With Adversaries Like this, Who Needs Client Conflicts?

Acacia Patent Acquisition, LLC v. Superior Court, No. G050226 (D4d3 Feb. 27, 2015)

This is a conflicts riddle much harder than anything on the MPRE. 
Client is repped by Firm A in a patent case, where plaintiff in this case allegedly performed some expert/consulting services in exchange for a cut of the patent case proceeds. Client allegedly stiffed Firm A.

In a fee arbitration, Firm A is repped by Firm B, in which firm A prevails. During that arbitration, Firm B is privy to lots of privileged info from the patent case due to Evidence Code § 958’s exception that privilege can’t be invoked as to matters relevant to an attorney-client dispute. But Firm B destroyed that stuff under the terms of a protective order when the arbitration was over.

Sometime thereafter, plaintiff sues Client for failure to make good on the expert/consulting contract. Although plaintiff originally hired a different lawyer, he winds up retaining Firm B after the case is transferred to OC Superior. Client quickly files to DQ Firm B. The trial court denied the motion and plaintiff took a writ.

The tricky thing is that Firm #2 never represented plaintiff. So the normal DQ rules in the Rules of Professional Conduct, which protect the interests of current and former clients, don’t apply.  As the court notes, generally, the idea that lawyers should be DQed based on their prior adversaries kind of chafes with “basic principles of our adversarial system.”

But those principles don’t lack exceptions. Relying on the Restatement (Third) of the Law Governing Lawyers, the court reasons that a conflict can arise “because of specific obligations, such as the obligation to hold information confidential, that the lawyer has assumed to a nonclient.” So the court borrows the substantial relationship standard that applies former client conflicts and applies it to matters where an attorney, representing another attorney in dispute with that attorney’s client, is privy to ordinarily privileged materials due to Evidence Code § 958.

So when a law firm represented another law firm in an action against a client, the test that applies to being adverse to the client turns on two factors. (As an aside, I appreciate that the court actually comes up with a test.) First, whether the first representation resulted in a broad disclosure of the non-client’s privileged information. And second, whether there is a substantial relationship between the two cases. As long as these factors are satisfied, it is unnecessary to point out specific access to privileged docs that create an unfair advantage.

And based on that test, Firm B gets disqualified. It didn’t do anything wrong, but its access to Client’s privileged information was just too great of an unfair advantage to be excused. And because this case—for nonpayment of an expert for work in the same case Firm A claimed to have been stiffed on—is factually similar to the fee arbitration, Firm B gets DQ’d.

The court concludes by emphasizing the narrowness of its ruling. It does not intend to create a prophylactic rule that hinders lawyers from taking cases against former adversaries. That would be anathema to the adversary system. But “in the limited realm of cases featuring attorneys as parties opposed to their former clients, lawyers representing the attorney party must avoid participation in substantially related matters, whereby their access to privileged information in the former action would potentially serve as an advantage in the latter.”

Writ granted.