by Members of the OCBA Professionalism & Ethics Committee
2016 brought some important and often entertaining cases in the areas of legal ethics and the law of lawyering—from chastising a lawyer for his use of pepper spray and a stun gun at a deposition to a holding that the attorney-client privilege cannot be waived by the service of a tardy and skimpy privilege log.
The Professionalism and Ethics Committee has summarized the cases it found most worthy of discussion.
Attorney-Client Privilege
In Catalina Island Yacht Club v. Superior Court, 242 Cal. App. 4th 1116 (2015), the court addressed whether a lawyer waives the attorney-client privilege and work-product doctrine by serving a deficient privilege log. In response to plaintiff’s inspection demands, defense counsel timely served written objections invoking the attorney-client privilege and work product doctrine. Counsel also served a series of privilege logs and amended privilege logs that ultimately identified the sender, recipient, and date of 167 emails, but did not describe the content or subject matter of the emails.
The trial court granted plaintiff’s motion to compel production of these emails, finding that the log was “insufficient to show the entries therein are protected by either the attorney-client or work-product protections.” Id. at 1123. The court of appeal reversed, holding that the trial court had exceeded its authority by imposing a forced waiver of defendants’ privilege. As the court explained, California recognizes only three ways to waive a privilege, none of which was implicated here: (1) disclosing a privileged communication in a non-confidential context; (2) failing to claim the privilege in a proceeding when the holder has the legal standing and opportunity to do so; and (3) failing to assert the privilege in a timely response to an inspection demand. Id. at 1126.
Although the court agreed that the log was deficient, it held that once “objections are timely asserted, the trial court may not deem them waived based on any deficiency in the . . . privilege log.” Id. at 1129. Instead, the trial court should have ordered defendants to serve a supplemental privilege log that adequately identified the factual basis for the privilege for each document. Id. at 1130. A trial court also may impose sanctions on an objecting party who has no substantial justification for a deficient log. Id. at 1131.
In City of Petaluma v. Superior Court, 248 Cal. App. 4th 1023 (2016), the court addressed application of the attorney-client privilege and work-product doctrine in the context of a fire department hostile work environment lawsuit. The city asserted that an investigation report prepared by its outside counsel concerning charges made by a female firefighter was protected from discovery by the attorney-client privilege. Plaintiff argued that the report was not protected because no legal advice was sought; counsel’s engagement letter expressly stated that she “will not render legal advice as to what action to take as a result of the findings of the investigation.” Id. at 1029. The trial court granted plaintiff’s motion to compel, but the appellate court reversed.
The court held that the city was a “client” as defined in Evidence Code Section 951. The fact that the city did not seek advice based on counsel’s investigative findings did not disqualify it as a client. The court reasoned that “[t]he plain terms of the statute support the conclusion that an attorney-client relationship may exist when an attorney provides a legal service without also providing advice. The rendering of legal advice is not required for the privilege to apply.” Id. at 1034. Because the investigation conducted by counsel required her legal expertise (to identify pertinent facts, synthesize the evidence, and come to a conclusion as to what happened), the dominant purpose of her investigation was to provide professional legal services, establishing the attorney-client relationship. Thus, counsel’s communications with the city, including her investigation report, were privileged. They also were protected as attorney work product.
In DP Pham, LLC v. Cheadle, 246 Cal. App. 4th 653 (2016), the court again confirmed that in camera review of communications to determine whether they are attorney-client privileged is improper. The plaintiff in Cheadle obtained communications between the deceased defendant and his lawyer from the deceased’s personal assistant, and used those communications in a lawsuit over the deceased’s estate. The deceased’s personal representative claimed privilege and moved to disqualify plaintiff’s counsel for reviewing and using the communications. Although a prima facie showing was made establishing that the communications in question were between lawyer and client, the trial court found the presumption of privilege was overcome based on its in camera review of the contents of the communications. Finding the communications did not provide legal advice, the trial court held the privilege did not apply.
The California Court of Appeal reversed. Following the Supreme Court’s Costco decision (Costco Wholesale Corp. v. Super. Ct., 47 Cal. 4th 725 (2009)), the appellate court found a court “may not review the contents of a communication to determine whether the attorney-client privilege protects that communication.” DP Pham LLC, 246 Cal. App. 4th at 659. The court further rejected the plaintiff’s argument that privilege had been waived by the personal assistant’s disclosure of the communications because the privilege can only be waived by the holder of the privilege, and the personal assistant was not the holder. Id. at 668. Finally, the court abrogated the decision in OXY Resources California, LLC v. Superior Court, 115 Cal. App. 4th 874 (2004)), in as much as it held in camera review of privileged communications was warranted to determine whether the privilege was waived or an exception applied, stating “this aspect of OXY is no longer good law after the Supreme Court’s Costco decision.” DP Pham LLC, 246 Cal. App. 4th at 667.
In Loop AI Labs, Inc. v. Gatti, No. 15-cv-00798-HSG(DMR) WL 730211 (N.D. Cal. Feb. 24, 2016), Loop subpoenaed documents from its former counsel, Orrick. Orrick objected that some of the documents were attorney-client communications between Orrick and its own in-firm counsel. Loop argued that federal privilege law recognizes a “fiduciary” or “current client” exception to the privilege, and that Orrick was subject to the exception because it simultaneously represented Loop and the corporate defendants.
The court first ruled that in a case alleging both federal causes of action and pendent state law claims, federal privilege law applied. The court then noted that the Ninth Circuit recognizes the “fiduciary” exception. U.S. v. Mett, 178 F.3d 1058, 1062 (9th Cir. 1999). Thus, “‘a law firm cannot assert the attorney-client privilege against a current outside client when the communications that it seeks to protect arise out of self-representation that creates an impermissible conflicting relationship with that outside client.’” Loop Al Labs, Inc., No. 15-cv-00798-HSG(DMR) WL 730211 at *5 (quoting In re SonicBlue, Inc., No. 03-51775, WL 170562, at *9 (Bankr. N.D. Cal. Jan. 18, 2008)).
The court reasoned, however, that “a firm need not disclose communications reflecting consultations between the firm’s [in-house] lawyers regarding the firm’s legal and ethical obligations to its client . . . .” Id. at *6 (citing Thelen Reid & Priest LLP v. Marland, No. C 06-2071 VRW WL 78989, at *7 (N.D. Cal. Feb. 21, 2007)). The court noted there was no evidence that Orrick performed any work for Loop after it became aware of the potential conflict. After conducting an in camera review of the withheld documents,1 the court determined that the documents “contain communications about Loop’s subpoena and this lawsuit, and the subsequent internal communications about Orrick’s legal and ethical obligations. . . . The withheld documents do not contain communications discussing claims that Loop might have against Orrick, errors in Orrick’s representation of Loop, or conflicts between Orrick and Loop.” Id. at *7. Accordingly, the court ruled that the “fiduciary” exception did not apply to these documents, and that they were therefore properly withheld as privileged.
California State Bar Formal Opinion No. 2016-195 discusses the differences between confidential client secrets and attorney-client privileged communications, and points out that the broader duty to maintain a client’s confidences applies even to publicly available information. The opinion also discusses the breadth of the duty of confidentiality as it applies to former clients. For a fuller discussion of Opinion No. 2016-195, please see the October issue of Orange County Lawyer, “Keeping Secrets: Why You Cannot Disclose Even Publicly Available Information If It Would Be Embarrassing or Detrimental to Your Client.”
Anti-SLAPP
In Suarez v. Trigg Lab., Inc., 3 Cal. App. 5th 118 (2016), the court of appeal addressed alleged concealment of evidence in the context of California’s anti-SLAPP statute, Civil Procedure Code section 425.16. The plaintiff, Suarez, was a former business consultant for the defendant, Trigg Laboratories, Inc. (Trigg), and was hired to prepare Trigg for an eventual sale. Suarez agreed to be compensated, in part, by a percentage of any “end transaction.” Id. at 120. Trigg eventually terminated Suarez, and hired other consultants to assist with selling the company. Suarez sued Trigg to recover the fair value of services rendered. That lawsuit settled at mediation.
Later, Suarez learned that before the mediation, Trigg was in discussions with an investor to “‘do a deal’ as soon as possible,” and that the investor sent a letter of intent. Id. at 121. Trigg had not disclosed the discussions with the investor prior to the mediation. After learning this, Suarez again sued Trigg, seeking to rescind the settlement agreement based on Trigg’s alleged fraudulent concealment of the potential sale. He claimed Trigg deprived him of material information and induced him “to settle his claims . . . for a fraction of their value.” Id. at 123. Trigg filed a motion to strike under the anti-SLAPP law, arguing that Suarez’s claims arose from protected litigation activities, and that Suarez did not show a likelihood of success on the merits. The trial court agreed and dismissed the lawsuit.
The court of appeal affirmed, reasoning that Trigg’s non-disclosure of the letter of intent and related communications “was litigation-related activity, expressly aimed at” Suarez’s lawsuit.” Id. at 123. It stated that the alleged “concealment of and failure to disclose the letter of intent” before Suarez agreed to settle was done “to keep the information within the attorney-client privilege for purposes of” the case. Id. at 125. Thus, the conduct arose “from [Trigg’s] protected right of free speech—the right not to speak,” and fell within the anti-SLAPP statute. Id. at 125.
Conflict of Interest
In Ontiveros v. Constable, 245 Cal. App. 4th 686 (2016), a minority shareholder filed a derivative action against the corporation as well as the majority shareholder, alleging misuse of corporate assets for personal gain. The majority shareholder and the corporation retained the same counsel to defend them in the action. The plaintiff moved to disqualify counsel from the case, alleging he had a conflict of interest in representing both defendants.
The court of appeal agreed that a conflict existed, reasoning that a corporation is a defendant in name only in a derivative action and is functionally a plaintiff. Id. at 696. Thus, counsel was representing the functional plaintiff and a defendant in the same action. Accordingly, the court disqualified counsel from representing the corporation. The court further held that counsel’s conflict waiver, signed only by the majority shareholder, was ineffective. In the context of a derivative action, an enforceable waiver would need to be signed by the minority shareholder as well.
The court, however, permitted counsel to continue representing the majority shareholder. The court reasoned that the corporation was at most a former client of counsel because the court had disqualified counsel from representing the corporation. Thus, continuing representation of the majority shareholder implicated only the duty of confidentiality, not the duty of loyalty. And the court found no breach of the duty of confidentiality here. Counsel learned no more about the corporation’s secrets through his temporary joint representation of the corporation and the majority shareholder than he would have learned through a proper representation of the majority shareholder alone. Thus, there was no genuine risk that counsel would use improperly acquired confidential information against the corporation, and therefore no factual basis for disqualification.
In Costello v. Buckley, 245 Cal. App. 4th 748 (2016), a woman sued her former boyfriend for money lent. The boyfriend was defended by his brother, a lawyer who previously had represented the girlfriend in an unrelated easement action. The girlfriend moved to disqualify the lawyer in the current action, alleging he had acquired confidential information from her during the course of the prior attorney-client relationship about the loans she had made to the boyfriend. The trial court found that the two matters were unrelated. Thus, the substantial relationship test did not apply. However, the trial court granted the motion for disqualification, which the court of appeal affirmed. The court found there was circumstantial evidence that the attorney had acquired confidential information in his representation of the girlfriend in the first matter that could be material to the litigation of the second matter in which the attorney represented the boyfriend. The lawyer had obtained information during the first matter about the romantic relationship between the two. The attorney commenced discovery in the loan litigation, seeking admissions about the romantic relationship, and girlfriend’s lack of expectation of repayment. Because the attorney obtained access to confidential information about the relationship during the prior representation, disqualification of counsel was appropriate. While the case highlights circumstances where disqualification may be granted in the absence of a substantial relationship between the two litigation matters, it merely follows a principle established in prior cases. Lawyers having knowledge of or access to confidential information from a prior representation are prevented from actually using the confidential information against the former client, and are required to decline representation.
In Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, 244 Cal. App. 4th 590 (2016), the court addressed and rejected an advance conflict waiver, and further ruled that the law firm must forfeit its earned fees because its representation was tainted by a conflict of interest. The case currently is on appeal to the California Supreme Court, but it is an important case nonetheless, and certainly not one of which we have heard the last. For a fuller discussion, see the April 2016 edition of Orange County Lawyer, “Forfeiture of Fees Due to Conflict of Interest.”
Attorneys Behaving Badly
In Crawford v. JPMorgan Chase Bank, N.A., 242 Cal. App. 4th 1265 (2015), the trial court granted a motion for terminating sanctions based on a series of inappropriate and threatening statements and behavior by Crawford, an attorney representing himself in claims against JPMorgan Chase. The statements and conduct included brandishing pepper spray and discharging a stun gun in close proximity to opposing counsel’s face, referring to the trial judge as opposing counsel’s pet dog and as being “sick and demented,” and making numerous other unprofessional and contemptuous comments to the trial court. Id. at 1270. The trial judge described these acts as “the most outrageous behavior that I have ever heard of in my life by an attorney.” Id. at 1271. The court of appeal affirmed the grant of terminating sanctions, finding that in these unusual circumstances, “[f]ar from the trial court’s abusing its discretion, it would have been an abuse of discretion not to impose a terminating sanction.” Id. at 1271.
In Butler v. LeBouef, 248 Cal. App. 4th 198 (2016), the trial court denied an attorney’s request for trustee’s fees and attorneys’ fees in a post-judgment order based on a determination that such an award would be inequitable and reward the attorney for his own misconduct. The court of appeals affirmed the judgment invalidating the will and living trust instrument and the post-judgment order denying the attorney’s request for trustee fees and reimbursement of attorney’s fees from the trust.
The facts of Butler reflect egregious conduct by an attorney. The trial court found that the attorney befriended a lonely and infirm elderly client, who inexplicably made drastic changes to his estate plan, making the attorney the principal beneficiary under the will and trust instrument. Id. at 203. The trial court discredited the attorney’s contention he was not involved in the drafting of the will and trust based on forensic evidence comparing the document in evidence to other documents drafted by the attorney. Id. at 209-10. The trial court further drew the inference that the attorney had tampered with the estate planning documents. Among other things, the original trust instrument was lost in a robbery that the police and trial court concluded were staged. Id. at 204-05. In addition, on the day the client passed away, the attorney spent hours in his house before calling 911, and the trial court “drew the inference that appellant looked for and tampered with the will and trust before making the 911 call.” Id. at 210.
In holding that the will and trust were invalid and void, and rejecting the attorney’s claim for trustee and attorneys’ fees, the court sent a clear message that an attorney will not benefit from his own misconduct. The court held that “[a]n ethical estate planning attorney will plan for his client, not for himself.” Id. at 201. “A license to practice law is not a license to take advantage of an elderly and mentally infirm client.” The court of appeal upheld the judgment invalidating the will and trust finding that “the presumption of fraud and undue influence” was conclusive where the donative transfer is to the person who drafted the will. Id. at 211. The court of appeals also affirmed the post-judgment order denying trustee fees and reimbursement of attorneys’ fees, concluding that “it would be inequitable to award appellant trustee fees and attorney fees for services that benefited no one other than appellant.” Id. at 214.
Billing Advisory
The California State Bar’s Committee on Mandatory Fee Arbitration issued an important Arbitration Advisory addressing the analysis of potential bill padding and other billing issues. The Advisory provides guidance to arbitrators, and also to lawyers, regarding how arbitrators view billing practices, implicitly cautioning lawyers as to matters that will receive scrutiny. One area of concern is staffing with multiple lawyers. The burden is on the lawyer to demonstrate that the lawyer staffed the matter appropriately. This includes time keepers’ appearing briefly on the matter, who may bill time to come up to speed. Another matter that will draw an arbitrator’s attention is whether tasks were performed by the appropriate person or lawyer. One extreme example is a $700-per-hour partner driving to a commercial site to deliver keys, a task that may not be justified under the circumstances.
Importantly, arbitrators, like courts, will evaluate the work product generated against the hours claimed to evaluate the reasonableness of the billing. A further area for evaluation is document review, which is common in litigation matters. In billing for such work the Advisory recommends that the documents be described along with any associated tasks.
In addition, arbitrators may question high minimum increments, whole number time entries, and block billing—in essence, the assignment of one-time charge to multiple separate tasks. The Advisory also reminds lawyers that overhead and ministerial or administrative tasks should not be billed. In addition, paralegals’ time is recoverable if the paralegal is in compliance with Business and Professions Code Section 6450, requiring that the person actually qualify as a paralegal. Billing of contract attorneys also is discussed, emphasizing the importance of addressing this topic in the fee agreement. Overall, the Advisory provides a good review of areas of risk in connection with billing practices.
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