Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Recent Decision Reaffirms Attorneys’ Continued Obligation to Refrain From Taking Action Adverse to Former Clients

In Fremont Reorganizing Corp. v. Faigin (August 30, 2011)--- Cal.Rptr.3d ----11 Cal. Daily Op. Serv. 11, 280, Faigin sued Fremont Reorganizing Corporation (“FRC”) alleging that he was jointly employed by both FRC and Fremont General Corporation (“Fremont General”) as in-house counsel. FRC filed a cross-complaint against Faigin alleging that he wrongfully informed the Insurance Commissioner (“Commissioner”), as liquidator of a related company, Fremont Indemnity Company (“Fremont Indemnity”), that his former clients were planning to auction artwork that he claimed were owned by Fremont Indemnity. The Commissioner then commenced an adversary action against Fremont General and FRC in the liquidation proceeding.

The Court found that Faigin’s conduct fell within the first prong of the Anti-SLAPP statute stating

The counts for breach of confidence, breach of fiduciary duty, and equitable indemnity all are based on Faigin's statements made to the Commissioner that FRC and Fremont General were planning to auction artwork that purportedly belonged to Fremont Indemnity.... It seems clear that the gravamen or principal thrust of each of these counts is that Faigin breached his professional duties owed to his former clients by making the statements to the Commissioner.
(Id. at * 6.)

The Court reversed the trial court’s grant of the SLAPP motion finding “that FRC established a probability of prevailing on its counts for breach of confidence and breach of fiduciary duty and that the litigation privilege is inapplicable in an action by a former client against an attorney arising from breach of professional duties.”

Importantly, the Court found the litigation privilege embodied in Civil Code section 47(b) did not apply to lawsuits by clients against their attorneys finding:

The litigation privilege, if applicable, would preclude essentially any action by a former client against an attorney for breach of professional duties arising from communicative conduct in litigation on behalf of that client. We believe that to allow litigation attorneys to breach their professional duties owed to their own clients with impunity from civil liability would undermine the attorney-client relationship and would not further the policies of affording free access to the courts and encouraging open channels of communication and zealous advocacy. We therefore hold that the litigation privilege is inapplicable in an action by a former client against an attorney for breach of professional duties, so we cannot affirm the granting of the special motion to strike on this basis.
(Id. at *12.) 

The Court cited to the recent Supreme Court decision in Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811 finding that “In light of the presumption that Faigin acquired confidential information in his representation of FRC and the circumstances of Faigin's employment termination and subsequent telephone call to the Commissioner, we believe that it is reasonable to infer that he used or disclosed such confidential information in informing the Commissioner that FRC and Fremont General were planning to auction artworks purportedly belonging to Fremont Indemnity.”  (Id. at *13.)   The Court affirmed the trial court order striking the causes of action under Rule of Professional Responsibility, rule 3–310(C) and for indemnity finding FRC failed to establish a probability of prevailing on the merits.

The decision is a significant interpretation of the Supreme Court decision in Oasis West, supra, 51 Cal.4th  811, and reaffirms that the “prohibition against acting in a manner that would injure a former client in any matter in which the attorney formerly represented the client is not limited to the situation where the attorney concurrently or successively represents another client with interests adverse to those of the former client.”  (Id. at *12.)  Thus, even where an attorney is suing his or her former employer, the attorney must, in nearly all circumstances,  refrain from taking actions adverse to a client such as disclosing confidential information to third parties.  

-- Andrew Servais