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Evolv Health, LLC v. Cosway USA, Inc.

United States District Court, C.D. California

April 26, 2017

EVOLV HEALTH, LLC; EVOLVHEALTH MEXICO SERVICIOS, S. de R.L. de C.V., Plaintiffs,
v.
COSWAY USA, INC. dba ECOSWAY USA, INC.; GLEN JENSEN; JEFFREY N. ALDOUS; and VINCENT TRAN, Defendants.

          ORDER GRANTING MOTIONS TO WITHDRAW AS COUNSEL OF RECORD [41, 53]

          OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Pending before the Court are the motions of Carter Scholer, PLLC and Lewis Brisbois Bisgaard & Smith LLP (“LBBS”) to withdraw as counsel of record for Plaintiffs Evolv Health, LLC and EvolvHealth Mexico Servicios, S. de R.L. de C.V. (collectively “Evolv Health”). (ECF Nos. 41, 53.) For the reasons discussed below, the Court GRANTS both Motions.[1]

         II. BACKGROUND

         This case stems from a dispute between competitors in the nutritional health industry. In a nutshell, Evolv Health alleges that Defendants stole proprietary information from it and started a competing business. (See generally First Am. Compl. ¶¶ 10-49, ECF No. 31.) In October 2013, Evolv Health retained Michael L. Gaubert of Friedman & Feiger LLP and J. Robert Arnett, II of Carter Scholer Arnett Hamada & Mockler, PLLC (now Carter Scholer PLLC) to represent it in a civil action against various entities involved in this dispute, including the Defendants in this action. (Arnett Decl. ¶¶ 3-4, ECF No. 43.) Under the retainer agreement, both firms agreed to work for their fees on a contingency basis, but Evolv Health agreed to reimburse the firms on a monthly basis for costs incurred. (Id., Ex. 1.) The agreement expressly provides that the firms may withdraw from the representation if Evolv Health “disregards an agreement or obligation to the Firm to pay attorneys' fees and expenses.” (Id.)

         Gaubert and Arnett filed an action against several persons and entities, including Defendants, in Texas state court. (Id. ¶ 4.) The Texas court dismissed Defendants based on a forum selection clause, and thus Evolv Health filed this action against Defendants in March 2016. (Id. ¶ 5.) Evolv Health retained Craig Holden of LBBS to act as local counsel in California, and Arnett-who is not licensed to practice in California-appeared in this action pro hac vice. (Id. ¶ 8; ECF Nos. 11, 12.) Only LBBS and Carter Scholer are counsel of record in this action; neither Gaubert nor Friedman & Feiger have made an appearance. (Id. ¶ 8.)

         Arnett, Gaubert, [2] and Carter Boisvert of Friedman & Feiger continued as counsel for Evolv Health in the Texas action against the other non-dismissed defendants. The Texas action proceeded to trial in August 2016, which resulted in a favorable verdict for Evolv Health. (Id. ¶ 10.) Carter Scholer incurred “significant” out of pocket expenses in connection with that trial, which Evolv Health failed to pay on a timely basis. (Id. ¶ 11.) In fact, Evolv Health had failed to pay expenses in connection with that lawsuit as early as March 2016. (Id.) In October 2016, and again in November 2016, Evolv Health's chairman, Trey White, assured Arnett that the company would reimburse Carter Scholer for those expenses before the end of November 2016. (Id. ¶¶ 12-13.) Arnett informed Evolv Health that Carter Scholer would need to withdraw from the representation in both actions if the expenses were not reimbursed by January 1, 2017. (Id. ¶ 13-14.) Having failed to pay the expenses by November 2016, White again assured Arnett that Evolv Health would reimburse those expenses by January 1, 2017, but nonetheless failed to do so. (Id. ¶ 15.) Two days later, Arnett personally paid portions of the outstanding expenses, and notified Evolv Health that Carter Scholer intended to withdraw from the representation. (Id. ¶¶ 16-17.) Following this, Gaubert requested that Arnett remain as counsel in both this action and the Texas action until after post-trial motions in the Texas action were adjudicated, to which Arnett agreed. (Id. ¶ 18.)

         In February 2017, the Texas court denied all post-trial motions. (Id. ¶ 22.) Arnett immediately e-mailed both White and Gaubert and informed them that Carter Scholer intended to withdraw, and asked whether substitute counsel would appear in the actions. (Id. ¶ 23.) Neither White nor Gaubert provided a definitive answer. (Id.) On March 8, 2017, Arnett informed White and Gaubert that Carter Scholer could no longer wait for a response regarding substitute counsel and would immediately move to withdraw as counsel. (Id. ¶ 25.) That same day, Evolv Health-which, during the first part of 2017, had made steady payments on outstanding invoices to various vendors-delivered a check to Arnett for reimbursement of the last of the outstanding invoices (although Evolv Health was still making direct payments to another trial expert). (Id. ¶¶ 19, 21, 26.) Evolv Health insisted that Carter Scholer not withdraw from this action because all outstanding invoices were now fully paid (or, in the case of the expert, was being paid in accordance with an agreed-upon payment schedule). Arnett explained, however, that Carter Scholer still intended to withdraw from this action based on the drawn out process of obtaining payment from Evolv Health over the past year. (Id. ¶¶ 27-28.)

         On March 16, 2017, Carter Scholer moved to withdraw as counsel of record in this action. (ECF No. 41.) Evolv Health, through LBBS, opposed the Motion. (ECF No. 51.) Evolv Health argued that Arnett, having acted as lead trial counsel in both the Texas action and this action, is the only attorney with sufficient knowledge of the underlying facts to try this case, and that permitting his withdrawal from this action only a few months before the trial date[3] would be extremely prejudicial to Evolv Health. (Id.) One week after LBBS opposed Carter Scholer's Motion, LBBS filed its own motion to withdraw as counsel, citing its lack of in-depth knowledge of the facts underlying this action and Evolv Health's refusal to pay a retainer fee to LBBS to act as lead counsel (as opposed to local counsel). (ECF No. 53.) No opposition was filed to LBBS's motion. Those Motions are now before the Court for decision.

         III. LEGAL STANDARD

         “An attorney may not withdraw as counsel except by leave of court. A motion for leave to withdraw must be made upon written notice given reasonably in advance to the client and to all other parties who have appeared in the action. The motion for leave to withdraw must be supported by good cause.” C.D. Cal. L.R. 83-2.3.2. In determining whether good cause is shown, the court may consider: “(1) the reasons why withdrawal is sought; (2) the prejudice withdrawal may cause to other litigants; (3) the harm withdrawal might cause to the administration of justice; and (4) the degree to which withdrawal will delay the resolution of the case.” Liang v. Cal-Bay Int'l, Inc., No. 06CV1082-WMC, 2007 WL 3144099, at *1 (S.D. Cal. Oct. 24, 2007) (citations and internal quotation marks omitted). The court may also consider any relevant rules of professional conduct. Austin Inv. Fund, LLC v. United States, No. SACV 11-750 DOC ANX, 2011 WL 4947550, at *1 (C.D. Cal. Oct. 17, 2011). However, “[u]nless good cause is shown and the ends of justice require, no substitution or relief of attorney will be approved that will cause delay in prosecution of the case to completion.” C.D. Cal. L.R. 83-2.3.5. “The trial court has discretion in determining whether to grant counsel's motion for withdrawal.” Austin Inv. Fund, LLC, 2011 WL 4947550, at *1; United States v. Carter, 560 F.3d 1107, 1113 (9th Cir. 2009).

         IV. DISCUSSION

         A. Carter Scholer's Motion to Withdraw

         Carter Scholer cites two reasons why it should be permitted to withdraw from this action: (1) Evolv Health's repeated failure to pay expenses from the Texas action in a timely manner in breach of the retainer agreement; and (2) breakdown in the attorney-client relationship, as evidenced by White and Gaubert's failure to meaningfully respond to Arnett's emails regarding Evolv Health's discovery responses in this action and the “increasingly bitter and acrimonious” communications between Arnett and Evolv Health. (See generally Mot. at 6-8, ECF No. 42; Reply at 9, ECF No. 52.) The Court concludes ...


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