Conflicts of Interest Arising from Successive Matters

By: Ara Jabagchourian

California Litigation: The Journal of the Litigation Section, State Bar of California

Vol. 23 No. 1

In these days of consolidating mega-firms and the ever-occurring game of musical chairs in which attorneys leap-frog from one firm to another, issues of conflicts-of-interest are continually arising.  Given that partners are relentlessly pursuing clients or seeking to preserve them in these trying economic times, client conflicts are sprouting up like weeds on fertile soil.  This article seeks to set out the law in California related to successive representations and disqualification of counsel as a result of such representation.

Pursuant to California Rules of Professional Conduct Rule 3-310(E), a lawyer may not “accept employment adverse to the information material to the employment.”  Furthermore, where there was such a “substantial relationship” between the former matters which prior counsel was hired for and the current matter, disqualification is in order.  The “substantial relationship” test is a common method of pursuing disqualification of counsel.  A motion for disqualification of counsel under the “substantial relationship” test raises several evidentiary issues that need to be navigated with due care.  If you have the unfortunate problem of prior counsel representing your adversary in a related matter (and who is unwilling to step down), the guidelines set out below should provide some guidance to having that counsel disqualified.


Establishing An Attorney-Client Relationship

In order to move to disqualify counsel, you must establish that the prior counsel was in fact in an attorney-client relationship with your client.  “An attorney represents a client – for purposes of a conflict of interest analysis – when the attorney knowingly obtains material confidential information from the client and renders legal advice or services as a result.”  People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135, 1148 (1999).  An attorney that meets with the client, discusses the issues of the case and outlines the options for the client establishes an attorney-client relationship.  People v. Deukemejian, 29 Cal.3d 150 (1981).

In order to establish such a relationship, a declaration setting out meeting dates, materials provided, duration of discussions, subject matter of discussion, etc. needs to be provided.  Also, if a retention agreement was entered into, providing a redacted version of such an agreement also supports the claim that a relationship existed.  If a retainer was provided or a bill issued, indicate this also.  However, be wary of disclosing any of the confidential communication, as this is the very reason a motion to disqualify is necessary –  to preserve client confidences.

Proving A “Substantial Relationship” Existed

The “Substantial Relationship” Test – Pursuant to California Code of Civil Procedure section 128(a)(5), the court has the inherent power “to control in furtherance of justice, the conduct of its ministerial officers, and of all persons in any manner connected with a judicial proceeding before it, in every manner pertaining thereto.”  Cal. Code Civ. Proc. section 128(a)(5); In re Complex Asbestos Litig., 232 Cal.App. 3d 572, 575 (1991) [this includes the power to disqualify counsel in appropriate cases].  “Where the potential conflict is one that arises from the successive representation of clients with potentially adverse interests, the courts have recognized that the chief fiduciary value jeopardized is that of client confidentiality.”  Flatt v. Superior Court, 9 Cal. 4th 275, 283 (1994), emphasis in original; see also Jessen v. Hartford Casualty Ins. Co., 111 Cal.App.4th 698, 705 (2003) [“The paramount concern is the preservation of public trust in the scrupulous administration of justice and the integrity of the bar.”]  The “substantial relationship test” is “intended to protect the confidences of former clients where an attorney has been in a position to learn them.”  Knight v. Ferguson, 149 Cal.App.4th 1207, 1213 (2007); quoting H.F. Ahmanson & Co. v. Salomon Bros., Inc., 229 Cal.App.3d 1445, 1455 (1991).

The California Supreme Court set out the parameters of the “substantial relationship” test:

“Where the requisite substantial relationship between the subjects of the prior and the current representations can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorney’s representation of the second client is mandatory; indeed, the disqualification extends vicariously to the entire firm.”

Flatt, supra, 9 Cal.4th at 283, emphasis in the original.  In fact, where “‘a substantial relationship established, the discussion should ordinarily end.  The rights and interest of the former client will prevail.  Conflict will be presumed; disqualification will be ordered.'”  Id. quoting Rosenfeld Construction Co. v. Superior Court, 235 Cal.App. 3d 566, 575 (1991).  Where an attorney is disqualified because he or she formerly represented  – and therefore possesses confidential information of – an adverse party, “‘vicarious disqualification of the entire firm is compelled as a matter of law.'”  Id., quoting Henriksen v. Great American Savings & Loan, 11 Cal.App.4th 109, 117 (1992); see also City and County of San Francisco v. Cobra Solutions, Inc., 38 Cal.4th 839, 847 (2006).

In determining whether there is a “substantial relationship,” courts focus on the “similarities between the legal problem involved in the former representation and the legal problem involved in the current representation.”  Farris v. Fireman’s Fund Ins. Co., 119 671, 681 (2004).  A “substantial relationship” exists “whenever the ‘subjects’ of the prior and the current representations are linked in the some rational manner.”  Jessen, supra, 111 Cal.App.4th at 711.  In demonstrating a substantial relationship, “[t]he ‘aggrieved client’ need only satisfy a ‘low threshold of proof’ and does not have to prove the attorney actually received confidential information.”  Knight, supra, 149 Cal.App.4th at 1213; quoting Jessen, supra, 111 Cal.App.4th at 711; emphasis added.  If a “substantial relationship” is shown, it is conclusively presumed that confidential information was obtained in the prior representation in order to:

“avoid the ironic result of disclosing the former client’s confidences and secrets through an inquiry into the actual state of the lawyer’s knowledge and it makes clear the legal profession’s intent to preserve the public’s trust over its own self-interest.”

Jessen, supra, 111 Cal.App. 4th at 704.

Application of the “Substantial Relationship” Test

Observing how California courts have applied the “substantial relationship” test provides tremendous guidance on how a motion to disqualify should be drafted.  In Knight v. Ferguson, plaintiff was briefly represented by counsel, Wideman, related to a partnership and lease agreement.  Knight, supra, 149 Cal.App.4th 1207, 1220.  The plaintiff and Wideman had discussions about the plaintiff’s concerns related to another party involved in the same business that was the subject matter of the lawsuit which was subsequently filed.  Defendant was present for these conversations.  During the consultation, Wideman had disclosed that he was defendant’s attorney prior to the representation of plaintiff.  Plaintiff later sued defendant for breach of contract related to the partnership and leases.  Defendant hired Wideman to represent him in the lawsuit.

Plaintiff moved to disqualify Wideman,  In disqualifying Wideman, the lower court held that “‘Wideman’s role as litigation counsel was brief, but not peripheral.  The nature of the former representation . . . was such that confidential material to the current dispute would normally have been imparted to the attorney.'”  Id. at 1212.  In upholding the lower court, the Second Appellate District found that there was a substantial relationship between the subject matters of the two representations.  Id. at 1213.  The court held there was a substantial relationship even tough the legal theories and issues of the two representations may be different.  Id.  “The substantial relationship test is broad and not limited to the ‘strict facts, claims, and issues involved in a particular action.'”  Id., quoting Jessen, supra, 111 Cal.App.4th at 711.  Further, the court held that in relation to demonstrating that confidential information was obtained by counsel, plaintiff merely has to satisfy a “‘low threshold of proof’ and does not have to prove the attorney actually received confidential information.”  Id. at 1214; quoting Jessen, supra, 111 Cal.App.4th at 706-707.  The court held that the evidence demonstrated that “Wideman was in a position to learn Plaintiff’s confidences during his consultations with her.”  Knight, supra, 149 Cal.App.4th at 1214.

In City National Bank v. Adams, 96 Cal. App.4th 315 (2002), the court faced the disqualification of an attorney in two successive representations.  In City National Bank, the plaintiff, CNB, had a loan agreement with defendant Adams that was collateralized with stock.  City National Bank, at 318.  Adams advised CNB it could not pay the loan and asked CNB to sell his stock to satisfy his obligation.  Id. at 319.  CNB believed it could not sell the stock due to a restrictive legend on the stock certificate.  Id.  So CNB retained attorney Davidson to provide an opinion letter regarding the restrictive legend at its ability to sell the stock.  Id.  The company related to the stock went out of business and the stock became worthless.  Id.

CNB sued Adams for breach of contract for the failure to pay the loan.  Id.  Adams filed a cross-claim claiming that CNB failed to timely sell the stock, which would have satisfied the amounts due under the loan.  Id.  Adams hired attorney Davidson to represent him in this action.  Id.  CNB moved to disqualify Davidson and the trial court granted the request.  Id. at 319-320.

The appellate court upheld the disqualification.  The court held that “if the nature of the representation is such that confidences could have been exchanged between lawyer and client, courts will conclusively presume they were exchanged, and disqualification will be required.”  City National Bank, supra, 96 Cal.App.4th at 327; citing Adams v. Aerojet-General Corp., 86 Cal.App.4th 1324, 1331 (2001); emphasis in the original.  The only limited exception to this rule is if the lawyer can show that there was no opportunity for confidential information to be divulged.  Id. at 327-328.  The limited exception, however, does not apply when the lawyer’s former and current employment are on opposite sides of the very same matter or the current matter involves the work the lawyer performed for the former client.  Id. at 328.  This rule springs from the presumption that all attorney-client communications are confidential.  Id.; also see Evid.Code sections 917, 952.

As can be seen, the burden of proof is relatively low.  The party moving for disqualification has the burden of establishing that the matters of the two representations are related, but need not prove that they are identical.  There is no need to demonstrate that confidences were actually exchanged, only that they could have been exchanged.  The way to establish this is to demonstrate meetings or correspondence between the prior client and counsel where confidential material related to the current dispute would normally have been imparted.  The purpose of this broad standard is to protect the very client confidences that are at issue.  Indeed, to require a more specific showing “would tear aside the protective cloak drawn about the lawyer-client relationship.  For the Court to probe further and sift the confidences in fact revealed would require the disclosure of the very matters intended to be protected by the [confidentiality] rule.”  Civil Service Comm’m of San Diego County v. Superior Court, 163 Cal.App.3d 70, 79-80 (1984), quoting T.C. Theatre Corp. v. Warner Bros. Pictures, 113 F.Supp. 265, 268-69 (S.D.N.Y. 1953).

As indicated in the Civil Service Comm’m of San Diego County matter, requiring the disclosure of the confidential material would not make sense.  “This standard, with its conclusive presumption of knowledge of confidential information . . .avoids the ironic result of disclosing the former client’s confidences and secrets through an inquiry into the actual state of the lawyer’s knowledge and it makes clear the legal profession’s intent to preserve the public’s trust over its own self-interest.”  Jessen, supra, 111 Cal.App.4th at p.706; quoting Ahmanson, supra, 229 Cal.App.3d at p.1453.  Further, by disclosing the confidences that the moving party seeks to protect in a motion to disqualify, you may lose the very basis you seek to disqualify counsel by waiving the attorney-client privilege.

Establishing That Confidential Information related Directly To The Underlying Action Was Disclosed To Prior Counsel