Scagliotti
Filed 6/14/13 Pekin v. Scagliotti CA6
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opinion has not been certified for publication or ordered published for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
SIXTH
APPELLATE DISTRICT
PATRICK PEKIN,
Plaintiff and
Appellant,
v.
RICHARD SCAGLIOTTI, et al.,
Defendants and
Respondents.
H035867
(San Benito
County
Super. Ct.
No. CU-03-00150)
Patrick
Pekin (Pekin) sued Richard Scagliotti (Scagliotti), as an individual and a
former member of the San Benito County Board of Supervisors (Board), the Board,
and the San Benito County Financing Corporation (SBCFC), "a wholly owned
subsidiary of San Benito County" (County).
In this appeal, Pekin is
challenging the trial court's order denying his motion to disqualify opposing
counsel, Michael Serverian.
name="_ftnref1" title="">[1] Pekin
had alleged that Serverian's joint representation of Scagliotti and the County
involved a disqualifying actual conflict of interest. The County as an entity is not a separately
named defendant.
We affirm
the court's order refusing to disqualify attorney Serverian.
I
Procedural History
Plaintiff Pekin's
eighth amended verified complaint, filed August 28, 2007, apparently was the operational pleading
at the time of Pekin's disqualification
motion. It includes 26 separate
"counts," 25 against defendant Scagliotti and one only against
defendant Board doing business as (dba) defendant SBCFC. None of the causes of action are against both
defendant Scagliotti and defendants Board and SBCFC.
The
complaint alleges that the SBCFC is "a shell, a wholly owned subsidiary of
San Benito County." It also avers that Scagliotti was a former
member of the Board, the SBCFC's Board of Directors, and the Board of Directors
of the Council of Governments (COG).
Scagliotti allegedly "left office at both the County and COG at the
end of December, 2004."
The
complaint charges Scagliotti with violating Government Code section 1090, which
provides that a public officer or employee "shall not be financially
interested in any contract made by them in their official capacity, or by any
body or board of which they are members."
Political Reform Act of 1974 (PRA) (§§ 81000 to 91014). Pekin
seeks to hold Scagliotti civilly liable for making or influencing governmental
decisions while having a prohibited financial interest and failing to comply
with disclosure requirements.
name="_ftnref3" title="">[3]
Count four,
the only cause of action against the Board and SBCFC, seeks to compel the Board
dba SBCFC to "conduct an audit and stop waste of the public
fisc." Count four alleges the
following. In 1998, the Board
"created a 'dummy corportation for debt issuance,' " the
SBCFC. The "SBCFC has no separate
existence or entity other than through Defendant [Board]" and
"[t]here is such a unity of interest and ownership that the individuality,
or separateness of the entities does not exist." The SBCFC "purchased a commercial
building using some space for county government purposes and renting the rest
for profit." The SBCFC "is
actually a for profit corporation" which is "required to report such
profits for federal and state tax purposes." The "Board has not reported where the
profits of SBCFC have been placed or who is in charge of them." "Internal memorandum of SBCFC show that
during its entire existence, rents have been unaccounted for, not received, or
misallocated." The building owned
by the SBCFC "has been wastefully underutilized" and "its
vacancy rate was unreasonably high due to wasteful mismanagement."
An answer
to that complaint was filed on behalf of all defendants in October 2007. As to count four, defendants admitted that
the Board is the Board of Directors for the SBCFC. The answer stated numerous affirmative
defenses.
The parties'
briefs indicate that the matter went to trial but a mistrial was declared. Although plaintiff Pekin claims on appeal
that at least 14 of the causes of action were proven at trial, the appellate
record does not reflect that any claim was finally adjudicated.
On April
29, 2010, Pekin filed a motion to
disqualify opposing counsel on the ground that the County and defendant
Scagliotti were being "jointly represented by outside counsel provided by
the County" and this involved "a conflict of interest between two
current clients . . . , the public and the corrupt official." Pekin argued:
"In this case Michael C. Serverian represents both the public
entity charged with vigorously enforcing the provisions of the PRA and the
public official who has violated the same law.
This strikes at the integrity of the governmental and judicial systems,
is an affront to the public which has a right [to] expect that the government
will uphold, not avoid the law, and cannot be permitted by this
Court." Pekin maintained that the
County should have discontinued providing a defense for Scagliotti under the
authority of section 995.2, which implied that the County had been providing a
defense to Scagliotti pursuant to section 995.
In
supporting argument, Pekin stated, without citation to any supporting
authority, that the County was "prohibited by the PRA itself from arguing
on behalf of one of its present or former officials for the application of
affirmative defenses to defeat liability on meritorious charges." He indicated that the County should have been
enforcing section 1090 and the PRA "for the 'public
trust.' " Pekin cited
Ins. Society, Inc. (1984) 162 Cal.App.3d 358 for the proposition that
"some actual conflicts are so fundamental that they cannot be
waived."
Counsel for
the parties stipulated that the sole argument at the June 18, 2010 hearing
would be Pekin's motion to disqualify Serverian from continued representation of
the County and Scagliotti based upon an actual conflict of interest.
In the
opposition to the disqualification motion, attorney Severian contended that
Pekin lacked standing to bring the motion since Pekin was not a client or
former client of him or his law firm.
Attorney Serverian contended there was no actual conflict between the
County and Scagliotti since the "only relief sought against the County is
for an audit and accounting (Count 4 of the Eighth Amended Complaint)" and
the "remaining counts are to recover monies from Scagliotti individually,
and not from the public entity."
Attorney Serverian also argued plaintiff Pekin had ignored a public
entity's statutory duty under section 995 to provide for the defense of any
civil action or proceeding brought against an employee "on account of an
act or omission in the scope of his employment as an employee of the public
entity." He pointed out that a
public entity could be liable if a defense was not provided.
the County had obtained a reservation of rights under section 825
whether defendant Scagliotti had signed a conflict waiver.
Attorney
Serverian also asserted that the disqualification motion was untimely since he
had been counsel for about four years.
was required to take over the defense at this stage, the fees incurred simply
in review of the documents would be immense" and "would cause an
undue financial burden on the defendants."
In his
written reply, Pekin claimed standing as "a CCP 526a Taxpayer."
representation that SBCFC was his client, not the County, was "an attempt
to conceal Serverian's actual, conflicting, joint representation of the County
and Scagliotti . . . ."
Pekin stated that, since his November 1, 2007 letter to the County's
County Counsel, "Attorney Serverian has been appearing only for Defendant
Scagliotti and Defendant [SBCFC] and not for the County." But according to
Pekin, attorney Serverian had
not withdrawn as counsel pursuant to Code of Civil Procedure section 284. Pekin asked the superior court to find that,
prior to trial, "the County had
to know that in defending Scagliotti
the County would be vigorously arguing every conceivable ground for the
avoidance of the enforcement of the PRA . . . ."
At the
hearing on the disqualification motion, attorney Serverian stated that the
County was not a party to the case. He
argued that there was no conflict of interest since there were "no causes
of action in which plaintiff seeks recovery against both [SBCFC] and Richard
Scagliotti." He emphasized that he
had been involved as counsel in this case since 2006. He asserted that plaintiff was upset because
the County has exercised its right to defend one of its former supervisors
under section 995.2. The trial court
stated that "[t]he premise of [Pekin's] position is that the County has an
affirmative duty to enforce the PRA [Political Reform Act], and by defending
Scaliotti, that that puts it in a conflict of interest. I think that's his premise." Plaintiff's counsel, Michael Pekin,
responded, "Absolutely."
In its
written ruling, filed June 25, 2010, the superior court denied Pekin's
disqualification motion. The trial court
also sustained the objection to Pekin's post-hearing briefs.
The court
observed that defendant "Scagliotti was not named as a defendant or
charged in Count 4," the only count against the Board and SBCFC. The court stated that the parties had advised
it that count four was not under consideration during the present phase of the
proceedings. The court had not found any
pleading in which attorney Serverian had "answered or responded on behalf
of the County."
name="_ftnref8" title="">[8] The court determined that Pekin had failed to
establish standing to bring the disqualification motion. In any case, attorney Serverian was
representing defendants Scagliotti and SBCFC but he was not representing the
County, the County Counsel was representing the County, and any payments made
by the County to attorney Serverian pursuant to section 995 did not establish a
conflict of interest. It found no
support in the law for Pekin's contentions that Scagliotti had been proven
guilty or admitted noncompliance with the PRA and therefore he was not entitled
to a defense under section 995.
The court
also stated: "Mr. Serverian has
been in this case since 1996. Plaintiff
should have made this challenge years ago.
Instead, he jawboned the issue and then when we were getting to some
issues where this case could have progressed, he filed this challenge. Isn't that laches?"
II
Ruling on Motion to Disqualify Opposing Counsel
A.
Motion to Disqualify Counsel
" 'A
trial court's authority to disqualify an attorney derives from the power
inherent in every court "[t]o control in furtherance of justice, the
conduct of its ministerial officers, and of all other persons in any manner
connected with a judicial proceeding before it, in every matter pertaining
thereto." [Citations.]' (People
ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20
Cal.4th 1135, 1145 . . . .)
'Generally, a trial court's decision on a disqualification motion is
reviewed for abuse of discretion.
[Citations.]' (
. . . .) As to disputed
factual issues, a reviewing court's role is simply to determine whether
substantial evidence supports the trial court's findings of fact; 'the
reviewing court should not substitute its judgment for . . . express
or implied [factual] findings [that are] supported by
(Ibid.) As to the trial court's conclusions of law,
however, review is de novo; a disposition that rests on an error of law
constitutes an abuse of discretion. (
Cal.4th 706, 711–712 . . . ; People
v. Superior Court (Humberto S.) 43 Cal.4th 737, 742.) The trial court's 'application of the law to
the facts is reversible only if arbitrary and capricious.' (Haraguchi,
supra, at p. 712
. . . .)"
name="_ftnref9" title="">[9] (In re
Charlisse C. (2008) 45 Cal.4th 145, 159.)
" 'A
judgment or order of the lower court is presumed
correct. All intendments and
presumptions are indulged to support it on matters as to which the record is
silent, and error must be affirmatively shown.
This is not only a general principle of appellate practice but an
ingredient of the constitutional doctrine of reversible error.' [Citations.]" (Denham
v. Superior Court (1970) 2 Cal.3d 557, 564.) "[A] reviewing court, should not disturb
the exercise of a trial court's discretion unless it appears that there has
been a miscarriage of justice." (
"It
has long been the general rule and understanding that 'an appeal reviews the
correctness of a judgment as of the time of its rendition, upon a record of
matters which were before the trial court for its consideration.' [Citation.]" (In re
Zeth S. (2003) 31 Cal.4th 396, 405.)
"[N]ormally 'when reviewing the correctness of a trial court's
judgment, an appellate court will consider only matters which were part of the
record at the time the judgment was entered.'
[Citation.]" (
(1996) 14 Cal.4th 434, 444, fn. 3.)
Pekin bears the "burden of showing error by an adequate record. [Citations.]" (In re
Kathy P. (1979) 25 Cal.3d 91, 102.)
B.
Attorneys
Each
attorney who is a member of the California State Bar has a duty to preserve
client confidences (Bus. & Prof. Code, § 6068, subd. (e); Cal. State Bar
Rules of Prof. Conduct, rule 3–100)
and to avoid interests that are adverse to the client's interests (Rules of
Prof. Conduct, rules 3–300, 3–310).
"Conflicts
of interest commonly arise in one of two factual contexts: (1) in cases of successive
representation, where an attorney seeks to represent a client with interests
that are potentially adverse to a former client of the attorney; and (2) in
cases of simultaneous representation, where an attorney seeks to represent in a
single action multiple parties with potentially adverse interests." (In re
Charlisse C., supra, 45 Cal.4th 145, 159.)
"Two ethical duties are entwined in any attorney-client
relationship. First is the attorney's
duty of confidentiality, which fosters full and open communication between
client and counsel, based on the client's understanding that the attorney is
statutorily obligated (Bus. & Prof. Code, § 6068, subd. (e)) to maintain
the client's confidences. (
undivided loyalty to the client. (
275, 282 . . . .) These
ethical duties are mandated by the California Rules of Professional
Conduct. (Rules Prof. Conduct, rule
3–310(C) & (E).)" (
Solutions, Inc. (2006) 38 Cal.4th 839, 846.)
"The
primary value at stake in cases of simultaneous or dual representation is the
attorney's duty-and the client's legitimate expectation-of loyalty, rather than
confidentiality." (
275, 284.) "The principle of
loyalty is for the client's benefit .
. . ." (Id. at p. 286, fn. 4.)
A
"[c]onflict of interest between jointly represented clients occurs
whenever their common lawyer's representation of the one is rendered less
effective by reason of his representation of the other." (Spindle
v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706, 713; cf. ABA
Model Rules Prof. Conduct, rule 1.7(a).)
"The paradigmatic instance of such prohibited dual
representation-one roundly condemned by courts and commentators alike-occurs
where the attorney represents clients whose interests are directly adverse in the same
litigation." (
Rule
3-310(C) of the Rules of Professional Conduct prohibits attorneys from
accepting or continuing concurrent representation of clients whose interests
actually conflict, absent the "informed written consent" of each
client.
defined as "the client's or former client's written agreement to the
representation following written disclosure . . . ." (Rules Prof. Conduct, rule 3-310(A)(2).) "[T]he purpose of the rules against
representing conflicting interests is not only to prevent dishonest conduct,
but also to avoid placing the honest practitioner in a position where he may be
required to choose between conflicting duties or attempt to reconcile
conflicting interests. [Citations.]" (Woods
v. Superior Court (1983) 149 Cal.App.3d 931, 936.)
The
official discussion following Rule 3-310 of the Rules of Professional Conduct
recognizes that "[t]here are some matters in which the conflicts are such
that written consent may not suffice for non-disciplinary purposes. (See Woods
v. Superior Court (1983) 149 Cal.App.3d 931 . . . ;
Cal.App.3d 893 . . . ; Ishmael
v. Millington (1966) 241 Cal.App.2d 520 . . . .)" A court observed in Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 898: "Though
an informed consent be obtained, no case we have been able to find sanctions
dual representation of conflicting interests if that representation is in
conjunction with a trial or hearing where there is an actual, present, existing
conflict and the discharge of duty to one client conflicts with the duty to
another. [Citations.]" Under Rule 1.7(b)(1) of the American Bar
Association (ABA) Model Rules of Professional Conduct,
representation is prohibited even with a client's consent "if in the
circumstances the lawyer cannot reasonably conclude that the lawyer will be
able to provide competent and diligent representation. See Rule 1.1 (competence) and Rule 1.3
(diligence)." (ABA Model Rules
Prof. Conduct, Com. to Rule 1.7, para. [15].)
C.
Disqualify Attorney
"Standing
generally requires that the plaintiff be able to allege injury, that is, an
invasion of a legally protected interest.
(Angelucci v. Century Supper Club
(2007) 41 Cal.4th 160, 175 . . . .)" (Great
Lakes Const., Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356.) In this appeal, we are not concerned with
Pekin's general standing to sue.
"A
'standing' requirement is implicit in disqualification motions. 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. (Strasbourger
Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th
1399, 1404 . . . .)"
(Great Lakes Const., Inc. v.
Burman, supra, 186 Cal.App.4th at p. 1356.)
As
indicated, in the court below, plaintiff Pekin claimed to have standing to
bring the disqualification motion as a section 526a taxpayer plaintiff. He argued that the "County's payment for
joint representation of the County and of the official in violation of the PRA
is an illegal expenditure of public funds" and taxpayers have standing
"to take legal action against illegal expenditure of public
funds." While Pekin recites this
standing argument in his opening brief's procedural history section, he seems
to abandon it on appeal since the brief's argument section does not address the
standing issue. He raises the section
526a argument for the first time on appeal in a reply brief. Pekin also baldly asserts in a reply brief that his standing to sue under the PRA
"certainly encompasses standing to bring the instant Motion to Disqualify
Mr. Serverian" and cites Kunec v.
Brea Redevel. Agency (1997) 55 Cal.App.4th 511. In a supplemental reply brief, Pekin contends
for the first time that "the representations Mr. Serverian has made to the
Trial Court, and to this Court, denying his representation of the County; and
the conflict of interest presented by his joint, concurrent representation of
Defendants Scagliotti and the County, are ethical breaches that so infect the
litigation that it impacts [his] interest in a just and lawful determination of
[his] anti-corruption claims."
" '[T]he
rule is that points raised in the reply brief for the first time will not be
considered, unless good reason is shown for failure to present them
before. [Citations.]' [Citation.]" (People
v. Smithey (1999) 20 Cal.4th 936, 1017, fn. 26.) "Obvious reasons of fairness militate
against consideration of an issue raised initially in the reply brief of an
appellant. [Citations.]" (Varjabedian
v. City of Madera (1977) 20 Cal.3d 285, 295-296, fn. 11.)
Moreover,
to the extent that Pekin now presents new theories of standing to overturn the
court's ruling, they are deemed forfeited. "Appellate courts will
generally not consider new theories raised for the first time on appeal. (In re
Marriage of Moschetta (1994) 25 Cal.App.4th 1218, 1227
. . . .)" (
West (2008) 165 Cal.App.4th 1511, 1518; see Panopulos v. Maderis (1956) 47 Cal.2d 337, 341 ["the general
rule is especially true when the theory newly presented involves controverted
questions of fact or mixed questions of law and fact"].)
In any
case, none of plaintiff's standing arguments have merit. Even if Pekin has standing to sue under the
PRA or section 526a, it does not follow that such standing automatically
confers standing on a plaintiff to bring a motion to disqualify
the cases cited by Pekin do not address this issue. Moreover, as we discuss in more detail below,
the County's provision for Scagliotti's defense is authorized by statute
(§§ 995, 996) and cannot be deemed an "illegal expenditure" of
the County's funds.
We are aware of existing case law suggesting that a nonclient
party may have standing to bring a motion to disqualify opposing counsel to
protect the integrity of the judicial process in particularly egregious
situations where continued representation affects the fair adjudication of the
party's claims. For example, in
Cal.App.4th 1197, the plaintiff mother had standing in a paternity action to
bring a motion to disqualify opposing counsel who represented the defendant
father even though she had never been a client of opposing counsel or his law
firm. The action involved child custody
and support issues, the plaintiff was the child's mother, the defendant was the
child's father, and opposing counsel was the paternal grandfather. (Id.
at pp. 1200-1201.) Opposing counsel's
law firm had previously represented the maternal grandfather in a divorce case
and confidential information obtained in that case could be potentially misused
against the plaintiff mother in the pending case. (Id.
at pp. 1202, 1204-1209.)
In
F.Supp.2d 966, which Pekin belatedly cites, a federal court considered a
plaintiff's motion to disqualify opposing counsel. The court stated: "Generally, only the
former or current client will have such a stake in a conflict of interest
dispute. . . . However, . . . in a case where the ethical breach so
infects the litigation in which disqualification is sought that it impacts the
moving party's interest in a just and lawful determination of her claims, she may
have the constitutional standing needed to bring a motion to disqualify based
on a third-party conflict of interest or other ethical violation. In such a case, moreover, the prudential
barrier to litigating the rights and claims of third parties should not stop a
district court from determining the motion, because such a limitation would be
overcome by the court's inherent obligation to manage the conduct of attorneys
who appear before it and to ensure the fair administration of justice. [Citation.] . . . Where the ethical
breach is so severe that it 'obstructs the orderly administration of justice,'
the party who finds his claims obstructed has standing. [Citation.]" (Id.
at pp. 971-972.)
Although
the federal court in Colyer
recognized this nonclient theory of standing to bring a motion to disqualify
counsel, it denied the plaintiff's disqualification motion because the
plaintiff had failed to make an adequate showing of standing. (Id.
at pp. 972-973.) The court stated: "[Colyer's] broad interest in the
administration of justice is insufficiently concrete and particularized to
support a finding of standing here. The
alleged conflict—if it exists—simply does not rise to the level where it
infects the proceedings and threatens Colyer's individual right to a just
determination of his claims." (
standing requirement protects against the strategic exploitation of the rules
of ethics long disfavored by the Courts.
[Citations.]" (
[SEC did not have standing to bring a motion to disqualify opposing counsel
where it had no personal stake beyond the general interest in the fair
administration of justice].)
In this
case, plaintiff Pekin failed to assert or make any showing in the motion below
that attorney Serverian's representation of his clients directly threatens or
impairs Pekin's "right to a just determination of his claims" (
the trial court erred in determining he lacked standing.
D.
Pekin's
substantive arguments fail as well.
1.
Provision for Scagliotti's Defense
Insofar as
we can discern, Pekin's theory that attorney Serverian was concurrently
representing the County and Scagliotti was partly based upon the County's
provision of a defense to Scagliotti through attorney Serverian pursuant to
section 995.
Section 995
provides: "Except as otherwise
provided in Sections 995.2 and 995.4, upon request of an employee or former
employee, a public entity shall provide for the defense of any civil action or
proceeding brought against him, in his official or individual capacity or both,
on account of an act or omission in the scope of his employment as an employee
of the public entity."
name="_ftnref13" title="">[13] Section 995.2 states several discretionary
grounds for refusing to comply with the mandatory duty imposed by section 995.
permissive authority to provide for the defense of actions or proceedings
brought by a public entity against its own employees or former employees when
seeking to "remove, suspend, or otherwise penalize" them or when taking
action against them as individuals.
Where a public entity provides a defense upon request, it may do so
"by its own attorney or by employing other counsel for this purpose or by
purchasing insurance which requires that the insurer provide the
defense." (§ 996.)
Pekin seems
to be suggesting that the County's relationship with Scagliotti and attorney
Serverian under section 995 is analogous to the contractual relationship
between an insurer, insured, and the attorney provided by the insurer to defend
the insured. In the insurance context,
courts have concluded that an attorney hired by an insurer to defend an insured
"represents two clients, the insured and the insurer. (Lysick
v. Walcom (1968) 258 Cal.App.2d 136, 146 . . . .)" (State
Farm Mut. Auto. Ins. Co. v. Federal Ins. Co. (1999) 72 Cal.App.4th 1422,
1429.) "In the absence of a
conflict of interest between the insurer and the insured that would preclude an
attorney from representing both, the attorney has a dual attorney-client relationship
with insurer and insured. (
Belgum, supra, 38 Cal.App.4th at
pp. 1236-1237.)" (
"[I]t is customary for the insurer to control the defense it
provides. (Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706,
714 . . . .)" (
In the well
known case of San Diego Navy Federal
Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 ("
the usual tripartite relationship existing between insurer, insured and
counsel, there is a single, common interest shared among them. Dual representation by counsel is beneficial
since the shared goal of minimizing or eliminating liability to a third party
is the same. A different situation is
presented, however, when some or all of the allegations in the complaint do not
fall within the scope of coverage under the policy. In such a case, the standard practice of an
insurer is to defend under a reservation of rights where the insurer promises
to defend but states it may not indemnify the insured if liability is
found. In this situation, there may be
little commonality of interest." (
takes the view a coverage issue is present." (Id.
at p. 370.)
In
Canons of Ethics impose upon lawyers hired by the insurer an obligation to
explain to the insured and the insurer the full implications of joint
representation in situations where the insurer has reserved its rights to deny
coverage. If the insured does not give
an informed consent to continued representation, counsel must cease to
represent both. Moreover, in the absence
of such consent, where there are divergent interests of the insured and the
insurer brought about by the insurer's reservation of rights based on possible
noncoverage under the insurance policy, the insurer must pay the reasonable
cost for hiring independent counsel by the insured. The insurer may not compel the insured to
surrender control of the litigation (Tomerlin
v. Canadian Indemnity Co., supra,
61 Cal.2d 638, 648 . . . ; and see Nike, Inc. v. Atlantic Mut. Ins. Co. (1983) 578 F.Supp. 948,
949). Disregarding the common interests
of both insured and insurer in finding total nonliability in the third party
action, the remaining interests of the two diverge to such an extent as to
create an actual, ethical conflict of interest warranting payment for the
insureds' independent counsel." (
An insured's independent counsel in this situation is commonly referred
to as Cumis counsel. (See Simmons
v. Ghaderi (2008) 44 Cal.4th 570, 575, fn. 2.)
The holding
in Cumis has long been codified and
partly superseded by statute.
name="_ftnref15" title="">[15] (See Civ. Code, § 2860.) Under the statute, an insured may waive any
right to select independent counsel.
(Civ. Code, § 2860, subd. (e).)
More recent
insurance cases clarify that provision of a defense with a reservation of
rights does not necessarily create a conflict of interest between an insurer
and an insured that entitles the insured to independent counsel. (See e.g. Gafcon,
Inc. v. Ponsor & Assocs. (2002) 98 Cal.App.4th 1388, 1421-1422 ["a
conflict of interest does not arise every time the insurer proposes to provide
a defense under a reservation of rights"; an insured is not entitled
coverage is independent of or extrinsic to the issues in third party action];
Exchange (1998) 61 Cal.App.4th 999, 1007 ["A mere possibility of an
unspecified conflict does not require independent counsel"].)
Even
assuming that the County selected attorney Serverian and was paying for his
services in defending Scagliotti and such representation is analogous to
representation of an insured (but see Laws
v. County of San Diego (1990) 219 Cal.App.3d 189, 191-192, 197-201
[refusing to require a County to provide independent counsel to officers being
sued for police misconduct based upon a Cumis-type
analysis]), those facts do not in themselves establish an actual conflict of
interest. Rules of Professional Conduct,
rule 3-310(F) generally provides: "A member shall not accept compensation
for representing a client from one other than the client unless: [¶] (1) There is no interference with the
member's independence of professional judgment or with the client-lawyer
relationship; and [¶] (2) Information relating to representation of the client
is protected as required by Business and Professions Code section 6068,
subdivision (e); and [¶] (3) The member obtains the client's informed written
consent . . . ."
states: "Paragraph (F) is not
intended to abrogate existing relationships between insurers and insureds
whereby the insurer has the contractual right to unilaterally select counsel
for the insured, where there is no conflict of interest. (See
Insurance Society (1984) 162 Cal.App.3d 358 [208 Cal.Rptr. 494].)"
Plaintiff
Pekin failed to establish below that the County's provision for Scagliotti's
defense under a reservation of rights created an actual conflict of interest
between them in the litigation. Even
assuming the County was paying for attorney Serverian's services in
representing Scagliotti, Pekin did not demonstrate that this circumstance
interfered with Serverian's independent professional judgment, impaired his
representation of a client, compromised his duty of loyalty to a client, or
required him to improperly divulge confidences of a client (see Bus. &
Prof. Code, § 6068, subd. (e), Rules of Professional Conduct, rule 3-100;
cf. Civ. Code, § 2860, subd. (f); ABA Model Rules Prof. Conduct, Com. on
Rule 1.7, para. [13] [Interest of Person Paying for a Lawyer's Service]). Further, Pekin did not show that attorney
Serverian had not obtained any informed written consent necessary to enable him
to represent Scagliotti in this action.
Evidence that the County was providing a defense for Scagliotti pursuant
to section 995 was not enough to prove an actual conflict of interest
disqualifying attorney Serverian from representing defendant Scagliotti.
2.
Although
the eighth amended complaint alleged that SBCFC was a "shell" and a
"dummy corporation," Pekin's disqualification motion was
County and its "wholly owned subsidiary" should be treated as the
same entity for purposes of analyzing whether an actual conflict of interest
existed. (Cf. Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69
Cal.App.4th 223, 227 [sufficient "unity of interest" between parent
corporation and wholly owned subsidiary to treat them as one entity for
conflict purposes]; Brooklyn Navy Yard
Cogeneration Partners, L.P. v. Superior Court (Parsons Corp.) (1997) 60
Cal.App.4th 248, 253 ["only in those limited circumstances where one
corporation is the alter ego of the other should parent and subsidiary
corporations be treated as the same entity for conflict purposes"].) Ordinarily, a shareholder of a corporation,
even one that owns all the stock, is not automatically the client of the
corporation's attorney. (See
L.P. v. Superior Court (Parsons Corp.), supra,
60 Cal.App.4th at pp. 254-255; see also Rules of Prof. Conduct, rule 3-600.)
In any
case, plaintiff Pekin indicated in his disqualification motion, and he
reiterates on appeal, that he is not claiming that there is an actual conflict
of interest between Scagliotti and the SBCFC.
3.
Plaintiff
Pekin's argument with regard to section 284 of the Code of Civil Procedure is
rather obtuse, but, insofar as we can discern, he is arguing that, since
attorney Serverian did not properly withdraw as provided by that section, he
continues to concurrently represent the County and Scagliotti. The argument seems to be an attempt to refute
attorney Serverian's claim that he represented only the SBCFC and not the
County.
Code of
Civil Procedure section 284 provides:
"The attorney in an action or special proceeding may be changed at
any time before or after judgment or final determination, as follows: [¶] 1.
Upon the consent of both client and attorney, filed with the clerk, or entered
upon the minutes; [¶] 2. Upon the order of the court, upon the
application of either client or attorney, after notice from one to the
other." Code of Civil Procedure
section 285 states: "When an
attorney is changed, as provided in the last section, written notice of the
change and of the substitution of a new attorney, or of the appearance of the
party in person, must be given to the adverse party. Until then he must recognize the former
attorney." The purpose of these
statutes "is to have the record of representation clear so the parties may
be certain with whom they are authorized to deal." (People
v. Metrim Corp. (1960) 187 Cal.App.2d 289, 294.)
Pekin's
argument regarding the failure to properly substitute counsel adds nothing to
his contention that an actual conflict of interest arose from the County's
provision for Scagliotti's defense, a claim that we have already rejected.
In his
reply brief, Pekin's substitution of counsel argument transforms into a claim
that attorney Serverian failed to properly withdraw from representing the Board
and, therefore, he continues to concurrently represent the County and Scagliotti. Pekin
did not make this claim either below or in his opening appellate brief.
As the
moving party, the burden was on Pekin to clearly articulate his claims and then
present sufficient evidence to substantiate them in the court below. (See Evid. Code, §§ 500, 550.) Pekin did not argue that attorney Serverian
was continuing to represent the Board despite indications that he no longer did
and his ongoing concurrent representation of the Board and Scagliotti involved
a prohibited actual conflict of interest.
New theories involving unresolved questions of fact cannot be advanced
for the first time on appeal. (See
for the first time in the reply brief and we deem it forfeited. (See People
v. Smithey , supra, 20 Cal.4th at
p. 1017, fn. 26; Varjabedian v. City of Madera, supra, 20 Cal.3d at p. 295, fn. 11.)
In any
case, we point out that the Rules of Professional Responsibility provide that
"[i]n representing an organization, a member [of the State Bar] shall
conform his or her representation to the concept that the client is the
organization itself, acting through its highest authorized officer, employee,
body, or constituent overseeing the particular engagement." (Rules Prof. Conduct, rule 3-600(A).) "In dealing with an organization's
directors, officers, employees, members, shareholders, or other constituents, a
member shall explain the identity of the client for whom the member acts,
whenever it is or becomes apparent that the organization's interests are or may
become adverse to those of the constituent(s) with whom the member is dealing." (Rules Prof. Conduct, rule 3-600(D).) An attorney representing an organization may
additionally "represent any of its directors, officers, employees,
members, shareholders, or other constituents, subject to the provisions of rule
3-310." (Rules Prof. Conduct, rule
3-600(E); cf. ABA Model Rules Prof. Conduct, rule 1.13(g).)
The fourth
cause of action seeks to "compel the San Benito County Board of
Supervisors, doing business as the San Benito County Financing Corp., to
conduct an audit and stop waste of the public fisc . . . ." It appears that the Board is being sued in
its capacity as the SBCFC's Board of Directors.
We see no cause of action against the Board acting as the governing body
of the County as a whole. Attorney
Serverian appears to be representing the SBCFC, acting through its governing
body. As indicated, Pekin has disclaimed
any conflict of interest between SBCFC and Scagliotti. In addition, the superior court indicated
that the parties had agreed that the fourth cause of action, the only cause of
action against the Board, was not at issue during the current phase of the
proceedings.
Plaintiff
Pekin failed to demonstrate below that there was any actual conflict of
interest related to or arising from Serverian's alleged noncompliance with Code
of Civil Procedure section 284.
4.
In the
court below, plaintiff Pekin argued in his moving papers that "[t]he
specific conflict of interest of joint [County]/Scagliotti defense is that
between Mr. Serverian's efforts to avoid Defendant Scagliotti's liability for
[section] 1090 and PRA violations and the mandated interest of the public
entity to protect the public trust . . . ." He now contends that he established that
attorney Serverian's representation of his clients involved an "actual
conflict of interest . . . in the vigorous enforcement of [section] 1090 and
the PRA . . . ."
Pekin now acknowledges that attorney Serverian's interpretation of
section 995.2 as permissive is "literally correct" but he nevertheless
insists that "Mr. Serverian must be removed for actual conflict of
interest with the public interest in the vigorous enforcement of [section] 1090
and the PRA, notwithstanding the wording of [section] 995.2."
The term
"conflict of interest" has a particular meaning under the Rules of
Professional Conduct. "[A] conflict
of interest exists if there is a significant risk that a lawyer's ability to
consider, recommend or carry out an appropriate course of action for the client
will be materially limited as a result of the lawyer's other responsibilities
or interests." (ABA Model Rules
Prof. Conduct, Com. on Rule 1.7, para. [8].)
A critical question is whether clients' differing interests "will
materially interfere with the lawyer's independent professional judgment in
considering alternatives or foreclose courses of action that reasonably should
be pursued on behalf of the client" (ibid.)
or render the lawyer's representation less effective (Spindle v. Chubb/Pacific Indemnity Group, supra, 89 Cal.App.3d at p. 713).
The public at large or the "public interest" is not attorney
Serverian's client for purposes of analyzing whether he should be disqualified
based upon an actual conflict of interest between his clients.
Even if the
County has a broad interest in protecting the public and enforcing the PRA in
the abstract, its concrete interests in this particular litigation are more
limited. The Eighth Amended Complaint
indicates that the County's civil prosecutor declined to commence an action
under the PRA against Scagliotti. The
County's main interest in this litigation appears to be avoiding a judgment
against Scagliotti for which it would become indirectly liable under section
825 and for which it could not be indemnified (see §§ 825.4, 825.6).
"The civil
prosecutor is primarily responsible for enforcement of the civil penalties and
remedies" of the PRA.
(§ 91001, subd. (b); see §§ 91004, 91005.) "Any person, before filing a civil
action pursuant to Sections 91004 and 91005, must first file with the civil
prosecutor a written request for the civil prosecutor to commence the
action. The request shall include a
statement of the grounds for believing a cause of action exists. The civil prosecutor shall respond to the
person in writing, indicating whether he or she intends to file a civil
action." (§ 91007, subd.
(a).) The person may not proceed with a
civil action pursuant to those sections if the civil prosecutor timely decides
to bring an action. (See § 91007,
subd. (a); see also Gananian v. Wagstaffe
(2011) 199 Cal.App.4th 1532, 1537, fn. 6 ["Upon the party's request, the
prosecutor's office can either file suit or decline to file suit but it cannot
prevent the party from commencing suit if it decides not to proceed"].) A civil prosecutor has no mandatory duty,
however, to bring an enforcement action pursuant to section 91004 or 91005 and
a civil prosecutor's decision whether to bring such an action cannot be
challenged. (See Dunn v. Long Beach Land & Water Co. (1896) 114 Cal. 605, 609.)
Plaintiff
Pekin has not demonstrated that he is directly enforcing or representing the
County's rights under the PRA. If Pekin
prevails on his claims against Scagliotti brought pursuant to section 91004 or
91005, he will obtain a financial benefit for himself but not for the
County. (See § 91009; see also
Insofar as
Pekin's first cause of action of his eighth amended complaint alleged that a
three year vehicle maintenance contract between the County and San Benito Tire
violated section 1090 and sought to recover from Scagliotti the money paid by
the County to San Benito Tire under the allegedly void contract, we assume that
Pekin is seeking recovery on behalf of the County since the prayer for relief
characterizes the recovery as "restitution." (See generally Thomson v. Call (1985) 38 Cal.3d 633, 646-652 [taxpayers' suit
challenging validity of city council member's sale of property to city through
corporate conduit].) But in this cause
of action, as with all other causes of action against Scagliotti, neither the
County nor any constituent part is a defendant.
Pekin failed to demonstrate that Serverian's role as legal advocate for
defendant Pekin actually conflicted with any legal or ethical responsibility that
Serverian owed to the County by virtue of its provision for Scagliotti's
defense.
We reject
Pekin's argument that attorney Serverian must be disqualified from representing
defendant Scagliotti based on "an actual conflict of interest with the
public interest in the vigorous enforcement of [section] 1090 and the
PRA."
5.
On appeal,
Pekin "concedes that Mr. Serverian substituted into the case in early May,
2006 . . . ." He asserts that the
approximate four year delay in bringing the disqualification motion was excusable
because the delay was "caused by Defendants' connivance with
duress." He argues that the factual
proof of that connivance was presented in his disqualification motion by
incorporating another motion, which was entitled "Defendants' connivance
with duress upon Plaintiff, Plaintiff's Spouse and Counsel bars Defendants from
taking advantage of any affirmative defense in this case" and was filed on
the same day as his disqualification motion.
In the court below, Pekin acknowledged in his reply to opposition to his
disqualification motion that attorney Serverian had disclosed in a letter,
dated October 6, 2006, that the County was providing both defense and
indemnification to Scagliotti.
name="_ftnref17" title="">[17]
The trial
court stated that Pekin "should have made this challenge years ago."
Its comments imply that it found that Pekin brought the motion for delay
purposes and the alleged misconduct of defendants did not excuse Pekin from
bringing such motion at an earlier time.
It is not our role to reweigh the evidence. (See Estate
of Teel (1945) 25 Cal.2d 520, 527.)
Pekin has failed to demonstrate that the trial court acted outside the
bounds of reason in denying the motion in part because it concluded the motion
was a delay tactic.
A party's
tactical abuse of a disqualification motion is a valid consideration in ruling
on such a motion. (See
SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145;
Cal.App.3d 291, 300-301)
" '[A]s courts are increasingly aware, motions to disqualify
counsel often pose the very threat to the integrity of the judicial process
that they purport to prevent.
[Citation.] Such motions can be
misused to harass opposing counsel [citation], to delay the litigation [citation],
or to intimidate an adversary into accepting settlement on terms that would not
otherwise be acceptable.
[Citations.] In short, it is
widely understood by judges that 'attorneys now commonly use disqualification
motions for purely strategic purposes . . . .' [Citations.]" (Gregori
v. Bank of America, supra, 207
Cal.App.3d at pp. 300-301, fns. omitted.)
The trial
court also queried whether the delay constituted laches. "The defense of laches requires
unreasonable delay plus either acquiescence in the act about which plaintiff
complains or prejudice to the defendant resulting from the delay." (Conti
v. Board of Civil Service Commissioners (1969) 1 Cal.3d 351, 359, fns.
omitted.) "Prejudice is never
presumed; rather it must be affirmatively demonstrated by the defendant in
order to sustain his burdens of proof and the production of evidence on the
issue. ([Conti v. Board of Civil Service
Commissioners (1969) 1 Cal.3d 351,] 361 . . . .)" (Miller
v. Eisenhower Medical Center (1980) 27 Cal.3d 614, 624.) "Generally speaking, the existence of
laches is a question of fact to be determined by the trial court in light of
all of the applicable circumstances, and in the absence of manifest injustice
or a lack of substantial support in the evidence its determination will be
sustained. [Citations.]" (Ibid.) A court may decline to apply an equitable
defense of laches if its application would nullify an important policy adopted
for the benefit of the public. (See
Cal.3d 201, 222.)
We find it
unnecessary to decide whether the trial court could properly apply the doctrine
of laches since it made no definitive ruling.
It is evident that the court's ruling was correct on other dispositive
grounds and should be upheld. (See
11 Cal.3d 1, 19; see also Maruman
Integrated Circuits, Inc. v. Consortium Co. (1985) 166 Cal.App.3d 443,
450-451 [upholding denial of motion to disqualify opposing counsel].)
III
Pekin asks this court to determine that his counsel is
entitled to attorney's fees and costs pursuant to section 91012 and to then
remand the matter to the trial court with instructions to determine the amount
of the award.
Section
91012 is an exception to the general rule that a litigant is not entitled to
recover attorney's fees from an opposing party.
(See Code Civ. Proc., § 1021.)
It provides: "The court may award to a plaintiff or defendant other
than an agency, who prevails in any action authorized by [the PRA] his costs of
litigation, including reasonable attorney's fees. On motion of any party, a court shall require
a private plaintiff to post a bond in a reasonable amount at any stage of the
litigation to guarantee payment of costs."
(§ 91012.) "[T]he primary
purpose of the prevailing party attorneys' fee provisions of the Political
Reform Act is to encourage private litigation enforcing the Act." (People
v. Roger Hedgecock for Mayor Com. (1986) 183 Cal.App.3d 810, 816.)
The ruling
on a motion to disqualify counsel was not a final determination of the merits
of this litigation. At this point in the
proceedings, Pekin has not established that he is the prevailing party for
purposes of section 91012.
name="_ftnref18" title="">[18] He is not the prevailing party in this
appeal.
DISPOSITION
The trial
court's order denying Pekin's motion to disqualify attorney Serverian is
affirmed. Appellant Pekin shall bear the
costs of appeal.
_____________________________
ELIA,
J.
WE CONCUR:
__________________________________
RUSHING, P .J.
__________________________________
GROVER, J.
order denying a motion to disqualify opposing counsel is an appealable
order. (Meehan v. Hopps (1955) 45 Cal.2d 213, 215-217; see Code Civ. Proc.,
§ 904.1, subd. (a)(6).)
contract made in violation of any of the provisions of Section 1090 may be
avoided at the instance of any party except the officer interested
therein." (Gov. Code, § 1092,
subd. (a).) All further statutory
references are to the Government Code unless otherwise stated. "It is settled law that where a contract
is made in violation of section 1090, the public entity involved is entitled to
recover any compensation that it has paid under the contract without restoring
any of the benefits it has received. [Citations.]" (Finnegan
v. Schrader (2001) 91 Cal.App.4th 572, 583.)
