Judge: Gail Killefer, Case: 22STCV32363, Date: 2023-04-13 Tentative Ruling
Case Number: 22STCV32363 Hearing Date: April 13, 2023 Dept: 37
HEARING DATE: April 13, 2023
CASE NUMBER: 22STCV32363
CASE NAME: Boyle Flats Food & Beverage, Inc., et
al. v. Alex Koons
MOVING PARTY: Defendant/Cross-Complainant, Alex Koons
OPPOSING PARTY: Plaintiffs/Cross-Defendants, Boyle Flats Food &
Beverage, Inc. and Tad Yenawine
TRIAL DATE: None.
PROOF OF SERVICE: OK
MOTION: Motion
to Disqualify Counsel
OPPOSITION: March
31, 2023—Untimely Filed. Opposition was due March 30, 2023. (CCP, § 1005)
REPLY: April
6, 2023
TENTATIVE:
Koons’ motion is granted. Koons
is to give notice.
Background
This is an action arising out of the formation of a
California entity, Boyle Flats Food and Beverage, Inc. dba Purgatory Pizza (“Plaintiff
BFFB” or “Cross-Defendant BFFB”) by Tad Yenawine (“Plaintiff” or
“Cross-Defendant”) and Alex Koons (“Defendant” or “Cross-Complainant”).
Plaintiffs and Defendant operated a restaurant business called “Purgatory
Pizza.” The Complaint alleges Defendant took monies from Plaintiff BFFB’s bank
accounts for expenses to open his own pizza restaurant in 2020. The Complaint
alleges Defendant applied and received an Emergency Incident Disaster Loan
(“EIDL”) in BFFB’s name which were transferred to Defendant’s own account and
no payments were made by Defendant for the EIDL afterwards. The Complaint also
alleges Defendant abandoned his duties as manager of Purgatory Pizza and
continued to pay himself his salary.
Plaintiffs’ Complaint alleges four causes of action:
(1) breach of contract; (2) conversion; (3) fraud; and (4) breach of fiduciary
duty.
On June 23, 2021, Petitioner filed a Request for
Dismissal without prejudice as to his claim for writ of mandate.
On November 29, 2022, Defendant filed the operative
Cross-Complaint against Plaintiffs. The Cross-Complaint alleges four causes of
action: (1) dissolution of corporation; (2) derivative claim for breach of
fiduciary duty; (3) individual claim for breach of fiduciary duty against
Cross-Defendant Yenawine; and (4) reimbursement of business expenses.
On February 9, 2023, the court sustained Cross-Defendants’
demurrer to the Cross-Complaint in its entirety.
Koons now moves to disqualify counsel for Plaintiffs/Cross-Defendants,
the Law Office of Thomas Montague Hall (“Hall”), from representing Cross-Defendants
in this matter against Koons. Plaintiffs/Cross-Defendants oppose the motion.
Plaintiffs/Cross-Defendants’ opposition was initially
untimely, as a timely opposition was due March 30, 2023. (CCP §§ 1005(b),
1013(c).) The court has the discretion to not consider this opposition in
making its ruling. (Cal. Rules of Court, Rule 3.1300(d).) However, in
light of the circumstances and equities between the parties, the court
exercises its discretion in considering the opposition.
Request for Judicial Notice
Koons requests judicial notice of the following in
support of his motion:
Koons’s request is granted. The existence and legal
significance of these documents are proper matters for judicial notice.
(Evidence Code § 452, subds (d), (h).)
Evidentiary Objections
Koons’s Objections to Plaintiffs’
Materials & Evidence
Objections to Declaration of Hall
Sustained: Objections 1-8.
Objections to Declaration of Yenawine
Overruled:
Objections 1-2.
Sustained:
Objections 3-8.
Discussion
I.
Legal
Authority
“The trial court is vested with the power ‘[t]o
control in furtherance of justice, the conduct of its ministerial
officers.’ That power includes the disqualifying of an
attorney.” (Henricksen v. Great Am. Sav. & Loan (1992) 11
Cal.App.4th 109, 113 (Henricksen).) “Whether an attorney should be
disqualified is a matter addressed to the sound discretion of the trial
court. [Citations.]
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. [Citation.]” (Ibid.)
“[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. [Citation.] 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. [Citations.]” (Kennedy v.
Eldridge (2011) 201 Cal.App.4th 1197, 1204 (Kennedy), internal
quotation marks omitted.)
The “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.” (Jarvis v. Jarvis (2019) 33
Cal.App.5th 113, 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.)
II.
Analysis
Standing to challenge a conflict on the part of opposing
counsel must arise from a breach of duty owed to the complaining party. (DCH
Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 (DCH); Strasbourger Pearson Tulcin Wolff
Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, 1404, 1409,
1410-1411, fn. 6.) Only a party who has (or has had) a fiduciary relationship
with a lawyer has standing to disqualify a lawyer. Thus, the opposing party has
no standing to disqualify counsel who represents parties with conflicting
interests. (Dino v. Pelayo
(2006) 145 Cal.App.4th 347, 357-358; DCH Health
Services, supra, 95 Cal.App.4th at pp. 832-833.)
“A ‘standing’ requirement is implicit in disqualification
motions. Generally, before the disqualification of an attorney is proper, the complaining
party must have or must have had an attorney-client relationship with that
attorney. (Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999)
69 Cal.App.4th 1399, 1404.) The court in DCH Health Services Corp.
v. Waite, supra, 95 Cal.App.4th 829, held that absent an attorney-client
relationship, the moving party must have an expectation of confidentiality. For
purposes of a disqualification motion, ‘[s]tanding arises from a breach of the duty of confidentiality
owed to the complaining party, regardless of whether a lawyer-client
relationship existed.’ (Id. at p. 832.) Thus, some sort of confidential
or fiduciary relationship must exist or have existed before a party may
disqualify an attorney predicated on the actual or potential disclosure of
confidential information. (Dino v. Pelayo, supra,
145 Cal.App.4th at pp. 352–353 [in the absence of attorney-client or other
confidential relationship, a party may not disqualify the attorney jointly
representing the opposing parties based solely on their agreement to
participate in confidential mediation]; see also County of Los Angeles
v. Superior Court (1990) 222 Cal.App.3d 647, 658 [attorney may be
disqualified from representing a party where the attorney received work product
of moving party from an expert previously designated as moving party’s
expert].)” (Great Lakes Const., Inc. v. Burman (2010) 186
Cal.App.4th 1347, 1356.)
Pursuant to DCH,
an attorney-client relationship is not a prerequisite for every motion to
disqualify counsel. Absent an attorney-client relationship, a moving party may
still have standing to move to disqualify counsel if the moving party can
demonstrate that counsel, who is the subject of their motion, owed them a duty
of confidentiality.
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.)
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.)
Koons contends that Hall must be disqualified as counsel for
Plaintiffs/Cross-Defendants pursuant to Jarvis v. Jarvis (2019) 33
Cal.App.5th 113 because Koons, as a general partner of BFFB, opposes and did
not approve the appointing of Counsel as BFFB’s Counsel. (Motion, 6-7.)
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. at 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 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 Koons is a 50% owner in
Plaintiff BFFB, and has standing to challenge whether Counsel can act on behalf
of Plaintiff BFFB.
Yenawine and Koons each own 50% of Plaintiff BFFB, and
Counsel Hall represents Plaintiff BFFB and Yenawine, who is a member of
Plaintiff, and has interests adverse to Defendant Koons, who is also a member
of Plaintiff BFFB. Defendant Koons opposes the appointing of Counsel Hall
as Plaintiff BFFB’s Counsel, and contends that neither Yenawine nor Koons have
a right to appoint counsel on behalf of Plaintiff BFFB since they do not have a
majority interest.
In opposition, Cross-Defendants contend the alleged taking
of funds by Koons establishes a “serious, present and non-hypothetical
conflict” for BFFB in recovering the allegedly stolen funds from Koons, and
further contend there is no conflict of interest in Hall representing both
Yenawine and BFFB, since Yenawine “has a fiduciary duty to act to protect
BFFB’s interests,” and “is also one of the directors of BFFB, also with a
fiduciary duty to act in response to a rogue director or officer of the
corporation putting the corporation at financial or other risk.” (Opp., 3-5;
citing Jarvis v. Jarvis (2019) 33 Cal.App.5th 113; Gong v. RFG Oil,
Inc. (2008) 166 Cal.App.4th 209.) Cross-Defendants further contend that
under Corporation Code § 307, Yenawine had the authority to constitute a quorum
in hiring Hall “as the sole remaining director authorized to act to protect
BFFB’s interests” after Koons’ alleged taking of BFFB funds. (Opp., 6.) The
court disagrees.
In reply, Koons correctly contends that both Jarvis
and Gong show there are “at least four actual conflicts which warrant
disqualification of Plaintiff’s counsel.” (Reply, 2.) First, Hall cannot
“satisfy his undivided duty of loyalty to both BFFB and Yenawine while
litigation [the] breach of contract claim because Yenawine’s individual breach
of contract claim against Koons is worthless to BFFB.” (Id.) Second,
similarly the third cause of action for Fraud is unrelated to BFFB and may lead
to a waste of BFFB’s interests and resources. (Reply, 3.) Third, the fourth
cause of action asks for emotional distress damages “creating a scenario where
BFFB’s counsel is pursuing Yenawine’s individual claims against Koons for which
BFFB itself may be liable.” (Reply, 3-4.) Fourth, the cross-complaint “sets forth
specific factual allegations to demonstrate Yenawine is using BFFB as a pawn in
Yenawine’s dispute with Koons to BFFB’s detriment.” (Reply, 4.) Koons further
correctly explains Cross-Defendants arguments are unavailing:
“as Yenawine unilaterally attempted to oust Koons as a
director, and in doing so, utterly failed to fulfill the removal requirements
set out by the BFFB Bylaws and Corporations Code. Indeed, as set forth above,
Yenawine staunchly disregarded the Bylaws requirements by failing to call a meeting
of shareholders or Board of Directors. Yenawine also disregarded Corporations
Code sections 303 and 304 by failing to approve the removal by outstanding
shares, attain a declaration of unsound mind, show a felony conviction, or
remove for cause by suit of shareholders. None of the Bylaws or Corporations
Code requirements were followed during Yenawine's purported removal of Koons as
director. Therefore, it cannot stand that Koons was properly removed as a
director of BFFB, and it cannot stand that Yenawine was authorized as the sole
director or as a quorum to act on behalf of BFFB. Accordingly, it is
exceedingly clear that the irreconcilable conflicts between Plaintiffs BFFB and
Yenawine warrant immediate disqualification of Plaintiffs' counsel in this
matter.” (Reply, 7-8.)
The court agrees. Here, the court finds that Counsel Hall is
acting without the authorization of Koons. The court further finds that
counsel’s simultaneous representation of Plaintiff BFFB and Yenawine poses
issues of duty of loyalty. Yenawine hired counsel, is paying counsel, and
there is a risk that counsel will advance the interest of Yenawine, “which may
not necessarily be in the best interests of the Partnership.” Jarvis,
surpa, 33 Cal.App.5th at 136.
Thus, the court grants Koons’ motion and disregards
Cross-Defendants’ arguments that Koons’ counsel should be disqualified, as it
was asserted without proper moving papers. Further, the court disregards all
remaining arguments.
Conclusion
Koons’ motion is granted. Koons is to give notice.