ITT Industries, Inc. v. Rayonier, Inc.

Filed 1/29/07 ITT Industries, Inc. v. Rayonier, Inc. CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

APPEAL from an order of the Superior Court of Los Angeles County, and ORIGINAL PROCEEDINGS in mandate. Peter D. Lichtman, Judge. Order affirmed, and petition denied.

Pillsbury Winthrop Shaw Pittman, Robert L. Wallan, Richard S. Ruben, John M. Grenfell and Kimberly L. Buffington for Plaintiffs, Appellants and Petitioners.

No appearance for Respondent Superior Court of Los Angeles County.

Paul, Hastings, Janofsky & Walker, Ronald M. Oster and Belinda K. Orem for Plaintiffs, Respondents and Real Parties in Interest.

Gibson, Dunn & Crutcher, James P. Fogelman, Sarah Wetzstein and J. Christopher Jennings for Objectors and Respondents.

_____________________________________________

Rayonier Inc., Southern Wood Piedmont Inc. (Southern Wood), ITT Industries, Inc., and ITT Fluid Technology Corporation (ITT Fluid) are plaintiffs in an action against several insurers seeking to establish duties to defend and indemnify relating to the investigation and remediation of environmental contamination.[1] Rayonier formerly was a wholly-owned subsidiary of ITT. Southern Wood is a subsidiary of Rayonier. ITT Fluid is a wholly-owned subsidiary of ITT. The same counsel represented Rayonier, Southern Wood, ITT, and ITT Fluid in this litigation for many years. After counsel moved to be relieved as counsel for Rayonier and Southern Wood, Rayonier and Southern Wood moved to disqualify the same attorneys as counsel for ITT and ITT Fluid. The court granted the motion to be relieved as counsel but denied the motion to disqualify counsel, based on laches and other grounds. Rayonier and Southern Wood challenge the latter order and a subsequent order sustaining objections to evidence submitted in support of their motion. They have filed both an appeal (case No. B187238) and a petition for a writ of mandate (case No. B187829).

This insurance litigation so far has resulted in over $112 million in settlements for the plaintiffs and may result in further recoveries through settlement or judgment. Rayonier and Southern Wood, on the one hand, and ITT and ITT Fluid, on the other, have disputed the division of settlement proceeds and entered into agreements providing for binding arbitration to resolve their dispute. Rayonier and Southern Wood contend the plaintiffs had and continue to have conflicting interests with respect to the division of settlement proceeds, despite their agreements with each other and their common interests vis--vis the defendants. Rayonier and Southern Wood contend disqualification is required because counsel (1) concurrently represented clients with conflicting interests without having obtained the clients informed written consent and (2) improperly counseled and acted on behalf of ITT and ITT Fluid in connection with the settlement division dispute. Rayonier and Southern Wood also contend the court had no jurisdiction to sustain objections to evidence submitted in support of their motion to disqualify after they had filed a notice of appeal from the denial of their motion.

We conclude that the trial court properly found that Rayonier and Southern Wood unreasonably delayed their motion to disqualify counsel and are barred by laches. As a result their challenge to the order sustaining evidentiary objections is moot. We therefore affirm the order denying the motion to disqualify and deny the petition for writ of mandate.

FACTUAL AND PROCEDURAL BACKGROUND

1. Complaint and First Amended Complaint

ITT and ITT Fluid filed a complaint against several insurers in September 1991 (Super. Ct. L.A. County, No. BC037585) for declaratory relief, seeking to establish duties to defend and indemnify in relation to the compelled investigation and remediation of environmental contamination on property owned by ITT. The investigation and remediation were compelled by the California Regional Water Quality Control Board. The plaintiffs filed a first amended complaint in May 1993 naming Rayonier, then a wholly-owned subsidiary of ITT, and Southern Wood as additional plaintiffs and adding counts for breach of contract. The first amended complaint identified additional sites in several states where the plaintiffs allegedly were compelled to investigate and remediate environmental contamination. Attorneys Paul A. Zevnik and Michel Y. Horton represented all of the plaintiffs jointly.

2. Distribution Agreement

Rayonier and ITT entered into a Distribution Agreement on February 11, 1994. The agreement stated that ITT would distribute to its shareholders its shares of stock in Rayonier, and that Rayonier would change its name from ITT Rayonier Incorporated to Rayonier Inc. Section 2.09(b) of the agreement stated: The parties recognize that ITT [defined as ITT Corporation], certain ITT Subsidiaries, Rayonier and SWP [Southern Wood] are currently engaged in Actions (the Insurance Actions) relating to the liability of their insurance carriers to indemnify them for damages and remediation costs associated with past discharges or emissions into the environment. . . .  Rayonier will not pay any of ITTs attorneys fees in either such Insurance Action or any Actions relating to similar issues which may hereafter be brought to which ITT and/or any ITT Subsidiaries are parties. Any recovery by ITT relating to any such Action, whether received pursuant to court order, settlement or otherwise (herein called the Insurance Recovery) shall be shared by ITT with Rayonier on such basis as ITT, in its sole discretion, shall determine taking into account the following factors: (i) the gross dollar amount of claims by SWP and Rayonier as opposed to claims by ITT or any ITT Subsidiary, (ii) the legal fees ITT has expended in obtaining the Insurance Recovery and (iii) the relative strength under California law of insurance company defenses regarding claims by SWP and Rayonier as compared to claims by ITT or any ITT Subsidiary. Finally, the agreement provided that any dispute arising under the agreement would be resolved first through mediation and then by binding arbitration in the State of New York.

Zevnik and Horton continued to represent ITT, ITT Fluid, Rayonier, and Southern Wood after the spin off of Rayonier. ITT informed Zevnik and Horton that ITT and ITT Fluid would continue to control the litigation and provide instructions to counsel on behalf of all plaintiffs. Rayonier and Southern Wood did not challenge this arrangement. Zevnik and Horton negotiated several settlements on behalf of all plaintiffs. Those settlements have yielded over $112 million for the plaintiffs.

3. 1997 Letter Agreement

Disputes arose between ITT and Rayonier concerning the division of settlement proceeds. In 1997, Roger H. Watts, then general counsel for Rayonier, refused to execute a settlement agreement because ITT had failed to distribute to Rayonier any proceeds from the prior settlements. Leon G. Krasinski, then general counsel for ITT, sent a letter to Watts dated June 30, 1997, stating: We both acknowledge that it is time to agree to disagree with respect to our different interpretations of the Distribution Agreement dated as of February 11, 1994 between ITT Corporation and Rayonier Incorporated (Agreement). This will allow ITT Industries Inc. (IIN) to resume implementing its settlement and litigation strategy which is designed to optimize the results against the defendant insurance companies. Rayonier will promptly sign the Settlement and Release Agreement with Lloyds and all other settlement agreements recommended by IIN. Unless otherwise agreed by Rayonier, the Settlement and Release Agreements shall be limited to environmental claims only. We agree that neither IIN nor Rayonier is conceding or waiving any of its claims or legal positions regarding the applicability or interpretation of the Agreement or any matters arising out of or relating to the Agreement (Differences) . . . . The letter stated that the parties would enter into good faith negotiations to resolve their Differences, then engage in mediation as to any remaining disputes, and then engage in arbitration pursuant to the arbitration provision in the Distribution Agreement. Watts indicated his acceptance of the proposed agreement by countersigning the letter on July 1, 1997.

4. Subsequent Events

ITT commenced another action against several insurers in February 1998 (Super. Ct. L.A. County, No. BC185311) seeking to establish duties to defend and indemnify in relation to environmental contamination at numerous sites. The court determined that the new action and the previously filed action (No. BC037585) were related, and both were assigned to the same judge.

ITT, ITT Fluid, Rayonier, and Southern Wood, through their counsel Zevnik and Horton, petitioned this court for a writ of mandate in May 1999 (case No. B131900) challenging an order granting summary adjudication in favor of several insurers. We issued an order on June 10, 1999, staying all trial court proceedings pending our resolution of the petition. In February of 2001, the California Supreme Court filed its opinion in Certain Underwriters at Lloyds of London v. Superior Court (2001) 24 Cal.4th 945. We issued an order on March 28, 2001, denying the petition without prejudice to any party bringing an appropriate motion in the superior court based on Certain Underwriters, and lifted the stay.

Rayonier asserted an interest in taking an active role in this litigation for the first time in 2001. Jill Witter, then general counsel of Rayonier, and outside counsel wrote a series of letters to Zevnik and Horton stating that Rayonier wished to be an active participant in the litigation and settlement process and that Zevnik and Horton had a conflict of interest relating to the division and allocation of settlement proceeds. ITT responded by stating that pursuant to the Distribution Agreement and 1997 Letter Agreement, ITT alone had a right to control the litigation and divide the settlement proceeds and that therefore there was no conflict of interest. Rayoniers outside counsel then began to attend court hearings, but Rayonier did not ask Zevnik and Horton to withdraw as litigation counsel.

Some of the parties in the two related actions against the insurers stipulated to consolidate the two actions (Nos. BC037585 & BC185311) for all purposes in August 2001, and the trial court so ordered. The plaintiffs, represented by Zevnik and Horton, filed a Consolidated Complaint in August 2001 alleging eighty-nine counts for declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing, and fraudulent transfer.

Rayonier commenced an arbitration proceeding against ITT with the American Arbitration Association (AAA) in California in January 2002. ITT promptly sued Rayonier and AAA in the State of New York seeking to stay the arbitration or change the arbitration venue to the State of New York. The New York court issued a temporary restraining order staying the arbitration. Rayonier and ITT then entered into an Agreement dated April 2, 2002, stating that the parties, without waiving any of their rights or claims against each other, desire to enter into an agreement to provide a framework and procedure for the resolution of their differences with regard to their respective rights and obligations under Section 2.09 of the Distribution Agreement and the [1997] Letter Agreement. The parties agreed to attempt to agree on the allocation of settlement proceeds, and then participate in mediation, and submit any remaining dispute to arbitration in the State of New York.

In the consolidated actions against the insurers, ITT, ITT Fluid, Rayonier, and Southern Wood, through their counsel Zevnik and Horton, petitioned this court for a writ of mandate in April 2002 (No. B157579) challenging an order granting summary adjudication in favor of several insurers. We issued an order to show cause on April 22, 2002, staying all trial court proceedings pending our resolution of the petition.[2]

5. Arbitration

Rayonier and ITT entered into a Common Interest Confidentiality Agreement (Confidentiality Agreement) dated May 9, 2002, in which they agreed to maintain the confidentiality of and preserve any attorney‑client privilege and work product protection for information exchanged in the mediation or arbitration. They also agreed that any arbitration decision would be kept confidential.

Rayonier and ITT participated in an arbitration in New York from mid-2003 through early 2005. Zevnik and Horton did not represent any party in the arbitration, but they testified in the arbitration. The arbitrator issued a decision and award in May 2005. According to the parties, a federal court confirmed the award.[3]

6. Motions to Be Relieved as Counsel and to Disqualify Counsel

Rayonier filed a complaint against Zevnik, Horton, and their former and current law firms in the United States District Court for the Central District of California in August 2005 alleging professional negligence and breach of fiduciary duty arising from their representation of the plaintiffs in this case. Rayonier later voluntarily dismissed the federal action and commenced essentially the same action in the superior court (Super. Ct. L.A. County, No. BC339673). The trial court deemed the new action related to this action.[4]

Zevnik, Horton, and their current law firm, Morgan Lewis & Bockius LLP (MLB), promptly moved to be relieved as counsel for Rayonier in this action arguing that Rayonier had lost confidence in them as counsel and that they had lost confidence in their client. Rayonier and Southern Wood then filed a motion in this court in case No. B157579 in August 2005 to disqualify Zevnik, Horton, and MLB as counsel for ITT and ITT Fluid. We issued an order on September 8, 2005, granting a motion by Zevnik, Horton, and MLB to remand the motion to disqualify to the superior court for its consideration and modified our prior stay of trial court proceedings to allow the court to hold hearings and rule on the motion to disqualify counsel and the motion to be relieved as counsel.

Rayonier and Southern Wood then filed in the superior court in September 2005 a motion to disqualify Zevnik, Horton, and MLB as counsel for ITT and ITT Fluid. They argued that an actual conflict existed between their interests and those of ITT and ITT Fluid concerning the division of future settlement proceeds and also concerning ITTs and ITT Fluids assertion of a right to control Rayoniers and Southern Woods litigation claims. Rayonier and Southern Wood argued that counsel had failed to obtain informed written consent for the joint representation as required by rule 3‑310(C)(2) of the State Bar Professional Rules of Conduct[5]and that they had discovered for the first time in 2004 that counsel had secretly advised ITT and ITT Fluid regarding the division of settlement proceeds. Rayonier and Southern Wood filed a declaration by their counsel Robert L. Wallan in support of the motion. Attached as an exhibit to the Wallan declaration was a declaration by Edwin Frazier III dated August 25, 2005, previously filed in connection with the motion to disqualify filed in this court. Attached as an exhibit to the Frazier declaration was a letter dated March  23, 2004, from Bruce A. Green to Wallan explaining Greens purported expert opinion that Zevnik and Horton had violated their professional obligations to Rayonier and Southern Wood.

ITT and ITT Fluid opposed the motion to disqualify counsel. MLB also opposed the motion and filed objections to portions of the Frazier declaration and to a declaration by Stewart S. Harrison submitted in support of the motion. MLB filed declarations by Krasinski, Zevnik, Horton, and others in opposition to the motion. Rayonier and Southern Wood filed a reply in support of the motion to disqualify counsel together with another declaration by Wallan. The second Wallan declaration described to some extent the parties settlement discussions, their positions in the arbitration, and the arbitrators decision. The second Wallan declaration attached 13 exhibits, including correspondence between Zevnik and Horton and ITT or ITT Fluid, transcribed testimony from depositions in connection with the arbitration proceeding, transcribed testimony from the arbitration, and other documents. ITT and ITT Fluid filed numerous objections to the second Wallan declaration and exhibits, as did MLB.

Rayonier and Southern Wood opposed the motion to be relieved as counsel on the sole ground that if counsel were relieved from representing Rayonier and Southern Wood, counsel also should be disqualified from representing ITT and ITT Fluid. The court heard the motion to disqualify counsel together with the motion to be relieved as counsel.

At the hearing on the motions on October 19, 2005, counsel for ITT and ITT Fluid stated that counsel for Rayonier and Southern Wood had filed in court and served on the insurance company defendants documents containing information protected by the attorney client privilege, confidential deposition testimony, and information concerning the confidential arbitration award. Counsel for Rayonier and Southern Wood stated in response that ITT previously had improperly disclosed the arbitration award to MLB, but did not comment on the other materials. The court stated that counsel should confer with each other and submit a proposed order identifying documents that should be kept confidential and returned by the defendant insurers. The court, at parties request, excluded counsel for the several insurers from attendance at the hearing.

7. Order on Motions

The court filed an order on October 27, 2005, granting the motion to be relieved as counsel and denying the motion to disqualify counsel. The order stated in pertinent part: In light of the record presented, this Court finds that no direct conflict exists. The circumstances herein do not present the kind of situation present in Flatt v. Superior Court (1994) 9 Cal.4th 275, where the clients would be at opposite sides of a lawsuit. Instead, based on the evidence presented, this Court agrees with ITT [defined to include ITT and ITT Fluid] and Morgan Lewis & Bockius that the interests of Rayonier [defined to include Rayonier and Southern Wood] and ITT have been and continue to be aligned. The common goal of both parties is to maximize recovery under all the policies of insurance at issue. They are not direct adversaries in the litigation. There is no adversity or conflict where two parties have sought to accomplish a common end and engaged the services of a single attorney to implement their joint plan. Moxley v. Robertson (1959) 169 Cal. App. 2d 72; See also Spindle v. Chubb/Pac. Indem. Group (1979) 89 C.A.3d 706, 713, 152 C.R. 776 (Joint representation by insurer of two doctors with differing coverage and potential liability in malpractice action is insufficient to establish bad faith representation of conflicting interests).

While the interests of Rayonier and ITT may diverge regarding the settlement allocation, such does not rise to the level of a direct conflict of interest requiring per se disqualification. See e.g. Spindle, supra. Moreover, it is worth noting that these parties have, in place, a means to resolve any disputes regarding allocation of the proceeds. The parties have, in fact, utilized such measures and neither was represented by any attorneys that are the subject of the instant motion. As has already been set forth above, the parties have agreed among themselves that ITT has the right to control the litigation against the carriers and collect all settlements and judgments to be allocated later under ITTs sole discretion and to resolve allocation disputes through a separate arbitration proceeding.

[] . . . []

Here, the parties have in place a mechanism to resolve their differences outside of the context of the instant litigation. The record shows that both Rayoniers general counsel and ITTs general counsel advised Messrs. Zevnik and Horton to continue to represent these parties against the carriers and to maximize recovery.

The 1997 standstill agreement for example, specifically provides that the parties will defer any disputes about allocation until after phase II of the trial. They agreed to disagree.

Moreover, this Court finds that Rayonier has not presented any competent evidence that Joint Counsel ever secretly advised ITT against Rayoniers interest. Instead, the evidence shows that ITT requested information from Messrs. Horton and Zevnik regarding factual issues in the insurance coverage litigation. Rayonier could have made the same request. The Court notes that in the telephone conference in which the attorneys discussed drafting the 1997 standstill agreement, Rayonier was represented by general counsel as was ITT. Mr. Zevnik took notes and was asked whether he believed that the dispute between these co-plaintiffs would adversely affect the litigation should resolution be attempted immediately. This Court finds no competent evidence of improper conduct.

This Court believes that the advice rendered by Joint Counsel was aimed at furthering the goals of both clients, i.e. to maximize recovery of insurance proceeds for environmental litigation.

This Court agrees with ITT and Morgan Lewis & Bockius and further finds that any information counsel gained about Rayonier during the course of joint representation is not grounds for disqualification. Any knowledge Joint Counsel garnered regarding Rayoniers claims would have been acquired anyway as a result of Rayoniers status as a former subsidiary of ITT and through discovery accomplished in the arbitration proceedings. Rayonier has identified no facts to the contrary.

Finally, this Court addresses the issue of delay in bringing a motion to disqualify. Generally, a motion to disqualify may be brought at any time when the action is pending. See Earl Scheib[, Inc. v. Superior Court (1967) 253 Cal.App.2d 703,] 709. However, an exception applies where prima facie evidence of an unreasonable delay in making the motion exists in the first instance. Such is clearly the case here.

[] . . . []

Here, Zevnik and Horton (and now Morgan Lewis & Bockius) have jointly represented the parties for approximately 15 years. Co-plaintiffs interest first diverged in 1994 when Rayonier was spun off. At that time the parties resolved the divergence of interests by entering into an agreement giving ITT the right to control the litigation and to develop a protocol for dealing with allocation disputes.

In 1997 Rayonier was unhappy with ITTs allocation but agreed to defer and resolve such disputes through arbitration. It did not object to the joint representation notwithstanding all the circumstances Rayonier now cites as grounds for disqualification (i.e. disparate, adverse interests and confidential information known to Joint Counsel). Rayoniers conduct represents the classic paradigm of delay.

Disqualification would severely prejudice ITT. Rayonier has sat back and allowed Joint Counsel to represent itself and ITT for over 15 years and now suddenly has decided that a direct conflict exists. Substantial cost to ITT would accrue should it be forced to locate and educate new counsel.

Rayonier cites the stay on the case as a reason for its delay. However, that argument is disingenuous at best and quite frankly downright frivolous. This Court notes that the stay referenced by Rayonier is still in place.

At any time Rayonier could have moved this Court to lift the stay for the limited purpose of bringing a disqualification motion. No such attempt was ever made. This Court believes that disqualification at this juncture would force ITT to suffer extreme prejudice due to Rayoniers delay in raising the issue.

The order also sustained MLBs objections to portions of the Frazier declaration, including the Green letter, based on hearsay and lack of personal knowledge.

8. Appeal and Subsequent Order Sealing Records and Sustaining
Further Evidentiary Objections

On October 31, 2005, counsel for ITT and ITT Fluid filed and served by personal delivery declarations stating that counsel for Rayonier and Southern Wood had failed to meet and confer to discuss the protection of confidential information, as the court had suggested. The Confidentiality Agreement was attached as an exhibit to one of the declarations. The declaration stated that ITT and ITT Fluid had not authorized Rayonier and Southern Wood to disclose any attorney client privileged information, or any confidential attorney work product information provided to Rayonier in connection with the private arbitration proceeding, and that the court therefore should enter a proposed order sealing 12 of the 13 exhibits attached to the Wallan declaration.

On November 1, 2005, Rayonier and Southern Wood filed a notice of appeal from the order granting the motion to be relieved as counsel and denying the motion to disqualify counsel (case No. B187238). The court signed and entered the proposed order sealing exhibits on November 2. The order states that the exhibits are privileged attorney client communications and attorney work product, that they are protected by the Confidentiality Agreement, and that ITTs evidentiary objections to the exhibits are sustained. The order states further that the 12 exhibits must be sealed and that each defendant served with a copy of the exhibits must return them to counsel for ITT and ITT Fluid and can neither retain a copy of the exhibits nor use or refer to the exhibits for any purpose in this action.

Rayonier and Southern Wood filed a Statement of Non-Opposition to ITTs Request to Seal Exhibits on November 3, 2005, expressly stating that they did not oppose the request to seal exhibits but that the court had no jurisdiction to rule on the request after their notice of appeal had been filed. While declining to oppose the request, Rayonier and Southern Wood argued that the parties had filed some of the same or similar documents in a judicial proceeding in the State of New York without objection, that ITT and ITT Fluid had disclosed the contents of or mischaracterized some of the documents in connection with the motion to disqualify counsel, and that counsel for Rayonier and Southern Wood did not refuse to confer with counsel for ITT and ITT Fluid regarding the protection of confidential information. On November 4, 2005, ITT and ITT Fluid filed and served by mail a notice of ruling of the entry of the order sealing records.

9. Petition for Writ of Mandate

Rayonier and Southern Wood petitioned this court for a writ of mandate on December 19, 2005, challenging both the order denying their motion to disqualify counsel and the order sealing records and sustaining evidentiary objections (case No. B187829). As already indicated, we have consolidated the writ proceeding with the prior appeal.

CONTENTIONS

Rayonier and Southern Wood contend (1) disqualification is required because counsel concurrently represented parties with conflicting interests without informed written consent and improperly assisted ITT and ITT Fluid against the interests of Rayonier and Southern Wood; (2) Rayonier and Southern Wood did not grant ITT the right to control the prosecution of their claims, and such an agreement would not relieve counsel of its fiduciary duties owed to Rayonier and Southern Wood; (4) Rayonier and Southern Wood did not unreasonably delay moving to disqualify counsel, and ITT and ITT Fluid have suffered no prejudice as a result of delay; (5) the sustaining of evidentiary objections to the Green and Frazier declarations based on hearsay and lack of personal knowledge was error; and (6) the court lacked jurisdiction to rule on evidentiary objections to exhibits attached to the Wallan declaration after a notice of appeal had been filed, and the objections were groundless.

ITT and ITT Fluid contend (1) although their interests diverge from those of Rayonier and Southern Wood concerning the division of settlement proceeds, there is no basis for disqualification because there is no actual, direct conflict between the coplaintiffs in this litigation and the coplaintiffs are not directly adversarial in this litigation; (2) the plaintiffs agreed that ITT had the right and responsibility to control this litigation on behalf of all plaintiffs, agreed to the joint representation, and agreed to resolve their differences in collateral proceedings, so there was no adverse concurrent representation; (3) Rayonier and Southern Wood have had their own in-house counsel throughout this litigation and have had outside counsel in this matter since 2001 who must have fully advised them concerning the risks and benefits of joint representation, so the absence of informed written consent to the representation did not prejudice them; (4) any information obtained by counsel during the joint representation is not confidential and cannot justify the disqualification of counsel; (5) Rayonier and Southern Wood were aware of the potential conflict concerning the division of settlement proceeds as early as 1994, their delay in moving to disqualify counsel until 2004 was unreasonable, and the court properly determined that the motion was barred by laches; (6) the sustaining of evidentiary objections was proper; (7) Rayonier and Southern Wood seek to disqualify counsel for improper tactical reasons; (8) ITT and ITT Fluid would suffer undue prejudice if their counsel were disqualified; and (9) the sealing of records was collateral to the motion to disqualify counsel, so the court retained jurisdiction to order the sealing of records after Rayonier and Southern Wood appealed the denial of their motion, Rayonier and Southern Wood expressly did not object to the sealing of records, and the sealing of records was proper.

MLB contends (1) the plaintiffs share the common goal in this litigation of maximizing their recovery against the defendants and agreed to a procedure outside this litigation to resolve their differences concerning the division of settlement proceeds, and joint representation in this action has no bearing on the allocation of settlement proceeds, so the plaintiffs have no conflict of interest in this litigation; (2) the trial court properly found no evidence that MLB secretly advised ITT and ITT Fluid with respect to the allocation dispute; (3) the sustaining of evidentiary objections was proper; (4) disqualification of counsel would cause a substantial hardship to ITT and ITT Fluid, and the denial of the motion to disqualify will not prejudice Rayonier and Southern Wood; and (5) the trial court properly found that the delay in moving to disqualify counsel was unreasonable.

DISCUSSION

1. General Principles Governing the Disqualification of Counsel

A trial courts authority to disqualify an attorney derives from the power inherent in every court [t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto. (Code Civ. Proc., 128, subd. (a)(5); People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 745 [218 Cal.Rptr. 24, 705 P.2d 347]; Comden v. Superior Court [1978] 20 Cal.3d [906,] 916, fn. 4; In re Complex Asbestos Litigation [1991] 232 Cal.App.3d [572,] 585.) Ultimately, disqualification motions involve a conflict between the clients right to counsel of their choice and the need to maintain ethical standards of professional responsibility. (Comden v. Superior Court, supra, 20 Cal.3d at p. 915.) The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of ones choice must yield to ethical considerations that affect the fundamental principles of our judicial process. (Ibid.; In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 586; River West, Inc. v. Nickel [(1987)] 188 Cal.App.3d [1297,] 1306-1308; see 1 Hazard & Hodes, The Law of Lawyering [(2d ed. 1996)]  1.7:101, pp. 223-225 [discussing the assumed function of automatic disqualification rules in maintaining public confidence in the legal system].) (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145-1146 (SpeeDee).)

Other factors to consider in deciding a motion to disqualify counsel include the attorneys interest in representing the client, the financial burden on the client to replace disqualified counsel, and the possibility that the disqualification motion is being used as a litigation tactic. (SpeeDee, supra, 20 Cal.4th at p. 1145; Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300-301.)

2. Standard of Review

We review the ruling on a motion to disqualify counsel generally for abuse of discretion. (SpeeDee, supra, 20 Cal.4th at p. 1143.) The scope of the trial courts discretion is limited by the applicable principles of law. (Id. at p. 1144; City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297-1298.) We defer to the courts express or implied factual findings if substantial evidence supports the findings and reverse the ruling only if it does not conform to the applicable legal principles or there is no reasonable basis for the ruling in light of the facts. (SpeeDee, supra, at p. 1144; Jackson v. Ingersoll-Rand Co. (1996) 42 Cal.App.4th 1163, 1166-1167; In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 585 [if substantial evidence supports the trial courts implied findings of fact, an appellate court reviews the conclusions based on the findings for abuse of discretion].) The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court. [Citations.] (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479.) An appellate court must carefully review the trial courts exercise of discretion on a motion to disqualify counsel due to the important interests at stake. (SpeeDee, supra, at p. 1144.)

3. Rule 3-310(C) Prohibits the Concurrent Representation of Parties with

Conflicting Interests without the Informed Written Consent of Each Party

An attorneys concurrent representation of parties with conflicting interests implicates the duty of loyalty. Attorneys have a duty to maintain undivided loyalty to their clients to avoid undermining public confidence in the legal profession and the judicial process. (See Santa Clara County Counsel Attys. Assn. v. Woodside (1994) 7 Cal.4th 525, 547-548, fn. 6 [28 Cal.Rptr.2d 617, 869 P.2d 1142] and accompanying text.) The effective functioning of the fiduciary relationship between attorney and client depends on the clients trust and confidence in counsel. (Flatt [v. Superior Court (1994)] 9 Cal.4th [275,] 282, 285.) The courts will protect clients legitimate expectations of loyalty to preserve this essential basis for trust and security in the attorney-client relationship. (Ibid.) (SpeeDee, supra, 20 Cal.4th at pp. 1146-1147.)

Rule 3‑310(C) prohibits the concurrent representation of clients in certain circumstances without the informed written consent of each client. The rule states: A member shall not, without the informed written consent of each client: [] (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or [] (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or [] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.

The California Supreme Court has explained:  It is . . . an attorneys duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client without the latters free and intelligent consent given after full knowledge of all the facts and circumstances. [Citation.] By virtue of this rule an attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his clients interests. Nor does it matter that the intention and motives of the attorney are honest. The rule is designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent. [Citation.] (Flatt v. Superior Court, supra, 9 Cal.4th at p. 289, quoting Anderson v. Eaton (1930) 211 Cal. 113, 116; italics added by Flatt.) The loyalty the attorney owes one client cannot be allowed to compromise the duty owed another. [Citation.] (SpeeDee, supra, 20 Cal.4th at p. 1147.) Moreover, an attorney who concurrently represents clients with conflicting interests cannot evade the duty of loyalty to one client by simply withdrawing from the representation of that client and continuing to represent the other. (Flatt, supra, at p. 288.)

Rule 3-310(C) states that an attorney can represent clients whose interests potentially or actually conflict only if each client provides informed written consent to the representation. Informed written consent is defined as the clients or former clients written agreement to the representation following written disclosure. (Rule 3‑310(A)(2).) Disclosure is defined as informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client.[6] (Rule 3‑310(A)(1).)

4. The Denial of the Motion to Disqualify Counsel Based on Laches

Was Proper

A trial court in its discretion may deny a motion to disqualify counsel in some circumstances if the moving party unreasonably delayed making the motion and the opposing party suffered prejudice as a result. (In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 599; River West, Inc. v. Nickel (1987) 188 Cal.App.3d 1297, 1309.) The delay and resulting prejudice must be extreme to justify a finding of laches. (In re Complex Asbestos Litigation, supra, at p. 599; River West, Inc., supra, at p. 1311.) We review the decision whether a motion to disqualify counsel is barred by laches under the abuse of discretion standard. (In re Complex Asbestos Litigation, supra, at pp. 599-600; Western Continental Operation Co. v. Natural Gas Corp. (1989) 212 Cal.App.3d 752, 763-764.)

The trial court found that Zevnik and Horton had jointly represented the parties for approximately 15 years, that the plaintiffs interests first diverged in 1994 when Rayonier was spun off, and that Rayonier disputed the division of settlement proceeds in 1997 but did not object to the joint representation at that time. The court concluded, Rayoniers conduct presents the classic paradigm of delay. The court concluded further that ITT and ITT Fluid would suffer extreme prejudice due to Rayoniers delay in raising the issue based on the [s]ubstantial cost . . . to locate and educate new counsel. We conclude that substantial evidence supports the courts factual findings and that the court acted properly within its discretion by denying the motion to disqualify based on laches. Rayonier and Southern Wood clearly were aware of the potential conflict with ITT and ITT Fluid concerning the division of proceeds of this litigation beginning at the latest at the time of the 1994 Distribution Agreement. The Distribution Agreement provided for ITT in its sole discretion to divide any recovery between the plaintiffs and provided for arbitration in the event of any dispute. Rayoniers general counsel Watts executed the agreement on Rayoniers behalf and presumably advised the corporation in connection with the agreement. Rayonier and Southern Wood plainly were aware of the potential conflict with ITT and ITT Fluid concerning the division of settlement proceeds in 1994 when the joint representation first began with Rayonier as a separate corporation. That date was long before the trial court proceedings were first stayed in April 2002.

Moreover, Rayonier and Southern Wood proceeded with the joint representation even after an actual dispute arose in 1997 concerning the division of settlement proceeds. Rayonier, by and through Watts as its general counsel, agreed in the 1997 letter agreement to attempt to resolve its differences with ITT and ITT Fluid through negotiations, mediation, and arbitration if necessary, while continuing to litigate in these consolidated actions against the insurers as plaintiffs jointly represented by the same counsel. Rayonier and Southern Wood did not move to disqualify counsel until August 2005, long after the potential and actual conflicts were clearly apparent. After so many years of litigation and settlement efforts, and in light of the complexity of the factual and legal issues presented in these consolidated actions, we have no doubt that the cost to ITT and ITT Fluid to obtain and educate new counsel to replace their longstanding counsel would be enormous. Thus, the trial court properly concluded that both the delay in moving to disqualify counsel and the prejudice that would result if counsel were disqualified are extreme. In these circumstances, the denial of the motion to disqualify counsel was proper.

The fact that Rayonier and Southern Wood purportedly discovered for the first time in 2004 that counsel had advised ITT and ITT Fluid on the division of settlement proceeds, and thereby allegedly breached the duty of loyalty, does not excuse their failure to move to disqualify counsel sooner. In our view, the relevant delay for purposes of the disqualification of counsel is from the time Rayonier and Southern Wood first learned of the grounds for disqualification, that is, the joint clients purported conflict of interest with respect to the division of litigation proceeds. That occurred at the time of the 1994 Distribution Agreement at the latest, as we have stated. That Rayonier and Southern Wood only first learned in 2004 of a specific purported breach of the duty of loyalty by counsel may be relevant for purposes of their malpractice action against the attorneys, but that fact is not relevant to nor does it excuse their delay in moving to disqualify counsel. As this record amply demonstrates, Rayonier and Southern Wood were aware of facts demonstrating the existence of a potential conflict sufficient to warrant disqualification many years earlier.

The exhibits attached to the second Wallan declaration do not relate to the question of laches and provide no basis to justify Rayoniers and Southern Woods unreasonable delay in moving to disqualify counsel. In light of our conclusion that the motion to disqualify counsel is barred by laches, we need not decide whether the sustaining of evidentiary objections to the exhibits was proper and need not address the parties other contentions.

DISPOSITION

In the appeal (case No. B187238), the order of October 27, 2005, denying the motion to disqualify counsel is affirmed. The petition for writ of mandate (case No. B187829) is denied. ITT and ITT Fluid are entitled to recover their costs in these consolidated appellate proceedings.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CROSKEY, J.

We Concur:

KLEIN, P.J.

ALDRICH, J.

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[1] Rayonier Inc. was formerly known as ITT Rayonier Incorporated. We will refer to the company, whether before or after the name change, as Rayonier. ITT Industries, Inc. was formerly part of ITT Corporation. We will refer to the company, whether before or after the corporate change, as ITT. The term plaintiffs refers to all of the plaintiffs collectively. As a matter of convenience, we refer from time to time to the several defendant insurers (who are not directly interested in these appellate proceedings) as either the defendants or the insurers.

[2] We later stayed further proceedings in case No. B157579 pending a decision by the California Supreme Court in a case presenting relevant issues. The Supreme Court has since filed its opinion in Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377.

[3] The arbitration resulted in an award that the parties have agreed to keep confidential. The claimed conduct and actions of the then common counsel for the plaintiffs during those arbitration proceedings serve in part as the factual context and predicate for Rayoniers and Southern Woods motion to disqualify counsel.

[4] That action for professional negligence is still pending.

[5] All further rule references are to the State Bar Rules of Professional Conduct unless stated otherwise.

[6] Rule 3-310(D) states that an attorney representing more than one client shall not enter into an aggregate settlement of the claims of or against the clients, without the informed written consent of each client. Rule 3-310(F) states that an attorney can accept compensation for representing a client from someone other than the client only if the attorney obtains the clients informed written consent and other conditions are present. Although Rayonier and Southern Wood argue in passing that counsel failed to obtain their informed written consent to aggregate settlements and to ITTs payment of attorney fees on their behalf, the basis asserted for their argument on appeal is rule 3‑310(C).