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May 24, 2001

McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378

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The Second District has decided that an attorney who retained the services of counsel to advise him about representation of his own clients cannot pursue an action for legal malpractice over his client’s objections if to do so would intrude upon the attorney-client privilege.  It also decided that shareholder derivative suits for legal malpractice do not violate the rule against assignment of legal malpractice actions.  Nevertheless, they are barred because shareholders cannot waive the attorney-client privilege on behalf of the corporation.

Solin argued that the trial court was obligated to conduct in camera review of McDermott, Will & Emery was outside corporate counsel for Memorial Healthcare Systems, Inc. (“MHSI”) The shareholders of MHSI sued McDermott, Will & Emery for malpractice in connection with an agreement it drafted.  The trial court denied a motion for judgment on the pleadings brought on two grounds: the derivative action was an impermissible assignment of a legal malpractice action, and the lawsuit would force McDermott, Will & Emery to disclose attorney-client privileged information to effectively defend itself.

The Court of Appeal found that the derivative action was not an impermissible assignment of a legal malpractice action.  Because shareholder derivative actions are brought to enforce the corporation’s rights and inure to its benefit, they are not akin to an assignment of a claim where title to a cause of action passes from one person to another.

However, the case could not proceed because the corporation, not its shareholders, holds the attorney-client privilege.  The shareholders could not waive the privilege on behalf of the corporation.  Absent the corporation’s waiver, McDermott, Will & Emery would be precluded from effectively defending the action.  The court refused to place defendant attorneys in the position of being unable to defend the case because of their obligation to preserve the attorney-client privilege.

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