Phase II Chin, LLC et al v. Forum Shops, LLC et al

Filing 85

Phase II Chin, LLC et al v. Forum Shops, LLC et al

Doc. 85

UNITED STATES DISTRICT COURT DISTRICT OF NEVADA LAS VEGAS DIVISION

PHASE II CHIN, LLC., ET AL., Plaintiffs, vs. FORUM SHOPS, LLC., ET AL., Defendants.

) CASE NO: 2:08-CV-162-JCM-GWF ) ) ) CIVIL ) ) Las Vegas, Nevada ) ) Thursday, February 12, 2009 ) (9:27 a.m. to 10:36 a.m.)

HEARING ON PLAINTIFFS' MOTION TO DISQUALIFY ATTORNEY STEVE MORRIS BEFORE THE HONORABLE GEORGE FOLEY, JR., UNITED STATES MAGISTRATE JUDGE Appearances: Court Reporter: See next page Recorded; FTR

Courtroom Administrator: Donna Smith Transcribed by: Exceptional Reporting Services, Inc. 14493 S. Padre Island Drive Suite A-400 Corpus Christi, TX 78418-5940 361 949-2988

Proceedings recorded by electronic sound recording; transcript produced by transcription service.
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2 APPEARANCES FOR:

Plaintiffs:

JEROLD FAGELBAUM, ESQ. Fagelbaum & Heller 2049 Century Park East Los Angeles, CA 90067 PAMELA LAWSON, ESQ. Hunterton & Associates 333 S. Sixth Street Las Vegas, NV 89101 HAROLD GEWERTER, ESQ. 5440 W. Sahara Avenue, Third Floor Las Vegas, NV 89146

Defendants:

STEVE MORRIS, ESQ. Morris Peterson 900 Bank of America Plaza 300 S. Fourth Street Las Vegas, NV 89101

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Las Vegas, Nevada; Thursday, February 12, 2009; 9:27 a.m. (Call to Order) This is the time set for Phase II Chin,

LLC, et al. versus Forum Shops, LLC, et al., case number 2:08CV-162-JCM/GWF. Counsel, please make your appearances for the record. MR. FAGELBAUM: Good morning, your Honor; Jerold

Fagelbaum representing the plaintiff, Phase II Chin, LLC. THE COURT: MR. MORRIS: MS. LAWSON: MR. MORRIS: MS. LAWSON: MR. GEWERTER: Thank you. Steve -Pamela Lawson -- I'm sorry. Sorry. Local counsel for Chin Hua. Good morning, your Honor; Harold

Gewerter for plaintiff, Love and Money, LLC. THE COURT: MR. MORRIS: defendants. THE COURT: Thank you, counsel. Thank you, counsel. Steve Morris on behalf of the Caesars

This time is set for hearing on the plaintiffs' motion to disqualify attorney Steve Morris and the law firm of Morris Peterson as counsel for the Caesars defendants in this case. I have read the briefs and I read nearly all of the cases cited by the parties and some additional cases that I
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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 found by shepardizing those, and I will hear further argument at this time. But I have read everything, so if you want to

sort of formulate your arguments in terms of anything new or points that you wish to highlight or call to the Court's attention, I would appreciate it. MR. FAGELBAUM: THE COURT: Good morning again, your Honor.

Good morning. ARGUMENT OF PLAINTIFF

MR. FAGELBAUM:

Your Honor, I'm reminded of Lloyd

Bentsen's opening remarks in the debate with Dan Quayle when he referred to Mr. Quayle and said, `I knew Jack Kennedy, and sir, you're not Jack Kennedy.' I know Steve Morris. so good we wanted to use him. He's an excellent lawyer. He's a formidable opponent. He's

He's so good that he cannot be given the additional edge of having an insider's perspective of our litigation and settlement strategy. Mr. Morris' initial instincts in this case were the correct ones. He stepped aside and he agreed to have nothing His belated change of heart is wrong, Economic self-

to do with this case.

and it's wrong for all the wrong reasons.

interest and expediency does not justify breaching a duty of loyalty and the duty to protect a client's confidences. The heart of Chin Hua's motion is that the confidences that were disclosed and the legal advice that was
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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 received from Mr. Morris resulted in the creation of an implied attorney-client relationship; that as a result of that relationship Mr. Morris and his firm cannot now represent Caesars adverse to Chin Hua in this case, the same case in which Mr. Morris was initially consulted. We have presented evidence in the form of Mr. Heller's declarations probative of the nature and extent of the disclosures that were made, the advice received and the harmful effect it would have upon Chin Hua if Mr. Morris remains in this case adverse to it. In the opposition papers, Mr. Morris tries to but does not succeed in refuting the evidence. His memory is

selective and he parses his words and his statements very carefully. What Mr. Morris does not tackle, however, is the Mr.

800-pound gorilla that's in the middle of the room.

Morris's own conduct belies all the arguments he's now making. Based upon his initial consultation with Mr. Heller, both Mr. Morris and Ms. Pickering agreed that Mr. Morris would have no involvement in this case. For more than ten months,

when it was convenient to do so, Mr. Morris honored that commitment and stayed out. After Ms. Pickering was elected to

the bench, it was no longer convenient to honor that promise, and Mr. Morris now wants back in. matter of convenience. However, ethics are not a

Client loyalty and protection of client

confidences trump convenience and Caesars's desire to select
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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mr. Morris as its lawyer. What is true for lawyers is especially true for lawyers who become judges. appearance of impropriety. They must avoid the appearance of Here, public confidence and the

integrity of the bar are shaken when ethical rules are ignored for the sake of expediency. The previous consultation which is at the heart of this motion reflects that, number one, this is unrefuted, no conflict avoidance measures were taken by Mr. Morris in connection with that phone call. Two, Mr. Heller disclosed

confidential information regarding the strategy behind filing the second suit here in Las Vegas, potential claims, venue, possible defendants, selection and assessment of co-counsel and prospects for settlement. While it is true some of those items were subsequently disclosed in the filing of the complaint, the value of that disclosure is not that they were disclosed and therefore there are no more confidences; it helps place in context the nature of that initial prior consultation. This was not a situation where counsel encountered another lawyer at a cocktail party and engaged in some innocuous chit-chat. This is a situation where counsel who was

well-known to our offices was contacted because of his experience and his expertise. And Mr. Heller quickly cut to

the chase when it came to disclosing the information that was
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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 necessary to see whether or not Mr. Morris could assist us as local counsel. During the course of that conversation, legal advice was given by Mr. Morris regarding parties and perspective parties, venue, claims, selection and assessment of counsel and judges. Now, the difficult part of this type of emotion is

that you cannot disclose what you're trying to protect, so you cannot disclose and say verbatim what happened in the course of that initial consultation. the purpose of that call? retain local counsel. Mr. Morris, in his opposition papers and in his declaration, concedes that there were confidences disclosed. However, he seeks to trivialize those conversations and say whatever confidences were disclosed were subsequently published in the complaint. While there is some truth to that, some of However, context is key. What was

The purpose of that call was to

those confidences, by the very nature filed in the complaint were disclosed the identity of the defendants, the identity of the various causes of action, the strategy behind the selection of those causes of action, the weight of those causes of action, the selection of defendants, why they were selected. Litigation strategy and settlement strategy was not disclosed in that document. The courts do not have an

insurmountable standard when it comes to evaluating what was discussed. In Re: Rosanna, which is a Nevada Bankruptcy Court
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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MORRIS: case, says that the inquiry is not whether an attorney actually received confidential information but whether attorneys potentially acquire confidential information that would be harmful to the previous client in the current matter. As I led off with, your Honor, Mr. Morris is a skilled attorney. It is unfair to provide him with the

additional insight of an insider and then allow him to take a position adverse to Chin Hua in this case. The comments of Ms. Pickering, one of the last comments she made before she took the bench was that Mr. Morris was coming in and that the plaintiffs would regret it. are regretting it. done. It was a mistake. And we

It should not have been

The appropriate thing to do was to have honored the

commitment that was honored in fact for over ten months. Now that this has been done, the appropriate remedy, with all due respect, your Honor, is that not only Mr. Morris but his law firm should be disqualified. THE COURT: Mr. Morris? MR. MORRIS: THE COURT: Judge Foley, good morning. Good morning. ARGUMENT OF DEFENDANT It is an unpleasant task for a lawyer Thank you, Mr. Fagelbaum.

who has been, as Mr. Fagelbaum describes, praised as a formidable opponent, and it would be, without those remarks, to
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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 come here and defend myself and my firm against conclusions that are not supported by anything in the way of admissible evidence to establish the proposition that, in speaking for a few minutes in October of 2007, I received and retained confidences which, if revealed in this representation now, would be significantly harmful to Chin Hua. That is the

standard by which a motion of this type should be judged. And in coming to the cases and the opinions that you have read in those cases, I believe it is necessary to at least point out what the evidence that we do know from the declarations the parties have filed and the statements they have made with respect to what they did or said to each other indicate, one, I wasn't consulted nor was I called in the belief that, in speaking to me, I would be Chin Hua's lawyer. I was called in the course of an inquiry of more than one lawyer as a possible representative for a client called Chin Hua, as I said in my declaration, I know as a restaurant at the Forum Shops, who wish to litigate with Simon Properties or one of the Simon entities that conducts business at the Forum Shops, and that fact was disclosed at the outset, and it is a significant fact, because I have had years of experience with Simon as an adverse party. I know for a fact that in speaking to Mr. Heller, and I knew it then, that if the defendant or the defendants that he had in mind were Simon Property entities, I would have no
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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 conflict, and he did not disclose otherwise. Let's be perfectly clear in what was disclosed by Mr. Heller when he started speaking to me. I don't know him, I

have never seen him, and I've only had the one conversation with him. I haven't seen nor spoken to Mr. Fagelbaum before I

saw him in the courtroom this morning, and I didn't recognize him when I saw him since, I believe, 1981. Mr. Heller called me and said, as Mr. Fagelbaum puts in his declaration, `We're looking for local counsel to represent our client with us, Chin Hua', and Mr. Fagelbaum suggested that in considering local counsel, and we've had some recommendations of others, and another one is sitting at this table, Harold Gewerter, and he is sitting next to another one that they interviewed and hired, Stan Hunterton and Pam Lawson. And it is in that context that Mr. Heller said, `We have been sued by Simon in Delaware, and I want to file a suit against Simon in Las Vegas, and let me tell you how I came to speak to you. I spoke to my partner, Mr. Fagelbaum, and he We exchanged some social

said', and so on and so forth. pleasantries.

We even reminisced a bit about the MGM fire

litigation which is the basis for my former association with Mr. Fagelbaum, although Mr. Heller wasn't involved in it. It

was that association that prompted Mr. Fagelbaum, as he says in his declaration, to suggest to Mr. Heller that he speak to me, among others, about representation. And we did.

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 We spoke about, among other things, the court system here; the state and federal courts, the judges, the calendars, the congestion, and so on and so forth, and we did so in the context of `I've been sued in Delaware by Simon and I want to sue Simon in Las Vegas.' In the course of that conversation,

and I took that to be, to use a phrase, and you've seen it in the decisions you've read, I took that to mean I was a participant in a beauty contest. We're looking around for

lawyers, and a number of them have been recommended to us and you're one of them. We want to file a lawsuit in Las Vegas,

and we want to file it against Simon. In the course of that discussion, I said to Mr. Heller, and I can tell you he is simply dead wrong in his declaration when he says otherwise, I remarked to him that the ground lessor, because I knew this from years of litigation involving Simon, the ground lessor of the Forum Shops is Caesars, and Caesars is owned by Harrah's, and that is a longtime and continuing client of mine and my firm. context that Caesars arose. I suggested in my papers and I wish to suggest it to you again this morning, it is preposterous to assume that at the outset of this conversation Mr. Heller said, in words or substance, `I want to sue one of your current clients, Mr. Morris', and I said, `Gee, that's fine. Let's talk about that It is in that

and let me give you all sorts of advice and answer all sorts of
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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 questions that you may have about litigation strategy and parties and claims, and then maybe I can get the client to waive a conflict so you can employ all of this information and my advice against my client in a lawsuit in which I would be your co-counsel.' here. Mr. Fagelbaum told you that as a consequence of suing Caesars some months later, and my firm appearing as counsel for Caesars -- not me, my firm -- Mr. Heller protested, and he did, and it is of consequence to examine the text of the two e-mails we exchanged on this subject, because, among other things, Mr. Heller's response to mine, which you have an Exhibit A to the motion to disqualify me and my law firm, is a single paragraph, and it does not dispute this statement that I made in my e-mail to him. I'm unable to recall anything from our conversation several weeks or months ago that justifies your request. have only the faintest recollection of our previous conversation. I recall you said you represented Chin Hua at I That's the proposition that is being urged

the Forum Shops in some sort of dispute with another tenant or sub-tenant involving a night club. I do recall telling you

that Simon is the lessor at the Forum Shops, and that it would be a difficult party to litigate against, and I know that from experience; and that he leases ground for the Forum Shops from Caesars. I told you we represent Harrah's, which owns Caesars.
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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I don't recall the context in which these remarks were made but I probably said we would not represent tenants at the Forum Shops because of their relationship between Forum and Caesars. In any event, I either recommended Stan Hunterton to you as local counsel or confirmed another lawyer's recommendation of him to you as a very favorable and experienced litigator.' Mr. Heller agrees with that. He

doesn't dispute any of that.

Now, in his declarations in this

case and in particular his supplemental declaration, he embellishes on a number of conclusions by asserting even more conclusions with respect to what it is in the way of confidences he disclosed to me. He hasn't said to you either in camera, and he hasn't asked for an evidentiary hearing to demonstrate what those confidences were. He just simply says to you in his two I have

declarations, `Take my word for it; I disclosed them. no evidence of it. Morris.'

I can't even tell you when I telephoned Mr.

And as a consequence, your Honor, of me identifying

October 2007 as the date of that conference, Mr. Heller, in his supplemental declaration, not in the moving papers, comes back and says, `I believe that telephone conference was much closer in time to December when I retained Stan Hunterton.' That is contradictory to Mr. Fagelbaum's declaration which he filed in support of the motion to disqualify me in which he acknowledges that shortly after Chin Hua had been sued
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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 by Simon in Delaware, he suggested to Mr. Fagelbaum -- I'm sorry, Mr. Heller -- that he speak to me about acting as local counsel in Las Vegas. That lawsuit in Delaware was filed in

early October 2007, and it is a fact that Mr. Heller disclosed to me, although he didn't tell me what the claims made in that lawsuit against Chin Hua were. that in my declaration. We start from this premise, I believe. I speak to But he did disclose it. I put

lawyers frequently, both in this community and from outside the community, about potential litigation in Las Vegas, and oftentimes the questions of lawyers who are unfamiliar with Las Vegas center on, as they did in this case, the court system; state court, federal court, number of judges, congestion, time to hearing, so on and so forth. And I freely answer those

questions based on my experience. But I didn't answer those questions and discuss those subjects with Mr. Heller in the course of speaking to him in October 2007 for the purpose of rendering legal advice in connection with a particular problem or series of problems that he said he had, because he didn't, and he has no evidence otherwise to show that he discussed with me his eight causes of action. He didn't even have a complaint, or, if he did, he He didn't send me anything. He I

didn't disclose it to me.

didn't tell me what those eight causes of action were.

didn't tell him what I thought of those causes of action which
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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 he didn't disclose to me. It is, I used the word `preposterous' a few minutes ago with respect to Mr. Heller telling me, alleging that he told me he was going to sue my client, and I said, `Fine, let's talk about it.' It is preposterous also to suggest that Mr.

Heller, in the course of a very short telephone conversation, discussed with me such subjects as litigation strategy underlying eight causes of action, settlement considerations with respect to a lawsuit that had not been filed, the identity of parties and the addition of defendants. The only thing I

knew about the defendants in the case was that Simon, or a Simon-related company with whom I would have no conflict and had not previously represented, Simon would not be a problem for me. If Mr. Heller had said, `Look Morris, I'm thinking of suing Simon and Harrah's or Caesars or another client that I've represented', I would have said at that point, `You know, this is a problem for me. I can't do this', and that is exactly

what I said to Mr. Heller, and it's confirmed in these declarations when it came to light that he said, `Well, Caesars is a potential defendant.' Mr. Fagelbaum told you a few minutes ago that as a consequence of my conversation as described in the declarations, there was an implied attorney-client relationship created between me and Chin Hua in October of 2007 even though
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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1.18(c). Mr. Heller would like to say it's sometime later. under the model rules. The rules we currently operate under and which, by your local rules, are the operative rules with respect to attorney conduct in this Court, became effective in September 2007. They are the revisions to the model rules that were That was as a That arises

first enacted in Nevada in the 1980s, in 1983.

consequence of the ABA's 2000 commission which studied the model rules for several years in order to recommend revisions to the rules and improvement in the procedures that would be put in motion by application of the rules. One of those provisions is in Nevada model rule That rule says, with respect to the contention made

here that I became Chin Hua's implied attorney because of my conversation with Mr. Heller, is that disqualification of an attorney who discusses with a client representation that does not come about is only warranted when the disclosures to the attorney by the client would be significantly harmful in the litigation that follows and in which the attorney -- in this case, me -- was spoken to on a prior occasion. That codifies the law that was in effect in Nevada at the time the current model rules were implemented, and you can find that in, among other places, the cases cited by Chin Hua. For example, Robbins versus Gillock (phonetic), the Court there, in discussing the nature of confidences -- by the way,
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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it didn't say and neither do the rules, any confidence disclosed results in disqualification. The Court said there

that a confidence to merit disqualification or to support disqualification, and I'm now quoting, `must be one that will be harmful to the client in a later matter.' The rule codifies

that and adds to it the modifier `significantly harmful.' Cases before this Court by other magistrate judges, and we appended some of those to our opposition, point out that when addressing matters like this and trying to determine whether a client's choice of lawyer should be set aside because the lawyer in question has significantly harmful information that could be used against that client, the courts say -- your fellow magistrate judges say, and Magistrate Judge McQuaid said it in United States versus Walker River Irrigation District, `There must be admissible evidence of confidential facts disclosed.' Here we have, without knowing what those confidential facts are that could be significantly harmful in this representation, we simply have the conclusions, the declaration of attorney Philip Heller, that I disclosed such things to Morris. And Mr. Fagelbaum, in his papers and in his argument And he says because of

this morning, elides that just a bit.

the nature of what we're talking about, those disclosures do not have to be demonstrated. We don't have to say what they

are; we just have to look at the context in which Mr. Morris
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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and Mr. Heller spoke and we can presume from that that Mr. Heller, in his declaration, is describing something that we don't have to say. So we do not have to, for example, your Honor, we don't have to honor rule 1.18(c). We want you to presume from

Mr. Heller's after-the-fact description of the conversation that significantly harmful information was disclosed. And we

are doing that in furtherance of the public's interest in the integrity of the judicial system and the lawyers' interest in being participants of integrity in the same system. My memory in this case, and it's indulgent and it's somewhat embarrassing for me to speak of myself, but I have been accused of, in oral argument and in the papers, of selective memory. Fagelbaum says. `Mr. Morris' memory is selective', Mr.

Well, the memory of my brief conversation with

Mr. Heller in October of 2007 is encapsulated in Exhibit A to their motion to disqualify me when I said to him, much closer to the conversation in time than we are today, what in substance I remember of it. And in my declaration in support of the opposition that we filed to this motion, I further develop my recollection and the basis for it of that one telephone conversation. I

have been aided to some extent, and I acknowledge this in my declaration, I've been aided to some extent by reviewing the papers and the allegations that have been made, but I haven't
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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 been aided to the extent that I recall things which did not occur. I can tell you that I did not discuss, for example, settlement strategy with Mr. Heller. causes of action with him. I did not discuss eight

I did not discuss the facts or the

theories by which those eight causes of action might be supported. I've given you, in my declaration, and I gave him

in my e-mail to him, my best recollection of the substance of what we discussed. And when it came to the point in our

discussion that he said Caesars would be, or could be, a potential defendant in the case, the conversation concluded. That is why I said in my e-mail to him, `I do not believe you have a basis to ask that the firm discontinue representing Caesars in the case in which you and Stan are involved.' I didn't reach an agreement with them, and they didn't negotiate one with me by which I said, `I received confidences from you that would be significantly harmful to you in this litigation, but I will Chinese wall myself and not discuss them with anyone else.' I said in my declaration, and

it remains true today; with the exception of these papers I haven't discussed this case with anyone else. I hadn't I

discussed my conversation with Mr. Heller with anyone else.

still have not except as it's set out in my declaration and in these papers. And I certainly did not retain and carry around

with me and come here before you today the facts, the legal
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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 strategy and legal advice I gave to Mr. Heller in formulating that strategy, whatever it is with respect to litigating against my own client. These matters have consequence, and they led the restatement of the law governing lawyers which is independent of the ABA 2000 commission but which on this point came to recommendations consistent with one another. our moving papers. We cite those in

I don't do so for the proposition that I'm

an indispensable or a great lawyer, that I terrify the other side just by appearing here or some such thing as that. not that vain and I'm not that egotistical. I'm

I am here to say

to you that with respect to what we have, the very spare facts of what we have here, I did not receive from Mr. Heller and do not retain as a result of that receipt, confidences that would be harmful or significantly harmful in this litigation. Now, one of the things that Mr. Heller did say to me, and it's acknowledged in these declarations when we spoke, I have a plan to sue Simon, and at the time he spoke to me, that was confidential. been filed. It hadn't been filed yet; the suit had not It didn't get filed

The suit has now been filed.

or was not influenced in any manner by anything he said to me, but the fact that he intended to file a lawsuit against Caesars is now a public fact. The eight causes of action that he said he discussed with me, even if he had done so, and that's significant under
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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 some of the cases you've read -- the Poly Agro (phonetic), for example -- the facts that were alleged by the movant to disqualify the lawyer have now become public facts, so I discussed with Morris eight causes of action, and I filed them through Mr. Hunterton. I discussed adding defendants to Simon in this lawsuit, and I've done so. Those are matters of public record. They

They wouldn't be significantly harmful to Chin Hua.

couldn't be because they're now before the Court and the public. Let's take a look at, and we won't take a look at all of them, a couple of the cases under which this motion is made. Now remember, one of the cases first urged was Tyrone versus Smith, and when we pointed out in our response that Tyrone versus Smith involved Mr. Fagelbaum's former law firm and that it involved actual representation and an actual former client, C. Arnold Smith, the Ninth Circuit said, `Given that fact, that you had a no-kidding, real relationship with this client, you cannot now sue this client's company.' That case, and the

reasoning underlying it, drops out of the reply. Just as Speedy Oil, the California case that occupied so much attention or got so much attention in the motion, where lawyers spoke to each other by telephone, the result of which was a client who hired one of those lawyers in a conversation was sued to disqualify that lawyer because the lawyer had
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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 talked with the client -- the other client -- as an adversary. Speedy Oil involved a series of telephone conversations, not one in October of 2007, and it involved a sit-down, face-to-face two-hour meeting at which subjects such as experts, timing of disclosure, claims, strategy, all those subjects were discussed in depth following a telephone conversation or a series of telephone conversations between the lawyers in question. That didn't happen here. Nothing

remotely approaching that happened here. This case, if it has an analogue with respect to what's at issue here, can be found in the decision written in the ADP case by the magistrate judge in New Jersey in which he analyzed claims identical to those, or almost identical, to those being made here under rule 1.18(c), and he dismissed out of hand and denied a motion to disqualify saying that claims discussed which later became matters of record, settlement strategy or the subject of settlement were not matters that would be significantly harmful in the litigation and therefore would not support disqualification. The Chin Hua lawyers meet this by just a shake of the hand and a nod saying, `Well, that case is different.' They

don't dispute that it applies 1.18(c); what they want to turn your attention to is the proposition that if this matter proceeds with me as counsel, an appearance of impropriety will be created that would be inimical to the justice system, and
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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they cite a variety of cases that apply the appearance of impropriety as a factor in determining whether to disqualify a lawyer. Those cases go against two things: the trend of authority that recognizes that the old standard, because it exemplifies the problem we have here with Mr. Heller's declaration, the old standard of cannon nine of the Code of Professional Responsibility was the source for the appearance of impropriety, and that has been abandoned. specifically rejected by the model rules. It is Because it is

Why?

subjective; it doesn't, and as one court, the Arkansas Supreme Court, said last year, `It lends itself to lawyers crafting arguments that will, they say, and can argue, give the appearance of impropriety.' And that is the subjective basis

for Mr. Heller's declarations. He doesn't tell you, as the courts say and as the rule requires he must establish, he has the burden of proof if he means to disqualify and moves to do so, a prospective counsel that was not retained, he has to demonstrate, as Magistrate McQuaid put it, `by admissible evidence what it is that would be significantly harmful to carry this on.' doesn't do that. He

He resorts to embellishing on his declaration

that he filed in support of the motion by simply embroidering the conclusions, the subjective conclusions that he reached to spawn the argument that unless you accept these as a basis for
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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 disqualifying Morris, you, Judge Foley, will be presenting or fostering an appearance of impropriety. law, and it shouldn't be. 1.18(c). I am history in this case if the evidence establishes that significantly harmful confidences were disclosed to me. And to put it in the words of Robbins versus Gillock, will be harmful to the client in the later matter. I acknowledge that, but I also point out to you, as I've said to you this morning and as I have attempted to say in the papers that I filed, I didn't get, I'm not the recipient of, and there isn't any proof to the contrary that I got confidential information that would be harmful, or significantly harmful to quote the rule, in this matter if I am permitted to continue acting as Chin Hua's counsel. This motion arises in the context of a motion to dismiss is pending. A motion to dismiss is a proposition of That just isn't the

The law is as it is declared in rule

law, and that is the context or asks the Court to decide and will decide it as a matter of law, that's the context in which this arises. That's a motion that should have been and could

have been heard last year but, for one reason or another, and I'm not faulting anyone here, it wasn't. So when this matter came to conclusion with Ms. Pickering because she went to the Supreme Court, the client with whom I'm acquainted and whom I've represented for years,
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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 asked that I take this case, thereby exercising his choice or the client's choice of counsel. As the cases point out to you, to overcome and to set aside a client's interest in being represented by choice of counsel, the proponent of disqualification has the burden of proof to demonstrate that the client's choice of counsel has and can use, or could use in the future in this case, confidences that were disclosed by Heller to Morris in October of 2007 which would be significantly harmful to it. That is the situation that brings us here, and those confidences, whether we describe them in Robbins' terms as harmful or under Rule 1.18(c) as significantly harmful or, as they were discussed in the ADP case, are simply not present here and do not support this motion for disqualification. If I

am permitted to go ahead with and present the argument on the motion to dismiss, the legal system will not disintegrate and the prestige of the courts will not be eroded and disappear as a consequence of me doing so. It would be otherwise if I had

received and I was going to employ, or had the opportunity to employ, attorney-client confidences that were disclosed to me by Mr. Heller. One last point, and that's this: We do discuss this a bit in our papers, and I call it to your attention only to remind you of the fact. This isn't a case in which a client,

unacquainted with the legal system, unsophisticated in the way
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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of lawyers and representations, called a lawyer and said, `I need help. Can you give me some advice?' I got a call from a

lawyer of many years' standing, just as Mr. Fagelbaum is, who said to me, in words and in substance, `We're shopping around for lawyers in Las Vegas. talk to you.' And in the course of that conversation, when Caesars came up, I said, `That is a client. It will present a problem I suggest you talk to My partner, Fagelbaum, said I should

for me, and I can't go ahead with this. him.

Mr. Heller quarrels with this point but he doesn't He says that he raised

disagree with the conclusion I reached. the name of Stan Hunterton.

You know that doesn't mean

anything at all to me because we both know Mr. Hunterton. I believe when Caesars came up, I suggested, among others, Stan Hunterton as a person who is knowledgeable in the court system, who appears in both state and federal courts and who would be perfectly capable of giving Mr. Heller and Chin Hua whatever advice they believe they needed to make a determination in which court to proceed; and for that matter, what claims to assert. That is the extent of what we have

here, and that summarizes, in more than a few minutes, my opposition to this motion. THE COURT: Thank you.

Thank you, Mr. Morris.

Mr. Fagelbaum? MR. GEWERTER: Your Honor, may I just make a point of

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 clarity? I believe Mr. Morris stated, inadvertently, I was I am not. I represent solely the Poetry

local counsel. Nightclub.

I am not co-counsel for the other -THE COURT: I think the context in which your name

comes up is in the conversations, as I understand from the affidavit, as you potentially being another choice for local counsel. MR. GEWERTER: Okay. Well, just for clarity, I don't I represent

represent them; they have their separate counsel. solely Poetry Nightclub -THE COURT: Okay. -- just so there's no

MR. GEWERTER: misunderstanding. THE COURT:

Okay.

Mr. Fagelbaum?

REBUTTAL ARGUMENT OF PLAINTIFF MR. FAGELBAUM: Your Honor, I don't underestimate for

a moment the task that's before us on this motion and the decision that the Court has to make this morning. It is a

difficult type of motion in the best of circumstances, and when you add to it the fact that I have the utmost regard for Mr. Morris. Mr. Morris is not a bad person. I like Mr. Morris,

and this is not about my affinity towards Mr. Morris. The point is Mr. Morris, like all of us, is human, and as a result of that, his recollection of events is subject to human frailties. I believe in many instances, Mr. Morris

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 just doesn't remember, or has forgotten, what the facts are. Now, I don't know how important the issue has become as to whether or not the telephone call to Mr. Morris was in October of some other time, but Mr. Morris is adamant on the point that the call took place in October 2007. he remembers it. Your Honor, in preparation for the argument today, I went back to the firm's telephone records, and the call that Mr. Heller placed to Mr. Morris was on December 26th, 2007. actually lasted one minute and 19 seconds because Mr. Morris wasn't available to take the call. return the call to our offices. Mr. Morris then had to It That's the way

So I don't have in my records

the duration of the substantive call which both sides concede was 15 minutes or more. was December 26th, 2007. Now, the significance of that is only to show that memories can play tricks on people. there. There's no ulterior motive But I do know when it took place. It

It's just, with the passage of time, there are errors. There are also errors -THE COURT: You know, one thing I would comment on

frankly that, obviously from the briefs in this matter that there was no contemporaneous record of when this phone call was made, either on your side or on Mr. Morris' side, his firm's side. And frankly, I would think that it's something you don't

save for a reply argument at the hearing as to records that you
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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have verifying when the call may have occurred. MR. FAGELBAUM: THE COURT: Your Honor, the -I think

I offered that as a comment.

it's not helpful to bring that out for the first time in a reply argument at the hearing. MR. FAGELBAUM: The point is well taken, your Honor.

The question was, given the fact that that information just came to our attention, whether or not we should just keep it to ourselves or provide it to the Court. THE COURT: Well, I think it's something that you The motion we're here on The response

could have known quite a while ago.

February the 12th, when was the response filed?

was filed on January 27th and the reply brief filed on February the 6th. Again, I'm just -- you know, it's not determinative

of the Court's ruling; it's just the kind of evidence or information that I don't think a party saves for its reply argument at a hearing when obviously it's been an issue probably since the motion was first filed. MR. FAGELBAUM: You're correct, your Honor. And I do

want to point out that this particular item is consistent with the declaration of Mr. Heller which was filed as part of the reply papers in refuting the specific time frame that Mr. Morris raised for the first time in his opposition. Where Mr.

Morris said it took place in October, Mr. Heller indicated it was shortly before Mr. Hunterton was retained, which was in
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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 late December, and he was actually retained the first part of January 2008. With respect to what occurred following that telephone conversation, a couple of months later in February, Caesars appeared in this case. They made a motion to remove

the case from state court to federal court, and that's when we learned for the first time that Mr. Morris' firm would be involved in this case. As Exhibit A to our moving papers do

indicate, at that time, in February of 2008, Mr. Morris referred to his recall as `the faintest recollection.' going through his e-mail, he says, `I probably said'. And in That's

not the strongest state of mind even back last February. He also goes on to say, `That's about all I can recall'; a very, very skeletal recollection of what happened. Now, if there has been any further embellishment of that recollection, it has come now, many, many months later, in opposition to this motion. The point that Mr. Morris made in February of 2008 is that, quote, `I am not familiar with the case or involved in any respect.' As a result of that comment, he concludes, `I do

not believe you have a basis to ask that the firm discontinue representing Caesars.' He said, `I have limited recall of what

occurred, I've had no involvement; therefore -- and I've spoken to nobody about this; therefore, you don't have a basis to ask that the firm not represent Caesars.'
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31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Even Mr. Morris, back in February of 2008, did not take the position that he personally could represent Caesars. And as a matter of point, in February of 2008, he indicated he would not represent Caesars, and his partner, Kris Pickering at the time, committed in writing to us her statement that, `I will confirm that I will keep this work separate from him.' Why? Why their sensitivity back then in February of 2008?

Because based upon that prior consultation, both Mr. Morris and Ms. Pickering knew that Mr. Morris had placed himself in a position where he had received client confidences, he had a duty of loyalty and a duty not to use that information adverse to this client. Now, Mr. Morris is an ethical and honorable lawyer. When he stated to us, `I will have no involvement in this case. I have spoken to no one and I will not speak to anyone about this case', we relied on that statement and we said, `If you continue to do that, this so-called ethical screen or ethical wall, then we withdraw our objection to your firm and Ms. Pickering representing Caesars.' Had in fact this been a tactical motive, had we been trying to set up Mr. Morris, that was the time for us to make a motion and say, `Too late, you're tainted; you no longer can represent Caesars and neither can your firm.' that. We didn't do

We relied at face value on the representations of Mr.

Morris and Ms. Pickering, and for ten months that's exactly
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32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what they did. They honored those representations and they That fact

complied with their ethical responsibilities.

distinguishes all the cases that Mr. Morris puts in his opposition brief. In those cases that he relies on, there was a dispute; one lawyer says one thing, the other says something else, and the judge is left in the middle to try to figure out what's the right thing to do in that particular instance. What

distinguishes this case is that Mr. Morris and Ms. Pickering knew what the right thing to do in this case was back in February of 2008 when they said, `Mr. Morris will have no involvement in this case', and they honored that commitment and there was no problem. The only thing that happened since then that changed the whole dynamic was Ms. Pickering leaving the firm. Ms. Pickering left the firm, she said, `New rules. And when

I'm

leaving; Mr. Morris is coming in to substitute in', and that point, we went back and said, `Wait a second. you told us last February? What about what

You said Mr. Morris would stay out

of the case', and that was the reason we didn't bring a motion to disqualify back in February 2008. was, `Well, this is just a tactic.' It's not a tactic, your Honor. accomplished attorney. Mr. Morris is an Ms. Pickering's response

He doesn't need, and the law does not He has

allow, him to have an added advantage in this case.
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33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that added advantage. He has an insider's perspective of our By the time December came

thinking with respect to this case.

around, the end of December, the drafts of the complaint were ready to go, it was filed less than a week later. Mr. Heller

was certainly in a position to discuss with Mr. Morris in depth what the case was about, what the strategy was and what he could add to that point. And Mr. Morris did, and there are

certain actions that his firm has taken which are based upon those discussions which are adverse to us. We filed this case in state court. This case is now

in federal court because Mr. Morris and Ms. Pickering removed the case, and that was based on discussions that were held with Mr. Heller. It is significantly harmful. They know our

perspective on settlement, and we do not have to disclose that, your Honor. The evolution of the law is clear on this point. You can't

You can't burn down the village to save the village. disclose the confidence to protect the confidence.

We're not trying to be semantic here or be cute or avoid our burden of proving that this was a confidential situation. The courts have developed tests to prevent this What was the

from becoming a swearing contest between lawyers. context?

The context here was we were seeking seasoned,

veteran attorneys that would be able to effectively represent our interest, our client's interest, in this proceeding in Las Vegas.
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34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A lot of information went by. Twenty minutes is a

long time when two lawyers cut to the chase and talk about the merits and the procedures and the law and the parties and the issues involved in a case. A lot of information can exchange

hands, and we've pointed that out. Now Mr. Morris says, `Well, some of the cases that we refer to in our opening brief are not repeated in our reply brief.' That's true. We didn't repeat everything. Otherwise,

there would be no need for a reply brief.

But what we did do

is we added additional cases for the Court's enlightenment which point out, among other things, that a telephone call, in as little as 15 minutes, can satisfy the necessary context whereby confidences are disclosed and legal advice is received. That's the Doucette (phonetic) case that we mentioned, your Honor. Now, in this type of a situation, we have to look at what the conduct was between the parties, not just the words. I mean, now, when we're in the throes of making the motion and writing it and putting in self-serving declarations, what was the conduct that guided the parties before the motion was made? The conduct was that Mr. Morris initially got it right. He

knew he could not represent Caesars adverse to Chin Hua and, as a result, he took himself out of this case. involvement in the case. He had no

There's no dispute as to that.

Now, ten months later he says, `I'm back in because
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35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 my wife can no longer handle it. I have to come back.' That For

doesn't provide him with the justification to come back.

him now to say, `I don't remember exactly what you told me' is not enough, and the cases are very clear about that. The cases

try to give the Court some protocol that eliminates the need to say, `Well, this person's telling the truth and this person is lying.' The point is: Was this a situation which would lend

itself to the exchange of confidences and the giving of advice? This was not a beauty contest as Mr. Morris suggests. The designated person we wanted to hire was Steve Morris. was the first one that was called, a discussion was held. was during the course of that discussion that Mr. Morris disclosed that there might be a problem in this case because of his prior and concurrent relationship with Caesars. As a He It

result of that, he was then asked about his opinion with respect to some other lawyers who we had heard about but who had not been contacted and would not have been contacted had Mr. Morris accepted the position as local counsel. It's only when he left it ambivalent at the end of the conversation and the potential for conflict was clearly front and center that the decision was made to move on and select other counsel to avoid the very thing that Mr. Morris is in right now, which is an actual conflict which would involve his client, the Court and our client. We tried to avoid that.

We tried to avoid that initially, we tried to avoid that back
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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 last February; but at this point we can't ignore it anymore. It's not right, your Honor, for the lawyer who's in this case to say, `Mr. Morris is going to come in now and the plaintiffs are going to regret it.' an appearance of impropriety. Now, Mr. Morris says, `Well, that's not the law.' We It's not right. There's

were very careful, your Honor, when we put that comment in our papers. We indicated that it is not part of the commentary to So clearly 1.9 is not dependent upon a determination

rule 1.9.

of appearance of impropriety, but that doesn't mean that this Court cannot consider it. for that proposition. There's something not right here, your Honor. doesn't feel right. It doesn't pass the red face test. It This The Lovell case which we cite stands

is a situation where there was -- again, this distinguishes it from the cases cited by Mr. Morris -- where not only were discloses made but legal advice was given. The joinder of

those two principles establish that there was a confidence and the establishment of an implied attorney-client relationship. As we said in our papers, when Mr. Heller first made the phone call, 1.18 might have been in play with respect to prospective clients, but during the course of that phone call, because of the nature of the disclosures and the receipt of the legal advice, that relationship converted into an implied attorney-client relationship, and therefore 1.9 applies to this
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37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 situation. Nevertheless, whether it's 1.18 or 1.9, there's enough of an overlap that disqualification is required in this case. The difference is, in 1.18, we have to show significant

harm; in 1.9, the threshold is much lesser: material information adverse to your client. There is significant harm here, your Honor. Mr.

Morris demonstrated right before the Court this morning how effective he is as an attorney. He cannot add to that the

additional information that he learned about strategic elements of Chin Hua's case. It's because of that that the law says you

do not now have to go into the details of those disclosures. The fact is the context was there. that confidences were disclosed? Yes. Was it likely Well,

How do we know?

Mr. Morris admits that there were at least some confidences, but he quickly adds, `They were subsequently published in the complaint.' But that does set up the context that there were It was a 20-minute phone call. A lot

additional confidences.

can be said in 20 minutes in addition to just identifying a potential defendant and eight causes of action. And there were disclosures. Mr. Heller said back in

February in response to Mr. Morris' e-mail, `There's a lot more that took place in that conversation but we need not get into it since you have already agreed to step aside.' back in right now. Thank you. He can't come

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38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Thank you, Mr. Fagelbaum. I'll

I'm not going to entertain any more argument. take it under submission.

Except that I would, if you wish,

Mr. Morris, allow you to respond to this information that Mr. Fagelbaum brought up about the phone records and the date of the phone conversation. But just to be clear, both counsel have, I think, argued your cases and your respective positions very well, and I've got it in the briefs. REBUTTAL ARGUMENT OF DEFENDANT MR. MORRIS: I do not have other than, as I indicated

in my declaration on February the 13th, I do not have a record of having called Mr. Heller. I was surprised and heard for the

first time when Mr. Fagelbaum said, `I've got a phone record that shows a 17-second duration phone call' made to me after Christmas. But I wasn't there as the basis for establishing

the date the conversation took place. I believe that conversation took place in October, and I believe, before Mr. Fagelbaum found the 17-second record of a call that I didn't -- I don't recall -- I didn't get and I don't recall returning, unless I returned it on February the 13th. I was relying on my recollection and his declaration,

and I explained that to you in my opening remarks about the October case in (indiscernible). THE COURT: All right. Then we'll leave it at that.

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39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
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I'll take this matter under submission, and I'll issue a written order shortly. ATTORNEYS: THE CLERK: Thank you, your Honor. All rise.

(This proceeding was adjourned at 10:36 a.m.)

CERTIFICATION

I certify that the foregoing is a correct transcript from the electronic sound recording of the proceedings in the aboveentitled matter.

February 23, 2009 Signed Dated

TONI HUDSON, TRANSCRIBER