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Havasu Lakeshore Investments, LLC v. Fleming

California Court of Appeals, Fourth District, Third Division

May 28, 2013

HAVASU LAKESHORE INVESTMENTS, LLC, et al., Cross-Complainants and Appellants,
v.
TERRY L. FLEMING, SR., Individually and as Trustee, etc., et al., Cross-defendants and Respondents.

Appeal from an order of the Superior Court of Orange County, No. 30-2011-00487736 Thierry Patrick Colaw, Judge. Reversed.

Stradling Yocca Carlson & Rauth, Donald J. Hamman and Eve A. Brackmann for Cross-complainant and Appellant Havasu Lakeshore Investments, LLC.

Watt Tider Haffar & Fitzegerald and Jeffrey T. Robbins for Cross-complainants and Appellants Jean Victor Peloquin, J. Victor Construction, Inc., and Capital Source Partners.

Hartnett Law Group, Patrick M. Hartnett, and Jessica L. Jasper for Cross-defendant and Respondent Terry L. Fleming, Jr.

No appearance for Cross-defendant and Respondent Terry L. Fleming, Sr., Individually and as Trustee.

ORDER

IKOLA, J.

The trial court disqualified a law firm from simultaneously representing a limited liability company, its managing member (a partnership), and the person who managed that partnership (who was not himself a member of the company) in a lawsuit against two of the company’s minority members. The court found that the interests of the company and the nonmember individual potentially conflicted, and concluded the law firm could not jointly represent the company and the nonmember individual against the company’s minority members. The court based its ruling on rule 3-310(C) of the State Bar Rules of Professional Conduct and Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209, 214-216 (Gong), both of which concern an attorney’s duty of loyalty to simultaneously represented clients.[1] Because no actual conflict of interest existed between the company and the individual who managed the company’s managing member, and there was no reasonable likelihood such a conflict would arise, we reverse the court’s ruling.[2]

FACTS[3]

The limited liability company — Havasu Lakeshore Investments, LLC (the LLC) — was formed in 2004 to acquire land and develop a recreational mobilehome park in the City of Lake Havasu, California. The LLC’s managing member — Capital Source Partners (Peloquin’s partnership) — is a partnership in which Jean Victor Peloquin is a general partner. Peloquin is also the principal of J. Victor Construction, Inc. (Peloquin’s corporation), another member of the LLC. Peloquin, as an individual, is not himself a member of the LLC.

The LLC, Peloquin’s partnership, Peloquin’s corporation, and Peloquin are the appellants in this appeal and the cross-complainants in the underlying litigation. The respondents and cross-defendants — Terry L. Fleming, Sr. (Fleming Sr.) and his son, Terry L. Fleming, Jr. (Fleming Jr.) — are members of the LLC, each owning a 9.26 percent interest in the LLC.[4]

In June 2011, Fleming Jr. sued Peloquin individually for breach of contract, fraud, and negligent misrepresentation. Fleming Jr. alleged he exercised his buy-out option under an option agreement with Peloquin to have Peloquin buy Fleming Jr.’s membership interest in the LLC for an agreed upon fixed price (with interest thereon), but Peloquin did not comply.

In August 2011, the LLC, Peloquin’s partnership, Peloquin’s corporation, and Peloquin filed a cross-complaint against Fleming Sr. and Fleming Jr. for, inter alia, breach of contract and bad faith, as well as to set aside a trustee’s sale and cancel the option agreement. The law firm of Hart, King & Coldren (HKC) represented all cross-complainants.

In February 2012, Fleming Sr. moved to disqualify HKC from representing the LLC. Fleming Sr. based his motion on an attorney’s duty of confidentiality under rule 3-310(E), arguing that he, as a member of the LLC, had previously communicated confidential information to HKC.[5]

In the disqualification motion, Fleming Sr. alleged that in August 2004, he and Fleming Jr. loaned $1.25 million to Peloquin’s corporation. Fleming Sr. alleged that in November 2004, the Flemings converted the loan into a membership interest in the LLC. In December 2004, Peloquin entered into an option agreement with the Flemings, giving them an option to sell to Peloquin their membership interests in the LLC. In February 2009, the LLC defaulted on a bank construction loan (personally guaranteed by Peloquin and Peloquin’s corporation) and the mobilehome park went into foreclosure. “At the instruction... of, and with the full knowledge and agreement of” cross-complainants, Fleming Sr. negotiated with ...


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