13.18. Reading: Banning Ranch Conservancy v. Superior Court, 193 Cal.App.4th 903 (2011)

Reading Guide

Preparing for the Reading:
This case addresses an issue that arises more often than you think – who is a “current client” v. “former client” for conflict of interest purposes. We have a separate topic on former client conflicts. For purposes of this case, read Rule 1.9(a) – and identify the standard of disqualification when a lawyer is going adverse to a former client.

Issues:
– What were the initial provisions of the contract with the City that are at issue?
– What is the argument that the City is a former client?
– What is the argument that the City is a current client?
– What concerns are raised when a motion to disqualify is raised?
– What is the difference between a “classic retainer” agreement and a “framework” fee arrangement? Why does it matter here?
– Did the court determine that the City was a current or former client? Why? What is the consequence?

Banning Ranch Conservancy v. Superior Court

Court of Appeal, Fourth District, Division 3 of California
193 Cal.App.4th 903 (2011)

OPINION

Before BEDSWORTH, Acting P.J., FYBEL, J., and IKOLA, J.

THE COURT.

Litigants have a right to be represented by counsel of their choice, particularly in substantive areas requiring particular expertise. In short, they have the right to hire the best professionals for their team. But they cannot induce their adversary’s attorney to switch sides midstream. There is a rule of automatic disqualification where counsel breaches the duty of loyalty by simultaneously representing two current clients with adverse interests.

What does it mean to be a current client? This may not be as obvious as it seems. More than five years ago, petitioner’s counsel prepared two identically worded fee agreements with real party for a specific matter, which closed shortly thereafter after minimal legal work. However, the retainer agreements were open-ended, affording counsel and real party the option of creating future engagements without new writings. Counsel never again represented real party. Do these “framework” retainer agreements of themselves create a current attorney-client relationship between counsel and real party?

We conclude the answer is no. Framework retainer agreements are not the same as “classic” retainer agreements, where the client pays a fee to secure the attorney’s future time and availability, and where the attorney gives up the right to decline future legal work. We issue a peremptory writ in the first instance to remedy the trial court’s error in disqualifying petitioner’s counsel based on a nonexistent conflict of interest.

PROCEDURAL HISTORY

Petitioner Banning Ranch Conservancy (Conservancy) is a nonprofit public benefit corporation …, dedicated to preserving Banning Ranch, a 400–acre coastal property, as open space. The Conservancy has objected to plans by … City of Newport Beach (City) to build a four-lane divided highway on this land, and critically commented about adverse impacts during the environmental review process under the California Environmental Quality Act [CEQA].

In April 2010, the Conservancy, represented by the law firm of Shute, Mihaly & Weinberger (the Shute firm), filed the underlying CEQA litigation to challenge the project approval because of the allegedly flawed EIR.

In August 2010, the City filed a motion to disqualify the Shute firm based on alleged conflicts of interest. The City had two different theories: First, the City claimed to be the firm’s former client on at least eight different matters, all of which were closed some five to 10 years ago. Second, the City claimed to be the Shute firm’s current client based on two identically worded letter agreements, drafted and signed in 2005. The 2005 agreements are each entitled “Legal Retainer Agreement, Public Trust Matters.”

The 2005 agreements provide that the Shute firm would provide legal services to the City, on an “as-requested” basis, in connection with “public trust matters of concern to [the City].” The agreements, however, conditioned such representation on the Shute firm’s confirmation of its “ability to take on the matter.” If such representation was requested and accepted, the agreed-upon rates were to be $250 per hour for partners and $215 per hour for associates. The City’s supporting declarations showed the 2005 agreements never had been terminated.

In opposing the disqualification motion, the Shute firm declared that it prepared the 2005 agreements in conjunction with the City’s request for representation regarding proposed mooring permit regulations. The Shute firm performed a total of 1.2 hours of work on this matter, and sent the City its final invoice in July 2005. The Shute firm continued doing some minor legal work on another matter, but that matter concluded in early 2006. Other than the initial matter concerning mooring permit regulations, the City never requested that the Shute firm undertake any other legal work pursuant to the 2005 letter agreements.

No attorney from the Shute firm has since communicated with any of the City’s attorneys, staff, or council members regarding any legal matter other than in conjunction with the underlying lawsuit. By contrast, the City since has hired at least 10 different law firms other than the Shute firm to represent it on CEQA matters since 2006.

Attorney Amy Bricker, who was assigned by the Shute firm to work on the underlying suit, declared she performed a conflicts check before agreeing to represent the Conservancy, and spoke extensively with the two partners at the Shute firm who were most familiar with its prior work with the City. She confirmed that “none of the prior matters bore any substantial relationship to the [instant] litigation.” For example, the John Wayne Airport litigation involved airport noise. The Balboa Village Improvement Project, which ended in 2004, involved a challenge to a project by an arbor society seeking to protect certain ficus trees. The Shute firm declared there were no substantial relationships between any of the prior matters and its current work for the Conservancy.

On September 9, 2010, the trial court held a hearing on the City’s motion. The court granted the motion to disqualify, determining that the City remained the Shute firm’s current client. “The Court finds that [the Shute firm] is also counsel for [the] City pursuant to the terms of two ongoing retainer agreements…. Both agreements are executed by [the Shute firm] and [the City] …. [The Shute firm] provides no evidence that either of the retainer agreements was terminated, and the agreements do not provide that it would expire under their own terms.”

The trial court recognized that the matter was not a “slam dunk.” “Obviously there are important interests—very important interests on both sides, which the court has given due consideration to, and has balanced.” The court filed its disqualification order on October 5, 2010.

*** We granted a temporary stay of the disqualification order pending consideration of the writ petition.

II STANDARD OF REVIEW

We review the trial court’s disqualification order for abuse of discretion. We do not substitute our judgment about disputed factual issues, where supported by substantial evidence. However, where the material facts are not in dispute, we independently review the disqualification ruling as a question of law, and will reverse where taken without a reasonable basis.

Disqualification motions implicate competing considerations. On the one hand, these include clients’ rights to be represented by their preferred counsel and deterring costly and time-consuming gamesmanship by the other side. “[T]he client has an interest in competent representation by an attorney of his or her choice [citations] and perhaps, the interest in avoiding inconvenience and duplicative expense in replacing counsel already thoroughly familiar with the case [citations].” Lyle v. Superior Court, 122 Cal.Rptr. 918 (Cal. App. Ct. 1981).

Balanced against these are attorneys’ duties of loyalty and confidentiality and maintaining public confidence in the integrity of the legal process. “The important right to counsel of one’s choice must yield to ethical considerations that affect the fundamental principles of our judicial process.” … “The loyalty the attorney owes one client cannot be allowed to compromise the duty owed another.”

There are different disqualification standards for attorneys who have conflicts with former clients and those who have conflicts with current clients. As to conflicts involving successive representation with former clients, courts look to whether there is a “substantial relationship” between the subjects of the current and the earlier proceedings. …

In contrast, there is a more stringent standard when an attorney simultaneously represents two current clients with conflicting interests. Disqualification, as the parties agree, is mandatory in such circumstances even though the simultaneous matters may have nothing in common. …” ‘Something seems radically out of place if a lawyer sues one of the lawyer’s own present clients in behalf of another client. Even if the representations have nothing to do with each other, so that no confidential information is apparently jeopardized, the client who is sued can obviously claim that the lawyer’s sense of loyalty is askew.’” …

We separately analyze each scenario, and conclude the trial court abused its discretion in disqualifying the Shute firm from representing the Conservancy.

III SIMULTANEOUS (CURRENT) REPRESENTATION OF ADVERSE CLIENTS

The prohibition against simultaneous representations of adverse clients has been analogized to the biblical injunction against serving two masters. Until litigation comes to an end, clients rightfully rely upon their attorneys’ “‘undivided allegiance and faithful, devoted service.’” … The rule is designed to preclude attorneys from being placed in the position of choosing between conflicting duties, or reconciling conflicting interests.

There is no evidence from which a current attorney-client relationship can be inferred or implied from a course of dealings between the Shute firm and the City. The City does not claim that it is being currently represented by the Shute firm on any outstanding matter. Indeed, the underlying facts establish, without dispute, that the Shute firm has not represented the City on any specific matter since 2006, and has not since communicated with the Shute firm on any legal issue.

Instead, the City contends, and the trial court agreed, the simultaneous representation arises because of the express provisions of the 2005 agreements alone. According to the City, the “two Legal Retainer Agreements between the City and Shute Mihaly are best described as on-going, prospective legal retainer agreements.”

As we explain, none of the language in the 2005 agreements is reasonably susceptible to the suggested interpretation that the City remains a current client of the Shute firm. Instead, the “as-requested” and “to be confirmed” provisions of the 2005 agreements require that the parties agree to new attorney-client relationships on a matter-by-matter basis.

A. Contractual Language and Interpretation

Retainer agreements are enforced like any other contract if they are certain and unambiguous. We therefore apply ordinary principles of contract interpretation to the 2005 agreements.

“The basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties’ intention is determined from the writing alone, if possible. [Citation.] ‘The words of a contract are to be understood in their ordinary and popular sense.’” … “The language of the contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” Any ambiguity in a retainer agreement is construed in favor of the client and against the attorney.

We turn to the language of the 2005 agreements. The 2005 agreements are so-called “framework” retainer agreements, providing a structure for establishing future attorney-client relationships on an “as-requested” basis by the City, and subject to confirmation by the Shute firm, depending upon such considerations as conflicts checks, caseload and work flow situations. We concur with the Conservancy’s characterization of these agreements as providing a “general framework … under which potential future representation could occur should the City request and [the Shute firm] accept, work on any particular matter.” As the Conservancy explains, the 2005 agreements were designed to expedite the Shute firm’s future relationships with City, but “did not create an attorney-client relationship absent an actual request, and acceptance, for representation on a particular matter.”

Section 1 (“Legal Services to be Provided”) contains the “as-requested” language. It states, “The Firm is retained to provide assistance to Client on public trust matters on an as-requested basis. The firm is not being retained to provide litigation services.” (Italics added.)

Section 3 (“Particular Matters/Conflict of Interest”) holds the most critical language. It gives the Shute firm the contractual right to “confirm the Firm’s ability to take on” any “particular matter”, based on such factors as the firm’s workload and its conflicts checks. Section 3 states, “As you and I have discussed, it is possible that this Firm will be unable to advise Client with respect to a particular matter due to a potential or actual conflict of interest, workload considerations, or other reason. Accordingly, in each case, before we can advise Client with respect to a particular matter, we will need to perform a ‘conflict check’ and otherwise confirm the Firm’s ability to take on the matter. If the Firm cannot advise Client with respect to a particular matter, we will promptly notify Client.” (Italics added.) There is no evidence that the Shute firm ever represented the City on any matter other than as described in this opinion.

These clearly-stated qualifiers in the 2005 agreements belie the City’s contention that the agreements created an ongoing, open-ended attorney-client relationship. They instead contain two prerequisites for any future representation: first, the City must request that the Shute firm represent it on a particular matter, and second, and equally important, the Shute firm must confirm the request. Once both conditions were satisfied, the 2005 agreements governed the general terms, hourly rates and billing practices for any such future representation, without the necessity of a new writing.

The City argues that the Shute firm, which drafted the 2005 agreements, could have more explicitly provided that the City was not the firm’s current client, unless the Shute firm was affirmatively working on an open matter for the City. The City argues: “The very terms of the Legal Retainer Agreements do not state that the City is not to be considered a client unless Shute Mihaly is affirmatively working on a matter for the City.”

The 2005 agreements unambiguously call for representation on a matter-by-matter basis. The language of the 2005 agreements is not reasonably susceptible to the construction that the Shute firm currently represents the City. The fact that an agreement could have been made even clearer does not render the existing terms ambiguous. …

B. Extrinsic Evidence

***The City has not cited any extrinsic evidence to show the 2005 agreements were reasonably susceptible of a different interpretation as an expression of the parties’ mutual intent at the time of contracting. The extrinsic evidence showed the Shute firm drafted the 2005 agreements in response to a request by the City to perform work regarding a specific matter involving the City’s mooring permit regulations. To support the disqualification motion, Dave Kiff, the city manager declared, “Based upon the Legal Retainer Agreements dated January 24, 2005 and April 27, 2005 respectively, I consider the City to still be a valued client of Shute Mihaly’s.” However, under the objective theory of contracts, a party’s undisclosed subjective intent cannot be used to override the contractual terms themselves.

In addition, “[a] party’s conduct occurring between the execution of the contract and a dispute about the meaning of the contract’s terms may reveal what the parties understood and intended those terms to mean.” City of Hope National Medical Center v. Genetech, Inc., 75 Cal.Rptr.3d 333 (Cal. Ct. App. 2008). After the 2005 agreements were executed, the Shute firm performed a total of 1.2 hours of work on the mooring permit, and never performed any other legal services for the City pursuant to the agreements. The City instead retained at least ten other law firms to represent it on environmental and land use matters that arose in the ensuing years. This conduct supports the conclusion the 2005 agreements called for representation on a matter-by-matter basis.

The competent extrinsic evidence therefore does not support the City’s construction of the 2005 agreements. Accordingly, we construe the 2005 agreements independently based on the contractual language. …

C. Termination or Withdrawal from the 2005 Agreements

The City stresses that neither the Shute firm nor the City has acted to terminate or withdraw from the 2005 agreements, leaving them “still in force and effect to this very day.” The City argues “[a]s neither the City [n]or Shute Mihaly have terminated the two Legal Retainer Agreements, the Superior Court was correct in concluding that the City is a current client of Shute Mihaly and properly granted the Motion.” The trial court was concerned that the Shute firm’s interpretation would render the withdrawal and termination provisions “superfluous.” The court stated: “The references to the procedures would be superfluous … if the agreement simply expired after a certain amount of time had lapsed after the City had asked the [Shute] firm to work on a matter pursuant to the retainer.”

We cannot agree with these arguments. Section 5 of the 2005 agreements (the pertinent section on withdrawal) speaks to the Shute firm’s withdrawal from currently pending matters. That is why the operative language in section 5 permits withdrawal only “as permitted under the Rules of Professional Conduct.” Under California law, continuity of representation does not depend upon a formal withdrawal or the client’s subjective beliefs so much as “on evidence of an ongoing mutual relationship and of activities in furtherance of the relationship.” Worthington v. Rusconi, 35 Cal.Rptr.2d 169 (Cal. Ct. App. 1994. There is no need to “terminate” the 2005 agreements because the framework they establish is not self-effectuating. Instead, future representation on particular matters requires reciprocating actions by both client and attorney, “as-requested” by the City and “as confirmed” by the Shute firm.

These triggering events have not occurred for some six years. As a result, the Shute firm is not the City’s current client, even though the 2005 agreements have not been formally terminated and remain in effect with the framework still existing for future representation.

D. Classic Retainer Agreements Distinguished

The trial court erroneously equated these framework retainer agreements with “classic” retainer agreements. The latter type of retainer agreements (which also may be called “general” or “true” retainer agreements) involve clients who pay an engagement retainer fee to secure ongoing legal representation for a specified period of time. See Baranowki v. State Bar, 593 P.2d 613 (Cal. Ct. App. 1979)[a “classic ‘retainer fee’ arrangement” is one in which “a sum of money [is] paid by a client to secure an attorney’s availability over a given period of time”]….

Classic retainer agreements, in essence, are option agreements: in exchange for the payment of an engagement retainer fee, the attorneys commit themselves to take on future legal work, regardless of inconvenience, client relations or workload constraints. “[L]awyers make two present sacrifices at the time of signing a general retainer agreement: they reallocate their time so that they can stand ready to serve the general retainer client to the exclusion of other clients and they give up their right to be hired by persons with interests that conflict with the general retainer client, thus again foregoing potential income.” Brickman & Cunningham, Nonrefundable Retainers Revisited, 72 N.C. L. Rev. 1,9 (1993); see also Richmond, Understanding Retainers and Flat Fees (2009) 34 J. L.Prof. 113.

No such commitments are contained in the 2005 agreements. The Shute firm did not receive any engagement retainer fee, and the Shute firm made no commitments for future legal representation. To the contrary, in section 3, the Shute firm said only that it would have to “confirm the Firm’s ability to take on the matter.” The 2005 agreements are not classic retainer agreements, and do not create a contractual ongoing attorney-client relationship in the absence of a specific request by the City and an equally specific acceptance by the Shute firm.

IV SUCCESSIVE (PRIOR) REPRESENTATION OF ADVERSE CLIENTS

The trial court did not disqualify the Shute firm from representing the Conservancy based on its past representation of the City in other matters. Although the City raised the subject below, its opposition to the writ petition does not mention the topic.

The City’s reticence is well founded. Although the Shute firm previously represented the City on numerous legal matters (primarily relating to issues concerning the John Wayne Airport and the adaptive reuse of the former El Toro Marine Corps Air Station), none of these cases bore any substantial relation to the current litigation brought by the Conservancy against the City.

Under California law, a law firm is subject to disqualification based upon its prior representation under the following circumstances: “If there is a substantial relationship between the subject of the current representation and the subject of the former representation, the attorney’s access to privileged and confidential information in the former representation is presumed and disqualification of the attorney from the current representation is mandatory in order to preserve the former client’s confidences.” [See ABA Model Rule 1.9]

The City cites the Shute firm’s “national recognition as a leading environmental and land use law firm….,” and the “special insight” the firm’s attorneys have gained into the City’s approach to land use matters through its prior representation of the City in past decades. According to the city manager, “the City’s approach to CEQA, the CEQA Guidelines and the California Coastal Act was created in part based upon the advice and counsel the City received from Shute Mihaly in the form of confidential documents protected by the attorney-client privilege.”

Merely knowing of a former client’s general business practices or litigation philosophy is an insufficient basis for disqualification based upon prior representation. In Fremont, 49 Cal.Rptr. 82, the Court of Appeal reversed a disqualification order where the law firm’s former representation was unrelated to the current dispute, and where there was no reason to believe the firm acquired material confidential information during the course of the prior representation. Because the record did not support a substantial relationship sufficient to give rise to an inference that the firm acquired material confidential information, the Fremont court found an abuse of discretion.

As Fremont and other cases hold, former representation alone does not give rise to a lifetime prohibition against future representation of an opposing party. Without evidence of a substantial relationship between the former and present representations, the City has failed to satisfy well-settled requirements. Accordingly, the Conservancy is able to retain its choice of counsel.

DISPOSITION

Let a peremptory writ of mandate issue directing the Superior Court of Orange County to set aside its order of October 5, 2010, disqualifying the law firm of Shute, Mihaly & Weinberger from representing petitioner in the underlying action and to enter a new order denying the motion to disqualify. Upon finality of this decision, the temporary stay order shall be dissolved. …