Judge: Robert S. Draper, Case: 21STCV18737, Date: 2022-09-20 Tentative Ruling

Case Number: 21STCV18737    Hearing Date: September 20, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendants’ Onni Contracting (California), Inc.; Onni Real Estate IX, LLC; Onni South Hill Limited Partnership, Onni Manhattan Beach Realty, LLC; Manhattan Beach Holdings; and Suretec Insurance Company’s (together, “Defendants”) Motion to Disqualify Tony Blain and Blain & Associates from Serving as Counsel for Domus Design Group, LLC is DENIED. Domus’s request for sanctions is DENIED.

FACTUAL BACKGROUND   

This is an action for breach of contract and foreclosure of mechanic’s lien. The First Amended Complaint (“FAC”) alleges as follows. Defendant Onni Real Estate IX, LLC (“Onni Real”) was the owner of real property (“Real Property”) and Plaintiff Bee Construction (“Bee”) recorded a lien in the sum of $187,638.75 against the property after “furnishing labor to the Property.” (FAC ¶¶ 5-6). Also, earlier, Bee and Defendant Onni Contracting (California, Inc. (“Onni Contracting”) entered into a written agreement. (FAC ¶¶ 8-9.) Bee performed under the contract but Onni Contracting defaulted by not paying any of $547,100.54 due. (FAC ¶¶ 8-13.)

PROCEDURAL HISTORY 

On May 30, 2019, Bee file the original Complaint in Case No. 19STCV18737 (“Action 1”), alleging two causes of action (“A1 Complaint”):

1.    Foreclosure of Mechanic’s Lien; and,

2.    Breach of Contract

On June 6, 2019, Espinosa Interior Solutions, Inc. (“Espinosa”) filed a Complaint against Bee, Onni Real, and HSBC USA NA in Case No. 19STCV19820 (“Action 2”), alleging three causes of action (“A2 Complaint”):

1.    Breach of Written Contract;

2.    Quantum Meruit; and,

3.    Foreclosure of Mechanic’s Lien

On July 2, 2019, Bee filed an FAC (“A1 FAC”) in Action 1, alleging three causes of action:

1.    Foreclosure of Mechanic’s Lien;

2.    Breach of Contract; and,

3.    Recovery on Release Bond

On July 3, 2019, Onni Contracting and Onni Real filed a Cross-Complaint in Action 1, alleging two causes of action (“A1 XC”):

1.    Breach of Written Contract; and

2.    Negligence

On September 3,2019, Onni Contracting filed an action against Domus Design Group, LLC dba Domus & Domus Group (“Domus”) in Case No. 19STCV31150 (“Action 3”) alleging three causes of action (“A3 Complaint”):

1.    Breach of Written Contract;

2.    Negligence; and,

3.    Conversion

On October 15, 2019, Onni Contracting and Onni Real filed a Cross-Complaint in Action 2 as to the A2 Complaint against Espinosa and Bee, alleging four causes of action (“A2 XC”):

1.    Negligence;

2.    Breach of Written Contract;

3.    Equitable Indemnity; and

4.    Express Indemnity

On November 18, 2019, the parties stipulated to consolidate the related cases, Action 1, Action 2, Action 3. On November 18, 2019, the Court ordered the cases consolidated and designated Action 1 as the Lead Case.

On December 11, 2019, Bee filed a Notice of Related Cases including: Action 1, Action 2, Action 3, and a fourth action: Sheedy Hoist v. Onni Contracting (California), Inc., et al., Case No. 19STCV04513 (“Action 4”).

On January 24, 2019, Domus filed a Cross-Complaint to the A3 Complaint alleging six causes of action (“A3 XC1”):

1.    Breach of Contract;

2.    Foreclosure of Mechanic’s Liens;

3.    Common Counts;

4.    Unjust Enrichment;

5.    Conversion; and,

6.    Declaratory Relief

On June 8, 2020, Geodis USA, Inc. (“Geodis”) filed a Cross-Complaint against Domus’ Cross-Complaint A3 XC1, alleging four causes of action (A3 XC2”):

1.    Breach of Contract;

2.    Common Counts;

3.    Unjust Enrichment; and

4.    Declaratory Relief

On June 24, 2020, Onni Contracting and Onni Real filed a Motion for Leave to File First Amended Cross-Complaint as to Espinosa’s A2 Complaint.

On July 22, 2020, the Parties stipulated to appoint the Hon. Gail A. Andler (Ret.) (“Judge Andler”) as Discovery Referee. The Court appointed Judge Andler as Discovery Referee on the same day.

On September 18, 2020, this Court granted Domus’ Motion for Leave to File a First Amended Cross-Complaint.

On April 8, 2021, Domus filed a First Amended Cross-Complaint to the A3 Complaint, alleging twelve causes of Action (“A3 FAXC1”):

1.    Breach of Contract;

2.    Foreclosure of Mechanic’s Liens;

3.    Common Counts;

4.    Unjust Enrichment;

5.    Conversion;

6.    Declaratory Relief;

7.    Fraudulent Inducement;

8.    Fraud;

9.    Breach of Fiduciary Duty;

10.                   Unfair Business Practices;

11.                   Breach of Confidentiality; and,

12.                   Equitable Indemnification.

On October 29, 2021, Judge Andler issued a recommendation regarding the clawback effort that forms the basis for the instant motion. Judge Andler partially granted Plaintiff’s request for clawback, and partially denied it. 

On May 12, 2022, this Court, the Hon. Douglas W. Stern presiding, adopted Judge Andler’s recommendation as written.

On June 15, 2022, Onni filed the instant Motion to Disqualify Counsel.

On August 29, 2022, Domus filed an Opposition and a Request for Monetary Sanctions as to Onni.

On September 2, 2022, Onni filed a Reply.

DISCUSSION 

                         I.          EVIDENTIARY OBJECTIONS

Domus makes eight objections to the Declaration of Norman A. Ryan submitted in support of Onni’s Motion to Disqualify Counsel.

Objection Numbers 1 and 8 are SUSTAINED.

Objection Number 2-6 are OVERRULED.

                       II.          MOTION TO DISQUALIFY COUNSEL

Defendants move to disqualify Attorney Tony Blain (“Blain”) as counsel for Defendant/Cross-Complainant Domus Design Group, LLC.

Code of Civil Procedure section 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.  (Code Civ. Proc., § 126, subd. (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.)

Here, Defendants’ Motion is brought due to Blain’s behavior in response to Defendants’ clawback request.

Code of Civil Procedure section 2031.285 establishes the “clawback” procedure by which a party may seek the return of privileged or protected electronically stored information (“ESI”) that has been inadvertently produced in discovery. Under subdivision (a), the producing party “may notify any party that received the information of the claim and the basis for the claim.” (CCP § 2031.285(a).) Once the party in possession of the ESI is notified of the producing party’s claim and the basis for that claim, the possessing party must “immediately sequester the information and either return the specified information and any copies that may exist or present the information to the court conditionally under seal for a determination of the claim.” (CCP § 2031.285(b).) Accordingly, the possessing party has an affirmative duty to return the ESI unless it seeks determination by the Court, in which case the motion must be brought within 30 days of being notified of the claim of privilege or protection. (CCP § 2031.285(d)(1).)

Defendants allege that Onni’s former counsel, Paul Smigliani (“Smigliani”) inadvertently produced over 100,000 pages of materials and emails from Onni’s job file in February and March of 2020. (Smigliani Decl., ¶ 1.) On May 16, 2020, shortly after Onni substituted Smigliani with its present counsel, Attorney Norman Ryan (“Ryan”) of Ryan Carvalho LLP (“Ryan’s Firm”), Ryan wrote to all counsel advising of the inadvertent disclosure and requesting that opposing counsel cease review of all the documents in question. (Ryan Decl., ¶ 8.)

Additionally, Ryan learned that in March of 2020, Domus issued subpoenas to two non-parties, Studio AR and Stone Image, Inc.; Ryan alleges that these subpoenas were prompted by the privileged documents prior counsel had inadvertently produced. (Ryan Decl., ¶ 9.)

In June 2020, Ryan formally initiated the clawback request procedure pursuant to section 2031.285. (Ryan Decl., ¶ 11.) Ryan requested that all documents in question be immediately sequestered and reminded counsel that until an appropriate motion challenging Onni’s privilege claim was filed, opposing counsel had an obligation to preserve the information and to keep it confidential. (Ryan Decl., ¶ 11.)

In August 2020, Domus filed a motion challenging Onni’s privilege claim on numerous grounds. (Ryan Decl., ¶ 12.)

In September 2020, the parties agreed to submit the matter to a discovery referee, Judge Andler. (Ryan Decl., ¶ 15.) Judge Andler contacted all parties and directed them to meet and confer regarding a protocol for the review and evaluation of the clawback issue. (Ryan Decl., ¶ 16.)

Ryan followed up this instruction with an email to all parties, reminding them of their obligation to sequester the material in question. (Ryan Decl., ¶ 17.) All opposing counsel, except for Blain, responded to state that the material had already been sequestered, despite their opposition to Ryan’s privilege claims. (Ryan Decl., ¶ 18.)

In November 2020, Blain responded to Ryan regarding the clawback requests, and informed Ryan that he agreed with the privilege claim as to some documents and disagreed as to others. In addition, Blain submitted a detailed log of every piece of evidence, and his objection to its privilege. (Ryan Decl., ¶ 21.)

The parties continued their disagreement regarding the subject document’s protection, until on October 29, Judge Andler issued her “Report and Proposed Order of Discovery Referee to Request for Clawback of Privileged Documents.” (Ryan Decl., ¶ 25; Blain Decl., Ex. A.) Judge Andler reviewed all documents Onni originally claimed were privileged; of those documents, Onni withdrew their claim on 55 documents of their own accord, Judge Angler sustained Onni’s claim in whole or in part to 226 documents, and Judge Andler denied Onni’s claim 45 times. (Ryan Decl., ¶ 27.)

Domus argues that Ryan’s behavior regarding the clawback request was unethical and warrants Blain’s removal from representation. Domus cites to State Compensation Insurance Fund v. WPS, Inc. (1999) 70 Cal.App.4^th 644, in which the Court of Appeal held:

When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender the he or she possesses material that appears to be privileged. (State Fund, 70 Cal.App.4^th at 656-57.)

In Opposition, Domus disputes the extent to which Judge Adler agreed with Onni regarding privileged documents. Domus notes that, though Judge Adler did partially grant many of Onni’s claims of privilege, “Out of the 635 “Clawback” documents (representing 23,911 pages) initially claimed as ‘privileged’ by Onni, Judge Andler ruled that only 2,568 pages, or only about ten percent (10%) of the total Onni ‘clawback’ documents (i.e., 90%) were either determined by Judge Andler to be discoverable or withdrawn by Plaintiff prior to Judge Andler’s final ‘clawback’ ruling.” (Opposition at pp. 1-2.)

Additionally, Domus notes that four months passed between Onni’s inadvertent discovery of privileged material and Onni’s formal request for clawback, during which time Domus conducted a thorough investigation into the material. (Blain Decl., ¶ 2.) And, Domus states that it was Domus’s owner, Alex Kulikov, who conducted this investigation, not Blain. (Ibid.)

Next, Domus contends that Onni is incorrect in asserting that Domus did not contact Onni regarding the possibly privileged material; Domus contends that Attorney Ramirez, counsel for Defendant The Bee, contacted Onni on behalf of all three defendants in the case, as all three parties were operating pursuant to a Joint Defense Agreement at that point. (Blain Decl., ¶ 3.)

Next, Domus contends that the instant motion is a strategic attempt on Onni’s part to remove Blain from the action on the eve of trial, which is currently set for November 8, 2022. Domus notes that Onni delayed over two years between the date that Onni first notified counsel about the alleged privilege issues and the filing of the instant motion. (Blain Decl., ¶ 7.)

Finally, and most persuasively, Domus notes that Judge Adler already addressed this issue in her recommendation, stating:

On November 10, 2020, Domus returned those documents that it believed were privileged and confidential. (Ex. 1 to Domus 8-9-21 Objection). The determination of what is in fact privileged in these documents is complex and subtle as demonstrated by the instant and seemingly good faith dispute by the parties in their respective interpretations of the law as it related to the present documents. In many cases, it does not ‘clearly appear’ from the face of the document that a privilege is involved. For example, Domus likely did not have knowledge of the identity of many of Onni’s in-house lawyers; some of the documents only refer to Onni’s outside counsel by his first name ‘Paul’; and some of the e-mail communications are cut-off or incomplete making context as well as content difficult to ascertain. The Discovery Referee cannot say that Domus acted in bad faith or violated any ethical duties or California law in its examination of the clawback documents. (Blain Decl., Ex A at pp. 14-15; emphasis added.)

While Onni correctly notes that Judge Adler was not asked to, and did not, issue a recommendation on whether Blain’s conduct warranted disqualification (Reply at p. 5), the above language clearly indicates that Judge Adler, who performed an extensive inquiry into the subject documents, did not feel that the documents in question clearly and facially constituted privileged materials. As an attorney is required to notify opposing counsel when he or she “receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged,” (State Fund, supra, at 656) Judge Adler’s finding is imperative here.

Additionally, the severe prejudice that would be caused to Domus and to the orderly administration of justice by requiring the disqualification of Domus’s counsel on the eve of trial in a protracted and complicated matter compels the Court to only mandate withdrawal in an extreme and clear case; this is not such a case.

Accordingly, Defendants’ Motion to Disqualify Tony Blain as Counsel for Domus is DENIED.

                     III.          REQUEST FOR SANCTIONS

Finally, the Court notes that Domus requests sanctions against Onni pursuant to Code of Civil Procedure sections 128.5 and 2030.030.

CCP section 128.5 provides that “[a] trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.”  (Code Civ. Proc., § 128.5(a).)  “‘Actions or tactics’ include, but are not limited to, the making or opposing of motions or the filing and service of a complaint, cross-complaint, answer, or other responsive pleading.”  (Id., § 128.5(b)(1).)  “‘Frivolous’ means totally and completely without merit or for the sole purpose of harassing an opposing party.”  (Id., § 128.5(b)(2).) 

Domus argues that the instant motion was frivolous and intended to harass Domus as it had already been considered by Judge Adler, and as it was filed at an extremely delayed date on the verge of trial.

However, as Onni notes, Judge Adler did not consider the issue of disqualification directly, and the instant motion was filed shortly after this Court adopted Judge Adler’s recommendation, offering a reasonable expectation for the delay.

Accordingly, the Court finds that the instant motion was not frivolous or filed with the purpose of harassing Onni. Domus’s request for sanctions is DENIED.  

DATED: September 20, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court