The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.
Defendants HB Equity Associates, LLC ("HB") and managing members Andrew Hubregsen and Michael Bonnet operate a private equity fund, Hubregsen Bonnet Equity Partners, L.P. ("HB"). (Cmplt. ¶ 1). Plaintiff Jonathan D. Gormin was hired by HB in 2002, and in 2004 he became a member of HB. As such, Defendants contend that he was obligated to "make available to the Partnership investments of which [he] bec[a]me aware that represent in the good faith judgment of the General Partner an appropriate investment opportunity for the Partnership." (Ans. ¶ 109). By letter dated April 10, 2008, HB terminated Gormin's employment, alleging that he had become aware of certain investment opportunities but had not -- in violation of his contractual obligations -- brought these opportunities to HB's attention. (Ans. ¶ 123; Hubregsen Decl., Ex. Q). Gormin then filed this lawsuit, alleging, inter alia, breach of contract and breach of fiduciary duty arising from HB's claimed attempt to "strip Gormin of his financial rights and ownership interest in [HB]." (Cmplt. ¶ 1). Defendants subsequently filed breach of contract and breach of fiduciary duty counterclaims against Gormin, arising from his alleged diversion of "potential private equity investment opportunities away from HB and to third parties and future associates." (Ans. ¶ 125).
Before this Court is Defendants' motion to disqualify Eric Greenwald from serving as counsel to Plaintiff in this action. For the reasons stated below, the motion is DENIED.
Defendants contend that Greenwald must be disqualified now under New York Disciplinary Rule 5-102 -- even before discovery has begun -- because there is evidence that he communicated with Gormin about certain business opportunities that "form the basis for many of Defendants' counterclaim allegations." (Def. Br. 4). More specifically, Defendants have retrieved from Gormin's former email account at HB numerous emails between Gormin and Greenwald in which the two men appear to be discussing investment opportunities.
For example, in October 2007, Gormin requested Greenwald's assistance in forming a Delaware LLC for a new business venture, and a later email suggests that Greenwald drafted an operating agreement concerning this proposed entity. (Hugbresen Decl., Ex. A). Similarly, in November 2007, Greenwald sent an email to Gormin concerning "a biofuel business that is currently looking for funding. The business plan is attached. I think this is a fantastic opportunity." (Hubregsen Decl., Ex. I).
As to the first opportunity, Defendants claim that they authorized Gormin to "develop the idea for the benefit of HB," but learned subsequently that Gormin had improperly established the new entity to divert potential investments away from HB. (Def. Reply Br. 7). As to the biofuel business opportunity, Defendants claim that Gormin was required to, but never did, present this potential venture to HB. (Ans., ¶ 134). Plaintiff responds that he made HB aware of the first opportunity and that HB chose not to pursue it, and "expressly permitted Gormin to bring the project to third parties who [might] have an interest in funding the project." (Pltf. Br. 4). As to the biofuel business, Gormin contends that it "plainly did not fit within the HB investment criteria." (Id. at 5).
DR 5-102, codified at 22 N.Y.C.R.R. § 1200.21, addresses lawyers simultaneously serving as counsel and as a witness in the same action. DR 5-102(A) provides in pertinent part:
A lawyer shall not act, or accept employment that contemplates the lawyer's acting, as an advocate on issues of fact before any tribunal if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client. . . .
22 N.Y.C.R.R. § 1200.21(a).
DR 5-102(B) provides that: Neither a lawyer nor the lawyer's firm shall accept employment in contemplated or pending litigation if the lawyer knows or it is obvious that the lawyer or another lawyer in the lawyer's firm may be called as a witness on a significant issue other than on behalf of the client, and ...