by Members of the OCBA Professionalism & Ethics Committee
The OCBA’s Professionalism and Ethics Committee has scoured opinions from 2024 in order to summarize the more important ethics opinions of the year. These opinions, described below, include opinions about disqualification, malicious prosecution, litigation privilege, State Bar immunity, attorney work product, flat fees, legal duty, and even include a case about sanctions on a former law firm from our own Fourth/Third appellate district.
Attorney Disqualification ESC-Toy LTD. v. Sony Interactive Entertainment LLC, No. 21-cv-00778-EMC, 2024 WL 1335079 (N.D. Cal. Mar. 27, 2024), is an attorney disqualification case. Sony Interactive Entertainment (Sony) moved to disqualify plaintiff’s counsel, Maschoff Brennan (MB), on the ground that it improperly obtained Sony’s confidential information from Sony’s former in-house counsel, Gayner, who was now serving as outside non-litigation counsel for the adverse party, ESC-Toy, Ltd. Gayner had worked as in-house counsel at Sony for sixteen years, during which she acted as lead counsel reviewing and drafting transactional agreements. While at Sony, she negotiated the license agreement that was the subject matter of this litigation. She then left Sony in 2014, and commenced performing outside legal services for ESC, including advising ESC about its relationship with Sony, and attempting to facilitate a resolution of the disputes between the parties concerning the license agreement. While the extent of her legal services for ESC was disputed, ESC claimed attorney-client privilege for its communications with her, conceding that she was acting as counsel. Gayner therefore had switched sides and her current role for ESC was substantially related to the legal work she had performed for Sony. In addition, she was working closely with ESC’s litigation counsel, thereby at least creating the presumption that confidential information was being shared. Sony had not waived Gayner’s conflicts.
The court analyzed the substantial relationship test and imputation of her conflicts to MB. Although the sharing of confidential information was presumed, the court found that privileged information was in fact shared. Although Gayner was not formally a co-counsel with MB, a formal association or entry of appearance in the case was not necessary. MB was consulting with an attorney who had confidential information by virtue of her prior representation, and therefore MB was disqualified. Applying its inherent powers, the court also found an appearance of impropriety in Gayner’s actions, such that it would be prejudicial to the administration of justice to permit MB to continue as ESC’s counsel, having purposefully and wrongfully obtained privileged information from Gayner. MB was disqualified from further representation.
The court in Clear View West, LLC v. Steinberg, Hall & Assocs., Inc., No. 23-cv-04774-SI, 2024 WL 1354522 (N.D. Cal. Mar. 29, 2024), explores how California Rules of Professional Conduct, rule 1.9, which addresses conflicts in successive representations (as opposed to concurrent conflicts), applies in the context of a former joint representation. In this case, Attorney jointly represented Clients A and B in an arbitration in 2013. That case ended in 2014 and Attorney continued to represent only Client A for the next ten years. Then, in 2023, a dispute arose between Client A and Client B involving similar issues as the 2013 arbitration. Attorney represented Client A in that dispute. Client B moved to disqualify Attorney based on the joint representation in 2013. In denying the motion, the District Court focused on whether there was a “substantial relationship” between the two representations. Noting, “[w]here the potential conflict is one that arises from the successive representation of clients with potentially adverse interests, the courts have recognized that the chief fiduciary value jeopardized is that of client confidentiality,” the court found the two matters were not substantially related. Id. at *5. While the court presumed that Attorney obtained confidential information from Client B as part of the joint representation in 2013, Client B agreed at the time that all confidential information obtained from Client B during the joint representation could be shared with Client A. Thus, even if Attorney was disqualified, Client A would still be in possession of all the confidential information, so confidentiality was not at issue where Attorney jointly represented Clients A and B.
This case does not necessarily hold that a conflict under rule 1.9 could never arise from a former joint representation as the court’s decision depended on the “unique facts of [the] case,” including that Attorney only represented Client B for a short time and continued to serve as Client A’s attorney for the next ten years.
Malicious Prosecution: Statute of Limitations In Escamilla v. Vannucci, 97 Cal. App. 5th 175 (2023), Escamilla sued an opposing attorney, Vannucci, for malicious prosecution. In response, Vannucci filed an anti-SLAPP motion, arguing in part that Escamilla would not be able to prove a probability of prevailing on the merits because his malicious prosecution claim was time-barred by the one-year statute of limitations period in Code of Civil Procedure section 340.6. Escamilla argued that his malicious prosecution claim was not untimely because it was governed by the two-year limitations period in section 335.1.
The court held that Escamilla’s malicious prosecution claim was governed by the shorter one-year limitations period set by section 340.6. The court discussed prior case law (Lee v. Hanley, 61 Cal. 4th 1225 (2016)) that held section 340.6 applied to claims beyond only legal malpractice, and included any claims that depended on proof that an attorney violated a professional obligation. The court specifically held that section 340.6 applied to malicious prosecution claims against attorneys who performed professional services in the underlying litigation, as attorneys are precluded under the Rules of Professional Conduct from bringing or continuing an action without probable cause or for the purpose of harassing or maliciously injuring a person. The court also noted that if the legislature wished to limit the reach of section 340.6 to only legal malpractice actions between clients and their attorneys, it could have done so. The plain language of the section did not confine the limitations period to only claims by clients or former clients against the attorney.
Escamilla also argued in the alternative that section 340.6’s limitations period should have been tolled under subdivision (a)(2) of the statute until Vannucci withdrew as opposing counsel. The court also rejected this argument based on the plain language of section 340.6(a)(2), which refers to tolling the limitations period during the time that the “the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” The continuous representation rule was limited to situations where the plaintiff was in an attorney-client relationship with the defendant attorney, which was not the case as between Escamilla and Vannucci.
Litigation Privilege In People v. Potter Handy, LLP, 97 Cal. App. 5th 938 (2023), the court of appeal held that prosecutors could not obtain a civil remedy under the Unfair Competition Law (Bus. & Prof. Code § 17200) (UCL) against a law firm for filing baseless lawsuits to coerce settlements. The Potter court held that the litigation privilege protected the law firm’s actions and that, although Business and Professions Code section 6128 provided an exception to the litigation privilege for criminal conduct, prosecutors could not use the UCL to create a civil remedy.
The district attorneys of Los Angeles and San Francisco (the prosecutors) brought an action under the UCL, alleging that Potter Handy, LLP (the “Potter firm”) and some of its attorneys filed thousands of “boilerplate” complaints in federal court under the Americans with Disabilities Act (ADA). The Potter firm allegedly knew the plaintiffs lacked standing but filed the complaints anyway as part of a shakedown scheme to extract coerced settlements from California small business owners with limited resources.
On appeal from an order sustaining the Potter firm’s demurrer without leave to amend, the court of appeal first found that the Potter firm’s alleged conduct fell “within the broad reach” of the litigation privilege. Id. at 948.
The court of appeal then turned to whether any exception to the litigation privilege applied. Such an exception exists “where its application is inconsistent with another, more specific statute.” Id. at 949. For example, perjury would mean nothing if the litigation privilege shielded witnesses from knowingly lying under oath. Here, the statutory violation on which the UCL claim was based was Business and Professions Code section 6128, which makes it a misdemeanor to knowingly deceive a court. The Potter court held that, although section 6128 provides “[c]riminal sanctions for … an attorney’s deceit of the court or a party[,] this is not a reason also to allow civil damages or penalties for the same conduct.” Id. Thus, the UCL was not “fatally undermined” by application of the litigation privilege.
In Medallion Film LLC v. Loeb & Loeb, 100 Cal. App. 5th 1272 (2024), Sadleir, manager of Clarius Capital Group (Clarius), entered into an agreement whereby Plaintiffs would assist Clarius in obtaining funding in return for a portion of funding obtained. Clarius agreed not to conduct business with contacts introduced by Plaintiffs, including BlackRock.
Sadleir dissolved Clarius and, with the assistance of law firm Loeb & Loeb, created a new entity named Aviron to continue marketing Clarius’ transferred film properties. Aviron obtained funding from BlackRock; Sadleir denied any affiliation between the entities. Plaintiffs contacted BlackRock, advised it of their agreement with Sadleir, and requested assistance obtaining amounts due to plaintiffs to resolve the issue amicably without litigation.
A Loeb & Loeb attorney sent a letter on behalf of Aviron, claiming the entities were not connected, Sadleir merely worked for Aviron, and Aviron owed plaintiffs nothing. The attorney knew these statements were false, and intended to defraud plaintiffs into believing the entities were unaffiliated.
Plaintiffs thereafter sued Loeb & Loeb, who filed an anti-SLAPP motion, asserting that all of plaintiffs’ claims were based on the attorney’s letter, which constituted protected activity (statements in connection with a contemplated lawsuit), and were subject to the litigation privilege. The trial court found accordingly and granted the motion. The trial court further found plaintiffs had not demonstrated a probability of prevailing, as the litigation privilege barred each cause of action.
The court of appeal reversed. The attorney’s communication was only protected activity if litigation was then contemplated in good faith and under serious consideration, disagreeing with statements to the contrary in RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc., 56 Cal. App. 5th 413 (2020), and Pech v. Doniger, 75 Cal. App. 5th 443 (2022). The attorney’s letter was not made in preparation for or in anticipation of litigation; the message to which it was responding was not a threat of litigation. The prospect of litigation was at that point too remote; the letter was but an unprotected attempt to dissuade plaintiffs from inquiring further.
State Bar Immunity In Kohn v. State Bar, 87 F.4th 1021 (9th Cir. 2023) , a licensed California lawyer challenged well-established case law concluding that state bars are arms of the state and immune. The Eleventh Amendment to the United States Constitution establishes sovereign immunity for state governments that prohibits suits against them in federal courts. Case law over the years has recognized immunity for “arms of the state,” but not for such organizations as political subdivisions of the state. While the United States Supreme Court has given some direction, each circuit court of appeals has established its own test for whether an agency like the State Bar is an arm of the state and thereby entitled to immunity. The Ninth Circuit established its test in the case of Mitchell v. Los Angeles Community College District, 861 F.2d 198, 201-202 (9th Cir. 1988). For many years, under the so-called Mitchell factors, the Ninth Circuit has held that the California State Bar is covered by the state’s immunity. Every other circuit court that has considered the matter has also ruled that state bars are arms of the state and are immune.
Benjamin Kohn, a licensed California lawyer, challenged that finding in this case. After his case was dismissed by the trial court, Kohn appealed to the Ninth Circuit. The Ninth Circuit decided sua sponte to hear the matter before an en banc panel. The panel all agreed that the Mitchell factors were out of date with recent Supreme Court precedent, and should be replaced. A divided court decided to adopt the test of the D.C. Circuit, and, based on that, found that the State Bar is “an arm of the state” for Eleventh Amendment purposes and, therefore, is immune from suit in federal court. Two of the eleven justices dissented from the selection of the D.C. test and would have found that the Bar is more akin to a political subdivision than to an arm of the state. They would have denied immunity to the bar.
Attorney Work Product: In House Counsel Southern Cal. Edison Co. v. Superior Court, 102 Cal. App. 5th 573 (2024), was a subrogation action brought by property insurers against Southern California Edison (SCE) to recover for property damage caused by a fire known as the “Creek Fire.” The case addresses attorney work product protections for investigations conducted at the request of in-house counsel.
The Creek Fire ignited in late 2017. Within a week of the fire breaking out, SCE received evidence preservation letters alleging that its equipment contributed to the fire. Additionally, pursuant to Public Utilities Code section 315, public utility companies are required to publicly report involvement in causing damage to property. SCE filed such a report regarding the Creek Fire.
During discovery, SCE withheld numerous documents, primarily emails, which it claimed were created as part of an investigation of the Creek Fire by its in-house counsel. The trial court granted plaintiffs’ motion to compel production, rejecting SCE’s claim of attorney-client privilege because none of the documents at issue were sent to or from SCE counsel. The trial court also rejected the attorney work product claim, finding that the dominant purpose of SCE’s investigation was legal compliance, which it characterized as a “business purpose.”
The appellate court reversed and held that (1) the documents at issue were entitled to at least qualified work product protection pursuant to Code of Civil Procedure section 2018.030(b); and (2) plaintiffs failed to establish any prejudice or unfairness sufficient to justify the disclosure of qualified work product. The court held that attorney work product protection applies even where the dominant purpose of an internal investigation by counsel is to comply with a client’s public reporting requirements. Applying the work product doctrine to such investigations advances the important policy purpose of allowing attorneys the freedom to investigate not only the favorable but also the unfavorable aspects of a client’s situation, and in turn will promote more accurate and effective investigations.
Flat Fees In Dickson v. Mann, 103 Cal. App. 5th 935 (2024), the court of appeal held a law firm was not entitled to $585,000 held in trust on behalf of its client pursuant to an earned-on-receipt fee agreement. The dispute was initiated by a judgment creditor of the client claiming a levy on the funds.
The firm received the funds pursuant to a flat fee agreement which stated: “[client] consents to [law firm] depositing the Flat Fee into [its] operating account upon payment and consents to such fee being deemed earned by [law firm] when received.” Notwithstanding that provision, the agreement also allowed the firm to deposit the flat fee into its trust account and included the caveat that the client would be entitled to a refund of any unearned amount due to incomplete services. The firm had not performed any work and had not transferred the funds into its operating account when the judgment creditor served the firm with a notice of levy.
The court first held that the location of the funds in trust was not dispositive regarding whether they belonged to the client or the firm. Although lawyers are generally not allowed to hold their own funds in a trust account, rule 1.15(c)(2) of the California Rules of Professional Conduct allows the lawyer’s funds to be temporarily held in trust so long as they are withdrawn at the earliest reasonable time. Here the funds were deposited in trust in early August with the intent that they would be moved to the firm’s operating account at the end of the month.
The court then concluded that the funds still belonged to the client, and therefore could be levied upon, because the firm had not performed any work. The court focused on rule 1.15(d), which mandates that a flat fee agreement may not be denominated as “earned on receipt” or “non-refundable.” The court distinguished that arrangement from “a true retainer” where “a client pays [] a lawyer to ensure the lawyer’s availability to the client during a specified period or on a specified matter, but not to any extent as compensation for legal services performed or to be performed.” This case is yet another reminder that fees paid for legal services are not earned until the services are provided—other than the somewhat rare “true retainer” arrangement.
Legal Malpractice: Duty In Grossman v. Wakeman, 104 Cal. App. 5th 1012 (2024), Richard Grossman, a physician, told friends and family he was leaving his estate to one of his sons and two grandchildren, but instructed his attorney, John Wakeman, to give his entire estate to his fourth wife who had her own $100 million. Following his client’s instruction, attorney Wakeman changed Grossman’s trust to leave his entire estate to his wife. After Grossman’s death, his son and grandchildren sued attorney Wakeman for malpractice. The jury, finding that they were the intended beneficiaries of Grossman’s estate, awarded them damages totaling $9.5 million. On appeal, the court reversed, holding Wakeman did not owe any duty of care to Grossman’s son and grandchildren because there was no “clear, certain and undisputed evidence of [Grossman’s] intent” to leave his estate to them. This ruling is consistent with the ruling in Gordon v. Ervin Cohen & Jessup LLP, 88 Cal. App. 5th 543 (2023), highlighted in last year’s Ethics Update.
As a side note, the plaintiff’s expert witness unsuccessfully tried to expand a lawyer’s duty of competence, stating “the job of a competent lawyer is not simply to document what the client thinks should be done. . . . The lawyer’s an advisor, and where there are alternatives, they need to be suggested, with their pros and cons, their costs, and their risks.” The expert opined that attorney Wakeman’s work fell below the standard of care because he simply “was taking dictation” from Grossman and failed to advise Grossman of the risks or presented alternatives. In dicta, the court commented that “a lawyer who is persuaded of his client’s intent to dispose of her property in a certain manner, and who drafts the will accordingly, fulfills his duty of loyalty to his client and is not required to urge the testator to consider an alternative plan in order to forestall a claim by someone thereby excluded from the will,” referring to Boranian v. Clark, 123 Cal. App. 4th 1012 (2004).
Sanctions In Masimo Corp. v. The Vanderpool Law Firm, 101 Cal. App. 5th 902 (2024), an employer brought an action against a former employee and two of his LLCs. The employer alleged that the employee misappropriated corporate funds while working for the employer.
A discovery dispute arose when the employee’s counsel served boilerplate objections to discovery propounded by the employer. The employer filed a motion to compel further responses, but the action was stayed shortly after that due to a pending criminal case against the employee. After the stay was lifted, the parties had a conference before a discovery referee, during which the employee’s counsel agreed to provide supplemental discovery responses. The supplemental responses consisted of many of the same objections and only minimal substantive responses. The employee’s counsel withdrew as counsel shortly after serving the supplemental responses.
The employer filed a renewed motion to compel and a further conference was held before the discovery referee. The employee’s counsel, no longer counsel of record, specially appeared to oppose the motion. The discovery referee recommended that the motion to compel be granted and that discovery sanctions of $10,000 be imposed against the employee’s counsel. The trial court adopted the discovery referee’s recommendation, finding that “to allow such a law firm that substituted out of the case a ‘free pass’ to escape that responsibility defies logic.”
The employee’s counsel appealed the sanctions order, arguing, among other things, that because it was not counsel of record at the time the second motion to compel was filed, no sanctions could be awarded against it. The Court of Appeal (Fourth District, Division 3) affirmed the sanctions order. The fact that the employee’s counsel had substituted out of the case after engaging in discovery misconduct did not insulate it from sanctions. The Court of Appeal held that, under the discovery statute, sanctions are available against “any attorney” advising the conduct that is the subject of the discovery sanction even if that attorney is no longer counsel of record.