Thursday, February 14, 2002
Arbitration Ruling No Bar to Conflict-of-Interest Suit Against Ex-Lawyers, Court of Appeal Rules
By KENNETH OFGANG, Staff Writer/Appellate Courts
An arbitration ruling denying a motion to disqualify a law firm from representing adversaries of its former clients did not preclude the ex-clients from suing for conflict of interest, this district’s Court of Appeal ruled yesterday.
Div. Four reinstated a suit by Pour Le Bebe, Inc., a retailer of children’s clothing, against Mitchell Silberberg & Knupp, LLP. Pour Le Bebe claims that Mitchell Silberberg breached its duty of loyalty to the company when it later agreed to represent Guess? Inc. in an arbitration proceeding in which Guess? sought to terminate a licensing agreement.
Pour Le Bebe and its principles 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 PLB in any matter relevant to the dispute with Guess?.
PLB 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.
PLB then returned to the arbitrators, claiming newly discovered evidence of a disqualifying conflict. The arbitrators then denied the motion again.
Mitchell Silberberg later moved for summary judgment, which Los Angeles Superior Court Judge James R. Dunn granted. The judge held that the arbitrators’ denial of the motion to disqualify barred the suit under the principles of res judicata.
But Justice Daniel Curry, writing yesterday for the Court of Appeal, said that collateral rulings in private arbitration proceedings are not res judicata absent a stipulation to the contrary.
The proceedings on the disqualification motion, the justice explained, were clearly collateral to the underlying dispute over the licensing agreement. There was no evidentiary hearing, the justice noted, and Mitchell Silberberg was not a party to the arbitration, in which it was acting on behalf of Guess?, not itself.
Treating the motion to disqualify as a separate proceeding for res judicata purposes, Curry added, would be contrary to public policy. It would turn every such motion into “a life or death struggle between the attorney and the prior client” and require the parties to the underlying dispute to “stand aside while the issue was fully addressed by discovery, testimony, etc,” the justice reasoned.
Philip Heller and Jerold Fagelbaum of Fagelbaum & Heller represented PLB on appeal. Peter B. Gelblum and David A. Steinberg of Mitchell Silberberg represented their firm.
The case is Benasra v. Mitchell Silberberg & Knupp, 02 S.O.S. 823.
Copyright 2002, Metropolitan News Company