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Allied World National Assurance Company, et al v. Sk Pm Corp.

May 13, 2013


The opinion of the court was delivered by: Jennifer L. Thurston United States Magistrate Judge


On April 2, 2013, David Winton moved to withdraw as counsel for the defendants. (Doc. 118). The Court held a hearing on May 13, 2013, and the motion was not opposed by any party. For the reasons set forth below, the motion to withdraw as attorney of record is GRANTED IN PART.

I. Background

Plaintiffs initiated this action by filing a complaint on July 14, 2010, seeking "to obtain a judicial determination and declaration regarding the parties' rights and obligations with respect to two insurance policies." (Doc. 1 at 8). Plaintiffs allege the defendants are insureds under Policy No. C011427/001, issued by Allied World National to S.K. Foods PM Corporation for coverage that commenced February 19, 2009 and ended on August 17, 2009 ("the Primary Policy"). Id. In addition, Plaintiffs allege the defendants sought coverage from Allied World "under Excess Directors & Officers Liability Insurance Following Form Policy No. C011818/001, which was to be issued to S.K. Foods PM Corp. for the April 8, 2009 to February 19, 2010 Policy Period" ("the Excess Policy").

(Doc. 1 at 8). However, Plaintiffs assert the defendants failed to pay the requisite premium for the Excess Policy. Id.

According to Plaintiffs, the defendants represented to Plaintiffs during the underwriting process for the Primary and Excess Policies that SK Food Group, encompassing entities owned and 5 operated by Scott Salyer and his family, "was in good financial health and had strong revenues and 6 profits." (Doc. 1 at 9). However, Plaintiffs assert that the defendants knew this information was false, 7 and knew it would be necessary for several entities "to reorganize, through bankruptcy or otherwise, 8 and sell substantially all of their assets in order to satisfy debts owed. . ." Id. Plaintiffs allege neither 9 the Primary Policy nor Excess Policy would have been issued had they known the truth regarding SK Food Group's financial condition. Id. Therefore, Allied World seeks to rescind certain coverage provisions of the Primary Policy. Id. at 8. Further, Plaintiffs seek "a declaration that the Excess Policy was never effectively issued or delivered as a result of the Defendants' non-payment of premium, and is inoperative." Id. In the alternative, Plaintiffs seek to rescind provisions of the Excess Policy for misrepresentation and concealment of material facts. Id.

On April 29, 2010, Scott Salyer was indicted for racketeering, wire fraud, falsifying records, and conspiracy in restraint of trade arising out of his operation of SK Foods. On April 28, 2011, defendants filed a motion to stay the proceeding pending resolution of the criminal case pending against Salyer (Doc. 59), which was granted by the Court on July 28, 2011. (Doc. 75).

The parties filed a joint status report on May 17, 2012, reporting that "Salyer pleaded guilty to one count of racketeering and one count of price fixing," and he was scheduled to be sentenced on July 10, 2012. (Doc. 90 at 4-5). As part of the plea agreement, the remaining charges against Salyer were to be dropped at the time of sentencing. Id. at 5. Plaintiffs informed the Court they intended "to file an amended complaint adding Salyer's admitted criminal conduct as an additional basis for rescission of the policies." Id. at 6. The stay was lifted on October 18, 2012. (Doc. 102).

II. Legal Standards for Withdrawal of Counsel

Withdrawal of counsel is governed by the Rules of Professional Conduct of the State Bar of California, and the Local Rules of the United States District Court, Eastern District of California. See LR 182. The withdrawal of representation is permitted under the Rules of Professional Conduct if a client "renders it unreasonably difficult for the member to carry our employment effectively." Cal. R.P.C. 3-700(C)(1)(d). Local Rule 182(d) provides:

Unless otherwise provided herein, an attorney who has appeared may not withdraw leaving the client in propria persona without leave of court upon noticed motion and notice to the client and all other parties who have appeared. The attorney shall provide an affidavit stating the current or last known address or addresses of the client and the efforts made to notify the client of the motion to withdraw.

Id. Likewise, California's Rules require the notice of motion and declaration to be served on the client 8 and other parties who have appeared in the case. CRC 3.1362(d).

The decision to grant withdrawal is within the discretion of the Court, and withdrawal "may be granted subject to such appropriate conditions as the Court deems fit." LR 182; see Canandaigua Wine Co., Inc. v. Moldauer, 2009 U.S. Dist. LEXIS 4238, at *2 (E.D. Cal. Jan. 13, 2009) ("The decision to grant or deny counsel's motion to withdraw is committed to the discretion of the trial court."). Factors the Court may consider include: (1) the reasons for withdrawal, (2) prejudice that may be caused to the other litigants, (3) harm caused to the ...

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