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April 6, 2011 | Law Alert

Liberty National Enterprises, LP v. Chicago Title Insurance Co. (2011) 194 Cal.App.4th 839

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The Second District holds that a delayed motion to disqualify filed after counsel had achieved partial success on the merits, and premised on unrelated prior representation, was properly denied.

Liberty National Enterprises, L.P. (Liberty) retained Donald McDougal to sue its title insurer, Chicago Title Insurance Company (Chicago), for bad faith.  After two years of litigation and Liberty’s success in phase one of a three phase trial, Chicago moved to disqualify McDougal.  Chicago claimed that McDougal had learned confidential information about its claims policies when McDougal represented its insureds more than fifteen years earlier.  Chicago also claimed that McDougal’s role as a witness disqualified him. 

McDougal represented insureds in claims accepted by Chicago Title, and never examined the claims acceptance process.  He also informally reviewed coverage issues and evaluated whether to issue a particular policy or require special endorsements on a policy.  He never represented Chicago in bad faith claims. 

McDougal had discussed his prior representation of Chicago Title’s insureds with its first attorney, who raised no objection. McDougal had a decades long relationship with Liberty, and had advised Liberty to purchase its title insurance from Chicago based on its reputation for claims handling. 
The Court of Appeal upheld the trial court’s denial of the motion.  Under California law disqualification can be waived by delay.  Delay can indicate that an alleged breach of confidentiality is not seen as serious or substantial by the moving party.  Delay must be extreme or unreasonable before it operates as an implied waiver.  If the party opposing the motion shows extreme delay, the burden shifts to the moving party to justify the delay. 

Chicago had proffered no evidence to support its claim that it had only recently learned of the basis for the motion. To the contrary, McDougal had testified years earlier about his knowledge of Chicago’s claims policies learned when he represented their insureds.  The delay was of such a character and weight that the burden shifted to Chicago to justify the delay, which it failed to do. 

Furthermore McDougal’s knowledge of Chicago’s claim policies was irrelevant.  McDougal’s knowledge was gained while Chicago was under different ownership, and its policies had changed.  This necessitated extensive discovery into Chicago’s claims policies, directives, guidelines, and personnel. 

The stage of litigation when a disqualification motion is made is a relevant consideration.  The purpose of the disqualification remedy is not served at a late stage where there is no unfair disadvantage to the moving party, and undue hardship to opposing party.  The court can also consider whether a motion is brought as a tactical device to delay litigation. 

There was extreme prejudice to Liberty.  McDougal had a long term relationship with Liberty.  He gained mastery of the case during the pre-trial discovery phase. MacDougal was successful with the case at trial, making him of great value to Liberty.  It is difficult to replace counsel late in a complex case. 

MacDougal’s role as a witness did not disqualify him because Liberty consented.  Although not stated in the order, the Court of Appeal assumed that the trial judge took into account the interests of justice in deciding whether McDougal’s additional role as a witness disqualified him as Liberty’s counsel.

Comment: Disqualification after an attorney gains success on the merits will rarely be successful.

Practice Area: Lawyers & Judges Defense Group
Attorney: Jennifer A. Becker

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