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California Legal Ethics
1.7:100 Comparative Analysis of CA Rule
CRPC 3-310 addresses conflicts of interest with a different structure than MR 1.7 and related MR provisions. CRPC 3-310(C), dealing with conflicts between concurrent clients, is the California provision most analogous to MR 1.7(a). CRPC 3-310(C) differs from MR 1.7(a) in several respects. First, CRPC 3-310(C) does not contain a provision similar to MR 1.7(a)(1) which requires the lawyer to reasonably believe that the representation of one client will not adversely affect the relationship with the other client. In contrast to MR 1.7(a), CRPC 3-310(C) allows a lawyer to represent two separate clients notwithstanding an adverse effect on the relationship with one or both clients, so long as the informed consent of each client is obtained.
CRPC 3-310(C) may also differ from MR 1.7 with regard to the order in which the attorney-client relationship is established. MR 1.7(a) speaks in terms of representation of a client whereas CRPC 3-310(C)(3) speaks about the acceptance as a client of a person or entity whose interest in the first matter is adverse to the client in the first matter. [See 1.7:200 Conflicts of Interest in General, infra with respect to proposed CRPC 3-310(C)(4)].
The last sentence of MR 1.7(b)(2), dealing with the representation of multiple clients in a single matter, has its counterpart in CRPC 3-310(C)(1) and (2) which require “informed written consent” (defined in CRPC 3-310(A)(2)) with respect to the representation of multiple clients in a single matter.
As to potential conflicts arising other than from the representation of a second client, CRPC 3-310(B) requires only written disclosure, unlike MR 1.7(b) which requires client consent after consultation. Also, CRPC 3-310(B) permits the undertaking of a representation of a client whether or not the lawyer reasonably believes the representation will not be adversely affected because of the lawyer’s responsibilities to a third person.
CRPC 3-310 differs from DR 5-101(A) and DR 5-105 in many of the same ways that CRPC 3-310 differs from MR 1.7. In particular, CRPC 3-310 allows a lawyer to represent clients where there is a conflict of interest so long as there is either “informed written consent of each client” in the case of multiple clients and “written disclosure to the client” where the lawyer has specified relations to a party in the same matter, whether or not (in the words of DR 5-105(C)) “it is obvious that he [the lawyer] can adequately represent the interest of each.”
1.7:200 Conflicts of Interest in General
• Primary California References:
CRPC 3-310, Civ.
Proc. Code 128
• Background References: ABA Model Rule 1.7, Other Jurisdictions
• Commentary: ABA/BNA § 55:101, ALI-LGL §§ 201-204, Wolfram §§ 7.1-7.6
CRPC 3-310 addresses conflicts of interest resulting from specified situations.
CRPC 3-310 was originally adopted in 1989 and was subsequently amended in 1992. In the 1992 amendments, the paragraphs were relettered so that CRPC 3-310(A) became 3-310(B) and so on. Accordingly, when considering citations to CRPC 3-310, one must consider which version is involved.
CRPC 3-310(A) now contains definitions of the terms “disclosure,” “informed written consent” and “written.”
CRPC 3-310(B) deals with the situation in which the lawyer has certain types of relationships (other than an attorney-client relationship) with another party or another person or entity which might affect the zeal with which the attorney would pursue the client’s interests.
CRPC 3-310(C) deals with the situation where the representation of one client may potentially or actually conflict with the representation of another current client.
CRPC 3-310(D) deals with aggregate settlements.
CRPC 3-310(E) deals with potential conflicts with former and current clients resulting from the receipt of confidential information.
CRPC 3-310(F) deals with the situation where compensation for representing a client is obtained from one other than the client.
The official Discussion to CRPC 3-310 states:
“Rule 3-310 is not intended to prohibit a member from representing parties having antagonistic positions on the same legal question that has arisen in different cases, unless representation of either client would be adversely affected.
“Other rules and laws may preclude making adequate disclosure under this rule. If such disclosure is precluded, informed written consent is likewise precluded. (See, e.g., Business and Professions Code section 6068, subsection (e).)
“Paragraph (B) is not intended to apply to the relationship of a member to another party’s lawyer. Such relationships are governed by rule 3-320.
“Paragraph (B) is not intended to require either the disclosure of the new engagement to a former client or the consent of the former client to the new engagement. However, such disclosure or consent is required if paragraph (E) applies.
“While paragraph (B) deals with the issues of adequate disclosure to the present client or clients of the member’s present or past relationships to other parties or witnesses or present interest in the subject matter of the representation, paragraph (E) is intended to protect the confidences of another present or former client. These two paragraphs are to apply as complementary provisions.
“Paragraph (B) is intended to apply only to a member’s own relationships or interests, unless the member knows that a partner or associate in the same firm as the member has or had a relationship with another party or witness or has or had an interest in the subject matter of the representation.
“Subparagraphs (C)(1) and (C)(2) are intended to apply to all types of legal employment, including the concurrent representation of multiple parties in litigation or in a single transaction or in some other common enterprise or legal relationship. Examples of the latter include the formation of a partnership for several partners or a corporation for several shareholders, the preparation of an ante-nuptial agreement, or joint or reciprocal wills for a husband and wife, or the resolution of an ”uncontested“ marital dissolution. In such situations, for the sake of convenience or economy, the parties may well prefer to employ a single counsel, but a member must disclose the potential adverse aspects of such multiple representation (e.g., Evid. Code, § 962) and must obtain the informed written consent of the clients thereto pursuant to subparagraph (C)(1). Moreover, if the potential adversity should become actual, the member must obtain the further informed written consent of the clients pursuant to paragraph (C)(2).
“Subparagraph (C)(3) is intended to apply to representations of clients in both litigation and transactional matters.
“There are some matters in which the conflicts are such that written consent may not suffice for non-disciplinary purposes. See Woods v. Superior Court (5th Dist. 1983) 149 Cal.App.3d 931, 197 Cal.Rptr. 185; Klemm v. Superior Court (5th Dist. 1977) 75 Cal.App.3d 893 142 Cal.Rptr. 509; Ishmael v. Millington (3rd Dist. 1966) 241 Cal.App.2d 520, 50 Cal.Rptr. 592.
“Paragraph (D) is not intended to apply to class action settlements subject to court approval.
“Paragraph (F) is not intended to abrogate existing relationships between insurers and insureds whereby the insurer has the contractual right to unilaterally select counsel for the insured, where there is no conflict of interest. (See San Diego Navy Federal Credit Union v. Cumis Insurance Society (4th Dist 1984) 162 Cal.App.3d 358, 208 Cal.Rptr. 494].)”
The following comments are taken from Karpman and Margolis pages 45-46, with certain conforming changes and the addition of recent cases:
CRPC 3-310 was substantially revised by the Supreme Court at the suggestion of the State Bar’s Board of Governors in September 1992. Therefore many of the available cases and ethics opinions address former CRPC 3-310 (1989) and former 5-102 (1975). The foundation concepts supporting this rule remain substantially the same. The new rule imposes greater restrictions and tightens up any loose concepts in most instances (except section (B)) requiring the disclosure of any conflicting relationship by requiring informed written consent.
The rule flows from the fiduciary relationship between an attorney and client which is of the very highest character and binds the attorney to the most conscientious fidelity. An attorney’s fundamental duties include undivided loyalty to the client’s interests. Dettamanti v. Lompoc Union School District (2nd Dist. 1956) 143 Cal.App.2d 715, 300 P.2d 78; Anderson v. Eaton (1930) 211 Cal.113, 293 P. 788; Cox v. Delmas (1893) 99 Cal. 104, 33 P. 836.
The rule applies to potential conflicts as well as actual conflicts. If a waiver is obtained for a potential conflict, and the potential conflict later becomes an actual conflict, a second waiver is required for continued representation. In the absence of such waiver, it may be necessary to withdraw from representation.
Is an Attorney-Client Relationship a Prerequisite? Earlier cases maintained that the rule never becomes applicable where the party seeking the attorney’s disqualification fails to establish that such party was or is represented by the attorney in a manner giving rise to an attorney-client relationship. Civil Service Com. v. Superior Court (4th Dist. 1984) 163 Cal.App.3d 70, 209 Cal.Rptr. 159; Kapelus v. State Bar (1987) 44 Cal.3d 179, 191-192, 242 Cal.Rptr. 196, 745 P.2d 917; In re Lee G. (4th Dist. 1991) 1 Cal.App.4th 17, 1 Cal.Rptr.2d 375; Jacuzzi v. Jacuzzi Bros., Inc. (1st Dist. 1963) 218 Cal.App.2d 24, 30, 32 Cal.Rptr. 188, 192; Chambers v. Superior Court (3rd Dist. 1981) 121 Cal.App.3d 893, 897, 175 Cal.Rptr. 575, 578 (former CRPC 4-101 (1975)); In the Matter of Crane & Depew (Review Dept. 1990) 1 Cal. State Bar Ct. Rptr. 139, 153.
However, the modern trend is to extend liability to third parties, in situations that give rise to a fiduciary duty or an implied professional relationship, even where there is no express attorney-client relationship. See Westinghouse Elec. Corp. v. Kerr-McGee Corp. (7th Cir. 1978) 580 F.2d 1311. Thus, fiduciary obligations and professional responsibilities may warrant disqualification of counsel in appropriate cases even in the absence of a strict contractual attorney-client relationship. See Trone v. Smith (9th Cir. 1980) 621 F.2d 994. Where an attorney’s relationship with a non-client creates an expectation that the attorney owes the non-client a duty of fidelity, or where the attorney has acquired confidential information in the course of such a relationship that will be, or may appear to be useful in litigation on behalf of the client. See C.O.P.R.A.C. Op. 1981-63 p. 3. and see William H. Raley Co., Inc. v. Superior Court (4th Dist. 1983) 149 Cal.App.3d 1042, 197 Cal.Rptr. 232.
This is a dynamic area of judicial activity with many cases across the broad spectrum of legal conduct. Disqualification motions are often based upon perceived violations of CRPC 3-310. The decisions of the Supreme Court and Review Department of the State Bar Court consistently hold that cases that are based upon the CRPC are fact specific. Therefore, civil adjudications based upon these rules are also fact specific.
One of the leading California cases on conflicts of interest is the California Supreme Court’s decision in Flatt v. Superior Court (1994) 9 Cal.4th 275, 36 Cal.Rptr.2d 537, 885 P.2d 950. In that case, a prospective client consulted with attorney Flatt concerning a potential lawsuit. After an initial interview, Flatt discovered that the target of the contemplated lawsuit was already a client of Flatt’s law firm. Flatt declined to take on the new client but failed to inform the prospective client of the statute of limitations applicable to the contemplated suit. When the prospective client finally brought suit with the assistance of other counsel, the statute of limitations had passed and the prospective client sued Flatt for malpractice. The Supreme Court held that the duty of loyalty owed by the law firm to its existing client excused the law firm from any duty to inform the prospective client about the statute of limitations (although in the absence of such a duty of loyalty, the failure to inform the prospective client of the statute of limitations when declining the representation might constitute malpractice).
Proposed Amendments to CRPC 3-310(C)
Literally read, CRPC 3-310(C)(3) precludes (x) an attorney who is representing client A in a matter against client B from thereafter accepting the representation of client B while the first matter is still pending without the consent of client A but does not preclude (y) the attorney from accepting the representation of client C (who is not a party to the “first” matter) in a matter opposite client A. See Apex Oil Company, Inc. v. Wickland Oil Company (E.D. Cal. 1995) 1995 WL 293944 n.2.
This interpretation would be supported by July 1, 1991 Memorandum from the Commission for the Revision of the Rules of Professional Conduct to the Members of the Board Committee on Admissions and Competence entitled “Explanation of Additional Recommended Amendment to Rule 3-310 (Avoiding the Representation of Adverse Interests) Following Consideration of Public Comment Received.” This Memorandum was attached as Enclosure 5 to the 1991 Request to the Supreme Court. In Section 2 of that Memorandum, the Commission explained that, based upon public comment received on the discussion draft of the new rules, the Commission had considered adding a new subparagraph (4) to CRPC 3-310(C) which would state:
(C) A member shall not, without the informed written consent of each client:
. . . .
(4) Accept employment in a matter by one client adverse to another party being represented by the member or the member’s law firm in another matter, whether or not the matters are related.
The Commission determined not to recommend this subparagraph for adoption at that time because, among other things, bar members had not had the opportunity to comment upon the proposed revision.
Some California practitioners, as a matter of caution and as a matter of client relations, have interpreted the phrase “first matter” in CRPC 3-310(C)(3) as not applying to the temporal order in which matters are accepted but only as meaning “one” and “another,” with the result that present CRPC 3-310(C)(3) would be applicable to both situations (x) and (y) described in the preceding paragraph above. The Flatt decision is an example of situation (y), and the California Supreme Court had no hesitation in finding the existence of a conflict.
Given this potential inconsistency between the Supreme Court’s ruling in Flatt and a literal reading of CRPC 3-310(C)(3), the State Bar in 1997 proposed a new subparagraph (C)(4) and an amended subparagraph (C)(3) of CRPC 3-310. The proposed new subparagraph (C)(4) would cover situation (y) but would be limited to litigated matters. The amendments to subparagraph (C)(3) would conform the language in that subparagraph to the language proposed for new CRPC 3-310(C)(4).
1.7:200 Conflicts of Interest in General covers cases dealing with the scope of MR 1.7 and CRPC 3-310 and its predecessors. [See Rule 1.9 Conflict of Interest: Former Client, infra for cases dealing specifically with CRPC 3-310(E) as it relates to former clients]. Cases dealing with particular aspects of CRPC 3-310 (as opposed to its scope) are covered in the following subsections of Rule 1.7 Conflicts of Interests in General.
Where an attorney had a continuing duty of confidentiality as a former trustee of a real estate investment trust, he could not represent a party against the trust’s bankruptcy estate on a matter which was substantially related to matters which had come before him as a trustee of the trust. In re Mortgage & Realty Trust (Bankr. C.D. Cal. 1996) 195 B.R. 740 (the court applied a version of CRPC 3-310 which predated the facts at issue).
In Jacuzzi v. Jacuzzi Bros., Inc. (1st Dist. 1963) 218 Cal.App.2d 24, 32 Cal.Rptr. 188, the court held that a former attorney for a corporation is not disqualified from representing minority stockholders in a derivative action unless there is some showing that in so doing the attorney may be called upon to breach a professional confidence previously entrusted to him by a corporation. In addition, another attorney, who had served as a director of the corporation but had never formed an attorney-client relationship with the corporation, was not disqualified from representing the plaintiffs in the derivative action.
There was no conflict of interest in county counsel representing county Department of Social Services both with respect to the public conservator appointed for a mother and in dependency proceedings. In re Lee G. (4th Dist. 1991) 1 Cal.App.4th 17, 1 Cal.Rptr.2d 375. There was no attorney-client relationship between county counsel and the mother, and there was no constructive attorney-client relationship between the mother and county counsel based on the fiduciary duty owed to her by her public conservator and arguably by county counsel as the conservator’s counsel.
The rules concerning conflicts of interest are equally applicable to the state Attorney General. People ex rel. Deukmejian v. Brown (1981) 29 Cal.3d 150, 157, 172 Cal.Rptr. 478, 624 P.2d 1206.
Where a senior partner of a law firm is a member of a trust investment committee and a director of a bank which was trustee of 100% of the common stock of a defendant corporation, there was a conflict of interest under former CRPC 5-102(B) (1975) in the law firm’s representing a plaintiff against the defendant corporation. It was not necessary that there be an attorney-client relationship with the defendant corporation but only that the relationship between the senior partner and the corporation create an expectation that the senior partner owes a duty of fidelity to the corporation. William H. Raley Co., Inc. v. Superior Court (4th Dist. 1983) 149 Cal.App.3d 1042, 197 Cal.Rptr. 232.
The Raley decision was discussed in some detail in C.O.P.R.A.C. Op. 1993-132 where the issue was whether a lawyer who serves as a director of a corporation can also represent a client in connection with a transaction with the corporation. The opinion concluded that, because former CRPC 5-102(B) (1975) which was relied upon in the Raley case) spoke generally about “conflicting interests” but current CRPC 3-310(C) focused primarily on the representation of “clients,” the decision in Raley may no longer be applicable. The opinion concluded that a corporation was not a lawyer’s client merely because the lawyer was a director of the corporation. However, the opinion cautioned that, depending on circumstances, a lawyer might easily become a client in fact. In such an event, the provisions in CRPC 3-310 would be applicable.
A different conclusion was reached by the court in Allen v. Academic Games Leagues of America, Inc. (C.D. Cal. 1993) 831 F.Supp. 785 (appeal does not discuss conflict of interest issue). The Allen court relied upon the Raley decision in holding that a lawyer who had served on the Advisory Board of the plaintiff’s sole proprietorship was disqualified from representing the defendant. The court recognized that, because the plaintiff had never been a client of the lawyer, CRPC 3-310 was not applicable. Nevertheless, based on the Raley case and the statement in CRPC 1-100 that CRPC was intended to protect the public and promote respect and confidence in the legal profession and that the prohibition of certain conduct in CRPC was not exclusive, the court concluded that the lawyer was disqualified because of a conflict of interest.
Under former CRPC 5-102(B) (1975), the fact that a lawyer represents a trustee in bankruptcy does not automatically result in the law firm from being disqualified from representing some of the bankruptcy general creditors in a separate action brought in state court against one of the other general creditors. Vivitar Corporation v. Broidy (2nd Dist. 1983) 143 Cal.App.3d 878, 192 Cal.Rptr. 281. In the Vivitar case, the court found that there were no facts indicating a conflict of interest.
In order to have a conflict of interest under former CRPC 5-102 (1975), an attorney must have two separate clients. In the Matter of Crane and Depew (1990) 1 Cal. State Bar Ct. Rptr. 139, 153.
In proceedings to determine whether parental rights should be terminated, the minor and the governmental agency bringing the proceedings should be represented by separate counsel both in the trial court and on appeal if there is a conflict of interest. However, such a conflict of interest does not automatically exist. In re Mary C. (2nd Dist. 1995) 41 Cal.App.4th 71, 48 Cal.Rptr.2d 346.
Where a plaintiff’s attorney commenced a close social relationship with the legal secretary of defense counsel, there was not a violation of former CRPC 4-101 (1975) concerning conflicts of interest in the absence of any evidence that the secretary actually disclosed confidential information to plaintiff’s attorney. Gregori v. Bank of America (1st Dist. 1989) 207 Cal.App.3d 291, 302, 254 Cal.Rptr. 853, 860.
While a law firm is representing a husband in personal injury litigation, it cannot commence representing the wife in property settlement negotiations against the husband, without the parties’ written consent. Jeffry v. Pounds (3rd Dist. 1977) 67 Cal.App.3d 6, 136 Cal.Rptr. 373.
Although CRPC 3-310 does not deal with all of the issues dealt with in the conflict of interest provisions of the MR, the general view is that California case law follows the MR pattern fairly closely. If there is a major difference, it is that CRPC 3-310 and the California decisions appear to give more weight to client consent in concurrent representation situations. California follows the “substantial relationship test” in evaluating former-client conflicts, which, as in the MR may be cured by consent of both clients. The California approach to imputed disqualification also appears to be similar to that of the MR.
California’s conflicts law is distinctive in requiring that client consent to a conflict be accomplished by written disclosures and consent. However, violation of the writing requirement, by itself, does not appear to have disciplinary consequences. No reported cases predicate discipline of a lawyer solely on a failure to comply with the writing requirements of California’s conflicts rules. Cases in which the absence of a writing is mentioned also involve more serious violations, such as the total failure to obtain consent at all or the acquisition of an interest in the subject matter of the litigation. See, e.g., Brockway v. State Bar (1991) 53 Cal.3d 51, 278 Cal.Rptr. 836, 806 P.2d 308 (lawyer disciplined for taking a deed to client’s house as security for fee, and for failing to provide written disclosure or obtain written consent of the client).
It is the duty of a law firm to perform conflicts checks upon taking on a new client. Image Technical Services, Inc. v. Eastman Kodak Company (N.D. Cal. 1993) 820 F. Supp. 1212, 1217. See also Schmitz v. Zilveti (9th Cir. 1994) 20 F.3d 1043, 1048-1049 (applying Hawaiian law, the court found that an arbitrator/lawyer has a duty to investigate for his own potential conflicts of interest).
CRPC 3-310 does not contain the concept set forth in MR 1.7(a)(1) concerning a “material adverse effect” on representation. However, similar concepts are used in several of the paragraphs of CRPC 3-310. Each of CRPC 3-310(B)(2) and (3) are triggered by certain relationships which would “substantially” affect either the representation of the client or another person. In addition, the concept of materiality appears in CRPC 3-310(E) with respect to confidential information which may have been obtained in a prior representation.
The existence of such a material adverse effect can lead a court to finding CRPC 3-310 applicable. Thus, where a lawyer’s merger discussions with opposing counsel in a marriage dissolution had a material adverse effect on the lawyer’s representation of her client, a conflict of interest was found. Stanley v. Richmond (1st. Dist. 1995) 35 Cal.App.4th 1070, 41 Cal.Rptr.2d 768.
Although CRPC 3-310 applies regardless of the lawyer’s reasonable belief about the lack of adverse effect on the representation of a client, there still remains the question as to whose perspective is relevant in determining adversity.
Although a proxy fight may have been consistent with the interest of a corporation, the determination of an alleged conflict of interest concerning the employment of the former general counsel of the corporation to act as counsel for one of the proxy contestants must be addressed from the perspective of whether employment of such attorney by the proxy contestant was adverse to the interests of the corporation. The court held that it was. Goldstein v. Lees (2nd Dist. 1975) 46 Cal.App.3d 614, 619, 120 Cal.Rptr. 253, 256.
The law firm of a member of a city council may not represent tort plaintiffs in actions against the city, even with the informed consent of the city council. Nothing in CRPC would prohibit officials of the city from providing the consent required by former CRPC 4-101 (1975) or former 5-102(B) (1975). However, although the city may waive the conflict of interest, the “appearance of impropriety” (ABA Model Code, Canon 9) would prohibit giving such consent. Notwithstanding the MR’s elimination of the “appearance of impropriety” standard, the standard should remain applicable to attorneys who are in public office. C.O.P.R.A.C. Op. 1981-63.
In most circumstances, a conflict of interest can be waived by the present or former client in writing. CRPC 3-310(C) and 3-310(E). As stated in CRPC 3-310, the consent must be an “informed consent.” Applying the definition in CRPC 3-310(A), such consent requires the client’s written agreement to the representation following written disclosure of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client.
However, as recognized by the California Supreme Court in Maxwell v. Superior Court (1982) 30 Cal.3d 606, 622, 180 Cal.Rptr. 177, 639 P.2d 238: “Waiver of the consequences of potential conflict was not inadequate simply because neither the court nor the agreement undertook the impossible burden of explaining separately every conceivable ramification.” Thus, a joint client may give a blanket waiver in advance to a law firm which is representing joint clients in a lawsuit. If properly drafted, such a waiver could permit the law firm to continue representing the first client against the second client after the law firm has withdrawn from representing the second client. See Zador Corporation N.V. v. C.K. Kwan (6th Dist. 1995) 31 Cal.App.4th 1285, 37 Cal.Rptr.2d 754. This opinion is particularly useful because it sets forth in full the conflict waiver letter at issue. See also C.O.P.R.A.C. Op 1989-115.
A client’s consent to conflicting representation must be in writing and is valid only if the attorney has informed the client fully about the nature of the conflict. Informing other outside counsel for the client about one aspect of the conflict and in a separate conversation informing in-house counsel about another portion of the conflict is not sufficient. It is the duty of the attorney to make full disclosure of the conflict in a meaningful manner. In re California Canners and Growers (Bkrtcy.N.D.Cal. 1987) 74 B.R. 336.
Consent to waive a conflict under CRPC 3-310 was not effective where it was not in writing and where the client was not informed (i) how the proposed representation would be adverse to the client’s interest, (ii) that the law firm was actually going to appear on a brief against the client or (iii) of the potential exposure to the client. Image Technical Services, Inc. v. Eastman Kodak Company (N.D. Cal. 1993) 820 F. Supp. 1212, 1216-1217.
A lawyer, with the consent of both parties, could represent a husband and wife in connection with child support matters in an uncontested dissolution proceeding. Klemm v. Superior Court (5th Dist. 1977) 75 Cal.App.3d 893, 142 Cal.Rptr. 509 (former CRPC 5-102 (1975)).
Under former CRPC 5-102(B) (1975), any consent also had to be in writing. However, the consent will be ineffectual if actual conflicts exist but the waiver applies only to potential conflicts. Blecher & Collins, P.C. v. Northwest Airlines, Inc. (C.D. Cal. 1994) 858 F.Supp. 1442.
A client’s waiver of the attorney-client privilege does not constitute a waiver of the duty of loyalty. In addition, arguably implied consent in an earlier case cannot be construed to be consent in a later lawsuit. Metro-Goldwyn-Mayer, Inc. v. Tracinda Corporation (2nd Dist 1995) 36 Cal.App.4th 1832, 1845, 43 Cal.Rptr.2d 327, 336.
In the case of a corporation, the right to assert or waive conflicts of interest is controlled by those responsible for the management of the corporation. Displaced managers (whether displaced as a result of a takeover, merger, loss of confidence by the shareholders, normal succession or the appointment of a trustee in bankruptcy) may not assert those rights over the wishes of the new management. In re Jaeger (Bankr. C.D. Cal. August 26, 1997), No. LA 95-29915 SB, 1997 WL 566776; In re Pacific Homes (Bankr. C.D. Cal. 1979) 1 Bankr. Rptr. 574.
Where the only shareholders of the corporation are also the directors involved as defendants in a derivative action brought on behalf of the corporation, their consent to the joint representation of the directors and the corporation by a single lawyer is not sufficient to waive the conflict of interest as against the minority shareholder bringing the derivative action. Forrest v. Baeza (1st Dist. 1997) 58 Cal.App.4th 65, 67 Cal.Rptr.2d 857.
Similarly C.O.P.R.A.C. Op. 1993-132 concludes that effective informed written consent may be either impossible or insufficient where a lawyer is asked to represent a client in a transaction with a corporation on whose board of directors the lawyer sits.
Similarly, where a property management firm is the general partner of a series of limited partnerships, “it is unlikely that the partnerships can give a free and fully informed consent through their general partner whose individual interests are adverse to theirs.” Without such consent, a lawyer could not ethically represent both parties if their interests conflicted. L.A. Op. (1991) 461.
A criminal defendant’s change of plea form did not include an effective waiver of his right to conflict-free representation. People v. Pastrano (4th Dist. 1997) 52 Cal.App.4th 610, 60 Cal.Rptr.2d 620 (CRPC 3-310(C)).
It would be improper for a city council to grant consent for the law firm of a member of the city council to represent tort plaintiffs in actions against the city. C.O.P.R.A.C. Op. 1981-63.
By its execution of a joint policy agreement, a school district was deemed to have waived its right, based upon the presumption of a substantial relationship between the current and prior matters, to disqualify a lawyer which had previously represented it. Elliott v. McFarland Unified School District (5th Dist. 1985) 165 Cal.App.3d 562, 211 Cal.Rptr. 802.
An agreement by which the client released a lawyer “from all rights, burdens, obligations, and privileges which appertain to his said employment” and by which the client consented that the lawyer may engage his services “pro and con as he may see fit” was too broad to serve as a consent by the client to the lawyer’s engaging in suits against the client involving matters as to which the lawyer had previously represented the client. In re Boone (N.D. Cal. 1897) 83 F. 944.
1.7:250 Imputation of Conflict of Interest to Affiliated Lawyers [see 1.10:200]
Violation of CRPC 3-310 can result in professional discipline, disqualification in litigation or in representation, non-recovery or return of fees, and malpractice liability.
B&PC § 6077 provides that, for a wilful breach of any of the CRPC, the State Bar Board of Governors has the power to discipline attorneys by reproval, public or private, or to recommend to the Supreme Court the suspension from practice for an attorney not exceeding three years. B&PC § 6100 provides that an attorney may be disbarred or suspended by the Supreme Court for any of the causes set forth in Article 6 (B&PC § 6100 and following) of the State Bar Act. These causes include the violation by an attorney of his duties as an attorney (B&PC § 6103) and acts involving moral turpitude, dishonesty or corruption (B&PC § 6106). These latter provisions have been interpreted to include situations involving conflicts of interest. Thus, breach of CRPC concerning conflicts of interest may be grounds for the imposition of a broad variety of disciplinary sanctions. See, e.g., Kapelus v. State Bar (1987) 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917 (disbarment); Benson v. State Bar (1975) 13 Cal.3d 581, 119 Cal.Rptr. 297, 531 P.2d 1081 (disbarment); In the Matter of Hindin (Review Dept. 1997) 1997 WL 469424 (disbarment); Rosenthal v. State Bar (1982) 43 Cal.3d 612, 238 Cal.Rptr. 377, 738 P.2d 723 (disbarment); Gendron v. State Bar (1983) 35 Cal.3d 409, 197 Cal.Rptr. 590, 673 P.2d 260, (former CRPC 4-101 (1975)) (public reprimand); Ames v. State Bar (1973) 8 Cal.3d 910, 106 Cal.Rptr. 489, 506 P.2d 625, (private reproval); Lee v. State Bar (1970) 2 Cal.3d 927, 88 Cal.Rptr. 361, 472 P.2d 449 (three years probation, with actual suspension for first year).
The California courts have broad powers to disqualify an attorney. As stated in In re Complex Asbestos Litigation (1st Dist. 1991) 232 Cal.App.3d 572, 585, 283 Cal.Rptr. 732:
A trial court’s authority to disqualify an attorney derives from the power inherent in every court, “[t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.” Civ. Proc. Code § 128, subd. (a)(5); People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 745, 218 Cal.Rptr. 24, 705 P.2d 347; Comden v. Superior Court (1978) 20 Cal.3d 906, 916, fn.4, 145 Cal.Rptr. 9, 576 P.2d 971; Gregori v. Bank of America (1st Dist. 1989) 207 Cal.App.3d 291, 299-300, 254 Cal.Rptr. 853.)
Because the power to disqualify an attorney derives from a court’s inherent power to control the conduct of persons “in any manner connected with a judicial proceeding before it,” that power does not extend to disqualifying an attorney from participating in judicial proceedings pending before a different court, even if those other proceedings are very similar. Thus, a trial court, when faced with a motion for disqualification of a law firm in twenty cases, only nine of which were pending before it, properly declined to enter a disqualification order in the eleven cases not pending before it. In re Complex Asbestos Litigation (1st Dist. 1991) 232 Cal.App.3d 572, 600, 283 Cal.Rptr. 732, 749-750.
As stated in Flatt v. Superior Court (1994) 9 Cal.4th 275, 284, 36 Cal.Rptr.2d 537, 885 P.2d 950: “Where a duty of loyalty applies, it requires a per se, or automatic disqualification, in all but a few instances.” See also Metro-Goldwyn-Mayer, Inc. v. Tracinda Corporation (2nd Dist. 1995) 36 Cal.App.4th 1832, 1840, 43 Cal.Rptr.2d 327, 332.
Where lawyers acting as special counsel for a bankruptcy trustee brought a motion against the trustee, the bankruptcy court was justified in dismissing the lawyers as special counsel. In re Johnson (N.D. Cal. 1994), No. C-93-3844-VRW, 1994 WL 163911.
When there is convincing evidence that delay in bringing a motion to disqualify was inexcusable and the present client will suffer prejudice, the court may find that the former client has waived any right to disqualify counsel despite the existence of a substantial relationship between the former matter and the current matter. The delay must be extreme in terms of time and consequence. River West, Inc. v. Nickel (5th Dist. 1987) 188 Cal.App.3d 1297, 1310-1311, 234 Cal.Rptr. 33, 42 (finding that delay by former client in bringing motion waived any conflict of interest). In another case, a fourteen-month delay in bringing motion was held to constitute laches. In re Lee G. (4th Dist. 1991) 1 Cal.App.4th 17, 34, 1 Cal.Rptr.2d 375, 385. But see Metro-Goldwyn-Mayer, Inc. v. Tracinda Corporation (2nd Dist. 1995) 36 Cal.App.4th 1832, 1847, 43 Cal.Rptr.2d 327, 336-337 (no delay found); In re Complex Asbestos Litigation (1st Dist. 1991) 232 Cal.App.3d 572, 599, 283 Cal.Rptr. 732, 748-749 (delay did not result in prejudice of type required to defeat motion for disqualification); In re Jaeger (Bankr. C.D. Cal. August 26, 1997), No. LA 95-29915 SB, 1997 WL 566776 (no delay when motion made three and half months from trustee’s appointment); Image Technical Services, Inc. v. Eastman Kodak Company (N.D. Cal. 1993) 820 F. Supp. 1212, 1217-1218 (a large multinational corporation is not charged with the responsibility of performing conflict checks when faced with litigation, rather the law firm is charged with the responsibility; no conflict found).
Impact on Fees
If a client proves that the attorney engaged in a representation posing a conflict of interest without the client’s informed consent, where required, the attorney may not only forfeit unpaid fees but may also be required to disgorge previously paid fees. Image Technical Serv. v. Eastman Kodak Co. (9th Cir. 1998) 136 F. 3d 1354; Asbestos Claims Facility v. Berry & Berry (1st Dist. 1990) 219 Cal.App.3d 9, 25-27, 267 Cal.Rptr. 896, 905-907 (former CRPC 5-102(B) (1975)); Goldstein v. Lees (2nd Dist. 1975) 46 Cal.App.3d 614, 618, 120 Cal.Rptr. 253, 255 (citing Anderson v. Eaton (1930) 211 Cal. 113, 116, 293 P. 788, 789); Clark v. Millsap (1926) 197 Cal. 765, 242 p.918.
Blecher & Collins, P.C. v. Northwest Airlines, Inc. (C.D. Cal. 1994) 858 F.Supp. 1442, 1457. The lawyer is entitled to attorney’s fees for the value of services rendered before the date that the violation commenced. Jeffry v. Pounds (3rd Dist. 1977) 67 Cal.App.3d 6, 12, 136 Cal.Rptr. 373, 377 (former CRPC 5-102(B) (1975)).
For fee forfeiture to be imposed, the ethical violation must be of a "serious" nature. Pringle v. LaChappelle (1999) 73 Cal.App.4th 1000, 87 Cal.Rptr.2d 90 (attorney obtained corporation's consent to waive conflict through a corporate officer who also had a conflict, in violation of CRPC 3-600; violation deemed not serious enough to warrant fee forfeiture); Clark v. Maillsap (1926) 197 Cal. 765, 242 P. 918.
The existence of a conflict of interest often gives rise to a claim for malpractice based upon the attorney’s alleged failure to protect the client’s interest. However, the statute of limitations must still be met in a claim for malpractice against attorneys who had failed to disclose to the client that they were also representing the opposing parties. Johnson v. Haberman and Kassoy (2nd Dist. 1988) 201 Cal.App.3d 1468, 247 Cal.Rptr. 614.
“[W]hen an attorney attempts dual relationship [representing two clients with divergent or conflicting interests in the same subject matter] without making the full disclosure required of him, he is civilly liable to the client who suffers loss caused by lack of disclosure.” Lysick v. Walcom (1st Dist. 1968) 258 Cal.App.2d 136, 148, 65 Cal.Rptr. 406, 414.
A lawyers’ representation of both husband and wife in an uncontested divorce suit without appropriate disclosure to the wife of the facts and circumstances concerning potential conflicts which are necessary to enable the wife to make free intelligent decisions can constitute negligence for malpractice purposes. Ishmael v. Millington (3rd Dist. 1966) 241 Cal.App.2d 520, 50 Cal.Rptr. 592.
A breach of ethical guidelines (here CRPC 3-310) does not in itself warrant sanctions under Federal Rules of Civil Procedure 11. In re Johnson (N.D. Cal. 1994), No. C-93-3844-VRW, 1994 WL 163911.
CRPC 3-310 does not address the question of “positional conflicts” other than in the first paragraph of the official Discussion under CRPC 3-310. [See 1.7:200 Conflicts of Interests in General, supra].
In C.O.P.R.A.C. No. 1989-108 the conclusion was reached that a lawyer does not violate former CRPC 5-102(B) (1975), former CRPC 6-101 (1975), former CRPC 3-110 (1989) or former CRPC 3-310 (1989) by taking positions on legal issues for one client which are adverse to another client, even where there is a substantial likelihood that one or both clients will be prejudiced by the representation. The Committee felt that, although there may be “worst case” scenarios in which the Committee might find a violation of the CRPC, it was extremely difficult to fashion a test to distinguish the most egregious cases from those situations which occur as a daily part of practice. The opinion also concluded that, because of the difficulty in drawing an appropriate dividing line, disclosure to clients of an “issue conflict” was not required.
Conflicts of interest analysis intersects with ethical considerations in a number of other areas. For instance, where the client is an organization, conflicts with the organization’s various constituents may pose particular problems. [See Rule 1.13 Organization as Client, infra]. For a discussion of the division between legal services and “law-related services” [see Rule 5.7 Responsibilities Regarding Law-Related Services, infra]. A lawyer’s service as a director, officer or member of a legal services organization or of an organization involved in law reform or law administration may also pose special issues where such organizations take positions opposing that of the lawyer’s client. [See Rule 6.3 Membership in Legal Services Organization, infra; Rule 6.4 Law Reform Activities Affecting Client Interests, infra].
1.7:300 Conflict of Interest Among Current Clients (Concurrent Conflicts)
• Primary California References:
CRPC 3-310, 3-600,
Cal. Penal Code 1424
• Background References: ABA Model Rule 1.7, Other Jurisdictions
• Commentary: ABA/BNA §§ 51:101, 51:301, ALI-LGL §§ 209-212, Wolfram §§ 7.1-7.3, R.D. Rotunda, Conflicts Problems When Representing Members of Corporate Families, 72 Notre Dame L.Rev. 655 (1997)
CRPC 3-310 and California decisions appear to give somewhat greater weight to client consent as curing a conflict arising from concurrent representation conflicts. For example, CRPC 3-310(C)(3) permits a lawyer to represent Client A in one matter and sue Client A on another matter, providing both clients consent. MR 1.7, on the other hand, provides a “consent-plus” standard: A lawyer must reasonably believe that the relationship with or representation of either client will not be materially affected in order to proceed, even if both clients consent. In California a lawyer will not be disciplined if both clients consent, but the comment to CRPC 3-310 indicates that other consequences, such as disqualification, may follow if the adversity of interest substantially impairs the relationship with, or materially limits the representation of, a client. See, e.g., Woods v. Superior Court (5th Dist. 1983) 149 Cal.App. 3d 931, 197 Cal.Rptr. 185 (lawyer who represents a corporation owned by husband and wife disqualified from acting as counsel for husband in divorce action); Klemm v. Superior Court (5th Dist. 1977) 75 Cal.App.3d 893, 142 Cal.Rptr. 509 (dual representation of parties with adverse interests permissible at a hearing or trial where conflict of interest is merely potential and informed consent of both clients was obtained after full disclosure of risks and implications to both clients).
Where CRPC 3-310(B) and (C) require written disclosure or informed written consent the lawyer must be able to provide adequate disclosure without violating a client's confidences. See B& PC § 6068(e).
California has adopted the “hot potato” rule which prohibits a lawyer from unilaterally terminating its relationship with one client in order to voluntarily assume the representation of a second client against the first client. Truck Insurance Exchange v. Fireman’s Fund Insurance Company (1st Dist. 1992) 6 Cal.App.4th 1050, 8 Cal.Rptr.2d 228. However, the same case recognizes an important exception:
when a conflict of interest is created by the act of a client, e.g., an acquisition or merger, the lawyer may cure the conflict by firing one client.
Just as a law firm may not drop a client under the “hot potato” rule to make the client a former client, a law firm cannot achieve the same result by being fired by the client because of an alleged breach of loyalty resulting from a conflict of interest. In such a case, even after the law firm is fired by the client, the client will be deemed a current client for purposes of applying the conflict of interest rules. In re California Canners and Growers (Bkrtcy.N.D.Cal. 1987) 74 B.R. 336 (applying CRPC, as incorporated by Rule 3-110 of the Local Rules of the U.S. District Court).
A conflict of interest between concurrent clients has been found by a California court to be “extrinsic fraud or mistake” allowing the vacation of entry in California of a sister state judgment. Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd. (4th Dist. 1993) 12 Cal.App.4th 74, 15 Cal.Rptr.2d 585.
There are many factual situations in which the representation of multiple parties in the same civil litigation raises conflict of interest issues.
Representing multiple airlines in an antitrust suit against other airlines is fraught with potential conflicts. Blecher & Collins, P.C. v. Northwest Airlines, Inc. (C.D. Cal. 1994) 858 F.Supp. 1442, 1454.
In Metro-Goldwyn-Mayer, Inc. v. Tracinda Corporation (2nd Dist. 1995) 36 Cal.App.4th 1832, 1840, 43 Cal.Rptr.2d 327, 332, the law firm represented former officers and directors of a corporation as defendants in a lawsuit brought by the corporation’s lenders. This suit was consolidated with a suit brought by the corporation against the same officers and directors in which the officers and directors were represented by a different law firm. The court held that it is not a requirement of CRPC 3-310 that the corporate client be a party in the litigation in which the law firm was involved. By the very nature of the case and the consolidation with the other case, the law firm’s employment by the former officers and directors was “adverse to the corporation.”
A lawyer, with the consent of both parties, could represent a husband and wife in connection with child support matters in an uncontested dissolution proceeding. Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 142 Cal.Rptr. 509 (former CRPC 5-102 (1975)). However, representing both husband an wife in an uncontested divorce case without proper disclosure to the wife of the risk involved in such representation can result in a claim for legal malpractice. Ishmael v. Millington (3rd Dist. 1966) 241 Cal.App.2d 520, 50 Cal.Rptr. 592.
Representing both the driver and a passenger in an automobile accident, where there was evidence that the driver was at fault, constituted an actual conflict of interest, warranting state bar disciplinary action. In the Matter of Aguiluz (Review Dept. 1994) 3 Cal. State Bar Ct. Rptr. 41 (former CRPC 5-102(B) (1975) and 3-310(B)).
Where lawyers for an insurance carrier represented both an insured automobile owner and the driver of the automobile, and the insurance policy contained a provision extending coverage to persons operating the automobile with the named insured’s consent, there was a conflict of interest if the answer filed on behalf of the insured included a denial that the automobile was operated by the driver with the insured’s consent. Hammett v. McIntyre (2nd Dist. 1952) 114 Cal.App.2d 148, 249 P.2d 885.
Where lawyers for an insurance carrier represented two doctors in a medical malpractice suit, the difference in personal exposure of the two insured doctors resulting from a difference of maximum coverage under the insurance policies, the difference in reinsurance situations of the insurer, and the difference of potential for liability did not necessarily result in an actual conflict of interest between the doctors so far as the joint defense provided by the insurer was concerned. Spindle v. Chubb/Pacific Indemnity Group (2nd Dist. 1979) 89 Cal.App.3d 706, 152 Cal.Rptr. 776.
Where an attorney was retained to represent partnership interest he had an obligation of loyalty to the partnership and to all partners in terms of their entitlement to benefits from the partnership. Even if the attorney was not literally an attorney for the individual limited partners, he had a duty to the partnership to look out for all the partners’ interests, his representation of the general partner against the limited partners would have been improper and actionable under CRPC 3-310(C). Johnson v. Superior Court (4th Dist. 1995) 38 Cal.App.4th 463, 473-479, 45 Cal.Rptr.2d 312, 318-21. The court claimed to be following the logic of Responsible Citizens v. Superior Court (5th Dist. 1993) 16 Cal.App.4th 1717, 20 Cal.Rptr.2d 756 and Kapelus v. State Bar (1987) 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917.
If a motion is made seeking discovery sanctions against both an attorney and his or her client, normally there would not be a conflict of interest since the attorney and the client normally agree to take a common position with respect to the motion. However, if the attorney and the client intend to present different defenses to the motion, a conflict of interest arises which requires the attorney to make written disclosure to the client under CRPC 3-310(B)(4). C.O.P.R.A.C. Op. 1997-151.
Because a trustee in bankruptcy for a debtor corporation exercises the power of management of the corporation, the trustee is entitled to require the disqualification of the corporation’s prior law firm from representing defendants in a lawsuit instituted by the trustee. However, where the bankruptcy debtor is an individual, the trustee is treated as a separate person and would not be entitled to disqualify the individual’s former law firm in such a situation. In re Jaeger (Bankr. C.D. Calif. August 26, 1997), No. LA 95-29915 SB, 1997 WL 566776.
Criminal litigation poses conflict of interest issues not only with respect to the representation of multiple defendants, but also with respect to the special role of prosecutors.
Role of Prosecutor
The nature and duties of a prosecutor are inherently incompatible with the obligations of a criminal defense counsel. Accordingly, there was a conflict of interest where a criminal defendant’s appointed counsel was a city attorney, even if the attorney did not have prosecutorial responsibilities for the type of crime for which defendant was charged. People v. Rhodes (1974) 12 Cal.3d 180, 115 Cal.Rptr. 235, 524 P.2d 363. It is not a conflict of interest for a district attorney in his official capacity, on the one hand, to prosecute a defendant on criminal charges and, on the other hand, to act within the statutory framework to act as representative of the defendant’s minor child for the protection of the minor. People v. Superior Court of Santa Clara County (Martin) (1st Dist. 1979) 98 Cal.App.3d 515, 159 Cal.Rptr. 625. Because of due process concerns and a prosecutor’s discretionary power, it is important that a prosecutor perform his functions with impartiality and with the appearance thereof. Accordingly, it was not an abuse of discretion for the trial court to recuse a prosecutor from proceeding in a murder case in which the victim’s mother was employed in the very office of the prosecutor which was handling the prosecution and there was some evidence that the manner of defendant’s arrest had been used to aid the victim’s mother in gaining the custody of her grandchild. People v. Superior Court of Contra Costa County (Greer) (1977) 19 Cal.3d 255, 137 Cal.Rptr. 476, 561 P.2d 1164.
There exists a conflict of interest under California Penal Code Section 1424 whenever the circumstances of a case evidence a reasonable possibility that the district attorney’s office may not exercise its discretionary function in an even handed manner. Thus, in a case where an attorney in the district attorney’s office would be a witness and was a potential victim, the entire county district attorney’s office was recused from the defendant’s criminal proceedings. People v. Conner (1983) 34 Cal.3d 141, 193 Cal.Rptr. 148, 666 P.2d 5. [See 1.8:1120 Contingent Fees, infra for discussion of People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 218 Cal.Rptr. 24, 705 P.2d 347].
[See also 1.10:103 Definition of “Firm”, infra for discussion of Younger v. Superior Court (recusal of prosecutor)].
An attorney’s representation of multiple defendants in a criminal case may raise constitutional issues of ineffective assistance of counsel if there are potential conflicts among the co-defendants. See Glasser v. United States (1942) 315 U.S. 60, 86 L.Ed. 680, 62 S.Ct. 457. The right to effective representation of counsel in a criminal case cannot be waived by a mere failure to request separate counsel. In the absence of the court advising defendants of their right to separate counsel if a conflict were present, one cannot imply from the silence of the defendants a waiver of that right. People v. Chacon (1968) 69 Cal.2d 765, 774, 73 Cal.Rptr. 10, 16, 447 P.2d 106, 112.
Where there is the possibility of conflicting defenses in a criminal case, an attorney must advise his clients of the conflict and seek their written consent to joint representation. Even after ceasing to act as counsel for one client, the attorney remains under a duty not to oppose the interests of the former client without that client’s consent. Gendron v. State Bar (1983) 35 Cal.3d 409, 197 Cal.Rptr. 590, 673 P.2d 260 (former CRPC 4-101 (1975) and former 5-102(B) (1975)).
A conflict does not exist under CRPC 3-310(C) when a criminal defendant’s plea bargain is conditioned upon a co-defendant’s plea and vice versa (“a package deal”). People v. Pastrano (4th Dist. 1997) 52 Cal.App.4th 610, 60 Cal.Rptr.2d 620.
“The potential for conflict of interest in representing multiple [criminal] defendants is so grave that ordinarily a lawyer should decline to act for more than one of several co-defendants except in unusual situations when, after careful investigation, it is clear that no conflict is likely to develop and when the several defendants give an informed consent to such multiple representation.” People v. Christian (1st Dist. 1996) 41 Cal.App.4th 986, 991-992, 48 Cal.Rptr.2d 867, 870, citing People v. Mroczko (1983) 35 Cal.3d 86, 104, 197 Cal.Rptr. 52, 672 P.2d 835 and CRPC 3-310(C). In Christian, the court held that the representation of two co-defendants by separate attorneys, one from the county public defender’s office and one from the alternate defender’s office did not create a conflict of interest notwithstanding that the public defender was in charge of both offices because such supervision was only in a strictly administrative sense and there was careful separation of the offices to avoid the appearance of impropriety and each attorney vigorously defended his client, including attempts to implicate each other’s client.
In People v. Clark (1990) 50 Cal.3d 583, 622, 268 Cal.Rptr. 399, 789 P.2d 127, the California Supreme Court outlined in detail the general principles which apply to conflicts of interest in criminal cases:
Included in the right to the effective assistance of counsel is `a correlative right to representation that is free from conflicts of interest.’ [Citations.]”’ (People v. Bonin (1989) 47 Cal.3d 808, 834. . . .) [The Supreme Court] has repeatedly recognized that such conflicts “embrace all situations in which an attorney’s loyalty to, or efforts on behalf of, a client are threatened by his [or her] responsibilities to another client or a third person or by his [or her] own interests. [Citation.]” (People v. Bonin, supra, 47 Cal.3d at p. 835. . . .)
See also Soto v. State (2nd Dist. 1997) 56 Cal.App.4th 196, 65 Cal.Rptr. 2d 11 (not officially published); People v. Mroczko (1983) 35 Cal.3d 86, 104-105, 197 Cal.Rptr. 52, 672 P.2d 835. In the Soto case, an attorney simultaneously represented the two prime suspects in a murder, both of whom denied culpability and yet both of whom could have inflicted the injury and the court found that there was inherent conflict of interest.
Although CRPC 3-310(B) would only require disclosure to the client (as opposed to the written consent of the client) where the lawyer has a previous relationship with a witness in the same matter, the court in People v. Pinkins (5th Dist. 1990) 272 Cal.Rptr. 100 held that a conflict of interest existed where the public defender’s office representing the defendant had previously represented the complaining witness. Although the issue of disclosure versus consent was not addressed, the court’s discussion appeared to conclude that such a conflict of interest could only be cured (at least in a criminal case) by the client’s specific waiver of the conflict of interest. But see Johnstone v. Director, Nevada Dept. of Prisons (9th Cir. 1999) 1999 U.S.App. LEXIS 19890 (attorney's relationship with a witness did not amount to ineffective assisstance of counsel because relationship was disclosed in open court and attorney's prior representation of witness was consistent with duty to plaintiff-- in both instances, attorney was trying to impeach witness' mental competency).
A conflict can arise when a client wants the attorney to ask questions of the client that would elicit false testimony. People v. Jennings (1999) 70 Cal.App.4th 899, 83 Cal.Rptr.2d 33.
The failure of a public defender representing criminal co-defendants to raise an issue of conflict of interest does not relieve a trial court or a magistrate of the duty to satisfy itself that an objecting defendant is receiving conflict-free representation. Although no showing of actual conflict was made, the failure by the magistrate at a preliminary examination to investigate a potential conflict denied the defendant a substantial right, requiring a dismissal. Reid v. Superior Court (1st Dist. 1983) 140 Cal.App.3d 624, 189 Cal.Rptr. 644.
The court found that there was no conflict of interest when the lawyer for a co-defendant joins the district attorney’s office which was prosecuting the matter. First, the lawyer had never represented the defendant himself, and there was no evidence that the lawyer had obtained confidential information concerning the defendant. Second, the court concluded that the vicarious disqualification rules applicable to private law firms were not applicable to a very large district attorney’s office such as that in Los Angeles. In the Matter of Charles Willie L. (2nd Dist. 1976) 63 Cal.App.3d 760, 132 Cal.Rptr. 840.
The official Discussion to CRPC 3-310 provides in part as follows:
“Subparagraphs (C)(1) and (C)(2) are intended to apply to all types of legal employment, including the concurrent representation of multiple parties in litigation or in a single transaction or in some other common enterprise or legal relationship. Examples of the latter include the formation of a partnership for several partners or a corporation for several shareholders, the preparation of an ante-nuptial agreement, or joint or reciprocal wills for a husband and wife, or the resolution of an `uncontested’ marital dissolution. In such situations, for the sake of convenience or economy, the parties may well prefer to employ a single counsel, but a member must disclose the potential adverse aspects of such multiple representation (e.g., Evid. Code § 962) and must obtain the informed written consent of the clients thereto pursuant to subparagraph (C)(1). Moreover, if the potential adversity should become actual, the member must obtain the further informed written consent of the clients pursuant to paragraph (C)(2).”
See also Rosenthal v. State Bar (1982) 43 Cal.3d 612, 238 Cal.Rptr. 377, 738 P.2d 723 (representing all parties to a transaction in an investment was a conflict of interest). However, where the buyer and seller of real estate have already reached agreement on the terms of the transaction and the lawyer is merely acting as a scrivener, the lawyer can represent both parties in that capacity. Blevin v. Mayfield (3rd Dist. 1961) 189 Cal.App.2d 649, 652, 11 Cal.Rptr. 882, 884.
When a lawyer permits a non-lawyer who markets living trust packages to hold out to the public that the lawyer will prepare the documents, but allows the marketer to interfere with the lawyer’s ability to exercise independent judgment regarding the type of estate plan involved in other matters, the lawyer violates a number of the ethical rules under the CRPC, including CRPC 3-310. C.O.P.R.A.C. Op. 1997-148.
But a lawyer may concurrently represent a property management firm and its clients without conflict so long as the purpose of the management firm and its clients is to profit from real estate investments and not from one another or at one another’s expense. L.A. Op. 1991-461.
A lawyer cannot represent both a corporation and its directors in a shareholder derivative suit against the directors, at least where the directors are alleged to have committed fraud. However, an lawyer who is disqualified from representing a corporation in such a derivative suit can continue to represent the individual directors so long as the lawyer has obtained no confidential information from the corporation other than through the directors. Forrest v. Baeza (1st Dist. 1997) 58 Cal.App.4th 65, 67 Cal.Rptr.2d 857. The Forrest court specifically criticized the decision in Jacuzzi v. Jacuzzi Brothers, Inc. (1st Dist. 1963) 218 Cal.App.2d 24, 35-36, 32 Cal.Rptr. 188 to the extent that the Jacuzzi case held that, prior to an adjudication that the corporation is entitled to relief against its officers or directors, the same lawyer may represent both the corporation and the officers and directors in such an action.
Because inside counsel and regular outside counsel for a corporation are too financially dependant on the board of directors to be disinterested, in a derivative suit against the directors a corporation must be represented by counsel with no prior ties to the individual defendants or the corporation. In re Oracle Securities Litigation (N.D. Cal. 1993) 829 F.Supp. 1176, 1187-1189. In footnote 8, the Oracle court also disapproved the Jacuzzi case on this point. See also Note, Disqualification of Corporate Counsel in Derivative Actions: Jacuzzi and the Inadequacy of Dual Representation, 31 Hastings L.J. 347 (1979).
An attorney of a closely held family-owned business, corporate or otherwise, cannot represent one owner against the other in a marital dissolution action, particularly where the business will be the focus of the dissolution proceedings. Woods v. Superior Court (5th Dist. 1983) 149 Cal.App.3d 931, 197 Cal.Rptr. 185 (former CRPC 4-101 (1975) and former CRPC 5-102 (1975)).
A common question raised when representing corporations is whether the lawyer requires the informed written consent of the corporation before the lawyer can represent another client against the interests of an affiliate (parent, subsidiary or sister corporation) of the corporate client. C.O.P.R.A.C. Op. 1989-113, in interpreting CRPC 3-310 and 3-600, concluded that “Rule 3-600 makes clear that in a representation of corporations, it is the corporate entity actually represented, rather than any affiliated corporation, which is the client.” The opinion also concluded that for purposes of former CRPC 3-310(B) (1989) (now 3-310(C)) “an attorney does not represent conflicting interests when he or she acts adversely to a wholly owned subsidiary of an existing corporate client.” The opinion does make exception for (1) the situation where a corporation is the alter ego of another entity or has a sufficient unity of interest and (2) the situation where the lawyer receives confidential information from the nonclient corporate affiliate under circumstances which create a reasonable expectation that the lawyer has a duty of fidelity to the nonclient.
In Brooklyn Navy Yard Cogeneration Partners, L.P. v. Superior Court (December 19, 1997) ___ Cal.App.4th ___, the Court of Appeal interpreted C.O.P.R.A.C. Op. 1989-113 to require that the exception for situations where the affiliated corporations have an “unity of interest” should be narrowly construed to fall within the same framework as the “alter ego” exception. On this basis, the court found that there was no conflict of interest in a law firm representing the subsidiary of a corporation while at the same time being adverse to the parent corporation in litigation. The court also held that, although the alter ego doctrine is normally asserted against a corporation and its subsidiaries, in the conflict context a corporation should not be estopped from asserting the alter ego status between itself and its subsidiaries. In Morrison Knudsen Corp. v. Hancock, Rothert & Binshoft (1999) 69 Cal.App.4th 223, 81 Cal.Rptr.2d 425, the Court of Appeal enjoined a law firm from being adverse to a wholly owned subsidiary of a corporation that the firm had represented in other matters, primarily because the law firm had gained access to confidential information about similar disputes in its role as "monitoring counsel" for the parent corporation's insurer. The court also found a sufficient "unity of interest" between the parent and subsidiary to warrant the law firm's disqualification because the two shared in-house legal counsel, joint management and operations personnel on the project in dispute and were covered by the same insurance policy for that project. The court urged attorneys to determine whether the attorney's relationship with the corporate family gives the attorney a "significant practical advantage" in a case against a corporate affiliate. If so, disqualification can result.
In Teradyne, Inc. v. Hewlett-Packard Co. (N.D. Cal. 1991), No. C-91-0344 MHP ENE, 1991 WL 239940, the Federal District Court interpreted C.O.P.R.A.C. Op. 1989-113 in disqualifying two law firms from representing Teradyne against Hewlett-Packard. The two law firms were concurrently representing either a subsidiary of Hewlett-Packard or Hewlett-Packard’s pension plan. The court concluded that, if the legal affairs of affiliated entities are supervised by the same legal staff internally, then the entities must be treated as one for conflicts purposes. This test places a burden on the lawyer of determining the internal workings of a corporate family’s legal staff.
Notwithstanding the language in Teradyne about the supervision of legal matters by the same legal staff, the court in Apex Oil Company, Inc. v. Wickland Oil Company (E.D. Cal. 1995) 1995 WL 293944 applied C.O.P.R.A.C. Op. 1989-113 in finding that a co-subsidiary should not be treated as the same client for conflict purposes where, except for the common in-house lawyer, the co-subsidiaries were maintained and operated as separate entities.
See generally R.D. Rotunda, Conflicts Problems When Representing Members of Corporate Families, 72 Notre Dame L.Rev. 655 (1997).
In Baxter Diagnostics Inc. v. AVL Scientific Corp. (C.D. Cal. 1992) 798 F. Supp. 612, the federal court applied former CRPC 3-310(D) (1989) (now CRPC 3-310(E)) to a motion to disqualify defense counsel in patent litigation. Defense counsel had previously represented an entity (“AHS”) with regard to the patent at issue. AHS had since been acquired and merged into the parent corporation of the plaintiff. Focusing on one of the exceptions stated in the C.O.P.R.A.C. Op. 1989-113, the court concluded that there was a substantial unity of interest between plaintiff and its parent to disregard the separate corporate entities conflict purposes. Accordingly, defense counsel was disqualified.
In Image Technical Services, Inc. v. Eastman Kodak Company (N.D. Cal. 1993) 820 F. Supp. 1212, 1214 n.1, the court cited C.O.P.R.A.C. Op. 1989-113 in concluding that a law firm’s representation of a subsidiary did not create a conflict of interest where the law firm became involved in litigation against the parent.
An attorney who represents a partnership does not necessarily have an attorney-client relationship with an individual partner for purposes of applying the conflict of interest rules. Whether such a relationship exists turns on finding an agreement, express or implied, that the attorney also represents the individual partner. Responsible Citizens v. Superior Court (5th Dist. 1993) 16 Cal.App.4th 1717, 20 Cal.Rptr.2d 756.
Where an attorney was retained to represent a partnership’s interest, he had an obligation of loyalty to the partnership and to all partners in terms of their entitlement to benefits from the partnership. Even if the attorney was not literally an attorney for the individual limited partners, he had a duty to the partnership to look out for all the partners’ interests and his representation of the general partner against the limited partners would have been improper and actionable under CRPC 3-310(C). Johnson v. Superior Court (4th Dist. 1995) 38 Cal.App.4th 463, 474-479, 45 Cal.Rptr.2d 312, 318-21. The court claimed to be following the logic of Responsible Citizens v. Superior Court (5th Dist. 1993) 16 Cal.App.4th 1717, 20 Cal.Rptr.2d 756 and Kapelus v. State Bar (1987) 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917.
Under CRPC 3-310(B) no conflict of interest arose from attorney’s drafting of limited partnership agreement for his pre-existing clients where clients had already formed enterprise, leaving only to attorney, as attorney for limited partnership, to memorialize it under California limited partnership law. Buehler v. Sbardellati (4th Dist. 1995) 34 Cal.App.4th 1527, 41 Cal.Rptr.2d 104.
In a lawsuit by the assessor of Los Angeles County against the Board of Supervisors of Los Angeles County for claims brought by the assessor in his personal capacity, there was no conflict of interest under former CRPC 4-101 (1975) in county counsel representing the defendants. County counsel has only one client, the county itself. Individual officers, such as the assessor, are not separate clients and do not have an attorney-client relationship with the county counsel except when acting in their official capacity as agent of the county. Accordingly, county counsel was not disqualified from representing the county in the action by the assessor against the county. Ward v. Superior Court (2nd Dist. 1977) 70 Cal.App.3d 23, 138 Cal.Rptr. 532. However, where county counsel represented a civil service commissioner which was statutorily a quasi-independent county agency, county counsel was disqualified under former CRPC 5-102 (1975) from representing other governmental entities opposite the Civil Service Commission. Civil Service Com. v. Superior Court (4th Dist. 1984) 163 Cal.App.3d 70, 209 Cal.Rptr. 159.
1.7:400 Conflict of Interest Between Current Client and Third-Party Payor
CRPC 3-310(F) specifically addresses the potential conflict of interest between a current client and a third party who is compensating the attorney for representing the client.
Where a law firm represented plaintiff in a lawsuit against an insurer, there was a question of fact as to whether subsequent retention of the law firm by the insurer to represent another insured in an unrelated matter created a conflict of interest. The law firm argued that, although paid by the insurer, its representation of the insured in the second matter was adverse to the insurer and that no conflict existed. The case was remanded for further factual findings. Giannini, Chin & Valinoti v. Superior Court (1st Dist. 1995) 42 Cal.Rptr.2d 394 (not officially published) (former CRPC 3-310(A) (1989)).
In the bankruptcy context, the payment by a third party of the legal fees of the debtor in possession created an actual conflict of interest that disqualified the lawyer from being employed by the debtor in possession under the Bankruptcy Code. The court concluded without any citation to CRPC, that y accepting payment from the third party the lawyer necessarily has a conflict of interest in that the lawyer is serving two masters - the one who paid him and the one the lawyer was paid to represent. In re Hathaway Ranch Partnership, (Bankr.C.D. Cal. 1990) 116 B.R. 208, 219.
1.7:410 Insured-Insurer Conflicts [see 1.8:720]
The leading case on insured-insurer conflicts is San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc. (4th Dist. 1984) 162 Cal.App.3d 358, 208 Cal.Rptr. 494. In Cumis the court held that an insurer is required to pay for independent counsel for an insured where the insurer provides a defense but reserves its right to deny coverage at a later date. “We conclude under these circumstances there is a conflict of interest between the insurer and the insured, and therefore the insured has the right to independent counsel paid for by the insurer.” San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc. (4th Dist. 1984) 162 Cal.App.3d 358, 361, 208 Cal.Rptr. 494, 496. Such independent counsel for the insured is now routinely referred to as “Cumis counsel” in California practice. See also Lysick v. Walcom (1st Dist. 1968) 258 Cal.App.2d 136, 65 Cal.Rptr. 406 (lawyer violated his ethical obligations to the insured by giving priority to his representation of the insurer).
The Cumis doctrine has been codified and clarified in Civ. Code § 2860. See Assurance Company of America v. Haven (3rd Dist. 1995) 32 Cal.App.4th 78, 38 Cal.Rptr.2d 25.
In Employers Insurance of Wausau v. Albert D. Seeno Construction Co. (N.D. Cal. 1988) 692 F.Supp. 1150, insurers and their insured each sought to disqualify the other’s counsel for conflicts of interest. The court held that Cumis counsel chosen by the insured did not represent the insurer and that coverage counsel retained by the insurer did not represent the insured. Accordingly, there were no conflicts of interest and the motions to disqualify were denied.
Where a contractor failed to establish that its communications made to surety’s counsel at the time that such counsel represented both surety and contractor were made in confidence with a reasonable expectation that communications would not be shared with surety, there was no conflict when such counsel subsequently represented the surety against the contractor. Cornish v. Superior Court (4th Dist. 1989) 209 Cal.App.3d 467, 257 Cal.Rptr. 383 (former CRPC 4-101 (1975)).
When an insurer denies coverage of a claim, but nonetheless provides a “courtesy defense,” a Cumis situation arises. Mosier v. Southern California Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 74 Cal.Rptr.2d 550. Compare State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co. (1999) 72 Cal.App.4th 1422, 86 Cal.Rptr.2d 20 (insurance company that hired attorney to defend its insured in one case can disqualify that attorney from being adverse to insurance company on a coverage matter in another case; court's discussion somewhat confused and blurs current and former client rules).
1.7:420 Lawyer with Fiduciary Obligations to Third Person [see 1.13:520]
There was no conflict of interest in county counsel representing county Department of Social Services both with respect to the public conservator appointed for a mother and in dependency proceedings. In re Lee G. (1st Dist. 1991) 1 Cal.App.4th 17, 1 Cal.Rptr.2d 375. There was no attorney-client relationship between county counsel and the mother, and there was no constructive attorney-client relationship between the mother and county counsel based on the fiduciary duty owed to her by her public conservator and arguably by county counsel as the conservator’s counsel.
[See 1.7:200 Conflicts of Interest in General, infra for a discussion of William H. Raley Co., Inc. v. Superior Court (4th Dist. 1983) 149 Cal.App.3d 1042, 197 Cal.Rptr. 232 and C.O.P.R.A.C. Op. 1993-132].
CRPC 3-300 prohibits an attorney from acquiring various types of financial interests adverse to a client without compliance with various conditions. In addition, CRPC 3-310(B) requires an attorney to disclose various financial and other relationships with other parties as well as interests in the subject matter of the representation. CRPC 3-310(B) was adopted in 1989 as former CRPC 3-310(A) (1989) and continued the disclosure and consent requirements found in former CRPC 5-102(A) (1975). However, as adopted in 1989, its coverage was expanded to cover the situation not only where the lawyer had a current relationship with other parties but also to cover the situation in which the lawyer had a previous relationship with other parties. In the 1992 revisions, the paragraph was relettered as CRPC 3-310(B) and was amended to require only “written disclosure” rather than “informed written consent.” The universe of relationships and interests which must be disclosed was also expanded and clarified. In addition, CRPC 3-310(B) was amended so that past relationships needed to be disclosed only if the previous relationship would substantially affect the lawyer’s representation.
The California Supreme Court has ruled that CRPC 3-310(B) does not prohibit an association of county attorneys from suing the county on employment matters. Santa Clara County Counsel Attorneys Assn. v. Woodside (1994) 7 Cal.4th 525, 28 Cal.Rptr.2d 617, 869 P.2d 1142. The Supreme Court concluded that the rule applies only to conflicts that arise over “the subject matter of the representation” that the attorney undertakes for the client and not to conflicts the attorney and the client may have outside this subject matter. The Supreme Court also held that the common law duty of loyalty owed by the attorney to its client is not violated by attorneys employed in the public sector who exercise statutory rights to sue to enforce their statutory rights.
See Rosenthal v. State Bar (1982) 43 Cal.3d 612, 238 Cal.Rptr. 377, 738 P.2d 723 (advising clients to advance funds for hotel in return for the attorney receiving an equitable interest in the hotel).