By Mitchell L. Lathrop
Howard Horror (“Howard”)1 was busily representing four very important clients in a lawsuit, Evers et al. v. Jones Company. The Evers case arose because Jones Company had the audacity to fire Howard’s clients for excessive talking while on the job and the unauthorized accessing of sensitive communications between the Jones Company CEO and its lead outside counsel, Josephine Smith. Howard’s clients had learned that Jones Company was in financial difficulty, but Howard was not worried because Jones Company had employment practices liability (EPL) insurance. Even his clients’ signing of a non-disclosure agreement (NDA) with Jones Company wasn’t cause for concern. After all, the information they gave Howard was extremely valuable for use in the Evers case.
As an enterprising young lawyer, Howard had formed Jones Company a few years earlier and spent several days instructing his former close friend, the CEO, about record keeping and the use of funds. It didn’t bother Howard that in the years before the Evers case was filed he had audited the company’s internal policies and procedures and specifically advised the CEO about computer security and the need to keep confidential information safe. Howard also learned over a couple of dinners with the CEO that the CEO had a little stash of company cash which he had put in an undisclosed Antigua bank account to avoid paying taxes. That didn’t matter to Howard since he hadn’t spoken to the CEO or done any work for Jones Company for at least four years before he filed the Evers lawsuit, although Jones Company had never bothered to terminate Howard’s engagement until shortly after Howard filed the Evers case.
It came as a shock on the first day of trial that Jones Company’s new trial counsel, Mighty Joe, slapped Howard with a subpoena and claimed he was a percipient witness who had to testify in the Evers trial. Worse yet, Joe moved to disqualify Howard as counsel in the Evers case.
The hypothetical scenario above, if it were true, creates a myriad of ethical issues. Howard has an obvious conflict of interest. He is acting against a former — and possibly current — client in violation of rule 1.9(a) of California’s Rules of Professional Conduct2 which mandates that “[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed written consent.”3 No such consent was given. Moreover, because Howard’s engagement had never been terminated until the Evers case was filed he also acted against a current client in violation of rule 1.7(a) and (b). “[T]he fact that the firm is not performing any assignment on a particular date and may not have done so for some months — or even years — does not necessarily mean the attorney — client relationship has been terminated.”4
But that was just the beginning of Howard’s problems. Here the conflict arose from the successive representation of clients with clearly adverse interests. Howard has violated his fiduciary duty to maintain client confidentiality by using information learned during his former representation of Jones Company in his current representation of the four individual clients in the Evers case. It is obvious that Mighty Joe will be able to demonstrate a substantial relationship between the subjects of the antecedent and current representations. “Where the requisite substantial relationship between the subjects of the prior and the current representations can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorney’s representation of the second client is mandatory …”5 By disclosing the information learned while representing Jones Company, Howard has violated both Business & Professions Code § 6068(e)(1) and rule 1.6 of the Rules of Professional Conduct.
Even if the relationship between Howard and Jones Company had been formally terminated years before the four clients retained Howard to prosecute the Evers case, it is well-settled that “an attorney, after severing his or her relationship with a client, ‘may not do anything which will injuriously affect his former client in any manner in which he formerly represented him nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship.’”6 His willful conduct in violation of the Rules of Professional Conduct could also result in disciplinary proceedings.7
Poor Howard even has a conflict of interest with respect to his four clients. Jones Company is in financial distress and may not be able to respond to a large judgment. Although Jones Company has EPL insurance, it may not be sufficient to compensate all four clients, thereby creating a potential conflict of interest between them. Howard had a duty to point that out at the commencement of his representation of them and before the Evers case was ever filed. In addition, even though the EPL policy may have had high limits, most EPL policies, like lawyers’ errors and omissions (“E&O”) policies, provide that defense costs will erode the liability limits. In short, there was probably not enough money …
Desperate for help, Howard obtained a three-day continuance of the trial from Judge Riley and called Professor Schmutz at the Landfill Law School. What are the questions and what were the answers the professor gave Howard to the web of issues presented?
Stay tuned for Part 2 in the next issue.
1 No reference herein is intended to apply to any actual person, living or dead. The people and entities are fictitious and are used for illustrative purposes only.
2 Formerly rule 3-310(E) in the 1992 rules.
3 See People ex rel. Deukmejian v. Brown (1981) 29 Cal.3d 150, 155, quoting Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, 573–574; Santa Teresa Citizen Action Group v. City of San Jose (2003) 114 Cal.App.4th 689, 710; H. F. Ahmanson & Co. v. Salomon Brothers, Inc. (1991) 229 Cal. App. 3d 1445, 1454-1455; Brand v. 20th Century Ins. Co./21st Century Ins. Co. (2004) 124 Cal. App. 4th 594, 602; Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324, 1332; City National Bank v. Adams (2002) 96 Cal.App.4th 315, 322.
4 Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal. 5th 59, 82.
5 Emphasis original. Flatt v. Superior Court (1994) 9 Cal. 4th 275, 283; Rosenfeld
Construction Co. v. Superior Court (1991) 235 Cal.App.3d 566, 575.
6 Mar v. Malette (2020) 2020 Cal. App. Unpub. LEXIS 7748, 2020 WL 6867219
(Cal. App. Nov. 23, 2020), citing O’Gara Coach Co., LLC v. Ra (2019) 30 Cal.App.5th 1115, 1124.
7 See Ritter v. State Bar (1985) 40 Cal. 3d 595, 602 (The “relationship between an attorney and client is a fiduciary relationship of the very highest character. All dealings between an attorney and his client that are beneficial to the attorney will be closely scrutinized with the utmost strictness for any unfairness.”) Citing Clancy v. State Bar (1969) 71 Cal.2d 140, 146; Marlowe v. State Bar (1965) 63 Cal.2d 304, 308; Magee v. State Bar (1962) 58 Cal.2d 423, 430.