[*1]
DCS Pharmacy, Inc. v Ugenti
2015 NY Slip Op 51188(U) [48 Misc 3d 1222(A)]
Decided on August 13, 2015
Supreme Court, Suffolk County
Emerson, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on August 13, 2015
Supreme Court, Suffolk County


DCS Pharmacy, Inc., Plaintiff,

against

Vincent Ugenti, Defendant.




24516-14



RUSSO, KARL, WIDMAIER & CORDANO, PLLC
Attorneys for Plaintiff
400 Town Line Road, Suite 170
Hauppauge, New York 11788

THE LAW OFFICES OF PETER SVERD, PLLC
Attorney for Defendant
225 Broadway, Suite 613
New York, New York 10007


Elizabeth H. Emerson, J.

Upon the following papers numbered 5-42 read on this motionto dismiss and cross-motion to disqualify counsel ; Notice of Motion and supporting papers 5-21 ; Notice of Cross Motion and supporting papers22-34 ; Answering Affidavits and supporting papers35-38 ; Replying Affidavits and supporting papers39-42 ; it is,

ORDERED that the branches of the motion by the defendant which are for dismissal of the complaint or, alternatively, for summary judgment dismissing the complaint are denied without prejudice; and it is further

ORDERED that the branch of the motion by the defendant which is to strike scandalous and prejudicial matters from the complaint is granted to the extent of removing paragraphs 46, 47, 92, 121, 146, 181, and the word "extort" from paragraph 194 of the complaint; and it is further

ORDERED that the cross motion by the plaintiff for disqualification of the defendant's counsel is granted; and it is further

ORDERED that all proceedings in this matter are stayed for 30 days from the date of service of this order so that the defendant may have an opportunity to obtain new counsel.

The plaintiff, DCS Pharmacy, Inc. ("DCS'), develops, licenses, and sells computer software to pharmacies. The defendant, Vincent Ugenti, was employed by DCS from

June 12, 2002, until July 7, 2009, as a general manager or vice president of operations. He was also a DCS shareholder, but not an officer or director. On June 12, 2002, Ugenti and DCS executed a trade-secret/non-disclosure agreement (the "trade-secret agreement") in which Ugenti agreed to treat DCS's trade secrets as confidential and not to disclose them to others during the term of his relationship with DCS and thereafter. The agreement defined "trade secrets" as "all documentation, software, know-how and information relating to the past, present, or future business of DCS...." On July 1, 2004, the Ugenti and DCS executed an employment agreement (the "employment agreement") in which Ugenti agreed not to divulge DCS's confidential or proprietary information to any third party during the term of that agreement or thereafter. The employment agreement did not define "confidential or proprietary information," but provided that "information now or hereafter in the public domain shall not be deemed confidential or proprietary information."

After his employment with DCS ended, Ugenti commenced a special proceeding in this court to dissolve DCS. He also commenced a shareholder derivative action in this court on behalf of DCS. The action and proceeding were consolidated and assigned to the Honorable Emily Pines (the "consolidated action"). On January 22, 2010, Ugenti and DCS entered into a confidentiality agreement to protect the confidentiality of information produced in the course of that litigation (the "confidentiality agreement"). The confidentiality agreement defined "confidential information" as "(a) any information...that is not publicly available and which the designating party and its counsel believes in their good-faith opinion contains any trade secret or other confidential research, development or commercial information and/or that the disclosure of which would violate the privacy rights of the persons to whom the information pertains, and (b) data derived from such confidential information...." The confidentiality agreement provided that either party could protect information as confidential by placing the notation "confidential" on each document so designated. The confidentiality agreement also provided that it could be terminated by written agreement of the parties or court order and that it was to remain in effect until modified, superseded, or terminated by "another Order."

The consolidated action was settled in the middle of trial on September 25, 2013, [*2]by a stipulation of settlement placed on the record (the "settlement agreement"). The settlement agreement provided that DCS would purchase Ugenti's stock for $400,000, payable in three installments, the first of which was due on November 25, 2013. The settlement agreement also provided that Ugenti would return to DCS all intellectual property, software, inventions, and client customer lists retained by him through the litigation or otherwise retained. The settlement agreement reserved for a later court decision the scope of a non-competition, non-solicitation restrictive covenant. On October 15, 2013, Justice Pines issued the following order:

"1. Vincent Ugenti shall not, directly or indirectly:

* * *

"(b) For a period of two (2) years from the date hereof, use, divulge, furnish or make accessible to any third person or organization any confidential or proprietary information concerning [DCS] or its business, except to the extent required by law, and providing that information now hereafter in the public domain shall not be deemed confidential or proprietary information."



Also in 2013, DCS was involved in litigation with a competitor, New-Tech Computer Systems, Inc. ("New-Tech") in federal court in Florida (the "Florida action"). DCS was a defendant in the Florida action and moved to dismiss the complaint for lack of personal jurisdiction and improper venue. At issue in the Florida action was whether DCS had sufficient contacts with Florida for the court to exercise jurisdiction over it. Ugenti's attorney, Peter Sverd, supplied New-Tech's attorney with invoices that showed payments from DCS to a company called DataScan Florida, which Sverd had obtained from Ugenti or through discovery in the consolidated action. DataScan Florida was owned and operated by Alex Minassian, DCS's president and chief executive officer, and his wife. New-Tech's attorney used the invoices at Minassian's deposition in the Florida action to show that DCS did business in Florida through DataScan Florida, Minassian, and his wife. DCS subsequently commenced this action alleging, inter alia, that the invoices contained confidential and proprietary information the disclosure of which violated the trade-secret agreement, the employment agreement, and the confidentiality agreement, as well as Ugenti's common-law duties to DCS. After joinder of issue, Ugenti moved (1) to dismiss the complaint, (2) alternatively for summary judgment dismissing the complaint, and (3) to strike scandalous and prejudicial matters from the complaint. DCS cross moved to disqualify Ugenti's counsel on the ground that he is a necessary witness on a significant issue of fact in this action.

Disqualification of an attorney is a matter that rests within the sound discretion of the trial court (Zutler v Drivershield Corp., 15 ADd3d 397). A party's entitlement to be represented in ongoing litigation by counsel of its choosing is a valued right that should not be abridged absent a clear showing that disqualification is warranted (Id., citing S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437, 433). The advocate-witness rule [*3]requires an attorney to withdraw from pending litigation if the attorney is likely to be a witness on a significant issue of fact (Rules of Professional Conduct [22 NYCRR 1200.0] rule 3.7). Disqualification is warranted if the attorney's testimony is necessary (Id. 445-446; Congregation Talmud Torah Ohev Shalom R. Morris Develson v Sorscher, 69 AD3d 898,899; Zutler v Drivershield Corp., supra). Any doubt concerning the necessity for the attorney's testimony should be resolved in favor of disqualification (Zagari v Zagari, 295 AD2d 891, 891-892).

The record reflects that Ugenti's attorney, Peter Sverd, furnished or made available to New-Tech's attorney documents that he had obtained from Ugenti or through discovery in the consolidated action. Some of the documents supplied by Sverd, i.e., invoices showing payments from DCS to DataScan Florida, were used by New-Tech's attorney at Alex Minassian's deposition in the Florida action to show that DCS did business in Florida. While this court agrees with the court in the Florida action that the invoices do not contain confidential and proprietary information relating to DCS and Minassian, it cannot be determined from the record presently before the court whether Sverd sent other documents to New-Tech's attorney that did contain such information. Ugenti claims that he had nothing to do with the disclosure of DCS's documents and that he did not instruct or authorize Sverd to furnish or make any DCS documents available to New-Tech's attorney. Moreover, the emails between Sverd and New-Tech's attorney shed no light on the documents that were sent. Thus, Sverd has exclusive personal knowledge of the issue that cannot be provided by other parties (cf., Adams v Village of Keesville, US Dist Ct., NDNY, Aug. 8, 2008, Treece, J., at *13 [2008WL 3413867], citing Zutler, supra). The court finds that, under these circumstances, his testimony is necessary.

Contrary to the Ugenti's contentions, Sverd's testimony is potentially prejudicial if Sverd disclosed any of DCS's confidential and proprietary information to New-Tech's attorney and if such disclosure can be imputed to Ugenti. Moreover, the attorney-client privilege protects only communications between a lawyer and his client (Alexander, Practice Commentaries, McKinneys Cons Laws of NY, Book 7B, C4503:2 [c]) at 48). If, as Ugenti contends, he had no knowledge of Sverd's disclosure until after the documents were sent to New-Tech's attorney, the attorney-client privilege does not bar Sverd from testifying. Accordingly, the cross motion is granted.

DCS has agreed to amend its complaint to remove therefrom paragraphs 46, 47, 92, 121, 146, 181, and the word "extort" from paragraph 194. The remaining paragraphs to which Ugenti objects are referred to the parties' next conference with the court, which shall be held on October 8, 2015, at 10:30 a.m., Supreme Court, Courtroom 7, Arthur M. Cromarty Criminal Court Building, 210 Center Drive, Riverhead, New York 11901.

Dated:August 13, 2015

J.S.C.