Coldren v. Hart, King & Coldren, Inc.

Filed 7/13/15 Certified for publication 8/5/15 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

ROBERT S. COLDREN, as Trustee, etc.,
et al.,
G050202
Plaintiffs, Cross-defendants and
Respondents, (Super. Ct. No. 30-2014-00697576)

v. OPINION

HART, KING & COLDREN, INC., et al.,

Defendants, Cross-complainants, and
Appellants.

Appeal from an order of the Superior Court of Orange County, Frederick P.
Horn, Judge. Reversed.
Grant, Genovese & Barratta, David C. Grant and Ronald V. Larson, for
Defendants, Cross-complainants and Appellants.
Pistone Law Group, Thomas A. Pistone; Salisbury Group, Lisa G.
Salisbury; Law Office of William J. Kopeny and William J. Kopeny for Plaintiffs, Cross-
defendants and Respondents.
 Plaintiffs Robert Coldren (Coldren) and his wife Brook Coldren sued
defendants Hart, King & Coldren, Inc. (HKC) and William R. Hart asserting several
1
causes of action arising out of Coldren’s departure from his law practice at HKC.
Defendants appeal from an order disqualifying HKC’s counsel, Grant, Genovese &
Barratta LLP (Grant Genovese), who had been representing both Hart and HKC. The
court held there was an unwaivable actual conflict between the two. The court concluded
a conflict existed because Coldren is a 50 percent shareholder of HKC, and HKC would
have duties to Coldren that were in conflict with Hart’s interests in defeating the
litigation. Accordingly, the court ordered Hart to confer with Coldren on the
appointment of “neutral” counsel for HKC.
We reverse. Coldren sued both Hart and HKC—directly, not
derivatively—on essentially the same claims. He is seeking over $8,000,000 in damages
against both. Hart’s interest is perfectly aligned with HKC’s interest in seeing Coldren’s
claims defeated. Coldren’s position seems to be that he can sue his company and then,
because he is a 50 percent shareholder, have a say in its defense. That is not the law.
Moreover, Grant Genovese’s duty of loyalty, as counsel for HKC, runs to HKC, not its
shareholders. HKC is free to defend itself and assert relevant counter claims to the
detriment of Coldren. Since there is no conflict, we reverse.

1
Brook Coldren is a party only because she is a trustee of the trust that holds
Coldren’s shares of stock in HKC. Because Brook Coldren does not play an active role
in this case, we henceforth refer only to Coldren.

2
 2
FACTS

HKC is an Orange County law firm formed in November 1982. Pursuant to
a shareholder agreement signed in 2005 (the shareholder agreement), HKC had two equal
shareholders, Hart and Coldren. Hart and Coldren were each directors. Coldren was the
president, and Hart was the Secretary/Treasurer. Hart and Coldren both placed their 50
percent ownership interests in their respective family trusts.
Late in 2012, Coldren announced he intended to retire from the practice of
law. Hart and Coldren negotiated and signed a written agreement setting forth certain
terms governing Coldren’s departure (we refer to it as the departure agreement). The
departure agreement, such as it is, is a bullet point list of terms with several hand-written
modifications. One of the handwritten bullet points states, “This agreement is binding on
the parties.” However, it also contemplates more formal documents to be signed in the
first quarter of 2013 (which never happened). It is signed by Hart, Coldren, and HKC (by
Hart).
The departure agreement provided that Coldren would resign as an officer
and director as of January 1, 2013 (Coldren subsequently confirmed in writing that he
did, in fact, resign). He was to stay with HKC as an independent contractor throughout
the year at a base compensation of $500,000. Coldren was expected to bill 900 hours for
the year, “including administrative time spent in transitioning clients and business, in
2013.” Coldren agreed “to give ‘best efforts’ to work closely with the HKC partners to
transition the practice, clients & matters for which [Coldren] is principally responsible to
those HKC partners to the greatest extent reasonably possible throughout 2013.” The

2
We note at the outset that Coldren did not provide us a statement of facts in
his brief. Although, under rule 8.204(a) of the California Rules of Court, Coldren is not
required to do so, our statement of facts necessarily reflects only what we have gleaned
from our independent review of the record together with Hart’s statement of facts.

3
agreement also affirmed “that HKC clients/matters are HKC assets & that if either
[Coldren] or [Hart] are paid individually or through another firm by a firm client that
HKC is entitled to 20% of all such fees collected through 2016.” It also gave Coldren the
option of formal retirement or of counsel or alternative.” The agreement contemplated
paying Coldren $1.5 million for his stock, set up as $50,000 to be paid in 2012, $50,000
in January 2013, and the remaining $1.4 million payable in 12 consecutive quarterly
payments commencing in January 2014. Those payments were to be made pursuant to a
promissory note secured by 50 percent of HKC stock.
In January 2014, Coldren initiated the present lawsuit against HKC and
Hart, asserting seven causes of action: involuntary dissolution, breach of written
contract, conversion, wages owed (against HKC), accounting, breach of fiduciary duty
(against Hart), and “appointment of receiver and injunction” (against HKC).
Coldren alleged: “In 2012, R. Coldren indicated a desire to change his
practice and sell the 50% ownership of HK&C owned by the Coldren Trust, and in
December of 2012 a document was signed by R. Coldren and Hart, which document has
since been dishonored and repudiated by Hart. [¶] 9. As Hart and R. Coldren attempted
to formally document and implement the sale of R. Coldren’s stock, differences
developed between Hart and R. Coldren, and an impasse was reached, resulting in an
inability or unwillingness to finalize and execute formal agreements, and an inability to
continue working together as 50% shareholders.” Coldren went on to allege Hart had
“taken actions” that warrant a dissolution of HKC, but did not specify what those actions
were.
Regarding the breach of contract cause of action, Coldren alleged Hart and
HKC had breached the shareholder agreement, which entitled Coldren to be president of

4
the firm, to take an annual salary, and to receive 50 percent of the “net distributable
3
revenue.” Coldren alleged damages of $8 million.
With regard to the conversion cause of action, Coldren alleged Hart had
transferred a partial ownership interest in a company called Terranea LLC to HKC.
Coldren alleges he is entitled to half of that interest, and that the transfer of the interest to
HKC constituted conversion.
The remaining causes of action did not specify any additional facts, but
simply incorporated the foregoing.
In response, HKC and Hart filed a cross-complaint against Coldren,
asserting six causes of action: declaratory relief (in two forms), breach of contract (in
two forms), breach of fiduciary duty, and fraud.
Hart alleged that, despite promises not to compete in the shareholder
agreement and to use best efforts to transition clients in the departure agreement, Coldren
was in fact stealing clients and opening up a practice in direct competition with HKC.
Hart alleged this conduct breached the noncompete provision of the shareholder
agreement, and the requirement in the departure agreement that Coldren use “best
efforts” to transition clients to other partners at HKC. These same allegations formed the
4
basis of the breach of fiduciary duty causes of action and the fraud cause of action. In
terms of damages, the cross-complaint claimed $3 million in damages. Hart and HKC

3
Coldren’s claim for damages based on a breach of the shareholder
agreement is somewhat confusing. Presumably it is premised on the notion that Hart
repudiated the departure agreement, returning the parties to the status quo ante, though
the complaint does not make that explicit. Moreover, Coldren does not explicitly seek to
rescind the departure agreement, and, as we note below, Hart is seeking damages
pursuant to the departure agreement and thus appears not to have repudiated it.
4
As we discuss below, one breach of fiduciary duty cause of action was
alleged on behalf of Hart, and another derivatively on behalf of HKC. It is unclear to us
why the latter was styled as a derivative claim when HKC was a named cross-
complainant.

5
also alleged that, pursuant to the departure agreement, HKC had paid $550,000 to
Coldren, and that any amounts remaining due under the departure agreement would be
offset by the damages alleged in the cross complaint.
On both the answer and the cross-complaint, HKC and Hart were jointly
represented by the law firm Grant Genovese. After filing the answer and cross-
complaint, HKC filed a motion under Corporations Code section 2000, to stay the
dissolution action and appoint appraisers in the event it were to elect a buyout of
Coldren’s shares. (Id., subds. (a), (b).)
Coldren subsequently brought a motion to disqualify Grant Genovese from
representing HKC on the ground that it was improper for Hart to be directing HKC to sue
Coldren, a 50 percent shareholder. The court issued a tentative ruling denying the
motion, stating, “The Motion to Disqualify Defense Attorneys is DENIED. In this case,
Plaintiff Coldren are seeking involuntary dissolution and asserting personal claims. The
allegation of conflict of interest is only potential, not actual. Havasu Lakeshore
Investments, LLC v. Fleming (2013) 217 Cal.App.4th 770. [¶] When the delay has to be
extreme or unreasonable, it operates as a waiver. Liberty Nat. Enterprises, L.P. v.
Chicago Title Ins. Co. (2011) 194 Cal.App.4th 839, 845. Coldren waited months before
raising this issue.”
After oral argument, however, the court reversed its tentative ruling: “The
Motion to Disqualify Grant, Genovese & Baratta, LLP as counsel for [HKC] is
GRANTED. The court finds that there exists an actual conflict of interest in representing
William R. Hart and [HKC]. Grant, Genovese & Baratta, LLP may continue to represent
Defendant William R. Hart in this litigation. The court will select a neutral attorney to
represent Defendant and Cross-Complainant [HKC]. Within the next ten days, the parties
shall meet and confer regarding the selection of a neutral attorney. If a neutral attorney is
not selected, the court will appoint one. [¶] Although Attorney Coldren apparently
resigned as an officer and director of the law corporation, he is still a 50% owner of

6
[HKC]. This litigation seeks to dissolve involuntarily the law corporation. In the Cross-
Complaint, the law corporation sued Coldren on five of the seven causes of action.” The
court then launched into a detailed discussion of Gong v. RFG Oil, Inc. (2008) 166
Cal.App.4th 209 (Gong) and Havasu Lakeshore Investments, LLC v. Fleming (2013) 217
Cal.App.4th 770, 773 (Havasu), after which it concluded, “The issue whether Coldren
resigned as a director and officer of the corporation has little bearing on the issue.
Although he did not sign the formal notice, the December 20, 2012 indicated [sic] that he
resigned. Even so, in Gong, the minority shareholder had also resigned his position as a
corporate officer. The conflict analysis was not dependent on his status as a corporate
officer.” The court also found that the two-month delay between Grant Genovese
appearing in the action and Coldren filing the disqualification motion was “not sufficient
to constitute a waiver of the right to object.” HKC and Hart appealed from the
disqualification order.
In addition to the appeal, HKC and Hart petitioned this court for a writ of
supersedeas to stay the trial court proceedings. We issued a temporary stay and
subsequently determined that the disqualification order was automatically stayed by the
filing of the notice of appeal. We subsequently modified the stay order to encompass all
proceedings in the trial court, including, but not limited to, the disqualification order.

DISCUSSION

“Generally, a trial court’s decision on a disqualification motion is reviewed
for abuse of discretion. [Citations.] 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. [Citations.] When substantial evidence
supports the trial court’s factual findings, the appellate court reviews the conclusions
based on those findings for abuse of discretion. [Citation.] However, the trial court’s

7
discretion is limited by the applicable legal principles. [Citation.] Thus, where there are
no material disputed factual issues, the appellate court reviews the trial court’s
determination as a question of law. [Citation.] In any event, a disqualification motion
involves concerns that justify careful review of the trial court’s exercise of discretion.”
(People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20
Cal.4th 1135, 1143-1144.) The only factual issue resolved by the trial court here was that
Coldren resigned as a director and officer. The trial court ultimately decided that fact
was irrelevant. Accordingly, we will review the court’s order independently.
Hart and HKC raise two issues on appeal. First, they contend Coldren had
no standing to object to the dual representation of Hart and HKC by Grant Genovese.
Second, they contend there was no disqualifying conflict between them. We agree on
both fronts.

Coldren Has Not Shown he has Standing to Disqualify Defendants’ Counsel
“Standing generally requires that the plaintiff be able to allege injury, that
is, an invasion of a legally protected interest. [Citation.] A ‘standing’ requirement is
implicit in disqualification motions. Generally, before the disqualification of an attorney
is proper, the complaining party must have or must have had an attorney-client
relationship with that attorney.” (Great Lakes Construction, Inc. v. Burman (2010) 186
Cal.App.4th 1347, 1356.) “‘The burden is on the party seeking disqualification to
establish the attorney-client relationship.’” (Shen v. Miller (2012) 212 Cal.App.4th 48,
56-57.)
Here, it is undisputed that Coldren never had an attorney-client relationship
with Grant Genovese. Nonetheless, Coldren contends he has standing under the holding
of Blue Water Sunset, LLC v. Markowitz (2011) 192 Cal.App.4th 477 (Blue Water).
In Blue Water a member of a limited liability company (LLC), who owned
50 percent of the LLC, filed an action against the other 50 percent owner. The plaintiff

8
alleged causes of action for dissolution of the LLC, breach of contract, breach of
fiduciary duty, and fraud. Allegedly the defendant member misappropriated income and
real estate belonging to the LLC for his own benefit and for no consideration. Because
the claims were derivative in nature, the plaintiff named the LLC as a nominal defendant.
(Id. at p. 482.) The attorney for the defendant member filed a demurrer on behalf of not
only the member, but also the LLC. (Id. at p. 483.) The demurrer was sustained, the
result being that some, but not all, of the plaintiff’s claims were dismissed. (Id. at p.
484.) Plaintiff subsequently brought a motion to disqualify defendant’s counsel on the
ground that he represented both the LLC and the defendant member, whose interests were
adverse. The trial court denied the motion. (Ibid.)
On appeal, the court first addressed the standing issue and acknowledged
that the plaintiff member did not have standing under the usual rule because plaintiff
never had an attorney-client relationship with the defendant’s attorney. (Blue Water,
supra, 192 Cal.App.4th at p. 485.) Nonetheless, it made an exception on the facts of the
case before it, finding the plaintiff had “vicarious standing” through the LLC because,
“[A]ny other rule would run the risk of rendering an organization defenseless when it is
most vulnerable, i.e., when it is represented by an attorney who has a conflict because he
also represents and is beholden to a company insider who injured the company.” (Id. at
p. 486.) The court framed the exception as follows: “If an attorney simultaneously
represents a limited liability company and a member with conflicting interests in a
derivative action filed by the second and only other member, and if the limited liability
company’s consent to concurrent representation is required by California State Bar Rules
of Professional Conduct rule 3–310, the second member has vicarious standing to move
to disqualify.” (Id. at p. 481, fn. omitted.)
We have no qualms with the exception announced in Blue Water as it flows
naturally from the well-established rule that forbids dual representation of a company and
company insiders in the context of a derivative action. (Forrest v. Baeza (1997) 58

9
Cal.App.4th 65, 74 [“Current case law clearly forbids dual representation of a corporation
and directors in a shareholder derivative suit, at least where, as here, the directors are
alleged to have committed fraud”].) If, in that context, the plaintiff had no standing to
bring a disqualification motion, then no one would, because the only parties with
standing would be the defendant flouting the rule and the company the defendant
controls.
Contrary to Coldren’s assertions, however, his complaint is not a derivative
action. Coldren has made direct claims against HKC and seeks $8 million in damages
from HKC. If he prevails, the damages will not go to the benefit of HKC; quite to the
contrary, HKC will have to pay the damages to Coldren. (Cf. Grosset v. Wenaas (2008)
42 Cal.4th 1100, 1114 [“If successful, a derivative claim will accrue to the direct benefit
of the corporation and not to the stockholder who litigated it”].) Coldren’s lawsuit is not
a derivative suit in any sense.
Coldren attempts to analogize his lawsuit to a derivative suit by noting that
in his dissolution claim he alleges “persistent and pervasive fraud, mismanagement, [and]
abuse of authority . . . .” This allegation is entirely conclusory, however — there are no
facts alleged to support such a claim. And absent a factual scenario suggesting a conflict
exists, an involuntary dissolution action does not necessarily pit the corporation against
the defendant owner in the manner of a derivative action. To the extent HKC has any
interest at all in the outcome of the dissolution action, its interest is in its continued
existence. If Hart also wants HKC to continue, then there is no conflict. Illustrating this
point, Corporations Code section 2000, subdivision (a), permits HKC to elect to buy out
Coldren’s shares and specifically provides that this election “may be made by the
approval of the outstanding shares [i.e. Hart] [citation] excluding shares held by the
moving parties [i.e. Coldren].” (Ibid., italics added.) In other words, at that stage,
Coldren’s interests are irrelevant and HKC’s interests are whatever Hart chooses to do —
there can be no conflict. And that is precisely the stage this lawsuit is in. If, on the other

10
hand, Hart does not want HKC to continue by declining the purchase of Coldren’s shares
at the appraised price under Corporations Code section 2000, then the shareholders
5
unanimously agree HKC should be dissolved and HKC’s interests fall by the wayside.
Thus a dissolution cause of action does not, by its nature, create the sort of conflict a
derivative action creates.
It may be that in the course of determining the appraised value of the
shares, or in the course of winding up the affairs of HKC, Hart will direct HKC to do
some action that benefits him to the detriment of HKC, such that a Blue Water type
exception to the standing requirement would be necessary. But no such circumstances
are in the record before us, and this concern is too vague and speculative to amount to
even a potential conflict. (See Havasu, supra, 217 Cal.App.4th at p. 779 [a “potential”
conflict is an identifiable conflict that is reasonably likely to occur; “a mere hypothetical
conflict is insufficient”].) Coldren’s dissolution claim, therefore, did not confer vicarious
6
standing to object to Grant Genovese’s dual representation.
Coldren’s only other argument is that Hart asserted a derivative claim in
the cross-complaint. And indeed, he did. But, aside from the fact that the “derivative”
label appears to be improper — HKC is, after all, a named cross-complainant and under
the control of Hart — that fact is legally irrelevant. As we noted above, the whole point
of the Blue Water exception is to give the plaintiff standing for the purpose of preventing

5
We note that even if Hart prevails on the involuntary dissolution action,
Coldren can still force Hart’s election either to purchase Coldren’s shares or to allow the
dissolution to proceed because Coldren can simply vote his 50 percent interest to cause a
voluntary dissolution of HKC. (Corp. Code, § 1900, subd. (a).)
6
To be clear, we do not hold that a dissolution action could never result in
the sort of vicarious standing announced in Blue Water. It may well be that a particular
factual scenario could give rise to a need for that sort of exception. But given that
Coldren’s allegations are conclusory in nature, we hold only that a dissolution action does
not per se give rise to vicarious standing.

11
the defendant wrongdoer from flouting the rule prohibiting dual representation in a
derivative action. Hart is the plaintiff in his derivative claim, and, according to the
allegations, Coldren the wrongdoer. Both Hart and HKC are aligned in wanting that
claim to prevail. The actual conflict would be between Coldren and HKC, but they are
not the parties being jointly represented by Grant Genovese. Accordingly, we conclude
Coldren did not have standing to object to Grant Genovese representing both Hart and
HKC.

There is No Actual Conflict Between Hart and HKC
In addition to the fact that Coldren lacks standing, we agree with Hart that
there is no actual conflict between Hart and HKC.
We begin by setting forth the legal principles governing the disqualification
of an attorney based on a conflict. “‘A conflict of interest exists when a lawyer’s duty on
behalf of one client obligates the lawyer to take action prejudicial to the interests of
another client; i.e., “when, in behalf of one client, it is his duty to contend for that which
duty to another client requires him to oppose.”’” (Havasu, supra, 217 Cal.App.4th at p.
7
778.) Rule 3-310(C), of the California State Bar Rules of Professional Conduct states,
“A member shall not, without the informed written consent of each client: [¶] (1) Accept
representation of more than one client in a matter in which the interests of the clients
potentially conflict; or [¶] (2) Accept or continue representation of more than one client
in a matter in which the interests of the clients actually conflict . . . .” Rule 3-600(E),
governs how an organization gives informed consent in this context: “A member
representing an organization may also represent any of its directors, officers, employees,
members, shareholders, or other constituents, subject to the provisions of rule 3-310. If
the organization’s consent to the dual representation is required by rule 3-310, the
7
All further references to rules are to the California State Bar Rules of
Professional Conduct.

12
consent shall be given by an appropriate constituent of the organization other than the
individual or constituent who is to be represented, or by the shareholder(s) or
organization members.”
The State Bar of California Standing Committee on Professional
Responsibility and Conduct (the committee) issued formal opinion No. 1999–153
(Formal Opinion No. 1999-153), in which it interpreted these rules in almost identical
circumstances to this case to determine whether an attorney may jointly represent the
company and the defendant shareholder. The hypothetical facts were that “Corporation
has two shareholders, A and B. A is the corporate president and CEO, who is authorized
to oversee Corporation’s daily business affairs. A is also authorized under Corporation’s
articles of incorporation and bylaws to retain legal counsel for Corporation and oversee
legal counsel’s representation of Corporation. [¶] A and B disagree on the important
issue of whether Corporation should adopt a policy of distributing earnings generously,
rather than reinvesting them as it has done for many years. Frustrated by the
disagreement over this important policy decision, B files a lawsuit against Corporation
and against A individually. A seeks to retain Attorney to defend both A and Corporation
in B’s lawsuit. At the time of the engagement, Attorney is not currently and has not
previously represented Corporation as to the subject matter of the dispute. In addition,
Attorney has not previously represented Corporation in any matter.” (Formal Opinion
No. 1999-153.)
The committee noted that a corporate counsel’s duty is to the corporation,
and that “a lawyer is not prohibited from taking actions on behalf of the corporation that
negatively impact the interests of a shareholder or other constituents.” (Formal Opinion
No. 1999-153; see 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”]; Skarbrevik v. Cohen, England & Whitfield (1991) 231

13
Cal.App.3d 692, 704 [“corporate counsel’s direct duty is to the client corporation, not to
the shareholders individually, even though the legal advice rendered to the corporation
may affect the shareholders”].)
Based on these principles, the committee concluded an attorney “may
ethically represent Corporation and A in B’s lawsuit. Attorney may jointly represent
Corporation and A only for so long as the following two conditions are met. First,
Attorney can simultaneously represent the two so long as the corporation and A do not
have opposing interests in the lawsuit which the attorney would have a duty to advance
simultaneously for each. [Citations.] Second, Attorney must conform his representation
of the corporation to the requirements of rule 3-600. As an adversary of Corporation in
the lawsuit, B is not entitled to the assistance of Corporation’s counsel in connection with
the litigation. At the same time, the rules that allow a corporation’s lawyer to take action
on the corporation’s behalf which negatively impact a constituent remain applicable.”
(Formal Opinion No. 1999-153.)
The committee also addressed the question of who should give informed
consent if it is required under rule 3-310. (Formal Opinion No. 1999-153) Under rule 3-
600(E), if consent is required by rule 3-310, “the consent shall be given by an appropriate
constituent of the organization other than the individual or constituent who is to be
represented, or by the shareholder(s) or organization members.” (Formal Opinion No.
1999-153.) The committee noted that while the “appropriate constituent” could not be A
in this scenario because A is represented by the attorney, no such restriction exists for the
“shareholder(s),” which is vague as to which shareholders would have to consent. (Ibid.)
The committee concluded, “Under the facts presented where a single attorney is sought to
represent jointly both A and the corporation, B is not an appropriate constituent to
consent to the joint representation of Corporation and A, because B is an opposing party
in the lawsuit. To conclude otherwise would permit B, the Corporation’s adversary in the
lawsuit, to dictate how the Corporation would be represented in that proceeding.” (Ibid.)

14
Instead, A is the appropriate person to consent: “Attorney may obtain Corporation’s
consent to the joint representation from A under the second of the two approaches set
forth in the rule. Under the facts presented, A may consent to the joint representation for
the Corporation because (1) A is the only other shareholder, and (2) as president of
Corporation, A is authorized to retain counsel for the Corporation and oversee the
8
representation of the Corporation by that counsel.”
The committee’s opinion is on all fours with the case before us, and we find
its reasoning persuasive. The question is, therefore, do Hart and HKC “have opposing
interests in the lawsuit which the attorney would have a duty to advance simultaneously
for each.” (Formal Opinion No. 1999–153.) Coldren has not identified any such
opposing interests. He points vaguely to the fact that he is a 50 percent shareholder, but
as the foregoing principles make clear, Grant Genovese’s duty is to HKC, not its
shareholders, and HKC is free to defend Coldren’s lawsuit and assert relevant
counterclaims. Similarly, though the trial court drew the conclusion that there was an
actual conflict between Hart and HKC, it never described what that conflict is. We detect
no conflict.
In concluding otherwise, both Coldren and the trial court relied primarily
on the holding of Gong, supra, 166 Cal.App.4th 209, which we find distinguishable.
There the plaintiff owned 49 percent of a corporation and the defendant stockholder 51
percent. (Id. at p. 212.) After the two had a falling out, the corporation terminated the
plaintiff’s employment and forced his resignation from the board. The plaintiff sued the
defendant shareholder and the corporation, seeking, inter alia, involuntary dissolution of
the corporation, wrongful discharge, and breach of fiduciary duty. (Ibid.) A single firm
represented both defendants. The plaintiff moved to disqualify the firm from

8
We note that the formal opinion concludes by observing that the opinion is
not binding on the courts. We, nonetheless, find it persuasive.

15
representing the corporation. The trial court denied the motion, and the plaintiff
appealed. (Id. at p. 213.)
The Court of Appeal reversed for two reasons. First, plaintiff had alleged
that defendant shareholder had wrongfully conducted the affairs of the corporation to
further his own interests by, for example, using corporate funds to pay down loans in
defendant shareholder’s own name. (Gong, supra, 166 Cal.App.4th at p. 216.)
“Although [plaintiff] has not yet filed a derivative claim seeking damages on behalf of
the corporation (which [defendants] admit would require [the firm’s] disqualification),
[plaintiff’s] complaint alleges damage to [the corporation] through [the defendant
shareholder’s] personal use of corporate funds, and the dissolution claim threatens its
corporate existence.” (Ibid.) Second, the corporation had filed a cross-complaint against
the plaintiff for, among other things, fraud and breach of fiduciary duty. “The cross-
complaint raises a concern that [defendant shareholder] is using [the corporation] as a
pawn in his dispute with [plaintiff], possibly to [the corporation’s] detriment. Under
these circumstances, [the firm] cannot satisfy its undivided duty of loyalty to both
[defendants].” (Ibid.)
In our view, Gong should be read for the narrow proposition that where a
plaintiff’s allegations are essentially derivative in nature, the failure to label them as such
may still prohibit dual representation of the corporation and defendant shareholder. Here,
Coldren’s lawsuit is not derivative in nature. And as for the potential for using the
corporation as a “pawn” against the plaintiff shareholder, that is mere speculation. At the
outset of the case, it is equally likely that the corporation’s cross-complaint is righteous
and the disqualification motion was brought for improper reasons of harassment or
9
delay.

9
Gong also mentioned in passing the fact that “the dissolution claim
threatens [the corporation’s] existence.” (Gong, supra, 166 Cal.App.4th at p. 216.) As
we explained above, however, this does not necessarily create a conflict.

16
 DISPOSITION

The order disqualifying Grant Genovese from representing HKC is
reversed. The stay order is dissolved upon issuance of the remittitur. The petition for
writ of supersedeas is dismissed as moot. Hart and HKC shall recover their costs
10
incurred on appeal.

IKOLA, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

THOMPSON, J.

10
Coldren filed two motions to dismiss the appeal. The first was based on the
technicality that Hart and HKC included most of the relevant documentation in their
petitioner’s appendix submitted with their petition for writ of supersedeas, as opposed to
a separate and redundant appellant’s appendix. That motion and its accompanying
request for sanctions is denied. In the interests of the environment and our limited
storage space, we prefer not to have redundant appendices. The second motion argued
the appeal had become moot because separate counsel already substituted in for HKC in
the trial court. That motion is also denied. HKC was faced with a valid court order with
which it had to comply. The fact that Hart and HKC prosecuted their appeal is sufficient
indication that they would prefer to have Grant Genovese represent both parties and that
they continue to feel aggrieved by the court’s order.

17
Filed 8/5/15
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

ROBERT S. COLDREN, as Trustee, etc.,
et al.,
G050202
Plaintiffs, Cross-defendants and
Respondents, (Super. Ct. No. 30-2014-00697576)

v. ORDER

HART, KING & COLDREN, INC., et al.,

Defendants, Cross-complainants, and
Appellants.

Grant, Genovese & Baratta on behalf of Appellants and the Law Offices of
Joel F. McIntyre have requested that our opinion filed on July 13, 2015, be certified for
publication. It appears that our opinion meets the standards set forth in California Rules
of Court, rule 8.1105(c). The requests are GRANTED.
The opinion is ordered published in the Official Reports.

IKOLA, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

THOMPSON, J.