Risk Management Tip: Another Good Reason to Break Up With Your Client

By Jennifer Becker, Long & Levit

Last month we discussed how a clear termination of the attorney client relationship eliminates questions of fact about applying the statute of limitations, C.C.P. § 340.6, if a claim occurs. This month we discuss another benefit: avoiding conflicts of interestdepressed business man

California Rule of Professional Conduct Rule 3-310 forbids attorneys from representing clients with conflicting interests. In cases of successive representation, an attorney is barred from accepting employment adverse to a former client if the matters are substantially related. Matters are substantially related if the current matter involves the work the lawyer performed for a former client, or there is a substantial risk that representation of the current client will involve the use of confidential information acquired representing the former client. In substantially related matters, a presumption that the attorney possesses confidential information that may be used against the former client applies. Costello v. Buckley (2016) 245 Cal.App.4th 748, 754.

In addition, a former client may disqualify a former attorney by showing the former attorney actually possesses confidential information adverse to the former client. Where an attorney actually receives confidential information pertinent to subsequent adverse representation, the client is not relying on a presumption, and there need not be a relationship between the factual and legal issues of the two cases. Id.

In concurrent representation of multiple clients, the primary value at stake is the attorney’s duty of loyalty. This is the most egregious kind of conflict, and a more stringent test is applied. Even if the dual representations have nothing in common and there is no risk that prior confidences have any relation to the new matter, disqualification may be required, and is often automatic. M’Guinness v. Johnson (2015) 243 Cal.App.4th 602, 614.

In M’Guinness, one of three disputing business partners retained the law firm the company had used sporadically over the years. The Court of Appeal concluded the law firm had an ongoing relationship with the company, and could not represent one disputing partner simultaneously.

The retainer agreement was broadly worded, and included general legal work as directed by the company. The termination provision was open-ended, and evidenced the parties’ intent to establish a continuous relationship terminable only by specific methods. The agreement was not reasonably susceptible to an interpretation it terminated upon completion of the last specific project.

The law firm required an evergreen deposit in trust, to be returned at the conclusion of the representation. The last invoice showed a trust balance, which was never returned. Historically, the law firm sent bills although no services were rendered, and showed the evergreen retainer in trust.

The law firm only spent about twenty-five hours on company matters over a seven year period. This did not prevent the court from concluding the attorney-client relationship with the company was ongoing for the conflict of interest analysis. The law firm’s wounds were self-inflicted. The firm sought to cement the attorney-client relationship with the company through an open-ended agreement and an evergreen retainer. The result could have been avoided through careful client management, which includes timely termination of the relationship.

Jennifer Becker is certified by the State Bar of California, Board of Legal Specialization in Legal Malpractice, and is chair of BASF’s Legal Malpractice Section.  She is a partner at Long & Levit, and the Editor-in-Chief of Long & Levit’s Lawyers and Judge’s Blog, www.longlevit.com/blog/, which is searchable by topic and case name.