American Family Mutual Insurance Company, Inc. v. Denver Haslam et al

Filing 405

ORDER re: 350 MOTION to Disqualify Counsel Holland & Hart for Defendants/Crossclaimants/Crossclaim Defendants Onewest Bank, FSB and Deutsche Bank National Trust Company filed by American Family Mutual Insurance Company, Inc., 375 MOTION for Sanctions Pursuant to Rule 11 and 28 U.S.C. Section 1927 filed by OneWest Bank, FSB, Deutsche Bank National Trust Company. By Judge David M. Ebel on 1/6/2012. (sah, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 09-cv-00724-DME-MEH
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, INC., a Wisconsin
corporation,
Plaintiff,
v.
DENVER HASLAM,
COMMERCIAL CAPITAL, INC.,
ONEWEST BANK, FSB, and,
DEUTSCHE BANK NATIONAL TRUST COMPANY,
Defendants;
DENVER HASLAM,
COMMERCIAL CAPITAL, INC.,
Counterclaimants,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, INC., a Wisconsin
corporation,
Counter-Defendant;
COMMERCIAL CAPITAL, INC.,
ONEWEST BANK, FSB,
DEUTSCHE BANK NATIONAL TRUST COMPANY, and
FALL RIVER VILLAGE COMMUNITIES, LLC,
Cross-claimants,
v.
DENVER HASLAM,
COMMERCIAL CAPITAL, INC.,
ONEWEST BANK, FSB,

DEUTSCHE BANK NATIONAL TRUST COMPANY, and
FALL RIVER VILLAGE COMMUNITIES, LLC,
Cross-Claim-Defendants

ORDER
This matter comes before the Court following a hearing on two motions:
1) Plaintiff American Family Mutual Insurance Company’s motion to disqualify opposing
counsel (Doc. 350), and 2) the motion of Defendants OneWest Bank, FSB, and
Deutsche Bank National Trust Company (“the Banks”) for the imposition of sanctions
against American Family for seeking to have the Banks’ counsel disqualified (Doc. 375).
For the following reasons, the Court DENIES the motion to disqualify and takes the
motion for sanctions under advisement.
I. Background
Roughly summarized, the pleadings filed in this case indicate the following:
Defendant Denver Haslam bought a home in 2007. Haslam financed that purchase by
obtaining three loans, each secured by the property. Haslam insured the home with a
policy issued by American Family. American Family paid one claim on the policy
resulting from water damage, but has declined to pay a second claim based on fire
damage to the home. American Family initiated this litigation, seeking to recover the
amount it paid for the water damage and a declaratory judgment that the company is
not liable on the fire damage claim. Defendants, Denver Haslam and the holders of the
loans Haslam used to acquire the property (Defendants Commercial Capital, Inc.

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(“CCI”), which has filed bankruptcy and is currently represented by its bankruptcy
trustee, the Banks, and Fall River Village Communities LLC “(Fall River”)) all claim an
interest in those insurance proceeds. Defendants, thus, seek to recover against
American Family under the policy for the fire damage, but they disagree among
themselves as to which Defendant those proceeds should be paid. Defendants CCI
and the Banks also claim competing security interests in the property. These
disagreements among all Defendants have resulted in them filing a number of crossclaims against one another. 1
II. American Family’s motion to disqualify the Banks’ counsel (Doc. 350)
American Family seeks to disqualify the Banks’ counsel, the law firm of Holland
and Hart. The Banks, as an initial matter, assert that American Family lacks standing to
seek disqualification of opposing counsel because American Family is not a client or a
former client of Holland and Hart. But a non-client may have standing to seek an
attorney’s disqualification if “the interests of the public are so greatly implicated that an
apparent conflict of interest may tend to undermine the validity of the proceedings.”
Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046, 1050 (D. Colo. 1999). Because
standing in this context is not jurisdictional standing, the Court assumes American
Family has sufficiently alleged a conflict that might undermine the validity of these
proceedings, requiring the Court to consider the merits of the disqualification motion.
See Pressman-Gutman Co. v. First Union Nat’l Bank (In re Pressman-Gutman Co.), 459
F.3d 383, 402 n.20 (3d Cir. 2006).
Because Fall River and American Family have settled their claims against one another,
Fall River is now pursuing only its cross-claims.
1

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A motion to disqualify is left to the sound discretion of this Court. See Cole v.
Ruidoso Mun. Sch., 43 F.3d 1373, 1383 (10th Cir. 1994). “Because of the potential for
abuse by opposing counsel, disqualification motions should be subjected to particularly
strict scrutiny.” Macheca Trans. Co. v. Philadelphia Indem. Ins. Co., 463 F.3d 827, 833
(8th Cir. 2006) (internal quotation marks omitted). The parties agree that American
Family bears the burden of establishing grounds for disqualification.
Citing Rule 1.7 of the Colorado Rules of Professional Conduct, which informs this
Court’s decision here, see D.C.Colo. LCivR 83.4, American Family asserts that Holland
and Hart has a conflict of interest because it is representing the Banks in this litigation
while representing the unsecured creditors’ committee in the CCI bankruptcy. More
specifically, American Family contends that, should the Banks prevail in their crossclaims against CCI and the other defendants in this case, the CCI bankruptcy estate
and its creditors’ committee will lose assets.
The Court, however, has bifurcated trial in this case. The initial trial will decide
whether American Family is liable under the policy to pay the water and fire damage
claims. In that proceeding, the interests of the Banks and CCI are aligned against
American Family. The Court concludes, therefore, that Holland and Hart has no
conflict. If this litigation reaches the second, separate trial on the cross-claims and if a
conflict arises, Court can revisit the issue then.
Even if the Court were to conclude that Holland and Hart currently has a conflict
of interest - a conclusion the Court does not draw - Holland and Hart has in any event
properly obtained valid consent from the Banks and the CCI creditors’ committee for its

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continued representation of them in the relevant cases. See Rule 1.7(b), Colorado
Rules of Professional Responsibility. And American Family has failed to convince the
Court that any conflict under which Holland and Hart is operating in this case is nonconsentable. For these reasons, the Court DENIES American Family’s motion to
disqualify the Banks’ counsel.
III. The Banks’ motion for imposition of sanctions against American Family
(Doc. 375)
The Banks ask that the Court impose sanctions, pursuant to Fed. R. Civ. P. 11(b)
and 28 U.S.C. § 1927, because American Family filed its motion to disqualify the Banks’
counsel in order to delay these proceedings and needlessly increase the cost of this
litigation. The Court will take that motion under advisement, and presently intends to
rule on that motion at the conclusion of this litigation.
Dated this

6th

day of

January

, 2012.

BY THE COURT:
s/ David M. Ebel
U. S. CIRCUIT COURT JUDGE
DISTRICT OF COLORADO

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