Waterloo Capital Partners, LLC v. BWX Limited

Background

The action had been removed from New York state court to the Southern District of New York. While the case was in state court, Waterloo moved to disqualify BWX’s counsel, Curtis, Mallet-Prevost, Colt & Mosle LLP ("Curtis"), under Rules 1.9 and 3.7 of the New York Rules of Professional Conduct. The state court deferred ruling after removal became possible, and Waterloo renewed the motion in federal court.

Courts have inherent authority to disqualify counsel to protect the integrity of the adversarial process. The party seeking disqualification must meet a high standard of proof because clients generally have a right to choose their lawyers.

Rule 1.9(a): Alleged Former Representation

Waterloo argued that Curtis violated Rule 1.9(a), which generally bars a lawyer from representing another person in the same or a substantially related matter when the new client’s interests are materially adverse to a former client, absent informed written consent.

The court held that Waterloo had not shown that an attorney-client relationship was formed during the project to create a private-equity vehicle. A formal engagement agreement is not required, but the lawyer must affirmatively accept an obligation to represent the person. The court found that Waterloo and Curtis worked together on BWX’s behalf, that BWX directed the work, and that BWX paid Curtis’s legal fees. Waterloo’s possible belief that Curtis represented it as well was not enough. The court also rejected the suggestion that Curtis represented Waterloo because Waterloo may have been a member or manager of the vehicle; representation of a business entity does not automatically create an attorney-client relationship with a consultant or other individual.

Rule 1.9(c): Confidential Information

Waterloo also argued that Curtis should be disqualified because it had received confidential information while working for Waterloo on a short-term project concerning Waterloo’s possible acquisition of Indigo Wild LLC.

The court held that Waterloo had not shown a reasonable probability that Curtis would disclose or use confidential information in the current litigation. Waterloo made general assertions that Curtis had learned confidential information and was likely to use it against Waterloo, but did not identify the information or explain how it was likely to be used. A lawyer who assisted Waterloo on the Indigo transaction also denied that Curtis received confidential information about Waterloo, noting that the engagement focused on Indigo’s affairs. The court therefore found no basis for disqualification under Rule 1.9(c).

Rule 3.7(a): Lawyer as Witness

Waterloo argued that Curtis attorneys Lawrence Goodman and Douglas Glazer were necessary witnesses and therefore could not represent BWX under Rule 3.7(a), which generally prevents a lawyer from acting as a courtroom advocate in a matter in which the lawyer is likely to be a witness on a significant factual issue.

The court held that Rule 3.7(a) did not apply because Goodman and Glazer were corporate attorneys, not litigators, and were not acting as advocates for BWX in this case. Waterloo’s assertion that Goodman had participated in pre-litigation settlement discussions did not expand the rule to cover lawyers who would not act as courtroom advocates.

Rule 3.7(b): Disqualification of the Firm

Waterloo further argued that Curtis itself should be disqualified because Goodman and Glazer, as lawyers in the firm, were allegedly necessary witnesses. Rule 3.7(b) addresses situations in which another lawyer in the firm is likely to testify on a significant issue, other than on behalf of the client, and the testimony may prejudice the client.

The court explained that firm-wide disqualification under this rule should be ordered sparingly. Waterloo had to provide clear and convincing evidence showing specifically how prejudice would occur and why the likelihood of substantial prejudice was significant. The court found only generalized assertions that the testimony would be adverse to BWX. Goodman disputed Waterloo’s description of his involvement and stated that he had not worked on relevant agreements or played the central role Waterloo attributed to him. Waterloo therefore did not meet its burden under Rule 3.7(b).

Disposition

The court denied Waterloo’s motion to disqualify Curtis. The order did not decide the parties’ pending cross-motions for summary judgment; it scheduled a telephone conference to discuss those motions.