5.1.2

Rule 3-310:  Avoiding Representation of Adverse Interests

Case:

Largo Concrete, Inc. v. Liberty Mutual Fire Insurance Company (N.D.Cal. 2008) 2008 WL 53128

Issue:

In a bad faith workers’ compensation insurance action, must a law firm be disqualified from representing the plaintiffs where an associate, while with another firm for less than a year, previously helped defend a substantially identical bad faith workers’ compensation action on behalf of an entity related to the insurer?

Holding:

Yes.  Applying California conflict of interest law, the District Court first ruled that the case on which the associate had worked while at his old firm was substantially similar to the case in which disqualification was sought.  Second, the associate’s former firm’s billing records indicated that the associate had reviewed workers’ compensation case files in the prior case to prepare a privilege log.  “An attorney is possibly exposed to strategy or policy along with confidential information when reviewing documents for privilege – that is, for confidentiality – and preparing a privilege log.”  (Id. at *3.)  Third, the Court ruled that the information the associate would have learned in reviewing the workers’ compensation claims files to prepare the privilege log in the prior case was “most likely” relevant to the nearly identical action in which disqualification was sought. 
The Court declined to apply the modified substantial relationship test for disqualification under which the court’s task is to determine whether confidential information material to the current representation would normally have been imparted to the attorney during his tenure at the old firm.  (Id. at *4.)    The Court explained that the insurer was not arguing that the plaintiffs’ counsel should be disqualified merely because the associate had worked at a firm that had performed substantially related legal services for the insurer, but because the associate himself had performed such services.  Under those circumstances, the unmodified test applied.  (Ibid.)

Note:

The Court held that the new firm could not avoid vicarious disqualification by excluding the associate from working on the matter against the insurer and erecting an ethical wall.  The Court pointed out that in Hitachi, Ltd. v. Tatung Co. (N.D. Cal. 2006) 419 F.Supp.2d 1158 (EQ, 3.2.1) it had concluded that ethical walls do not defeat vicarious disqualification under California law and that no subsequent case had cast doubt on that holding.  “[T]o the contrary, since the Court’s opinion the California Supreme Court has again rejected an ethical wall, albeit in the context of the San Francisco City Attorney.”  (Id. at *5, citing City and County of San Francisco v. Cobra Solutions (2006) 38 Cal.4th 839.  See EQ 3.2.13.)