in the Interest of Kashif Kahn

Petition for Writ of Mandamus Denied and Memorandum Opinion filed
December 1, 2015.
In The
Fourteenth Court of Appeals
NO. 14-15-00615-CV
IN THE INTEREST OF KASHIF KAHN, ET AL, Relator
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
400th District Court
Fort Bend County, Texas
Trial Court Cause No. 14-DCV-214129
OPINION
Relators Kashif Kahn, ACGI Group, Inc., Anantasai, LLC, Reform
Healthcare Management, Ltd., Samma Universal Group Inc., and Shayan & Hiba
Group Ltd. filed a petition for writ of mandamus in this Court arising from the
disqualification of an attorney. See Tex. Gov’t Code Ann. § 22.221 (West 2004);
see also Tex. R. App. P. 52. Relators ask this court to compel the Honorable
Maggie Perez-Jaramillo, presiding judge of the 400th District Court of Fort Bend
County, to vacate her March 16, 2015 order disqualifying Deborah Crain from
representing any defendant in this lawsuit. We deny the petition for writ of
mandamus.
Background
The real parties are Kishwar Sharma and his wife, Padma Sharma. On April
21, 2014, Mr. Sharma filed suit against the Advance Consulting Group, Inc.
(“ACGI”), Kashif Khan, Abdul Majeed Samma, and Murtaza Samma (collectively
“defendants”). The Sharmas are directors and majority shareholders of ACGI.
Khan is a director and shareholder of ACGI, and served as ACGI’s president.
Kishwar Sharma’s original petition alleges actions for breach of contract,
fraud, and conversion, based on Khan’s and ACGI’s breach of an alleged promise
to prepare and file all paperwork necessary for the Sharmas to obtain an EB-5 visa
to immigrate to the United States. The petition seeks return of the Sharmas’$1.115
million investment in ACGI. The petition also alleges that defendant Khan
breached fiduciary duties he owed as an officer and director by misappropriating
ACGI’s assets and entering into self-dealing transactions with ACGI that were
undertaken without adequate consideration.
On May 21, 2014, defendants filed an answer in which Deborah Crain
(“Crain”) appeared as counsel for all of the defendants. Through early November
2014, Crain represented defendants by attending a deposition, serving various
written discovery requests, filing an amended answer, special exceptions and
counterclaim, and filing motions for summary judgment.
2
On November 24, 2014, the Sharmas filed a second amended petition,
adding Padma Sharma as a plaintiff. On March 9, 2015, the Sharmas filed a notice
of non-suit of their claims against ACGI and a third amended petition that added
ACGI Group, Inc., Anantasai, LLC, (“Anantasai”), Reform Healthcare
Management Ltd. (“RHMG”), Samma Universal Group Inc. (“SUG”), and Shayan
& Hiba Group Ltd. (“SHG”) as defendants. The third amended petition alleges that
Khan, after receiving the Sharmas’ investment of over $1.1 million in ACGI,
fraudulently transferred these funds to Anantasai, RHMG, SUG, and SHG.
On March 11, 2015, about three and half months after Padma Sharma joined
as a plaintiff, the Sharmas filed a motion to disqualify Crain as counsel for all of
the defendants. In their motion, the Sharmas argued that Crain’s joint
representation of ACGI and the other defendants violates Texas Disciplinary Rules
of Professional Conduct 1.06 and 1.09(a) because ACGI and the other defendants
are adverse to each other.
On April 16, 2015, at the hearing on the motion to disqualify, the trial court
signed an order that quashed defendants’ subpoenas for the Sharmas to testify at
the hearing, and an order that disqualified Crain and her law firm from
representing any defendants in this lawsuit.
On April 28, 2015, defendants filed a motion for reconsideration/rehearing
of the order disqualifying Crain. After hearing this motion on May 11, 2015, the
trial court signed an order denying the motion.
3
Mandamus Standard
“Mandamus is appropriate to correct an erroneous order disqualifying
counsel because there is no adequate remedy by appeal.” In re Sanders, 153
S.W.3d 54, 56-57 (Tex. 2004) (orig. proceeding). “Disqualification is a measure
that can cause immediate harm by depriving a party of its chosen counsel and
disrupting court proceedings.” Id. “Thus, the burden is on the movant to establish
with specificity a violation of one or more of the disciplinary rules.” Spears v.
Fourth Court of Appeals, 797 S.W.2d 654, 656 (Tex. 1990). Mere allegations of
unethical conduct or evidence showing a remote possibility of a violation of the
disciplinary rules will not suffice to merit disqualification. Id. However, we review
a trial court’s decision on a motion to disqualify an attorney using an abuse of
discretion standard. In re Sanders, 153 S.W.3d at 56. “In determining whether the
trial court abused its discretion with respect to resolution of factual matters, we
may not substitute our judgment for that of the trial court and may not disturb the
trial court’s decision unless it is shown to be arbitrary and unreasonable.” Id.
The Trial Court Acted Within its Discretion
in Not Finding Waiver
In their first issue, relators argue that the Sharmas waived their motion to
disqualify through delay. Relators emphasize that more than ten months passed
between April 21, 2014, when the lawsuit initially was filed, and March 11, 2015,
when the motion to disqualify was filed.
A party who does not file a motion to disqualify opposing counsel in a
timely manner waives the complaint. See Grant v. Thirteenth Court of Appeals,
888 S.W.2d 466, 468 (Tex. 1994); Vaughan v. Walther, 875 S.W.2d 690, 690 (Tex.
4
1994). In determining whether a party has waived a complaint, the reviewing court
should consider the time period between when the conflict becomes apparent to the
aggrieved party and when the aggrieved party moves to disqualify. See Vaughan,
875 S.W.2d at 690–91; In re Louisiana Texas Healthcare Mgmt., L.L.C., 349
S.W.3d 688, 689-90 (Tex. App.—Houston [14th Dist.] 2011, orig. proceeding).
The court should consider whether any evidence indicates the motion is being filed
not due to a concern that attorney-client confidences may be divulged, but as a
dilatory trial tactic. Id.; Wasserman v. Black, 910 S.W.2d 564, 568 (Tex. App.—
Waco 1995, orig. proceeding). The court should also consider whether significant
discovery has occurred and the delay has prejudiced the other party. See In re EPIC
Holdings, Inc., 985 S.W.2d 41, 53 (Tex. 1998) (orig. proceeding).
We reject relators’ contention that the waiver analysis should focus only on
the ten months that elapsed between the litigation’s start and the date a
disqualification motion was filed. Padma Sharma did not join the suit until
November 24, 2014. The record does not indicate that she had a dilatory purpose in
not joining the suit earlier. Although Kishwar Sharma was a litigant for a longer
time before the motion to disqualify was filed, the parties have not identified and
we have not located any authority that allows the delay of one party in seeking
disqualification to be attributed to another party. Accordingly, in evaluating
waiver, we consider only the time that elapsed after Padma Sharma joined the
litigation.
In view of the allegations in the Sharmas’ petitions that Khan fraudulently
transferred funds of ACGI to four of the other defendants, the conflict between
Crain representing both ACGI and the other defendants should have been apparent
5
to Padma Sharma when she joined the suit as a plaintiff on November 24, 2014.
Approximately three and a half months elapsed between the date on which Padma
Sharma joined the litigation and the date on which the motion to disqualify was
filed.
There is no evidence in the record that Padma Sharma filed the motion to
disqualify as dilatory trial tactic. The case had not yet been set for trial. The record
does not show that any discovery occurred between Padma Sharma’s entry into the
lawsuit and the date on which disqualification was sought. In Wasserman, 910
S.W.2d at 569, the court of appeals held that a two-month delay did not waive the
motion to disqualify because the facts did not indicate that the motion was being
used as a dilatory tactic. None of the decisions cited by relators indicate that a
delay of less than four months, when there is no trial setting, results in waiver.
Under these circumstances, we conclude that relators have not shown that the trial
court abused its discretion in determining that the disqualification request was not
waived.
The Trial Court Acted Within its Discretion
in Finding that Crain Is Disqualified
In their second and third issues, relators argue that the Sharmas did not
establish that a violation of the Texas Disciplinary Rules of Professional Conduct
occurred; they further contend that the trial court misapplied the law. We find these
arguments to be without merit.
The Sharmas argue that Crain is disqualified from representing ACGI and
the other defendants under Rule 1.09, which states:
6
(a) Without prior consent, a lawyer who personally has formerly
represented a client in a matter shall not thereafter represent another
person in a matter adverse to the former client:
(1) in which such other person questions the validity of the lawyer’s
services or work product for the former client;
(2) if the representation in reasonable probability will involve a
violation of Rule 1.05; or
(3) if it is the same or a substantially related matter.
Tex. Disciplinary R. Prof. 1.09(a). Although the wording of Rule 1.09(a) indicates
that it was designed primarily to address situations where an attorney seeks to
represent a new client in litigation against a former client, it also applies when an
attorney represents multiple parties and a conflict arises among them. See
Wasserman, 910 S.W.2d at 567.
A lawyer in a civil case may not “represent two or more clients in a matter if
there is a substantial risk that the lawyer’s representation of one client would be
materially and adversely affected by the lawyer’s duties to another client in the
matter . . .”. In re B.L.D., 113 S.W.3d 340, 346-47 (Tex. 2003) (quoting
Restatement (Third) of the Law Governing Lawyers, § 128 (2000)). “[A]dversity is
a product of the likelihood of the risk and the seriousness of its consequences.”
Nat'l Med. Enterprises, Inc. v. Godbey, 924 S.W.2d 123, 132 (Tex. 1996). Parties
are adverse when the risk to the formerly represented party is serious, even though
the risk may be small. See id. An attorney should not be placed in a position where
she may be forced to choose between zealously representing his clients and
maintaining the confidentiality of information received from former clients; this
situation disqualifies the attorney from representing any defendant in the case. See
7
In re Roseland Oil & Gas, Inc., 68 S.W.3d 784, 787-88 (Tex. App.—Eastland
2001, no pet.).
Comment 4A to Rule 109(a) states that the “same” matter aspect of this
prohibition prevents a lawyer from switching sides and representing a party whose
interests are adverse to a person who disclosed confidences to the lawyer. For
lawyers, the Texas Supreme Court has adopted a standard requiring
disqualification under Rule 1.09 whenever counsel undertakes representation of an
interest that is adverse to that of a former client, if the matters embraced in the
pending suit are “substantially related” to the factual matters involved in the
previous suit. NCNB Texas Nat'l Bank v. Coker, 765 S.W.2d 398, 399-400 (Tex.
1989). This strict rule is based on a conclusive presumption that confidences and
secrets were imparted to the attorney during the prior representation. Id. at 400;
Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831, 833 (Tex. 1994). “If the
lawyer works on a matter, there is an irrebuttable presumption that the lawyer
obtained confidential information during the representation.” In re Kahn, 14-13-
00081-CV, 2013 WL 1197895, at *4 (Tex. App.—Houston [14th Dist.] Mar. 26,
2013, orig. proceeding) (citing Phoenix, 887 S.W.2d at 833).
Additionally, Rule 1.06(b) provides that a lawyer shall not represent a
person if it reasonably appears that the representation may become adversely
limited by the lawyer’s responsibilities to another client. Tex. Disciplinary R. Prof.
1.06. Comment 4 to Rule 1.06 states that the critical question is the likelihood that
a conflict exists or will eventuate. Id. Thus, a lawyer should not jointly represent
parties if it is likely that a conflict between them will eventuate.
8
A court may rely on the parties’ pleadings to determine if the parties are
adverse. See Wasserman, 910 S.W.2d at 569 n.6. The Sharmas’ live petition
alleges that Khan fraudulently transferred the Sharmas’ $1.1 million ACGI
investment to defendants Anantasai, RHMG, SUG, and SHG. Based on this
allegation, ACGI and the other defendants are adverse because ACGI has claims
that it may bring against the other defendants and there is a serious risk of
adversity. There is a conclusive presumption that confidences and secrets of ACGI
were imparted to Crain. See Coker, 765 S.W.2d at 400. Thus, Crain is disqualified
from representing ACGI and the other defendants under Rule 1.09(a)(3).
Crain also is disqualified under Rule 106 because it appears that the
Sharmas, as ACGI’s majority shareholders, may cause ACGI to bring suit against
the other defendants for the alleged fraudulent transfers.
We conclude that relators have not shown that the trial court abused its
discretion in finding that Crain is disqualified under the Rules of Professional
Conduct from representing any of the defendants.
The Record Does Not Show that the Trial Court Denied
Relators the Opportunity to Present Evidence
Relators argue that the trial court abused its discretion by not allowing them
to present any evidence. The record does not support this assertion.
At the April 16, 2015 hearing on the motion to disqualify, relators’ counsel
asked to be allowed to present evidence. The record does not show that the trial
court refused this request, or that relators offered any evidence or called any
witnesses to testify. To preserve error concerning the exclusion of evidence, the
complaining party must actually offer the evidence and secure a ruling from the
9
court. Bobbora v. Unitrin Ins. Servs., 255 S.W.3d 331, 334 (Tex. App.—Dallas
2008, no pet.); Fletcher v. Minn. Min. & Mfg. Co., 57 S.W.3d 602, 607 (Tex.
App.—Houston [1st Dist.] 2001, pet. denied). The record does not show that
relators met these requirements.
Relators also argue that the trial court erred in quashing their subpoena for
the Sharmas to testify at the hearing. However, relators have not demonstrated that
this potential testimony would have been relevant or that its exclusion was
prejudicial.
Relators gave two reasons at the hearing for requesting the Sharmas’
testimony. First, relators argued that they needed to examine Mr. Sharma regarding
the statement in his declaration that there were only three directors, not four.
Relators did not explain to the trial court how the number of ACGI directors is
relevant to whether ACGI and the other Defendants were adverse to each other
under Rule 109(a)(3). Our holding that the trial court did not abuse its discretion in
disqualifying Crain is not based on whether ACGI had three or four directors.
Accordingly, Mr. Sharma’s potential testimony on this issue is immaterial to our
decision. See In In re EPIC Holdings, Inc., 985 S.W.2d at 53 (trial court’s
exclusion of evidence was immaterial given the supreme court’s resolution of the
disqualification issues).
Second, relators argued to the trial court that they needed to examine the
Sharmas regarding when they knew that they needed to take action to disqualify
Crain. We have assumed that Padma Sharma knew that she had a basis for seeking
Crain’s disqualification when she joined the suit on November 24, 2014, and have
held that no waiver resulted from the three and a half months that elapsed before
10
she sought disqualification. In view this holding, Padma’s potential testimony on
this issue is immaterial. See id.
Relators assert that, at the May 11, 2015 hearing on relators’ motion for
reconsideration, the trial court “refused to consider any live-witness testimony or
consider any additional evidence.” Again, the record does not support this
assertion. The record does not show that relators offered any live testimony that the
trial court excluded. In fact, the trial court admitted several written exhibits that
relators offered at the hearing.
The Sharmas filed a motion asking this court to strike from the appellate
record certain exhibits that relators offered at the hearing of relators’ motion for
reconsideration that the trial court ordered stricken. This court has not relied on
these exhibits because they were stricken by the trial court and relators have not
argued in their petition that this was error. Moreover, the stricken exhibits do not
appear to be material to this court’s decision.
Conclusion
Relators have not established the requirements for mandamus relief. We
therefore deny their petition for writ of mandamus.
/s/ William J. Boyce
Justice
Panel consists of Justices Boyce, McCally, and Donovan.
11