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January 2011  |  Earn one hour of MCLE Credit in Legal Ethics

Conflicts and conflicts management

California Joan explains a new bankruptcy case that addresses conflicts and other recent rulings that deal with disqualification questions

By Ellen R. Peck
©2011. All rights reserved.

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MCLE Self-Assessment Test

January 2011



1. Conflict of interest law for lawyers is as simple as knowing what is right and wrong.

2. Before a bankruptcy petition is filed, Bankruptcy Lawyer has a confidential consultation with Debtor in which Lawyer gives advice about insolvency matters and charges a fee, but Debtor does not retain Lawyer. Lawyer thereafter represents Debtor’s creditor against Debtor in later bankruptcy proceedings. Lawyer will not be disqualified because Debtor was only a potential client.

3. In successive relationship cases, the chief fiduciary value that the courts protect is a prospective client’s confidentiality.

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“Conflict of interest law is complex and subtle. While a careful lawyer should not have difficulty in complying with most of the applicable rules of professional conduct, even sophisticated counsel trying to comply with the rules regarding conflict of interest must make difficult and uncertain decisions.” Hon. Samuel L. Bufford, Bankruptcy Judge in In re Muscle Improvement Inc. (Bkrtcy. C.D. Cal 2010) 437 B.R. 389, 392-393.

“Happy New Year, Cali!” greeted the familiar voice of Stan Solvency, a California attorney who practiced in the bankruptcy field. “Time is flying by! We’re already in the second decade of the 21st century, and lawyers’ conflicts of interest are getting more and more complicated.”

“Happy New Year!” California Joan responded warmly to her client. “You have a conflict question, I presume.”

“I met with a prospective bankruptcy client about insolvency issues and potential retention to file a bankruptcy. The debtor hired someone else, has filed bankruptcy and now a creditor wants to retain me. Can I take Creditor’s case?” Stan asked.

“A recent bankruptcy case, In re Muscle Improvement Inc. (Bkrtcy. C.D. Cal 2010) 437 B.R. 389, 392-393, discussed this very issue,” Cali said. “In that case, the bankruptcy lawyer was disqualified from representing Creditor, since the lawyer had previously consulted with Debtors in the same matter and was in a position to receive confidential information, even though Debtors did not retain the lawyer.

“Creditor accompanied Debtors to the first meeting with lawyer. Creditor did not attend the second meeting between Debtors and the lawyer, wherein Debtors’ financial condition was discussed, lawyer reviewed financial documents, lawyer charged Debtors for a consultation and lawyer gave Debtors legal advice. Debtors were accompanied at the second meeting by their financial consultant. Debtors retained other bankruptcy counsel and Creditor retained the lawyer. Debtors brought a disqualification motion.” (Id., p. 392.)

“What is the purpose of disqualifying a lawyer where no client-lawyer relationship ever occurred?” Stan wondered.

“In successive relationship cases, the chief fiduciary value which the courts protect is a prospective client’s confidentiality,” Cali answered. “Confidentiality attaches whenever a prospective client contacts a lawyer for a consultation or for the purpose of potential retention and discloses information in confidence, including legal opinions and advice rendered by the client during the consultation. . .” (Id., p. 393.)

“Cali, I understand that when a prospective client consults with me, I must maintain all confidential information that I have received confidential, whether or not I form a relationship with that prospective client. (Ca. Evid. C., §§950, et seq.; Ca. Bus. & Prof.C., §6068(e)(1); Rule 3-100(A), Cal. Rls. Prof. Cond. [“CRPC”]; Rule 1.18(b), ABA Mod. Rls.Prof.Cond. [ABA MPRC].) But, does this mean that every time I talk to a potential client, even if no client-attorney relationship occurs, I could get disqualified for taking a case against that client?” Stan was incredulous.

“Not necessarily,” Cali said, explaining how various jurisdictions handled conflicts of interest arising from initial consultations.

The ABA MPRC 1.18(c) prohibits representation of any client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter, unless both clients give informed consent confirmed in writing or the lawyers who acquired the confidential information from the prospective client are screened under the rule.

California has not adopted ABA MPRC 1.18(c) yet. However, California case law requires an examination of whether CRPC 3-310(E) applies. CRPC 3-310(E) provides:

A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.

Because the duties in Rule 3-310(E) are owed to a “client,” several California cases have discussed the circumstances under which an attorney can be subject to disqualification for a conflict of interest based upon a consultation in which the attorney-client relationship does not go forward. (See SpeeDee, supra, p. 1147; In re Marriage of Zimmerman, 16 Cal.App.4th 556 (1993); Pound v. DeMera DeMera Cameron, 135 Cal.App.4th 70, 74, 76 (2005) (Pound); and Med-Trans Corp Inc. v. City of California City, 156 Cal.App.4th 655 (2007), mod. 11/19/2007 (Med-Trans).) Because a fiduciary relationship existing between lawyer and client includes preliminary consultations with a prospective client who seeks to retain a lawyer, even though actual employment does not result, courts typically focus upon the earliest development of the attorney-client relationship. (SpeeDee, supra, pp.1147-1148)

For purposes of a conflict-of-interest analysis, when an attorney knowingly obtains material confidential information from the client and renders legal advice or services as a result, a prima facie attorney-client relationship exists. (SpeeDee, supra, p. 1147) The fact that there is no fee charged or no further attorney-client relationship results does not prevent the relationship from arising or the attorneys from acquiring fiduciary obligations of loyalty and confidentiality, which commence when discussions between attorney and client exceed initial or peripheral contacts. (SpeeDee, supra, pp. 1147-1148) In determining whether discussions between attorney and client have proceeded beyond initial or peripheral contacts, the focus is upon the nature and extent of the attorney’s acquisition of confidential information from a prospective client and not the amount of time involved. (SpeeDee, supra, p. 1148)

“Which approach did the bankruptcy court take?” Stan asked.

“Without citing to this line of cases, the court adopted the California approach,” Cali said.Local Rule (LBR) 2090-2(a) of the Bankruptcy Court for the Central District of California governs lawyers’ professional responsibilities and incorporates by reference the Central District of California district court local rule 83-3.1.2, requiring compliance with the CRPC, as interpreted by California case law. (Id., p. 393) The court observed that disqualification must be a pragmatic decision that focuses on the nature and quality of the former representation but it must exercise special care in making such a decision where the attorney was only consulted about possible retention in a case but was not retained.” (Id., p. 394)

Cali continued to explain the court’s analysis. “Because the first consultation with Debtor was in the presence of Creditor, the court observed that no confidential information had been imparted. However, at the second consultation, because legal advice was given and a consultation fee was charged, a prima facie attorney-client relationship was established for the purposes of applying the substantial relationship test in determining the application of CRPC 3-310. (Id., p. 395)

“As you recall, the substantial relationship test requires a court to determine if (1) the subject matter of the attorney’s current representation is substantially related to the subject matter of the attorney’s earlier representation of the former client; and (2) the attorney’s earlier representation of the former client was one in which confidential information would ordinarily be disclosed. The subject matter of an attorney’s current representation is considered substantially related to the subject matter of the attorney’s prior representation if any information that was material to the evaluation, prosecution, settlement or accomplishment of the prior representation is also material to the evaluation, prosecution, settlement or accomplishment of the current representation. (Id., pp. 394-395)

“The court held that the first ‘substantial relationship’ element was clearly met, since the consultation related to the very case in which the lawyer later represented the Creditor-client against the prospective Debtor-client. The second element was met by the second consultation, since such a consultation, wherein a lawyer gives legal advice, is one in which confidential information would likely be received.” (Id., p. 397)

Stan interjected: “But most information a debtor gives a bankruptcy lawyer is not confidential because it later becomes part of the public record in that very bankruptcy proceeding. Did the court consider this?”

“Yes,” Cali said. “The lawyer made that very argument. However, the court refused to permit the lawyer to rebut any presumption of confidentiality arising from the attorney-client relationship to defeat the second element. The court relied upon California case law’s irrebuttable presumption that confidential information is received where the lawyer was personally involved and substantially involved in the delivery of legal services to that client and the later representation is substantially related to that service (Jessen v. Hartford Casualty Ins. Co. (2003) 111 Cal.App.4th 698, 708).” (Id., p. 396)

Stan asked, “So, if I have a telephone conference with or meet a potential client, does that bar me from offering evidence that I never gave advice?”

“No.” Cali distinguished evidentiary issues before and after the presumption of confidentiality applied: “The client must prove that advice was given, or that other conduct occurred which made it likely that confidential information was disclosed (e.g., doing legal research, examination of private and confidential papers, preparation of a draft pleading, charging for a consultation). The prospective client does not have to submit or disclose what confidential information was imparted. Then, the lawyer may offer evidence that these types of acts never occurred. However, once the court determines that a prima facie client-attorney relationship has been established between the former/prospective client and the lawyer, and finds that the current and former matters are substantially related, the irrebuttable presumption of confidentiality applies. However, where the lawyer’s prior involvement with the former client or prospective client was peripheral or attenuated (which was not part of the Muscle case), the lawyer may offer evidence that no confidential information was received.” (Jessen, supra, at p. 710)

“So,” Stan surmised, “during preliminary discussions with potential clients, if I give advice or engage in other conduct that makes it likely that I have acquired confidential information, I am more likely to be disqualified if I represent another adverse party in the same or a substantially related proceeding. I did give pre-filing advice to the debtor, who will never waive my representation. I don’t want to risk disqualification in this one. I will decline the case. Thanks, Cali.”

No sooner had Stan hung up, when Cali’s partner, Meryl Terpitude, barged into her office with some questions. “Cali, a few years ago, Hernandez v. Paicius (2003) 109 Cal.App.4th 452, 467 suggested that the duty of loyalty could support disqualification of a lawyer from cross-examining, on behalf of another client, an expert witness who was a concurrent client of the lawyer’s firm. The words still ring in my ears:

The spectacle of an attorney skewering her own client on the witness stand in the interest of defending another client demeans the integrity of the legal profession and undermines confidence in the attorney-client relationship. As our Supreme Court has stated, the reason for the rule barring dual representation is evident: ‘A client who learns that his or her lawyer is also representing a litigation adversary, even with respect to a matter wholly unrelated to the one for which counsel was retained, cannot long be expected to sustain the level of confidence and trust in counsel that is one of the foundations of the professional relationship.’

“A current case is slightly different,” Meryl continued. “We have been representing a client in a litigated matter for two years. The opposing party has just identified, as its expert witness, my former client. Do we have a conflict and will we get disqualified?” he asked.

“Yes, we have a potential conflict but probably won’t get disqualified,” Cali said. “A recent case, Montgomery v. Superior Court (2010) 186 Cal.App.4th 1051, explored this issue. In a medical malpractice case, the former client, Doctor, was the sole expert for plaintiff. Defendant’s lawyer, who had represented Doctor in a medical malpractice action 10 years earlier, moved to remove Doctor as a witness, since the retention of Doctor would create a potentially disqualifying conflict of interest for Defendant’s lawyer. The trial court disqualified Doctor; plaintiff appealed and the appellate court reversed with conditions.”

Meryl started to beam. “I see. The former client should have known that the opposing counsel was a former lawyer and should have refrained from accepting the engagement or notified the Plaintiff of the past relationship. By using a former client as an expert witness, a litigant would then be creating a conflict of interest for the opposing lawyer, which could interfere with the opposing party’s right to counsel.”

Cali continued with her explanation. “Unlike the Hernandez current client situation, where the standard for simultaneous representation is much more stringent because it is based on the duty of loyalty and requires almost per se disqualification, the primary value to be protected for a former client is confidentiality through application of the substantial relationship test described above,” she said. “Disqualification of the expert witness-former client as a means of protecting the Defendant’s counsel from being disqualified would have been appropriate only if the lawyer was disqualified.” (Id., pp. 1055-1056)

However, the court did not apply the substantial relationship test because Doctor had given a qualified waiver limited to “any relevant information to be presented in this matter.” The court agreed that the waiver was inadequate and must be unqualified. For example, if Defendant’s counsel, in good faith, introduced Doctor’s confidential information during cross-examination, he would exceed the scope of the waiver and risk his reputation and bar status. The court agreed that Defendant has a legitimate interest in Defendant’s counsel’s vigorous representation, “which in this context means that [counsel] must feel free to conduct a thorough and comprehensive cross-examination of [Doctor] without trying ‘to steer clear of the danger zone’ of confidentiality.” (Id, p. 1056)

The court directed the superior court to vacate its order removing Doctor as the Plaintiffs’ expert conditioned upon Plaintiffs having the opportunity to present Doctor’s unqualified consent to waive Defendant’s duty of confidentiality as it applies to Plaintiffs’ case. (Id., p. 1057)

Smiling at the prospect of being in the right for a change, Meryl concluded, as he dashed to his office: “Based upon this case, I will go to the opposing party and ask them to withdraw the expert or get an unqualified waiver. If that is not agreeable, I will bring a motion to disqualify the expert on the basis of this Montgomery case.”

An hour later, Meryl was back in Cali’s office with a motion for disqualification against him and the Firm. In a homeowners-construction dispute, Meryl and the Firm represented Homeowner and Sub1 jointly in defending a cross-complaint brought by Contractors, its alter ego and Subcontractors (Subs 2-6). After a recent deposition of Sub1, the opposing parties, believing that there was an actual conflict between Homeowners and Sub1 that was not adequately waived, brought a motion to disqualify Meryl and the Firm.

“Imagine, Cali, they think your exhaustive waiver is inadequate! None of the opposing parties is a prospective, current or former client!” Meryl complained.

Cali commented: “Another recent case, Great Lakes Construction Inc. v. Burman (2010) 196 Cal. App.4th 1347 helps us out. It held that the parties who brought a motion for disqualification, who were not prospective, current or former clients and had no prior confidential relationship, had no standing to seek disqualification of opposing counsel jointly representing two opposing parties. It reversed the disqualification order of the trial court, reasoning that the moving parties could not prove that they had any invasion of a legally cognizable interest, since none of the moving parties had a prior confidential or fiduciary relationship with the opposing attorney.

“Interestingly, the court rejected that disqualification of opposing counsel was necessary to ensure the integrity of the process and the fair administration of justice. These ‘lofty ideals’ do not implicate any of the moving parties’ personal rights, nor are they burdened by the alleged conflict of interest. The moving parties must show an ‘invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.’ Contractor claimed that if the homeowners prevail upon their claims, the subcontractor may have indemnification duties to the contractor, and thus the attorney represents potential adversaries. The court rejected this claim, since the attorney’s duty of loyalty to the joint clients does not impact contractor’s rights of indemnification and any potential breach of loyalty is not contractor’s concern, but is solely between the lawyer and clients,” Cali concluded. (Id., pp. 1358-1359)

As Meryl sped off to write his opposition, arguing no standing, Cali called after him. “Meryl, generally, you should also take a look at Hartford Casualty Ins. Co. v. Am. Dairy and Food Consulting Lab. Inc. (E.D. Cal. 2010) 2010 WL2510999. The case demonstrates how a lawyer can defend against a disqualification case by demonstrating both the lack of substantial relationship between two successive representations and how the passage of substantial time can affect the application of the test.”

“Send me an e-mail. . .” Meryl called over his shoulder as Cali took her next call.

Ellen R. Peck, a former State Bar Court judge, is a sole practitioner in Escondido and a co-author of The Rutter Group California Practice Guide: Professional Responsibility.


This self-study activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour of legal ethics.

The State Bar of California certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.


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