Free Joinder - District Court of Arizona - Arizona

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

Roger L. Cohen, #004409 Kathi Mann Sandweiss, #011078 JABURG & WILK, P.C. 3200 North Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 Attorneys for Defendants Ross

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA SHIMKO & PISCITELLI, et al., Case No: CIV-04-78-PHX-FJM Plaintiffs, v. DAVID GOLDFARB; RICHARD ROSS, et al. Defendants. ROSS DEFENDANTS' JOINDER IN WOODCOCK DEFENDANTS' MOTION TO DISMISS CLAIMS AND MOTION FOR SUMMARY JUDGMENT

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Defendants Richard and Marcia Ross (the "Ross Defendants") join in the Motion to Dismiss Claims and Motion for Summary Judgment filed by the Woodcock Defendants. Plaintiffs seek recovery for legal fees incurred in jointly representing limited liability companies and their limited partners. But Plaintiffs' claims are barred as a matter of law in the Ninth Circuit. Based upon undisputed facts showing Plaintiffs' blatant

violation of the Arizona ethical rules, including the rules governing conflict of interest, Plaintiffs cannot recover their alleged fees. Image Technical Service, Inc. v. Eastman Kodak Co., 136 F.3d 1354 (9th cir. 1998). This Joinder is supported by the Woodcock Defendants' Motion, incorporated herein in its entirety, the following Memorandum of Points and Authorities, the Ross Defendants' Separate Statement of Facts, and the record before the Court.

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION This is a lawsuit for legal fees, brought by lawyers against their former clients. An Ohio law firm and its principal, attorney Timothy A. Shimko ("Shimko"), filed suit against three limited partnerships and their individual partners, for fees incurred in the joint representation of the companies and the individuals in a series of litigation matters. The Woodcock Defendants have set forth in detail the conflicts in representing the companies and the individual defendants in the underlying litigation, the failure to disclose the conflicts, the failure to obtain written consent, the failure to discuss the advantages and risks of joint representation, and other violations of ERs 1.7 and 1.8. The Ross Defendants agree with the Woodcock Defendants' Motion, and additionally place in the record Ross's Declaration, together with the following additional legal analysis. II. THE NINTH CIRCUIT PROHIBITS LAWYERS FROM RECOVERING LEGAL FEES INCURRED IN AN UNETHICAL REPRESENTATION The Ninth Circuit Court of Appeals makes clear that a violation of ethical rules precludes collection of legal fees. Image, 136 F.3d at 1358. Simultaneous representation of clients with conflicting interests (and without written informed consent) is an automatic ethics violation in California and grounds for disqualification. Id., citing Flatt v. Superior Ct., 9 Cal.4th 275, 36 Cal.Rptr.2d 537, 542-43, 885 P.2d 950, 955 (1994). An attorney cannot recover fees for such conflicting representation because "payment is not due for services not properly performed. [citation omitted]." Image, 136 F.3d at 1358. This applies, the Ninth Court holds, even where the matters in which the firm represents the clients with conflicting interests are unrelated. Id. An attorney may claim fees only for services provided before the conflict arose and the ethical breach occurred. Id. Because 2
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the dual representation occurred in Image throughout the entire representation, "there was never a time when the representation was conflict-free" and the entire fee award was denied. III. IT IS UNDISPUTED THAT SHIMKO VIOLATED ARIZONA'S CONFLICT OF INTEREST RULES AND IS NOT ENTITLED TO FEES UNDER THE NINTH CIRCUIT STANDARD A. Shimko Violated ER 1.7

The Arizona Ethical Rules provide that a lawyer shall not represent a client if the representation will be directly adverse to another client or there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, unless (1) each affected client gives informed consent, confirmed in writing, (2) the lawyer reasonably believes that he will be able to provide competent and diligent representation to each affected client, and (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation. ER 1.7. The undisputed evidence in the record demonstrates that Shimko violated ER 1.7. Shimko failed to advise the Ross Defendants of the potential conflicts involved in his simultaneous, joint representation of the CORF business entities, its officers and employees, the general partner and limited partners. (Ross Declaration, attached as Ex. 1 to Ross Defendants' Statement of Facts). Shimko failed to advise the Ross Defendants that they might have different interests and conflicts with the general partner and officers and employees. (Id.). Shimko failed to advise the Ross Defendants that they might have conflicts with the other defendants and different interests than the other defendants, depending upon their personal assets and financial situations, how the assets were held, their level of involvement in CORF activities and promotions, and their knowledge of activities at CORF. (Id.). Shimko failed to explain to the Ross Defendants that he could not make a separate settlement on behalf of the Ross Defendants, because doing so would

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conflict with his duty of loyalty to his other clients. (Id.). The Ross Defendants never waived this and other potential conflicts because they were never advised of them. (Id.). As set forth in the Woodcock Defendants' Motion, Shimko testified that he had advised the individual defendants that they should no longer participate in seminars promoting the CORF consulting services. However Shimko failed to advise the Ross Defendants of the risks and potential conflict involved in his representation of multiple clients with different levels of involvement and potential culpability. Shimko failed to advise the Ross Defendants that they might have conflicting interests and should seek independent counsel even though some of the other clients Shimko represented continued to engage in activity that Shimko had warned them against. As further set forth in the Woodcock Defendants' Motion, Shimko testified that he attended dinner with the lead attorney for plaintiffs in the underlying CORF-related lawsuits, and that the attorney was offering to drop lawsuits against Brill and Ritchie, who had been CORF officers and employees. Shimko did not offer to enter into a separate agreement on behalf of the Ross Defendants because that would have conflicted with his duty to the other individual defendants. By failing to disclose these conflicts to the Ross Defendants, and to obtain their waiver, Shimko violated his ethical obligations to the Ross Defendants. B. Shimko Violated ER 1.8

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The Ethical Rules prohibit a lawyer from entering into a business transaction with a client unless the terms are fully disclosed, the client is given a reasonable opportunity to seek advice of outside counsel, and the client consents in writing. ER 1.8 (a). The undisputed evidence in the record demonstrates that Shimko violated ER 1.8 in at least two separate transactions. With respect to the loan Shimko made to the CORF business entities, as described in the Woodcock Defendants' Motion, Shimko failed to explain to the Ross Defendants that some loans were corporate, and some loans were purportedly personal; and he failed to explain how he would allocate monies he received from CORF between his legal bills and loan repayment. By applying monies received 4
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from CORF preferentially to repayment of the loan, Shimko increased the risk that CORF would be unable to pay legal bills, thus increasing the risks that the Ross Defendants would be charged with payment. The loan transaction and risks were not explained to the Ross Defendants, and their interests were materially affected. With respect to the August 2002 transaction between Shimko and the tissue bank business, as described in the Woodcock Defendants' Motion, Shimko failed to advise the Ross Defendants to have independent counsel review the transaction and operating agreement, even though Shimko provided legal services to Aztec Medical Group Partners, LLC, in exchange for an interest in the company. Shimko failed to obtain the Ross Defendants' written consent to the transaction. With respect to the demand that defendants pledge their homes as collateral in April, 2003, as set forth in the Woodcock Defendants' Motion, Shimko failed to warn the Ross Defendants that if they knowingly and willingly pledged their homes they potentially waived their homestead exemption. Shimko failed to advise the Ross Defendants to seek the advice of outside counsel. Even though, as set forth in the Woodcock Defendants' Motion, Shimko testified that from the beginning of his representation, his clients' greatest concern was their exposure to personal liability, Shimko never made any effort to learn about the assets of the Ross Defendants, how they were held, and their vulnerability to a judgment. Given the undisputed violations of ERs 1.7 and 1.8, at all times during the representation, Shimko is precluded, under Ninth Circuit law, from any recovery of his claimed attorneys' fees. IV. CONCLUSION For the reasons set forth above, and in the Woodcock Defendants' Motion, it is requested that the Court determine that (1) Shimko violated the applicable ethical rules in the course of the entire representation, (2) Shimko is therefore precluded, under Image, from recovering attorneys' fees, and (3) the Complaint is accordingly dismissed as a matter of law. 5
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

DATED this 31st day of March, 2008. JABURG & WILK, P.C. /s/ Roger L. Cohen, 004409 Roger L. Cohen Kathi Mann Sandweiss Attorneys for Defendants

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

CERTIFICATE OF SERVICE I hereby certify that on March 31st, 2008, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF system for filing, and for transmittal of a Notice of Electronic filing to the following CM/ECF registrants: David A. Welling TIMOTHY SHIMKO & ASSOCIATES 2010 Huntington Building 925 Euclid Avenue Cleveland, Ohio 44115 Attorneys for Plaintiffs David and Rhona Goldfarb 11437 N. 53rd Place Scottsdale, Arizona 8525 Pro Per Defendants Goldfarb Richard J. McDaniel 11811 N. Tatum Blvd., Suite 1051 Phoenix, Arizona 85208 Attorney for Woodcock Defendants

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By: /s/ Rima M. LaMont Rima M. LaMont

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