The following e-filed documents, listed by NYSCEF document number (Motion 001) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30 were read on this motion to/for DISQUALIFY COUNSEL. DECISION ORDER ON MOTION The motion by defendants to disqualify plaintiff’s attorney is granted. Background This breach of contract action arises out of a dispute concerning a shipment of socks. Plaintiff, an international freight forwarder, contends that it received nearly 4,000 cartons of socks from a supplier for shipment to the U.S. to fill an order placed by defendants. Plaintiff alleges that a representative of defendants promised plaintiff that if the goods (once they had arrived in New York) were released without certain releases or original bills of lading, defendants would provide evidence of payment to the supplier for the merchandise. Plaintiff insists that defendants never followed through with this promise and the supplier sent plaintiff a demand letter for the release of the merchandise for over $280,000. It also points out that a Court in China held that plaintiff is indebted to the supplier for over $280,000. Defendants move to disqualify plaintiff’s counsel (“Lazarus”) from representing plaintiff. They claim that they used Lazarus as counsel in connection with a licensing opportunity in May 2018. Defendants contend they revealed confidential communications with Lazarus, including the corporate structure of each of the corporate defendants and their assets. They point out that the claims against defendants include assertions about alter ego and fraud and, therefore, defendants are concerned about confidential communications being used against them. In opposition, plaintiff contends that its firm represented only one of the defendants in an unrelated and brief failed transaction in May 2018. It claims that there is no conflict of interest with Lazarus and that defendants cannot meet their heavy burden to disqualify counsel. Plaintiff maintains that no confidential or privileged information was revealed to Lazarus during the May 2018 representation and the failed transaction has no relation to this case. In reply, defendants argue that they sought legal services regarding the potential business transaction and that Lazarus began reviewing draft agreements. They insist that the nature of the potential licensing agreement gave Lazarus access to confidential information, which defendants fear can be used against them in this case. Discussion “A party attempting to disqualify an attorney under DR 5-108(a)(1) must prove: (1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and former client are materially adverse. When the moving party is able to demonstrate each of these factors, an irrebuttable presumption of disqualification follows” (Pellegrino v. Oppenheimer & Co., Inc., 49 AD3d 94, 98, 851 NYS2d 19 [1st Dept 2008] [internal quotations and citations omitted]). “The duty not to divulge a former client’s confidences under DR 5-108(a)(2) is broader than the attorney-client privilege. Consequently, it is not necessary for a party seeking disqualification to show that confidential information necessarily will be disclosed in the course of the litigation; rather, a reasonable probability of disclosure should suffice. However, disqualification has been found inappropriate either where there is no substantial relationship [between the issues in the current and former litigation] or where the party seeking disqualification fails to identify any specific confidential information imparted to the attorney” (id. [internal quotations and citations omitted]). The Court grants the motion. There is no dispute that there was an attorney-client relationship between plaintiff’s counsel and defendant iApparel or that the interests of Lazarus’ present client (plaintiff) are materially adverse to this defendant. After all, plaintiff is suing this defendant. The question, then, is whether the matters are substantially related such that disqualification is required. The affidavit of Mr. Catton, the owner and managing member of the corporate defendants, (and the father of the individual defendant) establishes that disqualification is necessary. He observes that these entities are small companies and that he used Lazarus concerning the potential acquisition of a troubled brand called Avalanche (NYSCEF Doc. No. 13 at 1-2). Mr. Catton explains that he was considering buying Avalanche’s assets through a UCC Article 9 foreclosure and sale, and that they used Lazarus to review the corporate structure of iApparel and defendant LR Acquisition, LLC (id. at 3). He observes that the potential acquisition required an analysis of how Avalanche would be integrated into defendants, the future corporate structure after the acquisition and the financial capabilities of the corporate defendants (id.). The Court has no doubt that Lazarus had access to confidential financial information concerning the defendants, including details about the corporate structure of defendants. In this lawsuit, plaintiff included an entire section in the complaint about how defendants iApparel and LR Acquisitions are alter egos (NYSCEF Doc. No. 1 at 2-3). In fact, plaintiff pled that both entities have “the same ownership and management” and “Upon information and belief, iApparel maintained exclusive control over the profits of LRA” (id.
