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State Compensation Insurance Fund v. Drobot

United States District Court, C.D. California

June 24, 2016

STATE COMPENSATION INSURANCE FUND, Plaintiff
v.
MICHAEL D. DROBOT SR. ET AL. Defendants. STATE COMPENSATION INSURANCE FUND, Plaintiff,
v.
DANIEL CAPEN ET AL. Defendants.

          ORDER DENYING MOTION FOR RECONSIDERATION AND DISCUSSING DISQUALIFICATION

          Andrew J. Guilford United States District Judge

         This matter concerns whether a lawyer can represent-at the same time, in the same litigation, in the same courthouse-a criminal and his victim.

         Being a defendant-particularly a criminal one-can be lonely. As a society, we don't require a defendant's friends to stand by the defendant. We don't require a defendant's parents to stand by the defendant. We don't require a defendant's children to stand by the defendant. We don't even require a defendant's spouse to stand by the defendant, though that spouse is often someone who took an oath to do so.

         But a lawyer is different. Representing a client creates an unshakable loyalty that can still persist when bonds of friendship and family fail. There's a practical reason for this. A lawyer needs to know the worst facts to give clients the best advice. Clients can't feel comfortable providing such candor unless they know their lawyer is absolutely committed to advancing the clients' interests and advocating against the conflicting interests of others. Though the rest of the world may be united against them, clients need to know that at least their lawyer will reliably remain in their corner, even in the face of great temptation.

         The importance and impact of loyalty in the attorney-client relationship extends beyond the client and counsel, to courts too. Judges are often confronted with important issues and difficult disputes. Under our system of law, judges rely on adversarial advocates to help ensure that courts reach the right results in these situations. Adversarial advocacy assumes that lawyers are fiercely loyal in representing their clients. If that loyalty doesn't exist, the engine of our legal system can't run. Justice can't be administered.

         And the importance and impact of loyalty in the attorney-client relationship extends even further-beyond clients, beyond counsel, beyond courts-to our country itself. We live in a nation governed by the rule of law. We've constructed a powerful government to administer that law-a government that can deprive a person of property, liberty, and even life. But unlike governments of men, which depend on might, our government of law ultimately depends on the consent of the governed for its continued existence. The public must trust that the government and the legal system that undergirds it are fair and just. Lawyers serve as both stewards and servants of that trust. Since well before the law was an industry, our society looked to the profession to safeguard a complex system that keeps our country going. When the loyalty of a lawyer to a lawyers' clients comes into question, the public can lose faith in both the justice system and the bar that purportedly protects it. So while maintaining private confidences, a lawyer must sustain the public's confidence. In this way a lawyer leads two lives, both bound by loyalty.

         Given all this, it's easy to see why a lawyer's duty of loyalty is a duty recognized in the common law of every jurisdiction of the United States. It's easy to see why a lawyer's duty of loyalty is codified in every significant American code of legal ethics ever promulgated. It's easy to see why a lawyer's duty of loyalty is the most fundamental of all duties a lawyer owes a client. And it's easy to see why so much is endangered when a lawyer lets opportunity affect that loyalty.

         This matter presents a uniquely complex situation that requires the extensive review that follows. That review conclusively reaffirms what might otherwise be considered a commonsense proposition. That is, the duty of loyalty is improperly and impermissibly compromised when one law firm represents-at the same time, in the same litigation, in the same courthouse-a criminal and his victim. That's what happened here, and if the Court had allowed it to continue, loyalty would have been lost in ways that the client would not-and sometimes could not-understand until after harm had been done. Thus, there could be no informed waiver.

         1. INTRODUCTION

         Defendants stand accused of conspiring to defraud plaintiff State Compensation Insurance Fund ("SCIF") by submitting fraudulent insurance bills and providing or receiving illegal kickbacks. The litigation arising out of this purported scheme involves dozens of defendants, two civil suits and a criminal suit, and well over a thousand filings spanning three years and three dockets.

         The most recent round of motion practice focused on the question already posed about whether here a law firm could represent a criminal and his victim. Since the answer was no, on March 22, 2016, the Court granted a motion for disqualification ("Motion for Disqualification") filed by defendants Lokesh Tantuwaya and Dr. Lokesh Tantuwaya, M.D., Inc. (collectively, "Tantuwaya"). The Court disqualified the law firm of Hueston Hennigan LLP from representing SCIF (the alleged victim) in this litigation given its concurrent representation of Paul Randall (an admitted criminal perpetrator). SCIF filed a motion for reconsideration ("Motion for Reconsideration").

         The Court DENIES the Motion for Reconsideration. The previous disqualification remains, and the previous tentative opinion is expanded here to further explain why disqualification is required.

         2. BACKGROUND

         A review of the relevant law is, of course, necessary and helpful. But before discussing the applicable legal standards, it's important to understand that this litigation is uniquely complex in ways that may limit the applicability of some case law, particularly since one client here has the Sixth Amendment right to counsel for those facing criminal charges. Cases like this are reassuringly rare. Here's a summary.

         2.1The Civil Side of this Litigation

         SCIF provides California employers with workers' compensation insurance policies. Under those policies, SCIF reimburses medical providers that treat employees who get sick or injured on the job. According to SCIF, various medical providers-including doctors, clinics, and marketers-schemed to defraud SCIF by submitting fraudulent insurance bills for medical services, medical hardware, and medications. There were several components to the alleged scheme. Medical providers allegedly entered into contracts to inflate the costs of medical procedures and medications. Medical providers allegedly paid kickbacks to doctors for referring patients to preferred facilities or for using preferred products or medications. Medical providers allegedly entered into illegal fee-sharing agreements. And medical providers allegedly overbilled SCIF for medical services.

         In June 2013, SCIF filed a lawsuit ("SCIF 1") against a key architect of the alleged scheme, Michael D. Drobot Sr., as well as other alleged co-conspirators. In March 2015, those defendants filed a third-party complaint seeking indemnity from other medical providers, including various doctors and their associated entities. In July 2015, the Court granted SCIF leave to file an amended complaint that named as defendants the parties who were already named as third-party defendants in the third-party complaint. Accordingly, in its third amended complaint ("TAC"), SCIF added twenty-eight of the third-party defendants. But notably, SCIF didn't add Randall, even though Randall was named as a third-party defendant in the third-party complaint.

         In August 2015, SCIF filed another lawsuit ("SCIF 2") raising similar allegations against other medical providers that the Court didn't allow SCIF to add in SCIF 1. Again, notably, SCIF didn't add Randall as a defendant.

         Let's summarize. By the end of August 2015, there were two operative complaints-the TAC in SCIF 1 and the complaint in SCIF 2. In SCIF 1, there was also an amended action for equitable indemnity ("CC/FATPC") between the cross-defendants and four other third-party defendants not named in the TAC. Notably, Randall is a defendant in the CC/FATPC.

         In November 2015, the Court heard motions to dismiss the TAC and CC/FATPC in SCIF 1, a motion for summary judgment in SCIF 2, and motions to dismiss the complaint in SCIF 2. In December 2015, the Court denied those motions.

         2.2The Criminal Side of this Litigation

          Federal prosecutors were also involved in the litigation arising out of the alleged fraudulent scheme, even before they filed motions to intervene in SCIF 1 and SCIF 2. In April 2014, Drobot Sr. pled guilty to workers' compensation fraud against SCIF and others. In November 2015, the U.S. Department of Justice announced that the government had charged five other individuals in the same kickback scheme. According to the government's press release, all five criminal defendants were cooperating in the government's ongoing investigation of the scheme, dubbed "Operational Spinal Cap." The government's press release stated that

[t]he schemes involved tens of millions of dollars in illegal kickbacks to dozens of doctors, chiropractors and others. As a result of the illegal payments, thousands of patients were referred to Pacific Hospital in Long Beach, where they underwent spinal surgeries that led to more than $580 million in bills being fraudulently submitted during the last eight years of the scheme alone. Many of the fraudulent claims were paid by the California worker's compensation system and the federal government.

         Randall was charged for his involvement in that scheme. As the government's press release states,

Paul Richard Randall, 56, of Orange, California, a health care marketer previously affiliated with Pacific Hospital and Tri-City Regional Medical Center in Hawaiian Gardens, pleaded guilty on April 16, 2012, before Judge [Josephine L.] Staton to conspiracy to commit mail fraud. Randall, who admitted recruiting chiropractors and doctors to refer patients to Tri-City in exchange for kickbacks, is scheduled to be sentenced on April 8, 2016. . . . Randall, who also facilitated the Pacific Hospital scheme by introducing doctors to Drobot [Sr.] and coordinating kickback arrangements, pleaded guilty to participating in a separate, similar scheme involving Tri-City Regional Medical Center.

         Randall hasn't been sentenced yet.

         In January 2016, the United States moved to intervene in SCIF 1 and SCIF 2 to modify several subpoenas and restrict discovery requests. The Court granted the motions with modifications, noting the three cases' overlap and the "countless ways" certain civil discovery requests could thwart the government's ongoing criminal investigation into the fraud. The Court was also persuaded that some of the information defendants sought was protected by the law enforcement privilege.

         2.3 The First Motion to Disqualify

          Back in July 2014, the Court denied a motion to disqualify Plaintiff's counsel-at the time, the law firm Irell & Manella LLP-filed by pharmacy defendants. Between May 2010 and June 2011, an Irell & Manella partner exchanged over a hundred emails with Michael R. Drobot Jr., a current defendant. The partner had advised Drobot Jr. about buying three pharmacy defendants from Drobot Sr., who is his father and a current defendant. In June 2013-two years after the partner left Irell & Manella-Irell & Manella agreed to represent the current plaintiff, SCIF. The firm did not have knowledge of the former partner's emails or the conflict. In a nineteen page order, the Court denied the motion to disqualify Irell & Manella because there wasn't enough evidence to show that confidential information was conveyed to the firm. The Court stated that the motion posed a "close question, " but ultimately held that disqualification was inappropriate.

         2.4 The Second Motion to Disqualify

         The most recent motion to disqualify also sought to disqualify Plaintiff's counsel-at the time, Hueston Hennigan LLP. Although the firm name had changed, SCIF's attorneys hadn't. In January 2015, John Hueston and Brian Hennigan, along with thirty or so other lawyers, left Irell & Manella to form Hueston Hennigan. There Hueston and other lawyers continued to represent SCIF. During a December 2015 mediation session, Tantuwaya's counsel learned that Hennigan represented Randall, one of the third-party defendants in SCIF 1, perhaps beginning as early as 2010 or 2011. This conflict only came to light after Judge Staton unsealed Randall's criminal case in late November 2015. Hennigan has maintained that he only represented Randall in his criminal case, and not in the civil cases before this Court. According to Hennigan, attorney Anthony Graham of Graham & Martin LLP has been representing Randall in the civil cases.

         Tantuwaya filed the most recent motion for disqualification based on Hueston Hennigan's concurrent representation of Randall and SCIF. Before filing the motion, Tantuwaya and SCIF met and conferred through each party's counsel. During that meeting, SCIF threatened to seek sanctions against Tantuwaya's counsel for filing the motion. SCIF did not mention that it had gotten conflict waivers from both Randall and SCIF. A few defendants joined the motion. Many other defendants represented by larger law firms did not.

         The gist of Tantuwaya's motion was straightforward. He pointed out that Hueston Hennigan was representing SCIF, the victim of a fraud, and Randall, a perpetrator of that fraud, at the same time in the same litigation arising out of the same fraud. He argued that this representation created conflicts of interest that required the Court to disqualify Hueston Hennigan from representing SCIF.

         The Court considered everything the parties submitted, including not only the motion, opposition, and reply, but also sur-replies, sur-sur-replies, supplemental declarations, and other typically-disallowed documents that the Court allowed the parties to file. Based on those filings and before the hearing on the motion for disqualification, the Court issued a detailed, nineteen page tentative opinion for the parties' benefit. The Court then provided the parties more than ninety minutes of oral argument to address the tentative. SCIF argued for much, and perhaps a majority, of that time.

         After reviewing all that, the Court issued a short order granting the motion to disqualify. Stating the obvious, this inherently meant that the Court denied SCIF's request for sanctions against Tantuwaya's counsel. The Court promised the parties that it would issue a longer opinion further explaining the decision to disqualify. This is that opinion.

         2.5The Motion for Reconsideration

         SCIF then filed the Motion for Reconsideration, which precipitated another round of papers and another lengthy hearing, this one spilling over from the morning into the afternoon.

         That brings us to the present. After considering about a thousand pages of documents and more than four hours of oral argument on this disqualification issue, the Court confirms that disqualification was appropriate and necessary here, while finding no grounds for the Motion for Reconsideration.

         3.THE SECOND MOTION TO DISQUALIFY

         3.1Legal Standard

         "The authority of a trial court to disqualify an attorney derives from the power inherent in every court to control in furtherance of justice, the conduct of its ministerial officers." City & Cty. of San Francisco v. Cobra Sols., Inc., 38 Cal.4th 839, 846 (2006) (alteration and internal quotation marks omitted) (quoting People ex rel. Dep't of Corps. v. SpeeDee Oil Change Sys., Inc., 20 Cal.4th 1135, 1139 (1999)). California's ethical rules, including applicable California state court decisions and the Rules of Professional Conduct of the State Bar of California, provide guidance about when courts should disqualify attorneys. See L.R. 83-3.1.2. But "it is relatively unimportant whether the status or misconduct claimed to warrant disqualification is proscribed by a particular ethical norm or disciplinary rule or may be characterized [instead] as a failure to avoid the appearance of impropriety." Gregori v. Bank of Am., 207 Cal.App.3d 291, 308 (1989), modified (Feb. 17, 1989).

         Although there are competing interests to consider when disqualification is at issue, one interest arises above all others. "[D]isqualification motions involve a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility." SpeeDee Oil, 20 Cal.4th at 1145. But "[t]he paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar." Id. Accordingly, "[t]he important right to counsel of one's choice must yield to ethical considerations that affect the fundamental principles of our judicial process." Id.

         3.2 Analysis

         This Court must exercise its inherent power in furtherance of justice in part to protect important duties like loyalty, and to avoid the appearance of impropriety.

         As noted, loyalty means a lot for litigants, their lawyers and the law generally. "Attorneys have a duty to maintain undivided loyalty to their clients to avoid undermining public confidence in the legal profession and the judicial process. The effective functioning of the fiduciary relationship between attorney and client depends on the client's trust and confidence in counsel." Id. at 1146 (citation omitted).

         So it's not surprising that a lawyer's unfaithfulness is unacceptable. California's ethics rules generally bar an attorney from representing clients with adverse interests. See Cal. Rules of Prof'l Conduct 3-310(C). That general rule is true regardless of whether there's an actual or merely potential conflict between the clients. See id.

         Loyalty is a particularly important consideration when a lawyer is thinking of concurrently representing clients with adverse interests. Concurrent representation of clients with adverse interests raises different, and arguably more serious, ethics concerns than successive representation. See Ontiveros v. Constable, 245 Cal.App.4th 686, 700 (2016).

         This is true even when the attorney is concurrently representing the clients in unrelated matters. That's why the California Supreme Court held in Flatt v. Superior Court that

[i]n evaluating conflict claims in [concurrent] representation cases, the courts have . . . imposed a test that is more stringent than that of demonstrating a substantial relationship between the subject matter of successive representations. Even though the simultaneous representations may have nothing in common, and there is no risk that confidences to which counsel is a party in the one case have any relation to the other matter, disqualification may nevertheless be required. Indeed, in all but a few instances, the rule of disqualification in simultaneous representation cases is a per se or "automatic" one.

Flatt v. Superior Court, 9 Cal.4th 275, 284 (1994) (footnote omitted). "[R]epresentation adverse to a present client must be measured not so much against the similarities in litigation, as against the duty of undivided loyalty which an attorney owes to each of his clients." Unified Sewerage Agency of Wash. Cty., Or. v. Jelco Inc., 646 F.2d 1339, 1345 (9th Cir. 1981) (discussing concurrent representation under the old ABA Code of Professional Responsibility).

         But if the representations do happen to have something in common, concurrent representation is even less appropriate. In another case, the California Supreme Court remarked that

[t]he most egregious conflict of interest is representation of clients whose interests are directly adverse in the same litigation. Such patently improper dual representation suggests to the clients-and to the public at large-that the attorney is completely indifferent to the duty of loyalty and the duty to preserve confidences.

SpeeDee Oil, 20 Cal.4th at 1147 (citing Flatt, 9 Cal.4th at 284 n.3). It is "patently improper" for "attorneys in the same firm to represent adverse parties in the same litigation." Id. at 1139 (citing Flatt, 9 Cal.4th at 284 n.3). In these situations, courts don't typically analyze whether the representations are substantially related, as disqualification is automatic for a concurrent conflict of interest even on "wholly unrelated" matters. See Flatt, 9 Cal.4th at 283.

         With these considerations in mind, the Court analyzed how this actual, adverse, concurrent representation conflict interfered with the Court's ability to ensure both the actuality and appearance of justice.

         3.2.1 Standing

         First, there was a question about standing. "As a general rule, courts do not disqualify an attorney on the grounds of conflict of interest unless the former client moves for disqualification." Kasza v. Browner, 133 F.3d 1159, 1171 (9th Cir. 1998) (internal quotation marks omitted) (quoting United States v. Rogers, 9 F.3d 1025, 1031 (2d Cir. 1993)). Preliminarily, the reference here to "former client" suggests successive representation. Indeed, requiring a client or former client to complain would limit the ethical review of concurrent representations, since the parties remain aligned with their counsel. SCIF argued that all of the moving defendants lacked standing to bring the motion for disqualification since none had ever been clients of Hueston Hennigan.

         But the courts in this state and the parties in this litigation-including SCIF-have acknowledged that there are exceptions to the general rule. When there is an ethical breach "so severe that it ‘obstructs the orderly administration of justice, ' the party who finds his claims obstructed has standing" to bring a motion to disqualify. Colyer v. Smith, 50 F.Supp.2d 966, 972 (C.D. Cal. 1999). Put differently, "where the ethical breach so infects the litigation . . . that it impacts the moving party's interest in a just and lawful determination of her claims, " the moving party can have standing to bring a motion to disqualify. Id. Thus, it's not surprising for the California Court of Appeal to observe that "[c]ase law abounds with examples of orders disqualifying counsel that have not been the product of motions by present or former clients." Kennedy v. Eldridge, 201 Cal.App.4th 1197, 1204 (2011).

         This was just one more example of the exception. Tantuwaya and the other defendants who joined his motion had standing to disqualify Hueston Hennigan because Hueston Hennigan's breach so infected this litigation that it impacted Tantuwaya's and the other defendants' ability to defend themselves against SCIF's allegations in so many ways.

         First, there was discovery. Hueston Hennigan's conflict of interest had already affected Tantuwaya's and other moving defendants' efforts to get discovery from Randall. Tantuwaya stated that discovery on Randall's connection to the scheme was crucial to his defense. Several defendants, including Tantuwaya, tried to depose Randall. During Randall's deposition with Tantuwaya's counsel, Randall inconsistently invoked his Fifth Amendment privilege against self-incrimination. Although Hennigan didn't attend the deposition, it seems likely that Hennigan counseled Randall about the risks involved in talking about his participation in the scheme, and about the importance of asserting the Fifth when asked about the scheme. Of course, the attorney-client privilege protected Hennigan's communications with Randall and thus hindered the Court's ability to tease out the full effects of Hennigan's advice on Tantuwaya's discovery efforts.

         The conflict had already impacted discovery in other ways too. SCIF responded to interrogatories for documents by invoking the law enforcement privilege, without identifying who held that privilege. But the law enforcement privilege didn't necessarily extend to SCIF. So was Hueston Hennigan invoking Randall's privilege on behalf of Randall's adversary? Tantuwaya suggested that was the only plausible explanation why SCIF would invoke the law enforcement privilege.

         Second, there was the risk of victory lost. Tantuwaya and the other moving defendants could have been robbed of a hard-fought win in this years-long litigation because of the conflict. If the third-party plaintiffs had gotten a judgment against Randall in the civil cases, Randall might have successfully moved to have that judgment set aside because he was represented elsewhere by a conflicted attorney. Similarly, if a judgment against SCIF had been obtained in the civil cases, SCIF might have successfully moved to have that judgment set aside because it was represented by conflicted attorneys. And in the criminal case, Randall could have argued that he should be allowed to change his guilty plea because his lawyer's conflict of interest deprived him of his Sixth Amendment right to counsel.

         These and the other concrete, particularized harms discussed elsewhere in this opinion persuaded the Court that Tantuwaya and the other moving defendants had sufficient personal stake to bring the motion for disqualification. Tantuwaya and these defendants therefore satisfied the "irreducible constitutional minimum" of Article III standing. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).

         And even if they somehow didn't, standing still wouldn't have presented an issue here. District courts have an "inherent obligation to manage the conduct of attorneys who appear before [them] and to ensure the fair administration of justice." Colyer, 50 F.Supp.2d at 972 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 43-44 (1991)); see also SpeeDee Oil, 20 Cal.4th at 1145 (discussing a trial court's inherent authority to disqualify an attorney). This obligation overrides any "prudential barrier to litigating the rights and claims of third parties, " like standing. Colyer, 50 F.Supp.2d at 972; cf. Woods v. Superior Court, 149 Cal.App.3d931, 936 (1983) (emphases removed) ("[D]isqualification should be ordered not only where it is clear that the attorney will be adverse to his former client but also where it appears that he might."). The Court would have honored that obligation by raising the disqualification issue on its own when it found out about the conflict, as it inevitably would have. See, e.g., People v. Peoples, 51 Cal.App.4th 1592 (1997) (affirming the ability of a trial court to disqualify counsel on the court's motion). One way or another, standing wasn't a problem here. With standing satisfied, the analysis turns to the actuality and adversity of the conflict in the concurrent representation.

         3.2.2 The Actual, Adverse, Concurrent Representation Conflict

         Here, there was an actual, adverse, concurrent representation conflict, despite SCIF's arguments to the contrary. For starters, it was undisputed that Hueston Hennigan represented Randall and SCIF at the same time. It was also evident that Randall interests were and are actually adverse to SCIF's interests, for many reasons.

         For example, the existence of an actual, adverse conflict uniquely explained otherwise-puzzling past events in this litigation. The Court found it curious that Hueston Hennigan didn't file any response to the government's motion to intervene and modify subpoenas. That makes sense now, because responding to the motion could have furthered either Randall's or SCIF's interests, while undermining the other's interests.

         The existence of an actual, adverse conflict also explained Randall's involvement in some, but not all, parts of the litigation. The Court found it curious that SCIF didn't name Randall in the TAC, even though he was named in the third-party complaint and SCIF sued virtually all of the other third-party defendants. When the Court asked Hueston Hennigan why SCIF didn't sue Randall, a Hueston Hennigan attorney responded that "for Randall's case, he is the one that they know for sure is judgment proof that they already have a judgment against." Hennigan agreed.

         The Court isn't convinced that Randall is judgment proof. So what would have caused SCIF to think he was? Many reasons are troubling. For example, did SCIF think Randall was judgment proof because Hennigan knew Randall wasn't paying his legal bills, as Hennigan's statement at the hearing that "[t]his is a case, in fact, where we have reason personally to believe that Mr. Randall is judgment proof" may have suggested? Or did SCIF think Randall was judgment proof because Hennigan or another Hueston Hennigan attorney had access to Randall's financial information and shared it with the team of attorneys doing work for SCIF? These and many other possible explanations would suggest the attorneys working for Randall were breaching their duty of loyalty and sharing information with the attorneys working for SCIF in a way that improperly benefitted SCIF. The conflict had already put Hueston Hennigan in an untenable position regarding disclosure of information. On one hand, the duty of loyalty (likely including the duty to inform) dictated that the firm use the information available to it to help its clients. On the other hand, the duty of loyalty (and, as discussed later, a few of the waivers in this case) dictated that Hueston Hennigan protect their clients' confidential information. The bottom line is Hueston Hennigan was in what the California Supreme Court called "a form of zero sum game"-Hueston Hennigan attorneys had and would continue to have had knowledge that could help one client at the expense of another. Flatt, 9 Cal.4th at 289.

         And of course, maybe it's not Randall's purported inability to satisfy a judgment that caused SCIF to leave Randall out of the TAC. There's lots of evidence that Randall isn't judgment proof. Tantuwaya's counsel did an impressive job hunting down seemingly hidden assets and other evidence that suggest Randall has significant assets, despite assertions to the contrary.

         So if not because he's judgment-proof, why leave Randall out? The conflict offered many potential explanations. Maybe Hueston Hennigan thought it was clear of ethics rules so long as it didn't directly sue Randall. Or perhaps Hueston Hennigan was trying to benefit a still-solvent Randall at SCIF's expense by keeping him less involved in the civil suit. Another moving defendant, Randy Rosen, offered his own theory as to why Randall wasn't named.

Hueston Hennigan had notice of potential Randall resources that Hueston Hennigan could have secured or pursued for SCIF's benefit. Equally important, Hueston Hennigan appears to have simply copied wholesale into its Third Amended Complaint all the cross-defendants Drobot, Sr. named in his cross-complaint with the glaring exception of Paul Randall and Dr. Gross, a doctor who had sued Randall for declaratory relief after being sent one of Randall's extortion demands. If Hueston Hennigan had sued Dr. Gross, it understood Dr. Gross would likely have brought Randall into the case thereby defeating the artificial construct Hueston Hennigan was attempting to use so it could represent both the perpetrator Randall and his victim SCIF.

         It appears there are two more cross-defendants who didn't make it from the CC/FATPC to the TAC, Samuel Vidauretta and what is presumably his associated corporate entity, Prospice Group, Inc. Neither of these defendants have appeared in the case. Their existence doesn't do much to diminish the viability of Rosen's theory.

         The Court could keep going with examples of the existence of the conflict in the civil side of the litigation, like Randall's recent deposition. At that deposition, a Hueston Hennigan attorney representing SCIF sought to find incriminating evidence against Randall in this litigation by asking Randall pointed questions about his connection to the fraudulent scheme. Among other things, the attorney asked whether a document reflected "thousands of payments from PSPM to Defendant entities, doctors, and to Paul Randall" and whether Randall attended meetings where payments for referring patients were discussed. Hueston Hennigan's questions supported SCIF's interests in proving up the fraud, while at the same time directly undermining Randall's interests in protecting himself from further criminal or civil liability.

         Randall was particularly vulnerable to Hueston Hennigan's attacks at the deposition because there was no criminal counsel in his corner advising him. No Hueston Hennigan attorney appeared at the deposition on Randall's behalf. That's perhaps because Hueston Hennigan recognized how obvious the conflict would become when it had attorneys both eliciting incriminating testimony from a deponent and advising that deponent about the impact of that testimony on his criminal case. Randall was left to inconsistently invoke his Fifth Amendment privilege against self-incrimination. Hueston Hennigan's failure to protect Randall was obvious even then. According to Tantuwaya's counsel, during Randall's deposition, "Mr. Randall's [civil] counsel stated that he probably should have had Mr. Randall's criminal counsel attend the deposition, based on [the civil] counsel's lack of familiarity with the manner in which the right against self-incrimination should be invoked."

         The deposition was a preview of the sort of conflicts that would have come up at trial and elsewhere. Tantuwaya submitted emails from SCIF's current counsel stating that SCIF may use Randall as a witness during settlement negotiations and even at trial. It's easy to envision SCIF needing Randall to testify but Randall needing to assert the Fifth. What would Hueston Hennigan have done then?

         Difficulties arising from the conflict kept cropping up even in unexpected places. There was recently a motion for approving a settlement under California Code of Civil Procedure sections 877 and 877.6. The issue was whether a settlement between SCIF and a co-conspirator in this litigation was made in good faith so that the settling co-conspirator would be protected from indemnity actions from other co-conspirators under California law. This would include Randall, so the Court had to address the issue about whether he was adequately represented. To receive the settlement money, SCIF's interests were to establish that it was a good faith settlement. But to protect his rights, Randall's interests were to argue it was not a good faith settlement. A Hueston Hennigan attorney found it appropriate to submit a declaration on behalf of SCIF, but that declaration was contrary to the interests of one of Hueston Hennigan's other clients, Randall.

         All this conflict existed even ignoring the more important criminal side of this litigation, where among other things the Sixth Amendment right to counsel was implicated. SCIF repeatedly argued that its interests and Randall's interests were aligned because Randall had plead guilty and his plea agreement required him to cooperate. But under the terms of that agreement, Randall is required to cooperate with the government, not necessarily with SCIF. And even setting that aside, criminal defendants sometimes fail to fully satisfy their obligations to the government and sometimes are dishonest. This possibility for dishonesty is so significant that the model Ninth Circuit jury instructions tells jurors they "should examine the testimony of [cooperating witnesses] with greater caution than that of other witnesses." Model Criminal Jury Instructions for the District Courts of the Ninth Circuit 4.9.

         The plea agreement may have already been breached here. As noted, Rosen is another one of the moving defendants. He argued that a declaration submitted by an expert witness retained by Randall, Albert Luna, showed that Randall had breached his plea agreement. Luna's declaration asserted that Randall and his girlfriend Christina Hernandez extorted $400, 000 from another defendant, Faustino Bernadett, as "hush money, " in violation of Randall's plea agreement. The Court need not decide whether these allegations are true-they already illustrate the conflict issues in this case. Would Hueston Hennigan have argued that Randall ...


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