Court Opinion

ID: 9914501
Source: CourtListenerOpinion
Date Created: 2024-01-02 15:05:15.306354+00
Date Added: 2024-06-11T13:13:18.143016
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-1386-22

STANISLAV ROYZENSHTEYN
and ROMAN GERASHENKO,

          Plaintiffs-Appellants,

v.

PRASHANT PATHAK, CAREY
KURTIN, EKAGRATA, INC.,
ONYX ENTERPRISES CANADA
INC., ONYX ENTERPRISES INT'L
CORP., IN COLOUR CAPITAL,
INC., and J. WILLIAM KURTIN,

          Defendants-Respondents,

and

PRASHANT PATHAK and CAREY
KURTIN,

          Defendants/Third-Party
          Plaintiffs-Respondents,

v.

ONYX ENTERPRISES INT'L CORP.,

          Third-Party Defendant-Respondent.
__________________________________

            Argued October 23, 2023 – Decided January 2, 2024

            Before Judges Gilson, DeAlmeida, and Berdote Byrne.

            On appeal from an interlocutory order of the Superior
            Court of New Jersey, Chancery Division, Monmouth
            County, Docket No. C-000045-18.

            Daniel Ginzburg argued the cause for appellants (The
            Ginzburg Law Firm, PC, attorneys; Daniel Ginzburg,
            on the briefs).

            Christopher R. Carton argued the cause for respondents
            Prashant Pathak, Carey Kurtin, Ekagrata, Inc., Onyx
            Enterprises Canada Inc., In Colour Capital, Inc., and J.
            William Kurtin (Bowman and Brooke, LLP, attorneys;
            Christopher R. Carton and Patrick Ferris Lynott, on the
            briefs).

PER CURIAM

      This matter, which is before us for a second time, involves a discovery

dispute over who controls the attorney-client privilege of communications with

the law firm McCarter & English (McCarter). Plaintiffs Stanislav Royzenshteyn

and Roman Gerashenko appeal from a December 1, 2022 order denying their

motion to reject a report by a special master and compelling them to produce

their communications with McCarter to defendants.

      Plaintiffs contend that McCarter had represented Onyx Enterprises Int'l

Corp. (Onyx) and plaintiffs jointly in a transaction in which plaintiffs sold the

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majority of Onyx's shares. Following an evidentiary hearing, a special master

found that McCarter had represented only Onyx, and that McCarter had not

represented plaintiffs as individuals in the transaction. The trial court adopted

the findings of the special master and, because Onyx had waived the attorney-

client privilege, ordered plaintiffs to produce their communications with

McCarter to all defendants. Because the findings of fact concerning McCarter's

representation are supported by substantial, credible evidence, and because

those findings as applied to the law establish that McCarter had represented only

Onyx, we affirm.

                                        I.

      Plaintiffs founded Onyx in 2008 as a New Jersey subchapter S

corporation. Onyx is engaged in the business of selling automotive after-market

products through e-commerce.1

      From 2008 until 2015, plaintiffs were Onyx's only shareholders and

directors. In 2014, plaintiffs explored selling an ownership interest in Onyx to

raise capital for the business. During that process, plaintiffs had discussions

with defendants Prashant Pathak and Carey Kurtin. In connection with that

1
  Onyx's successor in interest by reverse merger is Parts iD, LLC. Because this
reverse merger occurred after the transaction giving rise to this appeal, we refer
to this party as Onyx.
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potential transaction, Onyx retained McCarter to provide legal advice. David

Sorin was the lead attorney at McCarter providing that advice.

      The parties eventually reached an agreement for the transaction, and

Pathak, through Ekagrata, Inc., an investment company he controlled, and

Kurtin established Onyx Enterprises Canada Inc. (OE Canada) and In Colour

Capital, Inc. OE Canada then invested $5 million in Onyx in exchange for fifty-

two percent of Onyx's outstanding common stock. The parties' agreements were

memorialized in several contracts, including employment agreements with

plaintiffs.

      The transaction closed in July 2015. Following the closing, OE Canada

owned the majority of Onyx's shares (fifty-two percent), Pathak and Kurtin

became members of Onyx's board of directors, and plaintiffs became minority

shareholders of Onyx with new employment contracts.

      In 2018, plaintiffs filed a lawsuit related to the transaction. In their second

amended complaint, plaintiffs named as defendants Pathak, Kurtin, Ekagrata, In

Colour Capital, Onyx, OE Canada, and J. William Kurtin, and alleged various

causes of action, including legal and equitable fraud in the inducement,

securities fraud, breaches of fiduciary duties, and tortious interference with

plaintiffs' prospective economic relationships. Plaintiffs claimed that as part of

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the 2015 transaction, Onyx was supposed to enter a business relationship with

Canadian Tire Corporation (CT Corp.), which plaintiffs believed would greatly

expand Onyx's business and profits.

      In their answers, defendants made a general denial and asserted

counterclaims, alleging that plaintiffs had breached the contract, engaged in

shareholder oppression, breached fiduciary duties, been unjustly enriched, and

engaged in conversion. Defendants maintain that the CT Corp. relationship was

never guaranteed as part of the transaction and that when OE Canada made its

investment, Onyx was in deep financial difficulties.

      The parties then conducted discovery. During that process, plaintiffs

asserted privilege over a wide range of documents and refused to produce those

documents. Following various motions and orders, plaintiffs furnished a revised

privilege log, listing 1,276 communications over which they asserted the

attorney-client privilege. Defendants responded by contending that some of

those documents involved communications with attorneys representing Onyx

and, therefore, Onyx, not plaintiffs, had the right to assert or waive the privilege.

      In July 2019, defendants moved to compel production of the documents

listed in the privilege log. On October 25, 2019, the trial court issued an order

directing plaintiffs to produce all documents identified on their privilege log.

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Plaintiffs moved for reconsideration, but the trial court denied that motion in an

order entered on December 20, 2019. The trial court also denied plaintif fs'

motion for a stay.

      Thereafter, we granted plaintiffs' motion for leave to appeal the orders

"related to the compelled production of documents over which plaintiffs

assert[ed] attorney-client privilege" and entered a stay pending the appeal. On

August 6, 2020, we issued an opinion reversing the trial court's October 25, 2019

order and remanding the matter. Royzenshteyn v. Pathak, No. A-1810-19 (App.

Div. Aug. 6, 2020). We directed the trial court to conduct an in camera review

of the privileged documents and determine which attorneys were representing

which clients.   Regarding the communications with McCarter, we rejected

plaintiffs' claim that they were McCarter's sole client for purposes of the 2015

transaction. Id. at 18. Because we could not conclude whether McCarter

represented just Onyx or jointly represented Onyx and plaintiffs on the record

of the first appeal, we directed the trial court to address that issue on remand.

      On remand, the trial court appointed a special master to conduct a review

of the communications on the privilege log and issue a report and

recommendation. On March 15, 2021, the special master issued his first report.

In that report, the special master found that plaintiffs had properly asserted the

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attorney-client privilege over communications between plaintiffs and their

individual attorneys, members of the firm Reitler, Kailas & Rosenblatt, and

Vincent Miletti. The special master also found that for several matters, plaintiffs

were jointly represented with Onyx.           Accordingly, the special master

recommended that Onyx, but not the other defendants, be allowed to see those

documents. In his first report, the special master also found that the record was

insufficient for him to determine whether McCarter was representing Onyx and

plaintiffs jointly. The special master, therefore, directed that he would conduct

a plenary hearing and issue a second report focused on that issue.

      On August 31, 2021, the trial court entered an order adopting the special

master's first report. No party has appealed from that order.

      On January 10, 2022, the special master conducted a plenary hearing. One

witness testified at that hearing: Sorin. Plaintiffs and defendants also submitted

numerous exhibits. After the one-day plenary hearing, the parties submitted

post-hearing briefs. In their submission, plaintiffs proffered a certification from

Royzenshteyn that disputed Sorin's testimony.

      On January 21, 2022, the special master issued a second report addressing

whom McCarter represented.        The special master refused to consider the

Royzenshteyn certification, pointing out that plaintiffs could have called

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Royzenshteyn at the plenary hearing but elected not to do so. Instead, the special

master considered Sorin's testimony and the exhibits submitted at the plenary

hearing.

      Based on Sorin's testimony and the exhibits, the special master found that

McCarter had represented only Onyx and there was no express or implied

attorney-client relationship between McCarter and plaintiffs. The special master

found that the exhibits either corroborated Sorin's testimony or did not support

plaintiffs' contention that McCarter had represented Onyx and them jointly. In

particular, the special master pointed to McCarter's retainer letter. The special

master found that the retainer letter clearly identified Onyx as the only client

and stated that if any individual were to be represented, there would have to be

a written agreement memorializing that representation.

      The special master also reviewed and discussed the term sheet related to

the transaction, plaintiffs' employment agreements, and the tax ramifications of

the transaction.   The special master found that there was no "personal

representation [of plaintiffs] involved in the tax issues or the indemnity issues"

because those issues were "ancillary to the transaction and not stand[-]alone

personal concerns of [plaintiffs]." Ultimately, the special master concluded that

none of the testimony or exhibits supported a finding of an implied attorney-

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client relationship between McCarter and plaintiffs, and that plaintiffs did not

carry their burden to prove that they had been individually represented by

McCarter. Accordingly, the special master found that McCarter had represented

only Onyx, and Onyx therefore controlled the attorney-client privilege

concerning communications with McCarter.

      Plaintiffs objected to the special master's second report and requested the

trial court reject the findings and recommendations in that report. On December

1, 2022, the court held a hearing on the special master's second report. After

hearing argument from counsel, the court discussed the evidence supporting the

findings by the special master. The court then adopted the special master's

findings and recommendations and memorialized its ruling in an order entered

that same day. The court's order did not specify what documents plaintiffs were

required to produce. Instead, the court's order stated: "Defendants' [m]otion to

[c]ompel, dated July 31, 2019[,] is granted." The court also denied plaintiffs'

request for a stay pending an appeal.

      We granted plaintiffs' request to file an emergent motion and, thereafter,

stayed the trial court's December 1, 2022 order pending this appeal.

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                                        II.

       The central and controlling issue on this appeal is whether McCarter had

represented Onyx and plaintiffs individually in the 2015 transaction. That

question involves factual determinations concerning the scope of McCarter's

representation and application of the facts to the law governing attorney -client

relationships and privileges. We review the fact findings made by the trial court

and the special master to determine whether they are supported by substantial ,

credible evidence in the record. Pami Realty, LLC v. Locations XIX Inc., 468

N.J. Super. 546, 556 (App. Div. 2021); Little v. Kia Motors Am., Inc., 242 N.J.

557, 593 (2020). We review the law de novo. Pami Realty, 468 N.J. Super. at

556.

       A client is "a person or corporation or other association that, directly or

through an authorized representative, consults a lawyer or the lawyer's

representative for the purpose of retaining the lawyer or securing legal services

or advice from [the lawyer] in [the lawyer's] professional capacity." N.J.S.A.

2A:84A-20(3)(a); N.J.R.E. 504. The attorney-client "relationship is governed

both by the Rules of Professional Conduct [(RPC)] and the Supreme Court's

exclusive jurisdiction to regulate the conduct of attorneys." Kamaratos v. Palias,

360 N.J. Super. 76, 84 (App. Div. 2003) (citing N.J. Const. art. VI, § 2, ¶ 3).

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      When a corporation retains an attorney, the attorney normally represents

"the [corporation] as distinct from its directors, officers, employees, members,

shareholders, or other constituents." RPC 1.13(a). There is no exception for

closely held corporations. McCarthy v. John T. Henderson, Inc., 246 N.J. Super.

225, 230 (App. Div. 1991). In our opinion on the first appeal, we declined

defendants' request to adopt a rule where shareholders in closely held

corporations are presumed to hold the privilege individually as distinct from the

corporate entity. We continue to decline to make that rule in this opinion.

      An attorney representing a corporation "may also represent any of [the

corporation's] directors, officers, employees, members, shareholders or other

constituents," but each client must give informed consent to "the dual

representation" if it would involve "a concurrent conflict of interest." RPC

1.13(e); RPC 1.7(b). In addition, "[i]n dealing with a [corporation]'s directors,

officers, employees, members, shareholders or other constituents, a lawyer shall

explain the identity of the client when the lawyer believes that such explanation

is necessary to avoid misunderstanding on their part." RPC 1.13(d).

      An attorney-client relationship "'may be implied "when (1) a person seeks

advice or assistance from an attorney, (2) the advice or assistance sought

pertains to matters within the attorney's professional competence, and (3) the

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attorney expressly or impliedly agrees to give or actually gives the desired

advice or assistance."'" Herbert v. Haytaian, 292 N.J. Super. 426, 436 (App.

Div. 1996) (quoting Bays v. Theran, 639 N.E.2d 720, 723 (Mass. 1994)). "[A]n

attorney-client relationship is created with respect to a particular matter when .

. . the lawyer fails to manifest lack of consent to do so, and the lawyer knows or

reasonably should know that the person reasonably relies on the lawyer to

provide the services." Dixon Ticonderoga Co. v. Est. of O'Connor, 248 F.3d

151, 169 (3d Cir. 2001) (quoting Restatement (Third) of the Law Governing

Lawyers § 26 (Am. L. Inst., Proposed Final Draft No. 1, 1996)).

      "It is well-settled under New Jersey law that communications between

lawyers and clients 'in the course of that relationship and in professional

confidence' are privileged and therefore protected from disclosure." Hedden v.

Kean Univ., 434 N.J. Super. 1, 10 (App. Div. 2013) (quoting N.J.S.A. 2A:84A-

20(1)). The attorney-client privilege "generally applies to communications (1)

in which legal advice is sought, (2) from an attorney acting in his [or her]

capacity as a legal advisor, (3) and the communication is made in confidence,

(4) by the client." Ibid. The client holds the privilege and may waive it.

N.J.S.A. 2A:84A-20; Hedden, 434 N.J. Super. at 15.

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      The trial court reviewed and analyzed the findings made by the special

master and adopted them. In doing so, the trial court found that the documents

and testimony supported the finding that McCarter had represented only Onyx.

The court also found that any belief by plaintiffs that they were individually

represented was unreasonable.

      Having reviewed the record in its entirety, we conclude that there is

substantial, credible evidence supporting the trial court's finding that McCarter

represented only Onyx. There is no evidence that there was an express or

implied attorney-client relationship between McCarter and plaintiffs. Plaintiffs

contend that the special master erred in declining to consider Royzenshteyn's

certification contesting Sorin's testimony. Even assuming the special master

was obligated to consider that certification, it would not have undermined the

substantial, credible evidence in the record supporting the special master's

conclusion.

      Onyx waived the privilege concerning the communications with McCarter

as to the other named defendants. Therefore, defendants are entitled to receive

the McCarter communications that were listed on plaintiffs' privilege log. The

trial court's December 1, 2022 order was not clear in identifying those

documents. In that regard, defendants acknowledged that while the original

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privilege log, as revised, included 1,276 documents, the communications with

McCarter involved only 493 documents. Accordingly, on remand, we direct the

trial court to enter an order expressly identifying by bates numbers the McCarter

documents and directing that those documents be produced to all named

defendants.

      Affirmed and remanded. The stay that we entered is vacated. We do not

retain jurisdiction.

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