2018-00224653-CU-PP

Parker Turner Albright, PC vs. Port J. Parker

Nature of Proceeding: Motion to Disqualify Daniel V. Kohls as Counsel of Reccord

Filed By: Alves, Suzanne M.

Respondent Port J. Parker’s (“Parker”) motion to disqualify Daniel V. Kohls and the law firm of Hansen, Kohls, Sommer & Jacobs LLP as counsel of record for petitioner Parker Turner Albright PC (“PTA”) is DENIED.

Parker’s request for judicial notice of documents filed in this action (items 1-5) is granted. Parker’s request for judicial notice of documents obtained from the State Bar of California website and Placer County Assessor and Recorder’s Office website (items 7-9) is denied. Parker’s request for judicial notice of the Statement of Information filed by Dominus Lex (item 10) is granted.

Parker’s supplemental request for judicial notice of the First Amended Complaint filed in Parker v. Turner in Placer County Superior Court, Case No. SCV0040738, is granted.

In taking judicial notice of these documents, the Court accepts the fact of their existence, not the truth of their contents. (See Professional Engineers v. Dep’t of Transp. (1997) 15 Cal.4th 543, 590 [judicial notice of findings of fact does not mean that those findings of fact are true]; Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120-121 [“[W]hile the existence of any document in a court file may be judicially noticed, the truth of the matters asserted in those documents, including the factual findings of the judge who was sitting as the trier of fact, is not entitled to notice.”]; Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1562-1570.)

PTA’s objection to the supplemental declaration of Suzanne Alves and request for judicial notice were untimely filed on August 4, 2018, and not considered by the Court.

This action involves a dispute between two equal shareholders in PTA, Parker and Marcus L. Turner. Between October of 2017 and December of 2017, Parker, through

counsel, and Turner, through Mr. Kohls, attempted to negotiate the resolution and purchase of Turner’s shares. (Declaration of Suzanne M. Alves (“Alves Decl.”) at ¶ 2; Declaration of Daniel V. Kohls (“Kohls Decl.”) at ¶ 3.) After the parties were unable to reach an agreement, on December 29, 2017, Parker exercised his right to dissolve the corporation. (Kohls Decl. at ¶ 5.) Thereafter, on January 2, 2018, PTA initiated this special proceeding to purchase Parker’s shares in PTA pursuant to Corporations Code section 2000. PTA retained Mr. Kohls to represent the corporation in this special proceeding. (Declaration of Marcus L. Turner (“Turner Decl.”) at ¶ 3.)

On February 13, 2018, PTA filed a shareholder derivative action, along with personal claims against Turner, in Placer County Superior Court, Case No. SVC0040738, naming PTA as a nominal defendant as to derivative claims. PTA has not appeared in the derivative action and Mr. Kohls is not counsel for any party in the action. (Declaration of Daniel V. Kohls (“Kohls Decl.”) at ¶ 7.) Mr. Turner has retained separate counsel to represent him in the derivative action. (Turner Decl. at ¶ 4.)

Parker now moves to disqualify Mr. Kohls in this action on the grounds that Mr. Kohls previously represented Mr. Turner in the negotiations to resolve the dispute and currently represents Mr. Turner in this action, which creates an actual conflict of interest due to the pending derivative claims and requires automatic disqualification.

A trial court’s authority to disqualify an attorney derives from the power inherent in every court ‘[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. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal. 4th 1135, 1145.) However, a motion to disqualify counsel must be examined carefully, and may involve considerations such as a client’s right to chosen counsel, an attorney’s interest in representing a client, and the possibility that tactical abuse underlies the disqualification motion. (Kirk v. First American Title Ins. Co. (2010) 183 Cal. App. 4th 776, 792.)

Generally, before the disqualification of opposing counsel is proper, the complaining party must have or must have had an attorney-client relationship with that attorney. ( Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal. App. 4th 1399, 1404.) There are limited circumstances in which courts have found that nonclients may disqualify an attorney who did not represent them. Generally, absent an attorney-client relationship, standing can arise “from a breach of the duty of confidentiality owed to the complaining party, regardless of whether a lawyer-client relationship existed.” (DCH Health Services Corp. v. Waite (2002) 95 Cal. App. 4th 829, 832.) Parker concedes he has never had an attorney-client relationship with Mr. Kohls or his law firm, and there is no evidence or argument that Parker has an expectation of confidentiality. Parker instead contends it has standing to disqualify Mr. Kohls under the holdings of Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, Blue Water Sunset LLC v. Markowitz (2011) 192 Cal.App.4th 477, and/or Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209. The Court does not agree.

First, pursuant to Kennedy v. Eldridge, a non-client can have standing when an attorney’s continued representation will threaten an opposing litigant with cognizable injury or would undermine the integrity of the judicial process. (Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, 1203-1205.) In Kennedy, there were facts which met the standard that a non-client could move for disqualification “where the ethical breach is manifest and glaring and so infects the litigation in which disqualification is sought that

it impacts the moving party’s interest in a just and lawful determination of his or her claims.” (Kennedy, supra, at 1204.) In Kennedy, the trial court granted the motion to disqualify brought by the mother in a child custody dispute even though she was not a client of her father-in law, who was representing her husband in the child custody dispute. The court found, inter alia, that the father in law’s dual role as advocate and witness compromised his ethical duty to maintain the integrity of the judicial process, and that it was in the best interest of the child to not have him in the unseemly role of advocate for his son against the child’s mother in a case involving custody and support where he would be expected to testify as a witness.

Only rarely will a court disqualify an opposing counsel, and then upon a showing that there is a “convincing demonstration of detriment to the opposing party or injury to the integrity of the judicial process.” (Lyle v. Superior Court (1981) 122 Cal. App. 3d 470, 482.)

Here, Parker does not contend he, as the opposing litigant, will suffer cognizable injury if Mr. Kohls and his firm continue to represent PTA and Turner. Rather, Parker appears to contend disqualification is necessary to preserve the integrity of the judicial process. Parenthetically, joint representation alone simply does not trigger an ethical violation requiring automatic disqualification. (See SpeeDee Oil Change, supra, 20 Cal.4th at p. 1145.) However, Parker fails to lay out with any clarity his arguments in support. To the extent Parker contends the integrity of the judicial system is at issue based on Parker’s arguments regarding a dispute over billings, these arguments need not be addressed as they are irrelevant to this motion. Further, Parker’s arguments that Mr. Kohls and PTA have entered into a lease transaction, thereby creating a conflict of interest, is speculative, and PTA has provided evidence that neither Mr. Kohls, his law firm, nor any entity in which Mr. Kohls has an ownership interest has any former or present landlord-tenant relationship or lease agreement with PTA. (Kohls Decl. at ¶¶ 10-13; Turner Decl. at ¶ 5.) The only business relationship Mr. Kohls or his law firm has with PTA is that of attorney and client. (Kohls Decl. at ¶ 13.) Parker has not presented any ethical breach that is so “manifest and glaring” to warrant disqualification pursuant to Kennedy. Indeed, potentially, [and this is a minority rule] only where the ethical breach is manifest and glaring and so infects the litigation in which disqualification is sought that it impacts the moving party’s interest in a just and lawful determination of [his or] her claims may a nonclient meet the standing requirements to bring a motion to disqualify based upon a third party conflict of interest or other ethical violation. (See Great Lakes Construction, Inc. v. Burman (2010) 186 Cal. App. 4th 1347; Cal. Practice Guide: Professional Responsibility (The Rutter Group 2009) ¶ 4.322.11, p. 4-106.9, ¶ 4.322.13, p. 4-106.10 (rev. # 1, 2009).)

Next, Parker’s claim that it has “vicarious standing” pursuant to Blue Water and Gong is not persuasive. PTA does not dispute that “vicarious standing” may arise pursuant to Blue Water and forbids dual representation of a company and company insiders in the context of a derivative action. However, PTA opposes on the grounds that it does not represent PTA or Mr. Turner in the derivative action filed in Placer County Superior Court (Resp. RJN, Ex. 5, Complaint; Declaration of Daniel V. Kohls (“Kohls Decl.”) at

¶¶ 7-8) and that this action is not a derivative action. This argument is well taken. Blue Water and Gong are distinguishable because both concerned derivative actions or an action that was derivative in nature.

In Blue Water, a member of a LLC who owned 50% filed a derivative action against the other 50% owner. Plaintiff brought a motion to disqualify the defendant’s counsel on

the ground he represented both the LLC and defendant member whose interests were adverse. The Court found plaintiff did not have standing to move to disqualify under the usual rule because the plaintiff never had an attorney-client relationship with the defendant’s attorney. However, the Court made an exception finding the plaintiff had “vicarious standing.” The Court framed the exception as follows: “If an attorney simultaneously represents a limited liability company and a member with conflicting interests in a derivative action filed by the second and only other member, and if the limited liability company’s consent to concurrent representation is required by State Bar Rules of Professional Conduct, rule 3-310, the second member has vicarious standing to move to disqualify.” (Blue Water, supra, 192 Cal.App.4th at 481.)

In Gong, the Court of Appeal reversed the trial court’s denial of a motion to disqualify and disqualified a law firm from representing both the corporation and its majority shareholder in an action by the plaintiff (49% shareholder) alleging involuntary dissolution, wrongful discharge, and breach of fiduciary duty. (Gong, supra, 166 Cal.App.4th at 216.) The Court in Gong reasoned that “Although [the plaintiff] has not yet filed a derivative claim seeking damages on behalf of the corporation (which [the defendants] admit would require [the firm’s] disqualification),[the plaintiff’s] complaint alleges damage to [the corporation] through [the defendant shareholder’s] personal use of corporate funds, and the dissolution claim threatens its corporate existence.” ( Ibid.) Essentially, the plaintiff’s claims were derivative in nature.

PTA contends this case is more analgous to Coldren v. Hart, King & Coldren, Inc. (2015) 239 Cal.App.4th 237. The Court agrees. In Coldren, a dispute arose between two equal shareholders, Hart and Coldren. Coldren initiated a lawsuit for involuntary dissolution and other direct claims against the corporation and Hart. The corporation filed a motion under section 2000 to stay the dissolution and appoint appraisers in the event it elected to buy out Coldren’s shares. Coldren subsequently brought a motion to disqualify the law firm that represented the law firm and Hart. The trial court granted the motion and the Court of Appeal reversed. The Court of Appeal analyzed whether Coldren had standing under Blue Water and determined plaintiff lacked standing because the lawsuit was not derivative in nature.

Similarly, this action brought pursuant to section 2000 is not derivative in nature and PTA has presented evidence that Mr. Kohls does not represent it or Mr. Turner in the derivative action filed in Placer County. Accordingly, the Court finds PTA has failed to establish he has standing to seek disqualification of PTA’s counsel.

Even assuming Parker did establish he had standing to disqualify PTA’s counsel, Parker has not provided any evidence that PTA and Turner’s interests conflict in this action. As discussed in Coldren,

“Absent a factual scenario suggesting a conflict exists, an involuntary dissolution action does not necessarily pit the corporation against the defendant owner in the manner of a derivative action. To the extent the corporation has any interest at all in the outcome of the dissolution action, its interest is in its continued existence. If the defendant owner also wants the corporation to continue, then there is no conflict. Illustrating this point, Corp. Code, § 2000, subd. (a), permits the corporation to elect to buy out the plaintiff owner’s shares and specifically provides that this election may be made by the approval of the outstanding shares (the defendant owner), excluding shares held by the moving parties (the plaintiff owner). In other words, at that stage, the plaintiff owner’s

interests are irrelevant and the corporation’s interests are whatever the defendant owner chooses to do – there can be no conflict. If, on the other hand, the defendant owner does not want the corporation to continue by declining the purchase of the plaintiff owner’s shares at the appraised price under § 2000, then the shareholders unanimously agree the corporation should be dissolved and the corporation’s interests fall by the wayside. Thus a dissolution cause of action does not, by its nature, create the sort of conflict a derivative action creates.” (Coldren, supra, 239 Cal.App.4th at 246.)

PTA has provided evidence that PTA’s interests in its continued existence are, in fact, in line with Turner’s. (Turner Decl. at ¶ 6.)

Based on the foregoing, Parker’s motion to disqualify is DENIED.

This minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.