Filed 5/12/14 Cafagna v. Superior Court CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
KEVIN CAFAGNA et al., D065339
Petitioners, (San Diego County Super. Ct. No.
37-2013-00047002-CU-MC-CTL)
v.
THE SUPERIOR COURT OF SAN
DIEGO COUNTY,
Respondent;
SQUARE ONE DEVELOPMENT
CORPORATION,
Real Party in Interest.
PETITION for writ of mandate challenging order of the Superior Court of San
Diego County, Joan M. Lewis, Judge. Petition denied.
Higgs, Fletcher & Mack, John Morris, Steven J. Cologne, Victoria E. Fuller and
Rahil K. Swigart for Petitioners.
No appearance for Respondent.
Galuppo & Blake, Louis A. Galuppo and Steven W. Blake for Real Party in
Interest.
Kevin Cafagna, as an individual, and Sharon Cafagna, as trustee of the Cafagna
Family Trust (together the Cafagnas), filed a petition for writ of mandate challenging an
order denying their motion to disqualify counsel for Square One Development, Inc.
(Development) in their action against Development for dissolution of Development. The
Cafagnas contend the trial court erred by denying their disqualification motion because:
(1) the legal problem involved in the instant action is substantially related to the legal
problems involved in matters in which Development's counsel formerly represented the
Cafagnas (i.e., successive representation theory); and (2) Development's counsel
concurrently represents Development and the Cafagnas in adverse matters (i.e.,
concurrent representation theory). Because we conclude the trial court did not abuse its
discretion by finding neither the successive representation nor the concurrent
representation theory required disqualification of Development's counsel, we deny the
petition.
FACTUAL AND PROCEDURAL BACKGROUND
Beginning in the 1980's, Michael Cafagna and Mark Mandell worked together and
formed over 20 different limited partnerships, corporations, and limited liability
companies to purchase, sell, develop, and manage real property, which affiliated entities
are sometimes cumulatively referred to by the parties as "Square One Enterprise"
2
(Enterprise). In 1983, Michael1 incorporated Development. In 2006, Michael gave gifts
of 25 percent of Development's stock to Mark, Mark's son Jonathan Mandell, and
Michael's son Kevin, retaining the remaining 25 percent of its stock. Thereafter, the
Cafagna family owned 50 percent of Development's stock and the Mandell family owned
50 percent of its stock.
Following Michael's death in 2009, the Cafagnas and Mandells apparently had
disagreements over the proper management of Development, which was being managed
by Mark.2 The Cafagnas and Mandells apparently also have disputes regarding Square
One, Inc. (Square One) and other Enterprise entities. Development has four directors:
Sharon, Kevin, Mark and Jonathan.
In May 2013, the Cafagnas filed a complaint against Development for dissolution
of Development pursuant to Corporations Code section 1800. The complaint alleged the
following grounds for dissolution of Development:
"a. [Development] has an even number of directors who are equally
divided and cannot agree as to the management of its affairs, so that
its business can no longer be conducted to advantage and the holders
of the voting shares of the corporation are so divided into factions
that they cannot elect a board consisting of an uneven number;
"b. [Development] has an even number of directors who are equally
divided and cannot agree as to the management of its affairs, so that
there is a danger that its property and business will be impaired or
1 We refer to members of the Cafagna and Mandell families by their first names to
distinguish them from other members of the same family.
2 After his death, Michael's wife Sharon, as trustee of the Cafagna Family Trust,
apparently became the owner of his 25 percent of Development's stock.
3
lost and the holders of the voting shares of [Development] are so
divided into factions that they cannot elect a board consisting of an
uneven number;
"c. There is internal dissension and two or more factions of
shareholders in [Development] are so deadlocked that its business
can no longer be conducted with advantage to its shareholders; and
"d. The liquidation is reasonably necessary for the protection of the
rights or interests of the complaining shareholders."
In June, Development, by its counsel, the Galuppo & Blake law firm (Galuppo), filed its
answer to the Cafagnas' complaint.
On September 4, 2013, the Cafagnas filed a motion to disqualify Kyle Yaege and
Galuppo (Counsel) from representing Development in the instant action. The Cafagnas
argued Counsel should be disqualified because they concurrently represent both the
Cafagnas and Development in adverse matters and, in addition, Kyle and/or his wife,
Eden, formerly represented the Cafagnas and/or Square One (in which the Cafagnas own
all the stock) in matters involving legal problems or issues substantially related to the
legal problems or issues involved in the instant action. In support of their motion, the
Cafagnas submitted their own declarations and lodged certain documents. Development
opposed the motion to disqualify Counsel, arguing the Yaeges' prior representation of the
Cafagnas was not substantially related to Counsel's current representation of
Development in the instant action and, in addition, there was no concurrent representation
by Counsel of the Cafagnas and Development. In support of its opposition, Development
submitted the declarations of Kyle Yaege, Eden Yaege, Mark, and Louis Galuppo. The
Cafagnas filed a reply to Development's opposition.
4
Following arguments of counsel, the trial court issued an order denying the motion
to disqualify (Order), stating in part:
"As an initial matter, the Court concludes that [the Cafagnas] have
failed to demonstrate that there is a concurrent representation by
counsel for [Development] and [the Cafagnas].
"Additionally, the Court believes that [the Cafagnas] have similarly
failed to demonstrate that defense counsel obtained confidential
information about the [Cafagnas] that can be used in this case to the
[Cafagnas'] detriment and that the prior representation is
substantially related to the subject matter of this case."
The Cafagnas filed the instant petition for writ of mandate challenging the Order.
Development filed an informal response. We issued an order to show cause why the
relief requested should not be granted. Thereafter, Development filed a return and the
Cafagnas filed a reply.
DISCUSSION
I
Legal Standards for Disqualification of Counsel
"A trial court's authority to disqualify an attorney derives from the power inherent
in every court '[t]o control in furtherance of justice, the conduct of its ministerial officers,
and of all other persons in any manner connected with a judicial proceeding before it, in
every matter pertaining thereto.' [Citations.] 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. [Citation.] The paramount
concern must be to preserve public trust in the scrupulous administration of justice and
the integrity of the bar. The important right to counsel of one's choice must yield to
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ethical considerations that affect the fundamental principles of our judicial process."
(People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20
Cal.4th 1135, 1145.) "Other factors to consider in deciding a motion to disqualify
counsel include the attorney's interest in representing the client, the financial burden on
the client to replace disqualified counsel, and the possibility that the disqualification
motion is being used as a litigation tactic." (Fremont Indemnity Co. v. Fremont General
Corp. (2006) 143 Cal.App.4th 50, 62.)
In general, there are two types of situations in which conflicts requiring the
disqualification of counsel may arise--concurrent representation and successive
representation. (Cal West Nurseries v. Superior Court (2005) 129 Cal.App.4th 1170,
1174.) "Whether or not disqualification is required in successive representation cases
depends upon two variables: '(1) the relationship between the legal problem involved in
the former representation and the legal problem involved in the current representation,
and (2) the relationship between the attorney and the former client with respect to the
legal problem involved in the former representation.' " (Santa Teresa Citizen Action
Group v. City of San Jose (2003) 114 Cal.App.4th 689, 711.) "This rule is based upon
the potential violation of the lawyer's duty of confidentiality." (Cal West, at p. 1174.) "If
a substantial relationship exists, courts will presume that confidences were disclosed
during the former representation which may have value in the current relationship. Thus,
actual possession of confidential information need not be proven . . . ." (Truck Ins.
Exchange v. Fireman's Fund Ins. Co. (1992) 6 Cal.App.4th 1050, 1056.)
6
In a concurrent representation case, the "substantial relationship" test does not
apply. "Absent informed written consent, a lawyer may not concurrently represent
clients who have actual or potential conflicts; nor may a lawyer represent one client
against another in an unrelated matter. [Citations.] It is immaterial whether the lawyer
possesses confidential information that could be misused to the prejudice of either client."
(Cal West v. Superior Court, supra, 129 Cal.App.4th at p. 1175.) "The primary value at
stake in cases of simultaneous or dual representation is the attorney's duty--and the
client's legitimate expectation--of loyalty, rather than confidentiality." (Flatt v. Superior
Court (1994) 9 Cal.4th 275, 284.) Therefore, the rule requiring disqualification of an
attorney who concurrently represents adverse interests is a per se or automatic rule.
(Ibid.)
II
Standard of Review
In Clark v. Superior Court (2011) 196 Cal.App.4th 37, we described the standard
of review that applies to a trial court's decision to grant or deny a motion to disqualify
counsel. "A trial court's ruling on a disqualification motion is reviewed under the
deferential abuse of discretion standard. [Citations.] 'In exercising its discretion, the trial
court must make a reasoned judgment that complies with applicable legal principles and
policies.' [Citations.] 'The order is subject to reversal only when there is no reasonable
basis for the trial court's decision.' [Citation.] [¶] 'In deciding whether the trial court
abused its discretion, "[w]e are . . . bound . . . by the substantial evidence rule." '
[Citation.] The trial court's order is ' "presumed correct; all intendments and
7
presumptions are indulged to support [it]; conflicts in the declarations must be resolved in
favor of the prevailing party, and the trial court's resolution of any factual disputes arising
from the evidence is conclusive." ' [Citations.] Hence, we presume the trial court found
in [the prevailing party's] favor on 'all disputed factual issues.' [Citation.] Further,
'where there are no express findings, we must review the trial court's exercise of
discretion based on implied findings that are supported by substantial evidence.'
[Citation.] 'In viewing the evidence, we look only to the evidence supporting the
prevailing party. [Citation.] We discard evidence unfavorable to the prevailing party as
not having sufficient verity to be accepted by the trier of fact. [Citation.] Where the trial
court has drawn reasonable inferences from the evidence, we have no power to draw
different inferences, even though different inferences may also be reasonable.' [Citation.]
'If the trial court resolved disputed factual issues, the reviewing court should not
substitute its judgment for the trial court's express or implied findings supported by
substantial evidence.' " (Id. at pp. 46-47.)
III
Successive Representation
The Cafagnas contend the trial court erred by concluding the successive
representation rule did not apply in the circumstances of this case to require
disqualification of Counsel. They assert the legal problem involved in the instant action
is substantially related to the legal problems or issues involved in matters in which
Counsel formerly represented them.
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A
In moving to disqualify Counsel from representing Development in this action, the
Cafagnas argued that Eden Yaege and Kyle Yaege had formerly represented them in
legal problems or matters that are substantially related to the legal problem involved in
the instant action. In support of their motion, the Cafagnas submitted their declarations
and lodged certain documents. Kevin's declaration stated in part:
"6. [Development] also had Eden Yaege working for it. . . .
"7. After graduating from law school in 2007, Eden continued her
previous role with [Enterprise] [and] . . . eventually became more
experienced and became the general counsel for [Enterprise]. She
would advise on lease issues, oversee the litigation matters that were
pending for each of the entities, ensure that the collection efforts
were underway for any and all matters where third parties owed
money to any of the entities and work on the corporate and
partnership compliance issues for all the entities. . . .
"8. . . . Eden provided transactional legal advice to Square One, Inc.,
a corporation owned solely by the Cafagna Family Trust. Eden
prepared trust documents for us . . . .
"9. Kyle Yaege also represented the Cafagna family in potential
litigation matters. . . .
"10. Kyle also represented individual entities in [Enterprise] in
numerous litigation matters.
"11. Eden and Kyle also had complete access to and Eden routinely
reviewed confidential information for the Cafagna-owned entities,
our family trusts, and Sharon and Michael's individual tax returns.
Eden also maintains copies of all Cafagna family trust documents
and routinely updated a matrix that contained confidential
information about each of the family trusts.
"12. . . . Sharon and I provided [Eden and Kyle] with confidential
information to assist them in our representation. . . ."
9
Sharon's declaration stated in part:
"7. . . . Eden provided transactional legal advice to Square One,
Inc. . . . She would update the corporate documents as required by
statute and ensure that [it was] complying with the law as far as
formalities were concerned.
"8. Even though I hired counsel to assist in the administration of the
trust and Michael's estate, Eden prepared trust documents for our
family trusts. . . .
"9. Kyle Yaege also represented the Cafagna family in potential
litigation matters where we were individually named as possible
defendants.
"10. Eden and Kyle also had complete access to and routinely
reviewed confidential information for Kevin, the Cafagna-owned
entities and [me]. For example, until 2011, Eden maintained copies
of the tax returns for all the [Enterprise] entities, including the
personal tax returns for Michael and me, and tax returns for the
Cafagna family trusts. Eden also maintains copies of all Cafagna
family trust documents and routinely updated a matrix that contained
confidential information about each of the family trusts."
Sharon's declaration also described several e-mails and documents that showed Eden and
Kyle's past representation of Enterprise, Sharon, and the Cafagna family.
In opposing the motion to disqualify, Development argued the Yaeges' prior
representation of the Cafagnas is not substantially related to Counsel's current
representation of Development in the instant action. In support of its opposition,
Development submitted the declarations of Kyle Yaege, Eden Yaege, Mark, and Louis
Galuppo. Eden's declaration stated she assisted Mark with drafting leases and
coordinating commercial loans and performed other tasks he asked her to do. Regarding
those matters that involved the Cafagnas or their wholly owned entities, all of the
information disclosed to her came from Mark outside the Cafagnas' presence or was
10
provided by them with Mark's active participation. She had about 10 meetings in person
with Sharon over 10 years and slightly more meetings with Kevin, and most of those
meetings were informal. Kyle's declaration described his representation of the Cafagnas
regarding his negotiation of a tolling agreement in a dispute with a lender regarding a
limited partnership that had defaulted on its loan.
The trial court denied the Cafagnas' motion to disqualify Counsel, concluding they
had not carried their burden to show either concurrent representation or that the legal
problems or issues in Counsel's former representation of the Cafagnas are substantially
related to the legal problem in the instant action.
B
We conclude the trial court did not abuse its discretion by finding the Cafagnas
had not carried their burden to show the legal problems or issues in Counsel's former
representation of them are substantially related to the legal problem or issue in the instant
action. Under the Cafagnas' successive representation theory, they had the burden to
show a substantial relationship exists between the legal problems involved in Counsel's
former representation of them and the legal problem involved in the instant action.
(Santa Teresa Citizen Action Group v. City of San Jose, supra, 114 Cal.App.4th at p. 711;
Truck Ins. Exchange v. Fireman's Fund Ins. Co., supra, 6 Cal.App.4th at p. 1056; Flatt v.
Superior Court, supra, 9 Cal.4th at p. 283.) "To determine whether there is a substantial
relationship between successive representations, a court must first determine whether the
attorney had a direct professional relationship with the former client in which the attorney
personally provided legal advice and services on a legal issue that is closely related to
11
the legal issue in the present representation." (City and County of San Francisco v.
Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 847, italics added.) "The test for a
'substantial relationship' between cases entails an inquiry into ' "the similarities between
the two factual situations, the legal questions posed, and the nature and extent of the
attorney's involvement with the cases." ' [Citation.] It must be shown that the
information from the prior representation is 'material' to the current employment.
[Citation.] ' "As part of its review, the court should examine the time spent by the
attorney on the earlier cases, the type of work performed, and the attorney's possible
exposure to formulation of policy or strategy." ' " (Morrison Knudsen Corp. v. Hancock,
Rothert & Bunshoft (1999) 69 Cal.App.4th 223, 234.)
Based on our review of the evidence submitted by the parties below, we conclude
there is substantial evidence to support the trial court's finding that neither Eden Yaege
nor Kyle Yaege formerly represented the Cafagnas in any matter involving a legal issue
closely related to the legal issue in the instant action. (City and County of San Francisco
v. Cobra Solutions, Inc., supra, 38 Cal.4th at p. 847.) Applying the presumption of
correctness and abuse of discretion standard of review, we defer to the trial court's
findings of fact, including its determinations of the weight and credibility of evidence.
(Clark v. Superior Court, supra, 196 Cal.App.4th at pp. 46-47.) In so doing, we infer the
trial court found the declarations of the Cafagnas to be insufficiently specific regarding
the exact nature of Counsel's former representation of the Cafagnas and inadequate to
show the existence of any legal issue that is closely related to the legal issue in the instant
action. As Development asserted below and the trial court impliedly found, the legal
12
issue in the instant action is whether or not the statutory prerequisites have been satisfied
for dissolution of Development as a corporation. The Cafagnas' complaint in the instant
dissolution action seeks an order requiring the directors of Development to wind up its
affairs, subject to supervision by the trial court, in accordance with the Corporations
Code. It also asks the trial court to entertain such proceedings as may be necessary or
proper for the involuntary winding up or dissolution of Development.
The instant action does not involve any legal issues other than whether the
statutory prerequisites have been satisfied for dissolution of Development pursuant to
Corporations Code section 1800 and, if so, what actions and proceedings are necessary or
appropriate to wind up and dissolve Development.3 However, none of the matters in
3 Corporations Code section 1800, subdivision (b), sets forth the following grounds
for involuntary dissolution of a corporation: "(1) The corporation has abandoned its
business for more than one year. [¶] (2) The corporation has an even number of directors
who are equally divided and cannot agree as to the management of its affairs, so that its
business can no longer be conducted to advantage or so that there is danger that its
property and business will be impaired or lost, and the holders of the voting shares of the
corporation are so divided into factions that they cannot elect a board consisting of an
uneven number. [¶] (3) There in internal dissension and two or more factions of
shareholders in the corporation are so deadlocked that its business can no longer be
conducted with advantage to its shareholders or the shareholders have failed at two
consecutive annual meetings at which all voting power was exercised, to elect successors
to directors whose terms have expired or would have expired upon election of their
successors. [¶] (4) Those in control of the corporation have been guilty of or have
knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of
authority or persistent unfairness toward any shareholder or its property is being
misapplied or wasted by its directors or officers. [¶] (5) In the case of any corporation
with 35 or fewer shareholders (determined as provided in [Corporations Code] Section
605), liquidation is reasonably necessary for the protection of the rights or interests of the
complaining shareholder or shareholders. [¶] (6) The period for which the corporation
was formed has terminated without extension of such period." Based on the Cafagnas'
13
which Eden and Kyle Yaege formerly represented the Cafagnas involved those legal
issues or any other legal issue closely related to those issues. The fact Eden formerly
represented the Cafagnas in transactional matters and preparation of Cafagna family trust
documents does not have a "close relationship" to the legal issues in the instant action to
involuntarily dissolve Development. Similarly, Kyle's former representation of the
Cafagnas or Enterprise entities in potential litigation matters does not show those matters
involved a legal issue closely related to the legal issues in the instant action to
involuntarily dissolve Development. Regardless of the nature and extent of the personal
contacts between the Cafagnas and the Yaeges, there is no evidence showing the Yaeges
(or Galuppo) formerly represented the Cafagnas in any matters involving a legal issue
closely related to the legal issues in the instant action. The trial court correctly found the
Cafagnas had not carried their burden to show the successive representation rule applied
to require Counsel's disqualification. Alternatively stated, there is substantial evidence to
support the court's finding that there is no substantial relationship between the legal
problems or issues in the instant action and the legal problems or issues in matters in
which Counsel formerly represented the Cafagnas.
IV
Concurrent Representation
The Cafagnas contend the trial court erred by concluding they had not carried their
burden to show Counsel concurrently represents them and Development in adverse
complaint, they appear to basing their dissolution action on the grounds set forth in
Corporations Code section 1800, subdivision (b)(2), (3), and (5).
14
matters. They assert that Counsel currently represents them in the course of representing
three limited partnerships of Enterprise, which partnerships have Square One (wholly
owned by the Cafagna family) as their general partner. Although the Cafagnas
apparently assert Counsel's purported representation of Square One necessarily means
Counsel also represents them as Square One's sole shareholders, we need not address that
question because we conclude they have not persuaded us there is insufficient evidence to
support the trial court's implied finding that Counsel does not currently represent Square
One.4
"[R]epresentation of a partnership does not, by itself, create an attorney-client
relationship with the individual partners." (Responsible Citizens v. Superior Court (1993)
16 Cal.App.4th 1717, 1731; see also Rules Prof. Conduct, rule 3-600(A) ["In representing
an organization, a member shall conform his or her representation to the concept that the
client is the organization itself, acting through its highest authorized officer, employee,
body, or constituent overseeing the particular engagement."]; cf. Kapelus v. State Bar
(1987) 44 Cal.3d 179, 191-192.) Therefore, Counsel's representation of the three limited
partnerships does not, by itself, create an attorney-client relationship with Square One (or
4 We further note the Cafagnas mistakenly argue in their reply brief that Eden
Yaege provided legal advice "over many years to the Cafagna Family specifically related
to [Square One] and [Square One's] rights as General Partner of [Development]."
Because Development is a corporation, it does not have a "general partner," but rather is
managed by a board of directors elected by its shareholders and the officers chosen by
that board. Therefore, Square One cannot be the general partner of Development. In any
event, the Cafagnas do not persuade us the trial court erred by finding they did not carry
their burden to show Counsel concurrently represents Development and Square One
and/or them.
15
the Cafagnas) merely because of Square One's status as the general partner of those
partnerships. To the extent the Cafagnas rely on Wortham & Van Liew v. Superior Court
(1987) 188 Cal.App.3d 927 to support a contrary position, we conclude, as other courts
have, that it is inapposite to an attorney disqualification case and does not persuade us
that partnership attorneys necessarily also represent each of the individual partners for
purposes of disqualification motions. (See, e.g., Johnson v. Superior Court (1995) 38
Cal.App.4th 463, 475-476, 477, fn. 4; Responsible Citizens, at pp. 1727-1728.)
However, an attorney-client relationship may nevertheless exist with an individual
partner if certain factors show in a particular case that the partnership attorney has, in
fact, also formed an attorney-client relationship with that partner. In Johnson v. Superior
Court, supra, 38 Cal.App.4th at pages 476 to 477, we described the factors a court should
consider in making such a determination: (1) the size of the partnership; (2) the nature
and scope of the attorney's engagement; (3) the kind and extent of contacts between the
attorneys and the individual partners; (4) the attorney's access to financial information
relating to the individual partner's interests; and (5) whether the totality of the
circumstances, including the parties' conduct, implies an agreement by the partnership
attorney not to accept other representations adverse to the individual partner's personal
interests. Primary attention should be given to the last factor. (Id. at p. 477; Responsible
Citizens v. Superior Court, supra, 16 Cal.App.4th at p. 1733.)
Considering those factors in the circumstances of this case, we conclude the trial
court did not err by impliedly concluding Counsel is not actually representing Square
One in addition to representing the three limited partnerships and Development. The
16
three limited partnerships have few partners. The nature and scope of Counsel's
representation of the partnerships appear to be for routine partnership matters, in contrast
to matters relating to the individual interests of particular partners. There is substantial
evidence to support the trial court's implied finding that Counsel has not been, and is not,
performing services specifically for Square One's interests in contrast to the interests of
the partnership generally. The kind and extent of contacts between Counsel and the
individual partners, including Square One, do not show any representation other than that
normally expected between a partnership's attorney and its partners regarding partnership
matters. Likewise, although Counsel apparently has had access to certain financial
information of Square One and/or the Cafagnas, the Cafagnas have not shown this
financial information is other than that normally obtained by a partnership's attorney in
the course of representing the partnership. In any event, the Cafagnas do not show
Counsel currently has access to their financial information.
Finally, regarding the most important factor, the totality of the circumstances does
not support an implied agreement by Counsel that it will not accept representations
adverse to the Cafagnas' individual interests. On the contrary, the weight of the evidence
appears to support the trial court's implied finding that Counsel did not agree to limit its
representation of other partners or other clients to those without interests adverse to the
Cafagnas. We are not persuaded by the Cafagnas' conclusory assertions to the contrary.
The trial court did not err by finding Counsel do not concurrently represent the Cafagnas
and Development. The court did not abuse its discretion by denying the Cafagnas'
motion to disqualify Counsel.
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DISPOSITION
The petition is denied. Real party in interest shall recover its costs in the writ
proceeding. (Cal. Rules of Court, rule 8.493(a)(1)(A).) This opinion shall be final as to
this court on May 27, 2014. (Cal. Rules of Court, rule 8.490(b)(2)(A).)
McDONALD, J.
WE CONCUR:
NARES, Acting P. J.
IRION, J.
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