1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 D Stadtler Trust 2015 Trust, et al., No. CV-22-00314-PHX-DWL
10 Plaintiffs, ORDER
11 v.
12 Pamela Gorrie, et al.,
13 Defendants. 14 15 Plaintiffs in this action are Daniel Stadtler (“Stadtler”) in his individual capacity and 16 in his capacity as trustee for the D. Stadtler Trust 2015 (“the Trust”). (Doc. 131 ¶¶ 1-2.) 17 Defendants are Pamela Gorrie (“Gorrie”), Innovative Global Distributions, LLC (“IGD”), 18 Natural Footprints Organic Farm LP (“NFOF”), and NFF Management LLC (“NFF”). (Id. 19 ¶¶ 3-6.)1 Pending before the Court is Plaintiffs’ motion to disqualify Defendants’ counsel. 20 (Doc. 110.) For the following reasons, the motion is denied. 21 RELEVANT BACKGROUND 22 The facts underlying this dispute and much of the procedural history of this case are 23 set out in a prior order. (Doc. 129.) Only a brief summary is necessary here. 24 In 2017, the Trust purchased a 540-acre parcel of agricultural land situated at 68562 25 56th Street, Salome, in La Paz County, Arizona (the “Farm”). (Doc. 131 ¶ 12.) 26 In May 2019, Stadtler hired William Dawson (“Dawson”) to “list the [Farm] for 27
28 1 Gorrie is the sole member of both IGD and NFF. (Doc. 77 ¶¶ 2, 4.) She is also a limited partner in NFOF; NFF is the general partner. (Id. ¶ 3.) 1 sale and to act as broker.” (Id. ¶ 13.) 2 In late 2019, Gorrie became interested in purchasing the Farm for a hemp operation. 3 (Doc. 131 ¶¶ 16-17; Doc. 77 ¶¶ 8-12.) On November 4, 2019, Dawson (on behalf of 4 Stadtler)2 and Gorrie began discussing the possibility of the Trust selling the Farm to IGD. 5 (Doc. 131 ¶¶ 14-16; Doc. 77 ¶¶ 11-13.) 6 After various discussions, on January 17, 2020, the Trust and IGD executed a real 7 estate purchase contract (the “Farm Purchase Agreement”), under which IGD would buy 8 the Farm from the Trust for $1.4 million. (Doc. 131 ¶¶ 34-35; Doc. 77 ¶¶ 14-15.) The 9 Trust provided seller carryback financing for a large portion of the purchase price. (Doc. 10 131 ¶¶ 34; Doc. 77 ¶ 17.) 11 For reasons that are disputed, the hemp operation struggled to obtain funding. (See, 12 e.g., Doc. 131 ¶¶ 58, 66, 68; Doc. 77 ¶¶ 24-26.) Between April 2020 and May 2021, the 13 parties executed various other documents related to the hemp operation, including several 14 revenue sharing agreements, which provided that Plaintiffs would be entitled to a 15 percentage of the hemp operation’s revenue. (Doc. 131 ¶¶ 75-80, 96-103, 111-18; Doc. 77 16 ¶¶ 26-32, 37-42, 58-60.) The parties also discussed, but did not enter into, a joint venture 17 agreement. (Doc. 131 ¶¶ 111-15; Doc. 121-6 ¶ 7 [Gorrie decl.].) 18 As relevant here, in late March 2021, Gorrie suggested that she, Stadtler, and 19 Dawson meet with Timothy McCulloch (“Counsel”), an attorney at Dickinson Wright, 20 PLLC (“Dickinson Wright”). (Doc. 110-1 ¶ 20; Doc. 110-3 at 2.) Text messages from 21 Gorrie to Dawson and Stadtler describe Counsel as a “hemp attorney,” note his retainer 22 and hourly rate, and discuss a potential escrow account for the hemp operation. (Doc. 23 110-3 at 2.) 24 On April 5, 2021, Gorrie, Stadtler, and Dawson met with Counsel in his office at 25 Dickinson Wright. (Doc. 110-1 ¶¶ 21, 25; Doc. 110-2 ¶¶ 21-23 [Dawson decl.]; Doc. 121-6 26 ¶ 3.) The exact purpose of the meeting is disputed. (See, e.g., Doc. 110-1 ¶ 33 [Stadtler 27 2 Plaintiffs allege that “[a]ll the material conversations and material information Ms. 28 Gorrie had or gave to Mr. Dawson throughout the negotiations were passed on in precise detail to Mr. Stadtler by Mr. Dawson.” (Doc. 131 ¶ 15.) 1 decl.]; Doc. 121-7 ¶ 5 [McCulloch decl.].) At the meeting, the parties discussed the 2 possibility of setting up an escrow account for revenue from the hemp sales and a draft 3 joint venture agreement related to the hemp operation. (See, e.g., Doc. 110-1 ¶¶ 25-29.) 4 The parties dispute whether the issue of joint representation was addressed. (Compare 5 Doc. 110-1 ¶¶ 32-34 [according to Stadtler, “I had paid [Counsel] $5,000.00 for the 6 consultation and to draw up the agreement for us and told [Counsel] ‘You’re my lawyer.’ 7 . . . I understood that [Counsel] was representing all of our interests . . . and he never gave 8 me anything in writing that stated he did not represent my interests”] and Doc. 110-2 ¶ 28 9 [according to Dawson, “As we were leaving, Mr. Stadtler told [Counsel] that he considered 10 [Counsel] to be his lawyer and expected him to protect all of our interests”] with Doc. 121- 11 6 ¶¶ 8, 14 [according to Gorrie, “The first thing that [Counsel] discussed at the meeting 12 was his belief that he was solely representing myself and my entities. . . . I never heard 13 Stadtler or Dawson express to [Counsel] that Stadtler wanted to be represented by 14 [Counsel]”] and Doc. 121-7 ¶¶ 6-7, 11 [according to McCulloch, “I did not view the 15 representation as joint and discussed this with all three parties at the same time at the 16 meeting. . . . In addition, I discussed that I did not believe that a joint representation would 17 be appropriate because of the potential for a conflict to arise. . . . Stadtler never indicated 18 to me that he wished for me to represent him”].) 19 On April 8, 2021, Stadtler issued a check to Dickinson Wright for $5,000. (Doc. 20 124-1 at 4.) In the memo line, Stadtler wrote “For IGD LLC & Pamela Gorrie.” (Id.)3 21 On April 11, 2021, Dawson and Gorrie exchanged a number of text messages in 22 which the issue of legal representation was discussed. (Doc. 122-3.)4 As relevant here, 23 Dawson texted Gorrie: “So here goes the question[,] [Counsel] was to represent all three 24 3 The parties agree this check was deposited. (Doc. 124 at 3; Doc. 132 at 9-10.) 25 4 Stadtler was not included in many of the written communications provided as 26 exhibits by the parties. (See, e.g., Docs. 110-5, 122-3.) According to Stadtler, he “rarely text[s]” (although his phone can receive text messages) and does not have an email address. 27 (Doc. 110-1 ¶¶ 23, 41.) Also, it appears Stadtler relied on Dawson to communicate on his behalf with respect to many of the matters underlying this litigation. (See id. ¶¶ 5, 11; Doc. 28 121-6 ¶¶ 10-11.) This may be why many of the relevant communications do not include Stadtler. 1 of us in the agreement he was writing up[,] correct.” (Id. at 2.) In response, Gorrie texted: 2 “You don’t tell me what. I have to have lawyers. And you all didn’t want joe n Blake but 3 forced them to take this. I can’t fix you fuking people over . . . That’s on you. . . . They 4 won’t let you fuk me out of lawyers period . . . .” (Id.) The parties dispute the meaning of 5 these texts.5 The parties also dispute whether Stadtler was represented by other counsel 6 (specifically, Herman C. Zickerman) during the negotiations of the draft joint venture 7 agreement. (Doc. 120 at 6-8; Doc. 124 at 6-8.) 8 On April 28, 2021, Dawson and Gorrie again exchanged text messages about 9 Counsel. Gorrie stated: “We were suppose[d] to hire [Counsel] to be working together. 10 . . . . It was suppose[d] to be a contract. Together. . . .” (Doc. 110-3 at 12.) Dawson 11 responded: “[Counsel] told me the other day he represented you not me or [Stadtler] he 12 didnt [sic] care who paid him he said he cant [sic] represent all of us. It would get him in 13 trouble with the bar[.] [Counsel] wanted [Stadtler] to use his own lawyer to ck out the 14 contract he said so.” (Id.) Gorrie then said: “What about what I signed up for? . . . You 15 all paying [Counsel] to fuk with you all? Cause that’s not what I signed up for. Where we 16 are. And [Zickerman] isn’t a cannabis attorney. It’s kind of fuking ridiculous. You’ll have 17 to get one next probably[.]” (Id.) 18 For reasons that are disputed, the parties’ business relationship ultimately fell apart, 19 leading to this litigation. On February 11, 2022, Plaintiffs filed a complaint in La Paz 20 County Superior Court. (Doc. 1-2 at 10-27.) On February 27, 2022, Gorrie removed the 21 action to this Court. (Doc. 1.)6 The notice of removal was filed by Counsel, who identified 22 himself as Gorrie’s counsel. (Id.) 23 On May 2, 2022, Plaintiffs filed a First Amended Complaint (“FAC”). (Doc. 25.) 24 On May 27, 2022, Defendants filed an answer to the FAC and counterclaims against
25 5 Plaintiffs contend that “Gorrie did not deny” the existence of a joint representation. (Doc. 110 at 7.) Defendants contend that Gorrie’s immediate response (together with the 26 remainder of the conversation) demonstrates “that Gorrie considered [Counsel] to be her lawyer and bristled at any attempt by Dawson or Stadtler to interfere with that 27 relationship.” (Doc. 120 at 11-13. See also Doc. 122-3 [text messages].) 28 6 Plaintiffs challenged the validity of Gorrie’s removal effort (Doc. 11), but the Court eventually denied Plaintiffs’ motion to remand (Doc. 21). 1 Plaintiffs. (Doc. 38.) That same day, Defendants (via Counsel) filed a motion for a 2 temporary restraining order (“TRO”) based on their counterclaims. (Doc. 39.) The TRO 3 sought to block the Trust from pursuing a trustee’s sale of the Farm, which was scheduled 4 for June 9, 2022. (Id.) However, the parties later agreed to postpone the trustee’s sale 5 pending the resolution of the TRO request. (Doc. 60.) 6 On July 7, 2022, the TRO hearing took place. (Doc. 70.) As relevant here, Counsel 7 served as counsel for Defendants at the hearing and examined Stadtler, Dawson, and 8 Gorrie. (See generally Doc. 82.) At the conclusion of the hearing, the Court denied 9 Defendants’ TRO request. (Id. at 198-206.) 10 On October 31, 2022, Plaintiffs filed the pending motion to disqualify Counsel from 11 representing Defendants in this litigation. (Doc. 110.) The motion is now fully briefed 12 and neither side requested oral argument. (Docs. 120, 124, 132.) 13 On November 11, 2022, Defendants moved for Rule 11 sanctions. (Doc. 118.)7 14 On December 5, 2022, Plaintiffs filed their operative pleading, the Second Amended 15 Complaint (“SAC”). (Doc. 131.) The SAC asserts claims for breach of contract, unjust 16 enrichment, fraud, negligent misrepresentation, and conversion/replevin, all of which arise 17 from the parties’ previous interactions related to the sale of the Farm and the hemp 18 operation. (Id. ¶¶ 123-72.) Defendants’ operative pleading, filed on June 14, 2022, asserts 19 ten counterclaims based largely on similar theories. (Doc. 77 ¶¶ 72-121.)8 20 … 21 … 22 … 23 …
24 7 This motion is fully briefed (Docs. 125, 130) and the Court will rule on it in due course. There is some suggestion by Defendants that Plaintiffs’ motion to disqualify was 25 filed, at least in part, in retaliation for Defendants’ request for Rule 11 sanctions, a draft of which was transmitted to Plaintiffs on October 21, 2022 pursuant to Rule 11(c)(2). (Doc. 26 120 at 2-3.) The Court did not consider this allegation in making its decision about disqualification but, even if it had, such speculation would not change the analysis. 27 8 On January 6, 2023, Defendants filed a motion to amend their First Amended 28 Counterclaim and Third-Party Complaint. (Doc. 146.) This motion is not yet fully briefed and the Court will rule on it in due course. 1 DISCUSSION 2 I. Legal Standard 3 The Court “appl[ies] state law in determining matters of disqualification.” In re 4 Cnty. of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000) (“[W]e must follow the reasoned 5 view of the state supreme court when it has spoken on the issue.”). In Arizona, motions to 6 disqualify opposing counsel are “view[ed] with suspicion.” Gomez v. Superior Court, 717 7 P.2d 902, 905 (Ariz. 1986). “Only in extreme circumstances should a party to a lawsuit be 8 allowed to interfere with the attorney-client relationship of his opponent.” Alexander v. 9 Superior Court, 685 P.2d 1309, 1313 (Ariz. 1984). “[T]he moving party . . . [must] show 10 sufficient reason why an attorney should be disqualified from representing his client. 11 Whenever possible the courts should endeavor to reach a solution that is least burdensome 12 upon the client or clients.” Id. 13 The District of Arizona has adopted, by local rule, the Arizona Rules of Professional 14 Conduct. See LRCiv 83.2(e). Accordingly, this Court must follow those rules when 15 deciding whether disqualification is required. Unified Sewerage Agency of Wash. Cnty. v. 16 Jelco Inc., 646 F.2d 1339, 1342 n.1 (9th Cir. 1981) (holding that Oregon’s ethical rules 17 governed disqualification because “the United States District Court for the District of 18 Oregon has adopted as its rules the disciplinary rules of the State Bar of Oregon” but 19 “express[ing] no opinion on the law to apply where the district court has not designated the 20 applicable rules of professional responsibility”). See also Quatama Park Townhomes 21 Owners Ass’n v. RBC Real Est. Fin., Inc., 365 F. Supp. 3d 1129, 1136-37 (D. Or. 2019) 22 (“When considering a motion to disqualify counsel in the Ninth Circuit, at least when a 23 district court has adopted by local rule the ethical code governing lawyers promulgated by 24 the state in which that court sits, federal courts are directed to apply the law of the forum 25 state . . . .”). The Preamble to the Arizona Rules of Professional Conduct cautions that 26 “violation of a Rule does not necessarily warrant any other nondisciplinary remedy, such 27 as disqualification of a lawyer in pending litigation.” Ariz. Sup. Ct. R. 42, Ariz. R. Pro. 28 Conduct Preamble ¶ 20. See also id. (“[T]he purpose of the Rules can be subverted when 1 they are invoked by opposing parties as procedural weapons.”); Roosevelt Irr. Dist. v. Salt 2 River Project Agr. Imp. & Power Dist., 810 F. Supp. 2d 929, 944 (D. Ariz. 2011) 3 (“[D]isqualification motions should be subjected to ‘particularly strict scrutiny’ because of 4 their potential for abuse.”) (citation omitted). 5 II. The Parties’ Arguments 6 Plaintiffs move to disqualify Counsel and his law firm, Dickinson Wright, from 7 representing Defendants in this matter. (Doc. 110.) In broad strokes, Plaintiffs contend 8 that disqualification is necessary because (1) Counsel jointly represented Stadtler and 9 Gorrie in relation to the hemp growing operation and is thus violating Arizona Ethical Rule 10 1.9 (“ER 1.9”) by representing Gorrie against Stadtler in this litigation, which is 11 substantially related to the prior joint representation;9 (2) Counsel is likely to be a necessary 12 witness in this litigation and is thus prohibited from representing Defendants under ER 13 3.7(a); and (3) the “public’s interest in the administration of justice” further supports 14 disqualification. (Id. at 8-16.) 15 Defendants oppose the disqualification request. (Doc. 120.) As an initial matter, 16 Defendants contend that Plaintiffs’ request is “retaliatory, tactical, and driven by antipathy 17 for Defendants’ counsel.” (Id. at 2-5.) On the merits, Defendants contend the motion is 18 beset by “factual inaccuracies and evidentiary issues.” (Id. at 5.) In particular, Defendants 19 vigorously dispute Plaintiffs’ contention that Stadtler lacked separate counsel in relation to 20 the draft joint venture agreement and argue that Stadtler was, in fact, represented by 21 Zickerman. (Id. at 6-8.) At any rate, Defendants contend that Counsel did not jointly 22 represent Stadtler and Gorrie at any time (but instead represented only Gorrie) and provide 23 several reasons that the evidence proffered by Plaintiffs to demonstrate joint representation 24 is insufficient. (Id. 8-9.) Defendants also argue the motion fails on the law because the 25
26 9 Plaintiffs also invoke ER 1.8, which governs the circumstances under which an attorney can accept compensation from a non-client, but do not seem to seek the 27 disqualification of Counsel based on a purported violation of ER 1.8—instead, Plaintiffs’ theory is that Counsel was not required to comply with ER 1.8 because the representation 28 of Gorrie and Stadtler was a joint representation, which in turn means that ER 1.9 is implicated. (Doc. 110 at 9-10.) 1 “substantially related” test does not apply to a disqualification request premised on a joint 2 representation and, even if it did, Plaintiffs forfeited their ability to object to Counsel’s 3 representation of Gorrie by waiting too long to raise the issue. (Id. at 13-17.) As for ER 4 3.7, Defendants argue that Plaintiffs have not met the “high burden” of showing Counsel 5 will give material evidence that is unobtainable elsewhere and may be prejudicial to 6 Stadtler (who, at any rate, was never Counsel’s client). (Id. at 18-20.) Defendants also 7 note that Plaintiffs’ arguments under ER 3.7 appear to assume Stadtler “might call 8 [Counsel] and force him to testify against his client” and thus waive the alleged attorney- 9 client privilege on which Plaintiffs’ disqualification arguments under ER 1.9 are premised. 10 (Id. at 20.) Finally, Defendants contend that “public policy is not impacted by the fact[s] 11 in this case” and challenge Plaintiffs’ assertions that Stadtler was a third-party payor10 and 12 that Stadtler communicated his desire to retain Counsel as counsel for himself. (Id. at 13 17-18, 20-21.) 14 In reply, Plaintiffs assert that Counsel has neither denied that he received 15 confidential information from Stadtler nor provided evidence rebutting the alleged 16 attorney-client relationship. (Doc. 124 at 2.)11 Plaintiffs also contend that Counsel gave 17 legal advice to Stadtler but neither informed Stadtler in writing as to the scope of the 18 representation nor obtained informed consent from Stadtler to support a conflict waiver. 19 (Id.) Plaintiffs then argue that the following facts demonstrate that Counsel jointly 20 represented Stadtler and Gorrie: (1) Counsel accepted payment from Stadtler for legal 21 services (i.e., a retainer check) yet did not obtain Gorrie’s informed consent for that 22 payment, as would be required for a third-party payment from a non-client under ER 1.8(f); 23 (2) for various reasons, the facts averred in declarations from Counsel and Gorrie, even if 24 true, do not establish that Counsel represented Gorrie only; and (3) Stadtler was not
25 10 Specifically, Defendants characterize the $5,000 check as a loan from Stadtler to IGD and Gorrie. (Doc. 120 at 17-18.) 26 11 Plaintiffs’ assertion that Counsel has not denied obtaining confidential information 27 from Stadtler is difficult to square with the record. (See, e.g., Doc. 121-7 ¶ 14; Doc. 120 at 14-15 [“[T]here could not have been an expectation for Stadtler to have kept the 28 information that he stated to [Counsel] confidential from Gorrie because she was sitting right there in the room next to him at the meeting the entire time.”].) 1 represented by Zickerman at the time of the alleged joint representation. (Id. at 3-9.)12 As 2 for whether the “substantially related” test applies to a disqualification request premised 3 on a joint representation, Plaintiffs argue that the case cited by Defendants is “inapposite” 4 because it “is a case about duty of confidentiality, not loyalty.” (Id. at 9-10.) Plaintiffs 5 further argue that Counsel has a “non-waivable conflict of interest” under ER 1.7. (Id. at 6 11-12.) Finally, Plaintiffs argue that Gorrie “will not be prejudiced [by disqualification] 7 because she already has another attorney, Joseph Urtuzuastegui who represents her in the 8 bankruptcy case, who is up to speed who could step in.” (Id. at 12.) 9 In an authorized surreply, Defendants address the two new declarations (from 10 Zickerman and Delores Aguirre) that Plaintiffs filed in support of their reply13 and the new 11 arguments raised for the first time in Plaintiffs’ reply. (Doc. 132.) As for Zickerman’s 12 declaration, Defendants contend it “flatly contradicts” the facts alleged by Stadtler and 13 Dawson in their respective declarations. (Id. at 2-3.)14 In Defendants’ view, Zickerman’s 14 repeated revisions to the draft joint venture agreement (to which Dawson was not party), 15 many of which benefited Stadtler, made it reasonable for Counsel to believe that Zickerman 16 represented Stadtler. (Id. at 5-8.)15 As for the Aguirre declaration, Defendants reiterate 17 that Stadtler was “not a third-party payor.” (Id. at 9-10.) Defendants further argue that the 18 Aguirre declaration “introduce[s] the idea that Stadtler made four . . . wire transfers in the 19 amount of $17,000 to Gorrie’s personal bank account” to pay for Counsel’s services, 20 which, although “incorrect” because “those transfers went into the IGD account,” supports 21 Defendants’ argument that the retainer payment was a loan. (Id.) Finally, Defendants 22 argue they would be prejudiced by disqualification: “[W]ith all due respect to Mr. 23 12 Plaintiffs also defend Stadtler’s ability to remember the April 5, 2021 meeting and 24 subsequent payments to Dickinson Wright. (Doc. 124 at 10-11.) 25 13 Aguirre does Stadtler’s bookkeeping. (Doc. 124-1 at 2.) 14 Defendants also argue that Zickerman’s declaration “contains irrelevant facts 26 intended solely for pejorative purposes.” (Doc. 132 at 8-9.) 27 15 According to Defendants, the fact that Dawson requested that Zickerman review the draft agreements on Stadtler’s behalf (as established by an attached email) “utterly 28 invalidates Plaintiffs’ argument that [Counsel] never told Dawson that Stadtler needed an attorney,” as asserted in Dawson’s declaration. (Id. at 6-7.) 1 Urtuzuastegui, he is a 4th year lawyer whom Plaintiffs argue could simply substitute for 2 undersigned counsel. . . . And how do Plaintiffs know that Mr. Urtuzuastegui is up to 3 speed?” (Id. at 10.)16 4 III. Analysis 5 A. ER 1.9 6 Plaintiffs contend that Counsel jointly represented Stadtler, Gorrie, and Dawson in 7 matters related to the hemp growing operation and thus, without Stadtler’s informed 8 consent, Counsel is violating ER 1.9 by representing Gorrie in litigation against Stadtler 9 that arises from substantially related matters. (Doc. 110 at 10-14.) 10 ER 1.9, which is entitled “Duties to Former Clients,” provides: 11 (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially 12 related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives 13 informed consent, confirmed in writing. 14 (b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer 15 formerly was associated had previously represented a client: 16 (1) whose interests are materially adverse to that person; and 17 (2) about whom the lawyer had acquired information protected by ERs 1.6 and 1.9(c) that is material to the matter; 18 unless the former client gives informed consent, confirmed in writing. 19 (c) A lawyer who has formerly represented a client in a matter shall not 20 thereafter: 21 (1) use information relating to the representation to the disadvantage of the former client except as these Rules would 22 permit or require with respect to a client, or when the information has become generally known; or 23 (2) reveal information relating to the representation except as these 24 Rules would permit or require with respect to a client. 25 Id. “For a conflict to exist pursuant to this provision, the moving party must show: (1) the 26 27 16 Defendants also assert that, “at one of the pre-litigation meetings held between the 28 parties, Plaintiffs’ attorneys specifically made a ER 3.7 argument against Mr. Urtuzuastegui’s participation because they argued he was a fact witness.” (Id. at 10-11.) 1 existence of an attorney-client relationship; (2) that the former representation was ‘the 2 same or substantially related’ to the current litigation; and (3) that the current client’s 3 interests are ‘materially adverse’ to the former client’s interests.” Roosevelt Irr. Dist., 810 4 F. Supp. 2d at 945 (quoting Foulke v. Knuck, 784 P.2d 723, 726-27 (Ariz. Ct. App. 1989)). 5 “Looking to this ethical rule as a guide, Arizona courts have noted that while notifying 6 clients of conflicts and receiving consent to move forward with a representation is an 7 important ethical duty of a lawyer, ‘[o]nly in extreme circumstances should a party to a 8 lawsuit be allowed to interfere with the attorney-client relationship of his opponent.’” 9 SinglePoint Direct Solar, LLC v. Curiel, 2022 WL 17418428, *2 (D. Ariz. 2022) (quoting 10 Alexander, 685 P.2d at 1313). 11 Here, the parties dispute the first and second elements of the ER 1.9 analysis—that 12 is, whether an attorney-client relationship existed between Counsel and Stadtler and 13 whether the “substantially related” standard applies. Although the parties spill much ink 14 debating the first element (see, e.g., Doc. 110 at 11-14; Doc. 120 at 5-12; Doc. 124 at 3-6), 15 the Court finds it unnecessary to resolve that dispute because, even assuming Plaintiffs are 16 correct, disqualification would not be required under the second element. 17 The Arizona Supreme Court discussed the “problem of representation adverse to 18 that of a former client” in the context of joint representation in Alexander, ultimately 19 holding that “the substantial relationship test is not applicable” when the case “does not 20 involve any disclosures of confidential information.” 685 P.2d at 1313-16.17 The 21 Alexander court further noted that “there is a recognized presumption that ‘[a]s between 22 joint clients ordinarily there is no expectation of confidentiality.’” Id. at 1315 (citation 23 omitted). This presumption is further supported by an ethics opinion from the Arizona 24 State Bar Association, which provides that “there is no individual confidentiality when a 25 joint representation exists.” Ariz. Ethics Op. 07-04, available at 26 17 See also SinglePoint Direct Solar, LLC v. Curiel, 2022 WL 17418428, *2 (D. Ariz. 27 2022) (“Although the Arizona Supreme Court was interpreting the old Arizona Ethical Rules in Alexander, it did discuss the then Model Rule 1.9 stating “[w]e believe our holding 28 in the present case meets both sections of Rule 1.9.”) (quoting Alexander, 685 P.2d at 1316). 1 https://tools.azbar.org/RulesofProfessionalConduct/ViewEthicsOpinion.aspx?id=696 2 (internal quotation marks omitted). See also Nitrini v. Feinbaum, 501 P.2d 576, 582 (Ariz. 3 Ct. App. 1972) (“When two or more clients employ the same attorney in the same business, 4 communications made by them in relation to such business are not privileged inter sese nor 5 are they privileged as between any one of the parties and the attorney.”) (internal quotation 6 marks omitted). 7 Relying on the principles articulated in Alexander, Arizona district courts have 8 rejected disqualification requests premised on the existence of prior joint representation 9 arrangement. SinglePoint Direct Solar, 2022 WL 17418428 at *2 (“Because there is no 10 confidential or privileged information as between jointly represented clients, if a lawyer 11 who at one time jointly represented two clients, and who is now suing one on behalf of the 12 other, discloses information learned from the former client, there is no violation of Rule 13 1.9.”). This interpretation is supported by the fact that Arizona courts have generally 14 characterized the duties owed to former clients (embodied by ER 1.9) as rooted in 15 confidentiality. See, e.g., Nitrini, 501 P.2d at 582 (“The principle which bars an attorney 16 from representing an interest adverse to that of a former client is said to be grounded upon 17 the confidential relationship which exists between attorney and client, and courts take the 18 position that by impossing this disability upon the attorney, confidential information is 19 protected.”); Bicas v. Superior Court, 567 P.2d 1198, 1201 (Ariz. Ct. App. 1977) (same); 20 Nichols v. Elkins, 408 P.2d 34, 39 (Ariz. Ct. App. 1965) (“[T]he foundation of 21 disqualification [from representing an interest adverse to that of a former client] is the 22 existence of a former confidential relationship.”). 23 Turning to disqualification, Arizona applies the “substantial relationship” test to 24 determine when an attorney should be disqualified from appearing on behalf of a former 25 client’s adversary. Alexander, 685 P.2d at 1315-16. This test protects attorney-client 26 relationships by promoting the “preservation of secrets and confidences communicated to 27 the lawyer by the client.” Christensen v. U.S. Dist. Ct. for Cent. Dist. of Cal., 844 F.2d 28 694, 698 (9th Cir. 1988) (citation omitted). But as noted, Arizona law presumes there is 1 no expectation of confidentiality between joint clients. Alexander, 685 P.2d at 1314-15. 2 See also ER 1.7, cmt. 28 (“[A]s between commonly represented clients, the [attorney- 3 client] privilege does not attach. Hence, it must be assumed that if litigation eventuates 4 between the clients, the privilege will not protect any such communications . . . .”). 5 Here, Plaintiffs contend that Counsel “was representing [Stadtler, Gorrie, and 6 Dawson] jointly and giving them legal advice for their mutual benefit.” (Doc. 110 at 2.) 7 But even assuming that is true, Stadtler had no reason to believe that any of the information 8 he shared with Counsel would be kept confidential from Gorrie—in fact, she was sitting 9 right next to him as he shared it in her presence. (See Doc. 110-1 ¶¶ 25-35; Doc. 110-2 10 ¶¶ 21-27.)18 After that meeting, it appears Counsel only communicated with Stadtler 11 indirectly through Dawson and, at times, Zickerman. (See, e.g., Doc. 110-1 ¶¶ 38-41; Doc. 12 110-3 at 4-18 [text messages between Dawson and Counsel].) Gorrie was a party to some 13 of those communications. (Doc. 124-2 [emails between Counsel, Gorrie, and Dawson].) 14 It is not clear how Stadtler could have reasonably believed these communications would 15 be kept confidential from Gorrie if he believed, as he testifies, that Counsel “was 16 representing all three of us, [Gorrie], me, and [Dawson].” (Doc. 110-1 ¶ 24.) Thus, 17 because Counsel never learned any information from Stadtler that was confidential as to 18 Gorrie, “the substantial relationship test is not applicable,” Alexander, 685 P.2d at 1316, 19 and ER 1.9 has not been violated. See also SinglePoint Direct Solar, 2022 WL 17418428 20 at *4 (“[W]hen an attorney who jointly represent clients withdraws from the representation 21 of the secondary client and subsequently sues that client on behalf of the primary client, 22 there is no violation of Rule 1.9.”); Nichols, 408 P.2d at 39 (“[W]hen two or more clients 23 employ the same attorney in the same business, communications made by them in relation 24 to such business are not privileged inter sese nor are they privileged as between any one of 25 the parties and the attorney. . . . Since these communications are not deemed confidential, 26
27 18 To be clear, the Court provides no opinion as to whether the representation was in fact joint. If it was not, ER 1.9 would not apply because Stadtler would not be Counsel’s 28 former client. In that scenario, Plaintiffs’ arguments for disqualification under ER 1.9 would obviously fail. 1 there is no impediment to or impropriety in the adverse representation by the attorney.”). 2 This makes sense from a practical standpoint—it is difficult to see how Stadtler would be 3 prejudiced by Counsel sharing their prior communications with Gorrie if Gorrie herself 4 already knows about them. 5 Plaintiffs contend that the foregoing analysis, which follows the approach taken by 6 the Second Circuit in Allegaert v. Perot, 565 F.2d 246 (2d Cir. 1977), is “inapposite” 7 because it focuses on the “duty of confidentiality, not loyalty.” (Doc. 124 at 9-10.) 8 However, Plaintiffs do not explain how the duty of loyalty applies here and reference only 9 one case in support of their position: Hasco, Inc. v. Roche, 700 N.E.2d 768 (Ill. App. Ct. 10 1998). Plaintiffs’ reliance on Hasco is unavailing because this Court must follow Arizona 11 law (and the Arizona courts’ construction of Arizona’s applicable ethical rules), not the 12 Illinois courts’ interpretation of Illinois’s ethical rules. The Arizona Supreme Court has 13 indicated its approval of Allegaert. Alexander, 685 P.2d at 1315-16.19 So, too, has the 14 Ninth Circuit, albeit in the context of a case applying the California Rules of Professional 15 Conduct. Christensen, 844 F.2d at 699 (“[W]e adopt the rule of Allegaert . . . .”). See also 16 Quatama Park, 365 F. Supp. 3d at 1139 (“[T]he Ninth Circuit has adopted the rule of 17 Allegaert in cases applying the ethical rules of Oregon and California . . . .”).20 18 Accordingly, the Court declines to disqualify Counsel under ER 1.9. And because 19 Counsel is not disqualified under ER 1.9, Dickinson Wright is not disqualified under ER 20 1.10(d).21 See also Amparano v. ASARCO, Inc., 93 P.3d 1086, 1094 (Ariz. Ct. App. 2004)
21 19 Specifically, the Arizona Supreme Court cited Allegaert in support of the propositions that (1) a secondary client does not have any expectation that his 22 communications will be kept secret from primary clients; (2) a firm’s primary clients should retain the firm’s loyalty over other clients; and (3) the “substantial relationship” 23 does not apply to cases that do not involve any disclosures of confidential information by former clients. Alexander, 685 P.2d at 1315-16. 24 20 The Court acknowledges that some out-of-circuit decisions have interpreted the 25 Allegaert rule more narrowly, holding that “it requires a finding that one client is secondary to another, and thus, less worthy of an attorney’s loyalty.” Exterior Sys., Inc. v. Noble 26 Composites, Inc., 175 F. Supp. 2d 1112, 1120-21 (N.D. Ind. 2001). However, the Ninth Circuit has adopted the broader reading of Allegaert: “[T]he substantial relationship test is 27 inapplicable when the former client has no reason to believe that information given to counsel will not be disclosed to the firm’s current client.” Christensen, 844 F.2d at 699. 28 21 Under ER 1.10(d), “[w]hen 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 1 (“[L]ogic dictates that, if Shanker is not disqualified, there can be no imputed 2 disqualification of the associated firm.”). 3 B. ER 3.7 4 Plaintiffs also contend that Stadtler “could be required to call [Counsel] as a witness 5 in this case” such that Counsel would be “required to give evidence material to the 6 determination of the issues being litigated such as the Parties’ intentions as to the revenue 7 share agreements, the Deed of Trust, and whether the Parties’ ultimately agreed to enter 8 into a joint venture agreement.” (Doc. 110 at 15.) Plaintiffs continue: “If [Counsel] asserts 9 a position opposite to the information he was given during the course of his joint 10 representation of Plaintiffs and Defendants, he should be required to testify on what the 11 Parties agreed to and intended. That the testimony would be prejudicial to [Counsel] clients 12 the Defendants, such that he should voluntarily withdraw.” (Id. at 15.) 13 ER 3.7 provides: 14 (a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless: 15 (1) the testimony relates to an uncontested issue; 16 (2) the testimony relates to the nature and value of legal services 17 rendered in the case; or 18 (3) disqualification of the lawyer would work substantial hardship on the client. 19 (b) A lawyer may act as advocate in a trial in which another lawyer in the 20 lawyer’s firm is likely to be called as a witness unless precluded from doing so by ER 1.7 or ER 1.9. 21 22 Id. A motion for disqualification under ER 3.7 must be supported by a showing that the 23 attorney is a “necessary witness.” Sec. Gen. Life Ins. Co. v. Superior Court, 718 P.2d 985, 24 988 (Ariz. 1986). “[T]here is a dual test for ‘necessity.’ First the proposed testimony must 25 be relevant and material. Then it must also be unobtainable elsewhere.” Id. Additionally, 26 disqualification is warranted only where “the testimony is or may be prejudicial to the 27
28 is disqualified under ER 1.9” unless various conditions have been fulfilled. See id. 1.10(d)(1) through (4). 1 testifying attorney’s client.” Powers Reinforcing Fabricators, L.L.C. v. Contes, 473 P.3d 2 714, 721 (Ariz. Ct. App. 2020). “The prejudice requirement . . . works to preclude the folly 3 of an attorney giving testimony detrimental to the interest he is advocating as well as to 4 prevent opposing counsel from contriving some tactical need for calling the attorney 5 thereby triggering disqualification.” Id. at 722 (citation omitted). 6 Plaintiffs have failed to make a threshold showing that Counsel is a necessary 7 witness. Even assuming that Counsel’s testimony would be admissible and material, 8 Plaintiffs have not shown that it could not be obtained from other witnesses, such as Gorrie, 9 Stadtler, or Dawson, all of whom were present at the April 5, 2021 meeting and have 10 provided declarations describing what was said during it. (Docs. 110-1, 110-2, 121-6). 11 The evidence also suggests Dawson communicated extensively with Counsel about the 12 parties’ proposed joint venture and thus, to the extent those communications are relevant 13 and admissible, could testify to them. (See, e.g., Doc. 110-2 ¶¶ 30-41.) A mere showing 14 that counsel is a potential, but not necessary, witness is insufficient to trigger 15 disqualification. Cramton v. Grabbagreen Franchising LLC, 2020 WL 6680366, *3 16 (D. Ariz. 2020). See also Powers Reinforcing Fabricators, 473 P.3d at 722 (noting that it 17 is an abuse of discretion to grant a motion for disqualification without the required showing 18 that the testimony is material, is not obtainable elsewhere, and may be prejudicial to the 19 testifying attorney’s client). 20 Plaintiffs attempt to sidestep the fact that this information is available from other 21 sources by suggesting that Counsel would “assert[] a position” he knows to be false based 22 on his interactions with the parties before this litigation such that he “should be required” 23 to testify about what the parties actually intended. (Doc. 110 at 15.) This argument is 24 unsupported by the record and unavailing. The mere fact that Stadtler and Gorrie disagree 25 about what was said during the April 5, 2021 meeting does not establish that Counsel, as 26 Gorrie’s counsel, is taking a position he knows to be false. 27 For similar reasons, Plaintiffs fail to establish prejudice. Although “a party can 28 easily be prejudiced when opposing counsel acts as both advocate and witness,” “the 1 obvious dangers inherent in [disqualifying counsel because an adverse party intends to call 2 him as a witness] and the importance of the right to have the counsel of one’s choice require 3 careful scrutiny of the facts before such a result is permitted.” Sec. Gen. Life Ins., 718 P.2d 4 at 988. Plaintiffs contend that Counsel’s testimony “on what the Parties agreed to and 5 intended . . . would be prejudicial to [Counsel’s] clients the Defendants.” (Doc. 110 at 15.) 6 Such vague, speculative harms fall far short of the high bar required for disqualification. 7 Finally, “even when the other factors are present, a lawyer should withdraw only 8 after it becomes clear an attorney ought to testify.” Powers Reinforcing Fabricators, 473 9 P.3d at 722 (internal quotation marks omitted). Here, it is far from clear that Counsel will 10 testify or that there will even be a trial. See also Sec. Gen. Life Ins., 718 P.2d at 988 (“A 11 party’s mere declaration of an intention to call opposing counsel as a witness is an 12 insufficient basis for disqualification even if that counsel could give relevant testimony.”). 13 C. Public Policy 14 Plaintiffs contend that the “public’s interest in the administration of justice weighs 15 heavily in favor of disqualification” because Counsel “elicited confidential information 16 from Mr. Stadtler and accepted payment for his services, knowing Mr. Stadtler considered 17 him to be his attorney and without explaining his obligations to Mr. Stadtler and Ms. Gorrie 18 as required by Rules 1.6, 1.8, and 1.9.” (Doc. 110 at 16.) Plaintiffs also suggest, albeit 19 somewhat indirectly, that Counsel has a “concurrent conflict of interest” warranting 20 disqualification under ER 1.7(a)(2). (Id.) 21 For reasons already discussed, ER 1.9 is not violated by Counsel representing 22 Defendants in this matter. For similar reasons, ER 1.6 (which is titled “Confidentiality”) 23 is not implicated—even assuming joint representation, Stadtler could not have reasonably 24 believed that information he shared with Counsel would be kept confidential as to Gorrie. 25 ER 1.8 “regulates conflicts and specifies under what circumstances an attorney may 26 accept payment from a third party on behalf of a client.” Enriquez v. Gemini Motor Transp. 27 LP, 2021 WL 3565731, *1 (D. Ariz. 2021). Plaintiffs contend that, if Counsel was not 28 providing joint representation (but instead solely representing Gorrie), he violated ER 1 1.8(f) by accepting payment from Stadtler for that representation without obtaining 2 Gorrie’s informed consent and without determining that there was no interference with the 3 client-lawyer relationship and that her confidential information would be protected. (Doc. 4 110 at 9-10.) 5 As relevant here, ER 1.8(f) prohibits a lawyer from “accept[ing] compensation for 6 representing a client from one other than the client unless (1) the client gives informed 7 consent; (2) there is no interference with the lawyer’s independence of professional 8 judgment or with the client-lawyer relationship; and (3) information relating to 9 representation of a client is protected as required by ER 1.6.” Id. A conflict exists where 10 “there is a significant risk that the lawyer’s representation of the client will be materially 11 limited . . . by the lawyer’s responsibilities to the third-party payer.” ER 1.8, cmt. 10. 12 The parties dispute whether, assuming Counsel solely represented Gorrie, Stadtler 13 was a third-party payor. (Doc. 110 at 9-10; Doc. 17-18.) According to Plaintiffs, Stadtler 14 paid for Gorrie’s legal fees directly (Doc. 110 at 9-10); according to Defendants, Stadtler 15 loaned the money to Gorrie and IGD, who then used it for legal representation related to 16 the hemp operations, as part of his overall investment in the project (Doc. 120 at 18). 17 It is unnecessary to attempt to make sense of the voluminous evidence that the 18 parties have provided on this issue because, even if Counsel accepted the $5,000 check in 19 violation of ER 1.8(f),22 Plaintiffs don’t explain how this payment, made in April 2021 20 (more than six months before this litigation arose), creates a conflict of interest sufficient 21 to justify the extreme sanction of disqualification, particularly where the disqualification 22 request wasn’t raised until eight months after Counsel first appeared in this action. As for 23 Plaintiffs’ allegation that Counsel “continued to bill Mr. Stadtler for services,” this claim 24 is unsupported by the record, which demonstrates only that Stadtler made five wire 25 transfers (totaling $17,000) to Gorrie between March 18, 2021 and April 8, 2021. (Doc. 26 124-1 at 8-9.)23 Again, it is unclear how payments between Stadtler and Gorrie that 27 22 To be clear, the Court does not find that ER 1.8(f) was violated. 28 23 The parties dispute whether these payments were to Gorrie in her personal capacity or “went into the IGD account.” (Doc. 124 at 3 n.1; Doc. 132 at 10.) This distinction is 1 occurred more than a year before this suit was filed create “significant risk” that Counsel’s 2 representation of Defendants will be materially limited by his responsibilities to Stadtler. 3 Accordingly, the Court is not convinced that the alleged violation of ER 1.8(f) 4 demonstrates that the “public’s interest in the administration of justice weighs heavily in 5 favor of disqualification” (Doc. 110 at 16).24 6 Plaintiffs’ final public policy argument, which is based on ER 1.7, is equally 7 unavailing. Under ER 1.7(a), 8 a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: 9 (1) the representation of one client will be directly adverse to 10 another client; or 11 (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s 12 responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. 13 14 Id. “A conflict of interest will be found to exist ‘if there is a significant risk that a lawyer’s 15 ability to consider, recommend or carry out an appropriate course of action for the client 16 will be materially limited as a result of the lawyer's other responsibilities or interests.’” 17 Jamieson v. Slater, 2006 WL 3421788, *6 (D. Ariz. 2006) (quoting ER 1.7, cmt. 8). “In 18 such a situation, the conflict effectively forecloses alternatives that would otherwise be 19 available to the client.” Id. (internal citation omitted).25 20 Here, Plaintiffs have not demonstrated that a conflict of interest exists that would 21 materially limit Counsel’s representation of Defendants. As discussed, Counsel did not 22 obtain information from Stadtler that was confidential as to Gorrie and Plaintiffs provide 23
24 not material to the Court’s analysis. 24 The Court also notes that Plaintiffs do not identify, nor can the Court find, any case 25 in which counsel was disqualified based on a violation of ER 1.8(f). 26 25 The Court assumes without deciding that Stadtler has standing to bring this challenge. State ex rel. Romley v. Superior Ct. In & For Cnty. of Maricopa, 891 P.2d 246, 27 248 (Ariz. Ct. App. 1995) (“Generally, only a client or a former client has standing to challenge legal representation on grounds of conflict of interest.”). As noted elsewhere, 28 the Court makes no finding as to whether Counsel and Stadtler in fact had an attorney- client relationship. 1 little to no analysis of how Counsel’s duty of loyalty to Stadtler (assuming it exists) 2 materially limits his representation of Defendants in this matter. Additionally, “[t]he 3 purpose of [ER 1.7(a)(2)] . . . . is to protect a current client from material limitation in its 4 representation, caused by its lawyer’s responsibilities to another client, a former client, or 5 a third person.” Roosevelt Irr. Dist., 810 F. Supp. 2d at 976. Plaintiffs do not allege that 6 Counsel and Stadtler have a current attorney-client relationship. (See generally Doc. 110.) 7 Therefore, Stadtler is not the party meant to be protected by this rule. Roosevelt Irr. Dist., 8 810 F. Supp. 2d at 976 (“Arvin and Cooper are not Derouin’s current clients, and therefore 9 they simply are not the parties meant to be protected by this rule.”). Any concern, if it 10 exists, belongs to Gorrie, who seems fully aware of Counsel’s prior interactions with 11 Stadtler and has expressed no concern. See also E.E.O.C. v. Luby’s, Inc., 347 F. Supp. 2d 12 743, 746 (D. Ariz. 2004) (noting that the current client is “the only party that must worry 13 about whether her representation will be limited” by her lawyer’s responsibilities to a third 14 party).26 15 D. Disqualification As A Remedy 16 Alternatively, even if Counsel’s representation of Defendants violated the ethical 17 rules, the Court would not order disqualification. “Disqualification of a party’s chosen 18 counsel is a severe sanction.” Kaiser v. AT&T, 2002 WL 1362054, *7 (D. Ariz. 2002). 19 Thus, when a violation of an ethical rule occurs, Arizona courts apply a balancing test to 20 determine if disqualification is appropriate. Roosevelt Irr. Dist., 810 F. Supp. 2d at 984 21 (“[A]utomatic disqualification for an ethical violation is not preferable.”) (citation 22 omitted). “Courts have considered the following factors in such an analysis: (1) the nature 23 of the ethical violation; (2) the prejudice to the parties, including the extent of actual or 24 potential delay in the proceedings; (3) the effectiveness of counsel in light of the violations; 25 (4) the public’s perception of the profession; and (5) whether a motion to disqualify has 26 been used as a tactical device or a means of harassment.” Id. 27
28 26 Because of this conclusion, it is unnecessary to further address Plaintiffs’ ER 1.7(b) arguments. (Doc. 124 at 11.) 1 Several factors weigh heavily against disqualification here. First, Plaintiffs have 2 not demonstrated any harm caused by the alleged ethical violations. “[T]he central 3 question in any disqualification inquiry is whether there will be harm, going forward in a 4 case, from an attorney’s representation of a client.” SinglePoint Direct Solar, 2022 5 WL 17418428 at *6. “Because . . . of the ‘great prejudice often associated with an enforced 6 change of counsel, courts applying these standards have granted disqualification only when 7 the moving party has demonstrated substantial and irreparable harm growing out of the 8 ethical violation.’” Richards v. Holsum Bakery, Inc., 2009 WL 3740725, *6 (D. Ariz. 9 2009) (citation omitted). But see Foulke, 784 P.2d at 729 (specific harm not required where 10 there is a “blatant violation of ER 1.9(a)” that “presents a conflict that is anything but 11 remote”). Plaintiffs contend that Counsel “elicited from Mr. Stadtler confidential financial 12 information and other confidential information germane to this action, including questions 13 regarding Ms. Gorrie’s debt to the Trust, Mr. Stadtler’s thoughts and intentions about the 14 debt, and specifics about Mr. Stadtler’s and Mr. Houchin’s financial wherewithal.” (Doc. 15 110 at 3.) However, for the reasons explained elsewhere in this order, Stadtler shared this 16 information with Counsel with no expectation that it would be kept confidential from 17 Gorrie (and, at least at the April 5, 2021 meeting, shared it in Gorrie’s presence). Also, to 18 the extent such information was in fact shared with Counsel and is relevant to this litigation, 19 the alleged harm to Stadtler is far too speculative to constitute a basis for disqualifying 20 Defendants’ counsel. Indeed, even if this Court were to disqualify Counsel, all of the 21 evidence about which Plaintiffs are concerned could still potentially be brought in by 22 substitute counsel because it was shared with Gorrie. 23 In contrast, disqualification would result in substantial prejudice to Defendants. 24 Plaintiffs’ suggestion that Urtuzuastegui, the attorney representing Gorrie in IGD’s 25 bankruptcy litigation, could easily step in and represent Defendants in this matter is 26 unconvincing. And even accepting Plaintiffs’ explanation for the timing of their request, 27 the fact that this case had been pending for nearly eight months before the request was 28 made suggests that disqualification would prejudice Defendants. Although the Court will 1 assume that Plaintiffs’ motion was not made for the purpose of harassing Defendants and 2 Counsel, that appears to be the result of the request. Since October 2022 (when this motion 3 was filed), Counsel has been unable to depose Stadtler, whose testimony seems likely to 4 go to the heart of the merits for both sides. If Defendants must obtain a new attorney, it 5 will cause inconvenience, delay, and additional costs. Therefore, the Court finds that the 6 hardship of disqualification to Defendants far outweighs any injustice to Plaintiffs. 7 As for the remaining factors, the nature of the alleged ethical violations is discussed 8 elsewhere in this order, as is the effectiveness of Counsel in light of the alleged violations. 9 Neither party addresses the “public’s perception of the profession” factor, and the Court 10 does not find it instructive in this case. 11 IV. Costs And Fees 12 Defendants request “all costs and fees incurred in responding to this Motion as a 13 sanction and for such other relief as the Court deems proper.” (Doc. 120 at 21.) Defendants 14 do not indicate the basis for this request and Plaintiffs do not address it in their reply. 15 The Court has the inherent authority to sanction a litigant for bad faith conduct by 16 ordering it to pay the other side’s legal fees. Goodyear Tire & Rubber Co. v. Haeger, 581 17 U.S. 101, 103-04 (2017) (“[S]uch an order is limited to the fees the innocent party incurred 18 solely because of the misconduct . . . .”). Additionally, Rule 11 “allows a court to award 19 sanctions where a party makes a frivolous filing or where a party files a pleading or paper 20 for an improper purpose.” Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1415 (9th Cir. 21 1990). “A filing is frivolous if no competent attorney would believe it was well-grounded 22 in fact and warranted by law.” Id. 23 Here, sanctions are not warranted under either standard. Although perhaps weak, 24 Plaintiffs’ disqualification request was reasonable given Counsel’s prior interactions with 25 Stadtler, which were related to the hemp growing operation (i.e., the facts underlying this 26 dispute), and the existence of some (albeit non-binding) case law from other jurisdictions 27 suggesting that the “substantial relationship” test might apply in this circumstance. 28 Moreover, Defendants can only speculate that the motion was made in bad faith or for an 1 || improper purpose. 2 Accordingly, 3 IT IS ORDERED that Plaintiffs’ motion to disqualify Defendants’ counsel (Doc. 110) is denied. 5 Dated this 23rd day of January, 2023. 6 fT-L 8 "Dominic W. Lanza 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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