Although lawyers are generally excellent clients, they can come with risks, as the following California and other cases illustrate. The law firm at issue, AlvaradoSmith, decided to represent another law firm, Floyd & Buss, in a lawyer-client fee dispute against the Floyd firm’s former client, Shared Memory Graphics. In the course of that dispute, the Floyd firm legitimately shared with AlvaradoSmith, and AlvaradoSmith legitimately received, Shared Memory Graphics’ confidential and privileged information (because this information was at issue in the fee dispute and the disclosure fell within exceptions to confidentiality and privilege). In other words, AlvaradoSmith did not receive the information through inadvertent or unauthorized disclosure. When AlvaradoSmith later began representing an expert witness against Shared Memory Graphics in a fee dispute arising from the same underlying litigation, Shared Memory Graphics moved to disqualify AlvaradoSmith. Thus, Shared Memory Graphics was attempting to disqualify AlvaradoSmith even though the firm had properly received the confidential information and even though the firm was aligned against Shared Memory Graphics in both disputes. Shared Memory Graphics was nevertheless successful in having AlvaradoSmith disqualified.
The court first pointed to cases reasoning (under various theories) that the firm must honor the client-firm’s general duty of confidentiality; or in the court’s words, “the assumption of a client’s duties of confidentiality to a nonclient may provide grounds for disqualification in a subsequent matter against the nonclient.” See Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, 69 Cal. App. 4th 223 (1999); Burkes v. Hales, 478 N.W.2d 37 (Wis. Ct. App. 1991). And this duty can flow not just from lawyers who pass along disqualifying confidential information concerning their former clients but also from subsidiaries of a corporate client or members of a trade association client, for example. [The excellent Freivogel on Conflicts has a great list of additional citations on this page, under the heading “Possessing Confidences of Non-Clients.”] As the court recognized, however, this case had “a wildcard . . . added to the mix: the supposed duty of confidentiality here would be owed to a party that was adverse to AlvaradoSmith’s clients in both the prior and subsequent litigation.” With some support from other jurisdictions, the court ultimately drew no distinction:
A limited universe of out-of-state cases has addressed the prospect of a duty of confidentiality to a litigation adversary arising by way of representing a law firm against that adversary in a different action. Several courts have disqualified attorneys for simultaneously representing a nonclient’s litigation opponent and the nonclient’s former law firm in a malpractice action arising out of the same litigation. (Frye v. Ironstone Bank (Fla.Ct.App.2011) 69 So.3d 1046; Adelman v. Adelman (Fla.Ct.App.1990) 561 So.2d 671; Greig v. Macy’s Northeast (N.J.Dist.Ct.1998) 1 F.Supp.2d 397.) Of course, if the malpractice case is not substantially related to the other matter and there is no specific showing that pertinent privileged information was communicated, disqualification is not appropriate. (See Miccosukee Tribe of Indians v. Lehtinen (Fla.Ct.App.2013) 114 So.3d 329 [declining to disqualify attorney in malpractice defense case based on speculation he could obtain confidential information to use in other unrelated matters against plaintiff].)