Practice Mgmt. Solutions, LLC v. Dist. Ct. (Guadalupe Med. Ctr./alvarado, M.D., P.C.) ( 2016 )

IN THE SUPREME COURT OF THE STATE OF NEVADA
PRACTICE MANAGEMENT No. 68901
SOLUTIONS, LLC, A NEVADA
LIMITED LIABILITY COMPANY;
GUADALUPE MEDICAL
CENTER/OKAMOTO, M.D., P.C., A
NEVADA PROFESSIONAL
CORPORATION; CECILIA STRIEBER,
AN INDIVIDUAL; FREDDY ALDANA, FILED
SR., AN INDIVIDUAL; AND RAFAEL
OKANIOTO, M.D., AN INDIVIDUAL, MAY 1 0 2016
Petitioners, TRACIE K. UNDEMAN
CLERI:SpF,SpPREME COURT
vs. BY
DEPUTY CLERK
THE EIGHTH JUDICIAL DISTRICT
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF
CLARK; AND THE HONORABLE
DOUGLAS SMITH, DISTRICT JUDGE,
Respondents,
and
GUADALUPE MEDICAL
CENTER/ALVARADO, M.D., P.C., A
NEVADA PROFESSIONAL
CORPORATION; AND ISRAEL
ALVARADO, M.D., AN INDIVIDUAL,
Real Parties in Interest.
ORDER GRANTING PETITION FOR WRIT OF MANDAMUS
This original petition for a writ of mandamus or prohibition
challenges a district court order disqualifying attorney Richard Raskin
and his firm, Gibbs, Giden, Locher, Turner, Senet & Wittbrodt, LLP, from
acting as petitioners' counsel.
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Facts
After working at the Guadalupe Medical Center for several
years, real party in interest Dr. Israel Alvarado became the sole owner of
the Guadalupe Medical Center. He was also an officer and a director, and
the company's name was changed to Guadalupe Medical Center/Alvarado.
Guadalupe Medical Center/Alvarado was managed by petitioner Cecilia
Strieber and others through their company Practice Management
Solutions, LLC (PMS). Strieber and Alvarado later entered into an option
agreement, drafted by Haskin, permitting Strieber to purchase all of
Alvarado's shares in Guadalupe Medical Center/Alvarado. When drafting
the option agreement and other agreements between the parties, Haskin
represented Guadalupe Medical Center/Alvarado.
Strieber assigned the option agreement to petitioner Dr.
Rafael Okamoto, who exercised it, thus acquiring all of the stock of
Guadalupe Medical Center/Alvarado. New officers and directors were
elected and appointed, and the company was renamed Guadalupe Medical
Center/Okamoto. Alvarado and Guadalupe Medical Center/Alvarado then
sued, asserting, among other things, that Alvarado was fraudulently
induced to enter into the option agreement.
Petitioners retained Haskin and Gibbs Giden to defend them,
and Alvarado moved to disqualify under RPC 1.6, because Haskin and
Gibbs Giden allegedly possess some of Guadalupe Medical
Center/Alvarado's and/or Alvarado's confidential information; under RPC
1.7, 1.9, and 1.10, because Haskin and Gibbs Giden previously represented
Guadalupe Medical Center/Alvarado, giving rise to a conflict of interest;
and under RPC 3.7(a), because Haskin and other persons at Gibbs Giden
may be witnesses in this matter. The district court disqualified Haskin
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and Gibbs Giden on these bases, and this writ petition followed. Real
parties in interest have filed an answer, and petitioners have filed a reply.
Discussion
A writ of mandamus is available to compel the performance of
an act that the law requires as a duty resulting from an office, trust, or
station or to control an arbitrary or capricious exercise of discretion. NRS
34.160; Int'l Game Tech., Inc. v. Second Judicial Dist. Court, 124 Nev. 193,
197, 179 P.3d 556, 558 (2008). This court has the discretion to determine
whether a writ petition will be considered. Smith v. Eighth Judicial Dist.
Court, 107 Nev. 674, 677, 818 P.2d 849, 851 (1991). "We have previously
indicated that a petition for mandamus relief generally is an appropriate
means to challenge district court orders regarding attorney
disqualification" because there exists no right to appeal from a
disqualification order. Liapis v. Second Judicial Dist. Court, 128 Nev.
414, 418, 282 P.3d 733, 736 (2012). Therefore, we exercise our discretion
to consider this writ petition.
Initially, the district court's order is unclear regarding which
standard the court applied. While the order correctly noted that the
appearance of impropriety standard is no longer applicable to attorney
disqualification issues and this matter was analyzed for actual violations
of the rules of professional conduct (RPC), in the end the district court
found that Haskin's and Gibbs Giden's disqualification was warranted "to
avoid the appearance of impropriety." An appearance of impropriety is not
the correct standard. Id. at 419, 282 P.3d at 737 ("[A]n appearance of
impropriety by itself does not support a lawyer's disqualification."
(quotation marks omitted)). Rather, an attorney may be disqualified only
if an actual RPC violation exists. See id. It is unclear from the record,
however, whether, in the unique circumstances of this case, any conflict or
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other violations of the RPC warrant Haskin's and Gibbs Giden's
disqualification.
Prior to analyzing the applicable rules, the district court must first
examine whether Alvarado has standing to act for Guadalupe
Medical Center /Alvarado and assert RPC violations on its behalf
Before considering whether an attorney should be disqualified,
a court must address whether a party has standing to seek
disqualification. Id. at 420, 282 P.3d at 737. Standing is generally
founded on a current or former attorney-client relationship, and "[t]he
party seeking to disqualify bears the burden of establishing that [he] has
standing to do so." Id.
Alvarado lacks standing because he has been divested of his
shares in Guadalupe Medical Center/Alvarado
The district court based disqualification on the attorney-client
relationship between Guadalupe Medical Center/Alvarado and Haskin and
Gibbs Giden, assuming Alvarado's authority to act for Guadalupe Medical
Center/Alvarado.' But the amended complaint alleged, and the district
court found, that the option agreement effected a share transfer from
Alvarado to Okamoto. 2 Thus, Alvarado has been divested of his ownership
of Guadalupe Medical Center/Alvarado and is a former, not a current,
shareholder, officer and director. As a result, Alvarado lacks authority to
It is undisputed that Haskin and Gibbs Giden did not render
services to Alvarado in his individual capacity.
2 Whether Guadalupe Medical Center/Okamoto is the same entity as
Guadalupe Medical Center/Alvarado, is the successor to that entity, or
some other relationship between the two entities exists is irrelevant to the
current inquiry; the relevant allegation in the amended complaint is that
the exercised option agreement transferred 100 percent of the shares of
Guadalupe Medical Center/Alvarado from Alvarado to Okamoto.
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act for Guadalupe Medical Center/Alvarado and, thus, has not
demonstrated that he currently has standing to protect its allegedly
confidential information, to assert its conflicts, or to cause it to sue
petitioners. 3 NRCP 23.1; Cohen v. Mirage Resorts, Inc., 119 Nev. 1, 19, 62
P.M 720, 732 (2003) ("Because a derivative claim is brought on behalf of
the corporation, a former shareholder does not have standing to assert a
derivative claim. A former shareholder does, however, have standing to
seek relief for direct injuries that are independent of any injury suffered
by the corporation." (citations omitted)); see also Bottoms v. Stapleton, 706
N.W.2d 411, 415, 419 (Iowa 2005) (noting that "a court must also be
vigilant to thwart any misuse of a motion to disqualify for strategic
reasons," and declining to disqualify counsel representing a limited
liability company and one of its shareholders in an action by the other
shareholder that alleged only personal, not derivative, claims); Xavier v.
Bumbarner & Hubbell Anesthesiologists, 923 S.W.2d 428, 432 (Mo. Ct.
App. 1996) (noting that a former shareholder of a dissolved corporation did
not have standing to assert a claim on behalf of the dissolved corporation
that the other shareholders interfered with the relationships between the
dissolved corporation and its clients).
3 "Itis well settled that a corporation can act only through its
agents." Smith's Food & Drug Ctrs., Inc. v. Bellegarde, 114 Nev. 602, 608,
958 P.2d 1208, 1212 (1998) (citing Edwards v. Carson Water Co., 21 Nev.
469, 485, 34 P. 381, 386 (1893)), overruled on other grounds by
Countrywide Home Loans, Inc. v. Thitchener, 124 Nev. 725, 745-46, 192
P.3d 243, 256-57 (2008). Aside from alleging that he was an owner, officer
or director of Guadalupe Medical Center/Alvarado, Alvarado does not
allege that he was otherwise vested with the authority to assert
Guadalupe Medical Center/Alvarado's confidential information or
conflicts.
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Alvarado did not provide sufficient factual allegations,
evidence, or argument to demonstrate that he has standing
based on the option agreement's invalidity
We recognize that the validity of the option agreement, and
thus the ownership of the Guadalupe Medical Center, is an issue central
to the underlying litigation. But the bare allegation, devoid of supporting
facts, that the option agreement was fraudulently induced (or, as in the
disqualification motion, void ab initio) is insufficient to establish
Alvarado's standing to seek Haskin's and Gibbs Giden's disqualification by
asserting Guadalupe Medical Center/Alvarado's confidential information
or conflicts. In other words, in an attorney disqualification motion, the
movant is not entitled to a presumption that he will prevail upon his
causes of action because the movant has the burden to provide factual
allegations, evidence, or argument sufficient to support disqualification.
Waid v. Eighth Judicial Dist. Court, 121 Nev. 605, 611, 119 P.3d 1219,
1223 (2005) ("[T]he inquiry into whether an attorney-client relationship
has been established is very fact-specific . . ."); Brown v. Eighth Judicial
Dist. Court, 116 Nev. 1200, 1205, 14 P.3d 1266, 1270 (2000) ("To prevail on
a motion to disqualify opposing counsel, the moving party must first
establish at least a reasonable possibility that some specifically
identifiable impropriety did in fact occur, and then must also establish
that the likelihood of public suspicion or obloquy outweighs the social
interests which will be served by a lawyer's continued participation in a
particular case." (quotation marks omitted)); see also United States v.
Kitchin, 592 F.2d 900, 903 (5th Cir. 1979) ("An attorney may •be
disqualified only when there is a reasonable possibility that some
specifically identifiable impropriety actually occurred and, in light of the
interests underlying the standards of ethics, the social need for ethical
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practice outweighs the party's right to counsel of his choice." (quotation
marks omitted)); Nun i v. PRC, Inc., 5 F. Supp. 2d 1299, 1304 (M.D. Ala.
1998) (collecting applicable cases and noting that "disqualification is
always a drastic measure, which courts should hesitate to impose except
when absolutely necessary" and that specific facts must be alleged to
support disqualification).
In the underlying matter, Alvarado alleged in his ninth cause
of action that the option agreement was fraudulently induced, but he
alleged minimal factual support for that cause of action. Similarly, in his
motion to disqualify and his declaration attached thereto, Alvarado did not
address whether the option agreement was fraudulently induced.
Therefore, Alvarado did not meet his burden in the district court of
sufficiently demonstrating the invalidity of the option agreement, which
would establish his standing to seek disqualification based on Guadalupe
Medical Center/Alvarado's confidential information and conflicts. While
Alvarado did argue in his motion that the option agreement was void ab
initio based on NRS 89.040 and NRS 89.070, the district court did not base
its order on this argument. We decline to consider whether this argument
has sufficient merit to warrant a finding that Alvarado does have
standing, without prejudice to Alvarado's ability to re-raise this issue in
the district court. 4
4While we have held that doubts about an attorney's disqualification
"should generally be resolved in favor of disqualification," Brown, 116 Nev.
at 1205, 14 P.3d at 1270, this assumes that the moving party has
presented sufficient facts demonstrating that disqualification is a close
call. See Waid, 121 Nev. at 610-11, 119 P.3d at 1223; see also Plant
Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 514, 517 (M.D.N.C. 1996)
(indicating that while "the moving party has a high standard of proof to
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The district court did not base its order on Alvarado's
alternative arguments
Alvarado also argues, among other things, that even if he
lacks standing to seek Haskin's and Gibbs Giden's disqualification by
asserting Guadalupe Medical Center/Alvarado's confidential information
and conflicts, Alvarado himself has standing to seek to disqualify Haskin
and Gibbs Giden based on either (a) the fact that he was the sole
shareholder of Guadalupe Medical Center/Alvarado when Haskin and
Gibbs Giden represented it, or (b), under Liapis, Haskin's and Gibbs
Giden's "breach of ethics so infects the litigation in which disqualification
is sought that it impacts the nonclient moving party's interest in a just
and lawful determination of [his] claims." 128 Nev. at 420-21, 282 P.3d at
737-38 (quotation marks omitted). And, while the district court found that
Haskin and Gibbs Giden did not represent Alvarado, it did not make any
findings as to whether they possess confidential information belonging
solely to Alvarado, such that RPC 1.6 requires their disqualification. We
decline to consider these arguments without prejudice to Alvarado's ability
to raise them in the district court, because the district court did not make
any findings of fact or conclusions of law concerning these arguments.
...continued
meet in order to prove that counsel should be disqualified[,] . . . in a close
case the trial court should . . . resolve all doubts in favor of
disqualification." (citation omitted)). This matter is not a close case
because Alvarado has been divested of his shares of Guadalupe Medical
Center/Alvarado and did not provide in his motion to disqualify specific
facts establishing "at least a reasonable possibility" that his contentions
that the option agreement was invalid have merit. Brown, 116 Nev. at
1205, 14 P.3d at 1270 (quotation marks omitted).
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 Alvarado's failure to demonstrate that he has standing to seek
disqualification under RPC 1.6, 1.7, 1.9, and 1.10 based on Guadalupe
Medical Center/Alvarado's confidential information and conflicts warrants
writ relief and vacation of the district court's order. This lack of standing
does not affect RPC 3.7(a), however, and we address that rule separately.
RPC 3.7 does not warrant disqualification for pretrial proceedings
RPC 3.7(a) provides, in relevant part, that "[a] lawyer shall
not act as advocate at a trial in which the lawyer is likely to be a
necessary witness." Because Haskin is likely to be a witness in the
underlying matter, Alvarado has standing to assert RPC 3.7(a) and seek
Haskin's disqualification. We have previously held, however, that RPC
3.7(a) "does not mandate complete disqualification of an attorney who may
be called as a witness"; rather, it merely prevents the lawyer "from
appearing as trial counsel." DiMartino v. Eighth Judicial Dist. Court, 119
Nev. 119, 121, 66 P.3d 945, 946 (2003) (quotation marks omitted); see also
Liapis, 128 Nev. at 423, 282 P.3d at 739. The concern is that the lawyer's
appearance as a witness and as an advocate may confuse the jury, and
this concern is not present in pretrial proceedings, even where the
attorney is giving sworn statements to the district court. DiMartino, 119
Nev. at 122, 66 P.3d at 947 (qualifying the lawyer's ability to represent a
client in pretrial proceedings by noting that "the lawyer may not appear in
any situation requiring the lawyer to argue his own veracity"). Because
this conflict is personal to an attorney, it generally "does not mandate the
vicarious disqualification of the lawyer's firm." F.D.I.C. v. U.S. Fire Ins.
Co., 50 F.3d 1304, 1313 (5th Cir. 1995). Thus, this conflict does not
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warrant Haskin's disqualification from pretrial proceedings and does not
warrant Gibbs Giden's disqualification. Accordingly, we
ORDER the petition GRANTED AND DIRECT THE CLERK
OF THIS COURT TO ISSUE A WRIT OF MANDAMUS instructing the
district court to vacate its September 9, 2015, Order Granting Plaintiffs'
Motion to Disqualify Defendants' Counsel and to reconsider the motion to
disqualify in light of this order.°
/L-L-e-a-43t,
Saitta 7 ,J.
cc: Hon. Douglas Smith, District Judge
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
Hutchison & Steffen, LLC
Eighth District Court Clerk
Because the district court was acting within its jurisdiction when it
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granted the motion to disqualify, we deny petitioners' alternative request
for a writ of prohibition. NRS 34.320.
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