The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...
March 12 — A law firm may not represent an expert suing a company for consulting fees where the firm learned significant amounts of sensitive information about the company when it represented a law firm against the company in a fee dispute arising out of the same underlying litigation, the California Court of Appeal, Fourth District, decided Feb. 27.
While the firm never represented the company and did not acquire its secrets by wrongful means, the firm's “wide-ranging access to privileged information in the first representation and the substantial relationship between the two matters” require its disqualification, Justice Raymond J. Ikola said in his opinion for the court.
The decision stops the AlvaradoSmith law firm from representing Chitranjan N. Reddy in a suit seeking fees from Shared Memory Graphics LLC for consulting services in patent litigation.
In ordering disqualification, the court pointed out that AlvaradoSmith had received substantial amounts of confidential and privileged information from Shared Memory Graphics when it represented the company's prior counsel, Floyd & Buss, in a fee arbitration proceeding arising from that same patent litigation.
The earlier fee arbitration and the current suit for consulting fees are substantially related, the court found, because in the earlier matter Shared Memory Graphics was accused of manipulating settlement in the underlying patent litigation to unfairly reduce the amount owed to Floyd & Buss under a contingent fee contract, and in this case the consultant claims his contingent consulting fees in the patent litigation were minified in much the same way.
The trial court pointed out that the circumstances did not involve improper acquisition of confidences and that AlvaradoSmith was not accused of violating protective orders requiring the return of all confidential information at the end of the fee arbitration proceeding.
Without disputing those points, the court of appeal said that “conflicts can arise in California (and disqualification motions can be granted) based on the conjunction of (1) implicit obligations a lawyer takes on to maintain the confidences of a nonclient received in the course of representing a client, and (2) the unfair advantage that might accrue were such a lawyer to pursue substantially related litigation against the nonclient.”
Ikola drew these principles from Kennedy v. Eldridge, 2011 BL 316293, 135 Cal. Rptr. 3d 545, 28 Law. Man. Prof. Conduct 10 (Cal. Ct. App. 2011), and Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, 81 Cal. Rptr. 2d 425, 15 Law. Man. Prof. Conduct 62 (Cal. Ct. App. 1999).
From those two decisions and a 1991 Wisconsin case, the court gleaned that if a lawyer is deemed to have a duty of confidentiality to a nonclient arising out of a previous attorney-client relationship, “courts apply the substantial relationship test from successive representation doctrine to determine whether to disqualify counsel in a case against the nonclient.”
Reviewing additional cases from other states along with federal court decisions, the court found that as a general principle a disqualifying conflict can arise regarding an adverse nonclient by way of a law firm representing another law firm.
However, the court said, a law firm is not automatically disqualified from opposing the adverse nonclient in future litigation, even in future litigation that has some factual nexus with the prior litigation.
“Rather, a court must examine (1) whether the first representation resulted in a broad disclosure of the non-client's privileged information (i.e., something beyond the attorney-client retainer agreement and the number of hours worked), and (2) whether a substantial relationship exists between the two matters,” Ikola wrote.
Not every attorney fee dispute results in the law firm's counsel receiving broad access to privileged information from the underlying matter, nor will every fee dispute be substantially related to a subsequent action against the same nonclient, the court noted.
While acknowledging that its decision has some downsides, the court said these concerns are subordinate to the more serious danger that a litigant's privileged information, which had been disclosed to its own counsel, would be used against it.
The court said its analysis does not mean an attorney owes a comprehensive duty to an opposing party to maintain that party's confidences in the absence of a prior attorney-client relationship.
But “[i]n the limited realm of cases featuring attorneys as parties opposed to their former clients, lawyers representing the attorney party must avoid participation in substantially related matters, whereby their access to privileged information in the former action would potentially serve as an advantage in the latter,” Ikola said.
Justice Richard M. Aronson and David A. Thompson concurred.
Corbett, Steelman & Specter and Stradling Yocca Carlson & Rauth represented Shared Memory Graphics and Acacia Patent Acquisition LLC. AlvaradoSmith and Dawn M. Ceizler, Walnut Creek, Cal., represented Reddy.
To contact the reporter on this story: Joan C. Rogers in Washington at email@example.com
To contact the editor responsible for this story: Kirk Swanson at firstname.lastname@example.org
Copyright 2015, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)