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California Earthquake Authority v. Metropolitan West Securities

May 5, 2010

CALIFORNIA EARTHQUAKE AUTHORITY, PLAINTIFF,
v.
METROPOLITAN WEST SECURITIES, LLC; WACHOVIA BANK, N.A.; AND DOES 1 THROUGH 25, DEFENDANTS.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on the motion of plaintiff California Earthquake Authority ("CEA," "the Authority," or "plaintiff") to disqualify defendants' counsel Munger, Tolles & Olson, LLP ("Munger"). Defendants Metropolitan West Securities, LLC ("MWS") and Wachovia Bank, N.A. ("Wachovia") (collectively, "defendants") oppose the motion.

The court heard oral argument on the motion on April 23, 2010. By this order, it now renders its decision, granting plaintiff's motion for the reasons set forth below.

BACKGROUND

On December 31, 2009, CEA filed the complaint in this action, alleging claims for breach of contract, breach of fiduciary duty, constructive fraud, and unfair business practices against defendants. In conjunction with its complaint, CEA filed a motion to disqualify Munger as defendants' counsel on the grounds that Munger was either improperly (1) simultaneously representing parties with adverse interests or (2) representing defendants when Munger had a previous relationship with CEA, wherein CEA disclosed certain confidential information to Munger which bears a direct and substantial relationship to the present action.*fn1

On August 26, 2002, CEA's outside counsel, Richard Wolf ("Wolf"), met with Richard Drooyan ("Drooyan"), a partner at Munger. The meeting lasted approximately three hours. While the exact nature of the conversation and what information CEA shared with Drooyan is disputed between the parties, it involved a discussion about CEA's desire to develop a compliance program for the Authority; Wolf contacted Drooyan because many corporate compliance systems were based in part on the Federal Sentencing Guidelines, and Wolf believed Drooyan's extensive experience in corporate compliance and federal criminal law would assist the Authority in designing a compliance program. (Drooyan Decl., filed April 9, 2010 [Docket #16]; Wolf Decl., filed April 19, 2010 [Docket #19].) The following day, Drooyan received what he termed a "retainer agreement" from CEA's general counsel, which Drooyan signed and later returned to CEA on October 11, 2002. (Drooyan Decl. ¶ 5.) Thereafter, CEA signed the "retainer agreement" which is titled "Agreement" and provided a fully executed copy to Drooyan (hereinafter referred to as the "Agreement"). (Id.)

By its express terms, the "Agreement governs the terms and conditions of all work [Munger] has performed (if any) and will perform for the Authority." (Marshall Decl., filed February 24, 2010 [Docket #12], Ex. 1, ¶ 2.0.) Munger specifically agreed that: for and in consideration of the Authority's promises, agreements, and stipulations and under the conditions stated in this Agreement, [it] will provide legal representation to the Authority as directed by the Authority's Contract Manager. (Id. ¶ 1.0.) And further agreed that:

[Munger] will represent the Authority and its Governing Board, by providing legal advice, legal representation, and other legal services in connection with issues regarding a proposed compliance program for the Authority, related legal issues, and other issue areas the Authority may face in the conduct of its business. (Id. ¶ 1.1.)

The parties also agreed that the term of the Agreement was "of no defined duration," and that either party could terminate the contract by giving the other party 30 days' advance written notice. (Id. ¶¶ 2.0, 7.1.) However, CEA could terminate the agreement with no notice by delivering a "written notice of termination" specifying the effective date of the termination.

(Id. ¶ 7.1.) The contract further provided all notices "permitted or required" must be in writing, and that no alterations of the terms of the Agreement will be valid "unless made in writing and signed by both parties." (Id. ¶¶ 10.0, 12.0.)

Finally, Munger agreed to provide legal services to CEA pursuant to the terms of the Agreement for a maximum compensation of $100,000 per calendar year. (Id. ¶ 3.0.)

The parties do not dispute that Munger has not done any work on behalf of CEA since the initial three hours of work on August 26, 2002. Nor do the parties dispute that neither CEA or Munger has terminated the Agreement according to the termination provisions.

In 2008, Munger was contacted by Wachovia about representing it in a dispute with CEA. (Rutten Decl., filed April 9, 2010 [Docket #16], at ¶ 2.) On January 19, 2009, Munger submitted a brief on behalf of Wachovia in a mediation with CEA. (Id. ¶ 3.) Four days later, Munger received a letter from CEA in which CEA asserted that Munger and CEA had an existing attorney-client relationship and Munger's representation of Wachovia was inconsistent with that relationship. (Marshall Decl., Ex. 2.) While the letter did not request Munger's immediate withdrawal from representing Wachovia in the mediation the ...


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