Judge: Ronald F. Frank, Case: 20TRCV00508, Date: 2023-01-12 Tentative Ruling
Case Number: 20TRCV00508 Hearing Date: January 12, 2023 Dept: 8
Tentative Ruling
HEARING DATE: January 12, 2023
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) DENIED. The Court finds Bergamon has not carried its burden of proving the claimed “substantially related” nature of Mr. Honey’s prior representation viz-a-viz the currently pending litigation as of the time this motion was filed.
However, the subsequent development of Wu’s cross-complaint triggers a fresh set of obligations, which the Court in its discretion finds can be effectively managed to ensure the integrity of the bar and preservation of the public trust by adopting Mr. Honey’s offer in his declaration to wall himself off from litigation counsel and employees and officers of Ridgerock on a going-forward basis. A detailed Order in that regard is set forth below.
I. BACKGROUND
A. Factual
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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
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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.
On December 13, 2022, this Court continued the hearing on Motion to Disqualify Counsel to January 12, 2022 and requested Supplemental briefings.
On January 6, 2023, Kalab Honey submitted a Declaration in support of opposition to Motion for Disqualifying James Menke as counsel. However, no further supplemental briefings have been filed.
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 purportedly 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
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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
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Defendants assert evidentiary objections to the Declaration of Peter Liew. The Court rules as follows:
Sustain: 5 (as to the 3rd sentence cited), 6, 10, 11, 15
Overrule: 1, 2, 3, 4, 7, 8, 9, 12, 13, 14
D. Merits
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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 if 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.” It is for the Court to determine the issue of “substantial relationship.”
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 matter 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 discovered 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 the two related matters. As such, Defendant contends that the issue is whether Honey’s alleged prior representation was substantially related to the current litigation. The Court concurs that the issue is a narrow one bearing on the “substantially related” issue. 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 Defendant 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 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 had 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 Case: the 2015 and 2019 sale of shares in Bergamon. The 2019 transaction was 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 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 our 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, based on Plaintiff’s assumption that Honey must have violated his ethical duty to maintain and confidences and secrets of Bergamon and/or Liew by discussing or disclosing such to Mr. Menke.
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 Honey is being involved, consulted, communicated with, and in a position to share confidences and secrets learned while he was representing Bergamon and/or Liew.
Before and at the prior hearing on this motion, the Court expressed concerned that it lacked any declaration from Honey himself, that Ridgerock had not outlined steps that it may have taken to insure that Honey is walled off from giving or receiving information to Mr. Menke or his firm, and whether Mr. Honey has been identified as a potential witness in this case. In response to the Court’s concerns, Ridgerock submitted a declaration from Mr. Honey. In his declaration, Mr. Honey notes that based on his best recollection, he started providing legal services to Ridgerock sometime in 2014. (Declaration of Kalab Honey (“Honey Decl.”), ¶ 3.) Mr. Honey further noted that he acted as outside general counsel for Ridgerock until July 2021, at which time he became a W-2 employee for Ridgerock in charge of legal affairs. (Ibid.) During this time, Mr. Honey notes that he handled a myriad of legal issues for Ridgerock and, to the best of his knowledge, all of its litigation. (Ibid.)
Mr. Honey also asserted in his declaration that in the Spring of 2015, Gordon Hsu, an individual that he knew to be an employee of Ridgerock, and who was his primary contact at Ridgerock, requested that he assemble generic documents for the sale of stock in Bergamon from Hsu to Mr. Leng Hong Wu (another individual he knew to be an employee of Ridgerock.) (Honey Decl., ¶ 4.) He also asserts that he agreed and entered into an engagement agreement with Bergamon, Inc. (Ibid.) The engagement agreement was attached to the previously filed declaration of Mr. Liew. On May 28, 2015, Mr. Honey described the scope of his legal services as “[a]ssisting . . . with ongoing general legal services relating to [Bergamon’s] operational and commercial activities.” (Ibid.) He then, drafted the purchase and sale and peripheral documents for Mr. Hsu and Mr. Hong Wu. He does not recall receiving executed versions of those documents, nor does his file contain executed versions. (Ibid.)
Mr. Honey further states in his declaration that in or about August 2019, he was contacted by Peter Liew (whom he believed to be an employee of Ridgerock and part owner of Bergamon) seeking documents for Mr. Wu to sell back his shares to Bergamon and/or to the owners thereof. (Id. at ¶ 5.) Mr. Honey agreed and drafted those documents for them and does not recall receiving executed versions of those documents, not does his file contain executed versions. (Ibid.) Mr. Honey also noted that on or about August 20, 2019, Mr. Liew contacted him and instructed him to draft a debt settlement agreement with a Bergamon vendor. (Id. at ¶ 6.) Mr. Honey noted that he drafted the document, but lacked all the information needed so he sent a rough version of the agreement to Mr. Liew with requests for further information. He stated that he does not have an executed version of the document in his file and, other than Mr. Liew’s comment that he would look into the information he requested, he did not hear back from Mr. Liew or anyone else regarding that proposed debt settlement agreement. (Ibid.)
Mr. Honey noted in his declaration that other than the foregoing, he did not provide any legal advice or work for Bergamon that he can locate or remember. He stated that he has some notes in his file regarding some general questions about workers compensation and another employment-related claim, but he did not possess related documents and is not sure if the employment questions were for employees of Ridgerock or Bergamon. He noted that he has not provided any legal services to Bergamon since August 2019. (Id. at ¶ 7.)
Mr. Honey further stated in his declaration that commencing in July 2021, he went from being outside general counsel to inside general counsel at Ridgerock. He stated that he currently handles all of Ridgerock’s legal matters, including litigation. Mr. Honey noted that he does not believe his prior work with Bergamon is substantially related to the issues in the current litigation, but that he nevertheless declined to represent Ridgerock in the litigation with Bergamon. However, Mr. Honey noted that Ridgerock’s outside counsel in the litigation with Bergamon often found it more convenient to deal directly with Mr. Honey on certain matters and to otherwise keep Mr. Honey generally updated on the status of the litigation for purposes of coordinating other deadlines that Mr. Honey has/had with Ridgerock. Mr. Honey asserts that at no time – during these calls or otherwise – did he disclose any confidential information of, or attorney-client communications with Bergamon. (Id. at ¶ 8.)
Mr. Honey further acknowledged that his wife, Linda Honey is also an attorney, and that she would assist him with certain administrative tasks and, in that capacity, may have sent invoices to Bergamon on his behalf. Mr. Honey contends that other than those administrative tasks, to his knowledge, Linda Honey had no contact with Bergamon or involvement in any legal activities relating to Bergamon. (Id. at ¶ 9.)
Finally, Mr. Honey asserts that he does not believe the current litigation between Ridgerock and Bergamon are substantially related to his former representation, and thus, he argues he is not precluded by Rule of Professional Conduct 1.9 from representing Ridgerock in this litigation. Mr. Honey concedes Bergamon legitimately can argue that the current litigation is related to his former representation of Bergamon, based on Wu’s third-party complaint – which was just filed a few weeks ago on November 17, 2022 – relating to the stock purchase agreements.
Mr. Honey notes that in light of the November 17, 2022 third-party cross-complaint, he is willing to agree not to have any further communications with Ridgerock’s outside counsel – or any other counsel involved in this litigation – relating to this litigation. He also noted that he is willing to agree not to have any further communications with any employees, officers, or other representatives of Ridgerock regarding this litigation until the litigation is resolved. Mr. Honey argues however, that he must continue providing legal advice and services to Ridgerock in connection with unrelated matters. (Id. at ¶ 10.)
IV. CONCLUSION
The Court finds, on the record presented, that Bergamon has not met its burden of proving that Mr. Menke or his firm should be disqualified from representing Ridgerock or the individual defendants in these Related Cases. Bergamon has not carried its burden of proving the claimed “substantially related” nature of Mr. Honey’s prior representation viz-a-viz the currently pending Related Cases as of the time this motion was filed. While Mr. Honey might have handled the disclosure and waiver issues in a more affirmative way as soon as he learned of litigation between Ridgerock and Bergamon, the instant motion does not seek to disqualify Honey (who is not counsel of record in this litigation) and does not seek to have Honey fired from his in-house position at Ridgerock. The Motion to disqualify Menke is thus DENIED.
Nonetheless, the Court has ongoing concerns about the “incestuous” nature of the relationships among the individuals and the entities named as parties in this case, especially in so far as Mr. Honey himself has provided legal representation even in a limited way to multiple actors and parties in these Related Cases. Further, the recently filed Wu Cross-Complaint may well cross the line of substantial relatedness; in the Court’s view it triggered a fresh look at how Mr. Honey may ethically proceed going forward. To avoid the appearance of impropriety, to maintain the public trust and ensure the ethical integrity of the Bar, and to ensure that any confidences or secrets of Bergamon or Mr. Liew are preserved for the balance of this litigation, the Court adopts Mr. Honey’s offer in his declaration to wall himself off from litigation counsel and other employees/officers of Ridgerock. Accordingly, THE COURT ORDERS AS FOLLOWS:
Counsel for Ridgerock shall give notice of this ruling and shall ensure that notice be provided the counsel’s alternate point of contact at Ridgerock who shall so notify Mr. Honey himself of this rulin