Conflict Ridden Law Firm Loses Bid To Dismiss Claim For Forfeiture Of $500,000 In Legal Fees
Yesterday an appellate court overruled Nassau County Supreme Court Justice Jerome Murphy who dismissed a claim for forfeiture of $500,000 in legal fees against a Garden City law firm, Cullen & Dykman. The client had retained Cullen & Dykman to analyze her ownership interest of $20 million in W.S. Wilson Corporation (Wilson) over a 2 year period. At the very same time, Cullen & Dykman was serving as Wilson's corporate counsel and also provided legal advice to Wilson regarding its other client's $20 million claim.
When the client passed away her Estate continued the pursuit of the $20 million. On behalf of the deceased client's Estate, Cullen & Dykman then filed a turnover proceeding against Wilson (while still representing Wilson) for the $20 million claim. Outraged, Wilson successfully moved in Surrogate's Court to disqualify Cullen & Dykman from representing the Estate in violation of Rule 1.7 of the Rules of Professional Conduct.
Cullen & Dykman argued that any conflict was waived by each client when they signed an acknowledgment waiving "a potential conflict of interest". However, as explained by the Surrogate's Court, a law firm that represents adverse parties on the exact same issue presents a conflict of interest that is unwaivable. The lower court erred in concluding that since the Estate had not claimed the conflict caused economic losses, (other than the return of $500,000 in attorney's fees) the lack of such damages was fatal to the claim of disgorgement.
The appellate court explained that: "A cause of action for forfeiture of legal fees based on an attorney's discharge for cause due to ethical violations may be maintained independent of a cause of action alleging legal malpractice or breach of fiduciary duty, and does not require proof or allegations of damages." Hard lesson to learn for lawyers? Just don't represent both sides to a dispute. Baugher v Cullen & Dykman, 2019 WL 2519020
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