Judge: Stephen P. Pfahler, Case: 21STCV3755, Date: 2023-11-16 Tentative Ruling
Case Number: 21STCV3755 Hearing Date: November 16, 2023 Dept: F49
DISQUALIFICATION
MOVING
PARTY: Defendants, 5975-5999 Topanga Canyon Blvd., et al.
RESPONDING
PARTY: Plaintiffs, Woodland Hills Medical Clinic II, Inc., et al.
RELIEF
REQUESTED
Motion
for Disqualification
SUMMARY
OF ACTION
On
February 24, 2022, Plaintiff 5975-5999 Topanga Canyon Blvd. filed a complaint
for unlawful detainer against Defendant, Woodland Hills Medical Clinic II, Inc.
A notice of related cases was filed with 21STCV37556. On March 17, 2022, the
court deemed 22VEUD00174 and 21STCV37556 related, thereby leading to the
assignment of all cases to Department 47. On March 21, 2022, Plaintiff filed a
peremptory challenge, thereby leading to the reassignment of the case to
Department 49 on March 22, 2022.
On
March 28, 2022, the court specially set the motion for reconsideration
challenging the 170.6 challenge of Judge Sandvig in Department 47. The motion
for reconsideration was denied on June 2, 2022, and the action therefore
remains assigned to Department 49.
On
June 9, 2022, the court sustained the demurrer to the complaint with 15 days
leave to amend. Plaintiff filed a first amended complaint on June 23, 2022. On
September 20, 2022, the court sustained the demurrer to the unlawful detainer
action without leave to amend. The court entered judgment on October 25, 2022.
RULING: Denied.
Evidentiary
Objection: Overruled.
Request
for Judicial Notice: Denied.
The
court declines to take judicial notice of the settlement agreement as an
independent document, especially for the truth of the matter asserted in
support of any and all arguments. The court can acknowledge its existence if it
were incorporated into an operative pleading on the action, but no such
reference is made.
Defendants
5975-5999 Topanga Canyon Blvd. and Ahang Mirshojae move to disqualify attorneys
Christopher Beatty, Minh-Van Do, and Katten Rosenman, counsel for plaintiffs Woodland
Hills Medical Clinic II, Inc. and Hamid Mirshojae. Defendants move to
disqualify counsel on grounds that the legal services provided by attorney
Beatty in LC105028 on behalf of 5975-5999 Topanga Canyon Blvd., whereby a new
lease term was entered into with Woodland Hills Medical Clinic II, Inc., now
constitutes a conflict of interest in that the current claims, at least in
part, allege a breach of the negotiated lease occurred. Ahang Mirshojae
maintains Beatty was privy to confidential information substantially related to
the claims in the instant matter. Ahang Mirshojae also provides a list of other
cases whereby Beatty purportedly represented the interests of an individual, which
are not related to the instant action.
Plaintiffs
in opposition presents three arguments in opposition. The motion is untimely
and Ahang waived any objections. Beatty denies any attorney client relationship
with Ahang and maintains the only relationship belongs to the corporate entity.
As counsel of the corporate entity, the circumstances in no way warrant
disqualification, as counsel can continue to represent a former owner of a
closely held business entity.
Defendants in reply present four arguments. The “delay” in
bringing the motion in no way constitutes “extreme” prejudice. Ahang maintains
standing to file the motion as a former client of attorney Beatty. Defendants
challenge reliance on an unpublished Federal Disstrict Court case regarding the
exception to corporate representation, and said exception only applies to
derivative actions. Finally, the actions are substantially related.
This is the second filed motion for disqualification filed
by moving defendants. The first motion, filed by former counsel, took the
motion off-calendar before the hearing date.
“Motions to
disqualify counsel present competing policy considerations. On the one hand, a
court must not hesitate to disqualify an attorney when it is satisfactorily
established that he or she wrongfully acquired an unfair advantage that
undermines the integrity of the judicial process and will have a continuing
effect on the proceedings before the court. On the other hand, it must be kept in mind that
disqualification usually imposes a substantial hardship on the disqualified
attorney's innocent client, who must bear the monetary and other costs of
finding a replacement…” (Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300.)
“‘[D]isqualification
is proper as a prophylactic measure to prevent future prejudice to the opposing
party from information the attorney should not have possessed’; an affirmative
showing of existing injury from the misuse of privileged information is not
required. (Citation.) A trial court, however, may not order
disqualification ‘“simply to punish a dereliction that will likely have no
substantial continuing effect on future judicial proceedings.”’” (McDermott Will & Emery LLP v. Superior
Court (2017) 10 Cal.App.5th 1083, 1120.)
“Where the potential conflict is one that arises from the
successive representation of clients with potentially adverse interests, the
courts have recognized that the chief fiduciary value jeopardized is that of
client confidentiality. Thus, where a former client seeks to have a previous
attorney disqualified from serving as counsel to a successive client in
litigation adverse to the interests of the first client, the governing test
requires that the client demonstrate a “substantial relationship” between the
subjects of the antecedent and current representations.” (Flatt v. Superior
Court (1994) 9 Cal.4th 275, 283.) Dual representation even in unrelated
matters constitutes a mandatory basis for disqualification. (Id. at p.
286; Jessen v. Hartford Casualty Ins. Co. (2003) 111 Cal.App.4th 698, 706.)
In ruling on a motion for
disqualification, the court must first determine the existence of any (former)
attorney client relationship or even the transmission of confidential
information thereby prejudicing the now adverse party. (People ex
rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20
Cal.4th 1135, 1148 [“An attorney represents a client—for purposes of a conflict
of interest analysis—when the attorney knowingly obtains material confidential
information from the client and renders legal advice or services as a result”];
Jessen v. Hartford Casualty Ins. Co., supra, 111 Cal.App.4th at pp. 707-709 [“We
agree that the question whether an attorney should be disqualified in a
successive representation case turns on two variables: (1) the relationship
between the legal problem involved in the former representation and the legal
problem involved in the current representation, and (2) the relationship
between the attorney and the former client with respect to the legal problem
involved in the former representation”].)
(a) 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.
(b) A lawyer shall not, without informed written
consent from each affected client and compliance with paragraph (d), represent
a client if there is a significant risk the lawyer's representation of the
client will be materially limited by the lawyer's responsibilities to or
relationships with another client, a former client or a third person, or by the
lawyer's own interests.
(c) Even when a significant risk requiring a lawyer to
comply with paragraph (b) is not present, a lawyer shall not represent a client
without written disclosure of the relationship to the client and compliance
with paragraph (d) where:
(1) the lawyer has, or knows that another lawyer in the
lawyer's firm has, a legal, business, financial, professional, or personal
relationship with or responsibility to a party or witness in the same matter;
or
(2) the lawyer knows or reasonably should know that another
party's lawyer is a spouse, parent, child, or sibling of the lawyer, lives with
the lawyer, is a client of the lawyer or another lawyer in the lawyer's firm,
or has an intimate personal relationship with the lawyer.
(d) Representation is permitted under
this rule only if the lawyer complies with paragraphs (a), (b), and
(c), and:
(1) the lawyer reasonably believes that the lawyer will be
able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law; and
(3) the representation does not involve the assertion of a
claim by one client against another client represented by the lawyer in the
same litigation or other proceeding before a tribunal.
(e) For purposes of this rule, “matter” includes
any judicial or other proceeding, application, request for
a ruling or other determination, contract, transaction, claim,
controversy, investigation, charge, accusation, arrest, or other deliberation,
decision, or action that is focused on the interests of specific persons, or a
discrete and identifiable class of persons.
(Cal. Rules Professional Conduct, rule 1.7.)
(a) 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 gives
informed written consent.
(b) A lawyer shall not knowingly represent a person in the
same or a substantially related matter in which a firm with which the lawyer
formerly was associated had previously represented a client (1) whose interests
are materially adverse to that person; and (2) about whom the lawyer had
acquired information protected by Business and Professions Code section 6068,
subdivision (e) and rules 1.6 and 1.9(c) that is material to the matter; unless
the former client gives informed written consent.
(c) A lawyer who has formerly represented a client in a
matter or whose present or former firm has formerly represented a client in a
matter shall not thereafter: (1) use information protected by Business and
Professions Code section 6068, subdivision (e) and rule 1.6 acquired by virtue
of the representation of the former client to the disadvantage of the former
client except as these rules or the State Bar Act would permit with respect to
a current client, or when the information has become generally known; or (2)
reveal information protected by Business and Professions Code section 6068,
subdivision (e) and rule 1.6 acquired by virtue of the representation of the
former client except as these rules or the State Bar Act permit with respect to
a current client.
Cal. Rules of Professional Conduct, rule 1.9
Moving parties maintain prior representation of 5975-5999
Topanga Canyon Blvd., while Ahang was a shareholder, and continues to remain a
shareholder, constitutes a conflict of interest. More specifically, the
negotiated settlement in LC105208, and the subsequent, current action for
breach of said settlement constitutes the source of conflict. Ahang also
maintains that attorney Beatty’s representation of third party Nick Nick
Mirshojae in a separate probate matter against Ahang, with Nick as a
shareholder 5975-5999 Topanga Canyon Blvd., as well, further supports the
existence of a conflict.
“As used in
this article, ‘client’ means a person who, directly or through an authorized
representative, consults a lawyer for the purpose of retaining the lawyer or
securing legal service or advice from him in his professional capacity…” (Evid.
Code, § 951.) “As used in this article, ‘confidential communication between
client and lawyer’ means information transmitted between a client and his or
her lawyer in the course of that relationship and in confidence by a means
which, so far as the client is aware, discloses the information to no third
persons other than those who are present to further the interest of the client
in the consultation or those to whom disclosure is reasonably necessary for the
transmission of the information or the accomplishment of the purpose for which
the lawyer is consulted, and includes a legal opinion formed and the advice
given by the lawyer in the course of that relationship.” (Evid. Code, § 952.)
It
remains undisputed that attorney Beatty only represented 5975-5999 Topanga
Canyon Blvd., with no separate attorney client relationship alleged with Ahang,
individually. [Declarations of Ahang Mirshojae and Christropher Beatty.] Ahang
depends on the existence of a claimed shareholder interest in 5975-5999 Topanga
Canyon Blvd., and denial of any waiver of the right of attorney Beatty to
continue representing 5975-5999 Topanga Canyon Blvd. in an action against Ahang
in the subject action. [Ahang Dec., ¶¶ 3-11.] Attorney Beatty counters that
Ahang was always individually represented by separate counsel in the underlying
actions, and denies any representation of Ahang in any capacity. [Beatty Dec.,
¶¶ 4-5, 11, 14, 16.] All representation by attorney Beatty has been adverse to
Ahang. [Beatty Dec. ¶ 19.]
While successive representation in substantially related
cases constitutes a basis for disqualification, an exception is made when a
shareholder brings a derivative lawsuit on behalf of the company. In a
derivative action where the company is the true Plaintiff, a lawyer
representing both the company and shareholders constitutes a conflict.
“Successive representation rules, however, generally do not prevent an attorney
from continuing to represent insiders in a derivative lawsuit even though a
substantial relationship exists between the attorney's previous representation
of the company and the attorney's current representation of insiders in the
company's lawsuit against them.” (Beachcomber Management Crystal Cove, LLC
v. Superior Court (2017) 13 Cal.App.5th 1105, 1118.)
Nothing in any of the prior actions seemingly involved a
derivative action on behalf of the LLC. No party or attorney suggests a
derivative action. The court considers the functional basis of the exemption. The
logical purpose of the exception exists based a presumption that any and all
information in a closely held company derives from all participating
shareholders, rather than specifically divisible shareholders and/or management.
“In a small or closely held company, the company's operations and its insiders
typically are so intertwined that any distinction between the two is entirely
fictional. The insiders often are the repositories and source of all
confidential information an attorney may receive in representing the company.
In a larger company confidential information may be divided among many different
people with no individual or small group possessing it all, but in a closely
held company the few insiders responsible for operating a small company often
know all of the company's confidential information. In that situation, it would
be meaningless to apply the successive representation rules to prevent an
attorney who previously represented the company from representing the company's
insiders. (Citations.) As the repositories and source of the company's
confidential information, insiders could provide their new attorney with the
same information their previous attorney had, and therefore disqualifying the
original attorney would serve no purpose and needlessly generate attorney fees
as the new attorney gets up to speed. (Citation.) Indeed, in this scenario, ‘[c]ounsel's
continued representation of the [insiders] poses no threat to [c]ounsel's
continuing duty of confidentiality to [the company]’ because the insiders
already know all of the Company's confidential information.” (Id. at p.
1119.)
The rule derives from the acceptance that confidential
information on company business functions is known by all parties, so the
replacement of counsel now changes the level of information known by any and
all parties. Thus, no basis of prejudice presumably exists.
The court finds the reasoning behind the shared information exception
applicable in additional situations beyond a strict derivative liability action.
Where corporate interests remain the subject of litigation, and any and all
information remains available to counsel on behalf of the interests of the
corporation, the court finds an extension of the exception applicable under
limited successive action(s) scenarios. (Id. at pp. 1121-1122.)
Again, the subject motion derives from the ownership of the
corporate entity. Beatty, in part, represents the interests of the corporate
entity in the subject litigation. All information was indisputably derived from
representation of the corporate entity, and Beatty never represented Ahag in
any personal capacity. Given any and all relevant corporate information was
derived as part of corporate business, disqualifying Beatty and requiring new
counsel would still derivatively lead to the same conclusion of a common
knowledge base. The motion lacks establishment of truly prejudicial harm
separate and apart from the time when the parties more fully cooperated in
corporate business management.
Requiring consent of a shareholder to continue representing
the corporation would render the rules regarding an organization meaningless
under California Rules of Professional Conduct, rule 1.13. “Where, as here, the
functioning of the corporation has been so intertwined with the individual
defendants that any distinction between them is entirely fictional, and the
sole repositories of corporate information to which the attorney has had access
are the individual clients, application of the ‘former client’ rule would be
meaningless.” (Forrest v. Baeza (1997) 58 Cal.App.4th 65, 82.)
“[W]hen ruling upon a disqualification motion in a
successive representation case, the trial court must first identify where the
attorney's former representation placed the attorney with respect to the prior
client. If the court determines that the placement was direct and personal,
this facet of Ahmanson is settled as a matter of law in favor of
disqualification and the only remaining question is whether there is a
connection between the two successive representations, a study that may not
include an inquiry into the actual state of the lawyer's knowledge’ acquired
during the lawyers' representation of the former client. (Citations.) However,
if the court determines the former attorney was not placed in a direct,
personal relationship with the former client, the court must assess whether the
attorney was positioned during the first representation so as to make it likely
the attorney acquired confidential information relevant to the current
representation, given the similarities or lack of similarities between the two.”
(Jessen v. Hartford Casualty Ins. Co., supra, 111 Cal.App.4th at
pp. 710–711.)
Again, the declarations establish denial of any any
representation by Beatty of Ahang in any capacity, and the continuous representation
of 5975-5999 Topanga Canyon Blvd. in prior litigation, in matters regarding
administration of the corporate entity. Nothing in the motion itself
establishes any action by Beatty beyond representation of the interests of the
corporate entity. Thus, the continued representation of Hamid and Nick
Mishrojae in no way supports a presumptive basis of conflict. Ahang admits that
the claims brought by the individuals seek protection of interests in the LLC
rather than personal claims utilizing confidential information derived from
shareholder communications utilized against Ahang.
The court otherwise declines to consider the argument in
reply regarding the “substantially related” status of the cases between this
one and a case identified as LC105208. The other case is not before the court,
and not germane to the subject motion. Nothing in the argument contributes to a
finding of any represented by Beatty of Ahang, as an individual. (See National
Grange of Order of Patrons of Husbandry v. California Guild (2019) 38
Cal.App.5th 706, 716.) The court already
found Beatty as counsel for the LLC for purposes of the subject motion.
Defendants in reply repeat the existence of a “direct
relationship” without actually addressing the substantive and legal
distinctions between the individual and corporate entity. The court therefore finds
the closely held business entity exception to disqualification applicable as to
Beatty. The court declines to find any basis of disqualification due to
Beatty’s representation of 5975-5999 Topanga Canyon Blvd. against Ahang based
on information derived as a shareholder of the LLC. The court therefore denies
the motion to disqualify Beatty as counsel of record for the LLC based on
conveyed confidential information by Ahang as a shareholder on matters
involving LLC business.
The opposition also raises an argument on the issue of
standing. “Standing generally requires that the plaintiff be able to allege
injury, that is, an invasion of a legally protected interest. (Citation.)
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.”
(Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th
1347, 1356.) A confidential relationship must exist for any party to make an
argument for disqualification. (Dino v. Pelayo (2006) 145
Cal.App.4th 347, 357.) Nevertheless, standing may arise from “from a breach of
the duty of confidentiality owed to the complaining party, regardless of
whether a lawyer-client relationship existed.” (DCH Health Services
Corp. v. Waite (2002) 95 Cal.App.4th 829, 832; See Roush v. Seagate
Technology, LLC (2007) 150 Cal.App.4th 210, 219 [“mere exposure to the
confidences of an adversary does not, standing alone, warrant
disqualification”].)
Once again, the motion lacks any address of this item, and
instead offers extensive argument in the reply. As addressed above, however, the
court finds no evidence of any separate and independent representation by
attorney Beatty of Ahang individually. Ahang therefore fails to meet the first
basis of standing. Furthermore, even accepting Beatty remaining privy to
information of Ahang as a shareholder of the LLC, again, as stated above, the
court finds the corporate representation exemption also undermines any claim of
standing.
Finally, the court considers potential waiver based on the
delayed timing of the motion. “The stage of litigation at which the
disqualification motion is made is one such consideration” for the
determination of a waiver. (Liberty National Enterprises, L.P. v. Chicago
Title Ins. Co. (2011) 194 Cal.App.4th 839, 846.) Delay and potential
prejudice remain important factors, but the court may also consider the context
and timing of the motion as a prior admission regarding a lack of concern for
confidentiality and conflict, as well as a sought after tactical advantage to
delay litigation, increase costs in replacing counsel and/or depriving a person
of their attorney of choice. (Id. at pp. 846-848.) The court finds all
of the factors favor responding parties.
“Where the party opposing the motion can demonstrate prima
facie evidence of unreasonable delay in bringing the motion causing prejudice
to the present client, disqualification should not be ordered. The burden then
shifts back to the party seeking disqualification to justify the delay. (Ciations.)
Delay will not necessarily result in the denial of a disqualification motion;
the delay and the ensuing prejudice must be extreme. (Citations.)” (Western
Continental Operating Co. v. Natural Gas Corp. (1989) 212 Cal.App.3d 752,
763–764.)
The previously filed motion indicated awareness and interest
in the possibility of raising this issue, but the motion was taken off-calendar
by former counsel. The revival of the motion now raises questions about the
timing of and intentions. The court has previously documented the extensive
history and efforts of Ahang against her ex husband through several actions in
at least three different courthouses. The court also considers the declaration
of Beatty regarding the personal animosity of Ahang to counsel, as valid and
credible in considering the motivation behind the timing of the motion. [Beatty
Decl., ¶ 24.] Hamid Mirshojae also establishes the existence of a substantial
prejudice in replacing counsel at this stage. [Declaration of Hamid Mirshojae.]
The motion itself lacked any substantial reference to a lack of prejudice, and
moving parties only addressed the standard in the reply once the opposition
raised the issue.
Other than a denial of “extreme prejudice” based a
chronological summary of the case to date, including the acknowledged lack of
any trial date, the court finds no supporting argument justifying the timing. Case
law arguably allows for the presentation of a “meritorious” motion regardless
of timing and tactical advantage, and costs of bringing a new attorney up to
speed will not constitute a basis for denial. The court considers the entire
context of the motion. The court finds multiple factors establishing prejudice.
Again, the subject action is one in a series of efforts by Ahang to relitigate
the prior cases, collaterally challenge other pending actions, and presumably
continue to increase costs through attrition. (Ontiveros v. Constable
(2016) 245 Cal.App.4th 686, 701-702; In re Complex Asbestos Litigation
(1991) 232 Cal.App.3d 572, 599-600.) As addressed under the closely held
business exemption, the court finds Plaintiffs demonstrate an effective waiver
based on exposure to confidential information in context of the actions brought
on behalf of the LLC against Ahang. When combined with the prior examples of
known potential conflicts included a withdrawn filing of the motion and other
prior and pending actions, and continuing course of aggressive conduct, the
cumulative impact demonstrates multiplied levels of unfair prejudice on
Plaintiffs. The potential tactical advantage on a disqualification motion could
presumably constitute a basis for seeking disqualification of counsel in every
other case currently pending, thereby increasing the impacts to other
non-parties on this case and increasing costs and difficulties to new counsel. The
court declines to downplay the potential impacts, and none of the case support
considers this potential expansion of prejudicial impact.
The motion is therefore denied on this basis as well when
considered in combination with the finding of a lack of standing based on the
exemption created from corporate representation. The order denying the motion
is directly appealable. (Apple Computer,
Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, 1263-1264.) The
court can stay the action for a limited period of time, if Defendant wishes to
appeal. “A petition for extraordinary relief on the merits accompanied by a
request for an immediate stay is preferable, because generally extraordinary
writs are determined more speedily than appeals. The specter of
disqualification of counsel should not be allowed to hover over the proceedings
for an extended period of time for an appeal.” (Reed v. Superior Court (2001) 92 Cal.App.4th 448, 455.)
Pursuant to the stipulation of the parties, motions to stay
and for attorney fees are currently set for January 9 and 10, 2024,
respectively. As provided above, the court can stay the action pending the
appeal, thereby rendering the motion to stay potentially moot. The parties may
also agree to defer the attorney fee motion, but the court will need to
determine the potential impact of an appellate stay on the attorney fee motion.
Notwithstanding, the court otherwise reserves the right to
adjust any and all dates given calendar volume in the courtroom, contentious
litigation of this action, lack of a current trial date, etc. Furthermore,
consistent with special handling rules for this case due to past argument of
(former) counsel the court refers the parties to the court operated website and
mailed notice from the clerk of the court for any and all future motion hearing
dates. The court will NO longer represent any future dates involving the
subject cases between these parties for purposes of any party or attorney
relying on the representations within any minute order and determining the
timing or necessity of any and all actions.
Moving Defendants to give notice.