Bridgepoint Construction Services v. Newton

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




                               2
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




                                6
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