PT Gaming v. Kang CA2/4 ( 2014 )

Filed 6/4/14 PT Gaming v. Kang CA2/4
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
SECOND APPELLATE DISTRICT
DIVISION FOUR
PT GAMING, LLC, et al., B251841
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. YC068331)
v.
ORDER MODIFYING OPINION
CONNIE KANG et al., [NO CHANGE IN JUDGMENT]
Defendants and Respondents.
THE COURT:
It is ordered that the unpublished opinion filed May 29, 2014, be modified as
follows:
1. At page 2, substitute the following for the second full paragraph:
In California non-Indian gambling establishments, a “third-party provider of
proposition player services” (third-party provider) at each table collects winnings and
pays loses. (Bus. & Prof. Code, § 19984.) Agencies that employ these third-party
providers must be owned and operated independently of casinos. John Park and Patrick
Tierney owned Network Management Group (NMG), a company specializing in
providing third-party providers to such establishments. During their partnership at NMG,
St. Denis represented Park, Tierney and other entities.
2. At page 7, change the first word Appellants to Respondents.
There is no change in the judgment.
*EPSTEIN, P. J. MANELLA, J. EDMON, J.**
**Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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Filed 5/29/14 (unmodified version)
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
SECOND APPELLATE DISTRICT
DIVISION FOUR
PT GAMING, LLC, et al., B251841
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. YC068331)
v.
CONNIE KANG et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles County, Stuart M.
Rice, Judge. Reversed.
Michael St. Denis Professional Corporation, Michael St. Denis; Law Office of
Tracey Buck-Walsh, and Tracey Buck-Walsh, for Plaintiffs and Appellants.
Fox Rothschild, Jeffrey S. Kravitz, and Patrick J. Hagan, for Defendants and
Respondents.
___________________________
The issue on this appeal is standing. PT Gaming, LLC (PTG) retained attorney
Michael St. Denis to sue former employees Connie Kang, Daein Kang, and Marcus
Sheely (respondents) for breach of contract. After leaving PTG for a rival agency,
respondents allegedly violated their employment agreement with PTG that prohibited
them from soliciting their former colleagues to leave the company. St. Denis had
represented respondents’ new employer, Certified Network M, Inc. (CNM) and its owner,
John Park. The trial court granted respondents’ motion to disqualify St. Denis due to a
concurrent conflict of interest. PTG and Michael St. Denis Professional Corporation
(appellants) contend respondents lacked standing to bring the motion. It is clear that,
under the circumstances alleged, Park had standing to disqualify St. Denis, but he has not
sought to do so. The issue in this case is whether respondents have standing. We
conclude they do not and, on that basis, reverse the order of the trial court.
FACTUAL AND PROCEDURAL SUMMARY
In California off-reservation casinos, a banker at each gaming table collects
winnings and pays losses, all facilitated through a casino dealer. Agencies that employ
these bankers must be owned and operated independently of casinos. John Park and
Patrick Tierney owned Network Management Group (NMG), a company specializing in
providing bankers to off-reservation casinos. During their partnership in NMG, St. Denis
represented Park, Tierney, and their entities.
After Park purchased a casino in 2008, he incorporated CNM to provide
proposition player services. Then Park closed NMG and purchased Tierney’s interest.
Park also sold NMG’s banking contracts to Tierney, who formed PTG to continue
providing services under those agreements. PTG hired most of NMG’s bankers and other
employees. CNM and PTG compete in Southern California, employing bankers who
previously worked for NMG, Park, or his affiliates.
St. Denis continued to represent Park, Tierney, PTG, CNM, and Park’s affiliates
“in a variety of matters in which he provided business, litigation, and employment-related
advice.” He appeared as attorney of record in several actions on behalf of Park, CNM,
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and Fortiss LLC, a company that provides counsel to Park and CNM. St. Denis also
consulted with Fortiss LLC’s general counsel, who acts as legal co-counsel to CNM and
Park on employment issues. As of May 2013, St. Denis continued to represent Park and
Fortiss LLC in various ongoing matters.
Between March 2010 and October 2011, PTG hired respondents to work as
bankers in off-reservation casinos. Each signed a “Confidentiality and Fair Competition
Agreement,” which prohibited, for one year following the termination of their
employment with PTG, direct or indirect solicitation, hiring, recruiting, or encouragement
of any PTG employee to leave the company. Between November and December 2012,
respondents resigned from PTG, and began working for CNM and Fortiss LLC. About
that time, respondents allegedly contacted and encouraged PTG employees to quit PTG
and work for competing companies.
In March 2013, PTG retained St. Denis, and filed two separate lawsuits against
respondents: one against Daein Kang and Connie Kang, and a second against Marcus
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Sheely. PTG’s two complaints alleged respondents breached their agreements by
soliciting PTG employees to leave the company and to transfer to competitors. PTG
argued these alleged violations resulted in “severe disruption of [its] operations, including
but not limited to the loss of employees due to [respondents’] illegal and improper
recruiting . . . .” In their answer, respondents claimed the agreements were
unenforceable, and even if enforceable, they were not breached.
In May 2013, respondents moved to disqualify St. Denis as PTG’s counsel. This
motion was supported by declarations from Park and their counsel. Respondents argued
St. Denis’s representation of PTG was directly adverse to Park, CNM, and other current
clients; there was a substantial relationship between current and previous cases such that
1 In June 2013, the trial court consolidated PT Gaming, LLC v. Marcus Sheely (Case
No. TC 027164) and PT Gaming, LLC. v. Connie Kang, et al. (Case No. YC 068331),
which became the lead case.
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the law presumed St. Denis acquired confidential information prejudicial to respondents;
and St. Denis’s representation of PTG required him to serve as both an advocate and a
witness. They also argued that PTG would not suffer prejudice if St. Denis were
disqualified. Respondents claimed they had standing to bring the motion because St.
Denis’s continued representation of PTG “would undermine the integrity of the judicial
process,” pursuant to the standard in Kennedy v. Eldridge (2011) 201 Cal. App. 4th 1197,
1205 (Kennedy). They argued St. Denis displayed disloyalty by suing his own client’s
employees. In the alternative, respondents asserted standing because they would be
prejudiced by St. Denis’s presumed knowledge of confidential information obtained in
prior representations.
In June 2013, appellants filed their opposition, on four grounds. First, they argued
there could be no concurrent or successive conflict of interest because St. Denis never
represented respondents. Second, respondents’ declarations and other evidence were
inadmissible. Third, there was no evidence that St. Denis would serve as both an
advocate and a witness. And, fourth, respondents’ motion was tactically abusive and
should have been raised earlier. Appellants moved to strike the declarations of Park and
respondents’ counsel because the declarations did not indicate they were based on
personal knowledge, or sworn under the laws of the State of California.
Respondents filed a reply in support of their motion, and an opposition to
appellants’ motion to strike. They also submitted amended declarations from Park and
respondents’ counsel, adding the text, “I have personal knowledge of the facts set forth
below,” and declaring the statements therein were made under penalty of perjury under
the laws of the “State of California.”
In August 2013, the court granted respondents’ motion to disqualify St. Denis. It
denied appellants’ request to strike the declarations of Park and respondents’ counsel, and
overruled their evidentiary objections. It wrote, “Because Mr. St. Denis’s representation
of [appellants] in the instant action is directly adverse to the interests of [respondents’]
employer, John Park, who is a current client of Mr. St. Denis, the Court GRANTS the
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Motion and disqualifies Mr. St. Denis as counsel for Plaintiff.” Appellants filed timely
notices of appeal.
DISCUSSION
We review an order granting or denying a disqualification motion for abuse of
discretion. (Kennedy, supra, 201 Cal.App.4th at p. 1203; Great Lakes Construction, Inc.
v. Burman (2010) 186 Cal. App. 4th 1347, 1354 (Burman).) “The trial court’s ruling is
presumed correct [citation] and reversal is permissible ‘only when there is no reasonable
basis for the trial court’s decision’ [citation]. We accept as correct all of the court’s
express or implied findings that are supported by substantial evidence.” (Kennedy, supra,
at p. 1203.)
Appellants argue respondents lacked standing to bring the motion to disqualify St.
Denis because they had not been his clients. Apparently, “no California case has held
that only a client or former client may bring a disqualification motion.” (Kennedy, supra,
201 Cal.App.4th at p. 1204.) On motions to disqualify, “[s]tanding generally requires
that the plaintiff be able to allege injury, that is, an invasion of a legally protected
interest. [Citation.] . . . Generally, before the disqualification of an attorney is proper, the
complaining party must have or must have had an attorney-client relationship with that
attorney. [Citation.]” (Burman, supra, 186 Cal.App.4th at p. 1356 [finding standing
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requirement “implicit” in disqualification motions].) When the moving party lacks an
attorney-client relationship, “some sort of confidential or fiduciary relationship” may be
sufficient. (Dino v. Pelayo (2006) 145 Cal. App. 4th 347, 353 [in cases of actual or
potential disclosure of confidential information].) Nonclients “must meet [these]
stringent standing requirements” by demonstrating “harm arising from a legally
2 Because St. Denis also represents Park, this standing requirement provides a basis
for Park to disqualify St. Denis. (See also Machado v. Superior Court (2007)
148 Cal. App. 4th 875, 881 [“an aggrieved nonparty who asserts that an attorney has
undertaken adverse representation should file a collateral injunctive suit to end the
conflicted representation”].) However, the record indicates that Park has not sought to do
so.
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cognizable interest which is concrete and particularized, not hypothetical.” (Burman,
supra, at p. 1358.)
One court has held that “‘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” [citation], a
nonclient might meet the standing requirements to bring a motion to disqualify based
upon a third party conflict of interest or other ethical violation.’ [Citation.]” (Kennedy,
supra, 201 Cal.App.4th at p. 1204 [affirming standing of mother to move to disqualify
paternal grandfather attorney in paternity dispute between mother and father, even though
mother was not attorney’s client].)
Respondents cannot demonstrate a fiduciary relationship with St. Denis. PTG
retained St. Denis to sue respondents for breach of the employment agreements with
PTG. St. Denis also represents Park, owner of CNM, for which respondents work. But
respondents made no showing that St. Denis represented respondents or established any
kind of relationship with them. In fact, respondents admitted that they never had a formal
relationship with St. Denis. Finally, respondents provided no relevant authority for their
claim that St. Denis’s representation of Park was a basis for a fiduciary duty to
respondents.
Nor can respondents show that St. Denis’s representation of appellants threatens
the integrity of the judicial process or harms respondents’ interests. St. Denis’s
representation of appellants, and his simultaneous and previous representation of
respondents’ current employer, does not impact respondents’ ability to defend themselves
in the underlying action. The fact that Park may have an indirect interest in the lawsuit
against respondents does not mean that any harm to him necessarily flows to respondents.
In addition, respondents’ claims that St. Denis’s interests escalate the stakes of the
underlying litigation and exacerbate the tension between parties do not rise to the level of
“a legally cognizable interest which is concrete and particularized, not hypothetical.”
(Burman, supra, 186 Cal.App.4th at p. 1358.)
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Appellants cite two cases for the proposition that any indirect harm to Park
“necessarily flows” to respondents. (Morrison Knudsen Corp. v. Hancock, Rothert &
Bunshoft (1999) 69 Cal. App. 4th 223, 240, 253 [unity of interests between parent and
subsidiary corporations allows treatment as one entity under California conflict rules];
Baxter Diagnostics Inc. v. AVL Scientific Corp. (C.D.Cal. 1992) 798 F. Supp. 612, 616
[plaintiff company is “inextricably intertwined with its parent holding company” thus
injury to the parent company from conflict of interest necessarily flows to plaintiff,
despite lack of attorney-client relationship].) These cases held that the two corporate
entities were sufficiently related to create a conflict that merited disqualification. Here,
respondents are not corporate subsidiaries or parent holding companies. It does not
follow that employees of an entity suffer harm specific to their employers, for purposes
of conflict analysis.
Further, contrary to respondents’ claim, St. Denis’s conduct was not sufficiently
“‘“‘manifest and glaring’”’” that “‘“it impact[ed] the moving party’s interest in a just and
lawful determination of [his or] her claims”’” and undermined the integrity of the judicial
process.” (Kennedy, supra, 201 Cal.App.4th at pp. 1204, 1205.) Kennedy concerned a
paternity dispute between a mother and a father. (Id. at pp. 1201-1202.) The reviewing
court affirmed mother’s standing to move to disqualify father’s attorney, who was also
the child’s paternal grandfather. (Id. at p. 1205.) The court wrote: “It makes no sense
for a court to stand idly by and permit conflicted counsel to participate in a case merely
because neither a client nor former client has brought a motion.” (Id. at pp. 1204-1205.)
“‘[T]he court has an independent interest in ensuring trials are conducted within ethical
standards of the profession and that legal proceedings appear fair to all that observe
them.’” (Id. at p. 1205.) The appellate court described how the “plethora of family
entanglements, potential misuse of confidential information, a conflict posed by the near-
certain prospect that counsel will have to testify” and concern for “the preservation of the
integrity of the judicial system” supported the trial court’s disqualification order. (Id. at
pp. 1200, 1205-1213.)
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Kennedy is distinguishable. In that case, the paternal grandfather attorney might
“have acquired confidential facts about [mother] and her family’s situation that could be
used to [father’s] advantage.” (Kennedy, supra, 201 Cal.App.4th at p. 1205.) The court
also identified “multiple and interconnected family entanglements [that] result[ed] in a
strong appearance of impropriety and undermine[d] the integrity of the judicial system.”
(Id. at p. 1211.) For example, the attorney paternal grandfather was counsel for his son,
who was litigating against his son’s former girlfriend. (Ibid.) The paternal grandfather’s
law firm previously had represented the mother’s father in a separate family law matter,
during which he procured a declaration from the mother and employed the mother’s
stepmother. (Ibid.) In addition, he was grandfather to the child who was the subject of
the controversy. (Ibid.) Also, the nature and quality of the mother’s household was
material to the ongoing dispute, as it would likely impact the court’s paternity decision.
(Ibid.) Finally, the paternal grandfather was likely to be called as a witness. (Ibid.)
The principal factors supporting the finding in Kennedy are absent here. St. Denis
represents respondents’ former employer in the suit against them, and their present
employer in unrelated matters. Since St. Denis had no formal relationship with
respondents, they cannot successfully claim that he obtained confidential information
about them. In addition, St. Denis would not simultaneously serve as an advocate and a
witness, as he submitted a declaration that he had “no personal knowledge . . . to testify
in Court regarding the employment agreement” that respondents signed. Finally, the
family entanglements central to Kennedy are not present here. For these reasons, the
limited exception in Kennedy does not provide respondents with standing to disqualify St.
Denis. Thus, the trial court abused its discretion in finding respondents had standing to
bring the motion.
Respondents contend that regardless of standing, the trial court’s order should be
affirmed since appellants cannot show the prejudice required for reversal. (See Code
Civ. Proc., § 475.) Appellants apparently claim the disqualification of St. Denis
prejudiced their ability “to retain the best possible counsel . . . .” Respondents argue the
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outcome would not have been different, since appellants have not identified an exception
to the mandatory disqualification rule in concurrent conflict cases. In addition, they
contend Park and his entities could file a collateral action to disqualify St. Denis. In
short, respondents contend St. Denis would have been disqualified regardless of
respondents’ standing to bring their motion. However, St. Denis never represented
respondents, so there is no concurrent conflict of interest. Nor is there evidence that Park
or his entities have moved to disqualify St. Denis, or plan to do so. Accordingly,
appellants have demonstrated prejudice sufficient to merit reversal.
Finally, respondents argue appellants did not dispute that St. Denis’s simultaneous
representation of PTG, Park, CNM, and Fortiss LLC created a conflict. As a result,
respondents argue, appellants forfeited that point. However, appellants have limited their
appeal to the question of respondents’ standing to bring the motion to disqualify St.
Denis. Accordingly, because we find respondents lacked standing to move to disqualify
St. Denis, we do not decide whether the trial court correctly determined the merits of
their motion.
DISPOSITION
The order is reversed. Appellants are entitled to their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EPSTEIN, P. J.
We concur:
MANELLA, J. EDMON, J.*
________________________________________________________________________
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
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