United States District Court, D. Idaho
DALE L. MIESEN, an individual who is a shareholder and who is also bringing this action on behalf of and/or in the right of AIA Services Corporation and its wholly owned subsidiary AIA Insurance, Inc., Plaintiff,
HAWLEY TROXELL ENNIS & HAWLEY LLP, an Idaho limited liability partnership; GARY D. BABBITT, an individual; D. JOHN ASHBY, an individual; RICHARD A. RILEY, an individual; AIA SERVICES CORPORATION, an Idaho corporation; AIA INSURANCE, INC.; an Idaho corporation; CROP USA INSURANCE SERVICES, LLC; an Idaho limited liability company; CROP USA INSURANCE AGENCY, INC., an Idaho corporation; CONNIE TAYLOR HENDERSON, an individual; JOLEE K. DUCLOS, an individual; MICHAEL W. CASHMAN SR., an individual; JAMES BECK, an individual; R. JOHN TAYLOR, an individual; and GEMCAP LENDING I, LLC, a Delaware limited liability company, Defendants, and CROP USA INSURANCE SERVICES, LLC, an Idaho limited liability company; CROP USA INSURANCE AGENCY, INC., an Idaho corporation; CONNIE TAYLOR HENDERSON, an individual; JOLEE K. DUCLOS, an individual; R. JOHN TAYLOR, an individual; MICHAEL CASHMAN SR., an individual; JAMES BECK, an individual, Defendants/Third-Party Plaintiffs,
REED TAYLOR, an individual, Third-Party Defendant.
MEMORANDUM DECISION AND ORDER
C. Nye U.S. District Court Judge.
matter comes before the Court on two Motions to Disqualify
Attorney Roderick Bond. Dkts. 275, 278. At the time the
Motions were filed, Bond represented both Plaintiff Dale
Miesen and Third-Party Defendant Reed Taylor. After these
Motions were filed, but before briefing was complete, Reed
Taylor hired alternate counsel. Because of this change in
circumstances, the Court permitted the parties to file
supplemental briefs. After receiving these supplemental
briefs, the Court held oral argument and took the Motions
under advisement. As explained below, the Court finds good
cause to DENY the Motions so long as Reed Taylor proceeds
with alternate counsel.
The Original Parties and Dispute
a shareholder's derivative action, the Court's
jurisdiction over which is based upon diversity of
citizenship. Plaintiff Dale Miesen is a minority shareholder
of the Defendant AIA Services Corporation
(“AIA”), the alleged wronged corporation. Donna
Taylor was originally named as a plaintiff in this action.
However, the Court dismissed her, in both her personal and
representative capacities, because her presence destroyed
diversity. See Dkt. 178.
were originally two groups of defendants in this action. The
first group consists of AIA Services Corporation, AIA
Insurance, Inc. (collectively “AIA Entities”),
CropUSA Insurance Agency, CropUSA Insurance Services
(collectively “CropUSA”), and several controlling
shareholders and officers of those entities, namely: R. John
Taylor, James Beck, Michael Cashman, Connie Taylor Henderson,
and JoLee Duclos(individuals, collectively “AIA
Controlling Defendants”). The second group consists of
the law firm Hawley Troxell Ennis & Hawley, LLP, and
several of its attorneys who represented the AIA Entities and
CropUSA during the events that gave rise to this action,
namely: Gary Babbitt, Richard Riles, and John Ashby
(collectively “Hawley Troxell Defendants”). There
is now one additional defendant, GemCap Lending I
(“GemCap”). GemCap first intervened in this
action in July of 2016. Later, Miesen asserted claims against
GemCap in the Third Amended Complaint.
operative complaint is the Third Amended Complaint. Dkt. 211.
In it, Miesen alleges, among other things, that the AIA
Controlling Defendants engaged in fraud and breached their
fiduciary duties to the AIA minority shareholders. AIA was
formed in 1983. It sold insurance products to members of
farmers' and growers' associations and worked with
farmers and growers to form trusts and/or related
cooperatives. In the late 1990s, the AIA Board of Directors,
controlled by the AIA Controlling Defendants, decided to
begin selling crop insurance through a wholly-owned
subsidiary called CropUSA. Miesen alleges that the AIA
Controlling Defendants unlawfully transferred CropUSA from
AIA to their own possession. The AIA Controlling Defendants
then proceeded to unlawfully fund, subsidize, and operate
CropUSA using AIA's assets. Through their operation of
CropUSA, the AIA Controlling Defendants defrauded AIA of
millions of dollars. Miesen also alleges that the AIA
Controlling Defendants committed a “laundry list”
of other unlawful acts, self-dealing, malfeasance, and
intentional torts. Miesen has highlighted specific acts
Defendant John Taylor allegedly committed. John Taylor was
President of both AIA Entities and CropUSA during all of
these events. Miesen alleges that John Taylor unlawfully
transferred real property to AIA, required AIA to pay the
liabilities on the property, unlawfully amended AIA's
Bylaws, and issued himself Series A Preferred Shares in AIA.
Miesen claims that all of the above described acts hurt
AIA's minority shareholders.
Troxell represented both AIA and CropUSA during the relevant
timeframe. Accordingly, Miesen claims the Hawley Troxell
Defendants aided and abetted the fraud the AIA Controlling
Defendants perpetuated against AIA and its minority
shareholders and committed legal malpractice.
Third Party Complaint Against Reed Taylor
2017, the AIA Controlling Defendants, along with CropUSA,
filed a Third Party Complaint against Reed Taylor. Dkt. 218.
Except for short intervals, Reed Taylor served as a director
for AIA from its founding in 1983 until early 2001. He also
served as an officer of AIA at various times until he
redeemed his shares in 1995. In addition, he served on an
advisory board for CropUSA from 1999 until 2007. Based on his
involvement with these entities, the AIA Controlling
Defendants assert that if they are found liable for their
actions as officers/directors of AIA and for their actions as
members of the CropUSA advisory board, Reed Taylor should be
found jointly liable. The AIA Controlling Defendants also
assert that Reed Taylor accepted millions of dollars in
illegal stock redemption payments from AIA and caused AIA to
incur millions of dollars in legal fees. Accordingly, the AIA
Controlling Defendants and CropUSA have asserted claims for
contribution against Reed Taylor for the fiduciary-duty
claims and the fraud claims. Id.
Taylor denies these allegations. He has also asserted his own
counterclaims against the AIA Controlling Defendants and
CropUSA. Dkt. 276. Most of these claims involve AIA's
401(k) Profit Sharing Plan (“the Plan”).
Specifically, Reed Taylor asserts class action claims against
the AIA Controlling Defendants for breach of fiduciary duties
owed to the Plan participants, in violation of the Employment
Retirement Income Security Act (“ERISA”). Reed
Taylor also claims the AIA Controlling Defendants engaged in
transactions prohibited by ERISA.
Facts Relevant to the Motions to Disqualify
Lee Rousso filed the original complaint in this action, on
behalf of Miesen and Donna Taylor, on August 11, 2010. Dkt.
1. Attorney Bond first appeared on March 18, 2012, on behalf
of Donna Taylor. Dkt. 58. Bond then appeared as counsel for
Miesen on March 23, 2016. Dkt. 122. At that time the Court
removed attorney Lee Rousso from the case. On July 28, 2017,
after Reed Taylor was served with the Third Party Complaint,
Bond appeared on Reed Taylor's behalf. Dkt. 246. A few
months later, on October 31, 2017, the Controlling AIA
Defendants and CropUSA filed the first Motion to Disqualify
Bond. Dkt. 275. Four days later, the Hawley Troxell
Defendants followed suit with their own Motion to Disqualify.
February 13, 2018, Reed Taylor filed a Notice of Substitution
of Counsel, notifying the Court that he was voluntarily
dropping Bond as an attorney and replacing him with Michael
S. Bissell of Campbell & Bissell. The
Movants objected to this substitution. They argued
the substitution does not cure the conflict in interest and
the Court still must disqualify Bond from representing any
party in this case.
important to note that Bond has been representing Reed Taylor
since as early as 2007. Since then, Bond has represented Reed
Taylor in a handful of disputes involving AIA, primarily
state court actions. For example, Bond has brought suit, on
Reed Taylor's behalf, against AIA and its directors in a
dispute over a stock redemption agreement. Bond then sued, on
Reed Taylor's behalf, the lawyers involved in the stock
redemption agreement. Bond has also sued AIA, its officers,
and other related entities on behalf of Donna Taylor, Reed
Taylor's ex-wife and a former plaintiff in this lawsuit.
The Movants have described these various suits in their
briefs in support of the Motions to Disqualify in detail.
See Dkt. 275, 278-1. A comprehensive accounting of
these disputes and Bond's involvement is not necessary
here. However, the Court does acknowledge Bond's lengthy
and intimate representation of Reed Taylor over the last
law governs motions to disqualify counsel. See In re
Cnty. of L.A., 223 F.3d 990, 995 (9th Cir. 2000). In
Idaho, courts also look to “the Idaho Rules of
Professional Conduct as adopted and interpreted by the Idaho
Supreme Court” in determining whether disqualification
of an attorney is proper. Andersen v. Valley Cty.,
No. 1:16-CV-00554-CWD, 2017 WL 2311668, at *3 (D. Idaho May
26, 2017); Parkland Corp. v. Maxximum Co., 920
F.Supp. 1088, 1090 (D. Idaho 1996) (“[I]n deciding
whether to disqualify counsel, the Court looks to the local
rules regulating the conduct of the members of its
bar.” (citation omitted)).
counsel is an exercise of the court's inherent powers.
Anderson v. Valley Cty, No. 1:16-CV-00554-CWD, 2017
WL 2311668, *3 (D. Idaho May 26, 2017). “The decision
to grant or deny a motion to disqualify counsel is within the
discretion of the trial court.” Foster v.
Traul, 175 P.3d 186, 194 (Idaho 2007) (citing Weaver
v. Millard, 819 P.2d 110, 114 (Idaho Ct. App. 1991)).
Under Idaho law, “[t]he moving party has the burden of
establishing grounds for the disqualification.”
Crown v. Hawkins Co., 910 P.2d 786, 794 (Idaho Ct.
App. 1996). However, “[t]he goal of the court should be
to shape a remedy which will assure fairness to the parties
and the integrity of the judicial process.”
Weaver, 819 P.2d at 115. In addition,
“[w]henever possible, courts should endeavor to reach a
solution that is least burdensome to the client.”
Id. Finally, because opposing counsel could
potentially misuse a motion to disqualify for tactical
purposes, such motions are subjected to “particularly
strict judicial scrutiny.” Optyl Eyewear Fashion
Int'l Corp. v. Style Co., 760 F.2d 1045, 1050 (9th
Cir. 1985) (citation omitted).
Movants argue that disqualification is required by Rule 1.7
of the Idaho Rules of Profession Conduct. In response,
Opponents first argue that the movants do not have standing
to object to Reed Taylor's choice of counsel as none of
them are Bond's current or former clients. Second,
Opponents argue Reed Taylor's new counsel cures any