Court Disqualifies Attorney Hired by General Partner

• Author: Kelso L. Anderson
• Pages: 7-7

Published in Litigation News Volume 45, Number 3, Spring 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

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AMERICA N BAR ASSOCIATION SPRING 20 20 • VOL. 45 NO. 3 | 7

n attorney hired by a gen -

eral partne r may be dis-

qualified from represent-

ing the partne rship if the

partnership agreement

does not specifically authorize

that partner to a ct on behalf of

the partnership.

In Jarvis v. Jar vis, two broth-

ers, James and Todd, were general

partners and 50 percent owners of

Jarvis Prope rties, a limited partner-

ship that owned a two -acre parcel

of land. Jar vis Properties was the

only asset of the pa rtnership, and

the brothers were the only partners.

The partnership agreement required

the partner ship to act only with the

consent of a “majo rity” of the general

partners. The general partners could

not agree on how to disp ense with

Jarvis Properties, and the partner-

ship agreeme nt did not address how

to make decisions in t he event of a

deadlock.

James hired counsel and filed

an action in the M onterey County

Superior Cou rt for partition by sale of

Jarvis Properties, naming both Todd

and Jarvis Properties as defendants.

In response, Todd hire d counsel to

represent him in th e partition action

and also hired se parate counsel to

represent the partnership. Both Todd

and the partnership filed demurrers

to James’s action . Responding to the

hiring of counse l, James filed a mo-

tion to disqualif y the partnership’s

counsel on grou nds that the attor-

ney was not authorized to a ct on be-

half of the partn ership because the

requisite “major ity” of partners did

not approve h is hiring. More over,

James argued, counsel representing

the partner ship was not acting in the

best interest of the p artnership be-

cause counsel was incurring unneces-

sary litigatio n costs, thereby deplet-

ing partnership assets.

The trial court granted James’s

motion to disqualif y the partnership

Court Disqualifies Attorney Hired by

General Partner

counsel. Todd then appealed the trial

court’s disqualification of counsel to

the California C ourt of Appeal, Sixth

Appellate Distr ict, which armed the

trial court’s ruling.

Observing th at the trial court has in-

herent authori ty to control the “con-

duct of its minis terial ocers,” the

appellate court noted that disqualifica-

tion of counsel usu ally occurs to avoid

two situations: con flicts of interest or

adverse use of confi dential informa-

tion. Conflic ts of interest usually occur

where counsel se eks to represent a cli-

ent whose interest s are adverse to a

former client o r where counsel seeks to

concurrently represent multiple parties

in a single actio n.

In dicta, the a ppellate court cited

California Sta te Bar Rule of Professional

Conduct 3-310 for the proposition that

an attorney’s dut y of loyalty is cen-

tral to his or her conc urrent represen-

tation of clients . In addition, citing Dino

v. Pela yo for the point that stand ing is

not required for a p arty to file a mo-

tion to disqualif y counsel, the appel-

late court emph asized that James’s dis-

qualificatio n motion was based on his

role as an interested p arty in the part-

nership. The a ppellate court also cited

California Sta te Bar Opinion 1994-137

for the principl e that an attorney rep-

resenting a par tnership may act only if

he or she has act ual authority from the

partner auth orized to act on behalf of

the partnership, which was absent here.

Lastly, the court no ted that legal val-

ues and interest s that support substan-

tial justice—in cluding a client’s choice

of counsel and th e best interest of the

partnership—were not oended by the

trial court ’s determination to disqualify

counsel because counsel’s service was

improperly commissioned.

ABA Section of Liti gation lead-

ers consider th e result in Jarvis rea-

sonable base d on the facts involved

and that Jarvis has broader impli-

cations prodde d by the partnership

agreement. “ The result was dictated

By Kelso L. Anderso n, Litigation News Associate Editor

by one of the most basi c principles of

partnersh ip law: unless a partnershi p

agreement or other governing docu-

ment provides otherwise, a partner-

ship can act on ly with the assent of

a majority of the pa rtners. In a two-

party par tnership, a majority equa ls

unanimity,” concl udes Steven Finell,

Santa Rosa, C A, chair of the Appellate

Rules & Statutes Sub committee of

the Section of Liti gation’s Appellate

Practice Committee.

“Partnership agreements should be

drafted caref ully to articulate how de-

cisions on beha lf of the partnership will

be made. Importantly, those agree-

ments should a lso be updated to ad-

dress changed circumstances,” urges

Blanca F. Young, San Franc isco, CA,

cochair of the Sec tion’s Trial Practice

Committee. Indeed, “deadlock avoid-

ance” is one of the ch anged circum-

stances that sho uld be considered

in partners hip agreements in which

the “voting struc ture can produce a

tie,” explains Joh n M. Barkett, Miami,

FL, cochair of the S ection’s Ethics &

Professionalism Committee.

Deadlock avoidance and disqual-

ification are not th e only consider-

ations in factu al circumstances similar

to Jarvis. One Sec tion leader concludes

that the case also h as pecuniary im-

plications. “The case has implications

beyond disquali fication.For exam-

ple, the law firm may have to disg orge

fees if it was retaine d without prop-

er authorization ,” observes Michael S.

LeBo, Newpor t Beach, CA, cochair o f

the Section’s Commercial & Business

Litigation Committee. Another Section

leader emph asizes the ethical issue that

counsel must consider in representing

an entity-clie nt like a partnership. “Th e

proper role of a lawye r for an organi-

zation is to carry o ut the organization’s

objectives as dete rmined by those

constituents within the organization

that determine it s policies,” reminds

Finell, citing M odel Rule of Professional

Conduct 1 .13.