Conflicts and Firm Disqualification without Evidence of Shared Confidential Information
LACBA Update, May 2006
By Roderick W. Leonard, in private practice, member and former chair of LACBA's Professional Responsibility and Ethics Committee, and a past member and former chair of the State Bar's Committee on Professional Responsibility and Conduct. The opinions expressed are his own.
The Fifth Appellate District of the California Court of Appeal recently addressed "an issue of first impression involving attorney disqualification." At issue was "whether the firm representing one party must be disqualified when it associates as counsel an attorney who previously obtained confidential information from the opposing party, even in the absence of any evidence that confidential information was shared between the firm and the associated counsel." (Ralston M. Pound III et al. v. DeMera DeMera Cameron (2005) 135 Cal. App.4th 70, 73.) The appellate court reversed a trial court order denying the motion to disqualify and awarded costs to the defendants.
Plaintiffs in the Pound case were shareholders in DDC, an accountancy corporation. In deciding to terminate their relationship with DDC and establish their own firm, plaintiffs intended to retain some of the DDC accounts. The resulting breakup triggered a lawsuit. Two controlling DDC shareholders were named as defendants and wanted to hire their own counsel. Smith, the lawyer representing DDC, agreed to assist in the attorney search for the two shareholders. In that process, Smith talked with Bradley for about an hour. During the interview, Smith discussed with Bradley the specifics of the lawsuit including topics that were attorney work product. Bradley was not hired to represent the two controlling DDC shareholders.
Jones represented plaintiffs from the inception of the lawsuit. Three years after Bradley interviewed with Smith, Bradley "briefly discussed the case" with Jones. Apparently, Bradley did not tell Jones any facts or legal issues learned from Smith or learned from any other source, for the Pound opinion points out that Bradley "believes no facts were discussed beyond what one could learn from the pleadings," and the primary purpose that Jones and Bradley met was to discuss Bradley's expertise and experience. (Id.) A week after that meeting, Jones approached Bradley about associating as counsel in the case. On learning of Bradley's association, DDC immediately moved to disqualify both Bradley and Jones. Jones denied receiving any privileged information from Bradley. DDC argued that the mere possibility of receiving such information was sufficient to disqualify Jones.
DDC appealed from an order denying a motion to disqualify counsel for plaintiffs. The trial court had concluded that Bradley must be disqualified because he had consulted with defendant's counsel three years before being contacted by Jones. However, the court ruled further that Jones need not be disqualified because Bradley had not provided any confidential information to Jones. The appellate court reversed, stating that "[w]e conclude that once the trial court determined Bradley received confidential information from DDC, the disqualification of Jones also was required." (Id.)
The appellate court in Pound, citing Flatt v. Superior Court (1994) 9 Cal.4th 275, 283-284, applied the "substantial relationship test," which provides that where a substantial relationship is demonstrated between the subjects of the antecedent and current representations, access by the attorney in the course of the first representation to confidential information that is relevant to the second representation is presumed, disqualification of attorney's representation of the second client is mandatory, and the disqualification extends vicariously to the entire firm. (Id. at 76.)
The appellate court turned for authority to Henriksen v. Great American Savings & Loan (1992) 11 Cal. App.4th 109, which it found to be "directly on point" in respect to disqualification of Jones. (Id.) In Henriksen, the firm with the tainted attorney constructed an "ethical wall," yet vicarious disqualification of the entire firm was compelled as a matter of law.1 (Id. at 77.) The appellate court in Pound found that no ethical wall had been attempted in the case before it.2
The Pound opinion also pointed out that "[People ex rel. Dept. of Corporations v.] SpeeDee Oil [Change Systems, Inc. (1999) 20 Cal.4th 1135] establishes that the need to maintain client confidences requires disqualification of a firm when one of the attorneys in the firm has confidential information of the adverse party." (Id. at 78.)3
While the Pound case does leave the door slightly ajar for the possibility of protection with an ethical wall where a conflict occurs by stating that the opinion does not concern itself with an ethical wall consideration as none was established in the case, (Id. at 77), it also may begin to close the door on ethical wall protection with an implication in the opinion that disqualification of the firm may be required even if the firm erects an ethical wall around the tainted attorney.4
So, what is to be learned from this opinion?
First, the Pound opinion points out and may therefore link conflicts disqualification with California Rule of Professional Conduct 3-310(E),5 which requires that an attorney who has obtained confidential information material to the employment obtain the client's or former client's informed written consent before accepting employment averse to the client or former client. An attorney should be warned that disqualification and violation of the disciplinary rule are not necessarily stand-alone concepts.
Second, an "ethical wall" is not necessarily impregnable to disqualification, and its collapse may leave not only the attorney but also the law firm disqualified from the representation.
Third, it does not matter whether the tainted attorney is an associate, of counsel, or a partner in the firm. If the substantial relationship test is met, both the firm and the tainted attorney may fall to disqualification.6
Therefore, in "purchasing" the services of an attorney who has been connected, based on the substantial relationship test, with the adverse party, the "buying" attorney must beware the possibility of acquiring not only individual disqualification but also vicarious firm disqualification.
1 The Pound opinion states, "In reaching its conclusion, the appellate court [in Henriksen] rejected the use of an ethical wall to isolate the new hire." (Id. at 77.)
2 The Pound opinion states, "We need not concern ourselves with ethical wall considerations. There was no ethical wall attempted in this case. Indeed, the very purpose Bradley was hired by plaintiff was to assist in the trial of the case." (Id.)
3 It should be noted, however, that the SpeeDee Oil opinion also points out that "none of the [attorney] firm's declarations suggest that it instituted any formal ethical screen to prevent even inadvertent disclosures after the problem became known." (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., supra, at 1152 n. 5.) The California Supreme Court therefore may leave open the efficacy of an ethical wall under certain circumstances to prevent vicarious firm disqualification.
4 The Pound opinion states, "If disqualification of the firm is required, even if the firm erects an ethical wall around the attorney who possesses the opponent's confidences, it is impossible to conceive a justification for not disqualifying Jones when he consulted with Bradley...." (Id.)
5 The Pound opinion discusses Rule 3-310(E) in its analysis and conclusion of disqualification. (Id. at 78.)
6 The Pound opinion states that "[t]he distinction between hiring Bradley as an associate or partner, on the one hand, and associating him as counsel, on the other hand, does not change the need to protect defendants' confidences. The only effective method to protect defendants' confidences from the possibility of inadvertent disclosure is also to disqualify Jones." (Id.)