Filed 10/9/19 Cal. Solar Systems, Inc. v. Omar CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

CALIFORNIA SOLAR SYSTEMS, INC.,

Plaintiff and Appellant,

v.

WEISS OMAR et al.,

Defendants and Appellants.

G056150 consol. w/ G056162

(Super. Ct. No. 30-2016-00860168)

O P I N I O N

Appeal from an order of the Superior Court of Orange County, Randall J. Sherman, Judge. Affirmed.

ClintonBailey and Mark C. Bailey for Plaintiff and Appellant California Solar Systems, Inc.

ONE, Peter R. Afrasiabi, Oscar M. Orozco-Botello; Law Office of Kathryn M. Davis and Kathryn M. Davis for Defendants and Appellants CS Marketing and Weiss Omar.

Buchman Provine Brothers Smith and Dominic V. Signorotti for Plaintiff and Respondent California Solar Systems, Inc.

This litigation concerns ownership of California Solar Systems, Inc. (CSS) amid allegations of corporate malfeasance by CSS’s principals Weiss Omar (Weiss), his wife Mildred Omar (Mildred), and Weiss’s nephew, Bastel Wardak. After Wardak, in his capacity as president, retained Buchman Provine Brothers Smith, LLP (Buchman) to represent CSS, he directed it to file a lawsuit against Weiss and his company,

CS Marketing, Inc. (the Weiss action), and another against Mildred (the Mildred action). After Mildred filed a cross-complaint, she obtained an order disqualifying Buchman from representing CSS, and Mildred, Weiss, and a third party retained ClintonBailey, APC. Buchman did not appeal from that order on behalf of CSS.

CS Marketing and Weiss then filed its own motion to disqualify Buchman. The trial court consolidated the two cases, and ClintonBailey, the firm representing CSS in the Mildred action, filed a motion to join the disqualification motion. Buchman, on behalf of CSS in the Weiss action, opposed the motions. The trial court transferred the consolidated cases to the complex civil department.

A different trial judge denied CS Marketing and Weiss’s motion to disqualify Buchman in the Weiss action and denied CSS’s motion to join that motion. CS Marketing and Weiss appeal from that order. Additionally, CSS, represented by ClintonBailey in the Mildred action, also appeal from that order. We granted the parties stipulated motion to consolidate the appeals. In other words, we have two appeals, both involving CSS, one as appellant and one as respondent, but represented by different counsel, ClintonBailey in the Mildred action and Buchman in the Weiss action.

CS Marketing, Weiss, and CSS, through ClintonBailey, argue the trial court erred by denying their motion to disqualify Buchman. We disagree and affirm the order.

FACTS

CSS is a solar energy equipment supplier. Weiss and Wardak founded CSS, and they were its directors and shareholders. A couple years later, Weiss transferred his 50 percent interest to Mildred. In 2016, CSS’s annual revenue was $17,000,000.

CSS, through Buchman, filed the Weiss action (Super. Ct. Orange County, 2016, No. 30-2016-00859082) seeking accounting, and alleging conversion, fraudulent inducement, and breach of oral agreement. The complaint alleged CS Marketing, a call center, and its sole shareholder Weiss, failed to provide call center operations after CSS paid them over $500,000.

The following week, CSS, through Buchman, filed the Mildred action (Super. Ct. Orange County, 2016, No. 30-2016-00860168) alleging fraud and conversion. The complaint alleged Mildred wrongfully withdrew and stole about $750,000 from CSS’s back account.

Mildred later filed a cross-complaint against Wardak and CSS alleging causes of action for breach of fiduciary duty, accounting/turnover of corporate records, removal of Wardak as CSS director, declaratory relief, and injunctive relief. The cross-complaint alleged Wardak paid himself a salary without board of directors’ approval, overpaid himself and his brother, failed to pay partner income or dividends, improperly retained Buchman, engaged in negotiations to sell or merge CSS, and wrongfully withdrew about $747,414 from CSS’s back account.

Buchman filed an answer to the cross-complaint—the signature block stated, “Attorneys for . . . [CSS] . . . and . . . Wardak.” (Capitalization omitted.)

Mildred filed a motion to disqualify Buchman supported by exhibits and declarations from Behrooz “Bruce” Kholooci and Mark C. Bailey of ClintonBailey. The motion specified six grounds supporting disqualification.

Buchman filed an opposition to the disqualification motion on behalf of CSS. The opposition was supported by declarations from Dominic V. Signorotti, a Buchman attorney, and Wardak.

Mildred filed a reply in support of the disqualification motion. The reply was supported by Weiss’s, Mildred’s, and Bailey’s declarations.

After a hearing on February 15, 2017, the trial court issued a minute order that stated the following: “None of the evidence submitted by anyone for this motion is credible; [t]he [c]ourt believes the best solution would be to have the corporation hire independent counsel, properly appointed by the [c]ourt; [c]ounsel to consider this solution; [¶] [c]ourt ordered the directors to meet and discuss hiring independent corporate counsel to handle this case. [¶] Court will not leave the corporation without representation. [¶] If the directors are unable to reach an agreement as to the hiring of corporate counsel, the [c]ourt will either appoint corporate counsel or a provisional director. [¶] [T]he only money spent should be to determine corporate counsel.” The court continued the hearing.

At a hearing the following month, Mildred’s counsel stated that pursuant to the court’s order she arranged a meeting but Wardak and his counsel did not attend. Those who attended, Weiss, Mildred, and Kholooci (who claimed to be CSS’s president and possess an ownership share), voted to terminate Buchman and replace it with ClintonBailey. The trial court heard argument from various counsel, including Wardak’s, who did not file written opposition, but argued against the motion.

A couple weeks later, the trial court, Judge Sheila Fell, granted Mildred’s motion to disqualify Buchman in a minute order without explanation. Buchman did not appeal the court’s order on behalf of CSS.

CS Marketing and Weiss filed a separate motion to disqualify Buchman supported by exhibits and declarations from Kholooci and Bailey. The motion specified the same six grounds for disqualification: (1) CSS’s bylaws required action must be authorized by majority vote; (2) CSS’s directors did not authorize retaining Buchman;

(3) Buchman did not inform CSS of potential conflicts of interests with Wardak or obtain a waiver of those conflicts; (4) actual conflicts of interest existed between CSS and Wardak; (5) an attorney cannot accept employment adverse to a client (Rules Prof. Conduct, rule 3-310(E)); and (6) Code of Civil Procedure section 128, subdivision (a)(5), required disqualification. The motion argued res judicata and collateral estoppel applied. Without citing to any authority or providing collateral estoppel’s elements, the motion summarily stated the issue was the same in both cases. The motion requested the court take judicial notice of CSS v. Mildred Dianne Omar and the March 22, 2017, minute order disqualifying Buchman.

A couple months later, the trial court consolidated the Weiss action with the Mildred action, making the latter the lead case. The court transferred the consolidated cases to the complex civil department.

ClintonBailey, on behalf of CSS in the Mildred action, filed a notice of joinder in CS Marketing and Weiss’s motion to disqualify Buchman and motion to disqualify Buchman supported Bailey’s declaration. The motion specified five grounds for disqualification, including a comprehensive discussion of collateral estoppel.

Buchman filed opposition on behalf of CSS in the Weiss action. The opposition was supported by declarations from Wardak and Signorotti. The opposition argued disqualification would place ClintonBailey in control of the litigation and it had already taken a motion for summary judgment off calendar. CS Marketing and Weiss filed a reply.

The trial court, Judge Randall J. Sherman, issued a tentative ruling, inter alia, denying without prejudice CS Marketing and Weiss’s motion to disqualify and CSS’s joinder motion. The court reasoned as follows: “The parties present diametrically opposed versions of the facts, but the court is scheduled to resolve the CSS ownership issue at the [t]rial . . . . In the meantime, the court is not convinced that the moving parties have established legal and factual grounds to disqualify counsel, especially since the disqualification of counsel in the [CSS v. Mildred Dianne Omar] case led to CSS’s new counsel dropping summary judgment and discovery motions, favoring the defendants.”

At a hearing, CSS, through ClintonBailey, explained it took the motion for summary judgment off calendar because Judge Fell encouraged it. CS Marketing and Weiss argued that with respect to the motion to disqualify, the cases were consolidated, the facts were the same, Judge Fell previously ruled Buchman was disqualified, and Wardak should have proceeded through a shareholder derivative suit. CS Marketing and Weiss also referenced Judge Fell’s February 15, 2017, minute order, in which she ordered counsel not to incur any expenses other than to determine corporate counsel.

The trial court stated, “I honestly know nothing about that ruling you just mentioned, so since no one has raised it as part of a motion or as an agenda item for this court to act on, there is nothing for me to address with respect to that . . . .” CSS, through Buchman, argued opposing counsel did not properly characterize Judge Fell’s minute order, stating the court ordered the parties to meet and confer to select independent counsel and the court did not approve the engagement of ClintonBailey. The court adopted its tentative ruling and it became the court’s ruling.

CS Marketing and Weiss filed a petition for writ relief with this Court and request for stay, which we denied. (CS Marketing, Inc. v. Superior Court (Apr. 26, 2018, G056163) [nonpub. ord.].) CSS, through ClintonBailey, and CS Marketing and Weiss (collectively referred to as Appellants, unless the context requires otherwise) filed timely notices of appeal from the trial court’s order denying their motions to disqualify Buchman.

DISCUSSION

I. Attorney Disqualification

“‘The trial court’s power to disqualify counsel is derived from the court’s inherent power “[t]o control in furtherance of justice, the conduct of its ministerial officers.” [Citations.] Disqualification motions implicate several important interests, among them are the clients’ right to counsel of their choice, the attorney’s interest in representing a client, the financial burden of replacing a disqualified attorney, and tactical abuse that may underlie the motion. [Citation.] The “paramount” concern in determining whether counsel should be disqualified is “the preservation of public trust in the scrupulous administration of justice and the integrity of the bar.” [Citations.] It must be remembered, however, that disqualification is a drastic course of action that should not be taken simply out of hypersensitivity to ethical nuances or the appearance of impropriety.’ [Citation.]” (DeLuca v. State Fish Co., Inc. (2013) 217 Cal.App.4th 671, 685-686.)

“A trial court’s decision to grant or deny a motion to disqualify counsel is generally reviewed for abuse of discretion. [Citations.] ‘As to disputed factual issues, a reviewing court’s role is simply to determine whether substantial evidence supports the trial court’s findings of fact . . . . As to the trial court’s conclusions of law, however, review is de novo; a disposition that rests on an error of law constitutes an abuse of discretion.’ [Citations.] While the trial court’s ‘“application of the law to the facts is reversible only if arbitrary and capricious”’ [citation], ‘where there are no material disputed factual issues, the appellate court reviews the trial court’s determination as a question of law.’ [Citations.]” (O’Gara Coach Co., LLC v. Ra (2019) 30 Cal.App.5th 1115, 1123-1124.) “[A] disqualification motion involves concerns that justify careful review of the trial court’s exercise of discretion. [Citation.]” (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1144 (SpeeDee).)

Here, Appellants assert we must review the trial court’s ruling de novo because there were no disputed facts concerning disqualification. Like the trial court, who said, “The parties present diametrically opposed versions of the facts,” we conclude there are disputed factual issues as to Wardak’s authority to retain Buchman, and we review the court’s ruling for abuse of discretion.

II. Actual Authority

The issue is whether Wardak had actual authority to retain Buchman to sue Weiss and his company CS Marketing. CSS’s bylaws, Article II, section 1, provided in relevant part as follows: “Except as any provision of law may otherwise require, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors.”

““Actual authority is such as a principal intentionally confers upon an agent, or intentionally or by want of ordinary care allows the agent to believe himself to possess. (Civ. Code, § 2316.)’” (van’t Rood v. County of Santa Clara (2003)

113 Cal.App.4th 549, 572.) Actual authority may be implied based on the facts of the case. (Ripani v. Liberty Loan Corp. (1979) 95 Cal.App.3d 603, 611 (Ripani).)

Here, there was substantial evidence Wardak was responsible for CSS’s day-to-day operations. In his declaration, Wardak stated he was CSS’s president, director, and 50 percent shareholder, Mildred was a 50 percent shareholder, and Weiss was a director. Wardak stated that since CSS was founded in 2007, he was responsible for CSS’s day-to-day management, including paying vendors, negotiating contracts, and filing tax returns. Although we may not conclude retaining counsel, particularly to sue a corporate director, falls within the ambit of day-to-day operations, actual authority includes authority the principal either intentionally or by lack of ordinary care allows the agent to believe he possesses.

In his declaration, Wardak stated that since CSS’s founding in 2007, he retained general counsel to advise CSS on corporate matters and represent it in litigation against adverse parties. Wardak provided a list of counsel he retained on behalf of CSS. We note neither Weiss nor Mildred filed a declaration in support of the disqualification motion. Wardak’s history of hiring corporate counsel was evidence CSS through its lack of ordinary care allowed him to believe he possessed the authority to hire corporate counsel without board of director approval.

Appellants rely on Goldstein v. Lees (1975) 46 Cal.App.3d 614, 623 (Goldstein), to support their claim only the CSS board of directors could authorize Wardak to retain Buchman. Citing to Corporations Code section 800, the Goldstein court stated, “The board of directors, not corporate counsel, has the right to control the affairs of the corporation. [Citation.]” (Goldstein, supra, 46 Cal.App.3d at p. 623.) We agree, but as we explain above, a principal may intentionally or by lack of ordinary care allow the agent to believe he has actual authority.

Appellants also rely on Olincy v. Merle Norman Cosmetics, Inc. (1962)

200 Cal.App.2d 260, 273, to support their claim any corporate action without a quorum of directors is void. Olincy is inapposite because CSS did not retain Buchman via corporate action but instead pursuant to Wardak’s actual and apparent authority as president.

Finally, relying on Corporations Code section 800, subdivision (b)(2), Appellants claim Buchman did not satisfy that subdivision’s pleading requirements. That section applies only to shareholder derivative suits, which this is not. Therefore, sufficient evidence supported the trial court’s implied finding Wardak had actual authority to hire Buchman as CSS’s counsel.

III. Apparent Authority

The issue is whether Wardak had ostensible, i.e., authority to retain Buchman to sue Weiss and CS Marketing. “‘Ostensible authority . . . is the authority of the agent which the principal causes or allows a third person to believe that the agent possesses. (Civ. Code, § 2317.)’ [Citation.] [¶] Before recovery can be had against the principal for the acts of an ostensible agent, three requirements must be met: The person dealing with an agent must do so with a reasonable belief in the agent’s authority, such belief must be generated by some act or neglect by the principal sought to be charged[,] and the person relying on the agent’s apparent authority must not be negligent in holding that belief. [Citations.] Ostensible agency cannot be established by the representations or conduct of the purported agent; the statements or acts of the principal must be such as to cause the belief the agency exists. [Citations.]” (J.L. v. Children’s Institute, Inc. (2009) 177 Cal.App.4th 388, 403-404.) Ostensible, i.e., apparent, authority may be implied based on the facts of the case. (Ripani, supra, 95 Cal.App.3d at p. 611.)

Here, even if Wardak did not have actual authority, there was sufficient evidence he had apparent authority to retain Buchman because it reasonably and justifiably believed Wardak had the authority to retain it. In his declaration, Signorotti, a Buchman lawyer, stated Buchman believed Wardak as CSS’s president had the authority to retain it as corporate counsel. Signorotti stated Wardak represented he had this authority and had retained corporate counsel on previous occasions. Buchman was justified in relying on Wardak’s authority and representations because it reasonably believed he had the authority and had done so in the past. (Snukal v. Flightways Manufacturing, Inc. (2000) 23 Cal.4th 754, 779 [apparent authority to enter into agreement on behalf of corporation if he “‘assumed and exercised the power in the past’” with corporation’s apparent consent and acquiescence]; Corp. Code, § 208, subd. (b).)

Appellants rely on Corporations Code section 313 to argue CSS’s contract was invalid because it was not signed by an “operational” officer and a “recordkeeping” officer. Whether Wardak had the authority to hire Buchman, and whether the retainer agreement was properly executed are different issues. Therefore, substantial evidence supported the trial court’s implied finding Wardak had ostensible authority to retain Buchman as CSS’s counsel.

IV. Duty of Loyalty

The issue is whether Buchman violated its duty of loyalty to CSS.

(Rules Prof. Conduct, rule 3-310 (rule 3-310), now rule 1.7; Rules Prof. Conduct,

rule 3-600, now rule 1.13.) “To protect the confidentiality of the attorney-client relationship, the State Bar Rules of Professional Conduct, rule 3-310 . . . prohibits attorneys from accepting, without the client’s informed written consent, ‘employment adverse to the client or former client where, by reason of the representation of the client or former client, the [attorney] has obtained confidential information material to the employment.’ [Citations.]” (SpeeDee, supra, 20 Cal.4th at p. 1146.)

“The identity of the ‘client’ in the context of the representation of corporations is directly addressed by rule 3-600 of the Rules of Professional Conduct. That section provides: ‘In representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body or constituent overseeing the particular engagement.’ [Citation.]” (Brooklyn Navy Yard Cogeneration Partners v. Superior Court (1997) 60 Cal.App.4th 248, 254.)

Here, there was sufficient evidence Buchman did not violate its duty of loyalty to CSS. Contrary to Appellants’ claim otherwise, Buchman did not represent both CSS and Wardak as an individual. In his declaration, Wardak stated that as CSS’s president, he retained Buchman to represent CSS. In his declaration, Signorotti, a Buchman attorney, confirmed Wardak, in his capacity as CSS’s president, retained Buchman to be CSS’s corporate counsel. He added his duty of loyalty was to CSS. Wardak added he had his own personal counsel, John Gardner of Donahue Fitzgerald LLP. Signorotti confirmed Buchman did not represent Wardak individually. As to the answer Buchman filed on behalf of CSS, where it stated Buchman was counsel to CSS and Wardak, Signorotti stated it was “a typographical error, nothing more.” Because Buchman did not represent Wardak individually, there was no risk Signorotti was unable to give his opinion to CSS free of bias or prejudice. (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1842; Flatt v. Superior Court (1994)

9 Cal.4th 275, 284 [attorney duty of loyalty to client and cannot be divided].)

Based on these declarations, substantial evidence supported a finding there was not simultaneous representation. Rule 3-310, and its informed written consent requirement for representation of clients with adverse interests, is inapplicable here. Thus, Appellants’ reliance on Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209,

216-217 [simultaneous promotion of two clients’ interests], and Woods v. Superior Court (1983) 149 Cal.App.3d 931, 936 [attorney represented both husband’s and wife’s interest in family business], is misplaced.

Equally meritless is Appellants’ claim Buchman’s failure to investigate Wardak or file a lawsuit against him establishes a violation of the duty of loyalty. In his declaration, Signorotti stated he was unaware of any meritorious claims CSS could bring against Wardak. He added, “No request has been made to CSS to pursue or investigate any meritorious claims against . . . Wardak.” And neither Weiss nor Mildred submitted declarations supporting the disqualification motion citing to their efforts to convince Buchman to investigate or prosecute Wardak. Appellants’ claim Buchman tried to prevent an accounting was unsupported by any evidence. Therefore, sufficient evidence supported the trial court’s implied finding Buchman did not violate its duty of loyalty to CSS.

V. Collateral Estoppel

The issue is whether Judge Fell’s disqualification of Buchman in CSS’s lawsuit against Mildred required Judge Sherman to disqualify Buchman in CSS’s lawsuit against CS Marketing and Weiss. “Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings. [Citation.] Traditionally, we have applied the doctrine only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. [Citations.] The party asserting collateral estoppel bears the burden of establishing these requirements. [Citation.]” (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341, fn. omitted (Lucido).)

Here, collateral estoppel did not require Judge Sherman to disqualify Buchman. Contrary to Buchman’s claim otherwise, the issue did not concern the status of Mildred (CSS shareholder) and CS Marketing (third party) and Weiss (CSS director). The issue was the relationship between Wardak and Buchman and whether there was a disqualifying conflict of interest, which was the same in both cases. Indeed, both disqualification motions alleged the same conflicts of interest. There was no issue as to the second, third, or fourth elements. The issue was litigated and decided, and the decision was final. (A.I. Credit Corp., Inc. v. Aguilar & Sebastinelli (2003)

113 Cal.App.4th 1072, 1077 [attorney disqualification order appealable and failure to appeal establishes ethical violation occurred].) However, the parties were not the same in the two proceedings.

In the disqualification motion before Judge Fell, the parties were CSS and Mildred. In the disqualification before Judge Sherman, the parties were CSS, CS Marketing, and Weiss. CS Marketing and Weiss were not on opposite sides in the former case. (Code Civ. Proc., § 1910.) ClintonBailey, on behalf of Mildred, filed a motion to join in CS Marketing and Weiss’s disqualification motion. Appellants cite to no authority, and we found none, that stands for the proposition these facts satisfy collateral estoppel’s same party requirement. Thus, Appellants failed their burden.

Finally, in their reply brief, Appellants rely on Judge Sherman’s comment at the hearing on the disqualification motion that he was unaware of a ruling

CS Marketing and Weiss’s counsel mentioned. Appellants rely on this comment to assert Judge Sherman was unaware of Judge Fell’s March 22, 2016, disqualification ruling, and thus he did not exercise his discretion and consider whether collateral estoppel applied.

It could not be clearer Judge Sherman was aware of Judge Fell’s order and considered whether collateral estoppel applied. In his tentative ruling he wrote, “[T]he court is not convinced that the moving parties have established legal and factual grounds to disqualify counsel, especially since the disqualification of counsel in the [CSS v. Mildred Dianne Omar] case . . . .” Based on our reading of the hearing transcript, we conclude Judge Sherman was referring to Judge Fell’s February 15, 2016, ruling where it ordered the parties not to spend any corporate funds other than to hire independent corporate counsel. Judge Sherman exercised his discretion and concluded collateral estoppel did not apply.

Additionally, Judge Sherman did not apply the wrong legal standard. Appellants rely on his tentative ruling, where he stated, “the disqualification of counsel in the [CSS v. Mildred Dianne Omar] case led to CSS’s new counsel dropping summary judgment and discovery motions[.]” In addition to collateral estoppel’s threshold elements, courts have looked to the public policies underlying the doctrine, including “preservation of the integrity of the judicial system.” (Lucido, supra, 51 Cal.3d at

pp. 342-343.) Judge Sherman was concerned ClintonBailey, who Mildred and Weiss retained to represent CSS, was controlling litigation against the people who decided to retain it. Needless to say, this could potentially undermine the integrity of the judicial system. Judge Sherman did not apply the incorrect legal standard, and his implied finding collateral estoppel did not apply was supported by sufficient evidence. Therefore, Judge Sherman did not abuse his discretion by denying CS Marketing and Weiss’s motion to disqualify Buchman. Even if we were persuaded there were no disputed facts and our review was de novo, we would reach the same conclusion.

DISPOSITION

The order is affirmed. The parties shall bear their own costs on appeal.

O’LEARY, P. J.

WE CONCUR:

BEDSWORTH, J.

THOMPSON, J.