Arbitration/photo courtesy of shutterstock.com

A former chief executive of a large electrical contractor seeking more than $12 million from him in arbitration has failed in making his case to disqualify two arbitration attorneys for the contractor, an Appellate Division, First Department, counsel has ruled.

The decision examines the claim by Gary Segal, once the president and CEO of Five Star Electric Corp., that the two lawyers obtained confidential information while they represented him and directed his representation years earlier when the company was being investigated by the government in connection with a program requiring contractors to subcontract some public-work projects to “disadvantaged business” construction firms and/or firms that are majority owned by a woman or a minority, according to court records.

Segal petitioned this year in a special proceeding before Manhattan Supreme Court Justice Andrew Borrok to disqualify from the arbitration both Castle & Associates, a Los Angeles-based firm that has represented Tutor Perini Corp., an international construction company that acquired Five Star in 2011, and Robert Saville, a former general counsel at Five Star, said Borrok's underlying July 2018 decision in the matter.

Segal claimed Castle & Associates had represented him in 2014 in connection with a U.S. Attorney's Office for the Eastern District of New York investigation of Five Star related to the government program, and had directed him to use an attorney, Daniel Horwitz, who was acting as counsel to both Segal and the company—while collecting confidential information—without advising him that he needed his own lawyer. Segal also claimed that Saville was a Five Star general counsel during the EDNY investigation and thus is a necessary arbitration witness who should be disqualified under N.Y.R. Prof. Cond. Rule 3.7(a), known as the advocate-witness rule, according to Borrok's decision.

But the First Department panel, in reversing Borrok's decision as to both Castle & Associates and Saville, wrote that Segal had failed to meet his burden with regard to his arguments aimed at the lawyers and that, therefore, neither is disqualified from the arbitration.

Segal “has not established that Five Star's counsel, Daniel Horwitz, represented him personally in connection with certain government investigations into Five Star's business practices,” the unanimous panel wrote, citing Eurycleia Partners v. Seward & Kissel; Gregor v. Rossi, 120 A.D.3d 447; and Campbell v. McKeon, 75 A.D.3d 479.

It added that Segal's “subjective belief that Horwitz was his personal attorney was not reasonable under the circumstances and did not give rise to an attorney-client relationship,” citing Pellegrino v. Oppenheimer, 49 A.D.3d 94.

Moreover, Segal “fails to identify any personal confidential information obtained by [Five Star's]  counsel, or how any such information would not be discoverable after having been exchanged pursuant to the parties' lapsed joint defense agreement,” the panel wrote.

Next, in addressing Segal's arguments for Saville's disqualification, the panel wrote that Segal “has not met his heavy burden of establishing that the testimony of Five Star's former general counsel, Robert Saville, is necessary rather than cumulative, as required for his disqualification under the advocate-witness rule,” citing Orbco Advisors v. 400 Fifth Realty, 134 A.D.3d 448, 1010Data v. Firestone Enters., 88 A.D.3d 627, and Talvy v. American Red Cross in Greater N.Y.

The panel, composed of Justices John Sweeny, Angela Mazzarelli, Marcy Kahn, Jeffrey Oing and Anil Singh, added in its Oct. 30 decision that “neither did [Segal] identify specific issues requiring Saville's testimony, the weight of such testimony, or the unavailability of other sources of such evidence,” citing Campbell.

Segal, whose father founded Five Star in 1951 and who was serving a five-year term as president and CEO at the time of the EDNY investigation, is facing an arbitration lodged by Tutor Perini and Five Star before Los Angeles JAMS that asks for, among other things, $4.5 million in legal fees and expenses spent by the companies in connection with the EDNY investigation, and $2.17 million in legal fees and expenses spent by the companies in defending current and former officers, directors and employees in connection with the investigation, according to court records.

According to his petition, Segal's president and CEO employment agreement said that he would make $575,000 a year plus an annual target bonus of 100 percent of his salary. It also noted that by 2011, Five Star was the largest electrical contractor in the New York area and was bringing in more than $500 million in annual revenue.

Nicole Hyland, a partner at Frankfurt Kurnit Klein & Selz in New York, represented Five Star and Tutor Perini before the panel and could not be reached. Nor could Steven Mintz of Mintz & Gold in New York, who represented Segal.