Judge Kerry Bensinger, Case Number: 23STCV29151, Date: 2024-05-14 Tentative Ruling

MOVING PARTY: Defendants Grupo Flor Corporation, East of Eden Cannabis Co., WF Enterprises, Inc., and Flor X, Inc.

In 2022, non-party Bespoke Financial Inc. (Bespoke Financial) entered into written loan agreements with Grupo Flor Corporation (Grupo Flor), East of Eden Cannabis Co. (EOE) and WF Enterprises, Inc. (WF). The EOE and WF loan agreements were guaranteed by Flor X, Inc. (Flor X). Thereafter, EOE and WF defaulted on the monthly payments which separately triggered Flor X’s obligation and liability. Grupo Flor, as the alleged alter ego of EOE, WF, and Flor X, is liable for their breaches. Bespoke Financial assigned all rights and obligations of the loan agreements to Bespoke Funding 2021A LLC (Bespoke Funding).

On November 29, 2023, Plaintiff Bespoke Funding filed a Complaint against Defendants, Grupo Flor, EOE, WF, and Flor X, alleging causes of action for (1) Breach of Contract (EOE Loan); (2) Breach of Contract (WF Loan); (3) Breach of Contract (Flor X Guaranty); (4) Promissory Estoppel; (5) Quantum Meruit; (6) Open Book Account; (7) Account Stated; and (8) Restitution.

On April 15, 2024, Defendants filed this motion to disqualify David Welch (“Mr. Welch”) as counsel for Plaintiff.

Courts have the discretion to disqualify a law firm pursuant to the inherent authority to control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any matter connected with a judicial proceeding before it, in every manner pertaining thereto. (Code Civ. Proc., § 128, subd. (a)(5).)

“[C]onflicts can arise in California (and disqualification motions can be granted) based on the conjunction of (1) implicit obligations a lawyer takes on to maintain the confidences of a nonclient received in the course of representing a client, and (2) the unfair advantage that might accrue were such a lawyer to pursue substantially related litigation against the nonclient.” (Acacia Patent Acquisition, LLC v. Superior Court (2015) 234 Cal.App.4th 1091, 1099 (Acacia Patent); see also Cal. Prof. Conduct Rule 1.7(b).) “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.’” (Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356 quoting DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 (Great Lakes).)

“Ultimately, disqualification motions involve a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility.” (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc.¿(1999) 20 Cal.4th 1135, 1145.) In considering a motion to disqualify counsel, the court’s “paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar.” (Ibid.)

Defendants seek an order to disqualify Mr. Welch (and by extension, Mr. Welch’s current firm, Enso Law) as counsel for Plaintiff because Mr. Welch served as Grupo Flor’s de facto legal counsel for years by regularly conducting business with Grupo Flor, regularly providing legal advice, and drafting legal documents for Grupo Flor. In the process, Mr. Welch was regularly given access to confidential financial information for Grupo Flor. In support, Defendants offer the declaration of Grupo Flor founder Mustafa “Mike” Bitar wherein Mr. Bitar details Mr. Welch’s work with Grupo Flor from 2017 through 2023.

Plaintiff argues Mr. Bitar either misremembers or misleads the court as to Mr. Welch’s relationship with Grupo Flor. Citing Mr. Welch’s declaration, Plaintiff argues that Mr. Welch represented clients on the opposite side of the table to Defendants. In support, Plaintiff offers redacted retainer agreements between Mr. Welch’s former law firm, DRWelch and various clients. (See Welch Decl., Exs. B, C, D, E, and G.) Grupo Flor is not among DRWelch’s former clients.

In reply, Defendants appear to concede Mr. Welch did not previously represent Grupo Flor. However, Defendants maintain that Mr. Welch has obtained Grupo Flor’s confidential information which is sufficient to disqualify Mr. Welch and Enso Law from this matter. The principal issue, then, is whether Mr. Welch may be disqualified for obtaining Grupo Flor’s confidential information despite never having represented Grupo Flor.

Here, Defendants do not meet their burden to show Mr. Welch and Enso Law should be disqualified. Specifically, Defendants do not establish the second element of the Acacia Patent test: whether this litigation is substantially related to the previous transactions in which Mr. Welch obtained Grupo Flor’s confidential information. Defendants’ lone argument on this matter is that Plaintiff moved (unsuccessfully) for a temporary restraining order based on confidential information Mr. Welch received in the “Moss Landing” transaction. (See Bitar Dec., ¶ 10.) This argument, however, does little to show how the Moss Landing transaction is related to the issues in this litigation. Moreover, Defendants fail to overcome Mr. Welch’s showing that he represented clients in transactional matters adverse to Grupo Flor and the information obtained in those adversarial transactions was not confidential.

Kerry Bensinger

Judge of the Superior Court