by Members of the OCBA professionalism & Ethics Committee

The Professionalism and Ethics Committee has scoured the landscape of ethics and lawyer liability cases from 2017 and found the ten that, in its view, were most significant. They include several disqualification cases—based on conflicts and even an inadvertent disclosure. They also include an important attorney-client privilege decision and decisions about fee agreements and work product. Among the most significant cases are several from our own fourth, third appellate district, which had some of the highest profile conflict-of-interest cases of the year.

Inadvertent Disclosure

The court of appeal (Fourth District, Division Three) in McDermott Will & Emery LLP v. Superior Court, 10 Cal. App. 5th 1083 (2017), issued the latest in the line of cases concerning an attorney’s ethical duties when faced with inadvertent disclosure of privileged writings. In this case, however, the inadvertently disclosed writing was received from the disqualified attorney’s own client, rather than from an opposing party in discovery. Here, a father and son were joint clients of the McDermott law firm. The father consulted with independent counsel who sent him a privileged email containing legal advice. The father inadvertently forwarded the privileged email to a relative, who then forwarded it to son and to McDermott. The firm reviewed the email, retaining it in their files.

When the father later sued McDermott for legal malpractice, McDermott provided its client file, including the privileged email, to its defense counsel, Gibson Dunn & Crutcher LLP. Without giving plaintiff notice of their possession of the email, lawyers at Gibson decided it was not privileged based on a variety of theories, including that any privilege had been waived by the father forwarding it to a relative. The Gibson attorneys then used the email to formulate strategy, disclosed its content in discovery, and refused to honor the repeated privilege objections of plaintiff’s counsel and their demands to stop using the document.

The trial court determined that the writing was privileged, and disqualified Gibson. McDermott filed a petition for writ of mandate, asserting that the writing was not privileged and that duties normally imposed on lawyers who receive inadvertently disclosed writings were inapplicable because the writing was not produced by an opposing party in discovery and any privileged had been waived because the document was not clearly or obviously privileged, bore no notation of privilege, and had been forwarded to third parties.

McDermott’s arguments were rejected by a divided panel of the court of appeal. Because it was a communication between attorney and client, the email was presumptively privileged and therefore “obviously” privileged. Gibson was not permitted to decide on its own whether the privilege was waived. Disqualification was appropriate for prophylactic reasons based upon Gibson’s extensive use of the email. The court of appeal concluded that, in close cases, prudence requires following the established ethical procedures—that notice be given and further review be discontinued. Gibson’s disqualification was affirmed.

Attorney-Client Privilege

In Behunin v. Superior Court, 9 Cal. App. 5th 833 (2017), the court of appeal made clear that not all communications between an attorney and an outside consultant retained by the attorney are privileged. In Behunin, a plaintiff and his counsel in a real estate dispute retained a public relations consultant to help create a website revealing damaging and possibly false information about the defendant’s relationship with a notorious dictator. The purpose of the website was to put pressure on the defendant to settle the real estate dispute. In a later libel action brought by the real estate defendant, the defendant sought discovery of communications among the plaintiff, the plaintiff’s counsel, and the public relations consultant about the website. The trial court held that the communications were not privileged and were discoverable. The original plaintiff then sought review by writ of mandate.

The court of appeal affirmed the lower court’s ruling. Reaffirming that there is no public relations privilege in California, the communications could be protected only if they fell within the scope of the attorney-client privilege. Communications that were disclosed to the public relations consultant could be privileged only if disclosure “was reasonably necessary to accomplish the purpose for which the client consulted the attorney.” Id. at 845. This was based upon the well-settled principle that disclosure of attorney-client communications to a physician, appraiser, or other expert does not waive the privilege if the disclosure is necessary to provide competent legal advice to the client.

The court concluded, at least on the facts of this case, that disclosure of communications to the public relations consultant was not reasonably necessary to provide legal advice to the client. The petitioner’s argument that communications with the public relations consultant were necessary to induce settlement of litigation “extends the privilege too far.” Id. at 850. The court noted that all kinds of extra-judicial strategies with third-party consultants could be employed in an attempt to induce settlement. But the courts have not extended the privilege to communications with these non-attorney consultants.

On remand, following the Supreme Court’s controversial decision in County of Los Angeles Board of Supervisors v. Superior Court, 2 Cal. 5th 282 (2016), the court of appeal seemed to interpret out of the Supreme Court’s decision some of its most controversial aspects. In County of Los Angeles Board of Supervisors v. Superior Court, 12 Cal. App. 5th 1264 (2017), the court of appeal carefully analyzed the Supreme Court’s decision, which appeared to require courts to conduct a content-based analysis of attorney invoices to determine whether they were privileged. At issue in County of Los Angeles was a Public Records Act (PRA) request by the ACLU seeking attorney invoices for counsel representing the county in litigation involving alleged excessive use of force. The Supreme Court’s decision was analyzed fully in the April 2017 issue of this magazine. See Carole J. Buckner, The Disappearing Attorney-Client Privilege, Orange County Lawyer, April 2017, at 66.

On remand, the ACLU demanded that the court inspect the redacted portions of invoices in concluded matters to determine whether the time entries revealed insight into legal strategy or the substance of legal consultation and were therefore privileged. The court of appeal declined. The court first interpreted the Supreme Court’s decision with respect to content-based analysis as applying only to invoices for concluded matters, holding invoices related to pending or ongoing litigation are privileged. The court of appeal further found the Supreme Court’s “conclusion that information in billing invoices is sometimes subject to PRA disclosure” was limited to disclosure of “fee totals.” County of Los Angeles, 12 Cal. App. 5th at 1275. The other information contained in the billing entries or other aspects of attorney invoices remains privileged, and the trial court is not permitted to examine them to determine whether they reveal legal consultation or insight into strategy. However, whether fee totals in concluded matters reveal such privileged information is a question for the trial court, which, the court of appeal held, could be determined even without examination of the particular invoices in dispute.

Attorney Work Product

In an interesting case shedding light on who holds the attorney work-product privilege after the creating attorney departs a law firm, the court of appeal in Tucker Ellis LLP v. Superior Court, 12 Cal. App. 5th 1233 (2017), found in favor of the firm. In Tucker, an attorney’s former firm, in response to a third-party document subpoena, produced written work product the attorney had created while employed by the firm. The attorney later sued his former firm, claiming that due to this production, his work product was posted on the internet, interfering with his ability to work effectively with experts in his field, and ultimately resulting in his termination from his new firm and an inability to find new employment. The trial court ruled in favor of the attorney, finding that his former firm had a duty under the work-product privilege (Code of Civil Procedure § 2018.030) to protect his work product from disclosure to third parties without his permission.

The court of appeal reversed. The court rejected the law firm’s argument that the issue was controlled by Labor Code section 2860 (“Everything which an employee acquires by virtue of his employment . . . belongs to the employer . . .”) because ownership of the documents in question did not control who holds the privilege for those documents. However, because the attorney work-product statute is silent as to whether the law firm or the attorney holds the privilege, the court concluded that granting the privilege to the firm, rather than the attorney, was consistent with the statute’s purpose, which is to prevent compelled disclosure to someone outside the attorney-client relationship. Here, the work product was created pursuant to an engagement with the firm, not with the attorney who merely was acting as the firm’s employee. The court also noted that many law firm documents reflect the work of multiple attorneys, and it would be a burdensome and complicated task for a firm to seek permission from all of the lawyers involved. The purpose of the privilege is better served, the court concluded, by allowing the law firm itself “to speak with one voice regarding the assertion of the privilege.” Id. at 1247.

Malicious Prosecution

In Parrish v. Latham & Watkins, 3 Cal. 5th 767 (2017), the Supreme Court refined the doctrine of “probable cause” in rejecting malicious prosecution claims against Latham & Watkins, counsel for the unsuccessful plaintiff in a Uniform Trade Secrets Act action. The trial court in the trade secrets action had denied the defendants’ motion for summary judgment, but after trial, found that Latham’s client’s action was brought in “bad faith,” awarding over $1.4 million in attorneys’ fees. The defendants then sued the unsuccessful plaintiff and Latham for malicious prosecution.

Latham argued that the initial denial of summary judgment in the underlying case barred a later action for malicious prosecution. The Supreme Court agreed and, in so doing, clarified the “interim adverse judgment rule.” According to Justice Kruger’s unanimous opinion, quoting Wilson v. Parker, Covert & Chidester, 28 Cal. 4th 811, 817 (2002): “[An interim] judgment or verdict in favor of the plaintiff or prosecutor in the underlying case, unless obtained by means of fraud or perjury, establishes probable cause to bring the underlying action, even though the judgment or verdict is overturned on appeal or by later ruling of the trial court.” Id. at 776. In lawsuits in which qualified immunities require parties or their lawyers to demonstrate “reasonable cause” or “absence of malice,” an interim finding by the trial court of the right to proceed with colorably valid claims or defenses is a bar to later lawsuits seeking additional financial remedies.

Conflict of Interest

In Beachcomber Management Crystal Cove, LLC v. Superior Court, 13 Cal. App. 5th 1105, 1118 (2017), the court of appeal (Fourth District, Division Three) took a pragmatic approach to an alleged conflict of interest in the context of a corporate derivative action. In Beachcomber, five members of a small limited liability company (the “Company”) filed a derivative action on behalf of the Company against the managing member and its principal (the “Company Insiders”). A law firm that previously had represented both the Company and the Company Insiders with respect to other matters, including with respect to issues that the trial court found were substantially related to the claims alleged in the derivative action, accepted representation of the Company Insiders. The trial court granted a motion to disqualify the firm from representing the Company Insiders as defendants in a derivative action because the Company was the nominal plaintiff, and thus adverse to the Company Insiders. The trial court found that the successive representation of the Company Insiders was impermissible under the substantial relationship test, which presumes the lawyer obtained confidential information material to the prior representation.

The court of appeal reversed, finding that the trial court erred in granting the motion to disqualify without considering a specific line of cases pertaining to small or closely held companies. Relying upon Forrest v. Baeza, 58 Cal. App. 4th 65 (1997), and its progeny, the court held that “[s]uccessive representation rules . . . generally do not prevent an attorney from continuing to represent insiders in a derivative lawsuit even though a substantial relationship exists between the attorney’s previous representation of the company and the attorney’s current representation of insiders in the company’s lawsuit against them.” Beachcomber, 13 Cal. App. 5th at 1118. The court noted that, in small or closely held companies, insiders typically are the source and repositories of all confidential information the attorney receives. Id. at 1119. Consequently, “disqualifying the original attorney would serve no purpose and [would] needlessly generate attorney fees as the new attorney gets up to speed.” Id. The court noted that the critical inquiry for the trial court under Forrest is “whether the insiders had access to the same information as the attorney who represented both the insiders and the company.” Id. at 1121-22.

The court granted a petition for writ of mandate and directed the trial court to vacate its order and determine whether the rule articulated in Forrest applicable to successive representation of small company insiders in derivative actions would apply. Id. at 1124.

In Lynn v. George, 15 Cal. App. 5th 630 (2017), the court of appeal (Fourth District, Division Three) analyzed the laws of attorney conflicts and disqualification of counsel. After a dispute developed between two real estate brokers, one of them, plaintiff Angelica Lynn, moved to disqualify the defendants’ long-standing counsel from representing defendants in the dispute. She argued alternatively that the defendants’ counsel had represented an alleged partnership between Lynn and defendants or that Lynn had a confidential non-client relationship with defendants’ counsel. The trial court declined to decide whether a partnership existed, but granted Lynn’s motion on two independent grounds: (1) a confidential non-client relationship between Lynn and defendants’ counsel existed, and (2) a potential attorney-client relationship between defendants’ counsel and the alleged partnership existed.

The court of appeal noted that whether (1) an attorney owes a duty to a non-client to preserve confidential information or (2) an attorney-client relationship was formed which could subject the attorney to disqualification depends upon if, and to what extent, confidential information was disclosed to the attorney. To determine if either existed here, the court of appeal reviewed the evidence, which consisted of email communications between Lynn and defendants’ counsel. The court determined that such communications were of the type one could expect between a lawyer and real estate broker regarding a proposed sale transaction, without disclosure of any confidential information. Further, Lynn did not seek advice from defendants’ counsel on any issue outside of Lynn’s role as a broker for defendant. Because the evidence was insufficient to deprive defendant of his right to have counsel of his choice, the appellate court reversed the trial court’s opinion on both grounds. Notwithstanding the decision, this is a significant case in that it discusses potential duties owed to non-clients.

In URS Corp. v. Atkinson/Walsh Joint Venture, 15 Cal. App. 5th 872 (2017), the court of appeal (Fourth District, Division Three) held that the appeal of an order granting a motion to disqualify counsel stays the disqualification order, but not necessarily the entire case. At least theoretically, then, the disqualified counsel could continue litigating the case through to completion while the court of appeal considers the appeal. This case was analyzed more fully in the December issue of this magazine. See Paul Stewart, The Surprising Consequences of Appealing an Order Disqualifying Counsel, Orange County Lawyer, December 2017 at 65.

Legal Malpractice: Statute of Limitations

In Flake v. Neumiller & Beardslee, 9 Cal. App. 5th 223 (2017), the court of appeal applied an objective standard to the issue of continued representation tolling rule under the one-year legal malpractice statute of limitations of Code of Civil Procedure section 340.6 (a)(2). In that case, Flake sued his former lawyer for legal malpractice more than one year after the lawyer filed a motion to withdraw, but less than one year after the motion to withdraw was granted. In the ensuing legal malpractice action, the trial court granted the former lawyer’s motion for summary judgment, finding that the former client could not have an objectively reasonable expectation that former counsel was continuing to represent him after he was served with his lawyer’s motion to withdraw. Thus, the action was barred by the statute of limitations.

The court of appeal affirmed the granting of summary judgment. It held that, for purposes of analyzing the continued representation tolling rule, courts will not look to the client’s subjective beliefs, but rather will look for evidence of an ongoing attorney-client relationship and activities in furtherance of that relationship. Here, the client’s receipt of the motion to withdraw should have signaled to an objectively reasonable person that his lawyer no longer was providing legal services to him. In fact, the motion clearly stated that another lawyer had taken over the representation and was actively working on post-judgment motions and an appeal. This should have put the client on notice that his former lawyer’s representation was completed. The date the motion to withdraw was granted was not determinative.

Fee Agreement

Forster, 8 Cal. App. 5th 467 (2017), the court of appeal held that an unsigned fee agreement is voidable at the election of the client. In the case, appellant Leighton performed legal services for Bob and Rochelle Forster from 2004 to 2008. Several years into the engagement, in May of 2007, Leighton e-mailed Bob Forster a draft engagement letter. Bob Forster sent an e-mail the same day stating, among other things, “we will review this.” However, he never signed the engagement letter. Separately, Rochelle Forster signed two “Notice[s] of Limited Scope Representation,” but neither included any financial terms.

Bob Forster had become ill by October of 2007 and passed away in May of 2008. With limited exceptions, the Forsters did not pay Leighton’s invoices during this time period. In June 2008, Leighton contacted Rochelle Forster regarding the outstanding balance of approximately $100,000. Rochelle expressed surprise at the “exorbitant” bills and ultimately refused to pay them. In August of 2008, Leighton’s motion to withdraw was granted. Nearly four years later, Leighton filed suit to recover his fees.

The trial court granted summary judgment in favor of Forster, and the court of appeal affirmed. Business and Professions Code section 6148 requires most contracts for attorney services to be in writing and signed and provides that failure to comply renders the contract voidable by the client. The court of appeal rejected Leighton’s argument that the signature requirement is a “technicality,” holding that “the fact that an alleged attorney fee contract has not been signed by anyone does not constitute a technicality, but a material failure to comply with a crucial statutory requirement.” Id. at 484-85. Second, even if an unsigned email could substantially comply with Section 6148(a), Leighton’s complaint alleged only Rochelle Forster as the relevant client, and there was no evidence that she was even aware of the May 2, 2007 email at the time it was sent. Thus, the alleged agreement was voidable, and Forster implicitly voided it by refusing to pay Leighton’s invoices. To add insult to injury, because the appellant waited nearly four years to bring the complaint, her claim for quantum meruit was barred by the two-year statute of limitations.