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Peters & Freedman, Llp Legacy Villas At La Quinta Homeowners Association v. Centex Homes

April 30, 2012

PETERS & FREEDMAN, LLP LEGACY VILLAS AT LA QUINTA HOMEOWNERS ASSOCIATION, PLAINTIFF,
v.
CENTEX HOMES, ET AL. DEFENDANTS.



The opinion of the court was delivered by: VIRGINIA A. Phillips United States District Judge

O

ORDER GRANTING DEFENDANTS' MOTION TO DISQUALIFY PLAINTIFF'S COUNSEL

Before the Court is a Motion to Disqualify Plaintiff's Counsel, Peters & Freedman, LLP, filed by Defendants Centex Homes, Centex Real Estate Corp., Centex Real Estate Holding, and Nomas Corp. (collectively "Defendants"). After considering the papers in support of, and in opposition to, the Motion, the Court GRANTS the Motion.

I. BACKGROUND

Plaintiff Legacy Villas at La Quinta Homeowners Association ("Plaintiff") is an association of condominium unit owners in a condominium development. Plaintiff claims that Defendant Centex Homes ("Centex"), as the builder and developer of the condominium development, controlled Plaintiff through its employees and others who were original and successor members of Plaintiff's Board of Directors ("Board"). On April 15, 2011, Plaintiff filed its complaint in the California Superior Court for the County of Riverside, alleging Centex breached its fiduciary duty to Plaintiff by: (1) establishing and under-funding Plaintiff's budget; (2) failing to assess properly the property for adequate reserve funds; (3) mismanaging Plaintiff's finances by making unwarranted expenditures; (4) spending in excess of revenues each month; and (5) keeping homeowner assessments artificially low to promote sales. (See Not. of Removal, Ex. A ("Compl.").) Plaintiff filed its First Amended Complaint ("FAC") on January 17, 2012, alleging identical claims and adding as Defendants Centex's general partners. (Doc. No. 33.)

On March 23, 2012, Defendants filed this Motion, (Doc. No. 42), seeking to disqualify Plaintiff's counsel Peters & Freedman on the following grounds: 1) counsel's representation of Plaintiff gives rise to the appearance of impropriety; 2) counsel failed to provide mandated warnings to Plaintiff to obtain independent counsel; 3) counsel created an implied - if not express -- attorney- client relationship with Centex; and 4) counsel is a key witness in the lawsuit. (Mot. at 1.) In support of the Motion, Defendants submitted the Declaration of Stuart W. Price ("Price Declaration"), and the Declaration of Jayne Carilo ("Carilo Declaration") with exhibits one through 20. (Doc Nos. 42-2, 42-3.)

Plaintiff filed its Opposition on April 2, 2012, along with the Declarations of Zachary R. Smith ("Smith Declaration") and David M. Peters ("Peters Declaration"). (Doc No. 43.) Plaintiff also filed its Objections to Ms. Carilo's Declaration. (Doc No. 43-1.)

Defendants filed their Reply on April 9, 2012, as well as their Response to Plaintiff's Objections to Ms. Carilo's Declaration, their Evidentiary Objections to Mr. Peters's Declaration and Mr. Smith's Declaration, and the Declaration of Brendon K. Barton ("Barton Declaration"). (Doc. No. 44.)

II. EVIDENTIARY OBJECTIONS

Plaintiff raises a general objection to Ms. Carilo's Declaration on the grounds that Plaintiff has not had an opportunity to depose and cross-examine Ms. Carilo. (Pl.'s Objections to Carilo Decl. ("Pl.'s Objections") at 2.) Ms. Carilo's deposition was originally scheduled for March 19, 2012; however, the parties agreed to reschedule the deposition to April 10, 2012. (Id.) Plaintiff contends Defendants brought this Motion based on Ms. Carilo's Declaration after Plaintiff had already agreed to move the deposition. (Id.) According to Defendants, however, Plaintiff declined Defendants' offer to continue the hearing date on the Motion in order to allow for Plaintiff to take Ms. Carilo's deposition. (Def.'s Opp'n to Pl.'s Objections at 2.) The Court therefore overrules Plaintiff's general objection to Ms. Carilo's Declaration.

Plaintiff objects specifically to paragraphs 31, 32, and 33 of Ms. Carilo's Declaration on the grounds that the statements are protected by the attorney-client privilege, are inadmissible hearsay, and lack foundation.*fn1 (Pl.'s Objections at 2-3.) Defendants contend Plaintiff waived its attorney-client privilege because Plaintiff asserts a claim that places at issue the nature of the privileged material. (Def.'s Opp'n to Pl.'s Objections at 3 (citing Bittaker v. Woodford, 331 F.3d 715, 719 (9th Cir. 2003)).)

The Court agrees. Plaintiff's claim for breach of fiduciary duties puts at issue the documents Peters & Freedman provided to Defendants when advising Defendants on their management of the Board. The Court therefore overrules Plaintiff's objections based on attorney-client privilege. Additionally, Ms. Carilo's statements about her own understanding of the nature of Peters & Freedman's advice are not hearsay. The Court therefore finds Ms. Carilo's statements in paragraphs 31, 32, and 33 of her Declaration admissible.

Plaintiff also objects to exhibit ten to Ms. Carilo's Declaration, a copy of Peters & Freedman's proposal to provide legal services to the Board, dated April 25, 2006, on the grounds that the proposal is protected by the attorney-client privilege, lacks foundation, and is hearsay. (Pl.'s Objections at 4.) The Court overrules this objection.

Plaintiff objects on the same grounds to exhibit 15 to Ms. Carilo's Declaration, a letter dated November 1, 2007, between Peters & Freedman and the Board describing counsel's efforts in handling delinquent assessments, issuing notices of default, and title reports ordered. (Id.) The Court overrules this objection as Ms. Carilo's Declaration lays the proper foundation for the letter to qualify as a business record. California Evidence Code Section 1271 provides that evidence of a writing made as the record of an act, condition or event is not made inadmissible by the hearsay rule if the following four conditions are met: (1) the writing was made in the regular course of a business; (2) it was made at or near the time of the event; (3) the custodian or another qualified witness testifies about the writing's identity and mode of preparation; and (4) "[t]he sources of information and method and time of preparation were such as to indicate its trustworthiness." Cal. Evid. Code § 1271(a)-(d). "The proponent of the evidence has the burden of establishing trustworthiness." People v. Beeler, 9 Cal. 4th 953, 978 (1995).

Here, Peters & Freedman's November 1, 2007, letter describes the firm's recent and current efforts to collect delinquent accounts. (Carilo Decl. Ex. 15.) Peters & Freedman wrote the letter as part of its regular business in handling the delinquent accounts for Defendants. (Id. ¶ 31.) Ms. Carilo verifies in her Declaration that the Board received this letter and the letter was a "periodic update." (Id.) Finally, the Court finds the information contained in the letter, specifically the names and account numbers associated with each delinquent account, provide details supporting its trustworthiness. The Court therefore overrules Plaintiff's objection to exhibit 15.

Finally, Plaintiff objects to exhibit 16, the "Developer Transition Checklist" which Peters & Freedman drafted and sent to Ms. Carilo, on the grounds that the document is protected by the attorney-client privilege and the attorney work product doctrine, lacks foundation, and is hearsay. ...


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