The Fourth District concludes a non-client was entitled to disqualify its opponent’s counsel.
Shared Memory Graphics LLC (SM) hired attorneys Floyd & Buss (F&B) to pursue patent infringement litigation against various electronics firms. In a second action, F&B hired AlvaradoSmith to arbitrate attorney’s fees claims against SM after its case resolved. F & B alleged that SM had improperly underestimated the importance of the patents in the first matter, reducing F&B’s contingency fee recovery. SM and F&B resolved the fee action.
In the third action, Reddy sued SM and Acacia Patent Acquisition, LLC arguing they were alter egos and owed him consulting fees. Like F & B, Reddy claimed that Acacia and SM manipulated the settlement in the first action to allocate an artificially low amount to the patents. After the case was transferred to Orange County, AlvaradoSmith was associated in as Reddy’s co-counsel.
Acacia and SM moved to disqualify the firm based on its prior representation of F&B. They argued AlvaradoSmith had access in the fee dispute action to SM’s confidential documents, ordinarily protected by the attorney-client privilege and/or the work product doctrine. AlvaradoSmith argued it had abided by three protective orders governing the confidentiality of documents in the first action. The trial court denied the motion, noting AlvaradoSmith’s representation of Reddy was not adverse to its representation of F&B, and the firm had not acquired confidential information in the fee dispute case.
In cases of successive representation, an attorney is barred from accepting employment adverse to a former client in a substantially related matter. Matters are substantially related if the current matter involves the work the lawyer performed for a former client, or there is a substantial risk that representation of the current client will involve the use of confidential information acquired representing the former client. The Court observed although F&B was entitled to reveal SM’s confidential information to the extent necessary to litigate the fee action, F&B would not be entitled to represent a client adverse to SM if the two cases were substantially related.
The question was whether F&B’s counsel, AlvaradoSmith, could be disqualified from representing a party adverse to SM in a substantially related case. Although there is limited California authority on this issue, the Court concluded a disqualifying conflict can arise when a law firm represents another law firm. A court must examine whether the representation of the law firm resulted in a broad disclosure of the non-client’s privileged information, and whether a substantial relationship exists between the two matters. The Court concluded it was unnecessary for the party seeking disqualification to pinpoint the precise privileged documents that provide the law firm and its client with a potential unfair advantage.
The Court of Appeal granted the disqualification motion. AlvaradoSmith had extensive access to SM’s privileged information in the fee dispute. There was a substantial relationship between the fee dispute and the Reddy dispute; each involved the manner the patents in the first case were valued.
Comment: The holding in Acacia Patent is fact-specific. It is based on high similarity between the two actions, and the attorneys’ extensive access to the non-client’s privileged and confidential information. The decision leaves open the possibility, in a case without those distinguishing features, that a non-client’s motion can be denied.