Univ. of S.F. v. Cmty. Initiatives

1

UNIVERSITY OF SAN FRANCISCO, Plaintiff and Appellant, v. COMMUNITY INITIATIVES, Defendant and Respondent.

A167142

California Court of Appeals, First District, Third Division

January 19, 2024

NOT TO BE PUBLISHED

City & County of San Francisco Super. Ct. No. CGC22597932

TUCHER, P.J.

This appeal arises from successive lawsuits relating to administration of the San Francisco Teacher Residency Program (Residency program). Loran Simon, a former employee of the Residency program, filed two prior lawsuits based on allegations that appellant University of San Francisco (USF) and respondent Community Initiatives fraudulently obtained federal funding to administer the Residency program. In the present action, USF seeks indemnity from Community Initiatives for damages it incurred in connection with the Simon litigation. This appeal is from an order disqualifying Michael Vartain and Vartain Law Group (Vartain) from representing USF in the pending indemnity action due to Vartain's prior representation of Community Initiatives in the Simon lawsuits. We affirm that order.

BACKGROUND

The Prior Lawsuits

Simon's Complaints

In November 2016, Simon filed a federal action against USF and Community Initiatives under qui tam provisions of the False Claims Act. At the time, Simon was Assistant Director of the Residency program, which he described as a training program for teachers to improve achievement of historically underserved students that was operated by five organizations USF; Community Initiatives; the San Francisco Unified School District (SF Unified); the Stanford University Teacher Education Program (Stanford); and United Educators of San Francisco. According to his complaint, Simon was initially employed by USF in June 2014, and in September 2016 his employment was transferred to Community Initiatives, a fiscal sponsor that assisted with administration of the Residency program.

Simon alleged that during his tenure as Assistant Director of the Residency program, USF and Community Initiatives submitted fraudulent claims to obtain grant money from federal programs, including AmeriCorps (previously known as the Corporation for National and Community Services). According to the complaint, all teacher candidates who participated in the Residency program obtained an AmeriCorps stipend, as well as other financial benefits from their respective universities. Simon alleged that the defendants failed to "track" the time and effort of these AmeriCorps participants and instead used falsified timesheets to obtain federal funding.

In June 2019, while his federal case was pending, Simon filed a state court action seeking damages for wrongful termination, naming multiple defendants including USF, Community Initiatives, and Peter Williamson, a Stanford faculty member who served as Chairman of the Residency program's Advisory Board. Simon alleged that on June 30 2017, he was wrongfully terminated from his employment as Assistant Director of the Residency program in retaliation for engaging in protected activity, including contesting racial discrimination, and reporting violations of the state and federal False Claims Acts. Simon alleged that the defendants were all liable for his wrongful termination as they were his joint employers and acted together to terminate him.

Arbitration Petitions In Simon's Wrongful Termination Case

On October 2, 2019, USF petitioned the superior court to compel arbitration and stay Simon's wrongful termination action. Vartain drafted and filed the petition on behalf of USF. USF sought to compel arbitration pursuant to a provision in its written employment agreement with Simon.

The following day, USF executed a Joint Defense and Confidentiality Agreement (JDA) with Community Initiatives and Peter Williamson. The stated purpose of the JDA was to "ensure that exchanges and disclosures of confidential privileged, and otherwise protected information" among the parties for purposes of pursuing a petition for an order to arbitrate were not interpreted as a waiver of the confidential or privileged nature of the information that was disclosed. Michael Vartain signed the JDA on behalf of Vartain as attorneys for USF, and Stanford's Vice President and General Counsel, Debra Zumwalt, signed the JDA as attorney for Williamson and Community Initiatives.

The terms of the JDA were set forth in 24 numbered paragraphs addressing issues such as the type of material covered by the agreement, and ongoing obligations of the parties and their counsel to protect the privileged nature of the shared material. Paragraph 11 addressed the subject of continued representation should a party to the JDA assert a claim against another party in the wrongful termination case or separate litigation. In that event, the JDA states, "each attorney of any Party who has access to or receives any Joint Defense Material shared under [the JDA] shall remain nonetheless qualified to continue to represent his or her client in the defense or pursuit of the claim(s)." In paragraph 11, the parties also agreed to the following: "Any conflict of interest arising out of the sharing of Joint Defense Materials under this Agreement is waived. Any right of any Party to move to disqualify any attorney for any Party to this Agreement on the grounds that such attorney has received Joint Defense Materials shared under this Agreement is waived."

On October 4, 2019, Community Initiatives and Peter Williamson filed a petition for an order to arbitrate and stay Simon's wrongful termination complaint (the non-signatories' petition). The non-signatories' petition and supporting documents were signed by Vartain as attorneys for Community Initiatives and Williamson. Michael Vartain filed a supporting declaration, which stated that he was appearing on behalf of Community Initiatives and Williamson for the limited purpose of filing and arguing their arbitration petition. In a supporting memorandum, Vartain argued that USF's arbitration agreement encompassed Simon's entire complaint, that Simon was estopped from refusing to arbitrate his claims against Community Initiatives and other entity defendants, and that the arbitration agreement applied to Williamson and other individual defendants pursuant to principles of agency.

On November 1, 2019, the superior court held a hearing on both arbitration petitions. USF's petition was granted pursuant to an uncontested tentative ruling that Simon's broad arbitration agreement with USF applied to his employment law claims. Simon contested a tentative ruling to grant the non-signatories' petition, but after the matter was argued, the court granted that petition as well.

Dismissals of Simon's Lawsuits

The Simon lawsuits were both resolved in May 2020. On May 18, the United States government intervened in the qui tam action "for settlement purposes against defendant [USF]." During negotiations between the government and USF, Vartain requested that a contemplated release of Simon's qui tam claims also include Community Initiatives, and the government agreed to the request. On May 18, the United States and Simon filed a joint proposed dismissal of the qui tam action with prejudice. The order was filed May 21, confirming Simon's dismissal extended to all defendants. The United States dismissed Simon's claims with prejudice to the extent they were "brought against USF under the False Claims Act, arising from USF's status as the fiscal agent which applied AmeriCorps funds to support and administer the [Residency program] during the 2014, 2015, and 2016 grant years." The following week, on May 27, Simon dismissed his wrongful termination case, serving notice of the dismissal on Vartain as attorneys for USF, Community Initiatives, and Williamson.

The Current Indemnity Action

In February 2022, USF, represented by Vartain, filed the underlying action for contractual and equitable indemnity and declaratory relief, seeking to recover more than $4.5 million as damages it incurred to settle the qui tam action. USF alleges that its liability in the Simon cases was based solely on conduct by the Residency program's manager, who was the employee and agent of SF Unified. In its original complaint, USF named SF Unified as the sole defendant, but its operative first amended complaint names Community Initiatives and Stanford as additional defendants. USF's pleaded theory is that each defendant must indemnify USF in proportion to its relative fault relating to the fraudulent procurement of AmeriCorps funds because they were all USF's partners and comembers of the Residency program's Advisory Board.

In November 2022, Stanford filed its answer to USF's complaint along with a cross-complaint. Community Initiatives filed a demurrer, which was vigorously opposed and ultimately denied on December 22. On December 14, while the demurrer was still pending, Community Initiatives filed a motion to disqualify Vartain from representing USF in the present action. Community Initiatives argued that Vartain's previous attorney-client relationship with Community Initiatives in the Simon cases created a conflict of interest that Community Initiatives did not waive. Stanford filed a joinder in Community's Initiatives disqualification motion and USF filed vigorous opposition.

The Disqualification Order

On January 18 and 20, 2023, the trial court held a hearing before taking the disqualification motion under submission. On January 23, the court disqualified Vartain from representing USF in the pending action, memorializing its findings in a six-page order.

The trial court's analysis of the disqualification motion was framed by a preliminary finding that Vartain represented Community Initiatives in Simon's wrongful termination case. The court...