MOTION TO DISQUALIFY CLASS COUNSEL AND DISGORGEMENT OF PRIOR SETTLEMENTS (Judge Kenneth R. Freeman)

Case Number:?BC454464????Hearing Date:?February 08, 2018????Dept:?310

FAITRO v. TOP SURGEONS, INC.

MOTION TO DISQUALIFY CLASS COUNSEL AND DISGORGEMENT OF PRIOR SETTLEMENTS BY CLASS COUNSEL AND CLASS REPRESENTATIVE

ORDER FILING RECORDS UNDER SEAL

TENTATIVE RULING

Deny motion to disqualify

Grant motion to seal

DISCUSSION

  1. Background

??????????? In the?Faitro?litigation, counsel for Defendants Top Surgeons, LLC and Surgery Center Management seeks an order disqualifying class counsel and disgorging the settlement proceeds received by counsel and three class representatives (John Faitro, an individual and as the personal representative of the Estate of Laura Lee Faitro, deceased; Arturo & Elvia Renteria, as individuals and as the personal representatives of the Estate of Ana Renteria, deceased; and Bridget Sandoval, an individual) in a purported global settlement with Defendants.? Defendants? counsel also seeks an order sealing exhibits attached to the opposition.

  1. Procedural consideration regarding opposition filing date

??????????? Initially, Defendants seek an order striking Plaintiffs? opposition as untimely.? According to Defendants, they filed the motion to disqualify and disgorge prior confidential settlements on December 18, 2017, with a noticed hearing date of February 8, 2018.? In the notice of motion, Defendants stated that ?Opposition must be filed by January 19, 2018.?? [Notice of Motion to Disqualify Class Counsel at 3:7.]

??????????? Subsequently, the Court held a status conference on January 11, 2018.? At that status conference, counsel Robertson stated that he had a conflict with the noticed February 8, 2018 hearing date, and expressed his desire that the motion be continued.? ?The reason given was due to counsel taking depositions in Idaho for the entire week of the February 8, 2018 hearing (this was set forth in counsel?s January 24, 2018 posting to the CaseAnywhere message board). The Court?s January 11, 2018 minute order stated that it would grant a continuance of the February 8, 2018 hearing date upon receipt of a proposed stipulated order by the parties.? [Court?s January 11, 2018 minute order at 1-2.]

??????????? According to Plaintiffs, on January 23, 2018, counsel Robertson sent an email to counsel for Defendants suggesting alternative hearing dates on the motion.? Counsel Kashfian replied, stating that with the exception of February 22nd, the week of February 19thworked for defense counsel.? Plaintiffs apparently were under the impression that the continuance of the motion would also continue the filing date for the opposition.? However, Plaintiffs? request for a continuance of the hearing date did not also explicitly include a request for a request of the opposition filing date.

??????????? On January 24, 2018, counsel Robertson posted a message to the CaseAnywhere bulletin board, proposing a continued hearing date for the week of February 19th.? In response, counsel Kashfian stated that while Defendants agreed to a change in the hearing date, they never agreed to a change to the briefing schedule.

??????????? The parties never submitted a proposed stipulated order to the Court reflecting the changed hearing date.

??????????? Plaintiffs? counsel did not state anything to the Court about requesting a continuance of the briefing schedule.? Counsel for Plaintiffs should have been explicit in requesting a continuance of the hearing date if they also wanted the opposition filing date continued.? Absent that request, the opposition filing date would have remained unchanged.

??????????? CRC 3.1300(d) provides that ?No paper may be rejected for filing on the ground that it was untimely submitted for filing.? If the court, in its discretion, refuses to consider a late filed paper, the minutes or order must so indicate.?? CRC 3.1300(d).? It is apparent that there was a lack of communication between the parties with respect to the due date for the opposition.? The Court has discretion to refuse to consider the opposition, but under the circumstances, and given the history of this case, it will consider that substantive opposition here.? Defendants were not deprived from filing a full reply to the opposition, and are not prejudiced in any way by the Court?s consideration of the opposition.

??????????? For these reasons, the Court will consider the Plaintiffs? substantive opposition to the motion.? The Court, however, admonishes the parties that any such future requests for motion continuations will be entertained only after the parties have explicitly stipulated to the continuance and have addressed any changes to the briefing schedule.

III. Substantive motion to disqualify

  1. General standards on motions to disqualify counsel

The procedure to?disqualify?counsel for a conflict of interest ordinarily is a?motion to?disqualify or ?recuse? such?counsel. ?Automatic or ?per se? disqualification for simultaneous representation of current clients with adverse interests (and no informed written consent) is the rule ?in all but a few instances.??? California Practice Guide, Professional Responsibility, ?4:314 (The Rutter Group 2017) (citing?Flatt v. Sup. Ct. (Daniel)?(1994) 9 Cal.4th?275, 284.? Where automatic disqualification is?not?the rule, grant or denial of the recusal motion requires the court to engage in a delicate balancing process involving the following factors:? a party’s right to?counsel of choice, an attorney’s interest in representing the client, the financial burden on the client of replacing?disqualified?counsel and the fundamental principle that the adversary system requires vigorous representation by independent?counsel free from conflicts of interest.? California Practice Guide, Professional Responsibility, ?4:314 (The Rutter Group 2017) (citing?William H. Raley Co., Inc. v. Sup.Ct. (Carroll)?(1983) 149 CA3d 1042, 1048, 197 CR 232, 236?(disqualification based on prior rule); see also?Elliott v. McFarland Unified School Dist.?(1985) 165 Cal.App.3d 562, 566;?and?Kirk v. First American Title Ins. Co.?(2010) 183 Cal.App.4th 776, 807?808.

??????????? In ruling on a motion to disqualify, the Court is required to weigh: 1) the party’s right to counsel of choice; 2) the attorney’s interest in representing a client; 3) the financial burden on a client of changing counsel; 4) any tactical abuse underlying a disqualification motion; and 5) the principle that the fair resolution of disputes requires vigorous representation of parties by independent counsel.? Mills Land & Water Co. v. Golden West Refining Co.?(1986) 186 Cal.App.3d 116, 126.? In view of the importance the law places on the client’s right to counsel of choice and to waive conflicts, trial judges “must indicate on the record they have considered the appropriate factors and make specific findings of fact” on recusal motions.??Smith, Smith & Kring v. Sup.Ct.?(Oliver) (1997) 60 Cal.App.4th 573, 582.

Courts generally discourage rigid application of disqualification rules in class action cases because of the nature of class representation and the importance of retaining counsel with the most experience on the case.? California Practice Guide, Professional Responsibility, ?4:157.31 (The Rutter Group 2017) (referencing?Sharp v. Next Entertainment, Inc.?(2008) 163 Cal.App.4th?410, 434).

Additionally, the Court is aware that “‘attorneys now commonly use disqualification motions for purely strategic purposes.’ [Citation.]”??Gregori v. Bank of America?(1989) 207 Cal.App.3d 291, 301.? “Motions to disqualify counsel present competing policy considerations.? On the one hand, a court must not hesitate to disqualify an attorney when it is satisfactorily established that he or she wrongfully acquired an unfair advantage that undermines the integrity of the judicial process and will have a continuing effect on the proceedings before the court?.On the other hand, it must be kept in mind that disqualification usually imposes a substantial hardship on the disqualified attorney’s innocent client, who must bear the monetary and other costs of finding a replacement.? A client deprived of the attorney of his choice suffers a particularly heavy penalty where?his attorney is highly skilled in the relevant area of law.”? Id. at 300-301.

“The issue of disqualification ‘ultimately involves a conflict between the clients’ right to counsel of their choice and the need to maintain ethical standards of professional responsibility. The?paramount?concern, though, must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar. The recognized and important right to counsel of one’s choosing must yield to considerations of ethics that run to the very integrity of our judicial process.’ [Citations.]”??Forrest v. Baeza?(1997) 58 Cal.App.4th 65, 73 (emphasis added).

??????????? Top Surgeons and Surgery Center Management move for an order disqualifying class counsel and for an order disgorging the settlement amounts obtained in individual lawsuits against the Defendants.? The proffered basis for the automatic disqualification is that class counsel has a conflict of interest.? The alleged conflict stems from class counsel?s representation of individual claimants against Defendants in the following eight (8) cases (concurrently with class counsel?s representation of the putative class in the instant?Faitro?litigation):

  1. John Faitro et al. vs. Ihsan Najib Shamaan, M.D. et al. (No. SC111332)
  2. Elvia Renteria et al. vs. Atul Madan, M.D. e. al. (No. SC111331)
  3. Bridget Sandoval vs. Kevork George Tashjian, MD, et al. (No. SC113251)
  4. Dyanne C Deuel et al. vs 1 800 Get Thin LLC et al. (BC477064)
  5. Jessica L Meyle et al. vs. 1 800 GET THIN LLC et al. (Case No. BC486169)
  6. Steve Mandel, M.D. et al vs. Michael Omidi, M.D. et al. (Case No. SC116986)
  7. The People of the State of California, ex rel. v. Beniamia Omidi, et al. (Case No. BC476758)
  8. Brianne Miley vs. Independent Medical Services, Inc. et al. (Action not filed yet) (Robertson Dec. (Oct. 24, 2017), ?2; Exh. A

These eight individual cases involved wrongful death, identity fraud, whistleblower and medical malpractice.?? [Alan Robertson Decl. filed October 24, 2017, ?4.]

According to Defendants (and not disputed by Plaintiffs), the individual settlements and the class settlement were part of a global settlement, based on a mediation held before Hon. Dickran Tevrizian (Ret.).? Mr. Robertson states that the Defendants insisted there be a global settlement of all nine (9) cases his firm had filed, and refused to settle any of these cases on an individual basis.? [October 24, 2017 Robertson Decl., ?2.]? This global settlement, from Defendants? standpoint, depleted the $12 million litigation fund, to the detriment of the class, and ?resulted in taking funds away from Defendants, which made settling this class action impossible.?? [Motion at 6:19-20.]

Defendants argue that these acts violated California Rule of Professional Conduct 3-310(C), which provides that ?A member shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict.?? Cal. Rules Prof. Conduct 3-310(C).

Here, Defendants have not cited any California cases specifically on point that would warrant disqualification of class counsel under these circumstances.? To the contrary, California law appears to go the other way.??Sharp v. Next Entertainment, Inc., supra,?163 Cal.App.4th?410, while not on all fours, aids in the analysis.? In?Sharp,?the Writers Guild of America (a union) met with employees of television production companies that the Writers Guild suspected were violating wage and labor laws.? Some of the employees agreed to be named plaintiffs in two labor law class actions against defendant television production companies and networks.? These employees met with and retained the Rothner law firm as class counsel.? The law firm had represented the Writers Guild for many years, and the Writers Guild had selected the Rothner firm for the employees, agreeing to pay litigation expenses.? Each of the 21 named plaintiffs signed conflict waivers acknowledging that the Guild would subsidize the litigation costs and that the Rothner firm represented the Writers Guild in other matters.? The Writers Guild informed the plaintiffs that the plaintiffs, not the Writers Guild, would control the litigation.

The defendants sought disqualification of the Rothner firm, arguing in part that there were conflicts of interest in the concurrent representation under Rule of Professional Conduct 3-310, i.e., that the litigation?s remedial goals conflicted with the Writers Guild?s ultimate goal of unionizing the plaintiffs.?? The trial court denied the motion to disqualify, an order which was affirmed by the Court of Appeal.

The Court of Appeal noted that ?[i]n the realm of class actions, the rules of disqualification?cannot be applied so as to defeat the purpose of the class proceedings.???Sharp,?163 Cal.Ap.4th?at 434 (referencing?Lazy Oil Co. v. Witco Corp. (3rd?Cir. 1999) 166 F.3d 581, 589-590) (noting that traditional rules of professional conduct cannot be applied mechanically in the realm of class actions) (emphasis added).? The?Sharp?court stated that the motion to disqualify in that case was ?not brought by one of the parties who may suffer because of a purported conflict,?but by opposition parties who are not directly touched by the purported conflict.???Id.?at 434 (emphasis added).? Here, as in?Sharp,?the disqualification of the Robertson firm ?would impose a significant hardship on plaintiffs, who will bear the burden of finding replacement counsel with the skills and knowledge? of the firm.? This is especially the case here, given the amount of time the Robertson firm has spent in litigating this case and attempting to procure final approval of the class action.

As stated by Mr. Robinson, payment of the settlements for the eight individual cases was made on March 15, 2013 in the total amount of $2,173,001.? [Robertson Decl., ?4.]? Critically, these settlements were paid more than two years?before?the Court granted preliminary approval of the class settlement and years before Mr. Kollars had stated that the settlement funds had been set aside for this class action.? [Robertson Decl., ?4.]? There is no doubt that Defendant was aware all along of the negotiation of the individual case settlements.

It must also be emphasized that three of the individual claimants ? John Faitro (as an individual and as the personal representative of the estate of Laura Lee Faitro, deceased); Arturo & Elvia Renteria (as individuals and as the personal representatives of the Estate of Ana Renteria, deceased); and Bridget Sandoval (an individual) ? are the class representatives of the putative class in the instant litigation.? In?Sharp,?the Court of Appeal recognized that California?s ?class action procedures?already include a system by which the court determines if the named class representatives can adequately represent the class. These procedures ensure that if there are conflict of interest issues, the representative plaintiffs are capable of providing informed consent on behalf of the class. The plaintiffs seeking certification have the burden to show that they can adequately represent the class by vigorously and tenaciously protecting the class members’ interests.???Sharp, supra,?163 Cal.App.4th?at 432.? ?As noted by the?Sharp?court, when plaintiffs seek to have the classes certified, they will have the burden of meeting the ?adequacy? requirements.? At that time, if the Court concludes that the named class representatives? motives for pursuing the class action makes them incapable of providing informed written conflict waivers, the trial court will not permit certification.??Sharp, supra,?at 433.? The Court cannot predict whether this case will ultimately reach a class certification stage.? However, if it does, then this may lend itself to potentially assessing the named Plaintiffs? adequacy based on alleged conflicts with the class members.

Further, the?Sharp?court acknowledged that permitting named class members to provide informed written consent in class action lawsuits is consistent with the ABA Model Rules of Professional Conduct, which ?may serve as guidelines absent on-point California authority or a conflicting state public policy[.] [Citation.]???Sharp?at 433.? The?Sharp?court cited Comment 25 to Rule 1.7, which provides that ?When a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class-action lawsuit, unnamed members of the class?are ordinarily not considered to be clients of the lawyer?for purposes of applying paragraph (a)(1) of this Rule [that restricts representation when there are concurrent conflicts of interest].??Thus, the lawyer does not typically need to get the consent of such a person before representing a client suing the person in an unrelated matter.???Sharp?at 433-434 (citing ABA Model Rules Prof. Conduct, rule 1.7, com. [25]) (emphasis added).??Sharp?can be read to not require class counsel here to obtain consent from the individual class members in order for it to have represented (and reached settlements) in the three named class representatives? individual actions.??See also Kullar v. Foot Locker Retail, Inc.?(2011) 191 Cal.App.4th?1201, 1205-1207 (noting that counsel?s representation of objectors to a class action settlement while simultaneously representing those objectors in a partially overlapping?putative?class action against the same defendant did not constitute a conflict requiring counsel?s disqualification from both actions; the rationale being ?[t]he putative class action was not yet certified, and hence no attorney-client relationship existed between counsel and the putative class members.?? California Practice Guide, Professional Responsibility, ?4:157.28a (The Rutter Group 2017)).

??????????? Defendants cite a number of cases which, they argue, require disqualification.? In?Lou v. Ma Labs, Inc., 2014 U.S. Dist. LEXIS 2665 (N.D. Cal., Jan. 8, 2014), the district court denied the plaintiffs? motion for class certification.? In a previous action, a group of former employees of Ma Labs filed a wage and hour class action in state court (alleging violation of state wage and hour laws, including failure to pay overtime, failure to provide off-duty meal and rest periods, failure to timely pay wages upon separation, failure to keep accurate wage statements, and unfair competition).? Subsequently, the same proposed class counsel from the underlying case filed a new FLSA wage and hour action, filing many of the same or similar claims as in the underlying case.? The plaintiffs in the second action moved for conditional certification of a nationwide collective action under 29 U.S.C. ?216(b) and certification of a California class under Federal Rule of Civil Procedure 23(b)(2) and (b)(3).

??????????? The defendants moved to disqualify class counsel in the second action, based on the notion that counsel could not fairly and adequately protect the interests of the class.? The district court granted the motion, stating that ?an attorney who currently represents another class against the same defendant may not serve as class counsel.???Lou,?2014 U.S. Dist. LEXIS 2665 at *5 (referencing?Ortiz v. Fibreboard Corp.?(1999) 527 U.S. 815, 856).

??????????? Here, however, the procedural posture and the facts of this case are different.? In this case, the Defendants had represented that they had set aside the settlement funds in the Sheppard Mullin account before this Court granted preliminary approval.? Further, as Plaintiffs note, the payment in the individual?Faitro?and?Renteria?wrongful death cases, and the?Sandoval?medical malpractice case, were made on March 15, 2013 ? two years before this Court granted preliminary approval.? As this Court?s April 28, 2017 Ruling and Order following the?in camera?review noted, as of September 29, 2013, the balance in the account was $11,051,634.13.? [See Court?s April 28, 2017 Ruling and Order at 12, fn. 21.]? The next recorded activity was the June 11, 2014 payment to Irell & Manella for ?Legal Retainer? in the amount of $875,000.? [Id.]? Thus, at the time of the March 14, 2014 filing on the motion for preliminary approval, there was $11,051,643.13 remaining in that account.? Mr. Kreindler, as previously noted in this Court?s April 28, 2017 Ruling and Order, had represented in his reply to counsel Robertson?s June 5, 2014 e-mail that counsel still held the settlement funds for the class action in the client trust account.? Under these circumstances, there was not a risk that the settlements of the individual cases would have influence litigation strategy (as was the case in?Sullivan v. Chase Inv. Services, Inc.?(N.D. Cal. 1978) 79 F.R.D. 246, another case relied on by Defendants).

????????????Del Campo v. Mealing?(N.D. Cal. Sept. 29, 2011, No. C 01-21151 JW) 2011 U.S. Dist. LEXIS 158019 also does not aid Defendants.? There, the district court applied a per se automatic disqualification of counsel, where counsel concurrently represented classes in two different cases.? Again, however, the facts of?Del Campo?are very different from the facts at issue here.??Florida Bar v. Adorno?(Fla. 2011) 60 So.3d 1016 does not apply the California Rules of Professional Conduct, but instead applies the Rules Regulating the Florida Bar.? Finally,?Lofton v. Wells Fargo Home Mortgage?(2014) 230 Cal.App.4th?1050 did not even deal with a motion to disqualify class counsel, but the right of a party to intervene in a case alleging the same wage claims as the underlying class action.

  1. Since the Court denies the motion to disqualify, there is no basis for ordering class counsel to disgorge the prior settlements.

  1. Motion to Seal

??????????? Defendants move to seal Exhibits B, D, F, J, and L to the motion to disqualify.? These exhibits are the confidential settlement agreements entered into in?Faitro v. Shamaan,?LASC Case No. SC111332;?Renteria v. Madan, et al., LASC Case No. SC111331;?Sandoval v. Tashjian, LASC Case No. SC113251;?Deuel v. 1 800 GET THIN, LLC, et al., LASC Case No. BC477064; and?Mandel v. Omidi, et al., LASC Case No. SC116986.

??????????? California Rule of Court 2.550 states that the Court may order a record be filed under seal only if it expressly finds facts that establish:

1) There exists an overriding interest that overcomes the public right of access to the record;

2) The overriding interest supports sealing the record;

3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed;

4) The proposed sealing is narrowly tailored; and

5) No less restrictive means exist to achieve the overriding interest.? CRC 2.550(d);?McGuan v. Endovascular Technologies, Inc.?(2010) 182 Cal.App.4th?974, 988.

These findings embody?constitutional?requirements for a request to seal court records, protecting the First Amendment Right of public access to civil trials. California Practice Guide, Civil Procedure Before Trial, ?9:418 (The Rutter Group 2017) (citing?NBC Subsidiary (KNBC-TV), Inc. v. Superior Court?(1999) 20 Cal.4th?1178;?Huffy Corp. v. Sup. Ct. (Winterthur Swiss Ins. Co.)?(2003) 112 Cal.App.4th?97, 104; and?People v. Jackson?(2005) 128 Cal.App.4th?1009, 1026-1027).

??????????? Importantly, ?[a] record must not be filed under seal without a court order. The court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties.?? CRC 2.551(a).

??????????? Here, the Defendants have identified the ?overriding interest? as protecting a binding, contractual agreement not to disclose the terms of the individual settlements (including the monetary amounts).? The overriding interest in protecting the confidentiality of the settlements supports sealing these records.

??????????? The proffered interest is ?overriding?, and that this interest supports sealing the exhibits.? There is a substantial probability that exists that the overriding interest in keeping the settlements confidential would be prejudiced if the records are not sealed.

??????????? Further, the proposed sealing is narrowly tailored.? Only those exhibits reflecting the settlement agreements will be sealed, and Defendants have submitted a redacted compendium of exhibits which would not seal the other exhibits submitted in opposition to the motion. The exhibits themselves all contain the confidential settlements for which the sealing order is sought.? There are no other less restrictive means which apparently exist to achieve the overriding interest, aside from sealing the confidential settlements.

??????????? Accordingly, the Court finds that the criteria set forth under CRC 2.550(d) are satisfied, and the motion to seal is granted as prayed.