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Chih Teh Shen v. Randall Miller

December 18, 2012

CHIH TEH SHEN, PLAINTIFF AND RESPONDENT,
v.
RANDALL MILLER, DEFENDANT AND APPELLANT.



(Los Angeles County Super. Ct. Nos. SC103845, SC112925,) SS019034) APPEAL from an order of the Superior Court of Los Angeles County. John H. Reid, Judge.

The opinion of the court was delivered by: J. Chavez

CERTIFIED FOR PUBLICATION

Affirmed.

Appellant Randall Miller (Miller) appeals from an order denying his motion to disqualify attorney John R. Walton and his firm Law Offices of John R. Walton, P.C. (collectively "Walton") in three related actions. Walton represents respondent Chih Teh Shen (Shen) in the related actions, all of which involve Miller and Arnon Development Group, Inc. (Arnon), a corporation owned by Miller and Shen as 50/50 shareholders. In his motions to disqualify Walton, Miller argued that Walton should be disqualified because, as Shen's counsel, he is prosecuting claims on behalf of Arnon in one action while simultaneously prosecuting claims against Arnon in another matter. The trial court denied Miller's motion to disqualify Walton on the ground that there was no basis to infer an attorney-client relationship between Walton and Arnon. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Arnon is a commercial real estate development corporation formed in 2005. Miller and Shen are the only shareholders of Arnon. They are also co-presidents and directors of the company.

On July 6, 2009, Shen filed a complaint against Miller, captioned Shen v. Miller et al. (L.A. Super. Ct. Case No. SC103845) (the individual action). Shen alleged that Miller attempted to force Shen to accept an underpriced buyout or face dissolution of the corporation. Shen alleged that Miller thereafter commenced numerous actions in violation of his fiduciary duties to Arnon and to Shen, including eliminating Shen's access to Arnon's electronic files; eliminating Shen's access to Arnon's banking accounts; attempting to remove Shen's signatory authority with respect to a major project in which Arnon was involved (Sixteenth Street Medical Center, LLC); operating the business as if Shen were no longer an officer and director; locking Shen out of the Arnon offices; and purporting to unilaterally dissolve Arnon. Shen filed a first and a second amended complaint, the latter is the operative complaint.*fn1

On January 26, 2010, Miller filed a verified petition for court supervision of voluntary winding up proceeding (the winding up proceeding), requesting judicial supervision of the winding up of Arnon. The trial court determined that the individual action and the winding up proceeding were related cases within the meaning of former California Rules of Court, rule 804.*fn2

On August 11, 2010, the trial court granted Miller's petition for judicial supervision of the winding up of Arnon, and ordered both notice to creditors of Arnon and presentation of claims.

On or about December 7, 2010, Shen filed notice of creditors' claims in the winding up proceeding. Among Shen's claims were profits, management fees, receivables, unused vacation and benefits, intangible assets, goodwill, and other things.

On May 3, 2011, Walton was substituted as counsel of record for Shen in both the individual action and the winding up proceeding.

On January 7, 2011, Shen filed a complaint derivatively on behalf of Arnon captioned Shen v. Sixteenth Street Medical Center, LLC et al. (L.A. Super. Ct. Case No. SC112925) (the derivative action). Walton was named as counsel for Shen. Shen alleged claims for declaratory relief, seeking a declaration that Arnon is entitled to 20 percent Class B membership in Sixteenth Street Medical Center, LLC and another limited liability company created by Arnon. Shen sought declarations that Arnon is entitled to fees resulting from its interest in these LLC's.

In the derivative action, Shen alleged that he is a 50 percent shareholder of Arnon, and that he will fairly represent the interests of Arnon in the proceeding. Shen further alleged that the board of Arnon is currently incapable of making a decision because, pursuant to the bylaws, consent by both directors is required. In addition, Shen alleged that Miller is incapable of making a disinterested decision regarding the litigation, because he is one of the alleged wrongdoers and is manager of the two defendant LLC's.

On June 9, 2011, Shen filed a notice of related case, indicating that the derivative action is related to the individual action and the winding up proceeding. On July 7, 2011, Shen filed a first amended complaint in the derivative action adding Miller, Miller's father, Angela Yee, and Miller's companies (Nautilus Group, Inc. and Nautilus Group 16th Street LLC) as defendants in the derivative action. The first amended complaint in the derivative action added a cause of action for breach of fiduciary duty against Miller, Sixteenth Street Medical Center, LLC, Miller's father and Angela Yee.

On August 10, 2011, Miller filed a motion for disqualification of Walton in the individual action, the winding up proceeding and the derivative action. Miller argued that Walton should be disqualified because, as Shen's counsel, he is prosecuting claims on behalf of Arnon in the derivative action while simultaneously prosecuting claims against Arnon in the winding up proceeding.

On August 8, 2011, Shen filed another action for declaratory relief captioned Shen v. Arnon Development Group, Inc. et al. (L.A. Super. Ct. Case No. SC113713) (the declaratory relief action). Walton was named as counsel of record for Shen. Through this action, Shen sought a declaration that he is entitled to at least 50 percent of Arnon's assets, after payment to creditors, subject to equitable allocation by the court. On August 16, 2011, Shen filed a notice of related case stating that the declaratory relief action is related to the individual action, the winding up proceeding, and the derivative action.

On August 19, 2011, Miller filed an amended notice of motion identifying the declaratory relief action as an additional basis for the disqualification of Walton.

On September 9, 2011, Shen filed papers opposing the motions to disqualify. Shen argued that Walton had never been retained by Arnon, never provided legal advice to Arnon, and had never been paid by Arnon. In sum, Shen argued that there is no attorney-client relationship between Walton and Arnon.

On September 22, 2011, the trial court issued a tentative ruling denying Miller's motion for disqualification of Walton. The court concluded that there was no basis to infer an attorney-client relationship between Walton and Arnon:

"[A]lthough Mr. Walton's firm did file the Complaint in the shareholder derivative action on behalf of Shen and [essentially] Arnon, the Court finds that the distinction between a 'client' and a 'real party in interest' is important in the analysis of this motion. Again, taking judicial notice of the Complaint in the shareholder derivative action, as well as the materials in the file in this case it is apparent that Arnon had no part in the filing of the shareholder derivative action, and would likely not join forces with Shen, due to the disputes between Shen and the other shareholders, officers, and directors of Arnon. Ultimately, there is no basis for this Court to infer that an attorney-client relationship ever arose between Mr. Walton's firm and Arnon such that the firm is concurrently representing two 'clients' with adverse interests."

The court also noted:

"[B]ecause Shen is at odds with Miller, it is likely that Arnon will either decide not to pursue the shareholder derivative action, or will obtain its own counsel in these four cases. Thus, it is unlikely that an attorney-client relationship between Arnon and the Walton firm will ever arise."

After argument on the motions, the trial court stated that the tentative ruling would stand as the order of the court.

On October 13, 2011, Miller filed notices of appeal from the order denying the motions for disqualification filed in the individual action, the winding up proceeding, and the derivative action. The matters were consolidated for the purposes of this appeal.

DISCUSSION

I. Standard of ...


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