Tentative Rulings

Case Number: 21STCV40129 Hearing Date: July 29, 2022 Dept: 40

MOVING PARTY: Plaintiff Jackie Subeck.

Jackie Subeck brings this action against Defendants Lemonade Holdings, LLC (“Lemonade”), Sholom Goodman, Esq., Freddy Braidi, and Kerim Ortanca (all authorized agents for Lemonade) and Defendant Door Number Six, LLC, based on claims of Breach of Contract and Promissory Estoppel, based on the Defendants' nonpayment of $255,155 she alleges is owed to her pursuant to an Agreement her sale of 80% of DN6 to Goodman, Braidi, and Ortanca.

In this motion Subeck moves to Disqualify Defendant Goodman, an attorney—identified in Defendants’ Answer as Counsel for all Defendants. Subeck bases her request on the advocate witness rule, potential client and attorney-client conflicts arising from Goodman representing himself along with the four other Defendants, and case law holding that disqualification is a valid prophylactic measure to ensure that an attorney’s representation of a client in a case will not lead to ethical violations.

The Court GRANTS the Motion to Disqualify Goodman as Counsel for the other Defendants.

Background

Jackie Subeck was sole and complete owner of Door Number Six, LLC (“DN6”), a Limited Liability Company that holds a City of West Hollywood commercial cannabis license.

On February 4, 2021, Subeck entered an Agreement with Defendants Lemonade Holdings, LLC (“Lemonade”), Sholom Goodman, Freddy Braidi, and Kerim Ortanca (all three are authorized agents for Lemonade) for the sale of 80% of DN6: 20% of DN6 sold to Goodman, 30% to Braidi, and 30% for Ortanca. Subeck retained 20 % ownership of DN6.

The terms of the Agreement provide that, for her Consulting services, Subeck would be paid $270,000 in fees at a rate of: (1) $7,500 per month until the business obtained a State license for cannabis sales or six initial payments of $7,500 were made to Subeck; (2) $15,000 per month to Subeck thereafter through the 18th month of the Agreement; and (3) $7,500 per month to Subeck thereafter until complete satisfaction of the Consulting Fee balance. The Agreement also provided that even in the event of cancellation of the Agreement, Subeck would be paid the entirety of her Consulting Fee.

On February 25, 2021, the Agreement was Amended, including a clause to provide that Subeck would be guaranteed payment of her Consulting Fee regardless of her ownership interest in DN6.

Despite the Agreement and Amendment, by July 2021—and only after Subeck involved counsel—the Defendants had only paid Subeck $7,450 in March 2021 and $7,500 in April 2021, owing Subeck a balance of $15,155.

Based on these circumstances, Subeck mailed a Termination and Demand Letter putting the Defendants on notice that there was a material breach of the Agreement for non-compensation.

Subeck thereafter brought this action on November 1, 2021, claiming damages of at least $255,155—i.e., what appears to be the outstanding balance of the Consulting Fee.

Defendants Lemonade, Goodman, Braidi, and Ortanca have thus far filed only a December 8, 2021 Answer in this action, which names Defendant Goodman as counsel for himself, Lemonade, Braidi, Ortanca, and DN6.

In response, on February 25, 2022, Subeck made the instant Motion to Disqualify Shalom Goodman as Counsel for Defendants on various grounds, including the advocate-witness rule, conflicts between Goodman’s clients (himself, Lemonade, Braidi, Ortanca, and DN6) and Goodman’s interests and those of his clients (the remaining Defendants), and case law recommending disqualification where prophylactic measure will ensure that an attorney’s representation of a client in a case will not lead to ethical violations in the case.

The Defendants have altogether failed to oppose or otherwise respond to the Motion to Disqualify Counsel.

Motion to Disqualify Counsel: GRANTED

Legal Standard: Code of Civil Procedure section 128(a)(5) authorizes the Court to control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto. (Code Civ. Proc., 126, subd. (a)(5).) This authority necessarily includes disqualifying an attorney. (Metro-Goldwyn Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1837-38.) The issue of disqualification ultimately involves a conflict between the clients’ right to counsel of their choice and the need to maintain ethical standards of professional responsibility. (Ibid.)

In ruling on a motion to disqualify, the court should weigh: (1) the party’s right to counsel of choice; (2) the attorney’s interest in representing a client; (3) the financial burden on a client of change of counsel; (4) any tactical abuse underlying a disqualification motion; and (5) the principal that the fair resolution of disputes requires vigorous representation of parties by independent counsel. (William H. Raley Co. v. Superior Court (1983) 149 Cal.App.3d 1042, 1048; hereafter, “Raley Co. factors”.) Whether an attorney should be disqualified is a matter addressed to the sound discretion of the trial court. (Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109, 113.) In exercising that discretion, the trial court is required to make a reasoned judgment which complies with the legal principles and policies applicable to the issue at hand. (Ibid.)

The paramount concern must be the preservation of public trust in the scrupulous administration of justice and the integrity of the bar and the recognized and important right to counsel of one’s choosing must yield to considerations of ethics that run to the very integrity of our judicial process. (Metro-Goldwyn Mayer, Inc., supra, 36 Cal.App.4th at pp. 1837-38.)

Analysis

Attorney as Witness: California Rule of Professional Conduct 3.7 commands at subdivision (a) that “[a] lawyer shall not act as an advocate in a trial in which the lawyer is likely to be a witness,” subject to three exceptions: (1) testimony relating to an uncontested issue; (2) testimony relating to the nature and value of legal services rendered; or (3) the lawyer has obtained informed written consent from the clients. (Cal. Rules Prof. Conduct, rule 3.7, subds. (a)-(b).) Notwithstanding a client’s informed written consent, courts retain discretion to take action, up to and including disqualification of a lawyer, who seeks to both testify and serve as an advocate, as to protect the trier of fact from being misled or the opposing party from being prejudiced. (Cal. Rules of Prof. Conduct, rule 3.7, cm. 3; see Lyle v. Superior Court (1981) 122 Cal.App.3d 470, 482 [“[T]he trial court under the new rule still has discretion to order withdrawal of counsel in instances where an attorney or a member of the attorney's law firm ought to testify on behalf of his client”].)

“Whenever an adversary declares his intent to call opposing counsel as a witness, prior to ordering disqualification of counsel, the court should determine whether counsel’s testimony is, in fact, genuinely needed.” (Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 581.) “[T]he court should consider “the significance of the matters to which he might testify, the weight his testimony might have in resolving such matters, and the availability of other witnesses or documentary evidence by which these matters may be independently established.” (Ibid.)

Here, Subeck argues that Goodman should be disqualified as counsel for the other Defendants because, even if Goodman obtained written consent to represent from his fellow co-defendants, Goodman’s testimony will be needed at trial given his close proximity to the execution of the Agreement, the Amendment, and other transactions surrounding the sale of DN6 to Goodman, Braidi, and Ortanca, and because this dual role as witness and attorney will prejudice Subeck and confuse the jury, insofar as witnesses or the jury could conflate Goodman’s advocacy with personal knowledge of relevant facts in the case. (Mot., 5:8-7:19.)

The Court agrees: Goodman will likely be deposed and asked to testify at trial regarding the alleged breach of contract. Goodman is said to have been the first person Subeck was instructed to contact regarding payment according to the Agreement’s fee schedule; the person to whom Subeck sent invoices for payments past due; the person who promised Subeck she would be paid soon; a person who asked Subeck to change the payment due dates; and the person who represented to Subeck that he and Braidi were raising money and that payments to Subeck would be forthcoming. (Complaint, 28, 29, 33, 35, 47.)

The Court also agrees that witnesses and the factfinder could be reasonably confused by having Goodman serve as trial counsel for all Defendants where exposure to liability to the other Defendants is largely predicated on Goodman’s own conduct.

Client and Attorney-Client Conflicts: Subeck further argues that Goodman should be disqualified because he has intractable conflicts of interest between clients and between himself and his clients. (See Mot., 7:22-9:14.) The Court agrees.

A lawyer shall not, without informed written consent from each client represent a client if the representation is directly adverse to another client in the same matter. (Cal. Rules Prof. Conduct, rule 1.7, subd. (a).) A lawyer shall also not, without informed written consent from each affected client represent a client if there is a significant risk the lawyer’s representation will be materially limited by the lawyer’s responsibilities to or relationships with another client. (Cal. Rules Prof. Conduct, rule 1.7, subd. (b).) However, notwithstanding these rules, representation is permitted where: (1) the lawyer reasonably believes he will be able to provide competent and diligent representation to each affected client; (2) representation is not prohibited by law; and (3) representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation. (Cal. Rules Prof. Conduct, rule 1.7, subd. (d).)

The Court finds that, even with informed consent, Goodman cannot provide competent and diligent legal representation to the other four Defendants in, for example, circumstances where Goodman could be asked to settle this action in favor of some defendants as against others, including himself, and where his prior relationships with other Lemonade’s other agents in addition to himself (Braidi and Ortanca) and Lemonade itself could lead to personal conflicts between Goodman’s preferences to the detriment of others.

Prophylactic Measures: Subeck argues that courts are empowered to disqualify counsel as a prophylactic measure to “avoid the intractable conflicts of interest that will inevitably arise and bog down the litigation in collateral disputes over representation issues that will distract from the merits and impose unnecessary costs on Plaintiff” and cite to Doe v. Yim (2020) 55 Cal.App.5th 573, 581 (Mot., 9:15-23) for the proposition that “[d]isqualification may be ordered as a prophylactic measure against a prospective ethical violation likely to have a substantial continuing effect on future proceedings.” (Doe v. Yim (2020) 55 Cal.App.5th 573, 581.)

Here, the Court finds that the advocate-witness rule and client and attorney-client conflicts in this case compel a finding that prophylactic measures in the form of Goodman’s disqualification as counsel for the other Defendants are necessary to prevent the danger of ethical violations in future proceedings. (Yim, supra, 55 Cal.App.5th at p. 581.)

Raley Co. Factors: Even though all the Defendants have a clear interest in their counsel of choice, based on their nonresponse to this Motion, the Court cannot determine why Goodman has an interest in defending his Co-Defendants in this action, nor whether the Defendants face pecuniary difficulties impeding their ability to contract counsel other than Goodman. (William H. Raley Co., supra, 149 Cal.App.3d at p. 1048.)

Lack of Opposition: This Motion is unopposed, lending merit to the Motion and the Court’s findings. (Cal. Rules of Court, rule 3.1342 [“The failure of the opposing party to serve and file a written opposition may be construed by the court as an admission that the motion is meritorious, and the court may grant the motion without a hearing on the merits”]; Sexton v. Superior Court (1997) 58 Cal.App.4th 1403, 1410 [“The rule [inferring merit in unopposed motions] … appl[ies] … when a party has not filed any written opposition”].)

Conclusion

Plaintiff’s Motion to Disqualify Goodman as Counsel for the other four Defendants is GRANTED.