Most attorneys, in most cases, are entering into written engagement letters with their clients if and when they intend to initiate representation. Indeed, California Business and Professions Code Section 6147 requires attorneys to have a written agreement in contingency cases, while Section 6148 requires a written agreement in non-contingency cases where it is “reasonably foreseeable” that fees and costs will exceed $1,000. But what many attorneys may not realize is that, at least for certain purposes, California courts will find the existence of an attorney-client relationship before a written agreement is executed—and even sometimes when the parties walk away after an initial conversation without any intention of ever signing an agreement. This is in large part because even initial discussions between an attorney and a prospective client typically involve an expectation of confidentiality and the transmission of information based on that expectation.
Confidentiality Obligations Routinely Predate Written Engagement Letters
Wise attorneys typically have one, if not several, discussions with prospective clients before formally entering into an engagement—a practice equally wise for the prospective clients themselves. And because both parties to such discussions are trying to determine whether an engagement makes sense, the discussions frequently involve discussion of confidential information, including everything from material facts not yet disclosed to the other side, to settlement expectations, to legal strategy.
As such: “[A] formal retainer agreement is not required before attorneys acquire fiduciary obligations of loyalty and confidentiality, which begin when attorney-client discussions proceed beyond initial or peripheral contacts.” People ex rel. Dep't of Corps. v. SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135, 1148 (1999). Instead, such obligations arise “when attorney-client discussions proceed beyond initial or peripheral contacts.” Id. And don’t be fooled by the term “beyond initial”; in SpeeDee Oil Change itself, the California Supreme Court held that that point had arisen despite the fact that the party and attorney had had only preliminary meetings, at the conclusion of which the parties agreed to “prepare a document formally retaining” the attorney—something that never actually happened. Id. at 1141.
Receipt of Confidential Information, Even Absent Engagement Letter, Can Lead to Disqualification in Subsequent Litigation
Most attorneys presumably understand their obligation to keep confidential those discussions that they had with prospective clients, even if those discussions did not turn into paid engagements. In fact, if an attorney later takes on a representation adverse to a prospective client who previously approached them (but did not ultimately sign an engagement letter), then that lawyer potential faces disqualification for the prior “representation.” This was the case in SpeeDee Oil Change, where the California Supreme Court held that the aforementioned preliminary meetings constituted establishment of an attorney-client relationship, at least for purposes of the disqualification analysis.
Disqualification in Subsequent Dispute Involving Prior Client Even Where Confidential Information Is Not an Issue?
Thus far, the reader may be thinking: Of course an attorney cannot represent a party against someone the attorney previously received confidential information from; whether or not they signed a formal engagement letter, it would be unfair to let the attorney use a party’s confidential information against them! True enough. But as it turns out, courts are sometimes willing to disqualify attorneys upon a showing that they previously represented a party, even where there is no danger that the party’s confidential information will be misused. This situation can arise where an attorney jointly represents two parties, and the parties’ relationship later turns sour.
Take, for example, Fiduciary Trust Int’l of Cal. v. Superior Court. In that case, an attorney (Sandler) drafted wills for a married couple (Husband and Wife). After Husband died, Wife revoked her will and drafted a new one that transferred most of her assets to a new trust, to benefit her daughter. Wife then died, and a dispute arose between Wife’s representative and the marital trust trustees. Wife’s representative filed a motion to disqualify Sandler’s law firm, given his prior representation of the couple. The trial court denied the motion, but the Court of Appeal vacated and instructed the trial court to enter a new order granting the motion to disqualify. 218 Cal.App.4th 465, 470-77 (2013).
The Fiduciary Trust Int’l court acknowledged that under Evidence Code section 962, attorney-client communications made during the course of the joint representation, while privileged as to the outside world, were not privileged as between Husband and Wife. And yet, disqualification was required to maintain people’s confidence in their attorneys in general:
We are not concerned in this case with discovery of allegedly privileged communications. Instead, the pertinent issue is the propriety of an attorney’s representation adverse to a former client . . . Not only do clients at times disclose confidential information to their attorneys; they also repose confidence in them. The privilege is bottomed only on the first of these attributes, the conflicting-interests rule, on both.
Id. at 484-85; see also Western Continental Operating Co. v. Natural Gas Corp., 212 Cal.App.3d 752, 761 (1989) (“We are unpersuaded under the circumstances of this case that there is a joint client exception to the prohibition against representation adverse to a former client.”).
Tread Carefully from the First Step
While “pre-engagement” discussions are important to attorneys and prospective clients alike, both sides should be aware of the potential consequences of such discussions, regardless of they choose to move forward with a more formal engagement. Because where there is exchange of confidential information, there may be an engagement, and where there is an engagement, there is a risk of future disqualification of the attorney in any action adverse to the would-be client—even if that action itself does not threaten misuse of the previously-obtained information.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
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