City Nat. Bank v. Adams
Decision Date | 20 February 2002 |
Docket Number | No. B149863.,B149863. |
Citation | 117 Cal.Rptr.2d 125,96 Cal.App.4th 315 |
Parties | CITY NATIONAL BANK, Plaintiff, Cross-defendant and Respondent, v. Glenn ADAMS, Defendant, Cross-complainant and Appellant. |
Court | California Court of Appeals Court of Appeals |
Law Offices of Jeffrey L. Davidson, Jeffrey L. Davidson, Beverly Hills, Benjamin M. Hill and Laura Lynn Davidson, Costa Mesa, for Defendant, Cross-complainant and Appellant.
Feinberg, Mindel & Kline, Jeremy B. Kline and Irwin B. Feinberg, Los Angeles, for Plaintiff, Cross-defendant and Respondent.
Defendant Glenn Adams appeals from the trial court's order disqualifying his counsel, Jeffrey L. Davidson and Davidson's law firm, from further participation in this action based on Davidson's previous representation of plaintiff City National Bank (CNB). We hold that, absent the informed written consent of both the former client and the present client, a lawyer may not represent a party whose interests are adverse to his or her former client when the two representations are in the same matter or the current representation involves the work performed by the lawyer for the former client. Accordingly, we affirm.
On April 30, 1998 CNB loaned $150,000 to Adams; and Adams executed and delivered to CNB a promissory note (the note) agreeing to repay the principal sum plus interest. The purpose of the loan was to enable Adams to exercise options to purchase stock in U.S. Digital Communications, Inc. (U.S.Digital). The loan was to be secured by the shares purchased with the loan proceeds (the stock).
Pursuant to his agreement with CNB, Adams was required to maintain collateral equal to at least 50 percent of the outstanding balance on his loan. The stock began to decline in value in early 1999 and soon became insufficient as collateral. Adams advised CNB he could not repay the loan or pledge additional collateral and asked CNB to sell the stock to satisfy his obligation.
CNB told Adams it appeared it could not sell the stock because it bore a restrictive legend. At Adams's suggestion, CNB retained Davidson in June 1999 to provide a legal opinion that the restrictive legend could be removed and the stock sold. Davidson provided the opinion letter on August 3, 1999. In June 2000 U.S. Digital went out of business, and the stock became worthless.
CNB filed suit against Adams for breach of contract, money had and received and overdraft on May 25, 2000. Adams filed a cross-complaint for breach of contract on July 14, 2000. In his answer and crosscomplaint, Adams alleged that CNB failed to sell the stock in a timely manner. Adams also alleged that, if CNB had sold the stock in a timely manner, the proceeds would have exceeded his obligations to CNB. Adams's cross-complaint avers "CNB's failure to liquidate the Security and apply the proceeds to satisfy Adams'[s] obligations to CNB under the Note constitute a breach of CNB's duty to Adams under the terms of the note."
At the time he filed his answer and cross-complaint, Adams was represented by Daniel Gunning. The trial court granted Mr. Gunning's motion to withdraw as Adams's counsel on February 6, 2001. CNB moved for summary judgment on March 29, 2001. Adams retained Davidson as his counsel on March 15, 2001. After its motion for summary judgment was denied, CNB filed a motion to disqualify Davidson on the ground he had previously represented CNB in the same matter.
In support of its motion to disqualify, CNB submitted the declaration of David Craig, the CNB vice president responsible for managing CNB's relationship with Adams. Craig testified in his declaration as follows:
In April 1999 Craig contacted Adams and told him that the U:S. Digital stock was insufficient to maintain the required balance of collateral to the outstanding loan. Adams told Craig he could not pay the loan or pledge additional collateral, but was going to sell his business and either pay off the loan or provide additional collateral out of the sale proceeds.
During his conversations with Craig, Adams asked if CNB could sell the U.S. Digital stock it held as collateral. Craig informed Adams that CNB could not sell the stock until the restrictive legend was removed and that the legend could not be removed without an opinion letter from legal counsel. Adams suggested Craig contact Davidson to obtain the opinion letter. Because CNB did not have any inhouse attorneys who could write such an opinion letter, Craig and CNB regional vice president Bob Patterson decided to retain Davidson as counsel on behalf of CNB to write the necessary letter.
Craig spoke to Davidson on June 22, 1999:
Craig confirmed his conversation in a letter to Adams, dated June 22, 1999:
Craig believed he had hired Davidson to act as CNB's counsel in the matter: [¶] ...
Davidson did not provide the requested opinion letter until August 1999. At that point
In opposition to the motion to disqualify, Adams filed a declaration from Davidson himself. Davidson's declaration discussed his background in securities law and described generally the effect of rule 144, promulgated by the Securities and Exchange Commission (17 C.F.R. § 230.144 (2001)), on the sale of securities that have not been registered under the Securities Act of 1933.
Davidson declared he was outside counsel for U.S. Digital and that by 1999 he "had represented Mr. Adams in various matters for a couple of years." He had "rendered forty to fifty opinions to U.S. Stock Transfer concerning the transferability of U.S. Digital shares bearing restrictive legends," and this was "a usual and customary engagement for a public company's outside counsel." U.S. Digital declined to pay for any further opinion letters in March 1999, however, and "referred its shareholders to me for opinions on its stock."
Davidson maintained he drafted the opinion letter for the benefit of Adams, not CNB. He stated he did not recall ever having spoken with Craig or receiving a letter from him. He also stated
At the hearing on the motion to disqualify, the trial court stated: "The court finds you [Davidson] have been retained by City National Bank before in this case in connection with the same matter that is...
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