Dino v. Pelayo, A113046.

• Decision Date: 30 November 2006
• Docket Number: No. A113046.,A113046.
• Citation: 51 Cal.Rptr.3d 620,145 Cal.App.4th 347
• Parties: Joe DINO et al., Plaintiff, Cross-defendant and Appellant, v. Jess PELAYO et al., Defendants, Cross-complainants and Respondents.
• Court: California Court of Appeals Court of Appeals

51 Cal.Rptr.3d 620

145 Cal.App.4th 347

Joe DINO et al., Plaintiff, Cross-defendant and Appellant, v. Jess PELAYO et al., Defendants, Cross-complainants and Respondents.

No. A113046.

Court of Appeal, First District, Division 3.

November 30, 2006.

Edward W. Suman, San Bruno, for Appellant.

Dana Dean, Benicia, for Respondent.

PARRILLI, Acting P.J.

This is an appeal from an order granting a motion by Jess and Rose Pelayo (Pelayos) to disqualify the attorney jointly representing their opponents, Joe Dino dba Trust Realty Services (Dino) and Arthur and Isabel Eslava (Eslavas). As we explain below, we conclude the Pelayos lacked a valid basis for prevailing on their motion to disqualify Dino's attorney. We therefore reverse.

FACTUAL AND PROCEDURAL BACKGROUND

On September 3, 2004, Dino sued the Pelayos to recover $89,500, the balance allegedly owed to him on a real estate commission. Dino hired attorney Edward Suman (Suman) to represent him in the matter.

The complaint alleged Dino earned the real estate commission while acting as agent for both parties in the sale of the Pelayos' assisted living facility, Family Manor, to the Eslavas for $3 million (the first sale). Under the terms of the first sale, the Pelayos agreed to pay Dino's commission based upon payments they received on the purchase price from the Eslavas.

Following the first sale, however, the Eslavas were unable to acquire the necessary license to operate the facility. Accordingly, with Dino's assistance, the Eslavas sold the facility to Joseph and Juliana Taburaza (Taburazas) (the second sale). According to Dino's complaint, under the terms of the second sale, the Taburazas assumed from the Eslavas the outstanding balance owed to the Pelayos on the $3 million purchase price. The Pelayos remained responsible for the outstanding balance on Dino's commission for the first sale.

On October 22, 2004, the Pelayos filed a cross-complaint against Dino and the Eslavas. The cross-complaint alleged, among other things, that the Eslavas had agreed to assume the Pelayos' obligation to pay Dino's commission for the first sale, and that Dino had improperly failed to disclose to the Pelayos relevant information about the Eslavas that would have affected their decision to enter into that sale. The cross-complaint sought, among other things, indemnification from the Eslavas for the outstanding balance on Dino's commission, should the Pelayos be found liable to pay it.

The Eslavas requested that Suman represent them in the matter after confirming with Dino that no conflict of interest existed between them and after obtaining his permission. Suman explained to both parties that a conflict of interest could arise were he to represent them jointly in the same litigation. He thus requested they sign a Waiver of Claim of Conflict of Interest (waiver) before he would agree to the representation. Dino and the Eslavas signed the waiver, and Suman agreed to jointly represent them.

On February 25, 2005, the Eslavas filed a cross-complaint against the Pelayos, later amended, for breach of contract, duress and usury. The Eslavas also filed an answer to the Pelayos' cross-complaint in which, among other things, they denied assuming the obligation to pay the outstanding balance on Dino's commission for the first sale.

The litigation went forward, and the parties, among other things, exchanged written discovery and conducted several depositions. The parties also agreed to participate in mediation, which occurred for over six hours on July 28, 2005.

Following the all-day mediation, on August 10, 2005, the Pelayos filed a motion to disqualify Suman on the grounds that a conflict of interest existed between Dino and the Eslavas, and that their joint representation violated the Pelayos' right to mediate confidentially with each party. The trial court issued a tentative ruling granting the motion, which became a final order after Dino failed to timely contest it. Dino and the Eslavas then moved to vacate the order on September 23, 2006. The trial court denied their motion, and this appeal followed.

DISCUSSION

Dino claims the disqualification order must be reversed because the Pelayos lacked standing to seek it. Dino further claims the order was improperly issued because no actual conflict of interest existed between him and the Eslavas, and because the Pelayos' motion was untimely and for an improper strategic purpose. He also challenges as incompetent the evidence upon which the order was based.

We agree the disqualification order must be reversed.

A. Standard of Review.

The trial court has authority to grant a motion to disqualify an attorney pursuant to Code of Civil Procedure section 128, subdivision (a)(5).¹ (DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 831, 115 Cal.Rptr.2d 847 (DCH Health Services).)

The appellate court will not disturb the trial court's decision to grant or deny a disqualification motion absent an abuse of discretion. (DCH Health Services, supra, 95 Cal.App.4th at p. 832, 115 Cal.Rptr.2d 847; SpeeDee, supra, 20 Cal.4th 1135, 1143, 86 Cal.Rptr.2d 816, 980 P.2d 371.) Nor will the appellate court substitute its factual findings for the trial court's express or implied findings so long as they are supported by substantial evidence. (SpeeDee, at p. 1143, 86 Cal. Rptr.2d 816, 980 P.2d 371.) "When substantial evidence 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 [1991] 232 Cal. App.3d [572,] 585.)" (SpeeDee, at p. 1144, 86 Cal.Rptr.2d 816, 980 P.2d 371.) "`The trial court's exercise of this discretion is limited by the applicable legal principles and is subject to reversal when there is no reasonable basis for the action. [Citations.]'" (DCH Health Services, supra, 95 Cal.App.4th at p. 832, 115 Cal.Rptr.2d 847.)

In reviewing this order, we acknowledge the issue of disqualification impacts significant, sometimes conflicting, policy concerns. These concerns include a party's right to choose its own counsel, a client's right to confidentiality and trust, and the public's interest in "the scrupulous administration of justice and the integrity of the bar." (SpeeDee, supra, 20 Cal.4th at p. 1145, 86 Cal.Rptr.2d 816, 980 P.2d 371.)

"On the one hand, a court must not hesitate to disqualify an attorney when it is satisfactorily established that he or she wrongfully acquired an unfair advantage that undermines the integrity of the judicial process and will have a continuing effect on the proceedings before the court. [Citations.] On the other hand, it must be kept in mind that disqualification usually imposes a substantial hardship on the disqualified attorney's innocent client, who must bear the monetary and other costs of finding a replacement.... [¶] Additionally, as courts are increasingly aware, motions to disqualify counsel often pose the very threat to the integrity of the judicial process that they purport to prevent. [Citation.] Such motions can be misused to harass opposing counsel [citation], to delay the litigation [citation], or to intimidate an adversary into accepting settlement on terms that would not otherwise be acceptable. [Citations.] In short, it is widely understood by judges that `attorneys now commonly use disqualification motions for purely strategic purposes.' [Citations.]." (Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300-301, 254 Cal.Rptr. 853.)

The importance of the policy concerns underlying a disqualification order mandates "careful review of the trial court's exercise of discretion." (SpeeDee, supra, 20 Cal.4th at p. 1144, 86 Cal. Rptr.2d 816, 980 P.2d 371.)

B. Analysis

Generally, before the disqualification of an attorney is proper, the complaining party must have or have had an attorney-client relationship with that attorney. Some courts have found the attorney-client relationship a prerequisite to disqualification "`it is confidences acquired in the course of an attorney-client relationship which are protected by preventing the recipient of those confidences from representing an adverse party.' (Cooke v. Superior Court [ (1978) 83 Cal.App.3d 582,] 591.)" (Maruman Integrated Circuits, Inc. v. Consortium Co. (1985) 166 Cal.App.3d 443, 448-449, 212 Cal.Rptr. 497; see also Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, 1404, 82 Cal.Rptr.2d 326 ["An attorney-client relationship must have existed before disqualification is proper"].)

Other courts, however, have slightly broadened the scope of that general rule. For example, DCH Health Services, supra, 95 Cal.App.4th 829, 832, 115 Cal.Rptr.2d 847, which the trial court relied upon here, holds: "Standing arises from a breach of the duty of confidentiality owed to the complaining party, regardless of whether a lawyer-client relationship existed." (Ibid.; see also County of Los Angeles v. Superior Court (1990) 222 Cal.App.3d 647, 658, 271 Cal.Rptr. 698 [granting a motion to disqualify an attorney where the attorney improperly received the complaining party's privileged information from an expert retained by the complaining party as a consultant].)

Leaving aside whether the issue is properly framed as one of standing, an issue largely semantic in this case, we agree with the holding of DCH Health Services that some sort of confidential or fiduciary relationship must have existed before a party is entitled to prevail on a motion to disqualify an attorney predicated on the actual or potential disclosure of confidential information.² (E.g., Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2003) ¶ 4:239.1, p. 4-76.4 [to warrant disqualification in the absence of an attorney-client relationship "courts generally require some sort of fiduciary or quasi-fiduciary relationship to exist between the attorney and the opposing party or between the attorney and the...