Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—C.D. Cal.: Counsel for 7-Eleven franchisee disqualified for payment to witness, (Apr 15, 2015)

By Greg Hammond, J.D.

Counsel for a former 7-Eleven franchisee was disqualified from an unlawful termination suit for improperly paying a former 7-Eleven employee for testimony connected to the suit. The federal district court in Los Angeles granted 7-Eleven Inc.’s motion for disqualification, finding that the former employee was not qualified as an expert and was improperly paid for his factual testimony by plaintiffs’ counsel, an ethical violation of the California Rule of Professional Conduct 5-310 (Patel v. 7-Eleven, Inc., April 14, 2015, Gutierrez, P.).

Background. Dilip Patel, Saroj Patel, and Saroj Patel, Inc. filed suit against 7-Eleven, alleging that the franchisor unlawfully terminated their 7-Eleven franchise in Riverside, California. They brought suit under California’s Franchise Relations and Unfair Business Practices Acts, and claims for breach of implied covenant of good faith and fair dealing and false imprisonment. 7-Eleven brought a motion to disqualify plaintiffs’ counsel, Gerard Marks and Marks & Klein, LLP, alleging that they improperly paid a former 7-Eleven employee $2,500 for fact testimony.

Fact testimony. The plaintiffs disagreed with 7-Eleven’s “factual testimony” argument, claiming that the former employee was paid as an expert witness, not a fact witness. Even if he was not an expert, payment was still proper because it was not “contingent upon the content” of his testimony, it was compensation for the employee’s “preparation time,” and the employee was paid as a “litigation consultant,” the plaintiffs contended.

The court did not find any of these arguments persuasive. First, the former employee was not found to be qualified to present expert testimony on franchisor/franchisee industry standards, asset protection standards, or interview standards. Specifically, the former employee lacked experience to qualify as an expert on 7-Eleven’s policies; his “on-the-job training” was insufficient to qualify him as an expert in asset protection standards; and two unexplained certifications were insufficient to qualify him as an expert on interview standards.

Second, the court found that even if the former employee was found to be qualified as an expert in some areas, he was still primarily paid for his fact testimony, rather than any expert testimony he provided. The court reached its conclusion on the factual nature of the testimony because the former employee offered his services to plaintiffs’ counsel, providing details on “significant wrongdoing,” flawed investigations, and efforts to target vocal franchisees.

Lastly, the court found that the payment to the former employee was unethical under Rule 5-310 because the employee indicated the sort of factual testimony he could provide for a fee, and plaintiffs’ counsel hired him to provide that testimony. This arrangement, according to the court, was “quid pro quo” payment for testimony.

Disqualification. The court concluded that the only way to maintain ethical standards of professional responsibility would be to impose a sanction against plaintiff counsel’s conduct that would punish counsel for its “ethical wrongdoing.” Because there was no other lesser effective sanction, the court granted 7-Eleven’s motion to disqualify Marks and Marks & Klein, LLP for the ethical violation.

The case number is CV 14-00519 PSG (DTBx).

Attorneys: Eric J. Schindler (Schindler Law Group) for Dilip Patel, and Saroj Patel Inc. James F. Speyer (Arnold and Porter LLP), and Julie R. Trotter (Call and Jensen APC) for 7-Eleven Inc.

Companies: Saroj Patel Inc.; 7-Eleven Inc.

Cases: FranchisingDistribution CaliforniaNews