In Re SummerMoon Holdings LLC v. the State of Texas

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-26-00148-CV

In re SummerMoon Holdings LLC

ORIGINAL PROCEEDING FROM TRAVIS COUNTY

MEMORANDUM OPINION

Relator filed its petition for writ of mandamus and emergency motion for stay on

February 10, 2026. On February 17, 2026, we granted the motion for stay. The petition for writ

of mandamus is denied. See Tex. R. App. P. 52.8(a). The stay issued on February 17, 2026

is lifted.

__________________________________________
Karin Crump, Justice

Before Chief Justice Byrne, Justices Theofanis and Crump
Dissenting Opinion by Justice Theofanis

Filed: May 8, 2026

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-26-00148-CV

In re SummerMoon Holdings LLC

ORIGINAL PROCEEDING FROM TRAVIS COUNTY

DISSENTING OPINION

I respectfully dissent. Because I would conclude that Cleveland Krist’s dual

representation of SummerMoon Holdings and one of its former officers does not require Cleveland

Krist to take conflicting positions or a position that risks harming one of its two clients in this

derivative suit brought by minority member CTen, and that even if it did, CTen has not shown that

it will suffer prejudice absent disqualification, I would conditionally grant mandamus relief.

“Disqualification of counsel is a severe remedy that can result in significant

expense to clients, disrupt the orderly progress of litigation, and deprive a party of the counsel of

its choice.” In re Murrin Bros. 1885, Ltd., 603 S.W.3d 53, 57 (Tex. 2019) (orig. proceeding).

While courts may look to disciplinary rules to “provide helpful guidance” and “suggest the relevant

considerations” when deciding disqualification issues, the rules do not determine whether counsel

is disqualified. Id. “Ultimately, a court ‘must consider all the facts and circumstances to determine

whether the interests of justice require disqualification.’” Id. (quoting In re Meador, 968 S.W.2d 346,

350 (Tex. 1998) (orig. proceeding)). Even if a movant establishes a violation of disciplinary rules,

the movant must also show that it will suffer prejudice if the disqualification is not granted. Id.
And the trial court must consider the extent to which the nonmovant will suffer prejudice from the

disqualification of its counsel, including the financial burden of obtaining substitute counsel that

is not already familiar with the case, the denial of the nonmovant’s right to be represented by

counsel of its choice, and “the potential for tactical abuse by the party seeking disqualification.”

Id. (quoting In re RSR Corp., 568 S.W.3d 663, 666 (Tex. 2019) (orig. proceeding) (per curiam)).

Cleveland Krist represents SummerMoon Holdings’ position in this suit, which is

directed by its majority member, Coffee Unplugged. In representing SummerMoon Holdings

against CTen’s direct and derivative claims, Cleveland Krist represents the majority member’s

position regarding the company’s strategy, operations, and growth plans, as carried out by its

officers, including its former CEO, Sarah McKown. In its motion for disqualification, CTen

argued that Cleveland Krist violated Texas Disciplinary Rules of Professional Conduct 1.06(a) and

(b), maintaining that SummerMoon Holdings’ interests are “materially and directly adverse to

McKown’s interests” based on the claims CTen asserts, both directly and derivatively, against

McKown. See Tex. Disciplinary Rules Prof’l Conduct R. 1.06(a) (prohibiting lawyers from

“represent[ing] opposing parties to the same litigation”), id. R. 1.06(b) (prohibiting lawyers from

representing client if such representation “involves a substantially related matter in which that

person’s interests are materially and directly adverse to the interests of another client of the lawyer

or the lawyer’s firm”).

In my view, CTen’s claims against McKown do not compel Cleveland Krist to

“espouse adverse positions” in its dual representation of SummerMoon Holdings and McKown.

SummerMoon Holdings’ position in this derivative suit—at least its majority member’s position—

is consistent with McKown’s. That logically follows, since CTen’s lawsuit generally takes issue

with the Coffee Unplugged-ownership faction’s business direction as carried out by the company’s

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officers. See In re Murrin Bros., 603 S.W.3d at 59 (noting “practical approach” of some courts is

“reasoning that the interests of the company and its controlling officers or directors are often

aligned, and separate counsel is not necessary unless a divergence of those interests arise”). In

other words, there is no factual dispute about the circumstances leading to this lawsuit—only

SummerMoon Holdings’ two ownership factions’ differing opinions about which business

decisions should or should not have been made and the effect of those decisions on SummerMoon

Holdings’ business. CTen’s pleadings and briefing acknowledge the alignment of McKown’s and

SummerMoon Holdings’ defense, in which—at least until the merits of the derivative claims are

assessed—SummerMoon Holdings’ position is directed by its majority member, Coffee

Unplugged. See id. at 58 (“The resistance of the company’s usual decisionmakers to the minority

shareholder’s claims is what causes derivative litigation in the first place.”). And CTen has not

alleged that McKown’s purported misconduct deviated from the direction of the Coffee

Unplugged-controlled board—only that she took actions consistent with that direction to which

CTen objects. Thus, I cannot conclude that Cleveland Krist’s dual representation of SummerMoon

Holdings and McKown violates the disciplinary rules by requiring it to take conflicting positions

or taking a position that risks harming one of its clients.

Even if CTen had established a violation of disciplinary rules, mandamus relief

would be appropriate for another reason: because CTen has not shown that it will suffer prejudice

if the disqualification is not granted. See id. at 57. “Because disqualification is a severe remedy

that can ‘result in immediate and palpable harm, disrupt trial court proceedings, and deprive a party

of the right to have counsel of choice,’” the movant must also demonstrate that the attorney’s

conduct caused actual prejudice requiring disqualification before disqualifying an attorney based

on a violation of the disciplinary rules. In re Zaidi, --- S.W.3d ----, ----, No. 24-0245, at *3 (Tex.

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Apr. 10, 2026) (orig. proceeding) (quoting In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex. 2002)

(orig. proceeding)). In its motion, CTen argued that “CTen would be prejudiced in the jury trial

by a perception that [SummerMoon Holdings] is opposed to the relief sought by CTen, when in

reality the relief sought by CTen is sought for, and in the best interests of, [SummerMoon

Holdings].” But this argument again merely highlights the fundamental nature of the derivative

suit, in which “both sides will claim to be aligned with the company and acting on its behalf,” and

“the side with which the company is truly aligned can be determined only through resolution of

the merits of each side’s respective claims.” In re Heiser, 711 S.W.3d 775, 782 (Tex. App.—Austin

2025, orig. proceeding). And it underscores the parties’ disagreement on the derivative claims’

merits, as CTen’s claims reflect its ownership faction’s dissatisfaction with the business decisions

regarding SummerMoon Holdings’ governance, which it carried out through its officers and

directors. In the context of a disqualification motion, this is insufficient to establish prejudice: “A

jury is unlikely to have any problem identifying the two ownership groups and their counsel. It is

unclear why a jury would need to be told anything at all about the question of which lawyers have

authority to represent the company itself.” In re Murrin Bros., 603 S.W.3d at 60.

Further, CTen argued that absent disqualification, SummerMoon Holdings “would

continue to be deprived of independent counsel,” contending that if SummerMoon Holdings “had

independent counsel, it may well have otherwise vigorously pursued claims against McKown.”

But this argument again assumes that CTen will prevail on the merits of its derivative suit. Whether

SummerMoon Holdings is represented by Cleveland Krist or other counsel, there is no indication

from the record in this proceeding that SummerMoon Holdings’ position on the merits would

change, particularly given that Coffee Unplugged and the other individual defendants in this

lawsuit are represented by separate counsel and have opposed CTen’s motion to disqualify.

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In its response to this mandamus petition, CTen further argues that prejudice to

SummerMoon Holdings is “presumed” based on an “irrebuttable presumption” that Cleveland

Krist shared confidential information with McKown. But for that to be true, CTen would have had

to show that Cleveland Krist possessed confidential information belonging to SummerMoon

Holdings that prejudiced CTen. See id. (“No showing was made that [the law firm] possessed

confidential information belonging to [the company] that prejudiced the [derivative plaintiff] and

could not have otherwise been obtained from the [other defendant].”). It did not. Instead, by citing

cases not involving derivative claims, CTen generally refers to the presumption that Cleveland

Krist has shared SummerMoon Holdings’ confidential information with McKown since her March

2025 resignation and contends that SummerMoon Holdings has been presumably prejudiced by

this disclosure. But because CTen cannot establish prejudice for disqualification purposes by

pointing to purported prejudice to SummerMoon Holdings, this argument is inapposite. See id.

Disqualification is especially harsh here given the prejudice that SummerMoon

Holdings faces once Cleveland Krist is disqualified, particularly in terms of its “financial burden

of obtaining substitute counsel that is not already familiar with the case.” Id. at 57. One of CTen’s

members testified that he estimated that SummerMoon Holdings has paid Cleveland Krist over

$300,000 for its defense work in this litigation since October 2024. This proceeding and its harsh

outcome for SummerMoon Holdings highlights the potential for disqualification to be used as a

strategic “dilatory trial tactic” and encourages derivative-suit plaintiffs to sue individual

defendants to increase litigation expenses, deprive the company of its chosen counsel, or both.

See id.

“Disqualification is a severe remedy,” and “courts must adhere to an

exacting standard when considering motions to disqualify[.]” Spears v. Fourth Ct. of Appeals,

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797 S.W.2d 654, 656 (Tex. 1990). Because in my view, CTen did not establish with specificity a

violation of the disciplinary rules and show that it will suffer prejudice if disqualification is not

granted, I do not think that CTen met its burden to establish its entitlement to disqualify

SummerMoon Holdings’ counsel. See id.; In re Murrin Bros., 603 S.W.3d at 57. I would

therefore conclude that the trial court clearly abused its discretion by granting CTen’s motion to

disqualify Cleveland Krist as SummerMoon Holdings’ counsel and that SummerMoon Holdings

has no adequate remedy by appeal. Since I would conditionally grant mandamus relief,

I respectfully dissent.

__________________________________________
Rosa Lopez Theofanis, Justice

Before Chief Justice Byrne, Justices Theofanis and Crump

Filed: May 8, 2026

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