Rosman v. Shapiro

United States District Court for the Southern District of New York · Corporations

CorporationsAttorney disqualificationClose corporationsProfessional responsibilityclose corporation50-50 shareholderscorporate counseljoint representation

Facts

Rosman and Shapiro were the sole 50% shareholders of Filtomat, a corporation created to distribute Filtration's products in the United States. In July and August 1985, Rosman and Shapiro jointly consulted Yisraeli and Yerushalmi about Filtomat's contractual relationship with Filtration, including possible new arrangements concerning distribution rights. Their relationship later broke down, and Yisraeli and Yerushalmi began representing Shapiro and Filtomat against Rosman in two actions arising from the same subject matter previously discussed with the firm. Rosman sought disqualification of the firm and its of-counsel attorneys under Canons 4 and 9.

Issue

Whether a law firm that previously advised both equal shareholders of a two-person close corporation on the same business dispute may later represent one shareholder and the corporation against the other. Also, whether the firm's of-counsel attorneys, who had no prior attorney-client relationship with Rosman, must likewise be disqualified.

Rule

For disqualification purposes, an attorney-client relationship may exist if the person reasonably believed the lawyer was acting as his counsel. In a two-shareholder close corporation, each equal shareholder may reasonably believe corporate counsel is effectively his own attorney. But Canon 4 disqualification is proper only when the attorney was in a position to receive information the former client might reasonably have assumed would be withheld from the present client; that condition is not met in a prior joint representation. Even absent Canon 4 concerns, Canon 9 may require disqualification where later representation against the former client creates a substantial appearance of professional impropriety and disloyalty.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Denver, Nina Patel and Owen Mercer formed Front Range Thermal, Inc. solely to carry out a single supply venture. Each owned 50% of the stock, and both met together with the law firm Alder & Pike to obtain advice about the venture’s central contract. A year later, the firm appeared for Owen and the corporation in litigation against Nina over that same contract.

If Nina moves to disqualify Alder & Pike, what is the strongest argument that the firm previously represented her for disqualification purposes?

Explanation. The majority held that an attorney-client relationship may exist for disqualification purposes if the person reasonably believed the lawyer was acting as her counsel. In the unusual setting of a corporation with only two 50-50 shareholders, formed solely to carry out the disputed transaction and operated like a partnership, each shareholder may reasonably view corporate counsel as effectively personal counsel. The rule is not automatic for all corporations. (Derived from Rosman v. Shapiro (n.d.).)