July 2011 - Duty of Loyalty Trumps First Amendment Rights

by Carole J. Buckner

By representing a client, are you as a lawyer forfeiting your freedom of speech and freedom to petition the government? In Oasis West Realty, LLC v. Goldman, 2011 WL 1833208 (Cal. 5/16/11), the California Supreme Court considered the extent to which a lawyer’s ethical duties of loyalty and confidentiality to a former client limit a lawyer’s freedom of speech under the U.S. Constitution’s First Amendment and California’s Constitution. Acknowledging that “a lawyer’s right to freedom of expression is modified by the lawyer’s duties to clients,” the Supreme Court held that the plaintiff, Oasis, showed a probability of prevailing on its claims of breach of fiduciary duty, professional negligence, and breach of contract, all of which stemmed from conduct the Court characterized as “duplicity.” 

Side-Switching on the Same Project
Goldman, a respected Beverly Hills lawyer, and his firm, Reed Smith, first represented Oasis in connection with efforts to obtain approval for a redevelopment project located in Beverly Hills, dealing with city officials, the planning commission, and the City Council. When the representation concluded, Goldman became involved in a campaign to overturn approval of the very same project, engaging in political speech and petitioning activities in reference to the redevelopment project. Goldman solicited signatures, and “lent his support to a group” opposing the project, spoke at the City Council meeting, and sent an email expressing doubt about the accuracy of traffic studies, among other conduct. Oasis sued Goldman and his firm, claiming Oasis had spent $4 million opposing the petition drive. The defendants filed a special motion to strike the lawsuit as a strategic lawsuit against public participation (SLAPP).

The trial court denied the motion, finding the gravamen of the action was Goldman’s breach of his duties of loyalty and confidentiality, and that defendants failed to show that the claims arose from the protected activity. The appellate court reversed, holding the claim arose from Goldman’s protected speech, and that it was permissible for Goldman to work against his former client as long as he was not representing a new client and not disclosing confidential information obtained from his former client. Goldman did not forfeit his First Amendment rights by representing Oasis, the appellate court held. Oasis West Realty, LLC v. Goldman, 182 Cal.App.4th 688 (2010).

However, the appellate court minimized the importance of the Supreme Court’s prior jurisprudence regarding the duty of loyalty, which demarcates ethical obligations more broadly than the provisions of the California Rules of Professional Conduct. In particular, the appellate court’s passing nod to the Supreme Court’s Wutchumna decision was not well received. As the Court previously has indicated, the duties of an attorney are not defined solely by rules and statutes, but also by general common law principles governing fiduciary relations.

The Never-Ending Duty of Loyalty
On review, the Supreme Court reversed, holding that Oasis had demonstrated a probability of prevailing on its claims that Goldman used confidential information to the detriment of his former client, with respect to the precise subject of the prior representation, satisfying the “minimal merit” standard.

The Court affirmed its earlier holding in Wutchumna Water Co. v. Bailey, 216 Cal. 564 (1932), indicating that even after severing a lawyer’s relationship with a client, a lawyer is prohibited from: 1) doing anything to injuriously affect the former client in the matter in which the lawyer formerly represented the client; and 2) using against the client knowledge or information acquired in the prior relationship. Although California has no counterpart to ABA Model Rule 1.8(b) prohibiting use of information relating to the representation of a client to the client’s disadvantage without the client’s consent, the Supreme Court relied on Wutchumna and the Restatement, noting that “the same rule prevails in most jurisdictions.”

In arriving at its conclusions, the Court drew two significant inferences. First, the Court found that it was reasonable to infer that Goldman had used confidential information gleaned from the representation in opposing the project. Secondly, the Court inferred that Goldman’s opposition to the development project emerged over the course of the representation, “fueled by the confidential information he gleaned during it.”

Reasoning that Goldman’s opposition developed over the course of his engagement in the representation of Oasis, the Court found that Goldman and the firm had failed to comply with California Rule of Professional Conduct 3-310(B) governing conflicts of interest. Rule 3-310(B) requires lawyers to disclose any personal interests or relationships that they know or reasonably should know could substantially affect the exercise of the lawyer’s professional judgment. Under the Court’s reasoning, Goldman should have disclosed to Oasis that he personally opposed Oasis’ redevelopment project.

The Court rejected the defendants’ argument that the duty of loyalty should only cover situations where a lawyer either disclosed the client’s confidential information, or took on an adverse concurrent or successive representation. Relying heavily on the Restatement (Third) of the Law Governing Lawyers, the Court indicated that the duties of loyalty and confidentiality extended to a broader range of situations including using client information to “frame a course of action” or to decide whether to make an investment—situations in which no confidences were disclosed, and no subsequent client involved. In so holding, the Court said: “It is not difficult to discern that use of confidential information against a former client can be damaging to the client, even if the attorney is not working on behalf of a new client, and even if none of the information is actually disclosed.”

The bottom line is that trust defines the lawyer client relationship. From the client’s perspective, it is not difficult to see how Goldman’s conduct offended that foundational value. Technicalities aside, every client expects his or her lawyer to honor that trust.


The author is the Dean of Abraham Lincoln University School of Law in Los Angeles, Special Adviser to the California State Bar’s Committee on Professional Responsibility and Conduct, and a member of the OCBA’s Professionalism and Ethics Committee.