Court Opinion

ID: 6496195
Source: CourtListenerOpinion
Date Created: 2022-06-29 15:02:19.820865+00
Date Added: 2024-06-11T08:48:45.427282
License: Public Domain

Third District Court of Appeal
                               State of Florida

                         Opinion filed June 29, 2022.
       Not final until disposition of timely filed motion for rehearing.

                            ________________

                             No. 3D21-1315
                        Lower Tribunal No. 20-7881
                           ________________

                  FlexFunds Holdings, LLC, et al.,
                                 Appellants,

                                     vs.

                          Mario Rivero, et al.,
                                 Appellees.

     An Appeal from a non-final order from the Circuit Court for Miami-Dade
County, Lourdes Simon, Judge.

     Trenam, Kemker, Scharf, Barkin, Frye, O'Neil & Mullis, P.A., and Eric
S. Koenig (Tampa), and Bradley A. Muhs (St. Petersburg), for appellants.

     Law Offices of Geoffrey B. Marks, and Geoffrey B. Marks; Almazan
Law, and Daniel A. Espinosa, for appellee Mario Rivero.

Before FERNANDEZ, C.J., and LINDSEY, and HENDON, JJ.

     LINDSEY, J.
       Appellants FlexFunds Holdings, LLC; FlexFunds Ltd.; and FlexFunds

ETP,        LLC   (collectively,   “FlexFunds   Holdings”) 1   (Plaintiffs/Counter-

Defendants below) appeal a nonfinal order disqualifying their counsel, Eric

S. Koenig, Esq. (“Lawyer Koenig”) and his firm Trenam, Kemker, Scharf,

Barkin, Frye, O’Neill & Mullis, P.A. (“Trenam Law”). For the reasons set forth

below, we affirm.

       I.     BACKGROUND

       FlexFunds Holdings is a private equity firm with two members: Jose

Carlos Gonzalez (“Gonzalez”) and Mario Rivero (“Rivero”). Gonzalez owns

75% and Rivero owns 25%. Rivero served as FlexFunds Holdings’ CEO.

Beginning in 2018, Gonzalez and Rivero began to have disagreements over

their business relationship. In January of 2020, Gonzalez terminated Rivero

from his position as CEO of FlexFunds Holdings.

       In April of 2020, FlexFunds Holdings sued Rivero. Lawyer Koenig and

his firm, Trenam Law, filed the suit on behalf of FlexFunds Holdings alleging,

in part, breach of fiduciary duty, conversion, fraud, and civil theft. Notably,

Lawyer Koenig and Trenam Law previously represented FlexFunds Holdings

on unrelated litigation while Rivero was employed there.

1
 FlexFunds Holdings, LLC owns the entirety of its subsidiaries, FlexFunds
Ltd. and FlexFunds ETP, LLC.

                                          2
      In response to the pending complaint, Rivero filed a counterclaim and

third-party complaint against FlexFunds Holdings and against Gonzalez and

his independently owned businesses: GWM Group, Inc.; GWM Ltd.;

FlexInvest, Inc.; FlexAdvisor, LLC; and Leverage Shares, PLC (collectively,

the “Gonzalez Entities”) alleging derivative claims for breach of fiduciary

duty; shareholder oppression; unjust enrichment; equitable accounting;

breach of contract; violation of the Deceptive and Unfair Trade Practices Act;

injunctive relief; tortious interference with business relations; slander per se;

and libel per se.    Rivero brought these derivative claims on behalf of

FlexFunds Holdings.

      With Rivero’s derivative claims on behalf of the FlexFunds Holdings

pending, Lawyer Koenig and Trenam Law filed a motion to dismiss Rivero’s

counterclaim and third-party complaint on behalf of FlexFunds Holdings,

Gonzalez, and the Gonzalez Entities. After discovering Lawyer Koenig and

Trenam Law were representing Gonzalez and the Gonzalez Entities–in

addition to FlexFunds Holdings–Rivero moved to disqualify Lawyer Koenig

and Trenam Law from representing any of the entities in the litigation.

      The trial court conducted an evidentiary hearing on the motion to

disqualify. Thereafter, the trial court entered an order granting Rivero’s

motion in its entirety disqualifying Lawyer Koenig and Trenam Law from

                                       3
representing FlexFunds Holdings, Gonzalez, and the Gonzalez Entities.

Specifically, the trial court found Rivero’s uncontroverted testimony credible

as to the following:

            (a) he was terminated in defamatory fashion by Mr.
            Gonzalez on January 2, 2020, in front of three (3)
            individuals where he was called a criminal and a
            thief; (b) he was immediately denied access to his
            computer, company files, and accounts; (c) he sent
            a demand letter, by and through his counsel, for
            approximately $2,000,000 on February 14, 2020 to
            the Respondents; (d) FlexFunds’ first counsel agreed
            to mediate in March 2021 and then FlexFunds
            cancelled on the eve of mediation; (e) approximately
            two months after his demand letter, FlexFunds filed
            suit against him on April 6, 2020, and there was an
            informal stay between the parties from July 30, 2020,
            through September 29, 2020, which is when Rivero
            filed his Answer and Counterclaim; (f) the parties
            negotiated a settlement from September 29, 2020
            through December 8, 2020 to narrow the parties in
            the case and agreed to litigate all claims between
            them in the same case; (g) he was aware Attorney
            Koenig was representing only FlexFunds Holdings in
            the suit on April 6, 2020, against him; and (h) he does
            not, and he never has, consented to Attorney Erik
            Koenig and Trenam Law representing FlexFunds
            and the Respondents.

      At the conclusion of the hearing, Lawyer Koenig asked the trial court

to clarify its ruling and the following question and answer took place:

            MR. KOENIG: Your Honor, I just have a brief
            question . . . . Is it part of your ruling that under the
            Rule of Professional Responsibility [sic], that Rivero
            must consent to whatever law firm or attorney is

                                       4
             going to represent FlexFunds even in the case where
             FlexFunds is suing him?

             THE COURT: And I’m glad you asked that because
             I do find, yes, under [4-1.13] that because he’s clearly
             testified that he did not consent to the representation,
             that is required, and the testimony is that he did not
             do so. So, yes . . . .

      In its order, the trial court found complete disqualification was

mandated by Rules 4-1.7, 4-1.10, and 4-1.13 of the Rules Regulating the

Florida Bar, as well as the Fifth District’s holding in Campellone v. Cragan,

910 So. 2d 363 (Fla. 5th DCA 2005).

      FlexFunds Holdings moved for reconsideration, challenging only the

disqualification with respect to FlexFunds Holdings. The trial court denied

reconsideration, but at the hearing on FlexFunds Holdings’ motion, the trial

court further clarified its ruling, explaining:

             TRIAL COURT: [I]f there’s any clarification is
             necessary, here it is. Your firm and yourself cannot
             continue representing FlexFunds. I believe that
             FlexFunds was your first –the client you represented
             initially, then individually you had Mr. Gonzalez
             whom you represented, Mr. Gonzalez’s companies
             you also represented. And then all the parties, their
             interest are directly adverse to Mr. Rivero, so – and
             the clients you currently represent are adverse.

                  So because that requires consent of Mr.
             Rivero, and you don’t have consent, for those
             reasons under the rules you cannot continue to
             represent the parties.

                                         5
                    Also, I don’t think that it means that at some
              point there would be another firm that would be able
              to step in. Because as I said, and as [Mr. Rivero]
              made a point, it won’t require consent from Mr.
              Rivero if he has no relationship with whatever firm
              comes into step in to represent [FlexFunds].

       FlexFunds Holdings timely appealed. We have jurisdiction pursuant to

Florida Rule of Appellate Procedure 9.130(a)(3)(E).

       II.    STANDARD OF REVIEW

       “The standard of review for orders entered on motions to disqualify

counsel is that of an abuse of discretion.” Alters v. Villoldo, 230 So. 3d 115,

117 (Fla. 3d DCA 2017) (quoting Applied Dig. Sols., Inc. v. Vasa, 941 So. 2d

404, 408 (Fla. 4th DCA 2006)). We note, however, that “disqualification of a

party’s lawyer in a civil case is a drastic remedy, [which] must be employed

only in limited circumstances.” Gutierrez v. Rubio, 126 So. 3d 320, 321 (Fla.

3d DCA 2013). “An order disqualifying counsel must be tested against the

standards imposed by the Rules Regulating the Florida Bar.” Kemp Invs. N.,

LLC v. Englert, 314 So. 3d 734, 736 (Fla. 5th DCA 2021).

       III.   ANALYSIS

       The sole issue on appeal is whether the trial court abused its discretion

in disqualifying Lawyer Koenig and Trenam Law from representing

FlexFunds Holdings in this litigation. For the following reasons, we find it did

not.

                                       6
      Rule Regulating the Florida Bar 4-1.7, “Conflict of Interest; Current

Clients,” provides, in part:

                 (a) Representing Adverse Interests. Except
            as provided in subdivision (b), a lawyer must not
            represent a client if:

                 (1) the representation of 1 client will be directly
            adverse to another client; or

                   (2) there is a substantial risk that the
            representation of 1 or more clients will be materially
            limited by the lawyer’s responsibilities to another
            client, a former client or a third person or by a
            personal interest of the lawyer.

                   (b) Informed Consent. Notwithstanding the
            existence of a conflict of interest under subdivision
            (a), a lawyer may represent a client if:

                 (1) the lawyer reasonably believes that the
            lawyer will be able to provide competent and diligent
            representation to each affected client;

                   (2) the representation is not prohibited by law;

                 (3) the representation does not involve the
            assertion of a position adverse to another client when
            the lawyer represents both clients in the same
            proceeding before a tribunal; and

                  (4) each affected client gives informed consent,
            confirmed in writing or clearly stated on the record at
            a hearing.

                                       7
      Furthermore, Rule Regulating the Florida Bar 4-1.13(e), “Organization

as Client,” provides:

                  (e) Representing Directors, Officers,
            Employees, Members, Shareholders, or Other
            Constituents      of    Organization.       A    lawyer
            representing an organization may also represent any
            of its directors, officers, employees, members,
            shareholders, or other constituents, subject to the
            provisions of rule 4-1.7. If the organization’s consent
            to the dual representation is required by rule 4-1.7,
            the consent shall be given by an appropriate official
            of the organization other than the individual who is to
            be represented, or by the shareholders.

(emphasis added).

      Relevant to the issue of disqualification of Lawyer Koenig and

Trenam Law from representing FlexFunds Holdings is the comment to

Rule Regulating the Florida Bar 4-1.13 with respect to derivative

actions, which reads:

            Derivative actions

                  Under      generally    prevailing  law,    the
            shareholders or members of a corporation may bring
            suit to compel the directors to perform their legal
            obligations in the supervision of the organization.
            Members of unincorporated associations have
            essentially the same right. Such an action may be
            brought nominally by the organization, but usually is,
            in fact, a legal controversy over management of the
            organization.

                 The question can arise whether counsel for the
            organization may defend such an action. The

                                      8
            proposition that the organization is the lawyer’s client
            does not alone resolve the issue. Most derivative
            actions are a normal incident of an organization’s
            affairs, to be defended by the organization’s lawyer
            like any other suit. However, if the claim involves
            serious charges of wrongdoing by those in control of
            the organization, a conflict may arise between the
            lawyer’s duty to the organization and the lawyer’s
            relationship with the board. In those circumstances,
            rule 4-1.7 governs who should represent the
            directors and the organization.

(emphasis added).

      Campellone interprets and applies Rules 4-1.7 and 4-1.13 of the Rules

Regulating the Florida Bar and supports the trial court’s ruling on the issue

before us. 910 So. 2d 363.

      In Campellone, Rae Ann Campellone (“Campellone”) was a 51%

shareholder and respondent, Michael Cragan (“Cragan”), was a 49%

shareholder in the entities associated with the lawsuit. 910 So. 2d at 634.

Similar to the instant appeal, the litigation therein involved both derivative

and direct claims.2 Id. Cragan filed a verified complaint against Campellone

2
  A derivative action is “[a] suit by a bene-ficiary of a fiduciary to enforce a
right belonging to the fiduciary; esp., a suit asserted by a shareholder on the
corporation's behalf against a third party (usu. a corporate officer) because
of the corporation's failure to take some action against the third party. If the
claim involves a serious wrongdoing by those in control of the organization,
a conflict may arise between the lawyer's duty to the organization and the
lawyer’s relationship with the board, and the lawyer may not be able to
defend the action.” Derivative Action, Black’s Law Dictionary (11th ed.
2019); see also Price v. Gurney, 324 U.S. 100, 105 (1945) (“A derivative

                                       9
and named the three corporate entities as nominal defendants seeking both

direct and derivative relief against Campellone for embezzlement,

misappropriation of corporate assets and opportunities, breaches of fiduciary

duty, and battery. Id. Thereafter, Lawyer Mann appeared as counsel for

both Campellone and all three entities. Id. Cragan moved to disqualify

Lawyer Mann as counsel for all defendants. Id. The trial court granted the

motion relying on Rules 4-1.13 and 4-1.17 of the Rules Regulating the

Florida Bar. Id. The trial court found, in part, that because Lawyer Mann,

through his dual representation, had access to information regarding the

entities that could give Campellone an unfair advantage in the derivative suit,

Mann was disqualified from representing either Campellone or the corporate

entities. Id. at 365. Ultimately, the Fifth District affirmed, in part, finding no

abuse of discretion in the trial court’s decision to disqualify Lawyer Mann

from representing the corporate entities. 3 Id.

action is a suit by a shareholder to enforce a corporate cause of action. The
corporation is a necessary party to the suit. And the relief which is granted is
a judgment against a third person in favor of the corporation.”).
3
  Regarding Lawyer Mann’s representation of Campellone, the Fifth District
held the trial court abused its discretion in holding Lawyer Mann could not
represent her based on the specific facts of the case and reversed the trial
court’s decision in part. Id.

                                       10
     Here, similar to the facts in Campellone, Rivero, the minority owner, is

alleging that serious wrongdoing by Gonzalez, the majority owner, injured

FlexFunds Holdings, and the interests of FlexFunds Holdings and Gonzalez

are not aligned under any construction of the facts alleged by Rivero.

     As indicated above, Rule Regulating the Florida Bar 4-1.7(a) forbids a

lawyer from representing a client in a matter directly adverse to an existing

client absent consent. Thus, consent by Rivero was required for Lawyer

Koenig and Trenam Law to represent FlexFunds Holdings while the

Gonzalez Entities were suing Rivero (pursuant to Gonzalez’s complaint

against him) at the same time Rivero was suing the Gonzalez Entities,

derivatively, on behalf of FlexFund Holdings.

     Accordingly, in the absence of Rivero’s consent to the representation,

we find the trial court did not abuse its discretion in disqualifying Lawyer

Koenig and Trenam Law from representing FlexFunds Holdings.

     IV.   CONCLUSION

     For the reasons set forth above we find no abuse of discretion in the

trial court’s order disqualifying Lawyer Koenig and Trenam Law from

representing FlexFunds Holdings. Because Lawyer Koenig and Trenam

Law did not appeal the portion of the trial court’s order disqualifying them

from representing the Gonzalez Entities, we express no opinion on it.

                                     11
Affirmed.

            12