Blue Water Sunset, LLC v. Markowitz
192 Cal. App. 4th 477
| Cal. Ct. App. | 2011Background
- Blue Water moved to disqualify Attorney Kurtz for concurrent representation of the limited liability companies and their insider, Markowitz, during a derivative action involving Blue Water and related entities.
- Kurtz had previously represented Four Star Properties, LLC and Markowitz, and Sandler had represented the limited liability companies; Kurtz also appeared at a demurrer hearing on their behalf.
- The trial court denied the motion to disqualify; Blue Water appealed.
- The court held Blue Water had vicarious standing to seek disqualification based on the limited liability companies’ standing and rule 3-600’s waiver right under rule 3-310.
- The court concluded Kurtz had an actual conflict of interest and that automatic disqualification applied due to concurrent representation.
- The court reversed in part, disqualifying Kurtz from representing the limited liability companies and allowing him to continue representing Markowitz; futures representation by the limited liability companies must involve independent counsel if they take an active role.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to seek disqualification | Blue Water has standing via vicarious standing from the LLCs. | Markowitz contends Blue Water lacks standing. | Blue Water has standing via vicarious standing. |
| Existence of an actual conflict of interest | Kurtz simultaneously represented conflicting interests (LLCs and Markowitz). | Kurtz did not have an actual conflict. | There was an actual conflict of interest. |
| Concurrency of representation | Kurtz represented LLCs and Markowitz concurrently. | Representation was sequential. | Automatic disqualification applies for concurrent representation. |
| Scope of disqualification | Kurtz should be disqualified from all counsel in the matter. | Disqualification should be limited. | Disqualified from representing LLCs; may continue representing Markowitz. |
| Future representation by LLCs | LLCs should be free to participate with independent counsel. | No such requirement. | If LLCs take an active role, they must retain independent counsel. |
Key Cases Cited
- Flatt v. Superior Court, 9 Cal.4th 275 (Cal. 1994) (duty of loyalty; automatic disqualification when dual representation)
- Truck Ins. Exchange v. Fireman’s Fund Ins. Co., 6 Cal.App.4th 1050 (Cal. App. 1992) (abuse of discretion standard; conflict analysis)
- Streit v. Covington & Crowe, 82 Cal.App.4th 441 (Cal. App. 2000) (special appearance creates attorney-client association; basis for fiduciary duties)
- SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135 (Cal. 1999) (tests for attorney-client relationship with prospective clients; firm imputation)
- Forrest v. Baeza, 58 Cal.App.4th 65 (Cal. App. 1997) (derivative actions; standing and conflict considerations; disclosure waivers)
- Jacuzzi Bros., Inc. v. Jacuzzi, 243 Cal.App.2d 1 (Cal. App. 1966) (historical discussion of preclusion of joint defense in corporate contexts)
- Patrick v. Alacer Corp., 167 Cal.App.4th 995 (Cal. App. 2008) (nominal defendants in derivative actions; limits on defense rights)
- Gong v. RFG Oil, Inc., 166 Cal.App.4th 209 (Cal. App. 2008) (standing rule related to corporate disputes and conflict)
- Forrest v. Baeza, 58 Cal.App.4th 65 (Cal. App. 1997) (see above)