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Posts Tagged ‘Court of Appeal’

California Court Clarifies Grounds for Law Firm Disqualification

Posted on: January 30th, 2019

By: Brett Safford

In O’Gara Coach Company, LLC v. Joseph Ra, 2019 Cal.App. Lexis 12, the California Court of Appeal clarified the grounds on which a law firm can be disqualified. The Court reversed the decision of the trial court and disqualified Richie Litigation PC from representing Joseph Ra, a former executive of O’Gara Coach Company, LLC, in litigation involving Ra and O’Gara Coach. The Court held that disqualification is warranted because Darren Richie, the founder of Richie Litigation, formerly served as O’Gara Coach’s president and chief operating officer, and in those roles, he served a primary point of contact for the company’s outside counsel and possessed “confidential information, protected by O’Gara Coach’s attorney-client privilege, concerning Ra’s allegedly fraudulent activities at issue in this litigation.” The Court disqualified Richie Litigation even though Richie was not a licensed attorney when serving as O’Gara Coach’s president and chief operating officer and never had an attorney-client relationship with the company. The Court further held that vicarious disqualification of the entire firm, not only Richie, is warranted under the doctrine of imputed knowledge.

The litigation between O’Gara Coach and Ra arose from a lawsuit filed by Marcelo Caraveo, a former customer of O’Gara Coach, alleging wrongful conduct by O’Gara Coach, Ra, and others relating to Caraveo’s acquisition of luxury vehicles from O’Gara Coach. Ra filed a cross-complaint against O’Gara Coach for indemnity, and O’Gara Coach filed a cross-complaint against Ra, Caraveo, and others alleging that Ra and Caraveo “were the primary architects” of a fraudulent scheme involving the sale, leasing, and financing of vehicles.

Richie’s employment with O’Gara Coach terminated in 2016. In May 2017, Richie filed articles of incorporation for Richie Litigation which named Robert Lu as the sole officer and director.  In June 2017, Lu substituted as counsel of record for Ra. In August 2017, Richie was admitted to the California State Bar.

In October 2017, O’Gara Coach moved to disqualify Richie Litigation based on two reasons. First, O’Gara Coach argued that although Richie was not a licensed attorney when employed by the company, “the court should apply the rule requiring disqualification of attorneys representing adverse parties in successive representations when, as here, the matters are substantially related, as well as the rule that, when a former client’s confidential information is known to any attorney at a law firm, the entire firm must be disqualified.” Second, O’Gara Coach argued disqualification of Richie Litigation is warranted because Richie was privy to O’Gara Coach’s privileged information, and “Richie Litigation is not entitled to exploit that information in litigation adverse to the company.” The Court of Appeal rejected the first argument, but agreed with the second, holding that the trial court “erred in failing to consider O’Gara Coach’s alternate argument that disqualification of Richie and his law firm was required as a prophylactic measure because the firm was in possession of confidential information, protected by O’Gara Coach’s attorney-client privilege, concerning Ra’s allegedly fraudulent activities at issue in this litigation.”

The Court of Appeal explained that O’Gara Coach presented undisputed evidence that Richie participated in meetings and communications with outside counsel who were investigating Ra’s activities and “developing theories material to O’Gara Coach’s defense and forming the basis for its cross-claims in this litigation and that are protected by lawyer-client privilege.”  As the privilege belongs to O’Gara Coach, Richie cannot disclose privileged information without O’Gara Coach’s consent.  The Court further concluded, “[N]ow that Richie is a member of the California State Bar, O’Gara Coach is entitled to insist that he honor his ethical duty to maintain the integrity of the judicial process by refraining from representing former O’Gara Coach employees in this litigation against O’Gara Coach that involve matters as to which he possesses confidential information.”

The Court of Appeal further held that Richie Litigation is variously disqualified because “once a showing has been made that someone at the adverse party’s law firm possesses confidential attorney-client information materially related to the proceedings before the court, a rebuttable presumption arises that the information has been used or disclosed in the current employment,” and Ra did not present evidence that Richie had been screened from Lu or other lawyers at the firm working on the pending litigation. As such, the Court held that “the doctrine of imputed knowledge requires the vicarious disqualification of the entire Richie Litigation firm.”

O’Gara Coach emphasizes the paramount importance of protecting client confidences and the attorney-client privilege to ensure the “integrity of the judicial process.” An attorney must not only be mindful of his or her own prior relationships with an opposing party, but also of the prior relationships between other attorneys in his or her firm and an opposing party. Without thorough conflict checks, firms may subject themselves to disqualification and other costly repercussions from their clients.

If you have any questions or would like more information, please contact Brett Safford at [email protected].

Insurer Side Beware: Litigation Privilege for Pre-Suit Communications Extends Only To The Party Contemplating Filing Of Litigation

Posted on: January 14th, 2019

By: Tim Kenna & Kristin Ingulsrud

Strawn v. Morris, Polich & Purdy—filed Jan. 4, 2019, Court of Appeal of California, First District, Division Two 2019 Cal.App. LEXIS 9*—makes explicit that the application of the litigation privilege to pre-suit claims communications where the policyholder disputes its contemplation of litigation only applies to policy side interests if the insurer is contemplating litigation in good faith.

The litigation privilege makes inadmissible any communication made in judicial or quasi-judicial proceedings. California Civil Code § 47(b)(2). This privilege extends to pre-litigation statements relating to litigation contemplated in good faith and under serious consideration. Action Apartment Assn., Inc v. City of Santa Monica (2007) 41 Cal.4th 1232, 1251.

In Strawn, the insureds brought a cause of action for invasion of privacy against State Farm’s counsel based on the alleged wrongful transmittal of the insureds’ tax returns to State Farm in connection with a coverage investigation involving potential arson. The MPP argued that the transmittal was protected by the litigation privilege because it was in anticipation of the civil action the insureds “would surely and did in fact” file. The trial court agreed and sustained the demurrer based on the litigation privilege.

The California Court of Appeal reversed. In order for the insurer to apply the privilege to its own communications, the Court held, the insurer would need to establish that it was contemplating litigation in good faith when it received the tax returns.

There have been cases in which the courts have held that routine claims communications relate to the business of insurance and are not protected speech. See, e.g. People ex. Rel. Fire Insurance Exchange v. Anapol (2012) 211 Cal.App.4th 809. Other cases have attempted to discern whether the communications themselves establish a good faith consideration of litigation. Blanchard v. DIRECTV, Inc. (2004) 123 Cal.App.4th 903.  Strawn seems to go one step further in requiring the movant to establish that IT was contemplating the filing of litigation in good faith. Strawn appears to hold that at least in a case of disputed intent of the policyholder, the insurer side’s good faith subjective or objectively reasonable belief that the policyholder was contemplating litigation is irrelevant. Thus, where claimants’ counsel threatens suit, there was no protection to the insurer side no matter how unlikely settlement.

Strawn’s effects may be felt by litigants who attempt to utilize the litigation privilege in furtherance of dispositive pre-trial motions, including anti-SLAPP and motions for summary judgment.  First, Strawn emphasizes that good faith is a question of fact that must be determined before the litigation privilege can apply. Second, it severely limits the application of the litigation privilege in favor of any party who is responding to a perceived threat of litigation, even if that perceived threat is objectively reasonable.

If you have any questions or would like more information, please contact Tim Kenna at [email protected] or Kristin Ingulsrud at [email protected].

Loss of SEC Commissioners Piwowar and Stein May Wreak Havoc on SEC’s Proposed Fiduciary Regulations

Posted on: June 1st, 2018

By: Ted Peters

On May 7, 2018, Republican SEC Commissioner Michael Piwowar announced that he will resign effective July 7, 2018.  Piwowar’s five-year term expires on June 5, but SEC commissioners are permitted to remain in office for up to 18 months following the end of their term.  Democratic Commissioner Kara Stein’s term expired in 2017 and she too is expected to leave the Commission this year.

Piwowar was admittedly a harsh critic of the U.S. Department of Labor’s fiduciary rule (calling it a “terrible, horrible, no good, very bad” rule), which has since been struck down by the Fifth Circuit Court of Appeal.  He also expressed significant misgivings with the Commission’s April 18, 2018 proposals which attempt to establish standards of conduct for financial advisors.  Despite such concerns, Piwowar wholeheartedly voted in favor of putting the proposals out for public comment lest anyone criticize the SEC for failing to take action.  Stein, however, voted against the proposals, finding them too weak and suggesting they be called “Regulation Status Quo.”

Regardless of their personal views, the loss of Commissioners Piwowar and Stein will undoubtedly put further pressure on the SEC as the agency takes comments on the proposals. On the other hand, the SEC might have an easier go in reaching a compromise with the decision being left to just three commissioners.  In theory, the White House and Senate could quickly take action to replace Piwowar and Stein, as it is customary for the Senate to consider commissioners in pairs (Republican and Democrat).  In the meantime, between the departures of Piwowar and Stein, the SEC will operate with four commissioners including two Democrats, which could lead to deadlocked votes, something for which the SEC is well known.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOL Fiduciary Rule Suffers a Slow Death

Posted on: May 15th, 2018

By: Ted Peters

In 2016, the U.S. Department of Labor (“DOL”) promulgated a set of rules and regulations now infamously referred to as the “Fiduciary Rule.”  After multiple criticism and legal challenges, the Fifth Circuit Court of Appeal struck down the Fiduciary Rule effective May 7, 2018.  Surprising many, the DOL elected not to challenge the Fifth Circuit ruling.  Even more surprising, however, was the bulletin issued by the DOL on the effective date of the court’s order.

The court’s ruling, which was not opposed by the DOL, left many unanswered questions.  Enter the DOL’s field bulletin.  Rather than admitting the total defeat of the Fiduciary Rule, however, the DOL seeks to maintain the status quo.  Specifically, the DOL announced that pending further guidance, advisors will not be penalized for either complying with the Fiduciary Rule, or ignoring it in favor of pre-existing standards.  Unfortunately, this announcement leaves the single most important question unanswered – what is the standard to which advisors will be held?  With the U.S. Securities and Exchange Commission working on its own set of rules, and the wait-and-see approach embraced by the DOL notwithstanding, only time will tell.

If you have questions or would like more information, please contact Ted Peters at [email protected].

“Lien On Me, When You’re Insured …”*

Posted on: May 11th, 2018

*Apologies to Bill Withers.

By: Zach Moura

On May 8, 2018, the Court of Appeal, Second District, upheld a trial court’s decision that an insured plaintiff who chooses to receive treatment from providers who are outside of his private health insurance plan is not prohibited by Howell v. Hamilton Meats & Provisions Inc. (2011) 52 Cal.4th 541, from introducing the full charged amount of his medical bills into evidence for the purpose of determining his economic damages in Pebley v. Santa Clara Organics, LLC (May 8, 2018, No. B277893) ___Cal.App.5th___ [2018 Cal. App. LEXIS 409.)

Pebley was injured in a motor vehicle accident caused by an employee of defendant Santa Clara Organics, LLC (Santa Clara).  Pebley initially sought treatment through his medical insurance carrier, Kaiser Permanente (Kaiser). Then, after filing a personal injury action against defendants, Pebley obtained care from a specialist outside the Kaiser network. While Pebley testified he was referred to the doctor by “members of his men’s group”, defendants drew the court’s attention to an internet article co-written by one of Pebley’s attorneys, noting that while “[t]ypically, medical liens in personal injury cases have been used where the plaintiff is uninsured” (or the carrier will not authorize recommended medical care), the attorney authors proposed that insured plaintiffs use the lien form of medical treatment to allow them “to sidestep the insurance company and the impact of Howell, Corenbaum and Obamacare” because treating on a lien basis increases the “settlement value” of personal injury cases. And indeed, Pebley’s post-Kaiser medical treatment was provided on that basis.

The trial court granted plaintiff’s motions in limine to exclude: evidence that Pebley was insured through Kaiser; arguments concerning Pebley’s decision not to seek medical treatment through his insurance; evidence of the amounts an insurance company may pay, or what a medical provider may accept, for medical services; and evidence that Pebley obtained most of his medical treatment on a lien basis. The trial court denied defendants’ motion in limine to exclude evidence of unpaid bills from health care providers under Howell.

The Court of Appeal held that Pebley was to be considered uninsured (or non-insured) for purposes of proving the amount of his damages for past and future medical expenses.  The consequence of that, under Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1336, was that Pebley could instead rely on an expert to “competently testify that the amount incurred and billed is the reasonable value of the service rendered”, and “the defendant may then test the expert’s opinion through cross-examination and present his or her own expert opinion testimony that the reasonable value of the service is lower”, leaving the jury to “best decide the reasonable value” of the medical services.

Defendants presented expert testimony that the reasonable and customary value of the services provided by the various medical facilities was substantially less than the amounts actually billed, and defendants’ medical expert opined that 95% of private pay patients would pay approximately 50% of the treating professionals’ bills. The jury rejected this expert evidence and awarded Pebley the billed amounts.

The Pebley decision will likely lead to an increase in the prevalence of insured plaintiffs seeking treatment outside their insurance networks on a lien basis.

If you have questions or would like more information, please contact Zach Moura at [email protected].