SHEPPARD, MULLIN, RICHTER & HAMPTON v. J-M MANUFACTURINGAmicus Curiae Brief of Amici Legal ScholarsCal.December 13, 2016Case No. 8232946 SUPREME COURT COPY IN THE SUPREME COURT OF CALIFORNIA SHEPPARD, MULLIN, RICHTER & HAMPTON LLP.supREME COURT Plaintiff and Respondent, FILED DEC 13 2016 VS. Jorge Navarrete Clerk J-M MANUFACTURINGCO., INC., Deputy Defendant and Appellant. After an Order of the Court of Appeal, Second Appellate District, Division Four, Case No. B256314 The Superior Court of Los Angeles County, Case No. YC067332 The Honorable Stuart M.Rice, Presiding APPLICATION FOR LEAVETO FILE AMICUS CURIAE BRIEF IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP AND BRIEF OF AMICUS CURIAE LEGAL SCHOLARS SPERTUS, LANDES & UMHOFER LLP James W. Spertus (Bar No. 159825) Jennifer E. LaGrange (Bar No. 238984) 1990 S. Bundy Drive, Suite 705, Los Angeles, California 90025 Telephone: (310) 826-4700, Facsimile: (310) 826-4711 jim@spertuslaw.com, jennifer@spertuslaw.com Attorneys for Amici Legal Scholars RECEIVED DEC 2- 2016 CLERK SUPREME COURT Case No. 8232946 IN THE SUPREME COURT OF CALIFORNIA SHEPPARD, MULLIN, RICHTER & HAMPTONLLP, Plaintiff and Respondent, VS. J-M MANUFACTURINGCO., INC., Defendant and Appellant. After an Order of the Court of Appeal, Second Appellate District, Division Four, Case No. B256314 The Superior Court of Los Angeles County, Case No. YC067332 The Honorable Stuart M.Rice, Presiding APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP AND BRIEF OF AMICUS CURIAE LEGAL SCHOLARS SPERTUS, LANDES & UMHOFER LLP James W.Spertus (Bar No. 159825) Jennifer E. LaGrange (Bar No. 238984) 1990 S. Bundy Drive, Suite 705, Los Angeles, California 90025 Telephone: (310) 826-4700, Facsimile: (310) 826-4711 jim@spertuslaw.com, jennifer@spertuslaw.com Attorneys for Amici Legal Scholars TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES 0.0...seseecesesesssceeeeesseseseesensneeenaas il APPLICATION FOR LEAVETO FILE AMICUS CURIAE BRIEF IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP AND BRIEF OF AMICUS CURIAE LEGAL SCHOLARS. 0... .ceeeeceeeceseeeeeee 1 BRIEF OF AMICUS CURIAE LEGAL SCHOLARS IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLPou...ieee ceccccesseeeeceessssseeseeseneeesessaesenees 3 I. INTRODUCTION...eeeeesecesseecssecsescessesceesassecssnesssaeeesues 3 Tl. DISCUSSIONoeeee seeseeesseeceseeseesseseeeessesesssreeseeeesnees 4 A. Courts Should Consider A Client’s Sophistication AndIndependent Representation In Evaluating The Validity And Enforceability Of Conflict Waivers........... 4 B. A Waiver OfUnrelated-Matter Conflicts Should Not Be Conditioned On Disclosure Of Client Identities. ....... 7 C. Inflexible Conflict Waiver Rules Negatively Impact The Cost And Availability Of Legal Services. .............. 10 TH. CONCLUSION......ccc ceecccccescecseesceceseeceseeessseeeeesnseeseeesseeesaes 12 EXHIBIT A ooo. cccccccsccsceessececeesnceceeccsecsaceseaceseeeeesssaeeesestesseesseeseaes 13 TABLE OF AUTHORITIES PAGE Galderma Laboratories v. Actavis MidAtlantic LLP (N.D. Tex. 2013) 927 F. Supp. 2d 390...eeeeeceseeeeeeseseeeeseeenenees 5 Cal. Bus. & Prof. Code § 6068 20.0.0... eeeeseecceseeeesesseeeeeeesseenseeeeereas 7,8 Cal. Rules of Prof?] Conduct r. 3-100...cccccccsseeceeceeecesteeeseeeeenes 7,8 Cal. Rules of Prof'l Conduct r. 4-200 00... ee ee eeeseeessseeeeeeeseeeeeeeeesenees 10 ABA ModelRulesofProf] Conduct r. 1.5 ooeeeeeeeseeeseeeeeeees 10 ABA Model Rules of Prof] Conduct r. 1.6...eeeee eeceseceeesteeeeenees 8 ABA Model Rules of Prof] Conduct r. 1.7 eeecece eeeeeseceeeneneeeeeees 4 Cal. State Bar Standing Comm.on Prof?! Responsibility & Conduct, Formal Op. No. 2007-173...eee 8 ABA Comm.on Ethics & Prof’! Responsibility, Formal Op. 05-436... cseeecessseeesceeeseeeseeseeeseceseceseecesaasensesessseeceaeensees 4 ABA Comm.on Ethics & Prof’! Responsibility, Formal Op. 93-372 .....cecssccescessceesceseeseeeecscesecsecenseeesseeserssneeesaeeaeeanes 4 ABA Comm.on Ethics & Prof’] Responsibility, Informal Op. 1287 (1974)... eeeeeesseeseeeseeesseeesseeeecesseessseseaesnaeeesees 8 RESTATEMENT(THIRD) OF THE LAW GOVERNING LAWYERS§ 122...... 5 Richard W. Painter, Advance Waiver ofConflicts, 13 GEO. J. LEGAL ETHICS 289 (2000)........ceeeeeececeesssecsseeteeeeeereesnees 5 ii Case No. 8232946 IN THE SUPREME COURT OF CALIFORNIA SHEPPARD, MULLIN, RICHTER & HAMPTONLLP, Plaintiff and Respondent, VS. J-M MANUFACTURINGCO., INC., Defendant and Appellant. APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP Pursuant to California Rule of Court 8.520(f), the individuals identified on Exhibit A (Amici Legal Scholars) respectfully request leaveto file the accompanying amicuscuriae brief in support of Plaintiff-Respondent Sheppard, Mullin, Richter & Hampton LLP. Amici Legal Scholars are individuals who teach and write in the field of professional responsibility and legal ethics. This case raises important questions about the validity and enforceability of general waivers of unrelated-matter conflicts, specifically the level of disclosure required to render consent to such waivers “informed” and whether lawyers and law firms may properly obtain such waivers while also complying with their ethical obligations to maintain client confidentiality. Amici Legal Scholars believe their viewswill assist the Court in resolving this case by __ presenting concerns from the perspective of the academic community. Pursuant to California Rule of Court 8.520(f)(4), the undersigned represents that no party or counsel for a party in the pendinglitigation authored this brief in whole or in part, or made a monetary contribution to fund preparation or submission ofthis brief, and no personorentity other than Amici Legal Scholars and the - undersigned made a monetary contribution to fund preparation or submission ofthis brief. Dated: December 2, 2016 Respectfully submitted, SPERTUS, LANDES & UMHOFER LLP Jennifer E. LaGrange Attorneys for Amici Legal Scholars BRIEF OF AMICUS CURIAE LEGAL SCHOLARSIN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP I. INTRODUCTION Amici Legal Scholars respectfully request that this Court reverse the Court ofAppeal decision and recognize the validity and enforceability of the conflict waiverin this case. Amici Legal Scholars submit that the following considerationsare vital to the Court’s decision: 1. The level of disclosure required to render consent “informed”is substantially less when clientis sophisticated and represented by independent counsel during negotiation of the conflict waiver; 2. An informed consent to general waivers of unrelated-matter conflicts, such as the one here, need not require lawyers or law firms to disclose the confidential information oftheir other clients; and 3. General waivers of unrelated-matter conflicts, such as the one here, help reduce the cost of legal services and provide lawyersand law firmsflexibility to represent clients ofall means—large, modest, and pro bono. Amici Legal Scholars are concernedthatrigid client conflict rules that attorneys cannot address through informed waivers will accelerate a worrisome trend in which the most prominent law firms, as & well as firms that specialize in particular practice areas, represent the largest clients and decline representation for other clients and pro bono clients, some ofwhich maybe unableto find representation. Amici Legal Scholars do not believe that precluding sophisticated or represented clients from waiving conflicts in unrelated matters is worth denyingclients the ability to be represented by counsel of choice. I. DISCUSSION A. Courts Should Consider A Client’s Sophistication And Independent Representation In Evaluating The Validity And Enforceability Of Conflict Waivers. Amici Legal Scholars are concerned because the Court of Appeal’s decision does not give due weightto a client’s sophistication or independent representation in evaluating the validity and enforceability of conflict waivers. The American Bar Association is somewhatskeptical of general, open-ended, advance waivers but recognizes that waivers involving sophisticated clients or clients represented by independent counsel during negotiation of a conflict waiver should betreated differently: [I]f the client is an experienceduser ofthe legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consentis more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consentis limited to future conflicts unrelated to the subject of the representation. Model Rules of Prof?! Conduct r. 1.7 cmt. 22; see also ABA Comm. on Ethics & Prof] Responsibility, Formal Op. 05-436 (restating same and withdrawing ABA Comm.on Ethics & Prof’] Responsibility, Formal Op. 93-372, which was morerestrictive towards advance waivers); see generally Richard W. Painter, Advance Waiver of Conflicts, 13 GEO. J. LEGAL ETHICS 289 (2000). The Restatement takes a similar approach, approving of“a client’s open-ended agreementto consentto all conflicts” if the “client possesses sophistication in the matter in question and hashad the opportunity to receive independent legal advice about the consent.” RESTATEMENT(THIRD) OF THE LAW GOVERNING LAWYERS§ 122, cmt d; see also Galderma Labs. v. Actavis Mid Atlantic LLP (N.D. Tex. 2013) 927 F. Supp. 2d 390, 403 (“Whenthe client has the benefit of its own lawyer, who is bound by and familiar with the sameethical obligations of the lawyers seeking a waiver, less disclosure is needed to reveal to the independent counsel andits client the consequences of agreeing to the proposed waiverof future conflicts.”). In this case, the Court of Appeal recognized that J-M was represented by independent counsel during negotiation of the conflict waiver with Sheppard Mullin, but did not give this fact or J-M’s sophistication any weight in analyzing the validity and enforceability of the conflict waiver. Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co. (2016) 244 Cal. App. 4th 590, 599-600, 608-13. Amici Legal Scholars respectfully submit that courts should consider client’s sophistication and independent representation in analyzing the validity and enforceability of conflict waivers. Sophisticated clients need less information and explanation than other clients; and the most useful tool for protecting clients against overreach by lawyers is the advice of independent lawyers. Anyrule that does not recognize this ignores businessrealities, imposes cumbersome andunnecessary disclosure requirements, and perversely provides no incentive for lawyers or law firms to suggest independent counsel’s review of a conflict waiver. Twoscenariosillustrate the problems with the Court of Appeal’s approach. In thefirst scenario, Company A, whichis a sophisticated multinational company, asks a law firm for representation. The law firm tells Company A’s General Counsel that, because of the prospect of a future conflict that the retention could generate, the law firm is not in a position to represent Company A. Company A’s General Counsel responds,“we understand the types of conflicts that mightarise in the future, but we really want you to represent us in this matter and we do not care about these kinds of conflicts, so long as they do notrelate to the subject on which weare asking you to represent us; and, therefore, we will gladly waive any such conflicts.” Under the Court of Appeal’s decision, the law firm would still need to decline and explain, “we are sorry, but the law doesnot allow you to waive these conflicts, no matter how much you wish to, and no matter how much you understand what you are doing.” This is true even if the law firm has the expertise, reputation, price or other desired features Company A needsin order to secure the best representation for its needs. In the second scenario, CompanyB, whichis a sophisticated multinational company,asks the law firm for representation. The law firm shortly informs Company B’s General Counsel that the law firm’s conflict check has revealed that one of the parties who will be adverse to CompanyB in the prospective representation is a current firm client on a wholly unrelated matter. The law firm either hasoris prepared to get informed consent to the conflict from that current client. But the current client’s matter is confidential. So, the law firm is not able to disclose any details about it or the current client’s identity to CompanyB in order to get a case-specific waiver. Asa result, the law firm will have to decline the case. Company B’s General Counsel responds, “we understandthe conflict issue, but we really want you to represent us in this matter and we do not care about these kinds of conflicts, so long as they do notrelate to the subject on which weare asking youto represent us; and, therefore, we will gladly waive that conflict without knowingthe identity of that current adverseclient.” Under the Court of Appeal’s decision, the law firm would again haveto say, “we are sorry, but the law doesnot allow you to waive these conflicts, no matter how much you wishto, and no matter how much you understand what you are doing.” In both scenarios, rules that are designedto help clients are actually harming them. Sophisticated companiesthat are represented by their own counselin negotiating waivers are decidedly not a group that needs—orbenefits from—paternalistic protection. B. A Waiver Of Unrelated-Matter Conflicts Should Not Be Conditioned On Disclosure Of Client Identities. Amici Legal Scholars are concerned because the Court of Appeal’s decision does not give due weight to the confidentiality of a client’s identity. Confidentiality of client information is one of the most importanttenets of legal ethics. Cal. Bus. & Prof. Code §6068(e)(1) (stating attorney’s duty to “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client”); Cal. Rules Prof] Conduct r. 3-100(A) (“A membershall not reveal information protected from disclosure by [section 6068(e)(1)] without the informed consentofthe client, or as provided in paragraph (B)[.]”); Model Rules of Prof] Conduct r. 1.6(a) (“A lawyershall not reveal informationrelating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).”). Clients seek representation on a confidential basis for a wide range ofreasons and a lawyer mustnot disclose the client’s identity withoutthe client’s informed consent. Cal. State Bar Standing Comm. on Prof’! Responsibility & Conduct, Formal Op. No. 2007-173 (“The client’s identity may ... be a client confidenceor secret protected by Business and Professions Code section 6068, subdivision (e) and rule 3- 100, or be deemed confidential information protected by the client’s Constitutional right of privacy.”); ABA Comm. on Ethics & Prof’! Responsibility, Informal Op. 1287 (1974) (“[T]he names, addresses and telephone numbersofclients of a Legal Services Office are secret within the meaning ofDR 4-101(A) since it might be an embarrassmentto the client for any numberofreasonsto haveit revealed that he wasa client ofthe Legal Services Office.”’). In this case, the Court of Appeal reasoned that the conflict waiver wasnot informed becauseit did not disclose to J-M Sheppard Mullin’s representation (whether prior or concurrent) of South Tahoe, by name, in an unrelated matter; instead, it contained general language allowing Sheppard Mullin to represent current or future clients adverse to J-M in unrelated matters. 244 Cal. App. 4th at 599-600, 610. The Court of Appeal’s reasoning does not give any consideration to whether prior or current clients have authorized disclosure oftheir identities, or whether prospective clients need or want the identity of prior or current clients before waiving conflicts in unrelated matters. It is easy to imaginea prior or current client that may not want its identity disclosed to other clients—e.g., a corporation seeking advice on a potential merger, someone inquiring about divorce, or someone seeking advice on a dispute with a current employer. It is equally easy to imagine a prospective client that cares more about obtaining the services of a specific lawyer or law firm, than whether the lawyer or law firm represents or will represent an adverse party in an unrelated matter—e.g., the client maystill want the lawyer or law firm because ofa pre-existing relationship, expertise, skill, or price. In light of ethical obligations, a lawyer or law firm cannot properly insist that all clients waive confidentiality over their identities simply to secure the lawyer’s or law firm’s ownability to negotiate conflict waivers. And withoutthe ability to negotiate waivers that do not disclose client identities, lawyers and law firms may be forced to decline representation on modestor pro bono matters to remain available for larger clients. For example, why would a law firm known for defending large banks represent bank customers in unrelated matters if the representation may threaten ongoing representation of a longstandingclient, to which it is loyal? More important than the lawyer’s or law firm’s profitability, however, is the denial of representation to the more modest or pro bonoclients who would otherwise have been able to secure representation by the lawyeror law firm. | Lawyers andlaw firms needthe flexibility that conflict waivers offer in order to provide representation to a broad baseofclients, including clients of modest means and pro bonoclients. Amici Legal Scholars respectfully submit that a rule prohibiting general waivers of unrelated-matter conflicts because they do not disclose the identities of prior or current clients cannot stand. C. Inflexible Conflict Waiver Rules Negatively Impact The Cost And Availability Of Legal Services. Amici Legal Scholars are concerned because the Court of Appeal’s decision does not give due weight to the value of general waivers of unrelated-matter conflicts in regulating legal fees and making representation available to clients of all means. Legal fees depend,in large part, on whethera particular engagementwill preclude a lawyeror law firm from representing otherclients. Cal. Rules Prof?! Conductr. 4-200(B)(4) (“Amongthe factors to be considered, where appropriate, in determining the conscionability of a fee are the following ... [t]he likelihood, if apparent to theclient, that the acceptance ofthe particular employmentwill preclude other employment by the member.”); Model Rules of Prof] Conduct r. 1.5(a)(2) (“The factors to be considered in determining the reasonablenessofa fee include ... the likelihood, if apparent to the client, that the acceptance ofthe particular employmentwill preclude other employment by the lawyer.”). 10 If representation of one client is likely to preclude a lawyer or law firm from representing a secondclient, for whatever reason, then the lawyer or law firm may beinclined to chargethefirst client more money to compensate for the lost opportunity. By extension, if one client asks the lawyeror law firm to keepits identity confidential, then the lawyeror law firm may be inclined to charge that client a premium to compensate for the inability to obtain a general waiver of unrelated- matter conflicts under the Court of Appeal’s decision. This is true even if a second client does not care about thefirst client’s identity. Notonly doesthis increase the cost of legal services, but it also decreases the availability of legal services to clients ofmore modest meansand pro bonoclients. Clients willing to pay more to protect their identities will generally get representation, while clients unwilling or unable to pay premiums musteither forego representation or give up their right to insist on confidentiality. Amici Legal Scholars respectfully submit that the ability of a lawyer or law firm to obtain a general waiver of unrelated-matter conflicts allows the lawyeror law firm flexibility in representing multiple clients ofall means—large, modest, and pro bono. 11 Ill. CONCLUSION For these reasons, Amici Legal Scholars respectfully request that this Court reverse the Court of Appeal decision and recognize the validity and enforceability ofthe conflict waiver here. Dated: December 2, 2016 Respectfully submitted, SPERTUS, LANDES & UMHOFER LLP , Spertus fer E. LaGrange Attorneys for Amici Legal Scholars 12 a y Andrew M.Perlman Exhibit A Amici Legal Scholars Suffolk UniversityDean and Professor ofLaw Law School Gregory Keating William T. Dalessi USC Gould School Professor ofLaw and ofLaw Philosophy Richard W.Painter S. Walter Richey Professor of Corporate Law University of Minnesota School of Law Robert W. Hillman Professor of Law, Fair Business University of California, Davis, Practices and School ofLaw Investor Advocacy Chair Stephen Gillers Elihu Root Professor New York ofLaw University School of Law W.Bradley Wendel Professor ofLaw Cornell Law School 13 CERTIFICATE OF COMPLIANCE The undersignedcertifies that this amicus curiae brief was produced using 14-point Times New Roman typestyle and contains approximately 2,327 words, including footnotes. In arriving at that estimate, the undersigned relied on the word count function of the computer program to prepare this document. . LaGrange CERTIFICATE OF SERVICE I, Jennifer E. LaGrange, declare as follows: I am employed in the County of Los Angeles, State of California, I am over the age of eighteen years and am not party to this action; my business address is 1990 S. Bundy Drive, Suite 705, Los Angeles, California 90025, in said County and State. On December2, 2016, I caused to be served the following documents: APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF IN SUPPORT OF SHEPPARD, MULLIN, RICHTER & HAMPTONLLP AND BRIEF OF AMICUS CURIAE LEGAL SCHOLARS on the parties stated below: Kent L. Richard Barbara W. Ravitz Jeffrey E. Raskin Greines, Martin, Stein & Richland LLP 5900 Wilshire Blvd., 12" Floor Los Angeles, CA 90036 Attorneys for Defendant and Appellant J-M Manufacturing Co., Inc. Kevin S. Rosen Theane Evangelis Bradley J. Hamburger Andrew G. Pappas Gibson, Dunn & Crutcher LLP 333 S. Grand Ave. Los Angeles, CA 90071 Attorneys for Plaintiff and Respondent Sheppard, Mullin, Richter & Hampton LLP Office of the Clerk of Court Los Angeles Superior Court 111 North Hill Street Los Angeles, CA 90012 Office of the Clerk of Court y| Court of Appeal Second Appellate District, Division Four 300 South Spring Street Los Angeles, CA 90013 BY MAIL,thatis, by placing a true copy in a sealed envelope addressed as indicated above, on the above-mentioned date. I caused to be placed such envelope for deposit in the U.S. Mail for service by the United States Postal Service, with postage thereon fully prepaid for service on the addressees listed above. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on December 2, 2016, in Los Angeles, California.
