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By Samson Habte
A California appeals court disqualified Gibson Dunn & Crutcher LLP as defense counsel in a high-profile legal malpractice case, based on its allegedly unethical exploitation of the opposing party’s inadvertently disclosed, privileged communications ( McDermott Will & Emery LLP v. Superior Court of Orange Cty. , Cal. Ct. App., 4th Dist., No. G053623, 4/18/17 ).
The April 18 order could prevent Gibson Dunn from defending a malpractice lawsuit that accuses McDermott Will & Emery LLP and one of its former partners of helping the grandson of a pharmaceutical baron wrest control of his family’s $50 million holding company from his father and siblings.
Voting 2-1, the panel said Gibson Dunn acted unethically when it reviewed and refused to return an e-mail message that one of the plaintiffs, Dick Hausman, received from a lawyer who gave him advice about the family dispute before it erupted into litigation.
The e-mail wound up in McDermott’s files because Hausman, who was nearly 80 years old when he received the message, inadvertently sent it to another relative who then forwarded it to a McDermott partner who handled the family’s estate planning and allegedly helped Hausman’s son seize control of the family company.
A trial judge said Gibson Dunn violated ethics rules when it used that e-mail to assist its subsequent defense of McDermott in this malpractice case. The appeals court agreed.
Writing for the court, Justice Richard M. Aronson said Gibson Dunn ran afoul of the protocols set forth in State Comp. Ins. Fund v. WPS, Inc., “the seminal California decision defining a lawyer’s ethical obligations upon receiving another party’s attorney-client privileged materials.”
Aronson said Gibson Dunn violated its duties under State Fund because the e-mail it exploited “clearly appear[ed] to be privileged,” and because it was “reasonably apparent the materials were inadvertently disclosed.”
“In that situation, the attorney receiving the materials must refrain from examining them any more than is necessary to determine their privileged nature, immediately notify the privilege holder the attorney has received materials that appear to be privileged, attempt to reach an agreement with the privilege holder about the materials’ privileged nature and their appropriate use, and resort to the court for guidance if an agreement cannot be reached,” Aronson wrote. “The attorney must not further review or use the materials for any purpose while the issue remains in dispute.”
Gibson Dunn didn’t follow those protocols, and Aronson—joined by Justice Kathleen E. O’Leary—said the firm was properly disqualified as a result.
“Gibson Dunn’s continued representation of [McDermott] could trigger doubts about the integrity of the judicial process because whenever Gibson Dunn’s advocacy touched on the [events discussed in the] e-mail, questions inevitably would surface about the source of Gibson Dunn’s knowledge,” the majority opinion said.
Aronson rejected McDermott’s argument that the State Fund rule should only apply “to privileged materials an attorney receives through the inadvertence of opposing counsel during litigation.”
“Although the State Fund rule originated in the context of one attorney inadvertently producing his client’s privileged documents to the opponent’s attorney during litigation, neither the statement of the rule nor the policy underlying it supports limiting the scope of the rule to that one circumstance,” Aronson wrote.
Justice David A. Thompson was more receptive to McDermott’s arguments for limiting State Fund.
In a lengthy dissent, Thompson said the State Fund rule was designed to encourage candor between clients and lawyers by assuaging the concerns of clients who might be “fearful that an inadvertent error by its counsel could result in the waiver of privileged information.”
“But none of these policy concerns are implicated here because the arguably inadvertent disclosure was made by the client, Dick, not his lawyer,” Thompson wrote. “Client error poses no risk of disincentive to full candor by a client with his or her lawyer out of fear that an inadvertent error by the lawyer could result in the waiver of privileged information.”
Quoting case law, Thompson said the State Fund rule prevents “a ‘gotcha’ theory of waiver, in which an [lawyer’s] slip-up in a document production becomes the equivalent of actual consent [to waive privilege].”
“But extending the State Fund rule to the unusual situation here results in a reverse gotcha which could ‘nullify a party’s right to representation by chosen counsel any time inadvertence or devious design put an adversary’s confidences in any attorney’s mailbox,’” Thompson added.
Thompson also said that the majority’s novel interpretation of State Fund militated against disqualification.
“[U]ntil today, no court has ever applied the State Fund rule in any case which bears any material resemblance to this case,” Thompson wrote. This was “an unusual privilege dispute” and “Gibson Dunn’s conduct was objectively reasonable,” he added. “That this court has now greatly expanded the State Fund rule to condemn Gibson Dunn’s conduct is not a proper basis for disqualification.”
Sall Spencer Callas & Krueger ALC represented the plaintiffs. Gibson Dunn & Crutcher LLP represented the defendants.
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