Guam law firm is disqualified as counsel for UMDA

The federal court has granted David L. Wickline’s motion to disqualify a Guam law firm from representing the United Micronesia Development Inc. in its lawsuit against him.

In an order on Friday, U.S. District Court for the NMI Magistrate Judge Heather L. Kennedy ordered the law firm of Calvo Fisher & Jacob LLP to withdraw as counsel for UMDA.

Wickline is a former president and chief executive officer of UMDA.

Kennedy said because the law firm’s former representations of Wickline are in large part related to the current case in which it represents a party adverse to him, the court must disqualify the law firm.

Kennedy ruled that Wickline has satisfied the court’s strict judicial scrutiny.

“The court regrets the hardship this order will cause UMDA, which has the right to be represented by the lawyer of its choosing, but allowing Calvo Fisher to continue to take a stance adverse to their former client in a case with facts that overlap substantially with its former representation creates the appearance of impropriety, which the court cannot permit,” Kennedy said.

In a statement, UMDA said the company will ask the court to reconsider its ruling.

“UMDA, as the court acknowledged, is greatly hampered with the court’s ruling regarding disqualification of its counsel in the Wickline litigation,” UMDA said.

UMDA said in its view, the ruling on the question of who is counsel for UMDA does not deter the company’s mission to protect its shareholders from the former CEO’s efforts to claim compensation not due to him, for his fiduciary breaches, and his efforts to gain for himself 25 percent of company shares (150,000 shares) equal to the holdings of the governments of the CNMI, Palau, and the FSM.

“While disappointing, the ruling only delays but does not deny the company’s position to proceed to trial and protect the interests of hundreds of Micronesian shareholders from Mr. Wickline,” UMDA said.

Last October, U.S. District Court for the NMI designated judge Consuelo B. Marshall dismissed with prejudice UMDA’s lawsuit against Wickline. Marshall dismissed UMDA’s claims for declaratory relief, fraud, and wrongful dilution. Dismissed with prejudice means UMDA cannot re-open the claims.

In the same order, Marshall dismissed without prejudice UMDA’s claims for breach of fiduciary duty, unjust enrichment, and injunctive relief. Dismissed without prejudice allows UMDA to re-file the case on those claims in the future.

UMDA then filed an amended complaint containing its claims for breach of fiduciary duty and unjust enrichment.

UMDA is suing Wickline “to protect its shareholders from dilution of their interests in the company, to recover substantial damages that UMDA discovered during the course of its investigation, and to stop Wickline from working behind the scene to undermine shareholder confidence.”

Wickline is also suing UMDA, seeking monetary damages. The court consolidated the cases.

In its amended complaint, UMDA argues that it is entitled to relief because Wickline breached his duty of loyalty to the company while he was CEO, in part by spending “too much of his time to pursue his own personal business ventures rather than UMDA’s business.”

Wickline, through counsel Colin Thompson, moved to disqualify the Calvo Fisher law firm. He alleged that the law firm, which is representing him in other matters, has been using confidential information he had provided against him in order to further the UMDA litigation.

In her order, Kennedy said Calvo Fisher’s former representations of Wickline are substantially related to the current lawsuits.

Kennedy said this case involves at least two former representations substantially related to the current litigation: the tax advice and the BayNorth matter.

Kennedy said Calvo Fisher provided Wickline tax advice for the same time period when Wickline allegedly failed to pay taxes on or otherwise establish the incentive stock option plan (ISOP).

Kennedy said the tax representation included tax returns for 2007-2010 and 2010 was the year that the ISOP was allegedly granted or rejected.

“Because Calvo Fisher represented Wickline with respect to the same relevant tax issues during the same time period, the court must find a substantial relationship between the firm’s former representation of Wickline and its current representation against him,” the judge said.

Presumably, Kennedy said, the time Wickline spent litigating against and negotiating with BayNorth would support UMDA’s contention that Wickline breached his duty of loyalty to UMDA by paying it too little attention.

When Wickline’s partner filed for bankruptcy, it triggered Wickline’s personal guaranty to one of the partnership’s creditors, BayNorth Capital. BayNorth sued Wickline, and Calvo Fisher represented him in the lawsuit in Utah.

Once again, Kenney said, the court must conclude that Calvo Fisher’s representation of Wickline during part of the BayNorth litigation revealed information that is relevant to its current representation against him, and therefore substantially related.

UMDA argues that Wickline waived any conflict in this matter by waiting nine months after litigation began to bring his motion.

Kennedy disagreed.

Kennedy said Wickline’s delay of nine months in filing his motion to disqualify does not indicate his intention to waive the conflict or obtain an unfair tactical advantage, and the prejudice to UMDA is not so great as to shadow these proceedings and estop Wickline from objecting to conflicted counsel.

Kennedy said Wickline communicated his conflict of concerns to Calvo Fisher before this lawsuit began.

Additionally, the judge said, it appears that the motion to disqualify may have been delayed by the parties’ legitimate procedural wrangling in this case, rather than any effort to gain an unfair tactical advantage.

Finally, Kennedy said, while UMDA will regrettably face a setback in hiring a new counsel, the case is not so far advanced that the prejudice to UMDA outweighs the public’s interest in “client confidence and the profession’s institutional need to avoid even the appearance of a breach of confidence.”

UMDA argues that the tax information it relied on in the first amended complaint was not privileged, and that it is therefore not breaching its duty of confidentiality to Wickline by using that information against him.

“That argument misses the point of the substantial relationship test,” Kennedy said.

Kennedy said the appearance of impropriety, and the real risk that other confidential information could be used against Wickline, compels the court to disqualify the law firm.

Finally, Kennedy said, the court finds that the October 2009 conflict waiver, by its own plain language, has no application to this matter.

Kennedy said when the agreement was signed, Calvo Fisher represented UMDA against former officers and directors, and then-CEO Wickline in the BayNorth matter.

Kennedy said Calvo Fisher’s representation of both UMDA and Wickline formally ceased in August 2010 when the law firm delivered termination notices to the parties.

Accordingly, she said, the conflict of waiver no longer applied because Calvo Fisher no longer continued to represent UMDA or Wickline—there could be no conflict.

Kennedy said even if the court construed the conflict waiver broadly, waiver would not apply here because it provided insufficient information for Wickline to give informed consent for the future conflict.