Opinion
G055271
07-26-2018
URS CORPORATION et al., Plaintiffs, Cross-defendants and Appellants, v. ATKINSON/WALSH JOINT VENTURE, Defendant, Cross-complainant and Respondent.
O'Melveny & Myers, Charles C. Lifland, Dawn Sestito and Catalina Joos Vergara for Plaintiffs, Cross-defendants and Appellants. Horvitz & Levy, Lisa Perrochet and Eric S. Boorstin; Hanson Bridgett, Scott E. Hennigh, Batya F. Forsyth, Adam W. Hofmann and Brian M. Schnarr for Defendant, Cross-complainant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2017-00907526) OPINION Appeal from an order of the Superior Court of Orange County, Frederick Paul Horn, Judge. Reversed. Motion to dismiss appeal. Denied. O'Melveny & Myers, Charles C. Lifland, Dawn Sestito and Catalina Joos Vergara for Plaintiffs, Cross-defendants and Appellants. Horvitz & Levy, Lisa Perrochet and Eric S. Boorstin; Hanson Bridgett, Scott E. Hennigh, Batya F. Forsyth, Adam W. Hofmann and Brian M. Schnarr for Defendant, Cross-complainant and Respondent.
* * *
INTRODUCTION
URS Corporation (URS) and AECOM (together, URS/AECOM) appeal from an order granting the motion of Atkinson/Walsh Joint Venture (AW) for disqualification of the law firm of Pepper Hamilton as URS/AECOMS's counsel in this lawsuit. The trial court found that Pepper Hamilton had obtained and used AW's confidential and work product documents in violation of a confidentiality agreement governing access to and use of documents and information exchanged in the course of a mediation. The confidentiality agreement limited access to those documents and information, which were stored in a cloud-based document repository, to "outside counsel" and restricted their use to facilitating settlement and mediation.
We reverse the disqualification order because the evidence does not support a finding that Pepper Hamilton violated the confidentiality agreement. Pepper Hamilton was outside counsel within the meaning of the confidentiality agreement, and therefore rightfully obtained access to the documents. The evidence does not support a finding that Pepper Hamilton used any of the documents or information in a manner that violated the confidentiality agreement. Absent a violation of the confidentiality agreement, there would be no grounds for disqualifying Pepper Hamilton.
FACTS
I.
AW and URS Agree to Mediate Disputes Over a Freeway
Retrofit and Expansion Project.
AW was the design-build contractor for a project (the Project) to retrofit and expand a stretch of State Route 91 between Anaheim and Corona. AW hired URS to provide architectural and engineering design services for the Project. AW and URS entered into a design services agreement which included a provision for dispute resolution involving "executive-level discussions and mediation." In 2015, URS was acquired by AECOM.
Section VIII.C. of the design agreement states: "NOTICE; MEDIATION. If either party has a Claim against the other, the claimant shall promptly give written notice thereof and both parties shall, in the first instance, endeavor in good faith to negotiate a settlement of the Claim. If the Architect/Engineer's Representative and Contractor's Representative cannot resolve the Claim promptly, officers of the Architect/Engineer and Contractor shall endeavor in good faith to negotiate a settlement of the Claim. If the officers cannot resolve the dispute by negotiation, the parties shall participate in mediation with a third-party neutral mutually acceptable to them, and they will share equally in the cost of the mediation. If mediation is unsuccessful in the resolution of the Claim within three (3) months of starting the mediation, then the parties agree to pursue litigation. Subject to Section G below, all litigation will be through the court having jurisdiction where the Project is located."
Disputes arose between AW and URS/AECOM. AW contended URS made design errors causing disruption of the Project and delay in meeting the required completion date. URS/AECOM contended AW failed to pay it $2.35 million. In April 2016, AW's outside counsel (Scott Hennigh of Sheppard Mullin) sent a demand letter to URS/AECOM asserting claims for breach of contract and professional negligence. At the time, URS/AECOM was represented by the law firm of Cox, Castle & Nicholson (Cox Castle) in the dispute with AW.
Over the next several months, counsel for AW and counsel for URS/AECOM exchanged correspondence and e-mails about mediation in accordance with the requirements of the design services agreement. Representatives of the parties met without attorneys in October 2016, and a representative of AW advised that its preliminary calculations showed its damages could exceed $70 million. After losing confidence a mediation would take place, counsel for AW drafted and prepared to file a complaint seeking $70 million in damages against URS/AECOM. AW decided not to file the complaint based on representations made by URS/AECOM it would attempt to resolve the dispute by mediation.
II.
AW and URS Enter into a Confidentiality Agreement.
In advance of the mediation, URS/AECOM requested that AW produce various documents regarding the alleged design flaws. AW shared hard copies of select documents with URS/AECOM and advised it would upload electronic copies of those and additional documents, including a consultant's analysis and presentation, to a hosted, cloud-based storage platform called the Share Site. Access to the site was given to AW and its counsel (first Sheppard Mullin, then Hanson Bridgett), URS/AECOM and its counsel (Cox Castle), and URS/AECOM's insurance carrier.
In late October 2016, AW and URS entered into a "Confidentiality, Non-disclosure, and Inadmissibility Agreement" (the Confidentiality Agreement). Paragraph 3 of the Confidentiality Agreement is central to this appeal and so we quote it in full: "As part of the mediation process, the parties have created an information sharing and exchange website (the 'Share Site' or 'Site'), for purpose of facilitating and preparing for the planned mediation. The Share Site web address is https://collaboratc.sheppardmullin.com. The Share Site and all documents and information contained on the Site are for the sole purpose of settlement and mediation. Representatives from each party will be given access to the Share Site. By accessing the Site and the documents and information contained on the Site, each party and each party's representative certifies that ALL DOCUMENTS AND INFORMATION ACCESSED THROUGH THE SHARE SITE SHALL BE KEPT CONFIDENTIAL IN ACCORDANCE WITH THIS AGREEMENT AND ALL SUCH CONFIDENTIAL INFORMATION SHALL NOT BE REPRODUCED, DISTRIBUTED, OR DISCLOSED UNLESS IT IS FOR THE LIMITED PURPOSE OF FACILITATING SETTLEMENT AND/OR MEDIATION; AND ALL SUCH CONFIDENTIAL INFORMATION SHALL BE PROTECTED TO THE FULLEST EXTENT POSSIBLE BY THE MEDIATION PRIVILEGE OUTLINED IN CALIFORNIA EVIDENCE CODE SECTIONS 1115-1128, THE LIMITATIONS ON DISCLOSURE OF SETTLEMENT DISCUSSIONS AS OUTLINED IN CALIFORNIA EVIDENCE CODE SECTION 1152, AND ANY OTHER APPLICABLE LAW. It is understood and agreed that parties may disclose the information and documents contained on the Site to outside counsel, insurers, experts, consultants or subcontractors subject to the limitations above." (Italics added.)
AECOM was not made a party to the Confidentiality Agreement.
The Confidentiality Agreement has no provision regarding the return or destruction of documents and information uploaded to the Share Site. The Confidentiality Agreement states "the mediation process may continue after the mediation hearing or hearings" and "the parties waive the automatic termination provisions of California Evidence Code section 1125(a)(5)." In addition, the Confidentiality Agreement states it "extends to all present and future civil, judicial, quasi-judicial, arbitral, administrative, or other proceedings."
For several weeks after execution of the Confidentiality Agreement, AW and its counsel continued to upload documents to the Share Site. In all, AW uploaded almost 8,000 documents, including confidential, attorney-client privileged, and attorney work product documents and information. AW uploaded to the Share Site analyses prepared by its litigation consultants.
In December 2016, the parties executed a tolling agreement amending section VIII.C. of the design agreement. The penultimate sentence of section VIII.C. stated: "If mediation is unsuccessful in the resolution of the Claim within three (3) months of starting the mediation, then the parties agree to pursue litigation." The tolling agreement struck the phrase "within three (3) months of starting the mediation."
III.
AW and URS/AECOM Participate in Meditation;
URS Files Suit.
The parties scheduled mediation sessions for January 11, March 8, and June 14, 2017. The first mediation session was conducted as scheduled on January 11. Cox Castle attended with URS/AECOM representatives. One of AW's litigation consultants gave its preliminary presentation regarding AW's claims for increased costs caused by URS's alleged design errors. A few days before the second mediation session, Cox Castle requested expanded access to the Share Site in order to download in bulk all of the AW documents.
The second mediation session was conducted as scheduled on March 8, 2017. The focus of the second mediation session was AW's disruption claim. Cox Castle attended with URS/AECOM representatives. Another AW litigation consultant gave a presentation on his preliminary damages analysis related to AW's disruption claim. The mediation was unsuccessful.
On March 9, 2017, the day after the second mediation session, URS filed a lawsuit against AW for breach of contract, common counts, and violation of prompt payment statutes. The complaint was filed by the law firm of Pepper Hamilton, which appears on the complaint as counsel of record for URS. Pepper Hamilton had represented URS/AECOM in six personal injury lawsuits against AW arising out of the Project. Attorney Marion Hack of Pepper Hamilton had begun advising AECOM in 2004. Pepper Hamilton began advising URS about AW's claims in early 2016, was specifically asked to "advise on mediation-related issues in early January 2017," and provided advice to URS about AW's claims and the mediation itself.
IV.
AW Demands Pepper Hamilton Return
the Share Site Documents.
The parties agreed to have a conference call on March 9, 2017, but on March 10, URS/AECOM's in-house counsel sent an e-mail to AW's counsel stating that URS/AECOM had retained new counsel. On March 13, AW's in-house counsel learned that URS, represented by Pepper Hamilton, had filed a complaint against AW.
On March 17, AW demanded Pepper Hamilton return any mediation documents and information accessed from the Share Site. Pepper Hamilton did not respond. AW renewed the demand two weeks later. Hack responded with a letter dated April 4, 2017 in which she made three points: (1) "The Confidentiality Agreement does not provide for, contemplate or require that URS return any such documents or information exchanged during [the mediation] process"; (2) "we believe the mediation process is continuing, as expressly provided for in the Confidentiality Agreement"; and (3) even if the mediation had terminated, "all confidential information exchanged by and between URS and AW[] in connection with the mediations are, and continue to be, protected from disclosure to unauthorized third parties, production in discovery and/or use in evidence." For those reasons, Hack concluded: "There is simply no reason for the parties to incur the expense of the return of the documents or suffer the delay in understanding and evaluating each other's claims in light of the foregoing as well as the parties' continuing efforts to mediate the matter."
In response, AW's counsel wrote in a letter dated April 14, 2017: "Your letter seems to suggest that the URS filing of a complaint, without disclosure or warning the day after a mediation session and at the same time [AW] was endeavoring to prepare for the next mediation session was not precluded by any agreement. That is not the point. URS freely accessed information from the shared site, sought even greater access shortly before the March mediation, participated in the mediation, and seemingly fully endorsed continued participation, all the while having made arrangements to retain new counsel and to prepare a lawsuit for immediate filing. This strongly suggests that URS utilized the mediation process to obtain information with no genuine interest in resolving the dispute or any part of it." Nobody responded on behalf of URS/AECOM.
AW filed an amended cross-complaint against URS/AECOM in July 2017. The cross-complaint asserted causes of action for professional negligence, breach of contract, and negligent interference with prospective economic advantage, and sought damages of not less than $70 million.
PROCEDURAL HISTORY
In June 2017, AW filed its motion for disqualification of Pepper Hamilton and for a preliminary injunction to return documents. The trial court granted a request for a continuance by URS/AECOM but instructed AW's counsel to prepare a temporary restraining order "that includes a listing of the documents that are subject to the attorney/client privilege which [URS/AECOM] previously offered to destroy." On July 11, 2017, the trial court signed a temporary restraining order that Pepper Hamilton was not to "review, examine, copy, distribute, any of 'the Share[]Site documents' described in [its] letter of June 28, 2017." In that letter, Pepper Hamilton, writing on behalf of URS/AECOM, had offered "to take reasonable efforts to delete and destroy copies of any documents AW[] posted on the Share[]Site that are in URS'[s] and its counsel's possession in exchange for the withdrawal of the AW[] Motion [to Disqualify]."
On July 26, 2017, the trial court posted a tentative ruling to deny AW's motion for disqualification. In the tentative ruling, the court stated: "[T]here is no evidence showing that Pepper Hamilton has improperly reproduced, distributed, or disclosed the documents. Indeed, the complaint that Pepper Hamilton filed on March 9, 2017 was bare bones and all of 8 pages and does not reference or attach any confidential or privileged documents. Likewise with the first amended complaint filed April 5, 2017 - it is only 7 pages long. [¶] Furthermore, the litigation is at its infancy and any concerns of [AW] that the documents will be improperly disclosed during discovery or at trial are premature. There is no evidence that Pepper Hamilton has distributed or disclosed the documents to third persons."
On July 26, at the hearing on AW's motion to disqualify, the trial court asked counsel for URS/AECOM why the Share Site documents had not been destroyed. Counsel answered, "[w]e don't have a problem destroying them" but "[w]e're waiting for a court order to do so. We feel uncomfortable destroying documents without some kind of court sanction." The court responded, "I can make that happen in a heartbeat. How's that?" URS/AECOM's counsel agreed. The court stated: "The documents are ordered to be destroyed."
The trial court issued a ruling on July 31. Rather than confirm the tentative ruling, the court granted the motion to disqualify Pepper Hamilton. The court stated: "It appears to the Court that Pepper Hamilton will be litigation counsel for URS and AECOM and that it has used the documents that were downloaded and printed from the Share Site 'in understanding and evaluating' the claims for purposes of litigation as stated in the letter from Marion Hack of Pepper Hamilton to David Buoncristiani of Hanson Bridgett dated April 4, 2017. . . . Pepper Hamilton used the documents in preparation of filing the complaint and in furtherance of litigation in contravention of the [C]onfidentiality [A]greement, which strictly limits their use and restricts their disclosure for purposes of settlement and mediation. Pepper Hamilton also saw no reason to 'return any such documents or information exchanged during this process.'"
The court held: "Pepper Hamilton has obtained confidential and privileged documents that would likely be used advantageously against [AW] during the course of litigation. Disqualification is therefore appropriate to eliminate the possibility that Pepper Hamilton would exploit the unfair advantage."
URS/AECOM timely appealed from the order disqualifying Pepper Hamilton and filed a petition for writ of supersedeas to stay the disqualification order and the entire litigation pending appeal. A panel of this court held the order disqualifying Pepper Hamilton was automatically stayed, but the automatic stay did not extend to all trial court proceedings. (URS Corp. v. Atkinson/Walsh Joint Venture (2017) 15 Cal.App.5th 872, 877.) The parties were invited to stipulate to a partial stay of trial court proceedings (id. at p. 890), and the parties stipulated to stay expert discovery pending resolution of this appeal.
DISCUSSION
I.
Motion to Dismiss the Appeal
AW brought a motion to dismiss the appeal under the disentitlement doctrine on the ground that URS/AECOM disobeyed the trial court's order, made at the July 26, 2017 hearing, to destroy the Share Site documents. We ordered the motion to dismiss to be decided in connection with the decision on appeal.
"An appellate court has the inherent power, under the 'disentitlement doctrine,' to dismiss an appeal by a party that refuses to comply with a lower court order. [Citations.] As the Supreme Court observed in MacPherson v. MacPherson [(1939)] 13 Cal.2d [271,] 277, 'A party to an action cannot, with right or reason, ask the aid and assistance of a court in hearing his demands while he stands in an attitude of contempt to legal orders and processes of the courts of this state.'" (Stoltenberg v. Ampton Investments, Inc. (2013) 215 Cal.App.4th 1225, 1229-1230 (Stoltenberg); see Blumberg v. Minthtorne (2015) 233 Cal.App.4th 1384, 1390-1391.)
Underlying the disentitlement doctrine is the equitable rationale that dismissal is an exercise of the court's inherent power to use its processes to induce compliance with a presumptively valid order. (Stoltenberg, supra, 215 Cal.App.4th at pp. 1229-1230.) Dismissal under the disentitlement doctrine is discretionary and is to be used when the balance of equities makes it an appropriate remedy. (Id. at p. 1230.) "No formal judgment of contempt is required; an appellate court 'may dismiss an appeal where there has been willful disobedience or obstructive tactics. [Citation.]' [Citation.] The doctrine 'is based upon fundamental equity and is not to be frustrated by technicalities.'" (Id. at p. 1230.)
At the hearing on July 26, 2017, the issue arose over destruction of documents both sides had uploaded onto the cloud-based Share Site. The court asked attorney Ted R. Gropman of Pepper Hamilton, "I don't understand why these documents aren't destroyed" and "why don't you just destroy them?" Gropman replied URS/AECOM did not object to destroying the documents but was "waiting for a court order to do so." The court thereupon ordered the documents destroyed.
AW argues in its motion to dismiss the appeal that URS/AECOM was obligated to comply with the trial court's order to destroy the documents because that order never was appealed or stayed. AW claims that URS/AECOM willfully failed to comply with the order to destroy the documents.
In opposition to the motion to dismiss the appeal, URS/AECOM submitted several declarations regarding deletion or destruction of mediation documents. These declarations refer to deletion or destruction of documents in two different storage sites—Pepper Hamilton's network server and the Share Site. In her declaration, Hack declared that on June 28, 2017, "Pepper Hamilton began the process of identifying AW[]'s Share[]Site Documents without accessing their content." She explained those documents were identified by folder labels, and those folders were located in two places: (1) Pepper Hamilton's internal server; and (2) a "cloud-based document repository hosted by Business Intelligence Associates ('BIA') for the benefit of URS." Hack declared that on July 6, 2017, she instructed representatives of Pepper Hamilton's Information Technology (IT) Department to delete the Share Site folders from Pepper Hamilton's servers and instructed BIA to quarantine the cloud-based folders so that nobody from Pepper Hamilton could access them.
Victor Raygoza is a network systems tech for the company retained by Pepper Hamilton to provide IT support for its Los Angeles and Orange County offices. Raygoza stated in his declaration in opposition to the motion to dismiss the appeal that on July 6, 2017 he "was asked to delete certain documents" from the server at Pepper Hamilton. Raygoza declared he relied on a list of folders identified for deletion by Hack and he deleted those folders, and all of the files contained in them, on July 6, 2017 and "[t]he folders no longer exist on Pepper Hamilton's servers."
Richard LaGuerre is a senior project manager for BIA, which was retained to provide eDiscovery consulting services in the litigation between URS/AECOM and AW. In a declaration signed on September 5, 2017, LaGuerre stated: "As part of its eDiscovery services, BIA stores documents on a cloud-based hosted document review platform and offers its customers online access to these documents. In connection with the Action, BIA is currently hosting documents for the benefit of URS . . . and AECOM in the 'BIA 03096-29_SR-91 AWJV database (the 'Database'). Credentials to access the Database were issued to attorneys at Pepper Hamilton. . . . No URS and AECOM employees or representatives have, or at any time had, access to the Database."
LaGuerre declared that, on July 6, 2017, "BIA was instructed to quarantine certain documents (the 'AW[] Share[]Site Documents'), so that Pepper Hamilton would not have access to them." He declared that, on July 7, BIA quarantined the AW[] Share Site documents "through item-level security within the hosted document review platform." BIA confirmed that no Share Site documents were accessible by Pepper Hamilton. LaGuerre declared: "Since July 7, 2017, no employee or representative of Pepper Hamilton has had any access to or ability to view any of the AW[] Share[]Site Documents hosted by BIA and no employee or representative of Pepper Hamilton has accessed or viewed those documents. Similarly, no employee or representative of URS or AECOM has accessed or viewed the AW[] Share[]Site Documents." According to LaGuerre: "BIA was subsequently instructed to destroy all of the AWJV Share[]Site Documents, and did so immediately. The AW[] Share[]Site Documents are no longer located or available on BIA's database."
In its reply papers, AW argues the evidence presented by URS/AECOM does not competently establish it complied with the July 26 order and conflicts with prior representations made to the trial court by Pepper Hamilton attorneys. The Hack, Raygoza, and LaGuerre declarations establish, with sufficient specificity: (1) by July 7, 2017, the Share Site folders had been deleted from Pepper Hamilton's internal server; (2) by July 7, 2017 the Share Site documents hosted by BIA were no longer accessible to Pepper Hamilton or to any employee or representative of URS/AECOM; and (3) by September 5, 2017 (the date of LaGuerre's declaration), the Share Site documents hosted by BIA had been deleted from BIA's database. AW has not presented any evidence with its motion to dismiss the appeal to contradict URS/AECOM's declarations or to show lack of compliance with the July 26 order.
The declarations are not inconsistent with prior representations from counsel. When viewed in context, counsel's comments at the July 26, 2017 hearing about awaiting a court order to destroy documents were made in reference to the Share Site documents hosted by BIA. The folders of the Share Site documents had been deleted from Pepper Hamilton's internal server on July 6, 2017. At the time of the hearing on July 26, the Share Site documents (hosted by BIA) had not been destroyed. Counsel's representation was therefore accurate, and consistent with Raygoza's declaration, because counsel was referring to the Share Site documents hosted by BIA, not the folders on Pepper Hamilton's internal server. Representations made by Pepper Hamilton on July 13, 2017 that it had quarantined the documents received from the mediation were consistent with Raygoza's declaration that the documents folders on Pepper Hamilton's server had been destroyed on July 6, and with LaGuerre's declaration that, on July 7, BIA had quarantined the Share Site documents.
The Confidentiality Agreement has no provision regarding return, deletion, or destruction of documents, and the trial court did not order destruction of the Share Site documents hosted by BIA until the hearing on July 26, 2017. AW points out that LaGuerre's declaration did not identify the date on which the Share Site documents were deleted from BIA's database. Because the motion to dismiss the appeal was filed on August 17, 2017, and LaGuerre signed his declaration on September 5, AW argues it is possible, if not likely, the documents on BIA's database were deleted only in response to the motion. It may well be that URS/AECOM or Pepper Hamilton should have destroyed the Share Site documents hosted by BIA sooner than it did after the trial court made its order. But, after balancing the equities (Stoltenberg, supra, 215 Cal.App.4th at p. 1230), we conclude that dismissal of the appeal is not an appropriate remedy if in fact URS/AECOM waited to destroy those documents until after AW brought the motion to dismiss the appeal.
II.
Standard of Review
"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." (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143-1144 (SpeeDee Oil).)
III.
Background Law
"A trial court's authority to disqualify an attorney derives from the power inherent in every court '[t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.' [Citations.] 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." (SpeeDee Oil, supra, 20 Cal.4th at p. 1145.)
Attorney disqualification cases typically fall into one of two categories: (1) successive representation by an attorney of a former and of a current client (e.g. SpeeDee Oil, supra, 20 Cal.4th at pp. 1145-1146; see Lynn v. George (2017) 15 Cal.App.5th 630, 636-638); and (2) inadvertent disclosure to opposing counsel of privileged or confidential communications (McDermott Will & Emory LLP v. Superior Court (2017) 10 Cal.App.5th 1083, 1119-1120 (McDermott)).
This is not a successive representation case. Nor is this, strictly speaking, an inadvertent disclosure case: AW voluntarily and willingly uploaded documents and information onto the Share Site. Nonetheless, the principles governing disqualification for inadvertent disclosure are helpful to our analysis. They are as follows: "Protecting the confidentiality of communications between attorney and client is a fundamental principle of our judicial process and an opposing attorney who breaches that principle may be disqualified from further participation in the litigation." (McDermott, supra, 10 Cal.App.5th at pp. 1119-1120.) "'[D]isqualification is proper as a prophylactic measure to prevent future prejudice to the opposing party from information the attorney should not have possessed'; an affirmative showing of existing injury from the misuse of privileged information is not required." (Id. at p. 1120.) An attorney who inadvertently receives confidential material and fails to undertake the necessary steps to determine whether they are confidential and must be returned may be disqualified if there is a genuine likelihood that the misconduct of the attorney will affect the outcome of the court proceedings. (Ibid.) Disqualification is appropriate "'where, as a result of a prior representation or through improper means, there is a reasonable probability counsel has obtained information the court believes would likely be used advantageously against an adverse party during the course of the litigation.'" (Ibid.)
Receipt of confidential information during mediation is not in itself enough to justify disqualification of counsel. (Dino v. Pelayo (2006) 145 Cal.App.4th 347, 357 [a party may not obtain disqualification of an attorney jointly representing the opposing parties based solely on their participation in confidential mediation]; Barajas v. Oren Realty & Development Co. (1997) 57 Cal.App.4th 209, 211 ["an attorney who mediates one case is generally not disqualified from litigating later cases against the same party"].) Mediations often fail and are followed by litigation with the same counsel who had access to confidential information disclosed during the mediation. Had Cox Castle, which appeared at the mediation sessions on behalf URS/AECOM, appeared in the litigation as counsel for URS/AECOM, Cox Castle would not have been subject to a motion to disqualify based solely on its role in the mediation. Nor would Pepper Hamilton be subject to disqualification merely for having access to confidential information obtained during the course of mediation.
The difference here is the presence of the Confidentiality Agreement, which restricts the right of access to and use of the Share Site documents and information. Thus, we review the disqualification order to address whether Pepper Hamilton accessed or used the Share Site documents and information in violation of the Confidentiality Agreement. If Pepper Hamilton breached the Confidentiality Agreement by accessing without authorization or by misusing the Share Site documents and information, the situation would be no different than if AW had inadvertently disclosed them; i.e., Pepper Hamilton would have documents and information it would not be entitled to have. If Pepper Hamilton did not breach the Confidentiality Agreement there would be no grounds for disqualification.
IV.
Disqualification Is Unwarranted Because Pepper
Hamilton Has Not Violated the Confidentiality
Agreement.
Paragraph 3 of the Confidentiality Agreement states the parties created the Share Site "[a]s part of the mediation process" and "for [the] purpose of facilitating and preparing for the planned mediation." The final sentence of paragraph 3 states, "It is understood and agreed that parties may disclose the information and documents contained on the Site to outside counsel, insurers, experts, consultants or subcontractors subject to the limitations above." (Italics added.) The Confidentiality Agreement does not define the term outside counsel. Paragraph 3 neither identifies outside counsel by name nor limits outside counsel to counsel who physically appear at the mediation sessions. The Confidentiality Agreement did not require the parties to disclose the identity of outside counsel who are given access to the Share Site.
In interpreting a contract, we accord its words and terms their usual and ordinary meaning. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) The term outside counsel plainly means counsel that is not in-house counsel. (Cf. McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378, 383 [corporate "outside counsel" is an "extracorporate third party"].) Pepper Hamilton is outside counsel under that definition and, as such, documents and information from the Share Site could be disclosed to it, subject of course, to the restrictions on their use and disclosure (facilitating settlement or mediation only).
URS/AECOM presented evidence it had sought advice from Pepper Hamilton regarding AW's claims about a year before the first mediation session and, in January 2017, specifically had asked Pepper Hamilton to advise on mediation with AW. According to URS/AECOM, it asked Hack of Pepper Hamilton to attend the mediation session on March 8, 2017, but a scheduling conflict prevented her from doing so. The trial court found, however, that Pepper Hamilton apparently "will be litigation counsel for URS and AECOM." URS/AECOM describes the distinction between mediation counsel and litigation counsel as a "false dichotomy." We believe the distinction is simply irrelevant: The issue under the Confidentiality Agreement is whether Pepper Hamilton was outside counsel.
Because Pepper Hamilton was outside counsel, it did not wrongly possess the Share Site documents and information. AW presented evidence it at least twice demanded Pepper Hamilton return the Share Site documents and information, and Pepper Hamilton refused to do so. However, the Confidentiality Agreement makes no provision for the return or destruction of the Share Site documents and acknowledges "the mediation process may continue after the mediation hearing or hearings." In her April 4, 2017 letter, Hack made those points in rejecting AW's demand for the return of the Share Site documents and information. Her assertion the information shared in the mediation continued to be protected and restricted in use was accurate. Thus, while the Confidentiality Agreement imposed no obligation on Pepper Hamilton to return or destroy the Share Site documents, those documents remained subject to restrictions on disclosure and limitations on use.
The Confidentiality Agreement states all documents and information accessed through the Share Site "are for the sole purpose of settlement and mediation," requires all information accessed through the Share Site be kept confidential, and states "all such confidential information shall not be reproduced, distributed, or disclosed unless it is for the limited purpose of facilitating settlement and/or mediation." The trial court found that Pepper Hamilton violated the Confidentiality Agreement by using the Share Site documents and information in preparing the complaint against AW and in furtherance of the litigation.
We review the trial court's finding under the substantial evidence standard. (SpeeDee Oil, supra, 20 Cal.4th at p. 1144.) Under the substantial evidence standard, we examine the entire record in the light most favorable to the judgment to determine whether there is evidence that is reasonable, credible, and of solid value to support the judgment. (Ferguson v. Yaspan (2014) 233 Cal.App.4th 676, 682.) In undertaking that task, we resolve all conflicts in the evidence in favor of the judgment, we do not reweigh the evidence, and we are bound by the trial court's credibility determinations. (Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, 613.)
AW identifies the following evidence as supporting the trial court's finding that Pepper Hamilton misused the Share Site documents and information:
1. URS/AECOM did not disclose to AW any involvement by Pepper Hamilton in the mediation until after the second mediation session on March 8, 2017. On March 10, URS/AECOM sent an e-mail to AW stating URS/AECOM had retained "new counsel," which a few days later was revealed to be Pepper Hamilton.
2. Soon after the Share Site documents and information were turned over to URS/AECOM and Cox Castle, and the day after second mediation session, Pepper Hamilton, representing URS, filed a complaint against AW.
3. AW twice demanded that Pepper Hamilton return the Share Site documents and information. Pepper Hamilton twice refused.
4. Hack's April 4, 2017 letter stated: "There is simply no reason for the parties to incur the expense of the return of the documents or suffer the delay in understanding and evaluating each other's claims in light of the foregoing as well as the parties' continuing efforts to mediate the matter." The trial court found, and AW asserts, this passage demonstrates that Pepper Hamilton was using the Share Site documents and information for litigation purposes.
5. AW's April 14, 2017 letter to Pepper Hamilton stated: "URS freely accessed information from the shared site, sought even greater access shortly before the March mediation, participated in the mediation, and seemingly fully endorsed continued participation, all the while having made arrangements to retain new counsel and to prepare a lawsuit for immediate filing. This strongly suggests that URS utilized the mediation process to obtain information with no genuine interest in resolving the dispute or any part of it." Pepper Hamilton did not respond.
AW argues the trial court could draw the reasonable inference from this evidence that Pepper Hamilton used the Share Site documents and information in violation of the Confidentiality Agreement. We do not agree. The fact Pepper Hamilton filed the complaint against AW after the second mediation session and after AW had uploaded documents to the Share Site does not mean Pepper Hamilton used those documents in preparing the complaint. URS's complaint against AW was barebones and dealt only with URS's claims for lack of payment. URS's complaint does not refer to or rely on any documents exchanged in the mediation process, which dealt only with AW's claims for design errors and delay. To say that Pepper Hamilton used the Share Site documents and information in preparing the complaint against AW is too much of a stretch to justify disqualification.
We note that Hack declared she did not review any of the Share Site documents, the complaint against AW did not rely on any documents exchanged during mediation, and she "know[s] of no instance in which Pepper Hamilton has violated th[e] [Confidentiality] Agreement." The trial court was free, however, to disbelieve Hack and disregard her declaration. (Lohman v. Lohman (1946) 29 Cal.2d 144, 149; Blank v. Coffin (1942) 20 Cal.2d 457, 462.)
Nor does Pepper Hamilton's rejection of AW's demands to return the Share Site documents and information suggest Pepper Hamilton intended to misuse them. URS/AECOM had retained Pepper Hamilton as its counsel in the dispute with AW, including advice regarding the mediation. A third mediation session had been scheduled for June, and, even if URS's complaint against AW effectively cancelled that session, the Confidentiality Agreement states "the mediation process may continue after the mediation hearing or hearings." Hack wrote in her April 4 letter that "we believe that the mediation process is continuing, as expressly provided for in the Confidentiality Agreement." Thus, the only reasonable interpretation of Hack's April letter is, as URS/AECOM asserts, that return of the Share Site documents was unwarranted because they were needed to understand and evaluate the parties' claims for purposes of settlement or mediation. Of course, it would have been better for all concerned if Pepper Hamilton had promptly agreed to return the document as requested, but that is not the situation we are dealing with.
AW did not present any direct evidence Pepper Hamilton used the Share Site documents and information in violation of the Confidentiality Agreement. AW's interpretation of events expressed in the April 14, 2017 letter to Pepper Hamilton amounts to speculation.
Because Pepper Hamilton did not violate the Confidentiality Agreement, its situation is not different in any meaningful way from that of Cox Castle. Cox Castle's participation in mediation and its access to the Share Site documents and information would not in itself have disqualified Cox Castle from representing URS/AECOM in the litigation. If Cox Castle had prepared and filed the complaint against AW, we would not draw the inference from that chain of events alone that Cox Castle used the Share Site documents and information in violation of the Confidentiality Agreement. Without substantial evidence that Pepper Hamilton violated the Confidentiality Agreement, the disqualification order must be reversed.
DISPOSITION
The order granting the motion for disqualification is reversed. Appellant is entitled to recover costs on appeal.
FYBEL, J. WE CONCUR: ARONSON, ACTING P. J. THOMPSON, J.