Monday, January 4, 2016
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Where Lawyers Had Been Representing a Corporation…
Law Firm Must Be Disqualified From Representing Shareholder in Action Against Corporation—C.A.
Márquez Says Disqualification Is Not ‘Generally Disfavored’
By a MetNews Staff Writer
The Sixth District Court of Appeal has ruled that the trial court erred in refusing to disqualify a law firm from representing a shareholder in a corporation who had brought a cross complaint against the corporation and the other two shareholders, where that firm had been doing work for the corporation.
Wednesday’s opinion reverses Santa Clara Superior Court Judge Peter H. Kirwan. It requires that the Bay Area law firm of Casas, Riley & Simonian, LLP be barred from further representation of defendant and cross-complainant Steven Johnson, of three shareholders in the construction firm, Think It, Love It, Construct It, Inc. (“TLC”).
TLC was incorporated in April 2002, and continuously since then, Johnson, James J. M’Guinness and Scott Stuart, have been the officers and directors, each being a one-third shareholder.
The action was brought by M’Guinness against Johnson, for breach of fiduciary duty, and against the corporation, seeking its involuntary dissolution. Johnson responded with a cross-complaint against M’Guinness, TLC, and Stuart.
The three cross-defendants on May 31, 2013 moved to have the Casas firm removed as counsel for Johnson, arguing that it had been representing TLC since 2006.
Kirwan on Sept, 20, 2013, denied the motion, saying that “disqualification is a drastic measure, it is generally disfavored and should only be imposed when absolutely necessary.”
Disagreeing, Court of Appeal Justice Miguel Márquez wrote:
“We conclude the trial court abused its discretion in denying the motion to disqualify. The undisputed facts demonstrate that the Law Firm continued to represent TLC through the time the lawsuit was instituted. If a party moving to disqualify an attorney establishes concurrent representation, the court is required, ‘in all but a few instances,’ to automatically disqualify the attorney without regard to whether the subject matter of the representation of one client relates to the representation of a second client in the lawsuit.…Thus, the Law Firm should have been automatically disqualified.”
Márquez added:
“We also conclude that, while disqualification is a drastic measure and motions to disqualify are sometimes brought by litigants for improper tactical reasons, disqualification is not ‘generally disfavored.’ Indeed, when the circumstances of a disqualifying conflict exist—such as here, where the Law Firm concurrently represented TLC at the time it appeared on behalf of Johnson in this litigation—disqualification is required.”
The jurist acknowledged that U.S. District Court decisions in California have referred to disqualification as being “disfavored,” but noted that federal court interpretations of California law are not binding on the state courts, and stressed that the state Supreme Court has never made such an utterance. Márquez said that a Court of Appeal case Johnson pointed to “cannot be read as establishing that the per se disqualification rule for concurrent representation conflicts is negated by the supposedly disfavored nature of disqualification motions.”
The case is M’Guinness v. Johnson, 16 S.O.S. 11.
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