IPS Group, Inc. v. Civicsmart, Inc. et al

Filing 79

ORDER on Motion to Disqualify Counsel [Doc. No. 62 ]. Signed by Judge Cathy Ann Bencivengo on 10/17/2017. (jjg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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IPS GROUP, INC.,

Case No.: 17-cv-0632-CAB (MDD)
Plaintiff,

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ORDER ON MOTION TO
DISQUALIFY COUNSEL
[Doc. No. 62]

v.
CIVICSMART, INC., DUNCAN
PARKING TECHNOLOGIES, INC., and
DUNCAN SOLUTIONS, INC.,

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Defendants.

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Before the Court are Plaintiff IPS Group’s motions in two related cases, 15cv1526

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[Doc. No. 171] and 17cv632 [Doc No. 62],1 to disqualify Defendants’ counsel, Mintz,

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Levin Cohn Ferris Glovsky and Popeo P.C. (“Mintz”). The Court finds this motion suitable

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for determination on the papers submitted and without oral argument in accordance with

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Civil Local Rule 7.1(d)(1).

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I.

Background

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On July 10, 2015, IPS Group sued Defendants Duncan Solutions, Inc., and Duncan

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Parking Technologies, Inc., in this District for patent infringement in Civil Case No.

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As the motions are virtually identical, the Court will reference the filings in 17cv632, unless specifically
noted otherwise. Docket numbers and page references are those assigned by CM/ECF for the docket entry.
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15cv1526. Hunton & Williams, LLP and WHGC, P.L.C. represent Duncan Parking in the

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2015 litigation. On June 12, 2017, Mintz filed a notice of appearance on behalf of Duncan

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Parking joining the other two defense firms. [Doc. No. 122 in 15cv1526.]

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On March 29, 2017, the IPS Group also sued defendants Duncan Solutions, Inc.,

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Duncan Parking Technologies, Inc. and CivicSmart, Inc., in this District for patent

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infringement and other claims in Civil Case No. 17cv632. On April 18, 2017, Hunton &

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Williams and WHGC appeared for Defendants Duncan Parking and CivicSmart and K&L

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Gates LLP appeared for Duncan Solutions. [Doc. No. 12 in 17cv632.] On June 6, 2017,

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Mintz filed a notice of appearance on behalf of Duncan Parking and CivicSmart joining

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the other defense firms. [Doc. No. 26.] On June 23, 2017, Mintz filed a notice of

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appearance on behalf of Duncan Solutions joining K&L Gates. [Doc. No. 40.]

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On July 31, 2017, IPS Group filed its motions to disqualify Mintz from both

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litigations on the basis that it is a current client of Mintz and simultaneous representation

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of IPS Group and the Defendants is a breach of the duty of loyalty requiring automatic

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disqualification. Alternatively, IPS Group contends that even if deemed a successive

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representation, there is a substantial relationship between the prior representation of IPS

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Group and the current representation of the defendants that requires disqualification of the

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Mintz firm.

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II.

Legal Standard

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Motions to disqualify are governed by state law. In this District the California Rules

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of Professional Responsibility apply. See CivLR 83.4.b. (every attorney before this district

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court must “comply with the standards of professional conduct required of members of the

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State Bar of California.”)

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Attorneys owe current clients a duty of undivided loyalty to avoided undermining

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public confidence in the legal profession and the judicial process. Flatt v. Super. Ct., 9

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Cal. 4th 275, 284 (1994).

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addresses concurrent representation of adverse clients and provides that a member shall

California Rule of Professional Responsibility 3-310(C)

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not, without informed written consent of each client, accept representations of more than

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one client in a matter in which the interests of the clients potentially or actually conflict.

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“When a law firm simultaneously represents clients who have conflicting interests,

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with few exceptions, ‘disqualification follows automatically, regardless of whether the

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simultaneous representations have anything in common or present any risk that confidences

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obtained in one matter would be used in the other.’” Western Sugar Coop. v. Archer-

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Daniels-Midlands Co., 98 F. Supp. 3d 1074, 1081-82 (C.D. Cal. 2015) (citing People ex

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rel. Dep’t of Corp. v. SpeeDee Oil, 20 Cal. 4th 1135, 1147 (1999)). This is because the

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value at stake is loyalty, rather than confidentiality. A client cannot be expected to sustain

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trust and confidence in its counsel who is also representing the client’s adversary in

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litigation. In re Charlisse C., 45 Cal. 4th 145, 160 (2008).

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In instances of successive representation, when an attorney undertakes to represent

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a client adverse to a former client, the focus is on confidentiality. Western Sugar, 98 F.

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Supp. 3d at 1080. California Rule of Professional Responsibility 3-310(E) governs

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successive representation of clients with adverse interests and provides that a member shall

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not, without the informed written consent of the client or former client, accept employment

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adverse to the client or former client where, by reason of the representation of the client or

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former client, the member has obtained confidential information material to the

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employment.

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The former client may disqualify the attorney by showing a “substantial

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relationship” between the subjects of the prior and current representations. Flatt, 9 Cal.

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4th at 283. “This protects the enduring duty to preserve client confidences that survives

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the termination of the attorney’s representation. When a substantial relationship between

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the representations is established, the attorney is automatically disqualified from

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representing the second client.” Western Sugar, 98 F. Supp. 3d at 1081 (internal citations

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omitted). To establish a substantial relationship the party moving for disqualification must

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show that “information material to the evaluation, prosecution, settlement or

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accomplishment of the former representation given its factual and legal issues is material,
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to the evaluation, prosecution settlement or accomplishment of the current representation

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given its factual and legal issues.” Id. (citing Khani v. Ford Motor. Co., 215 Cal. App. 4th

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916, 921 (2013)).

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The right to disqualify counsel is a discretionary exercise of the trials court’s inherent

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powers. Certain Underwriters at Lloyd’s London v. Argonaut Ins. Co., 264 F. Supp. 2d

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914, 918 (N.D. Cal. 2003). Because of the potential for abuse, disqualification motions

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should be subjected to particularly strict judicial scrutiny. Optyl Eyewear Fashion Int’l

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Corp. v. Style Cos., Ltd., 760 F.2d 1045, 1049 (9th Cir. 1985).

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III.

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Discussion
A. IPS Group’s Relationship with Mintz

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On September 23, 2011, IPS Group engaged Mintz to represent it in “general

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corporate matters.” [Doc No.71-2, Ex. A at 3.] The firm required an advance payment

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from IPS Group, as a new client, of $5000 at the commencement of the engagement. There

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is no indication that after this advance payment was exhausted IPS Group was required to

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maintain a retainer amount, but rather going forward projects were billed as work was

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requested and provided. [Id., Ex. A at 4.]

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From September 23, 2011 to March 5, 2012, only one Mintz corporate attorney,

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Edith Bauer, billed for services to IPS Group. [Id., Ex. B at 13-37.] She provided legal

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advice and prepared documents regarding a promissory note and warrant purchase

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agreement and shareholder consents. [Id.] Billing records reflect that she attended one

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Board Meeting on November 1, 2011, for approximately 1.2 hours.2 On May 10-11, 2012,

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Ms. Bauer performed her last service for IPS Group, finalizing an equity confirmation letter

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and forwarding it to an auditor. [Doc. No. 71-2, Ex. C at 44-45.]

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There is no evidence Ms. Bauer provided any other legal services to IPS Group after

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May, 2012. Ms. Bauer recorded approximately 20 hours of total time providing legal

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Ms. Bauer states in her declaration she believes she attended at least one additional board meeting but
could not recall any dates. [Doc. No. 69-8, ¶ 2.] No other meeting attendance is reflected in her billing
statements and no other specific meeting is identified by IPS Group.
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services to IPS Group during those eight months. She did not perform any intellectual

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property or litigation work for IPS Group. [Doc. No. 69-8 at ¶ 3.] Ms. Bauer left Mintz

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on March 29, 2013. [Id. at ¶ 2.]

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After May, 2012, when Ms. Bauer last performed any legal service for IPS Group,

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there is no record that any other Mintz attorney ever participated in a board meeting in any

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capacity. No other Mintz attorney was requested to provide legal advice or service on a

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general corporate matter until October, 2013.

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On October 17, 2013, Mintz attorney Melanie Levy3 assisted IPS with a stock

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transfer issue that involved less than one hour of attorney time. [Doc No. 71-2, Ex. C at

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56-58.] Ms. Levy provided attorney services again from January 8, 2014 to February 10,

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2014, related to a potential equity-financing round. She consulted briefly with two other

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Mintz attorneys in the course of her work, Eddie Rodriguez4 and Sebastian Lucier. Less

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than 13 hours total was billed on the project. [Doc. No. 71-2, Ex. C at 66-65; Doc No. 71-

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3, ¶¶ 4-10.] Ms. Levy’s work necessitated the review of certain corporate documents but

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did not involve any in-depth review of IPS Group’s capitalization structure, material

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agreements, intellectual property portfolio or business plans. [Id. at ¶ 6.] The billing

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entries do not reflect any meetings with IPS Group’s management, attendance at board

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meetings or consultation regarding IPS Group’s intellectual property or competitive

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business strategies.

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The records indicate that only two other Mintz attorney ever provided services to

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IPS Group. Between March 27, 2012 and April 20, 2012, Mintz attorney Mitch Danzig,

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who specializes in employment and commercial litigation, represented IPS Group in a

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dispute regarding the quality of goods IPS Group received from a supplier. The matter was

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resolved without litigation and did not involve intellectual property. Mr. Danzig provided

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Ms. Levy’s name was Melanie Ruthrauff at the relevant times. [Doc. No. 71-3 at fn. 1.]
Mr. Rodriguez resigned from Mintz effective January 9, 2017. [Doc. No. 71-1 at ¶ 11.]
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no further services beyond this specific matter which ended in April 2012 and incurred less

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than 10 hours of attorney time. [Doc. No. 71-2, Ex. B at 33-37, Ex. C at 39-43.]

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On May 12, 2016, Mintz attorney Jenna Stewart5 provided advice to a Mintz legal

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assistant finalizing the update of the IPS stock ledger to facilitate the opening of a bank

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account in the United Kingdom, for which she billed one-tenth-of-an hour. [Doc. No. 72,

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¶ 3; Doc. No. 71-2, Ex. C at 79-81.] There is no record of Ms. Shaffer having had any

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other interaction with IPS Group on any other matter or having consulted with anyone at

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IPS Group, having any knowledge about IPS Group’s intellectual property, business plans

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or business strategies.

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In summary, there is no record of a Mintz attorney being asked to or providing any

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significant legal service to IPS Group after February, 2014. There is no record or evidence

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of any ongoing or regular communication between IPS Group and any Mintz attorneys

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after Ms. Levy completed her 2014 project. In its motion, IPS Group does not identify any

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ongoing or current representation by a Mintz attorney on its behalf.

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The most recent work done for IPS Group by the Mintz firm was performed by Mintz

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legal assistants Joan Raulston and Leandro Alcantara. Between February, 2012 and

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November, 2016, Ms. Raulston and Mr. Alcantara provided sporadic administrative

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support to IPS Group. Ms. Raulston’s work included assistance with responses to audit

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letters, preparing stock certificates and updating the stock ledger and corporate records to

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reflect the changes. [Doc. No. 71-4 at ¶¶ 2-7.] Ms. Raulston provided a total of 2.5 hours

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of clerical support in 2012; 3.2 hours in 2013; 5.0 hours in 2014; no support in 2015; and

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2.2 hours in 2016, ending in May of 2016. [Doc No. 71-1, Exs. B and C.]

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Mr. Alcantara’s work consisted of the preparation of stock transfer letters, stock

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certificates and updating the stock ledger and corporate records to reflect the changes. He

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provided a total of 4.4 hours of clerical support starting in July, 2016 and ending in

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November, 2016. [Id., Ex. C.] On November 18, 2016, Mr. Alcantara made an update to

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Ms. Stewart’s name was Jenna Shaffer at the relevant time. [Doc. No. 72, fn. 1.]
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the stock register at the direction of Brian Webber, General Counsel for IPS Group, and

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forwarded the stock ledger to Mr. Webber. [Doc. No. 64-11, Ex. 1.] Mr. Alcantara

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provided no other support to IPS Group and resigned from Mintz effective May 2, 2017.

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[Doc. No. 71-1 at ¶10.]

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The non-lawyer, administrative support provided by Mintz to IPS Group does not

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appear to have been an ongoing assignment or project performed at regular and expected

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intervals, but rather sporadic requests for administrative assistance to update documents

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that required no legal analysis or advice. There were substantial stretches, including all of

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2015, when there was no contact between IPS Group and the Mintz firm. There was no

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communication between IPS Group and the Mintz firm from November, 2016 until May,

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2017 when Mr. Webber sent an email to Mr. Alcantara (who at the time was no longer with

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Mintz) requesting a copy of the IPS stock ledger. Ms. Raulston responded by re-sending

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the ledger Mr. Alcantara sent in November without modification or change.

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B. No Concurrent Representation

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The records do not support IPS Group’s characterization of the Mintz firm as its

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current “corporate counsel.” There is no indication that after February, 2014 anyone at IPS

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Group directly communicated with a Mintz attorney with regard to any matter whatsoever.

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There is no evidence that any Mintz attorney was providing any ongoing transactional or

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litigation legal advice or service to IPS Group when the defendants retained Mintz in this

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litigation.

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Mr. Webber, the plaintiff’s general counsel since May of 2015, does not identify any

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Mintz attorney with whom he has ever communicated. [Doc. Nos. 64-10, 77-1.] His

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communications were limited to instructing Mintz non-lawyers to update corporate records

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at his direction on a number of occasions in 2016. His conclusory declaration that

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unspecified Mintz attorneys obtained confidential information regarding IPS products

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through board meeting attendance and projects is both without personal knowledge and

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contradicted by the evidence.

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The declaration of David King, IPS Group’s CEO [Doc. No. 64-7], identifies Ms.

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Bauer’s presence at a single board meeting in November, 2011, during which there was a

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discussion of certain technical and business matters. However, he does not identify her

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participation as involving anything other than the warrant purchase agreement. His

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declaration does not contradict the evidence that she was not involved in intellectual

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property matters or competitive business strategies. Further, she had no interaction with

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IPS Group after May, 2012, and left Mintz in March, 2013.

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Mr. King identifies no other Mintz attorney who ever attended any board meeting,

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had any exposure to intellectual property or business competition strategies. His statements

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that Mintz attorneys obtained confidential information regarding IPS products through

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attendance at board meetings and projects is not supported by any evidence.

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Mintz has certain IPS Group documents related to stock transactions, and its legal

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assistants provided sporadic administrative support to Mr. Webber in 2016 regarding stock

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transfers. The requests do not demonstrate either a continuing obligation or expectation of

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an ongoing attorney-client relationship. After November 2016, Mintz had no current

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project for the IPS Group.

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Based on the records provided the Court finds that there was no simultaneous

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representation of IPS Group and the Defendants in this case. Mintz was not required to

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notify IPS Group and obtain its written consent to accept representation of the Defendants.

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C. Successive Representation

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With regard to the successive representation of the Defendants, IPS Group has not

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met its burden to demonstrate a substantial relationship between the subjects of the prior

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and current representations. Although IPS Group makes sweeping assertions of broad

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exposure to its confidential business strategies and intellectual property matters through

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six years of engagement, the records reflect isolated business transaction work involving

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primarily stock warrants and equity financing, totaling less than 35 hours of actual attorney

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time ending in 2014.

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There are representations that confidential information material to the evaluation and

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accomplishment of Mintz’ former representation of IPS Group is material to factual and

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legal issues involved in the evaluation, prosecution, settlement or accomplishment of the

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current representation. There is no substantive support for these conclusions. The records

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do not evidence that Mintz attorneys in 2011-2014 were privy to confidential factual and

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legal issues that are material to this litigation. The more current administrative tasks

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performed by Mintz non-lawyer staff in 2016 are even more remote in relevance to this

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patent litigation.

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IV.

Conclusion

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The Court finds that IPS Group has not met its burden to demonstrate that Mintz’

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representation of the Defendants in this litigation violates the standards governing either

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concurrent or successive representation. The motion is therefore DENIED.

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It is SO ORDERED.
Dated: October 17, 2017

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