Friday, April 9, 2010
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Appeals Court Rejects Automatic Vicarious Disqualification Rule
Individual Lawyer’s Conflict Not Automatically Imputed to Firm, Justices Say
By KENNETH OFGANG, Staff Writer
An individual lawyer’s acquisition of confidential information from a client, prior to changing firms, will not automatically preclude the new firm from representing a party adverse to the former client, the Court of Appeal for this district has ruled.
Acknowledging inconsistency in the caselaw, Justice Walter Croskey of Div. Three said Wednesday that the best rule is one that automatically disqualifies the individual lawyer, but creates only a presumption in favor of disqualifying the entire firm—the presumption being rebutted where an effective ethical wall has been erected around the attorney.
The panel reversed an order disqualifying the firm of Sonnenschein, Nath & Rosenthal from representing First American Title Insurance Company and related entities in four related class actions in which the plaintiffs accused the defendants of consumer protection violations, including paying kickbacks for business referrals and charging excessive fees.
Ethical Wall Questioned
The case was sent back to the trial court for a determination of whether the firm built an adequate ethical wall around an attorney who obtained confidential information about the class actions from the plaintiffs’ lawyers before he joined Sonnenschein and before Sonnenschein represented the defendants.
The plaintiffs are represented by the Bernheim Law Firm of Beverly Hills and the Kick Law Firm of downtown Los Angeles. The First American companies were represented—in the four class actions, in dozens of other class actions around the country, and in other matters—by a team of lawyers from Bryan Cave, LLP until those attorneys joined Sonnenschein last year.
In moving to disqualify Sonnenschein, the plaintiffs noted that Gary Cohen, a former deputy state insurance commissioner with whom the plaintiffs’ lawyers had discussed the suits, had joined that firm about a month before the Bryan Cave lawyers. Cohen was based in San Francisco, while the Bryan Cave lawyers went to Sonnenschein offices in Los Angeles and St. Louis.
The plaintiffs’ lawyers claimed that in discussing the suits with Cohen more than a year earlier, they had disclosed confidential information. They said they had hoped to hire Cohen as a consultant, but that he had declined because it was possible that an insurance company he was then representing in-house had provided coverage to First American.
After they learned that he was leaving the insurance company to join Sonnenschein, however, and before they learned that Sonnenschein would be replacing Bryan Cave as counsel for First American in the class actions, the plaintiffs contacted Cohen again, this time by e-mail. Upon learning that his firm was representing the defendants, however, Cohen told the plaintiffs’ lawyers that he was deleting their e-mail attachments unread.
Management’s Conclusion
Upon learning of the situation, Sonnenschein management concluded that it would place an ethical screen around Cohen, who would be prohibited from working on the class actions, discussing them with anyone else at the firm, viewing non-public documents about them, accessing related documents on the firm’s computer network, or sharing in fees generated by the representation.
Cohen did, however, help the former Bryan Cave lawyers draft a letter to the Department of Insurance in connection with another First American matter, in which a dispute arose as to whether the superior court or the department had jurisdiction over a claim of racial discrimination by the insurer.
Los Angeles Superior Court Judge Anthony Mohr granted the motion to disqualify. He explained in his order that while “[n]o one is to blame for this situation except perhaps the itinerant nature of attorneys that has developed over the last fifteen years,” the disclosure of client confidences and attorney work product to Cohen required automatic disqualification of the entire firm.
He also found that even if the construction of an adequate ethical wall would have allowed the firm to stay in the case, “there is evidence that the wall Sonnenschein erected has not been a complete success” in light of Cohen’s role in drafting the letter in the discrimination matter.
Cohen left Sonnenschein in January of this year, while Mohr’s order was still on appeal.
Croskey, surveying cases over the last 30 years, concluded that the current state of California law is that disqualification is presumptive, rather than automatic, except in the case of “a tainted attorney possessing actual confidential information from a representation, who switches sides in the same case.”
That rule is consistent with rules in about half of the states that have addressed the issue, the justice noted, although a large majority of states now reject automatic disqualification when the person from whom the attorney obtained confidential information was only a prospective client.
Since it is undisputed that ethical screening may avoid disqualification in the case of a government lawyer who has moved to a private firm, a non-lawyer employee of a law firm, or a non-retained expert who has been hired by the other side, Croskey said, there is no reason why disqualification of a lawyer moving from one firm to another should be automatic.
Croskey went on to say that Cohen’s work on the discrimination matter did not necessarily preclude a finding that the ethical wall was adequate.
“Clearly, the safest approach would have been for Sonnenschein to screen Cohen completely from the First American team and all First American cases,” the jurist reasoned. “However, the fact remains that the screening wall Sonnenschein built prohibited Cohen from working on the related class actions, and no evidence that we have found in the record before us indicates that he did.”
Because Cohen has left the firm, the justice went on to say, the appropriate course is to send the case back to the trial court for a determination not as to the potential for his passing confidential information to other attorneys at the firm, but as to whether he actually did so before he left.
The case was argued on appeal by Horvitz & Levy’s Lisa Perrochet for First American and Sonnenschein, Bernie Bernheim for the plaintiffs, Elwood Lui of Jones Day on behalf of a number of law firms as amici supporting Sonnenschein, and Ronald E. Mallen of Hinshaw & Culberson as amici for law firms supporting the plaintiffs.
The case is Kirk v The First American Title Insurance Company, 10 S.O.S. 1906.
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