Benasra v. Mitchell Silberberg & Knupp

• Decision Date: 13 February 2002
• Docket Number: No. B147537.,B147537.
• Citation: 116 Cal.Rptr.2d 644,96 Cal.App.4th 96
• Court: California Court of Appeals Court of Appeals
• Parties: Michel BENASRA et al., Plaintiffs and Appellants, v. MITCHELL SILBERBERG & KNUPP, LLP, Defendant and Respondent.

116 Cal.Rptr.2d 644

96 Cal.App.4th 96

Michel BENASRA et al., Plaintiffs and Appellants, v. MITCHELL SILBERBERG & KNUPP, LLP, Defendant and Respondent.

No. B147537.

Court of Appeal, Second District, Division 4.

February 13, 2002.

Rehearing Denied March 12, 2002.

Review Denied May 22, 2002.^*

Fagelbaum & Heller, Philip Heller and Jerold Fagelbaum, Los Angeles, for Plaintiffs and Appellants.

Mitchell Silberberg & Knupp, LLP, Peter B. Gelblum and David A. Steinberg, Los Angeles, for Defendant and Respondent.

CURRY, J.

In this case we are asked to determine whether a claim for breach of duty of loyalty against the claimants' former attorneys for representing an opposing party in an arbitration should be foreclosed on res judicata grounds where the claimants had previously submitted an unsuccessful motion to disqualify to the arbitration panel. The trial court granted a defense motion for summary judgment, agreeing that the claim preclusion aspect of res judicata applied to the arbitration panel's denial of the motion to disqualify. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

The Arbitration

There is little dispute about the essential facts in this matter. Appellant Pour Le Bebe, Inc. (PLB) was a licensee of designer Guess? Inc. (Guess), operating numerous stores out of which it sold Guessbranded merchandise. For reasons not pertinent here, the relationship between the parties soured, and on May 21, 1999, Guess initiated an arbitration against PLB¹ before the American Arbitration Association, seeking to terminate the licensing agreement due to the alleged breach. Guess was represented by respondent law firm Mitchell Silberberg & Knupp, LLP.

It is clear that prior to May 1999, respondent had represented PLB in a few legal matters and had also performed substantial immigration work for principals and employees of the company and their family members. In May 1997, respondent had sent a letter to PLB containing terms of representation on a matter entitled Mary K. Ready v. Michel Benasra, Pour Le Bebe, Inc., et al. (Super.Ct.L.A.County, 1997, No. BC169021). The letter stated that respondent "has represented and currently represents [Guess] and [its president], or entities affiliated with them . . . on matters other than those covered by this letter. Because we represent Guess, our representation of [PLB] could present certain conflicts of interest, and we will need the permission of [PLB] and Guess to undertake the concurrent representation of them under these circumstances. This letter seeks such permission, as set forth below."

The letter also included the following paragraph: "At the present time, [respondent] is not aware of any conflicting interests among or between Guess and [PLB]. . . . If, at any time in the future, we conclude that there is a conflict of interest in representing [PLB] and Guess, we have the right to advise [PLB] of our belief and the reasons for that belief. Further, [PLB] understands and agrees that [respondent] may withdraw from representing [PLB] if we perceive a conflict of interest with Guess, and we may continue to represent Guess on all matters, including matters that are directly adverse to [PLB]. [PLB] further acknowledges that we may represent Guess (or any of its affiliated persons or entities) against [PLB] even if we have acquired confidential information from [PLB] relating to the subject matter of the dispute(s) between Guess and [PLB]. In some circumstances, the California Revised Rules of Professional Conduct may permit an attorney to continue to represent a party for whom a conflict of interest has been identified, and, with proper consents, we also reserve the right to take such an approach as we believe appropriate."

PLB was represented in the subject arbitration for a time by the law firm of Alschuler Grossman Stein & Kahan. In June 1999, an attorney from that office wrote to respondent stating: "[W]e have now been informed that your law firm has provided legal counsel to [PLB] and its affiliates or principals and may, itself, have an impermissible conflict of interest. Before we reach an opinion on this, however, I invite you to write me and describe for me the nature of your law firm's representation in the past and whether you believe your law firm has such a conflict. If you do not believe that such a conflict exists, please explain why. Needless to say, pending a better understanding of the facts, our client reserves all rights." Respondent wrote back saying, "[P]lease be advised that this firm's past representation of PLB was minimal, sporadic, and completely disassociated from and unrelated to the present dispute between Guess and PLB, consisting chiefly of immigration work and brief representation in an employment dispute. We never obtained any confidential information even remotely related to the present dispute." Alschuler wrote back seeking "all of the files in your law firm which were generated during the course of the representation of PLB and its principals. . . ."

Ironically, Alschuler was subsequently disqualified from representing PLB. In October 1999, a request for documents pertaining to respondent's representation of appellants was made by appellants' present counsel. In November, after several letters had been exchanged, respondent wrote that all of the files had been sent, except for internal billing files, which it refused to convey to PLB.

A formal motion to disqualify respondents from representing Guess was filed by PLB in the arbitration on December 17, 1999. Documents and declarations were filed in support and in opposition. The panel of arbitrators heard argument at length on December 30, 1999. The panel denied the motion in writing on January 3, 2000, stating in its ruling: "There is insufficient evidence to support the disqualification of [respondent] as counsel in this proceeding." PLB sought an evidentiary hearing and asked that the panel order further production of documents from respondent. The panel denied the requests.

The Complaint

PLB and its principals, appellants Michel Benasra and Denys Goulin, then filed a complaint against respondent. The complaint accused respondent of violating rule 3-310(C) of the California State Bar Rules of Professional Conduct, which provides that an attorney "shall not, without the informed written consent of each client: [¶] (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or [¶] (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or [¶] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter"; and rule 3-310(E), which provides that an attorney "shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment."

The complaint further alleged that respondent represented Benasra and Goulin in their individual capacities from approximately 1993 through "the present,"² represented PLB from 1993 through early 1999, and represented Benasra and Goulin in their capacities as sole shareholder, director and officer of PLB (Benasra) and president of PLB (Goulin).³ The complaint pointed out that in May 1997, respondent had sent the above-described letter to PLB seeking waiver of potential conflicts due to its concurrent representation of Guess, and indicated that appellants did not sign the letter.

Appellants contended that respondent represented a client with an adverse interest, Guess, while it was representing appellants. Although the arbitration was initiated in May 1999 by respondent on Guess's behalf, the complaint contended that respondent also represented Guess in determining whether to terminate the licenses held by PLB some time prior to the arbitration. Appellants further contended that as a result of its representation of each of them, respondent was privy to confidential information which precluded its representation of a client adverse to them even after the representation ceased.

The TRO

In conjunction with filing the complaint, appellants filed an ex parte application for temporary restraining order (TRO) and order to show cause re injunction. Declarations filed in support of the application described a number of legal matters in which appellants had obtained services or advice from respondent. The declarations stated that respondent had been given access to whatever it needed from the files of PLB and had also been provided copies of the individuals' tax returns. Benasra and Goulin expected to be witnesses in the arbitration and expressed concern about being cross-examined by their former attorneys.

At the hearing on the TRO on January 14, 2000, it was revealed that due to the assemblage of the moving papers, the trial court had missed some of the declarations and had not had an opportunity to read them. Nevertheless, the court denied the request because, regardless of what was stated in the declarations, the issue of whether to disqualify respondent had been presented to the arbitration panel. The court stated that only the panel had the power to rule on the question of "whether the party to the arbitration can be represented in that arbitration by [respondent] . . . ." The court did not set a hearing on a preliminary injunction.

Renewal of Motion to Disqualify

On January 14, 2000, PLB joined by the individual appellants renewed the motion to disqualify before the arbitration panel. The basis was the discovery of handwritten notes which purportedly showed that respondent was consulted about terminating PLB's licenses in November 1998. Counsel had stated in a declaration...