Kristen Glaros Hanson, et al., Respondents,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A20-0157

Kristen Glaros Hanson, et al.,
Respondents,

Midwest Investment Services, LLC,
Respondent,

vs.

CBS Construction Services, Inc., et al.,
Appellants,

Brandon M. Schwartz, et al.,
Appellants.

Filed January 11, 2021
Affirmed in part and remanded
Ross, Judge

Hennepin County District Court
File No. 27-CV-19-15999

Charles M. Austins on, Timothy D. Johnson, Smith Jadin Johnson, PLLC, Bloomington,
Minnesota (for respondents Kristen Hanson, et al.)

Malcolm P. Terry, Rebecca F. Schiller, Bernick Lifson, PA, Minneapolis, Minnesota
(for respondent Midwest Investment Services, LLC)

Zachary A. Wiegand, Gold Leaf Estate Planning, LLC, Burnsville, Minnesota
(for appellants CBS Construction Services, Inc., et al.)

Brandon M. Schwartz, Michael D. Schwartz, Schwartz Law Firm, Oakdale, Minnesota;
(for appellants Brandon M. Schwartz, et al.)

Considered and decided by Ross, Presiding Judge; Florey, Judge; and Bryan, Judge.
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NONPRECEDENTIAL OPINION
ROSS, Judge
This case arises from a legal dispute in part between the two owners of a small
investment business. The plaintiff owner (Kristen Hanson ) has sued the defendant owner
(Stuart Bestul) as well as a corporation that he mostly owned and that employed her, raising
various legal and equitable theories premised generally on alleged d iscrimination and
self-dealing. In this appeal, we address only whether the district court rightly disqualified
Bestul’s attorney (Brandon Schwartz) from representing Bestul in this lawsuit because he
represented both of the now -disputing owners when they form ed the business. Attorney
Schwartz argues on appeal that Hanson waived her right to challenge his representation,
failed to offer proof that Schwartz represented her, and did not establish that any prior
representation was substantially related to the current lawsuit. We hold that the district
court did not clearly err in its findings that Hanson did not waive her right to challenge,
that Schwartz provided Hanson legal advice before telling her that he did not serve as her
attorney, that it was reasonable for Hanson to rely on the advice, and that the scope of
Schwartz’s previous representation was substantially related t o this lawsuit. The district
court therefore did not abuse its discretion by disqualifying Schwartz from representing
Bestul. But because the district court made no findings supporting its decision that
Schwartz also could not represent Bestul’s company th at employed Hanson, we remand
for additional findings.
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FACTS
Stuart Bestul, president of CBS Construction Services Inc., hired Kristen Hanson to
work for CBS in 2016. Hanson and Bestul then together founded Midwest Investment
Services LLC to construct at l east one senior- living complex , RSH. Bestul directed
attorney Brandon Schwartz to draft the formation documents for Midwest Investment .
Schwartz sent Bestul an email in April 2017 attaching the formation documents and a
consent form to resolve potential conflicts of interest arising from his representing both
Midwest Investment and CBS. Bestul forwarded Schwartz’s email to Hanson, referring to
Schwartz as “my attorney.”
The next month Schwartz, Bestul, and Hanson sp oke by telephone about Midwest
Investment. According to Schwartz , the conversation was brief and included him telling
Hanson that he did not represent her. Hanson maintains that the three instead had a long
and detailed conversation in which she divulged confidential information about the future
operations of Midwest Investment, corporate opportunities, deal financing , and
participants. The next day, Schwartz sent an email to both Bestul and Hanson but
addressing only Bestul, providing advice on completing a subscription agreement for
Midwest Investment to purchase equity in RSH.
Hanson sent Schwartz an email in July 2017 asking to see all of the documents
Schwartz prepared for Midwest Investment. Schwartz responded that he would provide the
Midwest Investment operating agreement once he had reviewed the documents with
Bestul. Schwartz later emailed Hanson the operating agreement , which included a
provision stating that S chwartz represented only Bestul and expressly disclaiming any
4
attorney-client relationship between Schwartz and Hanson. Hans on did not sign this
agreement and contends that her receiving it was the first occasion that Schwartz indicated
that he did not represent her.
Before receiving the agreement, in June 2017 Bestul and Hanson discussed Midwest
Investment investing in other opportunities, such as senior-living development MSH .
When Hanson asked Bestul about th at opportunity in October 2017, Bestul said that he
would not agree to Midwest Investment investing in it. But Hanson reported that, with
Schwartz’s help, Bestul formed a different company to invest in MSH without her.
Mediation and Suit
Hanson resigned from CBS in 2018 and initiated a sex-discrimination claim against
CBS by filing a complaint with the Minnesota Department of Human Rights . Hanson
withdrew that administrative complaint after mediation failed to resolve her claims, and
she sued Bestul and CBS in district court. Her civil suit frames so me of her claims
individually and some derivatively on behalf of Midwest Investment . Her 11-count civil
complaint rests on ten theories of liability , some against CBS, some against Bestul, and
some against both. She alleges specifically that CBS failed to pay wages and commissions,
violated the Minnesota Whistleblower Act, and discriminated against her. She alleges that
Bestul breached fiduciary duties, violated the member -managed company -rules statute,
and tortiously interfered with contractual and prospective economic relations. And she
alleges that both CBS and Bestul breached contracts with her or engaged in inequitable
conduct requiring damages for unjust enrichment and promissory estoppel . Schwartz
5
represented Bestul and CBS during the discrimination charge and continued to represent
both in this lawsuit.
Motion to Disqualify Schwartz
Hanson’s attorneys wrote to Schwartz four times between March and October 2019
asserting that his representation of CBS and Bestul may create a conflict of interest.
Schwartz disagreed. Hanson moved to disqualify Schwartz from represent ing Bestul and
CBS, contending that Schwartz’s conduct created an implied attorney -client relationship
with Hanson , that Hanson had shared confidential information with Schwartz, that
Schwartz provided Hanson with legal advice, and that Schwartz is a necessary witness for
the business-related claims. Bestul and CBS responded by moving the district court to
sanction Hanson for making a frivolous and untimely motion to disqualify Schwartz.
The district court assessed three different theories of attorney -client-relationship
formation: implied contract for services, tort, and third-party beneficiary. The district court
found no implied contract. But it found that an attorney-client relationship existed under
tort theory because , before Schwartz told Hanson he did not represent her, Bestul had
retained Schwartz to assist both him and Hanson in forming Midwest Investment, Schwartz
drafted a consent form on Hanson’s behalf, and Hanson and Schwartz spoke about Midwest
Investment during a May 2017 phone call. The district court found alternatively that an
attorney-client relationship existed under third-party-beneficiary theory because Schwartz
knew that Hanson, as a 50-percent owner of Midwest Investment, would benefit from the
company-formation documents, th e operating agreement, and the consent form. The
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district court also determined that the factual issues between the formation of Midwest
Investment and elements of the civil suit are substantially related . It granted Hanson’s
motion to disqualify Schwartz from representing Bestul or CBS and denied Bestul and
CBS’s motion for sanctions.
This appeal follows.
DECISION
Schwartz contests the district court’s disqualification determination on three
theories. He first contends that Hanson waived her right to se ek his disqualification. He
next argues that he never represented Hanson, or that, even if he did, his representation of
her is not substantially related to the ongoing lawsuit between Hanson, Bestul, and CBS.
And he argues that, even if he is disqualified from representing Bestul, he should be
allowed to continue representing CBS. For the reasons that follow, we are unconvinced by
Schwartz’s contentions with respect to Bestul.
I

Schwartz maintains that Hanson waived her right to seek his disqualification
because she waited more than 600 days after learning of Schwartz’s representation before
she moved to disqualify him. We uphold a district court’s factual findings regarding
waiving the right to seek to disqualify counsel unless they are clearly erroneous. See State
ex rel. Swanson v. 3M Co., 845 N.W.2d 808, 8 19 (Minn. 2014); Prod. Credit Ass’n of
Mankato v. Buckentin , 410 N.W.2d 820, 822 (Minn. 1987) (“While this court has never
specifically enunci ated the review standard to be employed by appellate courts in
reviewing dispositions of motions seeking attorney disqualification, we assume that
7
normally the ‘clearly erroneous ’ standard will be applied in reviewing strictly factual
findings.”). Schwartz, as the party asserting waiver, bears the burden of establishing that
waiver occurred . See Swanson, 845 N.W.2d at 819. A party may waive the right to
disqualify counsel. Id. A valid waiver involves both knowledge of the right to be waived
and the intent to waive it. Id. Waiver might be inferred from the circumstances, including
the length of the delay before the party brought the motion, whether counsel represented
the movant during the delay period, and the reason the party delayed bringing the motion.
Id. Because the record includes at least three instances that suggest that Hanson repeatedly
protested Schwartz’s involvement, we are satisfied that t he record supports the district
court’s finding that Hanson intended to dispute Schwartz’s representation of CBS and
Bestul rather than to waive the challenge.
The first protest occurred early on in the formal dispute. After Schwartz responded
to Hanson’s January 2019 discrimination charge with the Minnesota Department of Human
Rights, Hanson contested his involvement by letter in March 2019 . Hanson then referred
to this letter by email in April and June 2019, repeating the challenge. And after Schwartz
denied having a conflict of interest , Hanson sent Schwartz a meet -and-confer email in
October 2019 about his pu rported conflict of interest. See Minn. R. Gen. Prac. 115.10
(requiring parties to confer to attempt to resolve an issue before bringing a motion). After
her protests failed to convince Bestul or CBS to seek different counsel, in October 2019
Hanson moved formally to disqualify Schwartz . We conclude that t he record contains a
sufficient factual basis for the district court to conclude that Hanson did not intend to waive
her right to contest Schwartz’s participation.
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Schwartz’s related arguments are unpersua sive. He suggests that Hanson lost the
right to contest his representation because she participated in mediation w hile Schwartz
represented both Bestul and CBS without conditioning her participation on the right to
disqualify Schwartz. But Schwartz cites no authority for the suggestion. A party who
merely asserts error without citing authority waives the argument unless prejudicial error
is apparent. Schoepke v. Alexander Smith & Sons Carpet Co., 187 N.W.2d 133, 135 (Minn.
1971). Prejudicial error is not a pparent because we are aware of no law establishing that
an employee who participates in an administrative dispute-resolution proceeding with her
allegedly discriminating employer abandons t he right to raise a conflict- of-interest
challenge in litigation p roceedings. Schwartz also contends that Hanson did not have to
wait until commencing the lawsuit to seek his disqualification because she could have filed
a declaratory-judgment action earlier. Schwartz cites no circumstance where that sort of
declaratory judgment proceeding has occurred, let alone authority establishing that a party
must follow that approach.
II

We next consider Schwartz’s contention that he never represented Hanson and that,
if he did, he did not represent her for the same or substantially related matter. We review
the district court’s decision of whether to disqualify coun sel for an abuse of discretion,
which occurs when the district court bases its decision on a legal misinterpretation or when
its decision is contrary to the record. See Swanson, 845 N.W.2d at 816. We also review a
district court’s factual findings underlying the disqualification of an attorney for clear error.
Prod. Credit Ass’n of Mankato, 410 N.W.2d at 822. An attorney may not represent a party
9
against a former client “in the same or a substantially related matter.” Minn. R. P rof.
Conduct 1.9(a). Hanson had the burden of proving that a prior attorney-client relationship
existed with Schwartz, that Bestul’s interests are materially adverse to Hanson’s, and that
the present lawsuit is substantially related to a matter for which Schwartz represented
Bestul. See Swanson, 845 N.W.2d at 816. Before we address whether the record supports
the district court’s findings, we respond to a preliminary contention.
Schwartz contends that the district court made no findings of fact at all on these
issues or any other issue. The argument is not compelling. The district court directly asked
both parties whether an evidentiary hearing was necessary to resolve the factual differences
between the parties’ contrasting affidavits on the matter of disqualification. Both parties
maintained that no hearing was necessary. Having rejected the express offer for an
evidentiary hearing, the parties essentially invited the district court to weigh the evidence
and resolve credibility disputes on the basis of the competing affidavits and arguments
alone. It is true that the district court’s memorandum captions its factual section under the
heading “background” rather than “factual findings,” but this does not hinder our review
or support Schwartz’s contention. In that section, the district court recognized that the
parties had submitted contrasting affidavits, and it analyzed email exchange s between
Schwartz, Bestul, and Hanso n and examined corporation documents that Schwartz
prepared. Based on its review of the submitted documents and the parties’ arguments, i t
concluded tha t Schwartz never informed Hanson that he did not represent her before
sending her the July 2017 operating agreement. Despite the label, the “background” section
and the corresponding statements framed as conclusion s represent findings of fact. It is
10
now axiomatic that “a fact found by the [district] court . . . will be treated upon appeal as a
finding of fact” even if the fact is expressed under some other heading. Graphic Arts Educ.
Found., Inc. v. State , 59 N.W.2d 841, 844 ( Minn. 1953). And the finding implies a
credibility determination that Hanson, not Schwartz, accurately recounted the contents of
the May 2017 phone call. We defer to this credibility determination, Sefkow v. Sefkow ,
427 N.W.2d 203, 210 (Minn. 1988), and the determination can be implicit. See Pechovnik
v. Pechovnik, 765 N.W.2d 94, 99 (Minn. App. 2009). Having invited the district court to
render its decision without an evidentiary hearing and having failed to persuade us that the
district court made no factual findings, we reject Schwartz’s procedural contention.
We have no difficulty concluding that the district court did not clearly err in the key
findings about the prior relationship. Although the record contains contrary affidavit
testimony that might also support c ontrary findings, it supports the several findings
essential to the district court’s decision. The affidavit testimony supports the findings that
Schwartz provided Hanson legal advice before informing her that he did not serve as her
attorney and that it was reasonable for Hanson to rely on this advice . And it supports the
determination that the scope of Schwartz’s previous representation of Hanson substantially
related to the lawsuit.
Attorney-Client Relationship under Tort Theory

One basis for the district court’s decision was that Schwartz had a client relationship
with Hanson under a tort theory. An attorney-client relationship arises under any of three
theories: contract, tort, or third-party beneficiary. See Admiral Merchs. Motor Freight, Inc.
v. O ’Connor & Hannan , 494 N.W.2d 261, 265– 66 (Minn. 1992) . An attorney-client
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relationship arises under tort theory if a person seeks and receives legal advice “which a
reasonable person would rely on.” Pine Island Farmers Coop v. Erstad & Riemer, P.A.,
649 N.W.2d 444, 448 (Minn. 2002). “[W]hether an attorney’s advice could be relied upon
to establish an attorney-client relationship is a question of fact.” In re Disciplinary Action
against Severson, 860 N.W.2d 658, 666 (Minn. 2015). For the reasons we have already
discussed, the record supports the district court’s finding here.
The record supports the conclusion that Hanson sought legal advice from Schwartz.
Hanson and Schwartz discussed Midwest Investment during the May 2017 telephone call,
and Hanson asked Schwartz in July 2017 to send her all of the documents Schwartz had
prepared “regarding the joint business partnership” of Midwest Investment. The record also
supports the district court’s finding that Schwartz provided Hanson with legal advice
before the July 2017 operating-agreement disclaimer, notwithstanding Schwartz’s contrary
factual contention. Schwartz included Hanson on three emails in which he provided legal
advice about the formation and organization of Midwest Investment without telling Hanson
that he did not represent her. Schwartz also spoke with Hanson during the May 2017 phone
call regarding “details pertaining to [Midwest Investment]” without disclaiming his legal
representation or expressly limiting it to Bestul.
The record also supports the finding that, because Schwartz did not disclaim his
legal representation of Hanson until July 2017, it was reasonable for Hanson to rely on
legal advice from Schwartz. She owned half of Midwest Investment and Schwartz was
tasked with creating the legal documentation to formalize it. Again, given our deferential
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review of fact ual findings and the competing testimony here, we have no difficulty
affirming the finding that Hanson reasonably relied on legal advice that Schwartz provided.
We are not persuaded otherwise by Schwartz’s reliance on TJD Dissolution Corp.
v. Savoie Supply Co., Inc., 460 N.W.2d 59, 62 (Minn. 1990). In TJD, the supreme court
determined that tort-theory attorney-client relationships do not derive from circumstances
“where the lawyer represented a client known by the plaintiff to have interests adverse to
the plaintiff, where the lawyer’s allegiance to the adverse party was clearly evident, [and]
where the lawyer advised the plaintiff to retain his own counsel.” Id. at 62. This case does
not fit the TJD rule. Hanson and Bestul were equal owners of Midwest Investment, giving
Hanson the reasonable belief that Schwartz’s legal efforts to create and organize the
company served her and Bestul equally. Schwartz contends that Bestul’s email references
to “my attorney” disabused Hanson of the notion that Schwartz might owe any allegiance
to her. But this is a factual matter and, as the district court observed, Hanson’s knowledge
of Bestul and Schwartz’s prior rela tionship at most creates some ambiguity about
Schwartz’s representation. That Schwartz was Bestul’s attorney did not foreclose the idea
that he was also serving as Hanson’s attorney in a matter in which Bestul and Hanson had
shared interests. And the email and phone communications occurred before Schwartz
informed Hanson that he did not represent her. TJD does not undermine the district court’s
findings.
Schwartz presents a related argument, but it too misses the mark. He contends that
Hanson has not shown that she actually relied on any of his advice and therefore does not
meet the Pine Island reasonable-reliance standard. But the test is framed as an objective
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one; to establish representation under tort theory, the putative client must identify advice
that a reasonable person would rely on, not advice that the putative client did rely on. Pine
Island, 649 N.W.2d at 448. Because the record supports the district court’s findings that
Hanson sought and received legal advice and its legal conclusion that a reasonable person
would have relied on the advice, we hold that tort theory supports the conclusion that an
attorney-client relationship existed between Schwartz and Hanson.
Substantial Relationship to Present Suit

Schwartz contends that the documents he drafted to form Midwest Investment, the
consent agreement, and the subscription agreement for Midwest Investment to invest in
RSH, are not substantially related to the current litigation . He bases the argument on the
idea that Hanson’s claims do not raise an issue about Midwest Investment’s formation or
its investment in RSH. We review for an abuse of discretion the district court’s conclusions
about whether t he circumstances re late to a potential overlap in representation. See
Swanson, 845 N.W.2d at 816. And we will conclude that matters are substantially related
“if they involve the same transaction or legal dispute or if there otherwise is a substantial
risk that confidential factual information as would normally have been obtained in the prior
representation would materially advance the client ’s position in the subsequent matter .”
Minn. R. Prof. Conduct 1.9, cmt. 3. The record supports the district court’s determination
that Schwartz’s involvement with forming and organizing Midwest Investment is
substantially related to Hanson’s current lawsuit.
The district court found that Schwartz drafted Midwest Investment ’s formation
documents and operating agreement, both of which reflected the scope and purpose of the
14
company. Hanson’s lawsuit alleges, among oth er things, that Bestul’s conduct after
formation undermined that purpose and usurped Hanson’s business opportunity. The
district court also found that Schwartz was privy to Midwest Investment’s other
development opportunities and aided Bestul in forming a different company that potentially
competed with Midwest Investment concerning those opportunities. Midwest Investment’s
operating agreement identifies Midwest Investment’s purpose as “investment in real estate
and construction projects ,” and Hanson’s current suit asserts that Hanson, Bestul, and
Schwartz discussed the potential for Midwest Investment “to invest in RSH and other
senior living facilities and projects.” The interaction between client and counsel to form
Midwest Investment and any interaction between Bestul and Schwartz to form the
company allegedly to compete against Hanson’s interests are substantially related to each
other. For our purposes, nothing in the record so undermines the reasonable conclusion that
they are substantially related so as to justify reversing the district court’s conclusion.
We do not suggest in affirming the district court that we believe Schwartz acted
unethically. Nor do we believe that the facts supporting the finding of an attorney -client
relationship between Hanson and Schwartz are any more than barely sufficient to support
the district court’s finding. But caselaw directs us to tilt toward protecting a party against
even apparent conflicts of interest. Nat ’l Texture Corp. v. Hymes , 282 N.W.2d 890, 895
(Minn. 1979). We do so based on the findings here.
III

Schwartz distinguishes between his representation of Bestul and that of CBS and
argues that the district court failed to say why he should be disqualified from representing
15
CBS. Because the district court made no factual findings and offered no analysis of why
Schwartz cannot represent CBS, we will not speculate about the rationale. We do not
suggest that the conclusion is in error, but we remand to allow the district court to iss ue
relevant findings and provide its reasoning. We do so disagreeing with Hanson’s contention
that Schwartz waived this issue by failing to raise it in the district court, because the record
reveals that Schwartz did contest the disqualification motion as to his representation of
CBS and Bestul in his opposing memorandum.
IV

We need not address Schwartz’s concern that the district court failed to justify its
legal conclusion that, because Schwartz drafted the incorporation documents and is listed
as the registered agent, he represents Midwest Investment. We do observe that an attorney
other than Schwartz has filed an appearance on behalf of Midwest Investment in this
litigation. But because the appropriateness of Schwartz ’s representation of Midwest
Investment appears to be irrelevant to the issues raised on appeal, we do not address it.
Affirmed in part and remanded.