Beltran v. Avon
Products Inc., C.D. Cal., No. 2:12-cv-02502-CJC(ANx), 6/1/12
Key Holding: Screening measures do not prevent a firm's imputed
disqualification under California law for a conflict arising from a lawyer's
prior practice at another firm.
Significance: Holding indicates that courts in California continue to
reach varying conclusions on whether screening can prevent imputation of lateral
Joan C. Rogers
Rejecting the use of screening to avoid vicarious disqualification when a law
firm takes in a lawyer with a conflict from another firm, the U.S. District
Court for the Central District of California June 1 ejected a law firm--and its
co-counsel--from representing the plaintiff in a putative class action because a
member of the firm was privy to the defendant's confidential information in his
earlier work at another firm (Beltran v. Avon Products
Inc., C.D. Cal., No. 2:12-cv-02502-CJC(ANx), 6/1/12).
Applying California law, Judge Cormac J. Carney ruled that an ethics screen
does not prevent a firm's imputed disqualification when a lawyer in the firm has
key confidential information from work at another firm.
Carney also found that even if screening were accepted, the procedures
implemented here were inadequate to prevent vicarious disqualification because
they were not set up quickly enough, the former client was not notified of the
screen in writing, and the lawyer's new firm is a small one.
The lawyer's conflict must be imputed not only to his new firm but also to a
second firm that is acting as co-counsel for the plaintiff, Carney ruled.
This case, Carney said, “presents an unfortunate and awkward set of
circumstances in which two former colleagues and long-time friends who
previously worked together in representing a major corporate client now find
themselves on opposite sides in a case involving that same client.”
The two lawyers are Dennis S. Ellis of Paul Hastings and his former partner
Jason M. Frank, who moved from Paul Hastings to Eagan Avenatti in 2009.
Eagan Avenatti filed a putative class action against cosmetics company Avon
Products Inc., alleging that Avon defrauded consumers by falsely advertising its
products as free of animal testing. Ellis is Avon's lead counsel in the
Shortly after the lawsuit was filed, Avon moved to disqualify both Eagan
Avenatti and its co-counsel, the X-Law Group. Avon asserted that Frank had a
conflict of interest from his work on other Avon matters when he was with Paul
Hastings, and that his conflict must be imputed to both Eagan Avenatti and the
Carney decided that both firms must be disqualified even though Eagan
Avenatti had implemented a screen to isolate Frank from the case.
The court found that both presumptively and in fact, Frank had acquired
material, confidential information from his prior representation of Avon at Paul
Hastings in a products liability action and two consumer class actions.
Frank's extensive work on these matters--336 hours for which Avon was billed
more than $100,000 over the course of six years--exposed him to confidential
information about Avon, Carney said. This information, the court said, concerns
Avon's business and marketing practices, its litigation and settlement
strategies, and its testing protocols. If shared with the lawyers handling this
case, the information would confer a significant advantage on the plaintiff,
Allowing Frank's firm to represent the plaintiff against Avon “compromises
the appearance of judicial integrity and standards of professional conduct for
the bar,” he added.
The court decided that Frank's conflict of interest must be imputed to Eagan
Avenatti even though the firm implemented an ethics screen to cordon him off
after Ellis raised the issue.
“As a matter of law … an ethical wall is insufficient to overcome the
possession of confidential information by the segregated attorney, except in
very limited situations involving former government attorneys now in private
practice,” Carney stated, citing a 1992 California appellate case and a 1996
federal district court case applying California law.
(Carney did not mention Kirk v. Great Am. Title Ins. Co., 108 Cal.
Rptr.3d 620, 26 Law. Man. Prof. Conduct 239 (Cal. Ct. App. 2010), which held
that a law firm's use of effective screening measures may in some circumstances
enable the firm to avoid vicarious disqualification based on an incoming
lawyer's knowledge of client confidences acquired at another private firm.)
Even if an ethics screen could be legally sufficient to prevent vicarious
disqualification, the court continued, the screen around Frank was inadequate
because it was not put in place until two weeks after the complaint was filed,
and plaintiff's counsel did not notify Avon of the screen as required by ABA
Model Rule 1.10.
As other factors compromising the effectiveness of a screen, Carney mentioned
the small size of Eagan Avenatti, which has fewer than 10 attorneys who work
together in one office, and the fact that Frank was working with two other
lawyers in the firm on several class actions.
In addition, the court said that Frank had actively participated in this
litigation by speaking with Ellis about the conflict issue, submitting a
declaration in opposition to the disqualification motion, and even seeking to
participate in the hearing on the motion.
“Mr. Frank's behavior casts doubt as to whether an ethical wall can be
successfully implemented and maintained in this case,” Carney declared.
The court also ruled that, “although there is no direct California authority
regarding vicarious disqualification of an associated law firm, disqualification
of the X-Law Group is warranted under the circumstances of this case.”
Carney said the X-Law Group consists of only four lawyers, two of whom had
already collaborated with Eagan Avenatti in this action. It was reasonable to
assume, he said, that the two firms engaged in fairly extensive discussions
about the case and the plaintiff's litigation strategy before the complaint was
filed and before the ethics screen was put in place.
Even if the X-Law Group did not in fact acquire confidential information, its
involvement would taint the appearance of fairness, especially in the context of
a class action, Carney said.
The plaintiff's attorneys were Damon Rogers and Filippo Marchino of the X-Law
Group, Los Angeles, and Michael J. Avenatti and Scott H. Sims of Eagan Avenatti,
Newport Beach, Cal.
Dennis S. Ellis, Katherine F. Murray, and Nicholas J. Begakis of Paul
Hastings, Los Angeles, represented Avon.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8v3lw6.
The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.
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