Opinion
H046505
09-14-2020
CRYSTAL FREGOSO, et al., Plaintiffs and Respondents, v. EAT CLUB, INC., Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 18CV330433)
Plaintiffs Crystal Fregoso, Truc Bui, and Adrianna Rodriguez (A. Rodriguez) brought this putative wage and hour class action against defendant Eat Club, Inc. (Eat Club). Their first amended complaint described Eat Club as a business that provided corporate catering and food delivery services throughout California. Plaintiffs and the putative class members are current or former delivery employees who work or previously worked at "distribution hubs/centers." Plaintiffs' allegations include claims that Eat Club engaged in systemic violations of Labor Code provisions and Industrial Welfare Commission wage orders. Plaintiffs are seeking, among other relief, to recover damages for unpaid compensation, prejudgment interest, various Labor Code penalties, and attorney fees and costs. Plaintiffs are pursuing civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.) as well. For purposes of this appeal, we will refer to this entire lawsuit as a class action.
A representative action under PAGA is not a class action. (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 87; see id. at p. 80 ["Settlement of individual claims does not strip an aggrieved employee of standing, as the state's authorized representative, to pursue PAGA remedies"].) PAGA actions "directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws." (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 387.)
Plaintiffs are represented by the law firm of Da Vega, Fisher, Mechtenberg LLP (DFM). Eat Club moved to disqualify plaintiffs' counsel, primarily based on DFM's concurrent representation of plaintiffs in this lawsuit and Cynthia Kim Tran and Rosy Picasso—former human resources (HR) employees of Eat Club—in Tran v. Eat Club, Inc., Superior Court of California, County of Santa Clara, case No. 18CV332082 (hereafter 18CV332082). We will refer to this separate action as the HR employment lawsuit.
Eat Club now appeals from the order denying the disqualification motion, filed November 26, 2018. (See Roush v. Seagate Technology, LLC (2007) 150 Cal.App.4th 210, 218 (Roush).) After thoroughly reviewing the evidence, we now affirm the trial court's order denying the motion.
We deny plaintiffs' request that we take judicial notice of a March 8, 2019 order in 18CV332082. "[N]ormally 'when reviewing the correctness of a trial court's judgment [or order], an appellate court will consider only matters which were part of the record at the time the judgment [or order] was entered.' [Citation.]" (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3, abrogated on another ground in Bristol-Myers Squibb Co. v. Superior Court (2017) ___ U.S. ___, ___ [137 S.Ct. 1773, 1781].) Any reliance on documents of which the trial court did not take judicial notice and which were not before the trial court when it ruled on Eat Club motion is misplaced. In addition, Eat Club's motion to stay all trial court proceedings in this action was not filed until December 20, 2018, and the declarations associated with that motion were not before the trial court when it decided the disqualification motion.
I
Procedural History
This class action lawsuit was filed on June 21, 2018.
A first amended complaint (hereinafter complaint) was filed on September 21, 2018. It alleged eight causes of actions: (1) failure to pay overtime wages; (2) failure to pay minimum wage; (3) failure to provide meal breaks; (4) failure to provide rest breaks; (5) failure to furnish timely and accurate wage statements; (6) failure to timely pay all wages due at discharge (waiting time penalties); (7) unlawful and/or unfair business practices; and (8) violation of PAGA.
The complaint alleged, among other things, that Eat Club had "engaged in . . . a system of willful violations of the California Labor Code, applicable IWC [(Industrial Welfare Commission)] wage orders, and UCL [(Unfair Competition Law)]." It also averred that plaintiffs were former or current non-exempt, hourly delivery employees, and class members were all others similarly situated to plaintiffs. The complaint designated the "class period" as "the time from June 21, 2014 (4 years prior to the filing date of the original complaint on June 21, 2018), through the entry of judgment." (Emphasis omitted.)
On September 26, 2018, Eat Club moved in this action to disqualify DFM on two grounds: (1) DFM concurrently represents clients having adverse interests in separate, pending actions and (2) DFM received and misused Eat Club's "property and privileged documents." Eat Club argued that DFM "cannot zealously and ethically develop evidence in [p]laintiffs' class action reflecting dishonesty and fault by Tran and Picasso in [the] performance of their human resources job duties" and that the conflict of interest was "irreconcilable."
Eat Club did not assert that concurrent representation jeopardized client confidentiality. (See Bus. & Prof. Code, § 6068, subd. (e)(1); Cal. Rules Prof. Conduct, rule 1.6(a).)
The new California Rules of Professional Conduct took effect on November 1, 2018, superseding the former rules of professional conduct, including former rule 3-310. (See Rules of Professional Conduct, § 1.0 et seq.; Antelope Valley Groundwater Cases (2018) 30 Cal.App.5th 602, 619, fn. 12.) The new rules include rule 1.7, entitled "Conflict of Interest: Current Clients."
Unless otherwise specified, all further references to rules are to the California Rules of Professional Conduct, and all further references to former rules are to the former California Rules of Professional Conduct. The rules, and the comments following, identify by asterisks language defined in rule 1.0.1. Where a rule or comment is quoted, we omit the asterisks for readability.
On November 2, 2018, the declarations of each of the named plaintiffs in this putative class action lawsuit and the declarations of each of the plaintiffs in the separate HR employment lawsuit (18CV332082) were filed in opposition to Eat Club's motion to disqualify. The declarations indicated that all concurrently represented clients had waived the conflicts of interest asserted by Eat Club.
In Eat Club's reply to the opposition to its disqualification motion, which reply was filed November 8, 2018, Eat Club relied on former rules 3-310(C)(1) and 3-310(C)(2). Relying on former rule 3-310(C)(1), Eat Club argued that "future developments and disclosures" on the issues of time card fraud, employee discipline, and Eat Club's policies "raise[d] the potential for an actual conflict," and that "[t]he mere fact that [DFM] will serve subpoenas on Tran or Picasso, or question them at deposition or trial, is a potential conflict requiring the informed written consent of each client." Eat Club also asserted that former rule 3-310(C)(2) "impose[d] a duty on counsel to disclose an actual conflict and obtain each client's informed written consent before proceeding further." Eat Club argued that an actual conflict exists when "the attorney's representation of one client is rendered 'less effective' by reason of the representation of the other" and that the record exposed actual conflicts of interest.
Former rule 3-310(C) provided in part: "A member shall not, without the informed written consent of each client: [¶] (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or [¶] (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict." (Italics added.) As indicated, DFM's concurrent representation involved two separate matters. The official discussion following former rule 3-310 stated: " 'Subparagraphs (C)(1) and (C)(2) are intended to apply to all types of legal employment, including the concurrent representation of multiple parties in litigation or in a single transaction or in some other common enterprise or legal relationship.' " (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, 1033; see also former rule 1-100(C).)
A hearing on Eat Club's motion to disqualify DFM was held on November 16, 2018. At the hearing, Eat Club's counsel focused on the "accept as a client" language in former rule 3-310(C)(3). Former Rule 3-310(C) stated in pertinent part: "A member shall not, without the informed written consent of each client: [¶] . . . [¶] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter." (Italics added.) DFM indicated that any communications disclosing any conflict to plaintiffs before accepting them as clients were privileged, unless the privilege was waived by them.
In an order filed November 26, 2018, the trial court denied Eat Club's requests for judicial notice of court records in other cases and granted plaintiffs' request for judicial notice of the complaint in the HR employment lawsuit. But the court denied plaintiffs' request for judicial notice of other filings in that separate lawsuit. The trial court then denied Eat Club's motion to disqualify DFM.
In denying Eat Club's motion, the trial court found that the plaintiffs were "correct that their interests in both actions [were] generally aligned because they all [sought] to hold Eat Club accountable for its unlawful employment practices." Nevertheless, based on the pleadings and the evidence, the court determined that there was potential conflict between the interests of the HR employees—Tran and Picasso—and plaintiffs' interests and that disqualification of DFM would be warranted in the absence of the clients' informed, written consent to concurrent representation.
In denying the motion, the court rejected Eat Club's evidentiary objections on hearsay and secondary evidence grounds to the statements of each of DFM's clients regarding execution of a conflict waiver. The court concluded that the evidence showed that DFM's clients had "executed written, consent forms and wish[ed] to keep their counsel despite the risks of the potential conflict." The court found that the evidence was sufficient to establish that DFM had obtained informed, written consent to concurrent representation in conformity with former rule 3-310(C)(3).
As to Tran's alleged misuse of privileged communications, the trial court observed that Tran had acknowledged retaining an e-mail chain, in which she reported Eat Club's wage and hour violations. The court observed that content of the e-mails had been redacted, aside from the very first e-mail in which Eat Club's Chief Financial Officer (CFO), Jose Rodriguez, had asked Tran to talk to the company's legal counsel. The trial court stated that an employee's mere retention of privileged information does not ordinarily warrant disqualification of the employee's attorney, even when the employee discloses the information to his or her attorney. The court found no evidence that (1) DFM was impermissibly using or relying upon the contents of the e-mail chain, as distinguished from Tran's own knowledge, in this litigation or (2) DFM intended or was likely to misuse the contents of the e-mail chain to gain an unfair advantage in this class action lawsuit or in the separate HR employment lawsuit. The court observed that Tran could be questioned about her personal knowledge of the underlying facts.
II
Evidence
Eat Club's Employment of Tran and Picasso
CFO Rodriguez stated in his declaration in support of the motion that "Tran was hired as Eat Club's Chief People Officer on December 18, 2017." He stated that "[s]hortly after [her] hire, Tran proposed a 100-Day Plan setting out [her] goals" in that position. According to CFO Rodriguez, "Tran was the lead architect in drafting, adapting, and implementing the company's Employee Handbook," which was "adopted . . . during Tran's tenure and distributed to employees." He stated that "Tran was also tasked with payroll and managed Eat Club's payroll and timecard processing" and that Tran "restructured Eat Club's payroll protocol in January [of 2018] and centralized payroll [so that it was] managed by . . . either Tran or her delegate."
In a declaration in opposition to the motion, Tran described her responsibilities in her declaration: "Eat Club hired me as Chief People Officer for the purpose of cleaning up the Human Resources functions, putting in infrastructure to scale and by building out systems and processes for rewards, recognition and retention, and heading the payroll department." She stated that she "uncovered and reported legal violations at the [c]ompany, including the wage and hour claims asserted by the [c]lass [r]epresentatives in this action, and [that she] pushed CFO Jose Rodriguez to implement policies to fix them."
Picasso stated in her declaration in opposition to the motion that she began working as a full-time employee for Eat Club on February 15, 2017. Picasso stated that in 2017, before Eat Club hired Tran, she "discovered through Eat Club's ADP system that [Eat Club] had been systematically failing to pay [d]elivery [d]rivers and [f]ood [p]reparers wages owed, in violation of California labor law, for years." Picasso indicated that she repeatedly attempted to report the violations to her superiors, and she communicated the wage issues to Tran when Tran was hired. At some point, Picasso became Eat Club's "Senior Human Resources Specialist" and reported directly to Tran. Picasso indicated that her "job duties" involved matters of "compensation, benefits administration, record keeping, employee safety/welfare, day-to-day HR operations, recruiting and staffing (onboarding/off boarding, employee orientation, training, development)."
Jessica Stice stated in her declaration filed in support of the motion that she began working as an Eat Club logistics manager in June 2017 and that she "manage[d] approximately 34 employees at a company hub." In that capacity, she "received advice from . . . Tran's human resources staff on employee counseling and potential discipline."
Raymundo Cortes stated in his declaration in support of the motion that he began "working at Eat Club as Plant Manager in February 2018." He oversaw "food preparation and assembly operations" at Eat Club's San Leandro facility, "where approximately 70 employees work[ed]." He "received human resources advice and training from Rosy Picasso."
Travis Jones stated in his declaration in support of the motion that he was Eat Club's vice president of production, and in that capacity, he worked with Tran on HR "matters covering production employees." He indicated that in 2018, Tran advised him to distribute a meal break waiver agreement, which the HR Department had prepared, to production employees.
Eat Club has not sought to show that the meal break waiver agreement was unlawful. Labor Code 512, subdivision (a), states: "An employer shall not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer shall not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived." (Italics added.)
Disciplinary Action Concerning Plaintiffs Fregoso and Bui
According to the supporting declaration of Jason Sanders, Eat Club's Director of Logistics, "[a]lthough managers initiate disciplinary action, the human resources department handles disciplinary decisions." Sanders stated that in January of 2018, South Bay Hub Manager, Jaime Shirley, informed him "of issues that had come up with two delivery employees"—namely, plaintiffs Fregoso and Bui. In his declaration, Sanders also stated that "[o]n January 26, 2018, [he] received an [e-mail] complaint from . . . Bui accusing her manager, Ms. Shirley, of unfair treatment and unevenly distributed workload."
Sanders stated in his declaration that by e-mail dated January 30, 2018, he advised Tran that there were two employees, Fregoso and Bui, that Eat Club wanted to "let go for time fraud." In the e-mail, Sanders indicated that on the previous Friday, both employees had been "running late to work and clocked in before the[y] were even on property" using ADP. Tran responded by e-mail, asking Sanders for "all the evidence ([e-mails], screenshots, fact findings)" and telling him that once it was assessed, he would be "advise[d] according[ly]."
Sanders further recalled that on January 31, 2018, he had met with Shirley to discuss Bui's accusations and to learn more about the asserted incidents of time card fraud. By e-mail on the same date, Sanders forwarded Bui's e-mail complaints to Tran. In his e-mail, Sanders also told Tran that more instances of "time theft" had been found and that he was gathering the information for her. By e-mail on the same date, Tran responded, "Noted. Thanks Jason!" In another e-mail dated January 31, 2018, Sanders forwarded Shirley's e-mail concerning Fregoso and Bui to Tran and others.
In his declaration, Sanders stated that "[o]n February 5, 2018, . . . Shirley advised me that [Fregoso] sent a text message advising that she was not coming to work until her request to be transferred was granted. At that time, . . . Fregoso had missed two consecutive shifts without notice." By e-mail dated February 5, 2018, Sanders forwarded an e-mail from Shirley concerning Fregoso's failure to show up for work without notice to Tran and others. Sander's e-mail stated in part, "Can we get some resolution on this from HR today? The situation needs to be dealt with for both . . . [Fregoso] and [Bui]."
In an e-mail dated February 5, 2018, Tran apologized and stated in part, "I've been pulled into so many emp relations issues and fires at the same time trying to create new protocols to mitigate all these problems in the future. Needless to say, I can't come up for air. I'll make sure to read all of the info you guys sent to HR for these two cases and will advise accordingly tomorrow in our meeting."
In e-mail dated February 6, 2018, Sanders sent Tran a draft e-mail addressed to Fregoso. In her return e-mail that same date, Tran added to the draft, editing it to ask Fregoso to provide tangible evidence of management's alleged mistreatment of her. By e-mail sent minutes later, Tran responded to Sanders's January 31, 2018 e-mail, stating that she was "[c]losing this thread" and was "working offline" with Sanders, "Yev," and Shirley. In his declaration, Sanders stated that after a meeting with Tran and others on February 6, 2018, "Tran personally took over and handled all future matters and communications relating to [Bui] and [Fregoso], including [Fregoso's] termination."
Shirley stated in her supporting declaration that as a hub manager of the South Bay Hub, she received advice from Tran's HR staff on "employee counseling and potential discipline." According to Shirley, she was notified by a team leader that on January 25, 2018, both Fregoso and Bui, who worked under her supervision, had committed time card fraud by clocking out between 15 and 30 minutes after they had stopped working. Fregoso and Bui were each issued an employee warning notice for time card fraud. Later, another Eat Club employee working in the South Bay Hub told Shirley that Fregoso and Bui had arrived at work about 10 minutes late on January 26, 2018 and missed the team meeting. Shirley determined that Bui had committed time card fraud. Bui was issued two employee warning notices, one for time card fraud and another for tardiness. Shirley indicated that on four dates between January 31, 2018 and February 5 of 2018, "Fregoso was late or missed work without adequate notice" and that Fregoso was issued employee warning notices. Shirley further stated that as to all the foregoing incidents, she documented them and drafted the employee warning notices in consultation with Tran, and Tran edited and approved the notice forms.
In her declaration, Shirley stated that in early February of 2018, she spoke with Tran regarding Fregoso's chronic attendance problems. Shirley forwarded to Tran a February 5, 2018 text message that Shirley had received from Fregoso, in which Fregoso claimed to be suffering from post-traumatic stress disorder and anxiety attacks at work. At some point, Shirley learned from Tran and her HR staff that "Fregoso had filed a workers' compensation claim but had been cleared to return to work." Shirley also met with HR staff, including Tran, "to get advice on how to handle [Fregoso's] ongoing absences."
Shirley further reported in her declaration that Fregoso had been "separated [from the company] in late February 2018." According to Shirley, Bui was still employed by Eat Club, but she had been on a leave of absence.
In Tran's declaration in opposition to the motion, Tran stated: "I do not believe that any of the [c]lass [r]epresentatives committed time card fraud. I believe Fregoso and Bui are credible witnesses and I believe and support their claims. Nor did I 'guide the discipline of Plaintiffs Fregoso and Bui for Timecard Fraud[.]' . . . To the contrary, I consistently opposed the discipline and/or termination of both Fregoso and Bui." She further stated: "In or around January [of] 2018, Eat Club's Director of Logistics Jason Sanders, Hub Manager Jaime Shirley, and VP of Logistics[] Yevgeniy Davidovich approached Human Resources stating that they wanted to terminate and/or send warning notices to [c]lass [r]epresentatives Fregoso and Bui for alleged timecard fraud. This was very close to the time that Bui had made an [e-mail] complaint of unfair treatment regarding her workload."
Tran also explained in her declaration: "In . . . verbal discussions I, as well as HR Director Naomi Lile, opposed sending warning notices or otherwise disciplining Fregoso and Bui for purported time card fraud as they appeared to be unwarranted accusations based on minor, disputed, or nonexistent discrepancies in time card records. Further the accusations appeared to be suspiciously close in time, and therefore potentially retaliatory, to Bui's report of unfair treatment. I informed them that the allegations of time card fraud appeared to be overly aggressive and could backfire, resulting in additional claims against the company such as those that had been recently asserted in the recent class action case Laufer v. Eat Club, Inc., Santa Clara Superior Court[,] Case No. 17CV310764. I encouraged them instead to try to work out these issues . . . informally with the employees." According to Tran, her advice was overruled by Davidovich.
Tran represented that while she "made minor edits to [employee warning notices] consistent with [her] role in HR, this in no way signified [her] agreement to [the] course of action."
CFO Rodriguez Directs Tran to Contact Eat Club's Outside Counsel
In his supporting declaration, CFO Rodriguez stated: "In early April 2018, I met with Tran and discussed payroll compliance matters. Following our meeting, I [e-mailed] Tran and directed her to consult with the company's outside counsel, Thomas McInerney of [the] Ogletree Deakins firm. Tran had consulted with the company's outside counsel on other human resources matters. At that time, Tran also knew that Mr. Mclnerney and Ogletree Deakins firm were defending the company in a wage action pending in Santa Clara County Superior Court, Laufer v. Eat Club, Inc., which was awaiting final approval of a classwide [sic] settlement."
A mostly unredacted e-mail from CEO Rodriguez to Tran, dated April 9, 2018, was attached to CFO Rodriguez's declaration. It stated in part, "I want to get Tom's perspective on the legal exposure regarding the incremental payroll compliance matters that you've identified." He asked, "Can you summarize the various observations for Tom so we can have a preliminary follow up on these topics with Tom by end of week?" In the e-mail, CFO Rodriguez told Tran, "I'm most concerned about the SF Health Care Security Ordinance which you mention goes back several years. But I also want to make sure that we have a full inventory of areas for discussion so we can get Tom's feedback."
Also attached to CFO Rodriguez's declaration was an e-mail chain from Tran, almost entirely redacted. The header of an e-mail dated April 10, 2018 at 10:00 p.m. showed that it was sent to CFO Rodriguez and copied to Attorney Mclnerney and Rodrigo Santibanez. The subject line read: "Subject: Re: EAT Club Hourly Wage matters—'ATTORNEY CLIENT PRIVILEGED & CONFIDENTIAL.' " The body of the e-mail was largely redacted. It stated: "Attorney/Client privileged: Work produced under the jurisdiction of outside legal counsel," "Hi Tom," and "Thanks, Kim." The next two e-mails in the chain, dated April 9, 2018 at 4:01 p.m. and April 9, 2018 at 3:46 p.m., were also labeled, "Attorney/Client privileged: Work produced under the jurisdiction of outside legal counsel," and began, "Hi Tom."
In her declaration, Tran stated that the April 9, 2018 e-mail was her "independent report of wage and hour and other violations at the company, all of which [she] discovered separately from legal counsel." She indicated that she could testify to the information from her "own personal knowledge" and the e-mail was not "a give and take" with counsel. She stated that the e-mail had been copied to CFO Rodriguez and Eat Club's founder and subsequently forwarded to Eat Club's CEO.
Tran's Termination
CFO Rodriguez stated in his declaration that Tran and he met on May 31, 2018, at which time he explained that he needed her help to implement a reduction in force (RIF). He "informed Tran that Eat Club would offer severance to the affected employees based on each person's years of service and position." He recalled that Tran asked to be included in the RIF. According to CFO Rodriguez, Tran told him that she had been contacted by two attorneys, who "planned to sue Eat Club for alleged labor, health, or safety violations at the San Francisco, Sunnyvale, and San Leandro locations," and that "the attorneys [had] promised a 'positive financial outcome' if she testified for them." CFO Rodriguez indicated that when he asked Tran to identify them, Tran claimed not to know the attorneys' names because they had "talked fast and their phones had a blocked Caller ID." CFO Rodriguez further stated that Tran had said that "she did not want to 'have to lie[,'] so Eat Club should pay her a severance and enter into a release agreement [with her]." According to the CFO, he told her that "lying under oath was against the law" and "urged her to tell the truth." The CFO stated that he "viewed Tran's demand on May 31[, 2018] as extortionate."
CFO Rodriguez further stated in his declaration that "[o]n June 1, 2018, Eat Club terminated Tran." He indicated that during the June 1, 2018 exit meeting with Tran, he "offered her the same severance as others included in the RIF based on tenure and position." He recalled that "Tran scoffed at the severance and said, 'You will hear from my attorney.' " According to the CFO, when he asked for her "company-owned laptop," Tran told him that it had stopped working and was at home and that she would return it to a colleague over the weekend. He stated that "Tran did not return the company's laptop computer" and that "[t]o [his] knowledge, . . . the company [did] not have her missing laptop."
The declaration of someone who worked for Kinetix Technology Services, which performed IT services for Eat Club, indicated that in December of 2017, his company had configured an Eat Club laptop and assigned it to "user Kim Tran." He stated that his company had "installed a Kaseya application" on the laptop and that a Kaseya activity report for the laptop found that the laptop was "active and connected to an internet signal on June 15, July 8, and September 16 of 2018." He further stated that according to the report, on those occasions, the user had "logged in under the user name [sic] Kim Tran . . . with the passcode aligned with user name [sic] Kim Tran."
In her declaration, Tran reported that she had "returned [her] work laptop to Eat Club months prior to [her] termination because it had mechanical problems." Tran stated that she had left the work computer on the desk of the executive assistant who was then in charge of Eat Club's IT, and that when Tran saw the executive assistant later, Tran told her that she "had left the laptop on her desk because it was not working." Tran indicated that she used her personal laptop until her termination on June 1, 2018. Tran denied logging into any Eat Club computer under her username because she had already returned it.
After her termination, Tran reached out to various current or former employees, including Bui and A. Rodriguez, regarding their potential legal claims against Eat Club. Tran put Bui and A. Rodriguez in touch with DFM, which agreed to take their cases. Bui referred Fregoso to DFM.
Tran's Retention of her April 9, 2018 E-mail to Eat Club's Outside Counsel
In a declaration, Tran acknowledged that she had "retained" her e-mail communications with Eat Club's counsel, which she asserted "constituted evidence that [she] made a protected report of Eat Club's violations of state and federal law." On June 5, 2018, Tran contacted DFM for the first time. Tran gave those e-mail communications to DFM, which later produced them to defense counsel in this action.
Demand Letter from Eat Club's Outside Counsel to Tran
An e-mail to Tran from an Eat Club employee, dated June 8, 2018, asked Tran to return the Eat Club laptop using a box that was being sent to her home address.
According to the declaration of Chris Baker, an outside counsel to Eat Club, on June 14, 2018, he sent Tran a letter by Federal Express and e-mail. The letter asserted that Tran's "May 31, 2018 communication to [CFO] Rodriguez constitute[d] extortion" and that "Eat Club [had] decided to terminate [her] employment immediately." The letter accused Tran of, among other things, committing theft, misusing Eat Club's confidential information, trade secrets, and other property, and breaching her contractual obligations, impliedly under a proprietary information and inventions agreement that she had assertedly signed on November 30, 2017. The letter asked Tran to return the company laptop and "all other company property" in her possession to Eat Club by no later than June 15, 2018. Baker stated that Tran did not respond to his letter.
Picasso's Departure from Eat Club
Picasso stated in her declaration in support of opposition to the disqualification motion that on June 15, 2018, she left "Eat Club in response to what [she] believed to be sex/race discrimination, equal pay act violations, and on going [sic] retaliation for [her] and Kim Tran's reporting of what [they] reasonably believed to be the [c]ompany's illegal actions in violation of state and federal labor laws to the [c]ompany."
HR Employment Lawsuit
On July 20, 2018, a complaint for damages was filed against Eat Club in the HR employment lawsuit (18CV332082). The plaintiffs were Tran and Picasso, former HR employees of Eat Club. The complaint specifically averred that Tran was Eat Club's former "Chief People Officer" and that Picasso was Eat Club's former senior HR specialist. The complaint stated that the plaintiffs had "spent a large part of their employment reporting to the [c]ompany's [e]xecutive [m]anagement . . . about the [c]ompany's continuing violations of various state and federal labor laws in an effort to correct and change those practices."
The complaint in the HR employment lawsuit alleged eight causes of action: (1) sexual discrimination in violation of the Fair Employment and Housing Act (FEHA); (2) race discrimination in violation of the FEHA; (3) retaliation in violation of the FEHA; (4) failure to take steps to prevent and correct harassment, discrimination, and retaliation in violation of the FEHA; (5) violation of the California Equal Pay Act, as amended; (6) retaliation in violation of Labor Code section 1102.5; (7) wrongful termination; and (8) unlawful business practices.
Early Communications Between Counsel Regarding Possible Settlement
E-mail exchanges between Eat Club's attorney of record, Michael Hoffman, and plaintiffs' counsel, Matthew Da Vega, which were attached as exhibits to Hoffman's declaration, touched upon the possibility of settlement in this putative class action or the separate HR employment lawsuit.
In a July 10, 2018 e-mail to Da Vega concerning the HR employment lawsuit, Hoffman indicated that his firm represented Eat Club. It stated in part, "I understand that a draft complaint was shared for settlement purposes. If a demand letter was sent with the draft complaint, please share a copy with me . . . ."
In a July 11, 2018 e-mail to Hoffman, Da Vega indicated that "a specific demand letter or specific demand number" had not been sent but he could work on getting a demand to him if Eat Club wanted specific numbers for each plaintiff. Da Vega asked Hoffman whether he was going to be the "defense counsel in the Fregoso putative class action."
In a July 17, 2018 e-mail to Da Vega, Hoffman disclosed that Eat Club had retained his firm "to defend the Fregoso action." Hoffman further stated, "For the Tran and Picasso matter(s), the company requested a settlement demand in order to evaluate the benefit of potential mediation vs. direct dialogue, or [to decide whether] to simply proceed with the threatened litigation." In a July 18, 2018 e-mail to Hoffman, Da Vega indicated that plaintiffs Tran and Picasso were "still deciding how to move forward."
In a July 20, 2018 e-mail to Hoffman, Da Vega indicated that the attached declarations of Tran and Picasso were being provided for purposes of settlement in the separate matter of Fregoso v. Eat Club. Da Vega stated, "If your client wishes to discuss early mediation/resolution of these class claims please let me know."
In their own declarations, Tran and Picasso each stated: "I am aware that DFM . . . has not made a settlement demand in my wrongful termination case . . . and approve of this." Tran additionally stated, "I am not prepared to make a demand until my employment situation stabilizes and I have a better sense of the overall damage to my career caused by my wrongful termination."
Statements as to Conflict Waivers in Declarations Filed by DFM's Concurrent Clients
In their declarations filed in support of opposition to Eat Club's disqualification motion, Tran and Picasso each stated: "I have read and considered the arguments set forth in the [disqualification] [m]otion contending that DFM . . . will not be able to adequately represent me in the [HR employment lawsuit] . . . due to its concurrent representation of [Fregoso, Bui, and A. Rodriguez] in their wage and hour claims against Eat Club in this matter." Tran stated: "Eat Club's arguments include that because I served in the role of a human resource manager during [plaintiffs'] employment at Eat Club and [I] had responsibility for setting payroll and other wage and hour policies, [DFM] could cross-examine me about my potential responsibility for Eat Club's wage and hour violations on behalf of the [c]lass [r]epresentatives and their discipline and/or terminations for alleged time card fraud; and that such cross-examination could embarrass me or prejudice my wrongful termination case if it showed that I performed my job incompetently." Picasso similarly stated: "Eat Club's arguments include that because Tran and myself [sic] . . . served in the role of human resource managers during my employment at Eat Club[,] [DFM] could cross-examine me about my potential responsibility for Eat Club's wage and hour violations on behalf of the [c]lass [r]epresentatives and their discipline and/or terminations for alleged time card fraud; and that such cross-examination could embarrass me or prejudice my wrongful termination case if it showed that I performed my job incompetently."
As to their wavier of any conflict, Tran and Picasso each stated: "I have agreed to waive any of those actual and/or potential conflicts between myself [sic] and the [c]lass [r]epresentatives. I have been provided a [c]onflict [w]aiver by [DFM], which I have executed containing the language of [former r]ule 3-310 . . . , and [which] identif[ies] these as well as additional risks posed by the joint representation. [DFM] has further advised me to consult with separate legal counsel to ensure [that] I wish to have [DFM] continue to represent me. Taking into consideration these risks, I have chosen to continue with [DFM] as my attorneys in this lawsuit."
In their declarations, Tran and Picasso each further claimed that granting the disqualification motion would result in great prejudice to her and prevent her from moving forward with her choice of counsel and that she believed the motion was "just another attempt by Eat Club to retaliate against [her] and [the c]lass [r]epresentatives for reporting its legal violations and turning to the courts for legal recourse . . . ."
Picasso also stated in her declaration that she "was not involved in the discipline and/or termination of any of the class representatives in this matter." Tran stated in her declaration: "The entire premise of my wrongful termination case against Eat Club is that I was terminated in retaliation for reporting the meritorious wage claims of the [c]lass [r]epresentatives and other [d]elivery [e]mployees, and pushing the CFO, Jose Rodriguez, to remediate them. Far from being embarrassed or concerned about testifying regarding the truth of those claims, I look forward wholeheartedly to corroborating and supporting them . . . ."
In their declarations, plaintiffs Fregoso, Bui, and A. Rodriguez each stated: "I have read and considered the arguments set forth in the [disqualification] [m]otion contending that [DFM] will not be able to adequately represent me and the other plaintiffs . . . due to its concurrent representation of [Tran and Picasso] in their individual wrongful termination claims against Eat Club in [18CV332082]." They each further stated: "Eat Club's arguments include that because Tran and Picasso served in the role of human resource managers during my employment at Eat Club[,] . . . [DFM] could 'soften' its cross-examination of them regarding wage and hour policies and/or violations at Eat Club in order to avoid embarrassing them or prejudicing their individual wrongful termination cases; that such 'softening' of cross-examination could prevent [DFM] from vigorously prosecuting my and other class representatives' wage and hour claims; that Tran and/or Picasso were involved in the discipline and/or termination of [the class representatives], and other [d]elivery [e]mployee(s) for alleged time card fraud; and that Tran and/or Picasso therefore could provide testimony harmful to the credibility of myself [sic] and other class representatives regarding wage and hour violations at Eat Club, which would not be adequately challenged by [DFM] due to potential conflicts of the joint representation."
As to waiver of any conflicts, each of the plaintiffs stated: "I have agreed to waive any of those actual and/or potential conflicts between myself [sic], other class representatives, and Tran and/or Picasso. I have been provided a [c]onflict [w]aiver by [DFM], which I have executed containing the language of [former] [r]ule 3-310 of the California Rules of Professional Conduct, and [which] identif[ies] these as well as additional risks posed by the joint representation. [DFM] has further advised me to consult with separate legal counsel to ensure I wish to have [DFM] continue to represent me. [¶] . . . Taking into consideration these risks, I have chosen to continue with [DFM] as my attorneys in this lawsuit, even if actual and/or potential conflicts occurred including that the cross-examination of Tran and/or Picasso could be potentially 'softened' on issues of wage and hour polices and/or violations on [sic] the companies, and/or discipline of myself [sic] and other class representatives for alleged time card fraud. [¶] . . . To the contrary, given the significant difficulty I have experienced in securing legal representation, I believe it would greatly prejudice me to grant the motion and prevent me from moving forward in this case with the counsel of my choosing. I am happy with my legal representation and I strongly prefer . . . [DFM] to continue to represent me in this action. I believe the motion to disqualify is just another attempt by Eat Club to prevent me and other [d]elivery [e]mployees from bringing our legal claims and getting paid correctly."
III
Motion to Disqualify DFM
A. Concurrent Representation
1. General Governing Law
In the proceedings below on Eat Club's motion to disqualify DFM, both the parties and the court seemed unaware that new [r]ules of [p]rofessional [c]onduct had replaced the former rules, effective November 1, 2018. Although the trial court's decision was premised on former rule 3-310(C)—which had been superseded—rather than rule 1.7, we will determine whether the decision is nevertheless legally correct. " 'No rule of decision is better or more firmly established by authority, nor one resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.' [Citation.]" (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.)
"The primary value at stake in cases of simultaneous or dual representation is the attorney's duty—and the client's legitimate expectation—of loyalty, rather than confidentiality." (Flatt v. Superior Court (1994) 9 Cal.4th 275, 284 (Flatt).) "[C]ourts and ethical codes alike prohibit an attorney from simultaneously representing two client adversaries, even where the substance of the representations are unrelated." (Id. at p. 285, fn. omitted, italics added.) But "[t]he principle of loyalty is for the client's benefit; most courts thus permit an attorney to continue the simultaneous representation of clients whose interests are adverse as to unrelated matters provided full disclosure is made and both agree in writing to waive the conflict. [Citation]." (Id. at p. 285, fn. 4; see rule 1.7(a); former rule 3-310(C).)
"A motion to disqualify a party's counsel may implicate several important interests. Consequently, judges must examine these motions carefully to ensure that literalism does not deny the parties substantial justice. [Citation.] Depending on the circumstances, a disqualification motion may involve such considerations as a client's right to chosen counsel, an attorney's interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion. [Citations.]" (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1144-1145, fn. omitted (SpeeDee).)
"Ultimately, disqualification motions involve a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility. [Citation.] The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar. The important right to counsel of one's choice must yield to ethical considerations that affect the fundamental principles of our judicial process. [Citations.]" (SpeeDee, supra, 20 Cal.4th at pp. 1145-1146.)
"The courts will protect clients' legitimate expectations of loyalty to preserve this essential basis for trust and security in the attorney-client relationship. [Citation.] Therefore, if an attorney—or more likely a law firm—simultaneously represents clients who have conflicting interests, a more stringent per se rule of disqualification applies. With few exceptions, disqualification follows automatically, regardless of whether the simultaneous representations have anything in common or present any risk that confidences obtained in one matter would be used in the other. [Citation.]" (SpeeDee, supra, 20 Cal.4th at pp. 1146-1147.)
But courts have also understood that "[m]otions to disqualify counsel are especially prone to tactical abuse because disqualification imposes heavy burdens on both the clients and courts: clients are deprived of their chosen counsel, litigation costs inevitably increase[,] and delays inevitably occur. . . . At the same time, . . . disqualification of counsel is necessary under certain circumstances, to protect the integrity of our judicial process by enforcing counsel's duties of confidentiality and loyalty. [Citations.]" (City of Santa Barbara v. Superior Court (2004) 122 Cal.App.4th 17, 23, fn. omitted.)
"Generally, a trial court's decision on a disqualification motion is reviewed for abuse of discretion. [Citations.] If the trial court resolved disputed factual issues, the reviewing court should not substitute its judgment for the trial court's express or implied findings supported by substantial evidence. [Citations.] When substantial evidence supports the trial court's factual findings, the appellate court reviews the conclusions based on those findings for abuse of discretion. [Citation.] However, the trial court's discretion is limited by the applicable legal principles. [Citation.] Thus, where there are no material disputed factual issues, the appellate court reviews the trial court's determination as a question of law. [Citation.] In any event, a disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion. [Citation.]" (SpeeDee, supra, 20 Cal.4th at pp. 1143-1144.)
2. Circumstances Under Which Concurrent Representation is Absolutely Barred
There are "some matters in which the conflicts are such that even informed written consent may not suffice to permit representation. [Citations.]" (Rule 1.7, com. 8.) "The paradigmatic instance of such prohibited dual representation—one roundly condemned by courts and commentators alike—occurs where the attorney represents clients whose interests are directly adverse in the same litigation." (Flatt, supra, 9 Cal.4th at p. 284, fn. 3.)
"When clients are aligned directly against each other in the same litigation, the institutional interest in vigorous development of each client's position renders the conflict nonconsentable . . . . The rule applies even if the parties themselves believe that the common interests are more significant in the matter than the interests dividing them." (Rest.3d Law Governing Lawyers, § 122, com. g(iii); see id., § 128, com. c(i) ["Fundamental conflicts of loyalty and threats to client confidentiality would be inevitable if a lawyer were to represent clients opposing each other in the same litigation"].)
Rule 1.7(d) "imposes conditions that must be satisfied even if informed written consent is obtained . . . ." (Rule 1.7, com. 8.) Concurrent representation cannot, for example, "involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal." (Rule 1.7(d)(3).) This prohibition does not apply here. Eat Club has not shown that DFM's concurrent representation involved a conflict to which clients may never give their informed, written consent. 3. Rule of Automatic Disqualification Absent Informed, Written Consent
Rule 1.7 prohibits representation by a lawyer who reasonably believes that he or she will not "be able to provide competent and diligent representation to each affected client." (Rule 1.7(d)(1).) The word "believes" is defined to mean that the person "involved actually supposes the fact in question to be true." (Rule 1.0.1(a).) Eat Club does not rely on such a prohibition. Concurrent representation is also impermissible if prohibited by law. (Rule 1.7(d)(2).) "For example, in some states substantive law provides that the same lawyer may not represent more than one defendant in a capital case, even with the consent of the clients, and under federal criminal statutes certain representations by a former government lawyer are prohibited, despite the informed consent of the former client. In addition, decisional law in some states limits the ability of a governmental client, such as a municipality, to consent to a conflict of interest." (ABA Model Rules Prof. Conduct, rule 1.7, com. 16.)
On appeal, Eat Club contends that DFM's concurrent representation of plaintiffs in this case and Tran and Picasso in their separate action "presents a per se conflict" (italics omitted) that required automatic disqualification of DFM.
In Flatt, the California Supreme Court stated: "Even though the simultaneous representations [of multiple clients] may have nothing in common, and there is no risk that confidences to which counsel is a party in the one case have any relation to the other matter, disqualification may nevertheless be required. Indeed, in all but a few instances, the rule of disqualification in simultaneous representation cases is a per se or 'automatic' one. [Citations.]" (Flatt, supra, 9 Cal.4th at pp. 284-285.) The court observed that "[t]he primary value at stake in cases of simultaneous or dual representation is the attorney's duty—and the client's legitimate expectation—of loyalty, rather than confidentiality." (Id. at p. 284.) The court explained that "[i]t is for [the] reason [of the duty of loyalty], and not out of concerns rooted in the obligation of client confidentiality, that courts and ethical codes alike prohibit an attorney from simultaneously representing two client adversaries, even where the substance of the representations are unrelated." (Id. at p. 285, fn. omitted.)
" 'The [usual] rule [of automatic disqualification] is designed not alone to prevent the dishonest practitioner from fraudulent conduct,' but also to keep honest attorneys from having to choose between conflicting duties, or being tempted to reconcile conflicting interests, rather than fully pursuing their clients' rights. (Anderson v. Eaton (1930) 211 Cal. 113, 116.) The loyalty the attorney owes one client cannot be allowed to compromise the duty owed another. [Citation.]" (SpeeDee, supra, 20 Cal.4th at p. 1147.)
But even in Flatt, the California Supreme Court recognized that "[t]he principle of loyalty is for the client's benefit" (Flatt, supra, 9 Cal.4th at p. 286, fn. 4) and that a conflict created by concurrent representation of clients in unrelated matters could be waived. (Ibid.) It observed that "most courts . . . permit[ted] an attorney to continue the simultaneous representation of clients whose interests are adverse as to unrelated matters[,] provided full disclosure is made and both agree in writing to waive the conflict. [Citation.]" (Ibid.) In Flatt, however, there was no waiver. (Ibid.)
Thus, under the former rules, "automatic disqualification [was] not required in all circumstances where representation of one client create[d] actual or potential conflicts of interests with another client . . . ." (Sharp v. Next Entertainment, Inc. (2008) 163 Cal.App.4th 410, 429 (Sharp).) "The requirement of informed written consent applie[d] when an attorney concurrently represent[ed] more than one client in a matter in which there [was] a potential conflict ([former] [r]ule 3-310(C)(1)), when an attorney concurrently represent[ed] more than one client in a matter in which there [was] an actual conflict ([former] [r]ule 3-310(C)(2)), and when the attorney represent[ed] a client in one matter and simultaneously represent[ed] another client in a separate matter whose interests [were] adverse with those of the first client ([former] [r]ule 3-310(C)(3)). [Citation.]" (Ibid., fn. omitted.)
In Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59, 80 (Sheppard), the Supreme Court explained as to former rule 3-310(C): " 'Simply put,' without informed written consent, 'an attorney (and his or her firm) cannot simultaneously represent a client in one matter while representing another party suing that same client in another matter.' [Citation.]" (Sheppard, supra, at p. 80, italics added.) For example, "[i]n State Farm Mutual Automobile Insurance Company v. Federal Insurance Company (1999) 72 Cal.App.4th 1422, the court held that [former rule 3-310(C)(3)] was violated when a lawyer, retained by an insurer to defend one suit, and while that suit was still pending, filed a direct action against the same insurer in an unrelated action without securing the insurer's consent." (Rule 1.7, com 3.)
"Under former [rule] 3-310(C), actual and potential conflicts were treated similarly—i.e., the ethical obligations owed by counsel in dual representation matters that frequently involved at least potential conflicts of interest, were handled substantially the same as if an actual conflict existed. The new [rules] (eff. 11/1/18) follow the approach adopted by the ABA Model Rules in identifying two types of concurrent conflicts: 'material limitation' conflicts . . . and 'direct adversity' conflicts . . . ." (Tuft et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2019) ¶ 4:27.) Under the former rule, "[a]bsent informed written consent, a lawyer [was prohibited from] concurrently represent[ing] clients who ha[d] actual or potential conflicts . . . . [Citations.]" (Cal West Nurseries v. Superior Court (2005) 129 Cal.App.4th 1170, 1175.)
Under former rule 3-310(C), the concept of a potential conflict was understood to refer to " 'a reasonably foreseeable set of circumstances [that] could impair the attorney's ability to fulfill his or her professional obligations to each client in the proposed representation.' [Citation.]" (Havasu Lakeshore Investments, LLC v. Fleming (2013) 217 Cal.App.4th 770, 779, fn. omitted (Havasu); see In re Celine R. (2003) 31 Cal.4th 45, 57 [an attorney "may not accept representation of multiple clients if there is a reasonable likelihood an actual conflict of interest between them may arise"]; Carroll v. Superior Court (2002) 101 Cal.App.4th 1423, 1430.) A mere hypothetical conflict, however, was insufficient to establish a potential conflict of interest. (Havasu, supra, at p. 779.) There had to be "some identifiable potential conflict." (Ibid.)
Under current rules, as under former rules, informed written consent is not required if there is only the "mere possibility of subsequent harm." (Rule 1.7, com. 4; see rule 1.7, com. 6.)
In contrast, an actual conflict of interest was said to exist " 'when a lawyer's duty on behalf of one client obligates the lawyer to take action prejudicial to the interests of another client; i.e., "when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose." ' [Citation.]" (Havasu, supra, 217 Cal.App.4th at p. 778; see Blue Water Sunset, LLC v. Markowitz (2011) 192 Cal.App.4th 477, 488-489 ["An actual '[c]onflict of interest between jointly represented clients occurs whenever their common lawyer's representation of the one is rendered less effective by reason of his representation of the other.' [Citation.]"].)
On appeal, Eat Club argues that the trial court made an error of law in finding that the conflict was potential rather than actual. As indicated, rule 1.7 does not speak in terms of actual or potential conflicts.
Under rule 1.7(a), "[a] directly adverse conflict . . . can arise in a number of ways, for example, when: (i) a lawyer accepts representation of more than one client in a matter in which the interests of the clients actually conflict; (ii) a lawyer, while representing a client, accepts in another matter the representation of a person who, in the first matter, is directly adverse to the lawyer's client; or (iii) a lawyer accepts representation of a person in a matter in which an opposing party is a client of the lawyer or the lawyer's law firm." (Rule 1.7, com. 1, italics added.)
DFM's concurrent representation was not like any of the foregoing examples that fall into the category of "directly adverse" conflicts covered by rule 1.7(a). As indicated, the trial court determined: "[T]he [c]ourt is not presented with a blatant and egregious conflict such as when an attorney is representing adverse parties. . . . Plaintiffs are correct that their interests in both actions are generally aligned because they all seek to hold Eat Club accountable for its unlawful employment practices." Eat Club does not demonstrate otherwise by reference to the record.
A "direct adversity" also "can arise when a lawyer cross-examines a non-party witness who is the lawyer's client in another matter, if the examination is likely to harm or embarrass the witness." (Rule 1.7, com. 1, italics added.) Of course, at this point, it appears that DFM will be calling Tran and Picasso as plaintiffs' witnesses, not cross-examining them as adverse witnesses. But there is no dispute that "[t]he spectacle of an attorney skewering her own client on the witness stand in the interest of defending another client demeans the integrity of the legal profession and undermines confidence in the attorney-client relationship." (Hernandez v. Paicius (2003) 109 Cal.App.4th 452, 467, disapproved on another point in People v. Freeman (2010) 47 Cal.4th 993, 1006, fn. 4; see Hernandez at p. 466 ["counsel's representation of [the defendant] required her to create a record impeaching her other client's professional reputation and credibility"].) Eat Club raised the specter of such a situation.
In the court below, Eat Club argued that Tran's and Picasso's involvement in Eat Club's employment decisions would require DFM to cross-examine them in this action—on matters such as the drafting and adoption of policies, the training of managers, the implementation of practices, and the reviewing of employee discipline—and their testimony "would be detrimental to their own interests." Eat Club asserted that the evidence that Tran "helped to discipline [p]laintiffs Fregoso and Bui for timecard fraud" was highly relevant and that "Tran presumably investigated and verified the timecard fraud by Bui and Fregoso - or she utterly failed to perform her job duties." (Italics added.) It argued that unless Fregoso and Bui admitted time card fraud, DFM would have a "a duty to cross-examine and impeach Tran in order to preserve the credibility of [its] clients Fregoso and Bui." But Eat Club did not specify any false or misleading testimony likely to be elicited from Tran that DFM will need discredit to advance plaintiffs' interests.
Under rule 1.7(b), a lawyer may not "without informed written consent from each affected client . . . represent a client if there is a significant risk the lawyer's representation of the client will be materially limited by the lawyer's responsibilities to or relationships with another client . . . ." (Italics added.) Consequently, "[e]ven where there is no direct adversity, a conflict of interest requiring informed written consent under [rule 1.7(b)] exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities, interests, or relationships . . . ." (Rule 1.7, com. 4.) "The critical questions are the likelihood that a difference in interests exists or will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of each client." (Ibid.)
Therefore, "[i]nformed written consent may be required . . . if there is a significant risk that: (i) the lawyer may temper the lawyer's advocacy on behalf of one client out of concern about creating precedent adverse to the interest of another client; or (ii) the lawyer's action on behalf of one client will materially limit the lawyer's effectiveness in representing another client in a different case, for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. Factors relevant in determining whether the clients' informed written consent is required include: the courts and jurisdictions where the different cases are pending, whether a ruling in one case would have a precedential effect on the other case, whether the legal question is substantive or procedural, the temporal relationship between the matters, the significance of the legal question to the immediate and long-term interests of the clients involved, and the clients' reasonable expectations in retaining the lawyer." (Rule 1.7, com. 6.)
In the court below, Eat Club contended that DFM would "be forced to soften its treatment and cross-examination" of Tran and Picasso in this action at the expense of plaintiffs and putative class members. It argued that by representing Tran and Picasso in their separate HR employment lawsuit against Eat Club, DFM could not "zealously and ethically develop evidence" of their "dishonesty and fault[y]" performance as HR employees with respect to the alleged wage violations. Eat Club suggested that because of DFM's concurrent representation, DFM had "an interest in examining Tran and Picasso with 'kid gloves' and thereby softening or avoiding admissions which might undermine their termination cases and credibility as purported whistleblowers."
On appeal, Eat Club raises similar concerns. Without citation to the record, Eat Club insists that DFM is representing clients with adverse interests because as HR employees, Tran and Picasso were "responsible for adopting and implementing the policies and practices at issue in [this case]." Without citation to the record, Eat Club further contends that "[a]ny prospective class counsel would be expected to cross-examine and impeach [them] for drafting and adopting policies, training managers, and implementing the practices at issue." Eat Club suggests that DFM will be required to cross-examine Tran and Picasso "on their job performance, competence, and credibility" because the theory of the putative class action is that Eat Club engaged in systemic wage violations. Eat Club also asserts that "[i]f the wage law violations occurred at the direction of Tran and Picasso and on their watch, one would expect any zealous counsel for the Fregoso class to impeach both on cross-examination" regarding their competency and credibility. (Italics added.) Eat Club also claims that "Tran was directly involved in disciplining Fregoso and Bui for timecard fraud" and that "DFM should be expected to cross-examine and impeach Tran in order to protect and preserve [Fregoso and Bui's] credibility."
As it did below, Eat Club further contends that "due to the conflict of interest, DFM will be forced into softening its approach to Tran" because "otherwise she [will face] consequences in her discharge action for failing to perform her job duties and falsifying records." Eat Club insists that DFM will be forced to go easier on Tran and Picasso because DFM "knows that [any] complicity by Tran and Picasso in allowing or furthering the alleged wage law violations would undercut their pending discharge claims and damages . . . ." Without citation to the record, Eat Club maintains that Tran and Picasso "may craft excuses for adopting and implementing the offending policies and practices" and "one would expect DFM to impeach Tran and Picasso for anything that allegedly occurred 'on their watch.' "
However, Eat Club does not specifically identify any policy or practice implemented by the HR Department under Tran's leadership that was unlawful or legally questionable. Eat Club fails to point to evidence showing that Tran or Picasso was complicit in or responsible for "allowing or furthering the alleged wage law violations" specified in the class action complaint, as it now suggests. The "class period" commenced on June 21, 2014, long before Tran or Picasso were hired. Eat Club has not shown by reference to the record that Tran's or Picasso's work performance fell below professional norms or that either of them falsified any records. Eat Club did not terminate either Tran or Picasso because of poor performance of HR responsibilities. Eat Club has not directed us to evidence that undermines Tran's claim that she "uncovered and reported legal violations at the [c]ompany, including the wage and hour claims asserted by the [c]lass [r]epresentatives in this action, and pushed CFO Jose Rodriguez to implement policies to fix them." Neither has Eat Club shown that there is any specific basis on which DFM will need to impeach Tran or Picasso to effectively advance plaintiff's interests.
In addition, without citation to the record, Eat Club argues that given her responsibilities, "Tran surely investigated and verified timecard fraud by Fregoso and Bui before approving their discipline." (Italics added.) However, Eat Club has not pointed to any specific evidence establishing that Tran was responsible for independently investigating and verifying individual instances of purported time card fraud beyond her review of the information provided to her by management. Neither has Eat Club cited evidence showing that Tran in fact independently investigated and verified the allegations against Fregoso and Bui prior to any discipline.
We cannot say that given the evidence before it, the trial court erred by rejecting Eat Club's claim that DFM's concurrent representation presented an actual conflict of interest arising from its ethical duty of loyalty. Neither was the evidence sufficient to demonstrate that DFM had undertaken representation resulting in a directly adverse conflict. (See rule 1.7(a); rule 1.7, com. 1.)
Relying upon Walker v. Apple, Inc. (2016) 4 Cal.App.5th 1098 (Walker), the trial court nevertheless found that there was a potential conflict. 4. The Walker Decision
In ruling on the disqualification motion, the trial court found that DFM "will be put in the position of questioning its clients, namely HR Employees, to litigate the wage-and-hour class action on behalf of its other clients and the putative class, namely [d]elivery [e]mployees." The court observed that in Walker, "[t]he court of appeal focused on the ethical implications of an attorney questioning his or her own client, not in that client's lawsuit, but in a separate action brought on behalf of a different group of clients. [Citation.]" The trial court concluded that in this case such an "ethical problem persists irrespective of whether the employee still works for the defendant."
In this regard, the trial court noted that the plaintiffs in this case had presented evidence reflecting that the HR employees "support[ed] [d]elivery [e]mployees' claims and intend to testify in a manner that corroborates the class claims." However, the trial court believed "the fact remains that, despite [the] HR [e]mployees' intentions, their role as important witnesses in the wage-and-hour class action necessarily creates a material risk that [p]laintiffs' counsel may be forced to choose between advancing their interests in the employment-discrimination lawsuit and questioning them in a manner that is harmful to the attorney-client relationship and prejudicial to the maintenance of their separate action." "Consequently, the [trial court] conclude[d] there [was] a potential conflict between [the] HR Employees' interests and [the] [d]elivery [e]mployees' interests such that disqualification of [DFM] [was] warranted unless the clients provided informed, written consent."
Eat Club argues that the conflict of interest in this case is worse than in Walker because "Tran and Picasso led the HR team that adopted and implemented the companywide [sic] wage policies and practices at issue in [this] case." It maintains that, as in Walker, the conflict was actual, "not potential or hypothetical."
In Walker, a law firm represented the Walkers in a putative class action against their former employer, Apple, Inc. (Apple). (Walker, supra, 4 Cal.App.5th at p. 1102.) The law firm also concurrently represented a certified class in a separate wage and hour class action pending against Apple, Felczer v. Apple, Inc. (Super. Ct. San Diego County, No. 37-2011-00102573-CU-OE-CTL) (Felczer). (Walker, supra, at p. 1102.) The Walkers were "former nonexempt employees of Apple who [had] worked at Apple's Carlsbad store until their employment ended in 2014." (Id. at p. 1103.) The Walkers' complaint alleged that "Apple did not furnish them with final wage statements upon termination of their employment, in violation of Labor Code section 226 and applicable wage orders." (Ibid.) "Apple assert[ed] [that] its retail store managers (whom Apple call[ed] '[s]tore [l]eaders') [were] responsible for handling voluntary and involuntary terminations" (id. at p. 1104) and that the store leaders were responsible for "delivering final paychecks and wage statements to terminated employees." (Ibid.)
"[T]he Felczer wage and hour class action" had been filed against Apple in 2011. (Walker, supra, 4 Cal.App.5th at p. 1102.) In that action, the trial court certified subclasses of current and former nonexempt Apple employees who had worked for Apple since December 16, 2007, at any of its California locations. (Id. at pp. 1102-1103.) There was evidence that the store leader of the Carlsbad Apple store "had been a nonexempt Apple employee during the Felczer class period, before she was promoted to the exempt Store Leader position." (Id. at p. 1104.) The trial court found it undisputed that the store leader who was "responsible for timely providing the Walkers their final wage statements" was also "a Felczer class member." (Id. at p. 1105.)
In Walker, "[s]pecifically, based on the parties' litigation strategies and evidence Apple submitted in support of its disqualification motion, the trial court concluded that to advance the interests of its clients in this case, the [law firm] would need to cross-examine a client in the Felczer class (the Walkers' store manager) in a manner adverse to that client." (Walker, supra, 4 Cal.App.5th at p. 1102.) The appellate court concluded that "[o]n the record before [it]—where a class ha[d] been certified in Felczer, and undisputed evidence establishe[d] the [Carlsbad] store manager's identity and her likely significant role in this case—. . . the trial court did not err in finding [that] the [law firm] represent[ed] the store manager [in the Felczer class action] and that a disqualifying conflict exist[ed] between her interests and the Walkers' interests." (Ibid.; see id. at p. 1107.)
The appellate court determined in Walker that "[s]ubstantial evidence support[ed] the trial court's finding that, under ' "the circumstances of [this] particular case" ' [citation], the Walkers' and [the Carlsbad store leader's] interests are adverse." (Walker, supra, 4 Cal.App.5th at p. 1111.) The court explained: "The Walkers allege Apple violated California labor laws as a result of a uniform policy of terminating employees' access to the myPage portal immediately upon termination and before terminated employees are able to obtain an electronic final wage statement. Apple, however, suggests . . . that any failure to timely deliver final wage statements to the Walkers was not the result of a uniform policy, but rather was the result of an error by the [Carlsbad] [s]tore [l]eader." (Ibid.)
The appellate court rejected the Walkers' argument that any conflict of interest was merely speculative. (Walker, supra, 4 Cal.App.5th at pp. 1111-1112, 1114.) It observed that the law firm might "jeopardize" the Carlsbad store leader's "employment prospects." (Id. at p. 1111) The court explained: "For instance, to support the Walkers' position that Apple's failure to provide a final wage statement was the result of a uniform policy, the [law firm] will likely cross-examine [the Carlsbad store leader] to establish she had no duty to provide the Walkers with final paystubs. But because Apple has already staked out a contrary position in this litigation (via its disqualification motion and [a] [d]eclaration), [the Carlsbad store leader] will be in the unenviable position of being pressured by her own counsel to contradict her employer's class action litigation strategy. On the other hand, if [the Carlsbad store leader] testifies she was either unaware she had a duty to provide the Walkers with their final wage statements, or was aware of this duty but simply failed to fulfill it, she may undermine Apple's confidence in her as a [s]tore [l]eader." (Id. at pp. 1111-1112.)
In Walker, the appellate court further pointed out that "[e]ven though [the Carlsbad store leader] [did] not have a direct stake in the outcome of th[e] [Walker] litigation—that is, she is neither a class member nor 'in any jeopardy of being liable' to the Walkers [citation]—she ha[d] a practical interest in not being portrayed 'as a liar or as a manager who knowingly violated [her] company's policies' [citation]." (Walker, supra, 4 Cal.App.5th at pp. 1112-1113.) She also had "a right to not have her counsel put her in such a position. [Citation.]" (Id. at p. 1113.) The court concluded that due to these "unusual circumstances, it would be unseemly for [her] own counsel to force this Hobson's choice on her for the potential benefit of other clients. Doing so would violate the [law firm's] duty of loyalty to [the Carlsbad store leader]." (Id. at p. 1112, italics added.)
Unusual circumstances akin to those in Walker do not exist in this case, and Walker is distinguishable. Neither Tran nor Picasso are employed by Eat Club, so concurrent representation cannot jeopardize any employment with the company. Accordingly, neither of them will be in placed in the "position of being pressured by her own counsel [representing her in another matter] to contradict her employer's class action litigation strategy." (Walker, supra, 4 Cal.App.5th at p. 1112.) Further, Eat Club did not indicate that Tran or Picasso would be called as a witness for the company, which would put DFM in the position of cross-examining its own client. The Walker case does not establish that the trial court erred in rejecting Eat Club's contention that DFM's concurrent representation created an actual conflict of interest.
We find it unnecessary to resolve whether the evidence was sufficient to show a material limitations conflict existed. (See rule 1.7(b); rule 1.7, com. 4.)
5. No Conflict Evidenced by Attorneys' E-mails Concerning Possible Settlement
In ruling on Eat Club's motion, the trial court rejected Eat Club's argument that DFM was using the HR employment lawsuit "as leverage to extract a settlement in the wage-and-hour class action or vice versa." It found that any such "inferences [were] far beyond those that are reasonably supported by the evidence."
On appeal, Eat Club asserts that early e-mails exchanged by the parties' counsel concerning possible settlement in this case constituted "evidence of DFM's compromised loyalty" and showed that "DFM's conflict of interest ha[d] already affected [their clients'] respective outcomes."
Eat Club argues that by not making a settlement proposal on behalf of Tran and Picasso and merely offering to discuss settlement in this putative class action, DFM acted in a manner that reflected a conflict of interest. As did the trial court, we conclude that no reasonable inference that concurrent representation posed a conflict of interest can be drawn from the attorneys' e-mails in July of 2018. Further, in their respective declarations, Tran and Picasso each indicated that she was aware that DFM had not made a settlement demand in her "wrongful termination case" and approved that course of action. The e-mail exchanges were insufficient to show that the interests of DFM's clients concerning settlement of this action or the HR employment lawsuit were directly adverse to each other. 6. Informed, Written Consent
Based on the declarations of plaintiffs, Tran, and Picasso, the trial court concluded that disqualification was not required because DFM's clients had provided informed, written consent to concurrent representation. The court stated: "The evidence presented by [p]laintiffs show[ed] they reviewed the motion to disqualify and received the requisite information about the circumstances and risks of the concurrent representation. The evidence also shows they executed written, consent forms and wish to keep their counsel despite the risks of the potential conflict. . . . Under these circumstances, the [c]ourt finds the evidence is sufficient to establish [p]laintiffs' counsel obtained informed, written consent to the concurrent representation in conformity with [former] [r]ule 3-310(C)(3)." Under former rule 3-310(A)(2), "informed written consent" meant "the client's or former client's written agreement to the representation following written disclosure."
Eat Club contends that DFM was required to obtain informed written consent to concurrent representation from plaintiffs and Tran and Picasso before undertaking their concurrent representation, which occurred before rule 1.7 went into effect. Eat Club argues that "DFM waited until Eat Club filed its motion, showed the company's motion to its clients, and had them sign conclusory declarations waiving the conflict." It claims that "[t]here is no evidence in the record that DFM disclosed any conflicts prior to receiving the motion to disqualify." Relying on former rule 3-310(C), Eat Club insists that the obtaining of "informed written consent . . . after counsel accepts representation" cannot avoid disqualification. Thus, Eat Club in effect asserts that the trial court had no choice but to disqualify DFM because DFM accepted concurrent representation without first obtaining the informed, written consent of each affected client.
But Eat Club also recognizes that "[i]n early June 2018, at the outset of DFM's representation," DFM was relying on the information provided by Tran to evaluate the existence of any conflict. While we do not know exactly when DFM began representing each of its clients in the two lawsuits, Eat Club has not demonstrated by reference to the record that while representing a client, DFM accepted in a separate matter the representation of another client, who was, in the first matter, directly adverse to the initial client. (See rule 1.7, com. 1; see also rule 1.7(a); cf. former rule 3-310(C)(3).) Neither has it shown that at the time DFM undertook concurrent representation, DFM knew or should have known that it would likely cross-examine Tran or Picasso in this lawsuit and such cross-examination would likely harm or embarrass her. (See rule 1.7, com. 1.) In fact, there was no showing that Tran or Picasso likely will be adverse witnesses in this lawsuit. Eat Club has not demonstrated that the trial court erred by not disqualifying DFM on the ground that its clients' conflict waivers were obtained only after it undertook concurrent representation.
Plaintiffs, Tran, and Picasso each indicated in a declaration that (1) DFM had provided each of them with a conflict waiver "containing the language of [former] [r]ule 3-310" and identifying the risks of concurrent representation and that (2) each of them had executed the waiver. In their declarations, they further indicated that they had waived the risks of concurrent representation raised by Eat Club, which were set forth in their declarations, "as well as additional risks posed by the joint representation." Those declarations additionally disclosed that DFM had advised all its concurrently represented clients to consult separate legal counsel regarding its representation of them, and that all of them had considered the risks and chosen to continue to have DFM represent them. Thus, the clients' declarations, and inferentially DFM's disclosures upon which the executed conflict waivers were based, directly addressed the risks of concurrent representation raised by Eat Club.
On appeal, Eat Club does not challenge the trial court's rulings on its evidentiary objections to those statements. Eat Club properly does not suggest that this court must overturn the trial court's finding that each of DFM's clients gave informed, written consent to concurrent representation because they used the word "waive" rather than the word "consent" in their declarations. The concepts of waiver and consent are highly related in this situation, and we will not elevate form over substance. (Cf. Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315 ["Generally, 'waiver' denotes the voluntary relinquishment of a known right."]; Johnson v. Zerbst (1938) 304 U.S. 458, 464 ["A waiver is ordinarily an intentional relinquishment or abandonment of a known right or privilege"].)
Eat Club asserts that DFM could not "satisfy its ethical duty by merely passing along Eat Club's motion." Eat Club makes the perfunctory argument that "DFM failed to disclose all of the material and relevant circumstances needed for informed written consent," either "before or after accepting representation." It baldly states that its clients' "conclusory assertions [regarding their execution of conflict waivers] fall short of ethical standards." Eat Club insists that DFM's disclosures to its clients were inadequate. In support, it cites Sheppard, supra, 6 Cal.5th at page 84, which stated, "To be informed, the client's consent to dual representation must be based on disclosure of all material facts the attorney knows and can reveal. [Citation.]"
The circumstances in this case are distinguishable from the broad, blanket waivers of all conflicts at issue in Sheppard. In Sheppard, two clients concurrently represented by a law firm "had executed engagement agreements that purported to waive all . . . conflicts of interest, current or future, but the agreements did not specifically refer to any conflict and the law firm did not tell either client about its representation of the other." (Sheppard, supra, 6 Cal.5th at p. 68.) The Supreme Court considered whether the waiver constituted effective consent to the law firm's concurrent representation of adverse interests. (Id. at p. 84.) It stated that "withholding available information about a known, existing conflict is not consistent with informed consent." (Id. at p. 86, fn. omitted.) The Supreme Court concluded that "by failing to disclose to [a client] the fact that a current conflict actually existed, the law firm failed to disclose to its client all the 'relevant circumstances' within its knowledge relating to its representation of [the client]. ([former] rule 3-310(A)(1).)" (Id. at p. 84.)
Rule 1.7 does not "preclude an informed written consent to a future conflict in compliance with applicable case law." (Rule 1.7, com. 9; see Sheppard, supra, 6 Cal.5th at p. 86, fn. 7.) "The effectiveness of an advance consent is generally determined by the extent to which the client reasonably understands the material risks that the consent entails." (Rule 1.7, com. 9.) But "[a]n advance consent cannot be effective if the circumstances that materialize in the future make the conflict nonconsentable under [rule 1.7(d)]." (Ibid.)
Eat Club has failed to show that DFM withheld available information about a known conflict that existed when plaintiffs, Tran, and Picasso agreed to continuing concurrent representation. Their declarations reflected that they were clearly aware of DFM's concurrent representation. In fact, the evidence showed that two of the plaintiffs were directly referred to DFM by Tran. Eat Club does not identify any specific information regarding relevant circumstances or material risks that was missing from any of their declarations, which should have been disclosed to them in obtaining their consents. (See rule 1.0.1(e), (e)(1).) We reject Eat Club's other conclusory challenges as forfeited. (See People v. Stanley (1995) 10 Cal.4th 764, 793 (Stanley); see also Cal. Rules of Court, rule 8.204(a)(1)(B) & (C).)
Willful violation of a rule of professional conduct can provide a basis for attorney discipline (see rule 1.0(b)(1)); Bus. & Prof. Code, § 6077; cf. former rule 1-100(A)), but "[u]ltimately, disqualification motions involve a conflict between the clients' right to counsel of their choice and the need to maintain ethical standards of professional responsibility. [Citation.]" (SpeeDee, supra, 20 Cal.4th at p. 1145.) While "the focus of disqualification motions must be on the preservation of public trust in the scrupulous administration of justice and the integrity of the bar" (Sharp, supra, 163 Cal.App.4th at p. 436), disqualification "motions 'can be used to harass opposing counsel, to delay the litigation, to intimidate an adversary into accepting settlement on otherwise unacceptable terms, or for other strategic purposes. [Citation.]' [Citations.]" (Id. at p. 434.) Where the clients "who are personally concerned with the alleged conflict of interest are not objecting, and disqualification is sought by a litigation adversary who is not personally interested in the alleged conflict, courts must be skeptical . . . because 'motions to disqualify counsel often pose the very threat to the integrity of the judicial process that they purport to prevent.' [Citation.]" (McPhearson v. Michaels Co. (2002) 96 Cal.App.4th 843, 849-850.) "[A] conflict of interest generally may be waived by the persons who are personally interested in the matter. [Citations.]" (Id. at p. 850.) As in McPhearson, "the persons who are personally interested in the conflict of interest . . . , each [have] filed written declarations waiving the conflict." (Ibid.)
In ruling on Eat Club's motion, the trial court found that "[a]s in Sharp, '[t]o deny these employees access to attorneys knowledgeable in labor law based upon an objection filed by their employer, when the named representatives of the class action lawsuit and the [other clients] have waived all conflicts and the motion is brought before class certification is sought will provide a tactical edge to the employer at the expense of the putative class.' [Citation.]" Thus, the court found that Eat Club's motion to disqualify DFM was, in effect, a tactical device being employed against former or current employees who were suing the company.
Eat Club has not demonstrated that the trial court abused its discretion by denying Eat Club's motion to disqualify DFM due to any conflict of interest where all its affected clients confirmed that they had in effect given their informed written consent to concurrent representation. B. DFM's Alleged Misuse of Eat Club's Assertedly Privileged E-mails
Conflict of interest waivers were not required from the members of the putative class. (Sharp, supra, 163 Cal.App.4th at pp. 431-434.)
1. Contentions and Background
In support of its disqualification motion, Eat Club also argued that Tran's disclosure of privileged communications to DFM provided "added grounds for disqualification" and that DFM's failure to notify Eat Club of Tran's disclosure and remedy the problem "bolster[ed] the case for disqualification." It contended that Tran had made the substance of her communications with Attorney McInerney, which had taken place prior to her termination, "critical to [her] claims and defenses."
Although the trial court could not review the redacted content of Tran's e-mails, the court agreed that CFO Rodriguez had asked Tran to seek legal advice from Eat Club's counsel, Tran had sent an e-mail to McInerney, and there were "indicia on the face of the [e-mails] that collectively reflect[ed] [that] they may be privileged."
"Evidence Code section 915 prohibits a court from ordering in camera review of information claimed to be privileged in order to rule on the claim of privilege." (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 739 (Costco).) "Once [a] party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply. [Citations.]" (Id. at p. 733; see Evid. Code, § 917, subd. (a).)
But the trial court expressly found that contrary to Eat Club's assertion, DFM had not misused the assertedly privileged e-mails in drafting the complaint in the HR employment lawsuit. It stated: "Although Eat Club asserts it is obvious that [DFM] intends to use this [e-mail] chain, the record does not support its assertion. Eat Club directs the [c]ourt to paragraph 23 of HR Employees' complaint, which states: 'Again, Tran reminded CFO Rodriguez about the [c]ompany's ongoing legal violations. At 12:45 p.m. CFO Rodriguez connected Tran [with] the [c]ompany's lawyer (Thomas Mclnerney from Olgletree).' While this allegation contains an allusion to the [e-mail] chain, it does not disclose the contents of the [e-mail] chain or otherwise reflect her claim is based on the contents as distinct from her own knowledge of the facts and her own conduct."
The court determined that "while the attorney-client privilege may protect the contents of the [e-mail] chain, the privilege does not protect the underlying facts about working conditions at Eat Club or the fact that such conditions were reported by Tran." The court rejected this separate ground for disqualification, finding "no evidence [that] Tran and her counsel [were] impermissibly using or relying on the contents of the [e-mail] chain in this litigation as distinct from the underlying facts." The trial court was not persuaded that the e-mail "chain ha[d] [been] or will be misused [to gain an unfair advantage] in either [the HR employment lawsuit] or the wage-and-hour action."
On appeal, Eat Club asserts that apart from any conflict of interest, DFM must be disqualified on the independent ground that "the firm obtained, reviewed, retained, and misused Eat Club's attorney-client privileged communications." Eat Club again contends that DFM used the privileged e-mails "to prepare Tran's [c]omplaint and cited the [e-mails] as evidence" in the complaint. It also argues that the trial court "erred in shifting the burden to Eat Club to show added prejudice."
We review for abuse of discretion the court's refusal to disqualify DFM on this ground. (See DP Pham, LLC v. Cheadle (2016) 246 Cal.App.4th 653, 677; Clark v. Superior Court (2011) 196 Cal.App.4th 37, 46 (Clark).) Under the abuse of discretion standard, a "trial court's findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed de novo, and its application of the law to the facts is reversible only if arbitrary and capricious." (Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 711-712, fns. omitted.)
2. Plaintiffs Forfeited the Appellate Argument that Eat Club Waived Its Privilege
Without any citation to the record, plaintiffs perfunctorily argue that Eat Club "has in fact waived any privilege in the Tran [e-mail] by failing to timely request its return." They fail to show that this claim was asserted in the trial court in opposition to Eat Club's motion to disqualify DFM.
Eat Club now complains that plaintiffs' waiver argument is being raised for the first time on appeal. We find that plaintiffs' waiver argument was forfeited for appeal. (See Keener v. Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 264-265; Stanley, supra, 10 Cal.4th at p. 793; see also Cal. Rules of Court, rule 8.204(a)(1)(B) & (C).)
3. DFM's Obligations After Tran Disclosed the Assertedly Privileged E-Mails
Eat Club asserts that DFM violated its professional duties under State Comp. Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644 (State Fund) by (1) not promptly notifying Eat Club that it had the company's privileged e-mails; (2) retaining those e-mails, even after it had been served with Eat Club's motion for disqualification; (3) reviewing those e-mails beyond what was necessary to ascertain that they were privileged; (4) misusing those e-mails; and (5) destroying the e-mails months after their acquisition and only after the law firm "got caught."
State Fund involved the following facts: "[T]he plaintiff's attorney provided the defendant's attorney with three boxes of documents during discovery. Inadvertently, however, the plaintiff's attorney also provided numerous documents that were privileged under the attorney-client privilege. When the mistake was discovered, the defense attorney refused to return the documents, contending that their production had waived the privilege." (Ardon v. City of Los Angeles (2016) 62 Cal.4th 1176, 1186-1187 (Ardon).) " 'Based on the language of Evidence Code section 912,' the appellate court [in State Fund] held 'that "waiver" does not include accidental, inadvertent disclosure of privileged information by the attorney.' (State Fund, [supra, 70 Cal.App.4th] at p. 654.)" (Id. at p. 1187.)
In State Fund, "[t]he [appellate] court summarized the ethical obligations of an attorney who receives privileged documents due to inadvertence. 'When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain [whether] the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified.' (State Fund, supra, 70 Cal.App.4th at pp. 656-657.)" (Ardon, supra, 62 Cal.4th at p. 1187.)
In State Fund, the appellate court further stated: " 'Mere exposure to the confidences of an adversary does not, standing alone, warrant disqualification. Protecting the integrity of judicial proceedings does not require so draconian a rule. Such a rule would nullify a party's right to representation by chosen counsel any time inadvertence or devious design put an adversary's confidences in an attorney's mailbox. . . .' [H]owever, we do not rule out the possibility that in an appropriate case, disqualification might be justified if an attorney inadvertently receives confidential materials and fails to conduct himself or herself in the manner specified above, assuming other factors compel disqualification." (State Fund, supra, 70 Cal.App.4th at p. 657, italics added.)
In Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807 (Rico), the California Supreme Court made clear that the State Fund standard of conduct extended to attorneys who inadvertently receive another attorney's privileged work product. (Id. at pp. 817-818 & fn. 9; see McDermott Will & Emery LLP v. Superior Court (2017) 10 Cal.App.5th 1083, 1107 (McDermott); see also rule 4.4.) Under the authority of State Fund, the Supreme Court in Rico concluded that an attorney who receives privileged documents through inadvertence "may not read a document any more closely than is necessary to ascertain that it is privileged" and that "[o]nce it becomes apparent that the content is privileged, counsel must immediately notify opposing counsel and try to resolve the situation." (Rico, supra, at p. 810.) The court agreed that the " 'State Fund standard applies to documents that are plainly privileged and confidential, regardless of whether they are privileged under the attorney-client privilege, the work product privilege, or any other similar doctrine that would preclude discovery based on the confidential nature of the document.' " (Id. at pp. 817-818, fn. 9.)
"[T]he codified work product doctrine absolutely protects from discovery writings that contain an 'attorney's impressions, conclusions, opinions, or legal research or theories.' (§ 2018.030, subd. (a); see Wellpoint Health Networks, Inc. v. Superior Court (1997) 59 Cal.App.4th 110, 120.) The protection extends to an attorney's written notes about a witness's statements. [Citations.] '[A]ny such notes or recorded statements taken by defendants' counsel would be protected by the absolute work product privilege because they would reveal counsel's "impressions, conclusions, opinions, or legal research or theories" within the meaning of [the work product doctrine].' [Citation.] When a witness's statement and the attorney's impressions are inextricably intertwined, the work product doctrine provides that absolute protection is afforded to all of the attorney's notes. [Citation.]" (Rico, supra, 42 Cal.4th at p. 814.)
California case law indicates that the State Fund standard of conduct governs if a lawyer receives a privileged document through a client. (See McDermott, supra, 10 Cal.App.5th at p. 1092 ["State Fund duties are not limited to inadvertently disclosed, privileged documents [that] the attorney receives from opposing counsel, but also may apply to documents [that] the attorney receives from the attorney's client."]; see also Clark, supra, 196 Cal.App.4th at pp. 42-44.) DFM did not promptly notify Eat Club that it was in possession of Eat Club's assertedly privileged e-mails and seek to resolve the situation.
Eat Club suggests that the court should have disqualified DFM because DFM excessively or extensively reviewed the contents of the assertedly privileged e-mails. The trial court made no finding as to the extent of DFM's review of those e-mails. In any case, Eat Club has not cited any authority holding that excessive or extensive review of privileged documents by itself compels disqualification. As indicated, State Fund itself recognized that a counsel's " '[m]ere exposure to the confidences of an adversary does not, standing alone, warrant disqualification.' " (State Fund, supra, 70 Cal.App.4th at p. 657; cf. Rico, supra, 42 Cal.4th at p. 819.)
A critical issue below was whether DFM had actually misused the assertedly privileged e-mails. As suggested by the trial court, the complaint filed in the HR employment lawsuit did not directly or by reasonable inference reveal the content of those e-mails. (See Rest.3d, Law Governing Lawyers, § 69, com. g.) Further, the California Supreme Court has indicated that the attorney-client privilege does not protect the " 'independent facts related to a communication' " (Samuels v. Mix (1999) 22 Cal.4th 1, 20, fn. 5), such as the fact " 'that a communication took place' " (ibid.), the time and date of the communication, and the participants in the communication. (Ibid.)
Further, in denying disqualification, the trial court found that DFM had "no apparent incentive . . . to disclose the contents of the [e-mail] chain in either action." The court found that Tran could "be questioned about her personal knowledge of the underlying facts as distinct from the contents of the [e-mail] chain itself" and that misuse of the e-mails was not "likely or inevitable at this juncture."
We note that the attorney-client privilege does not protect a client claiming attorney-client privilege against proper discovery of unprivileged facts, even if they were summarized in a privileged communication. (See Costco, supra, 47 Cal.4th at p. 735 ["a client cannot protect unprivileged information from discovery by transmitting it to an attorney"], 736 ["when the communication is a confidential one between attorney and client, the entire communication, including its recitation or summary of factual material, is privileged," but any unprivileged factual material referred to or summarized in the protected communication "may be discoverable by some other means"]; see also Rest.3d Law Governing Lawyers, § 69, com. d ["Although a client cannot be required to testify about communications with a lawyer about a subject, the client may be required to testify about what the client knows concerning the same subject. . . . [T]he privilege does not apply to preexisting documents or other tangible evidence . . . , even if they concern the same subject as a privileged communication"].)
Eat Club asserts that DFM may still exploit the privileged information contained in the e-mails and may engage in "potential tactical abuses." It intimates that "[e]ven if DFM no longer has access to the privileged [e-mails]," counsel could question witnesses, make and respond to objections, and address the court and jury with those communications in mind. As indicated by the trial court, Tran can independently provide DFM with the unprivileged facts contained in those communications that were already within her knowledge when transmitted to Eat Club's outside counsel. While "disqualification is proper as a prophylactic measure to prevent future prejudice to the opposing party from information the attorney should not have possessed[] [citations]" (Clark, supra, 196 Cal.App.4th at p. 55), "[disqualification is inappropriate . . . simply to punish a dereliction that will likely have no substantial continuing effect on future judicial proceedings. [Citation.]" (Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 309.) Moreover, less drastic measures than disqualification may be used to protect any privileged communications going forward, if appropriate. (See Neal v. Health Net, Inc. (2002) 100 Cal.App.4th 831, 844 (Neal).)
Eat Club asserts that "[t]he conduct of Tran and DFM cannot be reconciled with Clark." In Clark, a former employee sued his former employer after he was terminated. (Clark, supra, 196 Cal.App.4th at p. 42.) Although the former employee had signed a nondisclosure agreement, he had taken numerous privileged documents with him and given them to his counsel. (Id. at pp. 42-43, 49.) The trial court had found that counsel for the former employee "had received and excessively reviewed privileged documents" and that "disqualification was warranted because there was a genuine likelihood [that counsel's] conduct could affect the outcome of the litigation." (Id. at p. 41.) An appellate court found no abuse of discretion and denied the former employee's petition for writ of mandate challenging the disqualification order. (Id. at pp. 41, 55-56.)
This case is distinguishable from Clark. First and foremost, in this case we are reviewing an order denying an employer's motion to disqualify opposing counsel, rather than an order granting such a motion. In general, " '[t]he burden is on the party complaining to establish an abuse of discretion, and unless a clear case of abuse is shown and unless there has been a miscarriage of justice a reviewing court will not substitute its opinion and thereby divest the trial court of its discretionary power.' [Citations.]" (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.)
Second, there was no suggestion in Clark that the former employee had drafted the assertedly privileged communications or that those communications contained unprivileged information that was already within the former employee's own knowledge, independent of those communications. Third, Clark involved extensive disclosures of privileged materials by the former employee to his own counsel. (Clark, supra, 196 Cal.App.4th at p. 45, fn. 3 ["36 specified documents"]; see id. at p. 52 [substantial evidence supported " the trial court's finding that all of the disputed communications were privileged communications"].) And fourth, the appellate court determined in Clark that there was "some evidence from which a trial court could have concluded [that the law firm] affirmatively used some of the substantive information contained in the privileged documents to question witnesses or to support [its client's] claims." (Id. at p. 53; see id. at p. 44.) The facts of this case are not analogous.
Eat Club has not shown that the trial court abused its discretion in finding that DFM had not misused, and would not likely misuse, its knowledge of the privileged communications to gain an unfair advantage against Eat Club. Even if DFM did not comply with the standard of conduct outlined in State Fund and Rico with respect to the e-mails at issue, Eat Club has not established that the trial court abused its discretion by denying Eat Club's motion to disqualify DFM.
We find it unnecessary to resolve here whether Tran was legally entitled, after her termination, to disclose Eat Club's assertedly privileged e-mails to DFM, her counsel in the HR employment lawsuit. (See e.g. Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 308 [In a wrongful termination action, a "former in-house counsel may disclose to her attorney all facts relevant to the termination, including employer confidences and privileged communications."]; see also Roush, supra, 150 Cal.App.4th at p. 219 ["where the attorney's client is the attorney's source of privileged information relating to the litigation, courts typically refuse to allow the disqualification, concluding that clients do not act inappropriately in providing information to their own attorney"]; Neal, supra, 100 Cal.App.4th at pp. 843-844 ["decisional authority has consistently concluded that a party cannot improperly disclose confidential information to one's own counsel in the prosecution of one's own lawsuit"].)
DISPOSITION
The November 26, 2018 order denying Eat Club's motion to disqualify opposing counsel is affirmed. Eat Club shall bear the costs on appeal.
/s/_________
ELIA, J. WE CONCUR: /s/_________
GREENWOOD, P.J. /s/_________
BAMATTRE-MANOUKIAN, J.