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March 4, 2002

McPhearson v. The Michaels Co. (2002) 96 Cal.App.4th 843

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The Third District holds that a confidentiality provision in a settlement agreement for one client does not preclude an attorney from representing another client against the same defendant. 

John Riestenberg represented Kevin Harris in a lawsuit against The Michaels Co.  (“Michaels”) and some of its employees.  The Harris suit settled pursuant to an agreement that included a confidentiality clause pertaining to the agreement itself.

Prior to the settlement, Riestenberg filed an action against Michaels on behalf of Rick McPhearson.  Michaels moved to disqualify Reistenberg from representing McPhearson claiming that the Harris confidentiality provision created an unwaivable conflict of interest between Riestenberg’s representation of Harris and McPhearson.

The trial court granted the motion relying on Gilbert v.  Nat’l Corp.  for Housing Partnerships (1999) 71 Cal.App.4th 1240.  Gilbert held that an attorney who settled a case with a confidentiality provision is precluded from representing another client in a suit against the same defendant where the settling party would be called by the attorney to testify.  The Gilbert court found that the settling party’s testimony placed him at risk of violating the confidentiality clause and incurring severe sanctions.  The attorney would be unable to assist the client in avoiding those sanctions while simultaneously trying to elicit testimony helpful to his other client.  Moreover, there was no evidence that either client had given informed consent to the multiple representations.

The McPhearson court criticized the Gilbert court for exaggerating the risk to the settling parties.  Nothing in the confidentiality provision precluded the settling employees from testifying as percipient witnesses to events relating to other employees.  This was also true of the settlement agreement signed by Harris.  Since the Harris settlement terms are not admissible in McPhearson’s action against the defendant, Riestenberg can advise Harris that he may not disclose the terms of his settlement without violating his professional obligations to McPhearson.

The McPhearson court found that a number of factors weighed against disqualification.  First, the disqualification would impose a substantial hardship on the plaintiff.  Second, when disqualification is sought by an opposing party the motion should be viewed with skepticism.  Third, conflicts of interest may be waived by the affected parties.  Thus, policy leaned in favor of allowing Riestenberg to continue representing McPhearson.

Comment: This case underscores the need to identify potential conflicts of interest, disclose them, and obtain informed, written waivers where appropriate.



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