the majority member 3 [* 5] (McKeon) for fiduciary breaches allegedly committed by the majority member with regard to the LLC, in which both were members. There, as here, one law firm represented both the companies and the majority member. The trial court disqualified the law firm due to its obvious conflict of interest. The law firm appealed and the First Department affirmed the disqualification. In so ruling, the First Department noted that "[ c]ounsel for an organizational client is required to act as is reasonably necessary in the best interests of the client when an}ndividual associated with the client may have violated legal duties which are likely to result in substantial injury to the organization." Id. As there are substantial indicia of a conflict of interest, following the precedent set in Lammers and Campbell, disqualification is granted. Greenberg Traurig cannot represent the majority shareholder, BP, a director in the corporation, Perlman, and the corporation itself, ESC, as it owes separate duties of loyalty and confidentiality to each. Under Rule 1.7, Greenberg Traurig is disqualified. Dated: October ~ , 2013 MELVIN L. SCHWEITZER ..,......:.--:-.":'- .... 4

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