Court of Appeal Expands Attorney Disqualification Standards

With its January 7, 2019 decision in O’Gara Coach Co. v. Ra, the California Second District Court of Appeal began the year with a reminder to attorneys about the consequences of possessing an adversary’s privileged and confidential information.[1]

It is well-settled that California courts may disqualify counsel for possessing privileged or confidential information of an adversary obtained (1) as a result of previously representing the adverse party (a.k.a. a “successive representation” theory), (2) by improper means, or (3) through inadvertent disclosure by the adverse party.  In O’Gara Coach Co., the Court of Appeal appears to have expanded these categories substantially.

Authority for attorney disqualification derives from the Court’s inherent power to control proceedings in the furtherance of justice under Code of Civil Procedure section 128.  Courts disqualify counsel where necessary to serve the “paramount concern” of “preserv[ing] public trust in the scrupulous administration of justice and the integrity of the bar.”[2]  Thus, “[t]he power is frequently exercised on a showing that disqualification is required under professional standards governing . . . potential adverse use of confidential information.”[3] 

Under Rico v. Mitsubishi Motors Corp. and State Comp. Ins. Fund v. WPS, Inc., when a California attorney receives confidential and/or privileged information of an adverse party, they are to (1) refrain from examining the information any more than is essential to ascertain if the information is privileged, (2) immediately notify the holder of the privilege, and (3) proceed to resolve the situation by agreement or with the guidance of the court.[4] 

When an attorney fails to follow the Rico/State Fund rules, disqualification is appropriate.

O’Gara Coach Co. v. Ra was an employment lawsuit between a Beverly Hills car dealership and its CEO.  The CEO’s attorney in the lawsuit also happened to be a former officer of the dealership.  The dealership moved to disqualify the CEO’s attorney on the grounds that, prior to leaving the dealership and becoming an attorney, he had worked on legal matters at the dealership, including matters relating to the lawsuit.  The trial court denied the motion on the grounds that the dealership had not established an attorney-client relationship between the dealership and the attorney.

The Court of Appeal reversed and disqualified the attorney.  The Court first reviewed the law regarding disqualification for (1) successive representation, (2) acquisition by improper means, and (3) acquisition by inadvertent disclosure, but did not apply any of those theories.  Instead, the Court held that the trial court “erred in failing to consider [the dealership’s] alternate argument that disqualification of [the attorney] and his law firm was required as a prophylactic measure because the firm was in possession of confidential information, protected by [the dealership’s] attorney-client privilege, concerning…activities at issue in this litigation.”  In other words, the trial court erred in only considering the three classic disqualification categories.

Thus, the Court of Appeal held:

…if the holder of the attorney-client privilege has not waived the privilege, lawyers representing an adverse party who have received such information knowing it is privileged have an ethical duty not to use it.  It does not matter whether the information has been provided deliberately or inadvertently….or by an employee of the opposing party's counsel or the opposing party itself.

The Court further noted that it is not necessary for the party seeking disqualification to show an injury as a result of the attorney possessing privileged information.  The threat of adverse use of privileged information is sufficient to warrant disqualification.

The O’Gara Coach Co. Court’s broad language appears to indicate a new approach to attorney disqualification. 

Rather than focusing on how the attorney came into possession of privileged information, the Court appears to have articulated a more bright-line rule based on the policies underlying disqualification: Attorneys have an ethical duty to maintain the integrity of the judicial process by respecting attorney-client privileges and confidences.  Accordingly, an attorney who possesses privileged or confidential information of an adversary may be disqualified unless the attorney complies with the Rico/State Fund requirements. 

Regardless, O’Gara Coach Co. provides a good opportunity to revisit the best practices for handling adversaries’ confidential information and requesting or avoiding disqualification.

[1] O'Gara Coach Co., LLC v. Ra (2019) 30 Cal. App. 5th 1115.

[2] People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1145.

[3] Clark v. Superior Court (2011) 196 Cal.App.4th 37, 47. 

[4] See Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807, 810; State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656-657.