A September 27, 2023 decision by a Manhattan trial court, Aicon Art LLC v. Aicon Contemporary LLC, No. 650580/2023, 2023 N.Y. Slip. Op. 33340(U) (N.Y. Sup. Ct. Sept. 27, 2023), involving a dispute between two businesses located in the same art gallery, serves as a reminder to New York art market participants to take care to avoid attorney conflicts of interest.  A lawyer who has formerly represented a client in a matter may not represent another person in the same or substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.[1]

Plaintiff Aicon Art LLC (“Aicon Art”) and defendant Aicon Contemporary LLC (“Aicon Contemporary”) are managed by two brothers, both operating out of leased space in the same art gallery.  On January 30, 2023, Aicon Art filed an action for breach of contract and unjust enrichment against Aicon Contemporary related to three agreements:  (1) an agreement to share the proceeds from the sale of an artwork by Salman Toor (the “Toor Agreement”), (2) an agreement to share business expenses, including utilities and common charges, for the gallery space they share (the “Business Agreement”), and (3) an agreement to share legal fees and other expenses related to their joint defense, and settlement of, a legal claim (the “Litigation Agreement”).[2]  On March 6, 2023, the law firm Stropheus LLC (the “Law Firm”) filed an answer on behalf of Aicon Contemporary.[3]

On July 21, 2023, Aicon Art moved to disqualify the Law Firm from representing Aicon Contemporary in the litigation, alleging that Aicon Art and Aicon Contemporary had jointly retained the Law Firm to assist in preparing the Toor Agreement and related logistics.[4]  In support, Aicon Art claimed it paid half of the Law Firm’s retainer and pointed to an email from an attorney at the Law Firm warning Aicon Contemporary that the Law Firm would share information with Aicon Art.[5]  Aicon Art also claimed it warned several times before filing suit that it did not waive the Law Firm’s conflict of interest.[6]  In its response, the Law Firm denied that it ever had an attorney-client relationship with Aicon Art, and further argued that, even if a conflict existed, there was no harm because (1) Aicon Art and Aicon Contemporary freely shared confidences, (2) there was no expectation of confidentiality between the two parties, and (3) any information the Law Firm may have received would not impact the claim.[7]

Supreme Court Justice Arlene Bluth sided with Aicon Art and disqualified the Law Firm from the matter.  The court recognized that ordering disqualification was a difficult decision, given parties’ federal and state constitutional rights to choose their own counsel.[8]  However, the court balanced these rights against the long-standing prohibition on an attorney acting adversely to a current client or a former client in the same or a substantially related matter, part of an attorney’s obligations to preserve client confidentiality.[9]  Here, the court found that the Law Firm had represented Aicon Art, pointing especially to Aicon Art’s payment of half of the Law Firm’s retainer and the email from an attorney at the Law Firm warning Aicon Contemporary that the Law Firm would share information with Aicon Art.[10]  While the Law Firm attempted to explain away both the payment and the email by suggesting it had merely agreed to keep Aicon Art “in the loop,” the court rejected that explanation, particularly because of Aicon Art’s retainer payment.[11]

The decision provides a lesson for art market participants.  The court warned that the “fast and loose treatment” of the various corporate entities involved in records related to the disputed agreements – the gallery itself, Aicon Art, Aicon Contemporary, and the brothers individually – made it more difficult to accept that the Law Firm only represented one of those entities.[12]  To avoid ethical conflicts and drawn-out legal proceedings in similar situations – particularly those involving families and closely-held companies – parties and their lawyers should be careful to delineate whose interests the lawyers represent.  At the end of the day, a client should be getting advice from a lawyer whose loyalty it can rely on.  If the client finds it practical to share a lawyer with another, aligned party, then the parties and the lawyer must be clear (and should specify in writing) what happens if things change and they are no longer aligned.

[1] New York Rules of Professional Conduct, Rule 1.9(a).

[2] Verified Compl. ¶ 4, Aicon Art v. Aicon Contemporary, LLC, No. 650680/2023 (N.Y. Sup. Ct. Jan. 30, 2023) (NYSCEF No. 1).

[3] Verified Answer, Aicon Art v. Aicon Contemporary, LLC, No. 650680/2023 (N.Y. Sup. Ct. Mar. 6, 2023) (NYSCEF No. 5).

[4] Plaintiff’s Memorandum of Law in Support of Motion to Disqualify Defendant’s Counsel at 2-5, Aicon Art v. Aicon Contemporary, LLC, No. 650680/2023 (N.Y. Sup. Ct. July 21, 2023) (NYSCEF No. 16).

[5] Id. at 3-4.

[6] Id. at 6.

[7] Defendant’s Memorandum of Law in Opposition to Motion for Disqualification at 1-2, Aicon Art v. Aicon Contemporary, LLC, No. 650680/2023 (N.Y. Sup. Ct. Aug. 31, 2023) (NYSCEF No. 19).

[8] Aicon Art v. Aicon Contemporary, LLC, No. 650680/2023, 2023 N.Y. Slip. Op. 33340(U), at *3 (N.Y. Sup. Ct. Sept. 27, 2023).

[9] Id. at *4.

[10] Id. at *4-5.

[11] Id. at *5.

[12] Id. at *6.