IN RE: COAST MARINE COMPANY LIMITED (2025)

Order, Supreme Court, New York County (Gerald Lebovits, J.), entered on or about June 18, 2025, which, to the extent appealed from, granted the petition to disqualify respondents from representing Integr8 Fuels Inc. and Integr8 Fuels Asia Pte Ltd. (together Integr8) in an arbitration, unanimously reversed, on the law and in the exercise of discretion, with costs, and that part of the petition denied.

In February 2020, respondent Holland & Knight (H & K) entered into an engagement letter with nonparty Stigma Shipbuilding Ltd. to represent it in an arbitration.  H & K's Terms of Engagement, which were attached to its engagement letters with Stigma, clearly state that H & K is representing only Stigma, not its parent, subsidiaries, or affiliates.  Stigma – a special purpose entity – was managed by Blumenthal Asia Pte Ltd. Blumenthal Asia was not an affiliate of Stigma.

In March 2022, petitioner brought an arbitration in New York against Integr8, which retained H & K as counsel.  Petitioner – another special purpose entity – was originally managed by Johann M.K. Blumenthal GmbH & Co. KG (Blumenthal Germany), and then, in April 2023, according to petitioner, management was transferred to Blumenthal Asia. However, during the arbitral hearing a representative of Blumenthal Asia stated that petitioner was managed by Blumenthal Germany.  Two years after commencing the arbitration, petitioner sought to have H & K disqualified, arguing that H & K formed an attorney-client relationship with Blumenthal Asia, and thus petitioner, through its representation of Stigma in the prior unrelated arbitration.

The court incorrectly granted the petition to disqualify H & K. Even if Blumenthal Asia was also H & K's client by virtue of its representation of Stigma in a prior unrelated arbitration (see e.g. Atrotos Shipping Co., S.A. v. The Swedish Club, 2002 WL 1041221, *4, 2002 U.S. Dist LEXIS 9018, *11-12 [S.D.N.Y., May 23, 2002, No. 02 Civ. 416(RPP)]), petitioner, which was managed by Blumenthal Germany at the time the alleged conflict arose, failed to show that the attorney-client relationship between H & K and Blumenthal Asia somehow transferred over to Blumenthal Germany and then to petitioner.

Even if petitioner could somehow be considered H & K's client, it waived any conflict by waiting more than two years to move to disqualify H & K (see St. Barnabas Hosp. v. New York City Health & Hosps. Corp., 7 A.D.3d 83, 90, 775 N.Y.S.2d 9 [1st Dept. 2004];  Lewis v. Unigard Mut. Ins. Co., 83 A.D.2d 919, 920, 442 N.Y.S.2d 522 [1st Dept. 1981]).

Finally, the court failed to consider the prejudice to Integr8 if respondents were disqualified, including the additional costs of retaining new counsel and the resultant delay in the arbitration (see S & S Hotel Ventures Ltd. Partnership v. 777 S.H. Corp., 69 N.Y.2d 437, 443, 515 N.Y.S.2d 735, 508 N.E.2d 647 [1987];  Talvy v. American Red Cross in Greater N.Y., 205 A.D.2d 143, 154, 618 N.Y.S.2d 25 [1st Dept. 1994], affd 87 N.Y.2d 826, 637 N.Y.S.2d 687, 661 N.E.2d 159 [1995];  Strongback Corp. v. N.E.D. Cambridge Ave. Dev. Corp., 32 A.D.3d 793, 794, 823 N.Y.S.2d 357 [1st Dept. 2006]).