In an August 12, 2011, decision by Justice Demarest, the court granted defendant-LLC member’s motion to disqualify counsel for plaintiffs-LLC and its other individual members, and granted plaintiffs’ cross-motion to dismiss defendant’s counterclaim for prima facie tort. Defendant formed a company for purposes of opening a salon and bar with the individual plaintiffs as managing members. The company entered into an asset purchase agreement to acquire an existing café in order to start their business. The agreement was subject to the approval of an application for a liquor license, and defendant allegedly continued to invest significant start-up monies despite having received an initial denial of the application. When the state liquor authority finally denied the application, plaintiffs sued defendant for breach of the operating agreement and breach of fiduciary duty. Defendant counterclaimed against the other individual members and moved to disqualify plaintiffs’ counsel based on a conflict of interest in connection with her representation of both the company and its members. Plaintiffs cross-moved to dismiss defendant’s counterclaim for prima facie tort. Because defendant’s affirmative defenses and/or counterclaims potentially implicated the individual plaintiffs in terms of breaching their own fiduciary responsibilities to each other and the company – effectively “placing them in an untenable adverse relationship” – the court found there to be an “irreconcilable conflict in the professional allegiance of counsel” and granted defendant’s motion to disqualify. The court also granted plaintiff’s motion to dismiss defendant’s counterclaim, finding that defendant altogether failed to plead the elements of a prima facie tort claim, particularly with respect to “alleg[ations] that plaintiffs were motivated by malice, with the intent to harm defendant.”

Big Brows LLC v Devitt., Sup Ct, Kings County, August 12, 2011, Demarest, J., Index No. 27255/2010