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California Supreme Court holds that an attorney’s political activities in opposing a redevelopment project that the attorney worked on for a former client may support a claim for professional negligence; and court reaffirms doctrine set forth in its 1932 case Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, stating that after severing a relationship With a client an attorney may not do anything which will injuriously affect the former client in any matter in which the attorney formerly represented the client, nor may the attorney use any knowledge or information acquired by virtue of the previous relationship against the former client.  Oasis West Realty, LLC v. Goldman(5/16/11, Supreme Court of California, S181781)


Significance


This closely watched decision reaffirms the long-standing pronouncement by the California Supreme Court that an attorney cannot do anything that will injure a former client in a matter in which the attorney previously represented the client (i.e., attack the attorney’s own prior work), or disclose or use any information acquired in the prior representation against the former client.  These professional duties survive the attorney-client relationship.  Significantly, the prohibition on attacking prior work affirms that under California law there is a residual duty of loyalty to a former client, albeit limited in scope.  The decision further highlights the fact that an attorney’s individual rights, such as First Amendment rights, can be curtailed by duties owed to former clients regardless of whether the attorney’s activities are being carried out for another client or for the personal (or political) interests of the attorney when the activities are adverse to the former client and involve the same subject matter as the prior representation.


Factual Background


This case involved an attorney who was retained to represent a company in its efforts to obtain approval of a redevelopment project.  Approximately two years later the representation ended.  The attorney then became involved in activities seeking to solicit signatures for a referendum petition to overturn the city council’s approval of the project.  The city council’s approval was upheld by a narrow margin.  The company then filed a lawsuit against the attorney and his firm for professional negligence, breach of fiduciary duty and breach of contract.

The attorney and firm filed a motion to strike under California’s anti-SLAPP statute (a “strategic lawsuit against public participation”) arguing that the company’s causes of action all arose from the attorney’s acts “in furtherance of [his] right of petition or free speech … in connection with a public issue.”  The trial court ruled that the anti-SLAPP statute did not apply because the gravamen of the causes of action were not the attorney’s petitioning activity but his alleged breach of the duties of loyalty and confidentiality.  The court of appeal reversed, finding that the company’s claims arose from protected activity and that the company had failed to demonstrate a probability of prevailing on the claims.  It was acknowledged that the attorney had acted adversely to his former client with respect to an ongoing matter that was the subject of the attorney’s prior representation, however the Court of Appeal found there was “no authority” for a rule that would bar the attorney from doing what he had done.


Analysis


The Supreme Court began its analysis by pointing out that an anti-SLAPP motion involves a two-step process under the anti-SLAPP statute (Code Civ. Proc., §425.16).  First, a court decides whether a defendant has made a threshold showing that the challenged cause of action is one “arising from” protected activity.  If such a showing is made then the court considers whether the plaintiff has demonstrated a probability of prevailing on the claim.  If the cause of action satisfies both prongs (arises from protected speech or petitioning and lacks even minimal merit) then it is a “SLAPP” subject to being stricken.  The Court stated however that in light of its inherent, primary authority over the practice of law it would proceed directly to the second prong of the analysis “inasmuch as we have readily found that [the company] has demonstrated a probability of prevailing on its claims.”

The Court noted that the company’s complaint identified a number of acts of alleged misconduct and theories of recovery.  For purposes of reviewing the ruling on the anti-SLAPP motion, however, the Court said it would focus on just one – that the lawyer was a fiduciary who owed continuing duties of loyalty and confidentiality to the company as a former client even after the representation had concluded.  Citing to the decision in Wutchumna Water Co. v. Bailey (1932) 216 Cal. 564, the Court affirmed its prior statement that “an attorney is forbidden to do either of two things after severing [the] relationship with a former client.  [The attorney] may not do anything which will injuriously affect [the] former client in any matter in which [the attorney] formerly represented [the client] nor may [the attorney] at any time use against [the] former client knowledge or information acquired by virtue of the previous relationship.”

The Court explained that the company had asserted that the attorney acquired confidential and sensitive information relating to the redevelopment project in the course of the prior representation, especially during team meetings that discussed strategy with respect to the city council, other city officials, and civic organizations, and then used that information when he actively opposed the project that he had previously been retained to promote.  The Court noted that no direct evidence had been provided by the company to demonstrate that confidential information had been used by the attorney in formulating his opposition to the project or his activities in trying to get neighbors to join in opposing the project; however for purposes of an anti-SLAPP motion “the inquiry is whether the plaintiff proffers sufficient evidence for such an inference.”  Because the attorney had admittedly agreed to represent the company in securing approvals for the project, acquired confidential information from the company during the course of that representation, and then publicly opposed the very project that was the subject of the prior representation, the Court concluded that it was “reasonable to infer that he did so.”  The Court further noted that in as much as the attorney was obligated under CRPC 3-310(B) to disclose to the company any personal relationship or interest he knew or reasonably should have known could substantially affect the exercise of his professional judgment – but never did so – it was “reasonable to infer that [the lawyer’s] opposition to the project developed over the course of the representation, fueled by the confidential information he gleaned during it.”  In addition to these contentions, the company had asserted that because of the attorney’s conduct, it was forced to investigate and prepare a letter demanding that the attorney and his firm adhere to their legal and fiduciary duties, and incurred over $3,000 in legal fees doing so.  These contentions, and the inferences therefrom, the Court said, established that the company had “demonstrated a likelihood of prevailing on each of its three causes of action.”

Turning to the defendants’ arguments, the Court rejected the notion that the doctrine set forth in Wutchumna was overbroad and should be read to apply in only two specific circumstances: “(1) where the attorney has undertaken a concurrent or successive representation that is substantially related to the prior representation and is adverse to the former client, or (2) where the attorney has disclosed confidential information.”  The Court of Appeal accepted such an argument based on the fact that “all of the cases which recite this rule do so in the context of subsequent representations or employment” in which the attorney’s duties to the new client would otherwise conflict with the attorney’s duties to the former client.  However the Supreme Court explained that neither defendants nor the appellate court offered “any justification for limiting an attorney’s duty to a former client in this manner, especially where the attorney has used the former client’s confidential information to actively oppose the former client with respect to an ongoing matter that was the precise subject of the prior representation.”  The Court emphasized that it is well established that the duties of loyalty and confidentiality prevent an attorney not only from using a former client’s confidential information in the course of representing another client but also from “taking the information significantly into account in framing a course of action ” such as “deciding whether to make a personal investment” even though in the second circumstance no second client exists and no confidences are actually disclosed.  “It is not difficult to discern that the use of confidential information against a former client can be damaging to the client, even if the attorney is not working on behalf of a new client and even if none of the information is actually disclosed.”  Thus, the Court explained, “[i]nasmuch as the harm to the client is the same, the rule appropriately bars the attorney from both disclosing or using the former client’s confidential information against the former client.”  (Emphasis in original).

The Court further distinguished the decision in Santa Clara County Counsel Attys. Assn. v. Woodside (1994) 7 Cal.4th 525, relied on by the Court of Appeal.  The public attorneys’ lawsuit in Woodside, brought on the attorneys’ own behalf, the court said “did not present a conflict with the client on matters in which the attorneys represented the [the client].”

The court also rejected defendants’ argument that section 125 of the Restatement Third of the Law Governing Lawyers relieved them of their duties of loyalty and confidentiality.  A comment to that section provides “[i]ngeneral, a lawyer may publicly take personal positions on controversial issues without regard to whether the positions are consistent with those of some or all of the lawyer’s clients ….”  (Emphasis in original).  However, as the Court noted, the commentary also provides that ” … a lawyer’s right to freedom of expression is modified by the lawyer’s duties to clients ….  The requirement that a lawyer not misuse a client’s confidential information … similarly applies to discussion of public issues.”  (Emphasis in original).

The Court further dismissed defendants’ argument that a “broad categorical bar on attorney speech” would lead to a “parade of horribles” such as preventing lawyers from voting in an election against the former client’s interests, and that the prohibition would necessarily extend to every attorney in an international law firm.  The Court reasoned that it was “doubtful” a single vote in a secret ballot in opposition to a client’s interest would offer a “reasonable prospect” of “adversely affect[ing] a material interest of the client.”  Regardless, the Court said, it was not announcing a “broad categorical bar”, nor was the Court presented with a situation that required it to address how imputed disqualification rules would apply.  The Court’s sole task, it said, was to determine whether any portion of the company’s causes of action had even minimal merit within the meaning of the anti-SLAPP statute.  “A claim that [the attorney] used confidential information acquired during his representation of [the company] in active and overt support of a referendum to overturn the city council’s approval of the [redevelopment] project, where the council’s approval of the project was the explicit objective of the prior representation, meets that low standard.”

Given the Court’s conclusion that it was not imposing a “broad categorical bar on attorney speech” it also found it unnecessary to resolve defendants’ “attempts to interpose a First Amendment defense.”  Defendants argued that “preventing client suspicions that their former attorneys will use confidential information … is not a compelling state interest.”  The Court explained however that the claim before the Court did not propose a “broad prophylactic prohibition [] of political speech” to guard against a mere “suspicion without proof” that the attorney had used confidential information.  Rather, the company had asserted a prima facie case that the attorney did use confidential information, to the detriment of his former client, with respect to the precise subject of the prior representation.  “Defendants have cited no authority to suggest the First Amendment would protect such duplicity.”

The Court concluded its analysis by noting that the company had also set forth a prima facie case of actual injury and entitlement to damages.  It had asserted that because of the attorney’s active and overt opposition to the redevelopment project, it was required to protect its rights by retaining counsel to prepare a letter demanding that the attorney cease and desist further misconduct, and such action cost in excess of $3,000.  Attorney fees incurred as a direct result of another’s tort are recoverable damages, the Court explained.  Such damages include the expense of retaining another attorney when reasonably necessary to “attempt to avoid or minimize the consequences of the former attorney’s negligence.”

In closing, the Court stated that the company’s claims “possess at least minimal merit within the meaning of the anti-SLAPP statute.  On this ground, we therefore reverse the judgment of the Court of Appeal.”


Concurring Opinion


In a concurring opinion, Justice Kennard agreed that the Court of Appeal’s decision should be reversed.  However, she articulated her view that unlike the majority she would not have bypassed the first prong of the anti-SLAPP analysis – whether the defendant has made a threshold showing that the challenged cause of action is one “arising from” protected activity.  “I agree that [the company] has demonstrated a probability of prevailing on its claims.  But I do not share the majority’s view that simply because [the company’s] lawsuit concerns [the lawyer’s] duties as an attorney and this court has ‘inherent, primary authority over the practice of law’ [citation omitted], this court can readily dispense with the first step of the anti-SLAPP analysis and proceed directly to the second step.  The majority’s approach would not be available to a Court of Appeal or a superior court, neither of which has primary authority over the practice of law.”  Justice Kennard then concluded that the conduct at issue easily satisfied the first prong of the anti-SLAPP test.  “Here, [the attorney] solicited signatures for a petition to overturn a local government’s approval of a redevelopment project.  It is hard to imagine conduct that more squarely fits the definition [of an act in furtherance of a person’s right of free speech in connection with a public issue], and [the company’s] lawsuit is based directly on that conduct.”  Nevertheless, “[a]s an attorney, [the lawyer’s] right to free speech was restricted insofar as it was adverse to a former client and concerned the same subject matter as the former representation.”
 

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