Gonzales v. Desert Land, LLC et al

Filing 12

ORDERED that the Motion to Disqualify (ECF No. 112 filed in Base Case 2:13-cv-00931) is GRANTED. Hutchison & Steffan is therefore disqualified from representing Defendants in the present cases under Rule 1.10(e) Signed by Judge Robert C. Jones on 8/31/2016. (Copies have been distributed pursuant to the NEF - DRM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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TOM GONZALES,
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Plaintiff,
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vs.
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SHOTGUN NEVADA INVESTMENTS, LLC et )
al.,
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Defendants.
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TOM GONZALES,
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Plaintiff,
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vs.
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DESERT LAND, LLC et al.,
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Defendants.
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2:13-cv-00931-RCJ-VPC

2:15-cv-00915-RCJ-VPC
ORDER

These consolidated cases arises out of the alleged breach of a settlement agreement that

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was part of a confirmation plan in a Chapter 11 bankruptcy action.

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I.

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FACTS AND PROCEDURAL HISTORY
Case No. 2:13-cv-931 is the Lead Case and the second action in this Court by Plaintiff

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Tom Gonzales concerning his entitlement to a fee under a Confirmation Order the undersigned

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entered years ago while sitting as a bankruptcy judge.

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A.

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On December 7, 2000, Plaintiff loaned $41.5 million to Desert Land, LLC and Desert

The Previous Case

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Oasis Apartments, LLC to finance their acquisition and/or development of land (“Parcel A”) in

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Las Vegas, Nevada. The loan was secured by a deed of trust. On May 31, 2002, Desert Land

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and Desert Oasis Apartments, as well as Desert Ranch, LLC (collectively, the “Desert Entities”),

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each filed for bankruptcy, and the undersigned jointly administered those three bankruptcies

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while sitting as a bankruptcy judge. The court confirmed the second amended plan, and the

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Confirmation Order included a finding that a settlement had been reached under which Gonzales

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would extinguish his note and reconvey his deed of trust, Gonzales and another party would

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convey their fractional interests in Parcel A to Desert Land so that Desert Land would own 100%

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of Parcel A, Gonzales would receive Desert Ranch’s 65% in interest in another property, and

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Gonzales would receive $10 million if Parcel A were sold or transferred after 90 days (the

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“Parcel Transfer Fee”). Gonzales appealed the Confirmation Order, and the Bankruptcy

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Appellate Panel affirmed, except as to a provision subordinating Gonzales’s interest in the Parcel

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Transfer Fee to up to $45 million in financing obtained by the Desert Entities.

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In 2011, Gonzales sued Desert Land, Desert Oasis Apartments, Desert Oasis Investments,

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LLC, Specialty Trust, Specialty Strategic Financing Fund, LP, Eagle Mortgage Co., and Wells

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Fargo (as trustee for a mortgage-backed security) in state court for: (1) declaratory judgment that

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a transfer of Parcel A had occurred entitling him to the Parcel Transfer Fee; (2) declaratory

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judgment that the lender defendants in that action knew of the bankruptcy proceedings and the

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requirement of the Parcel Transfer Fee; (3) breach of contract (for breach of the Confirmation

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Order); (4) breach of the implied covenant of good faith and fair dealing (same); (5) judicial

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foreclosure against Parcel A under Nevada law; and (6) injunctive relief. Defendants removed

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that case to the Bankruptcy Court. The Bankruptcy Court recommended withdrawal of the

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reference because the undersigned had issued the underlying Confirmation Order while sitting as
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a bankruptcy judge. One or more parties so moved, and the Court granted the motion. In that

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case, Gonzales v. Desert Land, LLC, 3:11-cv-613, the Court dismissed the second and fifth

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causes of action and later granted certain defendants’ counter-motion for summary judgment as

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against the remaining claims. Plaintiff asked the Court to reconsider and to clarify which, if any,

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of its claims remained, and defendants asked the Court to certify its summary judgment order

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under Rule 54(b) and to enter judgment in their favor on all claims. The Court denied the motion

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to reconsider, clarified that it had intended to rule on all claims, and certified the summary

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judgment order for immediate appeal. Defendants submitted a proposed judgment, which the

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Court signed, and Plaintiff asked the Court to enjoin defendants from further encumbering Parcel

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A with loans or mechanic’s liens until the Court of Appeals ruled, a motion the Court denied.

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The Court of Appeals affirmed, ruling that the Parcel Transfer Fee had not been triggered based

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on the allegations in that case, and that Plaintiff had no lien against Parcel A.

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B.

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In the Lead Case, Case No. 2:13-cv-931, also removed from state court, Plaintiff recounts

The Lead Case

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the Confirmation Order and the Parcel Transfer Fee. (See Compl. ¶¶ 10–14, ECF No. 1, at 11 in

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Case No. 2:13-cv-931). Plaintiff also recounts the history of the previous case. (See id.

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¶¶ 17–21). Plaintiff alleges that Defendant Shotgun Nevada Investments, LLC (“Shotgun”)

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began making loans to the Desert Entities for the development of Parcel A between 2012 and

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January 2013 despite its awareness of the Confirmation Order and Parcel A transfer fee provision

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therein. (See id. ¶¶ 22–23). Plaintiff sued Shotgun, Shotgun Creek Las Vegas, LLC, Shotgun

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Creek Investments, LLC, and Wayne M. Perry for intentional interference with contract,

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intentional interference with prospective economic advantage, and unjust enrichment based upon

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their having provided financing to the Desert Entities to develop Parcel A. Defendants removed

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and moved for summary judgment, arguing that the preclusion of certain issues decided in the

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‘613 Case necessarily prevented Plaintiffs from prevailing in the present case. The Court granted
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that motion as a motion to dismiss, with leave to amend.
Plaintiff filed the Amended Complaint (“AC”). (See Am. Compl., ECF No. 28 in Case

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No. 2:13-cv-931). Plaintiff alleges that the Confirmation Order permitted Parcel A to be used as

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collateral for up to $25,000,000 in mortgages of Parcel A itself or as collateral for a mortgage

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securing the purchase of real property subject to the FLT Option if the proceeds were used only

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for the purchase of that real property, but that any encumbrance of Parcel A outside of these

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parameters would trigger the Parcel Transfer Fee. (See id. ¶¶ 15–16). Various Shotgun entities

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made additional loans to the Desert Entities in 2012 and 2013 “related to the development of

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Parcel A.” (Id. ¶¶ 25–26). Multiple Shotgun entities have also invested in SkyVue Las Vegas,

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LLC (“SkyVue”), the company that owns the entities that own Parcel A. (Id. ¶ 27). Plaintiff

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alleges that the reason Perry, the principal of the Shotgun entities, did not document his $10

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million investment was to “avoid evidence of a transfer,” and thus the triggering of the Parcel

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Transfer Fee. (See id. ¶ 29).

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Defendants moved for summary judgment, and Plaintiff moved to compel discovery. The

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Court struck the conspiracy and declaratory judgment claims from the AC, because Plaintiff had

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no leave to add them. The Court otherwise denied the motion for summary judgment and

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granted the motion to compel discovery, although the Court noted that the intentional

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interference with prospective economic advantage claim (but not the intentional interference with

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contractual relations claim) was legally insufficient. Defendants moved for summary judgment

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after further discovery and filed a motion in limine. The Court denied both motions as well as a

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motion to reconsider but granted a motion to strike the untimely jury demand.

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C.

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In the Member Case, Case No. 2:15-cv-915, Plaintiff sued the Desert Entities, SkyVue

The Member Case

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Las Vegas, LLC, Howard Bulloch, and David Gaffin variously in this Court for breach of

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contract, breach of the covenant of good faith and fair dealing, and conspiracy, making a timely
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jury demand. The Court asked the parties to show cause why both cases should not therefore be

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tried to a jury. After a hearing, the Court ruled that the ‘931 Case will be tried to the Court but

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the ‘915 Case will simultaneously be tried to a jury.

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II.

DISCUSSION

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Plaintiff has moved to disqualify Mark A. Hutchison or any member of the firm of

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Hutchison & Steffen, LLC from representing Desert Land, LLC; Desert Oasis Apartments, LLC;

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Desert Oasis Investments, LLC; SkyVue Las Vegas, LLC; Howard Bulloch; and David Gaffin

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(collectively, “Defendants”).

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A.

Attorney Kistler

A lawyer who has formerly represented a client in a matter shall not thereafter
represent another person in the same or a substantially related matter in which that
person’s interests are materially adverse to the interests of the former client unless
the former client gives informed consent, confirmed in writing.

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Nev. R. Prof. Cond. 1.9(a).
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Plaintiff argues that because Hutchison & Steffen attorney Sid Kistler represented him
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when Kistler worked at Gordon & Silver, Kistler is disqualified from representing Defendants
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against him in the present matter under Rule 1.9(a). Kistler admits to having represented
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Gonzales in certain non-bankruptcy litigation but nothing substantially related to the present
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matter. Gonzales, however, recalls that Kistler “had a primary role” in his representation at
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Gordon & Silver, which included the Desert Entities’ bankruptcy cases, including representation
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of Plaintiff at his deposition in those cases. The transcript of the deposition shows that Kistler
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understood that the deposition related to a contested matter in the bankruptcy case and that he
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understood the difference between a garden-variety deposition and an examination under
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Bankruptcy Rule 2004 well enough to argue the point with opposing counsel. One of Kistler’s
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many objections at the deposition was that a certain question implicated attorney–client
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privileged discussions, i.e., “that scenario has been the subject of attorney–client privileged
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discussions,” and he advised Gonzales not to answer for that reason. In other words, it is clear

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that Kistler had privileged information concerning Gonzales’s representation relevant to the

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bankruptcy case, and that he did not just “parachute in” for the deposition, to use his words. And

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Kistler himself asked Gonzales many questions, often referring to exhibits, that indicated his in-

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depth knowledge of the matter at hand. Plaintiff points out that even the limited Gordon &

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Silver billings available to him indicate that Kistler did work for Plaintiff related to the Desert

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Entity bankruptcy cases in addition to representing him at his deposition, including attending

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meetings on how to proceed “on all matters.” Indeed, when Gordon & Silver subsequently sued

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Plaintiff for fees concerning the firm’s representation of him in the Desert Entities’ bankruptcy

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cases, the firm listed Kistler as a witness who “has knowledge of the facts and circumstances

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surrounding the Complaint . . . to include but not limited to the services provided . . . .” The

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relevant evidence is adduced.

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The Court is satisfied that Attorney Kistler represented Plaintiff while at Gordon & Silver

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on a matter substantially related to the present cases. Plaintiff’s and Defendants’ interests are

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materially adverse in the present cases, and it appears undisputed that Plaintiff has never given

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written consent to Kistler’s representation of Defendants in the present cases. Kistler is therefore

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disqualified from representing Defendants against Plaintiff in the present cases under Rule 1.9(a).

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B.

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Plaintiff argues that because Hutchison & Steffen attorney Todd Moody represented him

Attorney Moody

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when Moody worked at Ellsworth Moody & Binnion, Moody is also disqualified from

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representing Defendants against him in the present matter under Rule 1.9(a). Plaintiff notes that

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his attorney against Gordon & Silver in the fee dispute engaged Moody to obtain Plaintiff’s case

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files from Gordon & Silver. The Court cannot find that Moody represented Plaintiff while at

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Ellsworth Moody & Binnion on a matter substantially related to the present cases without more.

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The fee dispute between Plaintiff and Gordon & Silver is not substantially related to the dispute
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between Plaintiff and the Desert Entities in fact or law. The substance of the underlying

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bankruptcies had no relation to the limited task of obtaining the case files.

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C.

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When a lawyer becomes associated with a firm, no lawyer associated in the
firm shall knowingly represent a person in a matter in which that lawyer is
disqualified under Rule 1.9 unless:

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Hutchison & Steffan

(1) The personally disqualified lawyer did not have a substantial role in or primary
responsibility for the matter that causes the disqualification under Rule 1.9;

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(2) The personally disqualified lawyer is timely screened from any participation in
the matter and is apportioned no part of the fee therefrom; and
(3) Written notice is promptly given to any affected former client to enable it to
ascertain compliance with the provisions of this Rule.

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Nev. R. Prof. Cond. 1.10(e) (emphasis added).
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Kistler is not currently listed as counsel of record for Defendants, but Attorneys Christian
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Orme and Robert Stewart of Hutchison & Steffan are. Plaintiff argues that Kistler’s conflict is
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imputed to all attorneys in the firm. Under Rule 1.10(e), once Kistler joined Hutchison &
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Steffan, his conflicts of interest under Rule 1.9 became imputed to all attorneys in that firm
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unless Kistler did not have a substantial role in or primary responsibility for the Desert Entities
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bankruptcy representation, Kistler was timely screened from any participation in the present
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matter and is to be apportioned no part of the fee, and Plaintiff was promptly given written notice
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so that he could evaluate a potential conflict under Rule 1.10(e). See id.
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The evidence adduced shows that Kistler had a “substantial role” in Plaintiff’s
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representation concerning the Desert Entities’ bankruptcy cases, having represented him at a
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deposition in the bankruptcy case and attended meetings as to litigation strategy in those matters
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and others. Although the Nevada Supreme Court has not defined “substantial role,” Black’s
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indicates that the word means “Of, relating to, or involving substance . . . [r]eal and not
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imaginary . . . [i]mportant, essential, and material . . . .” Black’s Law Dictionary 1656 (10th ed.
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2014). Kistler’s representation of Plaintiff at the deposition in the Desert Entities bankruptcy

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cases related to the substance of the case, was real, and was important, essential, and material to

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Plaintiff’s participation in that case. Although Kistler’s role in representing Plaintiff in the

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Desert Entities bankruptcy case was not “primary,” it was “substantial.” Nevada’s rule, unlike

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the rules in some other states, makes clear that “substantial” involvement is something less than

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“primary,” because either is enough. At least one other court interpreting the issue of

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substantiality in this context has found the test to be satisfied based on representation as to a

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single, important event in a matter’s litigation plus attendance at strategy meetings with other

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attorneys working on the case, as here. See Roy D. Mercer, LLC v. Reynolds, 292 P.2d 466,

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469–73 (N.M. 2012) (affirming imputation of a conflict where the personally conflicted attorney

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had briefed a motion to remand and participated in strategy meetings). Nevada’s Standing

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Committee on Ethics and Personal Responsibility has implied that “substantial role” means

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“direct role.” See Formal Op. No. 39, at 6. Kistler’s role in representing Plaintiff in the Desert

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Entities bankruptcy case was “direct.” Kistler represented Gonzales at a deposition and

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participated in strategy meetings concerning all of Gonzales’s cases. Whether Kistler currently

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remembers participating in the deposition is not at issue, but only whether his participation (only

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his memory of which, not the fact of which, Kistler appears to question) constituted substantial

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legal representation. He directly participated in Gonzales’s representation. His claim that he

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does not believe his participation in the deposition exposed him to any client confidences is not

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credible both on its face and because he simultaneously claims he does not remember what

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transpired at the deposition.

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Also, it appears undisputed that Hutchison and Steffan did not give Plaintiff written

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notice of the potential conflict before undertaking representation of Defendants. Although the

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parties do not appear to dispute that Kistler notified Gonzales’s counsel by telephone, the Court

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has been unable to find any authority indicating that the rule can be satisfied without a writing.
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Even assuming a verbal communication could qualify under appropriate circumstances, however,

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because Kistler’s role was substantial, screening is not permitted. Hutchison & Steffan is

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therefore disqualified from representing Defendants in the present cases under Rule 1.10(e).

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CONCLUSION

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IT IS HEREBY ORDERED that the Motion to Disqualify (ECF No. 112) is GRANTED.

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IT IS SO ORDERED.

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Dated this 31st day of August, 2016.

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_____________________________________
ROBERT C. JONES
United States District Judge

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