by Paul A. Stewart
When an attorney is disqualified from representing a client due to a conflict of interest, the question ordinarily arises whether the attorney’s entire firm must also be disqualified. The California Rules of Professional Conduct do not expressly address this issue. Nevertheless, the California courts traditionally have taken a dim view of efforts by law firms to represent a client when even a single member of the law firm is disqualified from representing that client. For example, in Flatt v. Superior Court, 9 Cal. 4th 275, 283 (1994), the California Supreme Court broadly stated that “disqualification extends vicariously to the entire firm.”
In recent years, however, there has been a slowly emerging trend in the opposite direction. In at least three decisions, courts in California have refused to disqualify an entire law firm where one of the firm’s attorneys had previously represented an adverse party in a substantially related matter. In each case, the court found, on the specific facts of the case, that the law firm did not acquire or retain any material confidential information of the former client and, therefore, the firm could proceed with the representation.
The first of these cases was Goldberg v. Warner/Chappell Music, Inc. , 125 Cal. App. 4th 752 (2005). In Goldberg, a partner of the Mitchell Silberberg & Knupp firm (MS&K) met informally with a friend for about ninety minutes to discuss and review the friend’s employment agreement. Id. at 755-56. Despite the brief and informal nature of the encounter, an attorney-client relationship was formed. Id. at 762.
The attorney then left the firm. There was no evidence that the attorney had ever discussed his meeting with his friend with anyone else at MS&K. Id. at 758. Three years later, the attorney’s friend was terminated by her employer and filed a wrongful termination suit against the employer. The employer retained MS&K to represent it. The plaintiff then moved to disqualify MS&K. Id. The trial court denied the motion, and the plaintiff appealed. Id.
The court of appeal affirmed the trial court’s decision. The court began by noting the general rule that an attorney or law firm may not represent one client adverse to a former client if the matters are substantially related. Id. at 759. Here, there was little doubt that the review of an employment agreement was substantially related to a dispute over termination of that same employment. Thus, the attorney who reviewed the agreement—who no longer was with MS&K—plainly would have been disqualified. The court of appeal also noted the general rule that “where the attorney is disqualified from representation due to an ethical conflict, the disqualification extends to the entire firm.” Id. Thus, if the partner who had reviewed the employment agreement were still at MS&K, the entire firm would have been disqualified. Id. at 762.
The tainted attorney, however, had left the MS&K firm three years earlier. Accordingly, the court refused to apply a “conclusive presumption,” id. at 760, or an “irrebuttable presumption,” id. at 762, that the tainted attorney had shared his former client’s confidences with others at MS&K. “Once an attorney departs the firm,” the court explained, “a blanket rule to prevent future breaches of confidentiality is not necessary because the departed attorney no longer has presumptive access to the secrets possessed by the former firm. The court need no longer rely on the fiction of imputed knowledge to safeguard client confidentiality.” Id. “We need not be concerned that [the departed attorney] will inadvertently pass on confidential information to his colleagues in the future because he is no longer there ‘in the lunch room.’” Id.
For these reasons, the court of appeal concluded that it was appropriate “for the trial court to make an assessment of whether [the departed attorney] actually passed on confidential information.” Id. Because the evidence showed he had not done so, the court of appeal affirmed the trial court’s decision not to disqualify MS&K. Thus, Goldberg appears to establish that the conflicts of a former member of a firm will not be imputed to the firm if the firm can make an affirmative showing that the former member did not share confidences with the firm. This rule is likely a narrow one. If a client file is opened, emails are exchanged, and/or an attorney spends significant time working on a matter, it would be much more difficult, if not impossible, to make an affirmative showing that the attorney’s colleagues were not exposed to the client’s confidential information.
The second case, and the one that has received by far the greatest amount of publicity, is Kirk v. First American Title Insurance Company, 183 Cal. App. 4th 776 (2010). This is the first precedential California case permitting a private law firm to avoid disqualification by imposing an ethical wall or screen around the tainted attorney.
In Kirk, the plaintiff’s counsel in a class action lawsuit consulted for seventeen minutes with an attorney named Gary Cohen. Id. at 786. Though the conversation was brief, it was undisputed that Mr. Cohen received confidential information from the plaintiff’s counsel, including the plaintiff’s theories of the case, concerns regarding defense strategy, and the plaintiff’s estimate of the value of the case. Id. Mr. Cohen then joined the law firm of Sonnenschein Nath & Rosenthal (SN&R). About two months later, counsel for the defendant in the class action also joined SN&R. Two days later, the plaintiff objected to SN&R’s representation of the defendant because of Mr. Cohen’s association with SN&R. That same day, SN&R erected an ethical screen around Mr. Cohen. Id. at 787-88. Shortly thereafter, the plaintiff filed a motion to disqualify the law firm, which was granted. The defendant then appealed.
After a lengthy review of the case law, the court of appeal reaffirmed “that vicarious disqualification is the general rule, and that we should presume knowledge is imputed to all members of the tainted attorney’s law firm.” Id. at 801 (emphasis in original). The court concluded, however, that “in proper circumstances, the presumption is a rebuttable one, which can be refuted by evidence that ethical screening will effectively prevent the sharing of confidences in a particular case.” Id.
The court of appeal vacated the disqualification order and remanded the case to the trial court to determine whether SN&R’s screen was effective. Id. at 809. If the screen was effective, the court instructed the trial court to balance the various relevant policy considerations before deciding whether to disqualify SN&R. Id. at 807-09. The major policy consideration in favor of disqualification was, of course, preservation of public trust in the integrity of the bar. Id. at 807. However, to be balanced against this important interest, were the client’s right to choose counsel, an attorney’s interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion. Id. at 808. The court noted that, in this case, particularly relevant considerations included plaintiff’s long-term relationship with its counsel (which included the defense of eighty class actions), the fact that the tainted attorney “possesses only a small amount of potentially relevant confidential information,” and the fact that the tainted attorney was located “in a different office.” Id. at 809.
Kirk thus permits ethical screens to rebut the presumption of shared confidential information and to avoid disqualification, but only where the screen is effective and only where policy considerations counsel against disqualification. The decision in Kirk remains controversial, and there is no guarantee it will be followed by other courts in California. However, together with the Goldberg decision, it appears to be part of a trend undermining the traditional view in California that the disqualification of a single attorney is always imputed to the attorney’s entire law firm. Moreover, the California Rules Revision Committee is considering adopting a new Rule of Professional Responsibility, Rule 1.10(a)(2) that would permit ethical screens to be used to rebut the presumption of disqualification in circumstances similar to those of Kirk. This may further indicate a trend away from the traditional rule that disqualification of one attorney is always imputed to the attorney’s entire firm.
The third case is State Compensation Insurance Fund v. Drobot, Case No. SACV 13-956 AG (CWx) (C.D. Cal. July 11, 2014). This case involved allegations of a massive insurance fraud scheme by the defendants through which the plaintiff insurer allegedly paid hundreds of millions of dollars in fraudulent claims. The plaintiff was represented by the law firm Irell & Manella. About three years before the filing of the insurance fraud complaint, an Irell attorney, Matthew Sant, represented Michael Drobot, Jr., one of the defendants in the insurance fraud case. The representation lasted a year, included over 100 emails, and concerned matters that were arguably related to the insurance fraud scheme. Id. at 1-2. Mr. Sant left Irell about the same time his representation of Mr. Drobot ended. Id. at 2. Mr. Sant failed to enter into a formal engagement agreement with Mr. Drobot or open a formal billing number for the representation. Id. As a result, Irell did not identify Mr. Sant’s representation of Mr. Drobot when it ran a conflict check for the State Compensation Insurance Fund matter. Id.
About a year into the insurance fraud litigation, the defendants filed a motion to disqualify Irell based upon Mr. Sant’s prior representation of Mr. Drobot. Id. at 3. The court assumed for purposes of the motion that Mr. Sant’s prior work for Mr. Drobot was substantially related to the insurance fraud litigation. Id. at 6. Consequently, if the court had applied the traditional vicarious disqualification rule, Irell would have been automatically disqualified from working on the insurance fraud litigation. However, the court reviewed the Kirk and Goldberg decisions and concluded that automatic vicarious disqualification is no longer the rule in California. Id. at 8-12. “Kirk and Goldberg,” the court held, “both correctly reflect the changing times in law firm operation and culture. In this age of thousand-attorney firms, where people move frequently from firm to firm, some flat rules don’t fit as well as they used to.” Id. at 12. Accordingly, the court concluded that the presumption of vicarious disqualification of an entire law firm is rebuttable. Id.
The court then turned to the issue of whether Irell had successfully rebutted the presumption. The court reiterated Goldberg’s observation that when the tainted attorney already left the firm before the challenged representation began, “courts may conduct a dispassionate assessment of whether confidential information was actually exchanged.” Id. at 13. “Where the tainted attorney has left the firm, and where no one other than the departed attorney had any dealings with the client or obtained confidential information, there is no need to rely on the fiction of imputed knowledge to safeguard client confidentiality.” Id. The court also observed that vicarious disqualification under such circumstances “unnecessarily restricts both the client’s right to chosen counsel and the attorney’s freedom of association.” Id.
The court then expanded somewhat upon the holding of Goldberg. While Goldbergfound that vicarious disqualification was improper because the tainted attorney did not share confidences with anyone at his former firm, the State Compensation Insurance Fund court found that vicarious disqualification was improper because the tainted attorney did not share confidences with the attorneys actually handling the new litigation. Id. at 12. To reach this conclusion, the court relied upon declarations from litigation counsel and deposition testimony of Mr. Sant, as well as a review of Mr. Sant’s billing records. Id. at 15.
Finally, the court evaluated the same policy considerations that were evaluated in Kirk. In particular, the court noted that Irell had “spent thousands of hours developing a comprehensive knowledge of the underlying facts” and “reviewing thousands of documents and propounding and responding to voluminous discovery requests, on top of the expansive motion practice.” Id. at 16. Thus, replacing Irell “would create a serious financial burden to [p]laintiff.” Id. The court also expressed very serious concern that the defendants’ year-long delay in moving for disqualification suggested a “tactical abuse.” Id.
In the end, the court described the case as “close” (id. at 15), and found that the case was “far from an example of good law firm management.” Id. at 18. But the court was convinced that the defendants would suffer no harm from Irell’s continued participation in the case. Id. Accordingly, the court denied the disqualification motion. The court thus allowed Irell to continue to represent the plaintiff in an action against a former client that was substantially related to Irell’s work for the former client.
Together, Goldberg, Kirk, and State Compensation Insurance Fund show that at least some courts in California will now permit a law firm to rebut the presumption that confidential information was shared throughout the firm, and the corresponding presumption that the firm should be vicariously disqualified because of the conflict of a single member or former member of the firm. Even in courts receptive to this analysis, the showing will be difficult to make. However, it is no longer true that vicarious disqualification of a law firm is automatic in all circumstances in all California courts.
Paul A. Stewart is a partner at Knobbe, Martens, Olson & Bear, LLP, where he practices intellectual property law. He can be reached at paul.stewart@knobbe.com.