Truck Ins. Exchange v. Fireman's Fund Ins. Co.

• Decision Date: 21 May 1992
• Docket Number: No. A053471,A053471
• Citation: 6 Cal.App.4th 1050,8 Cal.Rptr.2d 228
• Court: California Court of Appeals Court of Appeals
• Parties: TRUCK INSURANCE EXCHANGE, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.

Page 228

8 Cal.Rptr.2d 228

6 Cal.App.4th 1050

TRUCK INSURANCE EXCHANGE, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent.

No. A053471.

Court of Appeal, First District, Division 4, California.

May 21, 1992.

As Modified on Denial of Rehearing June 10, 1992.

Review Denied Aug. 20, 1992.

Paul Delano Wolf, Susan Raffanti, Jeffrey S. Kross, Law Offices of Paul Delano Wolf, Raoul D. Kennedy, Ezra Hendon, Jacqueline M. Jauregui, Marshall C. Wallace, Crosby, Heafey, Roach & May, Professional Corp., Oakland, for plaintiff and appellant.

Peter J. Logan, Richard E. Flamm, Kaufman & Logan, San Francisco, for defendant and respondent.

REARDON, Associate Justice.

In an action for equitable subrogation, equitable contribution, declaratory relief and damages for breach of contract, defendant Fireman's Fund Insurance Company (FFIC) successfully moved to disqualify the law firm of Crosby, Heafey, Roach & May (Crosby) from acting as counsel for plaintiff Truck Insurance Exchange (Truck). Truck has appealed. ¹

I. FACTS

A. Introduction

The underlying lawsuit was commenced in February 1990. Kaiser Cement Corporation, Kaiser Gypsum Company, Inc. (collectively, Kaiser), and Truck seek contribution from FFIC and other insurers to defend and indemnify Kaiser against third-party asbestos-related bodily injury lawsuits. Truck alleged that it alone had undertaken the defense of Kaiser and had expended more than $11,300,000 in defense costs and almost $1,300,000 in indemnity expenses for those claims. ² A key issue in the coverage cases is the terms of insurance policies issued by FFIC between 1939 and 1964. At the time the lawsuit was initiated, Truck was represented by the law firm of Ropers, Majeski, Kohn, Bentley, Wagner & Kane (Ropers).

On January 11, 1991, the trial court granted FFIC's motion to disqualify Ropers. Truck then asked Crosby to represent it. The Crosby firm had represented Truck and its affiliated companies in numerous other matters.

When Truck contacted Crosby concerning the instant case, Crosby ran a computerized conflicts check and found that for several months it had been defending Fireman's Fund Credit Union--an entity related to FFIC--in two wrongful termination suits. Crosby concedes that defending Fireman's Fund Credit Union made FFIC Crosby's client.

In a letter dated January 18, 1991, Crosby informed FFIC of Truck's desire for representation by Crosby and inquired of FFIC if it objected to Crosby representing Truck in the insurance coverage case. (See Rules Prof.Conduct, rule 3-310(B).) ³ As an alternative, Crosby informed FFIC that to eliminate any conflict, it was willing to withdraw from the two wrongful termination cases, to help transfer those cases smoothly to new counsel, and to waive any fee for its past services. FFIC objected to the concurrent representation, did not provide written consent, and stated its desire to have Crosby continue as its attorney in the wrongful termination cases. Crosby, nonetheless, accepted representation of Truck.

On February 19, 1991, Crosby moved to withdraw as counsel for Fireman's Fund Credit Union in the wrongful termination cases. On March 7, Crosby notified the court that substitute counsel had been retained in each of those cases, that the case files had been transferred, and that other steps were being taken to insure an orderly transition of the matters.

B. The Motion to Disqualify

Meanwhile, also on February 19, 1991, FFIC filed its motion to disqualify Crosby from representing Truck against FFIC in this case while it concurrently represented FFIC in the wrongful termination cases. In support of its motion, FFIC argued that a law firm may not sue a present client without that client's written consent; that FFIC did not consent to Crosby representing Truck; that Crosby thereby breached its duty of loyalty toward FFIC; and that a per se rule of disqualification applied.

Truck, on the other hand, argued that since Crosby had withdrawn as counsel for FFIC in the wrongful termination cases, FFIC was now only Crosby's former client. The issue, Truck contended, was therefore whether Crosby's former representation of FFIC in those cases was substantially related to the present case so as to give Crosby access to confidential information now helpful to Truck. Truck argued that since there was no factual or legal connection between this and the wrongful termination cases, Crosby possessed no confidential information that could be misused to FFIC's prejudice.

C. Hearing on Motion

Before the March 14, 1991, hearing on the motion, the trial court issued a tentative ruling indicating its intent to grant FFIC's motion to disqualify Crosby. The trial court found that Crosby was already representing FFIC when it undertook to represent Truck, as well as when FFIC filed its motion to disqualify Crosby. The court explained that an attorney may not represent an interest adverse to a current client without that client's approval, even if the attorney withdraws from the other cases before the motion to disqualify is heard.

During the hearing, the court acknowledged that this case presented a "hybrid" situation involving "an existing [representation] with an intent to depart." The court recognized that conflict problems of large compartmentalized law firms and insurance companies differ from those of sole practitioners representing private individuals, but it saw no reason why different rules should apply. Clarifying its tentative ruling, the court stated that absent a recognized exception, the per se disqualification rule used in concurrent representation cases applied. The court reaffirmed its order disqualifying Crosby. ⁴

II. DISCUSSION

A. Standard of Review

When reviewing an order granting or denying a motion to disqualify, a reviewing court defers to the trial court's decision, absent an abuse of discretion. (In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 585, 283 Cal.Rptr. 732; Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 300, 254 Cal.Rptr. 853.) Discretion is deemed abused when there is a failure to exercise discretion in a situation where such exercise is required. (Gardner v. Superior Court (1986) 182 Cal.App.3d 335, 338-339, 227 Cal.Rptr. 78; Nadler v. Superior Court (1967) 255 Cal.App.2d 523, 524, 63 Cal.Rptr. 352.) In the instant case, the trial court applied a per se standard of disqualification based upon the finding of "concurrent" representation. Truck contends that the trial court applied an incorrect standard and, in doing so, failed to exercise its discretion which is required under the "former" representation standard.

B. The Rule

Rule 3-310, effective May 27, 1989, provides in relevant part: "(B) A member shall not concurrently represent clients whose interests conflict, except with their informed written consent...." The rule is clear in prohibiting an attorney from representing two or more clients at the same time whose interests conflict, unless there is informed written consent.

The undisputed facts before the trial court established that Crosby, knowing that it was representing FFIC in the wrongful termination cases, nevertheless agreed to begin representing Truck against FFIC in the insurance coverage case. In doing so, Crosby did not obtain the informed written consent of FFIC, and proceeded with its representation of Truck after such consent was explicitly denied. There was, therefore, concurrent representation of clients whose interests conflict, with no informed written consent.

On its face, rule 3-310(B) was violated.

C. Withdrawal as a Cure for Rule Violation

Also undisputed is the fact that prior to the hearing on FFIC's motion to disqualify, Crosby had withdrawn from its representation of FFIC in the wrongful termination cases. Truck argues that this withdrawal rendered FFIC a former client and that, as such, the less severe former representation standard (see Global Van Lines v. Superior Court (1983) 144 Cal.App.3d 483, 192 Cal.Rptr. 609), rather than the standard governing concurrent representation, should have been applied. We disagree.

In cases involving the representation of a client against a former client, "the initial question is 'whether the former representation is "substantially related" to the current representation.' (See Trone v. Smith (9th Cir.1980) 621 F.2d 994, 998, and authorities cited therein.)" (Global Van Lines v. Superior Court, supra, 144 Cal.App.3d at p. 488, fn. omitted, 192 Cal.Rptr. 609.) "Substantiality is present if the factual contexts of the two representations are similar or related." (Trone v. Smith (9th Cir.1980) 621 F.2d 994, 998.) If a substantial relationship exists, courts will presume that confidences were disclosed during the former representation which may have value in the current relationship. Thus, actual possession of confidential information need not be proven when seeking an order of disqualification. (Civil Service Com. v. Superior Court (1984) 163 Cal.App.3d 70, 79-80, 209 Cal.Rptr. 159.)

In contrast, in the concurrent representation context "[t]he principle precluding representing an interest adverse to those of a current client is based not on any concern with the confidential relationship between attorney and client but rather on the need to assure the attorney's undivided loyalty and commitment to the client. [Citations.]" (Civil Service Com. v. Superior Court, supra, 163 Cal.App.3d at p. 78, fn. 1, 209 Cal.Rptr. 159.) This distinction between former representation and concurrent representation, and the distinct concerns at issue, are well recognized: "In contrast to representation undertaken adverse to a former client, representation adverse to a present client must be measured not so much against the similarities in litigation, as against the duty of undivided loyalty which an attorney owes to each of his clients." (Unified Sewerage Agency, etc. v. Jelco Inc. (9th Cir.1981) 646 F.2d 1339, 1345, emphasis...