Preserving Former Clients' Confidentiality in Successive Representation of Clients with Conflicts of Interest
By Gayle Eskridge, member, LACBA Professional Responsibility and Ethics Committee, and Janelle Menges, both of Eskridge Law. Ms. Eskridge can be reached at firstname.lastname@example.org. The opinions expressed below are her own.
An attorney’s duty to preserve his or her client’s confidences is paramount and does not end with the matter in which the attorney may have been employed. Rather, an attorney must refrain not only from divulging a former client’s confidences but also from acting for others in matters in which such confidences can be used to the former client’s disadvantage, thus violating the duty of loyalty to the client. [See Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, 573-574 (An attorney “may not do anything which will injuriously affect his former client in any matter in which he formerly represented him, nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship”).] This duty of maintaining confidences can be found in Rule 3-310(E) of the Rules of Professional Conduct of the State Bar of California, which provides: “A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.”
This continuing duty of confidentiality can become implicated when an attorney later represents a separate client with interests potentially adverse to the former client. In such a case, the former client may seek to have the attorney disqualified from serving as counsel to the successive client for fear of his or her confidences being divulged or used to his or her disadvantage. Two recent cases from the Fourth District of the California Court of Appeal have analyzed this issue of an attorney’s successive representation of clients with potentially adverse issues. Although the court ultimately came to different conclusions in the cases concerning whether the attorney should be disqualified from representing the successive client, the court was consistent in holding that, in successive representation conflict of interest cases, courts decide these issues on a case-by-case basis rather than adhere to a bright-line rule in determining whether a former client’s confidences risk being misused.
In Ontiveros v. Constable, the minority shareholder of a corporation (with only two shareholders) brought a shareholder derivative action against the corporation and majority shareholder for contract and tort claims, including allegations that the majority shareholder committed fraud. [Ontiveros v. Constable (2016) 245 Cal.App.4th 686, 691-693.] The minority shareholder moved to disqualify counsel from concurrently representing both the corporation and the majority shareholder, arguing that the majority shareholder’s interests were adverse to the corporation due to the derivative action. The trial court agreed that an actual conflict existed and disqualified counsel from representing the corporation, which the Fourth District Court of Appeal, in its decision filed February 18, 2016, affirmed. [Id. at 696-697.] However, the Court of Appeal reversed the trial court’s holding that counsel was disqualified from representing the majority shareholder. [Id. at 699-701.]
The Court of Appeal analyzed the continuing representation as if it were a successive representation, with the majority shareholder as the current client and the corporation as the former client. [Id. at 699.] The court explained the rule governing successive representation of clients with potentially adverse interests as outlined in Flatt v. Superior Court (1994) 9 Cal.4th 275:
“[W]here a former client seeks to have a previous attorney disqualified from serving as counsel to a successive client in litigation adverse to the interests of the first client, the governing test requires that the client demonstrate a ‘substantial relationship’ between the subjects of the antecedent and current representations.” [Citation.] “Where the requisite substantial relationship . . . can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorney’s representation of the second client is mandatory. . . .”
[Id. at 695-696.] The court reasoned, however, that this rule was based on the need to protect against the improper use of confidential information, which was not at issue here. There were only two shareholders, and the majority shareholder was the CEO and was solely in charge of day-to-day affairs, including selecting and working with counsel. Thus, the majority shareholder and corporation were so intertwined that there was no confidential information that counsel could have received from the corporation that was different from what could be received by the majority shareholder. Counsel’s continued representation of the majority shareholder therefore posed no threat to counsel’s continuing duty of confidentiality to the corporation, and so counsel could continue to represent the majority shareholder in the current litigation. [Id. at 700-701.]
Costello v. Buckley, decided by the Fourth District Court of Appeal less than one month after its decision in Ontiveros, also discussed the issue of counsel’s duty to preserve a former client’s confidences in successive representation of a client with adverse interests, although in Costello the Court held that counsel’s disqualification was required. [Costello v. Buckley (2016) 245 Cal.App.4th 748, 756-757.] In Costello, an attorney had previously represented his brother’s then-girlfriend in an easement dispute with a neighbor. During that time he acquired confidential information about his brother and the girlfriend’s relationship. After their relationship ended, she sued the brother for repayment of a purported loan she made to him. The attorney represented his brother in this lawsuit, and propounded discovery to the ex-girlfriend asking her to admit she engaged in a romantic relationship with the brother and that she gave money to him with no expectation of repayment. The ex-girlfriend thereafter moved to disqualify the attorney, contending confidential information he acquired while representing her could be used against her interests, possibly as the basis for a defense that she gave the money as a gift. The trial court concluded that the attorney’s potential use of confidential information, acquired while representing his former client, against her interests constituted a conflict of interest, and granted the motion to disqualify. [Id. at 751-752.]
The Court of Appeal affirmed. It held it was irrelevant that the easement case was unrelated to the collection case, or that the confidential information about the ex-girlfriend’s romantic relationship with the brother was not necessary for her to prevail in her collection case. Indeed, the court held that the “substantial relationship” test and presumption need not even be considered, as it was only required when the former client could not independently establish that the attorney acquired confidential information in the first case that could be used in the successive case, which the ex-girlfriend showed. The court held that disqualification was required simply because the attorney may have acquired information in the course of the previous representation that could be used against the former client in the subsequent representation of another client. [Id. at 755-756.]
Both Ontiveros and Costello show that in successive representation cases maintaining the former client’s confidences is paramount. However, in determining whether a conflict exists between former and current clients such that a former client’s confidences risk being divulged or used against her, it seems that courts are willing to look beyond bright-line rules and presumptions and instead look at the facts unique to each case.
The duty of loyalty can be found in cases such as Wutchumna Water Co. v. Bailey and Kim v. True Church Members (2015) 236 Cal.App.4th 1435, among others.