Paravue Corporation v. Heller Ehrman LLP

Filing 58

ORDER DENYING PARAVUE'S MOTION FOR REHEARING AND GRANTING HELLER'S MOTION TO STRIKE. (crblc2, COURT STAFF) (Filed on 3/4/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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No. C 14-3887 CRB

PARAVUE CORPORATION,

ORDER DENYING PARAVUE’S
MOTION FOR REHEARING AND
GRANTING HELLER’S MOTION TO
STRIKE

Appellant,
v.

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HELLER EHRMAN LLP,
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Appellee.

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Appellant Paravue Corporation’s (“Paravue”) Motion for Rehearing (dkt. 50) argues
that this Court overlooked or misapprehended three points of fact in the case: (1) that
attorney Jack Russo worked for Paravue officer Lauren Barghout individually, not for
Paravue itself; (2) that Heller Ehrman (“Heller”) was the sole law firm representing Paravue,
and this representation continued until July 17, 2007, at which time attorney Mike Ackerman
took over as counsel for Paravue; and (3) that Barghout did not condition consent to Heller’s
withdrawal on a refund from Heller, and thus Barghout did not delay agreeing to substitution.
Paravue also argues that this Court overlooked or misapprehended three points of law
in this case, asserting that (1) the test for whether representation ended is not an objective
test, but a test from the perspective of the client; (2) applying this test, the Court should take
into account former Paravue CEO Larry Hootnick’s perspective, given that the CEO
transition from Hootnick to Barghout occurred after July 13, 2007; and (3) termination of
representation on or after July 11, 2007 does not trigger the statute of limitations.

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Following Paravue’s Motion for Rehearing, Heller filed a Motion to Strike (dkt. 53)

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the following documents that Paravue filed in support of its Motion: declaration of Lauren

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Barghout (dkt. 50-1); declaration of Jack Russo (dkt. 50-2); declaration of George Trevor

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(dkt. 50-3); and all portions of the Motion for Rehearing that rely on these declarations.

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Heller argues that these documents are a classic example of a party attempting to

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impermissibly augment the record on appeal. See generally Motion to Strike.
The Court concludes that it specifically addressed all the facts and authorities raised

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by Paravue. Paravue has not carried its burden of showing that the Court “overlooked or

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misapprehended” the relevant facts or law—Paravue rather attempts to reargue the merits of

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United States District Court
For the Northern District of California

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the case. The Court thus DENIES Paravue’s Motion for Rehearing. Furthermore, because

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the declarations submitted in support of Paravue’s Motion for Rehearing are not “documents

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and proceedings considered by the court below,” see In re Blumer, 95 B.R. 143, 147 (B.A.P.

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9th Cir. 1988), the Court GRANTS Heller’s Motion to Strike.

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I.

LEGAL STANDARD

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A.

Motion for Rehearing

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Federal Rule of Bankruptcy Procedure 8022 provides that “[u]nless the time is

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shortened or extended by order or local rule, any motion for rehearing by the district court or

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[the bankruptcy appellate panel (“BAP”)] must be filed within 14 days after entry of

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judgment on appeal.” Fed. R. Bankr. P. 8022. “The motion must state with particularity

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each point of law or fact that the movant believes the district court or BAP has overlooked or

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misapprehended and must argue in support of the motion.” Id. A motion for rehearing is

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designed to ensure that the reviewing court properly considered all relevant information in

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rendering its decision. Armster v. U.S. District Court, C.D. Cal., 806 F.2d 1347, 1356 (9th

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Cir. 1986). A motion for rehearing is not a means by which to reargue a party’s case. See

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Anderson v. Knox, 300 F.2d 296, 297 (9th Cir. 1962).

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B.

Motion to Strike

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When reviewing a bankruptcy court's decision, “[t]he district court acts as an appellate

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court.” In re Daniels-Head & Associates, 819 F.2d 914, 918 (9th Cir. 1987); see 28 U.S.C. §
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158. Under Federal Rule of Bankruptcy Procedure 8006, the record on appeal should contain

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all documents and proceedings considered by the court below. See In re Blumer, 95 B.R.

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143, 147 (B.A.P. 9th Cir. 1988); Fed. R. Bankr. P. 8006; see also United States v. Elias, 921

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F.2d 870, 874 (9th Cir. 1990) (quoting Kirshner v. Uniden Corp. of America, 842 F.2d 1074,

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1077–78 (9th Cir.1988) (“Documents or facts not presented to the district court are not part

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of the record on appeal.”). Papers submitted after the district court’s ruling should be

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stricken from the record on appeal. Kirshner v. United Corp. of America, 842 F.2d 1074,

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1077–78 (9th Cir. 1988).

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II.

DISCUSSION

United States District Court
For the Northern District of California

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A.

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Paravue argues that the Court misapprehended or overlooked three points of fact in

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the case. This argument fails, however, because the Court considered the facts in question

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and concluded that they compel a conclusion opposite from the one advanced by Paravue.

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The Court Did Not Misapprehend or Overlook the Facts

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Russo as Barghout’s Counsel

First, Paravue argues that Russo worked as counsel for Barghout individually, not for

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Paravue Corporation. See Mot. at 2. Paravue asserts that “it is technically and factually

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incorrect to say Mr. Russo took any action for Paravue since all such actions were those for

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his client, Dr. Barghout.” Id. Not so. In emails sent from Russo to Heller, Russo conveyed

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the terms under which Barghout was willing to consent to withdrawal. See Barghout Dep.

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Ex. 204 (dkt. 37-8 at 64). Barghout negotiated Heller’s withdrawal on behalf of Paravue, and

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Russo communicated this message to Heller: as stated in this Court’s prior Order, “the only

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reasonable inference to be drawn from his communication is that he was acting on Paravue’s

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behalf.” See Order (dkt. 48) at 12. Thus, Russo’s email directly negates Paravue’s assertion

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here that Russo acted as counsel for Barghout, not Paravue, at that time; only Paravue could

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have consented to the terms for withdrawal that Russo communicated to Heller. The Court

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thus did not “overlook or misapprehend” the facts disputed here. See Fed. R. Bankr. P. 8022.

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2.

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Heller as Paravue’s Sole Counsel

Second, Paravue argues that Heller was the sole counsel representing Paravue, and

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this sole representation continued until July 17, 2007, at which time Ackerman took over as

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counsel for Paravue. See Motion at 2–3. Paravue notes the order following the July 13,

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2007 TRO hearing as evidence of Heller’s sole representation of Paravue. Id. But the record

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establishes that Ackerman was involved with the litigation dating back to as early as July 10,

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2007. On July 10th, 2007, Ackerman accompanied Barghout to a hearing and advised the

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court of his willingness to undertake Paravue’s representation. See Garten Decl. (dkt. 41-5)

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at 193. Moreover, the TRO order to which Paravue refers highlights Ackerman’s

United States District Court
For the Northern District of California

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involvement. See Order on Acuity’s App. for TRO (dkt. 37-14 at 52) (“Barghout shall not

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enter the business offices of Paravue Corporation unless in the company of Michael G.

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Ackerman. Plaintiffs shall provide access to Michael G. Ackerman and Lauren Barghout”).

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The record thus indicates—as the Court stated—that Heller was not sole counsel to Paravue;

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Ackerman was also involved as early as July 10, 2007.
3.

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Barghout’s Consent to Heller’s Withdrawal

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Third, Paravue argues that Barghout did not condition consent to Heller’s withdrawal

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on a refund from Heller, and thus Barghout did not delay agreeing to substitution. Motion at

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2–3. Paravue argues that Russo’s email discussing Heller’s withdrawal does not contain

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language conditioning consent to withdrawal on a refund from Heller. See Barghout Dep.

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Ex. 204 (dkt. 37-8 at 64). But the email cannot reasonably be read any other way. It

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states—in response to Heller’s email stating its intent to withdraw—that Barghout first

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wanted to know “[w]hat portion of the fees paid is [Heller] willing to refund to Paravue as a

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condition of withdrawal.” Id. (emphasis added). Paravue argues that this was “little more

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than a polite request for further information and for a smooth transition, and it notes legal

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services that should be provided before a withdrawal occurs.” See Motion at 3. No.1

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Though the plain language of the email refutes Paravue’s argument on its face, it is worth
noting that Heller’s Opposition to Paravue’s Motion also points out a Paravue Board Resolution
authorizing Barghout to negotiate with Heller for the return of fees and “to condition any purported
withdrawal by [Heller] on their reimbursement of fees paid by Paravue.” See Opp’n (dkt. 52) at 8.
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Paravue also argues that the Court incorrectly characterized the amount of time from

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Heller’s notice of withdrawal to Barghout’s agreeing to withdrawal as a “delay.” See Motion

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at 4. It supports this assertion by pointing out the 7:46 PM timestamp on the withdrawal

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email from Heller sent on July 10, 2007, arguing that the Court should view the email as

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received on July 11, 2007, because Heller sent the email after business hours. Id.; see

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Withdrawal Email (dkt. 41-5) at 195. This point is moot because, as stated in this Court’s

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prior Order, the “record shows that Paravue was far from ‘the disadvantaged client unable to

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question or to pursue remedies for perceived wrongs,’ and ‘hence continuous representation

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tolling ended’ at latest by July 11, 2007—more than one year before July 14, 2008. See

United States District Court
For the Northern District of California

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Hensley, 13 Cal. App. 4th at 1172.” See Order at 12.

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B.

The Court Did Not Misapprehend or Overlook Relevant Law

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Paravue also argues that the Court overlooked or misapprehended three points of law

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in this case, asserting that (1) the test for whether representation ended is not an objective

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test, but a test from the perspective of the client; (2) applying this test, the Court should take

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into account former Paravue CEO Larry Hootnick’s perspective, given that the CEO

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transition from Hootnick to Barghout occurred after July 13, 2007; and (3) termination of

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representation on or after July 11, 2007 does not trigger the statute of limitations. The Court

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concludes that each of these arguments fail for the following reasons.

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1.

Objective and Subjective Test

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First, Paravue argues that the Court misstated the law in determining when

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representation ended here because the Court used a purely objective test, rather than the

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combined objective and subjective test prescribed by California law. Motion at 4–5. But the

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Court stated in its October 2015 Order that “California courts primarily employ ‘an objective

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standard to determine whether an attorney’s representation has ended.” See Order (dkt. 48)

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at 10–11 (citing Worthington v. Rusconi, 29 Cal. App. 4th 1488, 1497 (1994). The Court

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then further explained that representation may end “when the client actually has or

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reasonably should have no expectation that the attorney will provide further legal services.”

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Order at 11 (citing Gonzalez v. Kalu, 140 Cal. App. 4th 21, 30–31 (2006)) (emphasis added).

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The Court never stated that a purely objective standard applied; on the contrary, the test the

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Court used took into account Paravue’s subjective (“actually has”) and objective

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(“reasonably should have”) expectations. See Kalu, 140 Cal. App. 4th at 30–31.
2.

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Hootnick’s Perspective

Second, Paravue argues that in applying this test, the Court should have taken into

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account Hootnick’s perspective because the CEO transition from Hootnick to Barghout

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occurred after July 13, 2007. Motion at 5. The record does not support Paravue’s argument

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given that the CEO transition occurred before July 13, 2008. The record shows—in

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Barghout’s deposition—that she learned of Hootnick’s resignation on July 10, 2007 and

United States District Court
For the Northern District of California

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appointed herself CEO that same day. See Barghout Dep. (dkt 41-4 at 176–77). The Court

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thus had no reason to take into account Hootnick’s perspective because on July 13,

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2007—the date Paravue argues the Court should have “take[n] into account the client’s

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perspective”—Hootnick was no longer CEO. See Motion at 5.
3.

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Critical Date for Statute of Limitations

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Finally, Paravue now attempts to argue, in part based on a reading of Judge Montali’s

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decision below, that termination of Heller’s representation on or after July 11, 2007 does not

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trigger the statute of limitations. See Motion at 6. Paravue’s re-argument on this

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fundamental point misstates Judge Montali’s decision and ignores the Court’s conclusion in

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its October 2015 Order. See Order (dkt. 48) at 12 (“This record shows that Paravue was far

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from ‘the disadvantaged client unable to question or to pursue remedies for perceived

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wrongs,’ and ‘hence continuous representation tolling ended’ at latest by July 11,

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2007—more than one year before July 14, 2008. See Hensley, 13 Cal. App. 4th at 1172.”);

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Bankruptcy Ct. Order (dkt. 41-10 at 16) (“[M]ore likely by July 7th, even more so by July

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10th, and certainly by July 11th, 2007, Heller’s relationship with Paravue had ceased for

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purposes of beginning of the running of the statute of limitations, and therefore the tolling

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does not save [Paravue’s] claims.”). Paravue’s arguments on the relevant law thus all fail.2

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The Court received Russo’s January 15, 2016 letter to the Court (dkt. 56), and the Court
concludes that the California Court of Appeal decision the letter cites does not affect the outcome here.
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C.

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Heller filed a Motion to Strike the following documents Paravue filed in support of its

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Motion for Rehearing: declaration of Lauren Barghout (dkt. 50-1); declaration of Jack Russo

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(dkt. 50-2); declaration of George S. Trevor (dkt. 50-3); and all portions of the Motion for

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Rehearing that refer to or rely on these Declarations. See Mot. to Strike (dkt. 53). Heller

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argues that these declarations were not before the bankruptcy court below and thus the Court

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should strike them. Id. at 2–3. In its Opposition, Paravue claims that the declarations do not

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include information “that is new or outside the record.” Opp’n (dkt. 54) at 1. Paravue argues

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that the declarations “help the Court to understand the facts in the record before it.” Id.
Paravue is incorrect in stating that the declarations do not include information that is

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United States District Court
For the Northern District of California

Heller’s Motion to Strike

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“new or outside the record.” See id. For example, Barghout states in her declaration that

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Russo’s email to Heller regarding withdrawal was “simply a request for further information.”

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See Barghout Decl. (dkt. 50-1) ¶ 5. Russo’s email is not “new or outside the record,” but

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Barghout’s own characterization is. Similarly, Russo’s declaration providing his own

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characterization of his email to Heller about its withdrawal is certainly new to the record.

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See Russo Decl. (dkt. 50-2) at 1. Paravue uses these new declarations to reargue its case, and

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they are improper in a motion for rehearing. See Anderson, 300 F.2d at 297.

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Furthermore, Paravue cites no case law supporting the proposition that the Court

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should deny a motion to strike if new documents containing facts outside the appellate record

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will “help the Court to understand the facts in the record before it.” See Opp’n at 1. In

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reviewing a bankruptcy court’s decision, “[t]he district court acts as an appellate court.” In

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re Daniels-Head & Associates, 819 F.2d at 918; see 28 U.S.C. § 158. The record on appeal

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should contain all documents and proceedings considered by the court below. See In re

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Blumer, 95 B.R. at 147; Fed. R. Bankr. P. 8006. Papers—like the declarations at issue

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here—submitted after the district court’s ruling should be stricken from the record on appeal.

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See Kirshner, 842 F.2d at 1077–78.

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//

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//

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III.

CONCLUSION
For the foregoing reasons, the Court DENIES Paravue’s Motion for Rehearing and

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GRANTS Heller’s Motion to Strike.

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IT IS SO ORDERED.

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CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

Dated: March 3, 2016

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United States District Court
For the Northern District of California

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