The Crossroads of Confidentiality and the Litigation Privilege
LACBA Update, January 2012
By Robert K. Sall, who practices with The Sall Law Firm APC in Laguna Beach and is the chair of the LACBA Professional Responsibility and Ethics Committee. His practice focuses on business litigation, legal malpractice litigation, and attorney-client fee disputes. He can be reached at rsall@Sall-Lawoffice.com. The opinions expressed are his own.
Will the litigation privilege protect a lawyer who discloses information to a state agency about the prospective unlawful conduct of a former client? A recent Second District Court of Appeal decision, Fremont Reorganizing Corporation v. Faigin,1 establishes important precedent regarding the application of anti-SLAPP protections in actions between a lawyer and a former client, as well as clarifies the scope of the litigation privilege and whether it applies in the client’s claim for breach of the duty of confidentiality.
The Fremont decision involved a lawyer’s wrongful termination claim against his former employer. Wrongful termination claims by lawyers present unique considerations of the duty of confidentiality. The general rule, announced in General Dynamics v. Superior Court, provides:
[T]he in-house attorney who publicly exposes the client’s secrets will usually find no sanctuary in the courts. Except in those rare instances when disclosure is explicitly permitted or mandated by an ethics code provision or statute, it is never the business of the lawyer to disclose publicly the secrets of the client.2
The General Dynamics decision also concluded that where the wrongful termination claim could not be established without breaching privileged communications, “the suit must be dismissed in the interest of preserving the privilege.”3
A somewhat different approach taken in Fox Searchlight Pictures, Inc. v. Paladino allowed that disclosure of confidential information by a former in-house lawyer would be permitted at least to the extent necessary for that lawyer to obtain advice from another lawyer as to her ethical obligations, and might otherwise be allowed in circumstances where the court can protect the confidential information with protective orders or sealing of the file.4
In Fremont, the former attorney Faigin had been employed as staff counsel for Fremont Investment & Loan and several subsidiaries. After his termination, Faigin brought a wrongful termination lawsuit. The State Insurance Commissioner had been appointed as liquidator of an insurance subsidiary entity, and there were various restraining orders in place regarding disposition of assets. Faigin provided information to the commissioner that his former clients were planning to auction artworks that were allegedly subject to restraining orders and therefore under the commissioner’s control. Based upon that information, the commissioner brought an adversary proceeding against the corporate affiliates. Faigin readily admitted that he had revealed the information to the commissioner.
The employer asserted a cross-complaint against Faigin based on allegations of representing multiple parties with conflicting interests without making proper disclosures and obtaining informed consent. Specifically as to the revelation to the commissioner, Fremont alleged breach of the duty of confidentiality set forth in Business & Professions Code Section 6068(e) and Rule 3-100 of the Rules of Professional Conduct.
Faigin brought an anti-SLAPP motion contending that the cross-complaint arose from his communications in connection with the liquidation proceedings and that the employer could not establish a probability of prevailing, among other reasons, because of the litigation privilege established by Civil Code Section 47.
The court distinguished a number of earlier decisions holding that anti-SLAPP protections normally will not apply in breach of duty actions brought by a client against its former lawyer. The distinguishing factor here was that the communications themselves were alleged to be the breach of duty and were not merely incidental to the lawyer’s other alleged misconduct. Thus, the court found the anti-SLAPP statute to be applicable to the claims.
Fremont also contended that Faigin’s statements to the commissioner violated his ethical duties of loyalty and confidentiality and were “illegal as a matter of law” under Flatley v. Mauro5 and therefore not subject to anti-SLAPP protections. However, the court found that the Flatley exception for conduct that is illegal as a matter of law applies only to conduct that is criminally illegal. An allegation of a violation of the Rules of Professional Conduct may still be eligible for anti-SLAPP protection because it is not criminally illegal conduct.
Having found that the claims asserted by Fremont were subject to a special motion to strike under the anti-SLAPP statute, the court went on to analyze whether claims by a client for breach of the duty of confidentiality are subject to the litigation privilege. The privilege and its resulting immunity from civil liability raises competing public policy interests in the context of cases that arise from a lawyer’s dishonesty or revelation of too much confidential information about a client. Generally, the policy behind the litigation privilege is to
afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation. To effectuate these purposes, the litigation privilege is absolute and applies regardless of malice.6
So important is this public policy that in Rusheen v. Cohen the California Supreme Court held that the litigation privilege would protect a lawyer even from the act of filing allegedly perjured declarations of service.
In Fremont, the court embraced the supreme court’s recent holding in Oasis West Realty LLC v. Goldman7 that the duties of loyalty and confidentiality bar an attorney from using the former client’s confidences not only in a action on behalf of a different client but also in a revelation made in his or her own behalf. Faigin was presumed as a matter of law to have acquired the confidential information that he revealed to the insurance commissioner during the course of his relationship as staff counsel for the client.
The litigation privilege, if applicable, would preclude an action by a former client against an attorney for breach of professional duties arising from communicative conduct in litigation. There is a rarely cited 30-year-old decision in O'Neil v. Cunningham from the First District concluding that the privilege precludes a client’s action against his own lawyer for false statements made about the client during the course of litigation.8 There, the court determined that the litigation privilege is absolute, even when the lawyer defamed his own client allegedly causing the loss of his employment.
Without citing O’Neil, the Fremont court reached a contrary result, holding the litigation privilege will not insulate lawyers from professional liability to their own client. In concluding that a sufficient prima facie case had been presented to establish a probability of prevailing on the merits, the court held that to allow attorneys to breach professional duties of confidentiality owed to clients and be immune from civil liability would undermine the attorney-client relationship, and would not further the policies behind the privilege to afford free access to the courts and to encourage open channels of communication and zealous advocacy. Thus, the litigation privilege will not protect an attorney from liability to the former client for publicly revealing client secrets or confidential information without the client’s informed consent.
1 Fremont Reorganizing Corporation v. Faigin, 198 Cal. App. 4th 1153 (2011).
2 General Dynamics v. Superior Court, 7 Cal. 4th 1164, 1190 (1994) (emphasis added).
3 Id. (emphasis added).
4 Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App. 4th 294, 313-14 (2001).
5 Flatley v. Mauro, 39 Cal. 4th 299 (2006).
6 Rusheen v. Cohen, 37 Cal. 4th 1048, 1055-56 (2006) (emphasis added).
7 Oasis West Realty LLC v. Goldman, 51 Cal. 4th 811 (2011).
8 O’Neil v. Cunningham, 188 Cal. App. 3d 466 (1981).