Metropolitan News-Enterprise


Friday, March 13, 2009


Page 1


Conflict-of-Interest Suit Against Law Firm Not SLAPP—C.A.




A suit by a former client seeking to enjoin a law firm from representing a party whose interests were allegedly adverse to the plaintiff’s did not arise from protected activity for purposes of the anti-SLAPP statute, the First District Court of Appeal ruled yesterday.

Div. Four affirmed San Francisco Superior Court Judge Patrick J. Mahoney’s order denying Sheppard, Mullin, Richter & Hampton’s motion to strike the complaint by United States Fire Insurance Company.

Mahoney found that the insurer’s complaint arose from protected activity, but denied the motion based on his finding that U.S. Fire would likely prevail on the merits. The appellate panel said the complaint did not arise from protected activity, so the motion was properly denied whether the plaintiff is likely to prevail or not.

Sheppard Mullin

The suit against Sheppard Mullin arises from a 2001 suit in which the firm defended U.S. Fire against claims by the Kelly-Moore Paint Company that the insurer failed to defend and indemnify it in connection with certain asbestos litigation.

U.S. Fire now contends that confidential information obtained by the law firm during that representation could be used adversely to the insurer in connection with a pending suit—a declaratory action by Plant Insulation Company concerning potential benefits owed to Plant by its insurers, including U.S. Fire. Sheppard Mullin represents two law firms that represent asbestos claimants and that are fighting subpoenas for communications between counsel for the creditors and counsel for Plant.

In its anti-SLAPP motion, Sheppard Mullin contended that Kelly-Moore’s complaint implicates the firm’s free speech and petition rights.

Ethical Wall

The firm confirmed its representation of the law firms in the Plant litigation, but asserted that there was no disqualifying conflict because it was not retained to provide insurance coverage advice or to litigate such issues, It also said it had erected an ethical wall between the lawyers working on the Plant case, who were from the firm’s bankruptcy practice, and the litigators who had worked for Kelly-Moore.

U.S. Fire noted in response that it had never given a conflict waiver, and that 260 boxes of documents, which the insurer said included information about its settlement and litigation strategies and liability analysis, was turned over to successor counsel when Sheppard Mullin was substituted out of the Kelly-Moore litigation in 2006.

While the trial judge found that the suit was on attack on Sheppard Mullin’s constitutionally protected advocacy on behalf of its new clients, Presiding Justice Ignacio Ruvolo, writing for the Court of Appeal, disagreed.

Successive Representation

In a conflict-of-interest case based on successive representation, Ruvolo explained, the “thrust” of the client’s complaint is “not what occurs in the courtroom during the second representation, but the very acceptance of that adverse engagement.”

The presiding justice distinguished an unrelated case involving Sheppard Mullin, Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658. There, the court held that claims against the firm for professional malpractice and abetting a breach of fiduciary duty arose from protected activity within the meaning of the anti-SLAPP statute.

Peregrine is “inapposite,”  Ruvolo said, because it involves the law firm’s “specific conduct during the representation,” rather than “a claim of liability based on a professional conflict of interest.”

The case is United States Fire Insurance Company v. Sheppard, Mullin, Richter & Hampton, 09 S.O.S. 1459.


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