Cottonwood Estates, Inc. v. Paradise Builders, Inc.

• Decision Date: 04 February 1981
• Docket Number: No. 15155,15155
• Parties: COTTONWOOD ESTATES, INC., an Arizona corporation, and Mountain View Terrace, Inc., an Arizona Corporation, Petitioners, v. PARADISE BUILDERS, INC., an Arizona corporation, and the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondents.
• Court: Arizona Supreme Court

Page 296

624 P.2d 296

128 Ariz. 99

COTTONWOOD ESTATES, INC., an Arizona corporation, and Mountain View Terrace, Inc., an Arizona Corporation, Petitioners, v. PARADISE BUILDERS, INC., an Arizona corporation, and the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondents.

No. 15155.

Supreme Court of Arizona, In Banc.

Feb. 4, 1981.

Rubin, Rubin & Cronin by Michael L. Rubin and Lawrence E. Wilks, Phoenix, for petitioners.

Robert C. Whitten, Phoenix, for respondents.

HAYS, Justice.

We accepted jurisdiction of this petition for special action to decide whether the trial court abused its discretion by ruling that petitioners' attorney could not try this matter and testify as a witness in the same proceeding. Ariz.Const. art. 6, § 5(4) and 17A A.R.S. Rules of Procedure for Special Actions, rule 3(c).

Seymour and Lester Stein, of Chicago, sought to develop a particular six-acre parcel of land through two Arizona corporations, petitioners' Cottonwood Estates and Mountain View Terrace. The Steins were the principal shareholders of the corporation which employed Phoenix attorney, Michael L. Rubin, as counsel. From March 1979 through February 1980, Rubin also served as Cottonwood's assistant vice-president and assistant secretary.

Cottonwood contracted with respondent, Paradise Builders, Inc., to construct 25 single-family residences on the six-acre parcel while Mountain View contracted with Paradise Builders to construct multiple-family residences on the same parcel. In the underlying cause of action herein, Paradise Builders contends Mountain View almost immediately breached its contract while Cottonwood breached after Paradise Builders completed 13 of the 25 residences. Paradise Builders filed a breach of contract action in Maricopa County Superior Court to recover overhead expenses and lost profits from both Cottonwood and Mountain View, as well as to recover direct costs of construction from Cottonwood.

Paradise Builders obtained a partial summary judgment in the amount of $81,000 against Cottonwood for the latter's failure to pay the direct costs. In addition, Paradise Builders obtained a $7,000 judgment against Cottonwood in a collateral matter. (*1)

Two days before Paradise Builders obtained its judgment in the collateral matter, Rubin, as an officer of Cottonwood, executed deeds transferring the twelve lots without residences plus one with a model to Camelback Development Company, another Arizona corporation owned by Seymour and Lester Stein. ² In subsequent proceedings Paradise Builders argued that the transfer was without consideration, therefore a fraudulent conveyance designed to remove the property from the reach of the judgments.

A garnishment proceeding was initiated against Camelback based on the partial summary judgment granted in the contract action and on the judgment rendered in the collateral proceeding. The garnishment proceeding was founded on the fraudulent conveyance from Cottonwood to Camelback. Cottonwood filed a counterclaim in the garnishment action supported by an affidavit verified as true by Rubin. Following numerous requests for continuances and several trips to the bankruptcy court, a jury trial of the contract action was set for November 4, 1980, with trial on the garnishment action immediately to follow.

At pretrial arguments held the day trial was to begin, Paradise Builders informed the trial judge that it would call Rubin as a witness. The court was also presented with a letter written by respondent's attorney six months previously, informing Rubin that he would be called to testify at trial. Rubin was to be called because he had been a witness in discovery and at pretrial proceedings; ³ because he was an officer of Cottonwood at relevant times; because, as an officer, he transferred all of Cottonwood's assets; and as an officer he had, or should have had, personal knowledge of Cottonwood's liabilities and assets relevant to the allegedly fraudulent conveyance.

The trial judge, upon learning that Rubin would be a witness, ruled sua sponte that he not be allowed to represent Cottonwood at the trial of either the contract action or the garnishment proceedings. This special action and a stay of proceedings below followed.

The question before us is in two dimensions: one in evidence, the other in ethics. ⁴ The law of evidence provides that as a basic premise the admission of testimony falls within the sound discretion of the trial judge. Rimondi v. Briggs, 124 Ariz. 561, 606 P.2d 412 (1980). It is the trial judge who decides if otherwise relevant evidence should not be admitted because of its prejudicial effect. Ariz.R.Evid. 403. The law of evidence reveals no disability on the part of an attorney as to testifying in a proceeding in which he is also an advocate. ⁵ The attorney may be disqualified not because his testimony is incompetent but because of the dangers and prejudice inherent in the practice. See French v. Hall, 119 U.S. 152, 7 S.Ct. 170, 30 L.Ed. 375 (1886); Erwin M. Jennings Co. v. DiGenova, 107 Conn. 491, 141 A. 866 (1928).

In Hales v. Pittman, 118 Ariz. 305, 313, 576 P.2d 493, 501 (1978), we observed that "(a) fundamental rule of the American system of jurisprudence prohibits an attorney from testifying in a case he is handling." A review of cases from other jurisdictions reveals that courts normally refuse to condone the practice of acting both as advocate and witness in the same proceeding. See, e. g., French v. Hall, supra; Miller v. Urban, 123 Conn. 331, 195 A. 193 (1937); Bris Realty Co. v. Phoenix Savings & Loan Assn., 238 Md. 84, 208 A.2d 68 (1965); Edmiston v. Wilson, 146 W.Va. 511, 120 S.E.2d 491 (1961). Even though the attorney is otherwise competent to testify, it is generally considered a serious breach of professional etiquette and detrimental to the orderly administration of justice for an attorney to take the stand in a case he is trying. See Bank of America v. Saville, 416 F.2d 265 (7th Cir. 1969), cert. denied, 396 U.S. 1038, 90 S.Ct. 685, 24 L.Ed.2d 682 (1970); Lau Ah Yew v. Dulles, 257 F.2d 744 (9th Cir. 1958); Kaeser v. Bloomer, 85 Conn. 209, 82 A. 112 (1912); Edmiston v. Wilson, supra.

The attorney who testifies diminishes his effectiveness as advocate as well as his effectiveness as a witness. Universal Athletic Sales Co. v. American Gym, Recreational & Athletic Equipment Corp., 546 F.2d 530 (3d Cir. 1976), cert. denied sub nom., Super Athletics Corp. v. Universal Athletic Sales Co., 430 U.S. 984, 97 S.Ct 1681, 52 L.Ed.2d 378 (1977); Lau Ah Yew v. Dulles, supra. Like any witness, the attorney is subject to cross-examination on any relevant matter, Ariz.R.Evid. 611, including the professional and financial interest in the outcome of the litigation, Universal Athletic Sales Co. v. American Gym, Recreational & Athletic Equipment Corp., supra, and impeachment by the usual methods of demonstrating bias or prejudice. Gonzales v. City of Tucson, 124 Ariz. 450, 604 P.2d 1161 (App.1979); Ariz.R.Evid. 607.

When an attorney persists in acting both as witness and advocate, ordinary procedural safeguards designed to give the parties a full and fair hearing become problematic. For example, the familiar mechanics of question-and-answer interrogation become impossible. The rule excluding witnesses from the courtroom may be invoked, yet the advocate-witness obviously must be allowed to remain. The advocate who testifies places himself in the position of being able to argue his own credibility. This special witness can take the stand, objectively state the facts from personal knowledge, then press home those facts by argument to the jury. Our belief is that an adversary system works best when the roles of the judge, of the attorneys, and of the witnesses are clearly defined. Any mixing of those roles inevitably diminishes the effectiveness of the entire system. Inglett & Co. v. Everglades Fertilizer Co., 255 F.2d 342 (5th Cir. 1958). The practice not only raises the appearance of impropriety, Alexander v. Watson, 128 F.2d 627 (4th Cir. 1942); Erwin M. Jennings Co. v. DiGenova, supra, but also disrupts the normal balance of judicial machinery.

The ABA Code of Professional Responsibility establishes aspirational guidelines in the form of Ethical Considerations which reflect the concerns heretofore expressed. Those aspirational guidelines include:

Ethical Consideration 5-9. Occasionally a lawyer is called upon to decide in a particular case whether he will be a witness or an advocate. If a lawyer is both counsel and witness, he becomes more easily impeachable for interest and thus may be a less effective witness. Conversely, the opposing counsel may be handicapped in challenging the credibility of the lawyer when the lawyer also appears as an advocate in the case. An advocate who becomes a witness is in the unseemly and ineffective position of arguing his own credibility. The roles of an advocate and of a witness are inconsistent; the function of an advocate is to advance or argue the cause of another, while that of a witness is to state facts objectively.

Ethical Consideration 5-10. Problems incident to the lawyer-witness relationship arise at different stages; they relate either to whether a lawyer should accept employment or should withdraw from employment. Regardless of when the problem arises, his decision is to be governed by the same basic considerations. It is not objectionable for a lawyer who is a potential witness to be an advocate if it is unlikely that he will be called as a witness because his testimony would be merely cumulative or if his testimony will relate only to an uncontested issue. In the exceptional situation where it will be manifestly unfair to the client for the lawyer to refuse employment or to withdraw when he will likely be a witness on a contested issue, he may serve as advocate even though he may be a witness. In making such decision, he should determine the personal or financial...