Objective Standard Institute v. Barney et. al.

Plaintiff’s argument that AAA’s rules do not provide for adequate evidentiary safeguards at arbitration hearings also fails. AAA’s rules provide that the arbitrator shall “determine what evidence will be admitted, what evidence is relevant, and what evidence is material to the case,” and that “[f]ollowing the legal rules of evidence shall not be necessary.” (Plaintiff’s COE, Ex. 2, Rule 32.) As Defendants argue, such rules comply with the Code of Civil Procedure. (See Code Civ. Proc., § 1282.2(c), (d).) Plaintiff failed to show how these provisions render the arbitration agreement unconscionable.

Accordingly, Plaintiff failed to meet his burden of demonstrating substantive unconscionability.

The motion is thus GRANTED. The parties are ordered to arbitration pursuant to the terms and conditions of the arbitration clause contained in the Contract.

This entire matter is STAYED pending completion of arbitration.

A Status Conference re: Status of Arbitration is scheduled for September 4, 2026, at 2:00 p.m.

Defendants shall give notice. 4 Objective Before the Court is a motion to disqualify counsel filed by Standard plaintiff/cross-defendant Objective Standard Institute (Plaintiff or Institute v. OSI). Specifically, OSI seeks an order 1) disqualifying the Law Barney et. al. Offices of Day, Day & Brown (DDB) from continuing to represent defendants and/or cross-complainants Carl B. Barney (Barney), Prometheus Foundation (Prometheus), Center for Excellence in Higher Education (CEHE)(collectively, Defendants); and 2) requiring Defendants and DDB to turnover to OSI’s counsel and thereafter destroying all evidence of privilege communications and refrain from further dissemination and use of privileged communications. For the reasons set forth below, the motion is GRANTED.

As an initial matter, the Court recognizes Defendants filed substitutions of attorney replacing DDB with new counsel. OSI asks the Court to issue an order for disqualification to ensure DDB does not serve as counsel at a later date, based on DDB’s reservation of rights to do so. The Court finds the motion is not moot. The Court also notes that OSI has withdrawn its request for monetary sanctions.

The court has inherent power “to control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every manner pertaining thereto.” (Code Civ. Proc. § 128, subd.(a)(5).) This includes the power to disqualify counsel in appropriate cases. (In re Complex Asbestos Litig. (1991) 232 Cal. App. 3d 572, 585.) Deciding a motion to disqualify requires the court to weigh the following variables, including: 1) the party’s right to counsel of choice; 2) the attorney’s interest in representing a client; 3) the financial burden on a client of changing counsel; 4) any tactical abuse underlying a disqualification motion; and 5) the principle that

the fair resolution of disputes requires vigorous representation of parties by independent counsel. (Mills Land & Water Co. v. Golden West Refining Co. (1986) 186 Cal.App.3d 116, 126.) “The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar.” (People ex rel. Dep’t of Corps. v. SpeeDee Oil Change Sys., Inc. (1999) 20 Cal.4th 1135, 1145-1146.)

An attorney’s misuse of inadvertently disclosed privileged or confidential information may warrant disqualification. (See, e.g,. Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807, 819-820; McDermont Will & Emery LLP v. Superior Court (2017) 10 Cal.App.5th 1083, 1092; DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832.) The so-called “State Fund rule” governs an attorney’s duties upon receiving materials that appear to be privileged and/or confidential:

When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged.

(State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656–657 (“State Fund”); see also Cal. Rules Prof. Conduct, rule 4.4 [codifying the State Fund rule].) “The State Fund rule is an objective standard. In applying the rule, courts must consider whether reasonably competent counsel, knowing the circumstances of the litigation, would have concluded the materials were privileged, how much review was reasonably necessary to draw that conclusion, and when counsel's examination should have ended. [Citation.]” (Rico v. Mitsubishi Motors, supra, 42 Cal.4th at p. 818.)

The evidence shows two board members of OSI (the Biddles) obtained preliminary advice from counsel prior to the November 25, 2025 board meeting, the attorney-client privileged communications were disclosed at the board meeting at which Annie Vinther Sanz (Sanz) was present, Sanz subsequently disclosed those privileged communications to DDB, and DDB used the privileged information in this litigation. (Biddle Decl. ¶¶ 4-8, Ex. A; Haas Decl. ¶¶ 6-18; Dykstra Decl. ¶¶ 3-11.) The Court finds the Sanz declaration filed in federal court and in this Court contains attorney-client privileged communications.

The information was obviously privileged. Sanz declarations reference the OSI board agenda which included the subtopic “Legal Advice” alongside subtopics “Conflict with Carl,” and “Funds in Reserve.” Sanz declarations also reference OSI’s retention of legal counsel for purposes of suing Defendants. These facts that would put any reasonably competent attorney, knowing the circumstances of this litigation, on notice that the information is privileged. This is

particularly true since DDB admits having represented Prometheus from the time of the board meeting in November 2025 through the filing of the Sanz declarations.

Defendants argue that Sanz was not only a board member of OSI, but also an officer of defendant Prometheus, such that DDB as counsel for Prometheus was entitled to discuss with Sanz any matter directly affecting the client. There is no question, however, that Sanz attended the November 25, 2025 board meeting in her capacity as a member of OSI’s board and acquired the privileged information in that capacity – not as Prometheus’ officer. As such, she had a duty to keep this information confidential and not disclose this information to Defendants and DDB to use in litigation against OSI. (National Football League Properties, Inc. v. Superior Court (1998) 65 Cal.App.4th 100, 109-110; Guardian Storage Centers, LLC v. Simpson (2026) 119 Cal.App.5th 509, 527.)

Defendants’ argument that OSI waived the privilege by Biddle knowingly disclosing the information to Sanz at the board meeting, knowing that she is an officer of an adversary Prometheus is equally unpersuasive. “The power to waive the privilege rests with the Board, and the actions of an individual Board member alone cannot waive the privilege.” (Galli v. Pittsburg Unified School Dist. (N.D. Cal. 2010) 2010 WL 4315768 *4.) Moreover, the evidence shows board members discussed potential litigation against Barney and CEHE regarding the OSI Reserve Funds – not potential claims against Prometheus.

Nor does the Court buy Defendants’ argument OSI waived the privilege by filing written evidentiary objections in federal court. The evidentiary objections were based on the attorney-client privilege and work product, thereby showing non-consent. By its very nature, they cannot be construed as a waiver. (See Evid. Code § 912, subd. (a).) In fact, OSI has asserted the privilege throughout this litigation. The chronology of events show OSI acted consistently in seeking to protect the privilege.

In sum, the Court finds disqualification is warranted under the State Fund rule. All of the other factors, including Defendants’ choice of counsel, DDB’s interest in representing its client, financial burden on Defendants in changing counsel – are moot now that DDB no longer represents Defendants.

The Court therefore GRANTS the motion to disqualify DDB from this action. The Court further orders Defendants 1) to deliver all documents in their possession, custody and control (including documents held by Defendants’ current and prior counsel in this litigation), and thereafter destroy, all notes, recordings, or communications evidencing attorney-client privileged information obtained by Sanz in her capacity as a board member of OSI from November 25, 2025 to January 5, 2026; and 2) to refrain from disseminating or using such privileged information for any reason.

Counsel for Plaintiff shall give notice of this ruling.