Case Name: B. Pho et al v. Eastwest Trading et al
Case No. 16CV300343

Factual Background

Plaintiffs Bic Pho and IDragon LLC filed their lawsuit against defendants Eastwest Trading Co, LLC; Properties & Beyond Partnership, Vy Nguyen, Jiang Kuang, Pro Legal Services Corporation and Properties & Beyond Corporation on September 26, 2016. The complaint alleges causes of action for Breach of Employment Agreement, Termination of Employment in Violation of Public Policy; Wages and Hours Violations and Accounting.

In January, 2016, Mr.Pho entered into a partnership agreement with Eastwest Trading LLC for the primary purpose of “Real Estate Brokerage.” The partnership was to be known as Properties & Beyond. Mr. Pho owned 20% and Eastwest Trading LLC owned 80% of the partnership. Mr. Pho was to be the operating manager and Eastwest was the deputy operating manager. Mr. Pho was to receive $120,000 in salary for the first year. Eastwest contributed $50,000 in capital for the partnership and Mr. Pho did not contribute any money for capital.

Mr. Pho was terminated in June, 2016. He contends he put a substantial amount of costs, time and material into real estate projects for which he was never compensated. He also contends he is owed unpaid salary for 2016. In his complaint, Pho seeks reimbursement of costs advanced in connection with 5 different projects, unpaid salary, various damages and attorney’s fees under the Labor Code, penalties for wrongful stop payment of checks and payment of around $27,500 on those checks. He also seeks an accounting and injunctive relief to prevent dissipation of sale proceeds from two of the five projects and a determination of the parties’ rights and obligations under the partnership.

Attorney Eric Sidebotham, of the Parr Law Group, represents the defendants and filed an answer on their behalf in December, 2016.

On January 23, 2017, Mr. Pho filed a motion to disqualify defense counsel’s law firm, The Parr Law Group, for conflicts of interest based on former representation and to prevent disclosure of confidential information obtained in the course of such representation.

The Parr Law Group is a 3 lawyer firm consisting of attorneys Shawn Parr, Lindsey Pho and Eric Sidebotham. Mr. Pho claims he was a client of the Parr Law Group since the beginning of Shawn Parr’s legal career in 1989 and paid over a million dollars to the firm for numerous personal and business legal matters on which the firm worked from 1989 to 2006. During part of that time, Mr. Pho’s niece, Lindsey Pho, worked for Attorney Parr in an administrative position. She stopped working there when she attended law school but is now an attorney at the firm.

Attorney Parr represented Mr. Pho in his divorce case, an auto repair case, numerous lawsuits- some of which involved real estate disputes of some nature. Additionally, Attorney Parr formed several legal entities designed to protect Mr. Pho’s assets in the event of financial difficulties or failure. Some of these legal entities were apparently tied to mortgage and development enterprises. Attorney Parr further represented Mr. Pho on matters relating to Pho’s real estate license, and for claims against and by Mr. Pho.

Mr. Pho claims to have met with Attorney Parr dozens, if not hundreds, of times over their 16 year attorney-client relationship. Attorney Parr has reviewed Mr. Pho’s financial, accounting, banking, personal and license records and documents. Attorney Parr and his office staff received confidential information about Mr. Pho regarding his investments, intent in investing, assets, income and other finances. According to Mr. Pho, Attorney Parr is versed in his financial accounts, professional background, patterns, practices, and temperament and litigation preferences.

In opposition to the motion to disqualify, attorney Eric Sidebotham contends he has never met plaintiffs and the Parr Law Group’s representation of Mr. Pho ended in 2006 when he had not yet joined the firm. Attorney Sidebotham argues the prior matters on which the Parr firm represented Pho are wholly unrelated to substance of the instant matter. Attorney Sidebotham offers that he alone will represent defendants and he constructed an “ethical wall” to ensure that Mr. Pho’s confidential information is protected.

Legal Analysis

A motion to disqualify counsel brings the client’s right to the attorney of his or her choice into conflict with the need to maintain ethical standards of professional responsibility. People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145, The overriding concern is to preserve the scrupulous administration of justice and the integrity of the bar. Comden v. Superior Court (1978) 20 Cal.3d 906, 915

Pursuant to Rules of Professional Conduct, Rule 3-310 (E), an attorney must avoid adverse interests and cannot, “without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.” (Rules Prof. Conduct, rule 3–310(E).)

Rule 3–310(E) generally applies where the attorney successively represents clients with potential or actual adverse interests and where the attorney simultaneously represents clients with potential or actual adverse interests. (See Flatt v. Superior Court (1994) 9 Cal.4th 275 at pp. 283–284. According to Flatt, when successive representation is at issue the “governing test requires that the client demonstrate a ‘substantial relationship ’ between the subjects of the antecedent and current representations” to obtain the disqualification of the attorney.

Put another way, when a former client opines that his former attorney possesses material confidential information and is therefore disqualified from representing an adversary in another case (which is the situation at issue here), the former client may have difficulty establishing what is, “in the mind of the attorney.” (Western Continental Operating Co. v. Natural Gas Corp. (1989) 212 Cal.App.3d 752, 759–760) Courts have therefore established a test, under which, if the former client can demonstrate a substantial relationship between the subjects of the former and the current representations, it is presumed that the attorney had access to confidential information in the first representation which is relevant to the second representation. (Flatt, supra, 9 Cal.4th at p. 283, 36 Cal.Rptr.2d 537, 885 P.2d 950.) See, Kirk v. First American Title (2010) 183 Cal App 4th 776, 796.

The question whether an attorney should be disqualified in a successive representation case turns on two variables: (1) the relationship between the legal problem involved in the former representation and the legal problem involved in the current representation, and (2) the relationship between the attorney and the former client with respect to the legal problem involved in the former representation. If the relationship between the attorney and the former client is shown to have been direct—that is, where the lawyer was personally involved in providing legal advice and services to the former client—then it must be presumed that confidential information has passed to the attorney and there cannot be any delving into the specifics of the communications between the attorney and the former client in an effort to show that the attorney did or did not receive confidential information during the course of that relationship. As a result, disqualification will depend upon the strength of the similarities between the legal problem involved in the former representation and the legal problem involved in the current representation. This is so because a direct attorney-client relationship is inherently one during which confidential information “would normally have been imparted to the attorney by virtue of the nature of [that sort of] former representation,” and therefore it will be conclusively presumed that the attorney acquired confidential information relevant to the current representation if it is congruent with the former representation. (Ahmanson v, Soloman Brothers Inc., 229 Cal.App.3d 1445, 1454; see also Adams v. Aerojet–General Corp., supra, 86 Cal.App.4th at p. 1332, 104 Cal.Rptr.2d 116.

With respect to the first prong: 1) the relationship between the legal problem involved in the former representation and the legal problem involved in the current representation, it is clear that the Parr Law Group rendered legal services to Mr. Pho on a wide ranging number of personal and business legal issues for a span of 16 years for which Mr. Pho paid over one million dollars in legal fees. Among other things, Attorney Parr represented Mr. Pho in his real estate licensing matters and in litigation involving his real estate practice. Attorney Parr also helped Mr. Pho set up various business entities relating to real estate. Moreover, during this time, Attorney Parr became intimately familiar with Mr. Pho’s personal and financial background, his litigation strategy and other intangibles that can only be developed during a long and active attorney-client relationship. There is no doubt in this Court’s mind that the Parr Law Group acquired confidential information about Mr. Pho as a result of its previous representation that is relevant to the current representation. The current case arose from a partnership agreement between Mr. Pho and EastWest Trading Company to form Properties & Beyond for the purpose of “Real Estate Brokerage.” There appears to be a dispute over the scope of the partnership agreement, the intent of the parties in entering into same and whether the partnership was for a “real estate brokerage” or for some other purpose. Defendants’ answer asserts 43 affirmative defenses and raise issues of estoppel, unilateral and mutual mistake, proper licensing, unclean hands, termination for cause and mechanics liens. Accordingly, Mr. Pho’s past experience in entering into business agreements, his sophistication and history thereon may come into play in this litigation to determine the issues of mistake, estoppel, licensing, and unclean hands. And, of course, this matter involves a dispute concerning real estate/property development-a topic on which Attorney Parr rendered legal assistance to Mr. Pho over the years. Moreover, Attorney Parr has intimate knowledge of Mr. Pho’s personality, his philosophy and history of dealing with litigation matters—ie; whether to immediately resolve the dispute or go full bore in pursuing or defending the dispute.

In evaluating the “subjects” of the previous and current representation, Courts must ascribe a broader definition than the discrete legal and factual issues involved in the compared representations. It must include information material to the evaluation, prosecution, settlement or accomplishment of the litigation or transaction given its specific legal and factual issues. Jessen v. Hartford Cas. Ins. Co. (2003) 111 Cal. App. 4th 698,713. This includes knowledge about the former client’s philosophy on settlement versus litigation and methods and procedures in handling lawsuits. See, Jessen, supra citing numerous other “intangible” factors at p. 712.

Attorney Parr’s intimate knowledge of Mr. Pho’s personal, business and litigation history after representing him for over 16 years qualifies him as an attorney who obtained confidential information about Mr. Pho that may be used against him in the current litigation.

With respect to the second prong, Mr. Sidebotham argues he has never directly represented Mr. Pho and has built an “ethical wall” in this 3 attorney firm so that he will not be privy to any confidential information Mr. Parr may have.

As the Court in Kirk v. First American Title Ins. Company (2010) 183 Cal. App. 4th 776, 809-810 stated: “Once the moving party in a motion for disqualification has established that an attorney is tainted with confidential information, a rebuttable presumption arises that the attorney shared that information with the attorney’s law firm. The burden then shifts to the challenged law firm to establish “that the practical effect of formal screening has been achieved. The showing must satisfy the trial court that the [tainted attorney] has not had and will not have any involvement with the litigation, or any communication with attorneys or employees concerning the litigation, that would support a reasonable inference that the information has been used or disclosed.” (In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 596)

The specific elements of an effective screen will vary from case to case, although two elements are necessary: First, the screen must be timely imposed; a firm must impose screening measures when the conflict first arises. Second, it is not sufficient to simply produce declarations stating that confidential information was not conveyed or that the disqualified attorney did not work on the case; an effective wall involves the imposition of preventive measures to guarantee that information will not be conveyed. (SpeeDee Oil, supra, 20 Cal.4th at pp. 1142, 1151–1152 & fn. 5,) “To avoid inadvertent disclosures and establish an evidentiary record, a memorandum should be circulated warning the legal staff to isolate the [tainted] individual from communications on the matter and to prevent access to the relevant files.” (In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 594, 283 Cal.Rptr. 732.)

“The typical elements of an ethical wall are: [1] physical, geographic, and departmental separation of attorneys; [2] prohibitions against and sanctions for discussing confidential matters; [3] established rules and procedures preventing access to confidential information and files; [4] procedures preventing a disqualified attorney from sharing in the profits from the representation; and [5] continuing education in professional responsibility.” (Henriksen, supra, 11 Cal.App.4th at p. 116, fn. 6.) .

Attorney Sidebotham submitted a declaration indicating he set up an ethical wall and is the firm’s MCLE compliance officer. He also offered information regarding his reputation. The Court has doubt that Mr. Sidebotham is a lawyer in good standing and strives to conduct himself ethically as an officer of the Court. However, his declaration fails to address all of the elements in Kirk, although he cites that case on page 9 of his opposition. The Court is concerned about the close quarters of a three attorney law firm and how easy it might be to inadvertently come into contact with tainted information. No mechanism has been put in place to ward off these concerns as described in elements 1, 2 and 3 above. Moreover, there are no procedures set in place to prevent Mr. Parr from sharing in profits from the Eastwest litigation. Lastly, it does not escape this Court’s notice that neither attorney Parr nor attorney Pho submitted declarations attesting that they have not discussed Mr. Pho with attorney Sidebotham and never revealed any confidential information about Mr. Pho to him.

Based on all of the foregoing, the Court GRANTS plaintiffs’ motion to disqualify the Parr Law Group from representing defendants in this matter.