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reaching same conclusion when interpreting California Rule of Professional Conduct 2–100
Summary of this case from U.S. Equal Emp't Opportunity Comm'n v. ARCOpinion
Case No. CV 98-7395 DT (Ex)
January 22, 2001
ORDER GRANTING PLAINTIFF PB ELECTRONICS'S MOTION TO DISQUALIFY THE LAW FIRM OF LEVY, SMALL LALLAS AS COUNSEL FOR AZTECH SYSTEMS LTD.
I. Background
A. Factual Summary
This is an action by Plaintiff PB Electronics, fka Packard Bell NEC, Inc. ("PB") against Defendant, Aztech Systems Ltd. ("Aztech") for Breach of Express Warranty, Negligent Misrepresentation, Fraud, and Declaratory Relief arising out of the sale of computer circuit boards.
PB, a Delaware corporation with its principal place of business located in Sacramento, California, is an assembler, marketer and seller of personal computers ("PC's"). See First Amended Complaint ¶ 4.
Aztech, a Singapore corporation with its principal place of business located in Singapore, is a designer and manufacturer of, among other things, multi-media boards for use in PC's. See FAC ¶ 5.
In or about 1994, representatives of PB and Aztech met in Los Angeles and Singapore to discuss the design of a new printed circuit board that combined sound card, modem, facsimile, and telephone capabilities into one circuit board that could reproduce sound, and send and receive data, facsimile and voice transmissions over telephone lines (the "MM Board"). See FAC ¶ 7.
Thereafter, PB and Aztech entered into a series of agreements, set forth in written purchase orders, for Aztech to supply and PB to purchase the MM Boards. See FAC ¶ 8. Delivery of the MM Boards to PB began in January of 1995. See id.
Initially, the MM Boards were manufactured by Aztech in Singapore. See id.
Between January and October of 1995, the United States Customs Service ("Customs") took the position that the MM Boards were dutiable at a rate of 8.5%. See FAC ¶ 9. However, the Generalized System of Preferences ("GSP") program permits the duty-free importation into the United States of certain imports that (1) originate in designated GSP countries, and (2) meet the 35% "qualifying cost requirements," meaning that the total of the direct costs of processing and the cost of qualifying components must exceed 35% of the appraised value of the imported article. See id. Singapore was not a qualifying GSP country. See id.
In the fall of 1995, PB's representatives, including Jake Metzler, PB's senior vice president of advanced technologies, met in Singapore to discuss with Aztech's representatives, including Michael Mun, Patricia Ng, and Martin Chia, whether Aztech could manufacture the MM Boards in Aztech's factory in Indonesia, a GSP Country, so that the MM Boards would qualify for duty-free GSP treatment. See FAC ¶ 10. PB alleges that, based upon Aztech's representations to PB at that meeting that Aztech had the existing capacity and ability to manufacture the MN Boards in Indonesia, PB entered into a series of written purchase orders with Aztech, for Aztech to manufacture the MM Boards in Indonesia. See id.
On or about November 21, 1996, PB's representative Jackie Kojian held another meeting with Aztech's representative Martin Chia in Sacramento, California during which Mr. Chia purportedly reaffirmed and restated that Aztech could and would manufacture the Indonesian MM Boards so that they would qualify for duty-free GSP treatment. See FAC ¶ 12.
In furtherance of Mr. Mun, Ms. Ng and Mr. Chia's alleged promises and representations that the Indonesian MM Boards qualified for duty-free GSP treatment, beginning in 1996 and continuing through 1997 Aztech provided to PB written GSP Certificates of Origin for each shipment of the Indonesian MM Boards that Aztech made to PB. See FAC ¶ 13. PB avers that Aztech applied to the Indonesian government and obtained the GSP Certificates of Origin, in which the Indonesian Government certified that the Indonesian MM Boards were qualifying for duty-free GSP treatment. See id. The GSP Certificates of Origin certify that "all the goods were produced in Indonesia and that they comply with the origin requirements specified for those goods in the Generalized System of Preferences for goods exported to USA." See id. PB claims that by obtaining from the Indonesian government, and presenting to PB, the GSP Certificates of Origin, Aztech adopted and repeated the Indonesian government's representations that the Indonesian MM Boards originated in Indonesia and satisfied GSP requirements. See id.
Beginning in or about November 1995 and continuing through 1997, Aztech allegedly sold approximately 2,500,000 MM Boards to PB pursuant to the promises and representations that the MM Boards qualified for duty-free GSP treatment, and the written purchase orders. See FAC ¶ 14.
PB alleges that it imported the Indonesian MM Boards and continued purchasing the Indonesian MM Boards in reliance on Mr. Mun, Ms. Ng and Mr. Chia's oral representations and Aztech's adopted written representations made in the GSP Certificates of Origin that the Indonesian MM Boards qualified for duty-free GSP treatment. See FAC ¶ 15. In addition, PB claims that these alleged representations and promises formed a part of the basis of the bargain for PB's continued purchases of the Indonesian MM Boards from Aztech. See id.
In or about late November or December of 1997, Customs, as part of an on-going Customs audit, requested information to validate PB's GSP claims with respect to the MN Boards. See FAC ¶ 16.
In or about December 1997, Aztech provided to PB, at PB's request, costed bills of materials ("BOM's") for some of the MM Boards, which listed every component contained in the MM Boards, along with their cost and country of origin (the "Indonesian BOMs"). See FAC at ¶ 17. The Indonesian BOMs included four components ("Rockwell chipsets") that Aztech allegedly purchased from Rockwell International ("Rockwell") for use in the MM Boards. See FAC at ¶ 18. The Rockwell chipsets constituted, on average, between 35% and 65% of the cost of the MM Boards. See id. The Indonesian BOMs identified Thailand, also a GSP country, as the country of origin for all four Rockwell chipsets. See id.
In or about December 1997, PB gave the Indonesian BOMs to the Customs auditor. See FAC at ¶ 19. In January 1998, the Customs auditor requested further information as to the country of origin of the Rockwell chipsets. See id. PB, in turn, asked Aztech to provide such information. See id.
On February 5, 1998, Aztech sent PB an "Affidavit of Manufacturer" dated October 2, 1996, which Rockwell allegedly provided to Aztech and signed as the manufacturer of the Rockwell chipsets. See FAC at ¶ 20. The Affidavit listed six countries as countries of manufacture of the Rockwell chipsets, only two of which were GSP countries eligible for duty-free GSP treatment. See id.
PB contends that because the Affidavit indicated that the Rockwell chipsets may have been manufactured in a non-GSP country, PB could not represent to Customs that the MM Boards qualified for duty-free treatment. See FAC at ¶ 21. On March 25, 1998, after allegedly affording Aztech some time to obtain satisfactory proof that the MN Boards met GSP requirements, PB filed a Prior Disclosure with Customs, under 19 U.S.C. § 1592, disclosing that the MM Boards might not qualify for duty-free GSP treatment. See id. Customs began a formal investigation of PB's importations of the MM Boards. See id.
On or about June 2, 1998, Rockwell sent PB three additional Affidavits of Manufacturer dated December 13, 1995, December 19, 1995, and March 26, 1998. See FAC at ¶ 22. The 1995 Affidavits stated that Rockwell manufactured the Rockwell chipsets in six countries, only two of which were eligible for GSP treatment. See id. The 1998 Affidavit stated that Rockwell manufactured the Rockwell chipsets in Mexico, a non-GSP country. See id. Therefore, PB claims that because the Rockwell chipsets made up, on average, between 35% and 65% of the entire cost of the MM Boards, and because they originated in Mexico, a non-GSP country, the MM Boards could not qualify for duty-free GSP treatment despite Aztech's purported express warranties that they did qualify for GSP treatment. See id.
PB alleges that Aztech had, or had access to, the December 1995 Affidavits and the October 1996 Affidavit at the times that (1) Aztech's representatives, including Mr. Mun, Ms. Ng and Mr. Chia, represented to PB that Aztech had the present ability and capacity to manufacture the Indonesian MM Boards so that they would qualify for duty free GSP treatment; and (2) Aztech provided PB with the GSP certificates of Origin which represented that the Indonesian MN Boards qualified for duty free GSP treatment. See FAC ¶ 23. Therefore, PB contends that Aztech knew or should have known at the time it made the above representations that, in fact, Aztech could not manufacture the Indonesian MM Boards so that they would qualify for duty free GSP treatment, and that the representations were false when made. See Id.
On or about June 4, 1998, representatives of PB, Aztech and Rockwell met in Newport Beach, California to discuss Aztech's alleged breach of its express warranties to PB that the MM Boards qualified for duty-free GSP treatment. See FAC at ¶ 24. PB claims that, under 19 U.S.C. § 1592, it owed, at a minimum, more than $15,000,000 in back duties, plus interest, and could owe additional penalties of two to four times this amount if Customs finds PB to have been negligent or grossly negligent. See FAC at ¶ 25.
B. Procedural History
On July 31, 1998, PB filed a Complaint in the Superior Court for the State of California, County of Los Angeles, Case No. BC195268, alleging causes of action for: (1) Breach of Express Warranty; (2) Negligent Misrepresentation; (3) Fraud; and 4) Declaratory Relief.
On September 11, 1998, Aztech filed a Notice of Removal of Action with this Court pursuant to 28 U.S.C. § 1441 (b).
On September 25, 1998, Aztech filed a First Amended Notice of Removal of Action under 27 U.S.C. § 1441 (b).
On September 18, 1998, Aztech filed a Motion to Dismiss for Lack of Personal Jurisdiction; Forum Non Conveniens; Failure to Comply with Fed.R.Civ.P. 9(b); and Failure to State a Claim upon which Relief May Be Granted. On October 20, 1998, this Court denied Aztech's Motion to Dismiss for Lack of Personal Jurisdiction and Forum Non Conveniens. In addition, this Court granted in part and denied in part Aztech's Failure to Comply with Fed.R.Civ.P. 9(b) and Failure to State a Claim Upon Which Relief May be Granted. Specifically, Aztech's Motion to Dismiss PB's Second and Third Causes of Action without prejudice was granted.
On November 18, 1998, PB filed a First Amended Complaint re-alleging (1) Breach of Express Warranty; (2) Negligent Misrepresentation; (3) Fraud; and (4) Declaratory Relief.
On December 3, 1998, Aztech filed a Motion to Dismiss for Failure to Comply with Fed.R.Civ.P. 9(b) and Failure to State a Claim Upon which Relief May be Granted.
On January 25, 1999, this Court filed an Order Denying Aztech's Motion to Dismiss for Failure to Comply with Fed.R.Civ.P. 9(b) and Failure to State a Claim Upon which Relief May be Granted. This Order was entered on January 26, 1999.
On February 12, 1999, Aztech filed an Answer to PB's First Amended Complaint.
On March 29, 1999, this Court held a Mandatory Status Conference for this matter in which it set the Discovery Cut-Off Date for October 1, 1999. Tn addition, the Court set the Pre-Trial Conference for December 6, 1999, and the Trial Date for March 14, 2000.
On September 13, 1999, Aztech, on behalf of the parties, lodged a stipulation and this Court filed an order continuing the discovery cut-off date from October 1, 1999, to November 1, 1999.
On November 15, 1999, this Court filed an Order to extend the discovery cut-off date and reschedule the Pre-Trial Conference in this action. The Discovery Cut-Off Date was extended from November 1, 1999, to November 30, 1999. The Pre-Trial Conference date was rescheduled from December 6, 1999, to January 24, 2000.
On December 21, 1999, Aztech filed a Motion to Dismiss PB's First Amended Complaint for Lack of Subject Matter Jurisdiction, which this Court granted in part and denied in part.
On December 29, 1999, PB filed a Motion to Preclude Aztech From Offering Any Testimony of Any Untimely Designated Expert Witness. On January 25, 2000, this Court entered an Order Granting PB's Motion to Preclude Aztech From Offering Any Testimony of Any Untimely Designated Expert Witness.
On January 31, 2000, PB filed an Ex Parte Application for an Order Shortening Time for hearing on a Motion to Stay Trial Pending a Final Determination of the United States Customs Services Proceedings of PB. On this same date, Aztech filed an Ex Parte Motion to Stay.
On February 3, 2000, this Court denied Aztech's Ex Parte Motion to Stay without prejudice to renew if Aztech stipulates to a total stay of the Singapore Action. On this same date, an Order Granting PB's Ex Parte Application for Order Shortening Time to Hear PB's Motion to Stay was filed.
On February 29, 2000, this Court entered an Order Granting PB's Motion to Stay This Trial Pending a Final Determination of The United States Customs Services Proceedings of PB.
On May 17, 2000, Aztech filed a Notice of Association of Counsel, associating Tom Lallas of Levy, Small Lallas as additional counsel of record to Howrey Simon Arnold White ("Howrey"). Aztech also filed another Notice of Association of Counsel, associating Matthew Clark of Arent Fox Kintner Plotkin Kahn, PLLC as additional counsel of record.
On May 30, 2000, PB submitted a Status Report stating that Customs sent it a letter indicating that the MM Boards failed to qualify for duty-free importation into the United States under the Generalized System of Preferences. As a result, Customs demanded that PB pay $9,663,717.84. It also stated that it had accepted a prior tender by PB, thereby effectively concluding the Customs proceeding against PB.
On October 19, 2000, a Stipulation and Order to Lift Stay and to Schedule Status Conference was filed.
On December 4, 2000, PB filed a Motion to Consolidate, seeking to consolidate this action with Aztech v. Rockwell, Case No. 00-7191 DT. On this same date, this Court held a Status Conference wherein a Scheduling Conference was set and the Motion to Consolidate was taken off calendar.
On December 18, 2000, PB filed a motion to Disqualify the Law Firm of Levy, Small Lallas as Counsel for Aztech Systems Ltd., which is currently before this Court.
II. Discussion
A. Background of this Motion
1. PB's Basis for this Motion
PB brings this motion to disqualify the law firm of Levy, Small Lallas ("Levy Firm") as counsel for Aztech claiming that the Levy Firm is privy to attorney-client communications of PB in this action.
Prior to being retained by Aztech, the Levy Firm represented Jake Metzler ("Metzler"), a former senior executive of PB in this action. Specifically, after Metzler was terminated by PB, Metzler retained the Levy Firm to represent him as a witness in this action. PB states that during discovery in this case, it protected its attorney-client communications by instructing Metzler not to disclose its confidential information to Aztech. It contends that by retaining the Levy Firm as counsel, Aztech is likely to obtain confidential information that it could not lawfully obtain in discovery.
2. Factual basis for PB's Motion
In support of its motion, PB sets forth the following facts:
Metzler is a former consultant, employee, senior executive and member of PB's control group. (See Surloff Decl., ¶ 3; Sherman Decl., ¶ 5.) Metzler had been employed by PB for many years, and during the time period January 1997 to July 1999, Metzler was PB's Chief Technology Officer as well as its Senior Executive Vice President. See Metzler Decl., ¶ 2.)
By virtue of his position in the PB organization, Metzler was able to direct business to Aztech, including the manufacture of the Multi-Media Boards ("MM Boards") which are the subject of this litigation. (See id.) Metzler designed PB's specifications for the MM Boards sold by Aztech to PB. (See Metzler Depo., 164:11-19.)
From 1997-1999, Metzler participated in attorney-client communications with PB's highest officers as well as in-house and outside counsel involving (1) Customs' proceedings involving PB arising from PB's importation of MM Boards manufactured by Aztech; and (2) PB's claims against Aztech arising from Aztech's fraud and misrepresentation with respect to the duty-free eligibility of the MM Boards. (See Sherman Decl., ¶¶ 4-5; Shostak Decl., ¶¶ 3-4; Surloff Decl., ¶¶ 4-5.) Metzler participated in meetings with PB's counsel where PB's litigation strategies against Aztech were discussed. (See id.)
On July 8, 1999, PB terminated Metzler for breaching his employment agreement with PB by divulging PB's attorney-client communications to Aztech in the latter part of 1998 and first half of 1999. (See Sherman Decl., ¶ 8; Metzler Depo., 203:8-25; 205:21-25; 206:1-25; 207:1-25.)
PB claims that Aztech's defense in this action revolves around Metzler. Aztech's primary defense to PB's claim is that PB could not have justifiably relied on its duty-free representations because PB allegedly knew that a certain component of the MM Boards, the Rockwell chipset, was manufactured in Mexico disqualifying the MN Boards from duty-free importation. See Aztech's Memorandum of Contentions of Fact and Law, 29:10-12.) Aztech's defense is supported by Metzler, who testified during deposition that he knew that the Rockwell chipset came from Mexico. (See Metzler Depo., 32:17-25.) Aztech intends to impute Metzler's purported knowledge of the country of manufacture of the Rockwell chipset to PB.
B. Analysis
PB essentially relies on two rules in support of this motion for disqualification: California Rule of Professional Conduct 2-100 and California Rule of professional Conduct 3-310. This Court examines each in turn. "[T]he district court has the prime responsibility for controlling the conduct of lawyers practicing before it." In re Coordinated pretrial proceedings, 658 F.2d 1355 (9th Cir. 1981)
1. Disqualification under California Rule of
Professional Conduct 2-100 is not warranted
PB contends that Section 2-100 of California's Rules of professional Conduct prohibits Aztech from having ex parte contact with Metzler through the artifice of the Levy Firm representation of Aztech to obtain privileged information.
Rule 2-100(A) provides in pertinent part: While representing a client, a member shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter. . . .
Rule 2-100(B) defines a "party" as:
(1) An officer, director, or managing agent of a corporation or association, and a partner or managing agent of a partnership.
(2) An association member or an employee of an association, corporation, or partnership, if the subject of the communication is any act or omission of such person in connection with the matter which may be binding upon or imputed to the organization for purposes of civil or criminal liability or whose statement may constitute an admission on the part of the organization.
PB argues that Aztech is prohibited from conducting ex parte interviews of Metzler and obtaining PB's privileged information, and therefore, Aztech cannot accomplish the same result by hiring Meztler's lawyer, the Levy Firm.
Aztech responds that the Levy Firm's communications with Metzler were permissible under Rule 2-100 and California law. This Court agrees that the communications between Metzler and the Levy Firm were permissible and therefore declines to find that disqualification is warranted under this provision. First, Rule 2-100(A) prevents an attorney from communicating with someone the attorney knows to be represented by another attorney only "while representing a client." Here, the Levy Firm was not representing Aztech when it communicated with Metzler concerning his deposition in this action. In addition, Rule 2-100(C)(2) provides that the rule does not apply to communications "initiated by a party seeking advice or representation from an independent lawyer of the party's choice." Here, Metzler initiated communications with the Levy Firm when Metzler sought an independent attorney to represent him in connection with his deposition, and at that time, the Levy Firm did not represent any party in this action. Moreover, Rule 2-100 does not apply because when the Levy Firm communicated with Metzler, he was not a "party" represented by another lawyer in this action. The Drafter's Notes to Rule 2-100 expressly state that "Paragraph (B) is intended to apply only to persons employed at the time of the communication." See Nalian Truck Lines, Inc. v. Nakano Warehouse Transportation Corp. (1992) 6 Cal.App.4th 1256, 1262 (holding that Paragraph B of rule 2-100 is intended to apply only to persons employed at the time of the communication); Continental Ins. Co. v. Superior Court (1995) 32 Cal.App.4th 94, 119 (holding that paragraph (B)(2) of rule 2-100 applies only to persons employed at the time of the communication). Here, Metzler was no longer employed by PB when he was communicating with the Levy Firm.
2. Disqualification is warranted under California Rule of Professional Conduct 3-310
Similarly, PB's reliance on a Florida district court case, Rentclub, Inc. v. Transamerica Rental Finance Corp., 811 F. Supp. 651 (M.D. Fla. 1992) is misplaced. In Rentclub, the court relied on the principle that a former employee may be considered a party for purposes of Rule 4.2 of the American Bar Association, which was the rule at issue. See id. at 657. Here, Rule 2-100 and California law clearly rejects this principle.
PB contends that the Levy Firms's representation of Aztech violates California Rule of Professional Conduct 3-310.
Rule of Professional Conduct 3-310(c)(1) provides: A member shall not, without the informed written consent of each client:
(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict.
Aztech argues, and PB acknowledges, that this Rule does not literally apply since the Levy Firm did not, and does not, represent PB. However, PB argues that the Levy Firm's dual representation of Metzler and Aztech requires the same result as if the Levy Firm represented PB and Aztech. It reasons that Metzler owes PB a continuing fiduciary obligation to keep PB's privileged information confidential and that the Levy Firm as agent of Metzler owes PB the same fiduciary duties as Metzler and must not be in a position to disclose or use PB's confidential information to assist Aztech.
This Court agrees with PB. Metzler does indeed have a continuing duty to PB to protect privileged and confidential information he learned while at PB. In fact, it is undisputed that Metzler obtained privileged and confidential information as an officer of PB and that he is obligated to keep the information privileged even though his employment terminated. As noted by the Ninth Circuit, "Again, the attorney-client privilege is served by the certainty that conversations between the attorney and client will remain privileged after the employee leaves." In re Coordinated Pretrial Proceedings, 658 F.2d 1355, 1361 (9th Cir. 1981). Metzler cannot waive PB's attorney-client privilege — only PB can. Thus, this Court agrees that as Metzler's attorney and agent, the Levy Firm is obligated to maintain the confidentiality of this same information learned by Metzler while at PB. Section 6068(e) of California Business and Professions Code provides that it is the duty of every attorney "to maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." See also Restatement of Agency 2nd, § 428 ("Unless otherwise agreed, a subagent who know of the existence of the ultimate principal owes him the duties owed by an agent to a principal. . . .").
Aztech argues that it is a "novel proposition that an attorney who represents a terminated employee, who is then hostile and adverse to his former employer, somehow has a duty to the former employer that precludes the attorney from representing another party who is adverse to the employer." However, this "proposition" is not so "novel" in light of the principles enunciated above. Moreover, it is not so much a "duty to the former employer" which prevents the attorney (here, the Levy Firm) from taking representation adverse to the employer; rather, it the duty of the attorney to avoid a position where, at least potentially, he may use privileged information concerning the other side through prior representation, thus giving his present client an unfair advantage. See Chambers v. Superior Court (1981) 121 Cal.App.3d 893, 901.
Aztech offers the declarations of Mr. Lallas, the Levy Firm attorney, and Metzler which state that Metzler did not, at any time, whether before, after, or during his deposition in this action, (a) deliver any PB documents to the Levy Firm for its review and/or advice, whether privileged or otherwise, or (b) communicate to the Levy Firm the substance of any discussions that Metzler may have had with any PB attorneys, whether privileged or otherwise. If sworn statements by the parties involved in the alleged conflict that they didn't disclose any confidential information were the litmus test for determining conflicts of interest, then conflicts of interest undoubtedly would be nonexistent. Instead, it is the potential for disclosure of confidential information in light of the status of the Levy Firm which is the concern. See Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 309 ("[T]he significant question is whether there exists a genuine likelihood that the status or misconduct of the attorney in question will affect the outcome of the proceedings before the court.")
Similarly, Aztech's statements that Metzler and the Levy Firm consistently attempted to preserve any attorney-client privilege of PB, while undoubtedly are true, are unavailing. Also, Aztech claims that PB waived any privilege at Metzler's deposition, and it sets forth deposition testimony in support of this claim. This Court has reviewed the portions cited and finds no such waiver occurred.
Finally, this Court again recognizes that the sequence of events in this case does not allow it to neatly fit within the strictures of Rule 3-310. As was stated by another court, "it is a square peg which does not fit into the round holes of the rules most commonly applied in attorney disqualification cases." Gregori, 207 Cal.App.3d at 301 (internal quotations and citation omitted). Nevertheless, as explained above, this Court finds that the situation presented constitutes a violation of Rule 3-310. In addition, the American Bar Association Model Code of Professional Responsibility provides that "[a] lawyer should avoid even the appearance of professional impropriety." Furthermore, this Court is mindful that it "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." Id. at 299. Here, this Court finds that the Levy Firm's representation of Aztech following its representation of the opposing party's former senior executive undermines the judicial process and will effect the proceedings before this Court. The issues in this case revolve around Aztech's representations to PB regarding the importation of the MN Boards. PB alleges Aztech made false representation in this regard, while Aztech alleges that PB could not have justifiably relied on these representations. A key witness with respect to PB's knowledge and these representations is Metzler, who is a witness for both parties and who was formerly represented by Aztech's current counsel. Under these circumstances and in light of the foregoing analysis, this Court finds that disqualification of the Levy Firm is warranted. In sum:
This Court acknowledges that California has not adopted this canon and as such, disqualification on this basis alone would be improper. Gregori, 207 Cal.App.3d at 305-306 (internal quotations and citation omitted). Nevertheless, "the ABA Code Still serves to guide California courts." See id.
[D]isqualification is proper where, as a result of a prior representation or through improper means, there is a reasonable probability counsel has obtained information the court believes would likely be used advantageously against an adverse party during the course of the litigation. Though such information cannot be unlearned, and the lawyer who obtained it cannot be prevented from giving it to others, disqualification still serves the useful purpose of eliminating from the case the attorney who could most effectively exploit the unfair advantage.
Id. at 309.
3. Denial of this motion on the basis of delay is not warranted
Aztech argues that PB's motion must be denied on the ground of unreasonable delay. Mere delay in making a disqualification motion is not dispositive. See River West, Inc. v. Nickel (1987) 188 Cal.App.3d 1297, 1311. Rather, "[t]he delay must be extreme in terms of time and consequence. Id.
This Court finds that denial of PB's motion on this basis is not warranted. Any delay in making this motion was not extreme in terms of either time or consequence. While this case was stayed (from February 20, 2000 until October 18, 2000), the Levy Firm associated in as counsel for Aztech (on May 17, 2000) During the first status conference after the stay, PB informed this Court of its intention to seek to disqualify the Levy Firm. As such, contrary to Aztech's assertions, this delay is minimal. In addition, the consequences are not extreme in light of the facts that (1) Howrey has represented, and continues to represent, Aztech in this case, (2) at the time of the stay, this case had already been set for trial, and (3) Arent Fox Kintner Plotkin Kahn, PLLC has been associated in as additional counsel of record. Thus, no extreme prejudice can be found.
For these same reasons, the competing consideration 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" does not weigh heavily against disqualification.
4. Denial of this motion on the basis of Aztech's asserted "potential conflict" is not warranted
Aztech claims that the potential conflict that does exist in connection with this action requires the Levy Firm's continued representation of Aztech. It states that the original counsel of record for Aztech in this action, Howrey, cannot represent Aztech in its separate but related pending action in this Court against Rockwell International Corporation and Conexant Systems, Inc. (collectively, "Rockwell"), Case No. 00-7191 DT ("Rockwell Action"), because Howrey may have a conflict of interest if it represents Aztech in a matter adverse to Rockwell. It claims that because the Levy Firm does not have any such conflict, it filed the Rockwell Action on behalf of Aztech and then was associated in as counsel for Aztech in this action. It concludes that in light of Howrey's conflict as to Rockwell, the Levy Firm must now remain Aztech's counsel of record both in this action and in the Rockwell Action.
This Court finds that this argument is without merit and therefore an insufficient basis to deny this motion. Whatever conflict Howrey may have with Rockwell does not prevent its continued representation of Aztech in this action. Certainly, Howrey's conflict with Rockwell and the Levy Firm's resulting representation of Aztech in the Rockwell Action does not mandate the Levy Firm's representation of Aztech in this action.
C. Conclusion
Accordingly, in light of the foregoing, this Court grants Plaintiff PB Electronics's Motion to Disqualify the Law Firm of Levy, Small Lallas as Counsel for Aztech Systems Ltd.
IT IS SO ORDERED.