Nustar Farms, LLC v. Zylstra, 14–1860.

• Decision Date: 13 May 2016
• Docket Number: No. 14–1860.,14–1860.
• Citation: 880 N.W.2d 478
• Parties: NUSTAR FARMS, LLC, Appellee, v. Robert ZYLSTRA and Marcia Zylstra, Appellants.
• Court: Iowa Supreme Court

880 N.W.2d 478

NUSTAR FARMS, LLC, Appellee,

v.Robert ZYLSTRA and Marcia Zylstra, Appellants.

No. 14–1860.

Supreme Court of Iowa.

May 13, 2016.

Matthew G. Sease of Kemp & Sease, Des Moines, Randall G. Sease of Sease Law Firm, Hartley, and John L. Sandy of Sandy Law Firm, Spirit Lake, for appellants.

Larry A. Stoller of Stoller Law Office, Spirit Lake, for appellee.

Shaun Thompson, Forest City, for amicus curiae Wooge Pumping LC.

ZAGER

, Justice.

In this interlocutory appeal, we are asked to decide whether an attorney should be disqualified from representing one party in a lawsuit, either because his representation of the two parties was concurrent or because he had previously represented the opposing party in a similar matter. The district court concluded that the attorney need not be disqualified. For the reasons stated below, we conclude that the district court did not abuse its discretion in concluding that the prior attorney-client relationship failed the “substantial relationship” test. However, we conclude that the attorney did have a concurrent conflict of interest. Therefore, we find the district court abused its discretion in not disqualifying the attorney.

I. Background Facts and Proceedings.

Attorney Larry Stoller began representing Robert and Marcia Zylstra in 2002.¹ Stoller represented them in a number of legal matters between 2002 and 2014, including financial issues, business acquisitions, and real estate transactions.² Although the Zylstras were represented by Stoller on a number of occasions, they also used the services of other attorneys throughout this time period. At issue for the purposes of this case are a meeting in January 2007 and a small claims case ending in 2014.

On January 24, 2007, Robert met with Stoller to discuss estate planning and manure easement agreements. At the time of the meeting, the Zylstras were shareholders in Sibley Dairy, LLP. During this meeting, Robert showed Stoller a multipage document containing multiple manure easement agreements that the Zylstras intended to enter into with NuStar Farms, LLC (NuStar). The parties disagree as to the extent of Stoller's involvement during this meeting regarding the manure easement agreements. Stoller asserts that he only briefly glanced at the easement agreements and then advised Robert that he should seek the advice of another attorney. Although Stoller acknowledges he made notations on the first page of the document, he argues that the notations do not indicate he read the entirety of the multipage manure easement agreements. Robert asserts that he asked Stoller to review the manure easement agreements and provide advice. Robert further alleges that Stoller examined the agreements during the meeting and advised him to go ahead and complete and sign them.

The record reflects that Stoller made notations on the documents. However, Stoller claims the notations were made at Robert's request to help Robert remember what to discuss with one of the attorneys that Stoller suggested Robert contact. Both parties agree that Stoller suggested Robert find an attorney with more experience in the area of manure easements. Stoller sent a follow-up email to Robert with two attorney references who he thought could assist the Zylstras with the easements. The email also confirmed that Robert asked Stoller to look at the easements and that Stoller “briefly looked at them.” Further, Stoller wrote, “The changes you were talking about should be run by [the other attorney] and I suggest that if approved they be included in the easements. I would also think that some permit would be necessary.” The record also reflects that during this conference they discussed estate planning matters. This is confirmed in the follow-up email and Stoller's office notes of the conference. Stoller billed the Zylstras for 1.20 hours and described the meeting as, “Conference with Robert on manure easement; review easements and agreement.” There is nothing in the record to indicate that Stoller represented the Zylstras when they executed the manure easement agreements with NuStar or that he had any further involvement in the sale of Sibley Dairy.

Stoller continued to represent the Zylstras in a number of other legal matters between 2007 and 2014. In December 2013, Stoller began representing the Zylstras in a small claims matter. The case was submitted to the small claims court on February 10, 2014, but the court did not issue its ruling until May 30. Stoller began representing NuStar in early May in an action regarding loan covenants. Also in early May, Stoller began contacting the Zylstras on behalf of NuStar. At least part of these contacts involved the Zylstras' failure to provide NuStar with a deed to property involving ingress. Stoller acknowledges that he contacted Robert about the Zylstras' need to sign the deed. On May 13, Stoller sent the Zylstras an email that stated it was the third time he had contacted them about the deed to ingress property sold by the Zylstras to NuStar. Stoller wrote in the email,

I must now put you on formal notice that if the signed deed is not received by my office by the close of business on Wednesday, May 14, 2014, that I will need to pursue the appropriate remedies for specific performance and damages on behalf of Nustar.

Stoller also wrote in his email, “I have tried to remain neutral in those matters and advised both parties that I could represent neither.”

In this same email, Stoller informed the Zylstras that he would no longer be representing them in any future matters. Robert acknowledges that he understood the May 13 email as a severance of the attorney-client relationship. Stoller emailed the Zylstras again on May 14, expressing disappointment that the Zylstras were not going to sign the deed. Stoller also reminded Robert of his prior financial situation and how Stoller had helped him in the past.

By May 15, the Zylstras had retained John Sandy to represent them in their dealings with NuStar. In Sandy's correspondence to Stoller that same day, he alerted Stoller that the Zylstras found his representation of NuStar to be a conflict of interest based on his prior legal representation and counsel provided to the Zylstras. Sandy specifically requested that Stoller cease further representation of NuStar when those interests conflicted with the Zylstras.

On June 5, Stoller sent the Zylstras a letter notifying them of the judge's ruling in the small claims case and informing them that he believed the decision was appealable. Stoller further notified the Zylstras of their rights to appeal and the deadlines associated with such an appeal. Stoller wrote he would be willing to file an appeal on their behalf and included information about his retainer and billing rate. Stoller also advised the Zylstras that if they chose to have another attorney represent them on the appeal he would release their file to that attorney.

On July 9, Stoller filed a multicount petition on behalf of NuStar against the Zylstras. The petition alleged the Zylstras agreed to sell NuStar a parcel in farmland in 2008, but they failed to tender the requisite deed. One count of the petition also alleged the Zylstras did not abide by certain terms contained in the manure easement agreements. In response, the Zylstras filed a preanswer motion to dismiss based on statute of limitations grounds. They also filed a motion seeking to disqualify Stoller as the attorney for NuStar based on a conflict of interest.³

On August 8, the district court held a hearing, and the parties argued both the motion to dismiss and the motion to disqualify Stoller.⁴ On October 14, the district court denied both motions.⁵ On November 10, the Zylstras filed an application for interlocutory appeal seeking review of the district court's denial of their motion to disqualify Stoller. We granted the application for interlocutory appeal on December 5.

II. Standard of Review.

We evaluate the district court's decision regarding attorney disqualification for an abuse of discretion. Bottoms v. Stapleton, 706 N.W.2d 411, 414 (Iowa 2005)

. A district court “abuses its discretion when its ruling is based on clearly untenable grounds.” Id. at 415. A ground is clearly untenable when the court relies on an improper legal standard or applies the law in error. Id. A district court's “factual findings in disqualifications will not be disturbed on appeal if they are supported by substantial evidence.” Id. (quoting Killian v. Iowa Dist. Ct., 452 N.W.2d 426, 428–29 (Iowa 1990) ). The party moving for an attorney's disqualification bears the burden of proving the facts necessary to establish the disqualification is proper. Id. at 418.

III. Analysis.

The right of a party to choose his or her own attorney is important, but it must be balanced against the need to maintain “the highest ethical standards” that will preserve the public's trust in the bar and in the integrity of the court system.

Id. at 415 (quoting Killian, 452 N.W.2d at 430

). A court must necessarily balance these two competing interests when determining whether to disqualify an attorney. See id. In doing so, the court “must also be vigilant to thwart any misuse of a motion to disqualify for strategic reasons.” Id. When we evaluate motions to disqualify an attorney, we use our Iowa Rules of Professional Conduct as the starting point. Id.

A. Rule 32:1.7

—Conflict of Interest. Rule 32:1.7 covers concurrent conflicts of interest and states in pertinent part,

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person by a personal interest of the lawyer.

Iowa R. Prof'l Conduct...