Opinion
D048609
12-13-2006
ATLANTIC PACIFIC HOME LOANS, INC., Petitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; MIDWEST TELEVISION, INC. Real Party in Interest.
In this writ proceeding, the petitioner concedes that for approximately three months its attorney represented both petitioner and petitioners adversary in an unrelated matter. Notwithstanding this concession, petitioner argues the trial court abused its discretion in disqualifying its counsel when the conflict was discovered. Petitioner contends automatic disqualification should not apply here because the simultaneous representation was inadvertent and without counsels knowledge, because by the time the conflict was discovered counsel no longer represented petitioners adversary, and because counsel did not have access to any confidential information about petitioners adversary.
The circumstances petitioner relies upon do not support any exception to the automatic disqualification rule adopted by the court in Flatt v. Superior Court (1994) 9 Cal.4th 275, 284-291 (Flatt).) The rule set forth in Flatt is based on an attorneys inviolate duty of loyalty to his or her clients and the need of the law to protect clients faith in their attorneys. The representation of adverse interests is forbidden because it would interfere with a clients right to the entire energies of his or her attorney and because it creates doubt in the minds of clients as to the loyalty of their attorneys. The circumstances petitioner relies upon do not ameliorate these important concerns. Whether the representation of adverse interests was intentional or inadvertent, the fact remains that counsel in fact took on conflicting duties. Moreover if we permitted an exception when the conflict arose without the knowledge of counsel, we would put clients in the awkward and expensive position of trying to contest their attorneys claims to ignorance. The fact petitioner no longer works with the firm which represents petitioners adversary does not alter the fact that for a period of time the client was deprived of the undivided loyalty it was entitled to expect from its attorneys. Finally, the fact that counsel was not privy to confidential information does not remedy the conflicting loyalties counsel took on or bear on the damage such conflicts due to client morale.
Accordingly, we deny the petition.
FACTUAL AND PROCEDURAL BACKGROUND
In late 2003 Susan Emrich was a partner in the law firm of Fish & Richardson, P.C. (Fish & Richardson). At that point in time Fish & Richardson represented, among other clients, petitioner Atlantic Pacific Home Loans, Inc. (APHL), and real party in interest Midwest Television, Inc. (Midwest). Emrich was married to the owner of APHL and acted as both general and litigation counsel for APHL. Fish & Richardson represented Midwest with respect to wireless telecommunication matters.
Midwest owns several local radio stations and in 2003 APHL purchased a one-hour real estate radio show from Midwest. APHL believes that the terms of its agreement with Midwest prevented Midwest from airing other real estate programs on its local radio stations. In October 2003 APHL heard what it believed was a competing program on one of Midwests stations and objected.
APHL asked Emrich to represent it with respect to its dispute with Midwest. According to Emrich, before doing so she had an employee of Fish & Richardson conduct a "conflict check" and the employee reported that no conflict existed. Between October 2003 and December 2003, Emrich contacted and met with Midwest employees on behalf of APHL in an effort to resolve the dispute.
In December 2003 Emrich left Fish & Richardson and started her own law firm. Emrich took APHL with her as a client. In October 2004 Emrich filed a complaint against Midwest on behalf of APHL with respect to their dispute over the competing real estate programs.
In October 2005 Midwest discovered the earlier conflict and moved to disqualify Emrich. In opposing the motion APHL conceded that Emrich, while at Fish & Richardson, acted on behalf APHL in its dispute with Midwest at a time Midwest was a client of the law firm. However, APHL argued the conflict was inadvertent, no longer existed and did not involve the disclosure of any confidential information. APHL also argued that disqualification of Emrich would impose an undue hardship on APHL. At the hearing on Midwests motion, Emrich argued that among other matters the trial court should consider the fact Midwests contract with APHL contained an attorney fees clause and that if Emrich was disqualified, Midwest might be able to avoid payment of a substantial portion of those fees. The trial court granted the motion.
APHL filed a petition for a writ of mandate and we issued an order to show cause.
DISCUSSION
I
When a trial court has disqualified an attorney appellate review by way of "[a] petition for extraordinary relief on the merits . . . is preferable, because . . . [t]he specter of [improper] disqualification of counsel should not be allowed to hover over the proceedings for an extended period of time for an appeal." (Reed v. Superior Court (2001) 92 Cal.App.4th 448, 455.) We review a trial courts order granting a motion to disqualify an attorney for abuse of discretion. (State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co. (1999) 72 Cal.App.4th 1422, 1428.) Thus we are bound by the trial courts express or implied factual findings so long as those findings are supported by substantial evidence and we independently review the trial courts legal conclusions. (Ibid.)
II
The substantive legal principles governing our review of the trial courts order were fully set forth by the court in Flatt. Flatt was a legal malpractice action in which the plaintiff consulted with an attorney, Flatt, about his potential claims against another law firm. Under the plaintiffs version of events, during a short consultation he in fact became Flatts client. However, shortly after the consultation, Flatt discovered that her law firm represented the law firm which was the subject of the consultation in an unrelated matter. Flatt therefore advised the plaintiff that she could not represent him. Flatt gave the plaintiff no advice with respect to the statute of limitations on his claim or his need to promptly retain counsel.
Nearly two years after the consultation, the plaintiff sued Flatt, her law firm and the law firm which was the subject of his consultation with Flatt. With respect to Flatt and her law firm, the plaintiff alleged Flatt was negligent in failing to give him any advice about the statute of limitations or the need to obtain counsel. In its opinion in Flatt the Supreme Court held that Flatt owed the plaintiff no such duty. The court found that even assuming Flatt had become the plaintiffs attorney, she was automatically disqualified from representing the plaintiff and was therefore prohibited from giving the plaintiff any advice which would adversely effect the interests of the law firm she also represented. (Flatt, supra, 9 Cal.4th at p. 290.) The courts resolution of the duty issue was predicated on its examination and wholehearted reaffirmation of the automatic disqualification rule.
The court noted the limited number of cases which have considered the issue have consistently looked to the attorneys duty of loyalty and the damage such conflicting representation does to a clients trust in his attorney. "`When a client engages the services of a lawyer in a given piece of business he is entitled to feel that, until that business is finally disposed of in some manner, he has the undivided loyalty of the one upon whom he looks as his advocate and his champion. If, as in this case, he is sued and his home attached by his own attorney, who is representing him in another matter, all feeling of loyalty is necessarily destroyed . . . ." (Flatt, supra, 9 Cal.4th at p. 286, quoting Grievance Committee v. Rottner (1964) 203 A.2d 82, 84.) Thus the court noted the strictures against representing antagonistic interests are broader than the duty to keep client confidences and apply even when there is no potential breach of confidentiality. (Id. at p. 288.)
Given the breadth of the rule, the court noted that a lawyer cannot cure a conflict by jettisoning one client in favor of the other. "So inviolate is the duty of loyalty to an existing client that not even by withdrawing from the relationship can an attorney evade it. Thus, in Truck Ins. Exchange v. Firemans Fund Ins. Co., supra, 6 Cal.App.4th 1050, the Court of Appeal discussed the aptly named `hot potato rule, that is, the bar on curing dual representation conflicts by the expedient of severing the relationship with the preexisting client. . . . The court held that "`[t]he principle precluding representing an interest adverse to those of a current client is based not on any concern with the confidential relations between attorney and client but rather on the need to assure the attorneys undivided loyalty and commitment to the client. [Citations.]" [Citation.] The court went on to hold that the `automatic disqualification rule applicable to concurrent representation [cannot] be avoided by unilaterally converting a present client into a former client prior to hearing on the motion for disqualification[.] [Citations [. . . an attorney may simply not undertake to represent an interest adverse to those of a current client without the clients approval. [Citations.].]" (Flatt, supra, 9 Cal.4th at p. 288; see also rule 3-310(c), Rules Prof. Conduct.)
Rule 3-310(C) of the Rules of Professional Conduct states: "A member shall not, without the informed written consent of each client:
"(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or
"(2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or
"(3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter."
Returning to the principle question the court faced, whether the law firm owed the client a duty to advise him about the statute of limitations and his need to obtain counsel, the court stated: "Flatts decision not to represent Daniel in light of her firms ongoing representation of the Hinkle firm thus placed her in an ethical dilemma: on severing — as she must — the relationship with Daniel, what if any duty did she have to advise him respecting his contemplated lawsuit, advice that would almost inevitably harm Hinkles interests to some extent? We have no difficulty in concluding that under these circumstances any advice to Daniel regarding the statute of limitations governing his claim against Hinkle would have run counter to the interests of an existing client of Flatt and her firm and of their obligation of undivided loyalty to him. We therefore conclude that she had no duty to give Daniel any such advice." (Flatt, supra, 9 Cal.4th at p. 290, fn. omitted.)
In a footnote the court recognized that in other circumstances its holding might lead to unduly harsh results and allowed that under other circumstances it might relax its limitation on counsels obligation upon severing a conflicting relationship. The court stated: "We acknowledge, without having to decide in this case, the possibility that in a different factual situation — one involving, perhaps, the lapse of considerable time and the expenditure of substantial resources before discovery of the conflicting dual representation — an attorneys mere withdrawal from the second representation may not be sufficient in itself to resolve all ethical responsibilities. Whether a showing, for example, of substantial prejudice to the interests of the second client arising out of such facts would lead us to modify the rule we adopt in this case is a question whose answer must await another day." (Flatt, supra, 9 Cal.4th at p. 290, fn. 6.)
III
Under the principles set forth in Flatt, in October 2003 Emrich was disqualified from representing APHL in its dispute with Midwest. Because Emrichs firm represented Midwest at that point in time, she could not take on the task of asserting a claim against Midwest. (Flatt, supra, 9 Cal.4th at p. 288; rule 3-310 (c), Rules of Prof. Conduct.)
Notwithstanding Emrichs disqualification to act as its counsel, APHL argues Emrich should now be permitted to represent it. APHL argues that at this point Emrichs representation should be considered under the more liberal standard governing the representation of former clients. Under that standard, disqualification is required only if there is "substantial relationship" between the former representation and the current one. (Flatt, supra, 9 Cal.4th at p. 283; see also Truck Ins. Exchange v. Firemans Fund Ins. Co. (1992) 6 Cal.App.4th 1050, 1056-1057.)
In arguing Midwest should be viewed as a former client of Emrich, APHL points out that Emrich had no knowledge of the conflict while she was employed at Fish & Richardson and that upon leaving Fish & Richardson she effectively withdrew from representing Midwest. APHL contends the fact Emrich did not know about the conflict until after she had left Fish & Richardson takes this case outside the "hot-potato rule" which prevents firms from resolving client conflicts by withdrawing representation from one of the clients. We are not persuaded Emrichs conduct takes her outside the automatic disqualification rule.
In explaining the rule against resolving a conflict by withdrawing from representation of a current client, the court in Truck Ins. Exchange found that the requirement of disqualification "`. . . continues even though the representation ceases prior to filing of the motion to disqualify. If this were not the case, the challenged attorney could always convert a present client into a "former client" by choosing when to cease to represent the disfavored client. [Citation.] . . . . `To hold otherwise would allow . . . unethical behavior to continue unrestricted because a law firm could always convert a present client to a former client merely by seeking to withdraw after suing a present client. [Citation.] A clients right to the undivided loyalty of its attorney requires more than this. [Citation.]" (Truck Ins. Exchange v. Firemans Fund Ins. Co., supra, 6 Cal.App.4th at pp. 1057-1058.)
Admittedly, in dicta the court in Truck Ins. Exchange, itself quoting dicta from Florida Ins. Guar. Assn, Inc. v. Carey Canada (S.D. Fla. 1990) 749 F. Supp. 255, 261 (Carey Canada ), stated: "`[T]o require disqualification for the mere happenstance of an unseen concurrent adverse representation — where the representations are not substantially related and client confidences are not endangered — would unfairly prevent a client from retaining counsel of choice and would penalize an attorney who had done no wrong." (Truck Ins. Exchange v. Firemans Fund Ins. Co., supra, 6 Cal.App.4th at p. 1058.) However, in both Truck Ins. Exchange and Carey Canada the courts went on to hold that disqualification was required because in both instances counsel was aware of the dual representation and nonetheless proceeded to act as counsel in a matter adverse to one client.
The dicta in Truck Ins. Exchange and Carey Canada does not convince us that Emrichs lack of knowledge relieved her or her former firm of their obligations under Flatt. The court in Flatt made it clear the rule against conflicting representations is based on the laws paramount need to instill in clients confidence the attorneys they have retained will not act adverse to their interests. (Flatt, supra, 9 Cal.4th at p. 290.) When a firm takes on conflicting obligations, a clients confidence that its interests were fully protected by the firm will be undermined whether the conflict was taken on knowingly or as the result of a procedural error. Here for three months one of the lawyers in the law firm Midwest employed was actively engaged in making a claim against it. When Midwest became aware of the conflict some months later, it is difficult to believe Emrichs explanation that the conflict was due to a failure in the law firms conflicts checking system made Midwest any more sanguine about the reality that its attorneys had been actively working against its interests.
In this regard we note clients have no means of controlling or overseeing a law firms conflicts checking system and must trust that law firms will exercise diligence in avoiding conflicting obligations. Thus while we do not question Emrichs statement that she ran a conflicts check and that it did not reveal any conflict, we are unwilling to impose on innocent clients, such as Midwest, the ultimate risk of such an errant conflicts check or alternatively the burden of litigating the adequacy of its lawyers conflicts check. If we adopted APHLs position we would be authorizing extended litigation over what individual lawyers, or their support staff, knew about the existence of a conflict. Such litigation between a client and an attorney would not enhance public confidence in the legal profession. Moreover fairness requires the costs of errors in conflict checking should be borne by the law firms and lawyers, who, in the end, are in the best position to avoid those errors.
The fact Emrich ceased representing Midwest when she left the Fish & Richardson firm does not remedy the central problem posed by her dual representation: the impact such representation has on a clients perception of the legal profession. (See Flatt, supra, 9 Cal.4th at pp. 290-291.) In this regard we note that during the period of dual representation Emrich contacted Midwests employees and the information she gathered may well assist her in some manner in making APHLs case against Midwest. It is precisely this prospect the court in Flatt found unacceptable; that is, the potential that a client will be confronted with an adversary whose case has been materially advanced by its own attorney. (Ibid.) The fact that the conflict no longer exists does not undo the harm that was done to the attorney-client relationship or the potential future harm that might arise as a result of work done while the conflict existed. As the courts which have uniformly adopted the "hot-potato rule" have suggested, permitting a lawyer to resolve a conflict by terminating her relationship with one of her clients merely permits the lawyer to favor the more lucrative client. (See Truck Ins. Exchange v. Firemans Fund. Ins. Co., supra, 6 Cal.App.4th at pp. 1057-1059.) In short, the fact that Emrich took APHL as a client with her when she left Fish & Richardson did not remedy her disqualification.
As the court in Flatt also made clear, the need to protect Midwests confidential communications is not the limit of Emrichs or her former law firms duty to Midwest. (Flatt, supra, 9 Cal.4th at p. 288.) Thus the fact that Emrich is not now and has never been exposed to Midwests confidences does not relieve her of her obligation of loyalty to Midwest.
We recognize that disqualifying Emrich at this point imposes on APHL significant burdens. However, we note APHL had no right in the first instance to employ Emrich to represent it while Emrich was working at Fish & Richardson. Had the conflict check been accurate, Emrich not only would have been barred from taking the case against Midwest, as the holding in Flatt makes clear, Emrich would have been barred from offering any advice as to what APHL should do in light of the disqualification, including in particular assisting APHL in obtaining alternative counsel. (See Flatt, supra, 9 Cal.4th at pp. 290-291.) Secondly, the harm to APHL can be remedied in substantial measure by obtaining counsel untainted by any conflict. With respect to APHLs right to recover from Midwest attorney fees it has incurred in the event APHL prevails on the merits, our disposition may prejudice APHLs rights. However, as we have noted, the responsibility for this loss is in no sense Midwests.
The petition is denied. Midwest to recover its costs in these writ proceedings. The stay issued by this court on June 30, 2006, is vacated.
WE CONCUR:
HUFFMAN, J.
McINTYRE, J.