In re The PEOPLE of the State of Colorado v. Conley M. HOSKINS and Jane Medicals, LLC
Supreme Court Case No. 13SA245
Supreme Court of Colorado
September 8, 2014
2014 CO 70 | 828
Walta LLC, Mark G. Walta, Denver, Colorado, Hershey Decker, Kari Hershey, Lone Tree, Colorado, Attorneys for Defendant.
JUSTICE MARQUEZ delivered the Opinion of the Court.
¶1 This original proceeding arises in a criminal case involving Colorado Organized Crime Control Act (COCCA) and other felony charges against several defendants involved in the medical marijuana industry. Petitioners Conley Hoskins and Jane Medicals, LLC (collectively, Petitioners) seek to vacate the trial court‘s order disqualifying the law firm of Peters Mair Wilcox (PMW)1 as their counsel. The trial court disqualified PMW under Rule 1.9(a) of the Colorado Rules of Professional Conduct, finding that the firm previously represented another party, All Care Wellness Centers, LLC (All Care), in the same matter for which PMW now represents Petitioners and concluding that All Care and Petitioners have materially adverse interests. Petitioners sought review of the trial court‘s order under
¶2 We issued a rule to show cause and now hold that, because the record before us is insufficient to support a finding that the interests of Petitioners and All Care are materially adverse in this criminal proceeding, the trial court abused its discretion by disqualifying Petitioners’ retained counsel of choice under
I. Facts and Procedural History
¶3 Petitioners, Conley Hoskins (Hoskins) and Jane Medicals, LLC (Jane Medicals), are defendants in a district court action in which they and several others are charged with COCCA violations and numerous other felonies.
¶4 Hoskins owns or partially owns several businesses, including All Care and Jane Medicals, both of which are medical marijuana businesses. Hoskins is the sole owner of Jane Medicals. Prior to August 2011, he was the sole owner of All Care. On August 10, 2011, Hoskins and Rafael Craveiro (Craveiro) entered into a Membership Interest Purchase Agreement under which Crаveiro acquired a 50 percent membership interest in All Care.
¶5 In July 2012, the Colorado Department of Revenue (DOR) began to investigate whether certain businesses connected to Hoskins were in compliance with Colorado tax laws and regulations governing the
¶6 The indictment, which contains 71 counts, generally alleges that the defendants assoсiated to form a criminal enterprise that engaged in racketeering and conspiracy activity, including tax evasion, theft, and illegal distribution of marijuana. Hoskins, Jane Medicals, and All Care are co-defendants in several of the counts in the indictment. All 15 counts in the indictment against All Care also name Hoskins.
¶7 On August 2, 2013, the prosecution moved to disqualify PMW as Petitioners’ counsel, alleging that PMW‘s prior representation of All Care during the DOR investigation was in actual conflict with its current representation of Petitioners. Specifically, the prosecution asserted that PMW learned confidential information about All Care‘s business dealings, financial data, and trade secrets during the DOR investigation. The prosecution argued that PMW might pursue a defense theory that All Care employees were responsible for any illicit activities and that, if PMW pursued this blame-shifting defense, All Care would be disadvantaged by [PMW‘s] knowledge of sensitive and prejudicial information obtained during the prior representation. The prosecution pointed to a letter from PMW to the prosecution during the investigation stating that PMW originally becamе involved on Mr. Hoskins’ behalf in response to tax and employment issues arising from the malfeasance of key managerial employees. Although this letter did not mention All Care or any of the numerous businesses owned by Hoskins, the prosecution argued that this sentence possibly foreshadow[ed] [PMW‘s] intention to distance Hoskins from legal culpability and instead shift liability to the [All Care] employees. Finally, the prosecution stated that it intended to call All Care to testify against Hoskins and Jane Medicals and that PMW ethically would be unable to cross-examine its former client. However, the prosecution never identified who it would call to testify as All Care or the nature of such testimony.
¶8 Based on these assertions, the prosecution argued that PMW‘s prior representation of All Care created a conflict in violation of
¶9 In response to the prosecution‘s motion to disqualify, Hoskins argued that the prosecution had not met its burden to specify facts demonstrating that his interests and All Care‘s interests are materially adverse. Hoskins argued that he is a 50 percent owner of All Care and, during the relevant time
¶10 Approximately two weeks after the prosecution filed its motion to disqualify, Craveiro‘s attorney sent a letter to PMW notifying the firm that, pursuant to Section 1 in All Care‘s Operating Agreement, Hoskins had forfeited his ownership interest in All Care on or around July 19, 2013. Under Section 1 of the Agreement, a manager‘s ownership in All Care is deemed forfeited if a manager is charged with a felony and fails to cure said obstructions to ownership within 30 days. In the letter, Craveiro alleged that Hoskins had been charged with several dozen felonies and had failed to cure this obstruction to ownership within the 30-day period. At the time Petitioners sought review under
¶11 On August 28, 2013, Craveiro, who is not a party to this criminal proceeding, filed an amicus brief through his personal attorney in support of the prosecution‘s motion to disqualify PMW.3 The trial court accepted this filing over Petitioners’ objection. That same day, the trial court held an evidentiary hearing on the prosecution‘s motion to disqualify. Testimony at the hearing established that a dispute had developed between Craveiro and Hoskins over the ownership of All Care and over the fact that an employee4 had removed marijuana and cash from the All Care store location.
¶12 At the hearing, Craveiro testified on cross-examination that he was just a manager of the LLC on paper and never actually assumed a managerial role or performed management duties for All Care. He acknowledged that Hoskins was responsible for hiring and firing employees for All Care, handling the bank accounts and tax matters, and hiring the certifiеd public accountant and attorneys for the business. He also agreed that all of the alleged conduct at issue in the criminal case occurred while Hoskins was the manager of All Care. Craveiro further acknowledged that he did not transmit any confidential information pertaining to All Care to PMW during the DOR investigation. Rather, he testified that he believed the confidential information PMW obtained during its representation of All Care concerned his personal financial information that was submitted to the state and the City of Lakewood during All Care‘s licensure process. He later acknowledged that all of those documents had been provided to the government, which then provided them back to Hoskins, and that there was nothing confidential about that information. Although Craveiro testified that he objected to PMW‘s representing Hoskins, he agreed that as an owner of All Care, Hoskins had full knowledge of, and access to, all of All Care‘s business records and that Hoskins could share that information with any individual counsel he retained.
He also acknowledged that, during a conference call with Craveiro and counsel for All Care on July 16, 2013, Hoskins and PMW expressed their interest in ensuring that All Care continue to operate. When asked to describe the conflict between All Care and PMW, Craveiro responded, I guess that‘s a difficult question. I think in some of the replies that I have seen from my counsel to them, that they are not looking after the best interests of the company.
¶13 PMW took the position at the hearing that it did not possess any confidential information that would adversely affect All Care and that, although Craveiro and Hoskins obviously had a separate dispute regarding ownership issues, no conflict existed in the criminal case because Hoskins had an interest in ensuring that All Care succeeded as a business. Petitioners’ legal ethics expert, Ronald Nemirow, opined that, based on his review of the case, hearing testimony, applicable case law, and ethics rules, nothing suggested that Hoskins’ interests were adverse to All Care‘s interests with regard to the criminal case. Specifically, he saw nothing alleged in the indictment against All Care that was not also alleged against Hoskins, and he saw no indicаtion beyond mere speculation that Hoskins intended or had a motive to blame someone else for the conduct of All Care. He opined that under
¶15 Petitioners then petitioned this court to issue a rule to show cause under
II. Original Jurisdiction
¶16 Original relief pursuant to
III. Standard of Review
¶17 A trial court‘s interpretation of a rule of professional conduct presents a question of law that we review de novo. Nozolino, ¶ 9, 298 P.3d at 918. We review a trial court‘s decision to disqualify counsel for abuse of discretion. People v. Shari, 204 P.3d 453, 457 (Colo. 2009). We will find an abuse of discretion only where the lower court‘s decision was manifestly arbitrary, unreasonable, or unfair. Dunlap v. People, 173 P.3d 1054, 1094 (Colo. 2007).
IV. Analysis
¶18 The issue before this court is whether the trial court abused its discretion in disqualifying Petitioners’ retained counsel of choice. We begin with a discussion of a criminal defendant‘s right to be represented by counsel of choice. We then discuss
A. A Criminal Defendant‘s Right to Counsel of Choice
¶19 A defendant‘s right to be represented by counsel of choice is grounded in the jurisprudence of the sixth amendment to the United States Constitution and is entitled to great deference. Rodriguez v. Dist. Court, 719 P.2d 699, 705 (Colo. 1986). This guarantee reflects the substantial interest of a defendant in retaining the freedom to select an attorney the defendant trusts and in whom the defendant has confidence. Id. at 705-06. A defendant‘s right to select an attorney the defendant trusts is considered to be central to the adversary system and of substantial importance to the integrity of the judicial process. People v. Brown, 2014 CO 25, ¶ 16, 322 P.3d 214, 219 (internal quotation marks and citation omitted). As such, we afford this right great deference. Id. (internal quotation marks and citation omitted).
¶20 However, the Sixth Amendment right to counsel оf choice is not absolute and must give way under certain circumstances. People v. Frisco, 119 P.3d 1093, 1095 (Colo. 2005) (citing Wheat v. United States, 486 U.S. 153, 159, 108 S.Ct. 1692, 100 L.Ed.2d 140 (1988)). In some circumstances, fundamental considerations other than a defendant‘s interest in retaining a particular attorney are deemed of controlling significance. Rodriguez, 719 P.2d at 706. These considerations relate to the paramount necessity of preserving public confidence in the integrity of the administration of justice. Id. To that end, courts retain the discretion to disqualify attorneys from further representation. In re Estate of Myers, 130 P.3d 1023, 1025 (Colo. 2006).
¶22 The moving party has the burden of establishing that disqualification is proper. People v. Harlan, 54 P.3d 871, 877 (Colo. 2002). That burden is met only where the motion to disqualify sets forth specific facts showing a clear danger that prejudice to a client or adversary would result from continued representation. Estate of Myers, 130 P.3d at 1025. The required showing of prejudice cannot be based on mere speculation or conjecture. Nozolino, ¶ 13, 298 P.3d at 919. Additionally, the trial court must determine that any remedy short of disqualification would be ineffective. Id.
B. Colorado Rule of Professional Conduct 1.9(a)
¶23 Here, the prosecution alleges that a conflict of interest exists under
¶24
A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person‘s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.
¶25 The party seeking disqualification must show that: (1) an attorney-client relationship existed in the past; (2) the present litigation involves a matter that is ‘substantially related’ to the prior litigation; (3) the present client‘s interests are materially adverse to the former client‘s interests; and (4) the former client has not consented to the disputed representation after consultation. Funplex P‘ship v. F.D.I.C., 19 F.Supp.2d 1201, 1206 (D.Colo. 1998) (internal quotation marks and citation omitted) (applying
¶26 Importantly,
¶27 Here, it is undisputed that PMW previously represented All Care and that All Care—through Craveiro—has not consented to PMW‘s representation of Petitioners in this current matter. In addition, it does not appear to be disputed that, for the purposes of
C. Insufficient Showing That Interests Are Materially Adverse
¶28 As discussed above, the severe remedy of disqualification of a criminal defendant‘s counsel of choice should be avoided whenever possible. Estate of Myers, 130 P.3d at 1025. Disqualification under
¶29 We conclude that the prosecution failed to meet its burden to show that, for purposes of
¶30 The prosecution‘s claim8 that PMW‘s prior representation of All Care presents a conflict under Rule 1.9(a) is based on the argument that PMW acquired confidential information about All Care that could be used against it in this criminal proceeding. However, the prosecution‘s argument presumes that the defendants will be tried together, although the trial court‘s order indicates that severance is likely. It further presumes that All Care will be called to testify against Hoskins, although the prosecution has never identified who, precisely, will testify on behalf of the entity, nor has it described the nature of such testimony or how it would be adverse to Hoskins.
¶31 In addition, the prosecution‘s argument presumes that Hoskins will attempt tо shift blame to other All Care employees whose actions would subject All Care to criminal liability without implicating Hoskins. This blame-shifting argument assumes that other employees of All Care qualify as high managerial agents under
A business entity is guilty of an offense if . . . [t]he conduct constituting the offense is engaged in, authorized, solicited, requested, commanded, or knowingly tolerated by the governing body or individual authorized to manage the affairs of the business entity or by a high managerial agent acting within the scope of his or her employment or in behalf of the business entity.
¶32 However, the record before us indicates that Hoskins was the sole high managerial agent during the relevant time periods in the indictment. The indictment charges All Care, as a business entity, with a total of 15 counts, including racketeering and conspiracy under COCCA, cultivation and distribution of marijuana, tax evasion, and theft. Two of those counts, for racketeering and conspiracy under COCCA, are alleged against all 17 defendants named in the indictment. The other 13 counts against All Care also name Hoskins,9 but do not identify any other All Care manager or employee who would qualify as a high managerial agent responsible for All Care‘s alleged criminal acts. Indeed, Hoskins is the only person identified in the indictment as a high managerial agent of All Care.
¶33 Although several of the counts against All Care name Brenden Joyce and David Krause, who worked in various capacities for other entities owned or partially owned by Hoskins, and one count against All Care names attorney Dallan Dirkmaat, the prosecution does not allege that Joyce, Krause, or Dirkmaat were ever managers or employees of All Care. The prosecution presented no specific evidence at the disqualification hearing establishing that two other defendants, Nathan Newman and Ryan Tripp, were high
¶34 Further, the prosecution‘s theory that Hoskins will seek to shift blame to unidentified high managerial agents of All Care is mere speculation. The prosecution—and the trial court in its order—relied on PMW‘s letter referring to malfeasance of key managerial employees as support for the proposition that Hoskins will attempt to escape legal culpability by shifting liability to other All Care employees. However, as noted above, PMW pointed out that this letter, which does not even mention All Care, was referring to tax and employment issues arising at Hoskins’ car wash businesses, and that this fact was known to the prosecution. PMW has also represented in filings to the trial court and this court that Hoskins has no interest in shifting blame to All Care. And indeed, the record before us reveals no motive for Hoskins to shift blame to All Care, given that Hoskins has a continuing interest in the viability and profitability of All Care regardless of the outcome of the arbitration over the ownership dispute. Either Hoskins will continue to have a 50 percent ownership interest in All Care or he will be entitled to a compensation package under the All Care Operating Agreement.11
¶35 Likewise, the trial court‘s conclusion that All Care will attempt to shift blame to Hoskins is unsupported by the record. All
¶36 We also note that nothing in the record before us establishes that PMW received confidential information regarding All Care from anyone other than Hoskins himself, as co-owner and manager of the LLC. Thus, any counsel representing Hoskins would have access to the same information. To the extent PMW was present during the DOR‘S interviews of other All Care employees not represented by PMW, the notes and recordings of those interviews presumably would be available to any counsel representing Hoskins. Moreover, the prosecution‘s contention that PMW obtained confidential information about All Care through its conversations with these employees is mere speculation.
¶37 Finally, even assuming that Hoskins intends to seek to shift blame to All Care, any prejudice could be resolved by severance of Hoskins’ and All Care‘s trials. The trial court reasoned that any testimony elicited from an All Care employee in the trial of Hoskins and Jane Medicals could be used against that same witness in a trial against All Care. However, such a concern can be avoided if All Care proceeds to trial first. See Nozolino, ¶ 13, 298 P.3d at 919 ([T]he trial court must determine that any remedy short of disqualification would be ineffective. (internal quotation marks and citation omitted)).
¶38 The burden is on the moving party to establish grounds for disqualification of opposing counsel. Fognani, 115 P.3d at 1272. Disqualification can occur only after facts hаve been alleged that demonstrate a potential violation of the rule, and counsel cannot be disqualified on the basis of speculation or conjecture. Id. Because the People have failed to show a clear danger of prejudice or that Petitioners have a motive to harm All Care, the People have not met this burden. See Frisco, 119 P.3d at 1096; Harlan, 54 P.3d at 877; Estate of Myers, 130 P.3d at 1025.
V. Conclusion
¶39 Because the record before us is insufficient to support a finding that the interests of Petitioners and All Care are materially adverse in this criminal proceeding, we hold that the trial court abused its discretion by disqualifying Petitioners’ retained counsel of choice under
CHIEF JUSTICE RICE dissents.
CHIEF JUSTICE RICE, dissenting.
¶40 In July 2012, Peters Mair Wilcox (PMW), a Colorado-based law firm, represented several parties in connection with a criminal investigation conducted by the Colorado Department of Revenue (DOR). PMW represented Conley Hoskins individually; additionally, it represented two medical marijuаna dispensaries in which Hoskins had an ownership stake, All Care Wellness, LLC (All Care), and Jane Medicals, LLC (Jane Medicals), in their organizational capacities. PMW communicated extensively with the Senior Assistant Attorney General on behalf of these three clients during the course of its representation.1 PMW attorneys also arranged for and participated in the DOR‘S investigatory interviews of Jane Medicals’
¶41 Subsequently, the People indicted more than a dozen individuals or entities for violations of the Colorado Organized Crime Control Act (COCCA), among other crimes, including theft, tax evasion, securities fraud, and illegal distribution of marijuana. The indictment included 71 total counts. Specifically, it charged two of All Care‘s store managers, Nathan Newman and Ryan Tripp, as well as Hoskins, All Care, Jane Medicals, and othеrs, with violations of COCCA, including racketeering—participation in an enterprise and conspiracy/endeavoring. After the indictment, Ralph Craveiro, the co-owner of All Care, challenged Hoskins‘s ownership interest in that business. Craveiro argued that Hoskins had forfeited his 50% share when he was charged with multiple felonies. All Care‘s ownership status remains in dispute and is the subject of a pending arbitration proceeding.
¶42 Thereafter, PMW entered an appearance only on behalf of Hoskins and Jane Medicals in the criminal case, despite having previously represented a co-defendant, All Care, in the very investigation that gave rise to the indictment. In response to PMW‘s entry of appearance, the People filed a motion to disqualify the firm, arguing that there was an impermissible conflict of interest between PMW‘s former client (All Care) and its current clients (Hoskins and Jane Medicals, hereinafter Petitioners) and that All Care did not consent to PMW‘s representation of Petitioners.
¶43 The trial court held an evidentiary hearing that included testimony from an ethics expert (in opposition to the motion) and from Craveiro (in support of the motion). In later granting the People‘s motion, it concluded that All Care‘s and Petitioners’ interests were materially adverse to one another in violation of
¶44 Contrary to the majority, I would affirm the trial court and hold that Petitioners have materially adverse interests to those of All Care. Although the majority purports to apply the abuse of discretion standard in reversing the trial court, in actuality, it subjects the trial court‘s findings to a far more searching and demanding standard. Given that the record before us is more than sufficient to justify the trial court‘s decision, I cannot agree with the majority‘s conclusion that the trial court abused its discretion when it disqualified PMW as counsel for Petitioners, and I respectfully dissent.
I. Analysis
¶45 First, I examine the case law regarding the abuse of discretion standard in the context of motions to disqualify counsel specifically, including the sound reasons behind that very high standard. Next, I discuss how I would have applied that standard here, and explain why the majority—despite purportedly applying that standard—in actuality applies a far more stringent standard and accordingly errs in reversing the trial court.
A. Disqualification of Counsel and the Abuse of Discretion Standard
¶46 The Sixth Amendment right of criminal defendants to counsel of their choice is circumscribed in several important respects and must give way under certain circumstances. See People v. Frisco, 119 P.3d 1093, 1095 (Colo. 2005) (citing Wheat v. United States, 486 U.S. 153, 159, 108 S.Ct. 1692, 100 L.Ed.2d 140 (1988)). Although a criminal defendant‘s choice of a particular attorney is afforded great dеference, People v. DeAtley, 2014 CO 45, ¶ 15, 333 P.3d 61, the essential aim of the Sixth Amendment is to guarantee an effective advocate for each criminal defendant within the adversarial process—not to ensure that a defendant will inexorably be represented by the lawyer whom he prefers, Wheat, 486 U.S. at 159, 108 S.Ct. 1692.
¶47 A trial court‘s inherent power to disqualify attorneys from conflicted representation derives from its duty to ensure the integrity and fairness of the proceedings before it. In re Estate of Myers, 130 P.3d 1023, 1025 (Colo. 2006); see also Liebnow by & through Liebnow v. Boston Enters. Inc., 2013 CO 8, ¶ 13, 296 P.3d 108 (noting that it is within the exclusive province of the trial court to determine if disqualification is warranted). A trial court has broad discretion in deciding disqualification motions. People v. Harlan, 54 P.3d 871, 877 (Colo. 2002). Indeed, a trial court stands in the best position to make the fact-specific determination as to whether a particular conflict would compromise the integrity of the proceeding. See Frisco, 119 P.3d at 1096 ([C]ourts clearly have the responsibility to ensure that a criminal defendant receives a fair trial (even where that requires disqualification of his counsel of choice), as well as the latitude to ensure the integrity, and appearance of integrity, of the process.); see also Wheat, 486 U.S. at 163, 108 S.Ct. 1692 (concluding that a trial court has substantial latitude in determining whether to disqualify an attorney in the face of actual or potential conflicts of interest). As such, we only overturn a trial court‘s decision on a disqualification motion if we find that the trial court abused its discretion. Liebnow, ¶ 14.
¶48 The abuse of discretion standard is—by design—deferential to the trial court. The standard is very high because it recognizes the trial court‘s unique role and perspective in evaluating the demeanor and body language of live witnesses, and it serves to discourage an appellate court from second-guessing those judgments based on a cold record. Carrillo v. People, 974 P.2d 478, 485-86 (Colo. 1999) (describing the standard in the context of juror dismissal). To constitute an abuse of discretion, the trial court‘s decision must be manifestly arbitrary, unreasonable, or unfair. Gen. Steel Domestic Sales, LLC v. Bacheller, 2012 CO 68, ¶ 42, 291 P.3d 1 (emphasis added). Significantly, in determining whether a trial court‘s decision is manifestly arbitrary, unreasonable, or unfair, we ask whether the trial court exceed[ed] the bounds of the rationally available choices—not whether we agree with that decision. Churchill v. Univ. of Colo., 2012 CO 54, ¶ 74, 285 P.3d 986 (internal quotation marks omitted) (quoting Hall v. Moreno, 2012 CO 14, ¶ 54, 270 P.3d 961).
¶49 We allow trial courts substantial latitude in determining whether disqualification is warranted for two reasons. First, conflicted representation undermines both the efficacy of an attorney‘s representation and the integrity of the legal system more generally. An attorney owes his or her client a duty of loyalty and a concomitant duty to avoid conflicts of interest; indeed, these are perhaps the most basic of counsel‘s duties. Strickland v. Washington, 466 U.S. 668, 692, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984); see also
¶50 Second, a trial court‘s decision about whether a conflict requires separate representation is made not with the wisdom of hindsight after the trial has taken place, but in the murkier pre-trial context when relationships between parties are seen through a glass, darkly. Id. at 162, 108 S.Ct. 1692. In Wheat, a case disqualifying counsel from representing multiple co-defendants in a marijuana-distribution conspiracy, the Unitеd States Supreme Court explained the complexity of the decision trial courts face in determining disqualification motions:
The likelihood and dimensions of nascent conflicts of interest are notoriously hard to
predict, even for those thoroughly familiar with criminal trials. It is a rare attorney who will be fortunate enough to learn the entire truth from his own client, much less be fully apprised before trial of what each of the Government‘s witnesses will say on the stand. A few bits of unforeseen testimony or a single previously unknown or unnoticed document may significantly shift the relationship between multiple defendants.
Id. at 162-63, 108 S.Ct. 1692. The broad discretion afforded to trial courts, then, is not only sensible, because trial courts are far closer to the witnesses and the evidence than are appellate courts; it is also necessary given the unavoidably difficult nature of any pretrial disqualification decision.
¶51 With the wide latitude afforded to trial courts in mind, I now turn to my analysis of the trial court‘s application of Rule 1.9(a) in this case.
B. The Trial Court‘s Findings of Material Adversity Are Sufficiently Supported by the Record
¶52 I agree with the majority that, for purposes of
¶53 The majority concludes that it is mere speculation that Hoskins will seek to shift blame to other All Care employees because Hoskins was All Care‘s only high managerial agent who was specifically named in the indictment. Maj. op. ¶¶ 33-34. In other words, it concludes that there are no other individuals to whom Hoskins can shift the blame for All Care‘s alleged criminal malfeasance and, thus, that there is no conflict of interest because Hoskins‘s interests are aligned with All Care‘s. See id.
¶54 The record, however, does not support this conclusion; rather, it shows there is a significant risk that Hoskins will attempt to exculpate himself at the expense of All Care‘s employees. For example, both Nathan Newman and Ryan Tripp, two All Care managers, were indicted along with Hoskins. Specifically, the indictment alleges that Newman, Tripp, and Hoskins, along with other All Care employees, engaged in a complex criminal conspiracy which involved receiving, buying, selling, cultivating, and/or distributing marijuana. It was not manifestly arbitrary, unreasonable, or unfair for the trial court to conclude that one of Hoskins‘s best defense strategies would be to shift blame away from himself and onto Newman and Tripp (or, for that matter, onto other indicted or unindicted All Care employees) by claiming that they acted at their own behest in committing any alleged crimes rather than at his direction.
¶55 The majority also relies on
¶56 Moreover, the record also establishes—as the trial court correctly noted—that Hoskins had already begun to point fingers and did so well in advance of trial. Specifically, during the DOR‘S pre-indictment investigation, PMW attorney Stephen Peters sent a letter to a Senior Assistant Attorney General entitled Investigation of Conley Hoskins. In that letter, Peters explained that he initially began representing Hoskins in response to tax and employment issues arising from the malfeasance of key managerial employees. Peters also offered, in the very same paragraph, to show the DOR copies of tax- and withholding-related paperwork prepared by an accountant in response to this malfeasance [b]ecause the taxes are one stated theory of your proposed securities prosecution. Although the majority acknowledges the existenсe of this letter, it completely disregards it for purposes of the material adversity analysis, apparently because the letter did not specifically mention All Care. See maj. op. ¶ 7. However, given that the letter was sent in the context of the pre-indictment investigation of Hoskins‘s businesses, including All Care, it was not manifestly arbitrary, unreasonable, or unfair for the trial court to rely on the letter as a piece of evidence in support of the People‘s motion to disqualify. Indeed, the letter concretely demonstrates that, at least when it comes to the indictment‘s charges of securities fraud and tax evasion, Hoskins was already directing blame away from his own malfeasance, if any, to the malfeasance of key managerial employees.
¶57 The majority‘s conclusion that Hoskins has no motive to blame All Care‘s employees or managers is also premised on its problematic assumption that Hoskins is motivated solely by his narrow financial interests in preserving All Care as a viable future entity. See maj. op. ¶ 34. Significantly, the majority makes this assumption without pointing to a single piece of evidence in the record. See id. However, it was not manifestly arbitrary, unreasonable, or unfair for the trial court to conclude that Hoskins was likely to employ a blame-shifting defense, even at the expense of losing future financial benefits from All Care, because doing so might allow him to avoid jail time or other forms of criminal sanction. If Hoskins were to successfully demonstrate that All Care‘s employees were serving their own prerogatives by engaging in unlawful activity—and not because Hoskins authorized, solicited, requested, commanded, or knowingly tolerated such activity—he could escape personal culpability, even at the risk of losing his investment in All Care.
¶58 Moreover, at the disqualification hearing, the trial court correctly noted that if Hoskins loses his ownership stake in All Care in the pending arbitration proceeding, he would also lose his financial interest in ensuring that All Care escapes criminal sanctions. In this respect, the majority‘s holding that there was no material adversity is contingent on a future third-party arbitrator‘s decision to preserve Hoskins‘s ownership share. In contrast, the trial court‘s decision to grant the People‘s motion to disqualify ensures that even if Hoskins loses his ownership share, this loss will not affect All Care‘s ability to defend itself.
¶59 The trial court‘s decision was justified not only because it reasonably concluded that Hoskins had obvious incentives to shift the blame onto All Care; it also was justified because the record establishes that PMW obtained confidential information2 about All
¶60 The trial сourt also fully considered whether a remedy short of disqualification would be effective. It noted that severing the trials would not necessarily eliminate the conflict of interest implicated here because PMW was already exposed to confidential information about All Care and there was nothing the trial court could do to ensure that PMW did not use that information in defending Petitioners. Such a conclusion was justified given its finding that Hoskins would have an incentive to blame other All Care employees in his own defense.
II. Conclusion
¶61 Contrary to the majority, I believe that the record presented here was more than sufficient for the trial court to find that Petitioners’ interests were materially adverse to All Care‘s interests. Although it purports to apply an abuse of discretion standard in reviewing the trial court‘s decision, the majority actually applies a far more stringent standard and fails to recognize the substantial latitude and broad discretion afforded trial courts in making the difficult decision to disqualify counsel. Accordingly, I respectfully dissent.
NANCY E. RICE
CHIEF JUSTICE, SUPREME COURT OF COLORADO