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Hartford Casualty Insurance Co. v. American Dairy and Food Consulting Laboratories

June 16, 2010

HARTFORD CASUALTY INSURANCE COMPANY, PLAINTIFF,
v.
AMERICAN DAIRY AND FOOD CONSULTING LABORATORIES, INC., AND DOES 1 THROUGH 10, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Sheila K. Oberto United States Magistrate Judge

ORDER DENYING PLAINTIFF'S MOTION TO DISQUALIFY DEFENSE COUNSEL (Doc. 21)

Hartford Casualty Insurance Company ("Hartford") seeks to disqualify counsel for defendant American Dairy and Food Consulting Laboratories, Inc. ("American Dairy"), James Wilkins, Esq., and Mr. Wilkins' firm, Wilkins, Drolshagen & Czeshinski LLP ("WDC"), on the ground that Mr. Wilkins had previously represented Hartford. American Dairy filed an opposition on February 19, 2010. Hartford filed a reply on March 1, 2010. The matter came on regularly for hearing on June 4, 2010, in Courtroom 8 of the above-entitled court. Appearing on behalf of Hartford was counsel Catherine Rivard, Esq., of Mendes & Mount LLP. Mr. Wilkins appeared on behalf of American Dairy. Having considered the moving, opposition, and reply papers, as well as the arguments of counsel and the Court's file, the Court issues the following order.

I. FACTUAL AND PROCEDURAL BACKGROUND

From 1984 to 1997, Mr. Wilkins worked at McCormick, Barstow, Sheppard, Wayte & Carruth LLP ("McCormick"), a law firm that had represented Hartford. Hartford contends that Mr. Wilkins provided legal services to Hartford while at McCormick from 1985 to 1995, while Mr. Wilkins asserts that his representation of Hartford ended in 1992.*fn1

In May 2007, Hartford issued an insurance policy insuring American Dairy against direct physical loss to its property. In May 2008, American Dairy suffered vandalism and theft on its property. On May 22, 2009, Hartford denied coverage based on a vacancy limitation in the policy because the property was allegedly vacant for more than sixty (60) days before the reported theft and vandalism. (Amended Complaint, Exh. B).

Ultimately, Hartford filed suit against its insured, American Dairy, in May 2009, seeking a declaration that it was entitled to refuse coverage to American Dairy under the terms of the policy and that it is entitled to rescind the policy. On July 24, 2009, American Dairy, represented by Mr. Wilkins, answered and filed a counterclaim for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and reformation due to unilateral mistake. On December 23, 2009, American Dairy amended its counterclaim to include a cause of action for fraud and concealment.

II. LEGAL STANDARD

A motion to disqualify counsel implicates two competing issues: the current client's right to the attorney of its choice versus the need to maintain ethical standards of professional responsibility. Jessen, 111 Cal. App. 4th at 705; see also People ex rel. Dep't of Corps. v. SpeeDee Oil Change Sys., Inc., 20 Cal. 4th 1135, 1145 (1999). Counsel has an unquestionable duty to its former client to ensure the permanent confidentiality of matters disclosed to counsel in the course of any prior representation. Derivi Constr. & Architecture, Inc. v. Wong, 118 Cal. App. 4th 1268, 1272-73 (2004). At the same time, a court must be mindful that where there is not a legitimate risk of the use of confidential material, a litigant may not seek disqualification of his former counsel in order to gain a tactical advantage. See Optyl Eyewear Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985) ("Because of this potential for abuse, disqualification motions should be subjected to 'particularly strict judicial scrutiny.'"); City & County of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839, 851-52 (2006). Ultimately, however, the Court's "paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar." SpeeDee Oil, 20 Cal. 4th at 1145.

Rule 3-310 (E) of the Rules of Professional Conduct of the State Bar of California prohibits the successive representation of clients in certain circumstances without the informed written consent of the current client and former client. The rule provides:

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.

The California Supreme Court has held, in interpreting Rule 3-310(E), that, "[w]here an attorney successively represents clients with adverse interests, and where the subjects of the two representations are substantially related, the need to protect the first client's confidential information requires that the attorney be disqualified from the second representation." SpeeDee Oil, 20 Cal. 4th at 1146. The burden is on the party seeking the disqualification to establish by a preponderance of the evidence that a substantial relationship exists. See H.F. Ahmanson & Co. v. Salomon Bros., 229 Cal. App. 3d 1445, 1452 (9th Cir. 1991); see also In re Charlisse C., 45 Cal. 4th 145, 166 n.11 (2008).

Here, the parties agree that the applicable standard for determining whether disqualification is warranted is the "substantial relationship" test. See Trone v. Smith, 621 F.2d 994, 998 (9th Cir. 1980). In determining whether there is a substantial relationship between successive representations, "a court must first determine whether the attorney had a direct professional relationship with the former client in which the attorney personally provided legal advice and services on a legal issue that is closely related to the legal issue in the present representation." Cobra Solutions, 38 Cal. 4th at 847 (citing Jessen, 111 Cal. App. 4th at 710-11). For purposes of a disqualification motion, a "direct" professional relationship is defined as a relationship "where the lawyer was personally involved in providing legal advice and services to the former client." Jessen, 111 Cal. App. 4th at 709. If the former representation was direct, "the former client need not prove that the attorney possesses actual confidential information." Cobra Solutions, 38 Cal. 4th at 847 (citing Jessen, 111 Cal. App. 4th at 709). "Instead, the attorney is presumed to possess confidential information if the subject of the prior representation put the attorney in a position in which confidences material to the current representation would normally have been imparted to counsel." Id.

When faced with a direct relationship between a former client and the attorney, the court cannot delve into the specifics of the communications between the attorney and the former client in an effort to show that the attorney did or did not obtain confidential information during the course of that relationship. As result, disqualification will depend on the strength of the similarities between the legal problem involved in the former and the current representations. Jessen, 111 Cal. App. 4th at 885. As theCalifornia Court of Appeal has clarified, when the attorney had a direct relationship with the client in the first representation, "the Jessen evaluation of whether the two representations are substantially related centers precisely upon the factual and legal similarities of the two representations." Farris v. Fireman's Fund Ins. Co., 119 Cal. App. 4th 671, 679 (2004) (emphasis added); see also Jessen, 111 Cal. App. 4th at 709-10.*fn2 A l t h o u g h a s u b s t a n t i a l relationship does not necessarily mean an exact match between the facts and issues involved in the two representations, only when the information acquired during the prior representation "will be directly in issue or of unusual value in the subsequent matter will it be independently relevant in assessing a substantial relationship." Farris, 119 Cal. App. 4th at 680. The courts look at the practical consequences of the attorney's representation of the former client, and ask whether confidential information material to the current dispute would normally have been imparted to the attorney by virtue of the nature of the former representation. Ahmanson, 229 Cal. App. 3d at 1454; see also Trone, 621 F.2d at 1000-01. To create a conflict requiring disqualification, Jessen mandates that the information acquired during the first representation be material to the second -- that is, be directly at issue in, or have some critical importance to, the second representation. Farris, 119 Cal. App. 4th at 680.

On the other hand, exposure to "general 'play book' information" such as a former client's general litigation or settlement strategy is not sufficient to disqualify an attorney from an adverse successive representation. See id. at 688. "[O]nly when such information will be directly in issue or of unusual value in the subsequent matter will it be independently relevant in assessing a substantial relationship." Id. at 680 (quotation marks omitted). Accordingly, the attorney's acquisition during the former representation of general information about the former client's "overall structure and practices" would not of itself require disqualification unless it were found to be "material" -- i.e., directly at issue in, or of critical importance to, the second representation. Id. "The same is true about information such as the first client's 'litigation philosophy' or 'key decision makers.'" Id.

III. DISCUSSION

A. Mr. Wilkins' Relationship With Hartford Was ...


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