Judge Lon F. Hurwitz, Case 21-01237081 2023-09-01 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 21-01237081, Date: 2023-09-01 Tentative Ruling

Motion to Be Relieved as Counsel of Record

Moving Party: Richard A. DiCorrado and Eric J. Danowitz of Mokri Vanis & Jones, LLP, counsel for Defendant StoneWall, a Delaware corporation

Responding Party: Plaintiff Balt USA, LLC

SERVICE: June 13, 2023, by mail and electronic service

RELIEF SOUGHT: An order relieving Moving Counsel as counsel for Defendant StoneWall.

UPCOMING EVENTS:

1. Status Conference, June 26, 2024

2. Jury Trial, January 27, 2025

FACTS/OVERVIEW: This is a business dispute. On December 17, 2021, Plaintiff Balt USA, LLC (“Balt”) filed a Complaint against Defendants Treadstone Medical LLC, Treadstone Holdings LLC, M4D LLC, Infinity Neuro LLC (China), StoneWall, Vtail Medical LLC, David Ferrera, Dawson Le, Randall Takahashi, and Charles Yang. (ROA 2). The Complaint asserts causes of action for:

1. Breach of Fiduciary Duty (Self Dealing);

2. Aiding and Abetting Breach of Fiduciary Duty;

3. Fraudulent Concealment;

4. Breach of Fiduciary Duty (Usurpation of Corporate Opportunities);

5. Aiding and Abetting Breach of Fiduciary Duty;

6. Tortious Interference with Contract;

7. Declaratory Judgment;

8. Breach of Contract (Failure to Disclose Inventions);

9. Breach of Contract (In-term Competitive Conduct); and

10. Unfair Competition

Plaintiff Balt USA is a subsidiary of Balt SAS, a French company involved in the research and development of medical devices. In or around August 2016, Balt SAS acquired Blockade Medical LLC, a company owned and operated by Defendants Ferrera, Le, Takahashi, and Yang (collectively, “Individual Defendants”). Through the acquisition, Blockade was renamed and reorganized as Plaintiff Balt USA, LLC.

After the acquisition, the Individual Defendants continued to hold high level positions as Balt. After the Individual Defendants left Balt, it was discovered that they orchestrated several self-interested transactions at Balt’s expense. It is alleged the Individual Defendants schemed to siphon money out of Balt by concealing their interests in a contractor hired by Balt, concealing development opportunities from Balt, and secretly developing competitive products while employed by Balt in violation of their respective employment contracts. The Individual Defendants allegedly conducted their wrongful activities through various holding companies—Defendants Treadstone Medical LLC, Treadstone Holdings LLC, M4D LLC, Infinity Neuro LLC, StoneWall, and Vtail Medical LLC (collectively, “Entity Defendants”), as well as non-parties RC Medical LLC and Sonorous NV, Inc.—in which the Individual Defendants held undisclosed interests during their employment with Balt.

The Court has already held two IDCs regarding 40 sets of discovery (four sets propounded on each of the 10 Defendants). In January 2022, Defendants filed a 28-page demurrer, which the Court refused to consider since no leave had been sought to exceed the page limitation. (ROA 96). Balt then moved for a protective order, but in July 2022, before Balt’s motion was heard, the parties entered into a stipulated protective order. (ROA 99). In September 2022, the parties stipulated to stay discovery, including all discovery motions, pending completion of the November 2022 mediation session. (ROA 111). However, the mediation ended without a resolution to the dispute. (ROA 117).

On December 9, 2022, the Entity Defendants and Individual Defendants (collectively, “Defendants”) moved to compel arbitration. (ROA 143). On February 10, 2023, while considering Balt’s motion for protective order, the Court stayed the entire matter pending appointment of a discovery referee. (ROA 228). On August 18, 2023, the Court denied Defendants’ motion to compel arbitration on the ground of waiver. (ROA 434).

On June 13, 2023, Richard A. DiCorrado and Eric J. Danowitz of Mokri Vanis & Jones, LLP, counsel for Defendant StoneWall, filed the current Motion To Be Relieved As Counsel. (ROA 263). Balt opposes the motion (ROA 439), and Moving Counsel has replied (ROA 448).

CONTENTIONS AND ANALYSIS:

Motions to be relieved as counsel are technical and governed by CRC Rule 3.1362.

1. Notice and motion must be directed to the client and on Judicial Council Form MC-051. No memorandum is required. (CRC Rule 3.1362(a) and (b).)

Counsel has used the proper Judicial Council form.

2. Declaration on Form MC-052 stating the basis for the motion “in general terms and without compromising the confidentiality of the attorney-client relationship.” (CRC Rule 3.1362(c).)

According to the declaration, counsel inadvertently informed the Court and opposing counsel at the outset of this litigation that they represented all of the Defendants, including StoneWall. (ROA 259). However, shortly thereafter, it was determined that StoneWall was not an entity utilized by the Individual Defendants, and it did not exist as a Delaware corporation. Apparently, Balt’s counsel refused to accept this representation from Moving Counsel. On or around June 1, 2023, Moving Counsel obtained additional information showing that StoneWall does not exist and has never existed in Delaware, and the Individual Defendants never filed incorporation papers for StoneWall or conducted business under the name “StoneWall.”

After conducting a search, the State of Delaware’s Division of Corporations could only find an entity named “Stonewall Corporation” that was incorporate on January 6, 1984, and dissolved on March 18, 1997—20 years before Balt was even founded. Moving Counsel has attached a copy of the Entity Details for Stonewall Corporation as provided by the State of Delaware. [See, Motion, Exh. A.]

3. Service on client and all other parties. (CRC Rule 3.1362(d).)

CRC Rule 3.1362(d) permits service of the moving papers by “personal service, electronic service, or mail.” If the notice is served on the client by mail, it must be accompanied by a declaration stating facts showing either: (1) the service address is the current residence of business address of the client; or (2) the service address is the last known residence or business address of the client, and the attorney has been unable to locate a more current address after making reasonable efforts to do so within 30 days before the filing of the motion to be relieved. (CRC, Rule 3.1362(d)(1).) If notice is served on the client by electronic service, it must comply with Code of Civil Procedure section 1010.6 and CRC Rule 2.251. (CRC, Rule 3.1362(d)(2).)

The moving papers are in compliance. (ROA 259, Moving Counsel Decl., ¶¶ 3.a. and 3.b.) Moving Counsel attest they served StoneWall by mail at its last known address. In addition, Moving Counsel attest that within the last 30 days, they confirmed by telephone that the address is current.

The moving papers were served on StoneWall on June 13, 2023, via first-class mail at 105 North Pointe Drive, Lake Forest, CA 92630, and through the State of Delaware Division of Corporations in Dover, Delaware. The moving papers were also served the same day via electronic service on counsel for Balt.

4. Proposed Order must be on Judicial Council Form MC-053 (CRC Rule 3.1362(e).)

The Proposed Order is prepared on the proper Judicial Council form as required. It is complete and was filed with the Court with the moving papers. (ROA 264).

5. Prejudice

In opposition, Balt contends this motion must be denied because it is not in the best interest of StoneWall and will result in prejudice to the entity.

According to Balt, StoneWall does exist as a C-Corp that was formed in Delaware in 2020, and is a holding company controlled by the Individual Defendants. [Declaration of Dylan Byrd (“Byrd Decl.”) (ROA 441), Exh. 1 at p. 14; Exh. 2 at BALT-TREAD-00000279-280, 00000289.] In addition, Balt notes that StoneWall appeared in this action more than a year ago, and has vigorously litigated its defense by demurring to the complaint, filing a motion to strike, attending mediation, answering the complaint, and serving verified discovery responses. Balt contends that early discovery has established that StoneWall played a key role in the Individual Defendants’ attempt to develop, test, and market products in direct competition with Balt, but without Balt’s knowledge.

Balt argues this motion is improper because it will leave StoneWall without representation in this matter. As argued by Balt, if there are questions as to the present status of StoneWall, it would be counterproductive to remove the counsel who appeared for the entity throughout this litigation—counsel who is best situated to review the formation documents. As a result, Balt argues that since discovery is currently underway with the discovery referee, the issue of StoneWall’s formation should be submitted to him.

In reply, Moving Counsel contends Balt is improperly conflating this request to be relieved as counsel with a possible motion to dismiss StoneWall from the case. Moving Counsel reiterates that they were never formally retained to represent StoneWall. Moreover, Moving Counsel contends that the only connection that any of the Individual Defendants have with the name “StoneWall” is through a PowerPoint presentation in which the name appeared. However, Moving Counsel maintains that the company “StoneWall” in the PowerPoint was never created and does not exist. The Stonewall entity that did exist at one time never retained Moving Counsel to represent it in this action or any other action. As a result, Moving Counsel contends it is seeking to be relieved as counsel for StoneWall because they were never officially retained for any such representation. Moving Counsel notes that Balt has not presented any substantial evidence or legal authority that would require Moving Counsel’s continued representation of StoneWall.

Balt’s opposition is not well taken. As noted by Moving Counsel, the instant motion is not a motion to dismiss StoneWall from the litigation. To the extent there is an entity known as StoneWall that is affiliated with the Individual Defendants, it would still be a defendant in the action. But the ban on corporate self-representation does not prevent this Court from granting Moving Counsels’ motion to be relieved as counsel, even if it leaves StoneWall without representation. (Gamet v. Blanchard (2001) 91 Cal.App.4th 1276, 1284, review denied.)

Only a demonstration of undue prejudice to the client would merit a denial of this motion. However, Balt has not demonstrated that there is any prejudice to StoneWall in granting this motion. There are no pending motions and the trial date is more than a year away. Notably, neither StoneWall nor any of the other Defendants have objected to this motion.

Given the absence of any objection to this Motion by the client, the argument by the opposing Party in this litigation against granting this Motion amounts to nothing more than an argument which seeks to force Defense Counsel to continue representation of a Client who has no objection to Counsel’s request to withdraw; otherwise known as “involuntary servitude” where no prejudice to the Client exists.

RULING:

The Motion to Be Relieved As Counsel for Defendant StoneWall is GRANTED.

Moving counsel, Richard A. DiCorrado and Eric J. Danowitz of Mokri Vanis & Jones LLP, are ordered to serve the signed Order within five (5) court days on Plaintiff Balt USA, LLC and all other parties that have appeared in this action. The Order will not be effective until the proofs of service of the Order are filed with the Court. Moving counsel are ordered to give notice of this ruling.