by Carole J. Buckner
Normally, informed written consent is required from clients with adverse interests that a lawyer simultaneously represents in unrelated matters. In the absence of such consent, the prior applicable jurisprudence provides that disqualification is “automatic.” But, the recent decision in the Antelope Valley Groundwater Cases, No. F078517, 2018 WL 66996022 (Cal. Ct. App. Dec. 20, 2018) from the Fifth Appellate District (the Groundwater Litigation) offers a novel avenue of argument that may protect against disqualification under certain circumstances, based on a client’s “implied consent” to a current client conflict of interest. Under certain circumstances, this means that a previously automatic disqualification may no longer be automatic at all.
How far the concept of implied consent will extend is a matter that will be developed through later case law in the disqualification context. Whether the concept of implied consent will protect a lawyer from State Bar discipline remains an open question. Without further development of case law, reliance on the doctrine of implied consent to avoid disqualification, given not only the risk of discipline, but also the risk of disgorgement of legal fees earned from the arguably conflicted engagement, is a strategy not likely to be employed with great frequency. The facts of the Groundwater Litigation are unusual in some respects, and foreseeable in other respects, making it difficult to predict how the concept of implied consent might develop. There is certainly the possibility that this concept of implied consent will be viable in cases where, for whatever reason, informed written consent is not obtained. While the case law develops, however, prudence dictates continuing to routinely obtain informed written consent for concurrent client conflicts of interest.
Managerial Responsibility for Conflicts
Although the Groundwater Litigation decision applies the prior rules, it is important to recognize that California’s Rules of Professional Conduct were revised effective November 1, 2018. The new rules provide that managers of a law firm have a responsibility to make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm comply with not only the Rules but also the State Bar Act. Rule 5.1(a). While the State Bar of California does not have authority to discipline law firms, the implementation of Rule 5.1 permits the State Bar to discipline lawyers who possess managerial authority for violations of other attorneys under some circumstances, including situations in which the managing lawyer has knowledge of the relevant facts and ratifies the conduct involved, or fails to avoid or to mitigate the consequences of such conduct. Rule 5.1(c)(1) and (2).
This managerial responsibility includes making reasonable efforts to establish internal policies and procedures that are designed to detect and resolve conflicts of interest. Rule 5.1(a) cmt. 1. Thus, lawyers should have effective policies and procedures in place to (i) identify situations where the firm is engaging in the concurrent representation of clients with adverse interests, whether in the same or separate matters, and (ii) to require that informed written consent be obtained from each affected client to the conflict of interest. Such consent allows the concurrent representation of two clients with interests that are adverse to each other in the same or separate matters. Rule 1.7(a). Under applicable case law as discussed below, absent informed, written consent from both clients, automatic disqualification from concurrent representation typically is mandated.
With the widespread use of ethical screening to address a myriad of conflicts of interest, it is important to bear in mind that conflicts arising from concurrent representation implicate the duty of loyalty, rather than the duty of confidentiality, so that, unlike scenarios involving successive representation, the implementation of a non-consensual screen is not relevant in concurrent representation matters. Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796 (N.D. Cal. 2004).
Against this backdrop, the Groundwater Litigation can be examined from a number of important perspectives. First, as in any conflict of interest case, the facts are critical. Two attorneys with the Best, Best & Krieger (BB&K) law firm represented the Rosamond Community Services District (RCSD) in the Groundwater Litigation and later began representing the Los Angeles County Water District 40 (the District) in the same matter. Another entity, the Antelope Valley East Kern Water Agency (AVEK), had an existing attorney-client relationship with the BB&K law firm, through which BB&K attorney Riddell acted as AVEK’s “general counsel.” Initially AVEK was not involved in the Groundwater Litigation. When BB&K first filed complaints on behalf of RCSD and the District, Riddell advised AVEK that while RCSD and the District did not intend to name AVEK, other parties to the litigation may do so. Riddell further advised that BB&K would need a conflict waiver before it could represent AVEK in the litigation because the firm was representing other parties in the action.
On many issues in the Groundwater Litigation, AVEK and the District were aligned. Only several years after the law firm began representing the District did AVEK become involved in the Groundwater Litigation. This occurred when AVEK was named as a party and retained separate counsel at another law firm to represent the interests of AVEK in the Groundwater Litigation. AVEK then brought a cross-complaint against the District. At this point, the BB&K firm represented clients in unrelated matters who were adverse to each other in the Groundwater Litigation and an actual conflict of interest arose. BB&K, although representing both AVEK as general counsel and the District in the Groundwater Litigation, in which the two clients were adverse to each other, did not obtain a written conflict waiver from AVEK. Nor did AVEK make any objection to the law firm’s simultaneous representation of both the District in the Groundwater Litigation and AVEK as general counsel in unrelated matters.
The interests of the District and AVEK entities diverged on some substantive issues, and the two also opposed each other on a summary adjudication motion and on apportionment of attorneys’ fees. Still, AVEK remained silent regarding the law firm’s conflict of interest in the decade of litigation that followed, after which a global settlement was approved. During that time AVEK never asserted that the firm could not simultaneously represent the District in the Groundwater Litigation while providing counsel to AVEK in other matters.
After entry of judgment, AVEK terminated the BB&K firm as its general counsel, and brought a post-judgment disqualification motion, asserting that the BB&K firm could not represent the District because the firm simultaneously represented parties with conflicting interests without AVEK’s written consent. AVEK argued that automatic disqualification should follow under the applicable case law. By the time AVEK filed the motion to disqualify, the law firm had represented RCSD and the District for over ten years.
In its motion, AVEK relied on well-established case precedent, beginning with Flatt v. Superior Court, 9 Cal. 4th 275 (1994), which held that the simultaneous representation of parties with adverse interests requires automatic disqualification. AVEK and the District were directly adverse in the same matter. The applicable rule provides that the lawyer should not, without informed written consent from each client, represent a client if the representation is directly adverse to another in the same matter or a separate matter. Rule 1.7(a). At the time AVEK brought the cross-complaint against the District, pursuant to the applicable rule, both AVEK and the District should have given informed written consent to BB&K to represent the District in the Groundwater Litigation, and to simultaneously represent AVEK as general counsel in other matters. That did not happen, which much later led to the motion to disqualify.
Direct adversity conflicts arise in a variety of ways. See Rule 1.7 cmt. 2. Any conflicts-checking system relies in whole upon the information that is submitted into the system. When an initial engagement commences, it is not always possible to include all parties that eventually may become involved in the matter at the time of intake. This is particularly true in long running, complex litigation, where new parties are added over the life of the matter, and parties file cross-complaints which may change the nature of their relationships from aligned to adverse. Updating submission of information to the conflict system will reveal additional potential conflicts over the life of the matter. As this case illustrates, a situation can develop in ongoing litigation, when one client of the firm sues another client of the firm. Such circumstances trigger a requirement to make new disclosures and obtain new informed written consents. Rule 1.7 cmt. 10. This is foreseeable, so in any conflict system, it is imperative that supplemental conflict checks be completed when new parties are added and where cross-complaints are filed, in order to address whether any new conflict disclosures and waivers are appropriate.
In the Groundwater Litigation, no written conflict waiver was obtained from AVEK. But the court observed that the right to non-conflicted counsel belongs to the client, and the client may consent to an attorney undertaking representation with potential or adverse interests, in the interest of client autonomy to choose counsel. The court then examined the evidence and found such consent, and further, that such consent was “informed,” because AVEK was aware of the conflict of interest while being advised by independent counsel. Id. at 15. On appeal, the court determined that implied consent based on the conduct of the party seeking disqualification warranted denial of the disqualification motion against the firm. Significantly, AVEK was represented by independent legal counsel in connection with the matter in which the concurrent conflict of interest existed. Whether the court would find an implied waiver if AVEK did not have such independent legal counsel is not clear.
The court also heavily emphasized the substantial passage of time in bringing the disqualification motion, without any justification for the delay. As a result, the court found not only an implied waiver of the conflict of interest, but also that AVEK was estopped from seeking disqualification of BB&K. This concept runs through many disqualification cases. Indeed, BB&K had represented the District in the ongoing litigation for over ten years, and would be harmed by disqualification of BB&K, given the knowledge and experience of the firm.
The court examined several cases in which prior courts found implied consent, barring a motion to disqualify, in the context of successive representations. The court in the Groundwater Litigation extended the concept of implied consent from scenarios involving successive representation to situations involving concurrent representation. How this expansion of the law will develop will be worked out in the case law going forward.
Discipline and Disgorgement
It is important to bear in mind that State Bar discipline is available for violations of the conflict-of-interest rules. See, e.g., Matter of Kroft, 3 Cal. State Bar Ct. Rptr. 838 (Rev. Dep’t 1998); In re Guzman, 5 Cal. State Bar Ct. Rptr. 308 (Rev. Dep’t 2014). An attorney is subject to discipline only if the violation of ethical rules is “willful.”
How the extension of implied consent to concurrent representation will fare in the discipline context is, of course, not addressed, because this is not within the court’s domain. The court does say, however, that the Rules of Professional Conduct “govern attorney discipline; they do not create standards of disqualification in the courts.” Antelope Valley Groundwater Cases, No. F078517, 2018 WL 66996022 at *19. Rather, the court addressed the proper remedy for whatever improper effect the attorney’s misconduct may have had. Id. The lawyer’s obligation is to “promptly inform the client” of any circumstance with respect to which disclosure or the client’s informed consent is required by the Rules of Professional Conduct. Rule 1.4(a)(1). This includes conflict waivers.
Under applicable case law, the failure to obtain informed written consent to a conflict of interest may also adversely impact the attorneys’ fees. In Sheppard, Mullin Richter & Hampton, LLC v. J-M MFG Co., Inc., 6 Cal. 5th 59 (2018), the California Supreme Court confirmed that the absence of informed written consent to a concurrent client conflict involving the simultaneous representation of clients with adverse interests in unrelated matters may defeat recovery of fees from the conflicted engagement. Disgorgement of legal fees earned from a conflicted engagement remains a viable remedy.
It seems likely we will see more of the argument, given the holding in the Groundwater Litigation, but given the unique factual scenario, reliance on the doctrine of implied consent to a conflict of interest may or may not be successful in future cases. Given the risks of discipline and disgorgement, establishing a thorough system for checking conflicts of interest and obtaining informed written consent will best protect the interests of all involved.
Carole J. Buckner is a Partner and General Counsel for Procopio, Cory, Hargreaves & Savitch, LLP in San Diego and a member of the OCBA’s Professionalism and Ethics Committee. She can be reached at firstname.lastname@example.org.