9.2.6

Rule 3-310: Avoiding Representation of Adverse Interests; Rule 5-210: Advocate-Witness Rule; Appearance of Impropriety

Legacy Villas at La Quinta Homeowners Assoc. v. Centex Homes (C.D.Cal. 2012) 2012 WL 1536036

Was disqualification of plaintiff’s counsel warranted in an action by a condominium homeowners association against a developer for breach of fiduciary duty where plaintiff’s counsel advised the HOA board when it was controlled by employees of the developer before the board was turned over to the homeowners?

Yes.  The Court disqualified plaintiff’s counsel for three reasons.  First, the Court found that plaintiff’s counsel created an implied attorney-client relationship with the developer when the developer controlled the HOA board.  While the board was controlled by the developer, “[b]oard members could have reasonably believed that [plaintiff’s counsel] provided legal advice to them in their capacities as [developer] employees when [plaintiff’s counsel] gave advice on management decisions, assisted in collecting delinquent accounts, and counseled them on ‘developer turnover’ of the Board.”  (Id. at *6.)  Having found that plaintiff’s counsel formerly impliedly represented the developer, the Court found that the former representation and the current representation of the HOA board were substantially related.  Plaintiff’s counsel advised the developer-controlled board on decisions directly related to the developer’s fiduciary duties in managing the property which were the subject of this action.  (Id. at *7.)

Second, the Court found that disqualification was warranted under the advocate-witness rule because attorneys at the law firm representing plaintiff may be material witnesses that defendant may call at trial.  While this action would be a bench trial, and California Rule of Professional Conduct 5-210 applies the advocate-witness rule only to jury trials, the Court applied the holding in Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, which applied the broader ABA model rule to order disqualification in a bench trial.  (Ibid.)

Third, the Court concluded that the prohibition on the appearance of impropriety under Canon 9 of the ABA Model Code of Professional Responsibility constituted an additional, independent basis to disqualify plaintiff’s counsel because the current action challenged the very management decisions on which plaintiff’s counsel advised the HOA board when it was controlled by developer employees.  (Id. at *8.)