Judge Theresa M. Traber, Case 21STCV05412 2023-05-09 Tentative Ruling

Judge: Theresa M. Traber, Case: 21STCV05412, Date: 2023-05-09 Tentative Ruling

Case Number: 21STCV05412 Hearing Date: May 9, 2023 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: May 9, 2023 TRIAL DATE: March 5, 2024

CASE: Jennifer Gerard, et al. v. John Haubrich, Jr., et al.

CASE NO.: 21STCV05412

MOTION FOR SUMMARY ADJUDICATION

MOVING PARTY: Plaintiffs Jennifer Gerard and Gerard Cosmetics, Inc.

RESPONDING PARTY(S): Defendants John Haubrich, Jr., John L. Barber, Armine Antonyan, and Lewis Brisbois Bisgaard & Smith, LLP (jointly “LBBS” or the “LBBS Defendants”)

CASE HISTORY:

02/10/21: Complaint filed.
05/26/21: First Amended Complaint filed.
07/14/21: Dismissal entered as to Connie M. Fickel and Tamar Yeghiayan.
07/14/21: Dismissal entered as to Tristan Mullis as to the third CoA for declaratory relief.
07/14/21: Dismissal entered as to Tom Ingrassia as to the third CoA for declaratory relief.
07/14/21: Dismissal entered as to Pettit Kohn as to the third CoA for declaratory relief.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is an action for declaratory and injunctive relief against a liability insurer and the attorneys retained by the insurer to defendant Plaintiffs in an underlying employment discrimination lawsuit.

Plaintiffs move for summary adjudication on the issue of whether LLBS had a duty not to represent Plaintiffs in the underlying action before investigating, analyzing, and disclosing to Plaintiffs their analysis of whether Travelers’ reservation of rights created a potential or actual conflict of interest, and whether they had a duty not to accept compensation for representing Plaintiffs before obtaining informed, written consent to any conflict.

TENTATIVE RULING:

Plaintiffs’ motion for summary adjudication is DENIED.

DISCUSSION:

Evidentiary Objections

Defendants raises numerous evidentiary objections to the evidence submitted by Plaintiffs. However, as the evidence to which the Defendants object is not relevant to the Court’s ruling, the Court declines to rule on those objections. (Code Civ. Proc. § 437c(q).)

Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party can show evidentiary support for a pleading or claim and, if not, to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure Section 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-82.)

As to each claim as framed by the complaint, the plaintiff moving for summary judgment must satisfy the initial burden of proof by presenting proving each element of a cause of action. (Code Civ Proc. § 437c(p)(1).) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.) Once the plaintiff has met that burden, the burden shifts to the defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Code Civ. Proc. § 437c(p)(1).) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Procedural Defect

Plaintiffs formally noticed this motion under Code of Civil Procedure section 437c subdivision (t), which concerns summary adjudication of issues that are not fully dispositive of an issue of duty. As stated by Defendants in opposition, this provision only permits such a motion by stipulation of the parties, and no such stipulation was filed here. In reply, Plaintiffs contend that the motion is actually brought under subdivision (f), permitting summary adjudication of entire issues of duty, and the reference to subdivision (t) was a typographical error. Indeed, it is apparent from the moving papers, this motion concerns issues of duty raised verbatim in the First Amended Complaint. (See FAC ¶¶ 20, 42-44.) The Court therefore construes this motion as a motion brought under Code of Civil Procedure section 437c subdivision (f), and therefore will address the motion on its merits.

Issues #1-3: Duty Not to Represent Before Investigation, Analysis, and Disclosure

Plaintiffs argue that LLBS had a duty not to represent Plaintiffs in the underlying action before investigating, analyzing, and disclosing to Plaintiffs their analysis of whether Travelers’ reservation of rights created a potential or actual conflict of interest, and that they had a duty not to accept compensation for representing Plaintiffs before obtaining informed, written consent to any conflict.

1. Governing Legal Standard

Although Plaintiffs contend, as they have throughout this action, that this case is governed by California Rules of Professional Conduct Rules 1.4, 1.7, 1.8.6, and the principles outlined in San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, this Court has repeatedly held that the proper standard is set forth in Civil Code section 2860. (See, e.g., April 6, 2023 Minute Order.) This code section states, in relevant part:

(a) If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel. An insurance contract may contain a provision which sets forth the method of selecting that counsel consistent with this section.

(b) For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.

(Civ. Code § 2860(a)-(b).) In the interest of brevity, the Court will simply restate its ultimate conclusion, as reflected in its previous rulings, that the threshold issue under this section is whether, as stated in Civil Code section 2860(b), the outcome of the coverage issue could be controlled by counsel first retained by the Travelers Defendants, i.e., the LBBS Defendants. If the outcome of any coverage issue could not be controlled by LBBS, then there is no conflict of interest as to the underlying litigation as a matter of law.

2. Travelers’ Control over Defense

Plaintiffs begin with the premise that Travelers’ policy “appears to grant to Travelers a right to control the defense of a third party liability dispute.” (Motion p. 12:25-26.) In support of this premise, Plaintiffs quote the following language from the policy:

If Duty-to-Defend coverage is provided with respect to this Liability Policy as indicated in ITEM 7 of the Declarations, the Company will have the right and duty to defend any Claim covered by a Liability Coverage, even if the allegations are groundless, false or fraudulent, including the right to select defense counsel with respect to such Claim.

(Plaintiffs’ Separate Statement of Undisputed Material Fact No. 3.) This language does not, on its face, grant Travelers any power to control the defense of a third-party liability dispute. As Plaintiffs state, Travelers can only discharge a promise to defend claims by selecting legal counsel to defend those claims. That policy language is not evidence, by itself, that Travelers had any power to control Plaintiffs’ defense of the White Action. Ultimately, however, this argument is not truly relevant, as Plaintiffs argue that LBBS’s alleged duties arise out of the Rules of Professional Conduct, not the Policy.

3. Effect of Rule of Professional Conduct 1.7

In that vein, Plaintiffs next argue that Travelers’ reservation of rights necessarily raised the specter of a potential conflict of interest, triggering LBBS’s ethical obligations under Rule of Professional Conduct 1.7. As the Court has previously concluded, however, Rule 1.7 does not explicitly require insurance defense counsel assigned to a case with a reservation of rights to investigate and analyze potential conflicts of interest and make written disclosures to both the insured and the insurer merely because a reservation of rights exists. (April 6, 2023 Minute Order p. 5.)

Rule 1.7 of the California Rules of Professional Conduct provides, in relevant part:

(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.

Although Plaintiffs parce out different components of this rule to argue that LBBS had ethical duties to investigate, analyze, and disclose its analysis on the existence of a potential conflict of interest, Plaintiffs’ analysis is predicated, once again, on the conclusion that the mere existence of a reservation of rights creates a potential conflict of interest. Under Civil Code section 2860(b), however, Plaintiffs must first show that LBBS had some control over Plaintiffs’ coverage dispute with Travelers to assert the existence of even a potential conflict of interest. Otherwise, the facts and allegations of the White Action do not create a conflict of interest with Travelers as a matter of law.

4. Effect of Rule of Professional Conduct 1.4

Plaintiffs next argue that LBBS had a duty to disclose the effect of the reservation of rights under Rule of Professional Conduct 1.4. This rule provides, in relevant part:

(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which disclosure or the client’s informed consent is required by these rules or the State Bar Act;

(2) reasonably consult with the client about the means by which to accomplish the client’s objectives in the representation;

(3) keep the client reasonably informed about significant developments relating to the representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed; and

(4) advise the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Plaintiffs contend that LBBS had a duty to investigate, analyze, and disclose its analysis of the reservation of rights under this rule, independent of the requirement for disclosure pursuant to Rule 1.4(a)(1), because of a conflict under Rule 1.7, arising because the reservation of rights constituted a “significant development relating to the representation.” Plaintiffs make this assertion without reference to any authority establishing that the reservation of rights, by its mere existence, constitutes a significant development relating to the representation. The fact that Plaintiffs purportedly considered the reservation to be significant does not make it so, and, in fact, Plaintiffs are not entitled to the presumption of significance on a motion for summary adjudication. Nor are Plaintiffs entitled to the presumption on summary adjudication that LBBS’s explanation of the reservation of rights was reasonably necessary to permit Plaintiffs to make informed decisions regarding the representation.

5. Effect of Rule of Professional Conduct 1.6

Plaintiffs next argue that Rule of Professional Conduct 1.6 prohibits LBBS from representing Plaintiffs without investigating, analyzing, and disclosing their analysis of the reservation of rights. Rule 1.6, broadly summarized, prohibits a lawyer from disclosing a client’s confidential information without informed consent, subject to certain exceptions not relevant here. (Rule of Professional Conduct 1.6.) To be sure, this Rule prohibits LBBS from disclosing Plaintiffs’ confidential information to Travelers on its face, absent informed consent. However, nothing in this rule controls a lawyer’s ability to represent a client before obtaining that informed consent. Rule 1.6 is thus not relevant to the issues presented here.

As Plaintiffs have not demonstrated that the Rules of Professional Conduct prohibited LBBS from representing Plaintiffs without first investigating, analyzing, and disclosing their conclusions concerning Travelers’ reservation of rights, Plaintiffs are not entitled to summary adjudication of the first three issues raised.

Issue #4: Duty Not to Accept Compensation

Plaintiffs contend that LBBS had a duty not to accept compensation from Travelers to represent Plaintiffs before obtaining informed written consent under Rule of Professional Conduct 1.8.6. This rule provides:

A lawyer shall not enter into an agreement for, charge, or accept compensation for

representing a client from one other than the client unless:

(a) there is no interference with the lawyer’s independent professional judgment or with the lawyer-client relationship;

(b) information is protected as required by Business and Professions Code section 6068, subdivision (e)(1) and rule 1.6; and

(c) the lawyer obtains the client’s informed written consent at or before the time the lawyer has entered into the agreement for, charged, or accepted the compensation, or as soon thereafter as reasonably practicable, provided that no disclosure or consent is required if:

(1) nondisclosure or the compensation is otherwise authorized by law or a

court order; or

(2) the lawyer is rendering legal services on behalf of any public agency or

nonprofit organization that provides legal services to other public agencies

or the public.

(Cal. Rules of Professional Conduct Rule 1.8.6.) Contrary to Plaintiffs’ reliance on this provision, Comment [3] following this rule expressly states “[t]his rule is not intended to abrogate existing relationships between insurers and insureds whereby the insurer has the contractual right to unilaterally select counsel for the insured, where there is no conflict of interest.” (Id., Comment [3].) Therefore, this rule has no application to this case unless there is a conflict of interest. Since Plaintiffs have not shown that there is a conflict of interest as a matter of law, however, Plaintiffs have not demonstrated that this rule is applicable here. Plaintiffs have therefore failed to demonstrate that LBBS was required not to accept compensation for the representation without obtaining informed consent. Plaintiffs are therefore not entitled to summary adjudication on this issue.

CONCLUSION

Accordingly, Plaintiffs’ motion for summary adjudication is DENIED.

Plaintiffs to give notice, unless waived.

IT IS SO ORDERED.

Dated: May 9, 2023 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.