In re Outlaw Lab., LP Litig.

• Decision Date: 25 June 2020
• Docket Number: Case No.: 18-CV-0840-GPC-BGS
• Court: U.S. District Court — Southern District of California
• Parties: IN RE OUTLAW LABORATORY, LP LITIGATION.

IN RE OUTLAW LABORATORY, LP LITIGATION.

Case No.: 18-CV-0840-GPC-BGS

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

June 25, 2020

ORDER DENYING MOTION FOR DISQUALIFICATION OF COUNSEL.

(ECF No. 191.)

Before the Court is Tauler Smith, LLP's ("Tauler Smith") motion to disqualify counsel for the Defendants, Gaw | Poe, in connection with counsel's representation of Tauler Smith's former bookkeeper in a separate litigation. Having considered the Parties' papers and the applicable law, the Court DENIES Tauler Smith's motion for the reasons below.

I. Background

A. The Instant Litigation

The instant litigation arises from two consolidated lawsuits brought by Plaintiff Outlaw Laboratory, LP alleging that convenience and liquor stores (the "Stores") around the San Diego area were falsely advertising sexual enhancement products. (ECF Nos. 1, 28.) During these lawsuits, the Stores filed counterclaims against Outlaw and obtained leave to add Outlaw's attorneys, the firm of Tauler Smith, LLP, as a third-party defendant to the suit. (ECF Nos. 113, 114.) Now, Tauler Smith seeks to have the Stores' counsel, Gaw | Poe, disqualified for representing a former employee of Tauler Smith in a separate action. (ECF No. 191.)

On April 24, 2020, Tauler Smith filed the motion to disqualify. (Id.) On May 20, 2020, Gaw | Poe filed a response. (ECF No. 203). On May 29, 2020, Tauler Smith filed a reply. (ECF No. 212.) Tauler Smith then filed a supplemental brief on June 5, 2020, and Gaw | Poe responded on June 9, 2020. (ECF Nos. 220, 223.) Tauler Smith and Plaintiff Outlaw filed additional supplemental briefs on June 15 and 16, 2020, respectively. (ECF Nos. 227, 228.)¹

B. Factual Allegations Relevant to the Motion to Disqualify.

Tauler Smith's motion to disqualify relies on the following factual allegations. A company named CTRLR, which employs Mr. Joseph Valerio as an independent contractor, acted as Tauler Smith's bookkeeper from 2016 through January 2019. (ECF No. 191-1 at 3.) CTRLR's role included bookkeeping, preparing taxes, and handling all financials for the law firm. (ECF No. 191-2, Decl. of Robert Tauler at ¶ 3.)

In February 2019, CTRLR and Mr. Valerio resigned from Tauler Smith. (ECF No. 203-1, Decl. of Joseph Valerio at ¶ 2.) Upon resigning, Mr. Valerio submitted invoices to Tauler Smith seeking outstanding payment for services rendered, (Valerio Decl. at ¶ 2; ECF No. 212-1, Ex. B), which Tauler Smith disputed. In June 2019, CTRLR filed a small claims court action to collect the outstanding invoices, which CTRLR then amended in December 2019. (Valerio Decl. at ¶ 3.)

On December 16, 2019, Tauler Smith responded in small claims court and filed a limited jurisdiction action² against CTRLR (hereinafter, the "CTRLR Action.")³ (Valerio Decl. at ¶ 3.) Tauler Smith alleged, among other claims, that CTRLR stole and refused to return confidential information. (Tauler Decl. at ¶ 3.) Thereafter, Mr. Valerio hired Gaw | Poe to represent CTRLR in the CTRLR Action. (Tauler Decl. at ¶ 5.) Tauler Smith alleges that "CTRLR purposely sought out the adverse party's counsel Gaw | Poe to represent it in its lawsuit . . . because it was aware of the instant action that Gaw | Poe is prosecuting against [Tauler Smith]." (Tauler Decl. at ¶ 4.) Mr. Valerio's first contact with the firm of Gaw | Poe reportedly occurred on or about December 19, 2019. (Valerio Decl. at ¶ 4.)

Tauler Smith further alleges that Gaw | Poe only agreed to represent CTRLR to gain leverage in this action. (Tauler Decl. at ¶ 5.) Tauler Smith offers three factual allegations in support of that assertion. First, Tauler Smith claims "Gaw | Poe has used information in discovery requests issued on April 17, 2020 that identifies one of TSLLP's financiers, Pulaski law firm, which Gaw | Poe would not know about absent disclosure from CTRLR." (Tauler Decl. at ¶ 7.) Second, Tauler Smith states that Mr. Mark Poe "has sworn under oath that his hourly rate is '$1,000 per hour' and the [CTRLR Action] was filed as a limited jurisdiction case - seeking less than $25,000 in damages." (Tauler Decl. at ¶ 5.) Third, Tauler Smith points to supplemental initial disclosures identifying Mr. Valerio "as likely to be in possession of discoverable information" regarding his "experience working within the Outlaw Enterprise, the operation of the Outlaw Enterprise, and how the various members of the Outlaw Enterprise participated inconducting its operations." (ECF No. 220-2 at 5-6.) Tauler Smith and Outlaw also point to Mr. Poe's recent declaration stating that Mr. Valerio had access to "software in which Tauler Smith, among other Outlaw-related activities, logged its contacts with the recipients of the Demand Letters." (ECF No. 227-2, Ex. A at ¶ 6; see also ECF No. 228.)

Gaw | Poe responds that Attorney Mark Poe has not sworn under oath to charging $1,000/hour. Instead, "Gaw | Poe is charging its clients in this case $0 per hour, while charging Mr. Valerio a different amount . . . out of the sense that without help, the client is likely to get railroaded by lawyers intent on preying upon them." (ECF No. 203 at 12.) Gaw | Poe also offers that it "identifie[d] one of the recipients of a debit from Tauler Smith as 'Pulaski Law Firm, PLLC'" following Outlaw Laboratory's April 10, 2020 production of sixteen pages of documents, including a document titled "Tauler Smith, LLP - Trust Report." (ECF No. 203-1, Poe Decl. at ¶ 2.) Lastly, Gaw | Poe states the disclosure does not evince any misconduct but rather compliance with Rule 26's requirement that it list "each individual likely to have discoverable information—along with the subjects of that information—that the disclosing party may use to support its claims or defenses." (ECF No. 223 at 3 (quoting Fed. R. Civ. P. 26(a), (e)(1)).

II. Legal Standard for Disqualification

District courts have the inherent authority to disqualify counsel. See United States v. Wunsch, 84 F.3d 1110, 1114 (9th Cir. 1996); Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1103 (N.D. Cal. 2003). In determining whether to disqualify counsel, the Court applies California law. In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000); see also Bona Fide Conglomerate, Inc. v. Sourceamerica, No. 3:14-CV-00751-GPC, 2016 WL 4361808, at *5 (S.D. Cal. Aug. 16, 2016) (citing Civil Local Rule 83.4(b)) ("Every member of the bar of this court and any attorney permitted to practice in this court shall be familiar with and comply with the standards of professional conduct required of members of the State Bar of California, and decisions of any court applicable thereto, which are hereby adopted as standards of professional conduct of this court.").

"A court should examine a motion to disqualify counsel carefully 'to ensure that literalism does not deny the parties substantial justice.'" Gotham City Online, LLC v. Art.com, Inc., No. C 14-00991-JSW, 2014 WL 1025120, at *2 (N.D. Cal. Mar. 13, 2014) (citing People ex rel Dept. of Corp. v. Speedee Oil Change Systems, Inc., 20 Cal. 4th 1135, 1144 (1999)). Thus, a court must balance such varied interests as a party's right to chosen counsel, the interest in representing a client, the burden placed on a client to find new counsel, and the possibility that "tactical abuse underlies the disqualification motion." Id. (citing Speedee Oil, 20 Cal. 4th at 1145). "The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of one's choice must yield to ethical considerations that affect the fundamental principles of our judicial process." O'Gara Coach Co., LLC v. Ra, 30 Cal. App. 5th 1115, 1124 (Ct. App. 2019) (citing Speedee Oil, 20 Cal. 4th at 1145).

Nonetheless, "disqualification is a drastic course of action that should not be taken simply out of hypersensitivity to ethical nuances or the appearance of impropriety." Roush v. Seagate Tech., LLC, 150 Cal. App. 4th 210, 219 (2007); see also In re Marvel, 251 B.R. 869, 871 (N.D. Cal. 2000) (citing Schiessle v. Stephens, 717 F.2d 417 (7th Cir. 1983)) ("courts should hesitate to impose [disqualification] except in circumstances of absolute necessity."). The moving party, therefore, carries a heavy burden and must satisfy a high standard of proof. Gotham City Online, LLC, 2014 WL 1025120 at *3 ("Motions for disqualification are often tactically motivated and they tend to derail the efficient progress of litigation.") (citing Evans v. Artek Systems Corp., 715 F.2d 788, 791 (2d Cir. 1983)).

Moreover, "[t]o be justified, a motion to disqualify must be based on present concerns and not concerns which are merely anticipatory and speculative." In re Marvel, 251 B.R. at 871 (citing In re Coordinated Pretrial Proceedings, 658 F.2d 1355, 1361 (9th Cir. 1981)); DCH Health Servs. Corp. v. Waite, 95 Cal. App. 4th 829, 833 (2002) (speculative contentions are insufficient to justify disqualification of counsel). "Because of the potential for abuse, disqualification motions should be subjected to particularly strictjudicial scrutiny." Gotham City Online, LLC, 2014 WL 1025120 at *3 (citing Optyl Eyewear Fashion International Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1049 (9th Cir. 1985)).

III. Analysis⁴

In short, Tauler Smith asks the Court to disqualify Gaw | Poe because, "by voluntarily taking on the representation of [Tauler Smith's] former bookkeeper, Gaw Poe knowingly and necessarily came into possession of confidential and privileged information belonging to [Tauler Smith] that it has already used in this case." (ECF No. 191-1 at 2.) Tauler Smith argues Gaw | Poe's conduct has undermined the integrity of this proceeding such that they must be disqualified. (Id. at 8-9.)

The Court finds Tauler Smith has failed to demonstrate that Gaw | Poe has come into possession of privileged information belonging to Tauler Smith or shown that Gaw | Poe's conduct has undermined the integrity of this proceeding....