April 2018 Ethically Speaking - The Exercise of Judicial Discretion in Disqualification

by Carole J. Buckner

One of the latest cases involving disqualification emphasizes the exercise of discretion in evaluating whether a firm should be disqualified from the representation of a client due to a conflict of interest. The question in the case was this: Should disqualification of a law firm be mandatory where a lawyer working on one side of a case switches sides by joining a firm where other attorneys are working on the other side of the case, then leaves the firm altogether; and where the second firm imposes an ethical wall preventing the lateral lawyer from communication with those working on the other side of the case? According to California Self-Insurers’ Security Fund v. Superior Court (CSSF), 19 Cal. App. 5th 1065, 1078 (2018) [review filed (Mar. 7, 2018)] what we need is a “modern rule that reflects the current reality of law firm life in the 21st century” which involves the exercise of judicial discretion, balancing the harm to a client from loss of counsel against the reality of lawyers switching firms, and considers the effectiveness of using ethical screens.

Under the applicable law, where there is a substantial relationship between an attorney’s former and current representation, the attorney’s knowledge of confidential information is presumed on a motion to disqualify. Where an individual attorney is disqualified for having formerly represented the adverse party in the same matter, and therefore possessing confidential information, the knowledge of the disqualified attorney is imputed to the attorney’s entire law firm, and vicarious disqualification is required as a matter of law. What happens if that lateral attorney then leaves the second law firm, according to the CSSF decision, is that the otherwise mandatory disqualification becomes discretionary.

California, unlike many other states, does not have a rule of professional conduct that governs disqualification based on the imputation of conflicts of interest arising from lateral lawyers moving from one law firm to another. Similarly, at this time, California, unlike many other states, does not have an ethical rule governing the availability of ethical screening. Screening involves the implementation of a so-called “ethical wall.” Essentially, screening involves setting up internal procedures at the new law firm when the lateral joins the firm that are designed to preclude the lateral lawyer moving to a new law firm from sharing confidential information regarding the lawyer’s former clients with the lawyers at the new firm. Screening includes formal agreements prohibiting the sharing of information, as well as implementating limitations on computer and file access. Screening in California is authorized by case law to address conflicts involving government lawyers. See, e.g., City of Santa Barbara v. Super. Ct., 122 Cal. App. 4th 17 (2004). As discussed below, the case law addressing the use of screening for non-government attorneys is still developing.

Many other states follow some variation of American Bar Association Model Rule 1.10. That rule allows implementation of an ethical wall or screen so that the migrating lateral attorney does not have any contact with the counsel already representing the adverse party. Where this is allowed, the conflict of interest no longer requires disqualification of the entire firm. Many states allow screening, with some states allowing screening to resolve conflicts resulting from side-switching laterals, and other states adopting more limited approaches to screening. California’s position may change if, and when, the California Supreme Court evaluates and promulgates the pending proposed Rules of Professional Conduct including proposed Rule 1.10, which will address imputation of conflicts of interest and the availability of screening. For a closer look at what may be coming, see Suzanne Burke Spencer, Will California’s New Rules of Professional Conduct Finally Embrace Screening?, Orange County Lawyer, Sept. 2017, at 68.

Currently, however, both the law of disqualification and the law regarding screening in California evolves through the development of case law. The development of this doctrine through case law, particularly where there are no bright line rules and the exercise of judicial discretion is involved, leads to unpredictability and increased expense, as we see in the instant case. Carole J. Buckner and Robert K. Sall, Is Screening on the Horizon in California?, Orange County Lawyer, Aug. 2008, at 44.

Disqualification of counsel due to conflicts of interest arising from the hiring of a lateral attorney is an important issue not only for lawyers but also for clients because failure to predict the course of developing case law puts clients at risk of losing their counsel of choice. Lawyers may be disqualified from continuing to work on a matter even if they have a long history working with the client or working on a particular lawsuit or set of related cases. Conflicts of interest, disqualification, and screening are also important considerations for lawyers moving from one law firm to another, and for law firms effectively managing hiring of laterals. Disqualification can also trigger disgorgement of fees by the law firm to the client. Conflicts of interest also can result in lawyer discipline.

The CSSF decision takes a step away from automatic disqualification by recognizing that given the reality of lawyers’ lateral movement between law firms, courts should exercise discretion in making decisions concerning disqualification, and make factual findings only after examining whether there is a compelling basis for disqualification. CSSF, 19 Cal. App. 5th at 1068. However, the factual scenario that prompted this court’s conclusion is important because it limits the holding of the case. Attorney Selesnick chaired the Health Care Department of Michelman & Robertson (M&R) and handled representation of Activcare Health Care Group and Mountainview Retirement, Ltd. (the moving parties), and also participated in a common defense with other parties involved in the case. Selesnick left M&R and joined Nixon Peabody (NP), working in NP’s San Francisco office. M&R advised NP of the conflict and NP put an ethical wall in place. Selesnick left NP five weeks later. The CSSF decision does not indicate whether he left the firm in order to address the conflict or for other reasons.

The moving parties moved to disqualify NP on the grounds that Selesnick had confidential information about the moving parties from his prior representation of the parties while he was associated with his prior law firm, M&R. NP claimed that the firm should not be disqualified because Selesnick had left the firm prior to the hearing on the disqualification motion, and because its client would be prejudiced. The NP attorneys working on the case out of the NP Los Angeles office submitted declarations indicating that Selesnick had not shared confidential information with them, although no declaration was provided by Selesnick.

The trial court granted the motion, disqualifying NP, concluding on the basis of prior case law that when an attorney switches sides, moving from a firm where the attorney was handling one side of a litigation matter, to another firm that is handling the other side of the litigation matter, ethical screening does not resolve the conflict of interest, and disqualification of the firm is mandatory and automatic. In reaching this conclusion, the trial court applied the general rule that where an attorney is disqualified from representation due to the lawyer’s prior representation of the opposing side in the same litigation, the entire law firm is vicariously disqualified. Henriksen v. Great Am. Savs. & Loan, 11 Cal. App. 4th 109, 114-15 (1992). As the trial court saw it, “no amount of screening can save the representation.” CSSF, 19 Cal. App. 5th at 1070. On appeal, the CSSF court held that automatic disqualification was not required, but presumed, subject to rebuttal. Upon remand, the trial court will exercise its discretion as to whether the firm should be disqualified, and ultimately the result may be the same.

To say that the decision relaxes the standard for disqualification would be an overstatement, given the fact that Selesnick left his new law firm prior to the hearing on the motion for disqualification was critical to the court’s decision. The appellate court indicated that “There is [] no question that if Selesnick continued to work at NP, the entire firm would be disqualified.” Id. at 1072. Thus, the court did not depart from the bright line rule applied by the trial court requiring automatic disqualification of the entire firm where an attorney switches sides in cases where the lateral attorney continues to work at the new firm, regardless of the implementation of an ethical wall. The CSSF court further said that the scenario before the court was “significantly different from the typical ‘side-switching’ scenario” in which the lateral attorneys who joined new firms were still employed by their new firms at the time the court ruled on the disqualification motions. Id. at 1078. The court held that the policy rationale underlying automatic disqualification “is substantially diminished when the attorney in question no longer works at the firm sought to be disqualified.” Id. Thus, the decision turns on Selesnick having left his new firm.

In crafting an approach for courts to follow when an attorney has left the firm, the CSSF decision followed an earlier case, Kirk v. First American Title Insurance Company, which held that the presumption of automatic vicarious was rebuttable by demonstrating that the law firm adequately screened the lawyer from others at the firm who represented the adverse party, under the facts of the Kirk case. 183 Cal. App. 4th 776, 784 (2010). Again, the facts are critical. In Kirk, the lateral with confidential information had been screened while he was associated with the firm, and the lateral had left the new firm after about a year, prior to the appeal. The exercise of the court’s discretion in Kirk turned on two factors: first, the new law firm had to demonstrate that the tainted lateral lawyer had not transmitted any confidential information to the firm, directly or indirectly; and second, the court had to consider whether competing policy considerations nonetheless required disqualification. Id. at 816. The attorneys involved in the Kirk situation worked in different offices and in different practice groups. Id. at 787. The Kirk court remanded the matter, indicating that the court could evaluate the screen’s adequacy on a retrospective basis, noting evidence that the wall had not been a complete success.

The CSSF court also referred to Goldberg v. Warner/Chappell Music, Inc., 125 Cal. App. 4th 752 (2005). In Goldberg, a prospective whistleblower client consulted with a partner of the firm about a discrimination claim. Three years after the partner left the firm, the employer hired the firm to defend the same case. The Goldberg court denied the motion to disqualify the firm because the attorney had left the firm three years earlier, and had no opportunity to pass on confidential information to others at the firm. As the CSSF court acknowledges, the CSSF facts differ since Selesnick worked at NP at the same time NP attorneys worked for the adverse party. The CSSF decision directs the trial court to consider the evidence rebutting the presumption of shared confidences, taking into consideration that Selesnick’s tenure at NP overlapped with the CSSF matter, in light of the fact that Selesnick left the firm before the disqualification hearing. Consideration of that evidence will involve the effectiveness of the screen while Selesnick was at the firm—the retrospective analysis directed by the Kirk court. Upon remand, the CSSF court will also take into consideration the fact that the attorneys involved worked in separate offices, the statements from the attorneys working on the case, and the lack of any statement by Selesnick.

How the court exercises its discretion in balancing the competing considerations present in the CSSF scenario will provide further guidance to attorneys pending the adoption of California’s proposed Rule of Professional Conduct 1.10.

Carole J. Buckner is a Partner and General Counsel at Procopio, Cory, Hargreaves & Savitch, LLP and a member of the OCBA Professionalism & Ethics Committee. She can be reached at carole.buckner@procopio.com.