Judge: Daniel S. Murphy, Case: 20STCV09649, Date: 2024-04-05 Tentative Ruling

Case Number: 20STCV09649    Hearing Date: April 5, 2024    Dept: 32

BACKGROUND

            On March 9, 2020, Plaintiff Marcus Laun filed the present action against James Pakulis, Arnie Johansson, and TransCanna Holdings, Inc. The complaint asserts causes of action for breach of contract, breach of fiduciary duty, fraud, constructive trust, declaratory relief, interference with contract, and unfair competition.

            The complaint alleges that Plaintiff and Defendant Pakulis formed a partnership called MarJa for the distribution of marijuana products. Plaintiff and Pakulis purchased Geopulse Exploration, Inc. through which to operate their cannabis production and distribution business. Thereafter, Pakulis allegedly betrayed Plaintiff by stealing Plaintiff’s proprietary information for use in a competing venture. Pakulis allegedly formed TransCanna Holdings with Defendant Johansson. 

            On March 23, 2021, TransCanna filed a cross-complaint against Plaintiff, Geopulse, and MarJa for declaratory relief. On March 29, 2021, Pakulis filed a cross-complaint against Plaintiff, Geopulse, and Growth Circle, Inc., asserting fraud, unjust enrichment, and declaratory relief.    

In a statement of decision following a bench trial, the Court made the following findings. Plaintiff and Pakulis formed a partnership. Pakulis breached the partnership agreement and his fiduciary duties to Plaintiff, and committed constructive fraud. Plaintiff and Pakulis were entitled to share equally in TransCanna, but Plaintiff was not entitled to any equitable remedy against TransCanna. The Court awarded Plaintiff $1.23 million against Pakulis. Pakulis failed to establish fraud but was entitled to restitution from Geopulse and Growth in the amount of $25,000. Judgment was entered accordingly on September 25, 2023. Pakulis has since appealed the judgment.

            On March 7, 2024, Pakulis filed the instant motion to disqualify Harrison Kordestani, Craig Chisvin, Kordestani Legal Partners, and CLC Law Group from representing Plaintiff and MarJa. Plaintiff filed his opposition on March 20, 2024. Pakulis filed his reply on the same day.   

LEGAL STANDARD

“A trial court's authority to disqualify an attorney derives from its inherent power 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.’” (Clark v. Superior Court (2011) 196 Cal.App.4th 37, 47, quoting Code Civ. Proc., § 128(a)(5).) “The power is frequently exercised on a showing that disqualification is required under professional standards governing … potential adverse use of confidential information.” (Ibid.) “When ruling on a disqualification motion, the paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of one's choice must yield to ethical considerations that affect the fundamental principles of our judicial process.” (Id. at pp. 47-48.)

DISCUSSION

I. Waiver of the Motion

            “[A] disqualification motion can be waived if not timely filed.” (City and County of San Francisco v. Cobra Solutions, Inc. (2014) 232 Cal.App.4th 468, 473.) “The delay has to be extreme or unreasonable before it operates as a waiver. It has been held that when the party opposing the motion has made a prima facie showing of unreasonable delay causing prejudice, disqualification should not be ordered, and the burden shifts to the moving party to justify the delay. It has also been held that the prejudice to the opponent must be extreme.” (Id. at pp. 473-74.)

            Here, Pakulis waited until nine months after judgment was entered to file this motion. This is an unreasonable delay that results in extreme prejudice to Plaintiff because the parties have already litigated the matter to conclusion. Therefore, the burden shifts to Pakulis to justify the delay.

On September 17, 2021, Plaintiff and MarJa filed their answer to TransCanna’s cross-complaint. Harrison Kordestani of Kordestani Legal Partners filed the answer on behalf of Plaintiff and MarJa. Pakulis points out that the proof of service attached to that answer does not list service on Pakulis. Pakulis therefore argues that there is no indication he was aware of the dual representation of Plaintiff and MarJa. However, Pakulis does not contend that he was actually unaware of the dual representation or that the September 17, 2021 answer was the only indication of the dual representation. Pakulis also does not state when he did find out about the dual representation. It is not credible that Pakulis litigated the case to conclusion without realizing that Plaintiff and MarJa were represented by the same counsel. The Court finds that Pakulis has failed to satisfy his burden of justifying the delay. Therefore, Pakulis has waived his right to move for disqualification.

II. Conflict of Interest

            “A lawyer shall not, without informed written consent from each client and compliance with paragraph (d), represent a client if the representation is directly adverse to another client in the same or a separate matter.” (Cal. Rules of Prof. Conduct, Rule 1.7(a).)

            Relying on this rule, Pakulis seeks to disqualify the abovenamed counsel from representing Plaintiff and MarJa. The rule only precludes representation of clients with adverse interests. Therefore, Pakulis must demonstrate a conflict between Plaintiff and MarJa that warrants disqualification. Pakulis’ argument on the existence of a conflict is as follows: “This court adjudicated Marcus Laun and James Pakulis to be the two partners of Marja. Marcus Laun claims to have suffered damages due to James Pakulis’ breach of duty as a partner of Marja. Marja and Marcus Laun are both a named party to this proceeding. Even assuming, without agreeing, that two parties in the same court action is not necessarily a conflict of interest, both Marja and Marcus Laun may have an opportunity to claim damages as a result of James Pakulis’s acts or omissions.” (Mtn. 5:14-19.)

            This does not demonstrate a conflict between Plaintiff and MarJa. Pakulis’ speculation that both MarJa and Plaintiff may claim damages against him is insufficient to create a conflict. The case has already concluded, and MarJa has in fact not claimed any damages against Pakulis. Even if Plaintiff and MarJa both claimed damages against Pakulis, that would mean that Plaintiff and MarJa are aligned, not adverse. The fact that both are named parties is also not dispositive. Plaintiff and MarJa are both cross-defendants in TransCanna’s cross-complaint, meaning they are on the same side. Pakulis does not explain how his status as a partner in MarJa creates a conflict between Plaintiff and MarJa. Therefore, even assuming Pakulis has not waived his right to seek disqualification, his motion fails on the merits.

III.  Lack of Jurisdiction.

While this is not raised by the parties, the court notes that the trial in this matter has concluded, and this matter is currently pending on appeal.  The Court is also uncertain of its jurisdiction over the matter given that an appeal is pending.   

CONCLUSION

            Defendant James Pakulis’ motion to disqualify is DENIED.