Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC435220 Jane L. Johnson, Judge.
Law Offices of Joel S. Farkas and Joel S. Farkas for Defendant and Appellant Ventura Investors Group, LLC.
Schreiber & Schreiber, Edwin C. Schreiber and Eric A. Schreiber for Defendant and Appellant Gary Arakelian.
Charlston, Revich & Wollitz and Tim Harris for Plaintiff and Respondent William Smith.
EPSTEIN, P. J.
This is an appeal from an order granting respondent William Smith’s motion to disqualify Joel S. Farkas as counsel for appellant Ventura Investors Group (VIG), a California limited liability company. The order also prohibited VIG from actively participating in the action to dissolve the company and from incurring any legal fees in the action. Farkas and appellant Gary Arakelian were ordered to account for already incurred or paid legal fees. Farkas was ordered to stop sharing his work product with Arakelian and Arakelian’s attorney; work product already shared with them was to be turned over to Smith’s attorney. VIG challenges the entire order. Arakelian objects to the portions of the order relating to accounting and work product. We shall affirm the order.
FACTUAL AND PROCEDURAL SUMMARY
Smith and Arakelian are 50 percent members and managers of VIG, which owns a commercial building located at 11326 Ventura Boulevard in Studio City, California. In April 2010, Smith filed a complaint seeking VIG’s dissolution and naming both VIG and Arakelian as defendants. VIG, represented by Farkas, demurred to and then answered the complaint. Arakelian filed a separate answer by Schreiber & Schreiber, Inc., the law firm designated in the operating agreement as VIG’s company counsel. Smith objected to Farkas’s representation of VIG on the ground that Farkas had been improperly retained without Smith’s consent, was involved in leasing the building against Smith’s wishes, and was effectively representing Arakelian’s interests in the lawsuit. When Farkas refused to withdraw, Smith moved to have him disqualified. The motion was granted on August 12, 2010. Arakelian and VIG timely appealed.
VIG’s operating agreement additionally provides that, if a dispute arises, company counsel may simultaneously represent the company and a manager to the extent permitted by the California State Bar Rules of Professional Conduct.
DISCUSSION
I
In light of the parties’ attempts to expand the issues on appeal, we initially address the scope of our review. The record on appeal is limited to appellants’ joint appendix and the reporter’s transcript of a single hearing, held on August 12, 2010. We do not consider the two-volume appendix filed in support of respondent’s brief. Respondent has not moved to augment the record with this appendix under California Rules of Court, rule 8.155(a). The parties’ motions to augment respondent’s appendix with additional documents are denied. Respondent’s appendix and the additional documents offered to augment it are irrelevant to the resolution of the appeal from the August 12, 2010 order as they chronicle proceedings subsequent to that order.
Respondent’s appendix includes Arakelian’s cross-complaint dated July 14, 2010. The cross-complaint predates the August 12, 2010 order and includes derivative causes of action on behalf of VIG. Appellants have not included this cross-complaint in their joint appendix and do not base any of their arguments on it.
Contrary to respondent’s contention, Arakelian’s denial at a subsequent deposition that he received any communication from Farkas regarding this case does not conclusively establish that VIG has not incurred legal fees or that Farkas has not shared attorney work product with Arakelian or his counsel. Thus, Arakelian’s deposition testimony does not render moot the issues regarding the ordered turnover of shared attorney work product and accounting for incurred legal fees. Nor is the appeal mooted by subsequent sanction orders against Arakelian. Arakelian complains about the validity of orders imposing monetary sanctions and precluding him from defending against the dissolution at trial as a sanction for his noncompliance with the August 12, 2010 order. But these nonappealable sanction orders are not properly before us. (See Code Civ. Proc., § 904.1, subd. (b).)
All portions of the parties’ briefs on appeal which refer to matters subsequent to, or argue legal issues not encompassed within, the trial court’s order of August 12, 2010 are stricken. We do not consider them in disposing of the merits of this appeal.
II
An order disqualifying an attorney may be appealable either as an order granting an injunction under Code of Civil Procedure section 904.1, subdivision (a)(6) or as a final order collateral to the main action. (See Meehan v. Hopps (1955) 45 Cal.2d 213, 215-217; Ponce-Bran v. Trustees of Cal. State University (1996) 48 Cal.App.4th 1656, 1661, fn. 3.) Such an order is reviewed for abuse of discretion. (Truck Ins. Exchange v. Fireman’s Fund Ins. Co. (1992) 6 Cal.App.4th 1050, 1059.) Issues of law, including the issue of standing, are reviewed de novo. (Blue Water Sunset, LLC v. Markowitz (2011) 192 Cal.App.4th 477, 485 (Blue Water).)
To have standing on a motion to disqualify, the party filing the motion must have a past or present attorney-client relationship with the attorney to be disqualified or must show that the attorney breached a duty of confidentiality owed to the party. (Blue Water, supra, 192 Cal.App.4th at p. 485.) In Blue Water, the court held that an equal member of several limited liability companies had vicarious standing to seek the disqualification of the attorney who concurrently represented the companies and their other members. (Id. at p. 485.) Blue Water sought the companies’ dissolution and stated a derivative action against Philip Markowitz, the companies’ other member. (Id. at p. 482.) The companies were named as nominal defendants but were the actual plaintiffs in the derivative action. (Id. at pp. 482, 489.) Gary Kurtz, the attorney whom Blue Water sought to disqualify, had filed demurrers on behalf of Markowitz and the limited liability companies. (Id. at p. 483.) The court reasoned that under California State Bar Rules of Professional Conduct, rules 3-600(E) and 3-310, Blue Water had “the unilateral right to either waive or not waive any conflict of interest” arising from Kurtz’s simultaneous representation of clients with conflicting interests. (Id. at p. 485.) The court held that, because Blue Water could refuse to waive the conflict of interest as to the limited liability companies, it had vicarious standing to seek Kurtz’s disqualification. (Ibid.)
VIG argues that Blue Water is distinguishable because Farkas, the attorney representing VIG, did not represent Arakelian individually and had no conflict of interest. According to VIG, attorney disqualification is limited to a few “classic” cases, as where an attorney represents clients with adverse interests or has received confidential information adverse to an opponent. But “‘[t]he authority to disqualify an attorney stems from the trial court’s inherent power “[t]o 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.” (Code Civ. Proc., § 128 [subd. (a)(5)]; [Citation.])’” (Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 8-9 (Cal Pak).) An attorney may be disqualified even in a factually atypical case. (See id. at pp. 10-11 [disqualifying class counsel for trying to sell class for personal gain].) Violation of a disciplinary rule may justify disqualification. (Responsible Citizens v. Superior Court (1993) 16 Cal.App.4th 1717, 1724 (Responsible Citizens).)
Appellants exaggerate the distinction between this case and the typical case of simultaneous representation of a company and a company insider. Rule 3–310(C) of the California State Bar Rules of Professional Conduct prohibits the concurrent representation of clients whose interests potentially or actually conflict unless there is informed written consent by each client. The concern in concurrent representation cases is about enforcing the attorney’s duty of loyalty to each client, and a rule of automatic attorney disqualification applies in almost all such cases. (Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209, 214 (Gong).) In this case, the concern is somewhat different: it is not whether Farkas may represent both VIG and Arakelian but whether he has authority to represent VIG and, if he does, whether he has breached his duty of loyalty to his client by aligning its position with Arakelian’s.
An attorney purporting to appear for a client is presumed to have authority to represent the client, but this presumption may be rebutted. (Corcoran v. Arouh (1994) 24 Cal.App.4th 310, 315.) Here, Farkas purported to represent VIG without Smith’s consent, which according to Smith was contrary to the provision in VIG’s operating agreement authorizing two managers “acting together... to sign contracts” on behalf of VIG. In opposition to the disqualification motion, Farkas filed Arakelian’s declaration that Smith was in default of the operating agreement for failure to make capital contributions. The purpose of Arakelian’s declaration is not immediately apparent, but to the extent that it was offered to justify his unilateral retention of Farkas on behalf of VIG, the record indicates that Farkas was retained and filed a demurrer on behalf of VIG before the expiration of 14 days from the notice of default Arakelian e-mailed Smith on May 6, 2010. By its own terms, Arakelian’s declaration did not justify his premature unilateral retention of Farkas, and VIG does not rely on this declaration on appeal. Rather, VIG relies on another argument Farkas made in the trial court—that the member suing VIG could not choose the company’s counsel for the dissolution action. VIG cites no legal authority for this proposition, claiming rather that where members are deadlocked agreement may be impossible.
The operating agreement provides for a notice and a 14-day period in which to make capital contributions, after which the defaulting member loses various rights, including the right to actively participate in management.
Corporations Code section 17351, subdivision (a)(4) provides the option of seeking dissolution of a limited liability company in cases of management deadlock, and Code of Civil Procedure, section 564, subdivision (b)(1) provides for the appointment of a receiver in cases of joint ownership of property, when the property is in danger of being lost or materially injured. The legal remedies for a deadlock do not include unilateral decisions on behalf of the company by one manager.
VIG’s arguments notwithstanding, the principal problem with Smith’s reliance on the dual signature requirement for contracts in the operating agreement is that it applies to written contracts, and there is no evidence that Arakelian signed a written contract on behalf of VIG. An attorney-client relationship may be informal or implied from conduct, such as seeking or receiving legal advice or giving confidential information. (See Responsible Citizens, supra, 16 Cal.App.4th at p. 1732; Miller v. Metzinger (1979) 91 Cal.App.3d 31, 39-40.) Although the trial court noted that Arakelian could not unilaterally choose counsel for VIG, it did not conclude that Farkas had no authority to represent the company. For purposes of this appeal we will assume that an attorney-client relationship had been formed between Farkas and Arakelian in his representative capacity as a manager of VIG. (See Meehan v. Hopps (1956) 144 Cal.App.2d 284, 290 [“The attorney for a corporation represents it, its stockholders and its officers in their representative capacity”].)
Assuming the existence of such a relationship, Farkas’s client was the limited liability company, and he owed it a duty of loyalty. (Cal Pak, supra, 52 Cal.App.4th at p. 11.) California courts have recognized that a business entity’s counsel, who has a duty to look out for the interests of all investors in the entity, may not be able to perform this duty if there are conflicts among individual investors. In the partnership context, the court in Johnson v. Superior Court (1995) 38 Cal.App.4th 463, 479, held that “the undertaking by [counsel] to represent the partnership, generally, imposed upon him an obligation of loyalty to the partnership and to all partners in terms of their entitlement to benefits from the partnership. Whether this constituted [counsel] an attorney, literally, for the individual limited partners, is of no great moment. He had a duty to the partnership to look out for all the partners’ interests, and if this could not be accomplished because of conflicts of interest among them he had a duty to terminate the representation (or obtain appropriate waivers of the conflict).” Similarly, “[c]orporate counsel should... refrain from taking part in any controversies or factional differences among shareholders as to control of the corporation, so that he or she can advise the corporation without bias or prejudice.” (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1842.)
The trial court was cited to and found persuasive New York case law holding that in a dissolution action based on a deadlock among shareholders, a corporation has no authority to seek its own dissolution or standing to litigate against dissolution. (In re Dissolution of Clemente Bros., Inc. (1963) 239 N.Y.S.2d 703, 705-706.) Therefore, the corporation “is a proper jural party to the proceeding for the limited and passive purpose of rendering it amenable to the orders of the court, ” but it may not align itself with “one of two equal, discordant stockholders.” (Ibid.) The California Limited Liability Company Act, Corporations Code section 17351, subdivision (a) similarly allows a manager or member to seek judicial dissolution of a limited liability company under certain specified circumstances, including management deadlock or internal dissention. The statute does not give the company a right to either prosecute or defend an action for dissolution. The New York case is thus persuasive authority for the proposition that a limited liability company cannot actively defend against its own dissolution even though it may be a nominal defendant.
VIG argues that California authority is to the contrary, citing Blue Water, supra, 192 Cal.App.4th at page 491, where the court held that the limited liability companies “may wish to take an active role in the litigation, ” and may do so by obtaining independent counsel. Blue Water involved a derivative action on behalf of the companies, and its holding related to the companies’ election to participate in the derivative action. (Id. at pp. 482, 491.) In contrast, here neither side argues that Smith’s dissolution action was derivative in nature so as to bring this case within the holding of Blue Water. Nor does Farkas qualify as independent counsel. Although he purported to represent VIG, Farkas was hired by Arakelian, one of VIG’s two feuding manager members, without the consent of the other manager member. The record indicates that Farkas became a tenant of VIG’s commercial property, over Smith’s objection to Arakelian’s leasing out the property, before this action was filed. Farkas immediately aligned VIG’s position with Arakelian’s by demurring to and answering Smith’s complaint for dissolution and by drafting Arakelian’s declaration in opposition to the motion for disqualification without obtaining Smith’s waiver of this conflict of interest. By taking Arakelian’s side in the lawsuit, Farkas acted in effect as Arakelian’s second counsel even though he purported to represent VIG. Under the circumstances, the trial court did not abuse its discretion in concluding that Arakelian was “using Farkas to off-set his own expenses in this case” and in disqualifying Farkas.
III
Paragraphs 1 and 2 of the order prohibit VIG from further participating in the dissolution action and from incurring legal fees in relation to the action. Respondent does not challenge the appealability of this portion of the order, arguing instead that VIG is not aggrieved by it. As a legal entity, VIG cannot appear in court without an attorney. (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1145.) To the extent that the prohibition against VIG’s further appearance and participation in the dissolution action may be likened to an order denying leave to intervene, it may be appealable because it finally and adversely determines VIG’s right to proceed in the action. (See Hodge v. Kirkpatrick Development, Inc. (2005) 130 Cal.App.4th 540, 547.) However, VIG has not established that it needs to actively participate in the dissolution action. Were a legitimate need for the company’s active participation to arise, the August 12, 2010 order provides that the parties may seek further orders from the trial court. As in Blue Water, supra, 192 Cal.App.4th at page 491, here “neither side can be trusted to make decisions on behalf of” VIG. If VIG’s active participation in the litigation is needed, the company must retain counsel who is truly independent of both its feuding manager members.
Paragraph 3 of the order requires Arakelian and Farkas to file a written accounting of any fees and costs incurred or paid on behalf of VIG within 10 days. Paragraph 4 prohibits Farkas from further sharing his work product on behalf of VIG with Arakelian or his counsel and provides that “[a]ll work product previously disclosed to Arakelian or his lawyer shall be forthwith sent to [Smith’s counsel of record] by Federal Express or other overnight mail.” Appellants challenge these provisions on the ground that they violate the attorney-client and attorney work product privileges. Respondent contends that these portions of the order are not appealable. Orders requiring the production of privileged information are normally subject to writ review. (Zurich American Ins. Co. v. Superior Court (2007) 155 Cal.App.4th 1485, 1493.) In cases where such review would be proper, the court may treat a purported appeal from a nonappealable order as a petition for writ of mandate. (Estate of Weber (1991) 229 Cal.App.3d 22, 25.) We therefore consider appellants’ privilege claims and reject them on the merits.
Appellants initially object to these portions of the order for lack of notice. Specifically, Arakelian contends that he had no notice that the motion sought relief against him personally and therefore did not oppose it or attend the hearing. His counsel reiterated this contention at oral argument. The notice of motion was addressed to “all parties and their counsel of record, ” a designation that included Arakelian, who is a named defendant. The motion referred to the accompanying papers. Among those papers was the memorandum of points and authorities, which was served on Arakelian’s attorney along with the motion. The memorandum included a request that both Arakelian and Farkas be ordered to account for VIG’s legal fees. Thus, the moving papers gave Arakelian notice that relief was sought against him. (See Carrasco v. Craft (1985) 164 Cal.App.3d 796, 808 [defect in notice of motion disregarded where motion refers to accompanying papers that provide ground for motion]; Blumenthal v. Superior Court (1980) 103 Cal.App.3d 317, 318, 320 [sanctions improper unless moving papers identify persons against whom sanctions sought].)
As to the portion of the order requiring that work product Farkas had shared with Arakelian or Arakelian’s attorney be turned over to Smith’s attorney, VIG argues that the motion did not ask for such relief, so its inclusion in the order was unfair. Arakelian additionally argues that he had no opportunity to object because no proposed order was served in this case. California Rules of Court, rule 3.1312(a) provides for the circulation of a proposed order within five days of the ruling, unless the court orders otherwise. In this case, the court signed the proposed order that respondent’s counsel had submitted on the record halfway through the August 12, 2010 hearing. Farkas attended the hearing on behalf of VIG and was aware that a proposed order was offered to the trial court at the hearing. He did not request to see the order before the court signed it, nor did he object to the signed order after it was served on VIG. “‘An appellate court will ordinarily not consider procedural defects... in connection with relief sought..., where an objection could have been but was not presented to the lower court by some appropriate method.... The circumstances may involve such intentional acts or acquiescence as to be appropriately classified under the headings of estoppel or waiver.... Often, however, the explanation is simply that it is unfair to the trial judge and to the adverse party to take advantage of an error on appeal when it could easily have been corrected at the trial.’ [Citation.]” (Doers v. Golden Gate Bridge Etc. Dist. (1979) 23 Cal.3d 180, 184–185, fn. 1.)
Attorney-client privilege belongs to the client, and attorney work product privilege belongs to the attorney. (OXY Resources California LLC v. Superior Court (2004) 115 Cal.App.4th 874, 901 (OXY).) Arakelian has no standing to assert either privilege because ostensibly Farkas does not represent Arakelian in his personal capacity.
On the merits, VIG has not established that the ordered written accounting will disclose any bona fide privileged material. Even were we to assume that the relationship between Farkas and Arakelian as a representative of VIG gave rise to any privilege and the privilege was not waived through disclosures to Arakelian’s attorney, the order does not require the disclosure of any billing statements or other documents containing confidential matter. (Cf. Smith v. Laguna Sur Villas Community Assn. (2000) 79 Cal.App.4th 639, 644, 646 [individual members of home owners association not entitled to inspect “attorney bills, reports and documents” in construction defect litigation brought by the association].) The order required disclosure of fees and costs only, and such disclosure may be made without reference to privileged information. In the context of attorney fee requests, for instance, courts have allowed redacted bills. (See e.g. Banning v. Newdow (2004) 119 Cal.App.4th 438, 454.)
The attorney work product privilege absolutely protects from discovery “[a] writing that reflects an attorney’s impressions, conclusions, opinions, or legal research or theories.” (Code Civ. Proc., § 2018.030, subd. (a).) It can be waived if work product is disclosed to third parties, and the disclosure is “‘wholly inconsistent with the purpose of the privilege, which is to safeguard the attorney’s work product and trial preparation. [Citations.]’ [Citation.]” (OXY, 115 Cal.App.4th at p. 891.) VIG claims that the trial court’s order violated the common interest doctrine, which is an exception to waiver. Its failure to develop this argument results in forfeiture. (See, e.g., Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 1007 [argument forfeited when parties “fail to make a coherent argument or cite any authority to support their contention”].) Arakelian develops the application of the common interest doctrine to this case in his portion of appellants’ joint briefs on appeal. As we have noted, Arakelian lacks standing to assert the work product privilege on behalf of VIG or Farkas. Nor would the common interest doctrine have any application in this case. As the trial court recognized, VIG “has no stake in the outcome of the dispute.” Its interest, therefore, cannot be the same as Arakelian’s. The order did not require that any work product of Arakelian’s attorney be turned over, so Arakelian is not entitled to argue that turning over Farkas’s work product would prejudice Arakelian’s own defense.
“Under the common interest doctrine, an attorney can disclose work product to an attorney representing a separate client without waiving the attorney work product privilege if (1) the disclosure relates to a common interest of the attorneys’ respective clients; (2) the disclosing attorney has a reasonable expectation that the other attorney will preserve confidentiality; and (3) the disclosure is reasonably necessary for the accomplishment of the purpose for which the disclosing attorney was consulted. [Citation.]” (Meza v. H. Muehlstein & Co. (2009) 176 Cal.App.4th 969, 981.)
DISPOSITION
The order is affirmed. Respondent to have his costs on appeal.
We concur: WILLHITE, J. MANELLA, J.