Judge Ronald F. Frank, Case 20TRCV00508 2022-12-13 Tentative Ruling

Judge: Ronald F. Frank, Case: 20TRCV00508, Date: 2022-12-13 Tentative Ruling

Case Number: 20TRCV00508 Hearing Date: December 13, 2022 Dept: 8

Tentative Ruling

HEARING DATE: December 13, 2022

CASE NUMBER: 20TRCV00508

CASE NAME: Bergamon, Inc. v. Ridgerock Tools, Inc., et al

MOVING PARTY: Plaintiff, Bergamon, Inc.

RESPONDING PARTY: Defendant, Ridgerock Tools, Inc. and Niann-Tsyr Shuai

TRIAL DATE: October 31, 2023

MOTION: (1) Motion to Disqualify Counsel James Menke

Tentative Ruling: (1) ARGUE. At oral argument, counsel to address the following:

A. How can any in-house counsel for one party participate in any way in the defense of litigation against his former client, particularly where he purportedly gave legal advice and drafted documents for the former client in transactions that may substantially relate to issues involved in this litigation?

B. Why was Mr. Honey being sent copies of email communications in this case from defense counsel concerning litigation against his former client? Was there a single email or multiple? Was it a mistake to have copied Mr. Honey or was it intentional?

C. What types of disclosures or ethical walls have been made to protect the “integrity of the bar” and the public perception of the “scrupulous administration of justice” in a circumstance such as this?

D. How can the Court satisfy itself that Mr. Honey has not, and will not, share information with Ridgerock’s current counsel or potential future counsel depending on how the Court rules on this motion?

E. Why was Mr. Honey’s wife reviewing billing statements, which may have contained privileged information, that were sent to Bergamon?

F. Should the Court continue the hearing on this motion pending receipt of information from Mr. Honey himself concerning the factual issues raised by this motion and opposition? Should that information be reviewed by the Court in camera?

G. Does the Court have jurisdiction to enter an order against Mr. Honey himself?

I. BACKGROUND

A. Factual

On July 23, 2020, Plaintiff Bergamon, Inc. (“Plaintiff”) filed the instant action against Defendants Ridgerock Tools, Inc., Niann-Tsyr Shuai, Len Hong Wu, and Does 1 through 10. Plaintiff’s causes of action include: (1) Invasion of Interest in Real Property; (2) Conversion; (3) Trespass to Chattel; (4) Promissory Fraud; (5) Breach of Written Contract; (6) Breach of Oral Contract; (7) Promissory Estoppel; (8) Interference with Contractual Relations; (9) Interference with Prospective Economic Relations; (10) Unfair Competition; and (11) Conspiracy to Commit Extortion.

Plaintiff has filed this motion to disqualify attorney James Menke from continuing as counsel of record in Case Nos. 20TRCV00508 and 20STCV28027 (the “Related Cases”). Plaintiff has further filed this motion to seek an order requiring attorney Kalab Honey to cease any further assistance of any party in the Related Cases on claims adverse to his former client, Bergamon. Plaintiff claims that disqualification is required due to Honey’s conflict of interest, which Plaintiff argues is imputed to Menke. Plaintiff contends that that Honey has an actual conflict of interest due to his prior representation of Bergamon on matter that is allegedly substantially related to the claims at issue in the Related Case, especially with Mr. Wu’s recently filed Cross-Complaint placing at issue the transaction in which Mr. Wu sold shares in Bergamon and that Mr. Honey purportedly assisted in that stock sale transaction. Plaintiff asserts that Menke inadvertently disclosed that he was “clandestinely” working with Honey in his representation of Ridgerock Tools, Inc. and Niann Tsyer Shuai on claims adverse to Bergamon. The Reply brief quotes from an email from Mr. Honey indicating that he might have to disclose attorney-client privileged communications if he were put to the task of defending himself against the allegations made of him.

B. Procedural

On November 9, 2022, Plaintiff filed this motion to disqualify counsel James Menke. On November 30, 2022, Defendants Ridgerock Tools, Inc., and Niann-Tsyr Shuai filed Opposition papers including a declaration and objections to evidence. On December 6, 2022, Plaintiff filed a reply brief, further declaration, and a reply to the objections.

II. MOVING PARTY’S POSITION

Plaintiff moves for this order disqualifying Defendants’ counsel pursuant to Code of Civil Procedure section 128, subdivision (a)(5). Plaintiff argues that Honey was Plaintiff’s counsel for 5 years and is now aiding Menke, Defendants’ counsel. As such, Plaintiff asks this Court to disqualify Menke from continuing as counsel in the Related Cases due to his imputed conflict, and prohibit Honey from further assisting any party with claims adverse to Bergamon in the Related Cases.

III. ANALYSIS

A. Legal Standard

Code of Civil Procedure section 128, subdivision (a)(5) authorizes the Court “[t]o 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.” This authority necessarily includes disqualifying an attorney. (Metro-Goldwyn Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1837–1838.)

The Court of Appeal has stated:

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. The paramount concern, though, must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar. 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. at p. 1838, citation marks omitted.)

“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.” (Ibid.)

B. Request for Judicial Notice

Defendants request judicial notice of Plaintiff’s cross-complaint filed in the companion action under LASC No. 19STCV04425. Plaintiff opposes, arguing the Court should take notice of the cross-complaint for a limited purpose to show whether Plaintiff had a reasonable expectation of confidences and privilege with his lawyers. The document, which is a court filing, is a proper subject of judicial notice. (Evid. Code, §§ 450, 452.) The Court is not mandated to accept the truth of its their contents or the parties’ interpretation of the contents of the cross-complaint. (Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 374.)

The Court grants the request for judicial notice.

C. Evidentiary Objections

Defendants assert evidentiary objections to the Declaration of Peter Liew. The Court rules as follows:

Sustain: 10, 15

Overrule: 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13, 14

D. Merits

The parties make a series of arguments. The Court addresses each in turn.

First, Plaintiff asserts that disqualification is proper because there is a conflict of interest imputed to Menke under California Rules of Professional Conduct (“CRPC”), Rules 1.7 and 1.9. (Motion, p. 8:15-20.) CRPC 1.7 governs conflicts of interest amongst current clients and states: “A lawyer shall not, without informed written consent from each client and compliance with paragraph (d), represent a client fi the representation is directly adverse to another client in the same or a separate matter.” Plaintiff’s motion notes that Honey “previously represented Bergamon on matters which are substantially related to the Related Cases.” As such, Plaintiff appears to be a former client and thus, CRPC 1.9 would be the appropriate standard in this case.

Pursuant to CRPC 1.9, “[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related mater in which that person’s interests are materially adverse to the interests of the former client unless the former client givers informed written consent.” Here, Plaintiff asserts that Honey “previously represented it on matters which are substantially related to the Related Cases in which he is actively assisting in the representation of Ridgerock and Shuai (and most likely Wu) adversely to Bergamon.” (Motion, p. 10:3-5.) Plaintiff also asserts that Honey “never sought or obtained Bergamon’s consent to represent or assist in the representation of any other party in the Related Cases on claims that are adverse to Bergamon.” (Motion, p. 10:5-8.)

Plaintiff claims that Honey rendered legal services to Bergamon between 2015 and 2019. The alleged prior legal services include:

(1) Ridgerock’s investment in Bergamon from inception, through Hsu and then Wu.

(2) Ridgerock and its principals’ involvement in the formation, operation, and management of Bergamon.

(3) The repurchase of Wu’s Bergamon shares in 2019, which is currently the subject of a motion by Wu for leave to file a cross-claim against Bergamon and its principals for alleged fraud regarding the transaction.

(4) The enforcement of the Stock Repurchase and Shareholder Withdrawal Agreement and whether it requires Wu to submit claims to arbitration.

(5) Whether any sums were owned by Bergamon to World State Technologies, which relate to Ridgerock and Shuai’s purported rationale for attempting to extort money from Bergamon and its principals.

Plaintiff notes that it found out about Honey’s aid or assistance in the defense of this case when Andrew Shadoff, counsel for Hsu, emailed Menke to schedule an IDC for a discovery dispute in the Related Cases on October 28, 2022. Menke’s response email to Shadoff copied Honey in the cc line. When Shadoff responded asking what Honey’s role in the Related Case was, Menke admitted that he “meant to bcc: Mr. Chaing and Mr. Honey and therefore please view the cc: as an inadvertently disclosed attorney-client privileged communication.” Plaintiff argues that Menke’s response acknowledged that he was “clandestinely” working with and sharing privileged communications with Honey on the Related Cases against Honey’s former client, Plaintiff Bergamon. It also appears that Mr. Menke implicitly admits that he and Mr. Honey have an attorney-client privileged relationship concerning communications about this very case against Mr. Honey’s former client.

Lastly, Plaintiff asserts that after discovering Menke was working with Honey, Plaintiff also discovered that Honey’s wife and law partner, Linda Honey, is a senior associate at LS Carlson, the law firm that previously represented Ridgerock, Shuai, and Wu jointly. As such, Plaintiff suspect that Honey and his wife have been violating its confidences and the Rules of Professional conduct for some time now. (Jamie Couche Decl. ¶ 17; Peter Liew Decl. at ¶ 14.)

In opposition, Defendant asserts that Plaintiff presented no evidence or argument that Honey ever represented Plaintiff in this matter. As such, Defendant contends that the issue is whether Honey’s alleged prior representation was substantially related to the current litigation. Comment [3] to California Rules of Professional Conduct, rule 1.9 states:

Two matters are “the same or substantially related” for purposes of this rule if they involve a substantial* risk of a violation of one of the two duties to a former client described above in Comment [1]. For example, this will occur: (i) if the matters involve the same transaction or legal dispute or other work performed by the lawyer for the former client; or (ii) if the lawyer normally would have obtained information in the prior representation that is protected by Business and Professions Code section 6068, subdivision (e) and rule 1.6, and the lawyer would be expected to use or disclose that information in the subsequent representation because it is material to the subsequent representation.

Here, Defendants argue that Wu’s acquisition of stock in Plaintiff and subsequent sale of stock, and the settlement of a debt to World State Technologies are not substantially related to the present litigation. However, it is of note that the Opposition does not seem to discuss Ridgerock and its principals’ involvement in the formation, operation, and management of Bergamon, which Plaintiff cited as another time Honey represented its company. Defendant also argues that Plaintiff did not make any showing that the transfer of stock from Hsu to Wu and then from Wu back to Hsu, Jiang, and Liew or the settlement of a debt relating to World State Technologies has anything to do with this action.

In its reply brief, Plaintiffs note that Honey previously represented Bergamon over a five-year period and that he performed work for them that involved issues and transactions that are in dispute in the Related Cases. Namely, Plaintiff asserts that Honey performed legal services for Bergamon on the 2015 and 2019 sale of shares in Bergamon. The 2019 transaction was claimed to be part of the global separation of Bergamon and Ridgerock’s interests. Plaintiff asserts that it has always alleged that those shares were being held for Ridgerock, which Defendants acknowledge is an issue in dispute in the Related Cases. (Motion, pp. 2:09-25 and 3:05–4:02; Opposition, p. 6:10-11 (“the parties disagree whether Ridgerock ever had any ownership interest in [Bergamon]”). Plaintiff contends that the “substantially related” issue comes into play with the 2019 transaction because it is now directly at issue in Defendant Wu’s recently filed cross-complaint – which seeks damages from Bergamon and its other shareholders. This agreement was allegedly prepared by Honey for Bergamon to effectuate the transaction and will be the subject of a motion to compel arbitration (Motion, pp. 3:21– 4:02.)

Although Defendant has asserted that Plaintiff does not cite to any evidence that Honey represented Plaintiff in this matter. However, in the Declaration of Peter Liew, it is noted that Honey consulted on the proposed transfer and purchase price, worked with out accountant to evaluate the tax implications of the transfer, and then prepared the legal documents necessary to transfer Wu shares to Liew, Jiang, and Hsu, including a Stock Repurchase and Shareholder Withdrawal Agreement. (Liew Decl., ¶ 9.) Liew even included an invoice from Honey attached to his declaration as exhibit B.

Here, Plaintiff also argues that Menke must be disqualified because there is a conflict of interest imputed to Menke. Plaintiffs assert that the previously discussed conflicts involving Honey are imputed to Menke because Honey has assisted Menke in the Related Cases against Bergamon. Plaintiffs rely on the email where Menke “cc’d” Honey as evidence that Menke is using Honey’s assistance in the Related cases on claims that are adverse to Bergamon.

In opposition, Defendants assert that even if Honey had a conflict of interest, it would not be imputed to Menke because he is not and has never been Menke’s partner, “of-counsel,” or “co-counsel” and is not an attorney of record in the present matter. According to Defendants, Honey is Ridgerock’s house counsel. But the Court has evidence before it that as house counsel, Mr. Honey is being involved, consulted, communicated with, and in a position to share confidences and secrets learned while he was representing Bergamon. The Court is also concerned that it lacks any declaration from Mr. Honey himself, that defense counsel has not outlined steps that it may have taken to insure that Mr. Honey is walled off from giving or receiving information to defense counsel, and whether Mr. Honey has been identified as a potential witness in this case.

In oral argument, the Court would like to hear from both sides about the issues it outlined in the summary tentative ruling above.