2000 Ethics Roundup
Last year's court decisions affecting legal ethics clarified the duties of lawyers to clients and nonclients alike
By Ellen R. Peck
Ellen R. Peck, a former State Bar Court judge, is a sole practitioner in Escondido. She is a member and past chair of the Association's Committee on Professional Responsibility and Ethics and the current chair of the State Bar Committee on Professional Responsibility and Conduct. Peck is a former ethics counsel to the State Bar and the American Bar Association.
If the law governing lawyers in California were charted on a map, the common law fiduciary duties of lawyers would outline the map's borders, and the State Bar Act and California's Rules of Professional Conduct would appear as highways through the landscape. The map would reveal major wilderness areas still unmarked by rules and case law, with scant clues on avoiding ethical quicksand and few if any guideposts showing the way to safe harbors. In 2000, however, a number of California decisions regarding the professional responsibilities of lawyers paved new roadways through the map's interior. This recently marked territory includes the courts' continuing clarifications on the scope, breadth, and limits of lawyers' duties to clients, former clients, and third parties.
One question that the California Supreme Court faced in 2000 is whether lawyers owe duties to unrepresented adverse parties. The Rules of Professional Conduct and other professional standards are silent; however, in 1999, a court of appeal ruled that if a party to a premarital agreement was unrepresented by independent counsel and ineffectively waived counsel, the voluntariness of the agreement must be subjected to strict judicial scrutiny. The court, in In re Marriage of Bonds, set forth the disclosures that attorneys have a duty to provide to an unrepresented adversary:
Counsel, at a minimum, must explain to the unrepresented party (1) that the attorney's responsibility is to pursue and protect only the interests of his or her client; (2) that spousal interests are probably not identical and are likely to conflict; (3) that the spouses' interests will change over time and the attorney will not be concerned with providing for all the changed circumstances that could possibly impact the unrepresented spouse; and (4) that signing this agreement will eliminate or modify his or her statutory rights.1
Many attorneys breathed a sigh of relief last year when this ruling did not stand. The California Supreme Court reversed the court of appeal in Marriage of Bonds2 and declined to articulate any duties that California lawyers might owe to their unrepresented adversaries. Although the supreme court specifically refused to delineate "the extent, if any, of counsel's duty to an unrepresented party to the agreement," the court observed that frequently the "best assurance" of the enforceability of an agreement is to have both sides represented by independent counsel.3 The supreme court also outlined a procedure for client disclosure and consent that would achieve the goal of enforceability:
After discussing the matter with his or her client, an attorney may convey such information to the other party as will assist in having the agreement upheld, as long as he or she does not violate the duty of loyalty to the client or undertake to represent both parties without an appropriate waiver of the conflict of interest.4
In Moeller v. Superior Court,5 a 1997 case, the California Supreme Court held that a lawyer representing a trust had a duty to reveal the confidential information of a previous trustee acting in his or her official capacity to a successor trustee, unless the trust instrument provided otherwise or the lawyer was representing the prior trustee in a personal capacity. Whether an attorney for a trust also has a duty to disclose attorney-client privileged information to the beneficiaries of a trust arose last year in Wells Fargo Bank, N.A. v. Superior Court (Boltwood).6 In Boltwood, the supreme court affirmed the court of appeal's vacating of a superior court order requiring a trustee to produce to the beneficiary privileged documents as well as documents the lawyers claimed were subject to work product protection.7
In Boltwood, Rosa Couch and Wells Fargo Bank became cotrustees after the death of William A. Couch, who had established the Couch Living Trust in October 1991. In late 1994 litigation between beneficiaries Vickie Boltwood and her children (the Boltwoods) and the cotrustees ensued. The Boltwoods alleged that the trustees distributed less money to the Boltwoods than requested and failed to sell real property despite the Boltwoods' objections. The Boltwoods further alleged that Rosa Couch removed money and jewelry from a safe deposit box.8
In responding to the Boltwoods' requested document production, Wells Fargo produced documents that contained confidential communications with its attorneys on the subject of trust administration but asserted attorney-client privilege over documents containing attorney communications about the Boltwoods' claims of misconduct. Wells Fargo's outside counsel for trust administration issues claimed the work product doctrine as protection for other documents.
The supreme court rejected the Boltwoods' claim that Wells Fargo's duties as a trustee to report to the beneficiaries should take precedence over its right to claim the attorney-client privilege about communications concerning a trustee's liability. The court reasoned that the attorney-client privilege is not only "fundamental to…the proper functioning of our judicial system" but it is also necessary to "promote broader public interests in the observance of law and administration of justice." The court also noted that the legislature did not express a clear intent in the relevant statutes9 that the trustee's duties to report to the beneficiaries included the disclosure of privileged attorney-client communications. Observing that a majority of jurisdictions outside of California have given the trustee's reporting duties precedence over the attorney-client privilege, the supreme court distinguished its ruling 1) on the grounds that the court's powers to rule adversely to the legislature's statutory intent are distinct from decisions based upon a common law privilege, and 2) by rejecting the notion that the attorney-client privilege is an "obstacle" to the truth-finding process or that disclosure should be paramount to the privilege.10 Using similar reasoning, the court also held that beneficiaries cannot discover attorney-trustee communications concerning trust administration.11
The supreme court rejected outright the Boltwoods' claims that Moeller created rights of inspection that should be extended to beneficiaries of trusts, since the rights under Moeller are limited to the holders of the attorney-client privilege, which beneficiaries are not in most cases. The Boltwood court ruled that beneficiaries of a trust, as a general rule, are not joint clients of the trustee's attorneys.12 The court further ruled that if a party discloses privileged attorney-client information due to an honest mistake of law—particularly when the law is unsettled—the disclosure does not waive the privilege regarding nondisclosed privileged information and "offers a possible basis for relief taken in connection with pretrial discovery."13
The supreme court also affirmed the court of appeal reversal of the trial court ruling requiring the production of attorney work product. It held that work product not communicated to the client should not be produced and directed the trial court to conduct an in camera inspection of communicated work product to determine whether it is protected from disclosure because it was communicated in confidence.14
In 1992, the Ninth Circuit Court of Appeals held in FDIC v. O'Melveny & Myers15 that in the "high specialty field" of securities offerings, counsel has an automatic duty to "make a 'reasonable, independent investigation to detect and correct false or misleading materials.'"16 Since FDIC, lawyers had been left in the wilderness as to whether they have a general duty to investigate their corporate clients "to detect and correct false or misleading materials." Last year, in Loyd v. Paine Webber, Inc.,17 the Ninth Circuit clarified that generally attorneys representing corporate clients do not have an automatic duty to conduct their own investigation into whether their clients are involved in fraudulent conduct.
In Loyd, seven individuals acquired First Assurance Casualty Company, Ltd. one year after it was incorporated offshore and then directed the company to sell insurance policies in California. The California Department of Insurance (DOI), which regulates offshore insurance companies, requires proof of sufficient capital to pay potential claims and the maintenance of a trust account in the United States and may, under certain circumstances, prohibit in-state insurance brokers from selling or promoting the offshore company's policies.18
The seven individuals diverted policy premiums into their personal accounts and permitted the company to pay policyholders' claims only when those claims were small or if a government complaint was threatened. A Paine Webber account manager, retained to manage the required trust account, prepared reports attesting to the company's financial viability and compliance with California law, even though the account manager knew that the company was virtually insolvent.
Aguilar & Sebastinelli, a law firm that represented the company in state regulatory matters, successfully challenged a DOI cease-and-desist order in March 1991, thereby enabling the company to continue to sell policies and collect premiums. Paine Webber's false report regarding the worth of the company's securities was allegedly communicated directly to a firm attorney who, in reliance on its accuracy, transferred the requested information to the DOI.19
In 1994, after the DOI obtained another cease-and-desist order, the company filed bankruptcy. Loyd, the company's bankruptcy trustee and liquidator, sued Aguilar & Sebastinelli for legal malpractice, alleging that the firm failed to prevent the individuals in the company from conducting a fraudulent insurance scheme. Loyd alleged that the law firm relied upon faulty reports provided by Paine Webber and transmitted those documents to the DOI. Loyd further alleged that in the past the firm represented alien insurance companies that were run by con men. Loyd argued that these allegations supported an inference that the firm "turned a blind eye to insider misconduct" and "should have known that the company was being looted."20
The Ninth Circuit reversed the district court's dismissal of Loyd's suit—a dismissal that was based upon the company's lack of standing to bring suit at the time of bankruptcy since it was a sham corporation with no identity separate from its shareholders. Noting that standing to sue is met by proof of injury in fact, causation, and redressability, the Ninth Circuit found all elements present (redressability was not disputed). The court reasoned that a corporation, as a distinct entity from its shareholders, can be injured even if its "sole purpose is to serve as an engine of fraud for its shareholders"—and the company in question was harmed because its insolvency was extended, thereby increasing its separate liability. The court also observed that the causation element was met by the law firm's alleged negligent conduct in helping the company to continue to operate. Since the company had standing to sue, Loyd, as trustee, had standing to assert the company's claims that existed prior to bankruptcy.21
Nevertheless, the court affirmed the district court's dismissal of the action on the ground that the complaint failed to state a claim for legal malpractice, since no duty element was present.22 Without allegations that the firm knew or should have known that Paine Webber's reports were fraudulent or that the firm was aware of other facts suggesting that the company was acting illegally, Loyd's allegations did not support any inference that the firm ignored insider misconduct or that it should have known that the company was being looted.23 The court declined to impose a duty based upon FDIC, reasoning that the duty to make an independent investigation in the securities field was dependent on the firm's assisting in a public offering. A firm's assistance in the production of documents suggests the financial soundness of its client to an investing public. The court declined to find that "as a general matter, an attorney who represents corporate clients has an automatic duty to independently investigate whether its clients are engaging in fraudulent conduct."24
In McDermott, Will & Emery v. Superior Court (James),25 the court of appeal did not follow the lead of other jurisdictions in permitting shareholder derivative actions for legal malpractice against a corporation's outside counsel. McDermott, Will & Emery served as outside legal counsel for a nonprofit parent company of Bakersfield Memorial Hospital. Five shareholders of the parent sued the parent, the hospital, and others over an affiliation agreement between the hospital and Mercy Healthcare Bakersfield. During the pendency of this action, the five shareholders also sued the McDermott firm for legal malpractice, alleging negligence and misconduct for the law firm's part in bringing the affiliation agreement to fruition.26
The court of appeal granted a peremptory writ vacating the trial court's denial of the McDermott firm's motion for judgment on the pleadings.27 While the appellate court rejected the McDermott firm's argument that a derivative action against outside counsel constituted an assignment of a legal malpractice action in violation of California law, it held that a shareholder derivative action against a corporation's outside counsel, in the absence of a corporation's waiver of privilege, cannot proceed. The court reasoned that shareholders have no access to privileged corporate attorney-client material and are not holders of the privilege. A shareholder's legal malpractice action against outside counsel does not waive the privilege and in the absence of a corporate waiver of the privilege, counsel would be prohibited from mounting a defense.28
|Exploring Familiar Territory|
Not all of last year's cases involving the law of lawyers were groundbreaking. Several, however, made a contribution toward the resolution of significant issues faced by attorneys in their practices.
Conduct United States (Harris) v.Talao: The Ninth Circuit reversed a finding by a district court that an assistant U.S. attorney violated Rule 2-100 of the Rules of Professional Conduct by engaging in communications with a corporation's bookkeeper, whom the corporation's attorney claimed to represent. The bookkeeper initiated the contact, stated that she did not want to be represented by the corporation's attorney, and asserted that the corporation and its attorney were attempting to prevent her from testifying truthfully.1
Confidentiality Mylan Laboratories v. Soon-Shiong: In a suit by a minority shareholder, a trial court denied a former corporate director's motions to intervene and preclude the use of an allegedly privileged document. The court of appeal held that the trial court properly denied these motions and directed the trial court on remand to resolve the work product issues that the parties had raised in their briefs. Among these issues is whether a lawyer must be personally present to assert the doctrine or whether the client may do so if the lawyer decides not to assert the doctrine after receiving notice of the hearing.2
Conflict of Interest Colyer v. Smith: A deputy sheriff and a sheriff's association brought an action against the county sheriff and other county officials claiming that the sheriff's department had retaliated against the deputy because of the deputy's testimony in a hearing involving another deputy sheriff. The district court held that the plaintiffs did not have standing to move for the disqualification of defense counsel.3
First Interstate Bank of Arizona N.A. v. Murphy, Weir & Butler: A law firm was sued for malpractice by several clients whom the firm represented as secured creditors in a chapter 11 case. The claim was based on the fact that the law firm hired a law clerk who had been working for the bankruptcy judge presiding over the clients' chapter 11 case. An ethics wall was not properly implemented. The judge recused herself, and a different judge ruled adversely to the clients. The Ninth Circuit held that local counsel for the creditors had no duty to inform their lead counsel, or the debtor, or the bankruptcy judge that the judge's law clerk had accepted an offer of employment with the local counsel's firm because the judge had that duty. The court also found that the law firm was not entitled to indemnification.4
Gulf Insurance Company v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone: The court of appeal reversed a trial court grant of summary judgment in favor of a law firm, the defendant in a legal malpractice and breach of contract action brought by an insurer for companies that offered and administered legal services plans. The court concluded the insurer had standing to sue the law firm because 1) the law firm had an attorney-client relationship with both the insurer and its insured companies, and 2) there was no conflict of interest arising from a dual representation, which would have barred the insurer from bringing the legal malpractice claim. The court also held that the law firm had failed to meet its burden of demonstrating the absence of the causation element.5
Legal Malpractice and Competence California State Automobile Association Inter-Insurance Bureau v. Parichan, Renberg, Crossman & Harvey: An insurance company sued the law firm it had retained to represent its insured in a personal injury case stemming from an automobile accident. The insurance company claimed that the law firm had exposed the insurance company to the risk of a bad faith action by the company's insured by failing to forward a critical medical report necessary to evaluate a policy limits demand. In its ruling, the court of appeal found that when causation and damages did not arise from the attorney's negligent prosecution or defense of the client's claim but rather from the client's exposure to another risk, the case-within-a-case rule did not apply. Thus the court found another exception to the case-within-a-case rule for establishing causation and damages.6
| ||Channel Lumber Company Inc. v. Porter Simon: In a landlord-tenant action, a corporate landlord retained outside counsel and lost the case. Following an unsuccessful legal malpractice action brought by the corporation against its former lawyer, the trial court ordered the corporation to indemnify counsel for expenses and attorney's fees incurred in the legal malpractice defense. The court of appeal reversed and held that Corporations Code Section 317 does not apply to the indemnification of outside counsel for its expenses in defending a legal malpractice action brought by a corporation. A legal malpractice action seeks recovery against an attorney for his or her independent acts in the capacity of an independent contractor—not for the acts of counsel that are deemed to be those of the corporation itself, for which indemnity may be awarded.7|
Sanctions, Fees, and Other Miscellany In re Berg: The Ninth Circuit held that unprofessional conduct sanctions imposed upon a debtor-attorney fell within the government regulatory exemption and were therefore not subject to an automatic stay in a bankruptcy proceeding.8
Lang v. Hochman: Code of Civil Procedure Section 473 provides relief from default or dismissal of an action when the losing party's attorney files an affidavit "attesting to his or her mistake, inadvertence, surprise or neglect" in causing the default or dismissal. The court of appeal held that Section 473 is available only when the injured party is "totally innocent of any wrongdoing."9
In re Meronk: The U.S. Bankruptcy Court for the Central District of California awarded a bonus fee to a law firm serving as special counsel for a group of chapter 7 debtors. The bonus fee was awarded in addition to the firm's full hourly rate because the firm created a "surplus" estate due to its success in settling the debtors' claims. On appeal, the Bankruptcy Appellate Panel for the Ninth Circuit reversed, because 1) the stringent standards justifying a bonus fee above the firm's hourly rates were not met by a "surplus" (defined as enough assets to pay in full all creditors and distribute funds to the debtors), and 2) a law firm is judicially estopped from seeking a bonus if the firm had insisted upon an hourly rate and refused a contingency fee.10
Paciulan v. Kruse: The appellants sued the California Supreme Court and the State Bar of California challenging the constitutionality of California Rule of Court 983 regulating pro hac vice admission of out-of-state attorneys. The Ninth Circuit upheld the district court's dismissal of the complaint, finding no merit to the constitutional challenges to Rule 983 based upon the privileges and immunities clause, the First Amendment, or the Fourteenth Amendment due process clause.11
In re Poole: In a bankruptcy proceeding, the Bankruptcy Appellate Panel affirmed a trial court ruling that a bankruptcy attorney who was properly admitted to practice in the federal district court in which the attorney was appearing but was not admitted to the state bar in the state in which the district court was situated was an "attorney" as defined under the Bankruptcy Code and was therefore eligible to receive attorney's fees.12
PLCM Group, Inc. v. Drexler: A corporation's subsidiary prevailed in a contract action, and the trial court awarded attorney's fees of $61,500 for the work of the corporation's in-house counsel. The court of appeal affirmed. The California Supreme Court granted review and held that a corporation represented by in-house counsel may recover attorney's fees under Civil Code Section 1717, which provides for an award of reasonable attorney's fees to the prevailing party in a suit based on a contract providing for a fee award. The court held that the calculation generally should be based on the number of hours expended by counsel multiplied by the prevailing market rate for comparable legal services in the community in which the counsel is located. The court also rejected the so-called cost-plus approach—which is based on a precise calculation of the actual salary, costs, and overhead of in-house counsel—and thus disapproved of San Dieguito Partnership v. San Dieguito River Valley Regional Open Space Park Joint Powers Authority.13—E.R.P
1 United States (Harris) v. Talao, 222 F. 3d 1133, 6 Wage & Hour Cas. 2d (BNA) 502 (9th Cir. 2000).
2 Mylan Labs. v. Soon-Shiong, 76 Cal. App. 4th 71, 90 Cal. Rptr. 2d 111 (1999).
3 Colyer v. Smith, 50 F. Supp. 2d 966 (C.D. Cal. 1999).
4 First Interstate Bank of Arizona N.A. v. Murphy, Weir & Butler, 210 F. 3d 983 (9th Cir. 2000).
5 Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 79 Cal. App. 4th 114, 93 Cal. Rptr. 2d 534 (2000), rev. den., May 17, 2000.
6 California State Auto. Ass'n Inter-Ins. Bureau v. Parichan, Renberg, Crossman & Harvey, 84 Cal. App. 4th 702, 101 Cal. Rptr. 2d 72 (2000).
7 Channel Lumber Co. Inc. v. Porter Simon, 78 Cal. App. 4th 1222, 93 Cal. Rptr. 2d 482 (2000).
8 In re Berg, 230 F. 3d 1165 (9th Cir. 2000).
9 Lang v. Hochman, 77 Cal. App. 4th 1225, 92 Cal. Rptr. 2d 322 (2000).
10 In re Meronk, 249 B.R. 208, 36 Bankr. Ct. Dec. (LRP) 55, 4 Cal. Bankr. Ct. Rep. 60 (B.A.P. 9th Cir. 2000).
11 Paciulan v. Kruse, 229 F. 3d 1226 (9th Cir. 2000).
12 In re Poole, 222 F. 3d 618, 4 Cal. Bankr. Ct. Rep. 48 (9th Cir. B.A.P. 2000).
13 PLCM Group, Inc. v. Drexler, 22 Cal. 4th 1084, 95 Cal. Rptr. 2d 198 (2000); San Dieguito P'ship v. San Dieguito River Valley Reg'l Open Space Park Joint Powers Auth., 61 Cal. App. 4th 910, 72 Cal. Rptr. 2d 91 (1998).
A Single Special Appearance
When a lawyer makes a court appearance as a courtesy for a friend or colleague, is the lawyer the attorney-of-record's agent or does the lawyer acquire duties to the client inherent in an attorney-client relationship? In Streit v. Covington & Crowe,29 the court of appeal definitively answered this question, holding that an attorney who made a single special appearance for a client on a summary judgment motion had an attorney-client relationship with that client and owed the client a duty of care.
In Streit, the Diggs law corporation represented Yvonne L. Streit in two actions, including a cross-action. Covington & Crowe, as a professional courtesy to the Diggs firm, made a special appearance with Streit in lieu of the Diggs firm at a hearing on a motion for summary judgment. Covington & Crowe was not formally associated as Streit's counsel and did not participate in any advice or recommendations to her. Presumably, Streit's case did not go well, and she thereafter sued the Diggs firm and Covington & Crowe for legal malpractice. The trial court granted Covington & Crowe's summary judgment motion on the ground that the firm did not represent Streit at the summary judgment hearing. The court of appeal reversed.30
The court rejected Covington & Crowe's argument that the firm owed Streit no duty because no attorney-client relationship arose from a single appearance without a formal association on behalf of the Diggs firm. The court reasoned that an implied attorney-client relationship is created by an association of counsel for a particular case—even when the association consists of a single special appearance. The court distinguished the technical definition of a "special appearance"—an appearance by one attorney at a hearing for the limited purpose of challenging an assertion of personal jurisdiction over a party—from the more common definition: an appearance by one attorney at a hearing with or without compensation at the request and in place of the attorney of record.31 According to the Streit court, an attorney who makes a court appearance on behalf of a party creates a presumption that he or she is representing the interests of that party rather than the interests of the attorney of record, who has no interest as a party in the case. It concluded that an attorney making a special appearance represents the client's interest and thus creates an attorney-client relationship.32
The silver lining in this cloud of bad news is that the court indicated that its conclusion that Covington & Crowe owed a duty to Streit did not resolve the legal malpractice issue. The case was remanded to a trial court for a determination of "the precise scope of that duty," including the details of the engagement of the specially appearing counsel and the nature of the instructions retained counsel gave to the specially appearing counsel.33 This language implies that limitations on the scope of duty might extinguish the duty element altogether.
Streit was the most talked-about "lawyer law" case last year, and its scope was somewhat misunderstood. Streit does not hold that a specially appearing lawyer is liable for legal malpractice; the holding is limited to the issue of duty, the first element of legal malpractice. The court did not decide whether the legal malpractice plaintiff could or would meet the other requisite elements of legal malpractice, which require that the plaintiff prove that the specially appearing lawyer breached a duty and that the breach caused the plaintiff actual loss. Indeed, the decision implies that even the duty element may be affected by limits on the scope of an engagement and by the instructions of the attorney of record limiting the scope of the role of the specially appearing counsel. Also, even if a specially appearing lawyer becomes a joint tortfeasor, and in some cases ultimately may be jointly and severally liable, Streit does not suggest that the specially appearing lawyer has any vicarious liability for the conduct of the attorney of record.
Streit serves as an alert to the risk of potential legal malpractice claims from the clients on whose behalf attorneys appear. For some attorneys, the risk may be too great to continue to specially appear on behalf of friends and colleagues without limiting the scope of engagement or limiting special appearances to nondispositive matters and ensuring that the attorney of record for whom the appearance is made has appropriate financial responsibility.
Ethics Walls and Disqualification
When can a law firm employing a former judge rebut the presumption of shared confidences by using an ethics wall to prevent disqualification? Until last year's decision in In re County of Los Angeles (Forsyth),34 this issue was uncharted territory. In the Forsyth case, attorney Stephen Yagman represented James Forsyth in his police brutality lawsuit against Los Angeles County, deputy sheriff Scott Hogland, and others. Five years prior to Forsyth, Joseph Reichmann, Yagman's partner and a retired U.S. magistrate, presided over settlement negotiations in another police brutality case. During the settlement conference, Reichmann had private and confidential ex parte conferences with defense counsel. The defendants in Forsyth moved to disqualify Yagman's firm on the grounds that Yagman, through Reichmann, had confidential information substantially related to the Forsyth case. In opposition to the disqualification motion, Yagman presented evidence that he had built an ethics wall around Reichmann prior to Reichmann's joining the firm. Yagman removed all the files pertaining to the Forsyth case from his office and took them to his home and instructed the firm's only other lawyer, Marion Yagman, not to discuss the case with Reichmann.35
The Ninth Circuit affirmed the district court denial of the disqualification motion. It held that a firm's vicarious disqualification is not automatic even when a member of the firm is personally disqualified because of prior service as a settlement judge in settlement negotiations that were substantially related (but not identical) to the firm's current representation—as long as timely and effective screening mechanisms had been erected.36
In reaching its conclusion, the court reasoned that when the current and prior cases involve different parties and/or different incidents, disqualification of the former judge and his law firm is appropriate only if the two cases are "substantially factually related." If there is a reasonable probability that confidences were disclosed in an earlier representation that could be used against the client in a later, adverse representation, a substantial relation between the two cases is presumed. This analysis requires a careful comparison between the factual circumstances and legal theories of the two cases.
However, the Ninth Circuit further held that timely and effective screening mechanisms will rebut the presumption that a former judge's confidential information is imputed to other members of the firm. It concluded that since the ethics wall adopted by the Yagman firm was being scrupulously enforced and there was no reasonable possibility that confidential information would leak to Yagman from Reichmann, or vice versa, there was no basis for the disqualification of the Yagman firm.37
While the Ninth Circuit was careful to permit an ethics screening device that was consistent with previous California case law that allowed screening for former government employees, the court called for a change in policy on disqualification:
The changing realities of law practice call for a more functional approach to disqualification than in the past. In resolving this case, we take our cue from the California Supreme Court's recent indication38 that it may be inclined to follow the path taken by other federal courts [to permit timely and effective ethics walls to rebut presumptive disqualification].39
Last year, a federal district court in California explored other circumstances in which an ethics wall can rebut the presumption that confidential information about an adverse party is imputed to fellow members of a firm. In San Gabriel Basin Water Quality Authority v. Aerojet-General Corporation,40 the authority sued Aerojet-General, a rocket fuel manufacturer, to recover the costs of cleaning up groundwater contamination. Aerojet moved to disqualify the authority's lawyers. Prior to the authority's lawsuit, Aerojet had been under a consent decree to remediate its contamination of groundwater in Sacramento. Aerojet and its insurers (including Lloyd's of London) engaged in litigation over payments for Aerojet's defense. One of the associates in the firm representing the San Gabriel authority had represented Lloyd's against Aerojet during the associate's tenure at another firm. In the course of this previous litigation, the insurers, including Lloyd's, over Aerojet's bitter objections, obtained confidential information concerning issues that were subject to a court order of confidentiality. Thus the associate received or was otherwise exposed to information that Aerojet claimed to be privileged.41
When the firm representing the authority learned that Aerojet was alleging a conflict because of the exposure of the firm's associate to claimed privileged material, the firm 1) screened the associate from all the authority's matters, including the Aerojet litigation, 2) informed the associate that he was not to discuss with anyone in the firm any information received from Aerojet, 3) labeled all the authority's files and the drawers in which they were kept with the following phrase in capital and bold letters: "Confidential. Do Not Disclose to [the associate]," and 4) informed every member of the firm, including staff and new hires, that they were precluded from communicating with the associate about the present litigation or his activities in the prior Aerojet litigation.42
The district court declined to disqualify the authority's firm.43 First, it observed that Aerojet's disclosure of information pursuant to Civil Code Section 2860 did not convert Aerojet into a client. Since Aerojet was never the associate's or his firm's client, Rule 3-310(E) of the Rules of Professional Conduct was inapplicable. Second, the court noted that an attorney's simple exposure to confidential and privileged information does not compel, as a matter of law, the disqualification of that attorney and his or her associates. The court concluded that disqualification was not warranted because 1) the associate was required by Civil Code Section 2860 and a protective order to maintain the confidentiality of the information to which he was exposed, 2) the firm had erected an ethics wall to prohibit dissemination of the information within the firm, and 3) disqualification of the firm would be unduly harsh and excessive.44 The court also refused to disqualify the firm even though three of its partners had previously been employed by the law firm that represented Aerojet. The court reasoned that even though the partners' prior firm had given advice concerning groundwater contamination remediation, none of the three partners had ever worked on any Aerojet matter during their previous employment and they did not acquire Aerojet's confidential information while working at the prior firm.45
A few of last year's cases, such as McDermott and Loyd, provide some protection for attorneys, while cases such as Streit create challenges for attorneys who assist their colleagues through special appearances. Still other cases, such as Forsyth and San Gabriel Basin Water Quality Authority, highlight potential new ways of managing conflicts of interest. Each of these cases has explored previously uncertain ground, enabling lawyers to serve the public more knowledgeably and to manage the risk of liability.
1 In re Marriage of Bonds, 24 Cal. 4th 1, 6, 11-12, 99 Cal. Rptr. 2d 252 (2000). For a full account of the Bonds case, see Dennis Wasser, Prenuptial Disagreements, Los Angeles Lawyer, Dec. 2000, at 26, 28-29.
3 Id. at 30-31.
4 Id. at 31.
5 Moeller v. Superior Court, 16 Cal. 4th 124, 1130-35, 69 Cal. Rptr. 2d 317 (1997).
6 Wells Fargo Bank, N.A. v. Superior Court (Boltwood), 22 Cal. 4th 201, 91 Cal. Rptr. 2d 716 (2000).
7 Id. at 206, 214.
8 Id. at 204.
9 Prob. Code §§16060-61.
10 Boltwood, 22 Cal. 4th at 206-09.
11 Id. at 209-11, 212-13.
12 Id. at 209.
13 Id. at 212-13.
14 Id. at 214-15.
15 FDIC v. O'Melveny & Myers, 969 F. 2d 744 (9th Cir. 1992), rev'd on other grounds, O'Melveny & Myers v. FDIC, 512 U.S. 79, 114 S. Ct. 2048, 129 L. Ed. 2d 67 (1994), reaff'd on remand, FDIC v. O'Melveny & Myers, 61 F. 3d 17, 19 (9th Cir. 1995).
16 Id. at 749 (quoting Felts v. National Account Sys. Ass'n, Inc., 469 F. Supp. 54, 67 (N.D. Miss. 1978)).
17 Loyd v. Paine Webber, Inc., 208 F. 3d 755, 759-60 (9th Cir. 2000).
18 Id. at 757.
19 Id. at 757, 759.
20 Id. at 757-58, 759.
21 Id. at 758.
22 Id. at 758-60.
23 Id. at 759-60.
24 Id. at 760.
25 McDermott, Will & Emery v. Superior Court (James), 83 Cal. App. 4th 378, 99 Cal. Rptr. 2d 622 (2000).
26 Id. at 380-81.
27 Id. at 385.
28 Id. at 382-85.
29 Streit v. Covington & Crowe, 82 Cal. App. 4th 441, 98 Cal. Rptr. 2d 193 (2000).
30 Id. at 443-44.
31 Id. at 444-45.
32 Id. at 446.
33 Id. at 447.
34 In re County of Los Angeles (Forsyth), 223 F. 3d 990 (9th Cir. 2000).
35 Id. at 992, 996.
36 Id. at 992, 997.
37 Id. at 996-97.
38 People ex rel. Dep't of Corps. v. Speedee Oil Change Sys., Inc., 20 Cal. 4th 1135, 1151-52, 86 Cal. Rptr. 2d 816 (1999).
39 Forsyth, 223 F. 3d at 997.
40 San Gabriel Basin Water Quality Auth. v. Aerojet-General Corp., 105 F. Supp. 2d 1095, 1098, 1100 (C.D. Cal. 2000).
41 Id. at 1098-1101.
42 Id. at 1098-99.
43 Id. at 1101.
44 Id. at 1101-03.
45 Id. at 1103-07.
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