Filed 11/12/19 Capay Valley Floriculture v. Byrd CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

THIRD APPELLATE DISTRICT

(Yolo)

—-

CAPAY VALLEY FLORICULTURE et al.,

Plaintiffs and Respondents,

v.

JUSTIN BYRD,

Defendant and Appellant.

C087450

(Super. Ct. No. CV18243)

Plaintiffs Capay Valley Floriculture (Capay), Casey Boosalis as director of Capay, and Eric Parise and Mara Getz as members of Capay, brought an action in the trial court requesting that the court ratify the removal of defendant Justin Byrd as director and officer of Capay, or, in the alternative, requesting that the court remove Byrd as director and officer of Capay. Attorney Trevor Carson, whom Casey Boosalis retained as corporate counsel after Byrd’s alleged removal, represents each of the plaintiffs.

During the pendency of the proceedings, Byrd requested that Steven McDonald, an attorney whom Byrd had retained to represent the corporation before his alleged ouster, file a motion on behalf of Capay to disqualify Carson from simultaneously representing Capay and the other plaintiffs due to a conflict of interest. The trial court denied Capay’s motion.

Byrd, in his capacity as an individual defendant, appeals from the trial court’s denial of Capay’s motion to disqualify Carson. He contends the trial court applied the incorrect legal standard, erroneously concluded that the parties had adopted bylaws, and abused its discretion in making factual findings. We disagree and will affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The dispute between the parties centers on whether the original bylaws, which the parties agree purported to convey on First Centaur Management Company the power to remove Byrd as a director from Capay’s board, were ever actually adopted. As we will explain in our Discussion, post, if Byrd failed to show in his motion to disqualify that the original bylaws were not adopted at the time First Centaur purported to oust Byrd, Byrd’s removal holds and the motion to disqualify Carson is without factual or legal support.

The Genesis of Capay

In September 2016, defendant Justin Byrd began discussing a plan to grow medical marijuana with Casey Boosalis and Gus Boosalis. Byrd prepared a business plan for a collective called Capay Valley Floriculture; the plan established that First Centaur Management Company would provide management services for the standard operations of the corporation. In November 2016, Gus formed GACD Lenders of Tiburon, LLC, an investment group that sought to invest in the collective through First Centaur.

At the behest of Byrd, Gus, and Casey, Frontera Law Group incorporated Capay on January 20, 2017, and First Centaur on February 13. The statement of information filed on February 1 for Capay with the Secretary of State listed Byrd as the chief executive officer (CEO) and chief financial officer (CFO) and Casey as corporate secretary.

On February 20, a representative of Frontera Law Group adopted a resolution stating that Byrd and Casey were “elected as the initial Directors of the Cooperative, to serve until the first meeting of the Members, and until their successors are duly elected and qualify.”

The Original Bylaws

On March 17, Frontera Law Group e-mailed corporate entity formation documents, including bylaws and a document entitled “Actions Taken by Unanimous Written Consent in Lieu of Organizational Meeting of Board of Directors of Capay Valley Floriculture, a Cooperative Corporation” (Actions Taken), to Byrd, Gus, and Pete Stathis, managing member of First Centaur.

The Actions Taken stated, “The following actions are hereby taken by unanimous written consent of the Board of Directors of Capay Valley Floriculture, a Cooperative Corporation (the ‘Cooperative’), a California cooperative corporation, pursuant to the laws of the State of California. [¶] . . . [¶] These actions are taken in lieu of the organizational meeting of the Board of Directors of the Cooperative. The undersigned compromising [sic] and constituting all of the Directors of the Cooperative, do hereby consent to taking the following actions without an organizational meeting, in accordance with the laws of the State of California.” The document then adopted the bylaws and appointed Casey and Byrd as directors of the board. Neither Byrd nor Casey signed the Actions Taken.

The original bylaws in relevant part established First Centaur as the “Designator” with “the power, authority, and right to nominate and appoint individuals to the Board of Directors. Notwithstanding the titles, the Designator shall have the power, authority, and right to designate no less than two (2) Board positions.” Additionally, the bylaws provided that directors nominated and elected by the members of the cooperative may be removed at any time with or without cause by a vote of the majority of the members, and, in a key provision for purposes of this appeal, the original bylaws authorized First Centaur to remove with or without cause any director it designated to the board.

According to the complaint seeking ratification of Byrd’s removal, Byrd repeatedly represented to Gus, First Centaur, and GACD Lenders from March to October that Byrd and Casey had approved the Actions Taken and the bylaws and that copies of both were available for inspection by Capay’s patient-members. But in fact, Byrd never provided Casey with a copy of the bylaws, which remained unsigned until November 2017.

Although the bylaws and Actions Taken remained unsigned, Byrd began signing up new cooperative members using a membership application that stated in part, “As a patient-member of the Collective, I agree to follow the Bylaws and Rules and Policies of the Collective, and I acknowledge that I have been provided an opportunity to review the Collective’s Articles and Bylaws, the Member Disclosure Statement, and Rules and Policies.” The signature page of the application required that the applicant declare under penalty of perjury, “I acknowledge that I have been offered the ability to review of copy of the Articles of Incorporation, Bylaws, and Membership Rules and Policies.”

Byrd also began collecting a salary from First Centaur, and he requested from First Centaur approximately $1.65 million from March to September to plant an outdoor crop of marijuana and make improvements to the property.

Byrd’s Retention of McDonald and the Revised Bylaws

In October, Byrd retained Steven McDonald on behalf of Capay to review the original bylaws and related corporate formation documents. McDonald prepared a revised version of the Actions Taken and the bylaws. The revised bylaws eliminated First Centaur’s role as designator, which eliminated its ability to oust Byrd.

According to McDonald, on November 6 Casey, Byrd, and representatives from Frontera Law Group and First Centaur agreed that they never adopted the original bylaws. Three days later, Frontera Law Group withdrew as corporate counsel for Capay and First Centaur due to a conflict of interest.

On November 7, Byrd provided Casey with a copy of McDonald’s revised bylaws. Casey had not previously reviewed the bylaws or Actions Taken, but he then signed the originally drafted documents, including the original bylaws, backdating them to March 17, 2017.

Byrd’s Ouster and Subsequent Litigation

On December 4, Stathis sent Byrd a letter removing him as a director pursuant to First Centaur’s authority as designator under the original bylaws to remove directors it had appointed. The letter reaffirmed its appointment of Casey as director. The next day, Casey removed Byrd as an officer of Capay and appointed himself as president and CEO of Capay. On December 22, Casey retained Trevor Carson as attorney for Capay.

In February 2018, Carson filed a complaint on behalf of Capay, Casey as director of the board, and Eric Parise and Mara Getz as members of the cooperative. The complaint sought to enforce the original bylaws and affirm the removal of Byrd as director, or, in the alternative, remove Byrd as director for breaches of his fiduciary duty, and return the marijuana crop to the plaintiffs.

In March, McDonald filed a motion at Byrd’s request, purportedly on behalf of Capay, to disqualify Carson as counsel for the plaintiffs and to strike the complaint that sought to ratify Byrd’s removal. Byrd joined Capay’s motion. The motion sought to disqualify Carson on the grounds that Casey lacked authority to retain counsel on behalf of Capay, Carson could not represent both Capay and Casey, as a director, in a suit to remove another director (Byrd), Carson’s duty of loyalty as counsel prevented him from representing Capay due to a conflict of interests, and Carson’s representation of members of the corporation seeking to remove a director created a dual representation of parties with adverse interests. The motion also contended that the complaint filed by Carson on behalf of Capay, seeking ratification of Byrd’s removal, must be stricken because Carson lacked authority to represent Capay. Plaintiffs opposed the motion.

Following oral argument, the trial court denied Capay’s motion in a short order: “Capay Valley Floriculture’s (‘CVF’) motion to disqualify attorney Trevor Carson and strike plaintiffs CVF, Casey Boosalis, Eric Parise, and Mara Getz’s complaint is DENIED. CVF fails to show that Mr. Boosalis lacked authority to appoint Mr. Carson and otherwise fails to show a basis for disqualification based on a conflict of interest. (In re Charlisse C. (2008) 45 Cal.4th 145, 159-161; City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 846.)”

DISCUSSION

Byrd raises five issues on appeal. He first argues that the trial court applied the incorrect legal standard to Capay’s motion. He then argues the court erroneously reached the legal conclusion that the parties adopted the original bylaws. His remaining three arguments contest factual findings implicit in the court’s order, including: (1) Casey lacked authority to retain counsel for Capay; (2) Carson has a conflict of interest in representing Capay and the other plaintiffs because Casey has acted adversely to the corporation; and (3) Carson cannot represent Parise and Getz as members of the corporation because they seek to remove Byrd as director and CEO and because their membership required a meeting of the board of directors that never took place. We disagree with each of Byrd’s arguments.

I

Standard of Review

“A trial court’s ruling on a motion to disqualify counsel is generally reviewed for abuse of discretion. [Citation.] Where the trial court resolves a matter by considering disputed factual issues, the appellate court does not substitute its judgment for that of the trial court, and its express and implied findings will be upheld if supported by substantial evidence. [Citation.] If the court’s findings are supported by substantial evidence, the appellate court reviews those findings under an abuse of discretion standard. [Citation.] But ‘the trial court’s discretion is limited by the applicable legal principles . . . [and] where there are no material disputed factual issues, the appellate court reviews the trial court’s determination as a question of law. [Citation.]’ [Citation.] Further, ‘the trial court’s conclusions of law . . . [are] review[ed] . . . de novo; a disposition that rests on an error of law constitutes an abuse of discretion. [Citations.]’ [Citation.]” (M’Guinness v. Johnson (2015) 243 Cal.App.4th 602, 615 (M’Guinness).) In the absence of express factual findings, the court will presume the trial court found in favor of the prevailing party on all disputed factual issues. (See, e.g., Kulko v. Superior Court (1977) 19 Cal.3d 514, 519, fn. 1.)

II

Governing Law

“A trial court is empowered to disqualify counsel through its inherent power ‘[t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.’ [Citations.] A motion to disqualify counsel may implicate several important interests, including ‘a client’s right to chosen counsel, an attorney’s interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion. [Citations.]’ [Citation.] At its core, a motion to disqualify ‘involve[s] a conflict between the clients’ right to counsel of their choice and the need to maintain ethical standards of professional responsibility. [Citation.] The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of one’s choice must yield to ethical considerations that affect the fundamental principles of our judicial process. [Citations.]’ [Citations.]” (M’Guinness, supra, 243 Cal.App.4th at p. 613.)

“Conflicts of interest [warranting disqualification of an attorney] commonly arise in one of two factual contexts: (1) in cases of successive representation, where an attorney seeks to represent a client with interests that are potentially adverse to a former client of the attorney; and (2) in cases of simultaneous representation, where an attorney seeks to represent in a single action multiple parties with potentially adverse interests.” (In re Charlisse C. (2008) 45 Cal.4th 145, 159 (Charlisse C.).) In simultaneous representation cases, the primary value at stake is the attorney’s duty of loyalty. (Id. at p. 160.) A conflict involving an attorney’s duty of loyalty is “ ‘[t]he most egregious’ kind of conflict,” and therefore, disqualification in cases of simultaneous representation of potentially adverse parties follows automatically. (Ibid.)

Typically there is no inherent conflict between the interests of a corporation on the one hand and those of its officers, directors, or shareholders on the other hand. While a corporate attorney does not represent officers or stockholders individually, a corporation’s counsel “may also represent any of its directors, officers, employees, members, shareholders, or other constituents, subject to the provisions of rule 3-310.” (Cal. R. Prof. Conduct, rule 3-600(E).) Rule 3-310(C) of the Rules of Professional Conduct prohibits an attorney from representing more than one client in a matter in which the interests of the clients potentially or actually conflict without written informed consent from both parties. And subdivision (E) prohibits an attorney from accepting employment adverse to a current or former client if, by reason of the representation of the current or former client, the attorney has obtained confidential information material to the employment. (Ibid.)

III

Legal Standard Applied by the Trial Court

Byrd first argues the trial court erroneously applied the law of subsequent representation by citing in its order Charlisse C., supra, 45 Cal.4th at pages 159 to 161 and City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 846 (Cobra Solutions). Capay’s motion to disqualify argued that Carson could not simultaneously represent Capay and Casey, Parise, and Getz.

Applying an incorrect legal standard in ruling on a motion to disqualify is a legal error and, therefore, an abuse of discretion. (Charlisse C., supra, 45 Cal.4th at pp. 160-161.) But the trial court did not state that it applied the law of subsequent representation in reaching its decision. Rather, the court’s ruling stated only that “CVF fails to show that Mr. Boosalis lacked authority to appoint Mr. Carson and otherwise fails to show a basis for disqualification based on a conflict of interest,” and then cited cases. The portions of Charlisse C. and Cobra Solutions that the court cited in its order discuss the legal principles of motions to disqualify generally and compare the standards for disqualification in simultaneous representation and subsequent representation cases. (See id. at pp. 159-161; Cobra Solutions, supra, 38 Cal.4th at p. 846.) While the court could have cited cases with holdings more directly on point to the issues raised by the motion, Charlisse C. and Cobra Solutions each state the legal standard that an attorney is subject to automatic disqualification where the attorney simultaneously represents potentially adverse clients. (Charlisse C., at p. 160 [conflict of interest arises in cases where attorney seeks to represent multiple parties with potentially adverse interests in single action]; Cobra Solutions, at p. 846 [“An attorney who seeks to simultaneously represent clients with directly adverse interests in the same litigation will be automatically disqualified”].) Therefore, we disagree with Byrd that the court necessarily applied the incorrect legal standard because the cases it cited to support a general legal standard also dealt with additional issues not relevant here.

IV

Byrd’s Remaining Arguments

Byrd raises several other claims each predicated on the assertion that, for purposes of the motion to disqualify, he remains Capay’s director and CEO. As such, he argues that the trial court erred by concluding that the parties adopted the original bylaws, which allegedly supported his purported ouster. But the court’s ruling did not conclude that the parties adopted the bylaws, which would have equated to a decision on the merits of the underlying complaint. Rather, with the understanding that the issue of the bylaws’ adoption remained unresolved, the trial court determined only that Byrd had failed to show that the original bylaws were not in effect at the time of his purported ouster by First Centaur. The trial court did not conclude that the bylaws were adopted and did not need to do so to rule on the motion to disqualify, but it found that Byrd was not a director and CEO for purposes of the motion. Given the events that had occurred to that point, there is substantial evidence to support that finding, and it was not an abuse of discretion. With that posture in mind, we turn to Byrd’s remaining claims of error.

Byrd argues that Casey lacked authority to retain counsel on behalf of Capay because Byrd retained that authority as the corporation’s director and CEO. But as we discussed ante, Byrd’s argument presupposes that the original bylaws were not adopted and that, as a result, Byrd remains Capay’s director and CEO. Because Byrd failed to show that the original bylaws were not in effect at the time of his purported ouster by First Centaur, substantial evidence supports the trial court’s finding that, for purposes of the motion to disqualify, Byrd is no longer on Capay’s board. Therefore, Byrd failed to show that Casey lacked authority to retain counsel on behalf of Capay.

Similarly, Byrd failed to show a conflict of interest in Carson’s representation of Capay, and Parise and Getz as members of the corporation. Byrd contends that Parise’s and Getz’s interests are adverse to those of Capay because they seek to remove Byrd as director and CEO and because their membership is contingent on a meeting of the board of directors. But as discussed with respect to Byrd’s previous argument, there is substantial evidence to support the trial court’s finding that Byrd failed to show that he remains CEO and director of Capay. Moreover, Byrd’s argument presupposes that Parise and Getz are adverse to the corporation simply because they seek to remove him as director and CEO, a conclusion that does not necessarily follow.

Finally, there is substantial evidence to support the trial court’s finding that Casey’s conduct has not been adverse to the corporation. Byrd contends Casey acted adversely to the corporation by (1) backdating the bylaws without Byrd’s consent; (2) conceding to First Centaur the right to control and choose directors by approving the bylaws; and (3) providing attorney-client privileged information to counsel for First Centaur for purposes of drafting the template of what become the complaint.

The trial court implicitly found that Casey’s action of signing the bylaws and backdating them to the date they were originally available was not conduct adverse to the corporation. We do not substitute our judgment for that of the trial court. (M’Guinness, supra, 243 Cal.App.4th at p. 615.) We observe that Casey signed and backdated the bylaws after Byrd had allegedly been aware of the bylaws’ existence for months without disclosing them to Casey and had signed up new cooperative members with a membership application requiring the applicant to agree to follow the bylaws and affirm that the applicant had been offered the ability to review the bylaws. Thus there is substantial evidence that Casey’s conduct was not adverse to the corporation.

There is also substantial evidence to support the trial court’s implicit factual finding that Casey’s support for the original bylaws was not adverse to the corporation. The record shows that First Centaur was a substantial financial investor in Capay, and it is not unreasonable for bylaws to provide such a financial supporter with some control over the board of directors.

Finally, there is substantial evidence that Casey’s alleged act of providing attorney-client privileged documents to counsel for First Centaur for purposes of drafting a complaint seeking to ratify Byrd’s removal was not adverse to the interest of the corporation. Indeed, corporate management maintains authority to assert and waive the attorney-client privilege. (See Melendrez v. Superior Court (2013) 215 Cal.App.4th 1343, 1354-1355.) Given Byrd’s alleged misdeeds set forth in the complaint, the trial court did not abuse its discretion in implicitly finding Casey did not act adversely to the corporation by seeking legal assistance in drafting the legal document seeking to ensure Byrd’s removal from the board.

Based on the foregoing, we conclude the trial court’s implicit factual findings are supported by substantial evidence and that the court did not abuse its discretion in denying Capay’s motion to disqualify Carson.

DISPOSITION

The trial court’s order is affirmed.

/s/

Duarte, J.

We concur:

/s/

Blease, Acting P. J.

/s/

Robie, J.