Retainer Agreement Ambiguity As To Client Identity Construed Against Law Firm

The New York Appellate Division for the Second Judicial Department ruled that New York privilege law applied and reversed the trial court orders

On this appeal we are asked to address a conflict between New York and Delaware law relating to which law applies, and implicating who or which entity may assert the attorney-client privilege, in the context of the merger and restructuring of businesses, the sale of membership interests, and related transactions which occurred in connection with those events.

Upon concluding that, under Delaware law, the right of the plaintiffs, Kevin Askari and Sina Drug Corp. (hereinafter Sina), as sellers, to transactional documents contained in the file of the defendant law firm McDermott, Will & Emery, LLP (hereinafter McDermott), relating to the reorganization, merger, and sale of Sina, was transferred to the new entity/buyer, the defendant Oncomed Specialty, LLC (hereinafter Specialty), post- merger/reorganization, the Supreme Court denied the plaintiffs’ motion for summary judgment on the complaint and granted the defendants’ separate cross motions for summary judgment dismissing the complaint insofar as asserted against each of them. We reverse the order appealed from for the reasons set forth herein.

The court

In this case, Sina was merged into NY Merger LLC and NY Merger LLC’s shares were contributed to Specialty. The same merger/conversion occurred with respect to Sina’s related corporations and their corresponding holding entities. Besides management of the “Company,” the business did not change as a result of the merger, and the rights, privileges, liabilities, and obligations of the business passed to Specialty. However, Sina, which continues to “exist” for the purpose of this action (see Business Corporation Law § 1006), and Askari, as a former director of Sina, or even in his capacity as “Seller’s Representative,” had the right to request McDermott’s files on behalf of Sina with respect to those documents involving the “transactions,” as well as in his own behalf with regard to the employment agreement and promissory notes.

Here, Business Corporation Law § 1006 specifically provides that a dissolved corporation, like Sina, may commence an action in any court under its corporate name. Sina’s dissolution does not affect Sina’s right or capacity to maintain this replevin action since the claim arose from McDermott’s representation of Sina which began before Sina’s dissolution. The exceptions listed in Business Corporation Law § 1006 do not apply. Thus, the plaintiffs demonstrated their prima facie entitlement to judgment as a matter of law in this action for replevin since the plaintiffs submitted evidence, through Askari’s affidavit, that McDermott represented Sina and Askari during the “transactions.” As a result, the plaintiffs demonstrated, prima facie, their superior possessory right to McDermott’s files.

In opposition, the defendants failed to raise a triable issue of fact. Their reliance on Delaware law with respect to the attorney-client privilege is unavailing since Delaware law is not applicable here with regard to the plaintiffs’ claim, which does not involve the enforcement or interpretation of any agreements pertaining to the merger.

In addition, the fact that Askari utilized the services of more than one attorney during the “transactions” does not demonstrate or raise an issue of fact as to whether Iryami was Askari’s sole counsel. While the plaintiffs submitted the affidavit of Askari stating that he was represented by McDermott during the subject transactions, the defendants did not submit evidence to the contrary from any individual with personal knowledge of the facts.

Moreover, the engagement letter similarly  does not definitively establish exactly who and which entity or entities McDermott represented given the fact that the entity by the name of Onco360 did not exist at the time that the engagement letter was drafted. The ambiguity as to the identity of McDermott’s clients must be construed against McDermott as the drafter of the engagement letter (see Albunio v City of New York, 23 NY3d 65, 71). “The general rule that ‘equivocal contracts will be construed against the drafters’ is subject to particularly rigorous enforcement in the context of attorney-client retainer agreements” (id. at 71, quoting Shaw v Manufacturers Hanover Trust Co., 68 NY2d 172, 176). In addition, the engagement letter stated that it pertained to “the sale of all or substantially all of [Onco360’s] assets to PharMerica Corporation,” as opposed to the restructuring of Sina and eventual merger into Specialty and the transactions related to that event. Further, McDermott’s opinion letter, which was subsequently prepared, showed that McDermott represented numerous entities, in addition to “Onco360,” during the course of the transactions.

For the same reasons that the plaintiffs are entitled to summary judgment on the complaint, the Supreme Court should have denied the defendants’ separate cross motions for summary judgment dismissing the complaint insofar as asserted against each of them.

(Mike Frisch)