Pro-Tect Security Services, LLC v. Integrated Systems Improvement Services, Inc. et al
Filing
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ORDER Denying 28 Motion to Disqualify Defendant's Attorneys and 40 Supplemental Motion to Disqualify. Signed by Magistrate Judge Nancy J. Koppe on 3/14/2018. (Copies have been distributed pursuant to the NEF - MR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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TRADE SHOW SERVICES, LTD,
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Plaintiff(s),
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vs.
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INTEGRATED SYSTEMS IMPROVEMENT
SERVICES, INC., et al.,
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Defendant(s).
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Case No. 2:17-cv-01685-JAD-NJK
ORDER
(Docket Nos. 28, 40)
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Pending before the Court is Plaintiff’s motion to disqualify Defendant Integrated Systems
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Improvement Services, Inc.’s attorneys. Docket No. 28. The Court has considered Plaintiff’s motion,
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Defendant’s response, Plaintiff’s reply, and Plaintiff’s supplemental motion. Docket Nos. 28, 32, 39,
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40. The Court finds this motion properly resolved without a hearing. See Local Rule 78-1. For the
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following reasons, the Court DENIES Plaintiff’s motion to disqualify, and supplemental motion.
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Docket Nos. 29, 40.
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I.
BACKGROUND
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The instant case alleges breach of contract for failure to pay for security services provided by
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Plaintiff to Defendant. See generally Docket No. 1. The instant motion to disqualify Defendant’s
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attorneys is based on an alleged conflict of interest between Defendant’s attorneys’ law firm, Durham
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Jones & Pinegar, P.C. (“DJP”), and Plaintiff’s sole owner, Leslie Bruno. See generally Docket Nos. 28,
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40. Ms. Bruno is a current client of DJP. Id. at 2; see also Docket No. 48 at 11. She retained DJP in
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August 2010 to perform various estate planning services. Docket No. 47 at 44-63. From August 2010
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to the present, DJP has performed the following services for Ms. Bruno: (1) created an asset protection
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trust in October 2010 (Id. at 150-162); (2) created a trust in October 2010 (Id.); (3) formed a limited
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partnership in September 2010 (Id. at 163-165); (4) formed a limited liability company in August 2010
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(Id. at 166-186); (5) created a last will and testament and a living will in October 2010 (Id. at 214-220,
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224-225); (6) created a codicil to said will in November 2010 (Id. at 221-223); (7) created a power of
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attorney for health care decisions and assets (Id. at 226-243); (8) created a prenuptial agreement in
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October 2010 (Docket No. 48 at 2-6; see also Docket No. 28 at 8-9); (9) drafted but did not complete
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various documents for another limited liability company owned by Ms. Bruno (Docket No. 32 at 6; see
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also Docket No. 47 at 187-202); (10) served as the registered agent for service of process for the
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aforementioned limited liability company until June 2016 (Docket No. 47 at 10); (11) served as the
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registered agent for service of process for Plaintiff until around January 2013 (Id. at 135-136); and (12)
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currently serves as the registered agent for service of process for the aforementioned limited partnership
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(Docket Nos. 28 at 10, 40-1).1 In addition, Ms. Bruno has sought legal advice from DJP regarding
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various issues such as obtaining and sending copies of her trust to a third party and placement of real
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property into an asset held by her asset protection trust. Docket No. 48 at 27-41.
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II.
STANDARDS
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Whether an attorney should be disqualified is an issue of state law. See Tate v. Univ. Medical
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Center, 2016 WL 520951, at *1 (D. Nev. Feb. 5, 2016) (internal citation omitted). Attorneys practicing
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in this Court must comply with the Model Rules of Professional Conduct as adopted by the Supreme
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Court of Nevada, unless modified by this Court. See Local Rule IA 11-7. The applicable Nevada Rules
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of Professional Conduct are Rules 1.7 and 1.8. In relevant part, Rule 1.7 states: “...a lawyer shall not
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represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict
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Plaintiff’s supplement includes an exhibit of a “reminder statement” for an invoice billed to Ms.
Bruno by DJP for fees related to registered agent services. Docket No. 40-1 at 2-3. However, the
statement does not indicate for which of Ms. Bruno’s entities the fee is being charged. Therefore, the
Court assumes the statement relates to Ms. Bruno’s limited partnership; as both parties submit DJP no
longer serves as the registered agent for the only two other entities for which it had previously served as
the registered agent.
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of interest exists if: (1) [t]he representation of one client will be directly adverse to another client; or (2)
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[t]here is a significant risk that the representation of one or more clients will be materially limited by
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the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest
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of the lawyer.” In relevant part, Rule 1.8 states: “[a] lawyer shall not use information relating to
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representation of a client to the disadvantage of the client unless the client gives informed consent,
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except as permitted or required by these Rules.”
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Motions to disqualify counsel are disfavored and are only granted when “absolutely necessary.”
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Switch Comm's Grp. v. Ballard, 2011 U.S. Dist. LEXIS 98308, *5 (D. Nev. Aug. 31, 2011) (citing
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United States v. Titan Pacific Constr. Corp., 637 F. Supp. 1556, 1562 (W.D. Wash. 1986)); see also
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United States v. River Irr. Dist., 2006 U.S. Dist. LEXIS 95342, *17 (D. Nev. Mar. 10, 2006)
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(disqualifying an attorney is a “drastic measure”). “Courts are especially vigilant that such motions not
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be misused for the purpose of harassment, delay, or other tactical advantage.” Russell Road Food &
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Beverage, LLC v. Galam, 2014 U.S. Dist. LEXIS 104905, *4 (D.Nev. July 31, 2014). “Because of this
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potential for abuse, disqualification motions should be subjected to particularly strict judicial scrutiny.”
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Optyl Eyewear Fashion Int'l Corp. v. Style Cos., Ltd., 760 F.2d 1045, 1050 (9th Cir. 1985) (internal
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quotations and citations omitted). The party seeking disqualification bears the burden of proof. See, e.g.,
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Colyer v. Smith, 50 F. Supp. 2d 966, 974 (C D. Cal. 1999).
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Pursuant to Nevada law, the moving party bears the burden to prove that: (1) there is a reasonable
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possibility that some specifically identifiable impropriety occurred and (2) “the likelihood of public
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suspicion or obloquy outweighs the social interests which will be served by a lawyer’s continued
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participation in a particular case.” Brown v. Eighth Judicial Dist. Court, 14 P.3d 1266, 1269-70 (Nev.
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2000).
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In determining the first factor, the Court analyzes whether or not the relevant rules of
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professional conduct were violated. See United States ex rel. Luke, 2017 U.S. Dist. LEXIS 186894, at
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*9-13; see also United States v. Fuechtener, 2016 U.S. Dist. LEXIS 153338, at *5-12. In determining
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the second factor, the Court looks for a reasonable probability that the attorney against whom the motion
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to disqualify is made acquired any privileged or confidential information relevant to the litigation. See
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Brown, 14 P.3d 1266 at 1260.
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Even in instances where confidential or privileged information has been obtained by the
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challenged attorney, the Court may consider “a host of other considerations, including the flagrancy of
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the attorney's conduct; [and] the sensitivity of the information and its relevance to the particular
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proceedings...” Rebel Communs., LLC v. Virgin Valley Water Dist., 2011 U.S. Dist. LEXIS 21489, at
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*35-36 (D. Nev. Feb. 15, 2011).
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III.
ANALYSIS
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In the instant motion, Plaintiff submits that, as a result of DJP’s representation of Ms. Bruno
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regarding her estate planning, prenuptial agreement, and other services, DJP obtained privileged and
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confidential information such as Ms. Bruno’s net worth, her assets and their financial standing, the
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corporate structures of her various entities, and the distribution of her assets. Docket No. 28 at 2-3, 6,
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8; see also Docket No. 47 at 3, 8-9. Plaintiff submits that such information “creates a conflict [under
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Rules 1.7, 1.8, and 1.10] and an unfair advantage for Defendant” because Defendant can use the
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information “to its advantage tactically during the litigation to form a strategy or defense in this matter.”
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Id. at 2-3. A possible advantage, Plaintiff submits, would arise if Defendant asserts a counterclaim
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against Plaintiff, prevails, and Plaintiff has insufficient assets to pay Defendant, subsequently creating
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the opportunity for Defendant to assert claims for alter ego against Plaintiff and, thereby, exposing Ms.
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Bruno and her other assets to liability. Id. at 16, n.12. Plaintiff further submits that it is DJP’s client
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because it is an asset of a trust created by DJP and because Ms. Bruno sought legal advice regarding
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Plaintiff. Id. at 11-15.
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Defendant submits that DJP did not obtain confidential information regarding Plaintiff during
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the course of its representation of Ms. Bruno that is relevant to the instant case. Docket No. 32 at 2.
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Defendant submits that the potential for a conflict is a “multi-step speculation,” as it has not asserted
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and is not aware of any counterclaims that could lead to exposing Ms. Bruno or her assets to liability.
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Id. at 3, 13-14. Defendant further submits that Plaintiff is not now and never was DJP’s client by virtue
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of being an asset held in a trust created by DJP, and that DJP did not provide legal advice directly to or
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regarding Plaintiff. Id. at 9-13.
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As a preliminary matter, the Court does not analyze whether or not Plaintiff is or was DJP’s
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client. The Court acknowledges Plaintiff’s submissions that Plaintiff is or was a client: (1) by virtue of
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its status as an asset held in a trust created by DJP, for which Ms. Bruno sought advice; (2) because DJP
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served as a registered agent for Plaintiff at some point; or (3) by virtue of Ms. Bruno’s subjective belief
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that DJP represented “her, her companies, her Trusts, and her assets.” Docket No. 28 at 11-15. The
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Court also acknowledges Defendant’s submissions that Plaintiff is not, and never was, DJP’s client
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because it never sought legal advice from DJP and, even if Plaintiff was considered a client based on
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DJP’s service as its registered agent, “that service ended years ago.” Docket No. 32 at 9-13. The
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resolution of this issue, however, does not affect the Court’s analysis of whether a conflict of interest
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warrants DJP’s disqualification. Therefore, the Court proceeds under the assumption that Plaintiff was,
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at one time, DJP’s client.
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In determining the first factor, the Court finds Plaintiff has not met its burden under Rules
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1.7(a)(1), 1.7(a)(2), or 1.8(b). Under Rule 1.7(a)(1), the representation of one client is directly adverse
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to another client when the interests of both clients are incompatible such that the success of one implies
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an injury to the other. Plaintiff submits that DJP knows privileged and confidential financial information
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about Plaintiff, Ms. Bruno, and Ms. Bruno’s other assets and business entities. Docket No. 28 at 2, 6-9.
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However, the only issue in the instant case is whether or not Defendant paid Plaintiff money allegedly
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owed for security services pursuant to a contract between the two parties. Docket Nos. 1, 28 at 3-4.
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Although Ms. Bruno is the President and sole owner and shareholder of Plaintiff (Docket No. 28 at 2),
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she is separate and distinct from Plaintiff. Bermuda Rd. Props., LLC v. EcoLogical Steel Sys., 2017 U.S.
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LEXIS 29768, at *7-8 (D. Nev. Mar. 1, 2017) (noting that Nevada recognizes that corporations are
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generally treated as separate legal entities from their shareholders). Interest in Ms. Bruno or her assets’
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financial holdings is not a polar opposite of Plaintiff’s interests such that Plaintiff’s interests in the
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instant case are directly adverse to Ms. Bruno’s interests as represented by DJP. For example, if
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Defendant was to prevail in the instant case, any adverse effects would be imputed onto Plaintiff, not
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onto Ms. Bruno or her assets held by her trusts. The mere fact that Ms. Bruno likely benefits from or
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is injured by the financial status of Plaintiff because she is the sole owner is immaterial given that
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Plaintiff is a corporation. See Russo v. Lopez, 2012 U.S. Dist. LEXIS 32414, at *7-8 (D. Nev. Mar. 12,
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2012) (acknowledging that “a corporation is a separate legal entity from its shareholders and, thus,
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‘injury to the corporation is not cognizable as injury to the shareholders...’”) (internal citation omitted).
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Moreover, the potential of a conflict pursuant to Rule 1.7(a)(2) as submitted by Plaintiff is far
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too attenuated to rise to the level of a “significant risk” that would materially limit DJP’s representation
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of Ms. Bruno. While all potential conflicts are inherently hypothetical, to constitute a “significant risk,”
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they must nonetheless reside in the realm of realistic possibilities. The potential conflict Plaintiff
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submits would require: (1) Defendant to assert a counterclaim; (2) Defendant to prevail on that
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counterclaim; (3) Plaintiff to be unable to pay the judgment; (4) Defendant to pursue a claim to pierce
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Plaintiff’s corporate veil; (5) Defendant to prevail on piercing the corporate veil; and (6) attaching
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judgment to Ms. Bruno and her assets. The Court finds this scenario insufficient to constitute a
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significant risk. Moreover, DJP has represented to the Court that, if Defendant asserts any claims to
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pierce Plaintiff’s corporate veil, it will withdraw its representation of Defendant. Docket No. 32 at 3,
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14.
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Rule 1.8 is a prohibitive rule and, therefore, is relevant once an attorney actually uses information
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related to the representation of a client to that client’s disadvantage without having obtained the client’s
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consent. Plaintiff presents no evidence that DJP has used information obtained from its representation
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of Ms. Bruno to her disadvantage in the instant case. Therefore, the Court finds that Rule 1.8 does not
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apply to the instant motion.
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In determining the second factor, the Court finds that Plaintiff has not met its burden. The Court
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recognizes the probability that financial information regarding Plaintiff is likely to have been provided
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by Ms. Bruno to DJP to assist in creating the various estate planning vehicles and her prenuptial
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agreement. However, as previously discussed, information related to Ms. Bruno’s personal and business
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assets, including Plaintiff, is not relevant as to whether Plaintiff and Defendant entered into a contract
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or whether Defendant breached that contract. Additionally, the Court is mindful of Defendant’s right
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to retain the counsel of its choice. United States v. Fuechtener, 2016 U.S. Dist. LEXIS 153338, at *11.
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In balancing the equities, the Court finds Plaintiff has failed to provide sufficient facts warranting
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the “drastic measure” of disqualification. See id. at *4; see also Brown, 14 P.3d 1266 at 1272 (finding
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that no conflict of interest was imputed to an attorney both because the moving party “cannot prove by
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a reasonable probability that [the challenged attorney] actually acquired confidential information...and
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because the ‘equities’ do not favor disqualification.”); see also Rebel Communs., 2011 U.S. Dist. LEXIS
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21489, at *35-36.
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IV.
CONCLUSION
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For the aforementioned reasons, the Court finds that Plaintiff has failed to meet its burden to
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prevail on its motion to disqualify Defendant’s attorneys. Docket Nos. 28, 40. Accordingly, the Court
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DENIES Plaintiff’s motions. Id.
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IT IS SO ORDERED.
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DATED: March 14, 2018
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______________________________________
NANCY J. KOPPE
United States Magistrate Judge
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