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FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024
NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
JENNIFER KAY & JOSHUA COHEN, Individually and
Derivatively on behalf of M.B.R.P. REST. INC. d/b/a THE
STUMBLE INN, MIRABI INC. d/b/a DOWN THE HATCH, Index No. 650380/2024
THIRD AVE. REST., INC. d/b/a JAKE’S DILEMMA, 442
AMSTERDAM REST., CORP. d/b/a THE GIN MILL, Hon. Mary V. Rosado
MACDOUGAL REST. INC. d/b/a OFF THE WAGON, 149
SECOND AVE. REST. INC. d/b/a DOWNTOWN SOCIAL, 134
WEST 3RD ST. REST. INC. d/b/a 3 SHEETS, 168 ORCHARD
ST PARTNERS INC. d/b/a HAIR OF THE DOG, 587 KING
STREET RESTAURANT, LLC d/b/a UPTOWN SOCIAL, 23 EMERGENCY AFFIRMATION
ANN STREET RESTAURANT LLC d/b/a IN SUPPORT OF PLAINTIFF’S
BODEGA/SHAREHOUSE, B.B.L.L. INC. d/b/a CLEOS, MOTION TO DISQUALIFY AND
KALEO INC. d/b/a JACK & GINGERS, 2258 WEST CHICAGO STAY
AVE PARTNERS LLC d/b/a FATSO’S LAST STAND #1, 1982
N. CLYBOURN PARTNERS LLC d/b/a FATSO’S LAST Mot. Seq. No. 4
STAND #2, 442 AMSTERDAM REAL ESTATE CORP, 300
EAST 76TH STREET PARTNERS LLC, 109 MACDOUGAL
STREET PARTNERS LLC, 430 AMSTERDAM PARTNERS,
LLC, 2048 WEST ARMITAGE PARTNERS LLC, and 1939
WEST CHICAGO AVE PARTNERS LLC,
Plaintiffs,
v.
MITCHELL BANCHIK, MICHAEL ASCH, MNM2
MANGAGEMENT INC. d/b/a MNM2 MANAGEMENT, INC.,
M.B.R.P. REST. INC. d/b/a THE STUMBLE INN, MIRABI INC.
d/b/a DOWN THE HATCH, THIRD AVE. REST., INC. d/b/a
JAKE’S DILEMMA, 442 AMSTERDAM REST., CORP. d/b/a
THE GIN MILL, MACDOUGAL REST. INC. d/b/a OFF THE
WAGON, 149 SECOND AVE. REST. INC. d/b/a DOWNTOWN
SOCIAL, 134 WEST 3RD ST. REST. INC. d/b/a 3 SHEETS, 168
ORCHARD ST PARTNERS INC. d/b/a HAIR OF THE DOG,
587 KING STREET RESTAURANT, LLC d/b/a UPTOWN
SOCIAL, 23 ANN STREET RESTAURANT LLC d/b/a
BODEGA/SHAREHOUSE, B.B.L.L. INC. d/b/a CLEOS,
KALEO INC. d/b/a JACK & GINGERS, 2258 WEST CHICAGO
AVE PARTNERS LLC d/b/a FATSO’S LAST STAND #1, 1982
N. CLYBOURN PARTNERS LLC d/b/a FATSO’S LAST
STAND #2, 442 AMSTERDAM REAL ESTATE CORP, 300
EAST 76TH STREET PARTNERS, LLC, 109 MACDOUGAL
STREET PARTNERS LLC, 430 AMSTERDAM PARTNERS,
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LLC, 2048 WEST ARMITAGE PARTNERS LLC, 1939 WEST
CHICAGO AVE PARTNERS LLC, MNM PROPERTIES, LLC,
“MB TRUST 1”, “MB TRUST 2”, “MA TRUST 1”, and “MA
TRUST 2”
Defendants.
Andreas Koutsoudakis, Esq., an attorney admitted to the practice of law before the courts
of the State of New York, and not a party to this action, hereby affirms the following to be true
under the penalties of perjury:
1. I am a Managing Partner of the law firm Koutsoudakis & Iakovou Law Group,
PLLC, attorneys for Plaintiffs and respectfully submit this Emergency Affirmation in support of
Plaintiffs’ motion to disqualify Peter A. Mahler, Esq., Becky (Hyun Jeong) Baek, Esq., and the
law firm Farrell Fritz, P.C. (“Farrell”), as attorneys of record for Defendants Mitchell Banchik
(“Banchik”) and Michael Asch (“Asch”)—in their capacity as Directors/Officers/Managers of all
respective entities, as well as in their capacity as controlling owners of all entities either directly
in their individual names or through their alter-ego entities—and also for all of the bar entities and
real estate entities (collectively the "bar and real estate entities”) owned by defendants Banchik
and Asch.
2. Emergency relief to stay this action is necessary prior to the Court issuing a decision
on Defendants’ motion to dismiss (currently sub judice) because there are pending decisions and
anticipated additional motions to be filed by the defendants through the firm sought to be
disqualified. Additionally, defendants continue to deplete corporate assets/funds for the defense of
the claims against them, all the while continuing to disregard the fundamental requirement that
self-interested transactions be approved by disinterested parties. Disqualification of Defendants’
Counsel is necessary based upon the non-waivable conflict of interest Defendants’ Counsel owe,
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with dual fiduciary obligations owed to both the defendant-shareholders and corporations, as well
as the plaintiff-corporations.
A. FARRELL CANNOT REPRESENT THE BEST INTERESTS OF COMPANIES
(THE BAR AND REAL ESTATE ENTTITIES) AND ITS SHAREHOLDERS
(BANCHIK AND ASCH) AS DEFENDANTS AGAINST OTHER MEMBERS
(PLAINTIFFS SUING ON BEHALF OF THE COMPANIES) IN A DISPUTE
REGARDING THE COMPANIES.
3. Defendants’ Counsel has created a non-waivable conflict of interest by representing
both the shareholders and the corporations in this action.
4. “When considering a motion to disqualify counsel, a trial court must consider the
totality of the circumstances and carefully balance the right of a party to be represented by counsel
of his or her choosing against the other party's right to be free from possible prejudice due to the
questioned representation.” See 1186 Broadway Tenant LLC v. Friedman, 2019 WL 6217275 *4
(Sup. Ct. N.Y.Cty. 2019); see also Ferolito v Vultaggio, 949 N.Y.S.2d 356, (1st Dept 2012) (citing
Abselet v. Satra Realty, 926 N.Y.S.2d 178 (2011).
5. What makes our case warrant Farrell’s disqualification even more is the fact that
Farrell, who represents defendants Banchik and Asch (as directors/shareholders, and Banchik and
Asch personally and individually) and the bar and real estate entities as defendants, are litigating
against Plaintiffs that are suing on behalf of the same entities, and those entities that have already
paid legal fees to Farrell for this matter at the sole discretion of defendants Banchik and Asch.
6. It is a clear conflict that Farrell was paid by the bar and real estate entities in this
action especially considering that the entities are represented by the plaintiff shareholders as well
as and defendant shareholders in this matter.
7. Farrell cannot deny the appearance of the conflict of interest in this case especially
since Farrell (who was paid by the entities owned by Banchik and Asch), also represents Banchik
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and Asch, in their personal and individual capacity. Farrell cannot represent the best interests of
the entities and shareholders if there is a clear conflict where the shareholders are liable, personally
and individually.
8. Even if Farrell argues that they can zealously represent all defendants’ best
interests, any doubts as to the existence of a conflict of interest must be resolved in favor of
disqualification. See 1186 Broadway Tenant LLC, 2019 WL 6217275 *6-7 (Sup. Ct. N.Y.Cty.
2019). Therefore, Farrell, which represents the bar and real estate entities, may not also represent
defendants Banchik and Asch as directors/shareholders, personally and individually, against other
shareholders (Plaintiffs) in this case in which Banchik and Asch’s personal and individual interests
are adverse to their director/shareholder interests, and the interests of all the entities.
9. The rationale for this black-letter rule of disqualification, moreover, is
straightforward: in a dispute between shareholders concerning corporate governance—particularly
a dispute where shareholders are accused of diverting corporate opportunities and breaching
fiduciary duties—counsel for the companies is not allowed to play favorites.
10. The company's counsel may not tip the balance scale of justice in favor of
shareholders (alleged to have breached their fiduciary duties to the companies) and against the
companies’ best interests. The company’s counsel may not prejudge the merits and must not let an
entanglement with the business interests of the shareholders, or the personal interests of the
shareholders interfere with counsel’s duties to represent the companies’ best interests.
11. Farrell has committed this exact impropriety. None of the shareholders have ever
been contacted once about this action or about related actions.
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12. To represent the bar and real estate entities properly, Farrell, as its counsel, must
zealously investigate all alleged breaches of fiduciary duty by Banchik and Asch as
directors/shareholders.
13. However, Farrell must also investigate all alleged breaches by Banchik and Asch,
personally and individually, and must zealously advocate the entities' position based upon an
objective and unbiased view of the facts and the law.
14. There is clearly a clash here because if it were found that Banchik and Asch
personally violated any reasonable duties against the entities, Farrell must use such information to
best represent the entities, but would in turn Farrell to represent Banchik and Asch to the best of
their ability. And so, Farrell cannot concurrently represent the entities, Banchik and Asch as
directors/shareholders, and Banchik and Asch personally and individually.
15. Basically, Farrell has a conflicting duty of loyalty to represent Banchik and Asch
as directors/shareholders, and personally and individually. The latter duty requires Farrell to have
a bias: the Firm is duty-bound to look at every factual and legal issue solely with an eye to
absolving Banchik and Asch of any liability whatsoever which obstructs Farrell’s representation
of the bar and real estate entities that Banchik and Asch are named directors/shareholders of.
16. The firm is duty-bound not to develop any fact or argument that may impose
liability on Banchik and Asch’s personal and individual interests. The fix is in before the match
has even begun, and the bar and real estate entities are the loser.
B. FARRELL CANNOT SIMULTAMEIOUSLY REPRESENT COMPANIES AND
TWO OF ITS MEMBERS IN A DERIVATIVE ACTION IN WHICH THESE
PARTIES HAVE CONFLICTING INTERESTS AND THE DUTY OF UNDIVIDED
LOYALTY CANNOT POSSIBLY BE MET OR SATISFIED.
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17. Black-letter law prohibits a law firm from concurrently representing, in a derivative
action, both the corporation and the very entities who are alleged to have breached their fiduciary
duties to the corporation.
18. A lawyer representing the accused member has a vested interest in absolving the
accused member of the alleged wrongdoing, and so that lawyer cannot at the same time represent
the corporation, because the lawyer cannot satisfy the duty of undivided loyalty to the corporation.
19. In this case, Farrell’s joint representation of Banchik and Asch, and the bar and real
estate entities is prohibited by New York Rules of Professional Conduct 1.13 and 1.7, as well as
the decisional law applying those Rules.
20. Here, because there is a Rule 1.7 conflict, Farrell is barred from the concurrent
representation notwithstanding Rule 1.13. Simply put, the Rules of Professional Conduct expressly
prohibit dual representation of the corporation and a member of the corporation in a derivative
action where, as here, "the representation will involve the lawyer in representing differing
interests."
21. While Rule 1.7(b) provides certain exceptions to Rule 1.7(a), none of those
exceptions apply here. Nor could they, because, for the reasons set forth above, any reasonable
lawyer would readily detect the very differing interests of the bar and real estate entities on one
hand, and Banchik and Asch on the other.
22. More importantly, the First Department has already decided this very issue in
Campbell v. McKeon, 905 N.Y.S.2d 589, 590 (1st Dep't 2010), which is on all fours with the facts
presented and is controlling here. There, in response to the question whether a law firm can
simultaneously represent the corporation and the persons accused of breaching their fiduciary
duties to the corporation, the First Department answered a definite "No."
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23. In Campbell, 75 A.D. 3d. 603, one member of a limited liability company
(Campbell) sued another member (McKeon) for fiduciary breaches allegedly committed by
McKeon against the LLC (the Veritas entities) in which both were members. There, as here, one
law firm represented both the LLC and one member of the LLC. The trial court disqualified the
firm due to its obvious conflict of interest. The First Department affirmed the disqualification
because the trial court "correctly held" that, as counsel to the companies, the law firm "could not
also represent McKeon [one LLC member] in an action in which his interests would be adverse to
the Veritas [LLCs], including usurpation of an investment opportunity." Id. 75 A.D. 3d. at 480.
24. In so ruling, the First Department noted that "[c]ounsel for an organizational client
is required to act as is reasonably necessary in the best interests of the client when an individual
associated with the client may have violated legal duties which are likely to result in substantial
injury to the organization." Id.
25. The court further held that "[a]ny doubts as to the sufficiency of the showing of an
asserted conflict of interest were properly resolved in favor of disqualification." Id.
C. FARRELL MUST WITHDRAW ALTOGETHER BECAUSE AN ACTUAL
CONFLICT EXISTS AMONG ITS CLIENTS
26. These actual conflicts of interest between Banchik and Asch, as well as all of the
bar and real estate entities in this action require Farrell to withdraw from this matter entirely.
Furthermore, Farrell cannot remain in this case by simply dropping Banchik and Asch as clients
in this action (as it is required to do by Campbell and its progeny). Nor can Farrell remain in this
case by dropping its other clients, the bar and real estate entities, to whom it also owes fiduciary
duties, in order to pursue the representation of Banchik and Asch in this action.
27. It is settled law that, once an actual conflict of interest arises between two of a law
firm's clients who are parties to a litigation, the law firm must withdraw altogether. See Merck
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Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 209 (S.D.N.Y. 2009) ("counsel may not avoid
a disqualifying conflict by dropping the less desirable client like a 'hot potato'"). Rather, the firm
must withdraw entirely from representing anyone in the litigation. See Sidor v. Zuhoski, 690
N.Y.S.2d 637, 638-39 (2d Dep't 1999) ("[A]n attorney who undertakes the joint representation of
two parties in a lawsuit [should] not continue as counsel for either one after an actual conflict of
interest has arisen because continued representation of either or both parties would result in a
violation of the ethical rule requiring an attorney to preserve a client's confidences or the rule
requiring an attorney to represent a client zealously[.]").
28. For the same reasons, Farrell should be entirely disqualified from representing
either Banchik or Asch, as well as any of the bar and real estate entities in this action.
D. A STAY IS NECESSARY TO PRESERVE THE STATUS QUO
29. There is no prejudice to the Defendants if this proceeding is stayed until the
disqualification motion is decided.
30. Defendants’ Counsel cannot adequately represent the best interests of the
Corporation and simultaneously the shareholders’ because those interests diverge when the
Corporations are seeking damages from its shareholders.
31. Defendants’ Counsel cannot and has not zealously represented the Corporation or
its shareholders in this or the Eviction Proceedings and have gained confidential information any
reasonable objectionable third-party would consider prejudicial to both the Corporation and its
shareholders currently represented by the same law firms, Defendants’ Counsel.
32. Moreover, the disqualification must be imputed to all the attorneys appearing as
counsel for Defendants.
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33. No prior request for the instant requested relief has been made to this, or any other
Court of competent jurisdiction, except Plaintiff made a prior request before this Court to stay this
action based upon different grounds.
WHEREFORE, pursuant to Article 63 of the CPLR, and Rules 1.7, 1.8, 1.18, 1.9, 1.10,
3.4 and 3.7 of New York Rules of Professional Conduct, and 22 NYCRR § 1200.00, an order and
judgment staying this action and prohibiting Defendants’ Counsel from providing any further legal
advice to the Defendants, their agents, representatives or any person or entity acting on their behalf,
until the Court’s adjudication of Plaintiff’s Motion to Disqualify, together with such other and
further relief as this Court deems just and proper.
Dated: New York, New York
April 23, 2024
________/s/_______________
Andreas Koutsoudakis
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CERTIFICATE OF WORD COUNT
I hereby certify that the word count of this affirmation complies with the word limits of 22 New
York Codes, Rules and Regulations § 202.8-b. According to the word-processing system used to
prepare this affirmation, the total word count for all printed text exclusive of the material omitted
is 2,153 words.
________/s/____________________________________
Andreas Koutsoudakis, Esq.
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FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK JENNIFER KAY & JOSHUA COHEN, Individually and Derivatively on behalf of M.B.R.P. REST. INC. d/b/a THE STUMBLE INN, MIRABI INC. d/b/a DOWN THE HATCH, Index No. 650380/2024 THIRD AVE. REST., INC. d/b/a JAKE’S DILEMMA, 442 AMSTERDAM REST., CORP. d/b/a THE GIN MILL, Hon. Mary V. Rosado MACDOUGAL REST. INC. d/b/a OFF THE WAGON, 149 SECOND AVE. REST. INC. d/b/a DOWNTOWN SOCIAL, 134 WEST 3RD ST. REST. INC. d/b/a 3 SHEETS, 168 ORCHARD ST PARTNERS INC. d/b/a HAIR OF THE DOG, 587 KING STREET RESTAURANT, LLC d/b/a UPTOWN SOCIAL, 23 EMERGENCY AFFIRMATION ANN STREET RESTAURANT LLC d/b/a IN SUPPORT OF PLAINTIFF’S BODEGA/SHAREHOUSE, B.B.L.L. INC. d/b/a CLEOS, MOTION TO DISQUALIFY AND KALEO INC. d/b/a JACK & GINGERS, 2258 WEST CHICAGO STAY AVE PARTNERS LLC d/b/a FATSO’S LAST STAND #1, 1982 N. CLYBOURN PARTNERS LLC d/b/a FATSO’S LAST Mot. Seq. No. 4 STAND #2, 442 AMSTERDAM REAL ESTATE CORP, 300 EAST 76TH STREET PARTNERS LLC, 109 MACDOUGAL STREET PARTNERS LLC, 430 AMSTERDAM PARTNERS, LLC, 2048 WEST ARMITAGE PARTNERS LLC, and 1939 WEST CHICAGO AVE PARTNERS LLC, Plaintiffs, v. MITCHELL BANCHIK, MICHAEL ASCH, MNM2 MANGAGEMENT INC. d/b/a MNM2 MANAGEMENT, INC., M.B.R.P. REST. INC. d/b/a THE STUMBLE INN, MIRABI INC. d/b/a DOWN THE HATCH, THIRD AVE. REST., INC. d/b/a JAKE’S DILEMMA, 442 AMSTERDAM REST., CORP. d/b/a THE GIN MILL, MACDOUGAL REST. INC. d/b/a OFF THE WAGON, 149 SECOND AVE. REST. INC. d/b/a DOWNTOWN SOCIAL, 134 WEST 3RD ST. REST. INC. d/b/a 3 SHEETS, 168 ORCHARD ST PARTNERS INC. d/b/a HAIR OF THE DOG, 587 KING STREET RESTAURANT, LLC d/b/a UPTOWN SOCIAL, 23 ANN STREET RESTAURANT LLC d/b/a BODEGA/SHAREHOUSE, B.B.L.L. INC. d/b/a CLEOS, KALEO INC. d/b/a JACK & GINGERS, 2258 WEST CHICAGO AVE PARTNERS LLC d/b/a FATSO’S LAST STAND #1, 1982 N. CLYBOURN PARTNERS LLC d/b/a FATSO’S LAST STAND #2, 442 AMSTERDAM REAL ESTATE CORP, 300 EAST 76TH STREET PARTNERS, LLC, 109 MACDOUGAL STREET PARTNERS LLC, 430 AMSTERDAM PARTNERS, 1 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 LLC, 2048 WEST ARMITAGE PARTNERS LLC, 1939 WEST CHICAGO AVE PARTNERS LLC, MNM PROPERTIES, LLC, “MB TRUST 1”, “MB TRUST 2”, “MA TRUST 1”, and “MA TRUST 2” Defendants. Andreas Koutsoudakis, Esq., an attorney admitted to the practice of law before the courts of the State of New York, and not a party to this action, hereby affirms the following to be true under the penalties of perjury: 1. I am a Managing Partner of the law firm Koutsoudakis & Iakovou Law Group, PLLC, attorneys for Plaintiffs and respectfully submit this Emergency Affirmation in support of Plaintiffs’ motion to disqualify Peter A. Mahler, Esq., Becky (Hyun Jeong) Baek, Esq., and the law firm Farrell Fritz, P.C. (“Farrell”), as attorneys of record for Defendants Mitchell Banchik (“Banchik”) and Michael Asch (“Asch”)—in their capacity as Directors/Officers/Managers of all respective entities, as well as in their capacity as controlling owners of all entities either directly in their individual names or through their alter-ego entities—and also for all of the bar entities and real estate entities (collectively the "bar and real estate entities”) owned by defendants Banchik and Asch. 2. Emergency relief to stay this action is necessary prior to the Court issuing a decision on Defendants’ motion to dismiss (currently sub judice) because there are pending decisions and anticipated additional motions to be filed by the defendants through the firm sought to be disqualified. Additionally, defendants continue to deplete corporate assets/funds for the defense of the claims against them, all the while continuing to disregard the fundamental requirement that self-interested transactions be approved by disinterested parties. Disqualification of Defendants’ Counsel is necessary based upon the non-waivable conflict of interest Defendants’ Counsel owe, 2 2 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 with dual fiduciary obligations owed to both the defendant-shareholders and corporations, as well as the plaintiff-corporations. A. FARRELL CANNOT REPRESENT THE BEST INTERESTS OF COMPANIES (THE BAR AND REAL ESTATE ENTTITIES) AND ITS SHAREHOLDERS (BANCHIK AND ASCH) AS DEFENDANTS AGAINST OTHER MEMBERS (PLAINTIFFS SUING ON BEHALF OF THE COMPANIES) IN A DISPUTE REGARDING THE COMPANIES. 3. Defendants’ Counsel has created a non-waivable conflict of interest by representing both the shareholders and the corporations in this action. 4. “When considering a motion to disqualify counsel, a trial court must consider the totality of the circumstances and carefully balance the right of a party to be represented by counsel of his or her choosing against the other party's right to be free from possible prejudice due to the questioned representation.” See 1186 Broadway Tenant LLC v. Friedman, 2019 WL 6217275 *4 (Sup. Ct. N.Y.Cty. 2019); see also Ferolito v Vultaggio, 949 N.Y.S.2d 356, (1st Dept 2012) (citing Abselet v. Satra Realty, 926 N.Y.S.2d 178 (2011). 5. What makes our case warrant Farrell’s disqualification even more is the fact that Farrell, who represents defendants Banchik and Asch (as directors/shareholders, and Banchik and Asch personally and individually) and the bar and real estate entities as defendants, are litigating against Plaintiffs that are suing on behalf of the same entities, and those entities that have already paid legal fees to Farrell for this matter at the sole discretion of defendants Banchik and Asch. 6. It is a clear conflict that Farrell was paid by the bar and real estate entities in this action especially considering that the entities are represented by the plaintiff shareholders as well as and defendant shareholders in this matter. 7. Farrell cannot deny the appearance of the conflict of interest in this case especially since Farrell (who was paid by the entities owned by Banchik and Asch), also represents Banchik 3 3 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 and Asch, in their personal and individual capacity. Farrell cannot represent the best interests of the entities and shareholders if there is a clear conflict where the shareholders are liable, personally and individually. 8. Even if Farrell argues that they can zealously represent all defendants’ best interests, any doubts as to the existence of a conflict of interest must be resolved in favor of disqualification. See 1186 Broadway Tenant LLC, 2019 WL 6217275 *6-7 (Sup. Ct. N.Y.Cty. 2019). Therefore, Farrell, which represents the bar and real estate entities, may not also represent defendants Banchik and Asch as directors/shareholders, personally and individually, against other shareholders (Plaintiffs) in this case in which Banchik and Asch’s personal and individual interests are adverse to their director/shareholder interests, and the interests of all the entities. 9. The rationale for this black-letter rule of disqualification, moreover, is straightforward: in a dispute between shareholders concerning corporate governance—particularly a dispute where shareholders are accused of diverting corporate opportunities and breaching fiduciary duties—counsel for the companies is not allowed to play favorites. 10. The company's counsel may not tip the balance scale of justice in favor of shareholders (alleged to have breached their fiduciary duties to the companies) and against the companies’ best interests. The company’s counsel may not prejudge the merits and must not let an entanglement with the business interests of the shareholders, or the personal interests of the shareholders interfere with counsel’s duties to represent the companies’ best interests. 11. Farrell has committed this exact impropriety. None of the shareholders have ever been contacted once about this action or about related actions. 4 4 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 12. To represent the bar and real estate entities properly, Farrell, as its counsel, must zealously investigate all alleged breaches of fiduciary duty by Banchik and Asch as directors/shareholders. 13. However, Farrell must also investigate all alleged breaches by Banchik and Asch, personally and individually, and must zealously advocate the entities' position based upon an objective and unbiased view of the facts and the law. 14. There is clearly a clash here because if it were found that Banchik and Asch personally violated any reasonable duties against the entities, Farrell must use such information to best represent the entities, but would in turn Farrell to represent Banchik and Asch to the best of their ability. And so, Farrell cannot concurrently represent the entities, Banchik and Asch as directors/shareholders, and Banchik and Asch personally and individually. 15. Basically, Farrell has a conflicting duty of loyalty to represent Banchik and Asch as directors/shareholders, and personally and individually. The latter duty requires Farrell to have a bias: the Firm is duty-bound to look at every factual and legal issue solely with an eye to absolving Banchik and Asch of any liability whatsoever which obstructs Farrell’s representation of the bar and real estate entities that Banchik and Asch are named directors/shareholders of. 16. The firm is duty-bound not to develop any fact or argument that may impose liability on Banchik and Asch’s personal and individual interests. The fix is in before the match has even begun, and the bar and real estate entities are the loser. B. FARRELL CANNOT SIMULTAMEIOUSLY REPRESENT COMPANIES AND TWO OF ITS MEMBERS IN A DERIVATIVE ACTION IN WHICH THESE PARTIES HAVE CONFLICTING INTERESTS AND THE DUTY OF UNDIVIDED LOYALTY CANNOT POSSIBLY BE MET OR SATISFIED. 5 5 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 17. Black-letter law prohibits a law firm from concurrently representing, in a derivative action, both the corporation and the very entities who are alleged to have breached their fiduciary duties to the corporation. 18. A lawyer representing the accused member has a vested interest in absolving the accused member of the alleged wrongdoing, and so that lawyer cannot at the same time represent the corporation, because the lawyer cannot satisfy the duty of undivided loyalty to the corporation. 19. In this case, Farrell’s joint representation of Banchik and Asch, and the bar and real estate entities is prohibited by New York Rules of Professional Conduct 1.13 and 1.7, as well as the decisional law applying those Rules. 20. Here, because there is a Rule 1.7 conflict, Farrell is barred from the concurrent representation notwithstanding Rule 1.13. Simply put, the Rules of Professional Conduct expressly prohibit dual representation of the corporation and a member of the corporation in a derivative action where, as here, "the representation will involve the lawyer in representing differing interests." 21. While Rule 1.7(b) provides certain exceptions to Rule 1.7(a), none of those exceptions apply here. Nor could they, because, for the reasons set forth above, any reasonable lawyer would readily detect the very differing interests of the bar and real estate entities on one hand, and Banchik and Asch on the other. 22. More importantly, the First Department has already decided this very issue in Campbell v. McKeon, 905 N.Y.S.2d 589, 590 (1st Dep't 2010), which is on all fours with the facts presented and is controlling here. There, in response to the question whether a law firm can simultaneously represent the corporation and the persons accused of breaching their fiduciary duties to the corporation, the First Department answered a definite "No." 6 6 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 23. In Campbell, 75 A.D. 3d. 603, one member of a limited liability company (Campbell) sued another member (McKeon) for fiduciary breaches allegedly committed by McKeon against the LLC (the Veritas entities) in which both were members. There, as here, one law firm represented both the LLC and one member of the LLC. The trial court disqualified the firm due to its obvious conflict of interest. The First Department affirmed the disqualification because the trial court "correctly held" that, as counsel to the companies, the law firm "could not also represent McKeon [one LLC member] in an action in which his interests would be adverse to the Veritas [LLCs], including usurpation of an investment opportunity." Id. 75 A.D. 3d. at 480. 24. In so ruling, the First Department noted that "[c]ounsel for an organizational client is required to act as is reasonably necessary in the best interests of the client when an individual associated with the client may have violated legal duties which are likely to result in substantial injury to the organization." Id. 25. The court further held that "[a]ny doubts as to the sufficiency of the showing of an asserted conflict of interest were properly resolved in favor of disqualification." Id. C. FARRELL MUST WITHDRAW ALTOGETHER BECAUSE AN ACTUAL CONFLICT EXISTS AMONG ITS CLIENTS 26. These actual conflicts of interest between Banchik and Asch, as well as all of the bar and real estate entities in this action require Farrell to withdraw from this matter entirely. Furthermore, Farrell cannot remain in this case by simply dropping Banchik and Asch as clients in this action (as it is required to do by Campbell and its progeny). Nor can Farrell remain in this case by dropping its other clients, the bar and real estate entities, to whom it also owes fiduciary duties, in order to pursue the representation of Banchik and Asch in this action. 27. It is settled law that, once an actual conflict of interest arises between two of a law firm's clients who are parties to a litigation, the law firm must withdraw altogether. See Merck 7 7 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 209 (S.D.N.Y. 2009) ("counsel may not avoid a disqualifying conflict by dropping the less desirable client like a 'hot potato'"). Rather, the firm must withdraw entirely from representing anyone in the litigation. See Sidor v. Zuhoski, 690 N.Y.S.2d 637, 638-39 (2d Dep't 1999) ("[A]n attorney who undertakes the joint representation of two parties in a lawsuit [should] not continue as counsel for either one after an actual conflict of interest has arisen because continued representation of either or both parties would result in a violation of the ethical rule requiring an attorney to preserve a client's confidences or the rule requiring an attorney to represent a client zealously[.]"). 28. For the same reasons, Farrell should be entirely disqualified from representing either Banchik or Asch, as well as any of the bar and real estate entities in this action. D. A STAY IS NECESSARY TO PRESERVE THE STATUS QUO 29. There is no prejudice to the Defendants if this proceeding is stayed until the disqualification motion is decided. 30. Defendants’ Counsel cannot adequately represent the best interests of the Corporation and simultaneously the shareholders’ because those interests diverge when the Corporations are seeking damages from its shareholders. 31. Defendants’ Counsel cannot and has not zealously represented the Corporation or its shareholders in this or the Eviction Proceedings and have gained confidential information any reasonable objectionable third-party would consider prejudicial to both the Corporation and its shareholders currently represented by the same law firms, Defendants’ Counsel. 32. Moreover, the disqualification must be imputed to all the attorneys appearing as counsel for Defendants. 8 8 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 33. No prior request for the instant requested relief has been made to this, or any other Court of competent jurisdiction, except Plaintiff made a prior request before this Court to stay this action based upon different grounds. WHEREFORE, pursuant to Article 63 of the CPLR, and Rules 1.7, 1.8, 1.18, 1.9, 1.10, 3.4 and 3.7 of New York Rules of Professional Conduct, and 22 NYCRR § 1200.00, an order and judgment staying this action and prohibiting Defendants’ Counsel from providing any further legal advice to the Defendants, their agents, representatives or any person or entity acting on their behalf, until the Court’s adjudication of Plaintiff’s Motion to Disqualify, together with such other and further relief as this Court deems just and proper. Dated: New York, New York April 23, 2024 ________/s/_______________ Andreas Koutsoudakis 9 9 of 10 FILED: NEW YORK COUNTY CLERK 04/23/2024 10:42 PM INDEX NO. 650380/2024 NYSCEF DOC. NO. 185 RECEIVED NYSCEF: 04/23/2024 CERTIFICATE OF WORD COUNT I hereby certify that the word count of this affirmation complies with the word limits of 22 New York Codes, Rules and Regulations § 202.8-b. According to the word-processing system used to prepare this affirmation, the total word count for all printed text exclusive of the material omitted is 2,153 words. ________/s/____________________________________ Andreas Koutsoudakis, Esq. 10 10 of 10