Judge: Upinder S. Kalra, Case: 23STCV08034, Date: 2023-10-30 Tentative Ruling

Case Number: 23STCV08034    Hearing Date: October 30, 2023    Dept: 51

Tentative Ruling

Judge Upinder S. Kalra, Department 51

HEARING DATE:   October 30, 2023                               

CASE NAME:           Warner Park Recovery Center, LLC v. Larisa Krichevsky, et al.

CASE NO.:                23STCV08034

MOTION TO DISQUALIFY MICHELMAN & ROBINSON, LLP AS COUNSEL FOR WARNER PARK RECOVERY CENTER, LLC

MOVING PARTY:  Defendant Anatoly Krichevsky

RESPONDING PARTY(S): Plaintiff Warner Park Recovery Center, LLC

REQUESTED RELIEF:

1.      An order disqualifying Michelman & Robinson, LLP as counsel for Plaintiff.

TENTATIVE RULING:

1.      Motion to disqualify Michelman & Robinson, LLP is GRANTED.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

On April 11, 2023, Plaintiff filed a Complaint against Defendants Larisa Krichevsky (Larisa), Anatoly Krichevsky (Anatoly), and Launch to Wellness Psychotherapy, Inc. (LTW). The Complaint alleges nine causes of action for: (1) violation of the California Comprehensive Computer Data Access and Fraud Act (Penal Code § 502); (2) interference with contract, (3) interference with economic relations; (4) breach of the fiduciary law of loyalty; (5) breach of an employment agreement; (6) aiding and abetting interference with contract; (7) aiding and abetting interference with economic relations; (8) aiding and abetting breach of the fiduciary duty of loyalty, and (9) unfair competition (Bus. & Prof. Code § 17200 et seq.).

According to the Complaint, Plaintiff is a behavioral outpatient treatment center in Woodland Hills. Larisa is a former employee and Anatoly is her husband.[1] Plaintiff alleges that Larisa accessed Plaintiff’s confidential and sensitive business and patient information and used it to begin a competing business, LTW. Plaintiff alleges that Larisa recruited Plaintiff’s employees to work for LTW. Plaintiff alleges that Anatoly helped Larisa access Plaintiff’s confidential information that Larisa could not access, contributed capital, and contributed services to LTW.

Anatoly filed an Answer on May 12, 2023.

On May 24, 2023, Plaintiff brought an ex parte application for TWO/OSC.[2] The court denied the TRO but issued an OSC why Anatoly should not be compelled to (1) restore Plaintiff’s access to Larisa’s Warner Park email account with emails preserved, and (2) provide administrative access of the email system to Oberlander.

Moving Defendant filed the instant motion on October 5, 2023. Plaintiff filed a timely opposition on October 17, 2023. Moving Defendant filed a timely reply on October 23, 2023.

LEGAL STANDARD:

“A judge’s authority to disqualify an attorney has its origins in the inherent power of every court in the furtherance of justice to control the conduct of ministerial officers and other persons in pending judicial proceedings.”¿(Neal v. Health Net, Inc.¿(2002) 100 Cal.App.4th 831, 840;¿see also¿Code Civ. Proc., § 128, subd. (a)(5) [“Every court shall have the power 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”].) “The power is frequently exercised on a showing that disqualification is required under professional standards governing avoidance of conflicts of interest or potential adverse use of confidential information.”¿(Responsible Citizens v. Superior Court¿(1993) 16 Cal.App.4th 1717, 1723-1724.)¿ 

¿ 

“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. [Citations.] 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. A client deprived of the attorney of his [or her] choice suffers a particularly heavy penalty where ... his [or her] attorney is highly skilled in the relevant area of the law.”¿(Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300.) “The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of one’s choice must yield to ethical considerations that affect the fundamental principles of our judicial process.”¿(People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145.) Generally, the disqualification of an attorney vicariously disqualifies his or her firm.¿(William H. Raley Co. v. Superior Court (1983)¿149 Cal.App.3d 1042, 1048–1049.)¿ 

ANALYSIS:

As a threshold matter, the court notes that Moving Party has standing to bring the instant motion because he is a has a pending motion for attorney’s fees and therefore maintains an interest in the pending litigation.[3] (See CCP § 1032(a)(4).)

Lack of Authority

Moving Party argues that Plaintiff’s members did not unanimously agree to retain the Michelman & Robinson, LLP (Michelman) and so they lack authority to represent Plaintiff. Additionally, Moving Party argues that the ethical considerations in Jarvis apply here. There, the Court determined that the attorney for the partnership was hired by one of the partners, and thus, the attorney might not adequately represent the partnership. (Jarvis v. Jarvis (2019) 33 Cal.App.5th 113, 140.) Plaintiff contends it validly retained Michelman to pursue claims in the ordinary course of its business. Moving Party replies that Michelman was retained to pursue claims against its members, which is prohibited.

An LLC’s operating agreement governs (1) relations among the members as members and between the members and the LLC, (2) the rights and duties of a person in the capacity of a manager, (3) the activities of the LLC and the conduct of those activities, and (4) the means and conditions for amending the operating agreement. (Corp. Code § 17701.10(a).) If an LLC is member-managed, no member acting in the capacity as member is an agent of the LLC or can bind it to an obligation. (Corp. Code § 17703.01(b)(1).) Every manager is an agent of the LLC and can bind it to an obligation unless the manager has no authority to do so. (Corp. Code § 17703.01(b)(2).) Except as otherwise provided in the Revised Uniform Limited Liability Company Act (RULLCA), any matter related to the activities of the LLC is decided exclusively by the managers. (Corp. Code § 17704.07(c)(1).) However, the consent of all members is required to (A) sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited liability company’s property, with or without the goodwill, outside the ordinary course of the limited liability company’s activities; or (B) except as otherwise provided in Corp. Code § 17710.01 et seq., any act outside the ordinary course of the LLC’s activities. (Corp. Code § 17704.07(c)(4).)

Here, Article 6 of the LLC Operating Agreement states in pertinent part:

·         6.1 AUTHORITY OF MANAGERS. All of the business and affairs of the Company shall be managed exclusively by the unanimous agreement of Managers. Notwithstanding anything herein to the contrary, the Managers shall have the full and exclusive right, power and authority to manage the affairs of the Company and to bind the Company, to make all decisions thereto, and to do or cause to be done any and all acts or things deemed by the Managers to be necessary, appropriate, or desirable to carry out or further the Business of the Company, including,  . . . .

·         6.1(e) Manage and control the LLC in all of its affairs as allowed by the law of the State of California.

·         6.2 LIMITATION OF AUTHORITY OF THE MANAGER. The following actions shall require the unanimous consent of the Members:

·         6.2(c) incurring a contractual obligation or making a capital expenditure;

·         6.2(g) incurring debts that are not in the ordinary course of business. (Declaration of Finkelshteyn, Exhibit 1.)

Plaintiff’s contention that Section 6.1 gave Kopytov authority to hire Michelman is misplaced. Section 6.2 specifically limits Kopytov’s power by requiring unanimous consent of the members before the LLC may enter into contracts, make capital expenditures, or incur debts that are not in the ordinary course of business. (Declaration of Finkelshteyn, Exhibit 1.) Retaining counsel to sue one of its members falls within Section 6.2 of the Operating Agreement and requires unanimous agreement from Plaintiff’s members.[4] (Corp. Code § 17704.07(c)(4).) Indeed, the August 15, 2022 letter from Michelman to Anatoly and Finkelshteyn indicate that “[t]his firm has been retained by [Plaintiff]” not by Kopytov as an individual “to investigate and, where appropriate, pursue claims against the Company’s minority Members, namely the two of you . . . .” (Declaration of Safyan, Exhibit 2.) (emphasis added.) On its face, the demand letter does not show Plaintiff’s intention to sue employees, but to sue its members which, as the court has already held, is outside the ordinary course of business. Since Anatoly and Finkelshteyn did not consent to such retention, it is invalid.[5] (Declaration of Finkelshteyn ¶ 6.; Declaration of Anatoly ¶ 4.)

Accordingly, there is good cause to disqualify Michelman.

Duty of Loyalty

Moving Party contends that Michelman breached its duty of loyalty to Plaintiff, a corporate entity, because it took sides in an ownership dispute between equal membership factions over control of the business.  Plaintiff contends that Michelman has only ever represented Plaintiff and has never represented Manager Kopytov in his individual capacity.

The court declines to pursue this avenue to disqualify Michelman because it is already disqualified due to lack of authority.

CONCLUSION:

            For the foregoing reasons, the Court decides the pending motion as follows:

1.      Motion to disqualify Michelman & Robinson, LLP is GRANTED.

Moving party is to give notice.

IT IS SO ORDERED.

Dated:             October 30, 2023                    __________________________________                                                                                                                Upinder S. Kalra

                                                                                    Judge of the Superior Court