LosAngelesLawyer Blame Game The

2002 Holiday Travel & Gift Guide
LosAngelesLawyer
DECEMBER 2002, VOL.25, NO.9 / $3.00
Los Angeles lawyer
Steven R. Yee offers an
antidote to malicious
prosecution lawsuits
page 20
The
Blame
Game
EARN MCLE CREDIT
The Duty of
Confidentiality
page 26
Attorney’s
Fees in
RICO Suits
page 12
Shareholder
Derivative
Lawsuits
page 16
Online Public
Records
page 38
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page 20
Contents
Los Angeles Lawyer
departments
The Magazine of the
12 Practice Tips
The rule of proportionality in civil
RICO suits
By Michael J. Kump
Los Angeles County
Bar Association
December 2002
Vol. 25, No. 9
16 Practice Tips
The unique issues in shareholder
derivative litigation
By Charles J. Greaves
cover
38 Computer Counselor
Regulating the availability of public
records online
By Carole Levitt
columns
10 Barristers Tips
Using experts in patent litigation
By Paul D. Tripodi II
44 Closing Argument
A cloud over arbitration decision
appeals
By Rena E. Kreitenberg
features
20 The Blame Game
California’s anti-SLAPP statute may deliver the mortal blow
to the disfavored tort of malicious prosecution
41
Classifieds
42
Index to Advertisers
43
CLE Preview
Steven R. Yee is a partner in
By Steven R. Yee
26 For Your Eyes Only
the Pasadena office of Wolfe &
California can clarify the confusion surrounding the law of
Wyman, LLP, where he is the
confidentiality with a new rule of professional conduct
chair of the firm’s Professional
By Mark L. Tuft
Liability Department and
Plus: Earn MCLE legal ethics credit.
MCLE Test No. 111, sponsored by West,
specializes in legal malpractice
begins on page 30.
litigation. In “The Blame
Game,” he argues that the
anti-SLAPP statute should be
applied in malicious
35 Special Section
prosecution actions. His article
2002 Holiday Travel & Gift Guide
begins on page 20.
Cover photo: Tom Keller
page 26
LosAngelesLawyer
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6 LOS ANGELES LAWYER / DECEMBER 2002
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from
the
chair
By Steven Hecht
continuing inventory of each member’s artiidserve at match point, and one of
cles in various stages of development and
my Los Angeles Lawyer friends yells
topics for future articles, with the chair calla comment across the tennis court
ing the roll. With only slightly less verve than
about a recent From the Chair column. It is
traders on the floor of a commodities futures
always nice to hear from someone among
exchange, when called on we cry out, “Good
our 22,000-plus circulation, although not at the
concept, weak or strong first
expense of a blistering ace of a
Steven Hecht
draft, second draft due next
winner. Off the court, I often get
practices transweek, final in” and the like. We
questions about past articles and
actional business
always stay calm. The articles
issues, suggestions for future
law on the Westcoordinator, who serves with the
ones, and interest shown in the
side. He is the chair
chair for the bar year and who
people involved in doing the
pro tem of the
sits expectantly if not patiently
work of the magazine and also
2002-03 Los Angeles
for that year at the chair’s left,
the reasons why we do it.
Lawyer Editorial
keeps score.
About a year ago I wrote in
Board.
We do ask that each member
this column about our nine-peractively develop ideas for artison professional staff and the
cles, suggest or locate authors,
terrific job they do. But publishand each year edit at least three articles. We
ing this magazine is a collaborative process
let our new members have some time to setinvolving an Editorial Board of volunteers.
tle in. Past chairs frequently remain on the
During my first year as chair, I wanted to
board, and their acquired knowledge helps
share my thoughts about the Editorial Board,
maintain the board’s poise and the magabut I ran out of From the Chair columns.
zine’s quality. Editing is a skill that takes time
Now I have the opportunity.
to master. Few of us do, but our past chairs are
This editorial year there are 41 of us on the
very good and, of course, we have our proboard sharing common entry criteria: We
fessional editors, who apply a final editorial
are attorneys, dues-paying members of the
polish to the articles that are published in
Los Angeles County Bar Association, and
the magazine.
self-selected volunteers. Each spring the
Editorial board members may not have
Association circulates among its member41 different reasons for their efforts, but
ship a list of committees and other activities
there may be a few they have in common.
for which a member may volunteer. So, at
Each month there is a product, often a very
some point in the past, each of the current
good one, for which we feel pride and satisboard members selected Los Angeles Lawyer
faction. There is a continuing professional
magazine as a bar activity. We do prefer new
challenge in producing the best possible artiboard members who have had several years
cles. There is hopefully some fun in the
of active practice, and we try to cover as many
monthly meetings and the friendships develpractice disciplines as possible. (We are
oped. We even get to try our hands at being
chronically thin in a couple of areas: plaintiff’s
creative. Sometimes the Editorial Board dispersonal injur y attor neys and criminal
cusses policy issues or points of law, and I
defense attorneys.) The Editorial Board is
often think what a wonderful opportunity it is
not a tough club to join. However, it is a bit
to be with so many smart, articulate, and
tougher to stay because we do ask for dues—
thoughtful people.
in the form of active participation.
The feeling of working with the Los Angeles
The Editorial Board meets 12 times a year,
Lawyer Editorial Board is matchless, like hitand we ask each member to attend a reating a clean winner. It is not always easy to be
sonable number of these meetings. At our
chair, but there is always an ease in working
monthly meetings, we review a calendar of
with the Editorial Board. This chair has no
future issues and monitor the progress of
gavel.
articles scheduled for publication. Each member reports on the status of articles for which
the member is responsible. We also review a
M
8 LOS ANGELES LAWYER / DECEMBER 2002
L EXISN EXIS
AND THE
L OS A NGELES C OUNTY B AR A SSOCIATION
WORKING TOGETHER TO SUPPORT THE LEGAL PROFESSION
NO
M AT T E R W H AT
T H E S I Z E O F YO U R F I R M ,
YO U G A I N S T R E N G T H I N N U M B E R S
AS A MEMBER OF
THE
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AL4460
barristers
tips
By Paul D. Tripodi II
Using Experts in Patent Litigation
The success or failure of patent litigation can
hinge upon the selection and use of experts
he outcome of patent litigation is often determined by the technical expertise of testifying experts and nontestifying consultants. As a result, selection and proper use of technical experts
can cost either party its competitive advantage and, ultimately, its livelihood. Given this importance, it is quite surprising how little planning
and consideration sometimes goes into the selection and retention of
technical experts.
The Federal Rules of Civil Procedure distinguish between testifying
experts and consultants. It is generally accepted that Rule 26 does not
require the disclosure of the identity of consultants in response to an
opponent’s interrogatory and generally precludes discovery from
such consultants, absent some showing of special need. As a practical matter in patent cases, however, disclosure of consultants is often
necessary under the provisions of the applicable protective order so
that a consultant may be given access to the adversary’s confidential
information. Nevertheless, the distinction between testifying expert
and consultant remains important and may permit a party to prevent
discovery from the consultant or at least delay any disclosure until a
decision has been made that a consultant will testify as an expert.
Practitioners should keep this distinction in mind when characterizing the relationship and obligations established in retainer agreements
and in correspondence with the consultant.
T
Hire Early
Whenever possible, the patent owner should hire early, which generally means even before filing. That way, the plaintiff can ensure that
its first choice of expert (who may be the only good choice in a given
field) is available and under contract. Sometimes, a prefiling inquiry
may reveal complications in the expert’s schedule—class assignments, forthcoming expiration of a noncompete agreement, or a sabbatical—that may influence the timing of suit.
Another reason to hire early is that some of the technical expert’s
most important work may take place prior to filing. For example, a
thorough assessment of claim interpretation, likely validity challenges, and infringement can be more fruitful with the assistance of
a consultant who has particularized knowledge and experience.
Interaction with an informed expert may also provide the client and
counsel with a theoretically impartial view of the case or bring complicating prior art to light before the litigation commences. In many
cases, a technical consultant from outside the company may also
have information about relationships within the relevant industry
that may affect the client’s decisions regarding who and where to sue.
The actual inventors of the patent-in-suit are often asked to serve
as expert witnesses at trial. Thus, the patent owner should ensure that
each inventor is either still employed by the patent owner or retained
10 LOS ANGELES LAWYER / DECEMBER 2002
as a consultant. Again, these arrangements should take place before
filing. Otherwise the patentee may be surprised to find that the
accused infringer has retained one or more of the inventors. Even if
the inventors are still employees of the patent owner, it may be useful to establish agreements that will ensure their cooperation and availability in the event that they leave the company during the oftenlengthy pendency of litigation. If the case is brought by a third party
(such as an exclusive licensee), this may be particularly important.
For the defendant, one of the highest priorities following receipt
of the complaint should be an identification of potential experts.
Wherever possible, the accused infringer should seek to interview and,
if appropriate, retain any of the former-employee inventors as consultants. In doing so, be aware that certain employment agreements
may be broad enough to prohibit any potential consultant, including
inventors, from using confidential information outside of their original employment relationship.
Selection Criteria
Of the many criteria that should be considered in the selection of
an expert in litigation, a few patent-specific strategies deserve mention. For either party in patent litigation, it is often advantageous to
have the inventor from the closest prior art patent as a consultant. For
the plaintiff, prior inventors may be able to tell a convincing story about
the tremendous advance facilitated by the patent-in-suit. For the
defendant, earlier inventors may be able to minimize the value of the
patentee’s contribution to the art. Clearly, such prior inventors may
be predisposed to offer one opinion over the other. It is counsel’s job
to determine the best way to utilize these prior inventors.
Given the life span of a patent, care
should be taken to ensure that the expert
is old enough to have been an expert at
the time that the invention was made.
Otherwise, opposing counsel may revel
in making the jury aware that the proffered expert was in junior high school at
the time of the invention.
In selecting an expert, counsel also
should consider whether it is more likely
at trial that a given expert will actually
explain the technology or simply offer a
Paul D. Tripodi II is a
highly qualified, but unintelligible, opinpartner at Knobbe,
ion. In the case of the former, it is often
Martens, Olson &
best to concentrate more on communiBear.
cation skills and less on credentials.
Indeed, some commentators say that
jurors forget the expert’s qualifications after
the first five minutes of his or her testimony.
If you have any concerns, spend the day in a
conference room with the potential expert
and monitor his or her performance.
Never neglect due diligence. The last thing
any lawyer wants is to discover that an expert
has lied about his or her credentials, given
prior inconsistent testimony in another case,
or characterized the patent-in-suit differently
in one of his or her patents. At a minimum,
counsel should attempt to review any patents
obtained by the potential expert and conduct
an investigation into the accuracy of the information appearing on the expert’s curriculum
vitae. Counsel should also endeavor to perform a similar investigation concerning those
items that will necessarily be disclosed under
Rule 26, such as publications and testimony
given in other litigation.
When the worst happens, do not assume
that the case cannot be saved. Rule 26(e)
explicitly contemplates such disasters,
instructing that the parties are under a duty
to remedy materially incomplete or incorrect
information provided to the opposing side
by an expert. If this becomes necessary, consider substitution of the designated testifying
expert with an alternative. If you have anticipated this difficulty, you may even have a
prospective expert waiting in the wings. If
the withdrawn exper t has not yet been
deposed, it may be difficult for the opposing
party to claim prejudice. Furthermore, in
light of the objectives of Rule 26 in promoting
fairness and preventing surprise at trial, this
type of substitution may prevent your opponent from obtaining discovery from the withdrawn expert. Thus, you may find that what
began as a bad situation can resolve itself into an acceptable one.
Since issues relating to testing methodology, errors, or disagreements may evolve
over time, consider the use of more than one
technical expert. If they are retained preemptively, they may also prevent your opponent from retaining the top experts in the
field.
Finally, remember to honor the procedural distinction between consultant and
expert. If the lawyer anticipates that a particular person is likely to be a testifying expert,
care should be taken to limit disclosures to,
and the documents or notes generated by,
that person. Materials relating to early brainstorming, in particular, often prove to be menacing distractions once the case later coalesces around par ticular arguments and
theories. A dearth of written materials, coupled with the limited capabilities of the human
memory, can often eliminate case-damaging
sideshows at depositions taken months or
years later.
■
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LOS ANGELES COUNTY BAR ASSOCIATION
Super Simple CLE
Video Replay Convention
January 2003
WEEKEND
1
■ Thursday, January 9
■ Friday, January 10
■ Saturday, January 11
WEEKEND
2
- - - - - - REPEATS - - - - - - -
■ Earn CLE participatory credits—
attend the convention on a Thursday, Friday,
and Saturday.
■ Earn CLE self-study credits—buy
audio tapes at our CLE Tape Store at the
convention.
No extra charge to
attend replays for
CLE+PLUS members
■ Thursday, January 16
■ Friday, January 17
■ Saturday, January 18
Los Angeles County Bar Association Continuing Legal
Education gratefully acknowledges the sponsorship of Aon
Direct Insurance Administrators, LexisNexis, and
AT&T Wireless in helping make the Super Simple CLE
WEEKEND
3
Convention possible for our members.
- - - - - - REPEATS - - - - - - -
Look for complete details and registration information in
■ Thursday, January 23
the December and January issues of County Bar Update
■ Friday, January 24
or call the Member Service Department at 213/896-6560.
■ Saturday, January 25
You can also find our convention information online at
www.lacba.org/cle/convention/
ALL SESSIONS WILL BE HELD AT THE LACBA/LEXIS NEXIS
CONFERENCE CENTER
281 S. FIGUEROA STREET, LOS ANGELES
LOS ANGELES LAWYER / DECEMBER 2002 11
practice
tips
By Michael J. Kump
The Rule of Proportionality in
Civil RICO Suits
attorney’s fees.
When Congress enacted the
RICO
statute, it expressly manand costs can
dated an award of attorney’s fees
and costs whenever there has
greatly increase
been an injury cognizable under
RICO: “Any person injured in his
the financial risk
business or property by reason of
a violation of Section 1962…shall
for defendants
recover threefold the damages
he sustains and the cost of suit,
n a civil RICO lawsuit, a jury including a reasonable attorney’s
may find the defendants liable fee.”1 The RICO statute and the
for violating 18 USC Section Clayton Act2 (upon which it is
1962(c) but award only a small based) “share a common conamount in compensatory dam- gressional objective of encourages. Although this amount is aging civil litigation to suppleautomatically trebled under 18 ment government efforts to deter
USC Section 1964(c), even this and penalize the respectively prorelative victory may disappear if hibited practices.” 3 Congress
the plaintiff files a motion for passed the civil RICO statute,
attorney’s fees and costs pursuant with its incentive of treble damto Section 1964(c). It would not ages and mandatory attorney’s
be exceptional for the plaintiff to fees and costs, to encourage vicseek fees and costs that are far tims of racketeering acts, such
greater than the compensatory as mail and wire fraud, to become
damages.
private attorneys general dediIf the defense counsel op- cated to eliminating proscribed
poses the fees motion on the activities.4 The objective of civil
ground that the award of fees and RICO “is thus not merely to comcosts must be proportional to the pensate victims but to turn them
amount of daminto prosecutors,
ages awarded by
‘private attorneys
Michael J. Kump is a
the jury, the defengeneral,’ dedicated
partner at Greenberg
dant is not likely to
to eliminating rackGlusker in Los
prevail, because
eteering activity.”5
Angeles who has
cour ts have conDefense counsuccessfully
sidered whether a
sel should harbor
prosecuted and
rule of proportionno illusion that
defended civil RICO
ality should apply
courts are unlikely
cases.
in civil RICO cases
to respect this conand have decided
gressional objecthat it should not. In light of the tive. As stated in Bingham v. Zolt,
general judicial rejection of rules “It is the trial court, not the jury,
of proportionality in federal fee- that has the responsibility of
shifting cases, defense counsel determining attor ney’s fees
in civil RICO cases would be wise awards” in civil RICO cases.6 And
to find other grounds upon which as the U.S. Supreme Court held
to attack a plaintiff’s motion for in Hensley v. Eckerhart, the deter-
Attorney’s fees
RICHARD EWING
I
12 LOS ANGELES LAWYER / DECEMBER 2002
mination of a reasonable fee
begins with the court’s calculation of a so-called lodestar figure,
which equals “the number of
hours reasonably expended on
the litigation multiplied by a reasonable hourly rate.”7 Although
the cour t may increase or
decrease the lodestar based upon
a number of factors, there is a
“strong presumption that the
lodestar figure…represents a
‘reasonable’ fee.…”8 Indeed, “a
party advocating the reduction
of the lodestar amount bears the
burden of establishing that a
reduction is justified.”9 As the
Court has warned, however, “[a]
request for attorney’s fees should
not result in a second major litigation.”10
The “most critical factor” in
determining a reasonable fee “is
the degree of success obtained.”11
This does not mean, however,
that a RICO plaintiff will be penalized when its recovery falls short
of what it originally sought. For
example, in Bingham, the RICO
plaintiff sought more than $10
million but recovered only $800,000 (before
trebling). The Second Circuit nevertheless
affirmed a $3 million award of fees and costs,
notwithstanding the fact that “the jur y
awarded only a small part of the damages
sought by plaintiff, three of plaintiff’s six
charges were dismissed as time-barred, and
the [plaintiff] prevailed against only three of
eight defendants.” 12 Citing the Supreme
Court’s ruling in Hensley that “[t]he result is
what matters,”13 the Second Circuit explained
that although the “plaintiff did not prevail on
all of its claims and the jury did not find all the
defendants guilty, the plaintiff obtained a jury
verdict and a judgment against defendants. It
won the case.”14
Similarly, in Miltland Raleigh-Durham v.
Myers, District Judge Motley declined to
reduce the lodestar amount of $684,450 in
fees and $117,697 in costs awarded to RICO
plaintiffs who recovered approximately $1
million in damages, since the plaintiffs “succeeded on all claims despite [the defendant’s]
extensive fraud.”15
Fee-Shifting
There exists some disagreement among
courts over the extent to which the Hensley
lodestar factors should apply to cases that
involve, as RICO cases do, mandatory rather
than permissive fee-shifting statutes.16 The
Second Circuit, in a civil RICO case, noted that
the “results obtained” analysis of Hensley and
Farrar v. Hobby “‘is of limited applicability’ to
statutes that mandate an award of attorney
fees.”17 Other courts determining fees and
costs in RICO cases, however, have applied
the Hensley analysis.18 Indeed, given the provision in Section 1964(c) for a reasonable
attorney’s fee in civil RICO cases, the courts
must make a determination of what is reasonable, and that analysis may be likely to
consider generally the same factors as in
Hensley. For example, in a recently decided
case, System Management, Inc. v. Loiselle, the
district court concluded that it would “not
place much emphasis on Hensley and Farrar
when interpreting the fee-shifting provision in
RICO.”19 Although the court still calculated a
lodestar amount before making its award of
fees and costs,20 the district court put virtually
no emphasis on the factor of the “results
obtained.”21
It is well established that the award of
attorney’s fees in federal fee-shifting cases
generally should not be reduced simply
because a prevailing plaintiff seeks an award
that is greater than the damages awarded at
trial.22 Indeed, in City of Riverside v. Rivera, a
civil rights case, the Supreme Court upheld
an attorney’s fee award of $245,456 when the
plaintiff only recovered $33,350 in compensator y and punitive damages.23 In United
States Football League v. National Football
League, an antitrust case, the Second Circuit
affirmed an award of over $5.5 million in
attorney’s fees under the Clayton Act, upon
which the mandatory fee-shifting provision of
the RICO statute is based, even though the
jury awarded the plaintiff only $1 in damages
(which was trebled).24 The Second Circuit
explained, “Because of the importance of the
policy of encouraging private parties to bring
antitrust actions, recovery of their reasonable attorney’s fees must be sustained regardless of the amount of damages awarded.”25
The rule of proportionality has fared no
better in civil RICO cases. In Nor theast
Women’s Center v. McMonagle, the Third
Circuit upheld an award of attorney’s fees
and costs of $64,964 in a civil RICO case,
even though the jury only awarded $875 in
RICO damages before trebling.26 The Third
Circuit ruled that “the district court properly
refused to apply a proportionality rule to
reduce the RICO fee award in this case,”
expressly rejecting the defendants’ argument
that the Supreme Court’s ruling in City of
Riverside did not control.27 In FMC Corporation v. Varonos, the district court refused to
award any fees or costs to a prevailing RICO
plaintiff, on the ground that “the amount of
[the plaintiff’s] request was almost triple the
amount of the actual damage award.”28 The
Seventh Circuit, relying upon McMonagle
and City of Riverside, reversed and remanded
for a determination of the plaintiff’s reasonable fees and costs.29
In Nu-Life Construction Corporation v.
Board of Education, the district court awarded
fees and costs totaling $193,266 to the RICO
plaintiff, notwithstanding the fact that the
jury awarded only $23,400 in compensatory
damages against some defendants and found
that other defendants had not violated RICO.30
The district court, relying upon McMonagle,
FMC, and Second Circuit decisions rejecting propor tionality in civil rights cases,
“decline[d] to reduce [the plaintiff’s] fee application notwithstanding the limited pecuniary
success achieved by the plaintiff Nu-Life.”31
Loiselle is the most recent case to consider the issue of proportionality in connection with a RICO fees application.32 After
announcing it would not place much emphasis on the Farrar and Hensley factors, the district court calculated and accepted as its
award the reasonable number of hours multiplied by the reasonable hourly rates.33 As a
result, the court awarded fees and costs totaling $184,232 to the plaintiff, even though the
treble RICO damages amounted to
$1,018.56.34 The district court, in colorful language, explained its rejection of a proportionality rule in that RICO case: “‘The better
part of valor is discretion.’ William Shake-
speare, The First Part of Henry The Fourth act
5, sc. 4. But [the defendant] chose to fight this
one out. Now that he has lost the battle, this
Court will not exercise its discretion for no
better reason than to comfort defeat.”35
Defense counsel might argue against an
award of fees and costs in excess of RICO
damages on the ground that RICO treble
damages are more than enough to accomplish the goals of deterrence and retribution.
This argument misconstrues the purpose of
the civil remedies afforded by the RICO
statute, which is to compensate plaintiffs for
their actual costs in order to encourage private
attorney general suits in the enforcement of
important public policies.36 The refusal of the
courts to apply a rule of proportionality in civil
RICO cases, therefore, is consistent with the
objectives underlying Section 1964(c), since
the primary focus of the treble damages provision of RICO is remedial, not punitive.37 As
the Supreme Court also held, nor are attorney’s fees “‘clearly punitive.’”38 Thus, the
remedial purposes underlying the mandatory fee-shifting provisions of Section 1964(c)
“would best be served by fully compensating
private attorneys general, no matter how limited their success.”39
The Billing Judgment Approach
Trying a different approach, defense counsel might concede that courts have rejected
application of a propor tionality rule but
attempt to limit that rejection to cases in
which the fee awards were disproportionate
to the actual amount of damages recovered by
the plaintiff, not to the amount that the plaintiff sought. Under this view, known as the
billing judgment approach, “an attorney’s
requested fee would be judged ‘reasonable’ if
it were rationally related to the monetary
recovery that the attorney could have anticipated ex ante.” 40 Taking this approach,
defense counsel would argue that no rational
client would invest, for example, the sum of
$2 million in attorney’s fees and costs to
recoup a maximum of $300,000 in RICO treble damages.
Defense counsel are not likely to succeed
with the billing judgment approach, however,
since the Second Circuit—which is the only
one to have considered it—has expressly
rejected it. In Quaratino v. Tiffany & Company,
a civil rights case, a jury awarded $158,145
(including $98,145 in punitive damages), and
the district court calculated the plaintiff’s
lodestar amount to be $124,645.18 but only
awarded fees equaling half the plaintiff’s total
recover y (i.e., $79,072.50).41 The Second
Circuit held that “[e]ven setting aside considerable misgivings as to the feasibility of
such precise ex ante calculations, we find
that this approach conflicts with the legislaLOS ANGELES LAWYER / DECEMBER 2002 13
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tive intent and rationales of the fee-shifting
statute.”42 As a result, the Second Circuit
reversed, holding that “this Court does not follow, and has not suggested that it would be
inclined to follow, the billing judgment rule
that the district court developed.”43
Defendants sued under the civil RICO
statute must understand that they can succeed in limiting damages but still fail badly by
being liable for the plaintiff’s attorney’s fees
and costs. Counsel for defendants will not
make any headway arguing to the court that
the award of fees and costs should be proportional to the damages awarded. The proportionality rule is directly contrary to the
societal objectives upon which Congress predicated the RICO statute. Thus, rather than
challenging the fees application based upon
proportionality, defense counsel should attack
the lodestar determination on other grounds,
if possible. An attack may target two items as
being excessive: the hourly rates charged by
the plaintiff’s counsel44 and the number of
hours billed.45 Defendants may also challenge
the lack of suppor t for the application. 46
Furthermore, in cases in which the plaintiff
prevails on some but not all claims or against
some but not all defendants, defense counsel
should argue that the attorney’s fees should
be apportioned accordingly.47
■
1
18 U.S.C. §1964(c).
Section 4 of the Clayton Act states that “any person
who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws…shall
recover…the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. §15(a).
3
Rotella v. Wood, 528 U.S. 549, 557 (2000).
4
Agency Holding Corp. v. Malley-Duff & Assocs., Inc.,
483 U.S. 143, 151 (1987).
5
Rotella, 528 U.S. at 557-58 (citation omitted).
6
Bingham v. Zolt, 66 F. 3d 553, 565 (2d Cir. 1995), cert.
denied, 517 U.S. 1134 (1996) (affirming award of attorney’s fees and costs under 18 U.S.C. §1964(c)).
7
Hensley v. Eckerhart, 461 U.S. 424, 433 (1983).
8
Pennsylvania v. Delaware Valley Citizens’ Council
for Clear Air, 478 U.S. 546, 565 (1986).
9
United States Football League v. National Football
League, 887 F. 2d 408, 413 (2d Cir. 1989), cert. denied,
493 U.S. 1071 (1990).
10
Hensley, 461 U.S. at 437.
11
Id. at 436.
12
Bingham v. Zolt, 66 F. 3d 553, 565 (2d Cir. 1995), cert.
denied, 517 U.S. 1134 (1996).
13
Hensley, 461 U.S. at 435.
14
Bingham, 66 F. 3d at 566-67.
15
Miltland Raleigh-Durham v. Myers, 840 F. Supp.
235, 240 (S.D. N.Y. 1993); see also Abou-Khadra v.
Bseirani, 971 F. Supp. 710, 719-20 (N.D. N.Y. 1997)
(awarding fees and costs of $620,361.48 in civil RICO
case); Brokerage Concepts v. United States Healthcare,
1996 WL 741885, at *16 (E.D. Pa. Dec. 10, 1996) (in
which $910,000 in fees and costs were awarded after
jury awarded $200,000 in RICO damages before trebling).
16
Compare RICO and Clayton Act mandatory language
with 42 U.S.C. §1988(b) (“The court…may allow…a reasonable attorney’s fee.”) and 16 U.S.C. §1540(g)(4)
(“The court…may award costs of litigation (including
2
14 LOS ANGELES LAWYER / DECEMBER 2002
reasonable attorney and expert witness fees) to any
party.”).
17
Stochastic Decisions, Inc. v. DiDomenico, 995 F. 2d
1158, 1168 (2d Cir. 1993), cert. denied, 510 U.S. 945
(quoting United States Football League v. National
Football League, 887 F. 2d 408, 412 (2d Cir. 1989),
cert. denied, 493 U.S. 1071 (1990)).
18
See, e.g., Northeast Women’s Ctr. v. McMonagle,
889 F. 2d 466, 470 (3d Cir. 1989), cert. denied, 494 U.S.
1068 (1990).
19
Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d 195,
206 (D. Mass. 2001).
20
Id. at 208.
21
Id. at 209-11.
22
See, e.g., Fair Housing of Marin v. Combs, 285 F. 3d
899, 907-08 (9th Cir. 2002) (affirming an award “more
than five times the amount of the compensatory and
punitive damage awards combined”); Cowan v.
Prudential Ins. Co., 935 F. 2d 522, 526 (2d Cir. 1991)
(lodestar “should not be reduced simply because a
plaintiff recovered a low damage award”).
23
See City of Riverside v. Rivera, 477 U.S. 561, 564-65
(1986).
24
See United States Football League v. National Football
League, 887 F. 2d 408, 413-16 (2d Cir. 1989), cert.
denied, 493 U.S. 1071 (1990).
25
Id. at 412.
26
See Northeast Women’s Ctr. v. McMonagle, 889 F. 2d
466, 471-75 (3d Cir. 1989), cert. denied, 494 U.S. 1068
(1990).
27
Id. at 474-75.
28
FMC Corp. v. Varonos, 892 F. 2d 1308, 1316 (7th Cir.
1990).
29
Id.
30
See Nu-Life Const. Corp. v. Board of Educ., 795 F.
Supp. 602, 607 (E.D. N.Y. 1992), aff’d, 28 F. 3d 1335 (2d
Cir. 1994).
31
Id.
32
See Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d
195, 207 (D. Mass. 2001).
33
Id. at 209-11.
34
Id. at 212.
35
Id.
36
See Rotella v. Wood, 528 U.S. 549, 557-58 (2000).
37
See Shearson/Am. Express, Inc. v. McMahon, 482
U.S. 220, 240-41 (1987).
38
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 492
(1985) (citation omitted).
39
Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d 195,
207 (D. Mass. 2001).
40
See Quaratino v. Tiffany & Co., 166 F. 3d 422, 425 (2d
Cir. 1999).
41
Id. at 424.
42
Id. at 426.
43
Id.; see City of Riverside v. Rivera, 477 U.S. 561, 585
(1986) (Powell, J., concurring: “[A] district court, in fixing fees, is obligated to give primary consideration to
the amount of damages awarded as compared to the
amount sought.”).
44
See, e.g., Vanke v. Block, 2002 WL 1836305, at *7 (C.D.
Cal. Aug. 8, 2002) (finding hourly rates to be excessive
and reducing the rates accordingly).
45
See, e.g., Farmer v. Arabian Am. Oil Co., 31 F.R.D. 191,
193 (S.D. N.Y. 1962), rev’d in part, 324 F. 2d 359 (2d Cir.
1963), rev’d, 379 U.S. 227 (1964) (“[P]arties to a litigation may fashion it according to their purse and indulge
themselves and their attorneys, but they may not foist
their extravagances upon their unsuccessful adversaries.”).
46
See, e.g., Dailey v. Societe Generale, 915 F. Supp. 1315,
1328 (S.D. N.Y. 1996), aff’d in relevant part, 108 F. 3d
451 (2d Cir. 1997) (criticizing “entries listed simply as
‘telephone call,’ ‘consultation,’ and ‘review of documents’”).
47
See Hensley v. Eckerhart, 461 U.S. 424, 437 (1983).
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LOS ANGELES LAWYER / DECEMBER 2002 15
practice
tips
By Charles J. Greaves
The Unique Issues in Shareholder
Derivative Litigation
A limited statutory
Section 800(b)(2). Failure to satisfy these requirements subjects
scheme has led
a shareholder’s complaint to
demurrer.3 The applicable statucourts to play a
tory language4 permits a derivative lawsuit only if:
key role in shaping
The plaintiff alleges in the
complaint with particularderivative lawsuits
ity plaintif f ’s ef for ts to
secure from the board
such action as plaintif f
desires, or the reasons for
ew statutes in California
not making such effort,
are asked to do the kind of
and alleges further that
heavy lifting that is
plaintif f has either inrequired of Corporations Code
formed the corporation or
Section 800. Fewer than 1,000
the board in writing of the
words in length, Section 800 repultimate facts of each
resents the sum total of all legiscause of action against
lation on the subject of shareeach defendant or delivholder derivative litigation in
ered to the corporation or
California.1 Yet in light of recent
the board a true copy of
corporate and accounting scanthe complaint which plaindals and the prevailing atmostiff proposes to file.
phere of hostility toward corpoAlthough couched as a pleadrate management, few statutes
are more important. With Section ing requirement, this language
800 as their touchstone, both cor- imposes upon a would-be derivaporate counsel and those who lit- tive plaintiff two separate and distinct af firmative
igate in the corpoCharles J. Greaves is
obligations. 5 In
rate arena need to
the
chair
of
the
understand and
order to comply
litigation
must be prepared
with the first (or
department at Hahn
to address a variety
demand) require& Hahn LLP. He
of issues unique to
ment, the sharerepresents both
shareholder derivholder must make
plaintiffs and
ative litigation in
some effort to sedefendants in
California.2
cure from the corcomplex business,
poration’s board of
What is a derivtort, and employdirectors whatever
ative action? It is an
ment litigation.
action the shareaction that is asholder wishes the
serted by a shareboard to take. This
holder against one
or more defendants—typically will typically be a demand that
including the corporation’s own the board vote to sue in the cordirectors—on behalf of the cor- poration’s name to redress a
poration. The first obstacles con- wrong that the shareholder
fronting a prospective share- believes the corporation has sufholder-plaintiff are the “demand” fered. This demand requirement
and “notice” requirements of is, however, a qualified one, since
F
16 LOS ANGELES LAWYER / DECEMBER 2002
it is excused when there are “reasons for not making such effort.”
Courts interpreting this qualification have crafted a “futility
exception,” pursuant to which the
shareholder’s demand upon the
corporation’s board of directors
will be excused if, under the particular facts of the case, making
such a demand would be useless.6 Futility has been found to
exist when, for example, a majority of the board is alleged to have
directly participated in, or benefited financially from, fraudulent
or criminal conduct.7
The second (or notice) requirement imposed by Section
800 is that the shareholder either
must inform the corporation or its
board of directors in writing of
the ultimate facts of each proposed cause of action against
each prospective defendant, or
must deliver to the corporation or
its board of directors a copy of the
complaint that the shareholder
proposes to file. While a shareholder may be excused from
complying with the demand
requirement by demonstrating
futility, the structure of the statute
makes clear that there is no corresponding futility exception to
the requirement of written notice.
Written notice is, in all cases,
mandatory.
After making a demand
(unless one is futile) and giving
written notice, the putative plaintiff must then affirmatively plead
“with particularity” the plaintiff’s
compliance with the statute’s
threshold requirements. While
pleading actual demand and
notice is simple enough, pleading futility, in order to excuse the
demand requirement, is clearly
less so. As a rule, mere general-
ities or conclusive allegations of
perceived futility will not suffice.8
Courts will instead require specific factual allegations as to why
each particular director could not
have fairly evaluated the shareholder’s demand.9
In light of these pleading
requirements, the better practice
for plaintiff’s counsel in all cases
is to actually make the demand
and give the required notice.
Both requirements can be met
by, for example, including the
proposed complaint as an enclosure to the shareholder’s prefiling
demand letter.
The Plaintiff’s Bond
There is no attorney’s fee provision per se in Section 800. The
corporation, however, or any
defendant who is an officer or
director of the corporation, may
move to require that the shareholder plaintiff furnish a bond if
a moving defendant demonstrates either 1) that there is no
reasonable possibility that prosecution of the action will benefit
the corporation or its shareholders, or 2) that the moving defendant, if other than the corporation, did not participate in the
challenged transaction in any
capacity.10 If the court determines
that a moving party has established “a probability” in support
of any ground upon which the
motion is based, the court must
fix the amount of the bond, not to
exceed $50,000, by considering
the reasonable expenses, including attorney’s fees, that may be
incurred by the moving party,
including the corporation, in connection with defending the
action.11
If a derivative plaintiff pleads
multiple causes of action, security is proper
if any one of the causes of action falls within
the purview of the statute.12 The $50,000 bond
amount is an aggregate, however, and a court
may not require a greater bond regardless of
the number of defendants or causes of
action.13 In practice, a plaintiff’s bond is sought
in most shareholder derivative actions
because the corporation’s board of directors
has, in response to the plaintiff’s demand,
already determined that prosecution of the
action is not in the best interests of the corporation. The motion for security must be
filed within 30 days after service of summons
upon the corporation or other moving defendant,14 and the filing of the motion stays all further proceedings in the case until 10 days
after the disposition of the motion.15
As a practical matter, success on the bond
motion often terminates the lawsuit, since
few disgruntled shareholders will post a
$50,000 bond in the face of a judicial determination that there is no reasonable possibility that further prosecution of the action will
benefit the corporation or its shareholders.
The additional significance of the motion for
security is that the prevailing defendant in a
derivative action has no right to recover attorney’s fees, in the absence of a contractual fee
provision, unless the defendant is first successful on a motion for security. In that case,
the plaintiff’s potential liability for fees is both
established and limited by the face amount of
the bond.16
Peremptory Dismissal
There are procedures that are unique to
shareholder derivative litigation that, if successful, will result in the peremptor y dismissal of the plaintiff’s claims without the
need for a trial on their merits. These include
a demurrer or summary judgment motion
following the vote of a disinterested board
majority against prosecution of the action,
and a motion for summary judgment following a like vote by a board-appointed special litigation committee.
Courts have long recognized that a disinterested board majority, exercising its good
faith business judgment, can obtain dismissal
of a shareholder derivative lawsuit on the
ground that the burdens of its further prosecution—including time, money, and the disruption of business—outweigh the likely benefits.17 The rationale behind this rule is that
the management of a corporation’s affairs is
properly vested in the duly elected board of
directors and may not be usurped by one or
more litigious shareholders.18
A vote by a disinterested board majority
against the prosecution of the action creates
a legal presumption that the board’s decision
was made in good faith, on an informed basis,
and with an honest belief that the decision is
in the best interests of the corporation.19 This
presumption—the so-called business judgment rule—is, however, a rebuttable one,
and dismissal will not lie if there has been
fraud, bad faith, overreaching, or an unreasonable failure by the board to investigate
material facts.20 Faced with a motion for summary judgment by an allegedly disinterested
board majority, the court must determine:
• Whether the board majority is truly independent, and not financially or other wise
interested in the challenged transaction.
• Whether the board conducted a reasonable
investigation into the operative facts before
voting.
• Whether the vote represents a good faith
exercise of the business judgment of the
board majority.21
Plaintiffs seeking to avoid dismissal by
this procedure will often implicate the board
majority in the challenged transaction or will
preemptively allege failure of inquiry or other
af firmative misconduct to rebut the presumption arising from the business judgment
rule. The court’s role on summary judgment
is limited to a determination of whether triable
issues of material fact exist regarding these
matters. If so, the “directors’ discretion”
defense becomes an issue of fact, and while
it may be bifurcated from the remaining
issues in the case at trial, it may not be the
subject of a special pretrial evidentiary proceeding.22
Even when there is no disinterested board
majority, courts will still entertain a motion for
summary judgment when a disinterested special litigation committee appointed by an
interested board majority so requests.23 The
special litigation committee must be composed of two or more directors who have not
benefited financially from the challenged
transaction.24 The statutory authority for this
delegation of responsibility is Corporations
Code Section 311, which permits a board of
directors to designate committees having the
full authority of the board, except for certain
enumerated matters.
Just as a disinterested board majority may
move for summary judgment, so too may a
special litigation committee if the committee
determines that further prosecution of the
action will not, on balance, benefit the corporation or its shareholders. Courts faced
with this type of motion follow the same procedures and apply the same analyses as they
would in the case of a motion filed by a disinterested board majority.25
Corporate Counsel
Once a shareholder derivative action is
filed, the defendants must quickly address the
roles to be played by both corporate and spe-
cial litigation counsel. While a derivative
action is ostensibly prosecuted for the benefit of the corporation, the corporation itself, as
an indispensable party, must be named as a
defendant.26 As a nominal defendant, the corporation is entitled to have counsel at all
stages of the proceeding.27 The corporation’s
dual role as de facto plaintiff and nominal
defendant creates conflict-of-interest issues for
counsel that are unique to shareholder derivative lawsuits.
The corporation itself, and not its shareholders, is the holder of the attorney-client
privilege.28 Therefore, the shareholders of a
corporation cannot waive the privilege on the
corporation’s behalf.29 Building upon this
premise, recent case authority holds that a
shareholder plaintiff cannot sue a corporation’s outside general counsel for legal malpractice in a derivative action, because doing
so would compel corporate counsel to waive
the attorney-client privilege in order to mount
a meaningful defense to the plaintiff’s claims.30
In other words, while a derivative plaintiff
otherwise stands in the shoes of the corporation, the plaintiff does not do so with respect
to the attorney-client privilege, and a shareholder cannot compel a waiver of the privilege
by the expedient of naming both the corporation and its counsel as defendants in a derivative action.
Even if corporate counsel is immune from
liability in a derivative action for advice given
to the corporation regarding the challenged
transaction, corporate counsel may not, in
defense of a derivative lawsuit, simultaneously represent both the corporation and the
directors whose wrongdoing is alleged to
have damaged the corporation.31 Nor in most
cases may corporate counsel continue to represent either the corporation or the defendant directors, because the applicable Rules
of Professional Conduct preclude counsel
from accepting employment adverse to a current or former client when counsel has
obtained confidential information material to
the employment—and meaningful consent
to representation in these circumstances,
while technically allowed by the Rules of
Professional Conduct, is often difficult to
obtain in shareholder derivative litigation.32
Although each case is unique, the better
practice in most cases is to retain new, independent litigation counsel for both the corporation and the director defendants. Doing
so removes conflict-of-interest issues from
the case and leaves corporate counsel in the
appropriate role of disinterested percipient
witness.
Advancement and Indemnity
When a director, officer, employee, or
other agent of a corporation is sued in his or
LOS ANGELES LAWYER / DECEMBER 2002 17
her corporate capacity and wins a judgment
on the merits in defense of a derivative action,
indemnification from the corporation for all
related defense costs and attorney’s fees actually and reasonably incurred is mandatory.33
In all other cases, a director, officer, employee,
or other agent’s right to indemnification from
the corporation for litigation-related expenses
will depend upon the facts of the case and the
language of the corporation’s articles and
bylaws.34 The policy behind the statutes and
cases authorizing corporate indemnification
is to encourage competent individuals to
serve as officers and directors of corporations and to discourage strike suits and other
frivolous shareholder litigation by assuring a
vigorous defense to these actions.35
In the absence of a judgment on the merits in defense of a derivative action, the right
to indemnification is governed by Corporations Code Section 317(c). That statute
expressly prohibits indemnification for:
1) Amounts paid in settling a derivative action
without court approval.
2) Expenses incurred in defending a derivative action that is settled without cour t
approval.
3) Any claim for which the defendant is
adjudged to be liable, unless the court determines that, in view of all of the circumstances
of the case, the defendant is “fairly and reasonably entitled to indemnity for expenses
and then only to the extent that the court
shall determine.”
Corporations Code Section 317(c) allows
indemnification in the absence of a defense
judgment on the merits only if the defendant “acted in good faith, in a manner the
person believed to be in the best interests of
the corporation and its shareholders.” Such
“permissive indemnification” may be authorized by:
1) Majority vote of a quorum of directors
who were not parties to the action,
2) Independent legal counsel in a written
opinion, if a quorum of nonparty directors
cannot be obtained,
3) Approval of the shareholders, excluding the
shares owned by the person or persons to be
indemnified, or
4) The court in which the proceeding is or
was pending, “whether or not the application
by the agent, attorney or other person is
opposed by the corporation.”36
If a corporate agent is forced to seek and
obtains court approval for permissive indemnification, the agent is also entitled to recover
his or her reasonable expenses, including
attorney’s fees, incurred in obtaining the
court order.37
A corporation’s board of directors may
vote to advance litigation expenses as they are
incurred by any director, officer, employee, or
18 LOS ANGELES LAWYER / DECEMBER 2002
other agent of the corporation who is named
in a derivative lawsuit.38 The structure of
Corporations Code Section 317 suggests—
and at least one influential commentator concurs—that even interested directors may participate in the vote to advance litigation
expenses, including to themselves.39 The provisions of Corporations Code Section 315(a),
which require a shareholder vote with
respect to any loans made to directors or
corporate officers, does not apply to litigation
advances made under Corporations Code
Section 317.40
As a prerequisite to obtaining advancement of litigation expenses, a defendant—
whether he or she is a director, officer, employee, or other agent of the corporation—
must provide the corporation with “an undertaking” to repay the sums advanced in the
event it is determined, at the conclusion of the
case, that the defendant is not entitled to
indemnification.41 While the statute does not
specify the form of the undertaking, the Bond
and Undertaking Law42 presumably applies by
reference.
Attorney’s Fees and Costs
Since a derivative action is prosecuted on
behalf of the corporation, any damages recovered in the action will ordinarily inure to the
benefit of the corporation and not to the personal benefit of the plaintiff (other than in
his or her capacity as a fractional owner of the
corporation). Since derivative actions are
equitable in nature, however, courts may tailor their judgments to fit the unique circumstances of each case—for example, to avoid
a windfall that might result in the absence of
a special allocation of damages.43 The shareholder plaintiff cannot, in any event, settle a
derivative lawsuit without first obtaining court
approval.44
A shareholder who is a prevailing plaintiff
is entitled to recover his or her reasonable
attorney’s fees and litigation costs as a charge
against the settlement or judgment proceeds.
This right to fees is not statutory but is based
upon the plaintiff’s creation of a common
fund for the benefit of the corporation and the
plaintiff’s fellow shareholders.45 In a two-person corporation, attorney’s fees may not be
awarded to one shareholder who prevails in
a derivative action against the other shareholder, since no common fund results from
the action.46
When one or more defendants prevail in
the action, and the plaintiff has posted security pursuant to Corporations Code Section
800, the prevailing defendants have recourse
to the security for their reasonable expenses,
including attorney’s fees. This recourse
includes a claim by the corporation for
advances or indemnity payments made to
corporate agents under Corporations Code
Section 317.47
A motion to include attorney’s fees in the
defendant’s memorandum of costs must be
filed within the time for filing a notice of
appeal from the underlying judgment—typically 60 days from notice of its entr y. 48
Conversely, a motion to enforce the plaintiff’s bond in satisfaction of the fee award
may only be filed after the entry of final judgment in the action and after the time for
appeal has expired or, if an appeal is taken,
after the appeal is finally determined.49 This
often requires the prevailing defendant to follow a two-step process, in which a motion to
include attorney’s fees in the memorandum
of costs is filed first, followed by, if necessary, the filing of a second motion to enforce
the bond after the unsuccessful shareholder
plaintiff exhausts his or her appeals.
If the derivative action arises out of the
breach of a contract that includes an attorney’s fee provision, the prevailing defendant
is not limited to recourse against the plaintiff’s
bond (if one is posted) under Corporations
Code Section 800 and to indemnity under
Corporations Code Section 317. Prevailing
defendants may also avail themselves of the
reciprocal right to attorney’s fees found in
Civil Code Section 1717, either in addition to
or in lieu of these other sources of potential
recovery.50
Because the statutory scheme governing
shareholder derivative actions in California
is skeletal, and because these actions are
equitable in nature, the courts have played a
prominent role in shaping the substantive
law and procedure in this area. The dot-com
implosion and recent flood of corporate and
accounting scandals should act as catalysts in
the years ahead for a greatly accelerated
evolution of shareholder derivative law in
California.
■
1
Corporations Code §15702, which governs derivative
actions in the context of limited partnerships, simply
mirrors Corporations Code §800. Corporations Code
§316(c) (directors’ joint liability to creditors) and
§506(b) (shareholders’ direct liability to creditors)
authorize actions in the name of the corporation without regard to the provisions of §800.
2
For an overview of basic principles of shareholder
derivative litigation, see 9 W ITKIN , S UMMARY OF
CALIFORNIA LAW, Corporations §§179 et seq. (9th ed.
1989), and 2 FRIEDMAN, CALIFORNIA PRACTICE GUIDE:
CORPORATIONS §§6:598 et seq. (2002).
3
Shields v. Singleton, 15 Cal. App. 4th 1611, 1619
(1993).
4
CORP. CODE §800(b)(2).
5
Nelson v. Anderson, 72 Cal. App. 4th 111, 127 (1999).
6
Beyerbach v. Juno Oil Co., 42 Cal. 2d 11, 28 (1954).
7
Reed v. Norman, 152 Cal. App. 2d 892, 898 (1957).
8
Oakland Raiders v. National Football League, 93 Cal.
App. 4th 572, 587-89 (2001).
9
Shields v. Singleton, 15 Cal. App. 4th 1611, 1622
(1993).
10
CORP. CODE §800(a).
Burt v. Irvine Co., 237 Cal. App. 2d 828, 868 n.5
(1965).
12
Bailey v. Fosca Oil Co., 180 Cal. App. 2d 289, 296-97
(1960).
13
Hale v. Southern Cal. IPA Med. Group, Inc., 86 Cal.
App. 4th 919, 927-28 (2001).
14
CORP. CODE §800(c).
15
CORP. CODE §800(f).
16
Alcott v. M.E.V. Corp., 193 Cal. App. 3d 797, 799-800
(1987).
17
Findley v. Garrett, 109 Cal. App. 2d 166, 177-78 (1952).
18
Id. at 174.
19
Katz v. Chevron Corp., 22 Cal. App. 4th 1352, 1366
(1994).
20
Lee v. Interinsurance Exch., 50 Cal. App. 4th 694, 715
(1996).
21
Findley, 109 Cal. App. 2d at 177.
22
See Will v. Engebertson & Co., 213 Cal. App. 3d 1033,
1041-43 (1989) (special litigation committee); Finley v.
Superior Court, 80 Cal. App. 4th 1152, 1162-63 (2000)
(same).
23
Finley, 80 Cal. App. 4th at 1158-63.
24
Id. at 1158; CORP. CODE §311.
25
Lewis v. Anderson, 615 F. 2d 778, 781-83 (9th Cir.
1979).
26
Stockton v. Ortiz, 47 Cal. App. 3d 183, 191-92 (1975).
27
Olson v. Basin Oil Co. of Cal., 136 Cal. App. 2d 543,
560-61 (1955).
28
McDermott, Will & Emery v. Superior Court, 83 Cal.
App. 4th 378, 383 (2000).
29
Smith v. Laguna Sur Villas Cmty. Ass’n, 79 Cal. App.
4th 639, 644 (2000).
30
McDermott, Will & Emery, 83 Cal. App. 4th at 384.
This holding raises the question whether counsel can
be sued when director defendants assert an advice-ofcounsel defense or otherwise waive the attorney-client
privilege.
31
Forrest v. Baeza, 58 Cal. App. 4th 65, 74-75 (1997).
32
Compare CAL. RULES OF PROF’L CONDUCT R. 3-600(E)
with R. 3-310(E). But see Forrest, 58 Cal. App. 4th at 7682 (disqualification of corporate counsel from continued representation of individual directors/shareholders not required if the “functioning of the corporation
has been so intertwined with the individual defendants
that any distinction between them is entirely fictional”).
33
CORP. CODE §317(d); Groth Bros. Oldsmobile, Inc. v.
Gallagher, 97 Cal. App. 4th 60, 73 (2002).
34
Indemnification beyond that allowed by Corporations
Code §317 is authorized, within limits, by Corporations
Code §204(a)(11) if a corporation’s articles and bylaws
so provide.
35
Brusso v. Running Springs Country Club, Inc., 228
Cal. App. 3d 92, 103-04 (1991).
36
CORP. CODE §317(e).
37
CORP. CODE §317(a); Fed-Mart Corp. v. Price, 111 Cal.
App. 3d 215, 222 (1980).
38
CORP. CODE §317(f).
39
Compare C ORP . C ODE §317(e) with C ORP . C ODE
§317(f). See also 1 MARSH’S CALIFORNIA CORPORATION LAW
§11.22[I], at 11-217 (4th ed. 1999).
40
CORP. CODE §317(f) (last sentence).
41
CORP. CODE §317(f).
42
The Bond and Undertaking Law, CODE CIV. PROC.
§§995.010 et seq.
43
Rankin v. Freebank Co., 47 Cal. App. 3d 75, 96 (1975).
44
Ensher v. Ensher, Alexander & Barsoom, Inc., 187
Cal. App. 2d 407, 410 (1960).
45
Baker v. Pratt, 176 Cal. App. 3d 370, 378 (1986).
46
Id.
47
CORP. CODE §800(d).
48
CAL. R. OF CT. R. 870.2.
49
CODE CIV. PROC. §996.440.
50
Brusso v. Running Springs Country Club, Inc., 228
Cal. App. 3d 92, 102-05 (1991).
11
Judgments Enforced
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LOS ANGELES LAWYER / DECEMBER 2002 19
By Steven R. Yee
The Blame Game
The California Supreme Court will soon decide whether the
anti-SLAPP law applies to malicious prosecution claims
A
20 LOS ANGELES LAWYER / DECEMBER 2002
the lack of probable cause) and the tort’s disfavored status.3
However, because of the reluctance of trial courts to dismiss cases
at the initial pleading stage, defendants have often been forced to
litigate malicious prosecution actions at least through a motion for
summary judgment. Only then would plaintiffs have to create a triable issue of fact through the use of admissible evidence. As a result,
defendants in malicious prosecution actions have often expended
substantial resources in time and money defending themselves
against meritless actions.
In addition to the costs involved, malicious prosecution actions
are troublesome for attorneys for several other reasons. First, the
California Evidence Code does not recognize a doctrine that would
allow attorneys to waive the attorney-client privilege when defending themselves against lawsuits. This becomes problematic when
an attorney is sued for malicious prosecution but the attorney’s
client in the underlying action is not. In that situation, the sued attorSteven R. Yee is a partner at Wolfe & Wyman, LLP in Los Angeles
and Orange Counties, where he is the chair of the firm’s Professional
Liability Department and specializes in legal malpractice litigation.
He would like to thank Steve R. Belilove for his assistance.
KEN SUSYNSKI
s if being sued for legal malpractice and paying the
skyrocketing premiums for professional liability
insurance were not enough for lawyers to worry
about, they also have to be concerned about the
threat of being sued for malicious prosecution.
When a plaintiff loses an underlying action, the
plaintiff’s attorney frequently becomes a candidate for defendant
in a subsequent malicious prosecution suit.
Malicious prosecution actions have become more commonplace despite the consistent holdings of the California Supreme
Court that the tort of malicious prosecution is “disfavored” because
of its potential to create an undue chilling effect on a citizen’s willingness to report criminal conduct or to bring a civil dispute to
court.1 The supreme court’s preferred approach is to adopt “measures facilitating the speedy resolution of the initial lawsuit and
authorizing the imposition of sanctions for frivolous or delaying conduct within that first action itself.”2
Unfortunately, strong case law holdings have not been sufficient
to inhibit the filing of malicious prosecution cases. Traditionally,
attorneys have opposed malicious prosecution actions by presenting arguments based on the elements of the tort (specifically,
ney cannot unilaterally
waive the attorney-client
privilege in order to
defend himself or herself
in the malicious prosecution action—even though
that may be the only effective way to mount a
defense. This raises the
question: How is the sued
attorney supposed to present a defense without
waiving the attorney-client
privilege?
Moreover, malicious
prosecution suits against
attorneys are especially
dangerous because unlike
legal malpractice actions,
there is no right to indemnity—a fact that a surprising number of attorneys
do not know.4 Indemnity
coverage is precluded
because Insurance Code
Section 533 bars indemnity for “willful acts” of an
insured.5 Thus, although
professional liability insurance can cover defense
costs in a malicious prosecution action, it cannot
indemnify the attorney for
damages. This places the sued attorney at great risk.
Finally, malicious prosecution actions are particularly vexing for
lawyers because they often trigger a legal malpractice action. In this
scenario, when plaintiffs in unsuccessful underlying actions are
named as defendants in a subsequent malicious prosecution action,
they often sue their attorneys for advising them to pursue the underlying action.
A New Weapon
Fortunately, a new weapon has emerged that may allow attorneys to
combat malicious prosecution actions far more effectively. This
weapon, which may ultimately curtail the filing of malicious prosecution actions altogether, is Section 425.16 of the Code of Civil
Procedure, otherwise known as California’s Anti-Strategic Lawsuit
against Public Participation (SLAPP) statute. Through the use of the
anti-SLAPP statute, trial courts can finally put some muscle behind
the well-settled proposition that malicious prosecution actions are disfavored. The anti-SLAPP statute enables defendants to force a trial
judge to determine if the plaintiff can establish a reasonable probability of prevailing on each element of each cause of action through
the use of admissible evidence and to move to have malicious prosecution actions dismissed at the initial pleading stage of the litigation.6
The filing of an anti-SLAPP special motion to strike also triggers
an automatic stay on discovery so that the defendant will not have to
incur the attendant costs if the malicious prosecution action is determined to be meritless.7 A stay of discovery also means that the plaintiff must have admissible evidence in hand that proves the required
elements of a malicious prosecution case: 1) the underlying action at
issue ended favorably for the plaintiff, 2) the underlying action was
initiated and maintained without probable cause, and 3) the underlying
22 LOS ANGELES LAWYER / DECEMBER 2002
action was brought with
malice. Plaintiffs, accordingly, will not be allowed to
conduct fishing expeditions
when a special motion to
strike is pending.
The reach of the antiSLAPP statute is limited.
It was enacted to allow a
trial court to “dismiss at
an early stage non-meritorious litigation meant to
chill the valid exercise of
the constitutional rights of
freedom of speech and
petition in connection with
a public issue.”8 The antiSLAPP statute thus requires the trial court to
under take a two-step
process when determining
whether an anti-SLAPP
motion meets these statutory requirements.
First, the court must
decide whether the defendant has made a threshold
prima facie showing that
the defendant’s acts of
which plaintiff complains
were taken in furtherance
of the defendant’s constitutional rights of petition
or free speech in connection with a public issue. The California
Supreme Court has, however, recently held that a defendant invoking the anti-SLAPP statute does not have to prove that the party filing the SLAPP suit had the actual intention to chill the defendant’s exercise of these constitutional rights.9
If the court finds that the defendant has made the requisite showing, the second step shifts the burden to the plaintiff to establish a reasonable probability of prevailing on the merits by making a prima facie
showing of facts that would, if proved, support a judgment in the plaintiff’s favor.10 The court may also consider the defendant’s opposing evidence, but only to determine if it defeats the plaintiff’s showing as a matter of law.11 The court does not weigh the evidence or make credibility
determinations.12 In assessing the probability the plaintiff will prevail,
the court considers only evidence that would be admissible at trial.13
In other words, the anti-SLAPP statute operates like a “summary
judgment in reverse”—with the burden on plaintiffs to demonstrate
under oath a “reasonable probability of success.”14 This is quite a burden for a plaintiff pursuing a malicious prosecution action. How, for
example, does one prove malice without the benefit of any discovery?
Until recently, it was very much an open question whether the antiSLAPP statute actually applies to malicious prosecution actions. Given
its general language, the anti-SLAPP statute has typically been used
in actions involving First Amendment issues such as libel, slander, and
defamation. Although arguments existed favoring the application of
the anti-SLAPP statute to malicious prosecution actions, many trial
judges consistently ruled that the anti-SLAPP statute did not apply to
these suits. Creative lawyers nevertheless persevered, utilizing the
broad language that the California Supreme Court used in decisions
like Briggs v. Eden Council for Hope and Opportunity to argue that the
anti-SLAPP statute did apply to malicious prosecution actions. In
Briggs, the supreme court stated:
Thus, plainly read, Section 425.16 encompasses any cause of
action against a person arising from any statement or writing
made in, or in connection with an issue under consideration or
review by an official proceeding or body.15
The supreme court continued, “As pertinent here ‘the constitutional
right to petition…includes the basic act of filing litigation or otherwise
seeking administrative action.’”16
Using this language in Briggs, a court of appeal held in 2001—for
the first time—that Code of Civil Procedure Section 425.16 applies
specifically to malicious prosecution actions. In Chavez v. Mendoza,17
the appellate court held:
It is well established that filing a lawsuit is an exercise of a party’s constitutional right of petition….[F]urther, the filing of a
judicial complaint satisfies the “in connection with a public
issue” component of Section 425.16, subdivision (b)(1) because
it pertains to an official proceeding.18
Importantly, a defendant making a special motion to strike pursuant
to the anti-SLAPP statute does not have to prove first that the activity is constitutionally protected as a matter of law. The moving party
merely has to make a prima facie showing that the action arises from
constitutionally protected activity.19 The Chavez court held that “under
the statutory scheme, a Court must generally presume the validity of
the claimed constitutional right in the first step of the anti-SLAPP analysis, and then permit the parties to address the issue in the second step
of the analysis, if necessary.”20 The Chavez court also pointed out that
this analysis is “consistent with the disfavored nature of the malicious
prosecution tort, and the view that such claims are too frequently used
as a dilatory and harassing device….”21 In so many words, the Chavez
court was instructing trial court judges that they have the tools to stop
the increase in frivolous malicious prosecution actions.
The Burden of Proof
Because of the Chavez decision and court of appeal decisions following
it, malicious prosecution actions will be much more difficult to maintain past the initial pleading stage. Only when the plaintiff can prove
a reasonable probability of prevailing on the merits at the outset of the
case (without any discovery) will the suit survive. This burden is particularly difficult to meet in the context of malicious prosecution
actions. In other actions, plaintiffs are more likely to have the necessary
admissible evidence at the outset to oppose a special motion to strike
made pursuant to the anti-SLAPP statute. For example, in a defamation action, a plaintiff can oppose a special motion to strike with proof
of the defamatory statement (by copy of the written statement or by
declaration of the witness who heard the defamatory statement) and
a declaration from the plaintiff attesting that the statement is false.
The Anti-SLAPP Statute
Code Civil Procedure Section 425.16, commonly known as California’s
anti-SLAPP statute, reads as follows:
(a) The Legislature finds and declares that there has been a disturbing
increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances. The Legislature finds and declares that it is in the public interest to
encourage continued participation in matters of public significance, and that
this participation should not be chilled through abuse of the judicial process.
To this end, this section shall be construed broadly.
(b)(1) A cause of action against a person arising from any act of that person in
furtherance of the person’s right of petition or free speech under the United
States or California Constitution in connection with a public issue shall be
subject to a special motion to strike, unless the court determines that the
plaintiff has established that there is a probability that the plaintiff will
prevail on the claim.
(2) In making its determination, the court shall consider the pleadings,
and supporting and opposing affidavits stating the facts upon which the
liability or defense is based.
(3) If the court determines that the plaintiff has established a probability
that he or she will prevail on the claim, neither that determination nor the
fact of that determination shall be admissible in evidence at any later stage
of the case, and no burden of proof or degree of proof otherwise applicable
shall be affected by that determination.
(c) In any action subject to subdivision (b), a prevailing defendant on a special
motion to strike shall be entitled to recover his or her attorney’s fees and
costs. If the court finds that a special motion to strike is frivolous or is solely
intended to cause unnecessary delay, the court shall award costs and reasonable attorney’s fees to a plaintiff prevailing on the motion, pursuant to
Section 128.5.
(d) This section shall not apply to any enforcement action brought in the name
of the people of the State of California by the Attorney General, district attorney, or city attorney, acting as a public prosecutor.
(e) As used in this section, “act in furtherance of a person’s right of petition
or free speech under the United States or California Constitution in connection
with a public issue” includes: (1) any written or oral statement or writing
made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; (2) any written or oral statement or writing
made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized
by law; (3) any written or oral statement or writing made in a place open to
the public or a public forum in connection with an issue of public interest; (4)
or any other conduct in furtherance of the exercise of the constitutional right
of petition or the constitutional right of free speech.
(f) The special motion may be filed within 60 days of the service of the complaint or, in the court’s discretion, at any later time upon terms it deems
proper. The motion shall be noticed for hearing not more than 30 days after
service unless the docket conditions of the court require a later hearing.
(g) All discovery proceedings in the action shall be stayed upon the filing of a
notice of motion made pursuant to this section. The stay of discovery shall
remain in effect until notice of entry of the order ruling on the motion. The
court, on noticed motion and for good cause shown, may order that specified
discovery be conducted notwithstanding this subdivision.
(h) For purposes of this section, “complaint” includes “cross-complaint” and
“petition,” “plaintiff” includes “cross-complainant” and “petitioner,” and
“defendant” includes “cross-defendant” and “respondent.”
(i) On or before January 1, 1998, the Judicial Council shall report to the
Legislature on the frequency and outcome of special motions made pursuant
to this section, and on any matters pertinent to the purposes of this section.
(j) An order granting or denying a special motion to strike shall be appealable
under Section 904.1.
(k)(1) Any party who files a special motion to strike pursuant to this section,
and any party who files an opposition to a special motion to strike, shall,
promptly upon so filing, transmit to the Judicial Council, by e-mail or fax, a
copy of the endorsed-filed caption page of the motion or opposition, a copy
of any related notice of appeal or petition for a writ, and a conformed copy of
any order issued pursuant to this section, including any order granting or
denying a special motion to strike, discovery, or fees.
(2) The Judicial Council shall maintain a public record of information transmitted pursuant to this subdivision for at least three years, and may store
the information on microfilm or other appropriate electronic media.—S.R.Y.
LOS ANGELES LAWYER / DECEMBER 2002 23
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24 LOS ANGELES LAWYER / DECEMBER 2002
More importantly, the plaintiff in this action
would not need evidence from the sued party.
However, in a malicious prosecution
action, it is much more difficult for a plaintiff
to prove malice by the sued attorney at the initial pleading stage. Without any discovery, it
will be very difficult for a malicious prosecution plaintiff to dispute a declaration from the
sued attorney that states that the sued attorney did not know the plaintiff before initiating
the underlying action, that no settlement
demands were made in the underlying action,
and that the sued attorney had no ill will or
malice toward the plaintiff.
It is still difficult at this time to tell whether
the anti-SLAPP statute will strike a mortal
blow against malicious prosecution claims.
Pursuant to Code of Civil Procedure Section
425.16(k)(1), the Judicial Council is required
to keep detailed records of anti-SLAPP
motions and their disposition. The party who
files a special motion to strike and the party
who opposes the motion are both required to
notify the Judicial Council of their action, and
the Judicial Council is supposed to receive a
conformed copy of order granting or denying
a motion brought pursuant to the anti-SLAPP
statute.22 However, a review of the information
provided by the Judicial Council is not revealing. According to Judicial Council statistics,
a total of 275 anti-SLAPP motions have been
filed in Los Angeles County since the inception of the statute. Of those, 18 were granted,
14 were denied, and 243 were listed as “disposition not reached.” These statistics suggest
that attorneys are simply not notifying the
Judicial Council of the results after special
motions to strike are filed.23
Of the special motions to strike granted in
Los Angeles and Orange Counties, the majority involved traditional anti-SLAPP actions
like defamation. Thus, the effect on trial
courts of the anti-SLAPP appellate decisions
involving malicious prosecution remains to be
seen. That effect will obviously be magnified
when the California Supreme Court rules
explicitly on whether the anti-SLAPP statute
applies to malicious prosecution actions, an
issue that is now pending before the court.24
In addition, another wrinkle on the use of
the anti-SLAPP statute to defend against malicious prosecution actions has emerged. But
this twist is directed not at attorney-defendants but at those attorneys representing
plaintiffs in malicious prosecution actions.
The anti-SLAPP statute provides that a prevailing defendant on a special motion to strike
“shall” recover “his or her attorney’s fees and
costs.”25 Thus, if a plaintiff’s attorney fails to
inform a potential malicious prosecution client
that the client may be liable for attorney’s
fees if the defendant prevails through the
anti-SLAPP statute, the plaintiff’s attorney
could be exposed to a legal malpractice action.
Claims of this nature against attorneys
representing malicious prosecution plaintiffs
have recently been made. It is surely disconcerting for a plaintiff who brings a malicious prosecution action to wind up paying the
defendant-attorney after the plaintiff has prevailed in the underlying action. An attorney
who brings a malicious prosecution action
now arguably has a duty to inform the client
of the anti-SLAPP statute prior to bringing
the action. Placing this additional burden on
plaintiffs and their attorneys is another way in
which applying the anti-SLAPP statute to malicious prosecution actions will serve the strong
public policy disfavoring these lawsuits.
In California, malicious prosecution
actions have long been disfavored. Before
the application of Code of Civil Procedure
Section 425.16 to these actions, however,
malicious prosecution defendants were forced
to engage in expensive and time-consuming
litigation. By applying the anti-SLAPP statute
to malicious prosecution actions, the courts
have kept in mind the disfavored status of
malicious prosecution actions. Accordingly, a
special motion to strike pursuant to California’s anti-SLAPP statute can be used as a very
powerful tool on behalf of malicious prosecution defendants.
■
Susman, 47 Cal. App. 4th 777, 784 (1996)).
Chavez v. Mendoza, 94 Cal. App. 4th 1083 (2001).
18
Id. at 1087. See also Stroock & Stroock & Lavan v.
Tendler, 102 Cal. App. 4th 318 (2002) (holding that
plaintiff’s malicious prosecution action arising from
defendant’s filing of the underlying malpractice suit
against plaintiff was on its face constitutionally protected petitioning activity) and Jarrow Formulas, Inc.
v. La Marche, 97 Cal. App. 4th 1 (2002), rev. granted
(holding that malicious prosecution complaint directed
at a defendant because she filed a cross-complaint falls
within a person’s right of petition) and White v.
Lieberman, 2d Civil No. B147327, WL 31421097 (Cal.
Ct. App. Oct. 29, 2002 (in accord with Chavez).
19
Stroock & Stroock & Lavan, 102 Cal. App. 4th 318.
20
Chavez, 94 Cal. App. 4th at 1089.
21
Id.
22
CODE CIV. PROC. §425.16(k).
17
23
The statistics are available on the Judicial Council
Web site at http://www.courtinfo.ca.gov/reference/sl.
24
Jarrow Formulas, Inc. v. La Marche, 97 Cal. App. 4th
1 (2002), rev. granted. The supreme court initially indicated that it would defer consideration of this case
until disposition of several other anti-SLAPP statuterelated cases (including Equilon Enterprises v. Consumer
Cause, Inc., 29 Cal. 4th 53 (2002)), all of which were
decided on Aug. 29, 2002. In deciding these cases, the
supreme court cited Chavez v. Mendoza, 94 Cal. App.
4th, 1083 (2001), in a manner that would appear to indicate approval of that decision. This suggests that the
court will approve the appellate court’s ruling in Jarrow
that the anti-SLAPP statute applies to malicious prosecution cases. The supreme court only recently ordered
briefing in Jarrow and has not yet scheduled oral argument, so a ruling is not expected soon.
25
CODE CIV. PROC. §425.16(c).
1
Sheldon Appel Co. v. Albert & Oliker, 47 Cal. 3d 863
(1989); see also Wilson v. Parker, Covert & Chidester,
28 Cal. 4th 811 (2002).
2
Sheldon Appel Co., 47 Cal. 3d at 873.
3
To properly state a cause of action for malicious prosecution, a plaintiff must plead and prove three essential elements: 1) the underlying action was commenced
by or at the direction of the defendant and was pursued
to a legal termination in favor of the plaintiff in the
malicious prosecution action and against the defendant, 2) the underlying action was brought without
probable cause, and 3) the underlying action was initiated with malice. Downey Venture v. LMI Ins. Co., 66
Cal. App. 4th 478, 494 (1998) (citing Bertero v. National
Gen. Corp., 13 Cal. 3d 43, 50 (1974)).
4
Downey Venture, 66 Cal. App. 4th 478.
5
Id. at 503.
6
CODE CIV. PROC. §425.16(b)(1).
7
CODE CIV. PROC. §425.16(g).
8
Kashian v. Harriman, 98 Cal. App. 4th 892, 905 (2002)
(citing Sipple v. Foundation for Nat. Progress, 71 Cal.
App. 4th 226, 235 (1999)).
9
Equilon Enter., LLC v. Consumer Cause, Inc., 29 Cal.
4th 53 (2002).
10
Chavez v. Mendoza, 94 Cal. App. 4th 1083, 1087
(2001) (citing Dowling v. Zimmerman, 85 Cal. App.
4th 1400, 1414 (2001)).
11
Lafayette Moorehouse, Inc. v. Chronicle Publ’g Co.,
37 Cal. App. 4th 855, 867 (1995).
12
Church of Scientology v. Wollersheim, 42 Cal. App.
4th 628, 654 (1996); Wilcox v. Superior Court, 27 Cal.
App. 4th 809, 827-28 (1994).
13
Church of Scientology, 42 Cal. App. 4th at 654-55.
14
College Hosp., Inc. v. Superior Court, 8 Cal. 4th 704,
718-19 (1994).
15
Briggs v. Eden Council for Hope and Opportunity, 19
Cal. 4th 1106, 1113 (1999).
16
Id. at 1115 (citing Dove Audio v. Rosenfeld, Meyer &
LOS ANGELES LAWYER / DECEMBER 2002 25
MCLE ARTICLE AND SELF-ASSESSMENT TEST
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By Mark L. Tuft
EYES
ONLY
FOR
YOUR
California’s duty of confidentiality is both more inclusive
and more protective than the attorney-client privilege
Confidentiality is the central feature of the
unique relationship between attorney and
client. Confidentiality enables lawyers to function as lawyers, promotes client autonomy
and dignity, and generally is viewed as essential to an effective and impartial system of
justice. No other duty of professional responsibility is so important to the function of
lawyering yet so misunderstood by commentators, the public, and lawyers themselves.
Jurisdictions throughout the country have
varying rules on confidentiality. Considerable
debate exists as to the parameters of the duty
of confidentiality and the relationship of confidentiality as a principle of professional responsibility and the attorney-client privilege.
Unlike most states, California does not
have an ethics rule on confidentiality. Instead,
California lawyers are obliged to follow a
seemingly inflexible statute that has not been
materially changed since 1872.1 As a result,
some commentators view California as being
out of step with the rest of the country by not
allowing or requiring lawyers to make disclosures in certain situations. Justification
for strict confidentiality has been questioned,
particularly in nonlitigation matters, and
recent legislation has encroached on the duty
of confidentiality. As California lawyers deal
with the impact of terrorism, corporate scandals, and the more global practice of law,
greater clarity on the duty of confidentiality
is needed. (See “New Challenges to Confidentiality,” page 28.)
The duty of confidentiality is related to
the duty of loyalty, and together they define
the primary role of the lawyer in his or her
representative capacity.2 In essence, the duty
of confidentiality precludes an attorney from
either disclosing confidential information
about a client or using that information
adversely to the client.
Business and Professions Code Section
6068(e) imposes on California attorneys the
duty “[t]o maintain inviolate the confidence,
and in every peril to himself or herself to
preserve the secrets of his or her client.”
The statute obligates lawyers to preserve the
client’s trust and confidence in the attorney
as well as protect information gained in the
relationship that the client has requested to
Mark L. Tuft, a partner with Cooper, White & Cooper LLP in San Francisco, counsels lawyers on professional responsibility and liability issues.
He is a vice chair of the State Bar of California Commission for the Revision of the California Rules of Professional Conduct, and he is a former
chair of the State Bar Committee on Professional Responsibility and Conduct.
26 LOS ANGELES LAWYER / DECEMBER 2002
KEN CORRAL
be held inviolate or the disclosure of which
would be embarrassing or likely detrimental
to the client’s interests.3
The duty of confidentiality, therefore, covers much more than communications protected by the attorney-client privilege.4 The
duty to protect client secrets may, depending
on the circumstances, include all information relating to the representation, whatever
its source,5 and even includes matters of public record that might cause a client or a former
client public embarrassment.6 The duty of
confidentiality extends to potential clients
seeking the attorney’s assistance with a view
toward employing the attorney professionally even if no client-lawyer relationship
ensues.7 Confidentiality also continues after
the attorney-client relationship has ended
and, with limited exception, sur vives the
client’s death.8
Although the statute that codifies California’s duty of confidentiality is reputed to
be the strictest in the country, the scope of the
duty in California is actually not as broad as in
states that follow the ABA Model Rules of
Professional Conduct, which were originally
adopted in 1983. ABA Model Rule 1.6(a) protects all “information relating to the representation of a client”—a protection that is even
more sweeping than the earlier ABA Model
Code of Professional Responsibility, which
was adopted in 1969.9 In contrast, the California
statute provides that the lawyer must preserve
the client’s “secrets,” which may or may not
include everything learned in the course of representing a client. Implicit in Section 6068(e)
is the requirement of a reasonable expectation
of confidentiality on the part of the client,
which, depending on the circumstances, may
narrow the scope of the attorney’s duty as
compared to the Model Rules.10
The ABA and California were more closely
aligned on the concept of client secrets before
the Model Rules superseded the Model Code.
The ABA Model Code defined the scope of
the duty of confidentiality as the sum of the
information protected by the attorney-client
privilege—in other words, a client’s confidences—and information gained in the professional relationship that, although not protected by the privilege, would be embarrassing
or detrimental to the client if revealed, or was
information the client had expressly requested to be held inviolate—that is, the client’s
secrets.11 ABA Model Rule 1.6(a) eliminates
the Model Code’s two-prong approach to the
duty of confidentiality.12
Ethics Rules and the
Attorney-Client Privilege
The law of confidentiality has its origins in two
distinct but related sources: ethics rules and
the attorney-client privilege. The original
ABA Canons of Ethics, adopted in 1908, did
not directly address the issue of confidentiality. The only reference was in Canon 6 on
conflicts of interest, which precluded a lawyer
from accepting employment that might
require the disclosure of the client’s “secrets”
or “confidences.” Canon 37 was added in 1928
to impose on the lawyer a duty to preserve a
client’s confidences.
The origin of California’s Section 6068(e)
is the code of civil procedure developed by
David Dudley Field for the New York legislature in 1849. The concepts in the Field code
is sought from the lawyer through compulsion
of law.18 The duty of confidentiality is interpreted broadly and is designed primarily to
protect the attorney-client relationship, while
the attorney-client privilege, as a rule of evidence, is construed narrowly in judicial proceedings in which courts are concerned primarily with ascertaining the truth.19
The attorney-client privilege protects only
confidential communications between the
attor ney and client or their agents. Information protected by the duty of confidentiality is much broader than information pro-
were brought to California, most likely by
Steven J. Field, who was David Dudley Field’s
brother and who later served as a chief justice of the California Supreme Court.13 In
1872, Section 511 of the New York Code of
Civil Procedure became Section 282 of the
new California Code of Civil Procedure. In
1937, the statute became part of Business
and Professions Code Section 6068.14
Codes of legal ethics dealing with confidentiality are relatively recent compared to
the attorney-client privilege, which can be
traced back to the time of Elizabeth I.15 The
attorney-client privilege and confidentiality
have the same roots and share similar goals;
yet, there are also important distinctions
between the two. The attorney-client privilege is codified in the Evidence Code followed by a list of exceptions.16 The duty of
confidentiality is codified in the State Bar Act
and is a substantive duty.17 The attorney-client
privilege and the work product doctrine apply
in judicial and other proceedings in which
the attorney may be called as a witness or otherwise called to produce evidence concerning
the client. The duty of confidentiality protects client information from disclosure in
situations other than those in which evidence
tected by the privilege and often includes all
information relating to the representation
that is obtained by the attorney from any
source.20 As a result, the ethical duty of confidentiality is more protective than the attorney-client privilege. For example, because
the privilege interferes with the truth-finding
function of the courts, the party seeking to
invoke the privilege has the burden of establishing each of its elements.21 In contrast, an
attorney has a fiduciary obligation to preserve client secrets “at every peril to himself or herself,” which includes avoiding the
representation of interests adverse to the
client or former client when the attorney possesses confidential information material to
the matter at issue.22
Public Policy
The duty of confidentiality in California is
often erroneously characterized as absolute.
Although Section 6068(e) contains no express
exceptions, limitations on the duty of confidentiality have long been recognized by case
law, other rules, and ethics opinions. Consequently, disclosure of otherwise confidential information is permitted with the client’s
informed consent.23 A lawyer may not supLOS ANGELES LAWYER / DECEMBER 2002 27
press evidence under a claim of client confidentiality that the lawyer or the lawyer’s client
has a legal obligation to reveal or to produce.24 It is also an established principle of
professional responsibility that a lawyer may
not counsel, assist, or advise a client regarding conduct that the lawyer knows is criminal
or fraudulent.25
A lawyer may be required by law to disclose information otherwise protected under
Section 6068(e). Examples include reporting
large cash transactions26 and the right of
courts to inquire of counsel regarding a client’s competence in criminal proceedings.27
Section 6068(e) does not permit attorneys to
violate their duty of candor to the court.28
For example, a lawyer is not required to stand
idly by when the client insists on committing
perjury, even in a criminal case; instead, the
lawyer may advise the client that the lawyer
will seek to withdraw from representing the
client.29 Information protected under Section
6068(e) may also be disclosed as necessary
in responding to a client’s claim against the
attorney30 and in pursuing a contested claim
for fees.31 Finally, it is generally accepted that
a lawyer cannot avoid complying with a final
order of a court of competent jurisdiction
based on Section 6068(e).32 The duty of con-
fidentiality, however, may obligate the attorney to seek appellate review of the order
before making disclosure.33
The interplay between the attorney-client
privilege and confidentiality has been a source
of confusion not only for lawyers but for
judges and commentators as well. Both the
testimonial privilege and the ethical obligation
exist to protect the client as opposed to the
interests of the lawyer or a third par ty.
Preserving client confidences facilitates a full
development of essential facts, encourages
people to seek early assistance from lawyers
about their legal problems regardless of how
embarrassing or legally damaging the subject
matter, and aids clients in making informed
decisions about their affairs.34 The law has
become increasingly complicated, and clients
require the assistance of competent counsel
for meaningful access to the legal system to
resolve their problems. As the California
Supreme Court has stated, the duty of confidentiality is not simply a rule of professional
conduct but reflects a public policy of paramount importance.35
Ethical principles are generally based on
the concept of client autonomy. This means
that a fully informed and adequately represented client is able to make his or her own
decisions and is not required to be under the
control of the lawyer. The traditional role of
the lawyer, both as advocate and as a confidential counselor, is to competently advise
the client about the law and its consequences.
The right of the client to control information
disclosed to the lawyer is consistent with this
principle. Conversely, rules that allow lawyers
to make disclosures of confidential client
information over the client’s objection in order
to protect the interests of a third party tend
to change the lawyer’s role from the client’s
fiduciary to a law enforcement officer or free
agent.
Broadly construed confidentiality has
gained greater acceptance in the criminal
context. The Sixth Amendment assures that
criminal defendants receive the effective assistance of counsel, which necessarily includes
a high degree of confidentiality.36 The Fifth
Amendment right against self-incrimination
prohibits the government from requiring individual defendants or their attorneys to provide
certain evidence.
However, the distinction between the application of confidentiality principles in the criminal and civil arenas is not always clear and not
necessarily warranted. Many activities in
which a client seeks a lawyer’s advice involve
New Challenges to Confidentiality
Recent events have created more issues regarding the application of the duty of confidentiality.
These legal developments could have a significant impact on several areas of practice.
▼ Monitoring Certain Attorney-Inmate Conversations. The U.S. Bureau of Prisons has adopted regulations permitting
the monitoring of attorney-client conversations under certain circumstances to prevent attorneys and/or their interpreters from being used by detainees, either willingly or unwillingly, to send messages to those outside of prison about
committing future acts of terrorism.1 The lawyer and inmate must be given advance written notice unless the Justice
Department has received court permission to conduct secret monitoring. The regulations provide for a “privilege” team
composed of persons not involved in the underlying investigation to review the monitored conversations for potentially
privileged information.
▼ Gatekeeper Regulation. In response to the problem of international money laundering and its connection to terrorism, one of the options being considered by the Justice Department is the imposition of federal requirements on accountants and lawyers to file suspicious activity reports (SARs) if they learn of a known or suspected violation of federal law,
especially in connection with money laundering and financial crime.2
▼ ABA Task Force on Corporate Responsibility. In its preliminary report, the ABA Task Force on Corporate
Responsibility has recommended that Model Rule 1.6 of the ABA Model Rules of Professional Conduct be amended to
permit disclosure of client confidential information if the client’s conduct has resulted or is reasonably certain to result in
substantial injury to the financial interests or property of another. The proposed amendment would also require lawyers
to disclose the confidential information of clients to prevent felonies or other serious crimes, including violations of the federal securities laws, if lawyers have knowledge of this conduct.3
▼ Sarbanes-Oxley Act of 2002. The recent revelations of corporate accounting abuses led to congressional passage
of the Sarbanes-Oxley Act of 2002, which President Bush signed into law on July 30.4 Section 307 of the act provides that
the Securities and Exchange Commission must issue rules requiring private attorneys who represent public companies
before the SEC to report evidence of violations of securities laws, breaches of fiduciary duties, or similar violations to the
company’s audit committee or board of directors. The act also mandates that the SEC create federal rules of professional
conduct for attorneys who practice before the SEC.—M.L.T.
1
28 C.F.R. §501.3(d).
R. Christian Bruce, Justice Eyeing Attorneys, Accountants for Anti-Money Laundering Duties, ABA/BNA LAWYERS’ MANUAL ON PROFESSIONAL CONDUCT,
Vol. 18, No. 4, at 93.
3
Preliminary Report of the ABA Task Force on Corporate Responsibility, July 16, 2002, available at www.abanet.org/buslaw/corporateresponsibility.
4
The Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745.
2
28 LOS ANGELES LAWYER / DECEMBER 2002
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Trademarks shown are used under license.
both criminal as well as civil consequences.
The law has become increasingly complex,
and clients have a need to know the consequences of their actions before they become
a suspect or are charged with an offense. A
broadly construed rule on confidentiality in
the civil context also promotes the privacy
interests of individuals, which in states such
as California is a constitutional right.37
One of the problems in narrowly drawing a bright-line rule on confidentiality is the
effect permissible disclosures would have on
the predictability of the confidential nature of
the client’s information. To what extent would
the client need to be given a Miranda-type
warning prior to speaking with a lawyer? As
the California Supreme Court has noted, “If
a lawyer could not promise to maintain the
confidentiality of his client’s secrets, the only
advice he or she could provide would be,
‘don’t talk to me.’”38
It is important for a lawyer to explain to the
client that the lawyer’s duty of loyalty includes
loyalty to the law as well as to the client. This
is not so much a Miranda-style warning as it
is sound advice regarding the limitations on
the duty of confidentiality and the proper role
of the lawyer in the professional relationship.
Preventing Physical Harm
Nevertheless, there is an inherent tension
between confidentiality and the obligation to
uphold the law and prevent harm to others.
Two situations provoke the greatest controversy. One occurs when the lawyer believes
the client intends to commit an act that could
cause death or serious bodily harm to another,
and the other involves the application of the
crime-fraud exception to the duty of confidentiality.
Most lawyers accept the idea that confidentiality principles should not prevent them
from taking steps to save a life or prevent
serious harm to another. Indeed, there is no
record of a California lawyer being disciplined
for violating Section 6068(e) by disclosing
client secrets to save a human life.
ABA Model Rule 1.6(b) was revised earlier this year to give lawyers substantially
broader discretion to disclose confidential
information to the extent a lawyer reasonably believes necessary to prevent “reasonably cer tain” death or substantial bodily
harm.39 The new rule is ABA Model Rule
1.6(b)(1). Under the former rule, permissive
disclosure was limited to the client’s commission of a criminal act and allowed disclosure only where the threat of harm was “imminent.”40
In California, the Evidence Code was
amended in 1993 to provide that the attorney-client privilege does not apply when a
lawyer reasonably believes that disclosure
30 LOS ANGELES LAWYER / DECEMBER 2002
of any confidential communication relating to
the representation is necessary to prevent
the client from committing a criminal act that
the lawyer believes is likely to result in death
or substantial bodily harm.41 This provision,
which is found in Evidence Code Section
956.5, confines its application to the evidentiary privilege and is not a rule of professional conduct. The legislative histor y is
murky,42 and the tension between Evidence
Code Section 956.5 and Business and
Professions Code Section 6068(e) remains
unresolved.43
The controversy over whether a lawyer
should be permitted to disclose client confidences to prevent physical harm to another
often revolves around a discussion of Tarasoff
v. Regents of the University of California,44 in
which a psychotherapist was subject to tort liability for failing to disclose communications
protected by the psychotherapist-patient privilege when the disclosure was reasonably
necessar y to prevent threatened danger.
Although the application of Tarasoff to lawyers
has been heavily debated, in the 25 years
since the case was decided, no court has held
a lawyer to a similar duty of disclosure, particularly to a person who is not the lawyer’s
client. 45 However, new ABA Model Rule
1.6(b)(1) and Evidence Code Section 956.5
could lead to an analogous liability for lawyers.
Ethics opinions of local bar associations
are in conflict on the extent to which California lawyers can ethically make disclosures to save life and limb.46 The State Bar has
on three occasions proposed a rule of professional conduct on confidentiality that
defined the duty and included permission to
disclose information reasonably necessary
to prevent death or substantial bodily harm.47
Despite the rejection of these proposals, the
California Supreme Court has the inherent
authority to resolve the dilemma created by
the legislature and to clarify the duty of confidentiality in California.
This Los Angeles Lawyer MCLE
self-study test is sponsored by
WEST.
MCLE Test
No. 111
The Los Angeles County Bar Association
certifies that this activity has been
approved for Minimum Continuing
Legal Education legal ethics credit by
the State Bar of California in the
amount of 1 hour.
1. The duty of confidentiality is:
A. A rule of professional conduct.
B. A section in the State Bar Act.
C. Both A and B.
2. Under the duty of confidentiality, an attorney
is precluded from:
A. Disclosing confidential information
about a client.
B. Using confidential information adverse to
the client.
C. Both A and B.
3. The duty of confidentiality does not apply
unless there is an attorney-client relationship.
True.
False.
The Crime-Fraud Exception
The crime-fraud exception is another matter.
In California, the exception applies to the
attorney-client privilege and is recognized as
such by federal courts, among other jurisdictions. The exception is based on the rationale that the attorney-client privilege belongs
to the client, and that a client who obtains the
lawyer’s assistance in committing a crime or
fraud has not consulted the lawyer in the
lawyer’s representative capacity.48 As U.S.
Supreme Court Justice Cardozo explained,
“The privilege takes flight if the relationship
is abused. A client who consults an attorney
for advice that will serve him in the commission of a fraud will have no help from the
law.”49 In this sense, the crime-fraud test is
4. The duty of confidentiality was codified in
California in:
A. 1975.
B. 1928.
C. 1872.
D. 1850.
5. The duty of confidentiality and the attorneyclient privilege are construed narrowly.
True.
False.
6. The duty of confidentiality may apply even
when the attorney-client privilege does not.
True.
False.
MCLE Answer Sheet #111
7. The duty of confidentiality permits a lawyer to
suppress evidence even when the lawyer or the
lawyer’s client has a legal obligation to reveal or
to produce that evidence.
True.
False.
8. Business and Professions Code Section 6068(e)
does not permit an attorney to violate his or her
duty of candor to the court.
True.
False.
9. Information protected under Business and
Professions Code Section 6068(e) may be disclosed:
A. In responding to a client’s claim of legal
malpractice against the attorney.
B. In pursuing a contested claim against the
client for the attorney’s fees.
C. Both A and B.
10. The attorney-client privilege and the duty of
confidentiality share a common purpose in helping clients make informed decisions about their
affairs.
True.
False.
11. ABA Model Rule 1.6 was revised in 2002 to
give a lawyer the discretion to disclose confidential information to the extent the lawyer reasonably believes necessary when:
A. The client intends to commit an act that
is likely to result in reasonably certain death
or substantial bodily harm.
B. The client intends to commit a criminal
act that is likely to result in reasonably
certain death or substantial bodily harm.
C. The client intends to commit an act that
is likely to result in imminent death or
substantial bodily harm.
12. The attorney-client privilege does not apply
in California if a lawyer reasonably believes that
disclosure of confidential information relating to
the representation of the client is necessary to:
A. Prevent the client from committing a
criminal act that the lawyer believes is likely
to result in imminent death or substantial
bodily harm.
B. Prevent the client from committing a
criminal act that the lawyer believes is likely
to result in death or substantial bodily harm.
C. Prevent the client from committing an
act that the lawyer believes is likely to result
in reasonably certain death or substantial
bodily harm.
13. The court in People v. Dang held that Evidence
Code Section 956.5 is an exception to the duty
of confidentiality under Business and Professions
Code Section 6068(e).
True.
False.
FOR YOUR EYES ONLY
Sponsored by WEST
Name
Law Firm/Organization
14. A party asserting the attorney-client privilege
has a right to notice and an opportunity to be
heard before disclosure of information protected
by the attorney-client privilege can be ordered in
a civil proceeding.
True.
False.
Address
City
State/Zip
E-mail
Phone
State Bar #
15. The ABA adopted the ABA Ethics 2000 Commission’s recommended changes to Model Rule
1.6 that allow a lawyer the discretion to disclose
confidential information of the client to the extent
the lawyer reasonably believes necessary to prevent the client from committing a crime or fraud
that is reasonably certain to result in substantial
injury to the financial interest or property of
another and involves the use by the client of the
lawyer’s services in the furtherance of the crime
or fraud.
True.
False.
16. The State Bar proposed a rule of professional conduct on confidentiality to the California
Supreme Court on:
A. Three occasions.
B. Two occasions.
C. Four occasions.
17. The Sarbanes-Oxley Act of 2002 requires
the SEC to issue rules requiring private attorneys
representing public companies before the SEC to
report evidence of securities laws violations to the
company’s audit committee or board of directors.
True.
False.
18. The crime-fraud exception applies to:
A. Future crimes and frauds.
B. Past crimes and frauds.
C. Ongoing crimes and frauds.
D. All of the above.
E. Both A and C.
19. Attorneys are required to preserve confidential client information in seeking to withdraw
as counsel of record in proceedings before a
court or other tribunal.
True.
False.
20. Lawyers in California must comply with
Business and Professions Code Section 6068(e) in
protecting a corporate client from the wrongful
acts of its agents.
True.
False.
Instructions for Obtaining MCLE Credits
1. Study the MCLE article in this issue.
2. Answer the test questions opposite by
marking the appropriate boxes below. Each
question has only one answer. Photocopies of
this answer sheet may be submitted; however,
this form should not be enlarged or reduced.
3. Mail the answer sheet and the $15 testing fee
($20 for non-LACBA members) to:
Los Angeles Lawyer
MCLE Test
P.O. Box 55020
Los Angeles, CA 90055
Make checks payable to Los Angeles Lawyer.
4. Within six weeks, Los Angeles Lawyer will
return your test with the correct answers, a
rationale for the correct answers, and a
certificate verifying the MCLE credit you earned
through this self-assessment activity.
5. For future reference, please retain the MCLE
test materials returned to you.
Answers
Mark your answers to the test by checking the
appropriate boxes below. Each question has
only one answer.
1.
■A
■B
■C
2.
■A
■B
■C
3.
■ True
4.
■A
5.
■ True
■ False
6.
■ True
■ False
7.
■ True
■ False
8.
■ True
9.
■A
10.
■ True
11.
■A
■B
■C
12.
■A
■B
■C
13.
■ True
■ False
14.
■ True
■ False
15.
■ True
■ False
16.
■A
17.
■ True
18.
■A
19.
■ True
■ False
20.
■ True
■ False
■ False
■B
■C
■D
■ False
■B
■C
■ False
■B
■C
■ False
■B
■C
■D
■E
LOS ANGELES LAWYER / DECEMBER 2002 31
actually an exclusion rather than an exception
to the privilege.50
The lawyer’s duty of confidentiality and the
attorney-client privilege are not the same. A
party claiming that the evidentiary shield
against compelled disclosure of a confidential
client communication does not apply bears the
burden of proving the elements of the crimefraud exception in a judicial proceeding. The
court, and not the lawyer, is the decision
maker and must invoke procedural safeguards in deciding whether the exception
applies.51 Even in civil proceedings, a party
asserting the privilege has a right to proper
notice and an opportunity to be heard before
disclosure of privileged information can be
ordered.52
The ABA has not been a model of consistency on the issue of disclosing client crime
or fraud as an exception to the duty of confidentiality. Early versions of the ABA rules
permitted discretion to disclose confidential
information to protect third parties from being
victims of a crime.53 The ABA Model Code
obligated a lawyer to rectify client fraud by, if
necessary, revealing the fraud to third parties.54 However, after the SEC’s reliance on
ABA Model Code DR 7-102(B)(1) in a highly
publicized investigation that led to SEC v.
National Student Marketing Corporation,55
the ABA amended its rule to preclude disclosure of client fraud “when the information
is protected as a privileged communication.”56
The next year the ABA changed its rule to
define “privileged communication” as including all “confidences and secrets” learned during the attorney-client relationship.57
The controversy over the application of
the crime-fraud exception to the duty of confidentiality was played out again in 1983 with
the adoption of the ABA Model Rules and the
rejection of the Kutak Commission proposal
that Model Rule 1.6 permit disclosures to prevent or rectify client crime or fraud. Another
proposal to restore much of the Kutak recommendation was again rejected in 1991.
Most states have not adopted Model Rule
1.6 as recommended by the ABA. As a result,
there is substantial disagreement among the
states on the scope of a lawyer’s duty of confidentiality as it relates to client crime or
fraud.58
The ABA Ethics 2000 Commission recommended changes to Model Rule 1.6 in
2001 that would allow a lawyer the discretion to disclose confidential information of
the client to the extent the lawyer reasonably believes necessary to prevent the client
from committing a crime or fraud that is reasonably certain to result in substantial injury
to the financial interests or proper ty of
another and involves the use by the client of
the lawyer’s services in the furtherance of the
32 LOS ANGELES LAWYER / DECEMBER 2002
crime or fraud. The rule would also allow
disclosure to prevent, mitigate, or rectify substantial injury to the financial interests or
property of another that is reasonably certain
to result or has resulted from the client’s
commission of a crime or fraud that involves
the client’s use of the lawyer’s services. The
ABA House of Delegates rejected these proposed revisions by approximately 2 to 1.
However, more recently, the ABA Task Force
on Corporate Responsibility has recommended, in a preliminary report filed July
16, 2002, that Model Rule 1.6 be amended to
expand permissive disclosures to prevent or
rectify the consequences of client crime or
fraud that are reasonably certain to result, or
have resulted, in substantial injury to the
financial interests or property of another and
involve the client’s use of the lawyer’s services. The ABA Task Force further recommended that Rule 1.6 be amended to make
disclosure mandatory, rather than permissive, in order to prevent client conduct known
to the lawyer to involve a crime—including
violations of federal securities laws and regulations—in furtherance of which the client
has used or is using the lawyer’s services
and which is reasonably certain to result in
substantial injury to the financial interests
or property of another.59
The rationale for these proposals is that a
client who uses a lawyer’s services to perpetrate a crime or fraud forfeits the protections
afforded by the client-lawyer relationship. It
is also argued that a lawyer will be better
able to persuade the client to refrain from
wrongdoing by threatening to disclose the
client’s secrets. However, applying the crimefraud exception to the lawyer’s duty of confidentiality changes the traditional role of the
lawyer as client fiduciary and imposes on the
lawyer the function of judicial decision maker.
Even the crime-fraud exception to the attorney-client privilege does not allow an attorney
to act as the sole arbiter on whether to become a whistle-blower regarding client misconduct. Without judicial intervention, the
client risks the loss of rights without due
process at the hands of the lawyer in whom
the client has been encouraged by the law to
repose trust and confidence.
The crime-fraud exception applies only to
communications that are in furtherance of
the crime or fraud.60 Communications regarding past crimes and frauds remain protected
under the privilege. The crime-fraud test—
whether the crime or fraud occurred in the
past, is ongoing, or will occur in the future—
may be useful in a judicial determination of
the crime-fraud exception to the attorneyclient privilege, but it is not a very practical
tool for attorneys in actual practice.
There is uncertainty in California whether
the exceptions to the attorney-client privilege apply equally to the duty of confidentiality. In General Dynamics v. Superior Court,
the California Supreme Court suggested in
dicta that Evidence Code Section 956.5 represents a situation in which the legislature
decided that “the principle of professional
confidentiality does not apply.” 61 More
recently, the court of appeal in Fox Searchlight
Pictures, Inc. v. Paladino62 found that Business
and Professions Code Section 6068(e) must
be read in conjunction with other statutes
and ethics rules that permit the attorney to
depart from strict confidentiality requirements, including Evidence Code Section 958,
which applies to communications that are relevant to an issue of breach, by the lawyer or
client, of a duty arising out of the attorneyclient relationship. Relying on In the Matter
of Lilly,63 the Fox Searchlight court found
that the State Bar Court has determined
that the duty of confidentiality under Section
6068(e) is modified by the exceptions to the
attorney-client privilege contained in the
Evidence Code.64 This assertion was repeated
in People v. Dang.65 However, the In the Matter
of Lilly opinion does not support the conclusion that Section 6068(e) is modified by
the Evidence Code.66
Certainty and Predictability
Lawyers often experience problems in applying the law of confidentiality. For example,
attorneys are required to preserve client confidences in seeking to be relieved as counsel.67
At the same time, confidential information
can be disclosed as necessary to pursue a
contested action for fees following withdrawal.68 If the duty of confidentiality precludes an attorney from representing another
client, it may or may not lead to the vicarious
disqualification of the attorney’s law firm.69
Also, lawyers must abide by Section
6068(e) in protecting a corporate client from
the wrongful acts of its agents.70 At the same
time, lawyers must meet the standard of care
in protecting the interests of the corporate
client.71 Circumstances may arise in the representation of a government client when disclosure of otherwise confidential information
may be in the public interest.72
Confidentiality pervades the field of professional responsibility. Yet there is no national
ethical standard on confidentiality today
among the states. Instead, there is confusion—some would say chaos—on the duty of
confidentiality. California, therefore, is not
out of step with the rest of the country and
could take the lead in clarifying the law of confidentiality through a rule of professional conduct that will provide adequate guidance for
lawyers to follow in the increasingly complex
practice of law.
Clients and the public are entitled to certainty and predictability with respect to confidential information shared with lawyers. As
the U.S. Supreme Court has stated, “[A]n
uncertain privilege [or confidentiality rule],
or one that purports to be certain but results
in widely varying applications by the courts,
is little better than no privilege at all.”73 ■
1
BUS. & PROF. CODE §6068(e).
Flatt v. Superior Court, 9 Cal. 4th 275, 289 (1994)
(“One of the principal obligations which binds an attorney is that of fidelity, the maintaining inviolate of the
confidence reposed in him by those who employ him,
and at every peril to himself to preserve the secrets of
his client.…[T]his obligation is a very high and stringent one.”).
3
In re Soale, 31 Cal. App. 144, 153 (1916); State Bar of
California Formal Op. 1993-133.
4
Goldstein v. Lees, 46 Cal. App. 3d 614, 621, n.5. (1975).
5
See Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 436
(1985).
6
Matter of Johnson, 4 Cal. State Bar Ct. Rptr. 179, 189
(Rev. Dept. 2000).
7
State Bar of California Formal Op. 1984-84; Los
Angeles County Bar Association Prof’l Responsibility
and Ethics Committee Formal Op. 366 (1977); see ABA
MODEL RULES OF PROF’L CONDUCT R. 1.18 (2002).
8
Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 414
(1983).
9
GEOFFREY C. HAZARD JR., THE LAW OF LAWYERING §9.15
(ABA Model Rule 1.6(a) creates a presumption of confidentiality that operates automatically in all cases without any signal from the client.).
10
The interpretation of “secrets” in Business and
Professions Code §6068(e) generally has followed the
definition under the ABA Model Code of Professional
Responsibility DR 4-101(a), in which “secrets” is defined as information the client requested to be held inviolate or information that would be embarrassing or
likely to be detrimental if revealed. See also Forrest v.
Baeza, 58 Cal. App. 4th 65, 82 (1997) (disqualification
of attorney for two of three officers/shareholders
denied when confidential information attorney received
while representing corporation was not conceivably different from information attorney received from officers/shareholders) and Christiansen v. U.S.D. Court
for Cent. D. of Cal., 884 F. 2d 694, 698-99 (9th Cir. 1988)
(substantial relationship test inapplicable when former client had no reason to believe that the information given to attorney would not be disclosed to attorney’s current client).
11
ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 4-101.
12
See ABA MODEL RULES OF PROF’L CONDUCT R. 1.6(a)
and cmt. 3 (2002).
13
Justice Field also served as an associate justice on the
U.S. Supreme Court.
14
Patterson, Legal Ethics and the Duty of Loyalty, 29
EMORY L.J. 909, 941-42 (1980).
15
See 8 J. WIGMORE, EVIDENCE IN TRIALS AT COMMON LAW
§2290, at 3194 (1905); see also Hazard, An Historical
Perspective on the Attorney-Client Privilege, 66 CAL. L.
REV. 1061, 1069-91 (1978).
16
EVID. CODE §§950-962.
17
The State Bar Act, BUS. & PROF. CODE §§6000 et seq.
The act includes BUS. & PROF. CODE §6068(e).
18
See C ALIFORNIA P RACTICE G UIDE : P ROFESSIONAL
RESPONSIBILITY §7:9 (2002); ABA MODEL RULES OF PROF’L
CONDUCT R. 1.6 cmt. 3.
19
Trammel v. United States, 445 U.S. 40, 50-51 (1980)
(Privileges should be construed strictly because they
2
contravene the fundamental principle that the public has
“a right to every man’s evidence.”).
20
Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 436
(1985).
21
United States v. United Shoe Mach. Corp., 89 F.
Supp. 347, 358-59 (D. Mass. 1950); D.I. Chadbourne,
Inc. v. Superior Court, 60 Cal. 2d 213 (1964).
22
CAL. RULES OF PROF’L CONDUCT R. 3-310(E).
23
Commercial Standard Title Co. v. Superior Court, 92
Cal. App. 3d 934, 945 (1979); Los Angeles County Bar
Association Prof’l Responsibility and Ethics Committee
Formal Op. 456 (1990).
24
CAL. RULES OF PROF’L CONDUCT R. 5-220.
25
BUS. & PROF. CODE §6068(d); see ABA MODEL RULES
OF PROF’L CONDUCT R. 1.2(d).
26
I.R.C. §6050I (returns relating to cash received in
trade or business).
27
PENAL CODE §§1367.1, 1368.
BUS. & PROF. CODE §6068(d); CAL. RULES OF PROF’L
CONDUCT R. 5-200.
29
Nix v. Whiteside, 475 U.S. 157, 172-73 (1986).
30
See Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 396
(1982).
31
Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 452
(1988).
32
BUS. & PROF. CODE §6068(a); see BUS. & PROF. CODE
§6103.
33
See, e.g., People v. Kor, 129 Cal. App. 2d 436, 446-47
(1954) (concurring opinion).
34
Upjohn Co. v. United States, 449 U.S. 383, 391 (1981);
Jeffry v. Pounds, 67 Cal. App. 3d 6, 9 (1977).
35
In re Jordan, 7 Cal. 3d 930, 940-41 (1972).
36
See United States v. Henry, 447 U.S. 264, 295 (1980)
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LOS ANGELES LAWYER / DECEMBER 2002 33
(dissenting opinion).
37
CAL. CONST. art. I, §1.
38
Southern Cal. Gas Co. v. Public Utils. Comm’n, 50 Cal.
3d 31, 37 (1990).
39
ABA MODEL RULES OF PROF’L CONDUCT R. 1.6(b)(1)
(2002).
40
ABA MODEL RULES OF PROF’L CONDUCT former R.
1.6(b) (1983).
41
EVID. CODE §956.5.
42
It is likely the legislature intended to overrule People
v. Clark, a decision by the California Supreme Court.
People v. Clark, 50 Cal. 3d 583 (1990) (testimony during penalty phase of murder case about client’s threats
protected by the attorney-client privilege).
43
See People v. Dang, 93 Cal. App. 4th 1293, 1298
(2001) (conflict between EVID. CODE §956.5 and BUS. &
PROF. CODE §6068(e) not raised by the parties and
decision therefore was limited to the admissibility of
lawyer’s testimony at trial).
44
Tarasoff v. Regents of the Univ. of Cal., 17 Cal. 3d 425
(1976).
45
See Hawkins v. King County Dep’t of Rehab. Servs.,
24 Wash. App. 338, 602 P. 2d 361 (1979) (distinguishing Tarasoff but suggesting that attorney liability is
possible under extraordinary circumstances).
46
Compare Los Angeles County Bar Association Prof’l
Responsibility and Ethics Committee Formal Op. 436
(1985) (following ABA MODEL RULES OF PROF’L CONDUCT
R. 1.6) with San Diego County Bar Association Formal
Op. 1990-1 (1990) (BUS. & PROF. CODE §6068(e) leaves
“no discretion for disclosure or other warning of a
client’s intent to inflict serious bodily harm or death
upon another person.”).
47
Proposed R. 3-100 (1987) (“A member may reveal a
confidence or secret…to the extent the member reasonably believes necessary to prevent the commission
of a criminal act the member believes is likely to result
in death or substantial bodily harm.”); Proposed R. 3100 (1992) (same, except the word “imminently” added
before “likely…”); Proposed R. 3-100 (1998) (same and
tracks EVID. CODE §956.5).
48
United States v. Hodge & Zweig, 548 F. 2d 1347 (9th
Cir. 1977); EVID. CODE §956.
49
Clark v. United States, 289 U.S. 1, 15 (1933).
50
The traditional definition of the attorney-client privilege excludes client crime or fraud. See United States
v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D.
Mass. 1950).
51
United States v. Zolin, 491 U.S. 554, 574-75 (1989).
52
Titmus v. Superior Court (Lavarone), 87 Cal. App. 4th
738, 740 (2001).
53
ABA Canon 37 (1928) provided that “the announced
intention of the client to commit a crime is not included
within the confidences which he is bound to respect.”
See also ABA CANON 41 (1928).
54
ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1).
55
SEC v. National Student Marketing Corp., 457 F.
Supp. 682 (D. D.C. 1978) (counsel for merging corporation violated antifraud provisions of the federal securities laws by failing to delay closing pending disclosure
of materially false financial information regarding the
surviving corporation).
56
ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1) (1974).
57
ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1) (1975).
58
See Attorneys’ Liability Assurance Society, Inc. Ethics
Rules on Client Confidences (2001), reprinted in
M ORGAN & R OTUNDA , S ELECTED S TANDARDS ON
PROFESSIONAL RESPONSIBILITY 134-144 app. A (2002).
59
Preliminary Report of the ABA Task Force on
Corporate Responsibility (July 16, 2002), available at
www.abanet.org/buslaw/corporateresponsibility.
60
EVID. CODE §956 (“There is no privilege under this article if the services of the lawyer were sought or obtained
to enable or aid anyone to commit or plan to commit a
crime or a fraud.”)
61
General Dynamics v. Superior Court, 7 Cal. 4th 1164,
1189-90 (1994).
62
Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App.
4th 294, 313-14 (2001).
63
In the Matter of Lilly, 2 Cal State Bar Ct. Rptr. 473,
478 (1993).
64
Fox Searchlight, 89 Cal. App. 4th at 314.
65
People v. Dang, 93 Cal. App. 4th 1293, 1298-99 (2001).
See note 43, infra.
66
In the Matter of Lilly addressed whether the summary
disbarment procedure under Business and Professions
Code §6102(c) applied in circumstances involving a
deceased former client whose estate was handled by an
attorney acting as executor and not as an attorney. In
holding that §6102(c) does not expressly limit its scope
to the victimization of current clients, the court found
that both Business and Professions Code §6068(e) and
Evidence Code §950 define the term “client” broadly.
67
See CAL. R. OF CT. R. 376(c) (attorney’s declaration in
support of withdrawal motion cannot compromise confidentiality).
68
In re Rindlisbacher, 225 B.R. 180, 193 (9th Cir B.A.P.
1998).
69
See People v. Speedee Oil Change Sys., Inc, 20 Cal. 4th
1135, 1150-52 (1999) and ABA Formal Op. 99-415, n. 19.
70
CAL. RULES OF PROF’L CONDUCT R. 3-600(B).
71
See FDIC v. O’Melveny & Myers, 969 F. 2d 744 (9th
Cir. 1992).
72
See, e.g., AB 363 (2002). This bill, vetoed by Governor
Davis, sought to add Business and Professions Code
§6068.1 authorizing lawyers for government agencies
to act as whistle-blowers in certain situations.
73
Upjohn Co. v. United States, 449 U.S. 383, 393 (1981).
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Newport Beach
4685 MacArthur Court, Suite 400
Newport Beach, CA 92660
phone 949-251-8844
fax 949-251-1545
email [email protected]
AV Rated
Los Angeles
6310 San Vicente Blvd., Suite 415
Los Angeles, CA 90048
phone 323-936-0200
fax 323-936-4488
email [email protected]
www.hirson.com • also in San Diego, CA • Phoenix, AZ • Las Vegas, NV • New York, NY • Wilton, CT • Toronto, Canada
David Hirson and Mitchell L. Wexler are certified by the State Bar of California Board of Legal Specialization as specialists in Immigration and Nationality Law.
All matters of California state law are provided by active members and/or under the supervision of active members of the California State Bar.
34 LOS ANGELES LAWYER / DECEMBER 2002
The 2002 Los Angeles Lawyer
O
Holiday Travel &
ADVENTURE TRAVEL
SafariAfrica
Owned and operated by attorneys,
SafariAfrica offers
safari travel in Kenya
and Tanzania that is
reflective, inspiring,
and educational. Up-close wildlife encounters,
stylish accommodations, and delicious food
are built into every safari. SafariAfrica offers
even more, including opportunities for experiential learning, as well as guides trained to
take advantage of every educational opportunity that comes along. Add walking safaris,
horseback riding safaris, or canoe safaris for
those travelers who want to experience East
Africa in a more active way. Our travelers enjoy
our “giving back” component which allows
them to help Africans through our charitable
programs and investment in local tribes which
are benefiting directly from Africa’s tourism industry. We’d love to have you on safari with
us. Give us a call, and we’ll send you a
brochure. SafariAfrica, 4450 Arapahoe Avenue,
Suite 100, Boulder, CO, 80304, (303) 4152574, toll free (888) 658-7102. Web site:
www.professionalsafaris.com.
also drive your family members who may need
to be driven for any reason. Additionally, we
provide placement service for clients seeking to
employ a full-time personal or company private
chauffeur. Our service provides a convenience
that complements your lifestyle. Use one of our
chauffeurs to drive you in your car so you can
be more productive on the road and when you
don’t feel like driving. For reservations and information call (818) 348-3115. Or visit our
Web site at www.yourdriver.com. Our e-mail:
[email protected]. Fax: (818) 703-6736. We
accept Master Card, Visa, and American Express.
Call now to get your FREE phones with activation of a service plan. FREE PHONES • FREE
PHONES • FREE PHONES. We offer all the carriers under one roof AT&T, Boost Mobile, Cingular, Nextel, Sprint PCS, T-Mobile and Verizon Wireless. FREE ACCESSORIES WITH ACTIVATION OF SERVICE. We offer free delivery.
4759 Hollywood Boulevard, one block west of
Vermont. (323) 667-2003 or visit us online @
www.nationwidewireless.net.
CHAUFFEUR
The Private Chauffeur
Ever wish someone else would drive? The
Private Chauffeur provides professional chauffeurs to come to your home or office and drive
you in your car! Chauffeurs are available to
drive you to business appointments, court
dates, depositions, luncheons, dinners, special
events, medical appointments, and errands and
to assist you in other convenient and time-saving driving and personal assistant duties. We
with beautiful sunsets over the Los Angeles
basin followed by spectacular views of glimmering lights, providing the perfect setting for
your special occasion. Windows is famous for
its contemporary fusion cuisine, furnishing an
opulent comfort, world-class wine and beer
lists. We provide complementary parking for
$5.50 for 5 hours before 5:00 P.M. and for unlimited time after 5:00 P.M. Windows, 1150
South Olive Street, Los Angeles. General Manager, Richard Bonhama. Banquet information,
Angie Kwan (213) 746-1554, reservations
(213) 746-1554, fax (213) 742-4593. See
display ad on page 33.
ENTERTAINMENT
HOLIDAY GIFT IDEAS
CaliforniaMobileDJs.com
Book your holiday party now! Book your party
fast…the holidays are upon us, and now is the
time to act! Bringing parties to life since 1992.
This holiday season we can bring the party to
you! We offer experienced DJ/MC entertainment. Event planning and coordination. An extensive music library from the 1940s to today’s
top 40. More fun than you can imagine. Call
now for availability. We also do corporate
events, private parties, weddings, birthdays,
and grand openings. Visit us at www.californiamobiledjs.com. Contact Bob Houle at (888)
307-3565.
CELLULAR
www.nationwidewireless.net
Gift Guide
HOLIDAY DINING & CATERING
Four Oaks Restaurant
Located between Century City and the Valley,
Four Oaks continues to receive national acclaim for its commitment to the art of food
and wine. Comfortable French setting, romantic ambience, and surrounded with gardens,
Four Oaks provides the ultimate setting for
business or romance. Accommodations are
available for private parties and group business
dinners. Four Oaks Restaurant, 2181 North
Beverly Glen Boulevard, Los Angeles, CA
90077, (310) 470-2265, fax (310) 415-5492.
Web site: www.4oaksrestaurant.com.
Windows
Whether you're looking to
have dinner party for a few
business associates or a
large party with close
friends, Windows is the
perfect place to be. For
evening catering events, our location at the
top of the Transamerica Building is complete
AT&T Wireless
AT&T Wireless is a leading provider of advanced wireless voice and data services. Operating one of the largest digital wireless networks in North America, AT&T Wireless provides customers with high-quality mobile wireless communications service in the U.S. and internationally. LACBA members receive additional discounts on wireless service and equipment. To activate new service, call (213) 2532400, or if you are an existing AT&T Wireless
customer and would like to take advantage of
the LACBA discounts, please call (800) 4596524 and refer to the LACBA account number
(FAN#) 50001408. For information on realtime wireless e-mail and voice service with
Blackberry please call Tracy McDaniel (949)
500-1000. See display ad on page 2.
Drivetech Racing School
Give the thrill of a lifetime: driving a 400hp
V8-powered NASCAR race car at speeds up to
150 mph! Since 1992 Drivetech has given drivers the biggest “bang for the buck” anywhere! Lots of laps! Great cars! Where? How
about the ovals of California Speedway and
Phoenix International Raceway, or the challenging Willow Springs road course? No experience necessary, and we supply helmets, driving suits, and professional instruction. There’s
a lot more, like in-car radios for instant instruction, and in-car video cameras for the world’s
best souvenir! Prices begin at just $325.00!
Same-day shipment of gift certificates, major
credit cards accepted. Call (800) 678-8864 for
a comprehensive brochure.
LOS ANGELES LAWYER / DECEMBER 2002 35
Steam
Steam emerged from an idea that people create their self-image through self-expression. A
space that moves and transforms. Steam is a
home for the creative exploration of one’s self.
Intuitive to individuality, beauty is the focus.
Schedule a haircut and style and receive a
complimentary “Steam treatment,” a nourishing treatment for your scalp and hair; you
choose between two special oil blends for a
full scalp, neck, and shoulder massage, valid
through February 2003. Please bring this ad to
your appointment. Steam, 314 North Harper
Avenue, Los Angeles, CA 90048, (323) 9660024, fax (323) 658-7908.
Frank Vernon Jewelers/Diamond Brokers
For more than 50 years, Frank Vernon
Diamond Brokers and Wholesale Jewelers has built its reputation on offering
diamonds of exceptional brilliance and
beautifully designed and exquisitely crafted
jewelry, at prices as attractive as the merchandise. In anticipation of the holidays, the Frank
Vernon showroom has an even larger selection
of loose diamonds and other precious stones,
rings, bracelets, earrings, pins, and necklaces,
as well as lustrous pearls. In addition, Frank
Vernon can help you design that unique piece
to satisfy even the most demanding taste. The
courteous and experienced sales staff will help
you select that perfect gift to make the holidays sparkle. Frank Vernon is open Monday
through Friday, 9 A.M. to 4:30 P.M., and Saturday, 9 A.M. to 2:30 P.M. For further information, please call Frank Vernon Jewelers at (213)
683-1480, 607 South Hill Street, Suite 610,
Los Angeles, CA 90014. See display ad on
page 36.
HOTELS/MEETINGS/CATERING
Hotel Metropole
Conveniently located in the
heart of Avalon on Catalina Island just 5 minutes from the
ferry. The Hotel Metropole is a
luxury hotel in a beautiful pristine setting offering 48 spacious
air-conditioned guest rooms with spectacular
views of the ocean, mountains, and the hotel’s
courtyard. Situated just footsteps from the
beach, it is the ideal locale for romantic getaways, family vacations, and corporate functions. The look of relaxed elegance imparts a
sense of peace and serenity, which echoes the
overall island ambiance of balmy breezes and
soothing waters. The Hotel Metropole is adjacent to the Metropole Market Place, an openair marketplace with cobblestone walkways
and sparkling fountains featuring a potpourri
of boutiques, specialty shops, delis, cafes, and
fine dining at two ocean-view restaurants.
Guest rooms feature king-size beds, telephones, remote-controlled television with
cable programming, and amply stocked snack
bars. Each of the bright rooms is appointed
with comfortable fruitwood furnishings in an
aesthetically pleasing blend of colors to match
the seaside ambiance. Many rooms have
Jacuzzi tubs and private balconies, and adjoining rooms are available for families and
groups. The hotel’s new 1800 square-foot recently redesigned suite, the Beach House, offers panoramic views and an added level of
luxury, including two bedrooms, two Jacuzzi
baths, a fully equipped kitchen, dining area,
large living room with big screen TV and
stereo, and over 1,000 square feet of private
deck space. Other in-room amenities include
plush terry cloth robes (seasonal) and complimentary continental breakfasts. Room service
and day spa also available. 205 Crescent Avenue, Avalon, CA 90704, reservations and information (310) 510-1884, (800) 300-8528,
Web site: www.hotel-metropole.com.
Park Hyatt Los Angeles at Century City
Discover a unique enclave of elegance, charm,
and intimacy inspired by the finest European
hotels. Luxurious accommodations and attentive service make it ideal for business and pleasure. Our location in Century City offers easy
access to Rodeo Drive shopping via our complimentary limousine service. Treat yourself to
an exquisite breakfast, lunch, or dinner in our
Park Grill restaurant. Our newly renovated
guest rooms feature outdoor balconies, marbled bathrooms including separate shower and
bath, three telephones, and twice-daily maid
service. Now featuring an exclusive discounted
rate for qualified law firms. Please call (310)
284-6506 to take advantage of this new promotion. The Park Hyatt Los Angeles, “Where
the Exceptional Is the Rule.” 2151 Avenue of
the Stars, Los Angeles, CA 90067. For reservations call (310) 277-1234.
The Argyle Hotel
Gracing the peak of Sunset Boulevard. The
Argyle Hotel is the epitome of Art Deco design
and luxury, capturing the forgotten essence of
the Golden Era of Hollywood. With just 64
rooms and suites, you too can have the starlet
lifestyle and comfort…offering 24 hour room
service, butler service, plush terry cloth robes,
valet parking, 24 hour concierge service, 2-line
phones, mini-bars in all rooms, nightly turndown service, in-room safes, in-room VCRs, inroom stereo/CD players, in-room data ports,
in-room fax machines, and in-room hairdryers.
The Argyle Hotel is the perfect place to hold
your small meeting. We offer comfortably appointed meeting rooms ranging from 440
to1160 square feet, as well as the terrace
patio at 1600 square feet. The Fenix Restaurant at 2162 square feet and the Fenix Lounge
at 637 square feet. Hassle-free meetings with
all the added perks of luxury are what we are
made up of. 8358 Sunset Boulevard, West
Hollywood, CA 90069, (323) 654-7100, fax
(323) 654-1004.
RESORTS
Lake Arrowhead Resort
The Lake Arrowhead
Resort…a world away and
above it all. About 90 minutes and a mile above the
stress and smog of the Los
Angeles basin is an elegant
resort nestled in the lush pine forest of the San
Bernardino Mountains. The Lake Arrowhead
Resort is set right on the clear waters of strikingly beautiful Lake Arrowhead. Each mountain season has its own distinctive charm.
Summer’s sunny blue skies and comfortable
temperatures. Autumn’s brilliant ochers, golds,
and oranges. The snows of winter that skiers
cherish. And the first emerging buds of wildflowers in the spring of the year. Welcome to
Lake Arrowhead Resort. Lake Arrowhead
Resort, 27984 Highway 189, P.O. Box 1699,
Lake Arrowhead, CA 92352, (909) 744-3024,
fax (909) 336-3016.
SUEDE & LEATHER CLEANING
Suede and Leather Cleaning
This is the time to put your best “fashion
foot” forward, a time to look your best, by
wearing your best suede and leather fashions.
But if you know one thing about suede and
leather, it’s that you had best leave their care
to a true professional, and that is where the
experts at Premier Suede & Leather Cleaning
can help. Leather pants, suede coats, leather
bags, suede skirts, whatever form it comes in,
eventually it will get dirty. It might be easier to
drop off your garments at the local dry cleaners, but thousands of garments are ruined by
dry cleaners that don’t have the expertise in
cleaning suede and leather garments. Premier
has cleaned garments for Bally, Armani, Nordstrom, Max Fields, North Beach Leather, and
many other fine retail stores. These stores
want the best, and that’s why they only use
Premier. Every year thousands of customers
like yourself from all over the country ship
their garments by UPS and Federal Express to
Premier, as do many famous personalities and
movie studios. Don’t take chances with your
expensive garments. Let a specialist clean and
recolor them for you. Premier is the most respected suede and leather cleaner in the nation. Bill Tobias, the owner, has 18 years of
experience cleaning suede and leather, so call
him and discuss your garments with him and
he will make sure they look like new again. He
also performs miracles on cleaning and redyeing your home and office suede and leather
furniture. You can reach Bill at 1-800 2452378. Premier Suede & Leather Cleaners has
two locations, 20021 Ventura, Woodland
Hills, CA 91364 and 5422 Oceanus Drive,
Huntington Beach, CA 92649.
LOS ANGELES LAWYER / DECEMBER 2002 37
computer
counselor
By Carole Levitt
Regulating the Availability of
Public Records Online
Federal and state
courts are working
to balance issues
of privacy and
public access
and our free speech rights, nothing short of full access to public
records via the Internet, sensitive information included, is
acceptable. On the other hand,
those in favor of the right to privacy want sensitive information
taken off the Internet, especially
in light of crimes such as identity
theft and stalking.
y definition, public records A Standard Policy
are available to anyone
As a result of this controversy,
who takes the time to go to cour ts are drafting r ules to
the appropriate source and ask address public access to court
for them. Privacy advocates are documents. For example, in an
not pleased, however, that these effort toward a consistent state
records are becoming more policy for access to electronic
increasingly accessible over the court documents, the National
Internet. Without the effort of Center for State Courts and the
traveling to the source, anyone Justice Management Institute
with a computer and Internet con- submitted a white paper, The
nection can access public records Public Access to Court Records:
from home or from the work- Guidelines for Policy Development
place. With this ease of access, by State Courts, to the Conferpublic records—including sensi- ence of Chief Justices and the
tive information—are now much Conference of State Court Admore public.
ministrators at their Annual
Almost anything that a per- Conference this past summer
son files with a gover nment (visit http://www.courtaccess
agency—from a divorce decree .org/modelpolicy/). The docuto property records—is a public ment advocates electronic access
record. A careful
to cour t records
Carole Levitt is
search of public
but seeks to limit
president of Internet
records can indiaccess to informaFor Lawyers. She can
cate the price paid
tion that is not
be reached at
for a house, the
accessible to the
clevitt@netforlawyers
names of those
public pursuant to
.com.
being booked by
federal or state law,
the Los Angeles
court rule, or case
sheriff, the names
law.
of those who have
In Califor nia,
been assigned to pay child sup- Section 37(b)(12) of the Rules of
port, and even the Social Security Court simply states: “The public
and credit card numbers of those should have access to electroniwho file for bankruptcy.
cally filed documents as required
For those who argue that by law.” (See www.courtinfo.ca
access to public records is part of .gov/rules/2002/appendix/.) And
our open, democratic tradition the Judicial Council of the Califor-
B
38 LOS ANGELES LAWYER / DECEMBER 2002
nia Administrative Office explains
that “should have access” means
only “to the extent it is feasible,”
which includes consideration for
counties that simply lack the
funds to establish online databases (http://www.courtinfo.ca
.gov/rules/reports/documents
/rules06.pdf). Thus, online access has general support, but it
has been limited by practical concerns as well as questions of privacy. Ultimately, for example, the
council decided to limit the court
data that is freely available to the
public over the Internet.
Consequently, Rules 2070
through 2077 were added to the
California Rules of Court, effective July 1, 2002 (see http://www
.courtinfo.ca.gov/rules/). Privacy
concerns are addressed in Rule
2073, which states that records
from all the following types of
proceedings are not to be accessible over the Internet by the public: juvenile court, guardianship
or conser vatorship, mental
health, criminal, and any proceedings under the Family Code
and Code of Civil Procedure
Section 527.6 (civil harassment).
What can be accessed via the
Internet is the register of actions
(as defined in Government Code
Section 69845), which includes
the title of each cause, with the
date of its commencement and a
memorandum of ever y subsequent proceeding in the action
with its date, calendars, and
indexes and other records from
civil cases, except those listed
above. Court rules regarding the
accessibility of information online
do not af fect public access to
paper copies or to computer terminals at cour thouses. These
rules apply only to the public and
not to parties to an action or their
attorneys. Additionally, these
rules apply only to trial courts;
appellate courts and the supreme
court have fully searchable online
dockets.
In the Los Angeles Superior
Court, an important limitation on
online access is that cases may
only be searched by number.
However, the Los Angeles County Bar Association has created a
Searchable Superior Court Civil
Register, which is accessible
through its Web site (www.lacba
.org). Users may search this register by a number of criteria,
including the names of judges
and parties, types of cases, and
motions filed.
At the federal cour ts, the
Report of the Judicial Conference
Committee on Court Administration and Case Management on
Privacy and Public Access to
Electronic Case Files was adopted
in September 2001. It can be
viewed online at www.privacy
.uscourts.gov/Policy.htm. Of particular concern to federal courts
was public access to bankruptcy
filings, because of the large
amount of sensitive information
contained in these filings, including Social Security numbers,
financial account numbers,
detailed profiles of personal
spending habits, and medical
information. However, the administrative office of the U.S. courts
recognized that in order for the
public to hold the bankruptcy system accountable, access to
records that show whether an
individual has filed for bankruptcy, the type of proceeding,
and the identities of the parties in
interest should be available. A
debtor’s personal, identifying
information and financial account numbers
should not be included in electronic or hard
copies of filings. In practice, this means that
only the last four digits of Social Security and
financial account numbers are to appear in
public records, and the names of minor children are to be omitted. Unlike the wholesale
ban on electronic access to some records
that the California court system has imposed,
the federal courts are leaning toward partial
publication from case files.
Other Public Records
Other public records are publicly available and free over the Internet. The Los
Angeles Sheriff’s Inmate Information Center
booking log is available, containing one year
of historical data. Search by name and the following information will unfold: full name,
gender, race, age, date of birth, weight, hair
color, eye color, reason for arrest, bail amount,
and housing location (http://pajis.lasd.org
/ajis_search.cfm). To the fear of public knowledge of one’s arrest, one may now add the fear
of publication of one’s weight and age at the
time of arrest.
A list with pictures of deadbeat dads and
moms is available at http://childsupport.co.la
.ca.us/dlparents.htm. This site announces to
the world that Maximillian Rudolf Lobkowicz
is delinquent and provides the following
details: He owes more than $500,000 in back
child support, was born in 1943, weighs 220
pounds, and was last seen in Beverly Hills.
Records of all marriages taking place in Las
Vegas are freely searchable on the Web by
name or certificate number (http://www.co
.clark.nv.us/recorder/mar_srch.htm). Marriage records in Los Angeles, however, are not
so freely accessible. In Orange County, copies
of marriage certificates are not freely available
on the Web, but they can be ordered over the
Internet (click on Online Transactions at
http://www.oc.ca.gov/).
Death records can be found in the Social
Security Index at http://rootsweb.com/ or
http://ancestry.com/—both are free sites
that require registration. Search by last name
and you can learn date of birth, date of death,
last known address, Social Security number,
and place of issuance. The death records of
9,366,786 Californians (from 1940 to 1997)
are also available at rootsweb. These records
provide much of the same information that is
found on the Social Security Index but not
Social Security numbers. They do provide,
however, an additional piece of information—
the mother’s maiden name—that answers
one of the most common questions asked for
security and privacy purposes. After September 11, the governor requested that the
death and birth records found at rootsweb
.com be taken down. That request was com-
LAWSUIT & ASSET PROTECTION
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Professional
Confidential
949-262-1100
www.searsatty.com
LOS ANGELES LAWYER / DECEMBER 2002 39
TRUST DEED FORECLOSURES
“Industry Specialists For Over 15 Years”
Witkin & Eisinger we specialize in the Non-Judicial
of obligations secured by real property
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533 N. GLENDALE BLVD., SUITE 101, LOS ANGELES 90026
BANKRUPTCY JUDGESHIP
Central District of California - Los Angeles, CA
U.S. Courts for the Ninth Circuit is recruiting to fill a vacancy on the
Bankruptcy Court for the Central District of California. Chambers is
in Los Angeles, CA. This is an open, competitive process. Qualifications include admission to practice, good standing bar
membership, and at least 5 years of legal practice. Appointment is for
14 years, subject to possible reappointment. Salary is $138,000. No
relocation expenses provided.
Vacancy announcement and application forms are available via
court Web site at www.ce9.uscourts.gov (click on “documents”).
They are also available at all court clerks’ offices in the Ninth Circuit
or by calling, faxing or writing the following numbers or address:
VOICE-(415) 556-6158 / FAX-(415) 556-6179
U.S. Courts for the Ninth Circuit
Office of the Circuit Executive
P.O. Box 193939
San Francisco, CA 94119- 3939
(Attn: Bankruptcy Recruitment-C.D. CA).
All completed application materials must be received by 1/31/03. EOE
40 LOS ANGELES LAWYER / DECEMBER 2002
plied with, but the death records have
appeared again.
Sex offender registries have been one of
the more litigated areas of free public records
on the Web. Every state and county handles
the matter dif ferently (http://www
.fbi.gov/hq/cid/cac/states.htm). In Los
Angeles there is no Web database that is
searchable by offender’s name. Recently,
however, a Web database was created to
search by location, but it does not attach
names or precise addresses (http://gismap
.co.la.ca.us/sols/default.htm). This site is
experiencing such heavy usage that users
may have considerable access problems.
There is also no consistency among states
and counties regarding access to real property
records and the amount of information to be
found on these records. In Los Angeles, free
searching by an address or assessor number is possible, but searching by a person’s
name is not (http://assessor.co.la.ca.us/).
Even after one conducts a search by address
or assessor number at the county assessor’s
site, the property owner’s name is still not
shown. In sharp contrast, the free assessment database in Tennessee allows for name
searching (http://170.142.31.248/). It is
impossible to ascertain all of an individual’s
real property assets using free publicly accessible records, but one can search by name
using a pay database such as Lexis, Westlaw,
Choicepoint, or Accurint. If one owns
California property but does not know it, the
unclaimed property database for California
can help. This site can be accessed via the
controller’s of fice site at http://www
.sco.ca.gov/. (I have found unclaimed money
for others but never myself.) A local attorney
found $60,000 when he searched under the
name of a client who owed him money.
The Internet has undoubtedly tipped the
balance in favor of the public’s right to know
over the person’s right to privacy. Although
courts have a duty to provide access, no statutory obligation exists for the dissemination of
case files electronically. Internet access to
public records is not mandated by the federal
courts, and in California, it is mandated only
to the extent feasible because some smaller
counties simply do not have the funds to
implement Web access. Web access to sensitive information, such as Social Security
numbers, can be obtained from investigative
databases. These databases are not available
to the public but only to groups such as attorneys and law enforcement who can prove
that they have a legitimate business purpose
for the information. If some privacy advocates have their way, even this may not be an
option. At the very least, everyone should
be aware of just how public their public
records can be.
■
Classifieds
EXPERTS/CONSULTANTS
BUSINESS VALUATION EXPERTS. The firm has
over 20 years of litigation support and expert
testimony experience in matters involving business valuation, economic damages, intellectual
property, loss of business goodwill, and lost
profits. Areas of practice include business
disputes, eminent domain, bankruptcy, and
corporate and marital dissolution. HIGGINS,
MARCUS & LOVETT, INC., 800 South Figueroa
Street, Suite 710, Los Angeles, CA 90017, (213)
617-7775, fax (213) 617-8372, e-mail: info
@hmlinc.com. Web site: www.hmlinc.com.
Contact Mark C. Higgins, ASA, president.
agencies involving cleanup levels and approval
of RI/FS/RD/RA documents for various state and
federal Superfund sites. Hargis + Associates, Inc.
265 Northside Drive, Suite C-100, San Diego, CA
92108. For more information contact Dr. David
R. Hargis, RG, PhD. (800) 554-2744.
NEED AN EXPERT WITNESS, legal consultant,
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IndextoAdvertisers
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Tel. 800-634-9177 www.attorneys-advantage.com
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Law Office of Donald P. Brigham, p. 19
Lexis Publishing, Inside Front Cover, p. 9
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California Community Foundation, Inside Back Cover
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Tel. 213-413-4130 www.calfund.org
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The Chugh Firm, p. 19
Laurence D. Merritt, p. 24
Tel. 562-229-1220 www.chugh.com
Tel. 818-710-3823 www.legalknight.com
Cohen Miskei & Mowrey, p. 39
Noriega Chiropractic Clinics, p. 41
Tel. 818-986-5070 [email protected]
Tel. 323-728-8268
Coldwell Banker, p. 15
Office of the Circuit Executive, U.S. Courts, p. 40
Tel. 818-905-7111 e-mail: [email protected]
Tel. 415-556-2000 www.ce9.uscourts.gov
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42 LOS ANGELES LAWYER / DECEMBER 2002
CLE Preview
Nuts and Bolts 2002
ON THURSDAY, FRIDAY, AND SATURDAY, DECEMBER 5, 6, AND 7, the Barristers Section and
the Los Angeles County Bar Association will sponsor a three-day conference designed to teach
lawyers what they need to know to be effective litigators in the state and federal courts. This
conference focuses on the typical stages of a case and features some of the most prominent
lawyers and judges in our community. Learn from the masters and come away from the
program with a file of sample pleadings you can use in your own practice.
On Thursday, from 8 A.M. to 4:15 P.M., instruction will cover how to draft complaints and
responsive pleadings, written discovery and discovery motions, and the California Rules of
Court. On Friday, from 8 A.M. to 4:15 P.M., the general topics will be advanced deposition
techniques; law and motion; and courtroom basics. And on Saturday, from 8:30 A.M. to 4 P.M.,
topics will include writing in plain English and alternative dispute resolution. This event will be
held at the LACBA/LEXIS Publishing Conference Center, 281 South Figueroa Street,
Downtown. The registration code number is 7102L05.
$400—CLE+PLUS members
$475—Barristers and all LACBA section members
$550—LACBA members discount (CLE+PLUS card, 2002 Nuts and Bolts Conference)
$650—“Become a Member” discount, which includes LACBA membership, CLE+PLUS
card, and the 2002 Nuts and Bolts Conference
$900—all others
18.5 CLE hours, including 2 ethics hours
Mastery of
Legal Research
ON SATURDAY, DECEMBER
13, the Los Angeles County
Bar Association and the Los
Angeles Paralegal
Association will present a
LexisNexis training
program on research
proficiency. This course will
cover initial case analysis
and how to conduct factual
discovery using the Lexis
system, including locating
and profiling people and
conducting company
research. Participants will
also receive The Updated
Rules of Court and other
valuable reference
material. The event will be
held at the LACBA/LEXIS
Entertainment Industry Labor and Employment Law
Publishing Conference
ON FRIDAY, DECEMBER 6, the Labor and Employment Law Section will present a program for
attorneys involved in labor and employment in the entertainment industry. After introductory
remarks by Deborah C. Saxe, Arnold Peter, and Vicki Shapiro, the first session will feature speakers
Arnold Peter and Vicki Shapiro. From 9:30 to 11 A.M., the topic will be the basics of labor and
employment issues in sports, featuring speakers Santiago Fernandez, Ted Fikre, Adam Katz, James
Perzik, and Richard Brown. Next, Mike Farrell, Richard Levy, Zino Macaluso, Daniel Savage, and
Peter Kiefer will discuss the future of talent representation in Hollywood. The luncheon panel
speaker will be A. Robert Pisano.
After lunch, speakers Ronald H. Gertz, Lawrence Mayberry, Grace Reiner, and Laurence Zakson
will examine developments in technology. Then, speakers Adam Levin, Dan Schechter, and Ann
Calfas will discuss restrictive covenants. The conference will take place at the Sheraton Universal
Hotel, 333 Universal Terrace Parkway in Universal City. On-site registration will begin at 8:30 A.M.,
with the program continuing from 9 A.M. to 5 P.M. The registration code number is 8177L06.
$95—CLE+PLUS members
$195—Labor and Employment Law Section members
$210—LACBA members
$255—all others
6.25 CLE hours
Center, 281 South Figueroa
Street, Downtown. Parking
at the Figueroa Courtyard
Garage will be available
for $7 with LACBA
validation. On-site
registration will begin at 9
A.M.,
with lunch from 12:30
to 1:30 P.M., and the
program itself from 9:30
A.M.
to 4:30 P.M.
Registration code number:
7096L13.
$150—CLE+PLUS members
$250—LAPA members
$300—LACBA members
$450—all others
5 CLE hours
The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed
on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at
http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the December County Bar Update.
LOS ANGELES LAWYER / DECEMBER 2002 43
closing
argument
By Rena E. Kreitenberg
A Cloud over Arbitration Decision Appeals
A state court ruling changes the calculus when
considering contractual arbitration clauses
ntil recently, it was a generally held belief that parties to a contract for binding arbitration in California could preserve their
right to judicial review provided that the right was expressly
stated and adequate consideration existed. While that belief remains
well grounded if the arbitration agreement is subject to Ninth Circuit
interpretation of the Federal Arbitration Act (FAA),1 it is now misplaced
for agreements interpreted pursuant to California law. In other words,
when counseling clients on arbitration agreements, a new variable has
arisen: What court will likely interpret the agreement?
The recent decision by the California Court of Appeal in Crowell
v. Downey Community Hospital Foundation2 has eliminated the right
to contract for judicial review of arbitration awards governed by
California state law. The court’s ruling, however, flies in the face of
California precedent, makes no logical sense, is contrary to Ninth
Circuit law, and creates significant ambiguity for practitioners. This
will only serve to deepen what parties fear most about arbitration: that
an arbitrator will act capriciously or without regard to the law.
In California, private arbitration, as provided in Code of Civil
Procedure Sections 1280 et seq., is a creature of contract.3 The majority in Crowell nevertheless held that negotiated contractual provisions
allowing for judicial review are unenforceable because the Code of Civil
Procedure specifically excludes review outside the grounds set forth
in the code. Unfortunately, these grounds are very narrow, involve serious misconduct or outright fraud on the part of the arbitrator, and are
rarely, if ever, applicable. In essence, the court in Crowell held that
because strong public policy favors finality of judgment, the use of private arbitration presumes nonjudicial review of a decision.
The court ignores, however, the fact that private contractual arbitration is a matter of agreement between the parties whereby the powers of the arbitrator are necessarily determined by agreement or
stipulation. The court also ignores that parties may agree to expand
or constrict statutory rights.
The dissenting opinion in Crowell provides a more thorough and
practical application of California law, including persuasive Ninth
Circuit federal authority, which the Crowell majority refused to consider.4 As a result, the dissenting opinion provides a logical rationale
as to why the courts, when faced with this issue in the past, have qualified their rulings limiting judicial review provisions in contractual arbitration. By basing such findings upon the “intentions of the parties,
as expressed” in the particular agreement, the courts recognize that
the parties should be allowed to freely contract for judicial review of
arbitration awards.5
The dissenting opinion focuses on this critical issue when it correctly states: “At the core of binding arbitration is the parties’ freedom
to contract for resolution of disputes in a forum and pursuant to rules
U
44 LOS ANGELES LAWYER / DECEMBER 2002
of their choosing. Absent the parties’ agreement, binding arbitration cannot occur because it involves the decision to waive fundamental
constitutional rights, including the right to trial by jury.”6
The sad truth is, the majority ruling in Crowell forces parties to
choose between their right to freely contract and their right to a
quick, economical, and fair forum outside the civil court system.
The dissenting opinion recognized this conundrum and noted that it
raises the fear that parties will refuse binding arbitration as an option
because the cost becomes too high if a capricious arbitrator issues an
award that is unsupported by law or evidence. Given that the current
statutory scheme does not require arbitrators to follow the law, it seems
that binding arbitration is now far too risky an endeavor. Parties can
just as easily preserve their rights to appeal by opting for a bench trial
while at the same time saving the cost of an arbitrator.
When disputes are governed by federal law, a practitioner could
avail the client of the broader provisions for judicial review in the FAA
as provided in current Ninth Circuit law. However, this option could
prove impractical and ineffective unless the contract includes a choice
of forum provision that would require application of law from a jurisdiction (such as the Ninth Circuit) favorable to broader judicial review,
since precedents disallowing judicial review exist in other federal circuits. Even more troubling, in multiple-party arbitrations crossing
numerous jurisdictions, some parties may have the right to judicial
review while other parties to the very same agreement would not.
Regardless of how we feel about the
current state of the law, we must now
carefully counsel our clients on all aspects
of binding arbitration and clearly explain
the significant rights they could be waiving before recommending the “cheaper
and quicker” alternative to the civil court
process. With binding arbitration, it
seems more and more that you get what
you pay for.
■
Lapine Tech. Corp. v. Kyocera Corp., 130 F. 3d
884 (9th Cir. 1997).
2
Crowell v. Downey Cmty. Hosp. Found., 2002
Daily Journal DAR 1013 (2d. App. Dist. 2002), 95
Cal. App. 4th 730 (2002).
3
Moncharsh v. Heily & Blase, 3 Cal. 4th 1 (1992).
4
Crowell, 2002 Daily Journal DAR at 1015; see
also id. at 1018 (dissenting op.).
5
Old Republic Ins. Co. v. St. Paul Fire & Marine
Ins. Co. 45 Cal. App. 4th 631, 637; see also Crowell,
2002 Daily Journal DAR at 1018 (dissenting op.).
6
Crowell, 2002 Daily Journal DAR at 1020.
1
Rena E. Kreitenberg
is a partner in the
firm of Mesisca, Riley
& Kreitenberg, where
she specializes in
business transactions
and litigation and
real estate matters.
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