Monday, November 8, 2004
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C.A.: Conflict-of-Interest Suit Against Law Firm Is Not SLAPP
By KENNETH OFGANG, Staff Writer/Appellate Courts
An action charging the law firm of Mitchell, Silberberg & Knupp with breaching its duty of loyalty to a client by representing a party with adverse interests in an arbitration proceeding is not a strategic lawsuit against public participation, the Court of Appeal for this district ruled Friday.
Overturning a contrary ruling by Los Angeles Superior Court Judge Victor H. Person, Div. Four ruled that the plaintiffs in the action, Pour Le Bebe, Inc. and its principals, were suing Mitchell Silberberg for its alleged unethical conduct rather than for any constitutionally protected statements it might have made on behalf of its new client.
Pour Le Bebe, a manufacturer of children’s clothing, claims that Mitchell Silberberg breached its duty of loyalty to the company when it agreed to represent Guess? Inc. in the arbitration proceeding. Guess? brought that proceeding in an effort to terminate a licensing agreement.
Disqualification Sought
Pour Le Bebe and its principals asked the arbitrators and the Superior Court to disqualify Mitchell Silberberg. The arbitrators denied the motion after Mitchell Silberberg insisted that it had never represented the company in any matter relevant to the dispute with Guess?.
The company then sued the law firm, seeking injunctive relief and damages. A motion for a temporary restraining order was denied on the ground that the issue had already been submitted to the arbitrators.
Mitchell Silberberg eventually won a summary judgment after Los Angeles Superior Court Judge James R. Dunn held that the arbitrators’ denial of the motion to disqualify barred the suit under the principles of res judicata. But the Court of Appeal reversed, holding that collateral rulings in private arbitration proceedings are not res judicata absent a stipulation to the contrary.
After the case returned to the trial court, Pour Le Bebe was granted leave to amend its complaint to add two former Mitchell Silberberg lawyers—Daniel Petrocelli and Robert Welsh, both now with O’Melveny & Myers—as individual defendants.
The defendants then filed their anti-SLAPP motion. Petrocelli and Welsh also filed a demurrer based on the statute of limitations.
In support of the anti-SLAPP motion, the defendants reiterated their argument that they did not represent Pour Le Bebe in any matter at the time of the arbitration and never represented it with regard to matters relevant to the dispute with Guess?. They also insisted that they did not obtain or improperly disclose confidential information, and that in no event did anything they learned while representing Pour Le Bebe affect the outcome of the Guess? arbitration.
In response, plaintiff Michel Benasra declared that he was “relentlessly” cross-examined by Petrocelli during the arbitration about various personal and financial matters, including his Paris apartment, “a ring I gave to Sharon Stone,” and “the purported connection between my personal expenses and PLB’s problems in paying royalties.”
Petrocelli would not have known about those matters if his firm had not previously represented Pour Le Bebe, the company argued.
In ruling that the suit was a SLAPP, Person concluded that the firm was being sued on account of its representation of a client, thus implicating its free speech and petition rights. He also ruled that the plaintiffs did not show a likelihood of success on the merits, reasoning that even if there was a conflict of interest, there was no evidence that it proximately caused the damages the plaintiffs were claiming.
Jespersen Cited
But Justice Daniel Curry, writing for the Court of Appeal, noted that after the case was dismissed, Div. Four ruled in Jespersen v. Zubiate-Beauchamp (2003) 114 Cal. App. 4th 624 that an anti-SLAPP motion does not lie in defense of a legal malpractice suit merely because the suit is allegedly based on statements made by counsel in the course of the underlying action.
To rule otherwise, Justice J. Gary Hastings wrote in Jespersen, would “turn garden-variety attorney malpractice into a constitutional right.”
Similar reasoning applies in Pour Le Bebe’s breach-of-duty suit, Curry wrote Friday.
“The breach of fiduciary duty lawsuit may follow litigation pursued against the former client, but does not arise from it,” the justice wrote.
In a footnote, Curry pointed out that the demurrer brought on behalf of Petrocelli and Welsh was never resolved because it was moot in light of the granting of the motion to strike.
The opinion was joined by Presiding Justice Norman Epstein and Los Angeles Superior Court Judge Elizabeth Grimes, sitting by designation.
Attorneys on appeal were Philip Heller and Jerold Fagelbaum of Fagelbaum & Heller for Pour Le Bebe, Thomas P. Lambert, Peter B. Gelblum and David A. Steinberg of Mitchell Silberberg for all defendants, and James W. Colbert III of O’Melveny & Myers for Petrocelli and Welsh.
The case is Benasra v. Mitchell, Silberberg & Knupp, B166653.
Copyright 2004, Metropolitan News Company