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With only six lawyers, Hackard & Holt in tiny Gold River — 16 miles east of Sacramento, Calif. — would seem an unlikely player in a huge debate over the client conflicts that emerge when attorneys change law firms. Yet there it is, at the heart of a ruling that has plaintiffs’ lawyers, defense lawyers and ethics experts either gasping at an appeal court’s brilliance or pulling their hair out over its inexplicable weakening of client protections. All the fuss has arisen over Adams v. Aerojet-General Corp., 86 Cal.App.4th 1324, a Feb. 7 decision by Sacramento’s Third District Court of Appeal that’s begun raising all kinds of pro and con arguments — especially among ethics lawyers. The 2-1 ruling, authored by Justice Consuelo Callahan, holds that Hackard & Holt partner Michael Hackard, who had filed a toxic tort against Aerojet-General, cannot be automatically bumped from the case just because his prior firm — Sacramento’s Holliman, Hackard & Taylor — provided toxic-tort defense work for Aerojet-General during his mid-’80s tenure. Hackard claims he wasn’t personally involved in the firm’s Aerojet-General work. On a broader scale, most lawyers say, the ruling — the first of its kind by a California appeal court — significantly changes the conflicts process, making it more difficult to get a lawyer disqualified from a case. Some say that’s wonderful in that it recognizes the fluid movement of modern lawyers, while others fear the ruling could undermine the confidentiality and trust incumbent in a lawyer-client relationship. “These rules are designed to give the public a reason to trust lawyers and impart true facts so the lawyers can give good legal advice,” ethics expert and former California Bar referee Robert Hinerfeld said recently. “If someone has to suffer,” said Hinerfeld, an of counsel in the Los Angeles office of Manatt, Phelps & Phillips, “isn’t it better that the lawyer suffers and not the clients?” California lawyers traditionally could be tossed off a case based on the “imputed knowledge” rule, which essentially holds that knowledge acquired by one member of a firm is imputed to all members. There also had to be shown a “substantial relationship” between a lawyer’s former and current representations that indicated the passing of confidential information. But the ruling in Aerojet-General, saying that a presumption of imputed knowledge is “out of touch with the present day practice of law,” held that disqualification shouldn’t be the remedy where lawyers didn’t personally represent a former client. “Gone are the days when attorneys (like star athletes) typically stay with one organization throughout their entire careers,” Justice Callahan wrote. “Partners with one law firm may join a competing firm or splinter off and form their own rival firm; former defense lawyers may become plaintiffs specialists and vice versa; law firms (like marriages) dissolve, often acrimoniously, its members striking off on their own, and taking divergent paths. “We conclude,” she continued, “that a rule which disqualifies an attorney based on imputed knowledge derived solely from his membership in the former firm and without inquiry into his actual exposure to the former client’s secrets sweeps with too broad a brush.” The ruling, joined by Justice Daniel Kolkey, remands the case to Sacramento County Superior Court. Third District Presiding Justice Arthur Scotland dissented, saying that “a former client’s legitimate expectations of loyalty, trust and security in the attorney-client relationship” require the presumption that a lawyer who had a substantial relationship with a client while at a former firm was privy to confidential information. Partner Scott Devries and other lawyers in the San Francisco office of L.A.’s Nossaman, Guthner, Knox & Elliott have petitioned the California Supreme Court for review on behalf of Aerojet-General Corp. They claim, in part, that the Third District ruling departs from “long-established principles” and sends “a chillingly clear message to clients that any information shared with its law firms may be used against them at a later juncture.” Hinerfeld agrees, pointing out that the California Supreme Court in 1999′s People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems Inc., 20 Cal.4th 1135, held that even of counsel are treated as regular members of a law firm in conflicts situations. “That’s a recognition by the supreme court that this is a very fundamental policy that needs to be preserved — that trust and confidentiality will remain not only for the present case, but forever,” he said. “Why is that policy not being given equal dignity in this case?” Robert Kehr, an ethics expert at L.A.’s Kehr, Schiff & Crane, said he believes the ruling contains some inconsistencies that might cause confusion, but is basically good news for lawyers because it creates California authority on the issue for the first time. “It allows those of us who advise lawyers and law firms to provide them with a greater sense of security,” he said, “that the planning they do to avoid conflicts when lawyers come into the firm is going to work, and that’s a good thing.” No one agrees more than Morrison & Foerster partner Gerald Dodson, who contends that 20 percent of his time is spent on conflicts issues involving himself. “Every case that I touch, literally, they take a swipe at the beginning — if they can — to try to knock me out,” he said. Dodson, who has been at four firms in the past 13 years and currently works in Morrison’s Palo Alto, Calif., office, believes that disqualification motions are a new — and hostile — litigation strategy by law firms, and he welcomes a ruling that he thinks recognizes “the realities of today.” “Perhaps,” he said, “it will deter some of what I consider to be really cheap shots that are made by law firms to disqualify lawyers — who would move from firm to firm — without having any involvement at all in a suit.” Ironically, Dodson was at the heart of a landmark 1997 federal court ruling that the Aerojet-General decision mirrors in many ways. In Dieter v. The Regents of the University of California, 963 F.Supp. 908, Solvent Service and USPCI tried to disqualify Dodson — at that time in the Silicon Valley office of what was then Houston’s Arnold, White & Durkee — from a patent infringement suit. They challenged him because his prior firm — Palo Alto’s Townsend and Townsend at the time — had represented them as intellectual property counsel when Dodson was in their employ. Sacramento-based U.S. District Judge David Levi, relying on California law, denied the motion, noting that Dodson had submitted declarations stating he had not personally represented Solvent Service or USPCI while at Townsend, and that he had gained no confidential knowledge about either company. “Townsend is a large firm, and Dodson … worked out of the San Francisco office, as opposed to the Palo Alto office, which had the Solvent Service and USPCI accounts,” Levi wrote. “Thus, there can be no assumption that Dodson … had access to confidential client information concerning USPCI simply because of their membership in the same firm.” Aerojet-General applies almost identical reasoning, but dissenting Justice Scotland argued that Hackard — and by extension all lawyers — should carry a “formidable burden” in showing that they had not been privy to confidential information involving their former firm’s clients. For example, he noted, Hackard’s former firm had only seven to 10 lawyers and Aerojet was a major client. “It is inconceivable that, in such a small firm with only three partners, there would not have been discussions among all the attorneys, particularly the partners, about material matters relating to the representation of a major, sustaining client like Aerojet,” Scotland wrote. “The client was too big, the firm too small and the matters at issue too closely related to say there is no conflict.” Those issues will likely come up on remand to the trial court, unless the state supreme court accepts review, which isn’t a given. Some lawyers, including Sean SeLegue, a partner in San Francisco’s Rogers, Joseph, O’Donnell & Quinn, believe the Aerojet-General ruling simply confirms what most experts already think — that imputation ends when a lawyer joins a new firm and that only his or her actual knowledge of a former client is analyzed. The Aerojet-General ruling, SeLegue said, “pretty much settles the law.” Even so, Hackard’s lawyer, Hackard & Holt partner Theodore Holt, has already asked the high court to reject Aerojet-General’s petition, and he’s preparing for a lower court hearing at which he plans to use the Third District’s reasoning that gives lawyers a chance to rebut conflict allegations. “The court has adopted a rule that makes sense in our legal communities today,” he said. “If there is no actual confidential information passed, once a lawyer has left the firm there is no automatic disqualification.”

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