Thursday, April 20, 2017
C.A. Upholds Firm’s Disqualification Over Email Handling
Panel Says Gibson Dunn Breached Duties After Inadvertent Disclosure
By KENNETH OFGANG, Staff Writer
The Fourth District Court of Appeal has affirmed an Orange Superior Court judge’s order disqualifying Gibson Dunn & Crutcher from representing McDermott Will & Emery LLP in a malpractice suit brought by members of the family of Allergan Inc. founder Gavin S. Herbert.
Div. Three Tuesday agreed with Judge Sheila Fell that Gibson Dunn improperly handled an email that a plaintiff in the suit, Richard P. “Dick” Hausman Sr., inadvertently sent to another family member.
Justice Richard Aronson said attorneys at Gibson Dunn breached their duties under State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644. The State Fund court adopted an American Bar Association ethics opinion holding that attorneys who receive apparently privileged material must not read or use the documents beyond the extent necessary to determine whether privilege exists before notifying the opposition and resolving the issue by agreement or seeking the guidance of the court.
Presiding Justice Kathleen O’Leary joined the opinion. Justice Richard Thompson dissented, arguing that the case was distinguishable from State Fund, which involved an inadvertent disclosure to opposing counsel directly. Thompson said the majority was unnecessarily and unreasonably expanding the State Fund rule.
Conflict of Interest
The privilege issue arose in litigation over claims by Dick Hausman and three of his children that the McDermott firm had a conflict of interest in representing various family members, the family trusts, and the family’s holding company M. Hausman, Inc.
The holding company was formed in 2000 by Marilyn H. Hausman, Gavin Herbert’s daughter. Marilyn Hausman was the company president and sole shareholder, while Dick Hausman managed its portfolio, which reportedly grew to a worth of $50 million.
Marilyn Hausman died in 2008. Dick Hausman became president of the holding company, Rick Hausman became one of two vice presidents, and the McDermott firm continued to represent the individual family members and the company, as it had since 2002.
In 2013, Dick Hausman agreed to allow Rick Hausman to become president, but retained considerable responsibility over operations, and became embroiled in a dispute with his son after the younger Hausman sought a substantial salary increase. Dick Hausman hired his own counsel, Mark Blaskey to advise him.
Blaskey met with Dick and Rick Hausman, company vice president William Cox, and Jonathan Lurie of McDermott Will in August 2013. A few days later, Blaskey emailed a lengthy summary of the meeting, together with legal advice, to Dick Hausman and Jill Lindsay, Dick Hausman’s longtime personal assistant as well as the company’s bookkeeper.
The day after receiving the email, Dick Hausman forwarded it to his sister-in-law, Ninetta Herbert, who had no involvement in the Hausman family business. She forwarded it to her husband, Gavin Herbert, who was Marilyn Hausman’s brother.
Gavin Herbert had not been involved in the Hausman family business in many years, but was trying to act as an informal mediator, and had several discussions with Dick and Rick Hausman, Cox, Lurie, and Blaskey.
About two weeks after he received the email, Gavin Herbert distributed copies at a meeting attended by Rick Hausman, Cox, and a financial advisor working with the company, according to Rick Hausman. Herbert later testified he did not remember doing this.
With no agreement with his son in sight, Dick Hausman asserted his right under various family trusts to reacquire all of the company’s voting shares, a right Lurie insisted he no longer had. Dick Hausman filed an action in probate court.
During discovery, Rick Hausman’s lawyer produced a copy of the Blaskey email, with a letter saying that while the email appeared privileged, Dick Hausman waived the privilege by forwarding it to his sister-in-law.
Dick Hausman’s lawyer responded that the email was privileged and that his client inadvertently disclosed it to his sister-in-law and had no intent to waive the privilege. He explained that Hausman didn’t, and had no reason to, discuss company business with Ninetta Herbert, and that he apparently forwarded it to her rather than to Lindsay, the attempted recipient.
In the spring of 2015, Dick Hausman and his children—other than Rick Hausman—brought two malpractice suits against McDermott Will—one in their individual capacities and the other a derivative action on behalf of M. Hausman Inc. In December, they moved for a determination as to the privileged status of the email, and an order requiring Gibson Dunn to return all copies, and striking the portions of the plaintiffs’ depositions where they were asked about the email and portions of it were placed in the record.
After the judge granted the motion, the plaintiffs moved to disqualify Gibson Dunn, and that motion was granted as well. The Court of Appeal then stayed proceedings in the trial court pending resolution of a writ petition.
Aronson, writing for the panel, said the motion was properly granted under State Fund.
“Contrary to Defendants’ contention, an attorney’s State Fund duties are not limited to inadvertently disclosed, privileged documents the attorney receives from opposing counsel, but also may apply to documents the attorney receives from the attorney’s client,” he wrote. “Indeed, regardless of how the attorney obtained the documents, whenever a reasonably competent attorney would conclude the documents obviously or clearly appear to be privileged and it is reasonably apparent they were inadvertently disclosed, the State Fund rule requires the attorney to review the documents no more than necessary to determine whether they are privileged, notify the privilege holder the attorney has documents that appear to be privileged, and refrain from using the documents until the parties or the court resolves any dispute about their privileged nature. “
The attorney’s duties are not altered by his belief, however reasonable, that the privilege has been waived or that an exception applies, he said. “The receiving attorney assumes the risk of disqualification when that attorney elects to use the documents before the parties or the trial court has resolved the dispute over their privileged nature and the documents ultimately are found to be privileged.”
Thompson argued in dissent that the case bore no “material resemblance” to State Fund.
“On this record, there is no reasonable basis to conclude Dick’s lawyers met their burden to persuasively demonstrate inadvertence based upon the relevant objective litigation circumstances,” he wrote.
He noted that Gibson Dunn received the email from its own client, that the email was not labeled as privileged or confidential, and that Gibson Dunn was unaware of the time that Lindsay and Dick Hausman had a confidential relationship that would permit a legal document to be distributed to her without destroying the privilege.
He also argued that the circumstances at the time the email was forwarded to Ninetta Herbert, including the fact that her husband was trying to mediate the dispute, suggested that the email was forwarded deliberately.
The case is McDermott, Will & Emery LLP v. Superior Court (Hausman), 17 S.O.S. 2070.
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