Open-Ended Attorney-Client Relationships: A Potential Concurrent Representation Pitfall
By Rashida Adams.
Rashida Adams is a Senior Appellate Court Attorney for the Second District Court of Appeal, and member, LACBA Professional Responsibility and Ethics Committee. The opinions expressed are her own.
A lawyer generally may not concurrently represent two clients with interests adverse to one another. (Flatt v. Superior Court (1994) 9 Cal. 4th 275, 284-285 (Flatt).) This principle arises out of the duty of loyalty attorneys owe their clients and is embodied in California Rule of Professional Conduct 3-310(C), which states: “A member shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.”1 (See People v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal. 4th 1135, 1146-1147 (SpeeDee Oil); Flatt, supra, 9 Cal. 4th at 282-284.) But is there a concurrent representation problem if an attorney has an ongoing relationship with one of the clients, yet is not actively performing legal services for that client when the second representation begins? M’Guinness v. Johnson (2015) 243 Cal. App. 4th 602 (M’Guinness) answers this question.
M’Guinness concerned a small construction firm (TLC) and its three shareholders, Johnson, M’Guinness, and Stuart.2 In 2006, Johnson arranged to have TLC retain a law firm (the firm) to represent the company. Between 2006 and 2012, the firm handled six legal matters for TLC, billing a total of 23.5 hours. (Id. at 615-16, 620.) In January 2013, M’Guinness filed a complaint against Johnson and TLC, alleging Johnson had mismanaged the business, diverted corporate opportunities, and appropriated control of the company, necessitating an involuntary dissolution. The firm, denying any conflict of interest, began representing Johnson. Johnson answered the M’Guinness complaint and filed a cross-complaint naming M’Guinness, Stuart, and TLC as cross-defendants. (Id. at 609.) M’Guinness, Stuart, and TLC moved to disqualify the firm. The firm opposed the motion, arguing its representation of TLC ended in March 2012, before the shareholder dispute arose in 2013. The trial court ruled the evidence was insufficient to warrant disqualification, particularly because there was no evidence of ongoing work, and disqualification is “generally disfavored” and imposed only when “absolutely necessary.” (Id. at 617.)
The court of appeal disagreed. The opinion highlights four factors that established the firm was still representing TLC when it also began representing Johnson.
First, the firm’s client agreement indicated the firm was to provide advice and representation to TLC “from time to time.” (Id. at 618.) TLC was permitted to terminate the relationship at any time; the firm could withdraw for good cause or with TLC’s consent. At “the conclusion of [the firm’s] engagement,” the firm was to return client files and property at TLC’s request and cost. The court found this language reflected the parties’ intent “to establish an ongoing attorney-client relationship of an open-ended nature, terminable only by specific methods described in the agreement and under conditions that included the Firm’s return of all property and funds to the client.” (Ibid.) Thus, that the firm concluded work on any specific matter for TLC did not mean the representation was over. Even though the firm was not actively providing legal services to TLC in 2013, the open-ended character of the client agreement defined the representation as ongoing until an affirmative termination or withdrawal.3
Second, the client agreement required TLC to maintain a client deposit that the firm would keep in a trust account and apply to legal fees and expenses TLC incurred. (Id. at 619.) At the conclusion of the firm’s engagement, the firm would return any TLC funds or property. There was no evidence the firm had returned TLC’s client deposit. Instead, an October 2012 invoice reflected TLC had a positive balance in the firm’s trust account. This too suggested an ongoing attorney-client relationship.
Third, the firm sent invoices to TLC between 2006 and October 2012. Although some of the invoices reflected nothing more than a “carry-forward” balance and included no new billings for fees incurred, the court again viewed this evidence as an indication that the firm’s representation of TLC did not end in March 2012 as the firm claimed. (Id. at 620.)
Finally, the court relied on evidence that even after M’Guinness filed suit, the firm exerted control over TLC’s property, including corporate records. In January 2013, a firm partner supervised as M’Guinness and Stuart retrieved personal property from the TLC offices. The partner—identified to the two shareholders only as Johnson’s “football buddy”—warned them against taking any TLC property. Another firm lawyer later handled access to TLC’s corporate records in response to a request for production of documents. Moreover, in January 2013, M’Guinness’s attorney asked a firm partner in an e-mail when, if ever, the firm stopped representing TLC. The partner did not respond to the question. (Id. at 621-622.)
In the end, the court concluded the evidence established an ongoing attorney-client relationship, irrespective of the minimal amount of legal services the firm actually provided. Once M’Guinness sued Johnson for mismanaging and harming TLC, the interests of Johnson and the company diverged. They became opposing parties in the litigation when Johnson cross-complained against TLC. The firm therefore could not simultaneously represent Johnson and TLC. (Id. at 623-624.)
That the conflict was one of concurrent representation was significant. Had the firm stopped representing TLC before it began representing Johnson, the issue would have been one of successive representation of adverse clients. In that case, disqualification would depend on whether TLC demonstrated a substantial relationship between the subjects of the firm’s representation of TLC and the representation of Johnson. (Flatt, supra, 9 Cal. 4th at 283.) But with concurrent representation, disqualification was required, whether or not the two representations were related.4 (SpeeDee Oil, supra, 20 Cal. 4th at 1146-1147). The M’Guinness court further clarified that disqualification is not “generally disfavored” in the face of the “per se rule” requiring the disqualification of a law firm when it concurrently represents multiple clients with adverse interests. (M’Guinness, at 625-626.)
Disqualification is the likely result when an attorney simultaneously represents clients with adverse interests, even when the subject matter of each representation is unrelated.5 M’Guinness is a reminder that an attorney seeking to avoid a concurrent representation conflict must consider ongoing or open-ended attorney-client relationships, even if those relationships have been dormant. Factors such as the terms of the attorney-client agreement, billing practices, and the lack of any formal conclusion to the representation may mean the relationship continues; a potential problem if the interests of another client the attorney intends to represent are adverse to those of the client with whom the attorney has an ongoing relationship.
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 As explained in Fremont Indem. Co. v. Fremont General Corp. (2006) 143 Cal. App. 4th 50, 65, “Rule 3–310(C)(3) prohibits the concurrent representation of clients without informed written consent only if the attorney represents one of the clients in a matter in which the clients’ interests are adverse; it does not prohibit the concurrent representation of clients whose interests are adverse only in a matter in which the attorney does not represent either client.”
 For further discussion of conflict problems related to the representation of small entities, see the November /December 2015 LACBA Update article, Ellen A. Pansky, “You’re Outta Here! Avoiding Disqualification When Representing Small Organizational Clients.”
 In Banning Ranch Conservatory v. Superior Court (2011) 193 Cal. App. 4th 903, 913-914, the court held certain open-ended agreements for representation on a matter-by-matter basis—“framework agreements”—do not create a current attorney-client relationship. The M’Guinness court rejected the argument that the firm had a framework agreement with TLC. (M’Guinness, at 619.)
 There is no indication TLC provided, or could provide, informed written consent to the concurrent representation.
 Withdrawing from the representation of one of the clients before a hearing on a motion to disqualify will not avoid automatic disqualification. (Flatt, supra, 9 Cal. 4th at 288; Truck Ins. Exch. v. Fireman’s Fund Ins. Co. (1992) 6 Cal. App. 4th 1050, 1056-1057.)