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Quatama Park Townhomes Owners Association v. RBC Real Estate Finance, Inc.

United States District Court, D. Oregon

August 3, 2018

QUATAMA PARK TOWNHOMES OWNERS ASSOCIATION, an Oregon nonprofit corporation, Plaintiff,
v.
RBC REAL ESTATE FINANCE, Inc., a foreign corporation; LAMPLIGHT CAPITAL & ASSET MANAGEMENT, LLC, a Texas limited liability company; DECATUR ADVISORS LLC, a California limited liability company; SCOTT MCFERRAN, an individual; LAURA WILSON, an individual; DARON ANDERSON, an individual, Defendants.

          OPINION AND ORDER

          STACIE F. BECKERMAN UNITED STATES MAGISTRATE JUDGE

         Defendants Scott McFerran (“McFerran”), Laura Wilson (“Wilson”), Daron Anderson (“Anderson”), and Decatur Advisors LLC (“Decatur”) (collectively, “Defendants”) move to disqualify the law firm of Vial Fotheringham (“VF”) from continuing to represent Plaintiff Quatama Park Townhomes Owners Association (“Association”) in this action. The Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1332. Defendants argue that VF formerly represented defendants McFerran, Wilson, and Anderson (collectively, the “Directors”) in a substantially related matter, thus VF's current representation of the plaintiff in this case is a conflict of interest warranting disqualification. For the reasons that follow, the Court agrees and GRANTS Defendants' Motion to Disqualify Counsel.

         BACKGROUND

         This litigation arises from a dispute regarding alleged construction defects at Quatama Park Townhomes (“Quatama Park”), a planned community located in Washington County, Oregon. (Compl. ¶ 1.) Quatama Park was originally developed and constructed by companies owned by James Standring (“Standring”). (ld. ¶ 5.) In 2011, construction lender RBC Real Estate Finance, Inc. (“RBC”) foreclosed on Quatama Park and became the successor declarant for the development. (Pl.'s Resp. at 1.) RBC then hired Decatur to manage the development. (Defs.' Mot. at 2; Pl.'s Resp. at 2.) RBC appointed Wilson and Anderson, consultants hired by Decatur, to serve as the sole members of the Association's Board of Directors (the “Board”) until control was turned over to the lot owners. (Defs.' Mot. at 2; Pl.'s Resp. at 2.) In July 2013, Lamplight Capital & Asset Management, LLC (“Lamplight”) purchased RBC's interest in Quatama Park and reappointed Anderson and Wilson as the Association's Directors. (Pl.'s Resp. at 5; Vial Decl. Ex. 1, at 1.) In August 2015, Anderson stepped down from the Board and Lamplight appointed McFerran, who is also a principal of Decatur, to replace him. (Defs.' Mot. at 2; Pl.'s Resp. at 5; Vial Decl. Ex. 1, at 1.)

         In July 2015, the Board hired the VF law firm to provide general representation services to the Association. (Pl.'s Resp. at 7; see generallyVial Decl. Exs. 22-23.) VF's representation agreement was addressed to the Association's Board of Directors and signed by Wilson as the “Authorized Representative” of the Association. (Vial Decl. Ex. 23, at 1.) In November 2015, the Association retained VF on a contingent fee basis to file a lawsuit against Standring's companies and other contractors seeking damages for repairs related to a variety of construction defects discovered throughout the development. (Defs.' Mot. at 1-2; Pl.'s Resp. at 8; Vial Decl., Ex. 25, at 1-2.)[1] McFerran signed the contingent fee agreement as the “Authorized Representative” of the Board. (Vial Decl. Ex. 26, at 6.)

         VF filed the construction defect lawsuit (hereinafter “Quatama I”) on behalf of the Association in February 2016. (Pl.'s Resp. at 9; Defs.' Reply at 6.) Prior to filing the lawsuit, VF attorney Ryan Harris (“Harris”) emailed Wilson and McFerran and stated, “[i]f either of you have any other documents showing other potential defendants, please provide them to me.” (Vial Decl. Ex. 29, at 1.) Wilson and McFerran did not provide any documents in response to Harris' request. (Pl.'s Resp. at 10.)

         In August 2016, counsel for the Quatama I defendants (i.e., Standring's companies) issued subpoenas to Wilson and Decatur for all documents relating to the Quatama Park development. (See generallyVial Decl. Exs. 30-31.) Subsequently, between August and October, Wilson and McFerran provided their complete files on the development to VF. (Pl.'s Resp. at 10; Wilson Decl. ¶ 5; McFerran Decl. ¶ 4.) Anderson also provided VF with a complete file of all of his documents related to the development.[2] (Anderson Decl. ¶ 4.) The Directors assert that they turned over their files to VF because they believed VF represented them. (Defs.' Reply at 9; Wilson Decl. ¶ 5; McFerran Decl. ¶ 4; Anderson Decl. ¶ 4.) However, the Association argues that the Directors were required to provide the documents to VF in any event because the documents had been subpoenaed. (Pl.'s Resp. at 10.) However, all parties appear to agree that Harris requested that Wilson and McFerran provide the documents to VF prior to responding to the subpoenas in order to allow VF to review them for privileged communications. (Pl.'s Resp. at 32; Defs.' Reply at 6.)

         While the parties dispute the timing, at some point in reviewing the Directors' files, VF discovered documents that the Association alleges established that the Directors knew about the construction defects at Quatama Park as early as 2012.[3] (Pl.'s Resp. at 11-12; Defs.' Reply at 8.)

         During the summer months of 2016, several homeowners threatened to sue Lamplight, Wilson, and McFerran regarding costs associated with repairs for the Quatama Park construction defects. (Defs.' Reply at 11-12.) In June 2016, a homeowner (“JM”) emailed Harris suggesting that Wilson and McFerran were breaching their fiduciary duties to the homeowners by commencing repairs for the construction defects without knowing whether they would ever recover the costs. (Miller Decl. Ex. 7, at 1.) Harris emailed Wilson and McFerran, asking them if he could respond, and they agreed. (Miller Decl. Ex. 8, at 1.) Harris then sent a letter to JM, stating “disagreement do [sic] not mean that the Board is breaching its fiduciary duty.” (Miller Decl. Ex. 8, at 4-5.) During the two months that followed, Harris met with Wilson and McFerran by telephone and in person on several occasions to discuss the homeowners' allegations. (Defs.' Reply at 11-12.)

         On August 29, 2016, Damon Henrie (“Henrie”), an attorney for several homeowners, sent a letter to Harris and Marcus Eyth (“Eyth”), counsel for Lamplight and RBC, to place Lamplight, Wilson, and McFerran “on notice of my clients' intent to pursue claims against each of these entities . . . .” (Miller Decl. Ex. 14, at 1-2.) On September 1, 2016, Harris drafted and sent a response to Henrie, after soliciting feedback from Wilson and McFerran on an initial draft. (McFerran Decl. to Decatur Defs.' Reply Ex. F, at 1-4.)

         In January 2017, the Quatama I defendants moved for leave to amend their third party complaint to assert claims against the Directors in their individual capacities for contribution based upon their alleged breach of fiduciary duty for failing to make timely repairs at the development. (Defs.' Mot. at 24; Pl.'s Resp. at 9-10; see generallyMiller Decl. Ex. 11.) VF tendered the claims to the Directors and Officers (“D&O”) insurance carrier on behalf of the Directors. (Defs.' Reply at 4-5.) The D&O insurance carrier responded directly to VF. (Decatur Defs.' Reply at 4-5; McFerran Decl. to Decatur Defs.' Reply Ex. G, at 2.)

         At the end of March 2017, Wilson and McFerran stepped down from the Board as part of a planned transition to homeowner control of the Association. (Pl.'s Resp. at 11.) Shortly before the Board turnover, Harris emailed Wilson and McFerran to inform them that he had received a settlement offer from the Quatama I defendants. (Vial Decl. Ex. 34, at 1-2.) Harris stated he believed “we can do better than [the offer], ” and recommended that Wilson and McFerran defer the decision to the Association's new board of directors. (Id. at 1.) Wilson and McFerran each responded that they agreed with that course of action. (Id.)

         In April 2017, the Quatama I defendants filed a motion for summary judgment, arguing that the Directors knew about the construction defects more than two years before the lawsuit was filed, thus it was time-barred. (See generallyVial Decl., Ex. 39.) The same month, Harris exchanged several emails with the Directors regarding scheduling their depositions in Quatama I. (Miller Decl. Ex. 10, at 1-10.) In one of these emails, Wilson asked Harris whether they should postpone the deposition preparation they had previously scheduled because the depositions had been postponed. (Id. at 5.)

         In May 2017, VF sent a letter to Eyth stating that the recently-elected board of directors did not believe it was in the Association's interests to sign a common interest agreement between the Association, Wilson, Decatur, RBC, and Lamplight.[4] (Vial Decl. Ex. 36, at 1-2.)

         On June 19, 2017, Harris sent a letter to the Directors informing them that the Association was considering filing a breach of fiduciary duty lawsuit against them based on their failure to file a timely lawsuit after their discovery of the construction defects. (Vial Decl. Ex. 42, at 1-2.) The letter stated, “it appears . . . the Association's interests are no longer aligned with your interests.” (Id. at 1.) Harris informed the Directors that while he had initially intended to defend their depositions as former directors and officers of the Association, he could no longer do so, and that they should consult their own counsel. (Id. at 1-2.) The Directors each attest that until around the time they received this letter, they believed VF represented them as individuals. (Wilson Decl. ¶ 7; McFerran Decl. ¶ 7; Anderson Decl. ¶ 6.)

         As a result of receiving the letter, the Directors retained attorney Kurt Peterson (“Peterson”) to represent them. (McFerran Decl. ¶ 9.) On July 10, 2017, Peterson sent a letter to Harris, objecting to subpoenas Harris intended to serve upon the Directors, and stating “my clients very definitely believe that they had an attorney-client relationship with your firm.” (Miller Decl. Ex. 2, at 1-2.) On July 17, 2017, Peterson sent a letter to VF attorney Michael Vial (“Vial”) informing him that ...


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