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In re Villas at Highland Park Homeowners Association, Inc.

Supreme Court of Colorado, En Banc

May 22, 2017

In Re: Villas at Highland Park Homeowners Association, Inc., a Colorado nonprofit corporation, Plaintiff
v.
Villas at Highland Park, LLC, a Colorado limited liability company; CC Communities, LLC, a Colorado limited liability company f/k/a Century Communities, LLC; Century Communities, Inc., a Delaware corporation f/k/a Century Communities Colorado, LLC; Horizon Building Services, LLC, a Colorado limited liability company; Dale Francescon, individually; Amy L. Anders, individually; John Healy, individually; Joseph Huey, individually; Kathy Ellis, individually; and John Geary, individually. Defendants

         Original Proceeding Pursuant to C.A.R. 21 Arapahoe County District Court Case No. 13CV31625 Honorable Elizabeth A. Weishaupl, Judge.

          Attorneys for Plaintiff: Burg Simpson Eldredge Hersh & Jardine PC Brian Keith Matise Mari K Perczak Englewood, Colorado

          Attorneys for Defendants Villas at Highland Park, LLC; CC Communities, LLC; Century Communities, Inc.; Horizon Building Services, LLC; and Dale Francescon: Don, Galleher & Associates Shelley B. Don Watson W. Galleher Denver, Colorado

          Attorneys for Movants Burg Simpson Eldredge Hersh & Jardine PC and Mari Perczak: Fennemore Craig, P.C. Troy R. Rackham Denver, Colorado Burns Figa & Will PC Alexander "Alec" R. Rothrock Greenwood Village, Colorado

          Attorneys for Amicus Curiae Colorado Trial Lawyers Association: Bachus & Schanker LLC Scot C. Kreider Denver, Colorado

          No appearance on behalf of: Amy L. Anders, John Healy, Joseph Huey, Kathy Ellis, or John Geary.

          OPINION

          MÁRQUEZ JUSTICE

         ¶1 This original proceeding arises in a construction-defect case filed by a homeowners' association against several real-estate developers. An attorney for the homeowners' association, Mari Perczak, previously represented one of the real-estate developers, Dale Francescon, when Francescon was a defendant in other construction-defect litigation. Based on Perczak's prior representation of Francescon, the developers in this case (including Francescon) moved to disqualify Perczak and her law firm under Rules 1.9 and 1.10 of the Colorado Rules of Professional Conduct.

         ¶2 Rule 1.9 provides that an attorney has certain ethical duties to former clients that persist even after the attorney-client relationship has concluded. Relevant here, Colo. RPC 1.9(a) prohibits an attorney from representing a party whose interests are materially adverse to those of a former client if the former and present matters are "substantially related" to one another such that there is a substantial risk that confidential information that normally would have been obtained in the prior representation would materially advance the current client's position in the present matter. People v. Frisco, 119 P.3d 1093, 1096 (Colo. 2005). If an individual attorney has a disqualifying conflict under Colo. RPC 1.9(a), that conflict may be imputed to the lawyer's firm and require disqualification of the entire firm. See Colo. RPC 1.10.

         ¶3 This is not the first time Francescon has sought to disqualify Perczak; indeed, Francescon has moved to disqualify her under Colo. RPC 1.9(a) in at least two other construction-defect cases in which she brought claims on behalf of a homeowners' association against Francescon and other real-estate developers. In one of these previous cases, Sawgrass at Plum Creek Community Association, Inc. v. Sawgrass at Plum Creek, LLC, the trial court denied the motion to disqualify because it concluded that the Sawgrass lawsuit was not "substantially related" to the prior matters in which Perczak represented Francescon. No. 2010CV3532 (Douglas Cty. Dist. Court Sept. 5, 2013).

         ¶4 In the present case, the trial court denied the developers' disqualification motion without meaningfully analyzing for purposes of Colo. RPC 1.9(a) whether this case is "substantially related" to the prior matters in which Perczak represented Francescon. Instead, the trial court relied on issue preclusion, the doctrine that bars relitigation of an issue that is "identical" to an issue that was previously litigated and decided, Stanton v. Schultz, 222 P.3d 303, 307 (Colo. 2010). Here, the trial court appeared to conclude that the Sawgrass ruling denying the motion to disqualify Perczak in that case had preclusive effect so as to bar the developers' motion under Colo. RPC 1.9(a) in this case. The developers filed a C.A.R. 21 petition in this court, seeking review of the trial court's order denying the disqualification motion on the basis of issue preclusion.

         ¶5 We issued a rule to show cause to determine whether the trial court erred in relying on the doctrine of issue preclusion to deny the developers' attorney-disqualification motion. The disqualification inquiry under Colo. RPC 1.9(a) asks whether an attorney's prior representation and current representation are "substantially related." This inquiry under Colo. RPC 1.9(a) is specific to the particular matter for which disqualification is sought. Therefore, we conclude that a motion to disqualify under Colo. RPC 1.9(a) will rarely, if ever, raise an "identical" issue to a disqualification motion in another case because the analysis under Rule 1.9(a) of whether the prior and current matters are substantially related will differ in each case.

         ¶6 The dispositive legal issue in the developers' attorney-disqualification motion- whether this case is "substantially related" to Perczak's prior representation of Francescon-is specific to the present dispute. Moreover, the nature of the claims asserted in this case differs from the nature of the claims asserted in Sawgrass. Thus, we conclude that the dispositive issue here is not "identical" to the issue decided in Sawgrass, and therefore, the doctrine of issue preclusion does not apply to the developers' motion in this case. Accordingly, the trial court abused its discretion by relying on issue preclusion to deny the developers' disqualification motion. We therefore make the rule absolute, vacate the trial court's order denying the developers' motion to disqualify Perczak and her law firm, and remand this case for the trial court to analyze the merits of the developers' motion under Colo. RPC 1.9.

         I. Facts and Procedural History

         ¶7 The attorney at the center of this disqualification dispute, Mari Perczak, filed the present lawsuit ("Villas") on behalf of Villas at Highland Park Homeowners Association, Inc., in November 2013. The lawsuit named as defendants Villas at Highland Park, LLC; CC Communities, LLC; Century Communities, Inc.; and Horizon Building Services, LLC; as well as six individuals, including Dale Francescon (collectively, the "developers"). Because the developers seek relief from the trial court's denial of their motion to disqualify Perczak and her law firm, we consider the allegations contained in the motion to disqualify.

         ¶8 According to the developers, Francescon has been involved in the residential construction business in Colorado since the 1990s. Francescon and his brother founded a number of companies through which they developed residential construction projects. Between July 1996 and November 1999, various plaintiffs filed six separate lawsuits against those companies; some of those lawsuits also asserted claims directly against the Francescons.

         ¶9 Perczak, then a partner at the law firm Godin & Baity, served as lead counsel for the Francescons and the corporate defendants in five of those cases. In those earlier matters, Perczak advised the Francescons and the corporate defendants on various topics, including litigation strategies (particularly the defense of alter-ego and construction-defect claims); the establishment and structure of special-purpose corporate entities for residential construction; settlement strategies and risk tolerance; and the nature and extent of the Francescons' involvement with the corporate entities. Among the defendants in the earlier cases, only Francescon is a defendant in the present litigation.

         ¶10 Perczak left Godin & Baity in 2005. In 2007, Perczak became a shareholder in the law firm then named Vanatta, Sandgrund, Sullan & Sullan, P.C. (the "Sullan Firm"), which merged in 2014 with the firm in the present case, Burg Simpson Eldredge Hersh & Jardine PC (the "Burg Firm"). As relevant to this case, Perczak and other attorneys with the Sullan Firm represented homeowners' associations in two construction-defect lawsuits against Francescon and some of the same corporate defendants in this case.

         ¶11 First, in December 2010, attorneys with the Sullan Firm filed Sawgrass at Plum Creek Community Association, Inc. v. Sawgrass at Plum Creek, LLC ("Sawgrass"), No. 10CV3532 (Douglas Cty. Dist. Court), and Perczak later appeared as counsel for the homeowners' association. The Sawgrass litigation alleged construction defects at a planned community in Castle Rock, Colorado. The operative complaint in Sawgrass asserted claims against Francescon and other defendants (including one of the defendants in this case, CC Communities, LLC) for negligence, breach of implied warranty, misrepresentation/nondisclosure, violation of the Colorado Consumer Protection Act ("CCPA"), breach of fiduciary duty, and promissory estoppel.

         ¶12 Second, in March 2011, attorneys with the Sullan Firm filed Highlands at Westbury Townhome Association, Inc. v. Highlands at Westbury, LLC ("Westbury"), No. 11CV333 (Adams Cty. Dist. Court), and Perczak later appeared as counsel for the homeowners' association. The Westbury litigation alleged construction defects at a community of townhomes in Westminster, Colorado. As in Sawgrass, the operative complaint in Westbury asserted claims against Francescon and several other defendants (including two of the defendants in this case, CC Communities, LLC, and Horizon Building Services, LLC) for negligence, breach of implied warranty, misrepresentation/nondisclosure, violation of the CCPA, breach of fiduciary duty, and promissory estoppel.

         ¶13 Perczak and other attorneys with the Sullan Firm filed the present case, Villas at Highland Park Homeowners Association, Inc. v. Villas at Highland Park, LLC, in November 2013. No. 13CV31625 (Arapahoe Cty. Dist. Court). The Villas litigation concerns alleged construction defects in a planned community in Arapahoe County, Colorado. Like the complaint in Sawgrass, the initial complaint in Villas asserted claims on behalf of the homeowners' association against several corporate defendants, Francescon, and several other individual defendants for negligence, breach of implied warranty, misrepresentation/nondisclosure, violation of the CCPA, and breach of fiduciary duty. In September 2014, however, the Villas homeowners' association filed an amended complaint, adding new claims, including claims for conversion, unjust enrichment, and civil theft. These additional claims arose from the allegedly improper transfer of a parcel of land referred to as "Tract H" from the plaintiff homeowners' association to the Highland Park Metropolitan District. The claims for conversion and civil theft were asserted against Francescon individually, in addition to other defendants.

         ¶14 Francescon and other named defendants moved to disqualify Perczak and her firm under Colo. RPC 1.9 and 1.10 in all three of these cases. In July 2013, the Westbury court initially granted the motion to disqualify in that litigation. The Westbury court concluded that during her prior representation of Francescon, Perczak would have learned confidential information about the structure of Francescon's businesses, which required Perczak's disqualification under Colo. RPC 1.9(a), as well as the disqualification of the Sullan Firm, because Perczak's conflict was imputed to the firm under Colo. RPC 1.10. Perczak and the Sullan Firm moved for reconsideration of this ruling. The Westbury court provisionally vacated its disqualification order and allowed the Westbury defendants to file a response to the motion to reconsider. The parties then settled the case before the Westbury court ruled on the motion to reconsider.

         ¶15 In September 2013, the Sawgrass court denied the motion to disqualify in that litigation. In a detailed, fourteen-page order, the Sawgrass court concluded that disqualification was unwarranted because Perczak's prior representation of Francescon was not "substantially related" to Sawgrass within the meaning of Colo. RPC 1.9(a). Specifically, the Sawgrass court reasoned that although Perczak's defense of Francescon and the Sawgrass lawsuit both involved construction-defect claims based on negligence, the various lawsuits "involve[d] completely distinct projects over a significant period of time. . . . [Perczak's prior representations of Francescon] related to entirely distinct building projects, where there were different applicable building codes, separate contractors, and unique allegations of defective construction." Several of the Sawgrass defendants sought relief from this court under C.A.R. 21, which we denied. In re CC Cmtys. LLC v. Sawgrass at Plum Creek Cmty. Ass'n, No. 13SA230 (Colo. Sept. 12, 2013). Shortly thereafter, the parties settled.

         ¶16 The developers[1] filed a motion to disqualify in the present case in September 2014, arguing that Perczak and her firm must be disqualified because this matter is "substantially related" to Perczak's prior representation of Francescon. With the motion, the developers filed supporting documents, including the Westbury initial disqualification order, the Sawgrass disqualification order, lists of filings from the Westbury and Sawgrass cases, four affidavits from Dale Francescon, an opinion letter from insurance-defense attorney Daniel Fowler, and an affidavit from professor emeritus of legal ethics Charles Wolfram.

         ¶17 Perczak and the Burg Firm then moved to strike the developers' motion to disqualify on the basis of issue preclusion. Perczak and the Burg Firm argued that the Sawgrass order addressed "the same issue, based on effectively identical facts" and concluded that the Sawgrass lawsuit was not "substantially related" to Perczak's prior representation of Francescon. According to Perczak and the Burg Firm, the Sawgrass order resolved these issues "in a full, fair, and final order, " and therefore, the issue preclusive effect of the Sawgrass order barred the developers' disqualification motion in this case.

         ¶18 The trial court held a hearing in February 2015 and denied the motion to strike in part.[2] The court concluded that although "[t]he doctrine of issue preclusion, if shown, applies to this situation, " Perczak and the Burg Firm had not shown that the issue they sought to preclude-whether Perczak must be disqualified because the present case is "substantially related" to Perczak's prior representation of Francescon-was "identical" to the issue the court decided in Sawgrass. The court further explained:

Although the surface issue in the prior proceeding was the same-the disqualification of Ms. Perczak [under Colo. RPC 1.9]-the underlying reasons why [the Sawgrass court] determined disqualification was not necessary seem factually different in this case. Although both the prior proceeding and this case have a claim for a violation of the [CCPA], it does not appear that [the Sawgrass court] addressed that claim. Further, this suit, unlike the Sawgrass matter, includes claims directly against Mr. Francescon for Civil Theft, Breach of Fiduciary Duty, and Conversion.

         The court concluded that a hearing was necessary "to determine if anything Ms. Perczak may have learned in her representation of Mr. [Francescon], other than those things [the Sawgrass court] ruled would not cause a conflict . . ., would materially advance Plaintiff's personal claims against Mr. [Francescon] in this case."

         ¶19 At that hearing, held in May 2015, the developers tendered-and the court accepted-an offer of proof nearly 300 pages in length, consisting of affidavits from, or statements summarizing the anticipated testimony of, Francescon and four other individuals.[3] According to the offer of proof, these witnesses would testify to the nature of the confidential information that Perczak would have obtained in her prior representation of Francescon, as well as legal opinions on Perczak's alleged conflict and the applicability of issue preclusion in this context. At the same hearing, defense counsel also argued that issue preclusion did not apply because the issue Perczak and the Burg Firm sought to preclude was not "identical" to the attorney-disqualification issue in Sawgrass. See Tr. of Oral Arg. at 58:13-15, Villas at Highland Park Homeowners Ass'n, Inc. v. Villas at Highland Park, LLC, No. 13CV31625 (Arapahoe Cty. Dist. Court May 21, 2015) ("There is no identity of issues here as is required under the elements of . . . issue preclusion . . . .").

         ¶20 On February 25, 2016, the trial court entered an order granting Perczak's and the Burg Firm's motion to strike on the basis of issue preclusion and denying the developers' motion to disqualify. The order did not make specific factual findings about the scope of Perczak's prior and present representations, as the Sawgrass court had done when it concluded that the Sawgrass lawsuit was not "substantially related" to Perczak's prior representation of Francescon. However, the order reasoned that Perczak's knowledge of Francescon's fear of being sued personally-which was discussed in the offer of proof-would not create a conflict or materially advance the claims against Francescon in this case.

         ¶21 The developers petitioned this court for a rule to show cause under C.A.R. 21, arguing that the trial court erred in applying issue preclusion based on the Sawgrass order. The developers' petition further argued that Perczak and the Burg Firm must be disqualified under Colo. RPC 1.9 and Colo. RPC 1.10 because this case is "substantially related" to the construction-defect matters in which Perczak represented Francescon. We issued a rule to show cause and now make the rule absolute.

         II. Original Jurisdiction

         ¶22 Original relief under C.A.R. 21 is an extraordinary remedy that is limited in both purpose and availability. People v. Darlington, 105 P.3d 230, 232 (Colo. 2005). The exercise of original jurisdiction under C.A.R. 21 falls within this court's sole discretion. Fognani v. Young, 115 P.3d 1268, 1271 (Colo. 2005). We generally exercise jurisdiction under C.A.R. 21 when the normal appellate process provides an inadequate remedy or when a trial court order places one party at a significant disadvantage in litigating the merits of a controversy. People v. Hoskins, 2014 CO 70, ¶ 16, 333 P.3d 828, 834; DCP Midstream, LP v. Anadarko Petroleum Corp., 2013 CO 36, ¶ 22, 303 P.3d 1187, 1193. In addition, this court will generally elect to hear cases under C.A.R. 21 to consider important issues of first impression. People v. Johnson, 2016 CO 69, ¶ 7, 381 P.3d 316, 318.

         ¶23 According to the developers' allegations, Perczak's conflict of interest and her possession of confidential information from her prior representations fundamentally undermines the fairness of the district court proceedings, thereby rendering normal appellate relief ineffective. Further, this court has not previously addressed the applicability of issue preclusion in the context of attorney disqualification under Colo. RPC ...


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