ETHICS QUARTERLY A Service of the San Diego County Bar Association Legal Ethics Committee April 2005 Vol. 2, No. 1 INTRODUCTION This is the first edition of Ethics Quarterly for 2005. Ethics Quarterly is a service provided by the San Diego County Bar Association's Legal Ethics Committee. This edition covers cases from  December 15, 2004, to March 15, 2005 with the exception of the first case abstracted, Brand decided in 2004, that inadvertently was not included in an earlier issue. Committee members Ellen R. Peck, David C. Carr, of Maxie Rheinheimer, Stephens & Vrevich LLP, and Luis E. Ventura of Epsten Grinnell & Howell, APC. David C. Carr served as Coordinating Contributor, and Ellen R. Peck prepared the Commentary at the end. The Legal Ethics Committee’s next seminar will be “Lost In Cyberspace: Ethical Issues for the Online Lawyer” and will be held on Thursday June 2, 2005 from 5:45 p.m. to 8:15 p.m. at the Bar Center. Attendees will receive 2.0 hours of MCLE credit in Legal Ethics. To register online, please go to members.sdcba.org. For more information about the program, please call the Bar at 619-231-0781. 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 Legal Ethics Committee Chair Dan Eaton at eaton@scmv.com.
CASE NOTES
2.1.1	Rule 3-310(E): Avoiding the Representation of Adverse Interests
Case:	Brand v. 20th Century Ins. Co./21st Century Ins. Co. (2004) 124 Cal.App.4th 594
Issue:	May an attorney that had last represented an insurer 12 years ago in bad faith and coverage matters serve as an expert witness in claims handling practices for a party suing the insurer for bad faith and breach of contract?
Holding:	No. Employing the substantial relationship test for attorney successive representation cases, the Court held that the expert-attorney must be disqualified. “Not only did [the attorney-expert] personally represent [the insurer] as its attorney and supervise associates representing the company between 1988 and 1991, but [the attorney-expert’s] representation of [the insurer] also covered matters substantially related to the issues in the instant case in which he has been retained to testify against [the insurer].” Id., p. 605. The Court further found that the expert, using knowledge gained from past representation taught the insurer’s claims adjusters how to evaluate claims for coverage and made suggestions for claims handling procedures. Finally, the Court concluded that the passage of 12 years between engagements did not overcome the conclusive presumption of acquisition of that confidential information.
Note:	The Court based its holding in large part on Farris v. Fireman’s Fund Insurance (2004) 119 Cal.App.4th 671 (abstracted at Ethics Quarterly, 1.3.1), a case in which an attorney was disqualified from representing an insured against an insurer for which he previously had served as coverage counsel. Brand, 124 Cal.App.4th at 604. The Court did not address, and therefore presumably did not perceive, a material difference between the rules governing disqualification of an attorney from serving as an expert for an adverse party and those governing disqualification of an attorney from serving as counsel for an adverse party.
2.1.2	Rule 3-310(E): Avoiding the Representation of Adverse Interests
Case:	Goldberg v. Warner/Chappell Music, Inc. (2005) 125 Cal.App.4th 752
Issue:	In a wrongful termination action, must the employer’s law firm be disqualified where six years earlier, the plaintiff-employee had briefly consulted with one of the law firm’s partners concerning her contract with the employer and where the partner had left the law firm three years before the action was filed?
Holding:	No. The Court found that an attorney-client relationship between the employee and a former partner of the employer’s attorney law firm had been formed concerning advice about the employment contract with the employer and that a conclusive presumption of confidentiality applied. However, “an attorney’s presumed possession of confidential information concerning a former client should not automatically cause the attorney’s former firm to be disqualified where the evidence establishes that no one other than the departed attorney had any dealings with the client or obtained confidential information. . . .” Id., p. 755. The Court noted that the trial court had found that the law firm had never opened a file for the employee; never billed her; had no notes or records in any file about the meeting; no documents were prepared; no telephone calls made; and the partner left several years before the instant litigation began. Id., p. 758. “Where tainted attorneys and nontainted attorneys are working together at the same firm, there is not so much a conclusive presumption that confidential information has passed as a pragmatic recognition that the confidential information will work its way to the nontainted attorneys at some point. When, however, the relationship between the tainted attorneys and the nontainted attorneys is in the past, there is no need to ‘rely on the fiction of imputed knowledge to safeguard client confidentiality’ and opportunity exists for a ‘dispassionate assessment’ of whether confidential information was actually exchanged.” Id., p. 765, quoting Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324, 1335.
2.1.3	Ineffective Assistance of Counsel
Case:	U.S. v. Wells (9th Cir. 2005) 394 F.3d 725
Issue:	Did trial counsel have an actual conflict of interest constituting ineffective assistance of counsel where his fees were paid by a co-defendant of his client and counsel did not engage in plea negotiations with the government?
Holding:	No. Although a co-defendant's payment of another co-defendant’s attorney’s fees created a theoretical division of loyalties, it did not adversely affect attorney's representation of the client-defendant. The tactical decisions about which the client-defendant now complained were unrelated to the payment of counsel’s fees by a co-defendant. “In fact, the record reflects that [counsel’s] performance was unaffected by the fee arrangement and he . . . put on a spirited defense in his representation of [the client-defendant], a defense, which in all principal respects mirrored” the defense of the co-defendant who had paid counsel’s fees. Id., p. 736. Nor was the client-defendant denied effective assistance of counsel because of his attorney’s unwillingness to negotiate a plea with the government. The client-defendant himself was unwilling to plead guilty or cooperate with the government. Given that, “it cannot be said that [counsel’s] performance . . . was adversely affected by his failure to engage in futile plea negotiations with the government, even though, in a hypothetical sense,” the client-defendant may have obtained a reduced sentence by testifying against his co-defendant at his co-defendant’s retrial. Id., p. 735.
Note:	Judge Betty Fletcher dissented, primarily on the ground that counsel had failed even to ask, after his client had been convicted and the co-defendant who had paid his fees was facing a retrial, whether his client had information useful to the government.
2.1.4	Rule of Professional Conduct 4-200: Unconscionable Fees
Case:	In the Matter of David M. Van Sickle, 2005 WL 319683 (Cal.Bar Ct.)
Issue:	Does an attorney's failure to specify that he would charge his full contingent fee in addition to the contingent fee charged by prior counsel make that fee agreement unconscionable?
Holding:	Yes. The client initially had been represented by other counsel in a personal injury matter. Prior counsel had agreed to a one-third contingent fee; the new lawyer's fee was 35%. The finding of unconscionability was based on the hearing judge’s finding that the attorney had failed to disclose to his client that his 35% contingency fee was to be in addition to the fee of the previous attorney and that his fee agreement was ambiguous. Id., p. *6. The reviewing department found that, under the quantum meruit analysis in Cazares v. Saenz (1989) 208 Cal.App.3d 279, the 35% agreed contingent fee should be apportioned between the lawyer and the first attorney. The review department also upheld the hearing judge's determination that the lawyer also charged the client an unconscionable fee for representation in a related worker's compensation matter, where he took 35% of benefits awarded before she employed him. Although the reviewing department had determined the retainer agreement was void for lack of mutual, its conclusion that the fee was unconscionable was reinforced by the attorney’s overreaching in including in the agreement two clauses in this fee agreement that were plainly unethical. One provision prohibited the client from settling the case without the lawyer's consent and a separate provision prohibited the client from discharging the lawyer unless for cause or with the lawyer's consent.
Note:	The review department, having upheld culpability on two of the four counts on which the hearing judge had based his decision, reduced the recommended discipline from six months actual suspension to 30 days actual suspension.
2.1.5	Evid. Code § 953: Attorney Client Privilege – Successor to Privilege
Case:	HLC Properties, Ltd. v. Superior Court (2005) 35 Cal.4^th 54
Issue:	Can a business entity formed to manage a performer's properties after his death claim the attorney-client privilege as the performer’s successor?
Holding:	No. Bing Crosby managed his business activities with the help of trusted employees under the loose emblem of HLC Enterprises. Substantial evidence supported the trial court’s find that Crosby, not HLC Enterprises, was the original client as to the withheld documents pertaining to three recording contracts. Id., p. 64. Thus, upon Crosby’s death, his personal representative, not HLC, was the holder of the attorney-client privilege under Evidence Code § 953(c). A unanimous California Supreme Court thus concluded: “When Crosby died, his privilege transferred to his personal representative, i.e., the executor of the estate. But once Crosby’s estate was finally distributed and his personal representative discharged, the privilege terminated because there was no longer any privilege holder statutorily authorized to assert it.” Id., p. 66, citing Evid. Code § 953 (c) and comment to Evid Code § 954.
Note:	The Court concluded its opinion by emphasizing that it was not suggesting that “entities formed to manage the business affairs of a natural person can never be clients or never hold attorney-client privileges in their own right. Nor [did the Court] find that a personal representative’s assertion of the privilege categorically forecloses others from claiming it as to the same communications.” Id., p. 68.
2.1.6	Rule 3-310(E): Avoiding the Representation of Adverse Interests
Case:	Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253
Issue:	In class action litigation, is disqualification for conflict of interest required of (1) the firm representing a class in which the named lead plaintiff is an attorney working in the firm and (2) a second law firm that serves as co-counsel with his firm in other cases?
Holding:	Yes. The Court held that disqualification of the law firm at which the class plaintiff was an attorney was required because the plaintiff and his firm had “placed themselves in a position of divided loyalties – their own financial interest in recovering attorneys’ fees versus their obligation to the putative class to maximize the recovery of monetary and other relief.” Id., p. 1273 (italics in the original). The second firm was disqualified because plaintiff stood to benefit from the attorneys’ fees recovered in the 13 other cases in which that firm was co-counsel with his firm. Consequently, plaintiff “may acquiesce in, rather than monitor, the firm’s decision, and the firm may benefit from the situation by seeking to maximize its recovery of attorneys’ fees.” Id., pp. 1276-1277.
2.1.7	Rule 3-310(C): Avoiding the Representation of Adverse Interests
Case:	Abbott v. U.S. I.R.S. (9th Cir. 2005) 399 F.3d 1083
Issue:	Is it a conflict-of-interest for an attorney to represent a taxpayer-client while employed as a consultant for the Internal Revenue Service on an unrelated matter?
Holding:	No. The Tax Court denied the taxpayer’s motion to vacate a settlement with the IRS negotiated by counsel who had acted as an expert consultant for the IRS in an unrelated matter during part of the time he represented the taxpayer-estate. The Ninth Circuit ruled that ABA Model Rule 1.7(a),(b) (Conflict of Interest) did not apply. “Representation in the [unrelated] case was not ‘directly adverse’ to the representation of the [client-estate]. The cases were entirely unrelated. [Moreover, n]o evidence was produced by [the client] that representation of the estate was ‘materially limited’ by [the attorneys’] responsibilities to the IRS or to his own interests. [The Attorney’s] section by the IRS was in no way related to his representation of the estate. No showing was made that [the attorney’s] loyalty to the estate was diluted by his services to the IRS.” Id., p. 1086. Nor, the Court ruled, did California Rule of Professional Conduct 3-310(c) apply. The Court distinguished American Airlines v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, which upheld a jury finding of breach of the duty of loyalty by, the Ninth Circuit observed, an attorney acting as an agent of one client in a way that allegedly jeopardized the secrets of another client. “Nothing of the sort occurred here. Even if we were bound by a single state court of appeals decision (which we are not) we would find it extravagant to extrapolate from American Airlines a rule that would effectively impede the IRS from obtaining the expert aid of practicing members of the tax bar.” Id., pp. 1086-1087.
2.1.8	Criminal Law – Prosecutorial Misconduct
Case:	In re Sakarias (2005) _____Cal.4th ____, 25 Cal.Rptr.3d 265
Issue:	Were the due process rights of two capital defendants violated by the joint prosecutor’s presentation of inconsistent factual theories in separate trials of defendant and co-defendant as to who took certain actions in the murder?
Holding:	Yes, as to the defendant the great weight of the evidence showed had not stricken the fatal blow. The prosecutor violated the defendant’s due process rights by intentionally and without good faith justification arguing inconsistent and irreconcilable factual theories in the two trials, attributing to each defendant in turn culpable acts that could have been committed by only one person. The referee, previously appointed by the Supreme Court to hear factual disputes regarding the prosecutor’s conduct, concluded that the prosecutor’s argument of inconsistent factual theories was an intentional strategic decision designed to meet the proffered defense theories in the successive trials and for the purpose of maximizing each defendant’s culpability. “Because it undermines the reliability of the convictions or sentences, the prosecution’s use of inconsistent and irreconcilable theories has been criticized as inconsistent with the principles of public prosecution and the integrity of the criminal trial system.” Id., p. 281.
Note:	Justice Baxter dissented, finding no bad faith in the way the prosecutor conducted the trials or in theorizing in each case that the defendant on trial inflicted the fatal wound. “I do not mean to imply that I would never find prejudicial misconduct in a prosecutor’s use of irreconcilable theories and evidence against separately tried defendants. . . . [D]ifficult questions arise where, for example, such tactics lead to the conviction of two persons for a crime only one could have committed. But such issues are not presented here.” Id., pp. 297-298.
2.1.9	Ineffective Assistance of Counsel
Case:	People v. Panah (2005) ___ Cal.4th___
Issue:	Did the trial court’s refusal to remove appointed counsel result in ineffective assistance of counsel to a death penalty defendant?
Holding:	No. A defendant is entitled to have appointed counsel discharged upon a showing that counsel is not providing adequate representation or that counsel and defendant have become embroiled in such an irreconcilable conflict that ineffective representation is likely to result. In this case, the defendant’s complaints arose from tactical disagreements between defendant and counsel. Given the overwhelming evidence of defendant's guilt, defense counsel was not obliged to pursue futile lines of defense simply because defendant demanded them, and his refusal to do so did not justify his removal as counsel.

IMPORTANT UPDATE:

On February 23, 2005, the California Supreme Court depublished Featherson v. Farwell (2004) 123 Cal.App.4th 1022, abstracted in the last issue of Ethics Quarterly. The question in Featherson was whether an estate planning attorney owed a duty to his client’s beneficiary where the testator’s intent or capacity is questioned. The Court of Appeal answered that question no, acknowledging that an attorney may in some circumstances owe a duty to beneficiaries. “Where, as here, the extension of that duty to a third party could improperly compromise the lawyer’s primary duty of undivided loyalty by creating an incentive for him to exert pressure on his client to complete her estate planning documents summarily, or by making him the arbiter of a dying client’s true intent, the court simply will not impose that insurmountable burden on the lawyer.”

Disclaimer: Counsel should read the full text of the cases discussed before relying on the necessarily limited discussion of them here. Counsel also should be mindful that some of the Court of Appeal cases addressed may be subject to depublication or review by the California Supreme Court. All cases should therefore be checked to confirm they are citable.

COMMENTARY: Beware of Accepting New Engagements Adverse to Former Clients

By Ellen R. Peck [1]

Since 1932, California common law policy has not precluded a lawyer from forever accepting employment in different matters adverse to a former client. After severing a relationship with a former client, the California Supreme Court has forbidden an attorney to do either of two things:

- Take any action which will injuriously affect the attorney’s former client in any matter in which the attorney formerly represented the client;

- Use knowledge or information acquired by virtue of the previous relationship against the former client. (Brand v. 20th Century Ins. Co./21st Century Ins. Co., (2004) 124 Cal.App.4th 594, 602 (“Brand”).)

Since 1932, the practice of law has changed. The business marketplace has expanded from the town center to the world. Law firms are international and have merged, demerged and extinguished. Lawyers move from firm to firm, switch from field to field and even from representing one class of parties (e.g., insurers, employers, etc.) to another (e.g., injured plaintiffs, employees, etc.).

Lawyer mobility has created challenges to conflict management. From 1981 to 2003, courts and lawyers used the three part “substantial relationship” test first adopted by H.F. Ahmanson & Co. v. Salomon Brothers, Inc. (1991) 229 Cal.App.3d 1445, 1454, 280 Cal.Rptr. 614 to determine whether a lawyer or law firm could take on a new engagement or would be disqualified from the new case adverse to a former client. That test evaluated (1) factual similarities between the two representations; (2) similarity of legal issues in the two representations; and (3) the nature and extent of the lawyer’s involvement (which also permitted the lawyer to prove that no confidential information had been received). (Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324, 1332.)

In Jessen v. Hartford Casualty Ins. Co. (2003) 111 Cal.App.4th 698 (“Jessen”) and Farris v. Fireman's Fund Ins. Co. (2004) 119 Cal.App.4th 671 (“Farris”), the Court of Appeal for the Fifth Appellate District announced a simplified two part modification of the “substantial relationship” test:

1. Is the relationship between the attorney and the former client direct or peripheral or attenuated?

Direct is defined as “where the lawyer was personally involved in providing legal advice and services to the former client”; “peripheral or attenuated is not defined. (Jessen, at 709.)

If the representation is direct, it must be presumed that confidential information has passed to the attorney and the attorney may not rebut the presumption; if the relationship is peripheral or attenuated, the lawyer may present evidence that he/she did not receive confidential information during the former representation. (Id., at 710-11.)

2. The similarity of the “subject matter” of the current and former representations were given a broader interpretation: “when the evidence before the trial court supports a rational conclusion that information material to the evaluation, prosecution, settlement or accomplishment of the former representation is also material to the evaluation, prosecution, settlement, or accomplishment of the current representation given its factual and legal issues." (Id., at 712.)

In Brand, at 603-605, discussed in this Ethics Quarterly above, the Court of Appeal for the Second District, adopted the Jessen-Farris test in disqualifying an attorney from serving as an expert witness in a bad faith/breach of contract case for the plaintiff against a former client insurance company for whom the lawyer had performed legal services twelve years previously.

From 1988-1991, Lawyer Zalmas directly handled 14 disputed actions for the insurance company and supervised two or three of his firm’s attorneys in handling an unspecified number of additional cases for the insurance company. He also gave educational seminars to the insurance company’s claims department on claims handling.

Citing Farris, at p. 684, the Court found that Zalmas’ handling of the insurer’s coverage matters created subject matter similarity, observing:

A coverage attorney's responsibility to his client includes advising the client on these subjects.... Coverage disputes are substantially related to bad faith actions for the purpose of attorney disqualification because they both turn on the same issue-- whether or not there is coverage under the terms of the policy. . . . (Brand, at 606.)

Finally, the Court completely discounted the passage of twelve years between the last time Zalmas provided legal services and accepted the employment as an expert witness against the former client. (Brand, at 607, esp. note 5.) The Court did not discuss whether the passage of time had rendered Zalmas’ information stale (i.e., whether there were changed company policies, claims handling policies and practices, whether the insurance policies involved different language and coverage issues or whether the key personnel had changed).

The Jessen-Farris-Brand line of cases takes a broad view of protecting client confidentiality, resulting in expanded scope of attorney disqualification. This two part test appears to be easier to apply for busy trial courts grappling with disqualification and attorney conflict issues. The breadth of the test, and the current discounting of the passage of time as a relevant factor, creates greater likelihood that a prior representation by any lawyer within the firm of a current opposing party may be a disqualifying event.

Lawyers and law firms should step up their efforts to make sure that all lawyer engagements are reported to the firm’s conflict management system. Although the law firm in Goldberg v. Warner/Chappell Music, Inc. (2005), discussed above, was not disqualified, the conflict and dispute might have been better managed had the partner declined to give any advice to the employee until he had run a conflict check and opened a file following the firm’s procedures.

The Brand case teaches us that any type of professional activity (e.g., serving as an expert, arbitrator, mediator, corporate director) by any lawyer in the firm can create the potential for conflict. Any deviation from conflict reporting and management by rogue members of the firm can be an invitation for later surprise disqualification motions or other liabilities, with costly consequences. In evaluating whether to accept a new engagement for a new client against a former client of the firm or any of its lawyers, lawyers and law firms should determine whether they would be disqualified under the Jessen-Farris test, since it is foreseeable that a trial court may employ this analysis. While ethics screens are tools widely used to wall off lawyers who might have some confidential information about a former client that is now an adverse party, California state published appellate opinions have still not authorized their use. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1151-1152, 86 Cal.Rptr.2d 816, 980 P.2d 371.)

Where a lawyer or law firm has a successive representation issue that the law firm believes is not substantially related, the general circumstances and the possible consequences of disqualification should be disclosed to the new client. (Rule 3-500, Rules of Professional Conduct.)

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[1] Ellen R. Peck is a former Judge of the State Bar Court and is a member of the San Diego County Bar Association Legal Ethics Committee. The views expressed are her own.