Metropolitan News-Enterprise


Wednesday, March 22, 2023


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Court of Appeal:

Law Firm’s Use of Pilfered Emails Justifies Disqualification

Opinion Says Director Had Expectation of Privacy As to Emails Exchanged With Her Husband


By a MetNews Staff Writer


Corporations Code §1602, which authorizes a director to look at the corporation’s books and records, does not justfy one director sapping the emails of another director from the company’s account, the Court of Appeal for this district held yesterday in an opinion affirming an order disqualifying a law firm that received such purloined emails from its client and made use of them in another case invcolving parties to the present litigation.

The opinion, by Presiding Justice Dennis M. Perluss of Div. Seven, declares that Los Angeles Superior Court Judge Mark A. Young was justified in barring attorney Spencer Hosie and the law firm of Hosie Rice LLP from continuing to represent Ann Lawrence Athey (denominated “Lawrence” by Perluss), Rajesh Manek, and others in an action brought against them by Shauneen Militello. The plaintiff has pled numerous causes of action arising from Lawrence and Manek ousting her as an officer and director of Cannaco Research Corporation (“CRC”), a manufacturer and distributor of cannabis products which the three of them own.

Lawrence moved to disqualify Hosie and Hosie Rice LLP from representing Militello. The ground was that Militello had downloaded Lawrence’s emails, including privileged correspondence between Lawrence and her husband, Joel Athey (who is a defendant in Militello’s lawsuit) and that Hosie Rice used those emails in a separate lawsuit brought by CRC against Militello.

Although disqualification had been denied by Los Angeles District Court Judge Steve Goorvitch in CRC’s action, it was granted by Young in Militello’s lawsuit.

Perluss’s Opinion

In his opinion upholding Young’s order, Perluss said:

“The evidence before the trial court supported its finding that Lawrence reasonably expected her communications were, and would remain, confidential. And while we acknowledge disqualification may not be an appropriate remedy when a client simply discusses with his or her lawyer improperly acquired privileged information, counsel’s knowing use of the opposing side’s privileged documents, however obtained, is a ground for disqualification.”

Although Evidence Code §980 renders spousal communications presumptively privileged, Militello argued that Lawrence had no reasonable expectation of privacy in them because she knew her emails were on a Google communications platform, then known as “G Suite,” to which others in the company had access. Also, Lawrence pointed to the right of inspection under §1602.

No Evidence

Perluss wrote:

“As the trial court emphasized, Militello presented no evidence CRC had a policy of monitoring individual email accounts—there was no CRC company handbook with a policy prohibiting Lawrence from using her CRC email account for personal communications or indicating her account would be monitored to ensure compliance with that restriction—let alone that Lawrence had agreed to such a policy. In addition, the Google welcome message concerning the domain administrators ability to access data was not directed to Lawrence’s email account, and there was no evidence she ever received it.”

He went on to say:

“[I]it is by no means clear a director’s right to inspect corporate books and records includes the surreptitious review of another director’s individual email account on the company’s G Suite….CRCs bylaws do not define the pertinent terms, and neither the bylaws nor any other company document put Lawrence on notice her electronic communications with her husband through G Suite were not confidential.”

The presiding justice said that case law cited by Militello does not support “her assertion the general right to inspect corporate records, absent a specific policy concerning individual email accounts, defeated Lawrence’s reasonable expectation her communications with her husband would remain confidential.”

Goorvitch’s Contrary Ruling

Perluss added:

“To be sure, as Militello points out, the court in the CRC action denied the motion for disqualification because it concluded the communications did not provide Militello a strategic advantage in that lawsuit. But the issues in Militello’s affirmative lawsuit against Lawrence. Athey and others are very different from those necessary for her defense of the CRC action. And there is a very real potential that lawyers at Hosie Rice, having read the emails, as opposed to simply relying on Militello’s recollection of what they may have said, will be able to use that information throughout the litigation, for example, in drafting discovery requests and responses and preparing for trial….”

Looking at the matter from a policy standpoint, he said:

“[A]s the trial court ruled here, to allow continued representation of a client after counsel has been provided with, and then used, improperly obtained confidential information would undermine the public’s trust in the fair administration of justice and the integrity of the bar.”

The case is Militello v. VFARM 1509, 2023 S.O.S. 1062.

Spencer Hosie, Diane S. Rice and Darrell R. Atkinson of Hosie Rice represented Militello, as well as Hosie and the firm. Rachel L. Fiset and Jeanine Zalduendo of Zweiback Fiset & Zalduendo were counsel for Lawrence.


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