Straw v. Gelbard

Filed 5/15/06  Straw v. Gelbard CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b).  This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

            APPEAL from a judgment of the Superior Court of Los Angeles County. 

Lee Smalley Edmon, Judge.  Affirmed.

            Proskauer Rose LLP and Bert H. Deixler and Trista E. Schroeder for Plaintiffs and Appellants.

            Jones Day and Brian A. Sun, Frederick D. Friedman, Rasha Gerges, and Karin L. Bohmholdt for Defendants and Respondents.

_______________

            Plaintiffs and appellants Blix Street Records and William Straw sued defendants and respondents Hugh Cassidy, Barbara Cassidy, Eva Cassidy Partners, and Alan Gelbard, alleging that defendants had breached, and conspired to breach, a licensing agreement between appellants and the Cassidys.  Appellants were represented by the law firm of Engel & Engel, a firm which had represented both appellants and the Cassidys in other litigation.  On respondents' motion, the trial court disqualified Engel & Engel, finding a breach of the duty of loyalty and a breach of the duty of confidentiality.  We affirm.

Facts

            Respondents Hugh and Barbara Cassidy had a daughter, Eva, who died in 1996, when she was only 33 years old.  Eva Cassidy was a singer, and on her death her parents inherited the rights to her recorded performances.  In November of 1997, they entered into a licensing agreement with William Straw, doing business as Blix Street Records, which allowed him to exploit Eva Cassidy's recorded performances.[1]  According to the complaint in this action, this was a successful venture -- over six million albums were sold.   

            In June of 2002, Blix Street and the Cassidys filed suit against a man named David Lourim in the United States District Court in Maryland.  They sought, inter alia, a declaration that Lourim had no right to re-release an album by a band, Method Actor, which Eva Cassidy sang for while she was in high school and college.  Blix Street and the Cassidys also sought an injunction preventing Lourim from representing the album as an Eva Cassidy solo album.

            The Cassidys and Blix Street were initially represented by a Maryland firm, Brassel & Baldwin, but at Straw's suggestion, Donald Engel of Engel & Engel became lead trial counsel for both plaintiffs in July of 2002.  He did not obtain consent for the joint representation.  (Rules Prof. Conduct, rule 3-310(C)(1).)             

            Engel was Straw's long-time lawyer, but neither the Cassidys or their personal attorney, Elana Byrd (who assisted them with the litigation) knew that.  The Cassidys thought of Engel as their lawyer.  They reposed their trust and confidence in him, and authorized Byrd to share with Engel " any and all confidential information which they had imparted . . . over the years that related to any of the issues in the case."   She did so.[2]

            Engel formulated litigation strategy, filed an amended complaint, took discovery, and represented the plaintiffs at a September evidentiary hearing on the request for an injunction. The court denied the injunction, but did order that the cover of the Method Actor album be changed so that it did not suggest that the album was an Eva Cassidy solo album.

            After some litigation concerning that order, the parties began settlement efforts. Straw negotiated on behalf of Blix Street and the Cassidys.  In March, he and Lourim reached a tentative settlement.  However, it was not acceptable to the Cassidys, in part because of the effect it could have on a movie project they were working on, about Eva Cassidy's life.  The Cassidys wanted to settle on terms which would allow Method Actor to license its rights in the album for use in the film.  Straw refused to settle on that basis.

            The Cassidys' lawyer, Elana Byrd, and Brassel & Baldwin took over negotiations from Straw.

            Overall, the movie project was a source of conflict between the Cassidys and Blix Street, beginning in (approximately) March 2003.  The Cassidys wished to contract with a production team which included respondent Alan Gelbard, and formed Eva Cassidy Partners to that end.  Straw did not wish to work with Gelbard, and told the Cassidys that he would not license Eva Cassidy recordings to the Gelbard team. 

            Engel was involved in this dispute, on behalf of Blix Street.  In April, he investigated Gelbard.  Later, he wrote letters on Blix Street's behalf to Byrd, to the production team chosen by the Cassidys, and to lawyers at Issacman, Kaufman & Painter, the firm the Cassidys hired in connection with the movie project.  For instance, on June 4, 2003, he wrote to Eva Cassidy Partners stating Blix Street's decision not to work with Gelbard and, inter alia, demanding that Eva Cassidy Partners refrain from any activity in derogation of Blix Street's rights.

            On April 21, an Engel associate wrote to Brassel & Baldwin, noting that that firm had taken over the Method Actor settlement negotiations, and stating that

" [W]e agree, strongly, with [Straw] that this matter should settle along the lines set forth in the draft agreement, with any improvements that are available.  We do believe that the agreement can be improved in several respects, but we also understand that the Cassidys through their attorney, Elana Byrd, have indicated that they have reservations or objections regarding the deal.  We do not know the source or basis of their concerns but, unlike the prosecution of the litigation and procurement of the preliminary injunction with respect to which all of the plaintiffs clearly had a common interest . . . , it appears that diverging interests or goals may have developed between [Straw] and the Cassidys with respect to the terms of the settlement.  [¶]  In view of the circumstances and given that the Cassidys, with [Straw's] approval, have asked that your firm take over responsibility of concluding the deal, we believe that we must resign as counsel for the Cassidys.  Henceforth, we will confine our representation to our original client, Blix Street."  

The letter closed with a request that Brassel & Baldwin have the Cassidys sign an enclosed substitution of attorneys.

            The Cassidys did not sign the substitution, concerned that Engel's withdrawal would send the wrong message in the settlement negotiations.  Byrd contacted Engel.  She told him that he had a conflict of interest but asked that he not file a substitution, given the settlement negotiations.  Engel agreed. 

            In June, after Engel sent several acrimonious letters concerning the movie project, the Cassisdys asked him to withdraw as counsel for Blix Street.  Engel did not withdraw as Blix Street's counsel.  Further, he did not file a request to withdraw as the Cassidys' counsel in the Method Actor litigation until November 26. 

            The Federal court granted Engel's motion to withdraw on December 12.  However, in January, the Cassidys filed an opposition to the motion, contending that a conflict of interest between the plaintiffs precluded Engel from representing anyone in the litigation.  The court treated the motion as one to compel Engel's withdrawal as attorney for Blix Street, and granted the motion on March 19, 2004, finding that the dispute between the Cassidys and Lourim was " material and centers on the core issues," in the litigation and rejecting the argument that the Cassidys had waived the objection, either expressly, or constructively, through delay.

            On March 15, 2004, Blix Street, represented by Engel, sued Gelbard, the Cassidys, and Eve Cassidy Partners, for breach of contract, breach of warranty, inducing breach of contract, interference with prospective economic advantage, and declaratory relief.  The complaint alleged that the defendants violated the licensing agreement and conspired to deprive Blix Street of the rights granted in that agreement through their acts in connection with the movie project and by refusing to agree to the settlement Straw negotiated in the Method Actor litigation.[3]

            The Cassidys moved for an order disqualifying Engel and his firm from representing Blix Street and Straw, based on a conflict of interest.  The trial court granted the motion, finding that Engel had breached both his duty of loyalty and his duty of confidentiality.

Discussion

            " The authority to disqualify an attorney stems from the trial court's inherent power '[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.'  (Code Civ. Proc., § 128.)"   (Zador Corp. v. Kwan (1995) 31 Cal.App.4th 1285, 1292.) 

            " [D]etermining whether a conflict of interest requires disqualification involves more than just the interests of the parties."   (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145.)

  " Ultimately, disqualification 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."   (Ibid.) 

            We review the trial court's decision under the abuse of discretion standard

 (SpeeDee Oil Chang, supra, 20 Cal.4th at p. 1143), and find none here.   

            Engel represented the Cassidys and Blix Street jointly, in litigation, then, while still counsel of record in that litigation, became Blix Street's advocate against the Cassidys on an issue that was, in the words of the federal court, " material and centers on the core issues" in that litigation.  Then, barely 90 days after he was relieved in the litigation, he filed suit against his former clients, on behalf of their former co-plaintiffs.             

            In his April letter to Brassel & Baldwin, Engel wrote that the conflict between the Cassidys and Blix Street concerning the Method Actor settlement was so serious that he could no longer represent the Cassidys.  Appellants cannot now be heard to claim that the conflict was sufficiently unimportant that it does not preclude Engel from suing the Cassidys on Blix Street's behalf, in litigation arising out of that very conflict.

            The fiduciary relationship between attorney and client " makes it improper for an attorney to act contrary to, or assume a position inconsistent with, the interests of a present or former client."   (1 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, § 128.) 

We cannot quarrel with the trial court's decision to put an end to the situation here by disqualifying Engel from representing Blix Street in this case.

            Appellants' first argument challenges the trial court finding on the breach of the duty of loyalty.  They contend that this is a case of successive representation, not simultaneous representation, and that in successive representation cases the question is whether there is a breach of the duty of confidentiality, not whether there is a breach of the duty of loyalty.  They rely on Flatt v. Superior Court (1994) 9 Cal.4th 275, which held, inter alia, " Where the potential conflict is one that arises from the successive representation of clients with potentially adverse interests, the courts have recognized that the chief fiduciary value jeopardized is that of client confidentiality" (id. at p. 283) but that " 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."   (Id. at p. 284.)

            We do not understand Flatt to have overruled the longstanding rule that " 'an attorney is forbidden to do either of two things after severing his relationship with a former client.  He may not do anything which will injuriously affect his former client in any manner in which he formerly represented him nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship.'" (People ex rel. Deukmejian v. Brown (1981) 29 Cal.3d 150, 156-157, citing Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, 573-574.)  Flatt held that the " chief" question in successive representation cases is confidentiality, but did not hold that the duty of loyalty may play no part in the trial court's decision on a disqualification motion.

            Further, if this is a successive representation case, it is so only in the most technical sense.  Engel declared that he resigned as the Cassidys' counsel on April 12, but the fact is that he was their lawyer until December 12, when he was relieved by the federal court.  He filed this lawsuit barely more than 90 days later, and prior to that time was actively involved in what can only be described as pre-litigation activity on behalf of Blix Street, against the Cassidys. 

            We thus see no abuse of discretion in the application of the duty of loyalty in this case.  " Independently of secrets or information, the attorney cannot accept employment or otherwise act adversely to the former client in a matter or controversy in which the attorney formerly represented the client."   (1 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, § 157.) 

            Nor, to the extent that this is a successive representation case, do we find that the trial court abused its discretion by disqualifying Engel under the duty of confidentiality.  " When a substantial relationship has been shown to exist between the former representation and the current representation, and when it appears by virtue of the nature of the former representation or the relationship of the attorney to his former client confidential information material to the current dispute would normally have been imparted to the attorney . . . , the attorney's knowledge of confidential information is presumed."   (Global Van Lines, Inc. v. Superior Court (1983) 144 Cal.App.3d 483, 489.)

In such cases, disqualification of the attorney's representation of the second client is mandatory.  (Flatt, supra, 9 Cal.4th at p. 278.)

            Appellants suggest that there was no substantial relationship, because the dispute between Blix Street and the Cassidys arose after Engel resigned as the Cassidys' lawyer and because the instant litigation does not concern the issues raised in the Method Actor complaint, that is, Lourim's rights to release the album.  We see the record differently:  Engel was the Cassidys' lawyer until he was relieved by the federal court in December, and the dispute between Blix Street and the Cassidys arose well before Engel first raised the issue of resignation as the Cassidys' lawyer.  It must have; it was the reason he wanted to resign.  Nor do we think that the two cases are distinct.  This case is all about the Method Actor litigation, and the fact that the link is with the settlement of that litigation, rather than the allegations of the complaint, makes no difference.

            Appellants next argue that the substantial relationship test does not apply to cases in which the first representation was a joint representation, as it was here, unless the moving party can show that there were material confidential communications, citing Cornish v. Superior Court (1989) 209 Cal.App.3d 467 and other cases; and/or that the test does not apply unless the moving party can show that the relationship between attorney and client was direct and personal, citing Jessen v. Hartford Casualty Ins. Co. (2003) 111 Cal.App.4th 698, 708, and Farris v. Fireman's Fund Insurance Co. (2004) 119 Cal.App.4th 671, and, finally, that the test does not apply because there was no " realistic chance" that confidences were disclosed, citing H. F. Ahmanson & Co. v. Salomon Brothers, Inc. (1991) 229 Cal.App.3d 1445.  Appellants then argue that respondents did not carry their factual burden.

            It is true that Courts of Appeal have made " modifications and refinements" (H. F. Ahmanson, supra, 229 Cal.App.3d at p. 1454) or added " refinements and specificity," (Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324, 1331) to the substantial relationship test, both in order to define " substantial" and " relationship," and to alleviate what was perceived as the harshness of the rule.  (Jessen v. Hartford Casualty, supra, 111 Cal.App.4th at p. 708.)  We nonetheless see no trial court error.

            First, the rule appellants find in Cornish, supra, 209 Cal.App.3d 467, that in cases of joint representations the moving party must show that confidential communications were made, is antithetical to the governing test adopted by our Supreme Court.  The substantial relationship test does not require proof that confidential communications were made.  Instead, the test makes it unnecessary for the client to prove anything except that the two representations are substantially related.  It is a " prophylactic approach" which " does not require the former client to prove the former attorney possesses confidences which could be used to the former client's disadvantage."   (H. F. Ahmanson, supra, 229 Cal.App.3d at p 1453.)  Further, it is a " rule by necessity, for it is not within the power of the former client to prove what is in the mind of the attorney.  Nor should the attorney have to 'engage in a subtle evaluation of the extent to which he acquired relevant information in the first representation and of the actual use of that knowledge and information in the subsequent representation.' [Citations.]"   (Global Van Lines, Inc. v. Superior Court, supra, 144 Cal.App.3d at p. 489.)  For this reason, respondents were not required to show that confidential communications were made.

            Nor do the " direct and personal" and " realistic chance" standards assist appellants.  The " direct and personal" language seems to have been developed to allow courts to distinguish between representation which is " peripheral or attenuated," and a direct relationship of the kind in which confidential information would normally be imparted, in which the lawyer " was personally involved in providing legal advice and services to the former client."   (Jessen v. Hartford Casualty, supra, 111 Cal.App.4th at p. 708.)  The " realistic chance" standard is similar.  These rules were recently summarized as follows:  " [I]f the nature of the representation is such that confidences could have been exchanged between the lawyer and the client, courts will conclusively presume they were exchanged, . . ." except " in the rare instance where the lawyer can show that there was no opportunity for confidential information to be divulged. . . ."   (City National Bank v. Adams (2002) 96 Cal.App.4th 315, 327-328.)

            This is not one of those rare instances.  Engel's representation of the Cassidys in the Maryland litigation was direct and personal, and there was opportunity for confidences.  Engel was lead counsel in litigation in which the Cassidys were plaintiffs.  Representation was not by his firm, with some other lawyer playing the major role.  This was his case.

             Appellants point to the evidence that Engel only met with the Cassisdys once, but once is surely enough to create an opportunity for confidential information to be exchanged -- and there was evidence that that happened.  The Cassidys believed that Engel was their lawyer, and they were correct in that belief.

Disposition

            The judgment is affirmed.  Respondents to recover costs on appeal. 

            NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                                                    ARMSTRONG, Acting P. J.

I concur:

                        KRIEGLER, J.

MOSK, J., Concurring

            I concur in the result based upon the standard of review--abuse of discretion.  (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 [â€