I & S Invs., LLC v Silberstein

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I & S Invs., LLC v Silberstein 2021 NY Slip Op 32714(U) December 16, 2021 Supreme Court, Kings County Docket Number: Index No. 524015/2020 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] KINGS COUNTY CLERK 12/16/2021 03:27 PM INDEX NO. 524015/2020 NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 12/16/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS: CIVIL TERM: CQMMERC:IAL PART 8 -----· -. -· - ·.-·-.------ .... ·. - .. - :- .----.--- .-----x I & S INVESTMENTS, LLC, Plaintiff, Decision and order Index No. 524015/2020 - against - DAVID and TSIRL SILBERSTEIN, December 16, 2021 De;fendants, -·--.--.-· . ·----. ·-- ·------- ·----.-------·· ---- .x PRESENT: HON. LEON RUCHELSMAN The plaintiff has moved seeking to substitute DRPS Management LLC the assignee of the plaintiff. Further, the defendants have moved seeking to disqualify plaintiff's counsel. have been opposed respectively. The motions Papers were submitted by the parties and after reviewing all the acrgutnents this court now makes the following determinations. As recorded in a prior order, on March 9; 2018, diqfendants executed a promissory note with plaintiff fo:t a principal amount of $5,000,000 together with interest as defined in the note. The maturity date under the note wa.s March 9, 2019, one year aftiqr the note was executed. The plaintiff alleges that after defendants ceased to make any payments after September 9, 2b19, the parties entered into a forbearance ag:te.ement on November 14, 2019, U:rider that agreement, plaintiff defer:rect collecting int~rest until July li 2020t in excharige for ~ti additional $1,000~000 from defendants. Additionally, under the forbearance . .agreement, p1aint:i,ff is entitled to certain interiasts in other entities: owned by defendant David Silbersteiri.. 1 of 9 [*FILED: 2] KINGS COUNTY CLERK 12/16/2021 03:27 PM NYSCEF DOC. NO. 54 INDEX NO. 524015/2020 RECEIVED NYSCEF: 12/16/2021 Oh December 2, 2020, plaintiff commenced this action against defendants. As amended, the complaint asserts causes of action including breach of promissory note, breaches of contract, and promissory estoppel. The complaint alleges that defendants owe plaintiff $5,957,784.42 plus 20% annualized interest from December 1, 2020, unoer the note. The complaint further alleges that defendants never paid the $1, 000,.000 under the forbea,rance agreemertt, and that defe'ndants did not convey the required interests under the forbearance agreement. The above noted motions have now been filed. Conclusions of Law The defendants. argue there can be no substitution because defendant David Silbersteirt never cortsented to the assignment. Pursuant to the assignment agreement, I&S assigned "(i) all ongoing litigation between I&S and David Silberstein and persons and erttities affiliated with David Silbersteini including the Litigation and all claims asserted.by I&S against David Silberstein and persons and persons and entities affiliated with David Silberstein in the Litigation; (ii) the Note; and (iii) all of I&S.'s interests in entities affiliated with David Silberstein a.nd. Coal Capital Management, LLG (collectively, the \Interests'}'' ( see, As.s.ignrnerit Agreement.) . The very next parag:taph of the .assignment agreement further provides that the .2 2 of 9 [*FILED: 3] KINGS COUNTY CLERK 12/16/2021 03:27 PM NYSCEF DOC. NO. 54 INDEX NO. 524015/2020 RECEIVED NYSCEF: 12/16/2021 interests I&S may assign concern "ownership of and interest in the Litigation, the Note artd the Interests, together with any rights to any damages or other sums received as a result of the Litigation, the Note and/or the Interests (whether through judgment, settlement or otherwise:), and further directs that DRP:S shall be substitutec::l for T&S in any litigation previously commenced by I&,S in connection with David and Tsirl Silberstein or persons or entities affiliated therewith, and/or the Note or the Interests, including, without limitation, the Litigation have in entities affiliated with Mr., Silberstein or with Coal Capital Management" (id). Thus, I&S did not assign any rights without Mr. Silberstein's consent. Rather, the agreement merely assigned litigation interests qf whiqh Mr. Silberstein has no privity in which to object. Therefore, the motion seeking substitution is granted. Turning to the motion seeking disqualification, it is well settled that a party in a civil action maintains an important right to select counsel of its choosing and that such :tight may not be abridged without some overriding concern (Matter of Abrams, 62 NY2d 183, 4 7 6 NYS2d 494 [ 198 4] ) . Therefore, the party seeking disqualification of an opposing party's counsel must present suf.fioient proof supporting that det,etrriination (Schmidt v. Magnetic Head Corp., 101 AD2c:i 2.68 ,. 47.6 NYS2ct 151 [2d Dept., 1984]) . The former client conflict of interest ru,le is codifie.d 3 3 of 9 -------------------------------------------·······--·············· [*FILED: 4] KINGS COUNTY CLERK 12/16/2021 03:27 PM NYSCEF DOC. NO. 54 INDEX NO. 524015/2020 RECEIVED NYSCEF: 12/16/2021 in the New York Rules of Professional Conduct, Rule §1200.0 et. seq.). 1.9 (22 NYCRR Specifically, Rule l.9(a) provides~ "a lawyer who has formerly represented a client in a matter shall not thereafter represent an.other person in the same or a substantially related matter in which that person's interests are materially ad~erse to the interests 0£ the former client,,." (icl). A party seeking disquali.fication of counsel under the former client cbhflict of interest rule must show that: "(l) there was a prior attorney client relationship; (2) the matters involved in both representations are substantially related; and (3) the present interests of the attorney's past and present clients are materially adverse" (Estate of Harris, 21 Misc3d 239, 862 NYS2d 898 [Surrogate's Court, Bronx County 2008]; see, also, Falk v. Chittenden, 11 NY3d T3, 862 NYS2d 869 [2008]; Jamaica Pub. Serv. Co. v. AIU Ins. Co., 92 NY2d 631, 684 NYS2d 459 [ 1998]) . Once the moving party demonstrates t11at these three elements are satisfied_ ~'an "irrebuttal::>le presumption of disqualification arises" (Estate of Harris, :supra) . The crux of the disqualification motion is that plaintiff's counsel has represented entities managed and owned by David Silberstein, kno.wrt as the retreat entities and how rep.resents an $ntity, namely DRPS, suing Silberstein. The defendants assert this dual_ repfesentation creates a confli.c:t which requires 4 4 of 9 -------------------------------------------------------- [*FILED: 5] KINGS COUNTY CLERK 12/16/2021 03:27 PM INDEX NO. 524015/2020 NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 12/16/2021 disqualification of plaintiff's counsel. Plaintiff's counsel counters that they never represented Silberstein, rather, they rne:rely represented corporate entities anci even if Silberstein was a member or manager of those entities that does not mean any attorney client relationship existed. In Campbell v. MCKeon, 75 AD3d 7 9, 9 05 NY S2d 5 8 9 [Pt Dept . , 2 010] the court explained that a "lawyer's representation of ,;1. business entity does not render the. law firm counsel to art individual partner, officer, director or shareholder unless the law firm assumed an affirmative duty to represent that individual" (id). Thus, a corporation's counsel represents the corporation and not its individual shareh6lders or its employees (Eurvcleia Partners LP v. Seward & Kissel LLP, 12 NY3d 553, 883 NYS2d 14 7 [2009]). The c:l.efendants assert that plaintiff's counsel is "now, in effect, impermissibly representing one client (DRPS) suing another of its clients (David Silberstein as manager of NRC, entities]) in this action" (see, in NRP and NRF [the retreat Defendants' Memorandum of Law Support of Cross-motion to Disqualify Counsel for DRPS, page 4). However, as demonstrated, David Silberstein was never a client of plaintiff's counsel since that representati.on was of corporate entities and not Silberstein himself. Further, the defend~mt .argues that plaintiff; s counsel ''owes a fiduciary duty to David Silberstein, in .his capacity as manager of Retreat" (.§..§.g, id, .at page 6). However., .in Eurycleia, ..5 5 of 9 (supra) the court [*FILED: 6] KINGS COUNTY CLERK 12/16/2021 03:27 PM INDEX NO. 524015/2020 NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 12/16/2021 held the opposite, rioting that "S & K's repres-entation of this limited partnership, without more, did not give rise to a fiduciary duty to the limited partners'; (supra). Steven's Distributors Inc., v. Gold, Rosenblatt Moreover, & Goldstein, 2010 WL 2984352 [Supreme Court, New York County 2010}, cited by plaintiff, c:l.oes not demand a contrary result si_nce that cq.se involved partnE!rships whereby unlike corporations, partri€!rships are not Considered distinct entities from the partners who compose it ( ~ , Dembitzer v. Chera, 285 AD2d 525, 728 NYS2d 78 [2d Dept • , 2001 J ) • Turning to the disqualification based upon the fact counsel might be a witness in this lawsuit, Rule 3.7 of the Rules of Professional Conduct prohibits an New York attorney from representing a party where it is likely the attorney will be called as a witness on behalf of the client regarding a "significant issue" (id). Thus, to disqualify counsel the party Seeking such disqualification must demonstrate that the testimony of the counsel will be necessary to pursue its own claims (Arons v. Charpentier, 8 AD3d 595, 779 NYS2d 242 [2d Dept., 2004]). Alternatively, even if not strictly necessary, disqualification would be proper where the testimony of counsel would be prejudicial to hi.s or he.r own client (Daniel Gale Associates, Inc.. ; v. George., 8 AD3d 608, 7 7 9 NYS2ct 573 [2d Dept. , 2 004 J) . 6 6 of 9 [*FILED: 7] KINGS COUNTY CLERK 12/16/2021 03:27 PM INDEX NO. 524015/2020 NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 12/16/2021 Thus, the crucial questions which must be addressed is whether the testimony of plaintiff's counsel is 'necessary 1 and even if not necessary whether such testimony will prejudice arty of the defendants. For testimcmy to be deemed necessary thereby requiring disqualification of counse1, it must be demonstrated that counsel is 'likely to be a witness' (Rule 3. 7) and the testimony cannot l::ie garnered from other sources, is not cumulative arid is vital to prove the allegations of the case (Soko1ow. Dunaud, Mercadier Carreras LLP 2002]). v. Lacher, 299 AD2d 64, & 7 47 NYS2:d 441 [1 st Dept., In this case there has been absolutely no evidence presented at all that the defendants by necessity should call any attorney of the law firm representing plaintiff to defend ariy of the allegations asserted against them (see, S&S Hotel ve·ntures Ltd. Partnership v. 777 S. H. Corg_., [1987]). 69 NY2d 437, 515 NYS2d 735 Indeed, the entire basis for the disqualification is the fact that Daniel Eisner of Schulte Roth and Zabel LLP, counsel £or the plainti£f is also counsel £or DRPS.. truism is not a basis for disqualification as noted. Howeve.r, that The defendants argue that "Daniel Eisner also has a long-standing prior relationship with Schorr and DRPS and SRZ also concurrently serves as counsel to DRPS. Therefore, Eisner and [sic] has personal knowledge of its circumstances, and must therefore be disqualified" (see, Defendants' Memorandum of Law in Support of 7 7 of 9 [*FILED: 8] KINGS COUNTY CLERK 12/16/2021 03:27 PM NYSCEF DOC. NO. 54 INDEX NO. 524015/2020 RECEIVED NYSCEF: 12/16/2021 C.ross,-motion to Disqualify Counsel for DRPS, page 15), The defendants argue ah attorney will be called to testify about "DRPS' {mproper motive· in entering into the Letter Agreement referred to in the purported Assignment of Rights and the associated breaches of fiduciarydlities and/or operating . . agreements and such testimony will be used to support appropriate claims and/ or cqun te:rclaims ag c:1ins t DRPS '' (ic{. , at page 14 l . The defendants further assert that Mr. Eisner is the "only person who has personal knowledge of the disputed trans.fers" (id., at pa.ge 15). The defendants do not explain the nature o.f these disputed transfers but surely the actual parties have knowledge of them. To be sure, if the def enda.nts are correct thert any attorney who prepares document$ on behalf of cli(:nts could potentially be cal 1 ed as a witness . disqualification rule. Of course, there is no such over archihg, Nor can there be, since the attorney can only be called as a witness where the information cannot be gleaned from other sources. As noted, the parties themselves are fully c1ware of the letter agreement and anyone from DRPS or any party with any knowledge can be questioned about the motive of entering into that agreement as well as any breaches associated with the agreement which can support the defendants' counterclaims.. Surely, plaintiff's counsel is not a party to th.:l;s action and the te.stimony of counsel would be duplicative of .8 8 of 9 [*FILED: 9] KINGS COUNTY CLERK 12/16/2021 03:27 PM NYSCEF DOC. NO. 54 INDEX NO. 524015/2020 RECEIVED NYSCEF: 12/16/2021 the t-~-s,timony th.at can and should ·appro_p.riatel y be -secured from: the parties themselves. Therefpre, the defendant's have failed to present sufficient e.viden.Ge necessitating .the disqual:i.fica tion of plaintiff's c::ounsel, Consequently. ,. the motion seeking to ·disqualify plaintiff's -counsel is denied. So orde:red. ENTER: DATED: Dec·ember 16, 2021 Brooklyn N.Y. Hon.. Leon Rue JSC 9 9 of 9

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