Judge Colin Leis, Case 22AHCV00317 2023-01-25 Tentative Ruling

The court considered the moving papers, opposition, and reply papers filed in connection with this motion.

On December 1, 2020, Plaintiff Community Attire, Inc. (“Plaintiff”) filed a complaint against Defendants Urban Fitz, Inc. and David Yadidsion (“Defendants”), asserting causes of action for (1) breach of contract; (2) breach of express warranty; (3) breach of implied warranty of non-infringement; (4) intentional misrepresentation; and (5) indemnity. Plaintiff alleges it paid Defendants for 50,000 3M brand N95 masks in October of 2020, but Defendants delivered masks that were counterfeit. Plaintiff also alleges Defendant Urban Fitz, Inc. is an alter ego of Defendant Yadidsion.

On December 28, 2022, Defendants filed this motion to disqualify Novian & Novian LLP (“Plaintiff’s Counsel” or “Counsel”) from serving as counsel for Plaintiff. Defendants also request $18,207.50 in sanctions for attorney’s fees and costs incurred from bringing this motion. On January 11, 2023, Plaintiff filed an opposition, which included a request for $5,040.00 in sanctions for attorney’s fees and costs incurred from opposing this motion. On January 18, 2023, Defendants filed a reply.

(2) To enforce order in the proceedings before it, or before a person or persons empowered to conduct a judicial investigation under its authority.

(3) To provide for the orderly conduct of proceedings before it, or its officers.

(4) To compel obedience to its judgments, orders, and process, and to the orders of a judge out of court, in an action or proceeding pending therein.

(5) To control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto…” (Code Civ. Proc. § 128(a)(1).)

“To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court, after notice to any affected party, person, or attorney, and after opportunity for hearing, may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process:

(a) The court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorney’s fees, incurred by anyone as a result of that conduct…

(c) The court may impose an evidence sanction by an order prohibiting any party engaging in the misuse of the discovery process from introducing designated matters in evidence.” (Code Civ. Proc. § 2023.030.)

“When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code.” (Code Civ. Proc. § 187.)

Defendants contend Plaintiff’s Counsel improperly demanded records from nonparty Bank of Hope (“the Bank”) despite Counsel knowing that Defendants’ motion to quash Plaintiff’s subpoena of those records was pending. According to Defendants, Plaintiff’s Counsel’s ex parte communications with the Bank violated Code of Civil Procedure 2023.010 and Rules 4.1 and 4.3 of the California Rules of Professional Conduct. Defendants ask the court to disqualify Plaintiff’s Counsel, issue an evidentiary sanction excluding the Bank records, and award $18,207.50 in monetary sanctions.

In opposition, Plaintiff does not dispute most of Defendants’ factual allegations. Instead, Plaintiff argues Counsel’s actions were not improper and that Counsel was justified in contacting the Bank because Defendants’ motion to quash was untimely. Plaintiff distinguishes the case law offered by Defendants and points out that disqualification is a drastic measure. According to Plaintiff, the case law offered by Defendants involved violations of attorney-client privilege or improper communications with parties that were represented by counsel, whereas here Plaintiff’s Counsel merely requested unprivileged documents from a nonparty. Plaintiff requests $5,040.00 in attorney’s fee and costs on grounds that the instant motion is frivolous.

In reply, Defendants argue disqualification is necessary because Plaintiff’s Counsel’s ethical violations will affect the rest of this litigation and Defendants should not have to submit to depositions and additional discovery from Counsel who has violated their right to privacy. Defendants maintain Plaintiff had no basis for sidestepping Defendants’ motion to quash.

“A trial court's authority to disqualify an attorney derives from the power inherent in every court ‘[t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.’” (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145, citing Code Civ. Proc. § 128(a)(5).) “[D]isqualification motions involve a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility.” (Ibid.)

Here, Defendants argue that Plaintiff’s Counsel should be disqualified for violating Rule 4.1 and 4.3 of the California Rules of Professional Conduct and Code of Civil Procedure section 2023.010. Rule 4.1 reads: “In the course of representing a client a lawyer shall not knowingly:

(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Business and Professions Code section 6068, subdivision (e)(1) or rule 1.6.” (Cal. R. Prof. Conduct, rule 4.1, footnotes omitted.)

“(a) In communicating on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person incorrectly believes the lawyer is disinterested in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. If the lawyer knows or reasonably should know that the interests of the unrepresented person are in conflict with the interests of the client, the lawyer shall not give legal advice to that person, except that the lawyer may, but is not required to, advise the person to secure counsel.

(b) In communicating on behalf of a client with a person who is not represented by counsel, a lawyer shall not seek to obtain privileged or other confidential information the lawyer knows or reasonably should know the person may not reveal without violating a duty to another or which the lawyer is not otherwise entitled to receive.” (Cal. R. Prof. Conduct, rule 4.3, footnotes omitted.)

“(a) Persisting, over objection and without substantial justification, in an attempt to obtain information or materials that are outside the scope of permissible discovery.

(b) Using a discovery method in a manner that does not comply with its specified procedures.

(c) Employing a discovery method in a manner or to an extent that causes unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.

(e) Making, without substantial justification, an unmeritorious objection to discovery.

(h) Making or opposing, unsuccessfully and without substantial justification, a motion to compel or to limit discovery.

(i) Failing to confer in person, by telephone, or by letter with an opposing party or attorney in a reasonable and good faith attempt to resolve informally any dispute concerning discovery, if the section governing a particular discovery motion requires the filing of a declaration stating facts showing that an attempt at informal resolution has been made.” (Code Civ. Proc. § 2023.010.)

Despite Defendants’ contentions, the facts do not show that Plaintiff’s Counsel violated Rule 4.1 or 4.3. As for Rule 4.1, Counsel did not make false statements or fail to disclose material facts when he contacted the Bank. Counsel offers a copy of the email he sent to the Bank on November 29, 2022, in which he states:

As you may be aware Plaintiff Community Attire served a subpoena on Bank of Hope in the Los Angeles Superior Court case No. 20STCV45914 seeking documents related to Urban Fitz, Inc. on October 31, 2022, with responsive documents due on November 30, 2022. At 5:35 p.m. on November 28, under 48 hours before the production deadline, we received a Motion to Quash filed by Defendant Urban Fitz. Pursuant to California Code of Civil Procedure 1987.1, any Motion to Quash must be “reasonably made.” Defendants’ Motion to Quash is therefore untimely. Moreover, Defendant has noticed the Motion for September 21, 2023, when the parties have a trial date in June. Moreover, Defendant currently has a pending Motion for Summary Judgment in February, and these documents are critical to Plaintiff’s case and ability to oppose the Motion for Summary Judgment. Please confirm Bank of Hope will be producing documents on November 30, by 10:00 a.m., as Defendant’s Motion is plainly untimely. (Gerst Decl., Ex. 5.)

In his email, Counsel provides the Bank with the important details—that Plaintiff had subpoenaed Defendants’ records with the Bank and Defendants had subsequently filed a motion to quash. Counsel does not appear to make any false statements or omit any material facts. Defendants argue Counsel falsely represented that their motion to quash was untimely, but the context of the email makes it clear that this was simply Counsel presenting an argument. Counsel did not misrepresent that the court had denied the motion to quash—Counsel merely stated the law and concluded that Defendants’ motion was “therefore” untimely. A reasonable person would read this as Counsel’s opinion—not a false statement of material fact as Rule 4.1 forbids.

As for Rule 4.3, Counsel did not state or imply that he was a disinterested party in his email to the Bank, so subdivision (a) does not apply. Subdivision (b) also does not apply for two reasons: First, the Bank is not a person and presumably has their own in-house counsel—thus Plaintiff’s Counsel was not “communicating on behalf of a client with a person who is not represented by counsel” (See Cal. R. Prof. Conduct, rule 4.3); and second, Defendants have not conclusively shown that Counsel sought “privileged or other confidential information” from the Bank. (See Ibid.) This is the subject of Defendants’ motion to quash, and the court has yet to make such a determination.[1]

As for Section 2023.010, the facts do show that Counsel misused the discovery process—either by their letter or in spirit. Indeed, the court has yet to rule on Defendants’ motion to quash Plaintiff’s subpoena of bank records. Plaintiff’s Counsel nonetheless contacted the Bank ex parte to obtain the records. Counsel arguably used “a discovery method in a manner that does not comply with its specified procedures.” (See Code Civ. Proc. § 2023.010(b).) More broadly, Section 2023.010 states that discovery abuses are not limited to the specific examples provided by the statute—meaning it is possible to violate the spirit of the discovery process. The court finds that even if Counsel did not use “a discovery method in a manner that does not comply with its specified procedures” then Counsel violated the overall spirit of the discovery process by seeking records from the Bank while Defendants’ motion to quash the subpoena of those records was pending.

That said, Counsel’s conduct does not rise to the level of disqualification. Section 2023.030 provides the sanctions the court may impose for the kind of discovery abuses listed in Section 2023.010. Section 2023.030 authorizes the court to impose monetary, issue, evidentiary, terminating, and contempt of court sanctions. (See Code Civ. Proc. § 2023.030(a)-(e).) Section 2023.030, however, does not authorize the court to disqualify counsel.

Case law holds that the disqualification of counsel requires a more severe ethical violation on the part of the attorney. For example, in SpeeDee Oil Change Systems counsel was disqualified because it previously represented an opposing party and therefore had a conflict of interest. (SpeeDee Oil Change Systems, Inc., supra, 20 Cal.4th 1135.) In Mills Land & Water Co.—cited by Defendants in support of their position—counsel was disqualified for contacting the former president of an opposing party to the litigation. (Mills Land & Water Co. v. Golden West Refining Co. (1986) 186 4 Cal.App.3d 116.) Here, Plaintiff’s Counsel contacted a nonparty, seeking records that Defendants have not demonstrated are privileged or confidential. Plaintiff Counsel’s actions are a misuse of the discovery process, but they do not rise to the level of disqualification.

Case law also requires courts to balance the need to maintain ethical standards with the right of a client to have its choice of counsel. (SpeeDee Oil Change Systems, Inc., 20 Cal.4th at 1145.) Here, Plaintiff chose Novian & Novian LLP as its counsel. Disqualifying Novian & Novian LLP as counsel would unfairly punish Plaintiff for actions it did not take.

Accordingly, Defendants’ motion to disqualify Plaintiff’s Counsel is denied.

“Using a discovery method in a manner that does not comply with its specified procedures” is a “misuse of the discovery process.” (Code Civ. Proc. § 2023.010(b).) “The court may impose an evidence sanction by an order prohibiting any party engaging in the misuse of the discovery process from introducing designated matters in evidence.” (Code Civ. Proc. § 2023.030(c).) “Discovery sanctions are intended to remedy discovery abuse, not to punish the offending party. Accordingly, sanctions should be tailored to serve that remedial purpose…and should be proportionate to the offending party's misconduct.” (City of Los Angeles v. PricewaterhouseCoopers, LLC (2022) 84 Cal.App.5th 466, 499–500.) Sanctions should also be tailored to deter future discovery abuse. (Id. at 499.)

Defendants ask the court to order the bank records returned and excluded from evidence. The court finds this to be the appropriate remedy. As explained above, Plaintiff’s Counsel abused the letter and spirit of the discovery process by contacting the Bank ex parte to obtain records that were the subject of a pending motion to quash. Plaintiff should not benefit by being able to use these documents. Plaintiff argues Counsel was justified in demanding the records because Defendants’ motion to quash was untimely. This misses the point. The court decides the procedural sufficiency of a motion—not the parties. Plaintiff’s Counsel was not entitled to take matters into his own hands, and thus sanctions are warranted to both remedy the abuse and deter future abuse. Because Plaintiff improperly obtained the bank records, the adequate remedy is to order Plaintiff to return the records and disallow Plaintiff from introducing them into evidence. Disallowing Plaintiff to introduce the records will also deter the parties from engaging in similar discovery abuses in the future.

Accordingly, Plaintiff is ordered to return the records obtained from the Bank and is precluded from introducing the records into evidence.

“Trial courts have inherent authority to impose nonmonetary sanctions that are necessary to remedy misconduct and ensure a fair trial [citation], but trial courts may award attorney fees as a sanction for misconduct only when authorized by statute or an agreement of the parties.” (PricewaterhouseCoopers, 84 Cal.App.5th at 510.) Sections 2023.010 and 2023.030 do not independently authorize the court to impose monetary sanctions for discovery misconduct. (Id. at 502.) They must be authorized by another provision of the Discovery Act. (Id. at 503.)

The court finds that Plaintiff’s Counsel engaged in discovery misconduct, and thus monetary sanctions may be warranted. However, Defendants base their request for monetary sanctions on Sections 2023.010 and 2023.030 and recent case law forbids the court from imposing monetary sanctions on this basis alone. Defendants must offer an independent statutory basis for the court to award reasonable attorney’s fees.

Moreover, counsel for Defendants fails to provide his hourly rate or exact number of hours billed in his declaration. (Vivoli Decl., ¶ 13.) Counsel for Defendants only provides an approximate of the number of hours billed as justification for the attorney’s fees requested. When determining the appropriate attorney’s fees to award, courts use the lodestar method and “[u]nder the lodestar method, the trial court ‘tabulates the attorney fee touchstone, or lodestar, by multiplying the number of hours reasonably expended by the reasonable hourly rate...’” [Citation.] (Frym v. 601 Main Street LLC (2022) 82 Cal.App.5th 613, 621.) Without an hourly rate and breakdown of hours billed the court is unable to determine the appropriate amount of attorney’s fees to award.

The court will therefore set an OSC re: Monetary Sanctions. Defendants must provide an independent statutory basis for monetary sanctions, and counsel for Defendants must file a supplemental declaration stating his hourly rate and exact number of hours billed.

Based on the foregoing, Defendants Urban Fitz, Inc. and David Yadidsion’s motion to disqualify Novian & Novian as counsel for Plaintiff Community Attire, Inc. is denied.

Plaintiff Community Attire, Inc. is ordered to return records obtained from Bank of Hope and is excluded from introducing records obtained from Bank of Hope into evidence.

[1] Defendants argue the records are protected by their right to privacy. ''While corporations do have a right to privacy, it is not a constitutional right. The corporate right to privacy is a lesser right than that held by human beings and is not considered a fundamental right.” (SCC Acquisitions, Inc. v. Superior Court (2015) 243 Cal.App.4th 741, 756.) The relevance of the discovery is balanced against the corporate right to privacy, and “[d]oubts about relevance generally are resolved in favor of permitting discovery.” (Ibid.) For the purposes of this motion, Defendants have failed to establish their limited right to privacy outweighs the obvious relevance of their corporate bank records.

COMMUNITY ATTIRE, INC. , Plaintiff, vs. URBAN FITZ, INC. , et al., Defendants.	Case No.:	22AHCV00317

	Hearing Date:	January 25, 2023

	Time:	8:30 a.m.

	[Tentative] Order RE: motion TO DISQUALIFY COUNSEL