Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 1 of 10
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF ARIZONA
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`United States of America,
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`Plaintiff,
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`v.
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`Michael Lacey, et al.,
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`Defendants.
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`No. CR-18-00422-001-PHX-SPL
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`ORDER
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`On April 25, 2018, the Government filed a motion (the “Motion”) to disqualify the
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`law firm of Henze Cook Murphy (“HCM”) from representing Defendant Michael Lacey
`(“Lacey”) and the law firm of Davis Wright Tremaine (“DWT”) from representing Lacey
`and Defendant James Larkin (“Larkin”). (Doc. 118) The Motion was fully briefed on July
`2, 2018, and the Court heard oral argument at a hearing on October 5, 2018. As set forth
`below, the Court finds that Carl Ferrer (“Ferrer”) expressly waived his right to seek
`disqualification of HCM and DWT in previous joint representation and joint defense
`agreements; accordingly, the Motion is denied.
`I.
`Procedural Background
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`On March 28, 2018, a federal grand jury returned a ninety-three count indictment
`against several Defendants, including Lacey and Larkin, alleging that the Defendants
`engaged in various crimes related to the operation of the website Backpage.com, including
`conspiracy, facilitating prostitution, and money laundering. (Doc. 3) The indictment also
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 2 of 10
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`includes forfeiture allegations.1 Id. Lacey and Larkin were arrested on April 6, 2018. The
`docket reflects that attorneys from DWT entered appearances on behalf of Lacey and
`Larkin, and attorneys from HCM entered appearances on behalf of Lacey.
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`On April 5, 2018, Ferrer pleaded guilty to conspiracy to facilitate prostitution and
`money laundering. (CR 18-464-SPL, Doc. 7) The charges against Ferrer were based on
`his work at Backpage.com (“Backpage”). (Doc. 118 at 6) On April 13, 2018, Ferrer sent
`letters to DWT and HCM asking that the firms comply with their ethical duties to him, as
`a former client, and withdraw from representing Lacey and Larkin. (Doc. 118, Exs. A and
`B) On April 20, 2018, DWT sent Ferrer a letter stating that they would “withdraw from
`representation in all matters and cases as counsel for you, Backpage.com, LLC, and all
`related entities owned or controlled by you . . . .” (Id. at Ex. U) HCM states that it withdrew
`from its representation of Backpage.com and Ferrer on October 17, 2017. (Doc. 176 at 7)
`Neither DWT nor HCM withdrew from their representation of Lacey and Larkin in this
`matter.
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`The Government asserts that, before filing the Motion, it met with various defense
`counsel in an attempt to resolve its concerns regarding potential conflicts of interest. (Doc.
`118 at 2; see also Doc. 176 at 8 (HCM states that it retained counsel to meet with the
`Government to discuss HCM performing a limited role representing Lacey)) The parties
`were not able to resolve these issues, and the Government filed the Motion. (Doc. 118)
`A.
`Briefing on the Motion to Disqualify
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`On June 6, 2018, after receiving extensions of time to respond, Defendants filed
`responses to the Motion. (Docs. 130, 134, 147, 149, 154, 156, 160, 162, 163, 172, 174,
`176, 177, 180) Lacey filed a response in opposition to the Government’s Motion directed
`at HCM, through his separately retained trial counsel. (Doc. 174) HCM also filed a
`response in opposition to the Motion, through its separate counsel. (Doc. 176) On June
`13, 2018, the Government filed a reply to Lacey’s and HCM’s responses. (Doc. 192)
`///
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`1 On July 25, 2018, the grand jury returned a 100-count superseding indictment against the
`Defendants. (Doc. 230)
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 3 of 10
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`On June 6, 2018, Lacey and Larkin, through separate counsel, also filed a joint
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`response to the Government’s Motion directed at DWT. (Doc. 180) On June 13, 2018, the
`Government filed a reply to Lacey’s and Larkin’s response to the Motion directed at DWT.
`(Doc. 193) On July 2, 2018, the Government filed a supplement to that reply. (Doc. 207)
`Defendant Andrew Padilla (“Padilla”), through separate counsel, also filed a response in
`opposition to the Government’s Motion directed at DWT (Doc. 177), and the Government
`filed a reply to Padilla’s response. (Doc. 194) In addition, several Defendants filed
`joinders to the various responses to the Motion.2 On October 5, 2018, the Court heard
`argument on the pleadings, and the arguments made by each party were taken under
`advisement.
`II. Motion to Disqualify
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`The Government argues that each firm’s prior representation of Ferrer presents an
`incurable conflict of interest that should disqualify both firms from participation in this
`case. Relying on Ethical Rule 1.9(a) of the Arizona Rules of Professional Conduct (Duties
`to Former Clients), the Government asserts that HCM and DWT have incurable conflicts
`of interest because (1) they previously represented Ferrer in substantially related matters,
`(2) Ferrer’s interests as their former client are materially adverse to the interests of their
`current clients, Lacey and Larkin, because Ferrer has pleaded guilty to criminal conduct
`related to his work at Backpage and is cooperating with the Government in its pursuit of
`criminal charges against other Backpage principals, including Lacey and Larkin,3 and (3)
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`2 Defendant Joye Vaught (“Vaught”) filed a joinder to Padilla’s response to the
`Government’s Motion directed at DWT (Doc. 178), and a joinder to Lacey’s and Larkin’s
`response to the Motion directed at HCM. (Doc. 186) Defendant John “Jed” Brunst
`(“Brunst”) filed a joinder to Lacey’s and HCM’s responses to the Motion directed at HCM,
`and a joinder to Padilla’s response to the Motion directed at DWT. (Doc. 181) Padilla
`filed a joinder to Lacey’s and HCM’s responses to the Motion directed at HCM, and a
`joinder to Lacey’s and Larkin’s response to the Motion directed at DWT. (Doc. 184)
`Lacey and Larkin filed separate joinders to Padilla’s response to the Motion directed at
`DWT. (Docs. 188, 190) Finally, Defendant Scott Spears (“Spears”) filed a joinder in
`Lacey’s and HCM’s responses to the Motion directed at HCM, a joinder to Lacey’s and
`Larkin’s response to the Motion directed at DWT, and a joinder in Padilla’s response to
`the Motion directed at DWT. (Doc. 191)
` The Government appears to use “Backpage” to refer generally to the website
`Backpage.com. (See Doc. 118 at 1–2, 6) The Government asserts that Lacey, Larkin, and
`Ferrer are the founders of the website Backpage.com, and then refers to their “work at
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 4 of 10
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`Ferrer has not given informed consent, confirmed in writing, to allow HCM and DWT to
`represent Lacey and Larkin. (Doc. 118 at 2, 8) The Government also argues that HCM’s
`and DWT’s continued representation of Lacey and Larkin in this matter would violate
`Ethical Rule 1.7(a)(2) of the Arizona Rules of Professional Conduct (Conflicts of Interest:
`Current Clients) because there is a significant risk that the firms’ representation of Lacey
`and Larkin would be materially limited by their responsibilities to their former client
`Ferrer. (Id. at 8–9)
`A.
`Applicable Standards
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`This Court applies the Arizona Rules of Professional Conduct to evaluate the
`conduct of attorneys admitted or authorized to practice before it and, therefore, the Court
`applies these rules to resolve the Government’s motion to disqualify.4 See LRCiv 83.2(e);
`Roosevelt Irrigation Dist. v. Salt River Project Agric. Improvement & Power Dist., 810 F.
`Supp. 2d 929, 944 (D. Ariz. 2011) (“this Court applies the Arizona ethical rules when
`evaluating motions to disqualify counsel.”) (citations omitted); Amparano v. ASARCO,
`Inc., 93 P.3d 1086, 1092 (Ariz. Ct. App. 2004) (courts have “looked to the ethical rules for
`guidance on disqualification motions.”).
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`The preamble to the Arizona ethical rules explains that the rules are designed to
`provide guidance to lawyers and a structure for regulating conduct, but cautions that “the
`purpose of the [r]ules can be subverted when they are invoked by opposing parties as
`procedural weapons.” Ariz. R. Sup. Ct 42, preamble at ¶ 20. In addition, the Arizona
`Supreme Court has stated that “[o]nly in extreme circumstances should a party to a lawsuit
`be allowed to interfere with the attorney-client relationship of his opponent.” Alexander v.
`Superior Court, 685 P.2d 1309, 1313 (Ariz. 1984). “The burden is on the moving party to
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`Backpage,” and “Backpage-related lawsuits.” (Id. at 2, 3) The Government also sets forth
`the factual basis from Ferrer’s plea agreement in United States v. Ferrer, CR 18-464-SPL,
`in which Ferrer stated,
`in part,
`that
`in 2004 he co-founded “the website
`www.Backpage.com (‘Backpage’), along with M.L [Michael Lacey] and J.L. [James
`Larkin.]” (Doc. 118 at 6)
` The Arizona Rules of Professional Conduct, also referred to as the Arizona ethical rules,
`are set forth in Rule 42 of the Rules of the Supreme Court and are cited by rule number and
`the abbreviation “ER.” See Ariz. R. Sup. Ct. 42.
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 5 of 10
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`show sufficient reason why an attorney should be disqualified from representing his [or
`her] client.” Id.
`Ethical Rule 1.9(a)—Duties to Former Clients
`1.
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`Ethical Rule 1.9(a) states that “[a] lawyer who has formerly represented a client in
`a matter shall not thereafter represent another person in the same or a substantially related
`matter in which that person’s interests are materially adverse to the interests of the former
`client unless the former client gives informed consent, confirmed in writing.” ER 1.9(a).
`For a conflict to exist pursuant to this provision, the moving party must show: (1) the
`existence of an attorney-client relationship; (2) that the former representation was “the
`same or substantially related” to the current litigation; and (3) that the current client’s
`interests are “materially adverse” to the former client’s interests. Roosevelt, 810 F. Supp.
`2d at 944 (citing Foulke v. Knuck, 784 P.2d 723, 726–27 (Ariz. Ct. App. 1989)).
`2.
`Ethical Rule 1.7(a)—Concurrent Conflicts of Interest
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`Ethical Rule 1.7(a)(2) states that “a lawyer shall not represent a client if the
`representation involves a concurrent conflict of interest. A concurrent conflict of interest
`exists if . . . there is a significant risk that the representation of one 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.” ER 1.7(a)(2). “Notwithstanding the
`existence of a concurrent conflict of interest . . . a lawyer may represent a client if each
`affected client gives informed consent, confirmed in writing.” ER 1.7(b). However, even
`with consent, concurrent conflicts are allowed only if “the lawyer reasonably believes that
`the lawyer will be able to provide competent and diligent representation to each affected
`client,” “the representation is not prohibited by law,” and “the representation does not
`involve the assertion of a claim by one client against another client represented by the same
`lawyer in the same litigation or other proceeding before a tribunal.” ER 1.7(b)(1)-(3).
`Thus, representation may be undertaken, despite the existence of a conflict, only if the
`conflict is “consentable.” Id.; Cmt 2 (2003 Amendments).
`///
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 6 of 10
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`The Joint Representation Agreement and Joint Defense Agreement
`B.
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`In response to the Motion, Lacey and Larkin argue that Ferrer previously waived
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`any right to seek disqualification of counsel or assert a conflict of interest against DWT
`pursuant to certain confidential joint representation and joint defense agreements. (Doc.
`180 at 12–13) Specifically, the Defendants argue that Ferrer was party to a Common
`Interest and Litigation Management Agreement (the “JRA”), or joint representation
`agreement, and a joint defense agreement (the “JDA”) in which Ferrer waived his right to
`seek disqualification of counsel in the event that he withdrew from either of the confidential
`agreements. (Doc. 180 at 13–14) The JRA was executed by Ferrer on behalf of several
`corporate entities including Backpage, and the JDA was executed by Ferrer and HCM
`attorneys on behalf of Ferrer, among other parties. Both the JRA and JDA were provided
`to the Court for in camera review.
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`The Ninth Circuit has long recognized that the joint defense privilege is “an
`extension of the attorney-client privilege,” and joint defense agreements allow parties with
`cohesive interests to share information without waiving confidentiality. United States v.
`Gonzalez, 669 F.3d 974, 978 (9th Cir. 2012). The “joint defense privilege” is designed to
`facilitate communication among joint parties regarding matters that are important to protect
`their interests in litigation. The concept of a joint defense is not technically a privilege in
`and of itself, but instead constitutes an exception to the rule on waiver where
`communications are disclosed to third parties. Continental Oil Co. v. United States, 330
`F.2d 347, 350 (9th Cir. 1964). A joint defense agreement can be written or oral, but joint
`defense agreements cannot extend greater protections than the legal privileges on which
`they rest. Stepney, 246 F. Supp. 2d 1069, 1079–80 (N.D. Cal. 2003).
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`Courts generally encourage parties to enter into written joint defense agreements
`that, under the advice of separate counsel, allow each defendant the opportunity to fully
`understand his rights prior to entering into the agreement. United States v. Almeida, 341
`F.3d 1318, 1327 (11th Cir. 2003); Stepney, 246 F. Supp. 2d at 1084–86. It is well settled
`that waivers of rights in joint defense agreements are valid to cure conflicts with the ethical
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 7 of 10
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`rules. Stepney, 246 F. Supp. 2d at 1085 (recognizing that waiver provisions are appropriate
`to avoid conflicts). Additionally, ER 1.10(c) provides that a disqualification prescribed by
`ER 1.9 may be waived by the impacted client under the conditions stated in ER 1.7. ER
`1.10(c). Ethical Rule 1.7 states that the affected client must give “informed consent,
`confirmed in writing” to waive a conflict of interest. ER 1.7(b). Informed consent “denotes
`the agreement by a person to a proposed course of conduct after the lawyer has
`communicated adequate information and explanation about the material risks of and
`reasonably available alternatives to the proposed course of conduct.” ER 1.0(e); See also
`Roosevelt, 810 F. Supp. 2d at 957 (citing ER 1.7 stating informed consent requires that
`each affected client be aware of the relevant circumstances and of the material and
`reasonably foreseeable ways that the conflict could have adverse effects on the interests of
`that client).
`The Court finds that the express terms of the JRA and JDA5 are fatal to the
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`Government’s argument for disqualification because the content of these agreements
`demonstrates that Ferrer waived his right to pursue disqualification against HCM, DWT,
`and other parties identified in these agreements. Both the JRA and the JDA anticipated
`circumstances in which a party to either agreement chose to withdraw. Without directly
`quoting the language of the JRA, it is clear to the Court that the plain language of the
`agreement prevents Ferrer from seeking disqualification of counsel based on any conflict
`arising out of the JRA. Similarly, by joining the JDA, the plain language of the agreement
`demonstrates that Ferrer waived his right to assert that any attorney party to the JDA is
`barred from continuing his or her representation under the agreement. Per the terms of the
`JDA, Ferrer waived his right to seek disqualification as to both HCM and DWT, which
`were both parties under the terms of the JDA.6 Ferrer executed the JRA and JDA in his
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`5 Importantly, the Government does not dispute the existence or validity of either
`agreement. (Doc. 193 at 7)
`6 The Court recognizes that neither Lacey (Doc. 174) nor HCM (Doc. 176) raised the issue
`of the JDA in their responses to the Motion in defense of HCM. However, the clear terms
`of the JDA demonstrate that HCM was party to the JDA along with DWT.
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 8 of 10
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`individual capacity and on behalf of Backpage when appropriate. It is undisputed that
`Ferrer signed the JDA under advice of counsel. (Doc. 193 at 8) Therefore, the Court finds
`that these agreements are valid and enforceable, and that Ferrer’s signatures demonstrate
`his intent to abide by the terms of these agreements.
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`The Government argues that the JRA and JDA are not controlling because the
`agreements were not signed by DWT. (Doc. 193 at 7) The Court finds that this argument
`is unavailing and irrelevant because Ferrer signed the agreements, and, per the terms of
`each agreement, Ferrer waived his right to seek to disqualify HCM and DWT or assert any
`future conflicts of interest. The Government has only provided the Court with precedent
`in which no joint defense agreements were present, save for a brief summary of the Henke
`case, making each case relied on in the Motion substantively distinguishable from the facts
`at issue. To cure this defect, the Government relies on U.S. v. Ross, a case inapplicable to
`circumstances involving a joint defense agreement, for the proposition that it is within the
`Court’s discretion to refuse to accept a conflict waiver where the interests of justice require.
`United States v. Ross, 33 F.3d 1507, 1524 (11th Cir. 1994) (stating that trial courts may
`refuse waivers of conflicts of interest to ensure adequacy of representation, to protect
`integrity of court, and to preserve trial judge’s interest to be free from future attacks over
`adequacy of waiver and fairness of trial). However, the Court declines to exercise its
`discretion to disregard Ferrer’s waiver at this time.
`
`The Court finds that Ferrer waived his right to seek disqualification of HCM and
`DWT or to assert any conflict of interest in this case. Pursuant to the terms of the JRA and
`the JDA, the Court finds that Ferrer has provided DWT and HCM with the written informed
`consent necessary for each firm to continue its participation as counsel. The Court is
`confident that allowing HCM and DWT to continue their participation in this case will not
`run afoul of the interests of justice, and Ferrer’s executed JRA and JDA provide the written
`informed consent necessary to satisfy ER 1.9(a) and ER 1.7(b).
`///
`///
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`C. Government’s Arguments in Support of Disqualification
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`The Court recognizes that it may be difficult for the Government to understand what
`it cannot see in how the terms of the JRA and the JDA distinguish this decision from the
`precedent and ethical opinions identified by the Government in the Motion. First, Arizona
`Ethics Opinion 91-5 focuses on how ER 1.9 should be used as a shield to protect a former
`client, but the opinion is silent on any situation in which said former client had expressly
`waived his right to challenge any continued or future adverse representation by counsel.
`Similarly, the Ross, Moscony, Williams, and Alfonzo-Reyes cases relied on by the
`Government are silent on the issue of waivers appearing in joint representation or joint
`defense agreements acting as blanket waivers of future conflicts. Instead, each of the cases
`cited by the Government reiterates the Court’s power to disregard a defendant’s knowing
`and intelligent conflict waiver. United States v. Ross, 33 F.3d 1507, 1524 (11th Cir. 1994);
`United States v. Moscony, 927 F.2d 742, 750 (3d Cir. 1991) (recognizing that the
`presumption in favor of a defendant’s counsel of choice can be overcome, and a trial court
`may disqualify counsel and reject the defendant’s waiver of conflict-free representation);
`United States v. Williams, 81 F.3d 1321, 1325 (4th Cir. 1996) (upholding a district court’s
`decision to disqualify a defendant’s choice of counsel due to conflict of interest); United
`States v. Alfonzo-Reyes, 592 F.3d 280, 294 (1st Cir. 2010) (stating that no conflict waiver
`actually occurred). The Court finds these cases unpersuasive.
`
`The Court does not find that allowing HCM and DWT to continue to participate in
`this case as auxillary counsel threatens the integrity of the trial process. The only case that
`the Government relies on that even mentions a joint defense agreement is the Henke case.
`United States v. Henke, 222 F.3d 633 (9th Cir. 2000). In Henke, a client withdrew from a
`joint defense agreement, and his counsel moved to withdraw from the case. Id. at 637. The
`Court denied counsel’s motion to withdraw, and counsel chose not to cross-examine its
`former client at trial. Id. The Henke decision addressed conflicts that require withdrawal
`of trial counsel. It did not address the issue of waiver under a joint defense agreement.
`Further, it has been made clear that neither HCM nor DWT will participate as trial counsel
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`Case 2:18-cr-00422-SPL Document 338 Filed 10/12/18 Page 10 of 10
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`in this matter, and both firms have stated that neither firm will participate in cross-
`examining Ferrer. (Doc. 176 at 11; Doc. 180 at 28) Thus, the Court finds that the Henke
`case is also unpersuasive for ordering disqualification.
`D.
`Conclusion
`
`At this time, the Court declines to decide whether the terms of Ferrer’s proffer
`agreement waived his personal attorney-client privilege. The Court also finds that the
`arguments advanced by Padilla are moot per the terms of this Order. Moving forward, the
`Court will rely on the representations of HCM, DWT, and their respective counsel that the
`firms will continue to preserve the confidences of Ferrer as a former client, create ethical
`walls where necessary, refrain from engaging in trial preparation or participating as trial
`counsel, and only participate in the limited capacity set forth in the pleadings, without an
`order from the Court. Accordingly,
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`IT IS ORDERED:
`That Government’s Motion to Disqualify Counsel (Doc. 118) is denied.
`
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`Dated this 12th day of October, 2018.
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`Honorable Steven P. Logan
`United States District Judge
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