How appellate courts review attorney disqualifications

An order disqualifying an attorney for a conflict of interest midway through litigation is a blow to both the attorney and his client. It not only disrupts the case, but it deprives the client of his chosen counsel and the attorney of his livelihood.

The good news is that attorney disqualification orders are immediately reviewable through a regular appeal or a writ petition. Banning Ranch Conservancy v. Superior Court, 193 Cal. App. 4th 903, 918-19 (2011). And, as two recently published decisions highlight, that the review is far from a rubber stamp: Appellate courts scrutinize disqualification rulings closely. If the disqualification is not supported by the evidence, or if the trial court got the law wrong, it will be reversed.

Khani v. Ford Motor Company, 215 Cal. App. 4th 916 (2013) drives this point home. Khani was a "lemon law" case alleging a car defect. Defendant Ford moved to disqualify plaintiff's attorney on the ground that he had previously worked for Ford's outside counsel, where he handled some lemon law cases and was privy to the strategies for defending such cases. The trial court granted the motion, disqualifying the attorney because he had confidential information about how Ford handles lemon law cases - that is, he knew Ford's "playbook." The Court of Appeal reversed.

Khani explained that disqualification orders "involve[] concerns that justify careful review of the trial court's exercise of discretion." Under this standard, the Court of Appeal reviews factual findings only to ensure that they are supported by substantial evidence, but reviews the trial court's legal analysis de novo.

Reviewing the trial court's legal analysis, Khani stressed that a party seeking to disqualify its former attorney on conflict of interest grounds must show that the former representation is substantially related to the current case. The fact that two representations involve the same legal issue does not automatically make them substantially related. Rather, the court must "precisely" consider how the two representations are factually and legally similar. That means comparing not only the legal issues involved, but also evidence of what material information the attorney likely knows.

The trial court in Khani apparently missed this nuance: It disqualified the attorney solely on the grounds that both representations involved lemon law claims, and that he knew how Ford had handled prior lemon law cases. But as the Court of Appeal explained, this type of general overlap and background knowledge was not enough to create a presumption that the attorney knew material, disqualifying confidential information. Nor did Ford present evidence that the attorney actually had such information. The "bare bones" showing that he had represented Ford in some lemon law cases years earlier did not establish that he would have obtained any information relevant to the present case, that he knew Ford's current policies or practices for defending lemon law cases, or that the same decision-makers he had worked with while representing Ford were involved in the present case. Absent such evidence, disqualification was an abuse of discretion.

Khani demonstrates the potential holes in a disqualification order based on a prior representation. Another recent decision, Havasu Lakeshore Investments, LLC v. Fleming, 2013 DJDAR 7861 (Cal. App. 4th Dist. May 28, 2013), provides a similar cautionary note - or reason for hope, depending which side you're on - for disqualification rulings based on simultaneous representations.

In Havasu, a law firm represented a company, its managing member (a partnership), and the person who managed the partnership, in a suit against the company's minority members. One of the minority members moved to disqualify the law firm from representing the company. The court granted the motion on the ground that there was potential conflict of interest between two of the firm's clients, namely, the company and the manager of the partnership. Again reviewing for abuse of discretion, the Court of Appeal reversed.

Havasu explained that under the California Rules of Professional Conduct, an attorney may represent an organization and its constituents in the same matter unless the clients' interests actually or potentially conflict. Cal. Rules of Professional Conduct 3-310(C), 3-600(E). A disqualifying actual conflict is what it sounds like: a situation in which the attorney's duty to one client requires him to advance a position prejudicial to his other client. A disqualifying potential conflict, by contrast, is narrower than it sounds: there must be a reasonable likelihood that an actual conflict will arise, not just some hypothetical situation in which that could occur.

In Havasu, the only actual conflict the moving party identified was that the law firm could hurt its clients by spreading itself too thin because there were both a complaint (by the minority member against the individual) and a cross-complaint (by the company and individual against the minority member). The Court of Appeal rejected this theory, noting that it is not the type of conflict that the disqualification rules have in mind and that in any event, the minority member would not be the one injured by the supposed conflict, and so had no standing to assert it.

Nor, in the Court of Appeal's view, was there a disqualifying potential conflict of interest. The jointly-represented clients had consented to the representation. And the company's interest did not necessarily conflict with the individual's solely because two of the company's minority members were suing the individual. That suit had to do with the individual's own performance of a contract, not anything relating to corporate governance. The suit therefore did not create any reasonable likelihood that the law firm would have to take a position adverse to the company's interests. Seeing no other likely conflict between the company and the individual, the Court of Appeal held that disqualifying the law firm on a motion by someone other than the jointly-represented clients was an abuse of discretion.

Although Khani and Havasu involve different types of alleged conflicts of interest, they share a common lesson. The Court of Appeal recognizes the burden that disqualifying an attorney imposes on all involved, and will look carefully at a disqualification order. Any party or attorney aggrieved by a disqualification ruling therefore should carefully analyze whether there is a ground to challenge it, and if so, should ask the trial court to stay proceedings and quickly pursue appellate review.