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Charles Virzi Construction, Inc., et al v. G. Kevin Studer et al

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE


December 23, 2010

CHARLES VIRZI CONSTRUCTION, INC., ET AL., PLAINTIFFS, CROSS-DEFENDANTS AND APPELLANTS,
v.
G. KEVIN STUDER ET AL., DEFENDANTS, CROSS-COMPLAINANTS AND RESPONDENTS.

Appeal from an order of the Superior Court of Orange County, Charles Margines, Judge. Affirmed. (Super. Ct. No. 07CC02257)

The opinion of the court was delivered by: Ikola, J.

Virzi Construction v. Studer CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

OPINION

Plaintiff and cross-defendant Charles Virzi Construction, Inc. (CVC), and cross-defendant Charles Virzi (Charles)*fn1 (collectively, Virzi) appeal from an order denying Virzi's motion to disqualify opposing counsel. Virzi contends the court erred by not recognizing that defendants G. Kevin Studer (Studer) and Wells Fargo Bank (WFB) had conflicting interests in the litigation that barred opposing counsel from jointly representing Studer and WFB. But Virzi lacked standing to bring the motion, which in any event lacked merit. We affirm.

FACTS

CVC entered into a written contract with Studer in June 2005 for demolition, removal and improvements to Studer's home. The contract set out an estimated completion date of about one year, but toward the end of this period disputes arose between CVC and Studer regarding delays in the remodeling project, the quality of the work performed, and the total amount due on the contract. The parties' attempts to negotiate a settlement ultimately fell through.

In December 2006, CVC recorded a mechanic's lien against Studer's property, claiming Studer owed the company roughly $90,000. The following month, CVC filed suit against Studer and his lender, WFB. The causes of action against Studer included breach of contract, common counts, and declaratory relief. CVC also asserted causes of action against both Studer and WFB for breach of contract (alleging that CVC was an intended third party beneficiary of the construction loan) and foreclosure of a mechanic's lien (claiming its lien was superior to WFB's deed of trust). Studer filed a cross-complaint against CVC and Charles for breach of contract, common counts, fraud, and general negligence, claiming that work on the home had been negligently performed.

Before trial, Studer and WFB filed several motions in limine, three of which would later form the basis of the motion to disqualify. In these motions, defendants sought to exclude: evidence that CVC was a third party beneficiary of the construction loan; any reference or argument that CVC's mechanic's lien had priority over WFB's deed of trust (or, in the alternative, requesting that WFB's deed of trust be deemed senior to CVC's lien); and evidence that CVC was an owner of the construction loan proceeds or was entitled to a constructive trust over the loan proceeds.

Virzi filed a motion to disqualify Keathley & Keathley LLP (Keathley), counsel for Studer and WFB. Virzi claimed Keathley advanced arguments favoring one client while hurting the other, asserting that Keathley's reliance on the construction loan agreement and requisitions for funds would prevent effective representation of both Studer's and WFB's interests. For example, in these documents Studer appeared to confirm that CVC's work was of acceptable quality, while Studer's cross-complaint alleged the work was negligently performed. Virzi also cited the loan and requisition documents as evidence that Studer had diverted construction loan funds to which CVC was entitled, and that Studer had forged Charles's signature and initials on the construction contract and other documents. Virzi maintained that by presenting the construction loan agreement as an enforceable document, Keathley "placed [WFB] in the spot of having ratified Studer's acts of fraud, forgery and embezzlement." In sum, Virzi stated that Keathley was "locked in multiple irreconcilable conflicts of interest that compel the court to disqualify them as attorneys for both parties." (Italics omitted.) The court heard argument and denied the motion.

DISCUSSION

This appeal presents the issue of whether a party who has no attorney-client, fiduciary, or other confidential relationship with an attorney can nevertheless prevail on a motion to disqualify that attorney. For the reasons set forth below, the answer is "No."

Appealability and Standard of Review

"A trial court's authority to disqualify an attorney derives from the power inherent in every court, '[t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.'" (In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 585; Code Civ. Proc., § 128, subd. (a)(5).) An order denying a motion to disqualify opposing counsel is appealable "either as a denial of injunctive relief or as a collateral matter unrelated to the merits of the underlying litigation." (Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300; Meehan v. Hopps (1955) 45 Cal.2d 213, 216-217.) "Generally, a trial court's decision on a disqualification motion is reviewed for abuse of discretion." (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143.) But the outcome of this appeal depends on whether Virzi had standing to bring the motion to disqualify. Because standing is a question of law, we exercise de novo review. (See IBM Personal Pension Plan v. City and County of San Francisco (2005) 131 Cal.App.4th 1291, 1299.)

Virzi Lacks Standing to Bring a Motion to Disqualify Opposing Counsel

"Conflicts of interest commonly arise in one of two factual contexts: (1) in cases of successive representation, where an attorney seeks to represent a client with interests that are potentially adverse to a former client of the attorney; and (2) in cases of simultaneous representation, where an attorney seeks to represent in a single action multiple parties with potentially adverse interests. The primary fiduciary value at stake in each of these contexts differs, and the applicable disqualification standards vary accordingly." (In re Charlisse C. (2008) 45 Cal.4th 145, 159.) In successive representation cases, "the chief fiduciary value jeopardized is that of client confidentiality." (Flatt v. Superior Court (1994) 9 Cal.4th 275, 283 (Flatt).) In simultaneous representation cases, "[t]he primary value at stake . . . is the attorney's duty -- and the client's legitimate expectation -- of loyalty, rather than confidentiality." (Id. at p. 284.)

"A 'standing' requirement is implicit in disqualification motions. Generally, before the disqualification of an attorney is proper, the complaining party must have or must have had an attorney-client relationship with that attorney" "absent an attorney-client relationship, the moving party must have an expectation of confidentiality." (Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356 (Great Lakes) [holding that a party to whom opposing counsel owed no duty of loyalty lacked standing to bring a motion to disqualify counsel for simultaneously representing clients with conflicting interests]; accord Dino v. Pelayo (2006) 145 Cal.App.4th 347, 357 [moving party with "no recognizable confidential relationship" with opposing counsel lacked standing to bring disqualification motion based on alleged breach of duty of confidentiality]; DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 ["only a party with an expectation of confidentiality can disqualify a lawyer," italics and initial capitalization omitted].)

Virzi has no relevant relationship with Keathly. Virzi has never had an attorney-client relationship with Keathley. Virzi has never had a confidential relationship with Keathley, nor does Virzi show any expectation of confidentiality. The premise underlying Virzi's motion to disqualify -- that Keathley's duty of loyalty will be compromised because Studer and WFB have adverse interests in the litigation -- fails to explain how that duty of loyalty in any way affects Virzi. Any harm to defendants stemming from a breach of the duty of loyalty by their attorneys is, to echo the Great Lakes court, "of no concern" to Virzi. (Great Lakes, supra, 186 Cal.App.4th at p. 1358.) Instead the thrust of Virzi's motion rests on a purported effort to safeguard the integrity of the judicial system and the "scrupulous administration of justice." "None of these lofty values, however, implicates any personal right of [Virzi] which is burdened by the alleged conflict of interest." (Coyler v. Smith (C.D.Cal. 1999) 50 F.Supp.2d 966, 973 [applying federal law].) Because Virzi cannot explain how the purported conflicts between its opponents invades its own interests, Virzi lacks standing to bring the motion. And lack of standing alone is sufficient for the trial court to deny a motion to disqualify. (See Great Lakes, supra, 186 Cal.App.4th at p.1359.)

Even if we were to leave the dispositive standing issue aside, Virzi's motion would fail on the merits.*fn2 Instead of identifying in what way Studer and WFB have adverse interests in the litigation, the motion simply puts forward possible situations in which the efficacy of Keathley's representation might be hindered at trial. For instance, Virzi forecasts that inconsistencies in Studer's testimony about which version of the construction contract is operative risk an "impeachment spectacle" that could cause his attorneys "irreconcilable conflicts of how to control the evidentiary disaster that awaits . . . ." Referring to Studer's alleged forgery of Charles's signature, Virzi posits: "Imagine the spectacle of the trier of fact reaching the conclusion that Wells Fargo Bank is untroubled by fraud, forgery and embezzlement." But "[a] motion to disqualify will not be granted when only a hypothetical conflict exists." (Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 302; see also Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 582 [noting that speculation about conflicts of interest alone cannot warrant disqualification].)

"The classic effort at formulating an encompassing definition of attorney-client conflicts of interest -- and one still cited in judicial opinions -- was canon 6 of the ABA's 1908 Canons of Professional Ethics: 'a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.'" (Flatt, supra, 9 Cal.4th at p. 282, fn. 2) Far from having conflicting interests, defendants correctly note that Studer's and WFB's interests are aligned in the litigation. Both want to defeat CVC's claims, and both want Studer to prevail on his claims against Virzi. Defendants' objectives go hand in hand. Virzi shows no actual conflict of interest.

The Appeal, While Meritless, Does Not Warrant Sanctions

In their respondents' brief, defendants ask us to impose $5,475 in sanctions against Virzi's attorney, David B. Dimitruk, for maintaining this appeal. But "[a] party seeking sanctions on appeal must file a separate motion for sanctions." (Kajima Engineering & Construction, Inc. v. Pacific Bell (2002) 103 Cal.App.4th 1397, 1402; accord Rules of Court, rules 8.54 [motion requirements], 8.276(a)(1) [sanctions motion].) Because defendants failed to file the required separate motion, their request is procedurally infirm.

At any rate, Virzi's appeal was not sanctionable. "Counsel and their clients have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win on appeal. An appeal that is simply without merit is not by definition frivolous and should not incur sanctions." (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.) "[A]n appeal should be held to be frivolous only when it is prosecuted for an improper motive -- to harass the respondent or delay the effect of an adverse judgment -- or when it indisputably has no merit -- when any reasonable attorney would agree that the appeal is totally and completely without merit." (Ibid.) While the appeal and the underlying disqualification motion were unsuccessful, "it was not unreasonable for [Virzi's] counsel to think the issues were arguable . . . reasonable attorneys will often disagree about the merits of a particular case. Here, it cannot be said that 'any reasonable person would agree that [Virzi's position] is totally and completely devoid of merit . . . .'" (Id. at p. 651.)

DISPOSITION

The order is affirmed. Defendants shall recover their costs on appeal.

WE CONCUR: RYLAARSDAM, ACTING P. J. MOORE, J.


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