Use of Ethics Screen Does Not Prevent Imputation of Conflict to Lawyer’s New Firm

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.

Consumer Fraud Case.

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 case.

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 X-Law Group.

“As a matter of law … an ethical wall is insufficient to overcome the possession of confidential information by the segregated attorney, except [for] … former government attorneys now in private practice.”
Judge Cormac J. Carney

Carney decided that both firms must be disqualified even though Eagan Avenatti had implemented a screen to isolate Frank from the case.

Inside Knowledge.

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, Carney said.

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.

Screen Doesn't Help.

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.

Co-Counsel Disqualified.

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.

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