Opinion
G051715
01-10-2017
T-12 THREE, LLC, et al., Plaintiffs and Respondents, v. TURNER CONSTRUCTION COMPANY, et al., Defendants and Respondents, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Intervener and Appellant.
Horvitz & Levy, Peder K. Batalden, Eric S. Boorstin; Lindabury, McCormick, Estabrook & Cooper, Jay Lavroff; Law Offices of Colin Adkins and Colin Adkins, for Intervener and Appellant. Cox, Castle & Nicholson, Edward F. Quigley and Patrick M. McGovern, for Plaintiffs and Respondents. Koeller, Nebeker, Carlson & Haluck, Robert C. Carlson, Martha J. Dorsey, and Scott A. Davis, for Defendant and Respondent, Turner Construction Company. No appearance for Defendant and Respondent 5th Rock.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2011-00514568) OPINION Appeal from an order of the Superior Court of Orange County, Robert J. Moss, Judge. Affirmed. Horvitz & Levy, Peder K. Batalden, Eric S. Boorstin; Lindabury, McCormick, Estabrook & Cooper, Jay Lavroff; Law Offices of Colin Adkins and Colin Adkins, for Intervener and Appellant. Cox, Castle & Nicholson, Edward F. Quigley and Patrick M. McGovern, for Plaintiffs and Respondents. Koeller, Nebeker, Carlson & Haluck, Robert C. Carlson, Martha J. Dorsey, and Scott A. Davis, for Defendant and Respondent, Turner Construction Company. No appearance for Defendant and Respondent 5th Rock.
* * *
Plaintiff T-12 Three, LLC (T-12) sued defendants Turner Construction Company (Turner) and 5th Rock, LLC (5th Rock), asserting several causes of action arising out of alleged construction defects in the building of the Hard Rock Hotel San Diego (the project). Intervener, National Union Fire Insurance Company of Pittsburgh, PA (National Union), sought to disqualify Cox, Castle & Nicholson, LLP (Cox Castle) from representing plaintiff, T-12 in this litigation on grounds Cox Castle also represents defendant, 5th Rock in other pending litigation. 5th Rock is an additional insured under a policy National Union issued to Turner.
The lower court denied National Union's motion to disqualify on grounds National Union lacked standing to seek Cox Castle's disqualification, because it has never had an attorney-client relationship with Cox Castle or a legally cognizable interest in the case, and a violation of the duty of loyalty Cox Castle owes to 5th Rock would not have an adverse effect on National Union. The court based its ruling on Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347 (Great Lakes), which held a non-client must meet stringent standing requirements, that is, harm arising from a legally cognizable interest which is concrete and particularized, not hypothetical, in order to seek the disqualification of counsel. (Id. at p. 1357.) We affirm.
FACTS
T-12 initiated this construction defect action in 2011 when its counsel, Cox Castle, filed a complaint for breach of contract, negligence, indemnity, and breach of express and implied warranties against Turner and 5th Rock. 5th Rock was the developer of the project, a condominium-hotel and mixed-use commercial development with approximately 420 guest rooms, banquet/meeting space, restaurants, bars, retail space, and the like. Turner was the contractor who designed and built the project. While construction was still ongoing, T-12 purchased the project from 5th Rock pursuant to a purchase and sale agreement.
At the time Cox Castle filed the complaint on behalf of plaintiff, T-12, it concurrently represented defendant, 5th Rock in other pending litigation concerning the project, including the following cases filed in the United States District Court for the Southern District of California: Salameh v. Tarsadia Hotels, Case No. 09cv2739 GPC(BLM) (Salameh Federal); Royalty Alliance, Inc. v. Tarsadia Hotels, Case No. 10cv1231 DMS(WBG) (Royal Alliance); and Beaver v. Tarsadia Hotels, Case No. 11cv1842 GPC(KSC) (Beaver). At the time, Cox Castle also represented defendant, 5th Rock, in the following cases concerning the project filed in the San Diego County Superior Court: Bell v. Tarsadia Hotels, Case No. 37-2010-00096618 (Bell); Patino v. 5th Rock, Case No. 37-2010-00105652 (Patino); and Salameh v. Tarsadia Hotels, Case No. 37-2010-00094424 (Salameh State).
The extent to which the Salameh Federal, Royalty Alliance, Beaver, Bell, Patino, and Salameh State cases are related to the project, if at all, is an issue contested by the parties but not fully developed in the record. The issue is not determinative of the outcome of the appeal.
Because of the obvious conflict of interest in Cox Castle representing one client who is suing another client, the day before filing the complaint in this action, Cox Castle sent a conflict waiver letter to 5th Rock, which was later signed by Mike Patel as manager of MKP One, LLC, the manager of 5th Rock.
Two years after filing the complaint, T-12 filed a first amended complaint alleging the same causes of action as those alleged in the complaint but adding several plaintiffs, including HRB Management, LLC, the operator of banquet facilities, food and beverage, and the two hotel bars; HRG Holdings, LLC, the ground lessor; Evolution Hospitality, LLC, the hotel manager; and MaryJane's Coffee Shop, LLC, the operator of a coffee shop.
Although not entirely clear from the record, the various limited liability companies appear to share common ownership at some level. At a minimum, it appears 5th Rock and T-12 are both owned by B.U. Patel and his two sons, Tushar Patel and Mayur ("Mike") Patel or in trusts held by them or entities controlled by them. The Patels also own Tarsadia Hotels.
Turner provided a "wrap" insurance program for the project. Liberty Mutual Insurance Company (Liberty Mutual) is the primary insurance company under the wrap program. National Union issued an excess commercial general liability insurance policy. The National Union policy has an "each occurrence" and aggregate limit of $25 million. 5th Rock tendered this action for defense and indemnity to both insurers on the wrap program. Liberty Mutual agreed to defend 5th Rock by paying for its counsel Michael D. Germain. Liberty Mutual is also defending Turner, through Peckar & Abramson, P.C. National Union issued letters reserving its rights, including the right to deny coverage, to Turner and to 5th Rock. As to 5th Rock, National Union exercised the right under its policy to engage a second law firm, Nixon Peabody, LLP, to participate as co-counsel for 5th Rock along with Germain.
In December 2013, about a month after the first amended complaint was filed, National Union filed a motion for leave to intervene "for the limited purpose of seeking disqualification of Cox Castle . . . ." National Union complained Cox Castle has represented 5th Rock in Salameh Federal, Royal Alliance and Beaver. The motion pointed out plaintiffs are claiming damages in excess of $80 million in this action, and 5th Rock's position is that National Union is responsible for the losses. In addition to arguing it should be given leave to intervene, National Union argued Cox Castle should be disqualified due to a conflict of interest, because Cox Castle's representation of plaintiffs in this case is adverse to the interests of 5th Rock, a current client of Cox Castle in Beaver.
It appears National Union may not have known of Cox Castle's representation of 5th Rock in Patino, Bell, and Salameh State at that time.
In opposition to the motion to intervene, plaintiffs argued National Union had no right to intervene, because its coverage obligations were being litigated in other courts and it had no legal interest in the property at issue in this case, 5th Rock waived the conflict of interest, National Union lacked standing to seek disqualification because it had never been a client of Cox Castle, and National Union had waived the right to seek disqualification due to a three-year delay in filing the motion. Plaintiffs also argued disqualification of Cox Castle would impose a substantial hardship on T-12. Plaintiffs filed a request for judicial notice of several pleadings in National Union v. Turner, Superior Court of the State of Delaware, Case No. N13C-07-208 MMJ (Turner), in which Turner sought coverage under the National Union policy. Plaintiffs submitted the declaration of their counsel, Edward F. Quigley, who admitted Salameh Federal, Royalty Alliance, and Beaver were all pending when Cox Castle filed the instant action representing plaintiff T-12. Cox Castle conceded an actual conflict but argued it had obtained a conflict waiver from 5th Rock. As to the standing argument, plaintiffs argued National Union had failed to demonstrate what legitimate interest it had in Cox Castle's representation of T-12. Plaintiffs argued Cox Castle had no attorney-client relationship with National Union and Cox Castle's duty of loyalty is to 5th Rock, not to National Union.
The court granted the motion for leave to intervene for the limited purpose of moving to disqualify plaintiffs' counsel. Perhaps because the parties had already briefed the disqualification issue to some extent, the court stated, "This is not the motion to disqualify. This is only the motion to intervene." The court continued, "Every insurer has an interest in the outcome of litigation involving its insured. If insurers chose to intervene in every case, they probably could. The reason insurers do not routinely intervene is because 1) they typically control the defense of the underlying litigation anyway; 2) they seek to avoid jury antipathy for insurance companies by keeping the fact of their existence away from the jury; and 3) it is not worth the cost of intervening. There is no law against insurers intervening." The court noted the situation is somewhat unique. "Apparently, counsel representing National Union's insured is not able or willing to challenge the propriety of plaintiff[s'] counsel representing both the plaintiff [T-12] in this case and National Union's insured in other litigation arising out of the same project. [¶] It remains to be seen if the purported written waiver is adequate to overcome what appears to be a prima faci[e] conflict of interest[]."
At this point, Cox Castle had not yet produced the written conflict waiver.
National Union filed its complaint in intervention. After filing an answer to the complaint in intervention, plaintiffs filed a motion for summary judgment. Plaintiffs conceded Cox Castle has "represented (and in some cases continues to represent) 5th Rock in the Salameh [Federal], Royalty Alliance, Beaver, Bell and Patino actions." Plaintiffs argued National Union had been aware of the conflict for almost three years, the wrap carrier had knowledge of the conflict years ago, and National Union has waived the right to seek disqualification.
Shortly after plaintiffs filed their motion for summary judgment, National Union filed a motion to disqualify Cox Castle from representing T-12 in this litigation. National Union argued at the time Cox Castle filed its complaint on behalf of the plaintiffs in this action, it was representing 5th Rock in Salameh (Federal), Royalty Alliance, Beaver, Bell, and Patino. National Union argued Cox Castle's conflict of interest, as conceded by plaintiffs' lead counsel Edward Quigley, mandated disqualification under Code of Civil Procedure section 128, subdivision (a)(5) as a per se disqualifying conflict jeopardizing Cox Castle's duty of loyalty and the integrity of the proceedings and the legal system as a whole.
All statutory references are to the Code of Civil Procedure.
Section 128, subdivision (a)(5) provides every court shall have the power "to control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto."
The court denied National Union's motion to disqualify. The court rejected National Union's contention the court already ruled on the issue of standing when ruling on the motion to intervene, stating it had "done no such thing; it has only ruled as to the procedural issue of whether National Union could intervene. It did not rule on the merits of either the complaint in intervention or any motion to disqualify." The court found National Union had no standing to seek disqualification because it lacked an attorney client relationship with Cox Castle and did not establish a confidential, fiduciary or personal stake, i.e., a legally cognizable interest, in the relationship such that violation of the duty of loyalty would have an adverse effect on it. The court found National Union's interest (its obligation to indemnify) is only speculative and tactical. The court found Great Lakes "could not be any more on point and its ruling is ignored by National Union." The court recognized National Union's reliance on Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197 (Kennedy), but stated the case is distinguishable and not controlling, because it involved multiple family entanglements and the interest of a child, the advocate witness rule, and a motion to disqualify brought by a nonparty who had significant interests in the litigation. As a result of its ruling on the motion to disqualify, the court found plaintiffs' motion for summary judgment moot.
Here, the court misspoke. In Kennedy, the motion to disqualify was brought by a mother of a child in a custody dispute. (Kennedy, supra, 201 Cal.App.4th at p. 1201.) The parties to the action were the mother and the father of the child. (Ibid.) We assume the lower court meant to say in Kennedy, the motion was brought by a nonclient of the attorney sought to be disqualified.
National Union appealed the court's denial of its motion to disqualify. An order granting or denying a disqualification motion is appealable. (Meehan v. Hopps (1955) 45 Cal.2d 213, 216-217.)
National Union first filed a petition for writ of mandate in Case No. G051766 requesting an immediate stay of proceedings and issuance of a peremptory writ of mandate. We denied the petition. Shortly after filing its notice of appeal, National Union filed a petition for writ of supersedeas in this case seeking a stay of the action. Without acting on the writ of supersedeas, we ordered the action stayed. National Union also filed a motion for judicial notice of docket reports and complaints in Beaver, Salameh Federal, Patino, Bell, and Royalty Alliance. Reviewing courts generally do not take judicial notice of evidence not presented to the trial court. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3; see also Cal. Rules of Court, rule 8.252(a).) The motion is denied.
DISCUSSION
A trial court has discretion when ruling on a motion to disqualify counsel, but such discretion must be exercised according to the relevant law. When the trial court resolves factual disputes in ruling on the motion, such findings are reviewed for substantial evidence; where the facts are undisputed, whether to order disqualification is a legal question. (People ex rel Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 (SpeeDee Oil).) A disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion. (Id. at p. 1144.) Here, the facts are undisputed. Standing to assert disqualification is a question of law. (Great Lakes, supra, 186 Cal.App.4th at p. 1355.)
Disqualification
The trial court's authority to disqualify an attorney derives from the power inherent in every court to control in furtherance of justice the conduct of its ministerial officers. (§ 128, subd. (a)(5); SpeeDee Oil, supra, 20 Cal.4th at p. 1145.) A court may disqualify an attorney upon "'a showing that disqualification is required under professional standards governing avoidance of conflicts of interest or potential adverse use of confidential information.'" (Oaks Management Corporation v. Superior Court (2006) 145 Cal.App.4th 453, 462 (Oaks Management).)
"An attorney bears two distinct ethical duties to a client: (1) a duty of loyalty, whereby an attorney devotes his or her '"entire energies to his client's interests"' [citation], and (2) a duty of confidentiality, 'which fosters full and open communication between client and counsel' [citation]." (Havasu Lakeshore Investments, LLC v. Fleming (2013) 217 Cal.App.4th 770, 777.) "Because a conflict involving an attorney's duty of loyalty is '[t]he most egregious' kind of conflict, the disqualification standards we have developed for simultaneous representation cases are 'more stringent' than those that apply in successive representation cases; '[w]ith few exceptions, disqualification [in a case of simultaneous representation] follows automatically, regardless of whether the simultaneous representations have anything in common or present any risk that confidences obtained in one matter would be used in the other.'" (In re Charlisse C. (2008) 45 Cal.4th 145, 160.)
It is undisputed Cox Castle had an actual conflict of interest when it filed the complaint in this case because Cox Castle concurrently represented T-12 in this case and 5th Rock in Salameh Federal, Salameh State, Royal Alliance, Beaver, Bell, and Patino. (See Flatt, supra, 9 Cal.4th at p. 285; see also Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2016) ¶ 4:35 [absent clients' informed written consent, attorneys may not simultaneously represent clients whose interests conflict even where one matter is totally unrelated to the other].) In the lower court, National Union based its motion to disqualify on the duty of loyalty, which is implicated when an attorney concurrently represents clients with opposing interests. (See Flatt at p. 284 [concurrent representation jeopardizes the duty of loyalty requiring an almost per se disqualification, whereas successive representation jeopardizes client confidentiality]; Oaks Management, supra, 145 Cal.App.4th at p. 463 [attorney's duty of undivided loyalty prevents simultaneous representation, even on wholly unrelated matters, without informed written consent of both clients].) On appeal, National Union blurs its duty of loyalty argument by weaving in a duty of confidentiality argument. To the extent National Union now argues Cox Castle should be disqualified on confidentiality — or successive representation — grounds, this argument was not presented to the lower court, and by failing to raise it below, National Union has forfeited the issue on appeal. (See Keener v. Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 264 [right of any sort may be forfeited in civil cases by failure to make timely assertion of the right before a tribunal having jurisdiction to determine it].)
T-12 opposed the motion, in part, on grounds National Union did not assert any breach of Cox Castle's duty of confidentiality. National Union never addressed the argument in its reply, but even if it had, the court would not have been required to consider it. New grounds, raised for the first time in the reply to the opposition, could not have served as the basis for granting the motion. (Cal. Rules of Court, rule 3.1110(a) [a notice of motion must state in the opening paragraph the grounds for issuance of the order sought].)
In either case, however, the moving party must have standing, and that is where our analysis will begin. (Great Lakes, supra, 186 Cal.App.4th at p. 1356 [a standing requirement is implicit in disqualification motions].) We are presented with the following issue: whether a nonclient insurance company that intervenes in a lawsuit in which its insured is a defendant, has standing to move to disqualify plaintiff's counsel when plaintiff's counsel concurrently represents intervener's insured, a defendant in numerous other pending cases. We conclude the answer is no and National Union lacks standing to seek Cox Castle's disqualification in this case.
5th Rock unquestionably has standing to move to disqualify Cox Castle, but instead of doing so, Patel signed a conflict waiver on its behalf. On this record, we will not interfere with T-12's and 5th Rock's desire to share Cox Castle even in the face of the "most egregious" conflict that requires a more stringent disqualification standard. (See SpeeDee Oil, supra, 20 Cal.4th at p. 1147.)
Standing to Intervene Differs From Standing to Move to Disqualify Counsel
The lower court considered standing to assert disqualification the gateway issue on the motion to disqualify Cox Castle. Having decided National Union lacks standing, the lower court denied the motion without addressing the merits of the conflict issue.
We first address National Union's assertion the lower court decided the standing issue in its favor when it granted National Union's motion for leave to intervene. The source of a party's right to intervene in an action is statutory. It is found in section 387, which states, in relevant part, "any person, who has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both, may intervene in the action or proceeding . . . . A party served with a complaint in intervention may within 30 days after service move, demur, or otherwise plead to the complaint in the same manner as to an original complaint." (Id., subd. (a).) A petition to seek leave to file a complaint in intervention is required; without permission from the court, a party lacks any standing in the action. (Lohnes v. Astron Computer Products (2001) 94 Cal.App.4th 1150, 1153.) Standing to intervene, however, differs from and is broader than standing to disqualify an attorney in the litigation. For example, section 387, subdivision (a) permits the filing of a demurrer as a responsive pleading to a complaint in intervention. If the basis for intervention could never be challenged after the court grants a motion for leave to intervene, the Legislature would not have provided a method for attacking the pleading once it has been filed.
A party may have standing to intervene in an action affecting its interests but lack standing to disqualify an attorney in that same action. Here, in an order not challenged on appeal, the lower court permitted National Union to intervene based on its involvement as an insurer, stating, "there is no law against insurers intervening." However, the court also stated the intervention motion was not the motion to disqualify, and the court clearly signaled its intent to review the motion to disqualify as a separate future matter. We find no fault in the court's approach.
To illustrate a slightly different distinction, one court pointed out how the issue of standing to disqualify counsel might be framed. In Dino v. Pelayo (2006) 145 Cal.App.4th 347 (Dino), the court observed the parties and lower court had framed their analysis in terms of whether nonclients had standing to move to disqualify an attorney, but the court preferred to frame the analysis in terms of whether the nonclients were entitled to prevail on a motion seeking the attorney's disqualification. (Id. at p. 353, fn. 2.) "Generally, standing refers to an aggrieved party's right to bring an action in the first instance, rather than an existing party's right to bring a motion seeking some sort of relief from the trial court." (Ibid.) As it relates to the distinction between standing to intervene and standing to move to disqualify counsel, we conclude standing to intervene refers to National Union's right to intervene in the first instance only. We reject National Union's argument the "standing" issue was finally determined when the court granted its motion for leave to intervene.
National Union Has Not Shown It Has Standing to Disqualify Cox Castle
"'Standing [to disqualify counsel] generally requires that the [complaining party] be able to allege injury, that is, an invasion of a legally protected interest. [Citation.] A "standing" requirement is implicit in disqualification motions. Generally, before the disqualification of an attorney is proper, the complaining party must have or must have had an attorney-client relationship with that attorney.'" (Coldren v. Hart, King & Coldren, Inc. (2015) 239 Cal.App.4th 237, 245.) "'"The burden is on the party seeking disqualification to establish an attorney-client relationship."'" (Ibid.)
Here, it is undisputed there has never been an attorney-client relationship between the moving party and targeted counsel. Nevertheless, National Union relies on Great Lakes, supra, 186 Cal.App.4th 1347 and Kennedy, supra, 201 Cal.App.4th 1197 to assert it has standing to disqualify Cox Castle.
In Great Lakes, contractor Hampton Builders sued homeowners, the Burmans, for libel, breach of contract, and common counts. (Great Lakes, supra, 186 Cal.App.4th at p. 1351.) The homeowners, together with Ted Kipers, a subcontractor, cross-complained against the Hampton Builders. The homeowners alleged Hampton Builders failed to perform the terms of the contract and failed to pay Kipers, who placed a lien on the project and stopped work. (Id. at pp. 1351-1352.) Kipers alleged against Hampton Builders claims for breach of oral contract and common counts, thereby aligning Kipers and the homeowners against the Hampton Builders. (Id. at p. 1352.) Hampton Builders then filed a cross-complaint against the Kipers alleging breach of contract, indemnity, and declaratory relief. (Ibid.) Hampton Builders's express contractual indemnity cause of action against the Kipers was based upon an indemnification provision in the subcontract. (Ibid.)
The same counsel represented Kipers and the homeowners. (Great Lakes, supra, 186 Cal.App.4th at pp. 1350-1351.) Hampton Builders moved to disqualify opposing counsel from jointly representing its adversaries. (Ibid.) The trial court granted the motion, but the appellate court reversed. (Id. at p. 1359.) The appellate court explained a moving party must have standing, that is, an invasion of a legally cognizable interest, to disqualify an attorney. (Id. at p. 1357.) If a nonclient is going to move to disqualify, the nonclient must "show an 'invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical."'" (Id. at p. 1358.) The court found Hampton Builders had no legally cognizable interest in the duty of loyalty owed to Kipers and the homeowners by their counsel. (Ibid.) "Only they will be harmed by any breach of the duty of loyalty. If either party is getting bad advice in connection with their joint representation, then the issue is between [counsel] and his clients." (Id. at p. 1359.) The court concluded while Hampton Builders had an interest in the outcome of the litigation, its argument the joint representation would leave it unable to pay the judgment and make it liable to the homeowners was not sufficiently concrete and highly speculative, and such a highly speculative and tactical interest does not meet the standing requirements. (Ibid.)
National Union argues Great Lakes is factually distinguishable, because there the contractor who lacked standing was the indemnitee, whereas here National Union is the indemnitor. More accurately, here National Union is currently the insurer, not the indemnitor. Regardless, it is a distinction without a difference, because the conclusion in Great Lakes did not turn solely upon the moving party's status as an indemnitee. Whether an indemnitee, indemnitor, or insurer, counsel still owes no duty of loyalty to a nonclient. (Cf. In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 588 [attorneys owe no duty of care to adversaries in litigation].) National Union argues its potential financial interest in the case is sufficient to confer standing. There is no legal support for this proposition, and we decline to so rule. As in Great Lakes, here nonclient National Union has no legally cognizable interest in the duty of loyalty Cox Castle owes to T-12 and 5th Rock. Its status as a nonclient prevents the duty of loyalty from attaching, and its financial interest alone is too speculative to confer standing.
The indemnity cause of action in the first amended complaint is based upon indemnification clauses in the construction contract and purchase and sale agreement. National Union is a party to neither.
National Union also relies on Kennedy, supra, 201 Cal.App.4th 1197. In Kennedy, the paternal grandfather, an attorney, sought to represent his son, the father in a custody dispute with the child's mother. (Id. at p. 1200.) The trial court granted mother's motion to disqualify the paternal grandfather, even though neither he nor his wife (also an attorney) had ever represented mother. (Id. at pp. 1201-1202.) In affirming the disqualification on appeal, the court concluded "where an attorney's continued representation threatens an opposing litigant with cognizable injury or would undermine the integrity of the judicial process, the trial court may grant a motion for disqualification, regardless of whether a motion is brought by a present or former client of recused counsel." (Id. at p. 1205, italics added.) The appellate court noted the trial court was very concerned the grandfather may have acquired confidential facts about mother and her family's situation that could be used to father's advantage, because not only did the firm previously represent mother's father, mother herself had filed a declaration (in the previous matter) at the request of her stepmother who was a secretary at the grandfather's firm. (Ibid.) Hence, the trial court could reasonably find there was a significant danger grandfather's firm had acquired relevant confidential information about mother to which it otherwise would not have had access. (Id. at p. 1207.) The appellate court, citing "an amalgamation of interrelated factors" (id. at p. 1205) concluded, "[g]iven the multiple family entanglements, the complex interrelationships between the parties, and the ethical conflicts posed by [grandfather's] assumption of dual roles, we conclude the trial court did not abuse its discretion" and affirmed the disqualification order. (Id. at p. 1213.)
Kennedy is not controlling for several reasons. Whether Cox Castle possesses confidential information concerning 5th Rock is irrelevant. There are two different inquiries relating to breach of confidentiality — one where an attorney-client relationship is present and one where it is not. To justify disqualification where the attorney received confidential information outside an attorney-client relationship, courts generally require some sort of fiduciary or quasi-fiduciary relationship between the attorney and the opposing party or between the attorney and the source of the confidential information. (Dino, supra, 145 Cal.App.4th at p. 353.) Here, the record discloses nothing of the sort, and National Union does not argue it exchanged confidential information with Cox Castle. Cox Castle owes no duty of confidentiality to National Union. (See DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 (DCH Health) [duty of confidentiality must be owed to complaining party; lawyer owes no duty of confidentiality to nonclient].)
Next, Kennedy's procedural posture differs from the case at bar. In Kennedy, the appellate court reviewed the grant of a disqualification motion (Kennedy, supra, 201 Cal.App.4th at p. 1200), whereas here we review the denial of a disqualification motion. (See Acacia Patent Acquisition, LLC v. Superior Court (2015) 234 Cal.App.4th 1091, 1100 [Kennedy not particularly apt; trial court disqualified counsel and appellate court affirmed under abuse of discretion standard whereas here we must decide whether trial court had discretion to deny motion for disqualification].)
Finally, due to the multiple family entanglements and complex interrelationships between the parties, Kennedy presented a unique factual scenario not present in the case at bar. (See Kennedy, supra, 201 Cal.App.4th at p. 1213.) To the extent National Union contends complex interrelationships between the limited liability companies in this case support disqualification, the argument is unsupported by the record, and the relationships are unclear.
Kennedy is an outlier due to the unique factual circumstances it addressed and is not determinative here. While we do not believe a nonclient can never establish standing, case law consistently denies standing to a nonclient. (See In re Marriage of Murchison (2016) 245 Cal.App.4th 847 [husband lacked standing to disqualify wife's lawyer who purchased family home from wife during pendency of dissolution action]; DCH Health, supra, 95 Cal.App.4th 829 [plaintiffs in defamation action lacked standing to disqualify counsel for defendant, the husband of a judge who was on the board of co-plaintiff foundation]; Dino, supra, 145 Cal.App.4th 347 [sellers of property lacked standing to disqualify counsel who jointly represented buyers and real estate broker]; Coldren v. Hart, King, & Coldren, Inc., supra, 239 Cal.App.4th 237 [plaintiff attorney in action involving dissolution of his law firm lacked standing to disqualify former law firm's counsel].)
The Kennedy court recognized it had found no California case precisely governing its facts. (Kennedy, supra, 201 Cal.App.4th at p. 1206.)
Apart from attempting to distinguish Great Lakes and from relying on Kennedy, National Union contends it has standing for three reasons. First, it is protecting its own substantial financial interests, because according to 5th Rock, National Union will be required to indemnify 5th Rock for up to $25 million if plaintiffs' claims succeed. The argument is premised on the assumption 5th Rock has shared confidences with Cox Castle that will be detrimental to 5th Rock, a concern implicated in the duty of confidentiality, not the duty of loyalty. National Union speculates Cox Castle likely investigated the current values of the condominium units at the project in defending Beaver and likely investigated the construction defects in defending Patino. National Union does not expand on how these investigations might harm its interests. Moreover, this argument was not raised by National Union below, and it has been forfeited on appeal. We observe National Union's financial exposure in this case is a result of the allegedly defective construction of the project by its insureds and of National Union's issuing an insurance policy to Turner with 5th Rock as an additional insured. The alleged defects and National Union's potential for exposure are present regardless of who represents T-12. Forcing T-12 to hire new counsel will not change National Union's obligations under the policy, whatever those obligations may be.
Second, National Union argues it is vindicating the integrity of the judicial process, and Cox Castle's breach of the duties of loyalty and confidentiality undermines that integrity. Again, the duty of confidentiality argument was not advanced below, but even if it had been, we agree with Great Lakes that a nonclient lacks standing to move to disqualify opposing counsel to ensure the integrity of the process and fair administration of justice, even if it is a "'lofty value[].'" (See Great Lakes, supra, 186 Cal.App.4th at p. 1358.) Rather, "imposing a standing requirement for attorney disqualification motions protects against the strategic exploitation of the rules of ethics and guards against improper use of disqualification as a litigation tactic." (Ibid.; see also Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300-301 [motions to disqualify counsel often pose very threat to integrity of judicial process they purport to prevent].)
Even if vindicating the integrity of the judicial process is a separate basis for allowing a nonclient to assert standing (see Kennedy, supra, 201 Cal.App.4th at p. 1205 [where attorney's continued representation threatens an opposing litigant with cognizable injury or would undermine the integrity of the judicial process, trial court may grant motion for disqualification by nonclient]), National Union has failed to show how allowing Cox Castle to remain in the case would undermine the judicial process. National Union argues it is likely the same person who controls 5th Rock (Mike Patel) also controls plaintiff, MaryJane's Coffee Shop. This may be, but it would still be true even if Cox Castle was replaced with new counsel. Similarly, even if T-12 and 5th Rock are controlled by the same family, the same would be true without Cox Castle's participation in the litigation. To the extent National Union contends Kennedy supports the argument that a nonclient has standing to disqualify counsel solely to vindicate the integrity of the judicial process, we do not believe this is a fair reading of Kennedy, and we decline to so hold under the facts now before us.
Without directly doing so, National Union suggests plaintiffs and 5th Rock, and possibly even Cox Castle, are colluding to manipulate a judgment that will eventually be paid by National Union. Collusive assistance in the procurement of a judgment may constitute a breach of an insurance policy's cooperation clause or a breach of the covenant of good faith and fair dealing. (See Andrade v. Jennings (1997) 54 Cal.App.4th 307, 327.) However, that issue is not before us.
Finally, National Union argues by intervening, it is united with the defendant, 5th Rock, in resisting the plaintiffs' claims and therefore it is entitled to avail itself of all the procedure and remedies to which 5th Rock would be entitled for the purpose of defeating the action or resisting those claims. The problem with this argument is 5th Rock expressly declined to challenge Cox Castle's representation of T-12. For National Union to step into the shoes of 5th Rock, the two parties' interests must be aligned. Here, they are not.
The cases upon which National Union relies have no application. None support the conclusion National Union is permitted to assert any legal theory or defense that could be asserted by 5th Rock notwithstanding 5th Rock's refusal to acquiesce. In Drinkhouse v. Van Ness (1927) 202 Cal. 359, 366, the intervener stepped in because the insured was insolvent and had abandoned the defense of the action. In Reliance Ins. Co. v. Superior Court (2000) 84 Cal.App.4th 383, 385, the insured was potentially facing a default judgment, and the Court of Appeal determined the insurance company should have been allowed to intervene to litigate liability or damage issues. Here, 5th Rock has not abandoned the case and there is no danger of 5th Rock having a default judgment entered against it because it has appeared in the action and has defense counsel.
In Gray v. Begley (2010) 182 Cal.App.4th 1509, the Court of Appeal reversed an order denying an intervener insurance company's motion for setoff on grounds there was insufficient time for the motion to be heard before a notice of appeal had to be filed. (Id. at p. 1513.) The appellate court remanded to the trial court with directions to allow the insurance company to be heard on the setoff issue. (Id. at p. 1527.) Because the court reversed on a procedural error, the court did not reach the merits of whether the insurance company could vacate a judgment against its insured and apply a setoff against insurance proceeds already paid. Gray is procedurally distinguishable because here National Union's interests were fully considered by the trial court. In Timberidge Enterprises, Inc. v. City of Santa Rosa (1978) 86 Cal.App.3d 873, a school district had standing to intervene in an action challenging fees charged to developers that were intended to benefit the district. (Id. at p. 882.) The district did not step into the shoes of another defendant but had an interest of its own to defeat the plaintiffs' challenge. (Id. at p. 879 [district alleged it was united with the city in resisting plaintiff's claims to invalidate school impact fees].) Similarly, in California Golf, L.L.C. v. Cooper (2008) 163 Cal.App.4th 1053, respondents filed a complaint in intervention to align with defendant, Wells Fargo, after they were brought into the case as a cross-defendant in a cross-complaint filed by Wells Fargo. (Id. at p. 1059.) Respondents also filed a cross-complaint of their own. (Id. at p. 1059, fn. 9.) Respondents were protecting their own interests, not stepping into the shoes of another party.
In short, we conclude National Union has no personal stake in disqualifying Cox Castle and therefore it has no standing. In light of our conclusion, we need not address whether the conflict waiver obtained by Cox Castle is sufficient, whether the conflict is unwaivable, whether National Union unreasonably delayed in filing the motion to disqualify, or whether National Union's motion to disqualify was an improper litigation tactic.
"If standing is lacking, it is preferable to leave general policing of the profession to the disciplinary agencies . . . ." (Wolfram, Modern Legal Ethics (1986) Conflict Remedies and Procedures, § 7.1.7, p. 334.)
Turner's Arguments Do Not Change Our Analysis
We now address the arguments advanced by Turner. As to the standing issue, Turner argues the trial court previously acknowledged National Union's direct and immediate interest in the conflict at issue. This argument is akin to National Union's argument the trial court decided National Union had standing by granting the motion to intervene. We have already rejected it.
Turner filed a respondent's brief agreeing with National Union that Cox Castle should be disqualified. Turner also filed a motion for judicial notice of a cross-complaint filed in this action by 5th Rock against Turner alleging causes of action for breach of written contract, negligence, express indemnity, equitable indemnity, contribution, declaratory relief regarding the duty to indemnify, and breach of express warranty. We deemed it a motion to augment and granted the motion.
Turner next argues it is the contractor defendants, i.e., Turner and the subcontractors, who are most in need of this court's protection, because plaintiffs will not collect any judgment rendered from 5th Rock directly but rather from Liberty Mutual and National Union. Therefore, according to Turner, the contractor defendants will be personally responsible to pay their "sham co-defendants'" share without the insurance funds to do so. This argument fails for several reasons. First, Turner did not move to disqualify Cox Castle or join in National Union's motion. If Turner is as vulnerable as it now professes, we would have expected some effort to advocate for its interests in the trial court. Even if Turner asserted standing of its own to seek disqualification of Cox Castle, which it never did, on the record now before us it appears Turner would fare no better than National Union. Liberty Mutual is providing a defense for Turner, and although National Union issued letters reserving its right to deny coverage, it has not yet denied coverage. There is no evidentiary showing Turner has no insurance to cover the alleged construction defects. Finally, the argument Turner will be harmed if Cox Castle remains in the case does not establish National Union's standing, and that is the only question before us.
Turner's counsel, Robert Carlson, appeared in the court below at the hearing on National Union's motion to intervene but did not argue the merits. Carlson also appeared in the court below at the hearing on the motion to disqualify. He argued from Turner's point of view, 5th Rock is a sham defendant, which would be a fraud upon the court. Turner did not file written argument in the lower court. We note National Union filed a Declaration of Martha J. Dorsey, Esq., who is Turner's counsel, in support of National Union's reply regarding the motion to disqualify, but it does not address the standing issue and is not part of the record on appeal. --------
The lower court did not abuse its discretion in denying National Union's motion to disqualify Cox Castle from representing plaintiff, T-12 in this litigation. Cox Castle owes no duty of loyalty to National Union, and therefore National Union lacks standing to disqualify Cox Castle. There was no error.
DISPOSITION
The order denying National Union's motion to disqualify Cox Castle from representing plaintiff, T-12 in this litigation is affirmed. The stay order is dissolved upon issuance of the remittitur. The petition for writ of supersedeas is dismissed as moot. T-12 shall recover its costs incurred on appeal.
IKOLA, J. WE CONCUR: MOORE, ACTING P. J. ARONSON, J.