Quatama Park Townhomes Owners Association v. RBC Real Estate Finance, Inc. et al
Filing
38
Opinion and Order - For the aforementioned reasons, the Court GRANTS Defendants' Motion to Disqualify Counsel (ECF No. 21 ), and directs the Association's new counsel to file a Notice of Appearance within forty-five (45) days. Signed on 8/3/2018 by Magistrate Judge Stacie F. Beckerman. (mja)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
QUATAMA PARK TOWNHOMES
OWNERS ASSOCIATION, an Oregon
nonprofit corporation,
Case No. 3:18-cv-00023-SB
OPINION AND ORDER
Plaintiff,
v.
RBC REAL ESTATE FINANCE, Inc., a
foreign corporation; LAMPLIGHT CAPITAL
& ASSET MANAGEMENT, LLC, a Texas
limited liability company; DECATUR
ADVISORS LLC, a California limited liability
company; SCOTT MCFERRAN, an
individual; LAURA WILSON, an individual;
DARON ANDERSON, an individual,
Defendants.
BECKERMAN, U.S. Magistrate Judge.
Defendants Scott McFerran (“McFerran”), Laura Wilson (“Wilson”), Daron Anderson
(“Anderson”), and Decatur Advisors LLC (“Decatur”) (collectively, “Defendants”) move to
disqualify the law firm of Vial Fotheringham (“VF”) from continuing to represent Plaintiff
Quatama Park Townhomes Owners Association (“Association”) in this action. The Court has
jurisdiction of this matter pursuant to 28 U.S.C. § 1332. Defendants argue that VF formerly
PAGE 1 – OPINION AND ORDER
represented defendants McFerran, Wilson, and Anderson (collectively, the “Directors”) in a
substantially related matter, thus VF’s current representation of the plaintiff in this case is a
conflict of interest warranting disqualification. For the reasons that follow, the Court agrees and
GRANTS Defendants’ Motion to Disqualify Counsel.
BACKGROUND
This litigation arises from a dispute regarding alleged construction defects at Quatama
Park Townhomes (“Quatama Park”), a planned community located in Washington County,
Oregon. (Compl. ¶ 1.) Quatama Park was originally developed and constructed by companies
owned by James Standring (“Standring”). (ld. ¶ 5.) In 2011, construction lender RBC Real Estate
Finance, Inc. (“RBC”) foreclosed on Quatama Park and became the successor declarant for the
development. (Pl.’s Resp. at 1.) RBC then hired Decatur to manage the development. (Defs.’
Mot. at 2; Pl.’s Resp. at 2.) RBC appointed Wilson and Anderson, consultants hired by Decatur,
to serve as the sole members of the Association’s Board of Directors (the “Board”) until control
was turned over to the lot owners. (Defs.’ Mot. at 2; Pl.’s Resp. at 2.) In July 2013, Lamplight
Capital & Asset Management, LLC (“Lamplight”) purchased RBC’s interest in Quatama Park
and reappointed Anderson and Wilson as the Association’s Directors. (Pl.’s Resp. at 5; Vial
Decl. Ex. 1, at 1.) In August 2015, Anderson stepped down from the Board and Lamplight
appointed McFerran, who is also a principal of Decatur, to replace him. (Defs.’ Mot. at 2; Pl.’s
Resp. at 5; Vial Decl. Ex. 1, at 1.)
In July 2015, the Board hired the VF law firm to provide general representation services
to the Association. (Pl.’s Resp. at 7; see generally Vial Decl. Exs. 22-23.) VF’s representation
agreement was addressed to the Association’s Board of Directors and signed by Wilson as the
“Authorized Representative” of the Association. (Vial Decl. Ex. 23, at 1.) In November 2015, the
Association retained VF on a contingent fee basis to file a lawsuit against Standring’s companies
PAGE 2 – OPINION AND ORDER
and other contractors seeking damages for repairs related to a variety of construction defects
discovered throughout the development. (Defs.’ Mot. at 1-2; Pl.’s Resp. at 8; Vial Decl., Ex. 25,
at 1-2.) 1 McFerran signed the contingent fee agreement as the “Authorized Representative” of
the Board. (Vial Decl. Ex. 26, at 6.)
VF filed the construction defect lawsuit (hereinafter “Quatama I”) on behalf of the
Association in February 2016. (Pl.’s Resp. at 9; Defs.’ Reply at 6.) Prior to filing the lawsuit, VF
attorney Ryan Harris (“Harris”) emailed Wilson and McFerran and stated, “[i]f either of you
have any other documents showing other potential defendants, please provide them to me.” (Vial
Decl. Ex. 29, at 1.) Wilson and McFerran did not provide any documents in response to Harris’
request. (Pl.’s Resp. at 10.)
In August 2016, counsel for the Quatama I defendants (i.e., Standring’s companies)
issued subpoenas to Wilson and Decatur for all documents relating to the Quatama Park
development. (See generally Vial Decl. Exs. 30-31.) Subsequently, between August and October,
Wilson and McFerran provided their complete files on the development to VF. (Pl.’s Resp. at 10;
Wilson Decl. ¶ 5; McFerran Decl. ¶ 4.) Anderson also provided VF with a complete file of all of
his documents related to the development. 2 (Anderson Decl. ¶ 4.) The Directors assert that they
turned over their files to VF because they believed VF represented them. (Defs.’ Reply at 9;
Wilson Decl. ¶ 5; McFerran Decl. ¶ 4; Anderson Decl. ¶ 4.) However, the Association argues
1
Plaintiff alleges that Wilson and Anderson were aware of these defects as early as
February 2012, but hid that fact from VF, ultimately causing the Association to lose the lawsuit.
(Pl.’s Resp. at 2-5.) Defendants, on the other hand, assert that “[n]o Director hid anything or
misled anyone.” (Defs.’ Reply at 8.) This factual dispute is a central issue in this litigation, but it
is unnecessary to resolve it for the purpose of deciding this motion.
2
It is not clear from the record when Anderson provided his file on Quatama Park to VF.
Further, it does not appear that Anderson was subpoenaed by the Quatama I defendants. (See
generally Vial Decl. Exs. 30-31.)
PAGE 3 – OPINION AND ORDER
that the Directors were required to provide the documents to VF in any event because the
documents had been subpoenaed. (Pl.’s Resp. at 10.) However, all parties appear to agree that
Harris requested that Wilson and McFerran provide the documents to VF prior to responding to
the subpoenas in order to allow VF to review them for privileged communications. (Pl.’s Resp. at
32; Defs.’ Reply at 6.)
While the parties dispute the timing, at some point in reviewing the Directors’ files, VF
discovered documents that the Association alleges established that the Directors knew about the
construction defects at Quatama Park as early as 2012. 3 (Pl.’s Resp. at 11-12; Defs.’ Reply at 8.)
During the summer months of 2016, several homeowners threatened to sue Lamplight,
Wilson, and McFerran regarding costs associated with repairs for the Quatama Park construction
defects. (Defs.’ Reply at 11-12.) In June 2016, a homeowner (“JM”) emailed Harris suggesting
that Wilson and McFerran were breaching their fiduciary duties to the homeowners by
commencing repairs for the construction defects without knowing whether they would ever
recover the costs. (Miller Decl. Ex. 7, at 1.) Harris emailed Wilson and McFerran, asking them if
he could respond, and they agreed. (Miller Decl. Ex. 8, at 1.) Harris then sent a letter to JM,
stating “disagreement do [sic] not mean that the Board is breaching its fiduciary duty.” (Miller
Decl. Ex. 8, at 4-5.) During the two months that followed, Harris met with Wilson and McFerran
by telephone and in person on several occasions to discuss the homeowners’ allegations. (Defs.’
Reply at 11-12.)
3
The Association asserts that Harris did not discover these documents until shortly
before sending the June 2017 “non-representation” letter, but Defendants claim that the Directors
had numerous conversations with Harris during the summer of 2016 about their discovery of the
construction defects. (Pl.’s Resp. at 11-12; Defs.’ Reply at 8.) It is unnecessary for the Court to
resolve this factual dispute for the purpose of deciding this motion.
PAGE 4 – OPINION AND ORDER
On August 29, 2016, Damon Henrie (“Henrie”), an attorney for several homeowners, sent
a letter to Harris and Marcus Eyth (“Eyth”), counsel for Lamplight and RBC, to place Lamplight,
Wilson, and McFerran “on notice of my clients’ intent to pursue claims against each of these
entities . . . .” (Miller Decl. Ex. 14, at 1-2.) On September 1, 2016, Harris drafted and sent a
response to Henrie, after soliciting feedback from Wilson and McFerran on an initial draft.
(McFerran Decl. to Decatur Defs.’ Reply Ex. F, at 1-4.)
In January 2017, the Quatama I defendants moved for leave to amend their third party
complaint to assert claims against the Directors in their individual capacities for contribution
based upon their alleged breach of fiduciary duty for failing to make timely repairs at the
development. (Defs.’ Mot. at 24; Pl.’s Resp. at 9-10; see generally Miller Decl. Ex. 11.) VF
tendered the claims to the Directors and Officers (“D&O”) insurance carrier on behalf of the
Directors. (Defs.’ Reply at 4-5.) The D&O insurance carrier responded directly to VF. (Decatur
Defs.’ Reply at 4-5; McFerran Decl. to Decatur Defs.’ Reply Ex. G, at 2.)
At the end of March 2017, Wilson and McFerran stepped down from the Board as part of
a planned transition to homeowner control of the Association. (Pl.’s Resp. at 11.) Shortly before
the Board turnover, Harris emailed Wilson and McFerran to inform them that he had received a
settlement offer from the Quatama I defendants. (Vial Decl. Ex. 34, at 1-2.) Harris stated he
believed “we can do better than [the offer],” and recommended that Wilson and McFerran defer
the decision to the Association’s new board of directors. (Id. at 1.) Wilson and McFerran each
responded that they agreed with that course of action. (Id.)
In April 2017, the Quatama I defendants filed a motion for summary judgment, arguing
that the Directors knew about the construction defects more than two years before the lawsuit
was filed, thus it was time-barred. (See generally Vial Decl., Ex. 39.) The same month, Harris
PAGE 5 – OPINION AND ORDER
exchanged several emails with the Directors regarding scheduling their depositions in Quatama
I. (Miller Decl. Ex. 10, at 1-10.) In one of these emails, Wilson asked Harris whether they should
postpone the deposition preparation they had previously scheduled because the depositions had
been postponed. (Id. at 5.)
In May 2017, VF sent a letter to Eyth stating that the recently-elected board of directors
did not believe it was in the Association’s interests to sign a common interest agreement between
the Association, Wilson, Decatur, RBC, and Lamplight. 4 (Vial Decl. Ex. 36, at 1-2.)
On June 19, 2017, Harris sent a letter to the Directors informing them that the
Association was considering filing a breach of fiduciary duty lawsuit against them based on their
failure to file a timely lawsuit after their discovery of the construction defects. (Vial Decl. Ex.
42, at 1-2.) The letter stated, “it appears . . . the Association’s interests are no longer aligned with
your interests.” (Id. at 1.) Harris informed the Directors that while he had initially intended to
defend their depositions as former directors and officers of the Association, he could no longer
do so, and that they should consult their own counsel. (Id. at 1-2.) The Directors each attest that
until around the time they received this letter, they believed VF represented them as individuals.
(Wilson Decl. ¶ 7; McFerran Decl. ¶ 7; Anderson Decl. ¶ 6.)
As a result of receiving the letter, the Directors retained attorney Kurt Peterson
(“Peterson”) to represent them. (McFerran Decl. ¶ 9.) On July 10, 2017, Peterson sent a letter to
Harris, objecting to subpoenas Harris intended to serve upon the Directors, and stating “my
clients very definitely believe that they had an attorney-client relationship with your firm.”
(Miller Decl. Ex. 2, at 1-2.) On July 17, 2017, Peterson sent a letter to VF attorney Michael Vial
4
The parties had drafted, but never executed, a common interest agreement in February
2016, shortly after the Association filed Quatama I. (Harris Decl. ¶ 11.)
PAGE 6 – OPINION AND ORDER
(“Vial”) informing him that if VF pursued litigation against the Directors on behalf of the
Association, he would move to disqualify VF as counsel. (Miller Decl. Ex. 4, at 2.)
In August 2017, the Washington County Circuit Court granted the defendants’ motion for
summary judgment in Quatama I. (See generally Miller Decl. Ex. 16.)
In October 2017, the Association filed this lawsuit in Washington County Circuit Court,
asserting claims for fraud, negligent misrepresentation, breach of fiduciary duty, and unlawful
trade practices. (ECF No. 1, Attach. 2.) In January 2018, Defendants removed the action to
federal court. (ECF No. 1.) In May 2018, the Directors filed the motion to disqualify counsel
currently before the Court. 5 (ECF No. 21.) Defendants Decatur and McFerran (collectively, the
“Decatur Defendants”) filed a notice of joinder in the motion. (ECF No. 22.)
ANALYSIS
I.
STANDARD OF REVIEW
The district court has discretion to disqualify an attorney as a function of its responsibility
for controlling the conduct of lawyers practicing before the district court. Gas–A–Tron of Az. v.
Union Oil Co., 534 F.2d 1322, 1325 (9th Cir. 1976) (noting that a district court may use its
discretion to disqualify an attorney if there is a sound basis for doing so). “The competing
interests involved in a conflict of interest case require the court to strike a delicate balance that
prevents unreasonable restrictions on an attorney’s ability to practice law while nonetheless
upholding the system’s integrity requiring a high standard of proof on the party moving to
disqualify . . .” Brooks v. Caswell, No. 3:14–cv–1232–AC, 2015 WL 1137416, at *4 (D. Or.
Mar. 12, 2015) (citing Smith v. Cole, No CV 05–372–AS, 2006 WL 1207966, at *1–*2 (D. Or.
5
A motion to disqualify counsel is a nondispositive motion, and therefore a magistrate
judge has jurisdiction to resolve it pursuant to 28 U.S.C. § 636(b)(1)(A). See Howe Inv., Ltd. v.
Perez Y Cia. de Puerto Rico, Inc., 96 F. Supp. 2d 106, 113 (D.P.R. 2000) (holding that a motion
to disqualify is a nondispositive motion over which a magistrate judge has jurisdiction).
PAGE 7 – OPINION AND ORDER
Mar. 2, 2006).) Despite the high standard of proof, “any doubts must be resolved in favor of
disqualification.” Smith, 2006 WL 127966, at *2 (citing Sauer v. Xerox Corp., 85 F. Supp. 2d
198, 199 (W.D.N.Y. 2000)); see also Gonzales v. Cent. Elec. Coop., Nos. 08-cv-6236-HO, 08cv-6240-HO, 2008 WL 11409430, at *2 (D. Or. Oct. 23, 2008) (resolving dispute of fact in favor
of party seeking disqualification).
Oregon law governs this matter because federal courts apply state law in determining
matters of disqualification. See In re Cty. of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000)
(“[F]ederal courts apply state law in determining matters of attorney disqualification.”). If a
federal court identifies a conflict of interest, it has the discretion to disqualify counsel. See
Erickson v. Newmar Corp., 87 F.3d 298, 303 (9th Cir. 1996).
II.
DISCUSSION
Defendants argue that VF’s representation of the Association in this matter violates
Oregon Rule of Professional Conduct (“RPC”) 1.9, which prohibits an attorney from
representing a client whose interests are materially adverse from those of a former client in a
matter that is substantially related, without the written consent of all parties. 6 (Defs.’ Mot. at 6-9
(citing Or. R. Prof’l Cond. 1.9(a)).) Defendants argue that the Directors subjectively believed
that VF represented them and that this belief was objectively reasonable. (Defs.’ Mot. at 13-26.)
Further, Defendants argue that because of this belief, the Directors turned over their entire files
to VF and shared confidential information with VF’s attorneys, believing that it was protected by
the attorney-client privilege. (Defs.’ Mot. at 11-12.) Accordingly, Defendants assert that VF’s
6
In their Reply, the Decatur Defendants also argue that VF must be disqualified because
Harris will be a necessary witness in the instant litigation. Because the Court finds that VF
should be disqualified on the basis of a former client conflict of interest, it will not separately
address the Decatur Defendants’ argument. (Decatur Defs.’ Reply at 1-8.)
PAGE 8 – OPINION AND ORDER
continued representation of the Association would be highly prejudicial to their interests in the
current litigation. (Id.) The Court agrees.
A.
Legal Framework
The Oregon Supreme Court has articulated a two-part test to determine whether a conflict
of interest exists under RPC 1.9. See In Re Bristow, 301 Or. 194, 201 (1986) (setting forth
analytical framework to resolve conflict of interest issues under Oregon law). The first step is to
determine whether an attorney-client relationship existed. Id. If the court determines that such a
relationship existed, it should then analyze whether, under the applicable rules, a conflict
occurred. Id. Here, the Association acknowledges that the current matter is substantially related
to Quatama I, that the parties are materially adverse, and that therefore a conflict exists if VF
formerly represented the Directors. Thus, the only issue for the Court to decide is whether an
attorney-client relationship existed between VF and the Directors.
“The existence of a lawyer-client relationship does not depend upon a formalized
agreement.” In re Hassenstab, 325 Or. 166, 172 (1997). An attorney-client relationship may be
implied when two elements are present: “(1) the putative client subjectively believes the
relationship exists and (2) the putative client’s belief is objectively reasonable and based on
evidence of objective facts on which a reasonable person would rely as supporting existence of
that belief.” Jimenez v. Rivermark Comm. Credit Union, No. 3:15–cv–00128–BR, 2015 WL
2239669, at *4 (D. Or. May 12, 2015) (citing In re Weidner, 310 Or. 757, 768 (1990) (quotation
marks omitted)). Proof of the objective reasonableness of a party’s belief in the existence of an
attorney-client relationship should be based upon “facts on which a reasonable person would rely
as supporting [the] existence” of the attorney-client relationship, including evidence that “the
lawyer acted in a way that would induce a reasonable person in the client’s position to rely on the
lawyer’s professional advice.” Weidner, 310 Or. at 770. Further, “[t]he evidence must show that
PAGE 9 – OPINION AND ORDER
the lawyer understood or should have understood that the relationship existed, or acted as though
the lawyer was providing professional assistance or advice on behalf of the putative client . . . .”
Id. If the lawyer should have understood that a relationship existed or was providing professional
assistance on behalf of the client, his or her “subjective belief in the nonexistence of a
relationship is irrelevant.” Admiral Ins. Co. v. Mason, Bruce & Girard, Inc., No. Civ. CV 02–
818–HA, 2002 WL 31972159, at *2 (D. Or. Dec. 5, 2002).
B.
The Directors Had a Subjective Belief that VF Represented Them
Under the first prong of the Weidner test, a person claiming the existence of an attorneyclient relationship must demonstrate that he had the subjective belief that the relationship existed.
Weidner, 310 Or. at 768. There is no requirement that the person submit any documentary
evidence beyond his own testimony to establish this subjective intent. See Westerlund Log
Handlers, LLC v. Esler, No. 3:16-cv-922-SI, 2018 WL 614706, at *10 (D. Or. Jan. 29, 2018)
(accepting the parties’ testimony that they believed attorney represented them as sufficient to
demonstrate subjective intent). Here, each of the Directors submitted declarations asserting that
they believed VF served as their legal counsel with regard to their Board service. (Wilson Decl.
¶¶ 3-7; McFerran Decl. ¶¶ 3-5; Anderson Decl. ¶¶ 3-6.) Further, each of the Directors stated that
had they believed VF did not represent them, they would have hired their own counsel to
represent them before providing VF with any of their files relating to the Quatama Park
development. (Wilson Decl. ¶ 5; McFerran Decl. ¶ 4; Anderson Decl. ¶ 4.) These declarations
are sufficient to establish that the Directors subjectively believed they had an attorney-client
relationship with VF.
///
PAGE 10 – OPINION AND ORDER
C.
The Directors’ Belief Was Objectively Reasonable
The Directors’ belief that VF represented them was objectively reasonable for several
reasons supported by documentary evidence in the record. See Weidner, 310 Or. at 770 (noting
that a client’s belief in the existence of attorney-client relationship must be supported by
objective facts).
First, neither the general representation agreement nor the contingent fee agreement
between the Association and VF contained any provisions expressly disclaiming VF’s
representation of board members. Furthermore, VF never informed the Directors in writing that
VF did not represent them. 7
Second, after the Directors were served with subpoenas in Quatama I, Harris requested
that they turn over their entire files to VF so that Harris could perform a privilege review. (Pl.’s
Resp. at 32; Defs.’ Reply at 6.) While the Association asserts that Harris was only concerned
about preserving privilege on behalf of the Association, a reasonable person in the position of the
Directors would believe Harris was also acting in the Directors’ interests. (Pl.’s Resp. at 11.) The
fact that Harris did not advise the Defendants to retain their own counsel to review the
responsive documents, which likely also contained personal information and non-Association
business, supports this conclusion. In addition, even after Wilson and McFerran left the Board,
Harris planned to prepare the Directors for their depositions in Quatama I, as well as to defend
the depositions themselves. (See generally Miller Decl. Ex. 10.) It was reasonable for the
7
Although Harris states in his declaration that he was confident that Wilson and
McFerran understood that he only represented the Association, an attorney’s “subjective belief in
the nonexistence of a relationship is irrelevant,” if he or she pursued legal actions on behalf of
the client. Admiral Ins. Co., 2002 WL 31972159, at *2. Further, in deciding a motion to
disqualify, a court must resolve any doubts in favor of the party seeking disqualification. Smith,
2006 WL 127966, at *2 (citing Sauer, 85 F. Supp. 2d at 199).
PAGE 11 – OPINION AND ORDER
Directors to believe that the attorney who prepares them for and defends their depositions was
acting as their counsel.
Third, when the Directors were threatened with breach of fiduciary duty claims in their
individual capacities, on several occasions Harris acted as if he was providing legal assistance to
the Directors. See Weidner, 310 Or. at 770 (noting that to establish existence of an attorney-client
relationship, “[t]he evidence must show that the lawyer . . . acted as though the lawyer was
providing professional assistance or advice on behalf of the putative client . . . .”) Throughout the
summer of 2016, after homeowners had alleged that the Directors were breaching their fiduciary
duties to the Association, Harris repeatedly met with McFerran and Wilson to advise them how
to respond to the homeowners’ allegations. (Defs.’ Reply at 11-12.) In August 2016, when
Henrie wrote the Board a letter to place them on notice that the homeowners intended to pursue
claims against the Directors for breach of fiduciary duty, Harris responded on the Directors’
behalf. (McFerran Decl. to Decatur Defs.’ Reply Ex. F, at 1-4.) Additionally, in January 2017,
after counsel for the Quatama I defendants moved to amend their third-party complaint to add
claims against the Directors, Harris tendered the claims to the D&O insurance carrier. (Defs.’
Reply at 5; McFerran Decl. to Decatur Defs.’ Reply Ex. G, at 2.) Any of these events should
have put VF on notice that the interests of the Association and those of the Directors were, or
could become, adverse. VF’s continued representation of the Directors despite these events
supports the conclusion that the Directors reasonably believed VF represented them.
The Association’s arguments in response are unpersuasive. First, the Association asserts
that the Directors regularly sought counsel from other attorneys on Association matters, notably
Grant, counsel for Lamplight. (Pl.’s Resp. at 14-16.) However, an attorney-client relationship
does not end merely because the client has sought or relied upon the advice of multiple attorneys.
PAGE 12 – OPINION AND ORDER
See In re Galton, 289 Or. 565, 581 (1980) (in disciplinary proceeding, determining that an
attorney-client relationship existed between attorney and a corporation even when the
corporation employed other counsel and did not have a retainer agreement with the attorney).
The Association also argues that the Directors failed to maintain the confidentiality of their
communications with VF. (Pl.’s Resp. at 17-18.) However, a client’s disclosure of confidential
communications to a third party does not terminate the attorney-client relationship. See, e.g., In
Re Cendant Corp. Sec. Litig., 124 F. Supp. 2d 235, 247 (D.N.J. 2000) (holding that former board
member’s disclosure of privileged information to corporation’s audit committee was immaterial
to court’s determination that board member was represented by attorney, thus conflict of interest
existed).
The Association further argues that any legal advice VF gave the Directors was necessary
for VF to comply with RPC 1.13, which provides that “[a] lawyer employed or retained by an
organization represents the organization acting through its duly authorized constituents.” (Pl.’s
Resp. at 18-20 (citing Or. R. Prof’l Cond. 1.13(a).) However, the rule also provides that “a
lawyer shall explain the identity of the client when the lawyer knows or reasonably should know
that the organization’s interests are adverse to those of the constituents with whom the lawyer is
dealing.” Or. R. Prof’l Cond. 1.13(f). As discussed above, VF did not explain the identity of its
client (i.e., solely the Association) to the Directors even after VF reasonably should have known
that the Association’s interests were adverse to the Directors’ individual interests. Thus, while
the Court acknowledges that VF could only represent the Association through its directors
pursuant to RPC 1.13(a), this rule does not obviate VF’s obligation to be clear about who it
represents and to identify any potential conflicts of interest. Cf. In re Conduct of Campbell, 345
Or. 670, 681-82 (2009) (interpreting RPC 1.13 and holding that an attorney who had represented
PAGE 13 – OPINION AND ORDER
a bankruptcy estate could not later file a claim on behalf of the estate against the bankruptcy
trustee).
Finally, the Association argues that Defendants rely upon incorrect standards to seek
VF’s disqualification, specifically because the Oregon Supreme Court has held that “the
appearance of impropriety” may not be the sole basis for disqualification. (Pl.’s Resp. at 27
(citing In re Ainsworth, 289 Or. 479, 493 (1980).) The Association is correct that the appearance
of impropriety is not, standing alone, grounds for attorney discipline. See In re Conduct of Jans,
295 Or. 289, 294 (1983) (“[A]lthough the existence of an ‘appearance of impropriety’ is not, of
itself, a basis for discipline, such conduct by a lawyer, if known to others, adversely affects
public confidence in the legal profession.”) However, the Directors here have alleged a violation
of RPC 1.9, not a mere appearance of impropriety.
D.
Balancing of Interests
The Association argues that it will suffer undue prejudice if the Court grants the motion
to disqualify counsel. 8 The Court acknowledges the important interests on both sides of this
issue. As one court explained, “[t]he court must balance the hardships to the client whose lawyer
is sought to be disqualified against the potential harm to the adversary. . . . The court balances . .
. the need to maintain the highest standards of the profession against a client’s right freely to
choose his counsel.” Cendant, 124 F. Supp. 2d at 249 (citations and quotation marks omitted).
8
The Association also argues that Defendants have waived their ability to pursue the
motion through unreasonable delay. (Pl.’s Resp. at 30.) However, the Court finds this argument
unpersuasive because even before the Association filed this lawsuit, Peterson promptly objected
to VF’s continued representation of the Association. (Miller Decl. Ex. 4, at 1-2.) See also Trust
Corp. of Montana v. Piper Aircraft Corp., 701 F.2d 85, 87 (9th Cir. 1983) (noting that a party
who does not promptly object to a former attorney’s representation of an adverse party may
waive that right, but not requiring that the objection be in the form of a motion to the court).
PAGE 14 – OPINION AND ORDER
Here, the Association will undoubtedly suffer prejudice if VF is disqualified as its
attorney. However, Defendants will suffer greater prejudice if VF continues as the Association’s
counsel in light of its conflict of interest. In particular, the Directors face significant prejudice as
a result of the confidential information, documents, and communications that VF obtained during
the course of its prior representation, especially with respect to the breach of fiduciary duty
claims alleged against the Directors. 9 See Cargill, 2007 WL 1813762, at *12 (citing Hull v.
Celanese Corp., 513 F.2d 568, 572 (2d Cir. 1975)) (“Where it can be reasonably said that in the
course of the former representation the attorney might have acquired information related to the
subject matter of his subsequent representation, it is the court’s duty to order the attorney
disqualified.”). Accordingly, the circumstances present here warrant disqualifying VF as the
Association’s counsel.
CONCLUSION
For the aforementioned reasons, the Court GRANTS Defendants’ Motion to Disqualify
Counsel (ECF No. 21), and directs the Association’s new counsel to file a Notice of Appearance
within forty-five (45) days.
DATED this 3rd day of August, 2018.
STACIE F. BECKERMAN
United States Magistrate Judge
9
While VF represented during oral argument that it would shield Harris from further
involvement in these proceedings, this proffered solution will not cure the potential prejudice
because other VF attorneys and staff were necessarily privy to the information obtained from the
Directors, which remains in the possession of the firm. Nor is it compelling that the Association
now claims that none of the relevant information obtained by VF remains privileged, especially
where only VF has made that determination. See Cargill Inc. v. Budine, No. CV-F-07-349-LJOSMS, 2007 WL 1813762, at *12 (E.D. Cal. June 22, 2007) (in deciding a motion to disqualify,
the district court held that the party opposing attorney disqualification was not in a position to
determine whether the documents in its possession, obtained from the adverse party in a prior
proceeding, were confidential or privileged).
PAGE 15 – OPINION AND ORDER
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