ETHICS  QUARTERLY

A Service of the San Diego County Bar Association's Legal Ethics Committee

October 2004   Vol. 1, No. 3


INTRODUCTION

This is the third edition of the Ethics Quarterly.  This edition covers cases from June 15, 2004 to September 15, 2004.  Committee members Brian Forbes, of Gray Cary; David Carr, of Maxie, Rheinheimer, Stephens & Vrevich; and Art Wilcox, of Feldhake, Roquemore, prepared this edition.  Brian Forbes served as Coordinating Contributor as well as preparing the Commentary.

Comments or inquiries about the Ethics Quarterly or about the Committee’s other services, such as the Committee’s availability to provide Ethics seminars to individual practice sections at no cost, should be directed to Committee Chair Dan Eaton at eaton@scmv.com.

 

 

CASE NOTES

 

1.3.1

Rule 3-310:  Avoiding Representation of Adverse Interests

 

Case:

Farris v. Fireman’s Fund Insurance (2004) 119 Cal.App.4th 671.

 

Issue:

 

Does counsel’s prior representation of the defendant insurer, as coverage counsel, disqualify him from representing a party in a bad faith action against that insurer?

 

Holding:

 

Yes.  The bad faith action is “substantially related” to counsel’s prior representation as coverage counsel.  During his 13 years as an associate and partner for the insurer’s former law firm, counsel was a key member of the firm’s insurance coverage department.  Counsel gave coverage and claims handling advice to senior employees and decision makers of the insurer and discussed settlement, litigation and claims handling strategies in connection with coverage matters, and participated in confidential communications with these top-level employees. The record established that the insurer looked to the firm and its experienced attorneys for guidance and education related to coverage issues, including protecting against bad faith litigation.

 

Note:

The Court cited Jessen v. Hartford Casualty (2003) 111 Cal.App.4th 698 rejecting the “playbook” view, i.e. that an attorney’s acquisition, during prior representation, of general information about the former client’s “overall structure and practices,” “litigation philosophy” or “key decision makers” is a basis for disqualification.  To create a conflict requiring disqualification, the information acquired must be “material” to the second matter—it must be directly at issue in, or have some critical importance to, the second representation.

 

The Court observed that passage of time may eliminate substantial relationship between coverage matters handled by counsel and bad faith action “due to such events as changes in corporate structure, turn over in management, and the like,” though no such factors were present in that case.  Id., p. 686.

 

The Court also noted that if the attorney is disqualified, the entire firm in which he now works also must be disqualified “absent some showing that an ethical shield has been created,” a showing that was not made.  Id., p. 689, note 17.  The Court was unsympathetic to the attorney’s claim that disqualification would restrict his future employment opportunities given the insurer’s geographic scope.  “We find no exception in [Rule 3-310] for former clients whose national or multinational scope might impinge on the future employment opportunities of the attorney in question.  If employment opportunities are curtailed, the sacrifice is to be born by the attorney, not by the former client.”  Id., p. 687.

 

 

 

1.3.2

Evidence Code §1119:  Mediation Confidentiality

 

Case:

Rojas v. Superior Court (2004) 33 Cal.4th 407.

 

Issue:

 

Are photographs, witness statements, raw test data and similar “non-derivative” materials prepared for use in a mediation protected from disclosure by the mediation confidentiality privilege, Evidence Code §1119?

 

Holding:

 

Yes.  Encouraging mediation is an important public policy reflected in the statute on mediation confidentiality.  The lower court’s construction of that statute, to the effect that “raw evidence” is not covered by the privilege and that only a qualified privilege exists for “derivative” material (charts, diagrams, information compilations, and expert opinions and reports) is inconsistent with the purpose of the statute.  The mediation privilege is not subject to a “good cause” exception; it is stronger than the attorney work product immunity.

 

 

 

1.3.3

Standing to Sue / Duty of Counsel to Successor Fiduciaries

 

Case:

Borisoff v. Taylor & Faust  (2004) 33 Cal 4th 523.

 

Issue:

 

Does the successor fiduciary of an estate in probate have standing to assert a professional negligence claim against attorneys who were retained by a predecessor fiduciary?

 

Holding:

 

Yes.  Despite that lack of privity—absence of any direct attorney-client relationship—a successor fiduciary has standing to sue lawyers who represented a predecessor fiduciary.  (When a fiduciary hires an attorney for guidance in administering a trust, the fiduciary alone, in his or her capacity as such, is the client; the trust is not the client because a trust is not a person but rather a fiduciary relationship with respect to property, and the beneficiary is not the client because fiduciaries and beneficiaries are separate persons with distinct legal interests.)  Relevant provisions in the Probate Code strongly support the inference that a successor fiduciary has standing to sue an attorney retained by a predecessor fiduciary to give tax advice for the benefit of the estate.  If the successor fiduciary had no standing to sue, there would be no effective remedy for legal malpractice harming an estate or trust administered by a successor fiduciary.  The Court was not persuaded by the lawyer/defendant’s arguments that this decision would undermine attorney loyalty and confidentiality.

 

Note:

The Court distinguished Goldberg v. Frye (1990) 217 Cal.App.3d 1258, which held that the beneficiaries of a trust do not have standing to assert malpractice claims against an attorney hired by the fiduciary.

 

 

 

1.3.4

Duties of Class Action Counsel

 

Case:

Janik v. Rudy, Exelrod & Zieff (2004) 119 Cal.App.4th 930.

 

Issue:

 

Do class action attorneys owe a duty to the class to pursue claims not certified by the court?

 

Holding:

 

Yes.  Although these attorneys produced a class action recovery of some $90 million for their clients, the attorneys did not pursue claims under California’s Unfair Competition Law (Bus. & Prof. Code §17200, et seq.).  Their former clients filed a legal malpractice action, claiming the attorneys breached their duty to pursue all possible theories of recovery beyond those certified in the court’s order certifying the class.  The attorneys demurred, arguing they had no duty to pursue claims not certified by the court. The trial court agreed and sustained the demurrer without leave.  The court of appeal reversed, holding the attorneys’ duty of care may require them to pursue other claims arising out of the same facts.

 

Note:

The scope of the duty may be limited by agreement.  Attorneys can and should limit the scope of engagement in a written retention agreement (engagement letter) relating to any new matter.

 

 

1.3.5

Unauthorized Practice of Law / Enforceability of Fee Agreements

 

Case:

Frye v. Tenderloin Housing Clinic, Inc. (2004) 120 Cal.App.4th 1208.

 

Issues:

 

(1) Is a nonprofit legal clinic (nonprofit public benefit corporation) engaged in the unauthorized practice of law under the following circumstances:  it employs licensed attorneys to handle lawsuits for clients (indigent tenants) against landlords; the attorneys are salaried employees, duly licensed by Cal State Bar, but the clinic itself is not registered with the State Bar?  (2) Can such a legal clinic enter into contingent fee agreements with its clients so that it can retain some or all of the attorneys’ fees awarded to prevailing parties in litigation against landlords?

 

Holding:

 

(1) Yes, it is the unauthorized practice of law; a professional law corporation, whether for-profit or non-profit, must register with the State Bar.  (2) No, such a nonprofit professional law corporations cannot enter into enforceable contingent-fee agreements with clients.

 

In this case, the clinic successfully represented a client and got an award of damages plus attorney’s fees.  The clinic kept the attorneys fees, as provided in the signed contingent fee agreement.  The client sued the clinic for money had and received and for breach of fiduciary duty.  The trial court granted the clinic’s motion for judgment on the pleadings.  The court of appeal reversed, holding that the clinic had no right to retain or recover fees since it was not registered with the State Bar.  The court of appeal also held that the clinic could not enter into an enforceable contingent fee agreement.  The clinic was not exempt from registration with the State Bar; accordingly, it was engaged in the unauthorized practice of law, and the contingent fee agreement was void under the doctrine of illegality of contract.

 

Note:

The case underscores the importance of attorneys observing laws governing the practice of law in particular jurisdictions and the requirements for enforceable fee agreements.  Sanctions include but are not limited to forfeiture/disgorgement of fees.

 

 

 

1.3.6

Attorney Third-Party Liability / Fraud by Opposing Counsel

 

Case:

Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282.

 

Issue:

 

Is an attorney, negotiating at arm’s length with an adversary in a merger transaction, immune from liability to the opposing party, or to any other third party for intentional misrepresentation?

 

Holding:

 

No.  “A fraud claim against a lawyer is no different from a fraud claim against anyone else.”  Id., p. 290.  While a “casual expression of belief” that the form of financing was “standard” was not actionable, active concealment of material facts, such as the existence of a “toxic stock” provision, is actionable fraud.

 

 

 

 

1.3.7

Rule 1-320:  Financial Arrangements With Non-Lawyers

 

Case:

McIntosh v. Mills (2004) 121 Cal.App.4th 333

 

Issue:

 

If an attorney agrees to split attorneys’ fees with a non-attorney consultant/expert helping with a lawsuit, and if the consultant/expert then fully performs in reliance on the agreement, and if the attorney then refuses to split his fees, can the consultant/expert enforce the agreement?

 

Holding:

 

No.  The agreement violates Rule 1-320(A) and is therefore unenforceable under the doctrine of illegality of contract.  Rule 1-320(A) prohibits attorneys from directly or indirectly sharing legal fees with a person who is not a lawyer.  The breach of contract complaint was dismissed upon summary judgment for the attorney/defendant, and the court of appeal affirmed.  The pari delicto exception to rule of unenforceability did not apply:  the expert/consultant was represented by counsel in negotiating the secret agreement, and his counsel was also subject to Rule 1-320 and Rule 1-120, which bars an attorney from assisting in the violation of the Rules of Professional Conduct or the State Bar Act.  He was equally guilty of unethical conduct, and since he was the agent for the expert, his awareness of the illegality of the agreement was imputed to the plaintiff/expert/consultant.  Since the parties were in pari delicto the plaintiff could not enforce the agreement.

 

Note:

The plaintiff/expert, in a deposition in the underlying litigation, denied that he had been promised any payment for his participation in the litigation.  “Having denied under oath an expectation of receiving compensation from” the attorney representing the plaintiff in the underlying litigation, “the law will not countenance [the expert’s] reversal of position, and reward his own malfeasance by recognizing a contractual right of compensation now.”  Id., p. 352.

 

 

 

1.3.8

Duties and Disabilities When Attorneys Leave Law Firms

 

Case:

Reeves v. Hanlon (2004) 33 Cal.4th 1140.

 

Issue:

 

If a lawyer quits a law firm and lures away at-will employees, is the lawyer liable to the law firm (former employer) for damages based on intentional interference with such employment relationships?

 

Holding:

 

Yes.  If the departing lawyer purposely engages in unlawful acts inducing personnel to quit, the lawyer is liable for tort damages.  The plaintiff (law firm) must plead and prove independently wrongful acts (i.e., acts proscribed by some constitutional, statutory, regulatory, common law, or other determinable standard).  The tort, interference with contractual relationship, may be predicated upon interference with an at-will contract, including an at-will employment relationship.  Judgment for the plaintiff law firm was affirmed and affirmed again by the Supreme Court. 

 

Note:

It is not an actionable wrong merely to solicit or hire any at-will employee of another.  It is actionable only if there is other conduct that is improper or illegal, e.g., stealing or damaging or destroying firm property, unfair competition, misappropriation of trade secrets, etc.

 

In fn 9 of its opinion, the Supreme Court says departing lawyers should cooperate with their former employers to arrange an orderly transition of matters in the event of a change of employment, including cooperation in arranging for the issuance of a joint notice to affected clients.

 

 

 

 

1.3.9

Rule 2-100:  Contact With Parties Represented by Counsel

 

Case:

La Jolla Cove Motel and Hotel Apartments, Inc. v. Superior Court (Jackman) (2004) 121 Cal. App. 4th 773

 

Issue:

 

In an action involving a complaint brought by minority shareholders against a corporation, can the attorneys representing the minority shareholders be disqualified under Rule 2-100 for obtaining and using declarations from two of the corporation's directors, who had been appointed to the board by the minority shareholders, and were represented by separate counsel?.

 

Holding:

 

No. Under the facts of this case, shareholders’ counsel did not violate Rule 2-100 by obtaining and using declarations from the directors because the directors’ separate counsel gave permission for such contacts. Because corporate counsel's duties lay with the corporate entity, not its directors, and an actual conflict had arisen between the corporation and the directors as minority representatives, corporate counsel could not be deemed to be the directors' counsel. In fact, such a representation would have been forbidden under ethical rules. Therefore, to comply with Rule 2-100, counsel for the minority shareholders needed only to seek the permission of the directors' separate counsel.  In the alternative, the court of appeal found that, even if Rule 2-100 were violated, there had been no showing that the directors had disclosed any confidential information in violation of their fiduciary duties to the corporation.

 

Note:

This decision of the 4th District, Div. 1, came to the court of appeal on a writ of mandate after the trial court refused to disqualify minority shareholders’ counsel.  The court of appeal agreed with the trial court that Rule 2-100 did not disqualify counsel.  But the court of appeal based its decision upon narrower reasoning than that of the trial court, holding only that the contacts with the directors did not violate Rule 2-100 because the separate counsel representing the directors had authorized the contacts.

 

 

1.3.10

Rule 2-200:  Fee Sharing Arrangements Between Lawyers

 

Case:

Mink v. Maccabee (2004) 121 Cal. App. 4th 835

 

Issue:

 

Does Rule 2-200 bar a division of fees pursuant to an oral agreement between the attorneys if written authorization is given by the client after services are performed but before the division is made?

 

Holding:

 

No.  Rule 2-200 requires only that the client's written consent be obtained prior to any division of fees.   “This simple dictate cannot reasonably be read to require the client’s written consent prior to the lawyers’ entering into a fee-splitting arrangement, or prior to the commencement of work, or at any time other than prior to the division of fees.  And Rule 2-200 certainly cannot be read . . . to include a requirement nowhere appearing therein, that the fee-splitting agreement must be in writing.”  Id. p. 838.

 

 

1.3.11

Disqualification of Counsel For Access to Opposing Experts

 

Case:

Collins v. State of California (2004) ___ Cal. App. 4th ___

 

Issue:

 

Must plaintiff’s counsel be disqualified where the expert had been retained by the defense as a consultant in the action a year before plaintiff’s counsel retained him, the expert had forgotten about the earlier retention and did not tell plaintiff’s counsel at the time, and the expert had shared no confidential defense information with the plaintiff?

 

Holding:

 

No.  The expert remained a consultant to the defense even through the time of the motion for disqualification.  When plaintiff’s counsel learned that the expert had been retained previously as a defense consultant, counsel told the expert he could have no further contact with the expert until the court resolved the matter.  The court of appeal ruled that “the courts, in order to protect client confidences delivered to and from experts, have the power and obligation to disqualify attorneys who knowingly hire opposing counsel’s expert witnesses.”  Id., p. __. (emphasis added.)  Where, however, the expert “has remained under the control” of the party moving for disqualification, and there is no evidence counsel knowingly retained the opposing party’s expert or that the expert intentionally advised both sides” the presumption that confidential information has been shared does not apply.  Id., p. __.  In such a case, the party seeking disqualification “has the burden of proving that the confidential information it imparted to its expert witness has been transmitted to the opposing party.”  Id., p. __.

 

Note:

The Court observed that once plaintiff’s counsel “discovered that it had inadvertently retained the same expert [as the defense], it was duty bound to refrain from talking directly with that expert until the court resolved the problem.  The firm did exactly that.”  Id., p. __.

 

1.3.12

Rule 3-700(D):  Attorney’s duty to release work product  to client

Case:

Eddy v. Fields (2004) __ Cal.App.4th __

 

Issue:

 

May an attorney refuse to turn over documents that constitute work product?

 

Holding:

 

After a dispute arose over whether the attorney’s fees charged by an attorney to co-trustees were reasonable, a successor trustee petitioned the probate court to set the amount of reasonable fees services at zero and sought to obtain certain documents from the attorney’s files. The attorney claimed the documents were privileged work product. The Court acknowledged that the statutory work product privilege and the client's right to receive the file pose an apparent conflict, which has not been definitively resolved by the courts.  The Court found it unnecessary to reach this issue, however, holding that the attorney had implicitly waived the privilege by disclosing the allegedly privileged work product documents to counsel for the co-trustee of the trust. 

 

Note:

“A disclosure of work product to an attorney who represents a mutual client or a client with common interests does not necessarily operate as a waiver as to third parties.”  Id., p. __. The Court distinguished this case from cases where the disclosure of documents is sought by an adversarial third party, stating that, in adversarial third party cases, the Court “would be hard pressed to say the privilege had been waived.”

 

The SDCBA addressed a related issue in its 2004-1 Opinion where it considered whether an attorney is ethically compelled to waive the work product protection if the attorney’s interests differed from those of a former client.  The Committee concluded that an attorney was required to waive the work product protection in those circumstances.  “The federal law and the Restatement reflect the appropriate deference to the proposition that an attorney’s absolute duty of loyalty to his or her client by subordinating the attorney’s interest in work-product to the client’s needs. . . . [¶] This conclusion does not mean, however, that there are no fact situations where the attorney can ethically assert work-product protection to resist a client’s demand for the production of attorney work-product not reasonably necessary to the client’s representations, such as those situations where the interests of the attorney and the client do not conflict.”

 

 

 

1.3.13

Rule 5-100(A):  Threatening Criminal Prosecution

 

Case:

Flatley v. Mauro, (2004)  __ Cal.App.4th __

 

Issue:

 

 Is an attorney’s threat to the attorney for a prominent entertainer to “go public” with his client’s charge of rape unless a “sufficient” payment is made constitutionally protected speech under the anti-SLAPP statute?

 

Holding:

 

No.  Defendant-attorney’s written and oral threats to report his client’s alleged rape to various state, federal, and international authorities were not protected speech, and were clearly prohibited by the Penal Code, California Rule of Professional Conduct 5-100, and the Illinois Rules of Professional Conduct. A threat to accuse someone of a crime or of injury with the intent to extort money or obtain a pecuniary advantage is not a "protected activity" under federal or state law.

 

 

 

 

 

1.3.14

Rule 3-310(E):  Employment Adverse to Former Client

Case:

City of Santa Barbara v. Superior Court (Stenson) (2004) __ Cal. App.4th __

 

Issue:

 

Where a lawyer in private practice personally represents the plaintiff in a lawsuit against the city—and the city is defended by the city attorney’s office—and where the lawyer resigns from her law firm and joins the city attorney’s office as a deputy city attorney not involved in any way in the lawsuit, will an ethical wall avoid disqualification of the entire city attorney’s office?

Holding:

 

Yes.  While a an attorney who “switches sides” during litigation is disqualified from representing his or her former adversary, and while such disqualification extends vicariously to all lawyers in the transient lawyer’s new law firm, the city attorney’s office is not a “law firm” within the meaning of the vicarious disqualification rule.  In an ordinary civil case, disqualification of a nonsupervisorial deputy city attorney should not result in the vicarious disqualification of the entire city attorney’s office.

For public-sector attorneys, an ethical wall avoids disqualification; it is sufficient to protect the confidentiality of former-client communications and to protect the integrity of the judicial process.  Unlike lawyers in private practice, public-sector lawyers do not have a financial interest in the matters on which they work.  As a result, they may have less, if an