                           NOT FOR PUBLICATION

                     UNITED STATES COURT OF APPEALS
                                                                           FILED
                            FOR THE NINTH CIRCUIT
                                                                            SEP 22 2015
                                                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS
LEGACY VILLAS AT LA QUINTA                       No. 12-57189
HOMEOWNERS ASSOCIATION, a
California non-profit mutual benefit             D.C. No. 5:11-cv-00845-VAP-OP
corporation,

              Plaintiff,                         MEMORANDUM*

  And

PETERS & FREEDMAN, LLP,

              Movant - Appellant,

  v.

CENTEX HOMES, a Nevada General
partnership; CENTEX REAL ESTATE
CORPORATION; CENTEX REAL
ESTATE HOLDINGS LP, a Delaware
limited partnership; NOMAS CORP, a
Nevada corporation,

              Defendants - Appellees.



LEGACY VILLAS AT LA QUINTA                       No. 13-56241
HOMEOWNERS ASSOCIATION, a
California non-profit mutual benefit             D.C. No. 5:11-cv-00845-VAP-OP

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
corporation,

               Plaintiff,

  And

PETERS & FREEDMAN, LLP,

               Movant - Appellant,

  v.

CENTEX HOMES, a Nevada General
partnership; CENTEX REAL ESTATE
CORPORATION, a Nevada corporation;
CENTEX REAL ESTATE HOLDINGS
LP, a Delaware limited partnership;
NOMAS CORP, a Nevada corporation,

               Defendants - Appellees.


                    Appeal from the United States District Court
                        for the Central District of California
                    Virginia A. Phillips, District Judge, Presiding

                            Argued and Submitted March 3, 2015
                                   Pasadena, California

Before: PREGERSON, FERNANDEZ, and NGUYEN, Circuit Judges.

       Appellant law firm Peters & Freedman, LLP appeals (1) the district court’s

April 30, 2012 order disqualifying the law firm from representing La Quinta

Homeowners Association (“the Homeowners Association”) against Centex Homes


                                            2
(“Centex”), and (2) the district court’s November 7, 2012 order finding the law

firm in contempt of the disqualification order.

      We have jurisdiction under 28 U.S.C. § 1291.1 Reviewing the orders for

abuse of discretion, see Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1465 (9th Cir.

1995); Irwin v. Mascott, 370 F.3d 924, 931 (9th Cir. 2004), we reverse.

      In 2004, Centex, a developer of residential properties, created the

Homeowners Association to manage Legacy Villas, one of Centex’s condominium

communities. In the beginning, Centex employees served on the Homeowners

Association’s Board of Directors as the controlling majority.2 In May 2006, the



      1
         Centex argues that Peters & Freedman lacks standing to appeal the
disqualification order and that the appeal of the disqualification order is moot. We
disagree. By asserting an injury of its own, Peters & Freedman has standing to
appeal the disqualification order. Cf. In re Grand Jury Subpoena Issued to
Chesnoff, 62 F.3d 1144, 1145 (9th Cir. 1995) (“Appellants [lack standing because
they] have not identified any right of their own that has been affected by the
district court’s order. Instead, by their own account, they seek to protect their
client’s right to counsel of his choice.”); Valley Forge Christian College v.
Americans United for Separation of Church & State, Inc., 454 U.S. 464, 472
(1982). Despite the settlement of the underlying case, the appeal of the
disqualification order is not moot because the disqualification order exposes Peters
& Freedman to “further sanctions by the bar and portends adverse effects upon
counsel’s careers and public image.” Lasar v. Ford Motor Co., 399 F.3d 1101,
1109 (9th Cir. 2005) (quoting Kleiner v. First Nat’l Bank of Atlanta, 751 F.2d
1193, 1200 n.14 (11th Cir. 1985)).
      2
       Between 2006 and 2008, three to four Centex employees served on the
Board at any given time.

                                          3
Homeowners Association retained Peters & Freedman as legal counsel. In May

2008, control of the Homeowners Association was turned over to the homeowners.

      During the two year period from 2006-2008 in which Peters & Freedman

represented the Centex-controlled Homeowners Association, Peters & Freedman

attended four Homeowners Association Board meetings and assisted the

Homeowners Association with collecting of delinquent homeowner assessments.

Peters & Freedman also sent two letters to Board members who were Centex

employees. One letter dated December 4, 2006 was sent to Sandy Duff on and

contained advice on a property management agreement. A generic “Developer

Transition Checklist” form was sent to Jayne Carilo and listed documents to be

turned over to the new homeowners-controlled Homeowners Association.

      After control of the Board was turned over to the homeowners on May 30,

2008, the Homeowners Association, represented by Peters & Freedman, filed two

lawsuits against Centex. On September 13, 2010, in state court, the Homeowners

Association brought a construction defect action against Centex. On April 14,

2011, also in state court, the Homeowners Association sued Centex for breach of

fiduciary duty, alleging that the Centex-controlled Board mismanaged the

Homeowners Association’s budget and finances. Centex removed this lawsuit to

federal court on June 1, 2011.


                                        4
      In March 2012, Centex moved to disqualify Peters & Freedman in the

federal action. The district court granted the motion and disqualified Peters &

Freedman on three grounds: a conflict of interest under California Rule of

Professional Conduct 3-310(E), the advocate-witness rule, and the appearance of

professional impropriety under Canon 9 of the Model Rules of Professional

Responsibility. Peters & Freedman withdrew from representing the Homeowners

Association in the federal action. The firm continued to represent the Homeowners

Association in the state construction defect action.

      On January 30, 2012, during discovery in the federal action, Centex

subpoenaed records from Personalized Property Management (“PPM”), the

Homeowner Association’s property management company. In April 2012, PPM

produced a disk to Centex containing all of the Homeowner Association’s

electronic records, including a significant amount of privileged materials related to

both the state and federal actions. When Peters & Freedman contacted Centex’s

federal counsel regarding those privileged materials, the district court found Peters

& Freedman in contempt of the disqualification order.

      Peters & Freedman timely appealed both orders.

1. The Disqualification Order




                                          5
      A. Conflict of interest under California Rule of Professional Conduct
      3-310(E)

      Before an attorney may be disqualified under Rule 3-310(E) from

representing a party in a suit that is adverse to a former client, the party seeking the

attorney’s disqualification must first establish that the attorney represented the

party in a manner giving rise to an attorney-client relationship.3 Civil Serv.

Comm’n v. Superior Court, 163 Cal. App. 3d 70, 76-77 (1984).

      The evidence offered by Centex and relied upon by the district court does

not support the finding of an implied attorney-client relationship between Peters &

Freedman and Centex. The letter addressed to Sandy Duff and the Developer

Transition Checklist sent to Jayne Carilo provide advice to the recipients in their

capacities as Homeowners Association Board members, not in their capacities as

Centex employees. The declaration by Jayne Carilo, stating that she understood

Peters & Freedman to be providing her advice in her capacity as a Centex

employee, is also not persuasive evidence of an implied attorney-client

relationship. Centex, as an experienced developer, could not have reasonably

believed that Peters & Freedman represented Centex. See Sky Valley Ltd. P’ship v.

      3
       Rule 3-310(E) states: “A member shall not, without the informed written
consent of the client or former client, accept employment adverse to the client or
former client where, by reason of the representation of the client or former client,
the member has obtained confidential information material to the employment.”

                                           6
A.T.X. Sky Valley Ltd., 150 F.R.D. 648, 655 (N.D. Cal. 1993) (“We question

whether a commercially sophisticated party that allegedly has a multi-million

dollar interest in a project would form an attorney-client relationship without a

shred of paper memorializing even the most basic terms of that alleged

relationship.”).

      Moreover, the totality of the circumstances weighs against the existence of

an implied relationship. The contacts between Peters & Freedman and Centex

were limited in nature and quantity, there is no evidence that Centex employees

divulged any confidential information to Peters & Freedman, and there is no

evidence that Centex paid for any of Peters & Freedman’s services. See Fink v.

Montes, 44 F. Supp. 2d 1052, 1060 (C.D. Cal. 1999) (listing some factors to

consider when evaluating whether an implied attorney-client relationship exists).

Because no attorney-client relationship–implied or actual–existed between Peters

& Freedman and Centex, Peters & Freedman should not have been disqualified

under Rule 3-310(E).

      B. The Advocate-Witness Rule

      Under the advocate-witness rule, a lawyer cannot serve as an advocate in a

trial in which the lawyer is likely to testify as a witness, unless an exception

applies. Model Rules of Prof’l Conduct R. 3.7; Cal. R. of Prof. Conduct 5-210.


                                           7
Because the advocate-witness rule lends itself to the “potential for abuse,” motions

to disqualify under this rule “should be subjected to ‘particularly strict judicial

scrutiny.’” Optyl Eyewear Fashion Int'l Corp. v. Style Cos., Ltd., 760 F.2d 1045,

1050 (9th Cir. 1985).

      Centex has not established that disqualification would be proper under this

rule, nor did the district court subject the motion to the appropriate level of

scrutiny. Centex and the district court generally asserted that Peters & Freedman

attorneys are all relevant witnesses to the extent that the attorneys have knowledge

of the firm’s actions in representing the Homeowners Association’s Board, but

Centex only specifically identified one Peters & Freedman attorney who would

serve as a potential witness. Centex has not sufficiently demonstrated–nor did the

district court ask–why every Peters & Freedman attorney is a necessary witness.

The advocate-witness rule does not prohibit attorneys from serving as trial counsel

in a trial where an attorney from the same firm will testify. See Model Rules of

Prof’l Conduct R. 3.7(b); Cal. R. of Prof. Conduct 5-210.

      After considering the improbability that all Peters & Freedman attorneys

were necessary witnesses, that this case was scheduled for a bench trial, and the

client’s right to representation by an attorney of his or her choosing, we find that

disqualification of all Peters & Freedman attorneys under the advocate-witness rule


                                            8
was not called for. See Lyle v. Superior Court, 122 Cal. App. 3d 470, 481-83

(1981).

      C. Appearance of Impropriety under Canon 9 of the Model Code of
      Professional Responsibility

      “Although this court has held that Canon 9 alone can be a sufficient ground

for disqualification, the circumstances are extreme, i.e., when the alleged

impropriety is clear, affects the public view of the judicial system or the integrity

of the court, and is serious enough to outweigh the parties’ interests in counsel of

their own choice.” Optyl Eyewear Fashion Int’l Corp., 760 F.2d at 1049.

Disqualification under Canon 9 is not warranted in this case.

2. The Contempt Order

      Because we find that the district court’s disqualification order is invalid, we

also find that the contempt order is invalid. Kirkland v. Legion Ins. Co., 343 F.3d

1135, 1142 (9th Cir. 2003) (“The validity of a contempt adjudication is based on

the legitimacy of the underlying order.”).

      For these reasons, we REVERSE the disqualification order and VACATE

the contempt order and sanctions. Costs are awarded to Peters & Freedman.




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