Joe J. Machado et al., v. The Superior Court of San Joaquin County, 148 Cal. App. 4th 875, 55 Cal. Rptr. 3d 902 (3rd Dist. 2007)

Brief Summary
The California Court of Appeal held that the disqualification of a law firm in one case on conflicts grounds would be given preclusive effect in separate but related litigation.

Complete Summary
Joe Machado brought this write of mandate challenging an order disqualifying his counsel Ed Freidberg in a pending case. The motion was filed by a nonparty, Michael Atherton, who was a former client of Mr. Freidberg, as well as his business partner. Although generally a nonparty must file a separate action to prevent former counsel from continuing with adverse representation, the court found Mr. Atherton had standing in this case to make the motion because he was alleged to be the alter ego and co-conspirator of a party in the action. Id. at 903.

This litigation involved three superior court cases.

• In Atherton v. Brocchini, Mr. Freidberg represented Mr. Atherton in a partnership dispute. After that case settled, Mr. Freidberg became partners with Mr. Atherton and Mr. Freidberg held an interest in the real property to the extent of the fees he was owed. The partnership ended in 1997 when the last parcel of land was sold.
• In Woodward v. Machado, Mr. Atherton, who had controlling interest in the Woodward joint venture, caused Woodward to sue Mr. Machado for breach of a real estate contract. Mr. Freidberg was retained by Mr. Machado and filed a cross complaint against Mr. Machado’s prior attorney Richard Calone, alleging that Mr. Calone cheated Mr. Machado by advising him to agree to terms which greatly favored Mr. Atherton, and that Mr. Calone was paid a “finders fee bribe” for his role. Id. at 903. In this case Mr. Atherton moved to disqualify Mr. Freidberg based on the prior representation in the Brocchini case and partnership, as Mr. Freidberg “was privy to a substantial amount of [Mr. Atherton’s] private information, including but not limited to, business secrets, business practices, litigation preferences and personal tendencies.” Id. at 904. Although Mr. Machado argued it was critical that Mr. Freidberg continue to represent him, the judge in that case ordered disqualification. Mr. Machado’s petition for a writ to overturn the disqualification order was denied, and Mr. Machado did not thereafter appeal from the disqualification order.
• In the instant case, Mr. Freidberg represented Mr. Machado in suing Mr. Calone for legal malpractice and breach of fiduciary duty claims, based on the same bribe allegedly paid by Mr. Atherton to Mr. Calone, which was referenced in Woodward, the case from which Mr. Freidberg had been disqualified. Though Mr. Atherton was not named as a party defendant, he was identified as Mr. Calone’s co-conspirator. Mr. Atherton moved to disqualify Mr. Freidberg, alleging that the instant case was a “bald attempt” to avoid the disqualification order in Woodward. Id. at 904. The trial court held that Mr. Atherton had standing to move to disqualify Mr. Machado’s attorney and then ordered the disqualification.

On appeal, the court first held that Mr. Atherton had standing to move to disqualify Mr. Freidberg even though a non-party to litigation must generally file a separate lawsuit to enjoin a conflicting representation. The court stated that this was an appropriate result since the instant case had been filed to evade the Woodward disqualification motion.

The court then held that the Woodward disqualification order was final and that it precluded re-litigation of the disqualification motion in the instant case. The court noted, for example, that under California law, an order granting or denying a disqualification motion is an immediately appealable order. See Reed v. Superior Court, 111 Cal.Rptr.2d 842 (2001) and Ponce-Bran v. Trustees of Cal. State University, 56 Cal.Rptr.2d 358 (1996). The court also noted that where an order is immediately appealable, it generally is not reviewable on appeal from the final judgment. The court added that while some California cases might arguably support a different result, the appropriate conclusion here was that the Woodward disqualification order was a final order.

The court then addressed the issue of preclusion and noted that it applies when “First, the issue sought to be precluded from re-litigating must be identical to that decided in former proceedings. Second, this issue must have been actually litigated in the former proceedings. Third, it must have been necessarily decided in the former proceedings. Fourth, the decision in the former proceedings must be final and on the merits. Finally the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceedings.” Machado at 909, quoting Lucido v. Superior Court, 51 Cal.3d 335,341, 272 Cal.Rptr.767, 795 P.2d 1223 (1990). The court found that each factor was present and that preclusion was therefore appropriate.

Significance of Case
It is difficult to argue with this result. If a lawyer is disqualified from representing a current client who is suing a former client for a fraud in which the former client allegedly engaged with a third party, it is difficult to see why the lawyer should not also be disqualified from handling the same claim against the third party in which the former client will be a witness. And if this is so, it is difficult to see why preclusive effect should not be appropriate.

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