People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc.

• Decision Date: 27 July 1999
• Docket Number: No. S058639,S058639
• Citation: 20 Cal.4th 1135,980 P.2d 371,86 Cal.Rptr.2d 816
• Court: California Supreme Court
• Parties: , 980 P.2d 371, 99 Cal. Daily Op. Serv. 5936 The PEOPLE ex rel. Department of Corporations, Plaintiff, v. SPEEDEE OIL CHANGE SYSTEMS, INC., et al., Defendants; Gary Burch et al., Interveners and Respondents; Mobil Oil Corporation, Movant and Appellant

Page 816

86 Cal.Rptr.2d 816

20 Cal.4th 1135, 980 P.2d 371, 99 Cal. Daily Op. Serv. 5936

The PEOPLE ex rel. Department of Corporations, Plaintiff, v. SPEEDEE OIL CHANGE SYSTEMS, INC., et al., Defendants Gary Burch et al., Interveners and Respondents Mobil Oil Corporation, Movant and Appellant.

No. S058639.

Supreme Court of California

July 27, 1999.

Horvitz & Levy, Barry R. Levy, Lisa Perochet, Sandra J. Smith, Jon B. Eisenberg, Oakland; Cohon & Gardner, Steven H. Gardner and Jeffrey M. Cohon, Los Angeles, for Movant and Appellant.

Law Offices of Geordan Goebel, Geordan Goebel, Woodland Hills; Shapiro, Rosenfeld & Close, Mitchell S. Shapiro, Santa Monica, Douglas L. Carden and Rhonda H. Mehlman, Los Angeles, for Interveners and Respondents.

Diane C. Yu, Marie M. Moffat, Robert A. Hawley, San Francisco, and Teri L. Nelson for the State Bar of California as Amcius Curiae.

Rogers, Joseph, O'Donnell & Quinn, Pamela Phillips and Sean M. SeLegue, San Francisco, as Amici Curiae.

CHIN, J.

When a conflict of interest requires an attorney's disqualification from a matter, the disqualification normally extends vicariously to the attorney's entire law firm. (See Flatt v. Superior Court (1994) 9 Cal.4th 275, 283, 36 Cal.Rptr.2d 537, 885 P.2d 950. (Flatt ).) This rule safeguards clients' legitimate expectations that their attorneys will protect client confidences. (Id. at pp. 283-284, 36 Cal.Rptr.2d 537, 885 P.2d 950.) Here, we decide whether the same rule should apply when a party unknowingly consults an attorney "of counsel" to the law firm representing the party's adversary in the subject of the consultation.

Mobil Oil Corporation (Mobil) consulted Attorney Eliot G. Disner, who was of counsel to Shapiro, Rosenfeld & Close (the Shapiro firm). Mobil was a defendant in a complaint in intervention by respondents Gary and Annette Burch et al., Southern California franchisees of SpeeDee Oil Change Systems, Inc. (SpeeDee Oil). While Mobil was consulting Disner, respondents associated the Shapiro firm as counsel of record in their action against Mobil. Mobil moved to disqualify the Shapiro firm upon learning of its association, arguing that Disner had a conflict of interest that required its vicarious disqualification.

The trial court denied Mobil's motion. The court found no basis for a presumption that Disner disclosed confidences to the Shapiro firm, notwithstanding Disner's relationship with the firm. The Court of Appeal affirmed, concluding that substantial evidence existed for implied findings that Disner's relationship with the Shapiro firm was not "close, personal, continuous, and regular" and that Disner conveyed no confidential information to the firm. We granted Mobil's petition for review.

We adopt the prevailing rule concerning "of counsel" conflicts of interest and reverse the judgment of the Court of Appeal. For attorneys in the same firm to represent adverse parties in the same litigation is so patently improper that the rule of disqualification is a per se or "automatic" one. (See Flatt, supra, 9 Cal.4th at p. 284, fn. 3, 36 Cal.Rptr.2d 537, 885 P.2d 950 and accompanying text.) Conflicting representations that would disqualify all of a law firm's attorneys are not more acceptable when an attorney of counsel to the firm creates the conflict. Clients, and the public, should expect confidentiality and loyalty from attorneys who effectively declare they practice law in a close, personal, and continuing association. These legitimate expectations would be frustrated if a firm could represent one party in litigation while an attorney of counsel to the firm represented an adversary in the same case.

FACTUAL AND PROCEDURAL BACKGROUND

This case began when the Attorney General sued SpeeDee Oil and others on behalf of the Department of Corporations, alleging violations of the Franchise Investment Law (Corp.Code, § 31000 et seq.). Numerous SpeeDee Oil franchisees intervened in the action, including respondents. The franchisees brought Mobil into the action as a defendant in intervention.

Attorney Geordan Goebel, a sole practitioner, had represented respondents since 1994. Because of the action's scope, he decided to associate a law firm as attorneys of record to help him prosecute respondents' claims. Goebel approached the Shapiro firm because of its expertise in franchise law and met with Mitchell Shapiro on June 22, 1996. Around this time, the Shapiro firm's letterhead listed 14 attorneys' names, with 4 more attorneys listed as of counsel to the firm, all at the same office address. Among those identified as of counsel to the firm was Eliot G. Disner, an attorney who had substantial experience with antitrust issues.

Over the next few weeks, Goebel developed a "good working relationship" with the Shapiro firm. On July 10, he signed a notice associating the Shapiro firm as The law firm of Cohon and Gardner represented Mobil in the SpeeDee Oil action. Early in July 1996, Jeffrey Cohon, an associate with Cohon and Gardner, spoke to Attorney Steven Hecht about contacting Disner concerning the case. Hecht knew both Cohon and Disner personally. To facilitate an initial check for conflicts, Cohon told Hecht the name of the case and the principal attorneys involved. Hecht spoke with Disner later that week. Hecht asked Disner if he knew of the case involving SpeeDee Oil and Mobil. When Disner said he did not, Hecht asked him to call Jeffrey Cohon.

counsel of record for respondents. Mitchell Shapiro signed the notice for the Shapiro firm on July 12. The notice of association of counsel was served by mail on July 15, 1996, and filed with the court the following day.

Disner and Cohon spoke by telephone on July 11 or 12. When Cohon returned Disner's call, the receptionist answered the telephone, "Shapiro, Rosenfeld and Close." Cohon's call was put through to Disner, who confirmed he had spoken with Hecht and had not heard of the SpeeDee Oil case or the attorneys involved in it. In a conversation Cohon believed was confidential, he and Disner discussed the case's substantive allegations, its procedural status, and Mobil's theories. They arranged a meeting for July 16.

On July 16, 1996, Cohon and Gardner Attorneys Bennett Cohon, Jeffrey Cohon, and Steven Gardner met with Disner to discuss his assisting with Mobil's representation. They spoke for one to two hours over lunch. Gardner received a copy of Disner's resume, which--like Disner's business card--prominently featured the Shapiro firm's name and address.

Gardner briefed Disner on the case and Mobil's position. The matters disclosed to Disner included "the background of the case, Mobil's theories in the case, Mobil's discovery strategy and an analysis of the procedural and substantive issues which had arisen to date and [were] likely to arise in the future, the state of the case, experts, and consultants, and specific factual issues." The Cohon and Gardner attorneys considered the information disclosed to Disner to be confidential and attorney work product.

According to Gardner's and Jeffrey Cohon's declarations, when the meeting ended, Gardner and Disner agreed to prepare a document formally retaining Disner as a consultant. Disner did not directly contradict the Cohon and Gardner attorneys' statements. His declaration stated that at the end of the meeting, the Cohon and Gardner attorneys "expressed interest" in using his services, although they did not know "exactly" how they intended to do so.

Gardner further declared that Disner agreed to check some statutes and case law that applied to a few of the issues they discussed. He stated that he and Disner spoke again later in the afternoon of July 16, and Disner conveyed the results of his review of those issues. No declaration contradicted Gardner's account of those discussions.

The next day, July 17, Gardner received the notice of the Shapiro firm's association as counsel for respondents. Consequently, that same day the Cohon and Gardner firm informed Disner that Mobil would not be using his services. Gardner immediately faxed a letter to the Shapiro firm, Disner, and Goebel, stating that Mobil objected to the Shapiro firm's participation in the case on behalf of respondents. Gardner's letter asserted the Shapiro firm had an ethical conflict because of Cohon and Gardner's conversations with and disclosures to Disner concerning the case. The Shapiro firm responded with a letter faxed the next day, contending there was no basis for the firm's disqualification. The response stated that the Shapiro firm had already associated as counsel for respondents when Disner met with the Cohon and Gardner attorneys. The response also stated that Disner was of counsel to the Four days later, on July 22, 1996, Mobil filed an ex parte application for an order shortening time for a motion to disqualify the Shapiro firm. Mobil's motion was set for hearing on July 24, 1996. The moving and opposing papers included declarations and exhibits setting out the facts related above. In addition, Disner's declaration stated he had not "discussed the merits of [the SpeeDee Oil] action with any attorney or other employee" of the Shapiro firm. He also said he customarily reviewed possible conflicts of interest with the firm before associating with them on cases. Disner and the Shapiro firm did not discuss a potential conflict in this instance because neither had asked the other to associate for the SpeeDee Oil case. Similarly, Mitchell Shapiro declared that he had "not discussed this action" with Disner and did not know "what was discussed between" Disner and the Cohon and Gardner attorneys.

Shapiro firm and not an associate, partner, or shareholder.

The Shapiro firm's declarations submitted in opposition to Mobil's motion provided additional details of the firm's relationship with Disner. Disner's declaration stated: "Although I am designated as 'Of Counsel' to SRC [the Shapiro firm], I have a separate law practice from SRC. I have...