Delay in Seeking Lawyer’s Disqualification Held Unreasonable

Wednesday, April 27, 2011

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Delay in Seeking Lawyer’s Disqualification Held Unreasonable

By KENNETH OFGANG, Staff Writer

A Los Angeles Superior Court judge did not abuse her discretion in ruling that an insurance company waited too long in moving to disqualify an opposing attorney who had represented the company years earlier, the Court of Appeal for this district has ruled.

Div. Eight yesterday certified for publication Justice Madeleine Flier’s April 6 opinion in the case, in which the court affirmed an order by Los Angeles Superior Court Judge Helen Bendix. The order denied a motion by Chicago Title Insurance Company to disqualify attorney Donald C. McDougal Jr. of San Diego’s McDougal and Associates from representing Liberty National Enterprises, Inc. in a bad faith suit.

The suit grew out of a 2002 lawsuit challenging Liberty’s exclusive ownership of the Broadway Trade Center in downtown Los Angeles. Liberty tendered the defense of the action to Chicago Title, which refused it.

Liberty, represented by McDougal, sued the insurer in 2007, and the trial was divided into phases. After Bendix found in the first phase that the claim was covered, Chicago Title hired new counsel, which moved to disqualify McDougal on the ground that he learned confidential information about the company’s claims policies prior to 1995 as a result of having represented it in about a dozen cases.

McDougal responded by declaring that none of those cases involved bad-faith claims or “claims processing procedures,” and that in each instance the company had already reviewed the claim and accepted it before retaining McDougal’s services. At deposition, McDougal acknowledged that he had periodically reviewed coverage issues for the company, but said he had never prepared written coverage opinions.

Firm’s Reputation

McDougal noted that he had advised Liberty National, which he had represented since the company was formed in 1993, to insure with Chicago Title because it had a reputation for standing behind its policies. He later learned, however, that significant changes had occurred at the company after a change in ownership in 2000.

He also declared that he had advised Chicago Title’s original attorney in the case that he had done occasional work for the company, and that no objections were raised to his representing Liberty National in the suit until 25 months later, after substantial discovery had taken place, the first phase had been tried, the judge had announced her intention to find for the plaintiff on the coverage issue, and the defendant had retained new counsel.

In denying the motion, the judge said the insurer “provides no explanation for why it waited for two years, after the conclusion of a lengthy trial in this case on liability, to move to disqualify plaintiff’s counsel, a counsel that has represented plaintiff from the inception of this case.”

Bendix found that the defendant knew from the inception of the case that its claims handing practices were at issue, and that the contention by the law firm newly retained to represent Chicago Title that it only recently learned it had a basis for disqualification was “not convincing.” She also found that the prejudice to Liberty would be extreme if its lawyer was disqualified between phases of the trial.

Implied Waiver

Flier, writing for the Court of Appeal, noted that California, like most—but not all—jurisdictions, permits a finding of implied waiver of attorney conflict based on lack of timely objection. California does, however, require that the delay “be extreme or unreasonable before it operates as a waiver.”

The justice agreed with Bendix that the delay in this case was unreasonable. The claim that the insurer was unaware, until just before it filed the motion, that McDougal was “actively using” his knowledge of the company’s claims handling procedures against it was unsupported by the record, Flier said.

McDougal, she added, testified in his deposition, taken a year earlier, that he had “put all of my clients with Chicago Title” because of his “vast experience with their claims department.”

In any event, Flier added, there was no showing that the attorney’s knowledge of the company’s claims handling procedures “was in any way relevant,” given that those procedures had apparently changed in the intervening years and that there was “massive” discovery about the company’s recent practices.

In determining the reasonableness of a delay in moving to disqualify counsel, the justice went on to say, the court must look not only at the length of time, but also at the stage of litigation and the complexity of the case.

“Title insurance litigation in a bad faith context is neither easy nor simple,” the jurist wrote. “It requires knowledge of both the law and practice of title insurance and not inconsiderable professional skills. Replacing counsel midway through such a case is a very dicey proposition, especially after the coverage phase of the trial.”

To disqualify McDougal at that point would have been extremely prejudicial, Flier said, given the length of time he had represented Liberty and his knowledge of, and success to date in, the case before the court.

Flier also rejected the argument that McDougal should have been disqualified when he became a witness in the case. Chicago Title consented to his doing so, the justice noted, and the trial judge made no finding that his testimony would impact “the integrity of the judicial process.”

Susan J. Williams of Hennelly & Grossfeld represented Chicago Title on appeal. McDougal represented Liberty National, along with Norman Paul Breen of McDougal & Associates, Michael J. Bidart and Ricardo Echeverria of Shernoff Bidart Echeverria, and Jeffrey Isaac Ehrlich of The Ehrlich Law Firm.