ETHICS QUARTERLY

Yes. The Court found that this misconduct, as well as misleading the Magistrate Judge at a settlement conference about whether counsel had personally witnessed his mother’s deteriorating condition and about whether a decision had been made as to who would replace his mother as plaintiff in the underlying action after her death, warranted the one-year suspension from the bar sought by the Standing Committee on Discipline of the Southern District of California. Rule 83.4(b) of the Local Rules of the Southern District of California adopts as its standards of professionalism the standards  of  professional  conduct  applicable  to  members of  the  State  Bar  of  California.  The Local  Rule  expressly warns members of the district court bar that those standards are  not  exhaustive,  referring  members  to  the  ethical  rules of the American Bar Association.   The Court found that respondent’s “intentionally deceptive and misleading conduct” in the underlying ADA action violated ABA Model Rules 3.3, 4.1(a), 7.1 and 8.4; California Rules of Professional Conduct 5-200 and 5-220; and State Bar Act §§ 6101, 6068(b), and 6068(d). The Court found that those violations amounted to unprofessional conduct in violation of Local Rule 83.4. (2013 WL 435945 at *5.) The Court rejected respondent’s contention that he could not be disciplined for this conduct since the Magistrate Judge in the underlying action already had imposed monetary sanctions against him for the same conduct. “Though deterrence was a substantial reason for imposing the monetary sanctions, so was compensation—compensation for attorney’s fees incurred as a result of [respondent’s] misconduct. Unlike the purpose for the monetary sanctions, the purpose of this disciplinary proceeding is to consider [respondent’s] fitness to practice in this district and to protect the public from an unqualified or unscrupulous practitioner. Thus, the Court finds that imposing discipline in this proceeding would not amount to double punishment and it also would not be fundamentally unfair to [respondent].” (Id. at *6, internal citation and quotation marks omitted.) The Court also noted that Local Rule 83.5 specifically contemplates the imposition of discipline in addition to other sanctions. (IbId.) Note:  Disclosure: The publisher of Ethics Quarterly was trial counsel for petitioner Standing Committee.

10.1.8 Rule 3-310: Avoiding Representation of Adverse Interests Case: Bernhoft Law Firm v. Pollock (S.D.Cal. 2013) 2013 WL 542987

ISSUE

HOLDING

Yes. There was “an obvious conflict of interest” between defense counsel, a former attorney at plaintiff-firm, and his client in defending the fee dispute. The legal fees defendant-client was refusing to pay largely were billed and approved by defense counsel when he was an attorney at plaintiff-firm. “In the event that [former client-defendant] refutes the validity of these fees during the course of this litigation, such an argument will require [defense counsel] to attack the appropriateness of his own representation, a position that the Court finds untenable.” Defense counsel could not zealously represent his client in this fee dispute if it meant challenging the bills he approved and the services he provided. These circumstances created a substantial risk that counsel’s own interests would compromise his ability to represent his client, thereby creating a disqualifying conflict of interest. (2013 WL 542987 at *2.) Note:  Since it disqualified defense counsel based on a conflict of interest between himself and his client, the Court declined to address whether defense counsel had established an attorney- client relationship with his former firm or violated any duties he owed under that alleged relationship. (IbId. at note 3.) In a criminal action alleging a scheme to defraud outside investors in an investment fund, was disqualification of defense counsel warranted where the government presented documents that defense counsel received allegedly tainted funds in partial payment of fees and then allegedly laundered a substantial portion of those funds by sending them to defendant’s father who in turn sent a substantial portion of the funds to defendant and an entity defendant controlled? Yes.  The Court  initially  observed  that  this  case  was  “one of many” in which this attorney had failed to respond to a dispositive motion and court orders. (2013 WL 978191 at *2, collecting cases.) The Court found that counsel’s “pattern of missing deadlines, failing to oppose dispositive motions, and giving weak and often tardy excuses” amounted to bad faith. “The fact that [plaintiff’s counsel] has failed to prosecute nearly every action he has brought in this district shows that his disregard of the local rules and the courts’ orders is more than mere recklessness. His repeated failures to respond to orders to show cause amount to willful disobedience.” (Id. at *3.) While Counsel’s disrespect for the Court was troubling, it was his clients who were most keenly harmed by his failing to prosecute their claims. The Court acknowledged that lawsuits challenging foreclosure proceedings were difficult to win and may have been dismissed even had plaintiff’s counsel opposed motions to dismiss. But plaintiff’s counsel “is representing plaintiffs attempting to stave off or in throes of losing their home as part of the mortgage crisis. These clients are potentially more vulnerable than some others who may have a greater opportunity to vet a prospective attorney. And he is doing his clients no service by bringing claims and then failing to represent their interests. He is, in fact, shirking his duty as an attorney” to perform competently. (IbId., citing Cal. Rule of Prof. Conduct 3-110(A).) No. The Court held that Defendant B’s membership in a trade group that offered free legal consultations and that plaintiff’s counsel served as one of several general counsels was not enough by itself to create an attorney-client relationship between plaintiff’s counsel and Defendant B. There at least had to be an actual communication between one of those general counsels and a member of the trade group. (2013 WL 1164065 at *3.) The Court noted that plaintiff’s counsel disputed that he had ever met with Defendant B’s employee. Assuming the employee had met with plaintiff’s counsel, to disqualify plaintiff’s counsel where an employee of the defendant knew counsel was adverse to his employer “would clear the way for one party to disqualify opposing counsel at will.” (IbId.) Given that the employee went to see plaintiff’s counsel before suit was filed against the employee’s employer but after plaintiff’s counsel had sent a pre-filing cease-and-desist letter to a company that demanded indemnification from employee’s employer and yet withheld this information from plaintiff’s counsel, disqualifying plaintiff’s counsel “does not protect a client from an attorney’s conflict of interest because the client knowingly created the conflict. If a client knowingly creates a conflict of interest, he cannot then ask the court to protect him from himself by disqualifying the innocent attorney.” (Id. at *3.) “Although under normal circumstances a preliminary meeting between an attorney and a potential client creates a confidential relationship, where, as here, the client went into the meeting with opposing counsel knowingly and intentionally, it is not appropriate to disqualify the innocent attorney.” (IbId.) Was disbarment from the bar of a federal district court warranted based on evidence of counsel’s misbehavior in two actions, which included (1) using profanity in written and oral communications with opposing counsel, including using profane and demeaning insults; (2) failure to pursue matters with diligence and competence, including failing to file timely Yes. The motion for summary adjudication of the disbarment petition of the Northern District of California Standing Committee on Professional Conduct was granted. The Court found that disbarment from the federal district court was warranted even were the only misconduct at issue counsel’s failure to fulfill his ethical duties toward his clients in the two cases on which the disciplinary charges primarily were based. (2013 WL 1195524 at *43.) “In addition, however, the undisputed evidence reveals an ongoing pattern of failure to comply with court orders, failure to follow the rules of practice, and professional misconduct involving abusive and antagonistic behavior toward opposing counsel.” (IbId.) The Court further pointed out that counsel had failed to cooperate with the Standing Committee at every turn. He sought multiple continuances of every deadline set by the court. “His written work product is sloppy, bordering on incomprehensible, and replete with typographical and grammatical errors, making it difficult for the court to even understand his arguments. In short, he has failed to practice competently.” (Id. at *44.) Counsel compounded this by refusing to accept responsibility for his actions or even acknowledge that he had done anything wrong, casting blame instead on opposing counsel, the judges of the Northern District, the Standing Committee and his own clients for his professional failings. (IbId.) Accordingly, the Court concluded that only disbarment of counsel would sufficiently protect “the public, the court, and other attorneys who practice at this court from the deleterious effects of [counsel’s] lack of professional responsibility.” (IbId.) Important Update: No case abstracted in the previous edition of Ethics Quarterly has been accepted for review or otherwise rendered uncitable. Disclaimer: Counsel should read the full text of the cases discussed before relying on the necessarily limited discussion of them here. Counsel also should be mindful that some of the Court of Appeal cases addressed may be subject to depublication or review by the California Supreme Court.  All cases should therefore be checked to confirm they are citable.

COMMENTARY

Limitations on Disqualifying Conflicts Resulting from Preliminary Consultations

Introduction A preliminary consultation in which a party discloses significant confidential information to an attorney with a view toward retaining the attorney normally creates a disqualifying conflict from later opposing that party in the connection with the subject matter of the consultation both for the consulting attorney and vicariously his firm, even where the prospective client does not actually retain the attorney. (Beery v. State Bar (1987) 43 Cal.3d 802, 811.) Normally, but not always. For example, in Goldberg v. Warner/Chappell Music, Inc. (2005) 125 Cal.App.4th 752, the Court of Appeal held that disqualification  of  the  employer’s  law  firm  in  a  wrongful termination action was not warranted where, six years earlier, the plaintiff-employee had briefly consulted with one of the law firm’s partners concerning her contract with the employer and where the partner had left the law firm three years before the action was filed. The Court observed that the risk of attorneys at the defendant’s firm receiving confidential information about the opposing party through contact with the consulting attorney was effectively eliminated when he left the firm. “[A]n attorney’s presumed  possession  of  confidential information  concerning a former client should not automatically cause the attorney’s former firm to be disqualified where the evidence establishes that no one other than the departed attorney had any dealings with the client or obtained confidential information. . . .” (Id. at p. 755.)  The Court noted that the trial court had found that the law firm had never opened a file for the employee; never billed her; had no notes or records in any file about the meeting; no documents were prepared; no telephone calls made; and the partner left several years before the instant litigation began. (Id. at p. 758. See also, In re Marriage of Zimmerman (1993) 16 Cal. App.4th 556, 564-565, holding no disqualification resulted from partner of counsel’s brief, preliminary consultation with opposing party, even though the consulting partner had offered his initial impressions of party’s case.) Is disqualification of opposing counsel warranted where a party knowingly consults with an attorney retained by an opposing party before counsel is aware of that party’s involvement in the matter for which counsel has been retained and where the consulting party fails to disclose that fact to the attorney? And is disqualification of an opposing party’s expert warranted where the expert had earlier signed the moving party’s non-disclosure agreement -- but no retainer agreement -- in contemplation of consulting with the party, but the party never disclosed the nature of, or any confidential information about, the matter on which the party contemplated using the expert’s services? Courts in two rulings abstracted in this issue of Ethics Quarterly answered both questions in the negative, suggesting additional limits on preliminary consultation as a basis for disqualification of an opposing party’s attorney or expert. A. Novelty Textile, Inc. v. Windsor Fashions, Inc.: Intentional Consultation with Opposing Counsel In  Novelty Textile,  Inc.  v. Windsor  Fashions,  Inc.  (C.D.Cal. 2013) 2013 WL 1164065 (EQ 10.1.13), plaintiff’s counsel represented a company with exclusive rights to unique graphic designs intended primarily to be used in the fashion industry. On behalf of his client, plaintiff’s counsel sent a cease-and-desist letter to a retailer that was allegedly misappropriating a design to which plaintiff owned a registered copyright. The company that received the cease-and-desist letter in turn demanded indemnification from the middleman company that sold it the allegedly infringing apparel, attaching the cease-and-desist letter to its demand. (Id. at *1.) The general management assistant of the company from whom indemnity had been demanded sought guidance about how to handle the matter from a manufacturers’ association to which the company belonged. One of the benefits of membership in the industry group was free legal consultation with one of several general counsels to the group including, as it happened, plaintiff’s counsel. The assistant admitted that he realized before the meeting that it was plaintiff’s counsel who had sent the cease-and-desist letter to the company that had demanded indemnification from the assistant’s employer, but went ahead with the meeting anyway. The assistant  also  admitted  that  he  did  not  disclose  to plaintiff’s counsel the apparel product in dispute, the company from whom his employer had received the demand to indemnify, or  show  counsel  the  cease-and-desist  letter  that  plaintiff’s counsel himself had sent. Declarations filed by the assistant left it unclear as to whether he even had clearly disclosed the identity of his employer. The assistant also altered the facts of the controversy when he spoke to plaintiff’s counsel, telling him exactly half the units the assistant’s employer had sold to the company seeking indemnity and exactly half the price for which the products had been sold to the retailer, presumably to keep plaintiff’s counsel from recognizing that the dispute that prompted the consultation was the same as the dispute that  prompted  the  cease-and-desist  letter.  (IbId.)  Plaintiff’s counsel allegedly provided legal advice to the assistant about his employer’s indemnity obligations and advice about settling the claim. (Id. at 1-2.) Plaintiff eventually sued the retailer. The middleman company whose employee had consulted with plaintiff also was a defendant, though there was no indication in the ruling whether plaintiff later had named the middleman company itself or the retailer had brought the company into the action through a cross-claim for indemnity. The middleman company moved to disqualify plaintiff’s counsel based on two grounds: the company’s membership in the industry group that plaintiff’s counsel served as one of several general counsels and the alleged meeting between plaintiff’s counsel and the company’s general management assistant. The Court ruled that the middleman company’s mere membership in the industry group which plaintiff’s counsel served as one of several general counsels was not enough by itself to establish a disqualifying attorney-client relationship between them, notwithstanding the right to a free legal consultation that was a member benefit. (Id. at *3.) But did the alleged meeting between the defendant’s assistant and plaintiff’s counsel require plaintiff’s counsel to be removed from the case? As the use of the awkward phrase “alleged meeting” suggests, plaintiff’s counsel had no record of the meeting and disputed that it took place. (IbId.) The Court concluded that even if the meeting had taken place as described by the defendant’s assistant, no disqualifying conflict resulted from it. That is because the assistant went into the meeting knowing that counsel represented an opposing party and withheld from counsel information, such as the cease-and-desist letter or even the identity of the party that had demanded indemnity from the assistant’s employer, that “would have triggered [plaintiff’s counsel’s] duty to consider conflicts of interest.” (IbId.) Disqualifying plaintiff’s counsel under these circumstances “would clear the way for one party to disqualify opposing counsel at will.” (IbId.) Thus, the Court concluded, an “innocent attorney” who engages in a preliminary consultation with a potential client who goes “into [a] meeting with opposing counsel knowingly and intentionally.” (IbId.) B. Zipronix, Inc. v. Omnivision Technologies, Inc.: Expert—Use It or Lose It It takes more to disqualify an expert because of his past relationship with an opposing party than it does to disqualify a lawyer for the same reason. The presumption that confidential information was transmitted in such a relationship generally does not apply where the subject of the motion to disqualify is an expert rather than an attorney. At least in federal matters, disqualification of an expert on this ground generally is warranted only if the moving party can demonstrate that: “(1) the adversary had a confidential relationship with the expert and (2) the adversary disclosed confidential information to the expert that is relevant to the current litigation.” (Hewlett- Packard Co. v. EMC Corp. (N.D.Cal. 2004) 330 F.Supp.2d 1087, 1092, emphasis added, citation omitted.)  In addition to these factors, courts consider whether disqualification of the expert would promote fairness to the parties and the integrity of the process. (IbId.) In Ziptronix, Inc. v. Omnivision Technologies, Inc. (N.D.Cal. 2013) 2013 WL 146413 (EQ 10.1.4), the Court considered whether disqualification was warranted where plaintiff and expert signed a non-disclosure agreement governing discussions with expert, according to the agreement, “related to certain scientific, technical and business matters.” (Id. at *2, quoting NDA.) The Court concluded that the NDA did not establish a confidential relationship between plaintiff and expert. The NDA said nothing about fees and nothing about the scope of work contemplated. “Plaintiff never gave [expert] any confidential information, never gave her any consulting work, and did not tell her what patents were at issue” in the litigation between plaintiff and defendant. (IbId.) In addition, there was no contact from plaintiff to expert for nearly two years after the NDA was signed. In the meantime, expert had signed a retainer agreement with defendant. The Court concluded that having signed the NDA did not preclude expert from doing so. There was no dispute that plaintiff had not shared confidential information with expert. (Id. at *3.) That left whether considerations of fairness or policy warranted expert’s disqualification. The Court concluded they did not. Plaintiff’s conduct for the nearly two years after the NDA was signed did not indicate that it intended to retain expert in this action. The Court found that any prejudice to plaintiff from now being unable to retain expert was the result of plaintiff’s own inaction, not any illicit motive by defendant in reaching out to expert. Plaintiff did not show that defendant knew of the NDA when it contacted expert nearly two years after the agreement had been signed. Disqualification of expert would not have been warranted under the circumstances even if defendant had known about the NDA. (Id. at *4.) The lesson is that a preliminary non-disclosure agreement with an expert that results in no work and no fees for the expert does not preclude the opposing party from taking the expert off the shelf and using the expert for its own purposes. Conclusion A party may not dislodge opposing counsel from a case if the party affirmatively consults with counsel knowing counsel represents the opposing party in a matter in which the party expects to be joined, at least without disclosing facts of the party’s relation to the pending or imminent action that should trigger the attorney to conduct a conflicts analysis. A party may not dislodge an opposing expert from a case if the party signed a preliminary non-disclosure agreement with the expert and then passively avoids engaging the expert in a matter in which expert’s services may be sought by the other side. Whether a party acts intentionally or passively, the bare fact of a preliminary consultation with either an attorney or an expert may not be sufficient to keep the attorney or expert from later working for the other side.