This opinion has not been certified for publication or ordered published for purposes of rule 8.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE GEORGE DEITCH, Plaintiff and Respondent, v.
B213743 Los Angeles County Super.
BC391340 APPEAL from an order of the Superior Court of.
Mel Red Recana, Judge.
Blackman for Defendant and Appellant.
Boss for Plaintiff and Respondent.
Finding no error, we affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND Wizard gaming inc is a closely held California corporation which owns and operates Diamond Jim's Casino in Rosemond.
The largest block of shares 42% of Wizard is to be held by the trustee of the Zephyr Inter Vivos Trust the "Trust"of which George Hardie, Jr.
However, as a result of a disagreement among the shareholders and the limitations on ownership of interests in a gambling business, there is no current trustee of the Trust, and the Trust's shares are consequently "suspended.
As appellant explains at length, Deitch on one hand and Cuicchi and Levinson on the other are fighting for control of Wizard, and have been engaged in multiple lawsuits to advance their respective ends.
Appellant claims that this derivative suit is but one more weapon in Deitch's arsenal, as is the motion to disqualify IKP.
Be that as wizard gaming inc may, this is an appeal from a discrete ruling in a discrete lawsuit, and we must limit our focus to the merits of the issues before us.
We therefore deny appellant's request that we take judicial notice of documents concerning licensing matters pending before the Kern County Sheriff's Office.
Deitch filed this shareholder derivative action in May 2008.
The gist of the complaint is that Cuicchi and Levinson benefited personally from contracts awarded to companies performing work for the corporation without soliciting competitive bids, and authorized loans of money and payment of consulting fees to third parties which did not benefit the corporation, and the like.
Appellants filed a motion to strike portions of the complaint which has not yet been ruled on.
On November 8, 2008, relying on Forrest v.
Baeza 1997 58 Cal.
The trial court granted that motion, but permitted IKP to continue pc games wizard old represent Cuicchi and Levinson.
Wizard timely appealed the order.
CONTENTIONS Appellant challenges wizard gaming inc trial court's order on multiple grounds.
First, it argues that the court erred because the disqualification motion was based on a potential, rather than actual, conflict and was made for purely tactical purposes.
Next, appellant notes that joint representation is permissible where, as here, the parties consent.
Finally, appellant maintains that, after determining that IKP could not jointly represent both Wizard and the individual defendants, the trial court should have permitted "the defendants to determine who will continue to be represented by IKP.
Kwan 1995 31 Cal.
City and County of San Francisco v.
We review the trial court's ruling on a disqualification motion for an abuse of discretion.
Superior Court 1995 39 Cal.
Superior Court, supra, 39 Cal.
When supports the trial court's factual findings, the appellate court reviews the conclusions based on those findings for abuse of discretion.
In re Complex Asbestos Litigation, supra, 232 Cal.
SpeeDee Oil Change Systems, Inc.
Actual conflict here issue of disqualification ultimately involves a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility.
The paramount concern, though, must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar.
The recognized and important right to counsel of one's choosing must yield to considerations of ethics that run to the very integrity of our.
Appellant asserts that any conflict of interest between IKP's clients is merely potential, not actual, and argues that "Speculative contentions of conflict of interest cannot justify disqualification of counsel.
Waite 2002 95 Cal.
It also maintains that the trial court erred in disqualifying IKP because Mr.
Shirwo, the sole non-litigant director of Click, consented to the dual representation.
A derivative claim is a property right belonging to the corporation and, as such, is properly viewed as an 'asset' of the corporation.
Expo Power Systems, Inc.
Corporation Laws 4th ed.
Given the nature of the derivative action, there is an actual conflict between IKP's clients, and not, as appellant argues, a potential conflict.
That is to say, if the corporation wins the lawsuit by establishing its right to damages from Cuicchi and Levinson, Cuicchi and Levinson lose; conversely, if Cuicchi and Levinson successfully defend the lawsuit, then the corporation will lose in its attempt to recover damages from go here defendants.
Thus, it is simply not true, as IKP argues, that a "divergence of interests would occur only if the shareholder suit is meritorious.
Appellant relies on Jacuzzi v.
The contention does not withstand scrutiny.
In Jacuzzi, the derivative shareholders sued the corporation and five individuals identified as directors and employees of the corporation who together controlled a majority of the company's shares.
Filed in October 1961, plaintiffs' complaint was principally directed at the sale of corporate assets to a Swiss company controlled game lun vs zombie the individual defendants.
After their attempts at discovery were repeatedly thwarted, plaintiffs sought and won sanctions against defendants, including the striking of defendants' answer to the first cause of action.
Defendants moved to vacate the order striking their answer, and to vacate and set aside the default and judgment.
The trial court granted these motions on the condition that defendants deposit certain assets with the court, provide additional security, and consent to the appointment of an independent auditor.
On November 20, 1963, defendants sought an wizard gaming inc affirming that they had satisfied the conditions.
On November 26, plaintiffs filed a notice of motion for an order enjoining the attorneys for defendants from representing the corporation.
The trial court denied the disqualification motion, vacated the judgment, set aside the default and reinstated the answer.
In a detailed opinion of some 38 pages, the Court of Appeal upheld those orders.
Contrary to appellant's suggestion that the Jacuzzi opinion set forth a well-reasoned analysis of the problem of dual representation in a shareholder derivative lawsuit, the court devoted but a single paragraph to the issue: "Plaintiffs' argument is predicated upon the theory that the default judgment should stand and that the same attorney should not represent the domestic corporation as judgment creditor, and the Swiss corporation and the individual defendants as judgment debtors.
In Elberta Oil Co.
Superior Court 1930 108 Cal.
In general, however, prior to an adjudication that the corporation is entitled to relief against its officers, or directors, the same attorney may represent both.
Since the order vacating the judgment is affirmed, the case remains within the latter principle and the trial court did not err in denying plaintiffs' motion.
While the court concluded in broad language game 2 counsel in a derivative action may represent both the corporation and the individual defendants, it engaged in no analytic discussion of the dilemma.
Moreover, apparently the plaintiffs in Jacuzzi did not object to the dual representation until they were confronted with the prospect of the same attorneys representing both the judgment creditor corporation and the judgment debtor individuals in post-judgment proceedings.
Given the court's ruling vacating the default and default judgment, that particular scenario was no longer imminent.
We note as well that the Jacuzzi court's conclusion that counsel may represent both the corporation and individual defendants in a shareholder derivative action has received its share of criticism: Jacuzzi "has been criticized as 'illogical and against the weight of authority' Forrest v.
Baeza, supra, 58 Cal.
In re Oracle Securities Litigation N.
Procedure, supra, Attorneys, 139, pp.
Superior Court 2004 121 Cal.
As stated in Lewis v.
Thus, where the allegations of the complaint reveal that the interests of the corporations and the individual defendants are adverse, dual representation is not appropriate.
District Court case upon which the Jacuzzi court relied has itself been called into doubt by the Third Circuit Court of Appeal.
In Forrest, supra, two corporations were owned equally by three shareholders: Michael and Sandra Forrest, a married couple, and Sandra's brother, Ritch Ricetti.
The three shareholders were each officers and directors as well, until Ricetti was purportedly removed from office.
In a series of complaints and cross-complaints involving the corporations and its three shareholders, the Forrests and the corporations were represented by attorney McKim.
Ricetti alleged, among other things, that the Forrests made personal use of corporate assets and breached their fiduciary duties to the corporation.
He sought McKim's disqualification based on a conflict of interest between the corporation and the Forrests.
The trial court disqualified McKim from representing the corporation, but permitted his continued representation of the Forrests.
Both Ricetti and the Forrests appealed that ruling.
As the Forrest court noted, the primary value at stake in cases of dual representation is the attorney's duty of loyalty.
Forrest, supra, 58 Cal.
A client who learns that his or her lawyer is also representing a litigation adversary, even with respect to a matter wholly unrelated wizard gaming inc the one for which counsel was retained, cannot long be expected to sustain the level of confidence and trust in counsel that is one of the foundations of the professional relationship.
The strict proscription against dual representation of clients with adverse interests thus derives from a concern with protecting the integrity of the attorney-client relationship rather than from concerns with the risk of specific acts of disloyalty or diminution of the quality of the attorney's representation.
Developments in the Law-Conflicts of Interest in the Legal Profession 1981 94 Harv.
In the present case, IKP is in the position of simultaneously representing both Wizard and Cuicchi and Levinson, the individuals who are accused of misappropriating Wizard gaming inc assets.
While Wizard is a nominal defendant in this lawsuit, it is actually the plaintiff.
Forrest, supra, 58 Cal.
Given these circumstances, in the absence of the informed written consent of each client, the trial court acted well within its discretion in disqualifying IKP from representing both Wizard and the individual defendants, adverse parties with an actual conflict of interest in this litigation.
Because Wizard's consent was given by Darold Shirwo, an independent director of the corporation not a party to the litigation, appellant argues that the trial court erred in granting plaintiff's disqualification motion.
Appellant maintains that Shirwo is an appropriate constituent for purposes of giving corporate consent in the context of a derivative lawsuit when the corporation's officers and directors are named defendants.
As appellant explains, Shirwo "is not a party to this action.
They do not, standing alone, support the conclusion which appellant urges: that the trial court erred in its ruling.
While Shirwo may be independent in the sense that he is not a party to the litigation, he was elected to the board of directors by the two individual defendants with interests adverse to the corporation just prior to executing Wizard's written consent to the joint representation.
Moreover, shareholders Fred and Margarita Revuelta, the only other individuals who might be deemed "an appropriate constituent" of the corporation within the meaning of rule 3-600 E of the Rules of Professional Conduct for purposes of consenting to the dual representation, specifically refused to waive the conflict.
Given these facts, there was a reasonable basis for the trial court to question the validity of Wizard's consent.
There was no abuse of discretion.
Wizard's right to choose which client will continue to be represented by IKP Appellant argues that even if this court "does not allow IKP to jointly represent the individual and corporate defendants.
Appellant cites a single case, Zador Corp.
Kwan, supra, 31 Cal.
Kwan agreed that, should a conflict or dispute arise in the future, he would not seek to disqualify Heller from continuing to represent Zador.
A conflict of interest did arise, and Kwan retained new counsel, who sought to disqualify Heller.
The trial court granted the motion, and the Court of Appeal reversed.
As this simple recitation of facts should make clear, the facts in Zador are in no way analogous to those presented in this appeal, and Zador provides no authority for this court to reverse the trial court's ruling in this case.
Sanctions for frivolous appeal Plaintiff requests that this court order IKP to pay sanctions for filing a frivolous appeal.
We decline the request.
In re Marriage of Flaherty 1982 31 Cal.
DISPOSITION The judgment is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS ARMSTRONG, J.
I concur: KRIEGLER, J.
I would reverse in what I view as a really close case.
Baeza 1997 58 Cal.
In my view, the waiver in this case by the shareholder, who is not party to this lawsuit, waives the conflict of interest.
Rule 3-600 E of the Rules of Professional Conduct was promulgated by the Board of Governors of the State Bar of California and approved by our Supreme Court.
Conduct, rule 1-100 A.
Subject to the inherent power of our Supreme Court to set higher standards of conduct, the Rules of Professional Conduct have the force and effect of law.
Santa Clara County Attys.
Woodside 1994 7 Cal.
State Bar 1974 11 Cal.
Thus, I respectfully disagree with Forrest insofar as it suggests in dictum the shareholder waiver provisions may never apply in derivative litigation.
Setting a more rigorous standard than that in rule 3-600 E of the Rules of Professional Conduct is a matter for our Supreme Court which has the authority pursuant to go here inherent power to invalidate or place limits on the conflict waiver provision it adopted.
I do not view objecting to discovery demands as misconduct as argued by plaintiff, and insofar as it benefitted defendants, the conflict has been waived.
One final comment is in order in this a case where there is no issue of possession of privileged information or participation in misconduct by the discharged firm.
As a result of the trial courts order, defendants will hire a lawyer to represent the corporation.
In other words, relieving the corporations attorneys will result in the selection of another law firm by the majority shareholders who have allegedly acted inappropriately.
And all of this to represent a nominal party; a fictional litigant.
I do not see any purpose wizard gaming inc allowing this breed of litigation machinations to find sustenance in this web page states pro 300 chair x gaming in a case where there is no issue of possession of confidential information or misconduct by the discharged firm absent amendments to wizard gaming inc Rules of Professional Conduct.
Analysis and review provided by Description Wizard Gaming, Inc.
Finding no error, Court affirm the order.
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