Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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When a member of the California State Bar undertakes representation of a new client in a matter which is adverse to a former client of the member's law firm, must the member obtain the former client's informed written consent before accepting the new representation?
Under the facts presented a member of the California State Bar is not subject to discipline under rule 3-310(E) of the California Rules of Professional Conduct if the member accepts the representation without obtaining the former client's informed written consent. Nevertheless, the Committee believes that based on a California State Bar member's broader professional responsibility to a client, the member should not accept a representation adverse to a former client without first obtaining that former client's consent when the member knows or reasonably should know that another lawyer in the member's law firm obtained material confidential information during the representation of that former client.
Rules 1-100, 3-310, and 3-500 of the California Rules of Professional Conduct.
Business and Professions Code sections 6068 (e) and 6068 (m).
Lawyer A in Law Firm is consulted by Client over a period of several weeks about the merits of a lawsuit Client intends to bring against certain parties. Lawyer A and Client discuss in detail many of the weaknesses in the case and Client's anticipated strategies in the case. After the consultation, Client ends the lawyer-client relationship with Lawyer A and Law Firm and retains another firm to prosecute the lawsuit. One of the defendants in the lawsuit now seeks to retain Lawyer B in Law Firm to defend it in the case. Throughout the following discussion, "Client" refers to the former client of Lawyer A and Law Firm as described in these facts.
The proposed representation in this inquiry is a classic case of "side-switching" in which a lawyer or a law firm which has consulted with one side about a case goes on to represent the opposing party in the same case. California courts repeatedly have disqualified lawyers in civil cases from representing a new client against the opposing party formerly represented by the Lawyers in the same case when the opposing party actually communicated confidential information about the case in the prior consultation. (Grove v. Grove Valve & Regulator Co.(1963) 213 Cal.App.2d 646 [28 Cal.Rptr. 150]; Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109 [14 Cal.Rptr.2d 184]; Truck Insurance Exchange v. Fireman's Fund (1992) 6 Cal.App.4th 1050 [8 Cal.Rptr.2d 228]; Dill v. Superior Court (1984)158 Cal.App.3d 301 [205 Cal.Rptr.671]; Big Bear Mun. Water Dist. v. Superior Court (1969) 269 Cal.App.2d 919, 925-929 [75 Cal.Rptr. 580]; see also In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572 [283 Cal.Rptr. 732]; but see In re Marriage of Zimmerman (1993) 16 Cal.App.4th 556 [20 Cal.Rptr. 132].)
This opinion addresses an issue which the courts have considered in deciding side-switching cases, but which is not embodied in the California Rules of Professional Conduct. Rule 3-310(E) of the California Rules of Professional Conduct (hereinafter "rule(s)"), prohibits a "member" of the California State Bar from accepting representation adverse to a former client where, by virtue of representing the former client, the "member" has obtained material confidential information. Rule 3-310(E) states:
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. (Emphasis added.)
As written, rule 3-310(E) refers to a "member" and not to the member's law firm. Rule 1-100(B)(2) defines the term "member" as "a member of the State Bar of California."
Under rule 3-310(E), Lawyer A may be subject to discipline for representing defendants in Client's lawsuit because Lawyer A represented Client and obtained confidential information about the merits of Client's lawsuit which Lawyer A would have a duty to use or disclose against Client's interests in the lawsuit. However, under the rule, neither Lawyer B nor any other lawyer in Law Firm would be subject to discipline for representing any of the defendants since Lawyer B and the other lawyers in Law Firm are not the "member" who represented Client in the previous engagement and obtained the material confidential information.
As a result, rule 3-310(E) does not require the client's informed written consent under the facts presented. This opinion addresses whether Lawyer B is nevertheless precluded from accepting the representation in question without the former client's consent based on principles adopted in court decisions.
In the non-disciplinary context of lawyer disqualification, California courts have addressed this problem by adopting an imputed knowledge rule. The imputed knowledge rule provides that client confidential information obtained by one lawyer in a law firm is deemed to be possessed by all other lawyers in the firm. (See, e.g., Rosenfeld Construction Co. v. Superior Court (1991) 235 Cal.App.3d 566, 573 [286 Cal.Rptr. 609]; Chadwick v. Superior Court (1980) 106 Cal.App.3d 108, 116 [164 Cal.Rptr. 864]; Chambers v. Superior Court (1981) 121 Cal.App.3d 893, 897-898 [175 Cal.Rptr. 575].)1 The presumption that client information has been shared among lawyers in a law firm "is based on the common-sense notion that people who work in close quarters talk with each other, and sometimes about their work." (Elan Transdermal v. Cygnus Therapeutic Systems, supra, 809 F.Supp. at p. 1390.)
While not included in the California Rules of Professional Conduct2, the imputed knowledge rule is derived from a model ethical rule outside of California which California courts have recognized and applied in the context of lawyer disqualification. The California cases which were among the first to apply the rule relied in part on DR 5-105(D) of the ABA Model Code of Professional Responsibility. (Chadwick v. Superior Court, supra, 106 Cal.App.3d at 116; Chambers v. Superior Court, supra, 121 Cal.App.3d at 898.) DR 5-105(D) stated that "[i]f a lawyer is required to decline employment or to withdraw from employment under a Disciplinary Rule, no partner, or associate, or any other lawyer affiliated with him or his firm, may accept or continue such employment."3
Nevertheless, the ABA rules do not establish disciplinary standards in California. The ABA Model Code of Professional Responsibility and the ABA Model Rules of Professional Conduct, which superseded the Model Code, have not been adopted in California and have no legal force of their own. (General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1190, fn. 6 [32 Cal.Rptr.2d 1]; Cho v. Superior Court (1995) 39 Cal.App.4th 113, 121, fn. 2 [45 Cal.Rptr.2d 863]; see also People v. Ballard (1980) 104 Cal.App.3d 757, 761 [164 Cal.Rptr. 81]; Cal. State Bar Formal Opn. No. 1983-71.)4
Does the imputed knowledge rule adopted by the courts constitute a disciplinary standard? On the one hand, rule 1-100(A) states that the prohibitions of certain conduct contained in the California Rules of Professional Conduct are not exclusive and that California State Bar members are also bound by applicable law including opinions of California courts. On the other hand, not every civil standard stated in the case law subjects a lawyer to discipline.
This dichotomy is present in the civil standards relating to lawyer disqualification involving rule 3-310(E). The fact that a standard exists in the context of lawyer disqualification does not automatically subject the lawyer to State Bar prosecution. Motions to disqualify counsel include civil standards which are unique to disqualification proceedings.
The difference between legal principles which exist for determining disqualification and rules by which lawyers are bound under rule 1-100(A) stems from the difference between the specific nature of a disqualification motion and the broader interests the California Rules of Professional Conduct exist to serve. The California Rules of Professional Conduct are intended to regulate professional conduct of lawyers through discipline. They are designed to protect the public and promote respect and confidence in the legal profession. (Rule 1-100(A).) A lawyer has a duty to refrain from wilfully breaching those rules. (Rule 1-100(A).)5
By contrast, a court's power to order disqualification is derived from the power inherent in every court to control the administration of proceedings before it. (Code Civ. Proc., § 128 (a)(5); Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1839 [43 Cal.Rptr.2d 327].) Disciplinary rules are but one of the factors on which courts decide whether disqualification is necessary to preserve the integrity of the judicial process. (In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 586.)
Lawyer disqualification is prophylactic in nature. Lawyer disqualification decisions under rule 3-310(E) do not turn on whether the lawyer in question wilfully breached the rule, but on the merits of the former client's interest in preserving the confidentiality of the information imparted to the lawyer. (See, e.g., In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 586; River West, Inc. v. Nickel (1987) 188 Cal.App.3d 1297, 1308-1310 [234 Cal.Rptr. 33].) Because of the prophylactic nature of lawyer disqualification motions, courts also employ a unique rule of evidence in applying rule 3-310(E). A disqualification motion made under rule 3-310(E) involves a current client who was not a party to the prior lawyer-client relationship or to the confidential communication in question.6
Disqualification does not require the moving party to disclose the nature or content of the confidential information or prove that any confidential information was disclosed or utilized by any lawyer in the representation of a subsequent client. (In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 586.) By contrast, in a civil or disciplinary proceeding involving a charge by the client that the lawyer has breached his or her duty, there is no privilege, and a lawyer may reveal such information when relevant to refute the former client's claims against the lawyer. (See Evid. Code, § 958; Brockway v. State Bar (1991) 53 Cal.3d 51, 63 [278 Cal.Rptr. 836]; L.A. Cty. Bar Formal Opn. No. 396 (1982).)7
In short, motions to disqualify under rule 3-310(E) involve policies and concerns which are specific to disqualification proceedings.8 While disqualification motions also involve principles which are consistent with the overall purposes of the California Rules of Professional Conduct stated in rule 1-100(A), disqualification cases also involve policies that are prophylactic in nature and applicable generally only to disqualification motions and other proceedings arising out of them.9 These principles do not necessarily establish civil standards of care and are not disciplinary rules. A member who violates these principles may be subject to civil penalties such as disqualification or damages; however, absent a violation of the California Rules of Professional Conduct, the State Bar Act or the rules in disciplinary cases interpreting those provisions, the member is not subject to discipline.
Thus, under the facts presented, Lawyer B is not subject to discipline under rule 3-310(E) if Lawyer B accepts the proposed representation. Nevertheless, Lawyer B and Law Firm may be subject to disqualification or other civil penalties such as damages. The remaining question is what Lawyer B should do as part of Lawyer B's broader professional responsibility.
While the California Rules of Professional Conduct set relatively narrow standards for purposes of lawyer discipline, they are not the limit of a lawyer's professional responsibility to a client. Rule 1-100(A) recognizes that the rules are not exclusive and that lawyers have broader professional responsibilities to a client, which while not subjecting a lawyer to discipline, nevertheless advance the objectives and principles which underlie the rules.10
While the imputed knowledge rule does not constitute a basis for discipline under rule 3-310(E), the Committee nevertheless believes that Lawyer B should not accept the representation in question without obtaining Client's informed written consent. Obtaining such consent may not be required pursuant to a disciplinary rule but is consistent with a lawyer's broader professional responsibility.
Under rule 3-310(E), a representation is adverse to a former client when the former client's confidential information could be used against the former client's interests during the lawyer's representation of the new client. (Woods v. Superior Court, supra, 149 Cal.App.3d at p. 934; Yorn v. Superior Court (1979) 90 Cal.App.3d 669, 675 [153 Cal.Rptr. 295]; Galbraith v. State Bar (1933) 218 Cal. 329, 332-333 [23 P.2d 291]; see also San Diego Cty. Bar Assn. Formal Opn. No. 1987-1.) The rule helps resolve the conflict between a lawyer's duty to inform the new client of significant developments related to the lawyer's representation of the new client under rule 3-50011 and Business and Professions Code section 6068 (m)12 and the lawyer's duty to preserve the former client's confidential information under Business and Professions Code section 6068 (e).13 (L.A. Cty. Bar Assn. Formal Opn. No. 463.) The rule also addresses the conflict between a lawyer's duty to use the former client's confidential information in order to represent the new client competently and the lawyer's continuing duty of loyalty to the former client with respect to that information.14
Beyond the basic mechanics of the conflict of interest the rule is intended to address, there is also a broader policy consideration. The California Rules of Professional Conduct exist "to protect the public and to promote respect and confidence in the legal profession."
The imputed knowledge rule is consistent with this broader purpose. The imputed knowledge rule exists because it is difficult for a former client to know whether confidential information is being shared inside the law firm. The former client does not have the means to oversee the daily activities of lawyers in the firm in order to confirm that the former client's confidential information is not available to the lawyers who are now prosecuting a matter against the former client in which the confidential information is pertinent. While the Committee is not suggesting that lawyers would not seek to protect the former client's confidences in such situations, the absence of an effective means of oversight combined with the law firm's interest as an advocate for the current client in the adverse representation are factors that tend to undermine a former client's trust, and in turn the public's trust, in a legal system that would permit such a situation to exist without the former client's consent.
It is these very concerns which have lead California courts to apply the imputed knowledge rule. Indeed, recent decisions have reiterated the role of the imputed knowledge rule in maintaining client confidential information in order to ensure public trust in the judicial system. (Rosenfeld Construction Co. v. Superior Court, supra, 235 Cal.App.3d at p. 578; see also Cho v. Superior Court, supra, 39 Cal.App.4th at p. 125, "[n]o amount of assurances or screening procedures, no 'cone of silence' could ever convince the opposing party that the confidences would not be used to its disadvantage . . . . No one could have confidence in the integrity of a legal process in which this is permitted to occur without the parties' consent.")15
At the same time, the Committee recognizes that the imputed knowledge rule as it exists in the case law may result in disqualification even if the member does not know or through the exercise of reasonable diligence could not ascertain that another lawyer in the member's law firm possess material confidential information.16 However, when a member knows or reasonably should know that another lawyer in the member's law firm acquired such information, the member should obtain the former client's informed written consent to the member's current representation.
In reference to the facts presented, the Committee concludes that Lawyer B should not accept the representation of the defendants in Client's lawsuit without Client's informed written consent to the member's current representation,17 if Lawyer B knows or through the exercise of reasonable diligence could learn about Lawyer A's prior representation of Client in connection with the lawsuit .18
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
1 The rule has gone by various names in the case law. Some cases refer to it as the "imputed knowledge theory." (Chadwick v. Superior Court, supra, 106 Cal.App.3d at p. 116.) Other courts refer to it as the "vicarious disqualification rule." (Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109, 114 [14 Cal.Rptr.2d 184]; Chambers v. Superior Court, supra, 121 Cal.App.3d at p. 898.) Still another Court has referred to it as the "presumption of shared knowledge." (Elan Transdermal v. Cygnus Therapeutic Systems (N.D. Cal. 1992) 809 F.Supp. 1383, 1392.) While courts have used different names, the import of the rule in these cases is the same - knowledge obtained by one lawyer is imputed to all the other attorneys in that lawyer's law firm.
2 The "vicarious disqualification" or "imputed knowledge" rule put forth by the American Bar Association (hereinafter "ABA") has not been adopted as a disciplinary rule in this state. In 1975, in adopting the first complete redraft of the rules since 1927, which were in part modeled upon the ABA Model Code of Professional Responsibility, DR 5-105(D) was not included within the California rules. In 1989, in adopting the second complete redraft of the rules, rule 1.10(a) of the ABA Model Rules of Professional Conduct was not adopted as a disciplinary rule. In 1992, in revising the conflict of interest rules, when there was a third opportunity to adopt an imputed knowledge rule as a disciplinary rule, no such rule was adopted.
Therefore, while the courts have incorporated the imputed knowledge or vicarious disqualification rule for determining whether a law firm, law corporation, or government law office should be disqualified under common law, it is not a rule which can subject a lawyer to discipline.
3 The ABA Model Code of Professional Responsibility has been superseded by the ABA Model Rules of Professional Conduct. Former ABA DR 5-105(D) is now embodied in Model Rule 1.10(a) which states that "[w]hile lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so" by certain rules including Model Rule 1.7 which states the conflicts of interest general rule in the Model Rules.
4 The ABA Model Code of Professional Responsibility and ABA Model Rules of Professional Conduct may be considered as a collateral source, particularly in areas where there is no direct authority in California and there is no conflict with the public policy of California. (Cal. State Bar Formal Opn. No. 1983-71; see rule 1-100(A).)
5 A wilful breach of the California Rules of Professional Conduct involves "a general willingness to commit the act or permit the omission." (Edwards v. State Bar (1990) 52 Cal.3d 28, 37 [276 Cal.Rptr. 153]; Durbin v. State Bar (1979) 23 Cal.3d 461, 467 [152 Cal.Rptr. 749].) It does not require any intent to violate the rule, injure the client or obtain any advantage. (Durbin v. State Bar, supra, 23 Cal.3d at p. 467.) The misconduct need not be taken in bad faith. (McKnight v. State Bar (1991) 53 Cal.3d 1025, 1034 [281 Cal.Rptr. 766].) However, for the reasons stated later in this opinion, in the context of rule 3-310(E), the Committee believes that a wilful violation requires, at a minimum, a member's knowledge or reasonable ability to discover the other facts necessary to give rise to a breach of the rule.
6 In disqualification cases which do not include side-switching, courts apply the substantial relationship test which looks at the relationship between the prior representation of the former client and the subsequent representation adverse to that former client. Under the substantial relationship test, a trial court will presume that a lawyer has obtained confidential information material to the adverse engagement if the circumstances of the prior representation indicate that such information would have been imparted. (H.F. Ahmanson & Co. v. Salomon Brothers, Inc. (1991) 229 Cal.App.3d 1445, 1454 [280 Cal.Rptr. 614].) The substantial relationship test, which courts apply in disqualification motions under rule 3-310(E), exists, at least in part, to protect the former client by avoiding an inquiry into the substance of the very information which a former client is entitled to keep from being imparted to the lawyer's current client. (See In re Complex Asbestos Litigation, supra, 232 Cal.App.3d at p. 592; Woods v. Superior Court (1983) 149 Cal.App.3d 931, 934 [197 Cal.Rptr. 185].)
7 In In the Matter of Lane (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 735, 747, the State Bar Court Review Department suggested that the substantial relationship test was applicable under former 4-101, which was superseded by rule 3-310(E). The former rule required a former client's informed written consent when the new adverse employment was "relating to a matter in reference to which" the member obtained confidential information. The foregoing language was deleted from 3-310(E) to clarify that actual possession of material confidential information was required.
8 As a result, the fact that a court orders the disqualification of a law firm does not in itself mean that the lawyers involved in the events giving rise to the disqualification are subject to discipline. First, the disqualification may be based on the application of a civil standard, such as the substantial relationship test, which is not a duty which would subject a member to discipline. Second, the finding of a trial court is not sufficient to establish a disciplinary offense. There must be clear and convincing evidence of a violation in a disciplinary proceeding. (Rule 213, Rules Proc. of State Bar.) However, a trial court does not require clear and convincing evidence to order disqualification. (Higdon v. Superior Court (1991) 227 Cal.App.3d 1667, 1671 [278 Cal.Rptr. 588].)
9 Disqualification may lead to a defense to payment of legal fees in a subsequent fee arbitration or fee action (Goldstein v. Lees (1975) 46 Cal.App.3d 614 [120 Cal.Rptr. 253]), or constitute grounds for disgorgement of previously paid fees (In re Fountain (1972) 74 Cal.App.3d 715, 719 [141 Cal.Rptr. 654, 656-657]).
10 Thus, while pursuant to rule 1-100(A) a lawyer may be "bound by" applicable law including opinions of California courts, failure to adhere to such opinions does not in itself subject a lawyer to discipline, except when those cases arise out of disciplinary proceedings.
11 Rule 3-500 states that "[a] member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed."
12 Business and Professions Code section 6068 (m) states that it is a lawyer's duty to "respond promptly to reasonable status inquiries of clients and to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services."
13 Business and Professions Code section 6068 (e) states that it is a lawyer's duty to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client."
14 Galbraith v. State Bar, supra, 218 Cal. at p. 333; Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, 573-574; see also David Welch Co. v. Erskine & Tully (1988) 203 Cal.App.3d 884, 894 [250 Cal.Rptr. 339].
15 This opinion assumes there has been no screening of Lawyer A. Therefore, the Committee does not address whether and in what circumstances a screening procedure may be implemented in lieu of obtaining a client's informed written consent. Screening, "cones of silence," and ethical walls are all terms which denote procedures that seek to distance a lawyer possessing a former client's material confidential information from other lawyers in the firm involved in the representation adverse to the former client. The Committee observes that California courts have declined to allow a private law firm to use screening to rebut the presumption created by the imputed knowledge rule when a lawyer in the firm was previously involved in the same or substantially related matter. (Henriksen v. Superior Court (1992) 11 Cal.App. 4th 109 [14 Cal.Rptr.2d 184]; Rosenfeld Construction Co. v. Superior Court, supra, 235 Cal.App.3d at p. 577; Dill v. Superior Court (1984) 158 Cal.App.3d 301 [205 Cal.Rptr. 671]; see also Cho v Superior Court, supra, 39 Cal.App.4th at pp. 125-126, but see Cal. State Bar Formal Opn. No. 1993-128 (referring to the use of screening of a former government lawyer in a private law firm).)
16 What constitutes an exercise of reasonable diligence depends on the circumstances. At a minimum, there should be a reasonable system to identify whether an opposing party is a present or former client and the member's use of that system to ascertain whether another lawyer in the member's law firm acquired material confidential information related to the representation of the present or former client.
17 This opinion addresses the situation in which a member who has not personally obtained a former client's material confidential information is currently employed in a law firm in which other lawyers have acquired such information. In this opinion the Committee does not decide whether the same conclusion applies when the lawyers possessing the former client's material confidential information are no longer employed in the law firm at the time the member accepts the adverse representation. The Committee also does not decide whether the same rule or a different result obtains if, at the time the member accepts the adverse representation, the member is no longer employed in the law Firm.
18 This opinion does not address Lawyer B's duties in the event Lawyer A's prior representation of Client and receipt of material confidential information is discovered after Lawyer B accepts the representation of the defendants in Client's lawsuit.
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