Background
Melissa Brandao, HerdDogg, Inc.’s founder, former officer and director, and stockholder, petitioned under Delaware General Corporation Law Section 291 for appointment of a receiver for the agricultural-technology company. She alleges that HerdDogg is insolvent and that a receiver is needed to investigate asserted wrongdoing and protect creditors and stockholders. HerdDogg moved to dismiss the petition, and that motion was fully briefed.
Brandao separately sought to disqualify HerdDogg’s co-counsel, Michael Best & Friedrich LLP. She alleged conflicts under Delaware Lawyers’ Rules of Professional Conduct 1.7 and 3.7, pointing principally to the firm’s approximately $80,000 SAFE investment in HerdDogg and its past representation of people associated with the company. Alternatively, she sought disclosures and an accounting concerning the company’s financing history.
The Court’s Holding
Magistrate in Chancery Timothy J. Fox, Jr. denied the motion for disqualification and related relief. A non-client seeking to disqualify opposing counsel must prove by clear and convincing evidence both an actual conflict and prejudice to the fairness of the proceeding. Brandao, who was never a Michael Best client, did neither.
The firm’s SAFE did not create a shown Rule 1.7 conflict because its financial interest aligned with HerdDogg’s position that it is solvent and should not be placed in receivership. Brandao also failed to establish that any Michael Best lawyer was a necessary witness under Rule 3.7 or that any prospective testimony would prejudice her. The court viewed the motion, in light of the broader litigation conduct, as raising substantial concerns of tactical use and concluded that disqualification would deny HerdDogg its chosen counsel and delay the case. The ruling is not a final disposition; exceptions or appeal are stayed under Court of Chancery Rule 144 until a final report.
Key Takeaways
- A non-client must show an actual conflict and resulting litigation prejudice by clear and convincing evidence to disqualify opposing counsel.
- A law firm’s preexisting equity interest in its corporate client does not alone establish a conflict in later litigation when the firm’s interest aligns with the client’s position.
- Speculation that counsel may become a witness, without a showing of necessity and prejudice, does not support disqualification.
Why It Matters
The decision reinforces Delaware’s reluctance to use attorney-discipline rules as tactical litigation tools. In a corporate receivership dispute, a party challenging opposing counsel must connect a concrete ethical conflict to actual prejudice in the proceeding, rather than rely on alleged technical violations or disagreement with counsel’s advocacy.