Cal. Earthquake Auth. v. Metro. West Sec. LLC

• Decision Date: 05 May 2010
• Docket Number: Civ. No. S-10-291 FCD/GGH.
• Citation: 712 F.Supp.2d 1124
• Court: U.S. District Court — Eastern District of California
• Parties: CALIFORNIA EARTHQUAKE AUTHORITY, Plaintiff,v.METROPOLITAN WEST SECURITIES, LLC; Wachovia Bank, N.A.; and Does 1 through 25, Defendants.

712 F.Supp.2d 1124

CALIFORNIA EARTHQUAKE AUTHORITY, Plaintiff,v.METROPOLITAN WEST SECURITIES, LLC; Wachovia Bank, N.A.; and Does 1 through 25, Defendants.

Civ. No. S-10-291 FCD/GGH.

United States District Court E.D. California.

May 5, 2010.

COPYRIGHT MATERIAL OMITTED

Fredric D. Woocher, Michael Jay Strumwasser, Jonathan David Krop, Strumwasser & Woocher LLP, Los Angeles, CA, for Plaintiff.

Eric P. Tuttle, Marc T.G. Dworsky, Karen J. Ephraim, James Christopher Rutten, Munger Tolles & Olson, LLP, Los Angeles, CA, for Defendants.

MEMORANDUM AND ORDER

FRANK C. DAMRELL, JR., District Judge.

This matter is before the court on the motion of plaintiff California Earthquake Authority (“CEA,” “the Authority,” or “plaintiff”) to disqualify defendants' counsel Munger, Tolles & Olson, LLP (“Munger”). Defendants Metropolitan West Securities, LLC (“MWS”) and Wachovia Bank, N.A. (“Wachovia”) (collectively, “defendants”) oppose the motion.

The court heard oral argument on the motion on April 23, 2010. By this order, it now renders its decision, granting plaintiff's motion for the reasons set forth below.

BACKGROUND

On December 31, 2009, CEA filed the complaint in this action, alleging claims for breach of contract, breach of fiduciary duty, constructive fraud, and unfair business practices against defendants. In conjunction with its complaint, CEA filed a motion to disqualify Munger as defendants' counsel on the grounds that Munger was either improperly (1) simultaneously representing parties with adverse interests or (2) representing defendants when Munger had a previous relationship with CEA, wherein CEA disclosed certain confidential information to Munger which bears a direct and substantial relationship to the present action.¹

On August 26, 2002, CEA's outside counsel, Richard Wolf (“Wolf”), met with Richard Drooyan (“Drooyan”), a partner at Munger. The meeting lasted approximately three hours. While the exact nature of the conversation and what information CEA shared with Drooyan is disputed between the parties, it involved a discussion about CEA's desire to develop a compliance program for the Authority; Wolf contacted Drooyan because many corporate compliance systems were based in part on the Federal Sentencing Guidelines, and Wolf believed Drooyan's extensive experience in corporate compliance and federal criminal law would assist the Authority in designing a compliance program. (Drooyan Decl., filed April 9, 2010 [Docket # 16]; Wolf Decl., filed April 19, 2010 [Docket # 19].) The following day, Drooyan received what he termed a “retainer agreement” from CEA's general counsel, which Drooyan signed and later returned to CEA on October 11, 2002. (Drooyan Decl. ¶ 5.) Thereafter, CEA signed the “retainer agreement” which is titled “Agreement” and provided a fully executed copy to Drooyan (hereinafter referred to as the “Agreement”). ( Id.)

By its express terms, the “Agreement governs the terms and conditions of all work [Munger] has performed (if any) and will perform for the Authority.” (Marshall Decl., filed February 24, 2010 [Docket # 12], Ex. 1, ¶ 2.0.) Munger specifically agreed that:

for and in consideration of the Authority's promises, agreements, and stipulations and under the conditions stated in this Agreement, [it] will provide legal representation to the Authority as directed by the Authority's Contract Manager.

( Id. ¶ 1.0.) And further agreed that:

[Munger] will represent the Authority and its Governing Board, by providing legal advice, legal representation, and other legal services in connection with issues regarding a proposed compliance program for the Authority, related legal issues, and other issue areas the Authority may face in the conduct of its business.

( Id. ¶ 1.1.)

The parties also agreed that the term of the Agreement was “of no defined duration,” and that either party could terminate the contract by giving the other party 30 days' advance written notice. ( Id. ¶¶ 2.0, 7.1.) However, CEA could terminate the agreement with no notice by delivering a “written notice of termination” specifying the effective date of the termination. ( Id. ¶ 7.1.) The contract further provided all notices “permitted or required” must be in writing, and that no alterations of the terms of the Agreement will be valid “unless made in writing and signed by both parties.” ( Id. ¶¶ 10.0, 12.0.)

Finally, Munger agreed to provide legal services to CEA pursuant to the terms of the Agreement for a maximum compensation of $100,000 per calendar year. ( Id. ¶ 3.0.)

The parties do not dispute that Munger has not done any work on behalf of CEA since the initial three hours of work on August 26, 2002. Nor do the parties dispute that neither CEA or Munger has terminated the Agreement according to the termination provisions.

In 2008, Munger was contacted by Wachovia about representing it in a dispute with CEA. (Rutten Decl., filed April 9, 2010 [Docket # 16], at ¶ 2.) On January 19, 2009, Munger submitted a brief on behalf of Wachovia in a mediation with CEA. ( Id. ¶ 3.) Four days later, Munger received a letter from CEA in which CEA asserted that Munger and CEA had an existing attorney-client relationship and Munger's representation of Wachovia was inconsistent with that relationship. (Marshall Decl., Ex. 2.) While the letter did not request Munger's immediate withdrawal from representing Wachovia in the mediation the following week, CEA stated that it was not waiving its rights with respect to the conflict. ( Id.) The mediation was not successful, and CEA filed this action.

ANALYSIS

CEA argues that Munger must be disqualified on two alternative bases. First, CEA argues it is still a client of Munger and Munger's representation of defendants is an improper concurrent representation of parties with adverse interests, in breach of Munger's duty of loyalty to CEA. Second, CEA argues that, even if CEA and Munger no longer have an attorney-client relationship, CEA disclosed confidential information to Munger which is substantially related to this action and, therefore, Munger's representation of defendants violates Munger's duty of confidentiality to a former client. In its written opposition, Munger referred to a “purported attorney-client relationship” with CEA that was terminated long ago but at oral argument, Munger insisted that an attorney-client relationship never existed between Munger and CEA. Munger also maintains that CEA never shared confidential information that has any bearing on this case. Further, Munger argues that CEA's motion to disqualify is untimely as CEA was aware of any alleged conflict in January of 2009 but did not attempt to disqualify Munger until December 31, 2009 when it filed the complaint and motion to disqualify in state court.

I Munger and CEA Entered into an Attorney-Client Relationship.

As noted above, Munger's opposition to the motion evolved since filing its written opposition to the motion. In its written opposition, Munger argued the “purported attorney-client relationship” with CEA “necessarily terminated” long before Munger began its representation of defendants. According to the opposition, the lack of activity between the parties effectively terminated the “purported” relationship under controlling California law. However, at oral argument, Munger strongly asserted that there was never an attorney client relationship between Munger and CEA to terminate as there was never an agreement that created such a relationship. Instead, Munger claimed that the Agreement, undisputedly executed between the parties, was merely evidence of Munger's willingness to enter into an agreement to become CEA's attorney at some later time. (Transcript of Oral Argument, on April 23, 2010 [“TOA”],² at 7 [stating that by the Agreement], Munger “volunteered ... to be [CEA's] attorneys but [Munger] was never given any legal work to do pursuant to the [Agreement]” and thus no relationship was formed; TOA at 8 [indicating Munger believed the Agreement was “a contract to consider representing [CEA]”]; TOA at 14 [stating that in Munger's counsel's view, the Agreement “did not” create an attorney-client relationship with CEA].) When asked directly by the court whether Munger was ever the attorney for CEA, defendants' counsel responded: “No. There's only two ways you're the attorney, to be given legal work for which you [are paid] or paid a retainer.” (TOA at 7.) Munger provided no legal authority for this declaration of Munger's obligation to CEA, though it appears at odds with both the terms of the Agreement and the applicable law.

“An attorney's duty to his or her client depends on the existence of an attorney-client relationship. If that relationship does not exist, the fiduciary duty to a client does not arise. Except for those situations where an attorney is appointed by the court, the attorney-client relationship is created by some form of contract, express or implied, formal or informal.” Nichols v. Keller, 15 Cal.App.4th 1672, 1684, 19 Cal.Rptr.2d 601 (1993); see also Responsible Citizens v. Superior Court, 16 Cal.App.4th 1717, 1732-33, 20 Cal.Rptr.2d 756 (1993).

At oral argument, Munger posited that the Agreement was a confusing nullity and that the court must look to the conduct of the parties to determine whether an implied contract, and therefore an attorney-client relationship, exists. See Cal. Civ.Code § 1621 (“An implied contract is one, the existence and terms of which are manifested by conduct.”). However, in doing so Munger asks the court not only to disregard the express terms of the written agreement with CEA but to do so in order that Munger can proceed to represent other parties, MWS and Wachovia, in a lawsuit against CEA. The facts in this case do not nor should they yield such a result.³

The Agreement states unequivocally that “[Munger], for and in consideration of the Authority's promises, agreements, and stipulations and under the conditions stated in this Agreement, will provide legal services to...