January 2013 - 2012 Ethics Year in Review
by the OCBA Professionalism and Ethics Committee
In 2012 courts issued several significant opinions on legal ethics, addressing the attorney work product doctrine, conflicts of interest, and confidential communications. Several important California State Bar and other ethics opinions issued in 2012 provide additional practical ethics guidance for lawyers. Here are some highlights from last year’s rulings.
1. Attorney Work Product Doctrine
In Coito v. Superior Court, 54 Cal. 4th 480 (2012), the California Supreme Court addressed the application of the absolute and qualified work product privilege to audio-recorded witness interviews. It held that recorded witness statements merited at least qualified work product protection, and may be entitled to absolute work product protection under Civil Procedure Code § 2018.030, depending upon whether the interviews would reveal the attorney’s impressions, conclusions, opinions, or legal research or theories that are inextricably intertwined with the witness’s statements. The court also acknowledged that absolute work product protection applies where the very questions the attorney chooses to ask provide a window into the attorney’s theory or evaluation of the case. In reaching its conclusion, the court balanced the interests of justice against protection of such materials to allow attorneys privacy in executing strategy, and acknowledged the appropriateness of prevention of freeloading by adverse parties.
The court also noted that redaction of the attorney’s impressions and opinions may or may not resolve the issue, particularly where, after redaction, the witness’s statements still reveal the potentially strategic questions the attorney asked. The selection of which witnesses to interview also could reveal significant tactical information. Where the party asserting absolute work product protection cannot make the required showing, the witness statements still may deserve qualified work product protection unless the party seeking such discovery can demonstrate injustice or unfair prejudice, such as where the witness no longer is available.
In addition, the court stated that the identification of witnesses interviewed, as inquired about in a form interrogatory, could merit absolute work product protection. The court noted that such information may well be discoverable, depending in part on whether all witnesses were interviewed (less likely to merit absolute protection) or a subset of attorney-selected witnesses were interviewed (more likely to be absolutely protected). Id. at 501.
2. Disclosure of Client Confidences
California State Bar Formal Opinion No. 2012-183 addresses whether an attorney may disclose client confidences to her own attorney to evaluate a wrongful discharge action against her former firm and, in pursuing her claim, publicly disclose those client confidences, either directly or through her counsel. The opinion concludes that, while an attorney may disclose such client confidences to her own counsel, neither she nor her counsel may publicly disclose those confidences except in the narrowest of circumstances. Attorneys owe a duty of confidentiality to their clients that continues even after termination. See Cal. Bus. & Prof. Code § 6068(e) (West 2012); Cal. Rule of Prof’l Conduct (“CRPC”) 3-100 (2012). Case law, however, permits an attorney to disclose relevant confidential information about her firm and her firm’s clients to the attorney’s own counsel to obtain legal advice about her rights against the firm. See Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App. 4th 294, 308-315 (2001). Nonetheless, as the opinion concludes, the attorney may not publicly disclose the confidences of the firm’s client in order to pursue her own civil action.
3. Conflicts of Interest
In Rodriguez v. Disner, 688 F.3d 645 (9th Cir. 2012), the Ninth Circuit addressed various appeals challenging the district court’s denial of fees to class counsel based on counsel’s conflicted representation. At the onset of litigation, class counsel entered into incentive agreements with five of the named class plaintiffs. The incentive agreements required class counsel to seek incentive compensation for its clients based upon the value of the potential settlement or verdict and, in turn, authorized counsel to apply for a fee award based on any award recovered. Upon settlement, class counsel sought attorneys’ fees under Federal Rule of Civil Procedure 23. The district court denied the requested fees in their entirety. Recognizing that the district court may consider an attorney’s ethical violation in determining reasonable fees and that it has broad equitable power to deny fees when an attorney represents clients with conflicting interests, the Ninth Circuit affirmed. In a prior appeal, the Ninth Circuit had held that the incentive agreements created an actual conflict of interest between class counsel and its clients, on one hand, and the remaining class members, on the other, that was never disclosed to, or waived by, the remaining class members in violation of California Rule of Professional Conduct 3-310(C). Notwithstanding class counsel’s “notable success” in the underlying litigation and in light of the equitable principles relied upon by the district court, the Ninth Circuit held that counsel’s ethical violation precluded it from collecting fees.
In Beltran v. Avon Prods., Inc., 867 F. Supp. 2d 1068 (C.D. Cal. 2012), the plaintiff brought a putative class action suit against defendant Avon Products (Avon), alleging that Avon had misled the public about whether it had tested its cosmetic products on animals. The plaintiff retained two law firms to represent her. One of the attorneys at the plaintiff’s lead law firm previously had worked at another firm where he had represented Avon in three separate cases. That attorney himself was not involved with the present suit against Avon. Immediately after suit was filed, Avon moved to disqualify both of the plaintiff’s law firms.
The district court granted the motion, holding that disqualification was warranted because of the work done by the former Avon attorney at his prior firm. In the course of that work, the court found that the former Avon attorney had received confidential information relating to Avon’s “business,” “legal strategies,” and “marketing and advertising practices.” Id. at 21. The former Avon attorney also may have received confidential information regarding Avon’s “product testing protocols.” Id. The court concluded that all of this information was material to the current class action suit regarding Avon’s product testing practices, and thus the plaintiff’s lead firm must be disqualified. The court rejected the firm’s use of an ethical wall to resolve the conflict of interest because it found California law limits ethical walls to certain situations involving former government attorneys, and because the wall was set up after the class action complaint against Avon was filed.
The court also ruled that the plaintiff’s second law firm must be disqualified. The court acknowledged there was “no direct California authority regarding vicarious disqualification of an associated law firm,” but nevertheless concluded that disqualification was appropriate in this case. Id. at 38. The second law firm had only four attorneys, two of whom had collaborated with the plaintiff’s lead firm in preparing the complaint in the case and likely discussed the details of their litigation strategy. Accordingly, the court held that the second firm’s “involvement in the case would taint the appearance of probity and fairness of the proceedings.” Id.
California State Bar Formal Opinion 2012-184 (the Opinion) recognizes that the legal services profession is relying more on Internet communications, and that the virtual law office practice (VLO) is becoming a prevalent vehicle for practitioners to provide legal services to clients in a more cost-effective manner. For the purposes of the Opinion, “VLO” is defined as the “delivery of, and payment for, legal services exclusively, or nearly exclusively, through the law firm’s portal on a website, where all of the processing, communications, software utilization, and computing will be Internet based.” Op. at 2. In the hypothetical provided in the Opinion, the attorney’s services and all communications are provided by the firm through a secure Internet portal provided by a third-party Internet-based vendor. The client only can access his or her matter through the client’s secured access codes.
The Opinion concludes, “the Business and Professions Code and the Rules of Professional Conduct do not impose greater or different duties upon a VLO practitioner operating in the cloud than they do upon an attorney practicing in a traditional law office.” Op. at 1. Due to the nature of the VLO, however, an attorney maintaining a VLO may be required to conduct more due diligence than attorneys in a traditional law firm setting to ensure that the attorney is meeting her ethical duties. Both the duties of confidentiality and competence, as provided in Business & Professions Code § 6068(e)(1) and Rules 3-110 and 3-500, are implicated in a VLO setting. Even though attorneys using technology in a more traditional setting are subject to these same obligations, “the wholly outsourced Internet-based nature” of the hypothetical VLO raises additional concerns. Op. at 3.
The Opinion lists various factors that should be considered in selecting a VLO vendor in order to meet the duty of confidentiality. The attorney’s duty of confidentiality requires not only this initial due diligence, but also due diligence in the continued use of the vendor. The Opinion also lists a number of steps a VLO attorney must take to meet her ethical duty to communicate with the client, as well as her ethical duty of competence. If the attorney realizes she cannot fulfill all of her duties through a VLO representation, she must decline (or possibly limit) her representation via the VLO.
5. Prohibited Restrictions in Settlement Agreements
In San Francisco Bar Assoc. Opinion 2012-1, attorneys represented a plaintiff who is a member of the Lesbian Gay Bisexual and Transgender (LGBT) community against the plaintiff’s employer, alleging harassment of LGBT employees. In connection with settlement of the case, the defendant demanded that the plaintiff’s attorneys agree not to mention in their résumés, website, or other advertising that they had worked on an LGBT harassment case against the defendant, or mention that LGBT harassment cases are an area of expertise. The San Francisco Bar Association concluded that Rule 1-500 of the California Rules of Professional Conduct prohibits defense counsel from demanding, and attorneys from agreeing to, terms of settlement that would prohibit attorneys from (i) referencing in their résumés, website, or other advertising public information that they have worked on a particular case against a specific defendant, or (ii) disclosing that they have experience in a specific area of law, regardless of whether that information otherwise is public. The opinion concluded that the provisions would unethically restrict, both directly and indirectly, the attorneys’ right to practice and would deprive potential clients of important information concerning the attorneys’ qualifications.
6. Arbitrator Disclosures
In Nemecek & Cole v. Horn, 208 Cal. App. 4th 641 (2012), the party on the losing side of an arbitration (Horn) challenged the award by claiming the arbitrator failed to disclose certain information that would have provided grounds for disqualification. Specifically, Horn argued that the arbitrator failed to disclose that: (1) he and a member of the adverse party’s law firm (Nemecek) were on a bar committee together; (2) he and one of the adverse party’s experts were co-panelists in an Association of Business Trial Lawyers seminar; (3) he was employed at a firm that represents lawyers; and (4) Nemecek had appeared before the arbitrator when he had been a district court judge in 2006.
In denying Horn’s appeal of the order confirming the arbitration award, the court recited the ethical standards adopted by the Judicial Council which require an arbitrator to disclose “specific interests, relationships, or affiliations” and other “common matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.” Id. at 646 (citing Cal. Rules of Court, Ethics Standards for Neutral Arbitrators in Contractual Arbitration, com. to std. 7). The court also stated, “[t]he disclosure requirements were intended to ensure the impartiality of the arbitrator, not to mandate disclosure of all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” Id. (internal quotations omitted). “Ordinary and insubstantial business dealings arising from participation in the business or legal community do not necessarily require disclosure.” Id. (internal quotations omitted).
With respect to each of the relationships Horn argued should have been disclosed, the court discussed and rejected them as being either “slight or attenuated” or as not providing “a credible basis for inferring an impression of bias.” Id. at 648. In the case of Horn’s argument that Nemecek previously had appeared before the arbitrator when he was on the federal bench, the court dismissed it as “an argument that borders on frivolous.” Id. at 650.
7. Attorney Discipline
Matter of Reiss, 09-O-10499, 2012 WL 5406816 (Cal. Bar Ct. Oct. 3, 2012), is a disciplinary case that provides a veritable laundry list on how not to behave. The respondent lawyer (Reiss) repeatedly violated “the fundamental rule of [legal] ethics—that of common honesty—without which the profession is worse than valueless in the place it holds in the administration of justice.” Id. at *3 (internal quotations omitted). Reiss demonstrated years of “callous dishonesty” and “a profound detachment from the honesty and integrity that serve as pillars of the legal profession.” Id. at *1 (internal quotations omitted). The transgressions included violating (1) Rule 3-300 by entering into loan transactions with the client; (2) Rule 4-100(B) by failing to account for client funds; (3) moral turpitude and dishonesty in violation of Business and Professions Code § 6106 for acts of deception and issuing NSF checks; (4) Rule 3-700(D) for failing to return unearned fees at the conclusion of representation; (5) moral turpitude by making false statements and misrepresentations and an act of forgery of the client’s name on a check; and (6) failing to cooperate with a state bar investigator. Regarding trust funds, the attorney grossly mismanaged his trust account into which client monies were deposited to pay costs. Checks written on that account did not bounce because he had overdraft protection, but that did not excuse his culpability: “Overdraft protection is not a substitute for the proper handling of clients’ money.” Id. at *7 (internal quotations omitted). Although Reiss demonstrated evidence of good character and public service, and had no prior history of discipline, these mitigating factors were given virtually no weight in light of the ten-year history of dishonesty and serious misconduct. The purpose of discipline is not to punish the attorney but to protect the public and the legal profession. In this instance, the court determined that would require disbarment.
8. Malicious Prosecution
In Cole v. Patricia A. Meyer & Assocs., 206 Cal. App. 4th 1095 (2012), Cole had been sued for fraud by plaintiffs represented by the law firm of Meyer & Associates (Meyer). The Boucher law firm (Boucher) and attorney Ottilie appeared on plaintiffs’ pleadings in that case (Bains), but took no active part in the litigation; they were to participate only if the case went to trial.
After Cole won the case on summary judgment, he sued all plaintiffs’ attorneys for malicious prosecution. The trial court granted the anti-SLAPP motions to strike of Boucher and Ottilie under California Code of Civil Procedure § 425.16, which were based on their assertion that they did not participate in Bains, but were only associated as potential trial counsel. Meyer’s anti-SLAPP motion to strike was denied.
The Court of Appeal for the Second District affirmed the denial of Meyer’s motion to strike, finding that Cole had demonstrated the requisite elements of a malicious prosecution cause of action. The court then turned to the liability of Boucher and Ottilie, who contended that, because they never actually acted as trial counsel, their duty to inquire into the existence of probable cause for suing Cole in Bains never arose. The court held that an attorney “whose name appears on all filings” in a case that may have been maliciously prosecuted cannot avoid liability for malicious prosecution “by intentionally failing to learn anything about” the case. Id. at 1117. Furthermore, because Boucher and Ottilie allowed their names to be on all of the filings, the inference could be drawn that they ‘“presented’ these filings to the court and thus initiated and prosecuted Bains along with . . . Meyer.” Id. at 1118. Thus, these defendants “cannot avoid liability for malicious prosecution by claiming to have been ignorant of the merits of the allegations made against Cole . . . .” Id.
The court offered the following advice to attorneys who wish to avoid malicious prosecution liability for tangential or contingent participation in a case: they should “refrain from formally associating in it until their role is triggered,” or at least “refrain from lending their names to pleadings or motions about which they know next to nothing.” Id. at 1120.
9. Selective Waiver of the Attorney-Client Privilege
Pacific Pictures Corp. v. U.S. Dist. Court, 679 F.3d 1121 (9th Cir. 2012), arose from a dispute dating back to 1938 between D.C. Comics, on one hand, and the creators of Superman and their heirs, on the other, over the rights to the Superman character. In approximately 2000, Marc Toberoff, a Hollywood producer and attorney, initiated a joint venture with the heirs to take over their litigation against D.C. Comics and plan a new Superman movie. Several years later, Toberoff hired an attorney who worked for him for three months before leaving and stealing certain Superman-related documents. The attorney sent copies of these documents to D.C. Comics, which forwarded them to an outside attorney (perhaps recognizing that the documents were not legitimately obtained) and instead sought them through discovery. Toberoff resisted discovery, claiming the documents were protected by the attorney-client privilege. Separately, however, Toberoff voluntarily disclosed these documents to the federal government, having encouraged the government to investigate the theft of the documents. Therefore, D.C. Comics claimed—and the district court agreed—that Toberoff waived the privilege.
The Ninth Circuit affirmed, finding that there could be no “selective waiver” of the attorney-client privilege where documents are voluntarily disclosed to the government. The court emphasized that the justification for the attorney-client privilege was the need for clients to be able to communicate openly with their attorneys, but that a “selective waiver” principle that served to encourage communication with the government was not tied to this justification. Id. at 1126–27.
This article was prepared by the OCBA Professionalism and Ethics Committee.