Moreci v. Scaffold Solutions CA1/2 ( 2021 )

Filed 9/27/21 Moreci v. Scaffold Solutions CA1/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
VINCE MORECI,
Plaintiff,
A161193
v.
SCAFFOLD SOLUTIONS, INC., (San Francisco County
Super. Ct. No. CGC17558931)
Defendant and Respondent;
STARSTONE NATIONAL
INSURANCE COMPANY,
Intervener and Appellant.
Vince Moreci sustained work-related injuries assertedly caused by his
use of a scaffolding stairwell constructed by Scaffold Solutions, Inc. (Scaffold).
Moreci received workers’ compensation benefits that were paid by Starstone
National Insurance Company (Starstone). Moreci, while represented by
Boxer and Gerson, LLP (Boxer Gerson), filed a personal injury action against
third party defendants, including Scaffold. Moreci settled the case. As part
of the settlement, Moreci agreed to assume the defense of Scaffold for claims
arising from Moreci’s accident and pay any resulting judgment.
Prior to the dismissal of Moreci’s action, Starstone intervened, seeking
reimbursement from the defendants for the amount of benefits it had paid to
1
Moreci. Boxer Gerson became associated co-counsel for Scaffold, who then
filed an answer to Starstone’s complaint in intervention. Starstone moved to
disqualify Scaffold’s attorneys on the ground they created a conflict of
interest by representing Moreci in the underlying action against Scaffold,
obtaining a settlement of that action, and then assuming the defense of
Scaffold to Starstone’s claims in intervention. The trial court held Starstone
had no standing to seek the disqualification of counsel and denied the motion.
Starstone appeals, asserting essentially the same arguments in support of
standing it had raised below. We reject its claims of error, and we affirm.
BACKGROUND
The Parties and the Pleadings
In June 2015, Moreci, while employed by Hydra Ventures, Inc. as a
plumber, fell and injured himself at a construction project site when he
descended a scaffolding staircase with uneven stair risers. Fulton Street
Construction, Inc. (Fulton) and Erik Liu were the general contractor of the
construction project and an executive of Fulton, respectively. Fulton
subcontracted with Stockham Construction, Inc. (Stockham) to install
exterior framing for the project. Stockham, in turn, subcontracted with
Scaffold to construct sets of temporary scaffolding stairs for the project.
Starstone was the workers’ compensation carrier for Moreci’s employer
and paid Moreci $236,945.97 in benefits.
In May 2017, Moreci, represented by Boxer Gerson and Gary Roth, a
member of the law firm, filed a personal injury complaint against Fulton and
Liu. Fulton and Liu filed a cross-complaint for indemnification and
contribution, eventually amending the cross-complaint to add Scaffold as a
cross-defendant. Scaffold, in turn, filed a cross-complaint against Stockham
2
for indemnification and contribution. Moreci did not immediately serve
Starstone with a copy of the complaint.
In October 2019, Boxer Gerson gave Starstone notice of the November
mediation date and copies of the underlying pleadings in the case, along with
a request for further information concerning the workers’ compensation
benefits it had paid to Moreci. Starstone’s attorneys attended the mediation
on November 19.
On November 21, a notice of settlement of the entire case was filed.
In January 2020, Starstone filed a complaint in intervention against
Scaffold and Stockham seeking reimbursement for workers’ compensation
benefits it had paid to Moreci.
On February 25 and March 11, the trial court entered the dismissals of
the complaint and cross-complaints.
On June 2, Scaffold filed a notice that its attorneys, Wolfe and Wyman,
LLP, were associating attorneys Gary Roth and Eric Ritigstein of Boxer
Gerson as co-counsel. Scaffold then filed an answer to Starstone’s complaint
in intervention, asserting numerous affirmative defenses including the
contributory negligence of Moreci’s employer.
On June 29, Stockham filed a cross-complaint against Moreci for
breach of written contract, express indemnity, and declaratory relief. The
claims were based on a term in the settlement agreement, whereby Moreci
agreed he “will fully satisfy and obtain the release of, and indemnify, defend
and hold harmless Defendants [CROSS-COMPLAINANT] from, any lien,
claim, loss, demand or cause of action, by any parties, agencies, insurers
(including but not limited to medical insurers and workers’ compensation
insurers such as Starstone), governmental entities, or others claiming to have
suffered damage, loss or expense by reason of the matters at issue in the
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Subject Action . . .” (usually referred to herein as “indemnification
provision”).1 Moreci, through his counsel Boxer Gerson, filed an answer to
Stockham’s cross-complaint.
The Disqualification Motion
On July 16, Starstone filed a motion to disqualify all of Scaffold’s
attorneys of record. The motion was based on the indemnification provision.
Specifically, Starstone argued Moreci and Boxer Gerson “switch[ed] sides” in
the same lawsuit by “alleg[ing] fault and liability against [Scaffold] to obtain
settlement,” and then, once Starstone filed its complaint-in-intervention,
aligned themselves with Scaffold to use “intimate . . . case knowledge and
possibly privileged information” gained by counsel in an “attempt to defeat
[Starstone’s] recovery claim (and thus keep settlement funds and achieve a
double recovery specifically denounced by the Legislature) . . . .” Starstone
asserted counsel’s “switching sides attempt has infected . . the litigation,”
which Starstone claimed was sufficient to give it standing as a non-client,
pursuant to a Federal District Court case, Colyer v. Smith (1999)
50 F.Supp.2d 966 (Colyer).
Moreci and Scaffold separately opposed the motion. Moreci argued
Starstone lacked standing because Starstone had no “attorney-client,
confidential, or fiduciary relationship with counsel.” Moreci and Scaffold
1 Stockham’s cross-complaint is the only document in the record in
which the terms of the indemnification provision appear; a copy of the
settlement agreement is not included. Also, the indemnification provision as
alleged refers to Moreci’s agreement to defend and indemnify as to “Cross-
Complainant” Stockham only, and not any other defendants. However, we
will assume, as the parties do, that Scaffold was a party to the settlement
agreement and Moreci agreed to defend and indemnify Scaffold.
Furthermore, we note that our resolution of this appeal does not require us to
interpret the indemnification provision or address whether it is enforceable,
and we decline Starstone’s invitation for us to do so.
4
each maintained Starstone also failed to establish the standing requirements
under the exception in Colyer.
Starstone replied to the opposition, refuting the contention it lacked
standing based on its right under the workers’ compensation statutes (Lab.
Code, § 3850 et seq.) to seek reimbursement for compensation benefits it had
paid to Moreci. According to Starstone, it had standing because its
reimbursement right constitutes “a clear, concrete and particularized
interest” that would be invaded by Boxer Gerson’s continued participation.
After conducting a hearing on August 11, the trial court denied
Starstone’s motion to disqualify opposing counsel for lack of standing. The
trial court explained Starstone had failed to show it had an attorney-client
relationship with Scaffold’s attorneys. It further found Starstone had no
standing even under the “minority view” recognized in Colyer and cited by
Starstone, because Starstone failed to show an “invasion of a legally
protected interest which is (a) concrete and particularized, and (b) actual or
imminent, not conjectural or hypothetical.” At most, Starstone alleged
merely a generalized interest in “the court’s obligation to ensure the fair
administration of justice,” an interest insufficient “to give a non-client
standing.”
Starstone appeals.
DISCUSSION
The Law on Standing and Standard of Review
A trial court’s authority to disqualify an attorney derives from the
power inherent in every court “[t]o 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
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thereto.” (Code Civ. Proc., § 128, subd. (a)(5); City and County of San
Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 846.)
“A ‘standing’ requirement is implicit in disqualification motions.”
(Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356
(Great Lakes).) A party moving to disqualify counsel must have a legally
cognizable interest that would be harmed by the attorney’s conflict of
interest. (Id. at p. 1357.) Courts have found an attorney-client relationship
between the complaining party and the attorney sought to be disqualified is a
prerequisite to seeking disqualification. (Id. at p. 1356; Strasbourger Pearson
Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, 1404
[“An attorney-client relationship must have existed before disqualification is
proper”].)
“Other courts, however, have slightly broadened the scope of that
general rule,” holding that a non-client may bring a disqualification motion
based on an attorney’s breach of a duty of confidentiality owed to the non-
client. (Dino v. Pelayo (2006) 145 Cal.App.4th 347, 352, citing DCH Health
Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 (DCH Health Services)
[“Standing arises from a breach of the duty of confidentiality owed to the
complaining party, regardless of whether a lawyer-client relationship
existed”].)
As it did below, Starstone relies on Colyer, supra, 50 F.Supp.2d 966,
which recognized what California courts have described as the “minority”
view for standing to bring a disqualification motion.2 (See Great Lakes,
2 Starstone asserts “there is insufficient authority to characterize
standing by a non-party movant in a disqualification motion as a ‘minority
view.’ ” We disagree. Colyer itself described the view as an “exception” to the
general rule that only a client or former client could object to an allegedly
adverse representation. (See Colyer, supra, 50 F.Supp.2d at p. 969, citing In
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supra, 186 Cal.App.4th at p. 1357; In re Marriage of Murchison, supra, 245
Cal.App.4th at p. 852.) Colyer addressed the question of when a party has
standing to move to disqualify opposing counsel based on that counsel’s
breach of its duties of loyalty and confidentiality to a third party. (Colyer, at
p. 969.) The court noted standing to bring a disqualification motion in federal
court that is based on a conflict of interest ordinarily is limited to clients or
former clients, but as Great Lakes described, “Colyer, however, recognized a
minority view that a non-client might have standing to bring a
disqualification motion. A non-client must establish a ‘personal stake’ in the
motion to disqualify opposing counsel that is sufficient to satisfy the standing
requirements of article III of the United States Constitution. [Citation.]
‘Generally, only the former or current client will have such a stake in a
conflict of interest dispute.’ [Citation.] But, where the ethical breach is “
‘manifest and glaring’ ” and so ‘infects the litigation in which disqualification
is sought that it impacts the moving party’s interest in a just and lawful
determination of [his or] her claims’ [citation], a non-client might meet the
standing requirements to bring a motion to disqualify based upon a third
party conflict of interest or other ethical violation.” (Great Lakes, supra, 186
Cal.App.4th at p. 1357, quoting Colyer, supra, 50 F.Supp.2d at pp. 971–972.)
After articulating this view, the Colyer court, however, did not invoke
the minority rule. (Colyer, supra, 50 F.Supp.2d at pp. 972–973.) The court
found Colyer did not have a personal stake in the duty of loyalty opposing
counsel owed to his client and would suffer no harm from any purported
re Yarn Processing Patent Validity Litigation v. Leesona Corp. (5th Cir. 1976)
530 F.2d 83, 89 (In re Yarn Processing).) And two of the four published
California cases citing Colyer expressly refer to that exception as a “minority”
view. (See Great Lakes, supra, 186 Cal.App.4th at p. 1357; In re Marriage of
Murchison (2016) 245 Cal.App.4th 847, 852.)
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breach. (Id. at p. 972.) It explained: “His broad interest in the
administration of justice is insufficiently concrete and particularized to
support a finding of standing here. The alleged conflict—if it exist[ed]—
simply [did] not rise to the level where it infects the proceedings and
threatens Colyer’s individual right to a just determination of his claims.”
(Id. at p. 973.) The court added, “to the extent Colyer argues that he has
standing to complain of a breach of confidentiality because any such breach
will increase his chances of losing this lawsuit, his abstract interest in
winning or losing this litigation is not legally cognizable. All plaintiffs have a
stake in winning the cases they file, but this tactical ‘interest’ cannot
independently satisfy Article III.” (Ibid.) Thus, the court denied the motion
to disqualify based on lack of standing.
Great Lakes read Colyer as “recogniz[ing] a minority view inasmuch as
it permits a non-client to move to disqualify opposing counsel.” (Great Lakes,
supra, 186 Cal.App.4th at p. 1358.) However, “its minority view does not
alter well-established standing requirements” because “the non-client must
meet stringent standing requirements, that is, harm arising from a legally
cognizable interest which is concrete and particularized, not hypothetical.”
(Id. at pp. 1357, 1358, citing Colyer, supra, 50 F.Supp.2d at pp. 971–973.)
Great Lakes also agreed with Colyer that “imposing a standing requirement
for attorney disqualification motions protects against the strategic
exploitation of the rules of ethics and guards against improper use of
disqualification as a litigation tactic.” (Great Lakes, at p. 1358, citing Colyer,
at p. 973.)
Starstone appears to propose another rule: “[S]tanding requires only
that the moving party establish harm to the moving party by the continued
participation of counsel . . . .” For this proposition, Starstone relies in part on
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Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, 1205 (Kennedy),3 which
concluded “where an attorney’s continued representation threatens an
opposing litigant with cognizable injury or would undermine the integrity of
the judicial process, the trial court may grant a motion for disqualification,
regardless of whether a motion is brought by a present or former client of
recused counsel.” There, in a child custody dispute between a mother and
father, the trial court granted the mother’s motion to disqualify the child’s
paternal grandfather from representing the child’s father. The grandfather
was an attorney who had previously represented the maternal grandfather in
a family law matter, in which mother had filed declarations per the request of
that attorney’s firm. (Id. at pp. 1201–1202.) The mother also had previously
worked for that attorney’s firm. (Id. at p. 1202.) In holding the mother had
standing as a non-client, the court noted that through his prior
representation of the maternal grandfather, the attorney almost certainly
learned confidential facts about the mother’s family situation that could be
used against her in the custody dispute. (Id. at pp. 1205, 1207–1208.) The
court also explained that, “[b]ecause of the close relationship between [the
mother] and her father, the similarity between the two cases and the
3 Starstone also cites DCH Health Services, supra, 95 Cal.App.4th 829,
and FMC Technologies, Inc. v. Edwards (W.D. Wash. 2006) 420 F.Supp.2d
1153. Neither stands for the broad proposition advanced by Starstone.
Although Starstone correctly notes that DCH Health Services explained that
an attorney-client relationship is not the only way to establish standing to
bring a disqualification motion, it nonetheless required a confidential
relationship between the movant and target attorney. (DCH Health Services,
supra, 95 Cal.App.4th at pp. 832–833.) And FMC Technologies, Inc. v.
Edwards, supra, 420 F.Supp.2d at pp. 1156–1157, cited the exception for non-
client standing in Colyer, which, as explained above, “does not alter well-
established standing requirements” although it recognizes a minority view in
allowing non-clients in proper circumstances to move to disqualify counsel.
(Great Lakes, supra, 186 Cal.App.4th at p. 1357.)
9
overlapping factual issues common to both, we also conclude that [mother]
and her father should be treated as a single unit for purposes of determining
whether an ethical conflict exists.” (Id. at p. 1208.)
Thus, despite the broad language in Kennedy quoted by Starstone, it
was ultimately the attorney’s possession of information the non-client had
shared confidentially, as well as the close relationship between the non-client
and the attorney’s former client, that justified disqualification. (See Acacia
Patent Acquisition, LLC v. Superior Court (2015) 234 Cal.App.4th 1091, 1100
[observing Kennedy’s “holding was tethered to messy interfamilial
squabbles”].) Accordingly, to the extent Starstone contends Kennedy supports
a broad rule that any injury to it in litigation, regardless of the source, is
sufficient to confer standing, we do not believe this is a fair reading of
Kennedy.
“Generally, a trial court’s decision on a disqualification motion is
reviewed for abuse of discretion.” (People ex rel. Dept. of Corporations v.
SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143.) However,
where the trial court’s ruling is based on a legal conclusion, such as lack of
standing, we review the order de novo in light of the relevant legal principles.
(Great Lakes, supra, 186 Cal.App.4th at p. 1354.)
The Trial Court Properly Denied the Disqualification Motion
As noted, the trial court concluded Scaffold had no standing to move to
disqualify Boxer Gerson on two grounds: first, Starstone never had an
attorney-client relationship with Boxer Gerson; and second, even in the
absence of such a relationship, under Colyer, it failed to show counsel’s
continued participation would invade “ ‘a legally protected interest which is
(a) concrete and particularized, and (b) actual or imminent, not conjectural or
10
hypothetical.’ ” Starstone contends the trial court’s conclusions were error.4
We disagree.
It is undisputed Starstone never had an attorney-client relationship
with Boxer Gerson. Starstone also has submitted no evidence of any
confidential or fiduciary relationship between it and Boxer Gerson, nor a
legally cognizable expectation of confidentiality with Boxer Gerson. In fact,
Starstone states its “disqualification motion is not based on a breach of duty
of confidentiality, an expectation of confidentiality, a fiduciary relationship, a
privileged relationship, breach of duty of loyalty, or a traditional conflict of
interest”—as acknowledged and confirmed at oral argument that loyalty and
confidentiality are “not involved.” Therefore, under the general standing
rules requiring “some sort of confidential or fiduciary relationship” (Dino v.
Pelayo, supra, 145 Cal.App.4th at p. 353; DCH Health Services, supra,
95 Cal.App.4th at p. 832), the trial court correctly determined Starstone
lacked standing to move to disqualify Boxer Gerson.
Starstone nonetheless asserts it had standing as a non-client under
Colyer, its claimed “personal stake” based on its status as Moreci’s employer’s
workers’ compensation insurer, particularity its right under the workers’
compensation statutes to seek reimbursement for benefits it paid to Moreci.
Starstone’s opening brief presents a lengthy discussion of those statutes in an
attempt to define the respective legal interests and obligations of an
4 Although Starstone’s motion sought to disqualify all of the attorneys
of record for Scaffold, including Wolfe and Wyman, its claims of error on
appeal are solely directed at Boxer Gerson and its member, Gary Roth.
Therefore, to the extent Starstone continues to seek the disqualification of
Wolfe and Wyman as well, we consider those claims abandoned. (See Berger
v. Godden (1985) 163 Cal.App.3d 1113, 1117 [“failure of appellant to advance
any pertinent or intelligible legal argument . . . constitute[s] an abandonment
of the [claim of error”].)
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employee and employer in a lawsuit involving workers’ compensation and a
third party. As fleshed out below, we understand the thrust of Starstone’s
standing argument to be that because of the “unique relationship” between
an employer and employee within the workers’ compensation scheme, Boxer
Gerson was prohibited from taking a position adverse to the employer once it
represented the employee in a personal injury action against alleged third
party tortfeasor.
Before addressing these arguments, we provide an overview of the
relevant workers’ compensation laws.
An employee injured in the course of employment is entitled to receive
compensation benefits from his or her employer without regard to negligence
of either the employee or the employer. (Lab. Code, § 3600, subd. (a).) The
employee’s claim for compensation benefits is the employee’s exclusive
remedy against the employer; the employee generally may not sue the
employer to recover in tort. (Id., §§ 3601, 3602, subd. (a).) But this does not
preclude suit by the employee against a negligent third party. (Id., § 3852).
An employee or employer who sues a third party is required to notify
the other forthwith by personal service or certified mail and file proof of
service in the action. (Lab. Code, § 3853.) The employer has a right to
intervene in any action brought by the employee against a third party
tortfeasor. (Ibid.)
To prevent an employee from retaining a double recovery—i.e., both
third party damages and workers’ compensation benefits for the same
injuries and disabilities—an employer may recoup the benefits it has paid to
the employee by utilizing any of three different means: (1) a direct action
against the third party (Lab. Code, § 3852); (2) as a party or an intervener in
an action by the employee against the third party (id., § 3853); or (3) as a lien
12
claimant against the employee’s recovery in an action against the third party
(id., § 3856, subd. (b)). (Abdala v. Aziz (1992) 3 Cal.App.4th 369, 374–375.)
The employer’s right to reimbursement may be limited or denied if the
employer’s negligence contributed to or caused the employee’s injuries.
(DaFonte v. Up–Right, Inc. (1992) 2 Cal.4th 593, 599; Witt v. Jackson (1961)
57 Cal.2d 57, 69, 71–73 (Witt).)
“The California workers’ compensation scheme seeks to ensure that,
regardless of whether the employee or the employer sues the third party,
both recover their due, and, as far as possible, the third party need defend
only one lawsuit.” (O’Dell v. Freightliner Corp. (1992) 10 Cal.App.4th 645,
653 (O’Dell).)
With respect to the settlement of claims with a third party tortfeasor
by either the employee or employer, prior to 1971, no such settlement was
valid without the written consent of the other. (O’Dell, supra, 10 Cal.App.4th
at p. 655.) “This provision prevented both the employee and the employer
from settling with a third party tortfeasor at the expense or disadvantage of
the other and encouraged employers and employees to settle their claims
simultaneously. [Citations.]
“However, when the Supreme Court in Witt[, supra, 57 Cal.2d 57] held
the third party tortfeasor could assert the employer’s concurrent negligence
to defeat the employer’s subrogation rights, the mutual consent provision
gave the negligent employer ‘bargaining power in the settlement context
unrelated to the likelihood of its success in any litigation. By taking
advantage of an employee’s or third party’s interest in a quick settlement, a
contributorily negligent employer could conceivably coerce an employee or
third party into allowing it to share in a settlement.’ [Citations.]
13
“In order to free the employee from the necessity of obtaining the
employer’s consent before settling with a third party tortfeasor, the
Legislature amended sections 3859 and 3860 in 1971. Subdivision (b) was
added to section 3859. It states: ‘Notwithstanding anything to the contrary
contained in this chapter, an employee may settle and release any claim he
[or she] may have against a third party without the consent of the employer.
Such settlement or release shall be subject to the employer’s right to proceed
to recover compensation [the employer] has paid in accordance with Section
3852.’ [Citation.]
“Section 3860, subdivision (b), was amended to read in part: ‘Except as
provided in section 3859, the entire amount of such settlement, with or
without suit, is subject to the employer’s full claim for reimbursement for
compensation [the employer] has paid or become obligated to pay . . . .’
“These amendments permitted an employee to segregate his or her own
damage claim from the employer’s claim for reimbursement for workers’
compensation benefits paid. ‘The employee thus is permitted to settle his [or
her] own claim for a sum exclusive of amounts . . . already received in the
form of a workers’ compensation award without jeopardizing the employer’s
subrogation right.’ ” (O’Dell, supra, 10 Cal.App.4th at pp. 655–656.)
The chapter of the Labor Code establishing these remedies defines the
term “employer” to include its insurer. (Lab. Code, § 3850, subd. (b).) “The
remedies available to the employer therefore are equally available to the
insurer, and the insurer may sue in its own name without joining the
employer as a party.” (Duncan v. Wal-Mart Stores, Inc. (2017)
18 Cal.App.5th 460, 469.) Thus, we sometimes refer to Starstone as Moreci’s
“employer.”
With these principles in mind, we now turn to Starstone’s arguments.
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As discussed above, Starstone argues it had standing to move to
disqualify Boxer Gerson under the exception in Colyer, supra, 50 F.Supp.2d
966, which requires a showing that counsel’s manifest ethical breach infected
the litigation and sufficiently impacted Starstone’s interest in a just
determination of its claims. (See id. at pp. 968, 971–972.) The purported
ethical breach here is Boxer Gerson “switching sides,” by representing Moreci
in the lawsuit against Scaffold, and then, after settling the case, assuming
Scaffold’s defense, pursuant to the indemnification provision. According to
Starstone, it is improper for “an attorney for an injured worker who has
settled with a third party without the employer’s consent [to] switch sides to
represent the defendant.” The premise of Starstone’s arguments is that the
workers’ compensation statutes recognize the employer-employee
relationship as one of “sanctity” and “do[] not allow . . . the employee to be
directly adverse [to] the employer as to workplace injury claims. ” Starstone
further argues the alleged ethical breach “threatens [Starstone’s] right to a
full and fair determination of its claims” because it will “frustrate and/or
impede/defeat [its] reimbursement request and/or achieve a double recovery”
for Moreci. In a related argument, Starstone contends Boxer Gerson has
“obtain[ed] access to intimate, confidential case information through [its]
prior and concurrent representation of employee Moreci” that will be used to
Starstone’s disadvantage.5 Starstone also maintains Moreci’s failure to give
timely notice of his lawsuit affords it standing because it prejudiced
Starstone by giving its adversaries an “opportunity to frame the issues and
develop the evidence without [its] participation.”
5 A contention that is in apparent conflict with Starstone’s concessions
in its briefs and representation at oral argument.
15
We are not persuaded. To begin with, we disagree with the premise of
Starstone’s arguments—that the legal interests of an employee and employer
cannot be adverse to each other in litigation involving workers’ compensation
and a third party. It is true an employee may not directly sue an employer
for injuries sustained while in the course and scope of employment. (Lab.
Code, §§ 3601, 3602, subd. (a).) It is also true an employer’s subrogation
action is derivative of the employee’s action against a third party. (Board of
Administration v. Glover (1983) 34 Cal.3d 906 (Glover).) However, it does not
necessarily follow from these principles that the legal interests of the
employee and employer must be aligned, such that the employee is charged
with a duty to safeguard the employer’s right to sue a third party. Thus, to
the extent Starstone assumes Moreci and Starstone should be treated as
having a mutuality of interests for purposes of determining whether an
ethical conflict exists, such an assumption is flawed.
Starstone relies on Glover, supra, 34 Cal.3d 906, for the proposition
that the intertwined nature of the employee’s and the employer’s claims was
recognized by the pre-1971 consent requirement, the purpose of which was to
“ ‘protect the rights and interests of employee and employer and . . . prevent
or discourage either of them from obtaining a recovery from the third party at
the expense or the disadvantage of the other.’ ” (Glover, at p. 913, citing
Brown v. Superior Court of San Bernardino County (1970) 3 Cal.3d 427, 433
(Brown).) Starstone also cites Carden v. Otto (1974) 37 Cal.App.3d 887(Carden), which stated an employee cannot, “in settling his claim, impair to
any degree the ability of the employer to effectively litigate as against the
third party.” (Id. at p. 896.) However, the quoted excerpts do not assist
Starstone, since, as Starstone acknowledges, they were referring to pre-1971
Labor Code sections 3859 and 3860, which prohibited settlement of claims
16
against third party tortfeasors by employers or employees without the
consent of the other. (See Glover, at pp. 913–914; Carden, supra, 37
Cal.App.3d at p. 896.) Those provisions were amended in 1971 to “authorize[]
an employee’s settlement of his own unreimbursed claim for damages without
the employer’s approval and recognize[] the employer’s independent right to
proceed against the alleged tortfeasor to recovery payments it had made to its
employee.” (Glover, at p. 914.)
Courts have refuted the notion that in the workers’ compensation
context, an employee, relative to his or her employer, is akin to trustee,
fiduciary, or legal representative or in privity—that is, “a person is so
identified in interest with another that he represents the same legal right.”
(Carden, supra, 37 Cal.App.3d at p. 892; see O’Dell, supra, 10 Cal.App.4th at
pp. 658–660.)
O’Dell is instructive. That case involved the analogous situation
concerning an employer’s standing to set aside the dismissal of its employee’s
personal injury action against a third party following the employee’s
settlement of that action. (O’Dell, supra, 10 Cal.App.4th at pp. 658–660.)
O’Dell found that only a party to an action or his or her legal representative
may seek to set aside a dismissal under Code of Civil Procedure section 473,
and the employer had been neither a party nor a legal representative.
(O’Dell, at pp. 658–660, citing Roski v. Superior Court (1971) 17 Cal.App.3d
841, 846.) O’Dell explained that upon the employee’s voluntary dismissal of
the lawsuit, it terminated, and the filing of a lien after the dismissal could
not confer standing on the employer. (O’Dell, at p. 659.) In so holding, the
court rejected the employer’s assertion that the employee and employer were
“in privity” or that they had a relationship analogous to “a trust or fiduciary
relationship” for purposes of standing. (Ibid.)
17
The O’Dell court cited Carden, supra, 37 Cal.App.3d 887, in which an
employer moved to set aside a judgment entered after the employee and a
third party had litigated the employer’s negligence in the employer’s absence.
(O’Dell, supra, 10 Cal.App.4th at pp. 659–660, citing Carden, at pp. 890–891.)
Carden refuted the view “ ‘that . . . the employee represents the employer in a
manner analogous to a trustee bringing an action on behalf of the
beneficiaries. This, of course, suggests the existence of a fiduciary
relationship, one which . . . clearly does not exist.’ ” (O’Dell, at pp. 659–660,
citing Carden, at p. 894.) Carden went on: “In litigating the issue of the
employer’s contributory negligence the employee does not represent the same
‘legal right’ as the employer. . . . ‘[T]he employee thus lacks such mutuality of
interest in that issue as might be helpful to the employer.’ ” (Carden, at
p. 892, citing Brown, supra, 3 Cal.3d at p. 433.) Thus, “Carden held the
adjudication of the employer’s negligence was not res judicata as to the
employer because it was neither a party nor in privity with a party. No
privity appeared because, but for the exclusivity of the workers’ compensation
remedy, the employer would have been a defendant.” (O’Dell, at p. 659, citing
Carden, at p. 894, italics added.)
Moreover, “[t]he introduction of a Witt[, supra, 57 Cal.2d 57] defense
changes the complexion of the case.” (Aetna Casualty & Surety Co. v.
Superior Court (1993) 20 Cal.App.4th 1502, 1508.) “Until that time an
employee’s interests do not clash with the employer’s interests in a third
party action; each wants to be compensated for separate items of damage.
However, once such a defense is claimed, a conflict of interest between
plaintiff and the employer arises. [Citation.] Because of its alleged
negligence, the amount due the employer becomes a subject of considerable
dispute and the employer cannot expect the employee to argue on its behalf
18
during any negotiations or at trial.” (Ibid., citing Brandon v. Santa Rita
Technology, Inc. (1972) 25 Cal.App.3d 838, 846, italics added.)
Based on the above authorities, we conclude that in touting “the
sanctity of the employer-employee relationship,” Starstone overstates the
nature of that relationship. The authorities refute the assertion that the
legal interests of Moreci and Starstone must be aligned for all purposes. To
the contrary, they indicate that where, as here, the employer’s negligence is
asserted as a defense by a third party under Witt, supra, 57 Cal.2d 57, the
interests of the employee and employer become adverse. We therefore
disagree with Starstone’s premise that Moreci and Starstone should be
treated as essentially one unit for purposes of analyzing the existence of a
conflict of interest. And since that premise is flawed, it cannot support
Starstone’s conclusion that Boxer Gerson’s assumption of Scaffold’s defense
created a “legal and ethical” conflict that “undermines the structural
integrity of the workers’ compensation system.”
But even if such a conflict existed, Starstone has failed to show it was
“manifest and glaring” sufficient to qualify for the exception identified in
Colyer. (Colyer, supra, 50 F.Supp.2d at p. 972.) Starstone repeatedly asserts
throughout its briefs that Boxer Gerson’s continued participation will “most
certainly ‘jeopardize’ ” Starstone’s right to reimbursement and result in a
“double recovery” for Moreci. Starstone also cites to Duncan v. Wal-Mart
Stores, Inc., supra, 18 Cal.App.5th 460, and Bailey v. Reliance Insurance Co.
(2000) 79 Cal.App.4th 449, to argue counsel’s conduct was aimed to
“manipulate[] the employer’s right to reimbursement” or “ ‘colluded . . . to
make a bad faith and/or fraudulent allocation of the settlement proceeds in
order to defeat the employer’s third party credit rights.’ ” But Starstone fails
to articulate with meaningful analysis how such conduct is at play or how the
19
results complained about will ensue—much less support these conclusory
assertions with citation to facts. (See Lister v. Bowen (2013) 215 Cal.App.4th
319, 337.)
As Scaffold puts it, “to the extent we can discern an argument about
double recovery, it appears Starstone is concerned that attorney Roth might
assist Scaffold Solutions to prove that Hydra was contributorily negligent,
thus reducing Starstone’s claim on Moreci’s settlement under Witt.” Even so,
without more information explaining how Boxer Gerson’s representation will
result in a double recovery, one can only surmise that there might be
duplication. But surmise obviously “is not sufficiently concrete and is highly
speculative. Such a highly speculative and tactical interest does not meet the
standing requirements.” (Great Lakes, supra, 186 Cal.App.4th at p. 1359.)
Starstone also asserts it had standing to bring a disqualification motion
because Boxer Gerson may have learned confidential information from
Moreci that it will use to Starstone’s disadvantage in the present case. To no
avail. Starstone has adduced no evidence that any of its confidential or
privileged information has been given to Boxer Gerson. Thus, any
informational advantage gained by opposing counsel is insufficient to support
standing in the absence of a “ ‘legally recognizable expectation of
confidentiality’ ” in any information between Moreci and Boxer Gerson, as
discussed above. (DCH Health Services, supra, 95 Cal.App.4th at p. 832.)
Starstone’s complaint about counsel’s possession of confidential
information boils down to a concern that the information will give counsel an
“unfair, improper advantage in litigation” over Starstone. But, as explained
in Colyer, supra, 50 F.Supp.2d at p. 973, an “abstract interest in winning or
losing this litigation is not legally cognizable. All plaintiffs have a stake in
winning the cases they file but this tactical ‘interest’ ” cannot support a basis
20
for standing. Furthermore, Starstone’s argument is a specious basis to
support disqualification because even if Moreci gave Boxer Gerson
confidential information that is potentially harmful to his employer, this
would still be true if Boxer Gerson were replaced with new counsel.
Starstone next suggests that Moreci’s failure to give timely notice of his
personal injury complaint supplies a separate basis for standing. The parties
agree Moreci did not give Starstone notice of his complaint against
defendants “forthwith” as required by Labor Code section 3853.6 Boxer
Gerson later notified Starstone of the lawsuit, as well as settlement
negotiations, when it provided Starstone’s attorneys with the then upcoming
mediation date. Starstone complains that the “late notice” in essence
prevented it from intervening earlier in the action and placed it at a
disadvantage because its adversaries were able to engage in discovery and
develop the evidence in Starstone’s absence. While we agree with Starstone
that Moreci failed to comply with Labor Code section 3853, Starstone’s
argument conflates any injury or harm to Starstone with the “legally
cognizable” injury that is required for standing. Moreover, to the extent
Starstone’s challenge to the late notice is based on its informational
disadvantage in the case, we explained above this is an “abstract interest in
winning or losing this litigation [that] is not legally cognizable.” (Colyer,
supra, 50 F.Supp.2d at p. 973.)
Furthermore, the alleged conflict in this case is distinguishable from
cases that have found standing under the exception based on a “manifest and
6 Labor Code section 3853 provides in part: “If either the employee or
the employer brings an action against such third person, he shall forthwith
give to the other a copy of the complaint by personal service or certified mail.
Proof of such service shall be filed in such action.”
21
glaring” or “open and obvious” ethical breach. (Colyer, supra, 50 F.Supp.2d at
p. 969.) Colyer drew this exception from In re Yarn Processing, supra,
530 F.2d 83 (see Colyer, at pp. 969, 971–972), and In re Yarn Processing
contemplated the exception in the context of four specific cases: Emle
Industries, Inc. v. Patentex, Inc. (2d. Cir. 1973) 478 F.2d 562; Porter v. Huber
(W.D. Wash. 1946) 68 F.Supp. 132; Empire Linotype School, Inc. v. United
States (S.D.N.Y. 1956) 143 F.Supp. 627; and Estates Theatres, Inc. v.
Columbia Pictures Industries, Inc. (S.D.N.Y. 1972) 345 F.Supp. 93. (See In re
Yarn Processing, supra, 530 F.2d at p. 89.) Each of these cases is
distinguishable.
Emle Industries, Inc. v. Patentex, Inc., supra, 478 F.2d 562, as described
by In re Yarn Processing, involved a motion to disqualify an attorney made by
a corporation that the former client of the attorney controlled. (In re Yarn
Processing, supra, 530 F.2d at p. 89.) Because that motion was essentially
made by the former client, Emle Industries, Inc. v. Patentex, Inc. is materially
different from the present case.
In Porter v. Huber, supra, 68 F.Supp. at pp. 132–135, the court, as
opposed to a third party, challenged the attorney’s change of sides where the
defendant’s attorney had previously been employed by the plaintiff in a legal
capacity and was the superior of another attorney who had worked on a
dispute that formed the basis of the case.
In Empire Linotype School, Inc. v. United States, supra, 143 F.Supp. at
pp. 631–632, before changing sides to represent the plaintiff, the attorney
had prepared, and even signed on behalf of the defendant, some of the most
crucial documents that were the heart of the lawsuit.
Finally, in Estates Theatres Industries, Inc. v. Columbia Pictures, Inc.,
supra, 345 F.Supp. at p. 93, the plaintiff who was the current client of an
22
attorney, named the former client as a co-conspirator with the defendant,
even though the former client was not itself a defendant in the case.
According to the In re Yarn Processing court, when the former client
appeared by counsel to argue for disqualification, even though he was not the
formal moving party, the “adverse nature” of the former client’s interests,
relative to the new client’s, were so “open and obvious” that they “confronted
the court with a plain duty to act.” (In re Yarn Processing, supra, 530 F.2d at
p. 89.)
Those cases, unlike here, involved a disqualification motion that was
essentially made through the former client, even if not formally filed by that
client. The conflicts that arose were based on a genuine “change of sides,”
which involved the target attorney becoming directly adverse to a former
client.
For all of the reasons above, the exception to the general rule for
manifest and glaring conflicts, whatever that exception’s breadth and
content, does not encompass this case. Without any legally cognizable
interest, we are left with an opposing party’s perception of a conflict arising
from Boxer Gerson’s representation of Scaffold. But any harm to Scaffold or
Moreci stemming from a breach of the duty of loyalty in any way by their
attorneys is, to echo the Great Lakes court, “of no concern” to Starstone.
(Great Lakes, supra, 186 Cal.App.4th at p. 1358.) Instead, as the trial court
correctly found, the thrust of Starstone’s motion rests on a purported effort to
safeguard the integrity of the judicial system and the “scrupulous
administration of justice.” “None of these lofty values, however, implicates
any personal right of [Starstone] which is burdened by the alleged conflict of
interest.” (Colyer, supra, 50 F.Supp.2d at p. 973.)
23
In sum, the trial court properly concluded Starstone had no standing to
bring the disqualification motion. And lack of standing alone is sufficient for
the trial court to deny that motion. (See Great Lakes, supra, 186 Cal.App.4th
at p. 1359.)
Superimposed on all of the above is that even if Boxer Gerson were
disqualified, Moreci would be free to hire a new attorney to defend Scaffold
pursuant to the settlement agreement and to continue pursuing interests
that are inimical to Starstone’s—leaving Starstone in the same situation.
Because disqualification would have no effect on the alleged harms, Starstone
has sought the wrong legal remedy by bringing a disqualification motion.
DISPOSITION
The order denying the motion to disqualify counsel is affirmed.
Scaffold is awarded costs on appeal.
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_________________________
Richman, Acting P.J.
We concur:
_________________________
Stewart, J.
_________________________
Miller, J.
Moreci v. Scaffold Solutions, Inc (A161193)
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