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Keywords

plaintiffdefendantjurisdictionmotioncorporation
plaintiffdefendantlitigationattorneymotioncorporation

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Taneja v. Familymeds Group, Inc., Not Reported in A.2d, 2010 WL 2573762, 50 Conn. L. Rptr. 73

Facts

The plaintiffs, shareholders of Familymeds Group, Inc., filed a derivative action against the corporation and its officers, alleging fraud and self-dealing. The defendants, including the corporation's CEO and board members, were accused of causing significant financial harm to the corporation through mismanagement and misconduct. Robinson & Cole had previously represented the defendants in a related action that was dismissed for lack of jurisdiction, and they conducted an investigation into the plaintiffs' demand before advising the board to reject it. The plaintiffs argued that this prior representation created a conflict of interest that warranted disqualification.

The plaintiffs served a demand on the defendants on March 25, 2009, and Robinson & Cole investigated the demand's allegations. On July 15, 2009, the board of directors conducted a special meeting by telephone conference. The only directors in attendance were Mercadante, Searson, Gerbino, Majeske and Taneja. Attorneys Bradford Babbitt and Elizabeth Leong of Robinson & Cole, simultaneously serving as counsel for the corporation and certain of the board of directors, also joined this call.

Issue

Whether Robinson & Cole could continue to represent both the corporation and the individual defendants in the derivative action given the allegations of fraud and self-dealing against the individual defendants.

Whether Robinson & Cole may continue to represent both the corporation and the individual defendants in this derivative action after previously representing them, investigating the claims of wrongdoing, and finally advising the board to reject the plaintiffs' demand.

Rule

The court applied Connecticut's Rules of Professional Conduct, particularly Rules 1.7 and 1.13, which address conflicts of interest and the dual representation of organizations and their constituents.

The parties agree that the substantive law of Nevada and the procedural law of Connecticut governs this action. In particular, Connecticut's Rules of Professional Conduct 1.7 and 1.13 and their commentary apply to the question of whether dual representation is permissible under these circumstances.

Analysis

The court found that the simultaneous representation of the corporation and the individual defendants created an irreconcilable conflict of interest due to the serious allegations against the individual defendants. The court noted that if the derivative suit was meritorious, the interests of the corporation and the individual defendants would be directly adverse, making it impossible for Robinson & Cole to provide impartial advice. The court emphasized that the nature of the allegations warranted separate representation to ensure the integrity of the legal process.

In the present case, the court holds that such simultaneous representation creates an irreconcilable conflict because the individual defendants are accused of serious wrongdoing. After all, 'if the derivative suit is meritorious, the interests of the corporate entity and the interests of the insider defendants are likely to be directly adverse.'

Conclusion

The court granted the plaintiffs' motion to disqualify Robinson & Cole from representing any of the parties in the derivative action, concluding that the firm's dual representation was improper given the conflict of interest.

The court holds that the firm cannot continue its dual representation in the course of this litigation and, in fact, must be disqualified from representing any of the parties in this action.

Who won?

The plaintiffs prevailed in the motion to disqualify Robinson & Cole due to the demonstrated conflict of interest arising from the firm's prior representation of the defendants.

Because the plaintiff's have demonstrated that a disqualifying conflict exists regarding Robinson & Cole's representation of the defendants, the court grants their motion to disqualify.

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