Arlington Filler, President of Bell Trading Inc. moves, in Action No. 2, for an order granting leave to file a Supplemental Summons and Amended Compliant to assert a shareholder's derivative action. Defendants Vinod K. Chand and Hari Chand cross-move for an order dismissing Action No. 2. Bell Trading moves in Action No. 2 for a preliminary injunction restraining Defendant Vinod K. Chand from entering the premises of Bell Trading Inc. and seeks to disqualify James B. Fiscella, Esq. from acting as counsel for Defendant Vinod K. Chand by reason of a conflict. Defendants Vinod K. Chand and Hari Chand cross-move for sanctions against Arlington Filler and to direct the holder of the security paid in connection with the temporary restraining order to be paid over to Vinod K. Chand.

A.Motion to Amend

Arlington H. Filler ("Filler") and Vinod K. Chand ("Vinod") are 50% shareholders and officers of Bell Trading, Inc.("Bell Trading") Plaintiff in Action No. 2. Filler seeks to amend the complaint to convert the claims to derivative causes of action on behalf of Bell Trading. Vinod seeks to dismiss based upon a defense of release. Chand also asserts that the proposed amended complaint is not supported by an affidavit of merit.

The latter assertion is without foundation and, thus, must be rejected. The papers are replete with affidavits concerning the claims against Vinod. Moreover, the proposed amendments merely address the form of the claims, seeking to convert the [*2]

stated causes of action to reflect a shareholder's derivative suit rather than a direct suit by Bell Trading.

"Motions for leave to amend pleadings should be "liberally granted absent prejudice or surprise resulting from . . . delay", and, so long as the proposed amendment is not "palpably insufficient as a matter of law or . . . totally devoid of merit" leave will be granted. Fucci v. Shellfish, 277 AD2d 280, 281 (2nd Dept. 2000). The proposed amended complaint states a cause of action under Business Corporation Law §626 and facially has merit. Thus, the motion to amend the complaint in Action No. 2 must be granted.

B.Cross-Motion to Dismiss

Vinod also contends that Bell Trading and Filler's claims are barred by a written release. The Court makes no finding regarding the legitimacy of the asserted defense of release, which may be pleaded as an affirmative defense to "be determined after a factual inquiry." Brodeur v. Hayes, 305 AD2d 754, 756 (3rd Dept. 2003). See gen'lly, Schuman v. Gallet, Dreyer & Berkey, L.L.P., 180 Misc 2d 485, 487 (Sup. Ct. NY Co. 1999) affd., 280 AD2d 310 (1st Dept. 2001). ("A release is merely a species of contract and, as such, its construction is governed by the same principles of law applicable to other contracts"), At this stage, dismissal is not appropriate.

C.Disqualification

Filler moves to disqualify James B. Fiscella, Esq. from acting as counsel to Defendant shareholder Vinod K. Chand. This Court previously ruled that Filler had not shown "enough to warrant disqualification" based upon Mr. Fiscella's representation of Bell Trading in several collection matters. No confidences were shown to be at risk. However, the order of the court at a hearing dated November 18, 2005 specifically granted leave to Andrew Paul Cooper Esq. of Hession, Beckoff & Cooper, incoming counsel for Filler, to renew the application once "more imbued in the case."

On this renewal application, the Court again finds that Mr. Fiscella's representation of Bell Trading in two collection matters was so attenuated from his January 10, 2005 representation of Vinod concerning the agreements between and among Vinod, Filler and Bell Trading, that it provides no cause for disqualification.

As to Filler's claim that there was concurrent representation at the time Vinod commenced the proceeding seeking the dissolution of Bell Trading, the evidence shows, contrary to Filler's contention, that the services provided by Mr. Fiscella to Bell Trading in collection matters ceased as of March 23, 2005, prior to commencement of the dissolution proceeding. While the invoice submitted by Filler as Exhibit "N" is dated July 26, 2005, and states that it is for services through July 27, 2005, the last itemized date of service was March 23, 2005. Thus, there is no showing of concurrent representation of Bell Trading and Vinod in these proceedings.

The papers are not clear with respect to whether Bell Trading was represented at the January 10, 2005 meeting between the shareholders. The Fiscella affidavit dated November 20, 2006 states that Bell Trading and Filler were represented by Harry Helfeld, Esq. at the meeting. This contention is not disputed by affidavit or affirmation, [*3]although Mr. Helfeld's earlier affidavit dated May 19, 2006 states that he was representing only Filler.

The January 10, 2005 meeting at Mr. Fiscella's office resulted in several transactions addressing, inter alia, a sale of Bell Trading, satisfaction of an outstanding loan, a replacement loan with shareholder guarantees, releases and indemnity between the shareholder/officers, as well as a release by Bell Trading to both shareholders. As officers of Bell Trading, Filler and Vinod together executed documents on its behalf. Specifically, Bell Trading executed a release to both Filler and Vinod for any claims prior to January 10, 2005 the date of the meeting.

Also resolved was Bell Trading's need to secure a loan from HSBC to pay off a defaulted debt to "factor" Keltic Financial Partners, LP. HSBC refused to advance the loan without the guarantee of both shareholders. To induce Vinod, who was not a guarantor on the Keltic loan, to provide a guarantee, Filler agreed to indemnify him for any claim arising out of the HSBC loan. This indemnity agreement was to expire after a period of six months. Both Filler and Vinod provided each other with releases for any claims prior to January 10, 2005. It is noted that at the time of the release, Filler had accused Vinod of converting corporate assets. Filler's counsel was aware of the claim.

The shareholders also aver that they contemplated a buyout of Vinod by Filler, although they have produced no writing to this effect. They did, however, enter into a written agreement to sell Bell Trading to a third party within six months. With respect to the reported buyout, Filler and Vinod contemplated a closing on January 29, 2005. However, former shareholder and creditor Mahesh Gandhi commenced an involuntary bankruptcy proceeding against Bell Trading on January 28th, and the closing did not take place.

Turning to the claim of conflict, Filler contends that Mr. Fiscella could not ethically represent Vinod on January 10, 2005 at the same time that he was representing Bell Trading in two collection matters. He argues that Vinod's interest in securing a release was adverse to Bell's interest, that his guarantee of the corporate loan was not adequate consideration and that counsel should be disqualified from asserting the release against Bell in this proceeding.

At the outset, it must be acknowledged that Mr. Fiscella did not act as Bell Trading's corporate attorney. Thus, he had an attenuated relation to corporate matters, finances and confidences. His representation of Bell Trading was limited to two collection matters. It is against this background that disqualification of Vinod's chosen counsel must be examined.

A party's right to representation by counsel of his choice is not "absolute". S & S Hotel Ventures Limited Partnership v. 777 S. H. Corp., 69 NY2d 437 (1987). Nevertheless, "any restriction imposed on that right will be carefully scrutinized" Prodell v. State, 125 AD2d 805, 806 (3rd Dept. 1986). Disqualification motions "are subject to abuse for tactical purposes" and may "deprive a party of the counsel of its choice and otherwise delay the resolution of the underlying legal dispute." Pfizer v. Stryker Corp., 256 F.Supp.2d 224, 226 (S.D.NY 2003). Accordingly, the right to counsel of choice must be balanced against any "appearance of impropriety." Develop Don't Destroy Brooklyn v. Empire State Development Corp., 31 AD3d 144, 153 (1st Dept. 2006). [*4]

Where representation of clients with adverse interests is concurrent, such "adverse representation is prima facie improper." Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1387 (2nd Cir. 1976). The appropriate focus is counsel's fundamental duty of undivided loyalty to his client. Id. To avoid disqualification, counsel must show "at the very least, that there will be no actual or apparent conflict in loyalties or diminution in the vigor of his representation." Id. See also, Aerojet Props. v. State, 138 AD2d 39, 40-41 (3rd Dept. 1988). Here, the facts show that Mr. Fiscella did not represent Bell Trading and Vinod regarding the releases, clearly adverse interests, nor did he represent Vinod in this litigation against a current client. He represented Vinod with respect to a release from Bell Trading and a guarantee for Bell Trading at the same time he represented Bell in litigation concerning several collection matters. It has not been shown that Mr. Fiscella was privy to Bell Trading's confidences in relation to the negotiations between Filler and Vinod or in his representation of Bell Trading for collection matters. Accordingly, his representation of Bell Trading in the collection matters was without "apparent conflict in loyalties or diminution in the vigor of his representation", as was his representation of Vinod.

This matter does not fit easily within the existing framework for analyzing conflict claims. However, were there an overlap in the representation of Bell Trading in the collection matters while there was representation of Vinod in this matter, representation of Vinod would not, in any event, result in a conflict in loyalties in the collection matters or a diminution of vigor in representation there.

Nor is there a likelihood of "trial taint" in this action. See, e.g., Glueck v. Jonathan Logan Inc., 653 F.2d 746 (2nd Cir. 1981). Trial taint "inheres in circumstances that could impair the ability of the court to reach a fair and just result as, for example, impairment of the attorney's incentive to act vigorously on behalf of the client or by giving the client in the second suit an unfair advantage borne of the attorney's representation of its adversary, as for example through access, via the attorney, to the confidences of the adversary." Pfizer v. Stryker Corp., supra at 227. As noted, Mr. Fiscella did not have access to Bell Trading's confidences and thus has nothing to use to Vinod's advantage.

The nature of the attorney-client relationship in the collection matters is attenuated from matters in this suit. Any risk of trial taint is eliminated. There is absolutely no "nexus" between the matters in which Mr. Fiscella represented Bell Trading and those in which he represents Vinod. Aerojet Props. v. State, supra at 41. Accordingly, the motion to disqualify must be denied.

D.Sanctions

Both parties and their counsel are approaching sanctionable conduct. Vinod asserts that the motion to disqualify was frivolous without acknowledging that by order dated September 26, 2007, this Court expressly granted leave permitting incoming counsel to renew. On the other hand, Filler cites as frivolous Vinod's opposition to the motion for a preliminary injunction because a stipulation has resolved that issue. Filler fails to explain why the motion was not withdrawn, thereby relieving Vinod of the burden of opposing the application. This is not the first time sanctions have been sought in this litigation. Sanctions should not be a knee-jerk response to every application made by an adverse party. Counsel shall both consider themselves cautioned against any [*5]further waste of this Court's resources. They should also keep in mind that making a frivolous sanctions motion can be viewed as frivolous. 22 NYCRR 130-1.1 (c).

E.Undertaking

Vinod's further request for an order "granting the amount of the undertaking posted by Defendant Filler" as a condition to granting the temporary restraining order must be denied.

CPLR 6315 merely provides for an assessment of damages which is binding in any subsequent action on a posted undertaking. Without an undertaking, there is no remedy for damages, as "there is no common law cause of action for damages sustained by an improperly procured preliminary injunction, nor does CPLR 6315 create a statutory cause of action." Honeywell, Inc. v. Technical Bldg. Services, 103 AD2d 433, 434 (3rd Dept. 1984). The basis for damages "is the undertaking itself" which is a contract between the parties "that the Plaintiff, if it is finally determined that he was not entitled to an injunction, will pay to the Defendant all damages and costs which may be sustained by reason of the injunction." Id. Thus, a judgment on the undertaking may not be procured in this action, only an ascertainment of damages which "may be recovered by the person entitled thereto in a separate action." CPLR 6312.

Here, Filler asserts that no undertaking was posted. Thus, the temporary restraining order never took effect. Vinod has not shown otherwise. A consent injunction is now in place. Under these circumstances, an ascertainment of damages, if any, shall await a final determination of this proceeding.

Accordingly, it is,

ORDERED, that Filler's motion to amend the complaint in Action No. 2 is granted. The proposed amended complaint shall be deemed served and the caption amended ten days after the service of this order with notice of entry; and it is further,

ORDERED, that the cross-motion of Vinod K. Chand to dismiss Action No. 2 is denied; and it is further,

ORDERED, that Filler's motion to disqualify James Fiscella, Esq. as counsel for Vinod K. Chand is denied; and it is further,

ORDERED, that the motion and cross-motion for sanctions is denied; and it is further,

ORDERED, that Vinod K. Chand's motion to compel release of the undertaking posted by Filler to him is denied with leave to seek damages at trial; and it is further,

ORDERED, that counsel for the parties shall appear for a status conference on May 3, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY____________________________

April 11, 2007Hon. LEONARD B. AUSTIN, J.S.C.

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