1 David Alden Erikson (SBN 189838) 2 S. Ryan Patterson (SBN 279474) 3 200 North Larchmont Boulevard 4 Telephone: 323.465.

3100 5

LAW OFFICES OF DAVID ALDEN ERIKSON Dae@daviderikson.com Ryan@daviderikson.com

Los Angeles, California 90004 Facsimile: 323.465.3177

6 LLC 7 8 9 10

Attorneys for Plaintiff TARA SMITH,

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION Case No. 2:13-cv-01078-JAK-DTB Hon. John A. Kronstadt PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP; MEMORANDUM OF POINTS AND AUTHORITES Hearing Date: May 20, 2013 Place: Courtroom 750-7th Floor Time: 8:30 a.m. [Filed Concurrently with the Declarations Of Tara Smith and David Alden Erikson]

11 TARA SMITH, LLC, a California 12 13 14

limited liability company, Plaintiffs, v.

15 California corporation; ELIZABETH 16 HIRSCH, an individual, 17 18 19 20 21 22 23 24 25 26 27 28 1

ARCH STANTON COMPANY, a

LAHEY, an individual; ANTHONY Defendants.

TO THE COURT, ALL PARTIES AND TO THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE that on May 20, 2012, at 8:30 am in Courtroom 750 of the above-referenced Court, located on the seventh floor of the Roybal Building, 255 East Temple Street, Los Angeles, California 90012, Plaintiff, by and through its attorney of record, will and hereby does move this Court for an order disqualifying the Law Offices of Green & Green, LLP, and Geri Green, as counsel
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 for Defendants Arch Stanton Company (ASC), Elizabeth Lahey (Lahey) and 2 Anthony Hirsch (Hirsch), collectively referred to herein as Defendants. This 3 motion is made on the ground that Mark Green formerly represented Plaintiff in a 4 matter substantially related to this litigation. 5

This motion is made following the conference of counsel pursuant to Local This motion is based on this Notice, the accompanying Memorandum of

6 Rule 7-3, which took place on March 14, 2013. 7

8 Points and Authorities, the Declarations of Tara Smith and David Alden Erikson, the 9 pleadings and records on file in this action and upon such other evidence and
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10 argument as the Court may consider. 11 12 DATED: April 22, 2013 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2

PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

LAW OFFICES OF DAVID ALDEN ERIKSON By: ____/dae/___________________________ David Alden Erikson Attorneys for Plaintiff TARA SMITH, LLC

1 2 3

MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Green & Green should be disqualified from representing Defendants because

4 Mark Green formerly represented Plaintiff. For several months in 2012, as the 5 Companys only counsel, Mr. Green negotiated and drafted several key agreements 6 and documents for the Company, including the version of its Operating Agreement 7 still in use today. In doing so, he worked directly with the Companys founderas 8 well as with the Companys senior management team, who are the Defendants in 9 this case. After the falling out between the Company and Defendants that 10 precipitated this lawsuit, the Greens chose to represent the latter against the former. 11

Such shifting loyalty is not permitted. But what makes Mr. Greens actions

12 particularly audacious is that he handled one of the key transactions at issue in this 13 lawsuit. Plaintiff alleges that Defendants (in their capacity as Company officers) 14 accepted a terrible deal with an investor in order to personally dip into those funds 15 once they were in the Company bank account. Mr. Green handled this very 16 transaction. He did the negotiating with the investors counsel, at the Defendants 17 behest, and conferred with Company founder Tara Smith (Tara) in the process. 18

In other words, Mr. Greens prior representation was intimately related to this

19 oneeasily meeting the substantially related standard for disqualification. 20 Defendants will argue in this case that Tara herself was aware that the investor deal 21 was a bad one, but that she accepted anyway out of desperation; and that it was 22 understood by all that Defendants would take a chunk of the investment proceeds 23 for themselves as contractual compensation. Mr. Green was right in the middle of 24 these issues. 25

Disqualification does not depend on Mr. Greens receipt of confidential

26 information or foreknowledge of evidence and positions. Rather, where current 27 representation is substantially related to prior one, no inquiry into actual 28 1
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 transmission of confidential information is required, because it is conclusively 2 presumed. And where the current litigation involves the very transaction handled in 3 the prior representation, disqualification is virtually automatic, as explained below. 4

And it gets worse. Defendants argue Mr. Green was actually representing

5 them in the investor deal. If true, this would not change the fact that he also 6 represented the Company (and such latter representation can be demonstrated with 7 emails and testimony). But it would make the case for disqualification all the more 8 overwhelming. As explained at the end of this brief, where the prior representation 9 was joint (or even just arguably joint), disqualification is once again automatic.
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10 11 A. 12

II.

FACTUAL BACKGROUND

The Companys Allegations Plaintiff, a hair care company founded by high-profile hair stylist Tara Smith,

13 alleges that Defendants insinuated themselves into Plaintiffs top managementand 14 proceeded to use their positions to siphon off investor funds. [First Amended 15 Complaint (FAC), 3.] Rather than pursue the Companys interests, Defendants 16 promoted the false sense that they were successfully rebuilding the company. [Id.] 17 They did this in order to remain in a position where they could milk the company. 18 [Id.] During their eighteen-month tenure, about a half million dollars was invested in 19 the Company by third parties. [Id.] And almost always, as soon as money came in 20 the door from an investor, a good portion went immediately out the door to 21 Defendants. [Id.] 22

Plaintiff brings this action to rescind Defendants contract on grounds of fraud,

23 unconscionability and lack of true assent by Tara on behalf of the Company. [Id. at 24 4.] That purported contractto provide part-time, non-exclusive virtual 25 management services to a small business with no goods at marketwas shockingly 26 favorable to Defendants. [Id.] It provided for a monthly fee of between $15,000 and 27 $50,000. [Id.] Even more incredibly, Defendants would be given 15% of the 28 2
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 Company, a stake worth $750,000 in accordance with the deals Defendants were 2 striking with investors. [Id.] 3 B. 4 5

Mark Green Negotiated A Key Investor Deal For The Company, And Even Drafted The Companys Operating Agreement In July of 2011, an investor agreed to provide the Company with $250,000.

6 [Declaration of Tara Smith, 3.] Half was to be invested immediately, and half when 7 certain conditions were satisfied. [Id.] In January of 2012, the investor agreed to 8 accelerate the second tranche. [Id.] She drove a hard bargain however, securing 9 certain valuable concessions. [Id.] Because the Company needed the funds on an
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10 emergency basis, the parties signed a quick written agreement on February 1, 2012, 11 leaving the details and definitive agreements for later. [Id.] 12

The Company engaged Mr. Green to handle the negotiations, including

13 drafting the operative documents, which included an agreement with the investor as 14 well as amending the Companys Operating Agreement. [Id., 4-6.] By mid-April, 15 after extensive conferring with the Company (Tara, as well Defendants in their 16 capacity as corporate officers), Mr. Green produced drafts of the investor agreement, 17 the Companys Operating Agreement, and a disclosure letter for investors. [Id., 18 7-9.]. He subsequently engaged in a back-and-forth with the investors counsel to 19 wrap up the deal. [Id., 10-12.] 20 21 22 23 24 25 26 27 28

In the course of doing so, Mr. Green: Met and conferred personally with Tara (as sole principal of the Company), as well as conferred with her by phone and email. Some of these communications involved only Tara and Green, while some included Lahey and Hirsch, and managers of the Company. [Id., 4-12.] Made legal judgments and recommendations to the Company (to Tara, as well as to Lahey and Hirsch), with respect to matters that had been left undecided beforehand. [Id.] This is demonstrated by emails. For example,
3
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1 2 3 4 5 6 7 8 9
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Mr. Green opined that the investor should not be granted unlimited favored nations status as requested, because it would harm the Companys later efforts to court investors. [Id. 8, Exh. B.] Communicated proposals to, and engaged in a back-and-forth with, opposing Counsel (at one point indicating that certain final proposed changes by the investors counsel were fine with Tara). [Id., 10-12, Exh. C.] These matters are demonstrated by emails. Drafted the first drafts of the definitive documents (between the Company and the investor) and transmitted them to opposing counsel, and worked through several drafts to arrive at the final executed agreements. [Id., 412.] These matters are demonstrated by emails. All the while, he communicated the process to the Company (to Tara individually, as well as to Lahey and Hirsch). He also sought and received Taras approval and consent on matters that required it. [Id., 4-12, Exh A.] These matters are demonstrated by emails. The Investor Deal Is As A Key Issue In This Litigation. Defendants involvement in the investor deal described above is a key issue in

10 11 12 13 14 15 16 C. 17

18 this litigation. Plaintiffs Complaint alleges generally that after using fraud to secure 19 their positions [FAC, 17-18], Defendants pursued courses of action that looked 20 good, but were indeed bad for the Companyso that they could tap angel investor 21 funds as they came in. [FAC, 28.] 22

The investor deal described above was the most prominent example (it was

23 and remains the Companys largest investment), as duly emphasized in the 24 Complaint: 25 26 27 28

In several instances, Defendants negotiated deals with investors that were by any measure far too generous to the investor and conversely detrimental to the Company itself. Again, this was not merely the result of poor business judgment on the Defendants part. Rather, it was part of a calculated effort to bring money into the company, which Defendants could tap for themselves, without regard to the Companys
4
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 2 3 4 5 6 A. 7 8
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interests. With regard to one investor (whose identity is known to Defendants), each of the Defendants specifically misrepresented that the deal was advantageous when in fact it was not. Defendants made such misrepresentations during a meeting in January or February 2012, between Lahey, Hirsch and Mark Green (an attorney brought in by Hirsch to negotiate the deal with this investor, on behalf of the Company), which took place at Mr. Greens house (and at which meeting Tara gave Green a haircut). [FAC, 29.]1 III. GREEN & GREEN SHOULD BE DISQUALIFIED Disqualification Turns On Whether There Was A Substantial Relationship Between The Former and Current Representation Attorney conduct before this Court is governed by the California Rules of

9 Professional Conduct. See L.R. 83-3.1.2. Under these rules, an attorney is prohibited 10 from accepting employment adverse to the interests of a former client without first 11 obtaining that clients informed written consent waiving the conflict. Cal. Rules 12 Professional Conduct, Rule 3-310(E). An attorneys former client who does not 13 consent to the attorneys representation of an adversary may disqualify the attorney 14 by showing a substantial relationship between the subjects of the prior and the 15 current representations. Flatt v. Superior Court, 9 Cal.4th 275, 282 (1994). 16
2

It is not necessary to prove confidential information was actually obtained

17 through the former representation: If (i) a substantial relationship exists between 18 the former and present matters and (ii) the nature of the employment was such that 19 confidential information material to the case would normally be imparted to the 20 attorney, then (iii) the attorney's knowledge of material confidential information is 21 conclusively presumed and (iv) disqualification is mandatory absent the former 22 client's informed written consent. Cal. Prac. Guide: Professional Responsibility, Ch. 23 4-C (The Rutter Group, 2012); Flatt, supra, at 283 (citing Rosenfeld Const. Co. v. 24 25 26 As Defendants know, the investor referred to in this paragraph of the Complaint is the very one who Green negotiated with.
2 1

This disqualification is not limited to the individual attorney, but is imputed to that attorneys 27 entire law firm. See Henriksen v. Great Am. Sav. & Loan, 11 Cal.App.4th 109, 117 (1992) 28 5
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 Superior Court, 235 Cal.App.3d 566, 575 (1991)) (If a substantial relationship is 2 established, the discussion should ordinarily end. The rights and interest of the 3 former client will prevail. Conflict would be presumed; disqualification will be 4 ordered.) 5

A substantial relationship exists whenever the subject matters of the prior

6 and current representations are linked in some rational manner. Flatt, supra,, at 283. 7 In determining whether the same subject matter is involved, courts consider (i) 8 similarities between the two factual situations, (ii) similarities between the legal 9 questions posed; and (ii) the nature and extent of the attorney's involvement in the
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10 two cases. Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, LLP, 69 11 Cal.App.4th 223, 234 (1999); Jessen v. Hartford Cas. Ins. Co., 111 Cal.App. 4th 12 698, 709 (2003). And the word subject matter is construed very broadly in this 13 context. Jessen, supra, at 711. The Jessen court analogized this use of the term 14 subject matter to the familiar test for discoverability (relevance to subject 15 matter): In the lexicon of the law, the words subject and subject matter mean 16 more than the strict facts, claims, and issues involved in a particular action. Id. 17 B. 18

A Substantial Relationship Exists Here Here, the was certainly a substantial relationship between Mark Greens

19 involvement in the investor negotiations/drafting and this litigationbecause the 20 fact and legal issues are in part identical in that this lawsuit is largely about the very 21 investor deal Green handled. There is no question the representations are linked in 22 some rational manner. The nature and extent of Mr. Greens involvement also 23 requires disqualification because he was intimately involved in the interplay 24 between the Company and Defendants, which again is exactly the issue here. 25

Indeed, a line of cases treats disqualification as virtually automatic where the

26 later litigation concerns or includes the very transaction at issue in the prior 27 representation. See Zador Corp., N.V. v. Kwan, 31 Cal.App 4th 1285, 1294 (1995); 28 6
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 Knight v. Ferguson, 149 Cal.App. 4th 1207 (2007). A substantial relationship is 2 inherent in such situations, where the attorney was involved with (or even formerly 3 represented) the parties with respect to the subject matter of the subsequent 4 litigation. See Zador Corp., supra, at 1294. Disqualification in such cases depends 5 not on confidential information or the substantial relationship test, but rather on 6 the scope of each client's consent. Id. 7 C. 8 9
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Defendants Position That Mark Green Could Not Have Represented Plaintiff Because Formalities Were Not Observed Ignores The Law Regarding Formation Of An Attorney-Client Relationship During the meet and confer process, Defendants argued that Mr. Green did

10 11

12 not directly provide services to Tara Smith LLC and that despite appearances, he 13 was actually representing Defendants when providing the services described above. 14 Defendants acknowledge that Mr. Greens legal work provided a substantial 15 benefit to the Companybut they minimize the significance of this by claiming 16 that benefit was conferred as part of his representation of Defendants: 17 18 19 20

Mr. Green as ASCs general counsel since its inception did provide valuable services to ASC in aid of its performance of duties under its services agreement with Tara Smith, LLC, which services undoubtedly were of substantial benefit to Tara Smith, LLC. [Exh. A to Declaration of David Erikson.] Further, Defendants argue, Mr. Green could not have been representing the

21 Company because Tara did not respond when Lahey (not Green) advised her that a 22 representation agreement was required. Geri Green argues in her letter: 23 24 25 26 27 28

At one time the ASC principals asked [Mr. Green] whether he would consider undertaking representation of Tara Smith, LLC. He pointed out that to do so since he represented ASC would require a written contract of representation with an appropriate waiver of conflict of interest . . . . []. Elizabeth Lahey, one of the ASC principals, so informed Tara Smith and in an April 9, 2012 email to Tara confirmed that she, Tara, needed to Sign a representation agreement with Mark Green if she wished to have him represent Tara Smith, LLC. [] Ms. Smith never responded to this notice.
7
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

Both of these arguments rely on far too formal a view of the attorney-client

2 relationship, which can obviously exist in the absence of an explicit agreement or 3 when existing relationships would make a waiver advisable. Even accepting 4 Defendants tortured logicthat an attorney could be representing company 5 managers in negotiating and drafting documents where the company is the party 6 there is no question that the Company itself was also a client. An attorney-client 7 relationship (and the attorney's corresponding duties to the client) can arise by 8 inference from the conduct of the parties; and neither a fee payment nor a formal 9 agreement is required. Lister v. State Bar, 51 Cal .3d 1117, 1126 (1990).
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10

The cases describe a multi-factor analysis, which perhaps Defendants will

11 walk us through when they offer evidence. But prior representation of the Company 12 is clear here in light of the communications between Mr. Green and Tara, and 13 between Mr. Green and the investors attorneys. (O)ne of the most important facts 14 involved in finding an attorney-client relationship is the expectation of the client 15 based on how the situation appears to a reasonable person in the client's position. 16 Responsible Citizens v. Sup.Ct. (Askins), 16 Cal.App.4th 1717, 1733 (1993); Flatt, 17 supra, at 281, fn. 1 (1994). 18 C. 19 20 21

Indeed, Mark Greens Representation Of Defendants During The Investor Deal Would Make The Current Representation All The More Problematic The fact that Mark Green represented the Company does not, of course, mean

22 that he didnt also represent Defendants at the same time. But if he did, or if the 23 question is even close (as it most certainly is given Defendants long relationship 24 with Mr. Green and their personal interests in the deal he was negotiating), then the 25 propriety of disqualification is beyond question. 26

In Knight v. Ferguson, 149 Cal.App. 4th 1207 (2007), an attorney was

27 disqualified in a extremely similar situation. Attorney was introduced to New Client 28 8

PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

1 by Attorneys Old Client, and (briefly) represented New Client in partnership 2 negotiations with a third party. Old Client attended some of the meetings and later 3 claimed he was actually a client at the time (although the court seems not to have 4 bothered addressing that question). When the third party dropped out, Old Client 5 stepped in and became New Clients partner. 6

Even though Attorney did not represent Old Client and New Client in their

7 own partnership negotiations, Attorney was properly disqualified when he tried to 8 represent Old Client in a subsequent partnership dissolution action against New 9 Client. The court found something unseemly in Attorneys representation of Old
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10 Client despite the fact that he had conferred with New Client about that very 11 partnership early on (before Old Clients involvement). The problem was that 12 Attorney had previously represented the plaintiff, New Client, with regard to the 13 formation of the very partnership that was issue in the action. Id. at p. 1211. The 14 Court of Appeal affirmed, concluding that although the legal issues and strategies 15 discussed during the two representations were different, a substantial relationship 16 existed because the two matters involved the same partnership and the prior 17 representation occurred at a critical stage, when [New Client] was creating the 18 business entity [that] is at the heart of this action. Id. at p. 1213. Even in the 19 absence of any question regarding privilege or confidentiality, the attorney simply 20 had a duty not to represent conflicting interests. Id. New Client had the right to 21 repose confidence in Attorney and to expect Attorney's loyalty to her with respect to 22 the partnership would not be compromised. Id. Indeed, the paramount concern was 23 not confidential information, but rather preservation of public trust in the 24 scrupulous administration of justice and the integrity of the bar: Id. (citing Jessen). 25 26 27 28

The legal theories and issues that an attorney discusses with a former client may be different than those involved in the subsequent lawsuit against that client. But the substantial relationship test is broad and not limited to the strict facts, claims, and issues involved in a particular action. (Jessen, supra, 111 Cal.App.4th at p. 711, 3 Cal.Rptr.3d 877.) [A] substantial relationship exists whenever the subjects' of the
9
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1 2 3 4

prior and the current representations are linked in some rational manner. [Citation.] (Ibid.) That is the case here. Knight retained Wideman to discuss a lease and partnership relating to the creation of the restaurant which is the subject of this action. IV. CONCLUSION Plaintiff is mindful that a partys choice of counsel deserves respect, and that

5 motions to disqualify are often more about gaining a strategic advantage than 6 preventing harm. But because of the profoundly intimate relation between Mark 7 Greens prior work for the Company and this litigation, and pursuant to established 8 case authority, this is a case for disqualification if ever there was one. Defendants 9 would certainly gain an advantage in using a lawyer who previously represented the
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10 Company with respect to the very subject matter of this lawsuit. But more 11 important, the prior representation was of a type that was so related to the current 12 litigation that courts have eschewed an actual inquiry into whether confidential 13 information was transmitted and relied instead on the presumption of such 14 transmission. 15

Defendants believe that their only way to avoid this conclusion is to argue

16 that Mr. Green was representing them in the prior dealings. This is unlikely, as 17 demonstrated by Taras declaration and the emails. But worse, prior representation 18 of the Defendants mandates disqualification all the more. It does not change the fact 19 that Mr. Green also represented Plaintiff. And a prior joint representation would be 20 extremely problematic. 21 DATED: April 22, 2013 22 23 24 25 26 27 28 10
PLAINTIFFS NOTICE OF MOTION AND MOTION TO DISQUALIFY THE LAW OFFICES OF GREEN & GREEN, LLP

LAW OFFICES OF DAVID ALDEN ERIKSON By: _____/dae/__________________________ David Alden Erikson Attorneys for Plaintiff TARA SMITH, LLC