Disqualification of law firms for a conflict of interest is a common occurrence. The trend toward more disqualifications is, in part, a product of the continuing consolidation of the legal industry. Lateral movements create conflicts as the work of new attorneys get imputed to their new law firm. Increasingly, in today's legal marketplace, clients and attorneys use disqualification motions as litigation tactics.
In Kirk v. First Am. Title Ins. Co., class action plaintiffs moved to disqualify a law firm representing the defendant company where the law firm employed an attorney who had obtained confidential information from plaintiff's counsel related to the class action. 183 Cal. App. 4th 776, 108 Cal. Rptr. 3D 620 (2010). While the court held that automatic vicarious disqualification of the firm was not required, the court did find that there is a rebuttable presumption that the attorney's knowledge of client confidences is imputed to the firm. Id. The presumption can only be refuted by evidence that the law firm adequately screened the attorney from the other attorneys at the firm representing the adverse party. Id.
As the Kirk case highlights, disqualification motions present a firm with a host of potential issues. In many instances, these issues are intensified because firms either do not have or fail to follow effective procedures for properly addressing conflicts of interest—including full disclosure and consent. The most effective way to avoid a meritorious motion to disqualify is to implement and follow client intake procedures that detect and address conflicts of interest.
In addition, when disqualifications do come, going it alone is the one mistake that increases the chance a simple potential conflict of interest transforms into a lost representation accompanied by a greater risk of a bar complaint and/or an action for legal malpractice.
Should a law firm utilize outside counsel?
A law firm defending itself against a motion to disqualify has a fool for a client.
When a motion to disqualify is filed, the targeted law firm ends up with two clients in the litigation. Obviously, the law firm represents its client in the litigation. In addition, however, the law firm represents its own interests in attempting to continue the representation of the client. Even though the law firm is not listed on the pleadings as a party, the law firm nonetheless has an interest in the outcome. At that moment, the law firm has two clients whose interests may not completely align.
In some situations, the law firm's client might be better served financially or otherwise by other counsel. On the other hand, the firm's best interests are likely best served by the continued representation.
Although waivable, this is still a potential conflict. As a result, the safer course is for the law firm to advise the client of any potential differing interests, including the advantages and disadvantages of hiring a new firm to contest the motion to disqualify. Because the law firm has a financial (and potentially other) interest in the outcome, the firm should avoid giving any advice in connection with the client's decision on how to proceed.
Importantly, the potential for conflict does not end with the decision to contest the motion to disqualify. Instead, as the evidence, briefing and argument continue, the opportunity for unexpected conflicts and risks also continues.
These risks could include members of the law firm being called as witnesses, unexpected fees and costs, or unknown restrictions imposed as a condition of the firm's continued participation. The firm should not both advise itself and its client on these issues absent the full disclosure and consent required for multiple representation.
Advantage of Using Independent Counsel
When law firms defend against a motion to disqualify, they sometimes end up defending their own conduct against allegations of improper conflicts of interest. Any time a law firm is both the advocate against and the target of allegations of improper conduct, the firm and the client are at a disadvantage.
In addition, judges inevitably take into account a law firm's own interests in the proceedings. As a result, courts tend to end up considering the firm's interest when deciding how much weight to give both the testimony and the argument of counsel in that position.
With no financial interest in the outcome of the motion to disqualify, independent counsel inevitably have an advantage over an interested attorney arguing in favor of his continued participation in the litigation.
Charging the Client for Law Firm's Defense
Law firms defending themselves must consider whether it is appropriate for the client to bear the costs of a motion that might be predicated on the law firm's conduct. This is especially true when the conflict has been undetected or the law firm failed to implement appropriate protocols, practices and procedures to detect and resolve the conflict.
If the law firm failed to seek appropriate consent, or failed to detect the conflict, a real question exists regarding whether the client should pay the legal fees and costs associated with opposing the motion to disqualify. Again, retaining separate counsel, whose fees and costs can be divided or paid by the law firm, avoids the risk.
Don't Be Tempted to Take Easy Way Out
Unfortunately, some law firms are tempted to take the easiest path—simply to oppose the motion to disqualify as part of the representation. Such an approach, however, ignores the potential conflicts of interest that might exist, including the proper steps of giving appropriate disclosures and procuring the client consent required to do so.
It also may ignore the difficult position that the law firm finds itself in as opposing counsel attempts to put the law firm on trial throughout the proceedings. Under these circumstances, even successfully defeating the motion to disqualify can translate to a loss in the ability to advocate effectively on behalf of the client during the litigation.
This approach may also ignore the limitations that result from a successful defense of the motion, such as limitations on testimony and evidence that might come from the firm. Law firms in these situations must be especially careful to avoid the risk that any advice will be compromised regarding the trade-off between the advantages of continuing the representation and the preclusion of certain potential witnesses in the remainder of the litigation.
Keeping Attorney-Client Privilege Intact
In some instances, a law firm representing itself may be deprived of its own attorney-client privilege. This deprivation may adversely impact the law firm's ability to effectively seek advice to protect its own interests. When the same attorneys are advising both the client and firm, such communications may not be protected in subsequent litigation, whether based on a bar grievance or a legal malpractice claim.
Because of these risks, the best approach for a law firm facing potential disqualification is to seek independent legal advice regarding its own ethical, legal and professional obligations. Then, based on that advice, the law firm can determine the best approach. In some cases, the best approach may be to engage separate counsel specializing in lawyers' law to protect both the law firm's and the client's interests.
In any event, the firm should provide full disclosure of the risks to the client and, if the client decides the firm should continue representing it in the disqualification proceeding, the firm should obtain written consent.
Absent these steps, law firms face the prospect of limiting the defense to the disqualification motion, and, at the same time, increasing the likelihood of receiving questions (and possibly grievances and complaints) about the firm's inability to provide a full and complete defense.
If the motion for disqualification is granted, this scenario only gets worse. It's worth the money and time to get it right at the outset rather than face adverse consequences of failing to do so.
As published in The Recorder