Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Only An Actual Conflict Mandates Disqualification Under Rule 3-310(C)

In Havasu Lakeshore Investments, LLC v. Fleming, 2013 Cal.App. LEXIS 484; 2013 WL 3034731, a trial court disqualified a law firm from simultaneously representing a limited liability company, its managing member (a partnership), and the manager of the partnership, who was not a member of the LLC, in an action involving two of the company’s minority members. 

Havasu Lakeshore Investments, LLC, existed to acquire land and develop a recreational mobile home park.  Jean Victor Peloquin served as the general partner of the LLC’s managing member but was not a member of the LLC.  A minority member of the partnership (Thomas Fleming Jr.) sued Peloquin individually for breach of contract and other claims.  The LLC, Peloquin’s partnership, and Peloquin cross-complained against Fleming Jr. and Thomas Fleming Sr., who was also a minority member of the LLC.  The same law firm represented the LLC, the partnership and its manager.  The Flemings moved to disqualify the law firm.

Both sides submitted conflicting declarations regarding the nature and scope of the law firm’s prior representation of the LLC and, in particular, discussions among attorneys of the law firm and the Flemings.  The trial court granted the motion to disqualify based upon Rule 3-310(C) and the decision in Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209, finding the law firm could not represent the LLC and “non-member Peloquin” in a cross-complaint against members of the LLC where their respective interests are at least potentially conflicting.

A court may disqualify an attorney upon a “‘showing that disqualification is required under the professional standards governing avoidance of conflicts of interest or potential adverse use of confidential information.’” (Oaks Management Corporation v. Superior Court (2006) 145 Cal.App.4th 453, 462.)  The attorney owes two distinct ethical duties to the client: a duty of loyalty and a duty of confidentiality.

Fleming Sr. sought disqualification based upon the duty of confidentiality under Rule 3-310(E) but the trial court granted the motion based upon the duty of loyalty under Rule 3-310(C).  The Fourth District Court of Appeal, Division Three, reversed, specifically noting Rule 3-600(E) and the ability of counsel to represent an organization and its constituents subject to Rule 3-310.

The Court of Appeal concluded absent an actual conflict of interest or a reasonable likelihood of one arising between the LLC and the manager of its managing member, a single law firm could represent all cross-complainants against the plaintiff minority members.  Unlike Gong, this was not a derivative action or an attempt to force dissolution of the LLC, and there were no allegations of mismanagement by Peloquin.  Thus, the court concluded the interests of the LLC, its managing member and the manager thereof were sufficiently aligned to permit joint representation with the appropriate disclosures and written conflict waivers.

While the original opinion was not published, it was later certified for publication.

-Eric R. Deitz

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis.  Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**