Motion-Secondary: DYER CRAIG vs. DYER CUSTOM INSTALLATIONDCX

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                                CAUSE NO. 04-01100-M

CRAIG DYER, IN THEDISTRICT COURT |

Plaintiff,

vs. catty.

DYER CUSTOM INSTALLATION, INC.
(DCI), JOSEPH GEETING,

SUSAN LAMBERT, RICHARD GEETING
and LAURI GEETING

 

Defendants.
298™ JUDICIAL DISTRICT

 

PRO PLUMBING & APPLIANCE

INSTALLATION, INC. f/k/a DYER

CUSTOM INSTALLATION, INC.
Plaintiff,

vs.

CRAIG DYER, MELISA CONTRERAS,
and THE ESTATE OF LARRY DYER

Defendants.

DALLAS COUNTY, TEXAS

DEFENDANTS’ RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER AND

MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS

TO THE HONORABLE JUDGE OF SAID COURT:

COME NOW, Dyer Custom Installation, Inc. (“DCI”) n/k/a Pro Plumbing & Appliance
Installation, Inc., Joseph Geeting, Susan Lambert, Richard Geeting, and Lauri Geeting
(collectively, Defendants”), in the above-styled and numbered cause, and file this their
Response to the Estate of Larry Dyer, Craig Dyer and Mclisa Contreras’ Second Motion to
Disqualify Nowak & Stauch, LLP and Request for Sanctions (the “Motion to Disqualify”), and

in support thereof would respectfully show unto the Court as follows:

NTS" RES s ae RRY D
ELL IN TO DE

NOWAK & STAUCH, LLP rT oe EST FOR SANCTIONS - Page 1IL
PROCEDURAL HISTORY

1.01 On or about June 23, 2008, the law firm of Madden Sewell, LLP (“Madden
Sewell”), and their client, the Estate of Larry Dyer (the “Estate”), filed a Motion to Disqualify
counsel for Defendants, Nowak & Stauch, LLP (“Nowak & Stauch”), based on their allegation
of an irreconcilable conflict of interest in Nowak & Stauch’s representation of both DCI and the
director defendants. On or about July 22, 2008, Plaintiff Craig Dyer (“Dyer”) and Defendant
Melisa Contreras (“Contreras”) filed an Adoption and Joinder of The Estate’s (collectively,
“Movants”) Motion to Disqualify Nowak & Stauch. The Motion to Disqualify was completely
baseless ~ filed in retaliation for Defendants’ successful Motion to Disqualify Mitchell Madden,
whom the Court disqualified on March 17, 2008 after it determined that Mr. Madden had
violated Rule 3.08 of the Texas Disciplinary Rules of Professional Conduct. Moreover,
Movants’ original Motion to Disqualify was also untimely, filed 24% years after this purported
conflict of interest was first referenced in Dyer’s pleadings. After hearing oral argument and
reviewing the extensive briefing of the parties, the Court denied Movants’ frivolous Motion to
Disqualify by order dated September 18, 2008.

1.02 Unsuccessful) in their retaliatory efforts, counsel for Movants filed a Petition for
Writ of Mandamus with the Fifth Court of Appeals in Dallas, Texas on or about October 30,
2008, alleging that the Honorable Emily G. Tobolowsky had abused her discretion in denying
their Motion to Disqualify. However, the Fifth Court of Appeals, like Judge Tobolowsky, was
not persuaded by Movants’ arguments, and without hearing oral argument, issued a
Memorandum Opinion denying the Petition for Wnt of Mandamus on or about November 13,
2008. However, counsel for Movants, undaunted by the District Court and the Court of Appeals’

rejection of their frivolous and untimely Motion, noticed for deposition Matthew Nowak, lead

DEFEN) , NS HE ES Tl F RAIG DYE.
AND MELISA CONTRERAS’ SECOND MOTION TQ DISOUALIFY

> ‘D
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 2counsel for the Defendants, in order to elicit testimony regarding Defendants’ attomey’s fees and
the purported conflict of interest that was the subject of Movants’ unsuccessful Motion to
Disqualify. On or about October 27, 2009, Defendants filed a Motion to Quash Mr. Nowak’s
deposition, which was heard by the Court on December 15, 2008. By order dated December 15,
2008, the Court ruled that Mr. Nowak’s deposition could go forward, but limited the scope of his
deposition to “issues related to his designation as an expert on attomey’s fees.” [See 12-15-08
Order]. Nevertheless, Paul Sewell, lead counsel for Movants, ignored the limitations set forth in
the Court’s December 15” Order, repeatedly questioning Mr. Nowak regarding the
circumstances surrounding the purported conflict of interest made the subject of Movants’
unsuccessful Motion to Disqualify.

1.03 On or about February 26, 2009 — over five (5) years after filing suit - Movants

filed their Second Motion to Disqualify Nowak & Stauch. In this their third bite at the apple,

 

Movants now claim that after five (5) years of litigation — during which extensive written
discovery has been conducted and numerous depositions have been taken — “new facts have been
discovered which...require that this Court disqualify Nowak.” Conveniently, Movants now
allege that Mr. Nowak is “an essential fact witness” that they intend to call to testify at trial.
Movants also claim that there is “an inherent conflict of interest” in Mr. Nowak’s representation
of Defendants Joseph Geeting and Lauri Geeting that requires disqualification. As with their
first Motion to Disqualify, however, Movants’ latest attempts at disqualification are yet another
transparent attempt at retaliation for the Court’s disqualification of Mitchell Madden, and are
being used as a tactical weapon in an attempt to deprive Defendants of the attorneys who have
defended them against Dyer’s frivolous claims for over five (5) years. As explained below,
these baseless attempts at disqualification — just two months before trial — are a clear violation of

the Texas Disciplinary Rules of Professional Conduct, and as such, the Estate of Larry Dyer,

FEND, * NSE, 'F, EST, RR’ ER, Cl YER
AND MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY

NOWAK & STAUCH, LLP AND REOUEST FOR SANCTIONS - Page 3e e
Craig Dyer and Melisa Contreras’ Second Motion to Disqualify Nowak & Stauch, LLP should
not only be denied, but the Movants and their counsel should be sanctioned by this Court for
their repeated violations of the disciplinary rules, violations of Rule 13 of the Texas Rules of
Civil Procedure, and violations of Chapters 9 and 10 of the Texas Civil Practice and Remedies

Code.

Il.
ARGUMENTS AND AUTHORITIES

2.01 Under Texas law, disqualification is a severe remedy which can result in
immediate harm by depriving a party of the night to have counsel of its choice. Spears v. Fourth
Court of Appeals, 797 S.W.2d 654, 656 (Tex. 1990); In re Cerberus Capital Mgmt. L.P., 164
S.W.3d 379, 382 (Tex. 2005); Jn re Sanders, 153 S.W.3d 54, 57 (Tex. 2004); In re Nitla S.A. de
CV, 92 8.W.3d 419, 422 (Tex. 2002). Accordingly, in ruling on a motion to disqualify, the trial
court must strictly adhere to an exacting standard to discourage use of disqualification as a
dilatory trial tactic. Witla S.A. de C.V., 92 S.W.3d at 422. The movant bears the burden of
proving that the attorney should be disqualified. in re Meador, 968 S.W.2d 346, 350 (Tex.1998).
“Mere allegations of unethical conduct or evidence showing a remote possibility of a violation of
the disciplinary rules will not suffice” under the “exacting standard” required to grant a motion
to disqualify. Spears, 797 S.W.2d at 656; Meador, 968 S.W.2d at 350. Rather, the movant must
“provide the trial court with sufficient information so that it can engage in a painstaking analysis
of the facts.” Ghidoni v. Stone Oak, Inc., 966 S.W.2d 573, 579 (Tex. App.—San Antonio 1998,
pet. denied), citing J.K. & Susie L. Wadley Research Inst. & Blood Bank v. Morris, 776 S.W.2d
271, 278 (Tex. App.—Dallas 1989, orig. proceeding).

2.02 While courts often look to the disciplinary rules to decide disqualification issues,

the rules are “merely guidelines - not controlling standards - for disqualification motions.” Nitla

ERS.A. de C.V., 92 $.W.3d at 422 (citing Meador, 968 S.W.2d at 350). Even if a lawyer has
violated a disciplinary rule, the movant must still demonstrate that the lawyer’s conduct caused
“actual prejudice” that requires disqualification. Jd.; see also In re Davila, 1999 WL 735164 *4
(Tex.App.—San Antonio 1999) (original proceeding) (not designated for publication)
(concurring, Justice Green stated there must be “convincing proof” that the lawyer’s continued
representation would be “unduly harmful” to the movant). The court should neither disqualify
nor otherwise chasten a member of the court's bar without being satisfied that a violation has
taken place and that the violation rises to a level requiring action. See Ayus v. Total Renal Care,

Inc., 48 F.Supp.2d 714, 719 (S.D. Tex. 1999).

A. Movants’ Allegations of Violations of Texas Disciplinary Rule_of_ Professional
Conduct 3.08 are Without Merit

2.03 Rule 3.08(a) of the Texas Disciplinary Rules of Professional Conduct prohibits a
lawyer from continuing to represent a client if “the lawyer knows or believes that the lawyer is or
may be a witness necessary to establish an essential fact on behalf of the lawyer's client.” TEx.
DiscipLinaRy R. PROF’L CONDUCT 3.08(a). Thus, parties seeking to disqualify attorneys under
Rule 3.08(a) must present sufficient evidence that the lawyer's testimony is: 1) “necessary”; and
2) goes to an “essential fact” of the non-movant's case. Jn re Bahn, 13 S.W.3d 865, 872-73
(Tex.App.—Fort Worth 2000, orig. proceeding); Jn re A.M., 974 S.W.2d 857, 864 (Tex.App.—
San Antonio 1998, no pet.). Rule 3.08(b) prohibits a lawyer from continuing to represent a client
if the lawyer believes he “will be compelled to furnish testimony that will be substantially
adverse to [his] client.” TEx. DISCIPLINARY R. PROF’L CONDUCT 3.08(b). To establish grounds
for disqualification under Rule 3.08(b), the movant must show that the testimony of the lawyer

is: 1) “required” for the movant’s case; and 2) that the testimony will be substantially adverse to

DEFENDANTS’ RESPONSE TO THF ESTATE OF LARRY DYER, CRAIG DYER
AND MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 5the lawyer’s client. Olguin v. Jungman, 931 S.W.2d 607, 611 (Tex.App.—San Antonio 1996, no
pet.).

2.04 To obtain disqualification under either subsection of Rule 3.08, the movant must
also demonstrate that the lawyer’s continued representation of the non-movant will cause “actual
prejudice” to the movant. /d. (emphasis added). It is not enough to simply announce an intent
to call opposing counsel as a witness. See Jn re Slusser, 136 §.W.3d 245, 248 (Tex.App.—San
Antonio 2004). Further, the comments to Texas Disciplinary Rule of Professional Conduct 3.08
recognize that there exists an inherent potential for abuse when Rule 3.08 is used as a basis for
disqualification of opposing counsel. See TEX. DISCIPLINARY R. PROF’L CONDUCT 3.08 cmts. 9-
10. As the comments state, Rule 3.08 “should not be used as a tactical weapon to deprive the
opposing party of the right to be represented by the lawyer of...her choice.” TEX. DISCIPLINARY
R. PROF’L CONDUCT 3.08 cmt. 10. As such, “[A] lawyer should not seek to disqualify an
opposing lawyer by unnecessarily calling that lawyer as a witness.” /d. When the movant
attempts to disqualify an opposing attorney by “unnecessarily calling that attorney as a witness,”
such actions subvert the purpose of Rule 3.08, and are evidence that the movant’s motion for
disqualification is being used for an improper purpose. Schwartz v. Jefferson, 930 S.W.2d 957,
960 (Tex.App.—Houston ia Dist.] 1996, orig. proceeding).

2.05 In this case, counsel for the Movants — over five (5) years after filing suit — claims
that Mr. Nowak is an “indispensable fact witness” and therefore should be disqualified pursuant
to Rule 3.08 of the Texas Disciplinary Rules of Professional Conduct, although counsel for
Movants fail to specify whether they are seeking disqualification under subpart (a) or subpart (b)
of Rule 3.08. As such, Movants are required to prove that Mr. Nowak’s testimony is: 1)
“necessary” to establish an “essential fact” on behalf of Defendants; 2) that Mr. Nowak “will be

compelled to furnish testimony that will be substantially adverse to” the Defendants; and 3) that
DEEENDANTS' RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER

N ISA CON 7 .D, ON. SOLALI
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 6Mr. Nowak’s continued representation of the Defendants will cause “actual prejudice” to the
Movants. See TEX. DISCIPLINARY R. PROF’L CONDUCT 3.08. As explained in detail below,
counsel for Movants have wholly failed to provide sufficient evidence to meet the “exacting
standard” required to prove that disqualification is warranted under either subsection (a) or (b) of
Rule 3.08 of the Texas Disciplinary Rules of Professional Conduct in Movants’ Second Motion
to Disqualify. Spears, 797 S.W.2d at 656. In fact, what the arguments and evidence presented in
Movants’ Second Motion to Disqualify do show is that counsel for Movants are attempting to
“unnecessarily” call Mr. Nowak as a fact witness in this case, a clear violation of Rule 3.08.
Schwartz, 930 $.W.2d at 960. As such, Movants’ Second Motion to Disqualify, like its first, is

being presented for an improper purpose, and must therefore be denied.

1. The March 19, 2004 Hearing on DCI’s Application for Temporary Restraining
Order, Temporary Injunction and Permanent Injunction

2.06 Counsel for Movants allege that Nowak & Stauch should be disqualified as
counsel for Defendants pursuant to Rule 3.08 of the Texas Disciplinary Rules of Professional
Conduct because lead counsel for Defendants, Matt Nowak, “agreed, in open court and on the
record, that Dyer owned 29% of the shares of DC] as of March 19, 2004.” Specifically, counsel
for Movants claim that Mr. Nowak’s statements at the hearing on DCI’s Application for
Temporary Restraining Order, Temporary Injunction and Permanent Injunction against Craig
Dyer are “directly adverse” to the claims asserted in DCI’s declaratory judgment action, wherein
DCI has alleged that Contreras’ and Larry Dyer’s attempts to transfer their shares in DCI to Dyer
on March 3, 2004 and December 7, 2004, respectively, were fraudulent and invalid. However,
not only have Movants waived their right to seek disqualification in regard to this issue, but
counsel for Movants have completely mischaracterized Mr. Nowak’s statements at that hearing,

and have failed to provide the Court with the context of such statements. As such, counsel for

DEFENDANTS’ RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER
\D MELISA CONTRE! * SECON] ON. DISQUALIFY

AND MELISA CONTRERAS’ SECOND MOTION TQ DISQUALIFY
NOWAK & STAUCH, LLP AND) REQUEST FOR SANCTIONS - Page 7Defendants are compelled to clarify and correct Movants’ mischaracterizations, and provide an
accurate account of what was said and agreed to at the March 19” hearing.

2.07. On March 9, 2004, Mr. Nowak, on behalf of DCI, filed an Application for
Temporary Restraining Order, Temporary Injunction and Permanent Injunction against Dyer in
the 362™ District Court of Denton County, Texas, seeking to enjoin Dyer and his attomey,
Mitchell Madden, from contacting DCI’s customers and interfering with DCI’s contracts and
existing business relationships. The restraining order became necessary because Mr. Madden, by
letters dated February 8, 2004 and March 3, 2004, contacted one of DCI’s largest customers,
Home Depot, and informed Home Depot that DCI had engaged in “wrongful conduct” by
attempting to terminate Dyer. [See M. Madden 2-8-04 Letter and 3-4-04 Letter, Exhibit A]. Mr.
Madden further misrepresented to Home Depot that Dyer retained a 50% ownership interest in
DCI, and encouraged Home Depot to refrain from communicating with Joseph Geeting
regarding the terms of DCI’s contract with Home Depot. [Exhibit A]. The Denton County
District Court granted DCI’s temporary restraining order on March 9, 2004, and a hearing on the
temporary injunction was scheduled for March 19, 2004.

2.08 On the date of the March 19 hearing, an agreement was reached at the
courthouse between counsel for DCI and former counsel for Dyer, Ken Nye, wherein Dyer
would agree to refrain from contacting DCI’s customers and representing to them that he had a
controlling ownership interest in the company. At the hearing, Mr. Nye represented to counsel
for DCI that Contreras had transferred her 10% ownership interest in DCI to Dyer. This is the
very first time that counsel for DC] had ever been made aware of this purported transfer. Thus,
in exchange for Dyer’s agreement to refrain from contacting DCI’s customers and representing
that he had a controlling ownership interest in DCI - which was the damaging conduct that DCI
was attempting to prevent — Mr. Nye insisted that Dyer be allowed to “represent to anybody” that

N) .
ND MELT: IN * SECOND IN TO DISOL
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 8Dyer owned a 29% interest in the company. Based on Mr. Nye’s representations, counsel for
DCI agreed that Dyer could “represent to anybody” that he owned a 29% interest in DCI.
However, as the transcript from that March 19” hearing will reflect, at no time was there ever
any agreement between Mr. Nye and counsel for DCI that Dyer owned an undisputed 29%
interest_in the company, contrary to counsel for Movants’ convenient interpretation of Mr.
Nowak’s statements at that hearing.

2.09 After the hearing, Mr. Nowak asked Mr. Nye to forward him a copy of this
purported assignment of shares as soon as Mr. Nye retumed to his office so that the purported
transfer could be confirmed. Although Mr. Nye promised to do so, it was not until February 28,
2005 — almost a year later and after repeated requests — that counsel for Dyer forwarded the
documentation evidencing the assignment to Mr. Nowak. [See Madden 2-28-05 Letter, Exhibit
B}. After Mr. Nowak had an opportunity to review the purported assignment and depose
Contreras regarding same, it was discovered that the assignment was invalid, and the document
that purported to transfer the shares was fraudulent on its face. As alleged in DCI’s Petition for
Declaratory Judgment, the assignment, which was drafted by Mitchell Madden, stated that
Contreras’ shares in DC] were “TRANSFERRED FOR GOOD AND VALUABLE
CONSIDERATION” to Dyer. [See 3-3-04 Assignment, Exhibit C]. In truth, however, Dyer
paid no consideration for the shares. [See M. Contreras Deposition, Exhibit D at p. 15, 1. 1-14].
Thus, once it was determined that the assignment in question was invalid and that the document
created by Mr. Madden was fraudulent on its face, DCI filed suit on November 15, 2006, seeking
a declaratory judgment declaring the assignment invalid as a matter of law. [See Pro Plumbing
& Appliance Installation, Inc. f/k/a Dyer Custom Installation, Inc.’s First Amended Petition for
Declaratory Judgment]. Thus, as the Court can see, counsel for Movants have significantly

overstated what Mr. Nowak and Mr. Nye actually agreed to at the March 1g” hearing, as well as

IDANTS" RE! NSE TO THE F: TE OF ER, GC DYER
AND MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY

1
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS ~ Page 9what was actually said during the hearing. Obviously, Mr. Nowak’s statements did not
constitute DCI’s legal position with regard to the shares, nor did they preclude DCI from
challenging same once the evidence of the fraudulent transfer was discovered over a year later.
In either regard, Movants have failed to meet their “exacting” burden to prove that the testimony
they are seeking to elicit from Mr. Nowak is “necessary” to an “essential fact” of the case, that
Mr. Nowak “will be compelled to furnish testimony that will be substantially adverse to” the
Defendants (obviously, it is not) and that Mr. Nowak’s continued representation of the
Defendants will cause “actual prejudice” to the Movants as a result of his statements at the
March 19" hearing. Nitla S.A. de C.V., 92 S.W.3d at 422.

2.10 However, should the Court conclude that Movants have indeed met the “exacting”
burden to establish that disqualification is warranted, counsel for Movants have long since
waived their right to seek disqualification under Rule 3.08. Texas law is clear that a party that
fails to file its motion to disqualify opposing counsel in a timely manner effectively waives the
complaint. See Turner v. Turner, 385 S.W.2d 230, 236 (Tex. 1964). In fact, delaying even three
(3) months to file a Motion to Disqualify may result in waiver of the right of dismissal. See
Davis v. Stansbury, 824 S.W.2d 278, 280 (Tex.App.—Houston [1 Dist.] 1992, orig.
proceeding). Moreover, the untimely urging of a disqualification motion lends support to any
suspicion that the motion is being used as a tactical weapon. Grant v. Thirteenth Court of
Appeals, 888 S.W.2d 466, 468 (Tex. 1994). In deciding whether the movant has waived its nght
to seek disqualification, the court should consider any evidence which indicates the motion is
being filed as a dilatory trial tactic. See Spears v. Fourth Court of Appeals, 797 S.W.2d 654, 656
(Tex.1990) (orig. proceeding).

2.11 In this case, not only is it undisputed that Madden Sewell waited over two (2)

years to assert their right to disqualification under Rule 3.08, but there is ample evidence

NDANTS” SE HE ‘ATE OF LARRY D’
AND MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY

OWAK & Ni "i F Ni — Page 10indicating that counsel for Movants’ latest Motion to Disqualify is being used as a tactical
weapon, in violation of the Texas Disciplinary Rules of Professional Conduct. Specifically, DC]
filed its declaratory judgment action challenging Contreras’ purported transfer of her shares to
Dyer back on November 15, 2006 — over two (2) years ago. At that time, counsel for Movants
were well aware of Mr. Nowak’s statements at the March 19, 2004 hearing. Thus, although
counsel for Movants have actively litigated this case for the past five (5) years, have actively
litigated this case for over two (2) years since learning of this purported violation of Rule 3.08,

and filed an unsuccessful Motion to Disqualify that never even mentioned Mr. Nowak’s

 

purported violations of Rule 3.08 in regard to the March 19, 2004 hearing, counsel for Movants
waited until February 26, 2009 —- less than three (3) months before trial — to raise this issue
with the Court. Given these undisputed facts, if Movants have not waived their right to seek
disqualification, no party ever has. Clearly, Movants substantial delay in filing their Motion to
Disqualify is exactly the kind of “dilatory trial tactic” the Texas Supreme Court has repeatedly
condemned, and as such, their Second Motion to Disqualify should therefore be denied.
2. Matthew Nowak’s Communications with Lar: er

2.12 Counsel for Movants also claim that Nowak & Stauch should be disqualified as
counsel for Defendants pursuant to Rule 3.08 of the Texas Disciplinary Rules of Professional
Conduct because lead counsel for Defendants, Matt Nowak, “is the only witness who can testify
as to the communications with Larry Dyer concerning Larry Dyer’s position regarding the stock
transfer to Craig Dyer.” Specifically, counsel for Movants claim that during Mr. Nowak’s
deposition on December 17, 2008, that “it was revealed for the first time that Nowak did in fact
discuss with Larry Dyer his position regarding” his purported assignment of shares to Dyer back
in December 2004. Since Larry Dyer has since passed away, counsel for Movants claim that Mr.
Nowak’s testimony regarding his discussions with Larry Dyer during this telephone conference

DEFENDANTS’ RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER

AND MELISA CONTRERAS’ SECOND MOTION TO DISOUALIFY
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 11“is essential and cannot be obtained from another source.” Again, however, not only have
Defendants failed to provide the Court with the context for Mr. Nowak’s statements at his
deposition, but they have also wholly failed to provide any evidence that Mr. Nowak’s testimony
at trial regarding the substance of such conversations is “necessary” to establish an “essential
fact,” nor that Mr. Nowak’s representation of Defendants will cause “actual prejudice” to
Movants. Nitla S.A. de C.V., 92 S.W.3d at 422.

2.13. As a preliminary matter, it is important to note that Texas law is clear that an
attorney has a right to interview a person with knowledge of relevant facts or a person who may
have knowledge of discoverable matters. TEX. R. Civ. P. 192.3(c); $23,900 v. State, 899 S.W.2d
314-316-17 (Tex.App.—Houston [14” Dist.] 1995, no writ). In this case, it is undisputed that
Larry Dyer was a member of DCI’s Board of Directors at the time that Mr. Nowak contacted him
by telephone in an attempt to investigate the circumstances surrounding his purported assignment
to Dyer back in December of 2004. It is also undisputed that Larry Dyer was the President of
DCI at the time of the purported transfer, and had personal knowledge regarding the purported
transfer. At that time, Larry Dyer was not a party to this lawsuit. As such, Texas law is clear
that Mr. Nowak had not only a right, but a duty to investigate the circumstances surrounding
Larry Dyer’s purported transfer of shares to Dyer, given the potential harm to DCI that could
result therefrom.

2.14 Moreover, it is also undisputed that during his conversation with Mr. Nowak,
Larry Dyer did not provide any substantive information whatsoever regarding his purported
transfer of shares to Dyer. Specifically, when Paul Sewell (improperly) questioned Mr. Nowak
at his December 17, 2008 deposition about the substance of his conversations with Larry Dyer
regarding the purported transfer of shares, Mr. Nowak testified as follows:

EY SPONSE Tt THE RRY DYE!

INTRERAS’ SE! NTO DE
NOWAK & STAUCH, LL? AND REQUEST FOR SANCTIONS - Page 12I did not know that at that time, because I didn't have the answer to questions. I
didn't even know -- and to be honest, at that time we didn't even get into specific
facts, you know. Was this your signature? I mean, we didn't have -- obviously,
we were on a telephone call. J didn't have the assignment in front of me. I was
just trying to get him to get in to my office so we could look at it and say, is this
the instrument? Did you sign this? Do you understand what's stated? Did you
understand you were the president at this time of the corporation? You were a
board of director. Do you understand what your duties and so forth? None of
that was really discussed. It was more like, hey, | got this. I got a copy of this.
There's certain things or issues that need to be discussed with you. When can you
come in? And we may have discussed some other things with regard that the
lawsuit was still ongoing and so forth, but something to that effect. So the
specifics were not discussed at all, obviously, because if ] would have known
that stuff I would have known prior to his deposition, and I didn't know any
of the answers to my questions till the time of his deposition.

(M. Nowak Depo, Exhibit E at p. 117, 1. 4 - p. 118, 1. 6]. When questioned further regarding the
substance of his conversations with Larry Dyer, Mr. Nowak reiterated that he did not know what
Larry Dyer’s position was with regard to the transfer of shares until he had an opportunity to
depose him:

I think as I stated earlier | didn't know Larry's position until his deposition.
He was pretty -- from what I remember, I don't even know if he indicated in my

telephone conference if he actually signed the document. He was very elusive, I

guess, would be the best way to define it is, and that's why I wanted him to come

in and be straightforward.

[M. Nowak Depo, Exhibit E at p. 123, |. 8 - 12]. While Mr. Sewell’s line of questioning went far
beyond the scope of Mr. Nowak’s status as an expert on attorney’s fees (in violation of the
Court’s December 15, 2008 Order), Mr. Nowak’s sworn testimony is unequivocal that nothing of
substance regarding Larry Dyer’s position on the purported December 2004 transfer was ever
discussed during their telephone conference.

2.15 Worse yet, although counsel for Movants conveniently allege that Mr. Nowak’s
testimony at trial regarding his telephone conversations with Larry Dyer is “essential,” Movants
do not even attempt to explain how the substance of such conversations is “necessary” to an
“essential fact” of the case, much Jess how Mr. Nowak’s continued representation of the
DEFENDANTS” RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER

S’ SECON} iN. IFY
NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 13Defendants will cause “actual prejudice” to the Movants, as required to establish disqualification.
Nitla S.A. de C.V., 92 S.W.3d at 422. In fact, the Texas Rules of Evidence are clear that Mr.
Nowak’s telephone conversations with Larry Dyer are not even admissible at trial, since any
statements made by Larry Dyer during those conversations constitute hearsay, and do not fall
within any exception to the hearsay rules. TEX. R. EviD. 802. As such, even if counsel for
Movants wished to call Mr. Nowak to testify regarding his completely irrelevant telephone
conversations with Larry Dyer, Rule 802 is clear that Movants are precluded from doing so. /d.
2.16 Finally, it must be pointed out that at Larry Dyer’s deposition on April 20, 2006,
Mr. Nowak questioned Larry Dyer extensively regarding his purported assignment of shares to
Dyer back in December 2004. [See L. Dyer Deposition, Exhibit F]. It is undisputed that counsel
for Movants not only attended that deposition, but also had ample opportunity to elicit sworm
testimony from Larry Dyer regarding the purported transfer of shares. As such, counsel for
Movants’ position that Mr. Nowak is an “essential” fact witness in regard to Larry Dyer’s
statements about the purported transfer is disingenuous at best, and being used as a tactical
weapon at worst, in an attempt to deprive Defendants of their right to be represented by the
lawyer of their choice just two (2) months before trial. TEx. DISCIPLINARY R. PROF’L CONDUCT
3.08 cmt. 10. As stated above, Texas law is clear that if a movant attempts to disqualify an
opposing attorney by “unnecessarily calling that attorney as a witness,” such actions subvert the
purpose of Rule 3.08, and are evidence that the movant’s motion for disqualification is being
used for an improper purpose. Schwartz, 930 S.W.2d at 960. Given the surrounding facts and
circumstances, it is obvious that such is the case here. As such, Movants’ Second Motion to
Disqualify should therefore be denied, and Movants and their counsel should be sanctioned for

their violations of Rule 3.08.3. DCI’s Communications with their Accountants

2.17 Counsel for Movants further allege that Nowak & Stauch should be disqualified
as counsel for Defendants pursuant to Rule 3.08 of the Texas Disciplinary Rules of Professional
Conduct because “newly discovered evidence has revealed that Nowak has engaged in a course
of conduct to conspire and/or prevent DCI from reflecting the true ownership of DCI.”
Specifically, counsel for Movants claim that Mr. Nowak participated and interfered “with the
filing of correct K-1’s and tax returns by DC]’s accountants.” Movants claim that because
“Nowak will testify that he agreed, on behalf of DCI, that Dyer owned a 29% interest in DCI,”
that such testimony “is in direct conflict to the position of DCI in that DCI had its accountants
prepare and file tax retums that did not reflect that 29% interest.”

2.18 As set forth in detail above, however, neither Mr. Nowak nor DCI has ever
agreed that Dyer holds an undisputed 29% interest in DCI, either at the March 19, 2004 hearing
on DCI’s request for a temporary injunction (which Movants are referring to), nor anytime
thereafter. As such, counsel for Movants’ argument is based on a faulty premise: that Mr.
Nowak will testify that he agreed, on behalf of DCI, that Dyer owned a 29% interest in the
company. He will not, and cannot, testify to anything of the sort, since that was never agreed to
by Mr. Nowak, as explained above. Moreover, Texas law is clear that any conversations or
communications that Mr. Nowak had with Joseph Geeting regarding these issues is protected by
the attorney-client privilege, and therefore not admissible at trial. TEx. R. Evip. 503. As such,
Movants have not met their “exacting” burden to prove that Mr. Nowak “will be compelled to
furnish testimony that will be substantially adverse to” the Defendants, nor that Mr. Nowak’s
continued representation of the Defendants will cause “actual prejudice” to the Movants as a
result. Nitla S.A. de C.V., 92 $.W.3d at 422. Texas law is clear that simply announcing an intent

DEFENDANTS" RESPONSE T!

HE, E: E.
AND MELISA CONTRERAS’ SECOND MOTION TO DISQUALIFY
SOW AK I S. TONS - Page 15to call Mr. Nowak as a witness does not satisfy this heavy burden. See /n re Slusser, 136 S.W.3d
at 248. Movants Second Motion to Disqualify should therefore be denied.

4. Nowak’s Attendance at March 2004 Board of Directors Meetin:

 

2.19 Counsel for Movants further allege that Nowak & Stauch should be disqualified
as counsel for Defendants pursuant to Rule 3.08 of the Texas Disciplinary Rules of Professional
Conduct because “Movants intend to call Nowak to testify that he participated in a meeting in
which the issue of indemnifying Joseph Gecting and Susan Lambert was tabled while thereafter
receiving monies from DCI for representing Joseph Geeting and Susan Lambert in this action.”
Counsel for Movants somehow believes that because Mr. Nowak attended “part” of this meeting,
that ““Nowak’s position is directly adverse to that of his clients and he should be disqualified for
Tepresenting same.” Although it is unclear how Mr. Nowak’s attendance at this meeting and his
acceptance of money from DCI to defend Joseph Geeting and Susan Lambert and prosecute
Joseph Geeting’s claims against Dyer are “adverse” to Defendants, and although Movants cite to
absolutely no authority whatsoever for this proposition, it appears that Movants argument is
again based on faulty assumptions.

2.20 Specifically, it appears that counsel for Movants is under the mistaken assumption
that agreeing to defend a company’s officers and employees from a frivolous lawsuit, and
agreeing to indemnify them in regard to that lawsuit, are one in the same. However, defense and
indemnity are two different things. An agreement to “defend” an individual is an agreement to
hire an attorney to defend that individual and pay their attomey’s fees and court costs. An
agreement to indemnify, on the other hand, is the right of an injured party to claim
reimbursement for its loss, damage or liability suffered as a result of the acts of a third party.
Black’s Law Dictionary, Sixth Edition, West Group, St. Paul, Minn. (1999). It is clear from the

Waiver of and Consent to Conflict of Interest executed by each of the Board of Directors on

  
 

    

     

NI Ni SOU,

NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 16March 4, 2004 that DCI’s Board of Directors voted to defend both Joseph Geeting and Susan
Lambert against the claims asserted by Dyer. [See Waiver of and Consent to Conflict of Interest,
Exhibit G]. Specifically, the Waiver states,

We acknowledge that Matthew A. Nowak has disclosed to each of us the

potential conflict of interest that may arise with the law firm’s continued

representation of Dyer Custom Installations, Inc., in addition to representing its
directors N. Joseph Geeting and Susan Lambert who have been named personally

in the lawsuit filed by the shareholder Craig Dyer in Cause No. 04-01100 in the

298" Judicial District, Dallas County, Texas, styled Craig Dyer v. Dyer Custom

Installation, Inc. (DCI) Joseph Geeting, and Susan Lambert.

[See Exhibit G]. Thus, it is clear that the DC] indeed authorized to defend both Joseph Geeting
and Susan Lambert from Dyer’s frivolous claims, contrary to Movants’ assertions. As such,
counsel for Movants have failed to present sufficient evidence that Mr. Nowak’s testimony will
be “substantially adverse” to the Defendants, as required to prove that disqualification is
warranted. Olguin, 931 S.W.2d at 611.

2.21 More importantly, Texas law is clear that in order to disqualify Nowak & Stauch
under Rule 3.08(b) of the Texas Disciplinary Rules of Professional Conduct, counsel for
Movants must also present sufficient evidence that Mr. Nowak’s testimony is “required” for the
Movants’ case. /d. In this case, it is undisputed that Larry Dyer, Joseph Geeting, Lauri Geeting,
Richard Geeting and Susan Lambert were all in attendance at the March 2004 Board of Directors
meeting complained of, and as such, were fact witnesses to the agreements made during that
meeting. Thus, counsel for Movants have failed to present sufficient evidence that Mr. Nowak’s
testimony regarding the agreements reached during that meeting is “required,” given the number
of fact witnesses that can be called to testify regarding those topics. Moreover, although counsel
for Movants claim that they intend to call Mr. Nowak to testify regarding the March 2004 Board
meeting, Texas law is clear that simply announcing an intent to call Mr. Nowak as a witness
does not suffice to establish that disqualification is necessary. See In re Slusser, 136 S.W.3d at
DEFENDANTS" RESPONSE TO THE ESTATE OF LARRY DYER, CRAIG DYER

RD MELISA CONTRERAS SECOND MOTION TO DISO

YD Mi 1 LIFY
0

NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 17248. Counsel for Movants’ attempts to unnecessarily call Mr. Nowak to testify regarding the
agreements reached at the 2004 Board of Directors meeting, when there are a number of other
fact witnesses who could testify as such, is simply further evidence that the Movants’ motion for
disqualification is being used for an improper purpose. Schwartz, 930 S.W.2d at 960.

2.22 As for counsel for Movants’ allegations that DC] has “wrongfully paid” for the
prosecution of Joseph Geeting’s personal claims against Dyer (which, for the record, are
identical to DCI’s claims against Dyer), even if true, such allegations simply do not warrant Mr.
Nowak being called to testify regarding the agreements reached at the 2004 Board of Directors
meeting. As stated above, counsel for Movants have failed to present sufficient evidence that
Mr. Nowak’s testimony regarding the agreements reached during that meeting is “required”
given the number of fact witnesses that can be called to testify regarding this topic. Again,
Texas law is clear that simply announcing an intent to call Mr. Nowak as a witness does not
suffice to establish that the severe remedy of disqualification is necessary. See In re Slusser, 136
S.W.3d at 248. Counsel for Movants have wholly failed to make the required showing that Mr.
Nowak is a necessary witness in regard to this issue, especially considering the number of
individuals who can testify regarding this topic.

2.23 Finally, Texas law is clear that in order to be entitled to the extreme remedy of
disqualification, the movant poust show that the lawyer’s conduct has caused or will cause
“actual prejudice” to the movant which requires disqualification. Nitla SA. de C.V., 92 S.W.3d
at 422. As Justice Green stated in his concurring opinion in Davila, there should be “convincing
proof” that the lawyer’s continued representation would be “unduly harmful” to the movant. Jn
re Davila, 1999 WL 735164 at *4. In that regard, counsel for Movants have completely failed to
present any evidence that they will suffer actual prejudice as a result of Nowak & Stauch’s
continued representation of Defendants in regard to this issue. Texas courts recognize that a

NOWAK & STAUCH, LLP AND REQUEST FOR SANCTIONS - Page 18court should neither disqualify nor otherwise chasten a member of the court's bar without being
satisfied that a violation has taken place and that the violation rises to a level requiring action.
See Ayus, 48 F.Supp.2d at 719. As such, Movants’ Second Motion to Disqualify must therefore
be denied.

B. Movants’ Allegations of Violations of Texas Disciplinary Rule of Professional
Conduct 1.06 are Without Merit

 

2.24 Rule 1.06 of the Texas Disciplinary Rules of Professional Conduct provides
guidance to both courts and lawyers for determining when a conflict of interest has arisen
between the lawyer and his client that requires the lawyer’s withdrawal. Section (a) of Rule 1.06
provides that a “lawyer shall not represent opposing parties to the same litigation.” TEx.
DISCIPLINARY R. PROF’L CONDUCT 1.06(a). The term “‘opposing partics’...contemplates a
situation where a judgment favorable to one of the parties will directly impact unfavorably upon
the other.” /d. at cmt. 2. Section (a) applies to parties that are “actually directly adverse.” /d. at
emt. 3 (1990). Rule 1.06(b), on the other hand, forbids an attorney’s representation of a party
where the representation “involves a substantially related matter” if that party’s “interests are
materially and directly adverse to the interest of another client” or “reasonably appears to be or
becomes adversely limited” by the lawyer’s, or law firm’s responsibilities to another client, third
person, or their own interests. TEX. DISCIPLINARY R. PROF’L CONDUCT 1.06(b). Rule 1.06(b)
may apply in circumstances in which the potential for conflict exists, such as where the clients
are co-defendants, as in this case. In circumstances such as these, concurrent representation of
adverse clients is permitted as long as the lawyer’s conduct complies with section (c). Conoco,
Inc. v. Baskin, 803 S.W.2d 416, 419 (Tex.App.—El Paso 1991, no writ). Rule 1.06(c) permits an
attorney or law firm to continue multiple representation of adversary clients where the attomey

reasonably believes his representation of each client will not be materially affected and consent

SDANTS" RESPONSE.TO THE, FE ; DYER
MELI NTR D
Aaa Aton P AND REQUEST FOR SAN SCHONS Pane 19is obtained from each client after full disclosure of the existence, nature, implications and
possible adverse consequences of such multiple representation. TEX. DIsciP. RULE OF PROF.
CONDUCT 1.06(c).

2.25 Raising questions regarding conflicts of interest is primarily the responsibility of
the lawyer undertaking the representation, not opposing counsel. TEX. DISCIP. RULE OF PROF.
CONDUCT 1.06, cmt. 17. Only where the conflict is such that it clearly calls into question the fair
or efficient administration of justice can opposing counsel properly raise the question. /d. Even
in these situations however, any assertion of a conflict by opposing counsel “should be viewed
with great caution...for it can be misused as a technique of harassment.” /d. Moreover, even if
the movant can show that the attorney’s continued representation of a client is adversely limited
by said conflict, the movant must still prove that it will suffer “actual prejudice” as a result of the
continued representation. Jn re Southwestern Bell Yellow Pages, Inc., 141 S.W.3d 229, 232
(Tex.App.—San Antonio 2004, no pet.). “The mere allegation of potential prejudice is
insufficient to warrant the extreme remedy of disqualification.” {d.

2.26 In this case, counsel for Movants allege that Nowak & Stauch should be
disqualified as counsel for Defendants pursuant to Rule 1.06 of the Texas Disciplinary Rules of
Professional Conduct because Joseph Gecting and his ex-wife, Lauri Geeting, were involved in
“what appears to have been extremely contentious divorce proceedings” wherein they allegedly
took “openly hostile and adverse positions regarding, among other things, the ownership and
valuation of the stock of DCI.” As their only evidence of these allegations, Movants attach a
series of e-mail between Lauri Geeting and Contreras dated November 28, 2005, December 20,
2005 and February 14, 2006, as well as a valuation of DCI’s stock performed by Dennis Howard,
Joseph Geeting’s valuation expert in the divorce proceeding, and Steven Harker, Lauri Geeting’s

valuation expert. However, as explained below, not only is there no conflict of interest in

IEFENDAN " RE: NSE TO TH! E LARRY} DYE!Nowak & Stauch’s representation of both Joseph Geeting and Lauri Geeting, but counsel for
Movants have failed to establish that they will suffer “actual prejudice” as a result of Nowak &
Stauch’s continued representation of Joseph Geeting and Lauri Geeting, as required to “warrant
the extreme remedy of disqualification.” Jd.

2.27 While counsel for Movants have failed to specify whether they are seeking
disqualification under section (a) or (b) of Rule 1.06, section (a) clearly does not apply to the
facts and circumstances in this litigation. As stated above, section (a) provides that a lawyer
shall not represent opposing parties to the same litigation. Tex. DISCIPLINARY R. PROF’L
ConbucT 1.06(a). According to the comments to Rule 1.06, “opposing parties” contemplates a
situation where a judgment favorable to one of the parties will directly impact unfavorably upon
the other. /d. at cmt. 2. Clearly, that is not the case here, since any judgment obtained by Joseph
Geeting or DCI against the Movants will be beneficial to both Joseph and Lauri Geeting. As
such, counsel for Movants’ request for disqualification must fall under Rule 1.06(b), if at all.
Rule 1.06(b) contemplates situations in which the representation “involves a substantially related
matter” if that party’s “interests are materially and directly adverse to the interest of another
client” or “reasonably appears to be or becomes adversely limited.” TEx. DisCIPLINARY R.

PROF’L CONDUCT 1.06(b).

2.28 As referenced above, counsel for Movants allege that there is an “irreconcilable
conflict of interest” between Joseph and Lauri Geeting because “they were suing each other in
divorce court arguing about some of the very issues involved in this case.” As cvidence of these
allegations, Movants attach letters from Dennis Howard, Joseph Geeting’s valuation expert in
the divorce proceeding, and Steven Harker, Lauri Geeting’s valuation expert, both of whom
offered opinions on the value of Joseph Geeting’s 51% ownership interest in DCI. [See Exhibits

31 and 32 to Movants’ Second Motion to Disqualify]. Apparently, these documents are what

DEFENDANTS" RE: NSE, FEST:Movants contend evidence that the Geetings’ were “arguing about some of the very issues
involved in this case.” However, a review of each of these documents will prove that Movants’
contentions are at best absurd exaggerations, and at worst, outright lies. While Joseph and Lauri
Geeting’s valuation experts had differing opinions regarding the value of Joseph Geeting’s 51%
share in DCI, at no point did they ever have a difference in opinion regarding any material
fact_issue involved in this lawsuit. In fact, no such issue is even discussed in the referenced
documents. As such, it is clear that counsel for Movants’ misrepresentations to the Court
regarding the contents of these documents is yet another transparent attempt to manufacture a
conflict of interest where no exists — exactly the kind of conduct prescribed in comment 17 to
Rule 1.06. Tex. Discip. RULE OF PROF. CONDUCT 1.06, cmt. 17.

2.29 As their only other evidence of this purported “irreconcilable conflict,” Movants
attach three email between Lauri Geeting and Melisa Contreras dated November 28, 2005,
December 20, 2005 and February 14, 2006. Because those email contain disparaging comments
regarding Joseph Geeting, counsel for Movants allege that “Lauri Geeting’s position in this
lawsuit was directly adverse to that of Joseph Geeting.” As a preliminary matter, it is important
to note that Lauri Geeting was not named as a defendant in this case until December 12, 2005,
and each of these emai] was written prior to her being served with citation. In fact, Lauri
Geeting was not served and did not file an answer until April 24, 2006, several months after the
email were written. Moreover, while the email in question obviously contains some heated,
emotional comments regarding Joseph Geeting, counsel for Movants convenient fails to alert the
Court’s attention to Ms. Geeting’s clarification and explanation of those comments during her
May 11, 2007 deposition.

2.30 First, counsel for Movants allege that Lauri Geeting’s statement in the November

28, 2005 email that she “remember(s] the 80/20 very well but | am sure any reference to it hasbeen destroyed” is contrary to Defendants’ affirmative defense that no such written agreement
ever existed. However, during her deposition on May 11, 2007, Lauri Geeting testified that she
has never seen a document that referenced the purported 80/20 agreement. [L. Geeting Depo,
Exhibit H at p. 80, 1. 22 — p. 81, 1. 5]. In fact, Lauri Geeting testified that she had only heard
about this purported agreement. [Exhibit H at p. 80. 1. 22 - p. 81, 1. 5]. Counsel! for Movants
further insinuate that Lauri Geeting was referring to the purported 80/20 agreement when she
stated in her email that she had “found a settlement type document dated 9/2002 stating buy out
and such....” However, Lauri Geeting testified in her deposition that there was no reference in
that document to any alleged 80/20 buyout, contrary to counsel for Movants’ insinuations.
(Exhibit H at p. 82. |. 13-16]. Additionally, counsel for Movants further allege that there is a
conflict because Lauri Geeting stated in her December 20, 2005 email to Contreras that she
would be happy to testify for Movants against Joseph Geeting. However, as Lauri Geeting
explained during her deposition, this is before she realized she had been named as a defendant in
this lawsuit. In fact, Lauri Geeting testified under oath that she was “surprised” that she was
named as a defendant by Dyer. [Ex. H at p. 105, I. 5 — 14]. Moreover, these comments are also
largely attributable to the hostile divorce she was going through with Joseph Geeting prior to
being named as a defendant in this case, as she explained at her deposition. [Ex. H at p. 78, }. 25
- p. 79, |. 20]. As such, Lauri Geeting’s deposition testimony is clear that there is (and was) no
conflict of interest in defending both she and Joseph Geeting against Dyer’s frivol