Everest Reinsurance Company (Everest) moves for an order to disqualify James C. Owen, Esq., and the law firm of McCarthy, Leonard, Kaemmerer, Owen, McGovern, Striler and Menghini, L.C. (collectively, the McCarthy firm) and for other relief. The basis of Everest's motion to disqualify is an alleged conflict of interest arising from the McCarthy firm's prior representation of Everest in liquidation proceedings of other insurance companies.

In this liquidation proceeding, the Superintendent of Insurance of the State of New York, as liquidator of Midland Insurance Company (Liquidator), has retained the McCarthy firm as outside counsel to provide legal services regarding claims coverage, reinsurance collection, and general insurance insolvency matters in the liquidation proceedings of Midland Insurance Company (Midland). Pending before this Court is Everest's motion to lift the injunction barring actions against Midland, in which Everest contends that Midland has not been complying with provisions in Everest's reinsurance agreements with Midland. See Matter of the Liquidation of Midland Insurance Company, Sup Ct, NY County, Nov. 8, 2006, Stallman, J., Index No. 41294/1986, at 1-2 (Interim Decision and Order). The McCarthy firm opposed Everest's motion, and this motion to disqualify followed.

Everest seeks disqualification of the McCarthy firm based on its former representation of Everest from 1996 to 1999 in an insurance insolvency action, In the Matter of the Liquidation of National Colonial Insurance Company, Case No. 93CV805, in the District Court of Shawnee County, Kansas. Everest invokes Disciplinary Rule 5-108 (A) of the Code of Professional Responsibility, which provides in relevant part:

"Except as provided in DR 9-101 (B) with respect to current or former government lawyers, a lawyer who has represented a client in a matter shall not, without the consent of the former client after full disclosure:

1. Thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client.

2. Use any confidences or secrets of the former client." 22 NYCRR 1200.27.^[FN1]

"A party seeking disqualification of its opponent's counsel under [DR 5-108 (a) (1)] must prove that there was an attorney-client relationship between the moving party and opposing counsel, the matters involved in both representations are substantially related, and the interests of the present and former clients are materially adverse." Develop Don't Destroy Brooklyn v Empire State Dev. Corp., 31 AD3d 144, 151 (1st Dept 2006). "Only where the movant satisfies all three inquiries does the irrebuttable presumption of disqualification arise.'" Jamaica Pub. Serv. Co., 92 NY2d at 636 (citation omitted). "[A] party's entitlement to be represented in ongoing litigation by counsel of its choosing is a valued right which should not be abridged absent a clear showing that disqualification is warranted." Zutler v Drivershield Corp., 15 AD3d 397 (2d Dept 2005). "[I]n assessing whether the moving party has met its burden of satisfying each of the three requirements under DR 5-108, courts should avoid mechanical application of blanket rules." Tekni-Plex v Meyner and Landis, 89 NY2d 123, 132 (1996).

The McCarthy firm does not dispute that Everest was their client. They also admit that their representation of the Liquidator in the Midland liquidation proceedings may be adverse to certain positions Everest has taken thus far on four policyholder claims in this liquidation. See Opp. Mem. at 11. Thus, the issue presented is whether the matters are substantially related.

Everest has compiled a chart summarizing pertinent issues in the prior and current representations. See Mem. at 2. The chart illustrates factual similarities between NCIC's liquidation and Midland's liquidation, but the points of similarity are largely superficial and strained. Neither has Everest demonstrated that the scope of the prior and current representations are at all similar. Notwithstanding Everest's offer to submit documentation of the legal advice that the McCarthy firm rendered to Everest in the NCIC liquidation proceedings (see Mem at 4, n 2), it is telling that Everest submits no affidavit from any individual with personal knowledge setting forth the scope of the McCarthy firm's representation in the NCIC liquidation proceedings.^[FN2] Owen states that Everest retained the McCarthy firm to oppose [*3]attempts by policyholders in the NCIC liquidation proceedings to sue Everest directly for losses arising from automobile dealer warranties. See Opp. Mem. at 3, 13-14; Owen Affirm. ¶¶ 5-6. Everest strains to relate the matters through broadly worded, amorphous descriptions of the work that the McCarthy firm actually performed in the NCIC liquidation proceedings.

The court filings in NCIC's liquidation indicate that Everest was not challenging the manner in which the Liquidator processed and approved NCIC claims. See Owen Affirm., Ex A. Not only do the issues that the McCarthy firm worked in the NCIC liquidation differ from the issues that the McCarthy firm is working on in Midland's liquidation, but also the agreements are entirely distinct. See Matter of Nomura Securities v Hu, 240 AD2d 249, 250 (1st Dept 1997). It is not enough that the two matters involve issues of contract interpretation, that the two matters were in the context of insurance liquidations, or that NCIC's and Midland's agreements with Everest might arguably contain similarly-worded provisions. "[T]he term matter' ordinarily does not include a legal position taken on behalf of a former client unless the underlying facts are also related." Restatement (Third) of the Law Governing Lawyers, § 132, comment e. Given that the liquidations of NCIC and Midland are not related, the McCarthy firm is not barred from arguing an interpretation of the Midland's agreements that is different from any interpretation that Everest asserted as to NCIC's agreements.

Even if the matters are not factually related, Everest apparently maintains that the McCarthy firm acquired confidential knowledge warranting disqualification, citing Clairmont v Kessler (269 AD2d 168 [1st Dept 2000]) and Hammond v Goodyear Tire & Rubber Co. (933 F Supp 197 [ND NY 1996]). Absent a substantial relationship between the matters, disqualification could be warranted only upon a showing that in the prior action [the attorney] had received specific confidential information substantially related to the present litigation.'" Lightning Park, Inc. v Wise Lerman & Katz, 197 AD2d 52, 55 (1st Dept 1994). "A party seeking disqualification of an attorney based on the disclosure of confidential information previously made to the attorney . . . has the burden of identifying the specific confidential information imparted to the attorney'"). Muriel Siebert & Co., Inc. v Intuit Inc., ___ AD3d ___, 32 AD3d 284, 285 (1st Dept 2006).

The present dispute between Everest and Midland relates to the manner in which the Liquidator has been processing policyholder claims, which Everest asserts does not comply with provisions under Midland's reinsurance contracts with Everest. The record before the Court does not indicate that the McCarthy firm has or would have acquired any knowledge as to Everest's claims handling and record keeping from NCIC's liquidation, given the relatively limited scope of the McCarthy firm's prior representation. The McCarthy firm maintains that it was not involved in claims handling of the NCIC on behalf of Everest, nor did it review any [*4]property/casualty or reinsurance contracts in the course of their representation of Everest. Walsh Aff. ¶ 6. The court filings in NCIC's liquidation indicate that Everest was not challenging the manner in which the Liquidator processed and approved NCIC claims. See Owen Affirm., Ex A. Given all the above, Everest has not shown that the McCarthy firm received specific confidential information substantially related to the present litigation.

"The protections of DR 5-108 (A) (2) underscore that an attorney owes a continuing duty to a former client—broader in scope than the attorney-client evidentiary privilege—not to reveal confidences learned in the course of the professional relationship." Jamaica Pub. Serv. Co., 92 NY2d at 637. "[T]o establish a violation of Code of Professional Responsibility DR 5-108 (a) (2) (22 NYCRR 1200.27 [a] [2]), a party must demonstrate the existence of a reasonable probability' of disclosure or use of a former client's confidences and secrets." Waehner v Northwest Bay Partners, Ltd., 30 AD3d 799, 800 (3d Dept, 2006) (citations omitted).

It is undisputed that Midland submitted a commutation agreement between Transit Casualty and Everest as an exhibit to Midland's opposition papers to a motion by Everest.^[FN3] It is undisputed that the commutation agreement contains a confidentiality provision.

However, Everest does not claim that the commutation agreement constitutes either a confidence or secret.

" Confidence' refers to information protected by the attorney-client privilege under applicable law, and secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client." DR 4-101.

Everest does not assert an attorney-client privilege as to the commutation agreement. As Everest itself indicates, the terms of the confidentiality provision permit disclosure of the commutation agreement "as a result of formal discovery in a legal process." See Mem. at 15. Neither does Everest contend that the commutation agreement constituted a "secret" under DR 4-101. First, it cannot be argued that Everest requested the commutation agreement to be held inviolate, because the confidentiality provision of the commutation agreement provides for disclosure in certain circumstances. Having inspected the commutation agreement in camera, the Court does not discern any embarrassing or detrimental material in the commutation agreement itself. Second, the McCarthy firm claims to have obtained this document from Transit Casualty, not from Everest, which Everest does not dispute. Thus, Everest has not met the burden of showing a reasonable probability that the McCarthy firm will disclose Everest's confidences or secrets in Midland's liquidation proceeding. That is not to say that the McCarthy firm does not possess any of Everest's confidences or secrets. Rather, the McCarthy firm's submission of this commutation argument, which is neither a confidence nor a secret, does not establish the reasonable probability of disclosure or use of confidences or secrets that Everest may have entrusted to the McCarthy firm.

The submission of this commutation agreement does not, without more, warrant [*5]disqualification. "[I]t is particularly important that the Code of Professional Responsibility not be mechanically applied when disqualification is raised in litigation. The Code instead provides guidance for the courts in determining whether a case would be tainted by the participation of an attorney or a firm.'" S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437, 444 -445 (1987); see also Mancheski v Gabelli Group Capital Partners, Inc., 22 AD3d 532, 534 (2d Dept 2005). The record does not indicate that the McCarthy's firm conduct has tainted this liquidation proceeding. The McCarthy firm took immediate steps to remove the commutation agreement from the papers submitted to the Court, even though it is unclear whether the confidentiality provision would have barred use of the document in these proceedings. Only two individuals at the New York Liquidation Bureau handled the commutation agreement, and they aver that they did not peruse it and that all copies were destroyed. Tabone Affirm. ¶3; Fristch Affirm. ¶ 3.

As Everest points out, "an attorney . . must avoid not only the fact, but even the appearance, of representing conflicting interests.'" Tekni-Plex, 89 NY2d at 130. However, "the appearance of impropriety, standing alone, might not be grounds for disqualification." People v Herr, 86 NY2d 638, 641 (1995); Develop Don't Destroy Brooklyn v Empire State Dev. Corp., 31 AD3d at 153. "Balanced against the vital interest in avoiding even the appearance of impropriety is concern for a party's right to representation by counsel of choice and danger that such motions can become tactical derailment' weapons for strategic advantage in litigation." Jamaica Public Service Co. Ltd., 92 NY2d at 638. Having weighed the relevant concerns and interests, this Court finds that the disclosure of the commutation agreement, without more, does not warrant disqualification.

Finally, the branch of Everest's motion seeking turnover from the McCarthy firm of any documents related to Midland's representation that "directly or indirectly mention Everest" or "disclose or discuss any of Everest's practices, procedures, or confidences" is denied. Everest offers no legal authority to order such a turnover, and the documents sought go beyond the realm of client confidences and secrets. To the extent that the McCarthy firm had possession of Everest's records arising from their representation of Everest, it appears that these documents have been returned. See Opp. Mem. at 23.

ORDERED that the motion to disqualify and for other relief by Everest Reinsurance Company is denied.

Dated: January 30, 2007New York, New YorkENTER:

/s

J.S.C.