In re Villas at Highland Park Homeowners Ass'n v. Villas at Highland Park, LLC , 394 P.3d 1144 ( 2017 )

1 Opinions of the Colorado Supreme Court are available to the
2 public and can be accessed through the Judicial Branch’s homepage at
3 http://www.courts.state.co.us. Opinions are also posted on the
4 Colorado Bar Association’s homepage at http://www.cobar.org.
5
6 ADVANCE SHEET HEADNOTE
7 May 22, 2017
8
9 2017 CO 53
0
1 No. 16SA212, In Re Villas at Highland Park Homeowners Assoc. v. Villas at
2 Highland Park, LLC—Issue Preclusion—Attorney Disqualification—Colo. RPC 1.9.
3
4 In this original proceeding under C.A.R. 21, the supreme court reviews a district
5 court’s order applying the doctrine of issue preclusion to deny the defendants’ motion
6 to disqualify one of the plaintiff’s attorneys under Colo. RPC 1.9 and to disqualify her
7 law firm by imputation of the attorney’s conflict under Colo. RPC 1.10. The
8 disqualification inquiry under Colo. RPC 1.9(a) asks whether an attorney’s prior
9 representation and current representation are “substantially related.” This inquiry
0 under Colo. RPC 1.9(a) is specific to the particular matter for which disqualification is
1 sought. The supreme court therefore concludes that a motion to disqualify under Colo.
2 RPC 1.9(a) will rarely, if ever, raise an “identical” issue to a disqualification motion in
3 another case for purposes of issue preclusion. Here, the supreme court holds that the
4 trial court abused its discretion by relying on the doctrine of issue preclusion to deny
5 the disqualification motion instead of conducting the requisite analysis under Colo.
6 RPC 1.9(a). The supreme court therefore makes the rule to show cause absolute, vacates
7 the trial court’s order, and remands the case for the trial court to address the merits of
8 the motion to disqualify under Colo. RPC 1.9(a).
1
2
3 The Supreme Court of the State of Colorado
4 2 East 14th Avenue • Denver, Colorado 80203
5 2017 CO 53
6 Supreme Court Case No. 16SA212
7 Original Proceeding Pursuant to C.A.R. 21
8 Arapahoe County District Court Case No. 13CV31625
9 Honorable Elizabeth A. Weishaupl, Judge
0 In Re:
1 Plaintiff:
2 Villas at Highland Park Homeowners Association, Inc., a Colorado nonprofit corporation,
3 v.
4 Defendants:
5 Villas at Highland Park, LLC, a Colorado limited liability company; CC Communities, LLC,
6 a Colorado limited liability company f/k/a Century Communities, LLC; Century
7 Communities, Inc., a Delaware corporation f/k/a Century Communities Colorado, LLC;
8 Horizon Building Services, LLC, a Colorado limited liability company; Dale Francescon,
9 individually; Amy L. Anders, individually; John Healy, individually; Joseph Huey,
0 individually; Kathy Ellis, individually; and John Geary, individually.
1 Rule Made Absolute
2 en banc
3 May 22, 2017
4
5 Attorneys for Plaintiff:
6 Burg Simpson Eldredge Hersh & Jardine PC
7 Brian Keith Matise
8 Mari K Perczak
9 Englewood, Colorado
0
1 Attorneys for Defendants Villas at Highland Park, LLC; CC Communities, LLC;
2 Century Communities, Inc.; Horizon Building Services, LLC; and Dale Francescon:
3 Don, Galleher & Associates
4 Shelley B. Don
5 Watson W. Galleher
6 Denver, Colorado
7
1 Attorneys for Movants Burg Simpson Eldredge Hersh & Jardine PC and Mari
2 Perczak:
3 Fennemore Craig, P.C.
4 Troy R. Rackham
5 Denver, Colorado
6
7 Burns Figa & Will PC
8 Alexander “Alec” R. Rothrock
9 Greenwood Village, Colorado
0
1 Attorneys for Amicus Curiae Colorado Trial Lawyers Association:
2 Bachus & Schanker LLC
3 Scot C. Kreider
4 Denver, Colorado
5
6 No appearance on behalf of: Amy L. Anders, John Healy, Joseph Huey, Kathy Ellis, or
7 John Geary.
8
9
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
1 JUSTICE MÁRQUEZ delivered the Opinion of the Court.
2 JUSTICE GABRIEL dissents, and JUSTICE EID and JUSTICE HOOD join in the
3 dissent.
2
¶1 This original proceeding arises in a construction-defect case filed by a
homeowners’ association against several real-estate developers. An attorney for the
homeowners’ association, Mari Perczak, previously represented one of the real-estate
developers, Dale Francescon, when Francescon was a defendant in other construction-
defect litigation. Based on Perczak’s prior representation of Francescon, the developers
in this case (including Francescon) moved to disqualify Perczak and her law firm under
Rules 1.9 and 1.10 of the Colorado Rules of Professional Conduct.
¶2 Rule 1.9 provides that an attorney has certain ethical duties to former clients that
persist even after the attorney–client relationship has concluded. Relevant here, Colo.
RPC 1.9(a) prohibits an attorney from representing a party whose interests are
materially adverse to those of a former client if the former and present matters are
“substantially related” to one another such that there is a substantial risk that
confidential information that normally would have been obtained in the prior
representation would materially advance the current client’s position in the present
matter. People v. Frisco, 119 P.3d 1093, 1096 (Colo. 2005). If an individual attorney has
a disqualifying conflict under Colo. RPC 1.9(a), that conflict may be imputed to the
lawyer’s firm and require disqualification of the entire firm. See Colo. RPC 1.10.
¶3 This is not the first time Francescon has sought to disqualify Perczak; indeed,
Francescon has moved to disqualify her under Colo. RPC 1.9(a) in at least two other
construction-defect cases in which she brought claims on behalf of a homeowners’
association against Francescon and other real-estate developers. In one of these
previous cases, Sawgrass at Plum Creek Community Association, Inc. v. Sawgrass at
3
Plum Creek, LLC, the trial court denied the motion to disqualify because it concluded
that the Sawgrass lawsuit was not “substantially related” to the prior matters in which
Perczak represented Francescon. No. 2010CV3532 (Douglas Cty. Dist. Court Sept. 5,
2013).
¶4 In the present case, the trial court denied the developers’ disqualification motion
without meaningfully analyzing for purposes of Colo. RPC 1.9(a) whether this case is
“substantially related” to the prior matters in which Perczak represented Francescon.
Instead, the trial court relied on issue preclusion, the doctrine that bars relitigation of an
issue that is “identical” to an issue that was previously litigated and decided, Stanton v.
Schultz, 222 P.3d 303, 307 (Colo. 2010). Here, the trial court appeared to conclude that
the Sawgrass ruling denying the motion to disqualify Perczak in that case had
preclusive effect so as to bar the developers’ motion under Colo. RPC 1.9(a) in this case.
The developers filed a C.A.R. 21 petition in this court, seeking review of the trial court’s
order denying the disqualification motion on the basis of issue preclusion.
¶5 We issued a rule to show cause to determine whether the trial court erred in
relying on the doctrine of issue preclusion to deny the developers’ attorney-
disqualification motion. The disqualification inquiry under Colo. RPC 1.9(a) asks
whether an attorney’s prior representation and current representation are “substantially
related.” This inquiry under Colo. RPC 1.9(a) is specific to the particular matter for
which disqualification is sought. Therefore, we conclude that a motion to disqualify
under Colo. RPC 1.9(a) will rarely, if ever, raise an “identical” issue to a disqualification
4
motion in another case because the analysis under Rule 1.9(a) of whether the prior and
current matters are substantially related will differ in each case.
¶6 The dispositive legal issue in the developers’ attorney-disqualification motion—
whether this case is “substantially related” to Perczak’s prior representation of
Francescon—is specific to the present dispute. Moreover, the nature of the claims
asserted in this case differs from the nature of the claims asserted in Sawgrass. Thus,
we conclude that the dispositive issue here is not “identical” to the issue decided in
Sawgrass, and therefore, the doctrine of issue preclusion does not apply to the
developers’ motion in this case. Accordingly, the trial court abused its discretion by
relying on issue preclusion to deny the developers’ disqualification motion. We
therefore make the rule absolute, vacate the trial court’s order denying the developers’
motion to disqualify Perczak and her law firm, and remand this case for the trial court
to analyze the merits of the developers’ motion under Colo. RPC 1.9.
I. Facts and Procedural History
¶7 The attorney at the center of this disqualification dispute, Mari Perczak, filed the
present lawsuit (“Villas”) on behalf of Villas at Highland Park Homeowners
Association, Inc., in November 2013. The lawsuit named as defendants Villas at
Highland Park, LLC; CC Communities, LLC; Century Communities, Inc.; and Horizon
Building Services, LLC; as well as six individuals, including Dale Francescon
(collectively, the “developers”). Because the developers seek relief from the trial court’s
denial of their motion to disqualify Perczak and her law firm, we consider the
allegations contained in the motion to disqualify.
5
¶8 According to the developers, Francescon has been involved in the residential
construction business in Colorado since the 1990s. Francescon and his brother founded
a number of companies through which they developed residential construction projects.
Between July 1996 and November 1999, various plaintiffs filed six separate lawsuits
against those companies; some of those lawsuits also asserted claims directly against the
Francescons.
¶9 Perczak, then a partner at the law firm Godin & Baity, served as lead counsel for
the Francescons and the corporate defendants in five of those cases. In those earlier
matters, Perczak advised the Francescons and the corporate defendants on various
topics, including litigation strategies (particularly the defense of alter-ego and
construction-defect claims); the establishment and structure of special-purpose
corporate entities for residential construction; settlement strategies and risk tolerance;
and the nature and extent of the Francescons’ involvement with the corporate entities.
Among the defendants in the earlier cases, only Francescon is a defendant in the present
litigation.
¶10 Perczak left Godin & Baity in 2005. In 2007, Perczak became a shareholder in the
law firm then named Vanatta, Sandgrund, Sullan & Sullan, P.C. (the “Sullan Firm”),
which merged in 2014 with the firm in the present case, Burg Simpson Eldredge Hersh
& Jardine PC (the “Burg Firm”). As relevant to this case, Perczak and other attorneys
with the Sullan Firm represented homeowners’ associations in two construction-defect
lawsuits against Francescon and some of the same corporate defendants in this case.
6
¶11 First, in December 2010, attorneys with the Sullan Firm filed Sawgrass at Plum
Creek Community Association, Inc. v. Sawgrass at Plum Creek, LLC (“Sawgrass”), No.
10CV3532 (Douglas Cty. Dist. Court), and Perczak later appeared as counsel for the
homeowners’ association. The Sawgrass litigation alleged construction defects at a
planned community in Castle Rock, Colorado. The operative complaint in Sawgrass
asserted claims against Francescon and other defendants (including one of the
defendants in this case, CC Communities, LLC) for negligence, breach of implied
warranty, misrepresentation/nondisclosure, violation of the Colorado Consumer
Protection Act (“CCPA”), breach of fiduciary duty, and promissory estoppel.
¶12 Second, in March 2011, attorneys with the Sullan Firm filed Highlands at
Westbury Townhome Association, Inc. v. Highlands at Westbury, LLC (“Westbury”),
No. 11CV333 (Adams Cty. Dist. Court), and Perczak later appeared as counsel for the
homeowners’ association. The Westbury litigation alleged construction defects at a
community of townhomes in Westminster, Colorado. As in Sawgrass, the operative
complaint in Westbury asserted claims against Francescon and several other defendants
(including two of the defendants in this case, CC Communities, LLC, and Horizon
Building Services, LLC) for negligence, breach of implied warranty,
misrepresentation/nondisclosure, violation of the CCPA, breach of fiduciary duty, and
promissory estoppel.
¶13 Perczak and other attorneys with the Sullan Firm filed the present case, Villas at
Highland Park Homeowners Association, Inc. v. Villas at Highland Park, LLC, in
November 2013. No. 13CV31625 (Arapahoe Cty. Dist. Court). The Villas litigation
7
concerns alleged construction defects in a planned community in Arapahoe County,
Colorado. Like the complaint in Sawgrass, the initial complaint in Villas asserted claims
on behalf of the homeowners’ association against several corporate defendants,
Francescon, and several other individual defendants for negligence, breach of implied
warranty, misrepresentation/nondisclosure, violation of the CCPA, and breach of
fiduciary duty. In September 2014, however, the Villas homeowners’ association filed
an amended complaint, adding new claims, including claims for conversion, unjust
enrichment, and civil theft. These additional claims arose from the allegedly improper
transfer of a parcel of land referred to as “Tract H” from the plaintiff homeowners’
association to the Highland Park Metropolitan District. The claims for conversion and
civil theft were asserted against Francescon individually, in addition to other
defendants.
¶14 Francescon and other named defendants moved to disqualify Perczak and her
firm under Colo. RPC 1.9 and 1.10 in all three of these cases. In July 2013, the Westbury
court initially granted the motion to disqualify in that litigation. The Westbury court
concluded that during her prior representation of Francescon, Perczak would have
learned confidential information about the structure of Francescon’s businesses, which
required Perczak’s disqualification under Colo. RPC 1.9(a), as well as the
disqualification of the Sullan Firm, because Perczak’s conflict was imputed to the firm
under Colo. RPC 1.10. Perczak and the Sullan Firm moved for reconsideration of this
ruling. The Westbury court provisionally vacated its disqualification order and allowed
8
the Westbury defendants to file a response to the motion to reconsider. The parties then
settled the case before the Westbury court ruled on the motion to reconsider.
¶15 In September 2013, the Sawgrass court denied the motion to disqualify in that
litigation. In a detailed, fourteen-page order, the Sawgrass court concluded that
disqualification was unwarranted because Perczak’s prior representation of Francescon
was not “substantially related” to Sawgrass within the meaning of Colo. RPC 1.9(a).
Specifically, the Sawgrass court reasoned that although Perczak’s defense of Francescon
and the Sawgrass lawsuit both involved construction-defect claims based on negligence,
the various lawsuits “involve[d] completely distinct projects over a significant period of
time. . . . [Perczak’s prior representations of Francescon] related to entirely distinct
building projects, where there were different applicable building codes, separate
contractors, and unique allegations of defective construction.” Several of the Sawgrass
defendants sought relief from this court under C.A.R. 21, which we denied. In re CC
Cmtys. LLC v. Sawgrass at Plum Creek Cmty. Ass’n, No. 13SA230 (Colo. Sept. 12, 2013).
Shortly thereafter, the parties settled.
¶16 The developers1 filed a motion to disqualify in the present case in September
2014, arguing that Perczak and her firm must be disqualified because this matter is
“substantially related” to Perczak’s prior representation of Francescon. With the
motion, the developers filed supporting documents, including the Westbury initial
1The motion to disqualify, like the present C.A.R. 21 petition, was filed by defendants
Dale Francescon; CC Communities, LLC; Century Communities, Inc.; Villas at Highland
Park, LLC; and Horizon Building Services, LLC.
9
disqualification order, the Sawgrass disqualification order, lists of filings from the
Westbury and Sawgrass cases, four affidavits from Dale Francescon, an opinion letter
from insurance-defense attorney Daniel Fowler, and an affidavit from professor
emeritus of legal ethics Charles Wolfram.
¶17 Perczak and the Burg Firm then moved to strike the developers’ motion to
disqualify on the basis of issue preclusion. Perczak and the Burg Firm argued that the
Sawgrass order addressed “the same issue, based on effectively identical facts” and
concluded that the Sawgrass lawsuit was not “substantially related” to Perczak’s prior
representation of Francescon. According to Perczak and the Burg Firm, the Sawgrass
order resolved these issues “in a full, fair, and final order,” and therefore, the issue
preclusive effect of the Sawgrass order barred the developers’ disqualification motion in
this case.
¶18 The trial court held a hearing in February 2015 and denied the motion to strike in
part.2 The court concluded that although “[t]he doctrine of issue preclusion, if shown,
applies to this situation,” Perczak and the Burg Firm had not shown that the issue they
sought to preclude—whether Perczak must be disqualified because the present case is
“substantially related” to Perczak’s prior representation of Francescon—was “identical”
to the issue the court decided in Sawgrass. The court further explained:
Although the surface issue in the prior proceeding was the same—the
disqualification of Ms. Perczak [under Colo. RPC 1.9]—the underlying
2Although Judge Weishaupl presided over most aspects of this case and entered the
order that is the subject of this original proceeding, Judge Cross held the February 2015
hearing and entered the corresponding order.
10
reasons why [the Sawgrass court] determined disqualification was not
necessary seem factually different in this case. Although both the prior
proceeding and this case have a claim for a violation of the [CCPA], it
does not appear that [the Sawgrass court] addressed that claim. Further,
this suit, unlike the Sawgrass matter, includes claims directly against Mr.
Francescon for Civil Theft, Breach of Fiduciary Duty, and Conversion.
The court concluded that a hearing was necessary “to determine if anything Ms.
Perczak may have learned in her representation of Mr. [Francescon], other than those
things [the Sawgrass court] ruled would not cause a conflict . . . , would materially
advance Plaintiff’s personal claims against Mr. [Francescon] in this case.”
¶19 At that hearing, held in May 2015, the developers tendered—and the court
accepted—an offer of proof nearly 300 pages in length, consisting of affidavits from, or
statements summarizing the anticipated testimony of, Francescon and four other
individuals.3 According to the offer of proof, these witnesses would testify to the
nature of the confidential information that Perczak would have obtained in her prior
representation of Francescon, as well as legal opinions on Perczak’s alleged conflict and
the applicability of issue preclusion in this context. At the same hearing, defense
counsel also argued that issue preclusion did not apply because the issue Perczak and
the Burg Firm sought to preclude was not “identical” to the attorney-disqualification
issue in Sawgrass. See Tr. of Oral Arg. at 58:13–15, Villas at Highland Park
Homeowners Ass’n, Inc. v. Villas at Highland Park, LLC, No. 13CV31625 (Arapahoe
3 Like the Sawgrass disqualification motion, the offer of proof in this case included
statements from Daniel Fowler and Charles Wolfram. In addition, the developers’ offer
of proof included statements from Richard Flamm, an attorney in the field of legal
ethics, and Dennis Polk, an attorney who had participated in meetings on business and
litigation strategies with Francescon and Perczak.
11
Cty. Dist. Court May 21, 2015) (“There is no identity of issues here as is required under
the elements of . . . issue preclusion . . . .”).
¶20 On February 25, 2016, the trial court entered an order granting Perczak’s and the
Burg Firm’s motion to strike on the basis of issue preclusion and denying the
developers’ motion to disqualify. The order did not make specific factual findings
about the scope of Perczak’s prior and present representations, as the Sawgrass court
had done when it concluded that the Sawgrass lawsuit was not “substantially related”
to Perczak’s prior representation of Francescon. However, the order reasoned that
Perczak’s knowledge of Francescon’s fear of being sued personally—which was
discussed in the offer of proof—would not create a conflict or materially advance the
claims against Francescon in this case.
¶21 The developers petitioned this court for a rule to show cause under C.A.R. 21,
arguing that the trial court erred in applying issue preclusion based on the Sawgrass
order. The developers’ petition further argued that Perczak and the Burg Firm must be
disqualified under Colo. RPC 1.9 and Colo. RPC 1.10 because this case is “substantially
related” to the construction-defect matters in which Perczak represented Francescon.
We issued a rule to show cause and now make the rule absolute.
II. Original Jurisdiction
¶22 Original relief under C.A.R. 21 is an extraordinary remedy that is limited in both
purpose and availability. People v. Darlington, 105 P.3d 230, 232 (Colo. 2005). The
exercise of original jurisdiction under C.A.R. 21 falls within this court’s sole discretion.
Fognani v. Young, 115 P.3d 1268, 1271 (Colo. 2005). We generally exercise jurisdiction
12
under C.A.R. 21 when the normal appellate process provides an inadequate remedy or
when a trial court order places one party at a significant disadvantage in litigating the
merits of a controversy. People v. Hoskins, 2014 CO 70, ¶ 16, 333 P.3d 828, 834; DCP
Midstream, LP v. Anadarko Petroleum Corp., 2013 CO 36, ¶ 22, 303 P.3d 1187, 1193. In
addition, this court will generally elect to hear cases under C.A.R. 21 to consider
important issues of first impression. People v. Johnson, 2016 CO 69, ¶ 7, 381 P.3d 316,
318.
¶23 According to the developers’ allegations, Perczak’s conflict of interest and her
possession of confidential information from her prior representations fundamentally
undermines the fairness of the district court proceedings, thereby rendering normal
appellate relief ineffective. Further, this court has not previously addressed the
applicability of issue preclusion in the context of attorney disqualification under Colo.
RPC 1.9. For these reasons, we conclude that the exercise of our original jurisdiction
pursuant to C.A.R. 21 is appropriate.
III. Analysis
¶24 The developers contend that the trial court erred in relying on the doctrine of
issue preclusion to deny their motion to disqualify Perczak under Colo. RPC 1.9. We
first discuss the law regarding the doctrine of issue preclusion and former-client
conflicts under Colo. RPC 1.9. We then apply those legal frameworks to the facts of this
case.
¶25 We conclude that the dispositive legal issue underlying the developers’
disqualification motion—namely, whether Perczak’s representation of the homeowners’
13
association in this matter is “substantially related” to her prior representation of
Francescon—is specific to the present dispute. Thus, we conclude that the issue Perczak
seeks to preclude is not “identical” to the issue decided in Sawgrass, and therefore,
issue preclusion does not apply to the developers’ disqualification motion in this case.
Because issue preclusion is inapplicable in this case, the trial court abused its discretion
by relying on issue preclusion to deny the developers’ disqualification motion and
failing to meaningfully analyze the merits of the motion.
A. Standard of Review
¶26 Issue preclusion presents a question of law that we review de novo. Bristol Bay
Prods., LLC v. Lampack, 2013 CO 60, ¶ 17, 312 P.3d 1155, 1159 (citing Stanton v.
Schultz, 222 P.3d 303, 307 (Colo. 2010)).
¶27 Similarly, a trial court’s interpretation of a rule of professional conduct raises a
question of law that we review de novo. Hoskins, ¶ 17, 333 P.3d at 834 (citing People v.
Nozolino, 2013 CO 19, ¶ 9, 298 P.3d 915, 918). We review a trial court’s decision
whether to disqualify counsel for abuse of discretion. Id. (citing People v. Shari, 204
P.3d 453, 457 (Colo. 2009)). A trial court abuses its discretion if its decision is manifestly
arbitrary, unreasonable, or unfair, or if the trial court applies the incorrect legal
standards. Garcia v. Medved Chevrolet, Inc., 263 P.3d 92, 97 (Colo. 2011).
B. Relevant Law
1. Issue Preclusion
¶28 The doctrine of issue preclusion (historically called collateral estoppel) bars
litigation of previously decided issues in certain circumstances. Stanton, 222 P.3d at
14
307. By barring such successive litigation, the doctrine “protect[s] litigants from
needless relitigation of the same issues, further[s] judicial economy, and promote[s] the
integrity of the judicial system by affirming that one can rely upon judicial decrees
because they are final.” Wolfe v. Sedalia Water & Sanitation Dist., 2015 CO 8, ¶ 14, 343
P.3d 16, 22 (citing Lobato v. Taylor, 70 P.3d 1152, 1165–66 (Colo. 2003)).
¶29 The party seeking to assert issue preclusion to bar relitigation of an issue must
show that:
(1) the issue is identical to an issue actually litigated and necessarily
adjudicated in the prior proceeding; (2) the party against whom estoppel
was sought was a party to or was in privity with a party to the prior
proceeding; (3) there was a final judgment on the merits in the prior
proceeding; and (4) the party against whom the doctrine is asserted had a
full and fair opportunity to litigate the issues in the prior proceeding.
Stanton, 222 P.3d at 307 (citing Rantz v. Kaufman, 109 P.3d 123, 139 (Colo. 2005)); see
also Foster v. Plock, 2017 CO 39, ¶ 13, ___ P.3d ___.
¶30 Although it is clear that issue preclusion applies only to “identical” issues,
Stanton, 222 P.3d at 307, “one of the most difficult issue preclusion questions ‘is to
delineate the issue on which litigation is, or is not, foreclosed by the prior judgment,’”
Bristol Bay Prods., ¶ 17, 312 P.3d at 1159 (quoting Restatement (Second) of Judgments §
27 cmt. c (1982)). Addressing this question, we have recognized that the identity or
nonidentity of issues turns on the elements that the claimant must establish to prove his
or her substantive claim or defense. See id. at ¶ 25, 312 P.3d at 1160. Accordingly, “[a]
change in facts may render issue preclusion inapplicable in one context but not in
another—the question is whether the change in facts matters in light of the elements
15
needed to prove a party’s claims.” Id. at ¶ 24, 312 P.3d at 1160 (citing 18 James W.
Moore et al., Moore’s Federal Practice § 132.02[2][e] (Matthew Bender 3d ed. 2013)).
¶31 Because the applicability of issue preclusion depends on the essential elements of
the particular claim or issue to be precluded, we turn now to the law of former-client
conflicts under Colo. RPC 1.9.
2. Colo. RPC 1.9(a)
¶32 Colorado Rule of Professional Conduct 1.9 governs an attorney’s duties to former
clients.4 Subsection (a) of the Rule prohibits an attorney from representing a party
whose interests are materially adverse to those of a former client if the present and
former matters are the same or “substantially related” to one another:
A lawyer who has formerly represented a client in a matter shall not
thereafter represent another person in the same or a substantially related
matter in which that person’s interests are materially adverse to the
interests of the former client unless the former client gives informed
consent, confirmed in writing.
A client whose former attorney has undertaken such a representation may seek the
attorney’s disqualification from the matter. See Hoskins, ¶ 25, 333 P.3d at 835.
However, “disqualification of a party’s chosen attorney is an extreme remedy, [and it is]
appropriate only where necessary to preserve the integrity and fairness of judicial
proceedings.” In re Estate of Meyers, 130 P.3d 1023, 1027 (Colo. 2006).
¶33 To disqualify an attorney under Colo. RPC 1.9(a), the party seeking
disqualification must show:
4 Colo. RPC 1.9 is identical to Rule 1.9 of the Model Rules of Professional Conduct from
the American Bar Association.
16
(1) an attorney-client relationship existed in the past; (2) the present
litigation involves a matter that is “substantially related” to the prior
litigation; (3) the present client’s interests are materially adverse to the
former client’s interests; and (4) the former client has not consented to the
disputed representation after consultation.
Hoskins, ¶ 25, 333 P.3d at 835 (quoting Funplex P’ship v. F.D.I.C., 19 F. Supp. 2d 1201,
1206 (D. Colo. 1998)). Only the second requirement—that the two matters must be
“substantially related”—is at issue in this case.
¶34 Under Rule 1.9, “[m]atters are ‘substantially related’ . . . if they involve the same
transaction or legal dispute or if there otherwise is a substantial risk that confidential
factual information as would normally have been obtained in the prior representation
would materially advance the client’s position in the subsequent matter.” Colo. RPC 1.9
cmt. 3.5 Here, it is undisputed that Villas is not the “same transaction or legal dispute”
as those in which Perczak represented Francescon. Thus, in such a context, the Rule is
concerned with the type of confidential factual information that normally would have
been revealed in a typical representation, rather than the confidential factual
information that was actually revealed.6 See People v. Frisco, 119 P.3d 1093, 1096 (Colo.
5Although comments to the Rules of Professional Conduct are not binding and do not
impose ethical obligations on attorneys independent from a Rule’s text, Matter of
Gilbert, 2015 CO 22, ¶ 33, 346 P.3d 1018, 1026, we have previously relied on the
comments to Rule 1.9 to interpret the Rule’s scope, see People v. Frisco, 119 P.3d 1093,
1096 (Colo. 2005).
6 By drawing this distinction, the Rule protects the former client’s confidences. Colo.
RPC 1.9 cmt. 3 (“A former client is not required to reveal the confidential information
learned by the lawyer in order to establish a substantial risk that the lawyer has
confidential information to use in the subsequent matter.”). Indeed, the Rule “would be
self-defeating if, in order to obtain its protection, the former client were required to
reveal in a public proceeding the particular communication or other confidential
17
2005) (“Because the use of information from a prior representation to the disadvantage
of the former client is separately restricted by Rule 1.9(c), Rule 1.9(a) applies only to
situations involving an inherent and substantial risk of violating an attorney’s duty of
loyalty to former clients.”).
¶35 Because the Rule is concerned with the risk of disclosure in this context, we have
described the inquiry into attorney disqualification under Rule 1.9(a) as “a process of
factual reconstruction” that “cannot be limited to the consideration of ultimate legal
issues, but must account for facts and circumstances, legal theories and strategies, and
even the nature and scope of the attorney’s involvement in the former representation.”
Id. In other words, the inquiry into whether two matters are “substantially related”
requires individualized consideration of the two representations, their underlying legal
theories, and the facts that would be necessary to prove or disprove those theories. See
id.
¶36 Where a lawyer handles recurrent yet factually distinct problems, each
individual matter is likely to involve a distinct set of dispositive facts. In such a
situation, the information that an attorney obtains in a prior representation is not
necessarily relevant in later matters and consequently, there is no substantial risk that
the attorney could use the information to gain an unfair advantage. Thus, in
determining whether two matters are “substantially related,” the crucial question is
whether the confidential factual information in the attorney’s probable possession is
information that could be used in the subsequent representation.” Restatement (Third)
of the Law Governing Lawyers § 132 cmt. d(iii) (2000).
18
relevant to subsequent claims in a manner that would materially advance those
claims—which, in turn, depends on the precise legal theories and allegations in those
claims.
¶37 Given that attorney-disqualification issues depend on the particular facts and
legal theories involved in each case, issue preclusion will rarely, if ever, apply to
attorney-disqualification motions under Rule 1.9 because the issue raised by one
attorney-disqualification motion rarely will be “identical” to one in another case. That
is, the question of whether the prior and current representations are “substantially
related” is a fact-specific inquiry that is tied closely to the particular circumstances of
the two representations. With this legal framework in mind, we turn to the facts of the
present case to consider the allegations and legal theories involved in Perczak’s
challenged representations.
C. Application
¶38 The developers contend that issue preclusion is inapplicable in the context of
attorney-disqualification motions because trial courts must ensure fairness in every case
and may not delegate that obligation to another court through the application of issue
preclusion. The developers further contend that issue preclusion does not apply
because the Sawgrass order was not a “final judgment on the merits,” see Stanton, 222
P.3d at 307. We do not reach these arguments, however, because we conclude that issue
preclusion is inapplicable for another, more conspicuous reason—namely, that the issue
of disqualification under Colo. RPC 1.9 considered in the Sawgrass order is not
“identical” to the disqualification issue raised by the developers’ motion in this case.
19
¶39 Considering the legal theories and supporting facts underlying the claims for
relief in Sawgrass and Villas, we conclude that the attorney-disqualification motions in
Sawgrass and Villas do not raise “identical” issues. To be sure, both of the cases
concern construction-defect litigation and include claims for negligence, breach of
implied warranty, misrepresentation/nondisclosure, and breach of fiduciary duty.
However, in this case, the homeowners’ association also asserted claims against
Francescon individually for conversion and civil theft, arising from an allegedly illegal
sale of a tract of land to the Highland Park Metropolitan District. And indeed, one of
the developers’ principal arguments as to why Perczak must be disqualified from this
case is that she “reverse-engineered” these claims from the confidential information she
obtained in her prior representation of Francescon.
¶40 In contrast to the claims of the amended complaint in Villas, however, the
complaint in Sawgrass contained no analogous claims of conversion or civil theft.
Indeed, in Polk’s proffered testimony, Polk agreed that the confidential factual
information implicated in this attorney-disqualification motion was “different from the
‘risk management’ information that was presented to and considered by [the Sawgrass
court]” in the disqualification motion in Sawgrass. Thus, the Villas attorney-
disqualification motion implicates different “confidential factual information” than the
Sawgrass attorney-disqualification motion. It therefore follows that the Villas attorney-
disqualification issue is not “identical” to the Sawgrass attorney-disqualification issue
because the analysis of the relationship between the prior and current representations at
20
issue in Sawgrass is different from the analysis of the relationship between the prior
and current representations at issue in this case.
¶41 We further note that although the Villas and Sawgrass complaints shared certain
claims in common, such as various negligence claims, those claims arose from different
alleged defects in separate residential real-estate developments. See Colo. RPC 1.9 cmt.
2 (“[A] lawyer who recurrently handled a type of problem for a former client is not
precluded from later representing another client in a factually distinct problem of that
type even though the subsequent representation involves a position adverse to the prior
client.”). In addition, the Sawgrass complaint pre-dated the Villas complaint by nearly
three years, and Rule 1.9(a)’s comments also contemplate that the passage of time may
be relevant in determining whether two matters are “substantially related.” See Colo.
RPC 1.9 cmt. 3. These considerations further show that the Villas and Sawgrass
attorney-disqualification motions do not raise “identical” issues, and we therefore
conclude that issue preclusion does not bar the developers’ attorney-disqualification
motion.
¶42 In this case, however, the trial court granted the motion to strike, which was
founded entirely on the argument that issue preclusion barred the developers’ motion
to disqualify. In so doing, the trial court failed to consider whether the present case is
related to Perczak’s prior representation of Francescon in the same manner that
Sawgrass related to that prior representation, such that the two disqualification motions
could be fairly characterized as raising “identical” issues. As described above, the two
disqualification motions do not raise “identical” issues, given the distinct real-estate
21
developments and alleged defects in the two cases, the unique nature of the amended
claims in Villas, and the passage of time between the two cases. Accordingly, the
doctrine of issue preclusion does not bar the developers’ disqualification motion in this
case.
¶43 As an alternate basis supporting the trial court’s decision, Perczak and the Burg
Firm contend that in its order, the trial court properly denied the developers’
disqualification motion on the merits of their Rule 1.9 argument, rather than relying
solely on issue preclusion. This argument is based on the final paragraph of the trial
court’s order, in which the court concluded Perczak’s knowledge of Francescon’s fear of
being sued personally would not cause a conflict or materially advance the
homeowners’ association’s claims against Francescon.
¶44 However, the argument that the trial court properly denied the disqualification
motion on the merits is belied by the fact that the trial court granted the motion to strike
on the basis of issue preclusion. This action by the trial court is inconsistent with
Perczak’s and the Burg Firm’s argument because a motion to strike, if granted, has the
effect of deleting the stricken material—here, the developers’ motion to disqualify.
¶45 Moreover, to the extent that the trial court addressed the merits of the
developers’ motion to disqualify, we conclude that the trial court abused its discretion
by failing to adequately analyze the motion or make supporting findings, as required in
an inquiry under Colo. RPC 1.9. The trial court’s brief, one-paragraph analysis of the
merits of the developers’ motion contains no discussion of the applicable legal standard
under Rule 1.9 and no factual findings with respect to the scope of the prior
22
representation, the scope of the present representation, or the relation among the two.
Because we are unable to determine whether the trial court applied the proper
standard, we must conclude that the trial court abused its discretion in denying the
defendants’ motion to disqualify.7 Cf. Frisco, 119 P.3d at 1097 (concluding that the trial
court abused its discretion in disqualifying defense counsel, where, “[i]n light of . . . the
court’s brief explanation of its order, it [was] not even clear that the district court
correctly applied the substantial relationship test to require an evaluation of the
likelihood that counsel acquired relevant confidential factual information in the prior
representation”).8
IV. Conclusion
¶46 We conclude that issue preclusion does not bar the developers’ motion to
disqualify Perczak under Colo. RPC 1.9. Specifically, the issue of whether Perczak’s
7 The trial court’s later orders denying the defendants’ motion for protective orders
(dated July 11, 2016) and motion to compel Perczak’s attendance at a deposition (dated
July 18, 2016) do not change this result. Those later orders refer back to the order on the
developers’ disqualification motion, reiterating the content of the proffer received by
the court and the court’s conclusion that disqualification was not required based on
Perczak’s knowledge of Francescon’s fear of being sued personally. But like the order
on the developers’ disqualification motion, the later orders do not explain the nature
and scope of the prior and present representations or the relation among the two. In
addition, the trial court’s order dated July 18, 2016, confirms that the court granted the
motion to strike on grounds of issue preclusion—an action that is inherently
inconsistent with Perczak’s and the Burg Firm’s argument that the trial court properly
resolved the motion to disqualify on its merits.
8 We express no view of the merits of the disqualification motion. On remand, the trial
court is in the best position to determine, in the first instance, whether the present case
is “substantially related” to Perczak’s prior representation of Francescon, considering
the particular legal theories and dispositive facts involved in the various
representations.
23
representation in Sawgrass was “substantially related” to her prior representation of
Francescon is not “identical” to the issue of whether the present case is “substantially
related” to Perczak’s prior representation of Francescon for purposes of Colo. RPC
1.9(a), given the distinct real-estate developments and alleged defects in the cases, the
unique nature of the amended claims in Villas, and the passage of time between the
cases. Accordingly, we conclude that the trial court abused its discretion in relying on
issue preclusion to deny the disqualification motion, instead of conducting the requisite
analysis under Colo. RPC 1.9(a). We therefore make the rule absolute, vacate the trial
court’s order denying the developers’ motion to disqualify Perczak and her law firm,
and remand this case for the trial court to address the merits of the developers’ motion
to disqualify under Colo. RPC 1.9(a).
JUSTICE GABRIEL dissents, and JUSTICE EID and JUSTICE HOOD join in the
dissent.
24
JUSTICE GABRIEL, dissenting.
¶47 The majority asserts that the district court denied the defendant developers’
disqualification motion on issue preclusion grounds without meaningfully analyzing
whether, for purposes of disqualification under Colo. RPC 1.9(a), this case is
“substantially related” to the prior matters in which Mari Perczak represented Dale
Francescon. Maj. op. ¶ 4. The majority proceeds to conclude that (1) a motion to
disqualify will “rarely, if ever” raise an identical issue to a disqualification motion in
another case; (2) the district court here erred in ruling based on the issue preclusion
doctrine because the issues in this case were not identical to those presented in
Sawgrass at Plum Creek Community Association, Inc. v. Sawgrass at Plum Creek, LLC,
No. 2010CV3532 (Douglas Cty. Dist. Court, Sept. 5, 2013); and (3) a remand is necessary
so that the district court can address the merits of the developers’ disqualification
motion. Maj. op. ¶¶ 5–6, 37, 46.
¶48 In my view, the majority misapprehends the district court’s order in this case.
The district court did address the merits of the disqualification motion, and it
concluded, with ample record support, that the developers had not established the
requisite substantial relationship between this case, on the one hand, and the prior
matters in which Perczak represented Francescon, on the other. Because I believe that
the district court’s ruling on the merits of the disqualification motion was supported by
the record and the applicable law, I would conclude that the court properly exercised its
discretion, and I need not address the applicability of the issue preclusion doctrine. As
a result, I would discharge the order to show cause.
1
¶49 Accordingly, I respectfully dissent.
I. Analysis
¶50 I first address the district court’s ruling in this case, and I conclude that the court
properly found that the developers had not shown the substantial relationship required
to support the “extreme remedy” of attorney disqualification under Colo. RPC 1.9. In re
Estate of Meyers, 130 P.3d 1023, 1027 (Colo. 2006). Although, based on this analysis, I
need not consider the applicability of issue preclusion here, I feel compelled to address
the majority’s statement that a disqualification motion will “rarely, if ever” raise an
identical issue to a disqualification motion in another case. For the reasons that I
discuss below, I believe that the majority’s statement unnecessarily pre-judges future
cases and may, in any event, be incorrect.
A. The District Court’s Order
¶51 To understand the district court’s order in this case, one must consider the
context in which it was entered.
¶52 The developers filed a motion to disqualify Perczak, arguing that Perczak and
her current law firm should be disqualified because their representation of the plaintiff
homeowners’ association in this case was substantially related to Perczak’s prior
representation of Francescon. Thereafter, the homeowners’ association filed a motion to
strike the developers’ motion. In this motion, the homeowners’ association argued that
the motion to disqualify should be stricken based on the issue preclusion doctrine.
Alternatively, the homeowners’ association requested additional time to respond to the
2
motion to disqualify. The parties’ cross-motions thus put in question both the issue
preclusion doctrine and the merits of the disqualification motion.
¶53 On February 24, 2015, Judge Cross issued an order denying in part the
homeowners’ association’s motion to strike. As pertinent here, the court concluded that
a further hearing would be necessary to determine whether anything that Perczak may
have learned in her representation of Francescon would materially advance the
homeowners’ association’s claims against Francescon in this case.
¶54 Thereafter, on March 19, 2015, Judge Cross clarified his February order:
The Court’s Order on the Motion to Strike contemplates a hearing, which
is set for May 21, on whether Ms. Perczak may have learned anything in
her representation of Mr. Francescon which would materially advance the
personal claims against Mr. Francescon in this case. If not, then not only
would the Motion to Strike be granted on the issue of claim preclusion
[sic], but also the Motion to Disqualify would be denied because there is
no conflict.
(Emphasis added.) The court also (1) ordered the homeowners’ association to respond
to the motion to disqualify and (2) set deadlines for the response and any reply brief.
¶55 As the majority correctly observes, maj. op. ¶¶ 34, 36, under Colo. RPC 1.9, the
test for whether matters are substantially related asks if the matters “involve the same
transaction or legal dispute or if there otherwise is a substantial risk that confidential
factual information as would normally have been obtained in the prior representation
would materially advance the client’s position in the subsequent matter.” Colo. RPC 1.9
cmt. 3. Accordingly, Judge Cross’s March order made clear that a hearing would be
necessary specifically to decide whether the matters at issue were substantially related
for purposes of Rule 1.9.
3
¶56 Consistent with this directive, Judge Weishaupl conducted a hearing and
considered the parties’ substantial offers of proof, which included orders on similar
motions filed in prior cases, filings from the prior cases, a number of affidavits from
Francescon, and written opinions from experts in the field.
¶57 In a written order issued on February 25, 2016, the court ultimately denied the
motion to disqualify and granted the motion to strike. In so ruling, the court concluded:
Testimony revealed that Mr. Francescon was concerned that Ms. Perczak
would know his feelings regarding being personally sued and would be
able to use those fears or concerns to her client’s advantage. The Court
does not find that this understanding would constitute something that
Ms. Perczak may have learned in her representation of Mr. Francescon
which would cause a conflict or materially advance Plaintiff’s personal
claims against Mr. Francescon in this case. It appears to the Court that all
litigants before the Court may have fears of being personally sued and this
is not something that would encompass an advantage or materially
advance Plaintiff’s personal claims against Mr. Francescon.
¶58 For the reasons set forth above, I understand this order to be a ruling on the
merits of whether the matters at issue were substantially related for purposes of
Rule 1.9. As noted above, the test for whether matters are substantially related asks, in
pertinent part, whether there is a substantial risk that confidential factual information as
would normally have been obtained in the prior representation would materially have
advanced the client’s position in the subsequent matter. Colo. RPC 1.9 cmt. 3. The
district court addressed this exact question and concluded that the developers had not
met their burden to establish grounds for Perczak’s disqualification.
¶59 In my view, the district court’s findings were well supported by the record.
Indeed, in their briefs and at oral argument in this court, the developers supported their
4
argument for Perczak’s and her firm’s disqualification with the very same types of
conclusory assertions that they presented to the district court, arguing, for example, that
Perczak came to know Francescon’s concern about being sued personally, his desire for
risk avoidance and insurance coverage for claims asserted against him, and his use of
special districts as a means of financing.
¶60 I agree with the district court that concern for risk avoidance and a desire to
avoid personal liability exist in virtually every case and that this type of information, as
well as information regarding the use of special districts as a means of financing, is not
confidential and certainly does not support the “extreme remedy” of attorney
disqualification. Estate of Meyers, 130 P.3d at 1027.
¶61 In this regard, I note that it is not sufficient for a movant seeking attorney
disqualification to argue, as the developers essentially did at oral argument before us,
that the movant was required to speak in broad generalities so as to avoid revealing in a
public proceeding the confidential information that the movant was seeking to protect.
Although it is certainly true that a court should take care not to require the public
disclosure of such information, our rules provide a mechanism by which movants such
as the developers can protect confidential information while prosecuting a motion to
disqualify an attorney under Rule 1.9. See, e.g., C.R.C.P. 121, § 1-5 (concerning the
limitation of access to court files). Accordingly, a party seeking an attorney’s
disqualification cannot rely on the confidentiality of the information at issue to excuse
its failure to carry its burden of establishing the requisite grounds for attorney
disqualification.
5
¶62 For all of these reasons, I perceive no abuse of discretion in the district court’s
ruling at issue.
¶63 I am not persuaded otherwise by the majority’s contention that the district
court’s granting of the homeowners’ association’s motion to strike belies the assertion
that the court ruled on the merits of the developers’ disqualification motion. Maj. op.
¶ 44. In the majority’s view, the order granting the motion to strike had the effect of
deleting the stricken material, id., and thus, presumably, the district court would no
longer have had before it the motion to disqualify. Were that correct, however, then the
court would have had no reason to comment on the merits of the disqualification
motion. Rather, it would have deemed that motion moot. But that is not what the court
did. Instead, perhaps with the intent of taking a “belt and suspenders” approach, the
court granted the motion to strike and then ruled on the merits of the disqualification
motion, as the above-quoted March 2015 order indicated the court would do. Although
the court may not have needed to make the latter ruling, its order makes clear that it did
so.
¶64 Nor am I persuaded by the developers’ suggestion that the homeowners’
association’s amended complaint was “reverse-engineered” based on confidential
information to which Perczak had access while representing Francescon. The
developers offered nothing to support this conclusory assertion other than the facts that
Francescon was understandably concerned about personal liability, that he structured
his affairs to protect himself, and that he used special districts as a means of financing.
None of these facts is either confidential or particularly noteworthy. Many experienced
6
and sophisticated businesspeople share the same concerns and engage in the same
kinds of activities to protect themselves.
¶65 In addition, as the majority correctly observes, see maj. op. ¶ 41, (1) “[A] lawyer
who recurrently handled a type of problem for a former client is not precluded from
later representing another client in a factually distinct problem of that type even though
the subsequent representation involves a position adverse to the prior client,” Colo.
RPC 1.9 cmt. 2, and (2) the passage of time may be relevant in determining whether two
matters are substantially related, Colo. RPC 1.9 cmt. 3. In my view, both of these factors
support the district court’s conclusion that the matters at issue here were not
substantially related. Specifically, the mere fact that Perczak recurrently handles
construction defect actions like that at issue here does not alone preclude her from
representing a subsequent client against a former client in a construction defect case.
Moreover, it is undisputed that Perczak last represented Francescon more than a decade
ago.
¶66 Accordingly, I would discharge the order to show cause in this case without
reaching the question of the applicability of the issue preclusion doctrine in the context
of an attorney disqualification motion.
B. Issue Preclusion
¶67 As noted above, in addressing the question of issue preclusion, the majority
states that a motion to disqualify will “rarely, if ever” raise an identical issue to a
disqualification motion in another case. Maj. op. ¶¶ 5, 37. Because I do not believe that
7
so broad a statement is necessary, nor am I convinced that it is correct, I feel compelled
to comment on this issue.
¶68 In this case, the developers have asked us to conclude, as a matter of law, that the
issue preclusion doctrine does not apply in the context of an attorney disqualification
motion. The majority appears to reject that position, and so would I. I see no reason to
adopt a categorical rule exempting one kind of matter from the doctrine of issue
preclusion, nor have I seen any persuasive case law supporting such a position.
¶69 The majority, however, posits that the issue preclusion doctrine will rarely, if
ever, apply in this kind of case. The majority thus adopts a principle of law that
appears to come close to the categorical rule that it seemingly rejects. I cannot subscribe
to such a principle, particularly when I perceive no reason for doing so.
¶70 In any event, I am not as persuaded as the majority that the issue preclusion
doctrine will rarely, if ever, apply in the context of an attorney disqualification motion.
The majority correctly notes that in this case, the homeowners’ association asserts
personal claims against Francescon that were not asserted in the Sawgrass case. That
may or may not undermine an assertion as to the identity of claims here. But what if
the homeowners’ association did not assert such additional claims and the causes of
action asserted here were identical to those asserted in the Sawgrass case? It is not so
clear to me that the identity of claims would be undermined solely by the fact that the
cases involved different properties. Rather, the issue would turn on the nature of the
claims asserted and the confidential information alleged to have been available to the
attorney.
8
¶71 In short, I perceive no reason to pre-judge future assertions of issue preclusion,
particularly when doing so could be conceived as condoning (or at least inviting) the
kind of seriatim disqualification motions that were filed in this and several prior cases.
I would rather leave the preclusion question in the capable hands of trial judges who
are in a better position to assess such matters on a case-by-case basis.
II. Conclusion
¶72 Because I believe that the district court in this case properly exercised its
discretion, I would discharge the rule to show cause. Accordingly, I respectfully
dissent.
I am authorized to state that JUSTICE EID and JUSTICE HOOD join in this
dissent.
9