Judge: Lynette Gridiron Winston, Case: 22PSCV03087, Date: 2025-02-24 Tentative Ruling
Case Number: 22PSCV03087 Hearing Date: February 24, 2025 Dept: 6
CASE NAME: Vicki Brown Desmet, et al. v. Gregory L. DeSmet, et al.
Defendant/Cross-Complainant Scott DeSmet’s Motion to Disqualify the Law Firm of Stone & Sallus LLP, Attorneys Daniel R. Sallus and Elliot Montgomery from Representing Plaintiff DeSmet Property Investments, LLC
TENTATIVE RULING
The Court DENIES Cross-Complainant Scott DeSmet’s motion to disqualify counsel.
Plaintiffs Vicki Brown DeSmet and DeSmet Property Investments, LLC are ordered to give notice of the Court’s ruling within five calendar days of this order.
BACKGROUND
This is a business and real property dispute. On December 28, 2022, plaintiffs Vicki Brown DeSmet (Vicki) and DeSmet Property Investments, LLC (DeSmet Property LLC) (collectively, Plaintiffs) filed this action against defendants Gregory L. DeSmet, Gregory L. Desmet Trust, established November 6, 2019, any and all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to Plaintiffs’ title or any cloud on Plaintiffs’ title thereto, and Does 1 to 10, alleging causes of action for quiet title, cancellation of instrument, slander of title, and injunctive relief.
On June 14, 2023, Scott DeSmet, conservator of the person and estate of Gregory L. DeSmet and trustee of the Gregory L. DeSmet Trust (Cross-Complainant) filed a Cross-Complaint against Vicki Brown DeSmet (Vicki), and Roes 1 through 100, alleging causes of action for fraud and conspiracy to commit fraud, conversion and conspiracy to convert and embezzle LLC funds, breach of fiduciary duty, and declaratory relief.
On January 29, 2025, Cross-Complainant moved to disqualify counsel for Plaintiffs. On February 7, 2025, Vicki and DeSmet Property LLC filed an opposition, albeit in the related case of Case Number 24PSCV00568, which is also set for hearing on a similar motion to disqualify on the same date as this motion. On February 14, 2025, Cross-Complainant replied.
LEGAL STANDARD
An attorney owes a duty of confidentiality to his or her client. (Bus. Prof. Code, § 6068, subd. (e)(1).) An attorney also owes a duty of loyalty to a client, such that disqualification is necessary even if there is no risk of a client’s confidences being transmitted to the client’s litigation adversary in an unrelated matter. (Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59, 84 (Sheppard), citing Flatt v. Superior Court (1994) 9 Cal.4th 275, 284-285 (Flatt).) “‘A conflict of interest exists when a lawyer's duty on behalf of one client obligates the lawyer to take action prejudicial to the interests of another client; i.e., when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.” (Coldren v. Hart, King & Coldren, Inc. (2015) 239 Cal.App.4th 237, 248 (Coldren), internal quotations and citations omitted.) Unless there is informed written consent by each client, disqualification is automatic in cases of simultaneous representation of clients. (Sheppard, supra, at p. 80.) A conflict of interest that requires an attorney’s disqualification from a matter normally extends to the entire firm to safeguard the clients’ legitimate expectations that their attorneys will protect their confidences. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1139 (SpeeDee), citing Flatt, supra, at pp. 283-284; City and County of San Francisco v. Cobra Solutions, Inc., supra, at pp. 847-848.) Such conflict of interest imputations apply to attorneys who are of counsel. (SpeeDee, supra, at p. 1139 [“Conflicting representations that would disqualify all of a law firm’s attorneys are not more acceptable when an attorney of counsel to the firm creates the conflict”].)
REQUESTS FOR JUDICIAL NOTICE
The Court GRANTS Cross-Complainant’s request for judicial notice as to RJN-1. (Evid. Code, § 452, subd. (d).) However, the Court takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.) The Court DENIES Cross-Complainant’s request for judicial notice as to RJN-2, as there is no indicia of it being a court-filed copy. (See Evid. Code, § 452, subd. (d).)
DISCUSSION
Timeliness
Cross-Complainant failed to timely serve and file this motion. Motions must be served and filed at least 16 court days before the hearing. (CCP § 1005(b).) Electronically serving a document extends any period of notice by two court days. (Code Civ. Proc., § 1010.6, subd. (a)(3)(B).) Vicki and DeSmet Property LLC argued in their opposition that Cross-Complainant’s motion is untimely. Cross-Complainant concedes the motion was untimely. (Reply, 5:8-16.)
Cross-Complainant filed this motion and also served it by email on January 29, 2025. (Motion, p. 14, POS.) That was 16 court days before this hearing on February 24, 2025. Because Cross-Complainant served the motion electronically, Vicky and DeSmet were entitled to 18 court days' notice. (Code Civ. Proc., §§ 1005, subd. (b), 1010.6, subd. (a)(3)(B).) Thus, the motion was untimely.
The Court exercises its discretion to consider the motion, though it was not timely served and filed. “[A] trial court has broad discretion in allowing relief from a late filing where, as here, there is an absence of a showing of prejudice to the opposing party.” (Hoover Community Hotel Development Corp. v. Thomson (1985) 168 Cal.App.3d 485, 488.) Vicky and DeSmet Property LLC objected to the motion as untimely at the end of their opposition but show no prejudice as a result of having notice of 16 court days instead of 18 court days.
Standing
Cross-Complainant has not shown he has standing to disqualify Vicky and DeSmet Property LLC ’s counsel. “Standing generally requires that the plaintiff be able to allege injury, that is, an invasion of a legally protected interest. 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.” (Coldren, supra, 239 Cal.App.4th at p. 245, quoting Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356.) The burden is on Cross-Complainant, who is the party seeking disqualification, to establish the attorney-client relationship. (Coldren, supra, 239 Cal.App.4th at p. 245.)
Here, there is no evidence that Cross-Complainant ever had an attorney-client relationship with Stone & Sallus, LLP. Nor does he establish that he has standing under the holding of Blue Water Sunset, LLC v. Markowitz (2011) 192 Cal.App.4th 477 (Blue Water).
The Court of Appeal in Blue Water made an exception on the facts of the case before it, finding the plaintiff had “vicarious standing” through the LLC stating: “If an attorney simultaneously represents a limited liability company and a member with conflicting interests in a derivative action filed by the second and only other member, and if the limited liability company's consent to concurrent representation is required by State Bar Rules of Professional Conduct, rule 3-310, the second member has vicarious standing to move to disqualify.” (Id. at p. 481, fn. omitted.)
Here, however, the Cross-Complaint is not a derivative action. Cross-Complainant has made direct claims against Vicki and seeks $1 million in damages from Vicki. If Cross-Complainant prevails, the damages will not go to the benefit of DeSmet Property LLC. Indeed, Vicki would have to pay damages to Cross-Complainant. (Cf. Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1114 [“If successful, a derivative claim will accrue to the direct benefit of the corporation and not to the stockholder who litigated it”].) Cross-Complainant’s lawsuit is not a derivative suit and Cross-Complainant lacks standing to bring this motion to disqualify Vicki and DeSmet Property LLC’s counsel.
Merits
Even if standing were to exist, the Court does not find that Stone & Sallus, LLP’s representation of Vicki is directly adverse to DeSmet Property LLC. Cross-Complainant’s motion is based on the contention that Cross-Complainant’s claims are derivative on behalf of DeSmet Property LLC, and that Vicki’s counsel is therefore disqualified from representing her in this action. But, the cross-complaint does not allege sufficient facts demonstrating that this is a derivative action. “In determining whether an individual action as opposed to a derivative action lies, a court looks at ‘the gravamen of the wrong alleged in the pleadings.’ [Citation.]” (Holistic Supplements, L.L.C. v. Stark (2021) 61 Cal.App.5th 530, 542.) The gravamen of the cross-complaint alleges that Cross-Complainant is the damaged party, not DeSmet Property LLC. (Cross-Complaint, ¶¶ 21-23, 26-27, Prayer for Relief.) The Court also notes that DeSmet Property LLC is not named as a nominal cross-defendant, which is required for derivative actions. (See Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 107.) In fact, the only named cross-defendant is Vicki. (Cross-Complaint, ¶ 3.) Further, Cross-Complainant’s allegations are conclusory in nature, with no specific factual allegations.
Furthermore, California Corporations Code section 800, subdivision (b)(2), requires that the plaintiff in a shareholder derivative suit “allege[] in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and allege[] further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.” (Corp. Code, § 800, subd. (b)(2); Bader v. Anderson (2009) 179 Cal.App.4th 775, 789 (Bader); PacLink Commc'ns Int'l, Inc. v. Superior Ct. (2001) 90 Cal.App.4th 958, 963 [principles of derivative lawsuits apply the same to LLCs and corporations].) Opposing Parties correctly note in their opposition that the FAC does not allege any facts demonstrating that Plaintiff made a demand on the shareholders or board of directors for DPI Labs or the members and managers for DeSmet Property, which is necessary for a derivative action. The Court also notes the Cross-Complaint does not allege that demand would have been futile. (See Bader, supra, 179 Cal.App.4th at p. 792 [mere threat of personal liability of is insufficient to establish demand futility]; see generally, Cross-Complaint.) The Court also notes that the Cross-Complaint alleges there was a 50/50 split of ownership with respect to DeSmet Property. (Cross-Complaint, ¶¶ 10, 16.)
Moreover, Cross-Complainant would not be an appropriate party to consent to the joint representation of DeSmet Property LLC and Vicki, because Cross-Complainant is an opposing party in the lawsuit. To conclude otherwise would permit Cross-Complainant, as DeSmet Property LLC’s adversary in the lawsuit, to dictate how the company would be represented in the proceeding. Instead, Vicki is the appropriate person to consent given that she is the only other member. (Coldren, supra, 239 Cal.App.4th at p. 250.)
Finally, the Court agrees that Cross-Complainant waived any conflict of interest that may have existed given the amount of time that has passed since the disputes between the parties arose. Extreme or unreasonable delay is required to effect a waiver of disqualification of counsel. (Liberty Nat'l Enterprises, L.P. v. Chicago Title Ins. Co. (2011) 194 Cal.App.4th 839, 845 (Liberty).) Stone & Sallus, LLP began acting as legal counsel for Plaintiffs in this action since at least December 28, 2022, i.e., more than two years ago. (Request for Judicial Notice, Ex. RJN-1.) Cross-Complainant filed the cross-complaint against Vicki on June 14, 2023, wherein the issue of Stone & Sallus, LLP’s concurrent representation was alleged. (Cross-Compl., ¶ 12.) Stone & Sallus, LLP filed an answer to the cross-complaint on behalf of Vicki on July 18, 2023. Cross-Complainant took no action regarding the alleged disqualification during this litigation. To deprive Plaintiffs of the counsel of their choice at this late stage in the proceedings, where no unfair disadvantage to Cross-Complainant is indicated, would cause undue hardship to Plaintiffs without serving the purpose of the disqualification remedy.
Further, Cross-Complainant has not offered any justification for the delay. The Court finds Cross-Complainant’s arguments regarding the Letters of Conservatorship unavailing. Cross-Complainant filed the cross-complaint in his capacity as conservator on June 14, 2023, i.e., three months before the Letters of Conservatorship purportedly issued on September 26, 2023. (Doonan Reply Decl., Ex. A.) It is unclear to the Court how Cross-Complainant would on the one hand have no problem filing a cross-complaint before the Letters of Conservatorship purportedly issued, but on the other hand hesitated to do anything on behalf of Gregory L. DeSmet’s trust until the conservatorship was granted. The Court finds there was an extreme and unreasonable delay in seeking disqualification. (See Liberty, supra, at p. 848 [waiver found where counsel had been involved in the case for two years].)
The Court declines to address the parties’ remaining arguments. Based on the foregoing, the Court DENIES the motion to disqualify counsel.
CONCLUSION
The Court DENIES Cross-Complainant Scott DeSmet’s motion to disqualify counsel.
Plaintiffs Vicki Brown DeSmet and DeSmet Property Investments, LLC are ordered to give notice of the Court’s ruling within five calendar days of this order.