Judge: Deirdre Hill, Case: 22TRCV00096, Date: 2022-08-12 Tentative Ruling

Case Number: 22TRCV00096    Hearing Date: August 12, 2022    Dept: M

Hearing Date: August 12, 2022                     

Moving Parties: Defendant Friendly Llama              

Responding Party: Plaintiff TelcoLynx, LLC           

Motion to Disqualify Callagy, P.C., as Counsel for Plaintiff

            The court considered the moving, opposition, and reply papers.

RULING

            The Motion is GRANTED.

BACKGROUND

On February 9, 2022 Plaintiffs TelcoLynx, LLC and the Roosk Group, Inc. filed a Complaint.  The operative pleading is the First Amended Complaint, which asserts causes of action for (1) breach of contract, (2) breach of covenant of good faith and fair dealing, (3) breach of fiduciary duties, (4) fraud, (5) recession of contract, and (6) unjust enrichment against Defendants Jamie McDaniel , Friendly Llama, Inc., Diane Zane, and Zane Consulting, Inc..

Defendant Friendly Llama, Inc. (hereinafter referred to as “Defendant”) moves to disqualify Callagy, P.C., as counsel for Plaintiff TelcoLynx, LLC (hereinafter referred to as (“Plaintiff”).

LEGAL AUTHORITY

CCP § 128(a)(5) authorizes the court 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.  CCP § 128(a)(5).  This authority necessarily includes disqualifying an attorney.  Metro-Goldwyn Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1837–1838.  The issue of disqualification ultimately involves a conflict between the clients’ right to counsel of their choice and the need to maintain ethical standards of professional responsibility.  Id.   

However, the paramount concern must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar and the recognized and important right to counsel of one’s choosing must yield to considerations of ethics that run to the very integrity of our judicial process.  Id.  Whether an attorney should be disqualified is a matter addressed to the sound discretion of the trial court.  Henriksen v. Great Am. Sav. & Loan (1992) 11 Cal.App.4th 109, 113.  In exercising that discretion, the trial court is required to make a reasoned judgment which complies with the legal principles and policies applicable to the issue at hand.  Id.  

“California [] permits a nonclient to move for disqualification of opposing counsel . . . where an attorney's continued representation threatens an opposing litigant with cognizable injury or would undermine the integrity of the judicial process.”  Conservatorship of Lee C. (2017) 18 Cal.App.5th 1072, 1083.

DISCUSSION

            Defendant contends that Callagy, P.C. (“Counsel”), must be disqualified as Plaintiff’s Counsel pursuant to Jarvis v. Jarvis (2019) 33 Cal.App.5th 113 because Defendant, as a general partner of Plaintiff, opposes and did not approve the appointing of Counsel as Plaintiff’s Counsel.

            Jarvis discussed a State Bar Opinion that “provide[d] some guidance regarding an attorney’s ethical consideration when undertaking the representation of a partnership” and addresses “a lawyer’s ethical duties when in the course of representing a partnership the lawyer receives conflicting instructions from two of the partners in circumstances where it is unclear which partner’s instruction the lawyer must follow.”  Jarvis, supra, 33 Cal.App.5th at 136.  In most situations, it is the general partner who gives direction to the attorney.  Id.  “However, in determining who oversees the representation in any given situation, a lawyer must conform to the requirements of the applicable statutes, the partnership agreement and any other pertinent agreements between the partners.” Id.  

In Jarvis, the partnership agreement was silent on the question of who selected or directed the partnership’s counsel.  Id.  “It does not say what happens when the general partners are deadlocked.”  Id.  “There is no evidence the partnership agreement was amended to address the possibility of deadlock after the brothers each acquired a 50 percent ownership interest in the Partnership.”  Id. at 137-138.  “In the absence of direction from the partnership agreement, the Committee’s opinion directs us next to [the] applicable [state’s] partnership law.”  Id., at 138. California’s partnership statutes give each general partner “‘equal rights in the management and conduct of the limited partnership’s activities.’” Id. at 138.  “‘[A]ny matter relating to the activities of the limited partnership may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners.’” Id.  Jarvis interpreted the “term ‘majority’ [] to mean more than 50 percent.” Id.  Since the brothers, by themselves, did not constitute a majority of the partners, “neither the partnership agreement nor the applicable ULPA statutes resolve the issue of whether [counsel]’s representation of the Partnership is authorized or lawful.” Id.  Jarvis was then left to evaluate “the Supreme Court’s discussion of the values and interests at stake in a disqualification motion.”  Id. at 139.  The Jarvis court stated that “paramount concern” in evaluating a motion to disqualify counsel “must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar.”  Id. 139.  The primary fiduciary values at stake in conflict of interest cases are the client’s right to confidentiality and the attorney’s duty of loyalty.  Id.

Jarvis held the trial did not err in granting the motion because the plaintiff “demonstrated a risk that [counsel], who is being paid by [defendant] and directed by [defendant], may advance [defendant’s] interests; that his representation may not be in the best interests of the Partnership, and may unnecessarily deplete the Partnership’s assets.”  Id. at 140.

As a preliminary matter, the court finds that Plaintiff’s contention that Defendant does not have standing to file the instant Motion is without merit.  As held in Jarvis, a general partner with 50 percent ownership in a two person partnership had standing to challenge partnership’s counsel to act on behalf of partnership.  Similarly, here Defendant is a 50% owner in Plaintiff has standing to challenge whether Counsel can act on behalf of Plaintiff.  In addition, the court finds that Plaintiff’s contention that it is not directly represented by Counsel is without merit, as the Complaint and FAC show that Counsel represents Plaintiff.

            Plaintiff is a Wyoming limited liability company and does not have a written operating agreement.  McDaniel Decl., ¶¶ 2, 5.  Turning to the applicable state law, Wyoming law states a limited liability company is a member-managed limited liability company unless the articles of organization or the operating agreement expressly provide otherwise.  Wy. Stat. Ann. § 17-29-407(a).  Without any operating agreement, TelcoLynx is a member-managed limited liability company.  Unless the unless the articles of organization or the operating agreement expressly provide otherwise, each member has equal rights in the management and conduct of the company’s activities.  Wy. Stat. Ann. § 17-29-407(b)(ii).  “A difference arising among members as to a matter in the ordinary course of the activities of the company may be decided by a majority of the members.”  Wy. Stat. Ann. § 17-29-407(b)(iii).  A “Majority of the members” means “a per capita majority of the members.”  Wy. Stat. Ann. § 17-29-102, subd. (a)(xxv).[1]

            Roosk and Defendant each own 50% of Plaintiff, and Counsel represents Plaintiff and Roosk, who is a member of Plaintiff, and has adverse interest to Defendant, who is also a member of Plaintiff.  Defendant opposes the appointing of Counsel Plaintiff’s Counsel, and contends that since neither Roosk nor Defendant have a right to appoint counsel on behalf of Plaintiff since they do not have a majority interest.  Here, the court finds that Counsel is acting without the authorization of Llama.  The court further finds that counsel’s simultaneous representation of Plaintiff and Roosk poses issues of duty of loyalty.  Roosk hired counsel, is paying counsel, and there is a risk that counsel will advance the interest of the Roosk, “which may not necessarily be in the best interests of the Partnership.”  Jarvis, surpa, 33 Cal.App.5th at 136; Murphy Decl., ¶¶ 7, 9.

            The Motion is GRANTED.

            Moving party is ordered to give notice of ruling.