Midway Venture v. Luster
Filed 6/4/13 Midway Venture v. Luster CA4/1
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COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
MIDWAY VENTURE, LLC,
Plaintiff and Appellant,
v.
PETER LUSTER et al.,
Defendants and Respondents.
D061269
(Super. Ct.
No.
37-2010-00101936-CU-MC-CTL)
APPEAL from
an order of the Superior Court
of
County, Lisa Foster, Judge.
Affirmed.
Franceschi
Law Corporation and Ernest J. Franceschi, Jr., for Plaintiff and Appellant.
Law Offices
of David Baxter Norris and David B. Norris for Defendant and Respondent.
Plaintiff
Midway Venture, LLC (Midway) appeals an order granting defendant Peter Luster's
motion to disqualify Midway's counsel in its action against him for
interference with contractual relations and prospective economic advantage. On appeal, Midway contends: (1) Luster did
not have standing to move to disqualify its counsel; (2) the evidence is
insufficient to support the trial court's finding of a conflict of interest;
(3) the court did not rule on its evidentiary objections; (4) the court erred
by considering a witness's deposition testimony; (5) the court did not perform
the required balancing analysis; and (6) the court should have considered
options less drastic than disqualification of its counsel.
FACTUAL
AND PROCEDURAL BACKGROUND
On October 8, 2010, Midway filed a
complaint against Luster alleging causes of action for: (1) disruption of
contractual relationships; and (2) tortious interference with prospective
economic advantage. The complaint
alleged that Midway "owns and operates a gentlemen's club known [as] Larry
Flynt's Huster [sic] Club" located at 3334 Midway
Drive, San Diego (Club). It further alleged that on or about September 21, 2010, Midway acquired
ownership of the Club through an auction conducted by the United States Bankruptcy
Court in a Chapter 11 proceeding for Pacers, Inc. (Pacers). It alleged that the former
"principals" of Pacers currently own many other gentlemen's clubs
under the brand names "Deja Vu" and "Larry Flynt's Hustler
Club" and that Luster is an officer, principal, managing agent, or equity
partner of the company that owns the Deja Vu Gentlemen's Club located at 2720
Midway Drive, San Diego, a direct competitor of Midway. It also alleged, on information and belief,
that Luster is an officer, principal, managing agent, or equity partner of
Tollis, Inc., which owns a parking lot at 3426 Midway
Drive, San Diego, adjacent to
the Club. The complaint alleged Midway
exercised its right to assume certain contracts between Pacers and Deja Vu
Consulting, Inc., LFP Publishing Group, LLC, and Larry Flynt. Luster disrupted those contractual
relations. Luster and Tollis, Inc.,
entered into an agreement with Pacers's bankruptcy trustee to rent the parking
lot adjacent to the Club for customer parking.
When Midway refused to enter into a new agreement with Tollis, Inc., for
the continued use of the parking lot, Luster had a fence erected that sealed
off the parking lot from the Club, disrupting its operations. The complaint also alleged Luster contacted
Midway's landlord in an attempt to induce the landlord to terminate the
action against Luster.
Luster
filed a motion to disqualify Midway's counsel, Ernest Franceschi. Luster argued that because Franceschi served
as Midway's manager during negotiations of the contractual relationships that
are the subject of its action against him (Luster), Franceschi was a material
witness to the disputed issues in this case and therefore has a conflict of
interest. Citing California Rules of
Professional Conduct, rule 5-210,
name="_ftnref1" title="">[1]
and Reynolds v. Superior Court (1986)
177 Cal.App.3d 1021, Luster argued that although an attorney may act as an
advocate and a witness in a case, the court may grant a motion to disqualify
that attorney for a conflict of interest.
He argued that Midway had "failed to file with the court [its]
requisite written consent . . . as required in [former] Rule 2-111
[now rule 5-210(C)]." In support of
his motion, Luster lodged exhibits showing Franceschi's involvement as Midway's
manager in handling the contractual relations with which he allegedly
interfered.
Midway
filed a memorandum opposing Luster's motion to disqualify Franceschi as its
counsel. It argued the motion was
untimely, unsupported by admissible evidence, and brought primarily to delay
trial. In support of its opposition,
Midway submitted the declaration of Peter Balov, Midway's current managing
member. Balov stated Abner Pajounia was
Midway's managing member until September
12, 2010, when Franceschi was elected to be the manager for the
limited purpose of effectuating the close of escrow for acquisition of the
Club. He stated Franceschi, as the
manager of Midway, had no operational duties and dealt only with its legal
matters. Balov stated he (Balov) handled
all of Midway's operational duties while Franceschi was its manager. Balov stated: "Immediately after the
close, the members elected me to become the Manager of Midway . . . ,
a position which I have held to the present time." Also in support of its opposition, Midway
filed evidentiary objections to certain evidence submitted by Luster. In reply, Luster argued that Midway did not
submit any written consent permitting Franceschi to proceed as its attorney in
this matter.
Following
arguments of counsel, the trial court granted Luster's motion to disqualify
Franceschi as Midway's counsel in this case.
The court stated that actions taken by Midway prior to the close of
escrow were relevant or potentially relevant to Luster's defense and,
"given that Mr. Franceschi served as both [the manager] and the attorney
at the same time, the Court believes there's an absolute conflict." The court stated it did not have any waiver
of that potential client conflict. The
court granted Midway's request for a stay of the proceedings pending its appeal
of the order. Midway timely filed a
notice of appeal.
title="">[2]
DISCUSSION
I
Code of
Civil Procedure
title="">[3]
section 128, subdivision (a), provides: "Every court shall have the power
to do all of the following: [¶] . . . [¶] (5) [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."
Section 128, subdivision (a)(5) "gives courts the power to order a
lawyer's disqualification. [Citation.] On appeal, a trial court's decision
concerning a disqualification motion will not be disturbed absent an abuse of
discretion. [Citation.] 'The trial court's exercise of this
discretion is limited by the applicable legal principles and is subject to
reversal when there is no reasonable basis for the action. [Citations.]' " (DCH
Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 831-832.)
"[D]isqualification
motions involve a conflict between the clients' right to counsel of their
choice and the need to maintain ethical standards of professional
responsibility. [Citation.] The paramount concern must be to preserve
public trust in the scrupulous administration of justice and the integrity of
the bar. The important right to counsel
of one's choice must yield to ethical considerations that affect the fundamental
principles of our judicial process."
(People ex rel. Dept. of
Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135,
1145.) "Depending on the
circumstances, a disqualification motion may involve such considerations as a
client's right to chosen counsel, an attorney's interest in representing a
client, the financial burden on a client to replace disqualified counsel, and
the possibility that tactical abuse underlies the disqualification
motion." (Ibid.)
A
disqualification motion may be based on an attorney's dual roles as an advocate
and a witness. "The
'advocate-witness rule,' which prohibits an attorney from acting both as an
advocate and a witness in the same proceeding, has long been a tenet of ethics
in the American legal system . . . ." (Kennedy
v. Eldridge (2011) 201 Cal.App.4th 1197, 1208 (Kennedy).)
" 'Occasionally a lawyer is called upon to decide in a
particular case whether he will be a witness or an advocate. If a lawyer is both counsel and witness, he
becomes more easily impeachable for interest and thus may be a less effective
witness. Conversely, the opposing
counsel may be handicapped in challenging the credibility of the lawyer when
the lawyer also appears as an advocate in the case. An advocate who becomes a witness is in the
unseemly and ineffective position of arguing his own credibility. The roles of an advocate and of a witness are
inconsistent; the function of an advocate is to advance or argue the cause of
another, while that of a witness is to state facts
objectively.' " (
Cal.App.4th 916, 927-928 (Donaldson),
quoting former ABA Model Code Prof. Responsibility, EC 5-9.) Furthermore, " '[c]ombining the roles of
advocate and witness can prejudice the opposing party' and confers on the
opposing party 'proper objection where the combination of roles may prejudice
that party's rights in the litigation.'
[Citation.] 'A witness is
required to testify on the basis of personal knowledge, while an advocate is
expected to explain and comment on evidence given by others. It may not be clear whether a statement by an
advocate-witness should be taken as proof or as an analysis of the
proof.' " (
"[T]he
State Bar [of California] has adopted a rule of professional conduct that
prohibits, with few exceptions, a lawyer from acting as both advocate and
witness [citation] . . . ."
(Donaldson,
rule 5-210.) Rule 5-210 states:
"A member shall not act as an advocate before a
jury which will hear testimony from the member unless:
"(A) The
testimony relates to an uncontested matter; or
"(B) The
testimony relates to the nature and value of legal services rendered in the
case; or
"(C) The
member has the informed, written consent
of the client. . . ."
(Italics added.)
Citing rule 5-210, the California Supreme Court stated:
"An attorney must withdraw from representation, absent the client's
informed written consent, whenever he or she knows or should know he or she
ought to be a material witness in the client's cause. [Citations.] . . . An attorney should 'resolve any doubt in
favor of preserving the integrity of his testimony and against his continued
participation as trial counsel.' "
(People v. Dunkle (2005) 36
Cal.4th 861, 915 (Dunkle).) Furthermore, even if an advocate-witness has
obtained the informed written consent of his or her client, the trial court
nevertheless has discretion to disqualify counsel where he or she is a material
witness in the case. (
Cal.App.3d 470, 482 (Lyle).) In exercising that discretion, a trial court
balances the competing interests of the counsel's client, the opposing party,
and the integrity of the judicial process.
(Id. at pp. 482-483; see also
(1997) 60 Cal.App.4th 573, 580-581; Reynolds
v. Superior Court, supra, 177
Cal.App.3d at p. 1028.)
II
Midway
contends the trial court erred by granting Luster's motion because he, as the
opposing party, did not have standing to move to disqualify Franceschi as its
counsel in this action. A moving party
generally "must have standing, that is, an invasion of a legally
cognizable interest, to disqualify an attorney." (Great
Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1357.) A nonclient may have standing to bring a
disqualification motion based on a third party conflict of interest or other
ethical violation where the ethical breach is manifest and glaring and so
infects the litigation that it impacts the moving party's interest in a just and
lawful determination of the case. (
Kennedy, supra, 201 Cal.App.4th at p. 1204.)
"[N]o California case has held that only a client or former client
may bring a disqualification motion."
(Kennedy, at p. 1204.) "Case law abounds with examples of
orders disqualifying counsel that have not been the product of motions by
present or former clients." (
"[W]here an attorney's continued representation threatens an
opposing litigant with cognizable injury or would undermine the integrity of
the judicial process, the trial court may grant a motion for disqualification,
regardless of whether a motion is brought by a present or former client of
recused counsel." (
determine the issue of standing independent of the trial court's determination
of that issue and its factual findings and inferences. (Great
Lakes, at p. 1354; IBM Personal
Pension Plan v. City and County of San Francisco (2005) 131 Cal.App.4th
1291, 1299.)
Based on
our review of the record in this case, we conclude Luster had standing to bring
his motion to disqualify Franceschi as Midway's counsel in this action. Luster's motion papers showed his defense to the
action against him substantially relies on the actions Franceschi took on
behalf of Midway while acting as its manager before the close of escrow in its
purchase of the Club. Therefore,
Franceschi is a material witness in the case, despite Midway's conclusory
assertion to the contrary.
name="_ftnref4" title="">[4] In representing Midway as counsel in this
action, Franceschi therefore had dual roles as an advocate and a witness. As discussed above, the advocate-witness rule
generally prohibits an attorney from acting in both capacities. That rule is based on several considerations,
including the potential adverse impact on the opposing party. (Donaldson,
supra, 93 Cal.App.4th at pp. 927-929;
Lyle, supra, 122 Cal.App.3d at p. 480.)
Opposing counsel may be handicapped in cross-examining and in arguing
the credibility of trial counsel who also acts as a witness. (Donaldson,
at p. 928; Lyle, at p. 480.) In the circumstances of this case, we
conclude Luster likely would be handicapped or otherwise prejudiced were
Franceschi allowed to take on the dual roles of advocate and witness in this
case. Luster may be less effective in
cross-examining Franceschi and challenging his credibility as a witness when he
(Franceschi) is in a position as an attorney to curry favor with the jury and
thereby indirectly enhance the credibility of his testimony as a witness. We conclude Luster had a sufficient legally
cognizable interest to move to disqualify Franceschi. (Great
Lakes Construction, Inc. v. Burman, supra,
186 Cal.App.4th at p. 1357; Kennedy,
1204-1205.) Luster had standing to bring
his motion to disqualify Franceschi as Midway's counsel. Assuming arguendo Luster did not have such
standing, the trial court nevertheless had authority, on its own motion, to disqualify
Franceschi as Midway's counsel to protect the integrity of the judicial
process. (Kennedy, at p. 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."
(In re A.C. (2000) 80
Cal.App.4th 994, 1001.) Were Franceschi
allowed to act in the dual roles of advocate and witness, it may be unclear to
a jury whether it should consider his statements to be evidence or analysis of
or argument on the evidence. (
III
Because we
resolve this appeal based on rule 5-210(C) as discussed below, we only briefly
address Midway's contentions that the trial court erred by not ruling on its
evidentiary objections and by considering the deposition testimony of the
bankruptcy trustee. First, Midway
provides no legal authority or argument persuading us to adopt its proposed new
rule that would require trial courts, in ruling on a disqualification motion,
to follow the rule in summary judgment motions requiring courts to expressly
sustain or overrule evidentiary objections.
(Cf. § 437c, subd. (c).) We
conclude the trial court did not prejudicially err by not expressly ruling on
Midway's objections to evidence submitted by Luster in support of his
disqualification motion.
Likewise,
Midway provides no legal authority or argument persuading us that the trial
court erred in considering excerpts from the transcript of the bankruptcy
trustee's deposition. The fact that the
trustee refused to answer certain deposition questions posed by Franceschi on
cross-examination does not, contrary to Midway's assertion, require exclusion
of the trustee's deposition testimony on direct examination. None of the authorities cited by Midway
required the trial court to exclude that evidence. (See, e.g., Evid. Code, § 1291, subd.
(a)(2); N.N.V. v. American Assn. of Blood
Banks (1999) 75 Cal.App.4th 1358, 1396.)
We conclude Midway has not carried its burden on appeal to show the
trial court prejudicially erred by considering the deposition testimony of the
bankruptcy trustee in ruling on Luster's disqualification motion.
IV
We conclude
the trial court correctly granted Luster's motion to disqualify Franceschi as
Midway's counsel because Midway did not submit any evidence in opposition to
that motion showing it had given Franceschi its informed written consent, as
required under rule 5-210(C), for him to act in the dual roles of advocate and
witness.
Rule
5-210(C) provides that an attorney shall
not act as an advocate before a jury that will hear testimony from that
attorney unless the attorney has the
"informed, written consent of the client." Dunkle
stated: "An attorney must withdraw
from representation, absent the client's
informed written consent, whenever he or she knows or should know he or she
ought to be a material witness in the client's cause." (Dunkle,
supra, 36 Cal.4th at p. 915, italics
added.) Based on our review of the
record on appeal, which includes the appellant's appendix and reporter's
transcript of the hearing on Luster's motion to disqualify, we conclude there
is no evidence that Midway provided Franceschi with its informed written consent
to allow him to act in the dual roles of advocate and witness in this
case. In moving to disqualify Franceschi
as Midway's counsel, Luster argued Midway had "failed to file with the
court [its] requisite written consent . . . as required in [former]
Rule 2-111 [now rule 5-210(C)]."
However, in opposing the motion, Midway wholly neglected to provide the
court with proof of any such written consent.
No copy of a rule 5-210(C) informed written consent of Midway was lodged
with the court. Furthermore, no other
evidence submitted by Midway showed it had given Franceschi such informed
written consent to act in the dual roles of advocate and witness. At most, Midway provided evidence supporting
a finding that its members had consented to Franceschi's representation of
Midway in this case, but not that its members gave their informed written
consent for him to act in the dual roles of advocate and witness. In Balov's declaration, he stated:
"Mr. Franceschi, has from the inception of
[Midway], been [Midway's] General Counsel and represents [it] in this, as well
as other litigations with the unanimous consent and approval of all of
[Midway's] members. I am not aware of
any conflict of interest between Mr. Franceschi, Mr. Bitter, Ms. Wood, or
myself that would preclude Mr. Franceschi from representing our interests in
this litigation[.]"
That declaration merely sets forth the unsurprising
statement that Franceschi represents Midway in this case and Balov is
personally unaware of any conflict of interest.
That declaration is insufficient to prove Midway or its members gave
Franceschi its or their informed written consent to act in the dual roles of
advocate and witness, which consent is required pursuant to rule 5-210(C). Based on the appellate record, we conclude
Midway did not provide Franceschi with the informed written consent required by
rule 5-210(C) to allow him to act in the dual roles of advocate and witness in
this case. Accordingly, Franceschi is
precluded from acting in those dual roles.
(Rule 5-210(C); Dunkle,
Luster's motion to disqualify Franceschi as Midway's counsel in this case. (Cf. Lyle,
supra, 122 Cal.App.3d at pp. 473, 476
[parties stipulated and trial court agreed that plaintiff's declaration
complied with requirement for informed written consent for attorney to act in
dual roles of advocate and witness].)
Because we resolve this appeal on this ground, we do not address Midway's
remaining contentions.
DISPOSITION
The order
is affirmed. Luster is entitled to costs
on appeal.
McDONALD, J.
WE CONCUR:
NARES, Acting P. J.
McINTYRE, J.
name="_ftn1" title="">[1] All references to rules are to the California Rules of
Professional Conduct except as otherwise specified.
name="_ftn2" title="">[2] An order granting a disqualification motion is an appealable
order. (A.I. Credit Corp., Inc. v. Aguilar & Sebastinelli (2003) 113
Cal.App.4th 1072, 1077.)
