February 2018 Vol. 17, No. 4

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Editors: David Majchrzak and Edward McIntyre


For the fourth quarter of 2017, we are conducting a year in review, highlighting some of the more significant ethics opinions issued by the courts and bar associations, including some new opinions by both the San Diego County Bar Association and the Bar Association of San Francisco.  

This is an exciting time for all California lawyers as we await new Rules of Professional Conduct. As we noted in our earlier editions that previewed some of the proposed rules, these new standards will likely impact some of our duties. We will keep you updated as the Supreme Court addresses these rules.

We welcome your comments and suggestions about recent decisions, authority or issues we might address in future editions. For immediate questions, the Legal Ethics Committee maintains a hotline that SDCBA members can call at any hour: (619) 231-0781 x4145. If there is an issue impacting a significant portion of the legal community that you would like to see us address in a formal opinion, please let us know that as well. Just follow the instructions and a Committee member will get back to you with ethics authority you might consider.

In This Issue

Among the questions answered by rulings abstracted in this issue of Ethics Quarterly are:

Case Notes

17.4.1 Leighton v. Forster (2017) 8 Cal.App.5th 467 — First Appellate District, Division Four (February 9, 2017)

May an electronic acceptance of a fee agreement suffice as a signature on an engagement agreement?

No. A lawyer sued her client for unpaid fees of $114,000 alleged to be owed under a fee contract. On summary judgment, the Superior Court of Alameda County ruled that she could not recover because there was no enforceable attorney fee agreement and a quantum meruit claim was time-barred. The Court of Appeal agreed and affirmed.

The lawyer had an agreement with a semi-retired attorney to provide contract services for $75 per hour, plus out-of-pocket costs. This agreement noted that the contract lawyer did not carry liability insurance, would not interact with the semi-retired attorney’s clients, and would be paid by the semi-retired attorney regardless of whether his clients paid him.

In this case, however, the contract lawyer issued invoices for approximately two and a half years that, for the most part, the client paid directly. When the contract attorney was hospitalized and the client learned that he was close to death, the client exchanged emails with the contract lawyer stating that he wanted to stick with the current plan, serving a complaint and discovery, with the hope of reaching a quick settlement. If that did not work, then the client would ask counsel who the semi-retired attorney had recommended to represent him at trial. The next day, the semi-retired attorney died. Two days later, the client paid the outstanding amount due on the last invoice the contract lawyer had sent.

Shortly thereafter, the client met with the contract lawyer and then sent an email asking her to represent the client and his wife “in the same capacity as now and also to be our negotiator.” He then proposed a payment schedule. Approximately three weeks later, the contract lawyer sent an engagement letter to the client, but told the client it was okay to simply confirm by email that he was okay with it, rather than signing and returning it. The client answered that he would review the letter. Months later, the client and the contract lawyer agreed that the client could pay $5,000 per month toward outstanding fees and costs. After client became ill, his wife signed two notices of limited scope representation so that the contract lawyer could make court appearances. The contract lawyer then began sending her invoices to the client’s wife.

Nearly four years after being relieved as counsel, the contract lawyer filed a complaint for breach of contract and account stated against the client’s wife.

Among other things, Business and Professions Code section 6148 provides that a non-contingency fee agreement must be in writing and the lawyer must provide to the client a copy signed by both the lawyer and the client. There are exceptions where the fee is implied because similar services were previously provided to and paid by the client, or if the client makes a knowing waiver of the writing requirement after disclosure of section 6148’s requirements.

The Court of Appeal concluded that the failure to sign was not a technicality, but “a material failure to comply with a crucial statutory requirement.” Moreover, the wife — and the only “client” alleged in the complaint — had not even seen the email exchange.

The facts also did not support an exception to the written agreement requirement. The earlier work that the contract lawyer had performed was based on a contract with the semi-retired attorney. And there was no evidence that the contract lawyer ever disclosed the contents of section 6148.

In many instances, when a written fee agreement is not enforceable, section 6148, subdivision (c) provides that lawyers may recover their “reasonable fee.” But Code of Civil Procedure section 339 provides a two-year limitations period for quantum meruit claims. Because the action was not filed until nearly four years after termination of the attorney-client relationship, it was time-barred.

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17.4.2 Goodyear Tire v. Haeger (2017) 2017 U.S. LEXIS 2613; 137 S. Ct. 1178 — Supreme Court of the United States (April 18, 2017)

Does a court abuse discretion in employing its inherent authority to impose over $2.7 million in sanctions against counsel and client for delays in production of relevant information, making misleading and false in-court statements, and concealing relevant documents?

Yes. The Supreme Court reviewed the affirmance of a District Court order for sanctions that we addressed in the third quarter of 2015. It concluded 8-0 that the Ninth Circuit had erred. The Haegers sued Goodyear because a tire on their motor home failed. Goodyear repeatedly failed to produce testing information throughout the discovery process, but represented to the court that they had. The court imposed money sanctions equal to the fees and costs incurred after Goodyear served its supplemental responses to the Haegers’ first request upon concluding that was when Goodyear first definitively showed it was not going to cooperate in the litigation process.

The Court concluded that, when a court exercises its inherent authority to sanction bad-faith conduct by ordering payment of the opposing party’s fees, the amount must be limited by the additional fees the bad-faith conduct caused the other party to incur. Here, reasoning that this was a particularly “egregious” case, the District Court did not analyze whether the fees awarded had a causal link. The Ninth Circuit adopted a purely time-based approach to sanctions, concluding that they were appropriate without analyzing the cause of the fees. Instead, the Ninth Circuit believed they were justified so long as they were incurred during the time of the bad-faith conduct.

The Supreme Court corrected these analyses, indicating that the Haegers could recover only the portion of their fees that they would not have paid but for the misconduct. Such a but-for causation standard requires assessment and allocation of specific litigation expenses. But the ultimate goal is rough justice, rather than auditing perfection. Accordingly, assuming there had been no waiver of Goodyear’s ability to challenge the award, the District Court needed to reassess the fees through a but-for analysis. On June 8, 2017, the Ninth Circuit remanded to the District Court for analysis of waiver and, if necessary, causation of fees.

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17.4.3 McDermott Will & Emery LLP v. Superior Court (2017) 10 Cal.App.5th 1083 — Fourth Appellate District, Division Three (April 18, 2017); review denied June 14, 2017

Does a client waive the attorney-client privilege by inadvertently disclosing a privileged communication to third parties? Does the court properly disqualify a law firm representing one of the third parties because the lawyers failed to notify the client’s lawyer that the firm had the communication, reviewed and analyzed it, and used it in the lawsuit?

No, and yes. A former McDermott firm client brought an action against the firm and then moved for disqualification of its lawyers, Gibson Dunn. The trial court disqualified Gibson Dunn and a divided court of appeal confirmed.

The waiver question — with a somewhat convoluted set of facts — may be interesting, but it does not raise the key ethics issue. Briefly, the trial court found, and the court of appeal affirmed, that the 80-year-old former McDermott firm client did not waive his attorney-client privilege by forwarding a confidential e-mail from his personal lawyer to his sister-in-law, because he inadvertently and unknowingly forwarded the e-mail from his iPhone and, thus, lacked the necessary intent to waive the privilege. Similarly, the sister-in-law did not waive the client’s privilege when forwarding the e-mail to her husband, who then shared it with four other individuals, because neither the sister-in-law nor the brother-in-law could waive the client’s privilege; the client did not consent to these disclosures because he did not know about them or additional disclosures — including into the McDermott firm’s file — until a year later.

The e-mail surfaced — in the hands of a lawyer for the opposing party — in a subsequent probate action; the client’s lawyer stated that the e-mail was privileged, had been inadvertently disclosed to the sister-in-law and demanded its return based on State Compensation Insurance Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644 and Rico v. Mitsubishi Motors Corporation (2007) 42 Cal.4th 807. The lawyer with the e-mail disagreed, but promised not to use it and destroy all copies.

But then, the McDermott firm produced a copy of the e-mail in response to a subpoena in the probate action. When the e-mail surfaced in a deposition, the client’s lawyer again objected that it was privileged and demanded its return. A Gibson Dunn lawyer, representing the deposition witness, refused, claiming that the ethical obligation to return inadvertently disclosed documents applied only to those inadvertently produced during discovery in litigation.

Malpractice litigation against the McDermott firm followed. Gibson Dunn represented it, and attempted to use the e-mail at depositions in the malpractice litigation. Disqualification in the trial court and the writ proceeding followed.

Citing Ardon v. City of Los Angeles (2016) 62 Cal.4th 1176, 1188, the court of appeal reiterated that “the disclosure contemplated in Evidence Code section 912 involves some measure of choice and deliberation on the part of the privilege holder.” It upheld the trial court’s determination of both privilege and non-waiver.

When it came to Gibson Dunn’s disqualification, the appellate court reaffirmed that State Fund “is the seminal California decision defining a lawyer’s ethical obligations upon receiving another party’s attorney-client privileged materials,” a standard the Court adopted in Rico — while also extending the rule to materials protected by the attorney work product doctrine.

The court applied the language of State Fund — what it characterized as the “more stringent test” — that when materials received “obviously appear” to be privileged or “otherwise clearly appear to be confidential,” and where it is “reasonably apparent” that the materials were inadvertently made available, lawyers’ State Fund obligations arise. They must stop examining the materials any further, immediately notify the sender, and refrain from any use of the materials while the dispute about their privileged nature remains.

When Gibson Dunn found the e-mail in the McDermott firm’s files, it knew the sender was the client’s personal lawyer and that the McDermott firm lawyer who had gotten a copy was a potentially adverse party. The e-mail was, the appellate court held, presumptively privileged under Evidence Code section 917 and “therefore was an ‘obviously privileged’ document under the State Fund rule.” The inadvertence of its production to Gibson Dunn’s client was reinforced when the client’s lawyer claimed the privilege, said the production was inadvertent and demanded its return. Gibson Dunn’s use of the e-mail after that doomed it to disqualification.

The appellate court rejected both the law firm’s contention, and the dissent’s, that State Fund obligations are limited to privileged materials produced through the inadvertence of opposing counsel during litigation. Rather, citing post-Rico case law and a State Bar opinion, the court held that State Fund ethical obligations arise without regard to how the lawyer obtained the documents, “whenever a reasonably competent attorney would conclude the documents obviously or clearly appear to be privileged and it is reasonable apparent they were inadvertently disclosed.” Moreover, “the receiving attorney’s reasonable belief the privilege holder waived the privilege or an exception to the privilege applies does not vitiate the attorney’s State Fund duties. . . . The receiving attorney assumes the risk of disqualification when that attorney elects to use the documents before the parties or the trial court has resolved the dispute over their privileged nature and the documents ultimately are found to be privileged.”

In short, absent agreement of the parties, the trial court, not the receiving lawyer, decides whether am apparently privileged and inadvertently produced document is, in fact, privileged. A receiving lawyer who makes that determination alone does so at the peril of later disqualification. “[T]he circumstances here did not permit Gibson Dunn to decide on its own whether the privilege was waived.”

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17.4.4 Broadway Victoria, LLC v. Norminton, Wiita & Fuster (2017) 10 Cal.App.5th 1185 — Second Appellate District, Division Five (April 19, 2017)

May a failure to meet a reasonable standard of professional care constitute a breach of fiduciary duty?

No. Client alleged that its lawyers failed to advise it of two significant things: a potential malpractice claim against predecessor counsel and the potential opportunity to obtain clarification from a bankruptcy court on an assignment that it had approved. This latter “failure to advise” was significant because standing was one of the primary points of contention in a state court lawsuit and one of the issues was whether ancillary claims had been transferred as part of the assignment. Further, resolving the issue before the bankruptcy court would likely have been less expensive and more expeditious than the state court option.

The Second District noted that such allegations could potentially be sufficient to show professional negligence, but would not support a claim for breach of fiduciary duty. “Beyond mere allegations of professional negligence, a cause of action for breach of fiduciary duty requires some further violation of the obligation of trust, confidence, and/or loyalty to the client.” So, a claim of breach of fiduciary duty arising from the same facts and damages as one for malpractice is duplicative and should be dismissed.

Similarly, standing alone, the mere fact that a lawyer pursued and was paid for a losing strategy does not support a breach of fiduciary duty claim. Here, the client theorized that, to generate greater fees by continuing to litigate a standing issue in state court, the lawyers did not inform the client of a potentially faster and cheaper option of seeking bankruptcy court clarification of whether an assignment the bankruptcy court had approved included the right to bring the action. The Second Appellate District concluded, “It would be entirely speculative” to infer that the lawyers intended their client harm from the nondisclosure of one option and the receipt of fees for pursuing another that proved unsuccessful.

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17.4.5 Tucker Ellis v. Superior Court (2017) 2017 Cal. App. LEXIS 571 — First Appellate District, Division Three (June 21, 2017)

May a law firm disclose documents potentially protected as work product without first obtaining consent of the lawyer who prepared them, but no longer works at the firm?

Yes. The First Appellate District determined that, between an employer law firm and a former attorney employee, the firm was the holder of the attorney work product privilege for documents created by an attorney during and in the scope of employment.

When first joining the firm, the attorney signed an agreement that all documents received, created, or modified by the lawyer were the property of the firm. While working there, the lawyer engaged consulting experts in his area of practice. The law firm received a subpoena for documents related to research or publication funded through payments the firm made to the consultants, and produced emails authored by the lawyer. The lawyer then wrote a “clawback” to both the subpoenaing firm and his former firm, demanding the documents be sequestered and returned.

The attorney then filed a lawsuit against his former firm. The trial court analyzed the case under Labor Code section 2860, and concluded that the firm owed a duty to ensure that the attorney’s work product was not disclosed to others without his consent.

The First Appellate District concluded that ownership of the documents pursuant to Labor Code section 2860 did not determine who could waive work product, who owned the work product privilege under Code of Civil Procedure section 2018.030 did. That is because lawyers, even though not still in possession of documents, may still assert work product of that which they create.

The primary purpose of the statute is to create an environment where lawyers may honestly and objectively evaluate cases by eliminating concerns that the documents are subject to later disclosure. Here, the work with the consultant was done to benefit a client of the firm. And a contrary holding could lead to unusual situations requiring multiple lawyers needing to provide consent because a given document reflects a collective analysis. The appellate court noted, multiple times, that its holding is narrow and applied to the particular set of facts in this case.

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17.4.6 Beachcomber Management Crystal Cove, LLC v. Superior Court (2017) 13 Cal.App.5th 1105 — Fourth Appellate District, Division Three (June 28, 2017)

Should a law firm be disqualified from representing company insiders in a derivative lawsuit after representing a limited liability company in substantially related matters?

Not necessarily. The duty of confidentiality generally precludes lawyers from representing a new client if it conflicts with the previous representation of another client in a related matter. That is because usually it is presumed that the lawyer receives confidential information that is material to the second.

In this matter, the law firm originally represented an entity to respond to requests for information and challenges to its management. In a second action, the law firm agreed to represent company insiders brought in a derivative action alleging mismanagement. Of course, in such an action, the former entity client was the real party in interest. The matter involved some of the same issues raised in the initial representation of the entity. The trial court concluded that it was mandatory to disqualify the law firm based on successive representation in related matters.

The Court of Appeal reversed, noting that case law provided an exception where company insiders already know the company’s confidential information. In such cases, there is no threat to the firm’s continuing duty of confidentiality to the company. In fact, the insiders will often be the source of the lawyer’s knowledge. Accordingly, the appropriate inquiry is whether the insiders already possessed or had access to the same confidential information as the lawyer who previously represented the entity.

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17.4.7 Los Angeles County Bar Association Professional Responsibility and Ethics Committee Opinion No. 528 (April 2017)

May an attorney engaged by an insurer to defend the interests of an insured who obtains information that could provide a basis to deny coverage disclose that information to the insurer?

No. An insurer assigned a lawyer to defend an insured. Through discovery in the course of the representation, the lawyer learns of a letter from his client to the plaintiff that may establish a statute of limitation defense by putting the plaintiff on notice, but it could also be used to establish that the insured knew of the claim, which it did not disclose before renewing the insurance policy. Failure to disclose the claim.

Lawyers have a duty to communicate with their clients about significant developments in the matters they represent them in. (Bus. & Prof. Code, § 6068, subd. (m); Rules of Prof. Conduct, rule 3-500.) For lawyers representing multiple clients, such as insurance defense counsel, this means informing all clients. But this duty to communicate can sometimes conflict with the duty of confidentiality to maintain inviolate client secrets. (See Bus. & Prof. Code, § 6068, subd. (e); Rules of Prof. Conduct, rule 3-100.)

Here, the information could be damaging to the insured because the insurer could use it to argue the claim is uncovered. But it is also information that a lawyer for the insurer would be obligated to communicate. Because of this, Los Angeles County Bar Association concluded the lawyer had an irreconcilable conflict, mandating withdrawal, but without revealing the nature of the conflict.

This opinion may be limited to the circumstance that it addresses, namely one where the same facts impacting coverage would also be material to the litigation. The opinion does not address whether withdrawal would be required in a situation where the lawyer learns of facts that would impact coverage during the representation, but those facts are not material to the defense.

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17.4.8 Bar Association of San Francisco Opinion No. 2017-1 (September 2017)

May an attorney ethically initiate representation of a large group of plaintiffs in tort action where class certification is not possible or even unlikely?

Yes, though there may be greater challenges in complying with certain ethical obligations. In marketing its services, the lawyer must comply with both Rules of Professional Conduct, rule 1-400, and Business and Profession Code sections 6157-6157.3. Although the opinion did not analyze any particular advertising schemes and whether they complied with legal advertising requirements, it restated some of the standards, including that lawyers may not present past success as guarantees of future outcomes, that testimonials must contain disclaimers, that communications must expressly indicate that they are advertisements, that at least one individual lawyers must be identified as being responsible for an advertisement even if it promotes the services of a firm, and a disclosure of whether clients will be responsible for costs where a contingent fee is advertised. And the lawyers should also disclose limitations on their services, such as whether they are seeking only statutory fees, fines, or penalties, rather than tort damages.

Also, lawyers must exercise care in identifying potential clients. Because pre-certification discovery is not available when no class is anticipated, investigators are often utilized. Lawyers should train and supervise there investigators so that they do not engage in unlawful solicitation as runners or cappers.

Finally, the opinion discusses that disclosures should be made and consent obtained at the onset of the relationship. Of course, because there are multiple clients, the lawyer will need to obtain a conflict waiver. In addition, the attorney should also discuss the sharing of information between clients notwithstanding the duty of confidentiality, the apportionment of fees and costs, the limitation on accepting an aggregate settlement without every client’s consent, and the potential need to withdraw, along with the potential adverse consequences of such an event, based on client dissent.

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17.4.9 San Diego County Bar Association Legal Ethics Opinion No. 2017-1 (December 2017)

What ethical obligations arise when lawyers in a firm represent clients in litigation that arises out of legal services another lawyer in the firm performed for the clients; do those ethical obligations change when that other lawyer discovers documents material to the litigation that may give rise to the clients having a claim against the lawyer and the firm?

Clients often have lawyers in a firm with which they have a relationship represent them in litigation even if the litigation arises out of legal services the firm performed. Such representation, however, raises ethical issues. Does the firm have a conflict of interest, potential or actual? What must the firm do if it is to represent the company and its officers and directors? May the law firm undertake the representation at all? What else, if anything, must the firm do as the facts evolve? At the outset, the firm must obtain the informed written consent of each jointly represented client and fully disclose to each client in writing the firm’s potential professional and financial interest in the litigation’s outcome because of legal services it provided. Once the lawyer discovers the documents, the firm must fully disclose that fact and its ramification to each client, including the new, inherent conflicts of interest between the firm and its clients.

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17.4.10 San Diego County Bar Association Legal Ethics Opinion No. 2017-2 (December 2017)

What are an attorney’s ethical duties when the attorney believes that a guardian ad litem is not properly representing one client? What are an attorney’s ethical duties when one of two clients has the opportunity to settle separately, but the second client opposes the settlement?  

An attorney may properly petition the Court for appointment of a new guardian ad litem, but may not disclose confidential information that the existing guardian ad litem requests remain confidential. The lawyer represents the client, not the guardian, and therefore does not owe any particular duties to the individual serving in the position of guardian ad litem.

An attorney may not ethically assist one client in settling a matter when another client in the same matter reasonably believes that the settlement will materially adversely affect the second client’s matter, even if the impact would be based purely on an anticipated change in the perception by the finder of fact. Whether the belief is reasonable, however, is very fact-dependent.

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Please note that, due to the break in continuity of publications, the volume number of Ethics Quarterly now matches the calendar year of publication and does not reflect the number of years that Ethics Quarterly has been published.