Friday, September 18, 2009
Privilege Did Not Require Dismissal of Suit, C.A. Rules
By KENNETH OFGANG, Staff Writer
The Fourth District Court of Appeal yesterday upheld a judgment requiring a San Diego law firm to pay a 25 percent referral fee after winning a multimillion dollar settlement for insurance company bad faith.
In affirming a nearly $400,000 judgment in favor of San Diego attorney William K. Dietz, the court rejected arguments by the now-defunct San Diego firm of Meisenheimer & Herron that its due process rights were violated because it could not divulge client confidences as part of its defense.
Dietz alleged that he referred Vital Services Company Inc. to the Meisenheimer firm, which agreed to pay him 25 percent of any contingency fee it earned in connection with the matter. The firm eventually reached a settlement of Vital’s claim, resulting in a contingency fee of $1.24 million.
Dietz said the firm paid him only $50,000, instead of the $310,000 for which it was liable under the referral agreement. Meisenheimer contended that Vital had not paid the fee specified in the referral agreement, but rather a lesser amount negotiated as a result of a dispute that arose just prior to settlement, and that Dietz was paid a fee based on the lesser amount.
The law firm filed a motion for a protective order, seeking dismissal on the ground that it could not defend itself without violating ethical duties to its client, including the attorney-client privilege. Among other things, it claimed that it needed discovery regarding Vital’s tax-planning strategies in order to show that it did not pay the full contingency as originally agreed.
Dietz responded that Meisenheimer & Herron had not moved to compel any such discovery and that it “concocted a fee dispute” in an effort to avoid paying the referral fee.
Following an evidentiary hearing, San Diego Superior Court Judge Jeffrey B. Barton dismissed Dietz’s fraud claim, but allowed the case to proceed to trial on other claims, including breach of contract and conversion. Barton noted that Vital had waived attorney-client privilege with regard to some of the issues with which Meisenheimer was concerned, and that much of what remained privileged related to advice Vital had received from other attorneys, not from Meisenheimer; and held that the firm would not need to use privileged information to defend itself from anything other than the fraud claim, which was dismissed.
The case went to trial before a jury, which awarded Dietz $260,000 in damages, to which the judge added nearly $140,000 in prejudgment interest and costs.
Justice Cynthia Aaron, writing for the Court of Appeal, said the trial judge was correct.
Only in “the rarest of cases,” the justice explained, does due process require that a suit against lawyers be dismissed in its entirety in order to protect against the disclosure of client confidences.
Prior cases in the area, she noted, have generally involved suits by the clients, not by third parties such as referring attorneys. But assuming that a third party suit is subject to dismissal based on the same due process concerns, the rule remains that dismissal is a “drastic action” that should be taken only after balancing the competing interests, Aaron wrote.
She cited a series of cases, beginning with General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, holding that courts must consider such factors as whether the information is actually confidential; whether the client is insisting on confidentiality; the extent of the information’s materiality to the defense; the availability of “ad hoc techniques” such as sealing and protective orders, limits on admissibility, and in camera proceedings to avoid unnecessary disclosure; and whether allowing the action to proceed would be fundamentally unfair.
Aaron concluded that the trial judge correctly balanced the various factors.
The defendant, she said, “failed to demonstrate that [the] evidence was highly material to its defense.” Vital had already broadly waived the privilege, she noted, adding that Meisenheimer turned down Vital’s offer to consider further waivers if the firm would explain what confidential information it thought it needed to disclose.
The justice went on to reject the law firm’s argument that dismissal was required for an alternative reason, Dietz’s alleged violation of certain ethical duties, including that of obtaining the client’s written consent to the sharing of fees.
The firm, Aaron said, did not cite in its brief to anyplace in the record showing that it had raised the issue in the trial court. Nor, she added, did it offer any showing that the issue is one that can be raised for the first time on appeal.
The case is Dietz v. Meisenheimer & Herron, 09 S.O.S. 5615.
Copyright 2009, Metropolitan News Company