Adams v. Aerojet-General Corp.

• Decision Date: 07 February 2001
• Docket Number: AEROJET-GENERAL
• Citation: 86 Cal.App.4th 1324,104 Cal.Rptr.2d 116
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 3 Dist. 2001) DAPHNE ADAMS et al., Plaintiffs and Appellants, v.CORPORATION, Defendant and Respondent. C031323 (Sacramento) Filed

104 Cal.Rptr.2d 116 (Cal.App. 3 Dist. 2001)

DAPHNE ADAMS et al., Plaintiffs and Appellants, v. AEROJET-GENERAL CORPORATION, Defendant and Respondent.

C031323

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Sacramento)

Filed 2/7/01

APPEAL from an order of the Superior Court of Sacramento County, John R. Lewis, Judge. Reversed with directions.

(Super. Ct. No. 98AS01025)

Hackard, Holt & Heller, Theodore J. Holt, Eric L. Graves, Jenny M. Fickel; Zelle & Larson, Byran M. Barber, Eric Berg; Sherman, Dan, Petoyan, Salkow & Weber, Sherman, Dan & Portugal, Arthur Sherman; Eisen & Johnston Law Corporation, Jay-Allen Eisen, and Marian M. Johnston, for Plaintiffs and Appellants.

Nossaman, Guthner, Knox & Elliott, Scott P. DeVries, Patrick J. Richard, Elaine M. O'Neil, Alison S. Hightower; Goldsberry, Freeman & Swanson, Francis M. Goldsberry II; Heller, Ehrman, White & McAuliffe, Lawrence A. Hobel; and Aerojet-General Corporation by Jose N. Uranga, Legal Department, for Defendant and Respondent.

CERTIFIED FOR PUBLICATION

This case poses the following hypothetical question concerning the propriety of attorney disqualification in the

context of successive representation: Lawyer's former law firm, Firm A, advises Client on matters pertaining to land use and toxic waste disposal at its manufacturing site. Lawyer does not personally render any such advice and, in fact, spends no time rendering legal services to Client while at Firm A. Years later, having left Firm A and started a new law firm, Firm B, Lawyer files suit on behalf of a number of plaintiffs against Client alleging that Client's use and disposal of toxic chemicals at the site caused groundwater contamination and that Client concealed it from the public. Client then brings a motion to disqualify Lawyer and Firm B from participating in the lawsuit, supported by a showing that Firm A's earlier representation of Client has a substantial relationship to the present action. Does Firm A's earlier representation of Client in matters pertaining to the current litigation automatically disqualify Lawyer and his current firm from representing plaintiffs?

No state appellate decision has yet answered this question. We will decide that the lawyer who leaves Firm A is not automatically disqualified in this situation. Instead, disqualification depends on a fact-based examination of the nature and extent of Lawyer's involvement with and exposure to Firm A's earlier representation of Client and specifically whether confidential information material to the current lawsuit would normally have been imparted to Lawyer while at Firm A. Because the trial court did not undertake such inquiry, but ordered disqualification based on a conclusive presumption of imputed knowledge, we will reverse and remand with directions.

BACKGROUND

The essential facts are undisputed. In the mid-1980's, defendant Aerojet General Corporation (Aerojet) retained the Sacramento law firm of Holliman, Hackard & Taylor (Holliman Hackard) for advice on land use issues. Attorney Michael Hackard was a partner in Holliman Hackard during that time. Included among the subjects on which Holliman Hackard provided legal advice were (1) whether Aerojet's existing hazardous waste treatment, storage and disposal facilities were in compliance with local ordinances, (2) the installation of a contamination treatment facility to remove chemicals from groundwater serving the certain wells; (3) replacing a disposal practice whereby ammonium perchlorate was disposed of by way of open controlled burning from a waste incinerator; and (4) the closure of an on-site landfill on Aerojet's property, which involved drawing groundwater samples to determine whether any environmental contamination had resulted from the landfill use. During the course of this representation, Aerojet provided Holliman Hackard with confidential information regarding chemical contamination on Aerojet property and surrounding areas, Aerojet's litigation strategy with respect to environmental contamination issues, and Aerojet's strategy for addressing the concerns of the public regarding contamination on the site.

Although Hackard was a principal at the firm, the billing records of Holliman Hackard reveal that he did not perform any work on Aerojet matters. Moreover, according to the declarations before the trial court, Hackard had no discussions with the attorneys at Holliman Hackard regarding Aerojet matters and was not made privy to any information, confidential or otherwise, about Aerojet. According to his declaration, Hackard departed the Holliman Hackard firm in 1989, without taking any files or written materials about Aerojet with him.

In March of 1998, numerous residents and occupants of the area surrounding Aerojet's disposal site filed the current suit against Aerojet and other defendants, alleging negligence, strict liability, trespass, nuisance, fraudulent concealment, unfair business practice, and intentional infliction of emotional distress. The plaintiffs were represented by three law firms, one of which was Hackard's new law firm of Hackard, Holt & Heller (Hackard Holt).

The first amended complaint in the underlying suit alleges that since 1951, defendants have released and improperly used and disposed of toxic chemicals, resulting in contamination of the groundwater and surrounding soils. It further alleges that defendants contaminated the soil with perchlorate and other toxic chemicals; that moreover, defendants knew of the hazardous conditions they had created and nevertheless subjected plaintiffs to the danger of exposure to these substances without warning them of the health dangers, thereby willfully and intentionally concealing knowledge of the contamination.

Within days after the suit was filed, attorneys for Aerojet wrote to Hackard and requested that he and his firm disqualify themselves as counsel for plaintiffs, because the substantial relationship between Holliman Hackard's former representation of Aerojet and the present suit placed Hackard in a position adverse to a former client. Hackard declined, asserting that he had no personal involvement in the representation of Aerojet or possession of confidential information relevant to the present lawsuit. Aerojet then brought this motion to disqualify Hackard Holt from this litigation.

The court ordered Hackard and the Hackard Holt firm disqualified from the case. Invoking the "imputed knowledge" rule, i.e., that knowledge acquired by one member of a firm of lawyers is imputed to all members of the firm (Rosenfeld Construction Co. v. Superior Court (1991) 235 Cal.App.3d 566, 573), the court ruled that the knowledge acquired by Hackard's former partners about Aerojet must be imputed to Hackard. The court also found there was a substantial relationship between the subject matter of Holliman Hackard firm's prior representation and the present suit. "Therefore, there is a conclusive presumption that confidential information passed to Michael Hackard, as a partner in [Holliman Hackard], and he and his present firm must be disqualified." Plaintiffs filed this appeal from the order.

APPEAL

I Principles of Review

The standard of review for disqualification orders was spelled out recently in People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143-1144 (SpeeDee Oil): "Generally, a trial court's decision on a disqualification motion is reviewed for abuse of discretion. [Citations.] If the trial court resolved disputed factual issues, the reviewing court should not substitute its judgment for the trial court's express or implied findings supported by substantial evidence. [Citations.] When substantial evidence supports the trial court's factual findings, the appellate court reviews the conclusions based on those findings for abuse of discretion. [Citation.] However, the trial court's discretion is limited by the applicable legal principles. [Citation.] Thus, where there are no material disputed factual issues, the appellate court reviews the trial court's determination as a question of law. [Citation.] In any event, a disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion. [Citation.]"

II Rule 3-310 and the Substantial Relationship Test

Disqualification in the present case turns upon application of rule 3-310(E) of the Rules of Professional Conduct of the State Bar of California (rule 3-310(E)), which provides, in pertinent part: "A member shall not, without the informed written consent of the . . . former client, accept employment adverse to the . . . former client where, by reason of the representation of the . . . former client, the member has obtained confidential information material to the employment."

"Where an attorney's conflict arises from successive representation of clients with potentially adverse interests, 'the chief fiduciary value jeopardized is that of client confidentiality.' [Citation.]" (Forrest v. Baeza (1997) 58 Cal.App.4th 65, 73, quoting Flatt v. Superior Court (1994) 9 Cal.4th 275, 283, italics in Flatt.) Therefore, "a former client may seek to disqualify a former attorney from representing an adverse party by showing that the former attorney possesses confidential information adverse to the former client. [Citation.]" (Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109, 113.)

Disqualification of an attorney from undertaking representation adverse to a former client does not require proof that the attorney actually possesses confidential information. Rather, in applying rule 3-310(E) our courts have utilized the "substantial relationship" test: "'When a substantial relationship has been shown to exist between the former representation and the current representation, and when it appears by virtue of the nature of the former representation or the relationship of the attorney to his former client confidential...