Disqualifying Faction Counsel from Representing the Entity in Control Disputes; Injunction Undertakings Must Be Tied to Non‑Speculative Damages

Introduction

In Congregation Erech Shai Bais Yosef, Inc. v. Werzberger, 2025 NY Slip Op 05665 (2d Dept. Oct. 15, 2025), the Appellate Division, Second Department, addresses a multi-faceted intra-organizational dispute within a religious corporation with significant knock-on effects for landlord–tenant proceedings, attorney ethics in control contests, and preliminary injunction practice. The controversy centers on who is authorized to act for Congregation Erech Shai Bais Yosef, Inc. (the Congregation) and thus control its Brooklyn property at 1364 57th Street, which contains three apartments occupied by individual plaintiffs and a basement used as a place of worship.

Two core sets of issues emerged:

Whether, while corporate control is in dispute, counsel for one faction may represent the corporate entity itself; and
What standards govern (a) compelling “use and occupancy” payments, (b) fixing the amount of an injunction undertaking under CPLR 6312(b), and (c) leave to amend the pleadings.

The Second Department affirmed the trial court’s rulings that:

Denied the defendants’ request to compel use and occupancy from the occupying individual plaintiffs;
Disqualified the defendants’ counsel from representing the Congregation due to a non-consentable concurrent conflict (Rule 1.7[b][3]);
Declined, at this juncture, to disqualify the individual plaintiffs’ counsel from also appearing for the Congregation, which the court deemed a passive, necessary party in this litigation posture;
Fixed the preliminary injunction undertaking at $110,785, rationally tied to combined legal fees rather than speculative use-and-occupancy amounts; and
Granted leave to amend to add Mordechai Malek, whose appeal of the undertaking amount was dismissed for lack of aggrievement (CPLR 5511).

Summary of the Opinion

The Second Department’s decision can be distilled into five holdings:

Use and Occupancy: The defendants, whose authority to act for the Congregation is contested, failed to establish entitlement to use and occupancy under Real Property Law § 220, and failed to prove an appropriate measure of such compensation.
Disqualification—Ethics: It was proper to disqualify the defendants’ counsel from representing the Congregation (a named plaintiff) under Rule 1.7(b)(3) of the Rules of Professional Conduct because such dual representation presents a non-consentable concurrent conflict within the same litigation. By contrast, the defendants did not carry their burden to disqualify the individual plaintiffs’ counsel from representing the Congregation at this juncture, given the Congregation’s passive/necessary-party role.
Undertaking: The undertaking on the preliminary injunction was properly set at $110,785, an amount rationally tied to the defendants’ combined legal fees and not to speculative use-and-occupancy damages (CPLR 6312[b]).
Leave to Amend: Leave to amend the pleading—adding Mordechai Malek as a defendant—was properly granted because the proposed amendments were neither palpably insufficient nor patently devoid of merit, and no prejudice or surprise was shown (CPLR 3025[b]).
Appealability: Nonparty Mordechai Malek’s appeal from the undertaking amount was dismissed for lack of aggrievement under CPLR 5511.

Factual and Procedural Background

The dispute traces to an amended certificate of incorporation dated August 8, 2016, reflecting the election of defendant Yoel Werzberger as trustee and president on June 27, 2016. Plaintiffs contend no election occurred, rendering the amendment a nullity. Acting as “President,” Werzberger commenced three Civil Court holdover proceedings to evict individual plaintiffs who reside in apartments within the Congregation’s property.

Plaintiffs sued for declaratory and related relief, including a declaration that the amended certificate is void and Werzberger lacked authority to act on the Congregation’s behalf in the holdovers. They obtained a preliminary injunction staying prosecution of the holdovers; the Second Department affirmed that injunction earlier and remitted to set an undertaking amount (189 AD3d 1165, 1167–68). Subsequently, both the defendants’ counsel and the individual plaintiffs’ counsel purported to represent the Congregation in the Supreme Court action, prompting cross-motions to disqualify.

Analysis

Precedents Cited and Their Influence

CPLR 5511; Mixon v TBV, Inc., 76 AD3d 144. The Court dismissed nonparty Mordechai Malek’s appeal from the portion of the order fixing the undertaking because he was not “aggrieved.” Under CPLR 5511, only a party injured by an order may appeal. Mixon is the Second Department’s leading articulation of this “aggrievement” requirement; it forecloses appeals by nonparties or parties not adversely impacted by the order.
Real Property Law § 220; El Gallo Meat Mkt. v Gallo Mkt., 286 AD2d 255; Edelman v Berman, 195 AD3d 995; Marini v Lombardo, 79 AD3d 932. These authorities govern “use and occupancy” compensation. RPL § 220 permits reasonable compensation for use of real property by agreement not made by deed. El Gallo and Edelman emphasize that entitlement and amount must be proven; Marini addresses appropriate measures (often fair market value or agreed rent). Here, because the defendants’ authority as landlord agent was contested and their valuation evidence was insufficient, use and occupancy was denied.
Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.7(b)(3); Kaikov v Yadgarov, 216 AD3d 926; Delaney v Roman, 175 AD3d 648; Matter of Marvin Q., 45 AD3d 852; Buckham v 322 Equity, LLC, 229 AD3d 669; Matter of Blauman-Spindler v Blauman, 184 AD3d 636. Disqualification is discretionary but requires a clear showing. Buckham places the burden on the movant. Rule 1.7(b)(3) bars representation of one client asserting a claim against another current client in the same litigation—a non-consentable conflict. The Second Department invoked Rule 1.7(b)(3) to uphold disqualification of defendants’ counsel from representing the Congregation (a named plaintiff) while simultaneously representing defendants adverse to it. By contrast, the record did not establish grounds to disqualify the individual plaintiffs’ counsel from also appearing for the Congregation at this stage given its passive/necessary-party posture.
CPLR 6312(b); Tahmin v Interlaken Owners, Inc., 228 AD3d 983; 84–85 Gardens Owners Corp. v 84–12 35th Ave. Apt. Corp., 91 AD3d 702; Olympic Ice Cream Co., Inc. v Sussman, 151 AD3d 872; Boyd v Assanah, 210 AD3d 855; Congregation Erech Shai Bais Yosef, Inc. v Werzberger, 189 AD3d 1165. An injunction undertaking must compensate for “damages by reason of the injunction,” must not be speculative, and must be rationally related to potential damages if the injunction proves unwarranted. The court relied on its earlier decision in this very matter (189 AD3d at 1168) and Olympic Ice Cream to approve fixing the amount at combined legal fees where use-and-occupancy figures were too speculative. Discretion in setting the amount is broad (Boyd), but must be grounded in a rational measure (Tahmin; 84–85 Gardens).
CPLR 3025(b); Alsaidi v Alsaede, 227 AD3d 643; LCVAWCP-Doe v Collins, 218 AD3d 557. Leave to amend should be freely granted absent prejudice/surprise and where the amendment is not palpably insufficient or patently devoid of merit. Applying these familiar standards, the Second Department affirmed granting leave to add Mordechai Malek and related amendments.

Legal Reasoning

1) Use and Occupancy Denied

The court began with the premise that use and occupancy is a quasi-contractual remedy premised on an agreement (not by deed) between landlord and occupant (RPL § 220). Two failures doomed the defendants’ application:

Authority: The defendants’ authority to act for the Congregation was the crux of the suit. Until control is resolved, the defendants could not reliably assert the Congregation’s landlord rights to collect use and occupancy from co-plaintiffs.
Measure: Even if theoretically entitled, the defendants did not supply a reliable measure of the amount due (e.g., fair market rental value backed by appraisals or comparable data). Marini and Edelman require such proof; speculation is insufficient.

2) Attorney Disqualification and the “Passive Entity” in Control Litigation

The Second Department affirmed two complementary rulings:

Disqualification of defendants’ counsel from representing the Congregation: Because the Congregation was a named plaintiff, permitting the defendants’ counsel to represent the entity would create direct adversity between two current clients in the same litigation—precisely the non-consentable conflict proscribed by Rule 1.7(b)(3). Disqualification was thus proper.
Declining (for now) to disqualify the individual plaintiffs’ counsel from representing the Congregation: The trial court characterized the Congregation as a “passive litigant” and a necessary party named to ensure complete relief over a control dispute. On this record, the defendants did not carry their burden to demonstrate that the entity’s posture is adverse to the individual plaintiffs such that dual representation is improper. The appellate court endorsed the trial court’s discretion to allow this arrangement “at this point in the litigation,” implicitly leaving room to revisit if the entity’s interests become active or adverse as the case develops.

This approach mirrors derivative and control-dispute practice more generally: where an entity is joined nominally so the court can render full relief among contesting factions, courts focus on present adversity and non-consentable conflicts. Rule 1.7(b)(3) is categorical where a lawyer would represent two clients directly opposed in the same action; otherwise, the moving party must make a clear showing that actual or likely adversity warrants disqualification.

3) Injunction Undertaking Fixed by Non-Speculative Measure

Under CPLR 6312(b), an undertaking must be set to cover damages incurred “by reason of the injunction” if it later proves unwarranted. The Second Department reiterated three principles:

Rational Relation: The amount must be rationally related to potential damages (84–85 Gardens; Olympic Ice Cream).
No Speculation: Courts may not project damages based on speculative figures.
Discretion: Fixing the amount is committed to the trial court’s sound discretion and will not be disturbed absent improvidence (Boyd).

Because the defendants’ use-and-occupancy calculations were speculative (both entitlement and amount), the court permissibly set the undertaking at $110,785 based on combined legal fees—a non-speculative, record-supported proxy for potential “damages by reason of the injunction,” consistent with this case’s earlier appellate directive (189 AD3d at 1168).

4) Leave to Amend

Applying CPLR 3025(b), the court found the proposed second amended complaint—including the joinder of Mordechai Malek—was not palpably insufficient or patently devoid of merit, and no prejudice or surprise was shown. As is typical, the emphasis was on the liberal policy of allowing amendments so claims can be adjudicated on the merits.

5) Appealability and Aggrievement

The appeal by nonparty Mordechai Malek from the undertaking determination was dismissed for lack of aggrievement (CPLR 5511; Mixon). Aggrievement requires that the order directly affect a party’s rights or interests; nonparties generally lack standing to appeal absent direct injury.

Impact and Practical Significance

Ethics and Representation in Control Disputes

The decision clarifies that in disputes over who controls a corporation (including a religious corporation), counsel for a litigating faction cannot also represent the entity if doing so creates direct adversity within the same litigation—this is a non-consentable conflict under Rule 1.7(b)(3). Courts may, however, permit aligned counsel to represent a nominally passive entity where:

The entity is joined as a necessary party to enable complete relief;
No present adversity exists between the entity and that counsel’s primary client(s); and
The opposing party fails to demonstrate a concrete conflict justifying disqualification.

Counsel in governance battles should assume that any attempt to represent both the entity and an adverse faction is vulnerable to disqualification and plan for the likely need for separate entity counsel if the entity’s interests become active or distinct.

Use and Occupancy vs. Undertakings—Do Not Conflate the Two

The court draws a careful line between:

Use and Occupancy: A merits or interim compensation claim requiring proof of entitlement and a reliable measure; and
Injunction Undertaking: Security tied to damages caused by the injunction, which cannot rest on speculative harm.

Where control of the landlord-entity is disputed, courts will be reluctant to order use and occupancy and equally reluctant to peg undertakings to speculative rent figures. Documented legal fees can be an appropriate, rational measure for undertakings in such circumstances.

Landlord–Tenant Proceedings Stayed by Corporate Control Litigation

The case highlights how Supreme Court equity powers (including preliminary injunctions) can pause Civil Court holdover proceedings when threshold corporate authority is contested. Parties invoking Real Property Law § 220 should be prepared to establish both authority and quantifiable value through competent proof (e.g., appraisals, comparable rents, prior leases) if they hope to obtain interim compensation.

Pleading Practice

The decision reaffirms New York’s liberal amendment policy. Litigants should move promptly to add necessary parties and refine claims; opponents must demonstrate prejudice, surprise, or patent insufficiency to defeat such motions.

Complex Concepts Simplified

Use and Occupancy: An equitable payment akin to rent that a court can impose on someone occupying property to fairly compensate the owner while disputes are pending. It requires proof of who has landlord rights and a reliable calculation of value.
Undertaking (CPLR 6312[b]): Money (or bond) posted by the party who obtained a preliminary injunction to cover the other side’s damages if the injunction later proves improper. It must be tied to realistic, non-speculative damages caused by the injunction.
Disqualification—Rule 1.7(b)(3): A lawyer cannot represent two clients who are directly opposed in the same case. Even client consent cannot cure this “non-consentable” conflict.
Passive Litigant/Necessary Party: Sometimes an entity is named in a suit not because it has an active role but because the court needs it in the case to grant complete relief between disputing factions. In that posture, the entity’s interests may align with one side or be neutral, potentially reducing immediate conflict concerns.
Aggrieved Party (CPLR 5511): Only someone adversely affected by a court order may appeal it. Nonparties or parties not harmed by the specific ruling cannot appeal.

Conclusion

The Second Department’s decision in Congregation Erech Shai Bais Yosef, Inc. v. Werzberger delivers clear guidance on three recurring fronts in New York practice:

Ethics in control disputes: Counsel for an adverse faction may not simultaneously represent the entity-plaintiff where that dual role would create direct adversity within the same litigation (Rule 1.7[b][3]). Courts may allow aligned counsel to represent a passive, necessary-party entity when no present adversity is shown, subject to reevaluation as the case evolves.
Equitable interim relief: Use-and-occupancy awards require proof of authority and quantifiable value; they will be denied where entitlement and measure are not established. Injunction undertakings must rest on non-speculative damages; documented legal fees can serve as a rational basis when lost-rent figures are conjectural.
Pleading and appeal practice: Leave to amend is liberally granted absent prejudice and evident insufficiency; only aggrieved parties may appeal, foreclosing appeals by nonparties lacking direct injury.

For practitioners, the opinion reinforces careful attention to conflicts analysis in governance contests, evidentiary rigor when seeking interim monetary remedies, and pragmatic, record-based approaches to setting undertakings. For courts, it offers a measured template for managing the intersection of corporate control disputes, landlord–tenant proceedings, and ethical representation concerns without entangling the judiciary in speculative damages or untenable conflicts.