Las Posas Valley Water Rights Coalition v. Mahan Ranch CA2/6

Filed 6/3/22 Las Posas Valley Water Rights Coalition v. Mahan Ranch CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
LAS POSAS VALLEY WATER 2d Civil No. B317177
RIGHTS COALITION, (Super. Ct. No.
VENCI00509700)
Plaintiff, (Santa Barbara County)
v.
MAHAN RANCH, LLC, et al.,
Defendants and Appellants;
ZONE MUTUAL WATER
COMPANY et al.,
Defendants and
Respondents.
Mahan Ranch, LLC, and associated persons and
entities1 (collectively, Mahan Ranch) appeal from the trial court’s
1 Shannon
Alexander; Kirschbaum, LLC; Courtney
Maguire; Mahan Development Corporation; Ralph D. Mahan,
Trustee of the Ralph D. Mahan Separate Property Trust dated
order disqualifying Ferguson Case Orr Paterson LLP (FCOP) as
their attorney of record in the ongoing litigation concerning the
Las Posas Valley groundwater basin (the Basin Litigation).
Mahan Ranch contends: (1) FCOP had no conflict of interest
based on its previous work for Berylwood Heights Mutual Water
Company and Zone Mutual Water Company (collectively,
Respondents), but even if it did the disqualification motion
should have been denied either (2) as untimely, or (3) because
Respondents waived the conflict. We agree with Mahan Ranch’s
second contention, and vacate the disqualification order.
FACTUAL AND PROCEDURAL HISTORY
The Las Posas Valley groundwater basin and its stakeholders
In 1983, the Legislature created the Fox Canyon
Groundwater Management Agency to manage the Las Posas
Valley groundwater basin in central Ventura County. Twenty-six
years later, interested stakeholders formed the Las Posas Users
Group (LPUG) to work with Fox Canyon to allocate the basin’s
groundwater. Entities owned by the Ralph D. Mahan family
retained FCOP partner Neal Maguire—who is married to
June 12, 2003; Ralph D. Mahan and Georgia A. Mahan, Trustees
of the Mahan Family Trust dated June 12, 2003; John
McGonigle; Nuveen; Oro Del Norte, LLC; John C. Orr; Sharon L.
Orr; Frances Orr Parr; John D. Poe; RBV 2+5 LLC; RBV-Vanoni,
LLC; Suzanne Saw; Leon Scott Stevens, Trustee of the Leon O.
Stevens Trust dated November 19, 1997; TIAA; Craig H.
Underwood; Underwood & Son, LLC; Urban-D Ranch Limited
Partnership; US Horticulture Farmland, LLC; Charles L. Vanoni;
David Vanoni; Lucy Vanoni; Mary Vanoni; VMB Water System;
Melissa Wallace; Theodora Warner; Westchester Group
Investment Management; Debra A. Whitson, Thomas E. Olson,
and Thomas K. Strain, Trustees of the McGonigle Ranch Trust
dated April 1, 2021.
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Mahan’s daughter—to represent them in allocation discussions.
John C. Orr, another FCOP partner, also participated.
Dissatisfied with Fox Canyon’s proposed allocation,
in 2018 a coalition of LPUG members sued to establish their
rights to Las Posas Valley groundwater. Among those sued by
the coalition were Respondents. These companies, along with the
Del Norte Water Company, jointly retained attorney Craig
Parton to represent them in the Basin Litigation. Shareholders
of three other mutual water companies sued by the coalition—
Jane Donlon Waters, owner of Donlon Ranch; Urban-D Ranch
Limited Partnership; and Oro Del Norte, LLC—retained FCOP to
represent them. Entities owned by the Mahan family also
retained FCOP. Kirschbaum, LLC, later retained FCOP to
represent it.
Several of the parties sued by the coalition have
longstanding relationships with each other: Waters is a member
of Berylwood’s board of directors and its former president.
Maguire is a former Berylwood board member, and his in-laws,
the Mahans, are longtime shareholders. Craig Underwood, the
manager of Urban-D Ranch, is a former president of Zone. Orr,
the manager of Oro Del Norte and an FCOP partner, is a former
president of Del Norte. Jack Poe, the manager of Kirschbaum, is
a member of the Del Norte board of directors.
The parties’ relationships to each other generally,
and to FCOP specifically, have been well known since the Basin
Litigation commenced in 2018. Maguire previously represented
the Mahan family on the Berylwood board of directors. At least
three members of Zone’s board of directors know Orr and have
attended events he hosted. Parton has known Orr and of his ties
to Del Norte and Oro Del Norte for more than a decade. Parton
3
also knew that Maguire was related to the Mahans and that
FCOP represented them.
Parties involved in the Basin Litigation have shifted
over time. Relevant here, in February 2021 US Horticulture
acquired Donlon Ranch. Respondents both stipulated that the
litigation could “proceed with US Horticulture as a successor in
interest to Donlon Ranch” and that “US Horticulture [could]
continue to be represented by [FCOP].”
FCOP’s work for Respondents
Prior to the Basin Litigation, FCOP performed
limited legal work for Zone. In the 1990s, FCOP helped Zone
negotiate two well agreements with basin landowners. In 2015,
FCOP advised Zone about a corporate governance issue. Despite
this work, Underwood, in his capacity as Zone president, said
that an attorney from a firm other than FCOP was Zone’s general
counsel.
FCOP continued to perform discrete legal work for
Zone after the Basin Litigation commenced. In May 2020, while
Parton was Zone’s attorney in the litigation and Underwood was
its president, Zone discovered that it did not have properly
recorded easements for some of its roads and pipelines. Because
Parton did not do that type of work, Zone asked FCOP to draft
the necessary documents. FCOP agreed to do so if Zone would
consent to FCOP’s continued representation of its clients in the
Basin Litigation. Zone consented, and signed a conflict waiver on
June 30, 2021.
FCOP performed no legal work for Berylwood prior to
the Basin Litigation. After litigation commenced, however,
Berylwood asked FCOP to negotiate a well easement with one of
its shareholders. Before doing so, FCOP prepared a conflict
4
waiver. Berylwood executed the waiver on October 12, 2020,
acknowledging the possibility of a conflict of interest between it
and FCOP’s clients in the Basin Litigation and consenting to
FCOP’s continued representation of its clients if such a conflict
arose. FCOP subsequently advised Berylwood on the transfer of
Berylwood stock between shareholders.
The Basin Litigation
In 2019, the parties stipulated that the Basin
Litigation would proceed in three phases. In Phase 1, which
concluded in September 2020, the trial court established the total
“safe yield” of the basin and the percentage of that yield that
certain public agencies may extract. In the current phase, Phase
2, the court will determine how the remainder of the basin’s yield
will be allocated among landowners and mutual water
companies. The Phase 2 trial was initially set for June 2021, but
was later continued to January 2022.
During Phase 1, FCOP worked closely with Parton,
who repeatedly confirmed on behalf of his clients that each
mutual water company collectively owned the water rights
associated with their pumping. In February 2021—five months
into Phase 2 of the Basin Litigation—Respondents again
confirmed that each company asserted a “correlative, overlying
right to extract groundwater from the [b]asin.”
Some of Respondents’ shareholders subsequently
agitated to change their companies’ positions regarding the
ownership of water rights. Shareholders that exclusively
received water from the companies (rather than also from their
own wells) believed that “each mutual water company acted as
their agent to deliver their water to them based on their own
water rights.” These “exclusive shareholders” claimed that water
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rights should not be allocated according to stock ownership but
instead according to the historical delivery of water.
After determining that they comprised a majority of
the shareholders of both companies, Respondents’ exclusive
shareholders installed new boards of directors. The new board
members determined that delivering water to shareholders
proportional to stock ownership benefited those that “either did
not historically take much water” or those that “owned shares
that were disproportionate to the water they had historically
received.” Based on that determination, the boards moved to
prevent Respondents from asserting that each company, rather
than the individual shareholders, owned the rights to basin
groundwater. US Horticulture, which had stepped into the shoes
of Donlon Ranch, told the new Berylwood directors that these
positions were not in the best interests of the company and urged
them to reconsider.
Respondents declined to reconsider their new
positions. Parton determined that the positions were now
adverse to that held by Del Norte, requiring the companies to end
their joint representation agreement. All three companies
retained separate counsel in July 2021.
The disqualification motion
On November 24, 2021—less than six weeks before
the Phase 2 trial was slated to begin—Respondents filed a joint
motion to disqualify FCOP from participating in the Basin
Litigation. They argued that FCOP failed to obtain their
informed written consent: (1) to Maguire’s and Orr’s financial
interests in the litigation; (2) to FCOP’s work as general counsel
for Del Norte; (3) to FCOP’s clients’ claim that their water rights
are superior to Respondents’; (4) that well easements (such as
6
that FCOP prepared for Berylwood) might include language that
could be “relevant to a determination of water rights” in the
Basin Litigation; (5) that the well agreements FCOP prepared for
Zone in the 1990s could similarly “include language that may be
relevant to a determination of water rights” in the litigation; and
(6) that FCOP’s clients would take the position that mutual water
companies own water rights and do not act as agents of their
shareholders. Respondents asked the trial court to set the
hearing on their motion for the week before the Phase 2 trial
commenced.
Mahan Ranch opposed the disqualification motion,
arguing that: (1) FCOP obtained Respondents’ informed written
consent to any potential conflict; (2) Respondents knew of the
positions FCOP was asserting on behalf of its clients; (3) FCOP
had no duty to disclose its relationships with the Mahan family,
Del Norte, or Oro Del Norte; (4) FCOP owed Respondents no duty
of loyalty because neither company was a current FCOP client;
(5) FCOP obtained no confidential information from Respondents
that was relevant to the Basin Litigation; and (6) Respondents
waived any conflict due to their delay in bringing the
disqualification motion and the prejudice that would ensue from
disqualifying counsel on the eve of trial (citing Liberty National
Enterprises, L.P. v. Chicago Title Ins. Co. (2011) 194 Cal.App.4th
839, 844-845 (Liberty National)).
In its tentative ruling, the trial court expressed
frustration that Respondents filed their disqualification motion
at the eleventh hour. Respondents had “known for years” that
Maguire and Orr had “personal interests” in the Basin Litigation,
but nonetheless delayed in filing their motion. That delay would
require Mahan Ranch to “find new counsel just weeks before
7
trial”—a difficult proposition “considering [that] most water
lawyers [were] already involved in the litigation.” But
Respondents were not solely to blame for the motion’s
untimeliness: Mahan Ranch also failed to “secure judicial
recognition of [FCOP’s] qualification[s].” “Both sides [were thus]
equally responsible for what [had] occurred.”
After a hearing, the trial court concluded that it had
“no valid option” but to grant the disqualification motion. FCOP
“concurrently represented” both Respondents and Mahan Ranch
in the Basin Litigation. FCOP’s representation of Mahan Ranch
required it to “engage[] in conduct . . . directly adverse to”
Respondents’ interests. The waivers Respondents signed did not
cure this conflict, as they were “obtained . . . late, did not properly
disclose all conflicts, and did not include all adverse parties.”
And though the motion was untimely, Liberty National did not
“continue to be the law of California.” FCOP’s disqualification
was therefore required.
DISCUSSION
General legal principles
“‘Trial courts . . . have the power to order
disqualification of counsel when necessary for the furtherance of
justice.’” (Mills Land & Water Co. v. Golden West Refining
Co. (1986) 186 Cal.App.3d 116, 126, superseded by rule on
another point as stated in La Jolla Cove Motel & Hotel
Apartments, Inc. v. Superior Court (2004) 121 Cal.App.4th 773,
789.) The “‘[e]xercise of that power requires a cautious balancing
of competing interests,’” weighing “‘a party’s right to counsel of
choice, an attorney’s interest in representing a client, the
financial burden on a client of replacing disqualified counsel[,]
and any tactical abuse underlying a disqualification proceeding’”
8
on the one hand “‘against the fundamental principle that the fair
resolution of disputes within our adversary system requires
vigorous representation of parties by independent counsel’” on
the other. (Mills Land, at p. 126, italics omitted.) “‘Ultimately,
disqualification motions involve a conflict between the clients’
right to counsel of their choice and the need to maintain ethical
standards of professional responsibility.’” (Antelope Valley
Groundwater Cases (2018) 30 Cal.App.5th 602, 616 (Antelope
Valley).) Courts must thus “‘examine these motions carefully to
ensure that literalism does not deny the parties substantial
justice.’ [Citation.]” (Ibid.)
We review the order disqualifying FCOP as Mahan
Ranch’s attorney of record for abuse of discretion. (People ex rel.
Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999)
20 Cal.4th 1135, 1143.) Any express or implied factual findings
underlying the order are reviewed for substantial evidence, while
the trial court’s conclusions of law are reviewed de novo.
(Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 711-712.)
An order “that rests on an error of law constitutes an abuse of
discretion.” (In re Charlisse C. (2008) 45 Cal.4th 145, 159.) The
“application of the law to the facts is reversible only if arbitrary
and capricious.” (Haraguchi, at p. 712.)
The disqualification motion was untimely
Mahan Ranch contends the trial court erred when it
granted Respondents’ disqualification motion because the motion
was untimely. We agree.
For more than 30 years, California courts have
adhered to the view that a party may impliedly waive attorney
disqualification if they do not bring their disqualification motion
in a timely manner. (Liberty National, supra, 194 Cal.App.4th at
9
pp. 844-845; see, e.g., Western Continental Operating Co. v.
Natural Gas Corp. (1989) 212 Cal.App.3d 752, 763.) Such
untimeliness may indicate that the attorney’s conflict was “‘“not
seen as serious or substantial by the moving party,” and can
suggest “the possibility that the ‘party [instead] brought the
motion as a tactical device.’”’” (Antelope Valley, supra, 30
Cal.App.5th at p. 625.) Untimeliness alone is not a sufficient
basis to deny a disqualification motion, however. (Ibid.) To
result in a waiver, both the moving party’s delay and the ensuing
prejudice to the nonmoving party must be extreme or
unreasonable.2 (Ibid.) If the nonmoving party “‘“makes a prima
facie showing of extreme delay and prejudice, the burden then
shifts to the moving party to justify the delay.”’” (Ibid.)
Respondents’ disqualification motion should have
been denied as untimely. As a threshold matter, the trial court
erred in believing that Liberty National, supra, 194 Cal.App.4th
839 is no longer good law and refusing to apply its principles. An
order “that rests on an error of law constitutes an abuse of
discretion.” (In re Charlisse C., supra, 45 Cal.4th at p. 159.)
Moreover, Mahan Ranch made the requisite prima
facie showing of “extreme” delay when it noted, in its opposition
to the disqualification motion, that Respondents waited until just
six weeks before trial in Phase 2 of the Basin Litigation was
slated to begin—and more than two years after FCOP first
appeared in the litigation—to move to disqualify the firm. (Cf.
Antelope Valley, supra, 30 Cal.App.5th at p. 625 [“‘Factors
2 Thesame standards apply to disqualification motions
based on conflicts due to either successive or concurrent
representation. (Antelope Valley, supra, 30 Cal.App.5th at pp.
625-628.)
10
relevant to the reasonableness of a delay include the “stage of
litigation at which the disqualification motion is made” and the
complexity of the case’”].) The burden then shifted to
Respondents to justify that delay, requiring them to “address: (1)
how long [they had] known of the potential conflict; (2) whether
[they had] been represented by counsel since [they knew] of the
potential conflict; (3) whether anyone prevented [them] from
making the motion earlier, and if so, under what circumstances;
and (4) whether an earlier motion to disqualify would have been
inappropriate or futile and why.” (River West, Inc. v. Nickel
(1987) 188 Cal.App.3d 1297, 1309.) The trial court failed to
require Respondents to show how these factors justified their
delay, however, and instead blamed “both sides” for the
disqualification motion’s untimeliness. That was an abuse of
discretion. (In re Charlisse C., supra, 45 Cal.4th at p. 159.)
It was significant, too, as none of the River West
factors justify the disqualification motion’s untimeliness. As to
the first factor, when the Basin Litigation was filed in 2018,
Waters was president of Berylwood and Underwood was
president of Zone. Both Waters and Underwood were FCOP
clients, and both knew that Orr managed Oro Del Norte and that
Maguire’s wife was a member of the Mahan family. Other
members of Respondents’ boards of directors also knew of these
relationships. Consequently, Respondents knew of FCOP’s ties to
entities involved in the Basin Litigation and the conflicts those
ties might pose. (Civ. Code, § 2332 [principal and agent are
deemed to know what the other knows or ought to know];
Herman v. Los Angeles County Metropolitan Transportation
Authority (1999) 71 Cal.App.4th 819, 828 [attorney knowledge
imputed to client].)
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As to the second River West factor, Respondents were
represented by counsel—Parton—when the potential conflicts
arose: in 2018 for Zone since FCOP had worked for it since 1986,
and in 2020 for Berylwood since that was when FCOP negotiated
a well easement for it. And as to the third and fourth factors,
Respondents have made no showing that anything prevented
them from filing their disqualification motion earlier or that
doing so would have been futile. Their decision to wait until late
November 2021 to file their motion was thus not justified. The
delay was unreasonable. (Liberty National, supra, 194
Cal.App.4th at pp. 846-847.)
It was also prejudicial. By granting the
disqualification motion on the eve of the Phase 2 trial, the trial
court deprived Mahan Ranch of counsel of its choice, and denied
FCOP its interest in representing its clients. Disqualification
would be financially burdensome to Mahan Ranch, which had
paid for nearly three years of legal work when the court
disqualified FCOP. Upholding the disqualification order would
only increase that burden, requiring Mahan Ranch to hire new
attorneys who would have to undertake significant work to
prepare for trial in litigation that involves more than 100 parties.
The specialized nature of water law increases this
prejudice. As the trial court recognized, requiring Mahan Ranch
to find new counsel just weeks before trial would be difficult (at
best) since most of the Central Coast’s water lawyers are already
involved in the Basin Litigation. Such difficulties suggest that
Respondents brought their motion on the eve of the Phase 2 trial
as a tactical maneuver. Mahan Ranch has thus shown that the
disqualification motion was untimely and that that untimeliness
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was “extremely prejudicial.” The trial court therefore abused its
discretion in granting it.3
DISPOSITION
The trial court’s order granting Berylwood Heights
Mutual Water Company and Zone Mutual Water Company’s joint
motion to disqualify Ferguson Case Orr Paterson LLP as the
attorney of record for Mahan Ranch, LLC, and associated persons
and entities in the litigation concerning the Las Posas Valley
groundwater basin, entered December 21, 2021, is vacated. The
court is directed to enter a new and different order denying the
disqualification motion. The Mahan Ranch parties shall recover
their costs on appeal.
NOT TO BE PUBLISHED.
TANGEMAN, J.
We concur:
GILBERT, P. J.
YEGAN, J.
3 Givenour conclusion, we need not consider Mahan
Ranch’s contentions that FCOP had no conflict of interest or that
Respondents waived their objections to any conflict.
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Thomas P. Anderle, Judge
Superior Court County of Santa Barbara
______________________________
Ferguson Case Orr Paterson, Wendy C. Lascher,
Neal P. Maguire, Michael A. Velthoen, James Q. McDermott and
Jessica M. Wan for Defendants and Appellants.
Klein, DeNatale, Goldner, Cooper, Rosenlieb &
Kimball, Catherine E. Bennett, Joseph D. Hughes, R. Jeffrey
Warren; Olivarez Madruga Lemieux O’Neill, Keith Lemieux and
Alex Lemieux; Aleshire & Wynder and Keith Lemieux for
Defendants and Respondents.