Good Life Colorado, LLC v. WLCO, LLC.

2025 COA 8. No. 24CA0453. Attorneys and Clients—Colo. RPC 3.7(a)—Lawyer as Witness—Disqualification—Substantial Hardship Exception.

January 23, 2025

Good Life Colorado, LLC (Good Life) sued WLCO, LLC (WLCO) for violating the Colorado Organized Crime Control Act, cybercrime, and civil conspiracy, alleging that it had an exclusive contract to manufacture, possess, distribute, and sell Chooze-branded marijuana products in Colorado. Good Life also alleged that Chooze entered into a similar contract with WLCO; that Chooze improperly transferred a large inventory of finished marijuana products and raw materials to WLCO rather than to Good Life; and that Chooze and WLCO engaged in other wrongful acts to Good Life’s detriment. O’Malley was Good Life’s former part (50%) owner, president, and registered agent, and he signed Good Life’s complaint as its attorney and represented it in the litigation. Before filing this case, O’Malley transferred his interest in Good Life to his wife, who already owned the other 50% of Good Life, and she became Good Life’s president. The district court entered a default judgment against WLCO because it did not timely respond to Good Life’s complaint. Two months later, WLCO moved to set aside the default judgment, and the court granted the motion. WLCO then moved to disqualify O’Malley under Colo. RPC 3.7(a). The court disqualified O’Malley because his testimony was relevant, material, and critical to the case. The court ordered O’Malley to withdraw as Good Life’s counsel within 14 days and ordered Good Life to obtain new counsel to enter an appearance within 30 days. O’Malley ignored the disqualification order and persisted in representing Good Life in the case. The court ultimately found O’Malley in contempt for failure to comply with the court’s orders that he withdraw as Good Life’s counsel and awarded WLCO its reasonable costs and attorney fees incurred in connection with the contempt proceeding. On WLCO’s motion, the court also dismissed Good Life’s claims with prejudice.

O’Malley then moved to appear on behalf of Good Life to represent Good Life in “pre- and post-trial matters and appeals in the case.” O’Malley also argued that Good Life had not received timely notice of the dismissal motion, that the entry of the dismissal order had denied it due process, and that it needed O’Malley as its counsel. The court entered an order stating that it was taking no action on the motion to enter appearance. O’Malley continued to file motions on Good Life’s behalf. On March 20, 2024, the court denied Good Life’s motion to vacate the dismissal order, noting that O’Malley continued to file motions in a closed case in which he lacked permission to represent Good Life, and stating that O’Malley could not submit any additional filings on Good Life’s behalf without the court’s permission. The court awarded WLCO its attorney fees and costs incurred in responding to the motion to vacate the dismissal order. The court also stated that it was taking no action on Good Life’s motion to vacate the default judgment order and awarded WLCO its attorney fees and costs incurred in responding to that motion. O’Malley filed a notice of appeal on Good Life’s behalf on March 20, 2024, just minutes before the court entered the March 20 orders.

As an initial matter on appeal, WLCO argued that Good Life’s appeal of the disqualification order was untimely because that order was a final order with an appeal deadline of November 7, 2023. However, the disqualification order was not final and appealable because it did not finally dispose of the case and prevent further proceedings. And though WLCO also argued that Good Life’s appeal of the disqualification order failed because it did not refer to the disqualification order in its appeal notice, the listing of issues in such notice is advisory and does not prevent an appellant from arguing additional issues in the opening brief that were raised in the district court. Good Life’s notice of appeal was thus sufficient to allow its appeal of the disqualification order to proceed. But the court of appeals determined that Good Life did not preserve its arguments  (1) that disqualification was improper in the absence of prejudice to a stakeholder; or (2) that the court erred by disqualifying O’Malley from any further representation of Good Life in the case, rather than only disqualifying him from representing Good Life at a jury trial.

Good Life contended that Colo. RPC 3.7(a) only applies in cases that will be tried to a jury, so it does not apply in this case, which was set for a bench trial. Based on Rule 3.7(a)’s plain language, its comments, and out-of-state authorities, the court concluded that it applies to both jury and bench trials. Further, while courts have historically been cynical of motions to disqualify opposing counsel, WLCO did not file its disqualification motion to delay the case or as a tactic. And the court declined to consider whether the district court erred by applying Colo. RPC 3.7 to the non-trial portions of this case because, at the disqualification hearing, O’Malley did not argue (aside from asserting substantial hardship) that disqualification here would be inappropriate, and he did not ask the court to allow him to represent Good Life during pre- or post-trial proceedings even if he was disqualified from representing Good Life at trial.

Good Life also argued that the court misapplied Colo. RPC 3.7’s “substantial hardship” exception when it found that O’Malley’s disqualification would not be a substantial hardship for Good Life, because Good Life’s financial hardship was obvious. However, a lawyer who is a necessary witness cannot avoid disqualification under the substantial hardship exception where the lawyer offers the client favorable payment terms, which the client cannot get from another lawyer, because of the lawyer’s personal ties to the client. Further, other facts supporting O’Malley’s disqualification show that Good Life failed to demonstrate that O’Malley’s disqualification would cause it substantial hardship. Therefore, the court did not abuse its discretion by granting the disqualification motion.

Good Life further asserted that the court erred by denying the motion to vacate the dismissal order, arguing that the dismissal order was void because WLCO did not give Good Life the required due notice, WLCO was equitably estopped from seeking dismissal of Good Life’s claims, and WLCO failed to support the dismissal motion with sufficient facts or legal authority. The court of appeals initially concluded that CRCP 60(b) governed the motion to vacate the dismissal order. On the merits, WLCO served the dismissal motion on Good Life by mailing a copy to Good Life’s address as listed in Good Life’s complaint, so it was properly served with the motion to dismiss, and the dismissal order was not void for failure of notice. Second, Good life failed to cite a factual or legal basis for its equitable estoppel argument. And third, Good Life was not entitled to an order setting aside the dismissal order under CRCP 60(b), so the court did not err by denying the motion to vacate the dismissal order.

Good Life additionally contended that the court erred by not considering the motion to vacate the default judgment order. Good Life’s motion was in fact a motion for reconsideration because it explicitly asked the court to revisit its order granting WLCO’s motion to set aside the default judgment. Here, Good Life did not establish good cause for filing the motion to vacate the default judgment order beyond the 14-day deadline for submitting motions for reconsideration. Accordingly, the court did not abuse its discretion by denying the motion to vacate the default judgment order.

Lastly, the court declined to award attorney fees to either party, and it declined to award Good Life costs. However, the court determined that WLCO is entitled to an award of its costs incurred on appeal.

The disqualification order and the March 20 orders were affirmed.