Skyy Spirits, LLC v. Rubyy, LLC, No. 3:2009cv00646 - Document 71 (N.D. Cal. 2009)
Court Description: ORDER DENYING DEFENDANT'S MOTION TO DISQUALIFY AND VACATING HEARING by Judge William Alsup [denying 60 Motion to Disqualify Counsel]. (whasec, COURT STAFF) (Filed on 11/9/2009)
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Skyy Spirits, LLC v. Rubyy, LLC Doc. 71 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 SKYY SPIRITS, LLC, 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 No. C 09-00646 WHA Plaintiff, v. ORDER DENYING DEFENDANT’S MOTION TO DISQUALIFY AND VACATING HEARING RUBYY, LLC, Defendant. / INTRODUCTION The essence of the problem at hand is that the same person is the founder of both litigant 18 companies. After he left the first company and started the second, the first sued the second for 19 trademark infringement. The founder now wants to disqualify long-time counsel for the first 20 company on the theory that counsel once represented him as well (in different and closed 21 matters). Counsel, however, has not changed sides in any way. It is the founder who has jumped 22 ship. The disqualification motion has no merit. 23 24 STATEMENT Skyy Spirits, LLC commenced this action against Rubyy, LLC, for trademark 25 infringement and dilution. The complaint alleges that Rubyy’s “intentional use of Skyy’s very 26 strong and salient ‘yy’ feature in its ‘Rubyy’ mark infringes Skyy’s mark as it is likely to cause an 27 unwarranted association between [Rubyy’s] product and [Skyy’s] trademarks and confuse the 28 public as to the source or affiliation of [Rubyy’s] product” (First Amd. Compl. ¶ 1). Dockets.Justia.com For the Northern District of California United States District Court 1 Rubyy’s motion to disqualify Attorney James Wesley Kinnear as Skyy’s counsel is based 2 on its assertion that Attorney Kinnear “for many years enjoyed an attorney-client relationship 3 with Maurice Kanbar” (Br. 3). Mr. Kanbar is not a party to this action. Kanbar is the trustee of a 4 trust that owns Drinx, L.L.C., an entity that owns 80.95% of the interest in Rubyy (Dkt. No. 21). 5 Kanbar was the founder and longtime owner of Skyy. Prior to selling his interest in Skyy 6 in 2002, Kanbar engaged Attorney Kinnear to represent the company and Kanbar personally in a 7 variety of matters. Attorney Kinnear represented Kanbar in litigation regarding an apartment 8 building not related to Skyy. He defended Skyy in two copyright actions relating to photographs 9 of Skyy bottles, and simultaneously represented Kanbar in one of those actions where Kanbar was 10 named as a defendant. Finally, he represented both Skyy and Kanbar in the sale of Kanbar’s 11 interest in the company to a subsidiary of Gruppo Campari in 2002. Those matters are closed. 12 ANALYSIS 13 Under Civil Local Rule 11-4(a)(1), attorneys appearing before this Court must “comply 14 with the standards of professional conduct required of members of the State Bar of California.” 15 Accordingly, the Court applies California law in this matter. Concat LP & Chelator, LLC v. 16 Unilever, PLC, 350 F. Supp. 2d 796, 814 (N.D. Cal. 2004) (Illston, J.). 17 18 19 20 When deciding whether disqualification is warranted, the court must weigh the combined effect of 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 against the fundamental principle that the fair resolution of disputes within our adversary system requires vigorous representation of parties by independent counsel unencumbered by conflicts of interest. 21 Ibid. (quotations and citations omitted). Because an attempt to disqualify the opposing attorney is 22 often tactically motivated and disruptive to the litigation process, disqualification is a drastic 23 measure that is generally disfavored. Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 24 1104 (N.D. Cal. 2003) (Hamilton, J.). Additionally, motions for disqualification “should be 25 subjected to particularly strict judicial scrutiny.” Optyl Eyewear Fashion Int’l Corp. v. Style Cos., 26 760 F.2d 1045, 1050 (9th Cir. 1985). The party seeking disqualification bears a “heavy burden.” 27 City and County of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839, 851 (2006). 28 2 1 Rule 3-310(E) of the California Rules of Professional Conduct states: 2 A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment. 3 For the Northern District of California United States District Court 4 5 When “the facts involve successive representation, the ‘governing test requires that the client 6 demonstrate a substantial relationship between the subjects of the antecedent and current 7 representations’ in order to obtain disqualification of the target attorney.” Jessen v. Hartford 8 Casualty Ins. Co., 111 Cal. App. 4th 698, 705 (Ct. App. 2003) (quoting Flatt v. Super. Ct. of 9 Sonoma County, 9 Cal. 4th 275, 283 (1994)). 10 To create a conflict requiring disqualification, “the information acquired during the first 11 representation [must] be ‘material’ to the second; that is, it must be found to be directly at issue 12 in, or have some critical importance to, the second representation.” Farris v. Fireman’s Fund Ins. 13 Co., 119 Cal. App. 4th 671, 680 (Ct. App. 2004). 14 For the following reasons, the circumstances presented do not warrant disqualification of 15 Attorney Kinnear. Disqualifying Skyy’s longtime counsel in this action would serve only to 16 unnecessarily prejudice Skyy without protecting any significant interest of Rubyy or Kanbar. 17 1. 18 Attorney Kinnear was engaged as Skyy’s counsel while Kanbar was still with Skyy. ATTORNEY KINNEAR’S RELATIONSHIP WITH SKYY. 19 When Kanbar sold his interest in the company, Attorney Kinnear continued to represent Skyy. 20 Any information that he gained from Kanbar relates to Skyy — not to Kanbar. Rubyy admits as 21 much in a letter filed prior to the filing of this motion (Dkt. No. 47 at 2): 22 23 24 25 Obviously, [Rubyy] does not contend, nor could it, that Mr. Kinnear is disqualified from representing the interests of any party adverse to [Rubyy] because of his prior representation of Mr. Kanbar. For example, the protected information Mr. Kinnear acquired from his representation of Mr. Kanbar would have little or no relevance to any future disputes that another spirits company might have against [Rubyy]. 26 Skyy asserts that Rubyy “seeks to disqualify Skyy’s trial counsel because he knows too much 27 about Skyy” (Opp. 3). This order agrees. Any counsel, not just Attorney Kinnear, would have 28 access to Skyy’s information regarding the value of its own trademarks. The fact that 3 1 Attorney Kinnear learned some of this information from Kanbar is irrelevant because the 2 information at issue is about the company — not about Kanbar. If Attorney Kinnear had 3 continued to represent Kanbar after the latter’s departure from Skyy, or after Kanbar became 4 involved with Rubyy, the situation would be entirely different — but that is not the case here. For the Northern District of California United States District Court 5 Rubyy argues, despite having already stated that he would be free to represent any other 6 company in a dispute with Rubyy, that Attorney Kinnear should be disqualified for the 7 representation he provided to Kanbar, not the representation he provided to Skyy (Reply Br. 11). 8 Attorney Kinnear apparently represented Kanbar personally in three instances: (1) in litigation 9 regarding an apartment building entirely unrelated to Skyy — Rubyy ignores this litigation in its 10 motion; (2) in a copyright action against Skyy that named Kanbar as a defendant; and (3) in the 11 sale of Kanbar’s interest in Skyy in 2002 (Br. 4–6). These matters are over and gone, and were 12 different from the case at hand. 13 The typical disqualification motion arises where an attorney accepts employment with a 14 new client in litigation adverse to a former client. The concern is that the “professional 15 commitment” of a lawyer “is not furthered, but endangered, if the possibility exists that the 16 lawyer will change sides later in a substantially related matter.” Trone v. Smith, 621 F.2d 994, 17 998 (9th Cir. 1980) (emphasis added). Every decision cited by Rubyy involves a lawyer who has 18 obtained a new client that is adverse to a former client. But in this action, Attorney Kinnear never 19 changed sides — Skyy is not a new client. Kanbar is the one who jumped ship. NO SUBSTANTIAL RELATIONSHIP. 20 2. 21 The Ninth Circuit has held that “the substantial relationship test is inapplicable when the 22 former client has no reason to believe that information given to counsel will not be disclosed to 23 the firm’s current client.” Christensen v. United States Dist. Ct. for the Cent. Dist. of Cal., 24 844 F.2d 694, 699 (9th Cir. 1988). Here, because his interests were the same as Skyy’s prior to 25 his sale of the company, Kanbar had no reason to believe that any information he gave to 26 Attorney Kinnear would not be shared with Skyy. 27 28 Even if the “substantial relationship” test were to be applied here, the result would weigh against disqualification. To create a conflict requiring disqualification, “the information acquired 4 1 during the first representation . . . must be found to be directly at issue in, or have some critical 2 importance to, the second representation.” Farris, 119 Cal. App. 4th at 680. In support of its 3 argument that a “substantial relationship” exists here, Rubyy points to: (1) “confidential 4 discussions [between Attorney Kinnear and Kanbar] concerning the [value of and] goodwill 5 associated with the Skyy Marks;” (2) the fact that Attorney Kinnear “spearheaded the effort to 6 collect information concerning all outstanding legal claims relating to . . . the Skyy Marks;” and 7 (3) Attorney Kinnear’s representation of “Kanbar personally in a copyright lawsuit . . . pertaining 8 to pictures of a Vodka bottle bearing the Skyy Marks” (Reply Br. 7–8). For the Northern District of California United States District Court 9 All of this information was acquired in representing Skyy and its officer Kanbar in the 10 same matters. Kanbar owed a duty to Skyy to support Skyy in the matters. Conceivably, isolated 11 comments made by Kanbar to counsel could overlap with isolated issues herein, such as the value 12 of the Skyy mark. If counsel expects to be a potential witness to impeach Kanbar then he should 13 step aside, but there is no indication he will be a potential witness on this record. This risk is so 14 attenuated that it will not be used as a basis for disqualifying Skyy’s long-time counsel. 15 3. 16 “It is well settled that a former client who is entitled to object to an attorney representing DELAY AND PREJUDICE TO SKYY. 17 an opposing party on the ground of conflict of interest but who knowingly refrains from asserting 18 it promptly is deemed to have waived that right.” Trust Corp. of Mont. v. Piper Aircraft Corp., 19 701 F.2d 85, 87 (9th Cir. 1983). Rubyy was aware of Skyy’s counsel when this action began in 20 February 2009 — Attorney Kinnear filed Skyy’s complaint. But Rubyy did not file a motion to 21 disqualify until October 2009. Rubyy argues it delayed because settlement negotiations were 22 ongoing, and that Skyy was alerted no later than May 2009 that Rubyy would seek 23 disqualification (Reply Br. 3–5). The fact remains, however, that Rubyy did not actually file its 24 motion until October. Meanwhile, the case schedule has been moving ahead and the fact- 25 discovery cutoff is seven weeks away. 26 Rubyy asserts that it “would have been imprudent and counterproductive to file a 27 disqualification motion while counsel were initially focused on mediating a resolution and 28 pursuing an agreement to settle the dispute altogether” (id. at 5). This is not true. If Attorney 5 1 Kinnear’s previous representation of Kanbar were as significant a concern as Rubyy now argues, 2 it is inconceivable that Rubyy would have wanted to engage in settlement discussions while Skyy 3 was represented by him — it would have been both prudent and productive to file a motion to 4 disqualify as soon as possible. If Rubyy had filed this motion right away, the potential prejudice 5 to Skyy would have been significantly reduced. But now the circumstances are different — 6 substantial work has gone in to this case and the discovery deadline of December 31, 2009, is fast 7 approaching. 8 For the Northern District of California United States District Court 9 Rubyy cites numerous decisions in which courts have granted motions for disqualification after delays significantly longer than the one present here. But delay is merely one of the 10 factors considered by courts in determining whether or not to disqualify an attorney. 11 Concat, 350 F. Supp. 2d at 814. All of the decisions Rubyy cites are based on their own 12 unique circumstances and none is analogous to the situation present in this action. 13 14 15 16 17 Additionally, although the length of the delay in bringing a motion to disqualify is important, it is not dispositive: [I]t is also appropriate to consider such factors as when the movant learned of the conflict; whether the movant was represented by counsel during the delay; why the delay occurred, and in particular whether the motion was delayed for tactical reasons; and whether disqualification would result in prejudice to the nonmoving party. 18 Employers Ins. of Wausau v. Albert D. Seeno Constr. Co., 692 F. Supp. 1150, 1165 (N.D. Cal. 19 1988) (Lynch, J.). Here, Rubyy was aware of the conflict the day the action was filed and has 20 been represented by counsel since that time; Rubyy’s reason for the delay is not compelling, and 21 disqualification at this stage would certainly prejudice Skyy. 22 Rubyy’s eight-month delay, when considered in conjunction with the specific 23 circumstances of this action — including the nature of the previous representation, the prejudice 24 to Skyy, and Rubyy’s willingness to deal with Attorney Kinnear in settlement negotiations — 25 weighs heavily against disqualification. 26 27 28 6 1 2 CONCLUSION This motion is largely a tactical gimmick. Going forward, Rubyy would be well advised 3 to focus on the merits. Rubyy’s motion for disqualification is DENIED. The hearing scheduled 4 for November 12, 2009, is VACATED. 5 6 IT IS SO ORDERED. 7 8 Dated: November 9, 2009. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7
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