Verio Healthcare, Inc. v. Superior Court of Orange CountyVerio Healthcare, Inc. v. Superior Court of Orange County
COUNSEL
Buchalter
No appearance for Respondent.
Rutan & Tucker, Richard K. Howell, Gerard M. Mooney and Kathryn D. Z. Domin for Real Parties in Interest.
OPINION
IKOLA, J.—Defendants Eric Schrier, Frank Frederick, and Angela Martinez had been employed in various capacities by plaintiff SG Homecare, Inc. (SG Homecare), before abruptly leaving to start a competing firm, defendant Verio Healthcare, Inc. (Verio Healthcare). SG Homecare filed the underlying complaint, alleging the individual defendants breached their contractual and fiduciary duties, and misappropriated trade secrets. Schrier and his wife cross-complained against SG Homecare and its owner, Thomas Randall Rowley (together, the SG parties), alleging wrongful termination and intentional infliction of emotional distress.
Defendant Verio Healthcare and the individual defendants are represented by Donald Wagner of the firm Buchalter Nemer, PFC. Shortly after the cross-complaint was filed, the SG parties moved to disqualify Buchalter Nemer. The motion was based on the assertion that shortly before the individual defendants’ departure from SG Homecare, Buchalter Nemer executed a retainer agreement with SG Homecare and was either currently representing SG Homecare, or, alternatively, the present litigation is substantially related to Buchalter Nemer’s prior representation of SG Homecare, requiring disqualification in either event.
At around the same time, defendants moved ex parte for a nine-month continuance of the entire litigation on the ground that defendants’ attorney,
Defendants petitioned this court for a writ of mandate ordering the trial court to grant the stay. We summarily denied the petition, but the California Supreme Court granted review and remanded to our court with instructions to issue an order to show cause. We issued an order to show cause, entertained argument, and now deny the requested writ for two reasons.
First, the court acted within its discretion by impliedly concluding the requested stay would “abridge a right . . . to invoke a provisional remedy” (
Second, although the 1968 amendment of
ALLEGED FACTS
SG Homecare’s First Amended Complaint
According to SG Homecare’s operative first amended complaint, SG Homecare is a medical supply and delivery company providing equipment to patients, physicians, health plans, and others. Rowley owns SG Homecare.
Schrier was a longtime personal friend of Rowley’s. In October 2014, Schrier said he was experiencing financial difficulties, so Rowley offered to employ him at a starting salary of $420,000. Schrier had no prior experience in the medical supply industry. Schrier’s employment contract stated, among other things, that he would not engage in any activity to compete with SG Homecare while employed there. Schrier also agreed not to use or disclose SG Homecare’s trade secrets, and not to solicit SG Homecare’s customers or employees for a period of one year after leaving SG Homecare’s employ.
Martinez was SG Homecare’s director of operations, and in that capacity she obtained knowledge of SG Homecare’s confidential information, including methods of operation, finances, customer relationships, and employees. In early 2015, Martinez admitted to embezzling over $62,000 from SG Homecare, but Schrier convinced Rowley not to fire her, claiming Martinez’s services were needed to run the business.
Frederick was a consultant Schrier hired who worked out of SG Homecare’s Costa Mesa office and who acted as a representative of SG Homecare to procure and maintain relationships with current and potential clients. In that capacity he also obtained knowledge of confidential information, such as methods of operation, marketing, customer relationships, and employees.
While working at SG Homecare, unbeknownst to Rowley, the individual defendants were conspiring to form a competing firm, Verio Healthcare. Frederick incorporated Verio Healthcare on September 15, 2015, at which time the individual defendants were still employed by SG Homecare. On October 16, 2015, the individual defendants abruptly resigned from SG Homecare to work at Verio Healthcare.
After the individual defendants’ departure, SG Homecare discovered they had deleted numerous electronic files, including most of their e-mails, and
SG Homecare also discovered that defendants were pursuing relationships and contracts with current and potential customers of SG Homecare, including Molina Healthcare, with which Frederick and Schrier had been negotiating on behalf of SG Homecare. Those negotiations had proceeded to the point where Molina Healthcare and SG Homecare had exchanged contract documentation. SG Homecare alleged such a contract would have generated “several millions of dollars of profits annually.”
On November 20, 2015, SG Homecare filed a first amended complaint against Verio Healthcare and the individual defendants, asserting causes of action for breach of fiduciary duty, breach of contract, conversion, violation of
On December 24, 2015, defendants answered the first amended complaint, denying the allegations, and defendant Schrier and his wife filed a cross-complaint against Rowley for wrongful termination (constructive termination) and intentional infliction of emotional distress. Donald Wagner was the signing attorney on both documents.4 Both documents listed one other attorney who, based on her bar number, appears to be an associate at the firm.
The Schriers’ Cross-complaint
According to the Schriers’ cross-complaint, Rowley and Schrier had known each other for 12 years, having met at a golf club. Beginning in January 2013, over a period of nine months Rowley attempted to recruit Schrier to work at SG Homecare. It was not until October 2014 that Schrier left his position in the print advertising industry and joined SG Homecare as its president.5 Over the next 10 months, Schrier doubled SG Homecare’s monthly revenue.
Rowley had informed Schrier that SG Homecare was licensed to provide goods and services under Medicare and Medi-Cal in Orange County. This was false, and SG Homecare was benefiting from business that required such a license. Schrier discovered the falsehood and warned Rowley that this conduct was illegal, but Rowley did not remedy the problem.
After spending his first eight months on the job focusing on marketing and improving operations, Schrier turned his attention to SG Homecare’s finances. He discovered Rowley was using the company as his personal “Piggy Bank.” He was using company money to fund his drug habit and a lavish lifestyle, including making rental and mortgage payments on properties, auto payments for his girlfriend and adult children, and funding vacations in Hawaii and Mexico. To gain a tax advantage, Rowley falsely listed these expenses as company expenses. Schrier voiced his opposition to this practice and warned Rowley that the company would suffer in an audit, but Rowley ignored the warning. Schrier also discovered a major inaccuracy on SG Homecare’s tax records, which Rowley attempted to cover up by improperly recategorizing certain expenses without paying the additional taxes that would be owed.
In confronting Rowley about these various unethical and illegal practices, “Rowley repeatedly promised that he would ‘indemnify’ . . . Schrier for any damage caused by fraudulent activities. . . . Rowley went so far as to even offer to have his attorneys draft an indemnity agreement . . . .” “However, . . . Schrier was uncomfortable proceeding as an employee of [SG Homecare], despite the offer of an ‘indemnity agreement.’ ”
“Being constantly pressured to engage in fraudulent business activities and under the stress and pressure of being harassed for his religious and ethnic background, . . . Schrier believed that he had no alternative but to leave his position as president of [SG Homecare].”
In response, Rowley went into a fit of rage and left several profanity-laced, racist tirades on the voicemails of Schrier and his wife, threatening repeatedly to sue them and their five children. “Cross complainants were legitimately fearful for the[ir] lives and the lives of their children.” As a result, the Schriers called the Orange County Sheriff’s Department. A deputy responded,
Competing Motions for Disqualification of Counsel and a Stay of All Proceedings
Less than two weeks after the cross-complaint was filed, on January 4, 2016, defendants moved the court for a continuance of the trial and all pretrial matters (in effect, a stay of all proceedings) based on the fact that their attorney, Donald Wagner, is a member of the Legislature, and thus entitled to a continuance. According to Wagner’s declaration, the Legislature reconvened from its interim recess on January 4, 2016, and was scheduled to adjourn for more than 40 days on August 31, 2016. Wagner stated, “Because of the press of legislative business in the 2016 session, I am occupied in Sacramento and unable to participate in pre-trial proceedings or otherwise prepare for trial.” The motion sought a continuance to a date on or after October 1, 2016. The hearing on the motion was set for February 3, 2016.
The next day, defendants withdrew the motion on the ground that “[gjranting of a continuance under
Two days later, on January 7, 2016, there were three filings in quick succession. At 10:28 a.m., SG Homecare and Rowley filed a motion to disqualify Buchalter Nemer on the ground that the firm had recently represented SG Homecare in a substantially related matter. The hearing date was set for April 6, 2016. At 10:48 a.m., defendants filed an ex parte application to continue all proceedings on the same basis as their previous motion. In response, that afternoon, SG Homecare and Rowley filed an ex parte application to have the motion to disqualify heard the following day, or at the same time as the motion for a continuance. The following day, SG Homecare and Rowley filed an opposition to defendants’ motion for a continuance on the ground, inter alia, that they were entitled to a preliminary injunction in this case.
The motion to disqualify, supported by Rowley’s declaration, alleged many of the same facts recited in the first amended complaint. In addition, it alleged that in June or July 2015, Rowley happened upon a meeting in SG Homecare’s office between Schrier and attorneys from Buchalter Nemer, including Michael Caspino. When Rowley asked Schrier why he was meeting with attorneys from Buchalter Nemer when SG Homecare had previously used different attorneys, Schrier said Buchalter Nemer was better and would be serving as SG Homecare’s attorneys going forward.
On July 16, 2015, Schrier’s assistant sent Caspino a fully executed engagement agreement between Buchalter Nemer and SG Homecare. Buchalter Nemer agreed to represent SG Homecare in connection with “general business matters.”
In an August 6, 2015, e-mail exchange between Schrier and Attorney Simer, Schrier sent Simer a contract between SG Homecare and a client and discussed the amount of fees for her to review the contract. Rowley attested that the terms of such client contracts are confidential information, and that by sending Buchalter Nemer this contract, Buchalter Nemer gained access to confidential information. On September 8, 2015, Simer e-mailed Schrier asking if he would like Buchalter Nemer to review the contract.
On September 15, 2015 (the same day Verio Healthcare was incorporated), Caspino wrote to Schrier to “confirm that [Buchalter Nemer] will no longer act as counsel for SG Homecare.” It went on to say, “Although we executed an engagement letter, our firm did not perform any services for SG Homecare.”
The Hearing on the Motions and the Subsequent Writ Petition
Both ex parte motions were heard in chambers on January 8, 2016, and both were denied without explanation by the court. There was no reporter present in chambers, but according to the present writ petition, the court denied the stay request on the ground that another attorney at Buchalter Nemer could handle the case in Wagner’s absence.
Defendants filed a petition for a writ of mandate in our court. We summarily denied the petition. Defendants sought review in the California Supreme Court, which granted review, issued an order staying the litigation, and transferred the matter back to our court to issue an order to show cause. We complied.
Although Technically Moot, We Decide This Case on the Merits Because the Issue May Otherwise Escape Appellate Review
We begin by addressing mootness. According to Wagner’s declaration, the Legislature would be in session through August 31, 2016, and thus he sought a continuance through October 1, 2016. By the time this opinion is final, it will be beyond October 1, 2016. Since the California Supreme Court stayed the litigation, defendants have obtained the stay they sought through the appellate process. Nonetheless, we exercise our discretion to address the merits in this case because this issue is likely to occur in other cases where the appellate process may otherwise preclude meaningful review. (Thompson v. Department of Corrections (2001) 25 Cal.4th 117, 122 [105 Cal.Rptr.2d 46, 18 P.3d 1198] [“when, as here, an otherwise moot case presents important issues that are ‘capable of repetition, yet evading review’ [citations], we may resolve the issues”].)
Background: The Thurmond Decision and the Amendment of Sections 595 and 1054.1
Currently,
The final paragraph of
The Thurmond court issued a writ reversing the trial court’s decision. “We are persuaded that the statutory provisions upon which Thurmond relies should be viewed as directory only.” (Thurmond, supra, 66 Cal.2d at pp. 838-839.) “ ‘One of the powers which has always been recognized as inherent in courts, which are protected in their existence, their powers and jurisdiction by constitutional provisions, has been the right to control its order of business and to so conduct the same that the rights of all suitors before them may be safeguarded. This power has been recognized as judicial in its nature, and as being a necessary appendage to a court organized to enforce rights and redress wrongs.’ ” (Id. at p. 839.) Interpreting
“Among the factors to be considered by the court will be the nature and urgency of the rights involved [citation], whether the party seeking delay has or can secure other counsel to represent him for the particular step in the proceedings then before the court, and whether the attorney who is a member of the Legislature was employed for no other purpose than attempted delay. [Citations.] The legislative policy of granting continuances of court proceedings so as not to interfere unduly with the functions of the Legislature, reflected in
The Court Did Not Abuse Its Discretion
We conclude the court did not abuse its discretion in denying defendants the requested extended stay of this matter for two reasons: (1) the court acted within its discretion by impliedly concluding the requested stay would “abridge a right . . . to invoke a provisional remedy” (
1. An Exception to the Mandatory Stay Language of Sections 595 and 1054.1, Subdivision (b) Applies to This Case
As a preliminary matter, we note the absence of a record of what transpired in chambers where the court considered the ex parte motions. We do have a brief statement in a declaration from Wagner, submitted with the writ petition, that the court relied on the fact that Buchalter Nemer has other attorneys who can handle the matter. We also have a brief statement in a declaration from Gerard Mooney, attorney for SG Homecare, submitted in SG Homecare’s return to the writ petition, stating the court relied on the right to invoke provisional relief as well as the pending disqualification motion. A silent record has consequences. “A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.” (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 355, p. 409.) Thus, in the absence of a record of the discussion in chambers, we must presume the order of the court is correct, and that the court has made, expressly or impliedly, all findings necessary to support its order.
The court’s implied reliance on the potential that SG Homecare would seek a preliminary injunction, and the pending motion for disqualification of counsel, was entirely proper and sufficient under
The pending disqualification motion was also a form of provisional relief that plaintiffs had already invoked. In Meehan v. Hopps (1955) 45 Cal.2d 213, 215 [288 P.2d 267], our high court held that a motion to disqualify counsel is appealable as an order “ ‘refusing to grant or dissolve an injunction.’ ” (See also Reed v. Superior Court (2001) 92 Cal.App.4th 448, 453 [111 Cal.Rptr.2d 842] [citing Meehan for the proposition “that an order denying disqualification of counsel is an order denying an injunction”].) Further, in Benasra v. Mitchell Silberberg & Knupp (2002) 96 Cal.App.4th 96, 110 [116 Cal.Rptr.2d 644], the court held an order on a disqualification motion is in the nature of a preliminary injunction rather than a permanent injunction. At oral argument, defendants responded that while an order on a disqualification motion may be in the nature of a preliminary injunction, it is not actually one. But
2. The 1968 Amendments of Sections 595 and 1054.1 Suffer the Same Constitutional Defect Identified in Thurmond
As noted, defendants’ motion was not limited to a request to continue a specific hearing. It sought to stay the entire litigation, without limiting the broad request to matters not exempted from the mandatory language of
Unless
The Engram court analyzed whether this directive violated the independence of the judiciary. Two competing principles were at play: first, the “judiciary’s inherent constitutional authority ‘to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants’ ” (Engram, supra, 50 Cal.4th at p. 1146), second, “ ‘[t]he power of the legislature to regulate criminal and civil proceedings and appeals . . . .’ ” (Id. at p. 1147) “ ‘[T]he sum total of this matter is that the legislature may put reasonable restrictions upon constitutional functions of the courts provided they do not defeat or materially impair the exercise of those functions.’ ” (Ibid.)
The Engram court looked to precedent to determine what constitutes a material impairment of the court’s inherent functions. The court began with Lorraine v. McComb, supra, 220 Cal. 753 (Lorraine), which concerned a statute providing that “ ‘[i]n all cases, the court shall postpone a trial . . . for a period not to exceed thirty days, when all attorneys of record . . . agree in
The Engram court ultimately decided
The statutes before us contain no such qualification. To the contrary, with certain exceptions,
3. Application to This Case
Turning to the court’s ruling here, we conclude the court acted within its discretion in denying the stay. Thurmond identified three nonexclusive factors to guide a court’s discretion: (1) “the nature and urgency of the rights involved,” (2) “whether the party seeking delay has or can secure other counsel to represent him for the particular step in the proceedings then before the court,” and (3) “whether the attorney who is a member of the Legislature was employed for no other purpose than attempted delay.” (Thurmond, supra, 66 Cal.2d at p. 840.)
Regarding the first factor, SG Homecare’s complaint alleges an ongoing harm—a competing business utilizing its confidential information to steal
Regarding the second factor, defendants offered no reason why another attorney from Buchalter Nemer could not handle the matter at this early stage in the proceedings. The record reveals at least three attorneys from Buchalter Nemer who have appeared on defendants’ behalf, and it is common knowledge that Buchalter Nemer is a large firm that enjoys a good reputation.
Regarding the third factor, we are not aware of evidence that Donald Wagner was brought into the case merely as a tactic to secure a continuance. The first two factors, however, are sufficient to support the court’s exercise of its discretion in denying the stay.
DISPOSITION
The petition for a writ of mandate is denied. Having served its purpose, the order to show cause is discharged. In the interests of justice, this decision is final as to this court 10 days after the filing of this opinion. (Cal. Rules of Court, rule 8.490(b)(2)(A).) The stay issued by the California Supreme Court was to last “[pjending further order of the Court of Appeal.” We order the stay lifted upon the finality of this decision as to this court. SG Homecare and Thomas Randall Rowley are entitled to recover their costs in this writ proceeding.
Aronson, Acting P. J., and Fybel, J., concurred.
Petitioners’ petition for review by the Supreme Court was denied December 21, 2016, S238137.