Tuesday, February 17, 2009
Court Allows Qui Tam Action Against Sheppard Mullin to Proceed
By SHERRI M. OKAMOTO, Staff Writer
This district’s Court of Appeal is allowing a qui tam action under the False Claims Act by a former Los Angeles deputy district attorney to proceed against the law firm of Sheppard, Mullin, Richter & Hampton.
Div. Four in an unpublished opinion Wednesday, ruled that Sheppard Mullin’s demurrer to Matthew Monforton’s claims was improperly sustained by Los Angeles Superior Court Judge Michael L. Stern, but upheld Stern’s finding that the suit was not a SLAPP.
Monforton’s suit on behalf of the City of Cudahy—a small city in southeastern Los Angeles County near Maywood, Bell, and Bell Gardens—arose out of Sheppard Mullin’s representation of the city’s five council members during a 2001 grand jury investigation by the District Attorney’s Office into allegations that the members had violated conflict of interest laws in the appointment of former Councilman George Perez to the position of city manager.
The council executed a retainer agreement in which the city and the council members agreed to representation by Sheppard Mullin and provided that they agreed to waive conflicts that might arise from joint representation. The individual council members also signed conflict of interest waivers.
Conflicts of Interest
During the course of the investigation, the district attorney moved to disqualify Sheppard Mullin based on potential and actual conflicts of interest from the joint representation and Sheppard Mullin’s alleged failure to obtain informed consent to the joint representation.
Los Angeles Superior Court Judge David Wesley denied the motion, finding that any potential conflict had been intelligently and voluntarily waived.
Monforton claimed that Sheppard Mullin had orchestrated a “stonewall” defense for the individual council members, advising them not to cooperate with the grand jury investigation, which advanced the interests of the individual clients but was detrimental to the city’s interest in having the grand jury investigate the alleged illegality in Perez’s appointment.
In February 2004, Monforton, then a deputy district attorney, submitted a memorandum to his superiors detailing the firm’s alleged misconduct and asked that the matter be referred to the state Attorney General’s Office.
According to Monforton’s complaint, the District Attorney’s Justice System Integrity Division opened an investigation into the matter, and the attorney general declined to become involved because the District Attorney’s Office had not recused itself from the matter.
Subsequently, the Justice System Integrity Division informed Monforton that it would not be taking any action on the case, nor would the office recuse itself and allow the attorney general to step in, Morforton said.
Monforton submitted a second memorandum to his superiors in February 2005 requesting that the office recuse itself and refer the matter to the attorney general because of the conflict of interest presented by the personal, professional and financial ties between former Deputy District Attorney Robert Philibosian, a partner with Sheppard Mullin, and District Attorney Steve Cooley.
When the office did not respond affirmatively to that memo, Monforton filed a qui tam action against Sheppard Mullin and three of its individual attorneys.
He contended that the council members entered into a contract in which they had a personal financial interest by voting to approve the retainer agreement which provided representation for them as individuals, and that such a contract was void from the outset. As a result, Monforton argued, each time Sheppard Mullin submitted an invoice to the city it violated the False Claims Act.
Monforton also maintained that Sheppard Mullin violated the act by simultaneously representing both the city and its individual council members during the grand jury investigation, failing to obtain a valid conflict waiver from the city, falsely representing to the trial court that the city had consented to the joint representation, and then knowingly submitting false claims for money in the form of bills for legal services.
His complaint sought disgorgement of approximately $1 million in legal fees that the city had paid the firm, treble damages, and statutory penalties.
In January 2006, Monforton resigned from the District Attorney’s Office. He is currently practicing in Montana.
Sheppard Mullin demurred to the complaint, asserting that Wesley’s ruling denying the disqualification motion barred Monforton’s action under the doctrine of res judicata, and filed an anti-SLAPP motion.
The trial court denied the anti-SLAPP motion, but sustained the demurrers without leave to amend and dismissed the action.
Writing for the appellate court, Presiding Justice Norman L. Epstein noted that the issue in the disqualification hearing was the right of the city and council members to a conflict-free legal representation, but the issue in Monforton’s action was the city’s right to be free of an obligation arising from financial self-dealing by members of its city council.
Although some of the issues from the prior action were pertinent to the later one, Epstein reasoned that the claims were not identical and therefore the claim preclusion aspect of res judicata did not bar Monforton’s suit.
The question of financial self-dealing as a basis to void the retainer agreement was neither litigated nor necessarily decided by the prior determination in the grand jury proceeding that there was no conflict of interest from the joint representation, Epstein wrote.
But, as the prior action had addressed the issue of the validity of the conflict of interest waivers, Epstein reasoned the former ruling denying disqualification on this ground collaterally estopped Monforton from relitigating the issue.
As for the firm’s anti-SLAPP motion, Epstein explained that the special motion to strike procedure does not apply to actions brought solely in the public interest or on behalf of the general public.
Because Monforton sought to redress harm to the city without any personal advantage, and his action, if successful would vindicate the right of the city’s residents and result in the return to them of substantial funds improperly paid as attorney fees, Epstein reasoned the goal of the litigation was to further the public interest.
Although Monforton stands to recover a portion of any recovery in the litigation, Epstein emphasized, such an interest “must be discounted by the very real possibility that he may not prevail and the fact that, even if he does, he may receive nothing…,” concluding that the trial court correctly determined Monforton bore a disproportionate financial burden in prosecuting the suit in relation to his stake in the matter.
Justices Nora M. Manella and Steven C. Suzukawa joined Epstein in his opinion.
Los Angeles attorney Brian R. Condon represented Monforton, while David R. Garcia, Robert J. Stumpf Jr., Richard Delossa and Timothy C. Perry of Sheppard Mullin represented the firm and its individual co-defendants, including Philibosian.
The case is City of Cudahy ex rel. Monforton v. Sheppard, Mullin, Richter & Hampton, B196784.
Copyright 2009, Metropolitan News Company