February 2016 - Advance Waivers Continue to Draw Criticism From Courts

by Robert K. Sall

Two recent district court decisions demonstrate the continuing problems facing California lawyers who seek to rely upon generic advance consents (sometimes referred to as “advance waivers”) to negate conflicts of interest and disqualification. In these decisions, Western Sugar Cooperative et al. v. Archer-Daniels-Midland Co. et al.1 and Lennar Mare Island, LLC v. Steadfast Insurance Company,2 the generic advance waivers in the law firms’ fee agreements were lacking in specificity and were inadequate to avoid disqualification.

In Western Sugar, the district court analyzed two conflicts, one being the concurrent representation of adverse parties resulting from the law firm’s failure to detect a serious conflict in pre-merger negotiations between two major firms. Upon completion of the merger the firm found itself representing one client against another of its long time clients in complex litigation. The merger also resulted in the firm being adverse to a former client whose prior representation was in the same subject matter as the litigation. These conflicts resulted in the district court separately analyzing California’s substantial relationship test as to the former client, as well as the duty of loyalty in the concurrent client conflict. The court found the firm’s sixteen-year-old advance waiver did not amount to a full and reasonable disclosure of the conflict.

In Lennar Mare Island, another major law firm was disqualified, partially in reliance upon the court’s analysis in Western Sugar. The firm represented an insurance company client defending against a coverage claim in litigation brought by a subsidiary of a family group of entities that the firm also represented. This parent and the family group had long been the firm’s clients, leading to the court’s analysis of conflicts in the parent-subsidiary context. As in Western Sugar, the disclosures in the advance waiver were found to be lacking and insufficient to avoid disqualification.

These cases analyze concurrent conflicts of interest, in which loyalty to an existing client is at issue, as well as successive conflicts of interest, in which confidentiality owed to a former client is the greater consideration—a useful discussion for practitioners. For purposes of this article, however, the focus is upon the two courts’ highly consistent treatment of the advance consents, finding them ineffective. Unable to obtain a current consent from the clients, each of the law firms sought unsuccessfully to rely upon generic advance consent language in decade old fee agreements. The cases provide useful lessons in what is necessary to obtain effective advance consent.

The Western Sugar Decision
In Western Sugar, corporate giants from the sugar and corn-refining industries battled one another over false advertising claims relating to the marketing of high-fructose corn syrup. It was intense multi-party litigation in which the disqualified firm had recorded over 20,000 hours and $12 million in fees. The Sugar plaintiffs had been represented by Squire Sanders & Dempsey, LLP (Squire Sanders). A defendant from the Corn Syrup group, Tate & Lyle Ingredients Americas, Inc. (Tate) had long been represented by Patton Boggs LLP, whose representation had included regulatory matters concerning operations and processing of ingredients in high-fructose corn syrup.

Since 2004, Patton Boggs had also been representing yet another Corn Syrup group defendant, Ingredion, in at least fifty-six different matters, and had last performed legal services for Ingredion in September 2013. Although Patton Boggs was not representing Ingredion or Tate in the litigation, it had otherwise had long-term client relationships with them.

On June 1, 2014 Squire Sanders merged with Patton Boggs, creating Squire Patton Boggs LLP (SPB). The conflict inexplicably went undetected in the pre-merger discussions. Post-merger, SPB ended up representing the Sugar plaintiffs and litigating against both of the two defendants who were current and former clients it had also represented.

Tate promptly raised the conflict in a letter to SPB. Shortly after receiving this letter, SPB wrote to Ingredion stating that if the company wanted the law firm to do any new work, it would require a conflict waiver because of its work for the Sugar plaintiffs. Neither Tate nor Ingredion gave a current consent to the conflict. In response, SPB terminated its attorney-client relationship with Tate, dropping the client like the proverbial hot potato. Both Tate and Ingredion moved to disqualify SPB, contending that the merger with Patton Boggs resulted in SPB simultaneously representing adverse interests.

The court found that Patton Boggs’ pre-merger retainer agreement with Ingredion provided that the attorney-client relationship would terminate with the completion of any service that the firm was engaged to perform on the client’s behalf. Under this provision, the court found that Patton Boggs had completed its legal services months before the merger. Thus, Ingredion was a former client. Applying the substantial relationship test, the court found the current representation of the Sugar plaintiffs was substantially related to Patton Boggs’ former representation of Ingredion, which was one basis for disqualification.

Ending the relationship with Tate, a current client, by turning it into a former client also did not solve SPB’s loyalty conflict. The “hot potato rule” bars an attorney from curing the dual representation of conflicting clients by unilaterally severing the relationship with the pre-existing client.3 Because SPB concurrently represented Tate and the Sugar plaintiffs, and Tate would not consent, the firm was subject to disqualification. SPB tried to distinguish itself from the hot potato rule by relying upon language in its fee agreement suggesting that withdrawal for the purpose of resolving a conflict would be permissible: “[I]f either you or we conclude that our representation should or must be terminated, we will do our best to protect your interests in providing a smooth transition to new counsel.”4 The court found that such language did not authorize SBP to cure its conflict by dropping a current client. SPB had “unquestionably breached” the duty of loyalty “by simultaneously representing adverse clients.”5

SPB’s Advance Waiver Not Sufficiently Specific
SPB also attempted to avoid disqualification by relying upon the advance consent provision in Patton Bogg’s 1998 retainer agreement with Tate, which read as follows:

It is possible that some of our current or future clients will have disputes with you during the time we are representing you. We therefore also ask each of our clients to agree that we may continue to represent or may undertake in the future to represent existing or new clients in any matter that is not substantially related to our work for you, even if the interests of such clients in those unrelated matters are directly adverse to yours ... .6

Finding guidance in earlier state and federal decisions such as Visa U.S.A., Inc. v. First Data Corp.; Concat LP v. Unilever, PLC; and Zador Corp. v. Kwan,7 the court determined that SPB’s purported waiver did not amount to a full and reasonable disclosure of the potential conflict. In such earlier decisions upholding the efficacy of an advance consent, the disclosures received by the client identified by name the adverse parties as to whom consent was being sought, and provided “as fully as possible” the nature of the conflict that might arise. Such disclosures specifically contemplated that the law firm might represent one party adverse to the other in litigation, and provided more than merely general information.

In Western Sugar, the missing elements from the advance consent were that it “did not identify potential adverse clients or the nature of any of the potential conflicts covered by the waiver.” The absence of these disclosures meant that a “second more specific waiver was required because the advanced waiver did not sufficiently disclose the nature of the conflict and the material risks of SPB’s ongoing representation” of Tate and the Sugar plaintiffs adverse to Tate.

The Lennar Mare Island Decision
Hogan Lovells U.S. LLP (Hogan Lovells) represented Steadfast Insurance Co. (Steadfast) in connection with a dispute amongst Steadfast, Lennar Mare Island, LLC and CH2M Hill Constructors, Inc. (CCI) over the obligation to clean up environmental contamination at a former U.S. Navy base. Lennar contended in this action that Steadfast caused it damages by delaying or failing to pay for claims under an environmental liability policy.

Hogan Lovell’s predecessor firm began representing CCI’s parent corporation, CH2M, in 2005. In 2008, it had previously represented CCI jointly with another CH2M affiliate. Relying on the advance conflict consent in its 2005 agreement with CCI, in 2014 Hogan Lovells undertook representation of Steadfast, defending against the litigation brought by CCI, while the firm continued to represent CCI’s corporate parent, CH2M. The court analyzed CCI’s motion for disqualification based on successive representation of CCI as well as the concurrent representation of its parent and corporate family.8 The court found that the parent corporation and its subsidiary would be treated as a unified client for purposes of assessing conflict. By representing the entire corporate family, Hogan Lovells must be disqualified in the absence of informed consent.9

Regarding the law firm’s decade old advance waiver, the court applied an analysis of the factors announced in Visa U.S.A., Inc. v. First Data Corp., and more recently in Western Sugar to determine that the provision did not sufficiently disclose what is necessary for a current informed consent: “Pronouncing the waiver here enforceable and blessing Hogan Lovells’s conduct would promote broad, static agreements over timely and forthright discussions of conflicts and their effects, a result contrary to California ethical rules and policy.”10

Disclosure and Informed Consent
The recurring issue in advance waivers centers upon whether or not a general consent provided in advance is a truly informed consent. Rule 3-310(B) of the Rules of Professional Conduct defines informed consent as a client’s or former client’s “written agreement to the representation following written disclosure.” Rule 3-310(A) defines disclosure as “informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client.”

Forms of advance waiver that are generic do not address the relevant circumstances and rarely provide a discussion of the foreseeable adverse consequences of a conflict that has not yet arisen. If they fail to identify the relevant circumstances with adequate specificity, and lack description of the names of parties with whom there may be conflict, they don’t provide assured protection against disqualification. Factors that will be considered by a court evaluating an advance waiver include: the content and adequacy of the disclosure of the nature of the conflict; whether the identity of the potentially conflicting parties has been disclosed; whether the client is a sophisticated user of legal services; whether the client has the opportunity to obtain independent legal advice about the consent, and gave a knowing consent; and whether an ethical wall is necessary or an effective one has been established. Such factors have been described in Visa U.S.A., and further discussed in Western Sugar and Lennar Mare Island.11

Because generically-worded advance waivers fail to describe current circumstances, they may not provide adequate disclosure. In addition, law firms are not completely straight with the client as they should be about the consequences of providing such consent.12 Rarely do they inform the client of such things as: “if you consent to this, my law firm will be allowed to sue you in the future and on behalf of another client; we may attempt to take away your assets, and even put you out of business.” While sophisticated corporate clients with extensive litigation experience may understand the consequences of a generic disclosure, few individual clients or small businesses would have that experience and are less likely to feel comfortable with the concept of being sued in the future by their own lawyers.

Lawyers should endeavor to be as forthright and thorough as possible in crafting an advance consent disclosure. “The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity—uberrima fides.”13 This has been defined as “[t]he most abundant good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight.”14 Including basic things such as the names of the parties with whom conflict may arise provide better disclosure. The client—by seeing the names—may instantly recognize the significance of the conflict that generic language cannot convey. Providing a description of the nature of the anticipated conflict is also significant. The omission of such information may result in disclosures that are inadequate to derive informed consent.

Equally important is periodic updating to expand upon disclosure as necessary to suit changing circumstances. Stale waivers in decade-old agreements are rarely going to be adequate. As stated in Lennar Mare Island, courts will not “promote broad, static agreements over timely and forthright discussions of conflicts and their effects ... .” As a result, advance waivers in California should be used with caution, and only by careful drafting and regular updating are they likely to be enforced.


  1. Western Sugar Cooperative, et al. v. Archer-Daniels-Midland Co., et al., 98 F. Supp. 3d 1074 (C.D. Cal., Feb. 13, 2015).
  2. Lennar Mare Island, LLC v. Steadfast Ins. Co., --- F. Supp. 3d ---, No. 2:12-cv-02182, 2015 WL 1540638 (E.D. Cal. Apr. 7, 2015).
  3. Truck Ins. Exch. v. Fireman’s Fund Ins. Co., 6 Cal. App. 4th 1050, 1059-60 (1992); and Flatt v. Superior Court, 9 Cal. 4th 275, 288 (1994).
  4. Western Sugar, 98 F. Supp. 3d at 1084.
  5. Id. at 1085.
  6. Id. at 1083.
  7. Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100 (N.D. Cal. 2003); Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796 (N.D. Cal. 2004); and Zador Corp. v. Kwan, 31 Cal. App. 4th 1285 (1995).
  8. While this article does not address the parent-subsidiary relationship, the case contains important discussion of the subject of conflicts in that context, and relies substantially upon the test enunciated in Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, 69 Cal. App. 4th 223, 234 (1999).
  9. Lennar Mare Island, 2015 WL 1540638.
  10. Id. at *14.
  11. Visa U.S.A., Inc., 241 F. Supp. 2d 1100 (N.D. Cal. 2003).
  12. See Robert K. Sall, Testing Loyalty’s Limits—Thoughts on the Proliferation of Advance Waivers, Orange County Lawyer (October 2009).
  13. Barbara A. v. John G., 145 Cal. App. 3d 369, 383 (1983).
  14. David Welch Co. v. Erskine & Tulley, 203 Cal. App. 3d 884, 890 n.2, (1988) (citing Black’s Law Dict. (Rev. 4th ed. 1968) p. 1690).

Robert K. Sall is a shareholder with Sall Spencer Callas & Krueger in Laguna Beach. He is a Certified Specialist in Legal Malpractice Law by the State Bar of California’s Board of Legal Specialization, and lectures frequently for OCBA on lawyer conduct, fee disputes, and legal ethics.