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The Top 10 California Legal Ethics Rulings of 2012

Volume 9 of Ethics  Quarterly abstracted 49 rulings  from California state and federal courts. The issues addressed in the ten most significant ethics-related rulings  abstracted in this volume (one of the cases is actually from the very end of 2011, too late to be included on last year’s list) range from the discoverability of attorney-directed witness statements  to civility in  oral  advocacy to  the  ethical responsibilities of  co-counsel brought to the  team  for trial. The underlying disputes in which  these ethical issues were   raised  cover   the  spectrum of  practice:  personal injury, patent/intellectual property, ERISA, bankruptcy, family law,  securities litigation, and  criminal law,  among others.  Each case was chosen  because  its core holding is expected to transcend the specific practice area in which the  case  arose;  each  case  was  ranked   based  on  how broadly and deeply that impact is expected to be felt in the evolving California law of lawyering.

1. Coito v. Superior Court
(2012) 54 Cal.4th 480  (EQ 9.3.3):

In this personal injury case, the California Supreme Court unanimously ruled that a witness statement obtained through an attorney- directed interview is entitled to at least qualified work product protection and may be entitled to absolute work product protection. (Id. at 499-500.) Where such a witness statement reveals the attorney’s impressions or thought processes about the case—a showing that the attorney resisting discovery must make on a case-by-case  basis—the  statement  is  entitled to absolute work product protection and is not subject to discovery under any circumstances. (Id. at 495-496.) Even if an attorney-directed witness statement does not reveal the attorney’s thought   processes   or   legal   theories,   it   is entitled to qualified work product protection, meaning that the party seeking discovery of the statement must show that if the statement were not  produced,  the  party  would  suffer  unfair prejudice in preparing its case or that the non-production would result in an injustice. (Id. at 499-500, citing C.C.P. § 2018.030(b).)

The significance of the case—and it is, by far, the most significant ethics ruling of 2012—is that it reinforces the paramount importance of an attorney’s right and duty to treat as confidential information the attorney gathers in the process of working on a client matter. In generally shielding such statements from discovery, the ruling also underscores the duty of an attorney to gather, record, and evaluate even information that is harmful to the client’s cause. “If attorneys must  worry  about  discovery  whenever  they take a statement from a witness, it is reasonably foreseeable that fewer witness statements will be recorded and that adverse information will not be memorialized. . . . This result would derogate not only from an attorney’s duty and prerogative to investigate matters thoroughly, but also from the truth-seeking values that the rules of discovery are designed to promote.” (Id. at 496-497.) In addition, in leaving undisturbed the trial court’s ruling that an attorney who used an attorney-directed witness statement to cross- examine the witness at deposition had thereby waived  work  product  protection,  the  Court also reminded counsel of the consequences of openly using work product in discovery and other interactions with the opposing party. (Id. at 500.)

2. In re: Pacific Pictures Corp.
(9th Cir. 2012) 679 F.3d 1121 (EQ 9.2.4):

In a dispute in which the petitioners included the heirs of the creator of Superman, the question was whether a party waives the attorney-client privilege as to third parties over assertedly privileged documents by producing those documents only to the federal government. The Ninth Circuit held that a party does waive the attorney-client privilege, even when the government promises the party it will not disclose the documents to third parties absent court order. The Ninth Circuit concluded that allowing a party to engage in selective waiver of the attorney-client privilege to the government would not advance the purpose of the privilege, which is to encourage a client to be candid with their own attorney. (Id. at 1127-1128.)

The significance of the case comes from its focus on the rationale of one of the core ethical principles of the attorney-client relationship: that communications between attorney and client are kept secret from others to encourage frank and open communications between them. In this case of first impression in the Ninth Circuit, the Court explained that encouraging a party to be open with his lawyer is distinct from encouraging a client to cooperate with the government. The former is promoted and protected by the federal attorney-client privilege as it now stands; the latter, absent Congressional action, is not. (Ibid.)

3. Valdez v. Kismet Acquisition, LLC
(S.D. Cal. 2012) 474 B.R. 907 (EQ 9.3.5):

The district court reviewed a bankruptcy court order sanctioning counsel for client advice and court filings to impede the transfer of certain foreign assets. The question presented was whether the bankruptcy court was required to consider the extent of sanctioned counsel’s responsibility for the opposing party’s loss and the extent of counsel’s ability to pay the high-six-figure sanctions award. The district court held that, even though sanctions were warranted, the bankruptcy court had erred in not considering the relative fault of sanctioned counsel, on the one hand, and the fault of the client and co- counsel, on the other hand, in causing harm to the opposing party and in not considering the ability of counsel to pay in determining the size and scope of the sanctions award. The district court concluded that sanctions need to be tailored to the relative harm caused by this particular attorney and to the ability of this particular attorney to pay the amount of the sanctions.

The significance of the case is that, first, it is a reminder that an attorney may be sanctioned for filing even meritorious objections solely for the purpose of delay. Motive matters. Second, the ruling suggests that in imposing sanctions, the court must consider the relative responsibility of all of those who caused harm to the opposing party or the administration of justice, including all involved counsel and the client, not just one of several participants in the misconduct. Proportionality matters. Third, in imposing sanctions, a court must consider the sanctioned attorney’s ability to pay the amount of the sanctions. Wherewithal matters. In Haynes v. City and County of San Francisco (9th Cir. 2012) 688 F.3d 984 (EQ 9.3.6), the Ninth Circuit addressed a related question of first impression in the circuit to hold that a district court must take into account an attorney’s ability to pay when imposing sanctions pursuant to 28 U.S.C. § 1927.

4. Kilopass Technolgy Inc. v. Sidense Corp.
(N.D.Cal. 2012) 2012 WL 1534065 (EQ 9.2.7):

The issue in this case was whether a party, and by extension their attorney, had preserved the attorney-client privilege where: (1) outside counsel contracted with a vendor to search and sort electronic documents for privilege; (2) the list of the party’s past lawyers and law firms provided to the vendor, which outside counsel had obtained from the party, failed to include lawyers and firms that provided early corporate work for the party; (3) vendor mistakenly did not run the privilege search across all production batches of documents and did not run all search terms provided by outside counsel; (4) after receiving the production  batches  from  the  vendor  just days before production was due, the party’s attorneys and paralegals conducted spot checks, but the privileged documents escaped manual screening due to the tight timeline for production; and (5) where, as a result, the party claimed that more than 1 in 50 documents the party produced was privileged. The Court held that the attorney-client privilege had not been preserved under these circumstances. The Court found that the party’s screening procedures had been unreasonable. “This is not a case where a few privileged documents in a large batch slipped through otherwise robust screening procedures. Even where a small number of privileged documents are disclosed in a large batch, privilege may be waived where the screening procedures were particularly unreasonable.” (Id. at *3, citations omitted.)

The significance of the case is that it focuses attention, in the widely discussed and rapidly evolving area of the discovery of client’s electronically stored information (“esi”), on one of the attorney’s most inviolable duties: the duty to preserve client secrets. The ruling suggests that considerable care must be taken at every step of esi discovery: from selecting any  outside  vendor,  to  providing  search terms and other instructions to the vendor, to  reviewing  the  vendor’s  work  product before producing the information to the opposing party. The more of these steps that are later found to have been inadequate, the greater the risk a court will order a client’s most confidential information ultimately surrendered to the adverse party.

5. Resilient Floor Covering Pension Fund v. Michael's Floor Covering, Inc.
(N.D.Cal. 2012) 2012 WL 3062294 (EQ 9.3.7):

In this ERISA case brought by pension trust funds against the alleged successor of a sponsoring employer, the question was whether the attorney-client privilege and work product protection had been waived over a pre-litigation email sent by plaintiffs’ counsel to plaintiff-fund’s trustee that detailed plaintiffs’ counsel’s preliminary understanding of the facts of the case and the legal merits of potential claims, where the trustee forwarded counsel’s email to a non-party union official asking whether defense counsel had a conflict of interest and where, through a series of additional forwards, the email wound up in the hands of various union members and defense counsel himself. The Court found waiver, even though the original email had been headlined “Attorney-Client Privileged/Attorney Work Product.” The disclosure of the memo to the pension officials up the email chain, said the Court, had not been designed to further a joint litigation effort and was inconsistent with keeping secrets in an adversary system.

The significance of the case is that it may make it advisable for attorneys to admonish clients, especially certain employees of organizational clients, not to forward confidential information from the attorney to unnecessary others. At least in federal court, even an attorney’s candid assessment of the strengths and weaknesses of a client’s position—and this logically applies to the litigation and transactional contexts alike— may wind up in the hands of an opposing party if sufficient care is not taken. The addition of the phrase “Do Not Forward” in the subject line of an email to a client representative the attorney is concerned may be tempted to share attorney information with others, may go a long way to preventing over-forwarding in the first place.

6. Little v. Amber Hotel Co.
(2011) 202 Cal.App.4th 280 (EQ 9.1.2):

An attorney brought an action for tortious interference with the attorney’s fee lien and for interference with an attorney’s further relationship with his longstanding clients against the opposing party in the underlying action. The Court of Appeal ruled that the attorney had established that his clients had breached an enforceable contractual duty to the attorney regarding the lien when the clients settled the underlying action with the opposing party and forfeited their right to execute on the court-ordered prior fee award that was the basis of the lien.

The significance of the case is that it qualifies both the client’s right to settle his cause and the attorney’s duty not to restrict that right to settle without the attorney’s consent. The attorney’s duty not to interfere with his client’s right to settle without attorney consent has been California law for nearly 100 years. (See Hall v. Orloff (1920) 49 Cal. App. 745.) But a client’s right to settle is not unqualified: “fee agreements containing reasonable limitations on the client’s authority to settle an action are enforceable.” (Little, 202 Cal.App.4th at 296, citing Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 918.) The lien set forth in the fee agreement in this case did not transfer control of settlement from the clients to the attorney. “[R]ather, it obligated the [client-] parties to honor their contractual duties to [attorney] concerning his lien right to ‘any attorney[] fee award made by the court,’ regardless of how they chose to settle the action.” (202 Cal.App.4th at 297, quoting fee agreement, footnote omitted.) And yet it was the opposing party, not the clients, that was held responsible for the lien. The opposing party was even made to pay for future business the attorney expected to lose from these clients because the opposing party induced abrogation of the fee lien, necessitating the lawsuit in which the clients were named as defendants. Beyond clarifying the scope of the enforceability of attorney liens against clients, the ruling may curb outside interference with that aspect of the attorney-client relationship.

7. Sands & Associates v. Juknavorian
(2012) 209 Cal.App.4th 1269 (EQ 9.4.1):

The California Court of Appeal held that a law firm that prevailed in a fee dispute with a client may not recover contractual prevailing party attorney fees if the firm was represented by an attorney listed on the firm’s letterhead and in attorney directories as of counsel to the firm. In light of that, there was no attorney-client relationship between the firm and the of counsel attorney representing the firm in the fee dispute. (Id. at 1297.)

Beyond its comprehensive examination of the meaning and consequences of an of counsel/ law firm relationship, the significance of the case is to establish the importance of a genuine attorney-client relationship as a condition to recovering prevailing party attorney fees. A similar issue was addressed in Rickley v. Goodfriend (2012) 207 Cal.App.4th 1528 (EQ 9.3.8). In that case, the Court of Appeal held that a trial court should have considered the entitlement to fees of an attorney representing herself and her spouse in connection with post-judgment contempt proceedings in the context of a nuisance action against neighbors. In that context, it did not matter that the interests of the attorney and her spouse were indivisible and that their damages were identical. What mattered was whether the non-attorney spouse consulted the attorney spouse “in her professional capacity and whether their relationship in terms of this lawsuit, was for the purpose of obtaining legal advice.” (Id. at 1538.) If the trial court found that the answer to both of those questions was yes, the trial court was directed to grant the request for fees. (Id. at 1539.) These two very different cases demonstrate that the award of fees to a prevailing party depends in part on whether the attorney and the represented party had a genuine attorney-client relationship. (See also Kerner v. Superior Court (2012) 206 Cal.App.4th 84, where an attorney- client relationship was found between former law firm partner’s wife and another firm attorney in the context of a lawsuit brought by the husband-attorney against his former firm. The existence of the attorney-client relationship meant that the wife was not required to answer deposition questions about the legal advice the firm attorney had given her in earlier proceedings.)

8. Cole v. Patricia A. Meyers & Associates, APC
(2012) 206 Cal.App.4th 1095 (EQ 9.2.14):

The Court of Appeal in this case determined that co-plaintiffs’ counsel in an underlying action in which summary judgment was granted may be held liable for malicious prosecution even if their role in the underlying case was limited to serving as trial counsel if the case went to trial. The Court concluded that if co-counsels’ names appeared on pleadings and other filings as co-counsel of record and they were served with all filings in the case, they could be held liable if the underlying claims lacked merit. As counsel of record, putative trial counsel “had a duty of care to their clients that encompassed both a knowledge of the law and an obligation of diligent research and informed judgment.” (Id. at 1117, internal quotation marks and citation omitted.)

The significance of the case is to impose on attorneys assigned even a specific and limited role in a client matter indivisible duties to a client and potential liability to opposing parties along with the attorney with primary responsibility for handling the matter. The Court of Appeal rejected putative trial counsel’s reliance on Rule  of  Professional  Conduct  3-110(C),  allowing  an  attorney with  insufficient skill  to  join  with  counsel  reasonably  believed to be competent, as a basis for dismissing counsel from the malpractice action in an anti-SLAPP motion. The Court of Appeal acknowledged that California law allows the association of counsel and division of duties among counsel in handling client matters. An attorney associated into a matter, regardless of role, assumes the duty to be informed about the matter and risks liability if the matter turns out to have been maliciously prosecuted in whole or in part or otherwise mishandled. (Id. at 1117.) At least in litigation, there are ways for an attorney to protect himself from assuming duties and potential liability prematurely. “Attorneys may easily avoid liability for malicious prosecution without having to engage in premature work on a case if they refrain from formally associating in it until their role is triggered. Attorneys may also avoid liability if they refrain from lending their names to pleadings or motions about which they know next to nothing.” (Id. at 1119-1120.)

9. Talon Research, LLC v. Toshiba America Electronic Components, Inc.
(N.D.Cal. 2012) 2012 WL 601811 (EQ 9.1.10):

Plaintiff’s counsel in this patent dispute was disqualified where three of the seven lawyers representing the plaintiff previously had had direct involvement in representing the defendant in several patent disputes involving the same kind of technology as that in the current dispute. The Court concluded that the confidential information the attorneys may have received in the previous proceedings would be relevant in the current action. It did not matter that the patents in the previous and current proceedings were not identical. Imposing a literal matching requirement, said the Court, would emasculate Rule of Professional Conduct 3-310(E). That rule prohibits an attorney from accepting a matter adverse to a former client without the former client’s informed written consent where the attorney has obtained confidential information material to the current representation. (Id. at *6.)

The significance of the case is that it was a case of first impression addressing the Rule 3-310(E) substantial relationship test to successive patent actions. A case decided later in the year in a different California federal district addressed a similar issue. In Advanced Messaging Technologies, Inc. v. Easylink Services International Corp. (C.D.Cal. 2012) 2012 WL 6618239 (EQ 9.4.6), the Court concluded that disqualification of counsel was warranted even where, since the former representation, the patents at issue had been reexamined by the U.S. Patent and Trademark Office and the claims of the patents had been altered to varying degrees.

10. People v. Whitus
(2012) 209 Cal.App.4th Supp. 1 (EQ 9.3.10):

The appellate division of the Superior Court upheld $750 in sanctions against an attorney who had failed to appear at several misdemeanor trial readiness conferences. The appellate panel spent little time discussing the merits of the appeal. Most of the ruling was spent describing the sanctioned lawyer’s “parade of insults and affronts” to the appellate panel during oral argument. In lieu of monetary sanctions for counsel’s offensive conduct, the Court ordered the clerk to send the opinion to the State Bar to consider disciplinary action against the attorney, expressing no view on what, if any discipline should be imposed.

The significance of the case is its disapproval of particular conduct the Court considered disrespectful in oral argument. Among other things, counsel equated the appellate division with the fox watching the hen house. Under the California State Bar Act, attorneys have a duty to maintain the respect due to courts and judicial officers. (Bus. & Prof. Code § 6068(b).) The Court left no doubt that it believed counsel’s  behavior  violated  that  directive.  In  referring  counsel to the State Bar, the Court sent a message to this attorney and every member of the bar that incivility in oral argument is neither acceptable behavior nor effective advocacy. And that such behavior will have consequences.

Daniel E. Eaton

Daniel E. Eaton, Publisher of Ethics Quarterly, is a partner in the law firm of Seltzer Caplan McMahon Vitek, and a former Chairman of the San Diego County Bar Association’s Legal Ethics Committee. The views expressed here are his own. Comments on the list may be sent to him at eaton@scmv.com. This Commentary original appeared in Vol. 9, Issue No. 4 of Ethics Quarterly. All issues of Volume 9, as well as a cumulative index of Ethics Quarterly, may be accessed at scmv.com.

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About the Author: Daniel E. Eaton, Publisher of Ethics Quarterly, is a partner in the law firm of Seltzer Caplan McMahon Vitek, and a former Chairman of the San Diego County Bar Association’s Legal Ethics Committee. The views expressed here are his own. Comments on the list may be sent to him at eaton@scmv.com. This Commentary original appeared in Vol. 9, Issue No. 4 of Ethics Quarterly. All issues of Volume 9, as well as a cumulative index of Ethics Quarterly, may be accessed at scmv.com.

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