The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge
ORDER DENYING DEFENDANTS' MOTION TO DISQUALIFY PLAINTIFFS' COUNSEL [Doc. No. 25]
This matter comes before the Court on Defendants Bruce Millimaki, Michael Eggert, and Gary Berman's Motion to Disqualify Plaintiffs' counsel, attorneys with the firm of Farmer & Ridley LLP. Plaintiffs LYMS, Inc., Wendy Youngren, and Cathy Means oppose the motion. The Court found the motion suitable for decision without oral argument pursuant to Local Civil Rule 7.1(d)(1). For the following reasons, the Court DENIES the motion.
This action arises from events surrounding the dissolution of a company and the alleged mismanagement by Defendants of the company's qualified employee retirement benefit plan under the Employee Retirement Income Security Act of 1974, 28 U.S.C. §1001, et seq ("ERISA"). (See Plaintiffs' First Amended Complaint ("FAC"), Doc. No. 2, filed July 21, 2008.) Plaintiffs' amended complaint states that Defendants Millimaki and Eggert were partners or shareholders in Plaintiff company LYMS, Inc. from 1991 through June 30, 2005. (FAC ¶ 12.) During that time, Millimaki acted as a trustee and administrative supervisor of the company's ERISA plan; Eggert acted as a trustee of the plan. (Id. ¶¶ 16-17.) Millimaki and Eggert left the company on June 30, 2005, but remained trustees of the plan. The company notified Millimaki and Eggert of their termination as plan trustees on July 21, 2005, but Defendants continued to act as purported trustees until some time in 2006. (Id. ¶¶ 20-22.)
Subsequent to Millimaki and Eggert's disassociation, the parties disagreed over the company's value and in 2006 commenced dissolution actions in state court. According to Plaintiffs, during settlement negotiations in the state cases it came to their attention that Defendants had been mismanaging the plan, breaching their fiduciary duties as trustees of the plan. The successor trustees of the plan claim to have discovered irregularities with the plan as a result of Defendants' actions during this period. In late 2006/early 2007, the state court determined that all claims had been resolved with respect to the dissolution of the company. Defendants' actions as trustees of the plan remained in contention, therefore the state court continues to hold money in an escrow account pending the resolution of the ERISA dispute. (FAC ¶¶ 19-34.)
The firm of Butterfield Schechter LLP represented Millimaki in the state court dissolution cases, and represents Millimaki, Eggert, and a third defendant, Gary Berman, in the instant litigation. According to defense counsel, prior to filing this action, counsel for the parties discussed mediating the ERISA dispute. (Defendants' Memorandum, 1.) Pursuant to these discussions, in June 2008 Robert Butterfield contacted attorney Robert Ridley of the firm Farmer & Ridley LLP to inquire whether Mr. Ridley, a nationally recognized ERISA expert, would serve as mediator of the ERISA dispute. (Id.) The contact consisted of a voice mail left by Mr. Butterfield for Mr. Ridley, and a subsequent telephone conversation between the two attorneys during which Mr. Ridley declined to mediate the dispute. Plaintiffs, represented at the time by the firms Branton and Wilson APC and Solomon Ward Seidenwurm & Smith LLP, filed their federal complaint against Defendants on July 7, 2008.
Approximately two months after commencing this action, Plaintiffs substituted Robert Ridley, Rebecca Mocciario, and Aurora Basa of Farmer & Ridley LLP as their counsel of record. (See Plaintiffs' Motion for Substitution of Counsel, Doc. No. 14, filed September 11, 2008.) On September 16, 2008, Defendants filed a motion seeking to disqualify Farmer & Ridley LLP from representing Plaintiffs, arguing that the June 2008 telephone conversation between Mr. Butterfield and Mr. Ridley constitutes a conflict of interest sufficient to prevent the Farmer Ridley firm from serving as Plaintiffs' counsel [Doc. No. 25]. Plaintiffs oppose the motion vigorously, arguing that the brief conversation between Mr. Ridley and Mr. Butterfield does not give rise to a conflict based on the relatively generic nature of the discussion. Defendants filed a reply, and the Court gave the parties leave to file sur-replies. On November 14, 2008, former presiding District Judge Janis L. Sammartino transferred the case to the undersigned, who took the matter under submission on the pleadings on December 16, 2008 [Doc. No. 36].
The substance of the telephone conversation is at the heart of this dispute and the determination of whether a conflict exists such that Plaintiffs' counsel must be disqualified from representation in this case. Mr. Butterfield and Mr. Ridley's recollections of the discussion differ significantly.
1. June 2008 Telephone Conversation According to Mr. Butterfield: Mr. Butterfield describes the conversation in his declaration attached in support of Defendants' motion. (See Defendants' Motion, Exhibit "A," Decl'n. of Robert Butterfield ¶¶ 4-11.) According to Mr. Butterfield, he contacted Mr. Ridley on approximately June 11 or 12, 2008 to inquire whether he would mediate the ERISA dispute between Plaintiffs and his clients. He first left Mr. Ridley a voice mail, and then spoke with him directly. He explained to Mr. Ridley that the case involved a CPA firm, and was based on a personal falling out between his client and his client's former business partner. He told Mr. Ridley that "'Plaintiffs were making a mountain of a mole hill,' or words to that effect." He explained that Plaintiffs' counsel had incurred a large amount of fees unnecessarily. He further explained that he believed his clients have a strong case and there were no weaknesses to his knowledge that would justify a high settlement amount. Mr. Butterfield told Mr. Ridley that his clients believed the third party administrator of the plan, Gary Berman, to be the only person potentially at fault for mismanaging the plan. He indicated that he thought the case could be resolved based on a legal analysis of ERISA, and therefore he thought Mr. Ridley, because of his ERISA expertise, would be a good choice as mediator because he would be able to look at the facts and assess blame.
2. June 2008 Telephone Conversation According to Mr. Ridley:
Mr. Ridley describes the conversation in his declaration attached in support of Plaintiffs' opposition. (See Plaintiffs' Opposition, Decl'n. of Robert Ridley ¶¶ 6-31.) According to Mr. Ridley, Mr. Butterfield contacted him sometime in June 2008. He initially left a voice mail for Mr. Ridley, in which he stated that he wanted to discuss Mr. Ridley becoming a mediator in one of his firms' cases involving a dispute among partners and other in an accounting firm over ERISA issues. Mr. Butterfield did not identify any of the parties by name and did not provide Mr. Ridley with any facts about the case, or identify his clients. Because of the voice mail, Mr. Ridley knew prior to their telephone conversation of the request to mediate, and Mr. Ridley had decided that he did not want to serve as mediator in the case.
Mr. Ridley did not take any notes during the brief telephone conversation which occurred subsequent to the voice mail. Mr. Ridley told Mr. Butterfield that mediation "was not part of his 'skill set,'" and that he did not want to mediate the case. Mr. Butterfield attempted to persuade him otherwise, telling him that the case was "perfect" for him. Mr. Ridley has no recollection of Mr. Butterfield stating that Plaintiffs were "making a mountain out of a mole hill." Mr. Butterfield did not say anything to him regarding anyone's attorneys fees, nor did he say anything about the strength of his clients' case or discuss their settlement position. Mr. Ridley does not recall Mr. Butterfield stating that the case could be resolved based on a legal analysis of ERISA. Mr. Ridley recalls Mr. Butterfield stating that he wanted Mr. Ridley to be the mediator because of his ERISA expertise, and nothing further.
This Court is "committed to the highest standards of professionalism and expects those standards to be observed by lawyers who practice before it." Civ. L. R. 83.4(a). This Court adopts "the standards of professional conduct required by members of the State Bar of California, and decisions of any court applicable thereto;" moreover, attorneys must note the ABA's Model Rules of Professional Conduct and shall not "engage in any conduct that degrades or impugns the integrity of the court." Id. (b). The relevant California ...