Thursday, April 19, 2007
Attorney Who Gave Restaurateur Business Plan Advice Could Not Represent Her Joint Venture Partners—C.A.
By TINA BAY, Staff Writer
A lawyer who briefly advised a restaurateur concerning a possible commercial lease and partnership arrangement with an investor could not, after the arrangement failed, represent the restaurant owner’s subsequent joint venture partners in a dispute involving the same business, this district’s Court of Appeal ruled yesterday.
Affirming an order by Santa Barbara Superior Court Judge James Brown, Div. Six held attorney Richard I. Wideman—who now resides in Charlottesville, Virginia—was properly disqualified from representing the defendants in a lawsuit brought by Italian restaurant owner Laura Knight.
Knight, who founded the popular Pascucci eatery in Santa Barbara in the 1990s, sued her sister and brother-in-law Paula and Perry Ferguson in 2005 over the launching of Pascucci’s Goleta branch location at Camino Real Marketplace.
The Fergusons had agreed to finance the venture and participate in the ownership and management of the new location, which opened in July 2005. In her suit, Knight sought dissolution of the branch location, alleging her partners beached their duties as corporate directors and improperly removed her from her management and oversight duties at the restaurant.
Represented by Wideman, the Fergusons pursued a cross-complaint against Knight claiming among other things that she failed to manage the restaurant properly, tried to undermine their control, and made false promises, including that she would run the business as a corporation when she secretly intended to operate it as a sole proprietorship.
The cross-complaint, which stated causes of action for fraud, breach of contract, and breach of fiduciary duties, also alleged the Fergusons relied to their detriment on Knight’s promises concerning the commercial lease and incurred liabilities when they became the assignees of the lease.
Knight moved to disqualify Wideman on the ground that he had previously obtained confidential information from her regarding her feelings about litigation and her position relating to the commercial lease.
Before Knight’s arrangement with the Fergusons materialized, Wideman—who was also the Fergusons’ attorney at the time—had met with the restaurateur to discuss her plans to partner with investor Steven Sponder. Billing Knight for his consultations, Wideman advised her concerning the contemplated partnership arrangement with Sponder and a ground lease assignment she and Sponder had negotiated with the bankrupt Chevy’s at Camino Real Marketplace.
The arrangement with Sponder ultimately fell through, and Knight asked her sister and brother-in-law to take his place.
Wideman attacked Knight’s claim that he had received confidential information during the meetings concerning Sponder.
In opposition to her motion, the lawyer said his meetings with Knight were conducted in the company of her attorney Eric Burkhardt as well as the Fergusons.
He stated that after telling Knight that he was “the Fergusons’ attorney” and that they had asked him to help her, and obtaining her consent to pay him for the consultation, Wideman proceeded to talk with her about “potential litigation” involving Sponder.
Knight told Wideman that Sponder had attempted to change the terms of a partnership agreement for the purchase of Chevy’s in the Camino Real Marketplace, and that she was “concerned about litigation against her should she go forward with the deal by herself,” Wideman said.
The consultations allegedly closed with him advising Knight to send a “put-up-or go-away” letter to Sponder, and suggesting a possible preemptive lawsuit.
At the disqualification hearing, Knight testified that she had met with Wideman three times and expected him to be her “litigation counsel.”
Burkhardt testified that he understood Wideman had represented the Fergusons in the past, and that he was representing both the Fergusons and the Knights at least in “certain regards” at the time of the consultation.
Granting Knight’s disqualification motion, Brown found that Wideman’s role as litigation counsel was “brief, but was not peripheral.” The confidential information that would have normally been imparted to Wideman in such a representation was material to the Knight-Ferguson dispute, the judge concluded.
Writing for Div. Six, Presiding Justice Arthur Gilbert agreed that there was substantial relationship between Wideman’s representation of Knight and his current clients.
Rejecting the Fergusons’ contention that his consultations with Knight were remote and peripheral, Gilbert explained that they occurred at “a critical stage”—when Knight was creating the business entity at issue—and dealt with information that Wideman could use to the Fergusons’ advantage.
The justice noted:
“[I]n addition to the meetings he had with Knight, Wideman also communicated with Burkhardt to develop a strategy which anticipated possible future litigation relating to the agreement with Sponder. This, in turn, set the framework for the Fergusons to take over his partnership interest. Wideman also advised Burkhardt how to deal with Chevy’s, which facilitated the legal groundwork for Knight and the Fergusons to later assume the Chevy’s lease.”
Gilbert pointed out that the Fergusons’ presence at the Wideman’s meetings with Knight failed to “sufficiently attenuate” his conflict.
“To separate the conflict from the two sets of clients is to separate the silk from the thread,” he wrote. “It cannot be done.”
Justices Paul H. Coffee and Steven Z. Perren concurred in the opinion.
The case is Knight v. Ferguson, B194512.
Copyright 2007, Metropolitan News Company