Judge Virginia Keeny, Case LC106864 2022-08-19 Tentative Ruling

Judge: Virginia Keeny, Case: LC106864, Date: 2022-08-19 Tentative Ruling

Case Number: LC106864 Hearing Date: August 19, 2022 Dept: W

lucky’s two-way radios, inc. et al., v. cannata

motion to disqualify counsel for frank j. cannata and motion for preliminary injunction

Date of Hearing: July 15, 2022 Trial Date: October 24, 2022

Department: W Case No.: LC106864

BACKGROUND

Plaintiffs Lucky’s Two-Way Radios, Inc. and Buddy Corporation (“LTWR”) allege that Frank J. Cannata (“Cannata”) was a consultant for Plaintiffs’ business pursuant to a consulting services agreement. While consulting for Plaintiffs, Cannata allowed or arranged for valuable company property to be taken by “Mr. Recycling” without Plaintiffs’ consent. Plaintiff further claims that on December 8, 2017, Cannata improperly transferred proprietary information via e-mail to personal accounts. Plaintiff alleges a loss of $500,000 in property.

Plaintiffs filed a complaint on February 13, 2018. The Second Amended Complaint (“SAC”) was filed on August 7, 2020, alleging: (1) Breach of Contract; (2) Conversion; (3) Breach of Fiduciary Duty; (4) Fraud and Fraudulent Concealment; (5) Specific Performance; and (6) Permanent Injunction

On March 29, 2019, the court granted Cannata’s motion for leave to file a cross-complaint. Cannata filed the first amended cross-complaint against Plaintiffs Lucky’s Two-Way Radios, Inc. and Buddy Corporation on April 10, 2019.

Cannata filed a second amended cross-complaint (“SAXC”) on August 2, 2019. The SAXC against Cross-Defendants alleges several causes of action including breach of contract, indemnity, labor code retaliation and wage and hour violations, false pretenses, fraud, battery, stored communications violations, trespass, and unfair competition.

On October 13, 2020, default was entered against Defendant because he failed to file an answer to the SAC. Default was set aside and vacated on December 17, 2020.

[Tentative] Ruling

I. Plaintiffs’ Motion to Disqualify Counsel is DENIED.

II. Plaintiffs’ Motion for Preliminary Injunction is GRANTED, in part.

discussion

I. Plaintiffs’ Motion to Disqualify Counsel

Request for Judicial Notice

In opposition to the motion for disqualify counsel, Defendant Cannata requests this court take judicial notice of several court documents. (See RJN, Exhs. A-Q.)

The court grants Defendant Cannata’s request for judicial notice as to the existence of the documents. (Evid. Code §452(d).)

Evidentiary Objections

Plaintiffs object to the Declaration of Frank J. Cannata in support of his opposition to the motion to disqualify counsel.

The court sustains objection nos. 1, 2, 6, 7, 12, 13, 16, 18, 19, 20, 21, 23, 24, 25, and 26.

The court overrules objection nos. 3, 4, 5, 8, 9, 10, 11, 14, 15, 17, and 22.

Discussion

Plaintiff Lucky’s Two-Way Radios Inc. and Buddy Corporation move this court to disqualify counsel for Defendant Frank J. Cannata on the grounds defense counsel, Levi Lesches and Lesches Law, violated Plaintiffs’ privileged and confidential material by failing to fulfill his ethical obligation under the law to cease review of privileged material and notify Plaintiffs’ counsel of his possession of it.

Pursuant to Code of Civil Procedure section 128(a)(5), the court’s power to control the conduct of the proceeding and its participants includes the power to disqualify an attorney. Whether an attorney should be disqualified is a matter addressed to the sound discretion of the trial court. (Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109, 113.) In determining whether disqualification is proper, the court must “weigh the combined effect of a party's right to counsel of choice, an attorney's interest in representing a client, the financial burden on a client of replacing disqualified counsel and any tactical abuse underlying a disqualification¿proceeding against the fundamental principle that the fair resolution of disputes within our adversary system requires vigorous representation of parties by independent counsel unencumbered by conflicts of interest.” (William H. Raley Co. v. Superior Court (1983) 149 Cal. App. 3d 1042, 1048.)

“A lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged [must (1)] refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and [(2)] immediately notify the sender that he or she possesses material that appears to be privileged.” (Clark v. Superior Court (2011) 196 Cal. App. 4th 37, 48, quoting State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal. App. 4th 644, 656. Accord, Rico v. Mitsubishi Motors Corp. (2007) 42 Cal. 4th 807, 818 [extending requirement to attorney work product].)

Rico also addressed the question of remedy when the attorney, having obtained privileged documents, did not comply with those obligations. Rico echoed State Fund’s caution that “’[m]ere exposure’ to an adversary’s confidences is insufficient, standing alone, to warrant an attorney’s disqualification” because “such a draconian rule . . . [could] nullify a party’s right to representation by chosen counsel any time inadvertence or devious design put an adversary’s confidences in an attorney’s mailbox.” (Rico, at 819.) Rico also stated, however, that “in an appropriate case, disqualification might be justified if an attorney inadvertently receives confidential materials and fails to conduct himself or herself in the manner specified above, assuming other factors compel disqualification.” (Id.)

Disqualification is warranted if instead of complying with the above obligations: (1) the attorney receives from his or her client documents that appear to be protected by the attorney client/work product privilege; (2) excessively reviews the documents; (3) does not immediately notify opposing counsel that they received privileged documents (or return the documents), (4) there is a genuine likelihood that the attorney’s conduct could affect the outcome of the litigation, and (5) the paramount concern of protecting the public trust in the administration of justice and integrity of the bar outweigh any infringement of the party’s right to the counsel of his or her choice. (Clark, supra, at 49-51.)

Plaintiffs contend Defendant Cannata, in breach of the NDA, took Plaintiffs’ confidential documents without permission after he had left working with Plaintiffs and provided these privileged and confidential documents to Mr. Lesches for use in connection with the present lawsuit. Plaintiffs further contend because Cannata forwarded the privileged and confidential emails and documents to his counsel, Mr. Lesches has become an essential and indispensable witness to Cannata’s breach of the NDA.

Defendant Cannata opposes the motion on several grounds including: (1) the motion is barred by Civil Procedure section 1008 as Plaintiff has already attempted to establish a right of injunctive relief against use of Cannata’s work e-mails; (2) Plaintiffs cannot sue Cannata for supposed acts and/or omissions while denying Cannata’s access to documents related to the defense of his case (See Solin v. O’Melveny Myers (2001) 89 Cal.App.4th 451, 461); (3) Plaintiff’s motion is untimely as it has been well over four years since litigation began; (4) Plaintiff cannot enforce the NDA prior to trial; (5) there is no undue advantage; (6) “[D]ecisional authority has consistently concluded that a party cannot improperly disclose confidential information to one's own counsel in the prosecution of one's own lawsuit.” (Neal v. Health Net, Inc. (2002) 100 Cal.App.4th 831, 841); (7) it is contrary to public policy to allow disqualification by an indemnitor that has denied indemnity without a substantial showing of good faith; and (8) the four-factor rule in determining a motion for disqualification weighs against disqualification.

First, the court notes Plaintiffs have not established the documents were privileged documents that were sent to defense counsel. This is unlike Clark (cited above), where some of the documents were explicitly designated as attorney-client privileged while Clark was employed by Verisign, counsel for Clark acknowledged (during the May through July correspondence between counsel attempting to resolve the document issues) that a substantial portion of the documents were privileged, and counsel for Clark conceded at oral argument below that some of the documents were privileged. (Clark, supra, 196 Cal.App.4th at p. 49.) The court also noted for the documents not labeled attorney-client privileged or documents not conceded as privileged by Clark’s counsel, Verisign’s counsel provided a declaration stating the identities of the parties to each of the sets of communications (one of whom was invariably either an in-house attorney or outside counsel) and the general nature of the purpose of the communication (all of which involved obtaining legal advice on a variety of subjects). (Ibid.)

None of this has occurred in this case. None of the documents have been explicitly designated as attorney-client privileged, Defense counsel has not conceded that the documents are privileged, and most of the documents do not appear to be by counsel or involve privileged communications. Essentially, Plaintiffs are asking this court to make a decision that should be left to the jury – whether Defendant violated the NDA by forwarding e-mails to his private Gmail account.

It is true that a few documents itemized by plaintiffs do reflect that attorneys are cc’d or where Plaintiff forwarded e-mails from attorneys to Cannata’s work e-mail. While the court does not know the content of those documents or whether other persons were copied on them that would vitiate the privilege, the court will presume for purposes of this motion that a limited set of documetns do contain privileged communications. The court, nonetheless, determines that plaintiff has needlessly and prejudicially delayed in bringing this motion to disqualify Mr. Lesches. Four years of aggressive litigation have passed since these documents were produced by Mr. Lesches to plaintiffs as part of the initial round of discovery. Plaintiffs should have moved immediately to obtain those documents and to disqualify Mr. Lesches. Having allowed these documents to remain with Mr. Lesches for years of litigation, the court finds Cannata has waived the privilege with respect to these documents. Moreover, it would be unduly prejudicial to permit plaintiff to disqualify Mr. Cannata’s counsel of choice only months before trial and after that counsel has expended hundreds of hours of labor on this case. In California, “the majority view appears to be that attorney disqualification can be impliedly waived by failing to bring the motion in a timely manner.” (Liberty National Enterprises L.P. v. Chicago Title Ins. Co. (2011) 194 Cal.App.4th 839, 845.) As noted by Cannata, Plaintiffs move to disqualify counsel based on documents produced on June 10, 2018. It is unclear to this court why Plaintiff waited so long to bring the motion to disqualify when the information was before Plaintiff for four years.

Even if Mr. Lesches was an indispensable witness, “whenever an adversary declares his intent to call opposing counsel as a witness, prior to ordering disqualification of counsel, the court should determine whether counsel's testimony is, in fact, genuinely needed.” (Reynolds v. Superior Court (1986) 177 Cal.App.3d¿1021, 1026.) Plaintiffs contend Mr. Lesches is an indispensable witness because Defendant forwarded the privileged and confidential documents to Mr. Lesches. However, Plaintiffs also note (and the basis of their allegations against Defendant) that Defendant forwarded the alleged confidential/privileged information to Defendant’s personal e-mail account and then to Mr. Lesches. As such, it does not appear that Mr. Lesches is genuinely needed as Plaintiffs contend the documents produced were first forwarded from Plaintiffs’ encrypted servers to Defendant’s personal account. “The right of a party to be represented in litigation by the attorney of his or her choice is a significant right (see Lyle v. Superior Court, (1981) 122 Cal.App.3d 470, 481, 175 Cal.Rptr. 918) and ought not to be abrogated in the absence of some indication the integrity of the judicial process will otherwise be injured or the adverse party will otherwise be unfairly disadvantaged by the use of confidential information obtained as a result of the earlier representation. (Id., at p. 482, 175 Cal.Rptr. 918.).” (Johnson v. Superior Court (1984) 159 Cal.App.3d 573, 580.) Moreover, if defendant establishes that Mr. Lesches in indispensable and must be called by it as part of its case, provided Mr. Cannata waives any objection, the court would permit him to testify.

As such, the court denies Plaintiffs’ motion to disqualify counsel.

II. Plaintiffs’ Motion for Preliminary Injunction

Request for Judicial Notice

Plaintiffs request this court take judicial notice of the following document: Frank J. Cannata’s August 2, 2019, Motion for Summary Adjudication – Memorandum of Points and Authorities and Compendium of Exhibits, Vol 3, 6-75.

The court grants Plaintiffs’ request.

Discussion

Plaintiffs move this court for an order enjoining Defendant Frank J. Cannata and his Counsel, Levi Lesches, Esq., as well as all experts, employees, agents, and persons acting with him or on his behalf from maintaining, reviewing, studying or using documents containing Plaintiffs’ confidential trade secret information and/or confidential attorney-client communications, which Plaintiffs allege Cannata emailed to his personal Gmail account in violation of the Non-Disclosure Agreement he signed with LTWR and then emailed to counsel.

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. (See Scaringe v. J.C.C. Enterprises, Inc. (1988) 205 Cal.App.3d 1536.) The status quo has been defined to mean the last actual peaceable, uncontested status which preceded the pending controversy. (14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.) Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. (See, e.g., ReadyLink Healthcare v. Cotton (2005) 126 Cal.App.4th 1006, 1016; Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 150.) Injunctive relief may be granted based on a verified complaint only if it contains sufficient evidentiary, not ultimate, facts. (See CCP §527(a).) For this reason, a pleading alone rarely suffices. (Weil & Brown, California Procedure Before Trial, 9:579, 9(ll)-21 (The Rutter Group 2007).) The burden of proof is on the plaintiff as moving party. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) A plaintiff seeking injunctive relief must show the absence of an adequate damages remedy at law. (CCP §526(4); Thayer Plymouth Center, Inc. v. Chrysler Motors (1967) 255 Cal.App.2d 300, 307.)

The trial court considers two factors in determining whether to issue a preliminary injunction: (1) the likelihood the plaintiff will prevail on the merits of its case at trial, and (2) the interim harm the plaintiff is likely to sustain if the injunction is denied as compared to the harm the defendant is likely to suffer if the court grants a preliminary injunction. (CCP §526(a); Husain v. McDonald’s Corp. (2012) 205 Cal.App.4th 860, 866-67.) The balancing of harm between the parties “involves consideration of such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo.” (Husain, supra, 205 Cal.App.4th at 867.) Thus, a preliminary injunction may not issue without some showing of potential entitlement to such relief. (Doe v. Wilson (1997) 57 Cal.App.4th 296, 304.) The decision to grant a preliminary injunction generally lies within the sound discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion. (Thornton v. Carlson (1992) 4 Cal.App.4th 1249, 1255.)

As an initial matter, the court denies the motion as to Mr. Lesches. “A preliminary injunction is warranted only if there is on file a complaint which states a sufficient cause of action for injunctive relief of the character embraced in the preliminary injunction. [Citation.] The essential conditions for granting temporary injunctive relief are that the complaint allege facts which appear to be sufficient to constitute a cause of action for injunction and that the injunction is reasonably necessary to protect the legal rights of the plaintiff pending litigation.” (Moreno Mut. Irr. Co. v. Beaumont Irr. Dist. (1949) 94 Cal.App.2d 766, 778 [internal citations omitted].) No complaint has been brought against Mr. Lesches.

As for Cannata, the court finds Plaintiffs have met their burden in establishing a likelihood that Plaintiffs will prevail on the merits of its case at trial and the likelihood that they will sustain interim harm if the injunction is denied as compared to the harm Cannata is likely to suffer if the court grants a preliminary injunction. Though Plaintiffs raise several causes of action against Cannata, the court only considers the causes of action related to the alleged violation of the NDA. Plaintiffs have shown all the necessary elements to a breach of contract claim including the existence of an agreement between the parties; Cannata breached his obligations under the NDA by failing to maintain the confidentially of sensitive, proprietary, trade secret, attorney-client communications and confidential company documents by making these documents available outside the scope of Plaintiffs’ encrypted servers; Plaintiffs performed all promises, conditions, and covenants on its part; and Plaintiffs have been damaged as a result.

Plaintiffs have also demonstrated Plaintiffs’ harm would be great if the injunction were not issued since Plaintiffs have no other way to prevent Cannata from further distribution of the purported confidential and privileged documents or destruction of said documents. Accordingly, Plaintiffs would suffer irreparable harm if their privileged and confidential documents were further shared and the preliminary injunction will be necessary to maintain the status quo.

In opposition, Cannata argues the motion for preliminary injunction should be denied because (1) the motion is barred by the Code of Civil Procedure section 1008; (2) Plaintiffs cannot sue Cannata for supposed acts and/or omissions while denying Cannata’s access to documents related to the defense of his case (See Solin v. O’Melveny Myers (2001) 89 Cal.App.4th 451, 461); (3) Plaintiffs cannot enforce an NDA prior to trial; and (4) there is no undue advantage.

The first preliminary injunction in 2018 generally sought to enjoin Defendant Frank Cannata and his agents, and persons acting with him or on his behalf, from illegally using or distributing Plaintiffs’ sensitive, proprietary, trade secret and confidential company documents and information obtained from Plaintiffs (specifically including User names and passwords to over 30 communications sites) to sabotage or cause damage to the Plaintiffs’ communication sites, and other. (See Motion for Preliminary Injunction, March 15, 2018.) In the current motion, Plaintiff seeks to enjoin Defendant Frank J. Cannata and his Counsel Levi Lesches, Esq. and all experts, employees, agents, and persons acting with him or on his behalf, from maintaining, reviewing, studying or using the following documents containing Plaintiffs’ confidential trade secret information and/or confidential attorney-client communications which Mr. Cannata emailed to his personal Gmail account in violation of the Non-Disclosure Agreement he signed with LTWR and then emailed to Mr. Lesches on or about April to June 2018. As such, the two motions are not related and the instant motion is not seeking reconsideration of a prior ruling.

Next, the court finds the facts in the instant matter differ than the facts in Solin. In Solin, the court held “Evidence Code section 958 . . . . provides: ‘There is no privilege under this article as to a communication relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship.’ This is so because ‘[i]t would be unjust to permit a client ... to accuse his attorney of a breach of duty and to invoke the privilege to prevent the attorney from bringing forth evidence in defense of the charge ....’” (Solin v. O'Melveny & Myers, LLP (2001) 89 Cal.App.4th 451, 463–464.) In other words, it would be unjust to permit a client to accuse his attorney of a breach of duty, and to invoke the privilege to prevent the attorney from bringing forth evidence in defense of the charge. Here, it is unclear how Cannata cannot effectively represent himself in the action against him without reference to and use of these documents. An employee cannot engage in self help, in violation of an NDA, by taking his employer’s documents and trade secrets and refuse to return them when he is sued by the employer for breach of the NDA. What should transpire is that the employee return the documents and then seek those that are relevant to the employee’s defense through proper discovery.

Lastly, Cannata has not shown that Lucky cannot enforce the NDA before trial.

Nonetheless, the request for a preliminary injunction is overbroad to the extent that it would require Cannata and his counsel to return all of the 1-600 documents and not rely upon them in preparation for trial. First, plaintiff has known about Cannata’s possession of these documents for four years but done nothing to obtain their return. Thus, plaintiff cannot show that it will be irreparably harmed by defendant’s continued possession of these documents. Further, the documents have now been produced so many times that it is impossible to remove them from the discovery record in this case. Even if Cannata returned the original emails and deleted the same from his hard drive, copies of the emails were produced in discovery and must remain part of the “record” in this case. The only harm that plaintiff can establish is that which would flow from distribution of these documents to third parties not retained by Cannata’s counsel to assist with the trial. Therefore, the court will grant the motion for preliminary injunction to the limited extent that Cannata be prevented from disclosing these materials to third parties.

Accordingly, Plaintiffs’ Motion for Preliminary Injunction is GRANTED, in part.