Case Number: SC120764 Hearing Date: April 18, 2014 Dept: O

SC120764
LANE v. MUNAR

Defendants’ Motion to Disqualify is DENIED. While counsel’s representation may implicate the advocate-witness rule, Plaintiffs have expressly consented to continued representation despite being informed of the likelihood that counsel will be called as a witness. See Opposition, Ex. D. Under these facts, the Court may only order disqualification if there is a clear showing that Defendants will suffer prejudice if counsel were allowed to continue representing Plaintiffs, or that continued representation will injure the integrity of the judicial process. Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 578-579. Defendants fail to demonstrate either factor and as such, Plaintiffs’ choice of counsel must be honored.

ANALYSIS: Defendants move to disqualify Plaintiffs’ counsel on grounds that Plaintiffs’ counsel is a percipient witness to the transactions at issue in this matter. Plaintiffs’ counsel negotiated the deals that gave rise to this action on Plaintiffs’ behalf. Defendants argue their dual status as both advocate and witness in this action is impermissible and requires disqualification.

In response, Plaintiffs argue that there is no authority permitting disqualification of counsel where no conflict of interest is alleged. Plaintiffs have executed a consent to continued representation by Ross under Professional Rule of Responsibility 5-210(c) and absent any showing of prejudice by Defendant, this should resolve any issues arising from counsel’s potential role as both advocate and witness.

Pursuant to CCP 128(a)(5), one of the court’s powers is to control the conduct of its ministerial officers and of all other persons in any manner connected with a judicial proceeding before it in furtherance of justice. That power includes disqualifying an attorney. The issue of disqualification ultimately involves a conflict between the clients’ right to counsel of their choice and the need to maintain ethical standards of professional responsibility. The paramount concern, though, must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar. The recognized and important right to counsel of one’s choosing must yield to considerations of ethics that run to the very integrity of our judicial process. (Metro-Goldwyn Mayer v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1838.) Whether an attorney should be disqualified is a matter addressed to the sound discretion of the trial court. (Henriksen v. Great American Savings & Loan (1992) 11 Cal. App. 4th 109, 113.)

Rule of Professional Conduct 2-111(A)(4) was amended in 1989 to provide, “If upon or after undertaking employment, a member of the State Bar knows or should know that the member ought to be called as a witness on behalf of the member’s client in litigation concerning the subject matter of such employment, the member may continue employment only with the written consent of the client given after the client has been fully advised regarding the possible implications of such dual role as to the outcome of the client’s cause and has had a reasonable opportunity to seek the advice of independent counsel on the matter.” (Prior to 1989, under the former version of the rule, the attorney was required to withdraw.) Under the new rule, the trial court still has discretion to order withdrawal of counsel in instances where an attorney or a member of the attorney’s law firm ought to testify on behalf of his client. The amended rule, however, changes the emphasis which the trial court must place upon the competing interests, in reaching its decision. Under the amended rule, the trial court, when balancing the several competing interests, should resolve the close case in favor of the client’s right to representation by an attorney of his or her choice. Under the present rule, if a party is willing to accept less effective counsel because of the attorney’s testifying, neither his opponent nor the trial court should be able to deny this choice to the party without a convincing demonstration of detriment to the opponent or injury to the integrity of the judicial process. (Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 578-579 [citations omitted].)

Plaintiffs have already consented to continued representation by Robert Ross and his firm. Plaintiffs are fully aware of the possibility that Ross or members of his firm may be called as witnesses. Defendants fail to demonstrate that they will be prejudiced if the Court allowed Ross to continue representing Plaintiffs. Defendants also fail to demonstrate any danger that continued representation will injure the integrity of the judicial process. Thus, while the advocate-witness rule may be grounds for disqualification, it is not grounds to do so in this instance.

Defendants maintain Kennedy v. Elridge (2011) 201 Cal.App.4th 1197, 1208 mandates disqualification in a proceeding where an attorney is both advocate and witness. However, Kennedy does not stand for this proposition. Kennedy disqualified counsel based on both a conflict of interest and the advocate-witness rule. The unique facts of Kennedy supported a finding that the integrity of the judicial process would be injured if counsel were allowed to continue as both advocate and potential witness: “The wisdom of the advocate-witness prohibition is vividly exemplified in this family law dispute, where it is probable that Richard may not only provide important testimony affecting the outcome, but actually represent his son in an adversarial role against the mother of his grandson. Under no judicially tolerable circumstance can Richard effectively perform such multiple, awkward and conflicting duties.” No such facts exist in this case, an ordinary business dispute.
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X-Defendants’ Demurrer to the 1st and 2nd causes of action is OVERRULED as to the 1st c/a and SUSTAINED W/O LEAVE as to the 2nd c/a. The breach of contract claim alleges the material terms of the contract at ¶¶9 and 10 and X-Defendants’ breaches at ¶24. However, the 2nd c/a for breach of implied covenant is properly dismissed as duplicative.

ANALYSIS: The elements for a breach of contract cause of action are: (1) the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) resulting damages. See Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830. A written contract may be pleaded either in haec verba (word for word) or generally “according to its legal intendment and effect.” See Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199. A written contract may be pleaded either in haec verba (word for word) or generally “according to its legal intendment and effect.” See Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.

X-Defendants demur to the 1st and 2nd causes of action for breach of contract and breach of implied covenant of good faith and fair dealing. X-Defendants argue the contracts are insufficiently alleged because material terms are omitted or insufficiently alleged. The contracts that were allegedly breached are identified and referred generally to as the “XDC and Remix Agreements” and those agreements are defined in ¶¶9 and 10. X-Complainant sufficiently alleges the material terms according to legal effect, which is an acceptable option to pleading in haec verba. See X-Complaint, ¶¶9 and 10. X-Complainant also alleges X-Defendants’ breach in detail at ¶24, including the failure to pay X-Complainant his share of the profits from XDC and Remix and failing to provide capital for both entities. The demurrer to the 1st c/a is therefore overruled.

However, the 2nd for breach of implied covenant is duplicative, as it merely alleges breach of the express covenants and the contracts are not insurance contracts. “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. Thus, absent those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394-1395. Under these circumstances, the demurrer to the 2nd c/a for breach of implied covenant is properly SUSTAINED W/O LEAVE TO AMEND.
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Plaintiffs’ Motion to Compel Further Responses to Form Rog 17.1 and RFPs is GRANTED. Defendant HIN Holdings, Inc. is ordered to serve further responses within 20 days. Defendant HIN Holdings, Inc. and Defense counsel are ordered to pay sanctions in the amount of $3,060.

Defendants’ Motion to Quash is DENIED. HIN corporate defendants move to quash a depo subpoena served on Citibank, NA. The depo subpoena seeks documents pertaining to deposits and withdrawals from the HIN corporate accounts and any documents evidencing the signatories on those accounts. Defendants’ objections based on financial privacy and CC 3295 are overruled. The information is directly relevant to the underlying claims. The privacy interest of the corporation is also weak.

Motion to Compel Further Responses

Plaintiffs seek to compel further responses to Form Interrogatory 17.1(d) and RFP Nos. 1-13, 15 and 16. Subsection (d) asks that the responding party identify all documents supporting any RFA responses that are not unqualified admissions and to identify the persons who possess those documents. The RFPs all pertain to corporate documents of HIN Holdings, Inc., including financial and formation documents. Defendants responded to Form Rog 17.1 with either (1) an agreement to identify the documents or (2) a statement that it was in the process of locating and identifying responsive documents.

Defendant’s opposition fails to justify the failure to fully and completely respond to the Form Interrogatory and the RFPs. Defendant claims it is producing supplemental documents and in the process of reviewing additional potentially responsive documents.

With regard to the Form Rog responses, they are patently deficient. Defendants’ responses to subsection (d) do not identify the documents fully or properly, nor do they provide the full contact info of the persons in possession of those documents. Further responses should be provided.

Defendants asserted boilerplate objections in response to the RFPs. The RFPs themselves are directly relevant to the action, because they pertain to the formation of the corporation and the corporation’s expenditures, including how it disposed of Lane’s investments. These documents would be in the sole possession of Defendant HIN Holdings, Inc. Any privacy interest of the corporation is weak and overridden by the information’s direct relevance to Lane’s claims that Defendants’ misappropriated his investments, mismanaged the corporation and fraudulently deprived him of shareholder status.

Moreover, CC §3295 does not apply where the financial information sought is germane to the underlying cause of action and not merely the punitive damages claim. See Rawnsley v. Sup.Ct. (Pioneer Theaters) (1986) 183 Cal.App.3d 86, 91 (in action for misappropriation of funds from partnership, discovery regarding defendant’s profits and finances were discoverable because they went “to the heart of the action itself” as distinguished from discovery on D’s net worth which was relevant only for punitive damages purposes). As discussed above, the financial information goes to the heart of the underlying claims and is not pertinent to the punitive damages alone.

Plaintiffs are entitled to sanctions. Plaintiffs seek sanctions in the amount of $3060 based on 8.5 hours at $350/hour and a $60 filing fee. The sanctions are sought against Defendant HIN Holdings, Inc. and Defense counsel jointly. The amount requested is reasonable and properly GRANTED.

Motion to Quash Deposition Subpoena

“If a subpoena requires the attendance of a witness or the production of books, documents, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders. In addition, the court may make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.” CCP §1987.1.

Plaintiffs served third-party Citibank NA with a records request seeking documents evidencing deposits and withdrawals to and from accounts held by HIN Defendants and documents evidencing the signatory on the accounts. The requests were limited in time to 7/1/11 through 12/31/13. Defendants object to these requests on grounds of financial privacy, confidentiality and CC §3295. Each of these objections is overruled for the reasons discussed above.