A California District Court recently wrestled with motions dealing with issues of disqualification of counsel and application of the McDermott, Will & Emery v. Superior Court doctrine.
In a derivative action, the United States District Court for the Central District of California determined a motion seeking the disqualification of an attonrey on the grounds that the attorney improperly accessed privileged documents and used the documents to his client’s advantage. This may be a valid reason for disqualification under California law. However, the facts did not warrant disqualification here, because the privileged nature of the key document had been waived. Nevertheless, the decision contains a good discussion of relevant case law and principles.
The District Court also ruled on a motion to dismiss the derivative suit under the doctrine of McDermott, Will & Emery v. Superior Court, 83 Cal.App.4th 378. In McDermott, shareholders sued their corporation’s outside counsel in a derivative action for legal malpractice arising out of advice given in connection with a shareholder vote to effect an affiliation agreement with another corporation. The California Court of Appeal entered judgment on the pleadings in favor of the firm, reasoning that a shareholder derivative action does not waive the privilege; thus, “in the absence of a waiver by the corporate client, the third party attorney is effectively foreclosed from mounting any meaningful defense to the shareholder derivative action.” Adopting a strict position, the court explained
We simply cannot conceive how an attorney is to mount a defense in a shareholder derivative action alleging a breach of duty to the corporate client, where, by the very nature of such an action, the attorney is foreclosed, in the absence of any waiver by the corporation, from disclosing the very communications which are alleged to constitute a breach of that duty.
Here, the District Court ruled that dismissal was not warranted under McDermott because the crime-fraud exception to the attorney-client privilege applied. Since there was no privilege, the attorney would not, in effect, be required to defend himself with one hand tied behind his back. The case could go forward.
The decision is Defrees v. Kirkland (2012 U.S. Dist. LEXIS 52780) and is dated April 11, 2012.