Ontiveros v. Constable CA4/1
245 Cal. App. 4th 686
| Cal. Ct. App. | 2016Background
- Minority shareholder Guadalupe Ontiveros sued majority shareholder Kent Constable, Kent's wife Karen, and Omega Electric, Inc., asserting direct and derivative claims over property ownership, corporate payments, and alleged fraud.
- Kent purchased a 20% interest from a former cofounder, caused Omega to pay counsel retainers, and later terminated Ontiveros's employment after acquiring majority control; Ontiveros alleged misuse of corporate funds (rent, payments to Constable family members) and sought derivative relief on Omega's behalf.
- Counsel (Moskowitz and Regele) represented Kent, then Omega, and later Karen; Ontiveros moved to disqualify Counsel for concurrently representing adverse interests once derivative claims were asserted.
- The trial court granted disqualification as to all defendants, concluding Counsel owed a primary duty to Omega and could not continue representing the Constables.
- On appeal the court affirmed disqualification as to Omega (corporation) but reversed as to the Constables, finding continued representation of the Constables did not threaten misuse of Omega confidences given the parties’ factual overlap.
Issues
| Issue | Ontiveros' Argument | Constables' Argument | Held |
|---|---|---|---|
| Whether counsel must be disqualified for concurrently representing Omega and its majority shareholders in a derivative action | Dual representation is automatically disqualifying where clients' interests are directly adverse in derivative claims | Counsel and Kent (majority shareholder) consented to joint representation; disqualification improper | Disqualified as to Omega: automatic disqualification applies and Kent could not validly consent on Omega’s behalf |
| Whether counsel must be disqualified as to the Constables (individuals) after disqualification as to Omega | Ontiveros argued joint representation required full disqualification because counsel obtained Omega confidences | Constables argued counsel should be allowed to continue representing them; any consent and payments validated representation | Reversed as to Constables: court may allow counsel to continue representing individual shareholders where no realistic risk of misuse of confidential corporate information (intertwined facts) |
| Whether Ontiveros waived disqualification by delay (14–16 months after conflict arose) | Delay irrelevant in automatic-disqualification cases; alternatively, delay was reasonable and not prejudicial | Delay was unreasonable and caused extreme prejudice (time and fees) | No waiver found: court did not abuse discretion in determining delay was not extreme and prejudice not extreme |
| Proper scope and source of consent for dual representation under professional rules (rule 3-600/3-310) | Consent invalid when corporate interests adverse in derivative suit; shareholder/majority consent insufficient for corporate consent | Kent (majority shareholder) could consent for Omega under rule 3-600 | Held corporate consent cannot be given by the insider whose interests are adverse; rule 3-600 does not permit Kent to bind Omega in this context |
Key Cases Cited
- People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135 (court’s authority to disqualify counsel and automatic disqualification principle)
- Flatt v. Superior Court, 9 Cal.4th 275 (distinguishes loyalty in concurrent representation from confidentiality in successive representation; substantial-relationship test)
- Blue Water Sunset, LLC v. Markowitz, 192 Cal.App.4th 477 (shareholder vicarious standing to seek disqualification in derivative actions)
- Forrest v. Baeza, 58 Cal.App.4th 65 (disqualification of counsel as to corporation but permitting continued representation of individual shareholders where corporate and individual roles are intertwined)
- Gong v. RFG Oil, Inc., 166 Cal.App.4th 209 (majority shareholder and corporation adverse where derivative claims involve real property transactions)
- La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court, 121 Cal.App.4th 773 (criticizing permissive dual-representation authority and supporting disqualification in derivative conflicts)
- Patrick v. Alacer Corp., 167 Cal.App.4th 995 (explaining that in derivative suits the corporation is the real plaintiff and an indispensable party)
- Grosset v. Wenaas, 42 Cal.4th 1100 (shareholder derivative-suit principles regarding corporation as nominal defendant)
- Liberty Nat. Enterprises, L.P. v. Chicago Title Ins. Co., 194 Cal.App.4th 839 (delay can constitute implied waiver of disqualification when delay and prejudice are extreme)
- Fiduciary Trust International of California v. Superior Court, 218 Cal.App.4th 465 (burden-shifting where opposing party makes prima facie showing of extreme delay and prejudice)