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special / Legal Ethics

Avoiding the problem of vicarious disqualification

Question: Will the Jones Law Firm be vicariously disqualified because they hired an attorney who acquired -- or could have acquired -- confidential information about a plaintiff in a lawsuit when the firm represents the defendant in that same lawsuit?

Disqualifying the entire firm is called "vicarious disqualification." And yes, in some cases the entire Jones Law Firm can be disqualified because when a law firm hires an attorney who has acquired, or could possibly have acquired, confidential information about an adverse party. When that circumstance rears its head, an ethical dilemma looms. There may be a conflict of interest for the attorney and his or her law firm.

And know this: That conflict of interest can result in the disqualification of the entire law firm from representing a client. See Kirk v. First Amer. Title Ins. Co., 183 Cal. App. 4th 776, 797 (2010); Flatt v. Superior Court, 9 Cal. 4th 275, 283 (1994). The confidential information can come from any source. Castaneda v. Superior Court, 237 Cal. App. 4th 1434 (2015).

However, the Jones Law Firm may avoid vicarious disqualification if it promptly institutes procedures to completely isolate the tainted attorney completely from the case, ensuring that no information flows from the tainted attorney to anyone at the firm.

HYPOTHETICAL FACTS

To further illustrate the problem, let's flesh out the hypothetical in involving the Jones Law Firm.

Let's assume the firm has just hired a new attorney named Sanchez. While Sanchez was at his former firm, and shortly before joining the Jones office, Sanchez participated in a personal injury seminar; he was on a discussion panel with seven other attorneys. At that seminar, an attorney attendee -- let's call him Byron Blabbermouth -- told the panel privately during a break about a client he was currently representing in a personal injury case. Blabbermouth's client had sustained an injury in a previous automobile accident and Blabbermouth wanted to discuss the pending case with the panel to gain insight as to how best to handle the delicate situation about the prior injury. Blabbermouth proceeded to tell the entire panel about the PI case and explained at length his client's previous injury as well as her current injuries. Everyone on the panel had something to add to this discussion, which went on for at least 20 minutes.

Four months after participating in the seminar, Sanchez was invited to join the Jones Law Firm as a partner. Sanchez decided it would be a great career move for him because the Jones office was quite well-known for representing famous people in personal injury lawsuits. Three of the Jones firm partners customarily represented plaintiffs and one of the partners, Stacy Morris primarily represented defendants. Sanchez was being invited to join Morris on the firm's defense team.

After agreeing to join the Jones firm, but prior to beginning to work there, Sanchez and Morris met to discuss the firm's current cases. Although Sanchez's background conflict of interest check had revealed no conflicts with the firm's current stable of clients, Sanchez thought that the facts of one of the cases sounded eerily familiar. He then recalled where he had heard about the case: It was the case discussed during the break at that personal injury seminar he'd participated in four months prior.

Upon remembering those circumstances -- and before revealing any information -- Sanchez told Morris about the seminar where the "prior injury" case had been discussed. It sounded as if Sanchez had heard intimate details about a party who was now adverse to the Jones firm.

Morris thereupon decided that Sanchez should not start working at the Jones firm until she had the time to decide how to proceed. Morris was concerned about a possible conflict of interest as the information Sanchez learned from the seminar discussion appeared to be adverse to a current Jones firm clieet. Given her concerns, Morris terminated the meeting with Sanchez.

REVIEW THE RULES

Morris thought that the first place to start was to review the California Rules of Professional Conduct with regard to an attorney's duties regarding confidential information. She found that Rule 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."

However, Morris gleaned that this rule did not directly address the issue presented. She also determined that there was no other rule that directly applied to the situation.

ETHICAL WALLS

Although she found a dearth of language in the rules, Morris had heard about the concept of an "ethical wall" (also commonly referred to by the disfavored term "Chinese Wall" or by the description as a "cone of silence"; see e.g., Peat Marwick Mitchell & Co. v. Superior Court, 200 Cal. App. 3d 272 (1988); Henriksen v. Great Amer. Sav. & Loan Ass'n, 11 Cal. App. 4th 109 (1992); In re Complex Asbestos Litig., 232 Cal. App. 3d 572 (1991). She thought that this mythical barrier could, perhaps, prevent the Jones firm from bring vicariously disqualified, should Sanchez actually join the firm and begin working there.

But Morris she did not have much information about the use of ethical walls. She proceeded to do some research and in the court of doing so, she found that an ethical wall should be imposed to completely isolate a tainted attorney when there is a possibility that the confidential information pertaining to an adverse party is at risk of being exposed to the firm by a new hire. Since Morris and the Jones firm wanted to continue representing their client -- and not put the client to the burden of retaining new counsel -- Morris decided that an ethical wall should be erected.

COURT DECISIONS

Although some courts differ as to whether vicarious disqualification is absolute or automatic in attorney conflict of interest cases, the vicarious disqualification cases in Morris' jurisdiction did not so hold. The rule in her jurisdiction was simple: When an attorney who can or does acquire the confidential information pertaining to an adverse party, there is a rebuttable presumption that this knowledge is imputed to the entire firm. See Klein v. Superior Court, 198 Cal. App. 3d 894, 910-13 (1988). The presumption can be rebutted by implementing an ethical wall. City and County of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839, 855 (2006). The ethical wall must isolate and prevent the tainted attorney -- the one who possesses the confidential knowledge -- from gaining any access to the case. Complex Asbestos Litig., 232 Cal. App. 3d at 593.

For example, in Kirk, the trial court disqualified an entire law firm. The appellate court reversed, concluding that the firm had successfully rebutted the presumption that the attorney's knowledge was imputed to the entire firm. The court found that imputation was refuted by evidence that the firm had adequately screened the attorney from the others at the firm, thus preventing the possibility of disclosure of the confidential information at issue. Kirk, 183 Cal. App. 4th at 784.

DETAILS OF AN ETHICAL WALL

Through her research, Morris discovered that courts tend to allow continued representation when some or all of the following measures have been promptly implemented:

• The law firm immediately isolated the tainted attorney from all aspects of the case, when the conflict first arose. Id. at 811.

• The screening measures were specific and inflexible. Chambers v. Superior Court, 121 Cal. App. 3d 893, 900 (1981).

• The law firm established rules and procedures that prevented access to the confidential information and files, making sure that even accidental access cannot happen. Kirk, 183 Cal. App. 4th at 811.

• Circulating a memorandum to the staff of the law firm telling everyone that they must not communicate with the [tainted] attorney about the case. Id. at 788.

• Instituting procedures so that the tainted attorney could not share in the profits from the firm's representation. Id. at 812.

• Making sure that the tainted attorney had "no supervisory powers over the attorneys involved in the litigation, and vice versa. If the attorneys handling the matter are supervising the tainted attorney, the tainted attorney may feel an obligation to assist the supervising attorneys in their representation. Likewise, if the tainted attorney is supervising the attorneys involved in the litigation, there could be concerns that the tainted attorney sets policies that might bear on the subordinates' handling of the litigation." Id. at 813.

• Providing notice to the client that an attorney who has newly joined the firm may have confidential information. "Notice increases the public perception of the integrity of the bar, by making the interested party aware of the potential threat to its confidential information and the measures taken to prevent the improper use or disclosure of such information. Moreover, notice establishes an enforcement mechanism, in that the interested party will be able to suggest measures to strengthen the wall, and to challenge any apparent breaches. However, the interested party's consent is not required." Id. at 814

THE HYPO CONTINUES...

Prior to her second meeting with Sanchez, Morris drafted and circulated a memo to the entire Jones law firm stating that Sanchez must be totally isolated from the case. The memo was quite explicit providing that anyone who did not follow the enumerated procedures would be subject to discipline, up to and including termination.

Morris also took all of the information, files, notes, pictures, etc. from the current PI case and put them into a separate locked file cabinet. Morris and her secretary were the only ones who would have the key to the file cabinet, a step designed to insure that new hire Sanchez would not have any access to the information.

Morris then called Sanchez in for a second meeting and she proceeded to explain what her research had revealed. She informed Sanchez that because he could have acquired confidential information about the plaintiff in the current, the entire firm could be disqualified from representing the defendant unless an effective ethical wall was erected. And even though Sanchez recalled only some of the details about the party who was now adverse to the Jones firm's client, the fact that Sanchez present at the prior seminar where he could have obtained confidential information gave rise to a conflict. It was the possibility that Sanchez obtained confidential information that could cause the Jones firm to be disqualified.

IMPUTED KNOWLEDGE

Morris explained to Sanchez the general rule of vicarious disqualification: that when an attorney has obtained confidential information from an adverse party, that knowledge will be imputed to the entire firm because "knowledge by any member of a law firm is knowledge by all of the attorneys in the firm, partners as well as associates." See Chadwick v. Superior Court, 106 Cal. App. 3d 108, 116 (1980); see also Adams v. Aerojet-General Corp., 86 Cal. App. 4th 1324, 1333 (2001). This is called the "imputed knowledge" theory.

Morris also told Sanchez that her research had revealed that a declaration from him stating that he had no contact with anyone involved in the case probably would not suffice. See Kirk, 183 Cal. App. 4th at 812. She further explained that a tight ethical wall had to be erected around Sanchez that completely isolated him from the current case, lest the rule of vicarious disqualification apply and the entire Jones firm be disqualified.

Morris told Sanchez about the memo she had distributed to the firm, and told him that he was not to discuss the pending case with anyone at the firm, and that the case files had been placed in a special locked file cabinet that he would not have access to. She also told him that he could not share in the firm's profits from the case or have any supervisory powers over any of staff regarding it to insure that he would have no financial incentive to secretly help the firm by improperly disclosing confidential information. These restrictions were patterned on those discussed in Id. at 809-15.

Morris knew that the Jones firm had to establish that effective screening was achieved. And since it is the trial court that hears the testimony and has the discretion to decide whether or not an attorney and/or law firm will be disqualified, the law firm's ethical wall procedures must satisfy the trial court that the tainted attorney had no access to any files and was not involved in the litigation, such that a reasonable inference would be that no confidential information was used or disclosed.

CONCLUSION

While there is no definitive California Supreme Court decision authorizing ethical walls, many law firms have avoided vicarious disqualification by immediately instituting an effective ethical wall similar to the one outlines and proposed by Morris in our hypothetical. See Sharp v. Next Entertainment, Inc., 163 Cal. App. 4th 410, 348 n.11 (2008). The state's high court has left open the question as to whether an effective screening wall will rebut the presumption of imputation of confidential knowledge to an entire firm. See People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal. 4th 1135, 1151 (1999).

It should also be noted that the rules regarding vicarious disqualification don't just apply to partners and associates. They apple to a firm's "of counsel" lawyers as well. See id. at 1139-40.

The moral of the story is simple. Keep the antenna out to pick up potential conflicts and, when they are detected, make sure the correct protective measures are implemented promptly. Failing to do so could not only result in an individual attorney's disqualification, but the exit of that attorney's entire firm as well.

#209

Ben Armistead


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