Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Kirk v. First American Title Insurance Co.

April 7, 2010; as modified May 6, 2010

PATRICK KIRK ET AL., PLAINTIFFS AND RESPONDENTS,
v.
THE FIRST AMERICAN TITLE INSURANCE COMPANY ET AL., DEFENDANTS AND APPELLANTS.



Appeal from an order of the Superior Court of Los Angeles County, Anthony J. Mohr, Judge. Reversed with directions. (Los Angeles County Super. Ct. Nos. BC372797, BC329482, BC370141, BC382826).

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

When an attorney obtains confidential information from a client, that attorney is prohibited from accepting a representation adverse to the client in a matter to which the confidential information would be material. In this case, we are not concerned with the issue of disqualifying the attorney possessing the material client confidences from representing an adverse party; it is conceded that the attorney is disqualified from doing so. Instead, we are concerned with the issue of the vicarious disqualification of the attorney's entire law firm. We conclude that, under the circumstances of this case, automatic vicarious disqualification is not required, and that, instead, there is a rebuttable presumption that the attorney's knowledge of client confidences is imputed to the firm, which can be refuted by evidence that the law firm adequately screened the attorney from the others at the firm representing the adverse party. In addition, as the disqualified attorney has left the firm, the trial court's examination of the screen's adequacy should be on a retrospective, not prospective, basis.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Underlying Litigation

The instant attorney disqualification dispute arose in the context of four related class actions brought against First American Title Insurance Company and related First American entities (collectively, First American). Each class action is based on different allegations, although they each challenge business practices of First American as violative of, among other things, various consumer protection laws.*fn1 One class action alleges that First American pays kickbacks to lenders for referring business to it. The second action alleges that First American imposes title-related or escrow-related fees in excess of the rates First American filed with the California Department of Insurance, and that customers were not given discounts to which they were entitled. The third action alleges specific fee overcharges (sub-escrow fee, wire transfer fee, messenger fees), kickbacks, and charging customers for one type of policy based on the pricing for a different type. The fourth action alleges charges for more expensive policies than those sought, and kickbacks. The first of these four actions was filed on February 25, 2005. In each case, the plaintiffs were represented by the Bernheim Law Firm and the Kick Law Firm (collectively, plaintiffs' counsel).*fn2 Collectively, we refer to the cases as the related class actions.

First American was represented by Bryan Cave, LLP. Three attorneys at Bryan Cave, Joel D. Siegel, Charles Newman, and Jason Maschmann (the First American team), were primarily responsible for the defense of the related class actions. Newman was first retained as counsel for First American in 1997; he defended against the related class actions from their initial filing. Together, the First American team has defended First American in 80 class actions across the country, and has also been retained to give legal advice to First American. The attorneys on the First American team are very familiar with, and have good rapport with, First American's in-house counsel, officers, and management employees. They "are uniquely and extensively knowledgeable about First American's personnel, products, services, data systems, history and organization on a national basis, including . . . California."

The related class action litigation is large, time-consuming, and expensive. A discovery referee was appointed and handled numerous disputes.*fn3 The First American team defended multiple depositions and reviewed hundreds of thousands of pages of documents. By April 2009, First American had incurred over $5.5 million in attorney's fees in the related class actions and another $1 million in additional expenses. The related class actions are extremely complex and have been aggressively litigated.

3. Plaintiffs' Counsel Contact Gary Cohen

At one time, Gary Cohen had been Deputy Commissioner and General Counsel at the California Department of Insurance. In October 2007, he was chief counsel for Fireman's Fund Insurance Company. During that month, plaintiffs' counsel spoke by telephone with Cohen and solicited his services as a consultant in the related class actions, apparently due to his experience at the Department of Insurance.

After introductions by a mutual acquaintance, a 17-minute phone call took place between Cohen and plaintiffs' counsel. While it is clear that some portion of the conversation was devoted to Cohen's experience and qualifications, it is undisputed that plaintiffs' counsel, during this conversation, conveyed confidential information to Cohen material to the related class actions. Indeed, Attorney Bernheim specifically told Cohen that plaintiffs' counsel would be discussing confidential information. While the precise content of the information disclosed is not identified, plaintiffs' counsel conveyed attorney work product to Cohen, including plaintiffs' theories of the case, and their concerns regarding defense strategy and tactics. Plaintiffs' counsel also disclosed their estimates of the value of the cases.

Cohen expressed his interest in the related class actions, but indicated that he had to obtain permission from his employer before he could work with plaintiffs' counsel. A series of e-mails followed, the upshot of which was that Cohen declined the consultant position because it was possible that Fireman's Fund had provided Directors and Officers coverage to one or more of the First American entities.*fn4 Cohen did not, however, cut off all communication with plaintiffs' counsel. Instead, when plaintiffs' counsel asked if, despite Cohen's inability to become plaintiffs' consultant, plaintiffs' counsel could "make contact with [Cohen] one more time regarding [his] thoughts," Cohen responded that he would telephone plaintiffs' counsel later.*fn5

Nothing further happened relevant to this matter for more than a year. Then, on December 8, 2008, the law firm of Sonnenschein Nath & Rosenthal LLP (Sonnenschein) issued a press release announcing that Cohen would join its San Francisco office as a partner in its insurance regulatory practice group on January 5, 2009.

Upon learning that Cohen would be leaving Fireman's Fund - and the possible conflict associated with that employment - plaintiffs' counsel again e-mailed Cohen and reasserted their interest in hiring him as an expert consultant. On January 12, 2009, after Cohen had moved to Sonnenschein, Cohen responded, stating that he would do a conflicts check and asking for one of the complaints to be sent to him by e-mail. The next day, plaintiffs' counsel sent to Cohen edited versions of the complaints (reducing them to what plaintiffs' counsel believed to be the main issues). Less than a half-hour later, Cohen responded, "It turns out that the firm does represent First American, so I'm afraid that I won't be able to be of any help. I haven't read the attachments to your email and will delete them without having read them." There was no further contact between Cohen and plaintiffs' counsel.

4. The First American Team Moves to Sonnenschein

On February 2, 2009, the First American team moved from Bryan Cave to Sonnenschein. Siegel moved to Sonnenschein's Los Angeles office, while Newman and Maschmann moved to Sonnenschein's St. Louis office. None of the First American team moved to the San Francisco office, where Cohen was located. Nor does it appear that any of them were part of the insurance regulatory practice group, in which Cohen practiced.

On February 3, 2009, First American filed substitutions of counsel in the related class actions, reflecting that Sonnenschein was now handling its defense, although the three main attorneys representing First American did not change. On February 4, 2009, plaintiffs filed a case management statement in which they "objected" to the representation of First American by Sonnenschein, due to their prior confidential consultation with Cohen. Until that point, the First American team had been unaware of Cohen's prior contacts with plaintiffs' counsel. That day, Siegel contacted John Koski, a partner in Sonnenschein's Chicago office who serves as the firm's General Counsel and sits on the firm's Ethics Committee. Koski discussed the matter with Siegel and Newman, and "had a separate, private discussion" with Cohen. Thereafter, Koski established an ethical screen around Cohen. That night, Koski sent a memorandum to all attorneys, paralegals, and secretaries at Sonnenschein, setting forth "mandatory screening procedures" for the related class actions.

The screening memorandum recites that it was created to "formalize and memorialize the procedures necessary to assure that no confidences or secrets relating to the [related class actions] will be disclosed, even inadvertently, to [the First American team] or any other Sonnenschein lawyer who may be asked to work on the [related class actions]." The memorandum indicated that the failure to observe the procedures would subject the offender to discipline. The memorandum provided that: (1) Cohen could not work on the related class actions; (2) no attorney or paralegal who may work on the related class actions may discuss them with Cohen; (3) Cohen may not be given non-public documents pertaining to the related class actions; (4) Cohen shall not access any documents on Sonnenschein's computer network pertaining to the related class actions; and (5) no fees from any work related to the related class actions would be apportioned to Cohen.

5. Cohen Works on the Lyons Matter

The First American team also represents First American in another matter, referred to as the Lyons case, which is now pending in the Superior Court for the County of Contra Costa. (Lyons v. First American Title Ins. Co. (Super. Ct. Contra Costa County, No. C08-01850).) In the Lyons case, plaintiffs, who are African-American, claim racially discriminatory pricing policies in connection with the sale of lenders' refinancing title policies.*fn6 The Lyons plaintiffs are not represented by plaintiffs' counsel in the related class actions.

In January 2009, before the First American team had moved from Bryan Cave to Sonnenschein, it obtained an order in the Lyons case staying the action and requiring the plaintiffs to exhaust their administrative remedies with the Department of Insurance. The Lyons plaintiffs thereafter wrote a letter to the Department of Insurance requesting the Department to decline jurisdiction and return the matter to the trial court. On March 5, 2009, Sonnenschein wrote a letter in opposition. The letter was written by the First American team, but Cohen had participated in its drafting. Cohen subsequently admitted billing a total of 3.35 hours to the Lyons matter; according to his declaration, his involvement "was limited to providing advice as to the best approach to correspond with the Department with respect to the Lyons' claims."*fn7

The issue of exhaustion of administrative remedies was also an issue in the related class actions. By the time the First American team moved to Sonnenschein, it had filed and fully briefed demurrers which raised the issue of exhaustion in two of the related class actions, although the court had not yet held a hearing on the demurrers. In April 2009, First American filed additional briefing on the demurrers, calling the trial court's attention to similar favorable rulings in other trial courts, including the trial court order requiring exhaustion it had obtained in the Lyons case. As we later discuss, Cohen's work on the Lyons matter, and the First American team's subsequent citation to a Lyons order in the related class actions, was the cause of substantial concern to the trial court.

6. The Disqualification Motion

On March 18, 2009, plaintiffs moved to disqualify Sonnenschein from further representation of the First American defendants, based on plaintiffs' counsel's prior confidential communications with Cohen. Sonnenschein opposed the motion, although it retained independent counsel to prepare the opposition in order to preserve its ethical wall. Much of the dispute centered on whether plaintiffs' counsel actually conveyed confidential information to Cohen; this is not an issue on appeal. As to whether the entire Sonnenschein firm should be vicariously disqualified, Sonnenschein relied on the ethical screening wall it had constructed. Both Cohen*fn8 and Siegel*fn9 submitted declarations indicating their compliance with the ethical screening wall. First American also submitted the declaration of its Senior Vice President and national litigation counsel, who testified to the key experience of the First American team and their irreplaceability. Specifically, he stated that it would cost First American millions of dollars to retain new counsel sufficiently prepared to defend the related class actions, "although it would be impossible for new counsel to attain the level of knowledge and proficiency of First American's current attorneys."

7. Order Granting Disqualification

The trial court ultimately granted the motion for disqualification. In its order, the trial court indicated that, "[n]o one is to blame for this situation except perhaps the itinerant nature of attorneys that has developed over the last fifteen years." The trial court found that plaintiffs' counsel disclosed confidential and privileged attorney work product information to Cohen during the initial 17-minute telephone call, a conclusion not challenged on appeal.

As to vicarious disqualification, the court reviewed applicable case law, and concluded that, when an attorney possesses disqualifying confidential client information, vicarious disqualification of the law firm is automatic, regardless of any ethical screening wall created.

The trial court further concluded, however, that even if California law permitted the use of ethical walls in this context, "there is evidence that the wall Sonnenschein erected has not been a complete success." Specifically, the trial court was concerned about the work Cohen had performed on the Lyons matter. The trial court believed that Cohen's work on the Lyons matter constituted a breach of the ethical wall, and the fact that Cohen initially forgot about his work on the Lyons matter illustrates why California courts are leery of ethical walls. The trial court was careful to state that no party deliberately engaged in unethical behavior, but instead concluded that the ease with which one can accidentally reveal client confidences demonstrates that an ethical wall is insufficient.

Additionally, the trial court indicated that the balance of interests weighed in favor of disqualification. The court recognized "the substantial financial burden disqualification places on [First American], who will have to obtain new counsel and bring them up the learning curve on these very complex cases that have been litigated over a number of years." However, the court found that two competing policy interests outweighed these concerns. Specifically, the court relied on the need for vigorous representation of parties by independent counsel unencumbered by conflicts of interest, and the preservation of public trust in the scrupulous administration of justice and the integrity of the bar.

First American and Sonnenschein*fn10 filed timely notices of appeal.*fn11 Pursuant to a stipulation of the parties, we issued a qualified stay of all trial court proceedings in the related class actions pending our resolution of the predicate question raised by the trial court's disqualification order. Due to the obvious need to quickly resolve the issue, we have, pursuant to the agreement of the parties, imposed an expedited briefing and oral argument schedule. In addition, we have permitted various law firms to file amicus curiae briefs on behalf of both First American and Sonnenschein, and plaintiffs.

ISSUES ON APPEAL

It is undisputed that Cohen possessed confidential client or attorney work product information from plaintiffs' counsel that is material to the related class actions. It is also undisputed that Cohen is disqualified from representing First American in the related class actions. The first issue presented by this appeal is whether Sonnenschein must be automatically vicariously disqualified from representing First American, or if it may avoid vicarious disqualification by the construction of a proper ethical wall. Concluding that vicarious disqualification is not automatic, but may be rebutted by a proper ethical wall, we reach the second issue, which is the standards by which a proper ethical wall is to be judged. A third issue is raised by a fact which came to light while this appeal was pending. Cohen left the Sonnenschein firm, effective January 15, 2010, to return to government service. We therefore must also consider the impact of this fact on the necessary analysis of the important issues raised in this appeal.

DISCUSSION

1. Standard of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.