Bridgepoint Construction Services v. Newton ( 2018 )


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  • Filed 9/4/18
    CERTIFIED FOR PUBLICATION
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION SIX
    BRIDGEPOINT                            2d Civ. No. B283239
    CONSTRUCTION SERVICES,               (Super. Ct. No. 1468021)
    INC.,                                (Santa Barbara County)
    Plaintiff, Cross-complainant
    and Respondent;
    SPECTRA AMERICA, LLC,
    Plaintiff and Appellant,
    v.
    MARTIN NEWTON et al.,
    Defendants, Cross-
    complainants and Respondents;
    DILIP RAM,
    Cross-defendant, Cross-
    complainant and Appellant;
    RAVELLO HOLDINGS, INC.,
    et al.,
    Cross-defendants and
    Appellants.
    An attorney represents more than one client, all of whom
    seek damages from a pool of money controlled by another party.
    In addition to multiple other reasons why the attorney here
    should be disqualified, when more than one client is seeking
    funds from the same source, the conflict is self-evident. There
    might not be enough money to satisfy each client's claim.
    This is an appeal from an order disqualifying an attorney
    for a conflict of interest. We affirm.
    FACTS
    Bridgepoint Construction Services, Inc. (Bridgepoint) was
    hired by Vista Oceano La Mesa Venture, LLC (Vista) to perform
    construction services on a project in Santa Barbara. Bridgepoint
    has two shareholders, Norman Salter, who owns 25 percent, and
    Martin Newton, who owns 75 percent. Newton also has an
    interest in Vista. Salter and Dilip Ram are business associates.
    Bridgepoint and Salter brought an action against Vista,
    Newton and others, alleging defendants owed them
    approximately $2 million for construction services.
    Vista cross-complained against Salter, Ram and others,
    alleging Salter and Ram diverted assets from Bridgepoint,
    depriving Vista of moneys due to it. In December 2014, Robert
    Klein became attorney of record for Bridgepoint, Salter and Ram.
    In December 2016, Klein designated an expert, Karl
    Schulze, to review Bridgepoint’s financial records. Schulze
    reviewed Bridgepoint’s financial records, including records
    related to the Vista project, and determined Bridgepoint is owed
    $2 million.
    In January 2017, Newton successfully moved to disqualify
    Klein from representing Bridgepoint and Salter. The trial court
    found that Bridgepoint and Salter have conflicts of interest
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    relating to indemnity or other claims against each other.
    Bridgepoint retained the law firm of Woosley and Porter to
    represent it.
    In February 2017, Klein filed a cross-complaint on behalf of
    Ram against Vista and Newton. The cross-complaint alleged that
    Ram advanced money to the Vista project. Ram seeks the return
    of the money. The money Ram seeks returned is part of the $2
    million Bridgepoint and Salter seek in their complaint against
    Vista and Newton.
    In April 2017, Woosley and Porter filed a cross-complaint
    on behalf of Bridgepoint against Salter and Ram. The cross-
    complaint alleged causes of action for conversion, self-dealing,
    breach of fiduciary duty, and failure to allow the inspection of the
    corporate records reviewed by Schulze.
    After Klein filed Ram’s cross-complaint, Bridgepoint moved
    to disqualify Klein from representing Ram. Newton joined in the
    motion. Klein acknowledged that he represents Bridgepoint and
    Salter in a “related case” against James Lassiter in the United
    States District Court in Arizona. The trial court granted the
    motion, finding that Klein has a conflict arising out of the
    simultaneous representation of Bridgepoint in the Arizona case
    and Ram in this case, as well as a conflict arising out of the
    successive representation of Bridgepoint and Ram in this case.
    DISCUSSION
    Klein contends the trial court erred in disqualifying him.
    If an attorney simultaneously represents two clients with
    adverse interests, disqualification is automatic. (Blue Water
    Sunset, LLC v. Markowitz (2011) 
    192 Cal. App. 4th 477
    , 487.)
    Where an attorney represents a current client against a former
    client, the attorney will be subject to disqualification if there is a
    3
    substantial relationship between the subject matter of the two
    representations. (Flatt v. Superior Court (1994) 
    9 Cal. 4th 275
    ,
    283.) Disqualification is mandatory in the context of successive
    representation where the attorney obtains confidential
    information in the course of representing the former client that is
    relevant to the representation of the current client. (Ibid.) We
    review for an abuse of discretion. (Rico v. Mitsubishi Motors
    Corp. (2007) 
    42 Cal. 4th 807
    , 819.)
    Klein appears to believe there is no conflict of interest
    because he is not suing Bridgepoint or Salter; instead,
    Bridgepoint, Salter and Ram are all suing Vista and Newton.
    What Klein ignores is that Bridgepoint, Salter and Ram are all
    seeking the same damages from the same $2 million pool. The
    conflict is obvious. Every dollar that Ram obtains from the pool
    is a dollar that is not available to Bridgepoint or Salter.
    Klein inadvertently admitted to the conflict at oral
    argument on the disqualification motion when he stated: “Your
    Honor, what [Bridgepoint] says all these parties with conflicting
    claims. There really isn’t. Because Bridgepoint, Ram and Salter
    are seeking to recover $2 million for Bridgepoint. The conflicting
    claims, what he’s referring to I believe, is that a lot of these
    people are claiming that same $2 million. Both parties have a
    declaratory relief action that says in the event Bridgepoint
    recovers the money, the Court can determine who’s entitled to it.”
    That the trial court will ultimately decide who recovers the
    money does not resolve the conflict. The court’s decision will be
    influenced by the representation each party receives.
    Here Klein simultaneously represents Bridgepoint in the
    Arizona action and Ram in the instant action. Thus,
    disqualification is automatic. If that is not enough, the trial court
    4
    reasonably concluded that Klein obtained confidential
    information from Bridgepoint when he retained Schulze as an
    expert to review Bridgepoint’s financial records. Finally, there is
    a substantial relationship between the subject matter of Klein’s
    former representation of Bridgepoint in this case and his current
    representation of Ram. The court had multiple independent
    grounds for disqualifying Klein. The court would have abused its
    discretion had it not disqualified Klein.
    Klein requests that we take judicial notice that an action
    filed by David Schuman against Bridgepoint and Salter was
    settled. Klein claims this action was the reason for the initial
    disqualification. Thus, he argues there is no longer any conflict.
    But the Schuman case was not the reason for Klein’s prior
    disqualification, and, even if it were, the conflict between
    Bridgepoint, Salter and Ram in their claims to the $2 million
    anticipated recovery remains.1
    Klein argues that his disqualification deprives Ram of the
    counsel of his choosing and burdens Ram with the additional
    costs of retaining new counsel. But the same can be said of most,
    if not every, disqualification. Bridgepoint has the right to the
    undivided loyalty of its present and former counsel. In balancing
    the rights of the parties, the law has determined that the
    avoidance of conflicts of interest in representation by counsel is
    paramount.
    Klein claims that disqualification is not proper where the
    conflict of interest is only a hypothetical. But when three parties
    are vying for the same pool of money, the conflict is actual, not
    hypothetical.
    1   We deny the motion for judicial notice filed on June 15,
    2018.
    5
    Klein argues Bridgepoint’s April 2017 cross-complaint
    against Salter and Ram is a sham and cannot form the basis for
    his disqualification. Klein cites no judgment declaring the cross-
    complaint to be a sham. Instead, he invites us to make that
    determination on appeal without benefit of trial. We decline to
    do so. In any event, even if Bridgepoint’s cross-complaint were
    eliminated, Ram’s cross-complaint filed by Klein would still
    create a conflict.
    Klein’s reliance on Federal Home Loan Mortgage Corp. v.
    La Conchita Ranch Co. (1998) 
    68 Cal. App. 4th 856
    is misplaced.
    There homeowners alleged a ranch, due to irrigation practices,
    caused a landslide that destroyed or damaged their homes. The
    ranch settled with the homeowners. The settlement agreement
    expressly provided that the settlement did not include damages
    claimed by the homeowners’ mortgagees for impairment of
    security. The mortgagees wanted the same law firm that
    represented the homeowners to represent them in their action
    against the ranch. The law firm obtained waivers from its clients
    acknowledging and waiving any conflict of interest. The law firm
    then represented the mortgagees in an action against the ranch
    for impairment of security. The ranch cross-complained against
    the homeowners, alleging that the damages sought by the
    mortgagees had already been paid to the homeowners in the
    settlement.
    The ranch moved to disqualify the law firm for a conflict of
    interest. The trial court denied the motion. We affirmed. The
    mortgagees were making no claim on the proceeds of the
    homeowners’ settlement; the cross-complaint was an obvious
    sham because it was directly contradicted by the settlement
    agreement; and the only conflict the ranch could suggest, that
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    dual representation might impair settlement options, was
    hypothetical. (Federal Home Loan Mortgage Corp. v. La Conchita
    Ranch 
    Co., supra
    , 68 Cal.App.4th at p. 862.)
    Here, unlike La Conchita Ranch, Klein did not obtain
    waivers from Bridgepoint; Bridgepoint’s cross-complaint was not
    determined to be a sham; the mortgagees were not seeking to
    recover from the same pool of money as the homeowners; and the
    conflict here is real, not hypothetical.
    Finally, Klein complains about Woosley and Porter’s
    conduct. The appeal is from an order disqualifying Klein.
    Woosley and Porter’s conduct is irrelevant.
    The order is affirmed. Costs are awarded to respondents.
    CERTIFIED FOR PUBLICATION.
    GILBERT, P. J.
    We concur:
    YEGAN, J.
    TANGEMAN, J.
    7
    Colleen K. Sterne, Judge
    Superior Court County of Santa Barbara
    ______________________________
    Law Offices of Robert G. Klein, Robert G. Klein for Plaintiff
    and Appellant Spectra America, LLC; and for Cross-defendant,
    Cross-complainant and Appellant Dilip Ram; and for Cross-
    defendants and Appellants Ravello Holdings, Inc., Cape West
    Holdings, Inc. and Focus Builders, Inc.
    Law Office of Jordan T. Porter, Jordan T. Porter for
    Plaintiff, Cross-complainant and Respondent Bridgepoint
    Construction Services, Inc.
    Hamberg, Karic, Edwards & Martin, LLP, Gregg A.
    Martin, David M. Almaraz for Defendants, Cross-complainants
    and Respondents Martin Newton and Point III Holdings, Inc.
    8
    

Document Info

Docket Number: B283239

Filed Date: 9/4/2018

Precedential Status: Precedential

Modified Date: 9/4/2018