LosAngelesLawyer Blame Game The
2002 Holiday Travel & Gift Guide LosAngelesLawyer DECEMBER 2002, VOL.25, NO.9 / $3.00 Los Angeles lawyer Steven R. Yee offers an antidote to malicious prosecution lawsuits page 20 The Blame Game EARN MCLE CREDIT The Duty of Confidentiality page 26 Attorney’s Fees in RICO Suits page 12 Shareholder Derivative Lawsuits page 16 Online Public Records page 38 You don’t need jetsetting clients from around the globe. You don’t need hundreds of research assistants. You just need one. Find out why so many small-firm attorneys are turning to lexisONE.comsm. Registration is FREE, it’s fast and you’ll get instant access to valuable information. Regardless of what research challenge you’re facing today, lexisONEsm can help. Need to search state or federal cases? lexisONE offers free case law. Need to thoroughly research a particular legal issue? lexisONE offers LexisNexis™ research priced by the day, week or month. 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Aon Insurance Solutions Sponsored by the Los Angeles County Bar Association • High quality insurance plans designed for your professional and personal needs • Comprehensive risk management program • Personalized attention from your local broker/administrator • Attorneys’ Advantage® Professional Liability Insurance • Businessowners Insurance • Workers Compensation Insurance • Small Commercial Auto Insurance • Personal Umbrella Liability Insurance • Homeowners Insurance • Auto Insurance • Life Insurance • Health Insurance • Long Term Care Insurance For more information on any Aon Insurance Solutions product or to complete a no-obligation application for quotation visit us online. Visit www.aonsolutions.com/ais6 Call 800-634-9177 • Fax 800-977-1112 CA License #0795465 4B0AQ002 page 20 Contents Los Angeles Lawyer departments The Magazine of the 12 Practice Tips The rule of proportionality in civil RICO suits By Michael J. Kump Los Angeles County Bar Association December 2002 Vol. 25, No. 9 16 Practice Tips The unique issues in shareholder derivative litigation By Charles J. Greaves cover 38 Computer Counselor Regulating the availability of public records online By Carole Levitt columns 10 Barristers Tips Using experts in patent litigation By Paul D. Tripodi II 44 Closing Argument A cloud over arbitration decision appeals By Rena E. Kreitenberg features 20 The Blame Game California’s anti-SLAPP statute may deliver the mortal blow to the disfavored tort of malicious prosecution 41 Classifieds 42 Index to Advertisers 43 CLE Preview Steven R. Yee is a partner in By Steven R. Yee 26 For Your Eyes Only the Pasadena office of Wolfe & California can clarify the confusion surrounding the law of Wyman, LLP, where he is the confidentiality with a new rule of professional conduct chair of the firm’s Professional By Mark L. Tuft Liability Department and Plus: Earn MCLE legal ethics credit. MCLE Test No. 111, sponsored by West, specializes in legal malpractice begins on page 30. litigation. In “The Blame Game,” he argues that the anti-SLAPP statute should be applied in malicious 35 Special Section prosecution actions. His article 2002 Holiday Travel & Gift Guide begins on page 20. Cover photo: Tom Keller page 26 LosAngelesLawyer Southland VISIT US ON THE INTERNET AT www.lacba.org/lalawyer E-MAIL CAN BE SENT TO [email protected] Knows You Better EDITORIAL BOARD Chair ABILIO TAVARES JR. (In Memoriam) With many financial institutions to choose from, it’s sometimes hard to determine who has your best interests in mind. While most offer competitive rates and a wide array of financial products, odds are you’ll just become another account number. At Southland Credit Union, everything we do revolves around our Members. How can you be sure? Because as a not-for-profit financial institution, we think of you first – we don’t have stockholders to worry about. 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Enjoy the benefits of a Southland Credit Union Membership today. For more information, go to www.southlandcu.org or call (800) 426-1917 for further assistance. We Do Business In Accordance With the Federal Fair Housing Law and the Equal Credit Opportunity Act SOUTHL AND CREDIT UNION Southern California’s Preferred Credit Union 4 LOS ANGELES LAWYER / DECEMBER 2002 Chair Pro Tem STEVEN HECHT Articles Coordinator JERROLD ABELES DANIEL L. ALEXANDER HONEY KESSLER AMADO LINDA A. BURROWS ROBERT J. COMER CHAD C. COOMBS KEITH E. COOPER ANGELA J. DAVIS HEATHER DAVIS KERRY A. DOLAN GORDON ENG JENNIFER E. FISHER JOSEPH S. FOGEL MICHAEL E. FOX STUART R. FRAENKEL JOHN M. GALLAGHER J. SUSAN GRAHAM DEAN HANSELL KATHERINE M. HIKIDA MAURICE SYLVAN KANE JR. JEFFREY ERIC LANGAN JOHN P. LECRONE HYACINTH E. LEUS PAUL MARKS PHILIP S. MILLER ELIZABETH MUNISOGLU RICHARD H. NAKAMURA JR. KAREN NOBUMOTO DENNIS PEREZ GERALD F. PHILLIPS EDWARD POLL GARY RASKIN JACQUELINE M. REAL-SALAS SUE CAROL ROKAW KURT L. SCHMALZ JACOB STEIN R. BRUCE TEPPER JR. PATRIC VERRONE MARIA D. VILLA JOEL B. WEINBERG STAFF Publisher and Editor SAMUEL LIPSMAN Senior Editor LAUREN MILICOV JOMIE Associate Editor ERIC HOWARD Art Director LES SECHLER Director of Design and Production PATRICE HUGHES Advertising Director LINDA LONERO Account Executive MARK NOCKELS Advertising Coordinator WILMA TRACY NADEAU Administrative Coordinator MATTY JALLOW BABY LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for a combined issue in July/August, by the Los Angeles County Bar Association, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213) 896-6503. Periodicals postage paid at Los Angeles, CA and additional mailing offices. Annual subscription price of $14 included in the Association membership dues. Nonmember subscriptions: $28 annually; single copy price: $3 plus handling. Address changes must be submitted six weeks in advance of next issue date. POSTMASTER: ADDRESS SERVICE REQUESTED. Send address changes to Los Angeles Lawyer, P.O. Box 55020, Los Angeles CA 90055. Copyright ©2002 by the Los Angeles County Bar Association. All rights reserved. Reproduction in whole or in part without permission is prohibited. Printed by Banta Publications Group, Liberty, MO. Member Business Publications Audit of Circulation (BPA). The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the Association or its members. All manuscripts are carefully considered by the Editorial Board. Letters to the editor are subject to editing. What’s the most efficient, cost-effective way to earn your California MCLE Credits? By earning all 25 of your MCLE credits online! 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The trademarks shown within are used under license. W-106553/9-02 NEUTRAL REAL ESTATE ARBITRATOR • More than 30 years experience as a real estate lawyer dealing with industrial, commercial, office and shopping centers including purchases, sales, leasing, ground leasing, financing, development, joint ventures, construction, real estate brokerage, title insurance, easements and protective covenants. • 18 years as counsel to the forms committee of the American Industrial Real Estate Association, publishers of the AIR lease and purchase forms. • Real estate law and ADR lecturer on programs sponsored by the Arthur Mazirow California State Bar, the extension divisions of UCLA, UCI, USCB and various educational and realty organizations. PENTHOUSE SUITE 1200, 3415 SEPULVEDA BOULEVARD, LOS ANGELES CA 90034-6060 PHONE: 310-255-6114 • FAX: 310-391-4042 • E-MAIL: [email protected] • www.ffslaw.com LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF THE LOS ANGELES COUNTY BAR ASSOCIATION 261 South Figueroa Street, Los Angeles, CA 90012-2503 Telephone 213/627-2727 Visit us on the Internet at www.lacba.org ASSOCIATION OFFICERS: President MIRIAM ARONI KRINSKY President-Elect ROBIN MEADOW Senior Vice President JOHN J. COLLINS Vice President EDITH R. MATTHAI Assistant Vice President BERNARD E. LESAGE Assistant Vice President DANETTE E. MEYERS Treasurer CHARLES E. MICHAELS Executive Director RICHARD WALCH BOARD OF TRUSTEES STEPHEN P. AJALAT DAVID B. BABBE BARBARA J. BACON LINDA D. BARKER ELIZABETH M. CALCIANO SCOTT W. CARLSON FRANK W. CHEN RICHARD E. DROOYAN MICHAEL S. FIELDS ERNESTINE FORREST CRISTINA E. PEREZ GONZALEZ LYLE F. GREENBERG DANIEL GRUNFELD RITA GUNASEKARAN BRIAN S. KABATECK JEFFREY G. KICHAVEN DENA A. KLEEMAN JOEL W.H. KLEINBERG PHILIP H. LAM LAWRENCE E. LEONE JAMES C. MARTIN GRETCHEN M. NELSON JENNIFER F. NOVAK DOUGLAS WILSON OTTO LISA K. KIM PAI ANN I. PARK AMY M. PELLMAN KENNETH G. PETRULIS MARGARET P. STEVENS MARIA E. STRATTON IVAN TETHER COMM'R MELISSA N. WIDDIFIELD AFFILIATED BAR ASSOCIATIONS BEVERLY HILLS BAR ASSOCIATION BLACK WOMEN LAWYERS ASSOCIATION OF LOS ANGELES, INC. CENTURY CITY BAR ASSOCIATION CONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELES CULVER/MARINA BAR ASSOCIATION EASTERN BAR ASSOCIATION OF LOS ANGELES COUNTY GLENDALE BAR ASSOCIATION ITALIAN AMERICAN LAWYERS ASSOCIATION OF LOS ANGELES COUNTY JAPANESE AMERICAN BAR ASSOCIATION OF GREATER LOS ANGELES JOHN M. LANGSTON BAR ASSOCIATION KOREAN AMERICAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA LAWYERS’ CLUB OF LOS ANGELES COUNTY LHR: THE LESBIAN AND GAY BAR ASSOCIATION LONG BEACH BAR ASSOCIATION MEXICAN AMERICAN BAR ASSOCIATION PASADENA BAR ASSOCIATION SAN FERNANDO VALLEY BAR ASSOCIATION SAN GABRIEL VALLEY BAR ASSOCIATION SANTA MONICA BAR ASSOCIATION SOUTH ASIAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA SOUTH BAY BAR ASSOCIATION OF LOS ANGELES COUNTY SOUTHEAST DISTRICT BAR ASSOCIATION SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION WHITTIER BAR ASSOCIATION WOMEN LAWYERS ASSOCIATION OF LOS ANGELES 6 LOS ANGELES LAWYER / DECEMBER 2002 Is A Malpractice Insurance Crisis Looming In Your Horizon? Are You Ready? 11 carriers have withdrawn from the California market. Will your carrier be next? The changes in the marketplace are troubling. It is an unknown future. Non-renewals are commonplace. Some carriers can’t secure sufficient reinsurance to operate their professional liability programs. A major carrier was recently declared insolvent. Other carriers have been downgraded by A.M. Best. Severe underwriting restrictions are now being imposed. Dramatic rate increases are certain. It’s all very unsettling. Be Prepared. Be Informed. Lawyers’ Mutual Policyholders Are. CHECKLIST You owe it to yourself to find the answers to these critical questions! Will your carrier still be writing professional liability policies in California at your next renewal? Will your carrier impose a substantial rate increase at your next renewal due to unstable market conditions? Will your carrier continue to insure “your type” of practice at your next renewal? Will your carrier leave the marketplace because they can’t secure sufficient reinsurance for their professional liability program? Will your carrier offer you a tail of unlimited duration if they decide to leave the market? Our policyholders don’t need to worry about these questions. Do you? Secure Your Future. Insure With Lawyers’ Mutual. Investigate Lawyers’ Mutual. Call us directly at (800) 252-2045. Find us at www.lawyersmutual.com Email us at [email protected] LAWYERS’ MUTUAL INSURANCE COMPANY 134 N. Kenwood Street Burbank, CA 91505-4263 from the chair By Steven Hecht continuing inventory of each member’s artiidserve at match point, and one of cles in various stages of development and my Los Angeles Lawyer friends yells topics for future articles, with the chair calla comment across the tennis court ing the roll. With only slightly less verve than about a recent From the Chair column. It is traders on the floor of a commodities futures always nice to hear from someone among exchange, when called on we cry out, “Good our 22,000-plus circulation, although not at the concept, weak or strong first expense of a blistering ace of a Steven Hecht draft, second draft due next winner. Off the court, I often get practices transweek, final in” and the like. We questions about past articles and actional business always stay calm. The articles issues, suggestions for future law on the Westcoordinator, who serves with the ones, and interest shown in the side. He is the chair chair for the bar year and who people involved in doing the pro tem of the sits expectantly if not patiently work of the magazine and also 2002-03 Los Angeles for that year at the chair’s left, the reasons why we do it. Lawyer Editorial keeps score. About a year ago I wrote in Board. We do ask that each member this column about our nine-peractively develop ideas for artison professional staff and the cles, suggest or locate authors, terrific job they do. But publishand each year edit at least three articles. We ing this magazine is a collaborative process let our new members have some time to setinvolving an Editorial Board of volunteers. tle in. Past chairs frequently remain on the During my first year as chair, I wanted to board, and their acquired knowledge helps share my thoughts about the Editorial Board, maintain the board’s poise and the magabut I ran out of From the Chair columns. zine’s quality. Editing is a skill that takes time Now I have the opportunity. to master. Few of us do, but our past chairs are This editorial year there are 41 of us on the very good and, of course, we have our proboard sharing common entry criteria: We fessional editors, who apply a final editorial are attorneys, dues-paying members of the polish to the articles that are published in Los Angeles County Bar Association, and the magazine. self-selected volunteers. Each spring the Editorial board members may not have Association circulates among its member41 different reasons for their efforts, but ship a list of committees and other activities there may be a few they have in common. for which a member may volunteer. So, at Each month there is a product, often a very some point in the past, each of the current good one, for which we feel pride and satisboard members selected Los Angeles Lawyer faction. There is a continuing professional magazine as a bar activity. We do prefer new challenge in producing the best possible artiboard members who have had several years cles. There is hopefully some fun in the of active practice, and we try to cover as many monthly meetings and the friendships develpractice disciplines as possible. (We are oped. We even get to try our hands at being chronically thin in a couple of areas: plaintiff’s creative. Sometimes the Editorial Board dispersonal injur y attor neys and criminal cusses policy issues or points of law, and I defense attorneys.) The Editorial Board is often think what a wonderful opportunity it is not a tough club to join. However, it is a bit to be with so many smart, articulate, and tougher to stay because we do ask for dues— thoughtful people. in the form of active participation. The feeling of working with the Los Angeles The Editorial Board meets 12 times a year, Lawyer Editorial Board is matchless, like hitand we ask each member to attend a reating a clean winner. It is not always easy to be sonable number of these meetings. At our chair, but there is always an ease in working monthly meetings, we review a calendar of with the Editorial Board. This chair has no future issues and monitor the progress of gavel. articles scheduled for publication. Each member reports on the status of articles for which the member is responsible. We also review a M 8 LOS ANGELES LAWYER / DECEMBER 2002 L EXISN EXIS AND THE L OS A NGELES C OUNTY B AR A SSOCIATION WORKING TOGETHER TO SUPPORT THE LEGAL PROFESSION NO M AT T E R W H AT T H E S I Z E O F YO U R F I R M , YO U G A I N S T R E N G T H I N N U M B E R S AS A MEMBER OF THE L OS A NGELES C OUNTY B A R A S S O C I AT I O N . Count on gaining not just the support of the Los Angeles County Bar Association, but LexisNexis as well. By working together, we’re able to offer special benefits to members of the Los Angeles County Bar Association. We realize that the strength of your research is one of your biggest professional advantages. Now putting the best research on the table is easier because LexisNexis offers a selection of online research packages exclusively through the Los Angeles County Bar Association. You can choose from bar member flat rates or pay as you go. New attorneys get a real break right when they need it the most with discounts up to 75% for their online subscriptions. Check out our Special Bar Member Benefits by calling 866.836.8116. See how we make the numbers count. LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc., used under license. © 2002 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. AL4460 barristers tips By Paul D. Tripodi II Using Experts in Patent Litigation The success or failure of patent litigation can hinge upon the selection and use of experts he outcome of patent litigation is often determined by the technical expertise of testifying experts and nontestifying consultants. As a result, selection and proper use of technical experts can cost either party its competitive advantage and, ultimately, its livelihood. Given this importance, it is quite surprising how little planning and consideration sometimes goes into the selection and retention of technical experts. The Federal Rules of Civil Procedure distinguish between testifying experts and consultants. It is generally accepted that Rule 26 does not require the disclosure of the identity of consultants in response to an opponent’s interrogatory and generally precludes discovery from such consultants, absent some showing of special need. As a practical matter in patent cases, however, disclosure of consultants is often necessary under the provisions of the applicable protective order so that a consultant may be given access to the adversary’s confidential information. Nevertheless, the distinction between testifying expert and consultant remains important and may permit a party to prevent discovery from the consultant or at least delay any disclosure until a decision has been made that a consultant will testify as an expert. Practitioners should keep this distinction in mind when characterizing the relationship and obligations established in retainer agreements and in correspondence with the consultant. T Hire Early Whenever possible, the patent owner should hire early, which generally means even before filing. That way, the plaintiff can ensure that its first choice of expert (who may be the only good choice in a given field) is available and under contract. Sometimes, a prefiling inquiry may reveal complications in the expert’s schedule—class assignments, forthcoming expiration of a noncompete agreement, or a sabbatical—that may influence the timing of suit. Another reason to hire early is that some of the technical expert’s most important work may take place prior to filing. For example, a thorough assessment of claim interpretation, likely validity challenges, and infringement can be more fruitful with the assistance of a consultant who has particularized knowledge and experience. Interaction with an informed expert may also provide the client and counsel with a theoretically impartial view of the case or bring complicating prior art to light before the litigation commences. In many cases, a technical consultant from outside the company may also have information about relationships within the relevant industry that may affect the client’s decisions regarding who and where to sue. The actual inventors of the patent-in-suit are often asked to serve as expert witnesses at trial. Thus, the patent owner should ensure that each inventor is either still employed by the patent owner or retained 10 LOS ANGELES LAWYER / DECEMBER 2002 as a consultant. Again, these arrangements should take place before filing. Otherwise the patentee may be surprised to find that the accused infringer has retained one or more of the inventors. Even if the inventors are still employees of the patent owner, it may be useful to establish agreements that will ensure their cooperation and availability in the event that they leave the company during the oftenlengthy pendency of litigation. If the case is brought by a third party (such as an exclusive licensee), this may be particularly important. For the defendant, one of the highest priorities following receipt of the complaint should be an identification of potential experts. Wherever possible, the accused infringer should seek to interview and, if appropriate, retain any of the former-employee inventors as consultants. In doing so, be aware that certain employment agreements may be broad enough to prohibit any potential consultant, including inventors, from using confidential information outside of their original employment relationship. Selection Criteria Of the many criteria that should be considered in the selection of an expert in litigation, a few patent-specific strategies deserve mention. For either party in patent litigation, it is often advantageous to have the inventor from the closest prior art patent as a consultant. For the plaintiff, prior inventors may be able to tell a convincing story about the tremendous advance facilitated by the patent-in-suit. For the defendant, earlier inventors may be able to minimize the value of the patentee’s contribution to the art. Clearly, such prior inventors may be predisposed to offer one opinion over the other. It is counsel’s job to determine the best way to utilize these prior inventors. Given the life span of a patent, care should be taken to ensure that the expert is old enough to have been an expert at the time that the invention was made. Otherwise, opposing counsel may revel in making the jury aware that the proffered expert was in junior high school at the time of the invention. In selecting an expert, counsel also should consider whether it is more likely at trial that a given expert will actually explain the technology or simply offer a Paul D. Tripodi II is a highly qualified, but unintelligible, opinpartner at Knobbe, ion. In the case of the former, it is often Martens, Olson & best to concentrate more on communiBear. cation skills and less on credentials. Indeed, some commentators say that jurors forget the expert’s qualifications after the first five minutes of his or her testimony. If you have any concerns, spend the day in a conference room with the potential expert and monitor his or her performance. Never neglect due diligence. The last thing any lawyer wants is to discover that an expert has lied about his or her credentials, given prior inconsistent testimony in another case, or characterized the patent-in-suit differently in one of his or her patents. At a minimum, counsel should attempt to review any patents obtained by the potential expert and conduct an investigation into the accuracy of the information appearing on the expert’s curriculum vitae. Counsel should also endeavor to perform a similar investigation concerning those items that will necessarily be disclosed under Rule 26, such as publications and testimony given in other litigation. When the worst happens, do not assume that the case cannot be saved. Rule 26(e) explicitly contemplates such disasters, instructing that the parties are under a duty to remedy materially incomplete or incorrect information provided to the opposing side by an expert. If this becomes necessary, consider substitution of the designated testifying expert with an alternative. If you have anticipated this difficulty, you may even have a prospective expert waiting in the wings. If the withdrawn exper t has not yet been deposed, it may be difficult for the opposing party to claim prejudice. Furthermore, in light of the objectives of Rule 26 in promoting fairness and preventing surprise at trial, this type of substitution may prevent your opponent from obtaining discovery from the withdrawn expert. Thus, you may find that what began as a bad situation can resolve itself into an acceptable one. Since issues relating to testing methodology, errors, or disagreements may evolve over time, consider the use of more than one technical expert. If they are retained preemptively, they may also prevent your opponent from retaining the top experts in the field. Finally, remember to honor the procedural distinction between consultant and expert. If the lawyer anticipates that a particular person is likely to be a testifying expert, care should be taken to limit disclosures to, and the documents or notes generated by, that person. Materials relating to early brainstorming, in particular, often prove to be menacing distractions once the case later coalesces around par ticular arguments and theories. A dearth of written materials, coupled with the limited capabilities of the human memory, can often eliminate case-damaging sideshows at depositions taken months or years later. ■ Quo Jure Corporation 1-888-MEMO-911 www.quojure.com [email protected] LAWYERS’ WRITING & RESEARCH When you can’t do it yourself, but you still need a brief or memo done—and done well, by experienced attorneys who are skilled writers—turn to Quo Jure Corporation. Quo Jure provides premium legal writing and research services to practicing attorneys. Our work has contributed to milliondollar settlements and judgments. Oppositions to motions for summary judgment are our specialty. Call for a free analysis and estimate. The Winning EdgeTM S AV E T H E D AT E ! LOS ANGELES COUNTY BAR ASSOCIATION Super Simple CLE Video Replay Convention January 2003 WEEKEND 1 ■ Thursday, January 9 ■ Friday, January 10 ■ Saturday, January 11 WEEKEND 2 - - - - - - REPEATS - - - - - - - ■ Earn CLE participatory credits— attend the convention on a Thursday, Friday, and Saturday. ■ Earn CLE self-study credits—buy audio tapes at our CLE Tape Store at the convention. No extra charge to attend replays for CLE+PLUS members ■ Thursday, January 16 ■ Friday, January 17 ■ Saturday, January 18 Los Angeles County Bar Association Continuing Legal Education gratefully acknowledges the sponsorship of Aon Direct Insurance Administrators, LexisNexis, and AT&T Wireless in helping make the Super Simple CLE WEEKEND 3 Convention possible for our members. - - - - - - REPEATS - - - - - - - Look for complete details and registration information in ■ Thursday, January 23 the December and January issues of County Bar Update ■ Friday, January 24 or call the Member Service Department at 213/896-6560. ■ Saturday, January 25 You can also find our convention information online at www.lacba.org/cle/convention/ ALL SESSIONS WILL BE HELD AT THE LACBA/LEXIS NEXIS CONFERENCE CENTER 281 S. FIGUEROA STREET, LOS ANGELES LOS ANGELES LAWYER / DECEMBER 2002 11 practice tips By Michael J. Kump The Rule of Proportionality in Civil RICO Suits attorney’s fees. When Congress enacted the RICO statute, it expressly manand costs can dated an award of attorney’s fees and costs whenever there has greatly increase been an injury cognizable under RICO: “Any person injured in his the financial risk business or property by reason of a violation of Section 1962…shall for defendants recover threefold the damages he sustains and the cost of suit, n a civil RICO lawsuit, a jury including a reasonable attorney’s may find the defendants liable fee.”1 The RICO statute and the for violating 18 USC Section Clayton Act2 (upon which it is 1962(c) but award only a small based) “share a common conamount in compensatory dam- gressional objective of encourages. Although this amount is aging civil litigation to suppleautomatically trebled under 18 ment government efforts to deter USC Section 1964(c), even this and penalize the respectively prorelative victory may disappear if hibited practices.” 3 Congress the plaintiff files a motion for passed the civil RICO statute, attorney’s fees and costs pursuant with its incentive of treble damto Section 1964(c). It would not ages and mandatory attorney’s be exceptional for the plaintiff to fees and costs, to encourage vicseek fees and costs that are far tims of racketeering acts, such greater than the compensatory as mail and wire fraud, to become damages. private attorneys general dediIf the defense counsel op- cated to eliminating proscribed poses the fees motion on the activities.4 The objective of civil ground that the award of fees and RICO “is thus not merely to comcosts must be proportional to the pensate victims but to turn them amount of daminto prosecutors, ages awarded by ‘private attorneys Michael J. Kump is a the jury, the defengeneral,’ dedicated partner at Greenberg dant is not likely to to eliminating rackGlusker in Los prevail, because eteering activity.”5 Angeles who has cour ts have conDefense counsuccessfully sidered whether a sel should harbor prosecuted and rule of proportionno illusion that defended civil RICO ality should apply courts are unlikely cases. in civil RICO cases to respect this conand have decided gressional objecthat it should not. In light of the tive. As stated in Bingham v. Zolt, general judicial rejection of rules “It is the trial court, not the jury, of proportionality in federal fee- that has the responsibility of shifting cases, defense counsel determining attor ney’s fees in civil RICO cases would be wise awards” in civil RICO cases.6 And to find other grounds upon which as the U.S. Supreme Court held to attack a plaintiff’s motion for in Hensley v. Eckerhart, the deter- Attorney’s fees RICHARD EWING I 12 LOS ANGELES LAWYER / DECEMBER 2002 mination of a reasonable fee begins with the court’s calculation of a so-called lodestar figure, which equals “the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.”7 Although the cour t may increase or decrease the lodestar based upon a number of factors, there is a “strong presumption that the lodestar figure…represents a ‘reasonable’ fee.…”8 Indeed, “a party advocating the reduction of the lodestar amount bears the burden of establishing that a reduction is justified.”9 As the Court has warned, however, “[a] request for attorney’s fees should not result in a second major litigation.”10 The “most critical factor” in determining a reasonable fee “is the degree of success obtained.”11 This does not mean, however, that a RICO plaintiff will be penalized when its recovery falls short of what it originally sought. For example, in Bingham, the RICO plaintiff sought more than $10 million but recovered only $800,000 (before trebling). The Second Circuit nevertheless affirmed a $3 million award of fees and costs, notwithstanding the fact that “the jur y awarded only a small part of the damages sought by plaintiff, three of plaintiff’s six charges were dismissed as time-barred, and the [plaintiff] prevailed against only three of eight defendants.” 12 Citing the Supreme Court’s ruling in Hensley that “[t]he result is what matters,”13 the Second Circuit explained that although the “plaintiff did not prevail on all of its claims and the jury did not find all the defendants guilty, the plaintiff obtained a jury verdict and a judgment against defendants. It won the case.”14 Similarly, in Miltland Raleigh-Durham v. Myers, District Judge Motley declined to reduce the lodestar amount of $684,450 in fees and $117,697 in costs awarded to RICO plaintiffs who recovered approximately $1 million in damages, since the plaintiffs “succeeded on all claims despite [the defendant’s] extensive fraud.”15 Fee-Shifting There exists some disagreement among courts over the extent to which the Hensley lodestar factors should apply to cases that involve, as RICO cases do, mandatory rather than permissive fee-shifting statutes.16 The Second Circuit, in a civil RICO case, noted that the “results obtained” analysis of Hensley and Farrar v. Hobby “‘is of limited applicability’ to statutes that mandate an award of attorney fees.”17 Other courts determining fees and costs in RICO cases, however, have applied the Hensley analysis.18 Indeed, given the provision in Section 1964(c) for a reasonable attorney’s fee in civil RICO cases, the courts must make a determination of what is reasonable, and that analysis may be likely to consider generally the same factors as in Hensley. For example, in a recently decided case, System Management, Inc. v. Loiselle, the district court concluded that it would “not place much emphasis on Hensley and Farrar when interpreting the fee-shifting provision in RICO.”19 Although the court still calculated a lodestar amount before making its award of fees and costs,20 the district court put virtually no emphasis on the factor of the “results obtained.”21 It is well established that the award of attorney’s fees in federal fee-shifting cases generally should not be reduced simply because a prevailing plaintiff seeks an award that is greater than the damages awarded at trial.22 Indeed, in City of Riverside v. Rivera, a civil rights case, the Supreme Court upheld an attorney’s fee award of $245,456 when the plaintiff only recovered $33,350 in compensator y and punitive damages.23 In United States Football League v. National Football League, an antitrust case, the Second Circuit affirmed an award of over $5.5 million in attorney’s fees under the Clayton Act, upon which the mandatory fee-shifting provision of the RICO statute is based, even though the jury awarded the plaintiff only $1 in damages (which was trebled).24 The Second Circuit explained, “Because of the importance of the policy of encouraging private parties to bring antitrust actions, recovery of their reasonable attorney’s fees must be sustained regardless of the amount of damages awarded.”25 The rule of proportionality has fared no better in civil RICO cases. In Nor theast Women’s Center v. McMonagle, the Third Circuit upheld an award of attorney’s fees and costs of $64,964 in a civil RICO case, even though the jury only awarded $875 in RICO damages before trebling.26 The Third Circuit ruled that “the district court properly refused to apply a proportionality rule to reduce the RICO fee award in this case,” expressly rejecting the defendants’ argument that the Supreme Court’s ruling in City of Riverside did not control.27 In FMC Corporation v. Varonos, the district court refused to award any fees or costs to a prevailing RICO plaintiff, on the ground that “the amount of [the plaintiff’s] request was almost triple the amount of the actual damage award.”28 The Seventh Circuit, relying upon McMonagle and City of Riverside, reversed and remanded for a determination of the plaintiff’s reasonable fees and costs.29 In Nu-Life Construction Corporation v. Board of Education, the district court awarded fees and costs totaling $193,266 to the RICO plaintiff, notwithstanding the fact that the jury awarded only $23,400 in compensatory damages against some defendants and found that other defendants had not violated RICO.30 The district court, relying upon McMonagle, FMC, and Second Circuit decisions rejecting propor tionality in civil rights cases, “decline[d] to reduce [the plaintiff’s] fee application notwithstanding the limited pecuniary success achieved by the plaintiff Nu-Life.”31 Loiselle is the most recent case to consider the issue of proportionality in connection with a RICO fees application.32 After announcing it would not place much emphasis on the Farrar and Hensley factors, the district court calculated and accepted as its award the reasonable number of hours multiplied by the reasonable hourly rates.33 As a result, the court awarded fees and costs totaling $184,232 to the plaintiff, even though the treble RICO damages amounted to $1,018.56.34 The district court, in colorful language, explained its rejection of a proportionality rule in that RICO case: “‘The better part of valor is discretion.’ William Shake- speare, The First Part of Henry The Fourth act 5, sc. 4. But [the defendant] chose to fight this one out. Now that he has lost the battle, this Court will not exercise its discretion for no better reason than to comfort defeat.”35 Defense counsel might argue against an award of fees and costs in excess of RICO damages on the ground that RICO treble damages are more than enough to accomplish the goals of deterrence and retribution. This argument misconstrues the purpose of the civil remedies afforded by the RICO statute, which is to compensate plaintiffs for their actual costs in order to encourage private attorney general suits in the enforcement of important public policies.36 The refusal of the courts to apply a rule of proportionality in civil RICO cases, therefore, is consistent with the objectives underlying Section 1964(c), since the primary focus of the treble damages provision of RICO is remedial, not punitive.37 As the Supreme Court also held, nor are attorney’s fees “‘clearly punitive.’”38 Thus, the remedial purposes underlying the mandatory fee-shifting provisions of Section 1964(c) “would best be served by fully compensating private attorneys general, no matter how limited their success.”39 The Billing Judgment Approach Trying a different approach, defense counsel might concede that courts have rejected application of a propor tionality rule but attempt to limit that rejection to cases in which the fee awards were disproportionate to the actual amount of damages recovered by the plaintiff, not to the amount that the plaintiff sought. Under this view, known as the billing judgment approach, “an attorney’s requested fee would be judged ‘reasonable’ if it were rationally related to the monetary recovery that the attorney could have anticipated ex ante.” 40 Taking this approach, defense counsel would argue that no rational client would invest, for example, the sum of $2 million in attorney’s fees and costs to recoup a maximum of $300,000 in RICO treble damages. Defense counsel are not likely to succeed with the billing judgment approach, however, since the Second Circuit—which is the only one to have considered it—has expressly rejected it. In Quaratino v. Tiffany & Company, a civil rights case, a jury awarded $158,145 (including $98,145 in punitive damages), and the district court calculated the plaintiff’s lodestar amount to be $124,645.18 but only awarded fees equaling half the plaintiff’s total recover y (i.e., $79,072.50).41 The Second Circuit held that “[e]ven setting aside considerable misgivings as to the feasibility of such precise ex ante calculations, we find that this approach conflicts with the legislaLOS ANGELES LAWYER / DECEMBER 2002 13 ATTORNEY-CPA-LITIGATION CONSULTANT Experienced Expert Witness Since 1957 Professor of Law and Accounting Special Master, Mediator, Arbitrator AUTHOR • LECTURER DAVID OSTROVE ■ ATTORNEY-CPA TELEPHONE 323/939-3400 • FAX 323/939-3500 5757 WILSHIRE BOULEVARD, SUITE 535, LOS ANGELES, CALIFORNIA 90036 tive intent and rationales of the fee-shifting statute.”42 As a result, the Second Circuit reversed, holding that “this Court does not follow, and has not suggested that it would be inclined to follow, the billing judgment rule that the district court developed.”43 Defendants sued under the civil RICO statute must understand that they can succeed in limiting damages but still fail badly by being liable for the plaintiff’s attorney’s fees and costs. Counsel for defendants will not make any headway arguing to the court that the award of fees and costs should be proportional to the damages awarded. The proportionality rule is directly contrary to the societal objectives upon which Congress predicated the RICO statute. Thus, rather than challenging the fees application based upon proportionality, defense counsel should attack the lodestar determination on other grounds, if possible. An attack may target two items as being excessive: the hourly rates charged by the plaintiff’s counsel44 and the number of hours billed.45 Defendants may also challenge the lack of suppor t for the application. 46 Furthermore, in cases in which the plaintiff prevails on some but not all claims or against some but not all defendants, defense counsel should argue that the attorney’s fees should be apportioned accordingly.47 ■ 1 18 U.S.C. §1964(c). Section 4 of the Clayton Act states that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws…shall recover…the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. §15(a). 3 Rotella v. Wood, 528 U.S. 549, 557 (2000). 4 Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 151 (1987). 5 Rotella, 528 U.S. at 557-58 (citation omitted). 6 Bingham v. Zolt, 66 F. 3d 553, 565 (2d Cir. 1995), cert. denied, 517 U.S. 1134 (1996) (affirming award of attorney’s fees and costs under 18 U.S.C. §1964(c)). 7 Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). 8 Pennsylvania v. Delaware Valley Citizens’ Council for Clear Air, 478 U.S. 546, 565 (1986). 9 United States Football League v. National Football League, 887 F. 2d 408, 413 (2d Cir. 1989), cert. denied, 493 U.S. 1071 (1990). 10 Hensley, 461 U.S. at 437. 11 Id. at 436. 12 Bingham v. Zolt, 66 F. 3d 553, 565 (2d Cir. 1995), cert. denied, 517 U.S. 1134 (1996). 13 Hensley, 461 U.S. at 435. 14 Bingham, 66 F. 3d at 566-67. 15 Miltland Raleigh-Durham v. Myers, 840 F. Supp. 235, 240 (S.D. N.Y. 1993); see also Abou-Khadra v. Bseirani, 971 F. Supp. 710, 719-20 (N.D. N.Y. 1997) (awarding fees and costs of $620,361.48 in civil RICO case); Brokerage Concepts v. United States Healthcare, 1996 WL 741885, at *16 (E.D. Pa. Dec. 10, 1996) (in which $910,000 in fees and costs were awarded after jury awarded $200,000 in RICO damages before trebling). 16 Compare RICO and Clayton Act mandatory language with 42 U.S.C. §1988(b) (“The court…may allow…a reasonable attorney’s fee.”) and 16 U.S.C. §1540(g)(4) (“The court…may award costs of litigation (including 2 14 LOS ANGELES LAWYER / DECEMBER 2002 reasonable attorney and expert witness fees) to any party.”). 17 Stochastic Decisions, Inc. v. DiDomenico, 995 F. 2d 1158, 1168 (2d Cir. 1993), cert. denied, 510 U.S. 945 (quoting United States Football League v. National Football League, 887 F. 2d 408, 412 (2d Cir. 1989), cert. denied, 493 U.S. 1071 (1990)). 18 See, e.g., Northeast Women’s Ctr. v. McMonagle, 889 F. 2d 466, 470 (3d Cir. 1989), cert. denied, 494 U.S. 1068 (1990). 19 Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d 195, 206 (D. Mass. 2001). 20 Id. at 208. 21 Id. at 209-11. 22 See, e.g., Fair Housing of Marin v. Combs, 285 F. 3d 899, 907-08 (9th Cir. 2002) (affirming an award “more than five times the amount of the compensatory and punitive damage awards combined”); Cowan v. Prudential Ins. Co., 935 F. 2d 522, 526 (2d Cir. 1991) (lodestar “should not be reduced simply because a plaintiff recovered a low damage award”). 23 See City of Riverside v. Rivera, 477 U.S. 561, 564-65 (1986). 24 See United States Football League v. National Football League, 887 F. 2d 408, 413-16 (2d Cir. 1989), cert. denied, 493 U.S. 1071 (1990). 25 Id. at 412. 26 See Northeast Women’s Ctr. v. McMonagle, 889 F. 2d 466, 471-75 (3d Cir. 1989), cert. denied, 494 U.S. 1068 (1990). 27 Id. at 474-75. 28 FMC Corp. v. Varonos, 892 F. 2d 1308, 1316 (7th Cir. 1990). 29 Id. 30 See Nu-Life Const. Corp. v. Board of Educ., 795 F. Supp. 602, 607 (E.D. N.Y. 1992), aff’d, 28 F. 3d 1335 (2d Cir. 1994). 31 Id. 32 See Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d 195, 207 (D. Mass. 2001). 33 Id. at 209-11. 34 Id. at 212. 35 Id. 36 See Rotella v. Wood, 528 U.S. 549, 557-58 (2000). 37 See Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 240-41 (1987). 38 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 492 (1985) (citation omitted). 39 Systems Mgmt., Inc. v. Loiselle, 154 F. Supp. 2d 195, 207 (D. Mass. 2001). 40 See Quaratino v. Tiffany & Co., 166 F. 3d 422, 425 (2d Cir. 1999). 41 Id. at 424. 42 Id. at 426. 43 Id.; see City of Riverside v. Rivera, 477 U.S. 561, 585 (1986) (Powell, J., concurring: “[A] district court, in fixing fees, is obligated to give primary consideration to the amount of damages awarded as compared to the amount sought.”). 44 See, e.g., Vanke v. Block, 2002 WL 1836305, at *7 (C.D. Cal. Aug. 8, 2002) (finding hourly rates to be excessive and reducing the rates accordingly). 45 See, e.g., Farmer v. Arabian Am. Oil Co., 31 F.R.D. 191, 193 (S.D. N.Y. 1962), rev’d in part, 324 F. 2d 359 (2d Cir. 1963), rev’d, 379 U.S. 227 (1964) (“[P]arties to a litigation may fashion it according to their purse and indulge themselves and their attorneys, but they may not foist their extravagances upon their unsuccessful adversaries.”). 46 See, e.g., Dailey v. Societe Generale, 915 F. Supp. 1315, 1328 (S.D. N.Y. 1996), aff’d in relevant part, 108 F. 3d 451 (2d Cir. 1997) (criticizing “entries listed simply as ‘telephone call,’ ‘consultation,’ and ‘review of documents’”). 47 See Hensley v. 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Twenty-three of those rulings were on sophisticated asset protection planning strategies. LOS ANGELES LAWYER / DECEMBER 2002 15 practice tips By Charles J. Greaves The Unique Issues in Shareholder Derivative Litigation A limited statutory Section 800(b)(2). Failure to satisfy these requirements subjects scheme has led a shareholder’s complaint to demurrer.3 The applicable statucourts to play a tory language4 permits a derivative lawsuit only if: key role in shaping The plaintiff alleges in the complaint with particularderivative lawsuits ity plaintif f ’s ef for ts to secure from the board such action as plaintif f desires, or the reasons for ew statutes in California not making such effort, are asked to do the kind of and alleges further that heavy lifting that is plaintif f has either inrequired of Corporations Code formed the corporation or Section 800. Fewer than 1,000 the board in writing of the words in length, Section 800 repultimate facts of each resents the sum total of all legiscause of action against lation on the subject of shareeach defendant or delivholder derivative litigation in ered to the corporation or California.1 Yet in light of recent the board a true copy of corporate and accounting scanthe complaint which plaindals and the prevailing atmostiff proposes to file. phere of hostility toward corpoAlthough couched as a pleadrate management, few statutes are more important. With Section ing requirement, this language 800 as their touchstone, both cor- imposes upon a would-be derivaporate counsel and those who lit- tive plaintiff two separate and distinct af firmative igate in the corpoCharles J. Greaves is obligations. 5 In rate arena need to the chair of the understand and order to comply litigation must be prepared with the first (or department at Hahn to address a variety demand) require& Hahn LLP. He of issues unique to ment, the sharerepresents both shareholder derivholder must make plaintiffs and ative litigation in some effort to sedefendants in California.2 cure from the corcomplex business, poration’s board of What is a derivtort, and employdirectors whatever ative action? It is an ment litigation. action the shareaction that is asholder wishes the serted by a shareboard to take. This holder against one or more defendants—typically will typically be a demand that including the corporation’s own the board vote to sue in the cordirectors—on behalf of the cor- poration’s name to redress a poration. The first obstacles con- wrong that the shareholder fronting a prospective share- believes the corporation has sufholder-plaintiff are the “demand” fered. This demand requirement and “notice” requirements of is, however, a qualified one, since F 16 LOS ANGELES LAWYER / DECEMBER 2002 it is excused when there are “reasons for not making such effort.” Courts interpreting this qualification have crafted a “futility exception,” pursuant to which the shareholder’s demand upon the corporation’s board of directors will be excused if, under the particular facts of the case, making such a demand would be useless.6 Futility has been found to exist when, for example, a majority of the board is alleged to have directly participated in, or benefited financially from, fraudulent or criminal conduct.7 The second (or notice) requirement imposed by Section 800 is that the shareholder either must inform the corporation or its board of directors in writing of the ultimate facts of each proposed cause of action against each prospective defendant, or must deliver to the corporation or its board of directors a copy of the complaint that the shareholder proposes to file. While a shareholder may be excused from complying with the demand requirement by demonstrating futility, the structure of the statute makes clear that there is no corresponding futility exception to the requirement of written notice. Written notice is, in all cases, mandatory. After making a demand (unless one is futile) and giving written notice, the putative plaintiff must then affirmatively plead “with particularity” the plaintiff’s compliance with the statute’s threshold requirements. While pleading actual demand and notice is simple enough, pleading futility, in order to excuse the demand requirement, is clearly less so. As a rule, mere general- ities or conclusive allegations of perceived futility will not suffice.8 Courts will instead require specific factual allegations as to why each particular director could not have fairly evaluated the shareholder’s demand.9 In light of these pleading requirements, the better practice for plaintiff’s counsel in all cases is to actually make the demand and give the required notice. Both requirements can be met by, for example, including the proposed complaint as an enclosure to the shareholder’s prefiling demand letter. The Plaintiff’s Bond There is no attorney’s fee provision per se in Section 800. The corporation, however, or any defendant who is an officer or director of the corporation, may move to require that the shareholder plaintiff furnish a bond if a moving defendant demonstrates either 1) that there is no reasonable possibility that prosecution of the action will benefit the corporation or its shareholders, or 2) that the moving defendant, if other than the corporation, did not participate in the challenged transaction in any capacity.10 If the court determines that a moving party has established “a probability” in support of any ground upon which the motion is based, the court must fix the amount of the bond, not to exceed $50,000, by considering the reasonable expenses, including attorney’s fees, that may be incurred by the moving party, including the corporation, in connection with defending the action.11 If a derivative plaintiff pleads multiple causes of action, security is proper if any one of the causes of action falls within the purview of the statute.12 The $50,000 bond amount is an aggregate, however, and a court may not require a greater bond regardless of the number of defendants or causes of action.13 In practice, a plaintiff’s bond is sought in most shareholder derivative actions because the corporation’s board of directors has, in response to the plaintiff’s demand, already determined that prosecution of the action is not in the best interests of the corporation. The motion for security must be filed within 30 days after service of summons upon the corporation or other moving defendant,14 and the filing of the motion stays all further proceedings in the case until 10 days after the disposition of the motion.15 As a practical matter, success on the bond motion often terminates the lawsuit, since few disgruntled shareholders will post a $50,000 bond in the face of a judicial determination that there is no reasonable possibility that further prosecution of the action will benefit the corporation or its shareholders. The additional significance of the motion for security is that the prevailing defendant in a derivative action has no right to recover attorney’s fees, in the absence of a contractual fee provision, unless the defendant is first successful on a motion for security. In that case, the plaintiff’s potential liability for fees is both established and limited by the face amount of the bond.16 Peremptory Dismissal There are procedures that are unique to shareholder derivative litigation that, if successful, will result in the peremptor y dismissal of the plaintiff’s claims without the need for a trial on their merits. These include a demurrer or summary judgment motion following the vote of a disinterested board majority against prosecution of the action, and a motion for summary judgment following a like vote by a board-appointed special litigation committee. Courts have long recognized that a disinterested board majority, exercising its good faith business judgment, can obtain dismissal of a shareholder derivative lawsuit on the ground that the burdens of its further prosecution—including time, money, and the disruption of business—outweigh the likely benefits.17 The rationale behind this rule is that the management of a corporation’s affairs is properly vested in the duly elected board of directors and may not be usurped by one or more litigious shareholders.18 A vote by a disinterested board majority against the prosecution of the action creates a legal presumption that the board’s decision was made in good faith, on an informed basis, and with an honest belief that the decision is in the best interests of the corporation.19 This presumption—the so-called business judgment rule—is, however, a rebuttable one, and dismissal will not lie if there has been fraud, bad faith, overreaching, or an unreasonable failure by the board to investigate material facts.20 Faced with a motion for summary judgment by an allegedly disinterested board majority, the court must determine: • Whether the board majority is truly independent, and not financially or other wise interested in the challenged transaction. • Whether the board conducted a reasonable investigation into the operative facts before voting. • Whether the vote represents a good faith exercise of the business judgment of the board majority.21 Plaintiffs seeking to avoid dismissal by this procedure will often implicate the board majority in the challenged transaction or will preemptively allege failure of inquiry or other af firmative misconduct to rebut the presumption arising from the business judgment rule. The court’s role on summary judgment is limited to a determination of whether triable issues of material fact exist regarding these matters. If so, the “directors’ discretion” defense becomes an issue of fact, and while it may be bifurcated from the remaining issues in the case at trial, it may not be the subject of a special pretrial evidentiary proceeding.22 Even when there is no disinterested board majority, courts will still entertain a motion for summary judgment when a disinterested special litigation committee appointed by an interested board majority so requests.23 The special litigation committee must be composed of two or more directors who have not benefited financially from the challenged transaction.24 The statutory authority for this delegation of responsibility is Corporations Code Section 311, which permits a board of directors to designate committees having the full authority of the board, except for certain enumerated matters. Just as a disinterested board majority may move for summary judgment, so too may a special litigation committee if the committee determines that further prosecution of the action will not, on balance, benefit the corporation or its shareholders. Courts faced with this type of motion follow the same procedures and apply the same analyses as they would in the case of a motion filed by a disinterested board majority.25 Corporate Counsel Once a shareholder derivative action is filed, the defendants must quickly address the roles to be played by both corporate and spe- cial litigation counsel. While a derivative action is ostensibly prosecuted for the benefit of the corporation, the corporation itself, as an indispensable party, must be named as a defendant.26 As a nominal defendant, the corporation is entitled to have counsel at all stages of the proceeding.27 The corporation’s dual role as de facto plaintiff and nominal defendant creates conflict-of-interest issues for counsel that are unique to shareholder derivative lawsuits. The corporation itself, and not its shareholders, is the holder of the attorney-client privilege.28 Therefore, the shareholders of a corporation cannot waive the privilege on the corporation’s behalf.29 Building upon this premise, recent case authority holds that a shareholder plaintiff cannot sue a corporation’s outside general counsel for legal malpractice in a derivative action, because doing so would compel corporate counsel to waive the attorney-client privilege in order to mount a meaningful defense to the plaintiff’s claims.30 In other words, while a derivative plaintiff otherwise stands in the shoes of the corporation, the plaintiff does not do so with respect to the attorney-client privilege, and a shareholder cannot compel a waiver of the privilege by the expedient of naming both the corporation and its counsel as defendants in a derivative action. Even if corporate counsel is immune from liability in a derivative action for advice given to the corporation regarding the challenged transaction, corporate counsel may not, in defense of a derivative lawsuit, simultaneously represent both the corporation and the directors whose wrongdoing is alleged to have damaged the corporation.31 Nor in most cases may corporate counsel continue to represent either the corporation or the defendant directors, because the applicable Rules of Professional Conduct preclude counsel from accepting employment adverse to a current or former client when counsel has obtained confidential information material to the employment—and meaningful consent to representation in these circumstances, while technically allowed by the Rules of Professional Conduct, is often difficult to obtain in shareholder derivative litigation.32 Although each case is unique, the better practice in most cases is to retain new, independent litigation counsel for both the corporation and the director defendants. Doing so removes conflict-of-interest issues from the case and leaves corporate counsel in the appropriate role of disinterested percipient witness. Advancement and Indemnity When a director, officer, employee, or other agent of a corporation is sued in his or LOS ANGELES LAWYER / DECEMBER 2002 17 her corporate capacity and wins a judgment on the merits in defense of a derivative action, indemnification from the corporation for all related defense costs and attorney’s fees actually and reasonably incurred is mandatory.33 In all other cases, a director, officer, employee, or other agent’s right to indemnification from the corporation for litigation-related expenses will depend upon the facts of the case and the language of the corporation’s articles and bylaws.34 The policy behind the statutes and cases authorizing corporate indemnification is to encourage competent individuals to serve as officers and directors of corporations and to discourage strike suits and other frivolous shareholder litigation by assuring a vigorous defense to these actions.35 In the absence of a judgment on the merits in defense of a derivative action, the right to indemnification is governed by Corporations Code Section 317(c). That statute expressly prohibits indemnification for: 1) Amounts paid in settling a derivative action without court approval. 2) Expenses incurred in defending a derivative action that is settled without cour t approval. 3) Any claim for which the defendant is adjudged to be liable, unless the court determines that, in view of all of the circumstances of the case, the defendant is “fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.” Corporations Code Section 317(c) allows indemnification in the absence of a defense judgment on the merits only if the defendant “acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders.” Such “permissive indemnification” may be authorized by: 1) Majority vote of a quorum of directors who were not parties to the action, 2) Independent legal counsel in a written opinion, if a quorum of nonparty directors cannot be obtained, 3) Approval of the shareholders, excluding the shares owned by the person or persons to be indemnified, or 4) The court in which the proceeding is or was pending, “whether or not the application by the agent, attorney or other person is opposed by the corporation.”36 If a corporate agent is forced to seek and obtains court approval for permissive indemnification, the agent is also entitled to recover his or her reasonable expenses, including attorney’s fees, incurred in obtaining the court order.37 A corporation’s board of directors may vote to advance litigation expenses as they are incurred by any director, officer, employee, or 18 LOS ANGELES LAWYER / DECEMBER 2002 other agent of the corporation who is named in a derivative lawsuit.38 The structure of Corporations Code Section 317 suggests— and at least one influential commentator concurs—that even interested directors may participate in the vote to advance litigation expenses, including to themselves.39 The provisions of Corporations Code Section 315(a), which require a shareholder vote with respect to any loans made to directors or corporate officers, does not apply to litigation advances made under Corporations Code Section 317.40 As a prerequisite to obtaining advancement of litigation expenses, a defendant— whether he or she is a director, officer, employee, or other agent of the corporation— must provide the corporation with “an undertaking” to repay the sums advanced in the event it is determined, at the conclusion of the case, that the defendant is not entitled to indemnification.41 While the statute does not specify the form of the undertaking, the Bond and Undertaking Law42 presumably applies by reference. Attorney’s Fees and Costs Since a derivative action is prosecuted on behalf of the corporation, any damages recovered in the action will ordinarily inure to the benefit of the corporation and not to the personal benefit of the plaintiff (other than in his or her capacity as a fractional owner of the corporation). Since derivative actions are equitable in nature, however, courts may tailor their judgments to fit the unique circumstances of each case—for example, to avoid a windfall that might result in the absence of a special allocation of damages.43 The shareholder plaintiff cannot, in any event, settle a derivative lawsuit without first obtaining court approval.44 A shareholder who is a prevailing plaintiff is entitled to recover his or her reasonable attorney’s fees and litigation costs as a charge against the settlement or judgment proceeds. This right to fees is not statutory but is based upon the plaintiff’s creation of a common fund for the benefit of the corporation and the plaintiff’s fellow shareholders.45 In a two-person corporation, attorney’s fees may not be awarded to one shareholder who prevails in a derivative action against the other shareholder, since no common fund results from the action.46 When one or more defendants prevail in the action, and the plaintiff has posted security pursuant to Corporations Code Section 800, the prevailing defendants have recourse to the security for their reasonable expenses, including attorney’s fees. This recourse includes a claim by the corporation for advances or indemnity payments made to corporate agents under Corporations Code Section 317.47 A motion to include attorney’s fees in the defendant’s memorandum of costs must be filed within the time for filing a notice of appeal from the underlying judgment—typically 60 days from notice of its entr y. 48 Conversely, a motion to enforce the plaintiff’s bond in satisfaction of the fee award may only be filed after the entry of final judgment in the action and after the time for appeal has expired or, if an appeal is taken, after the appeal is finally determined.49 This often requires the prevailing defendant to follow a two-step process, in which a motion to include attorney’s fees in the memorandum of costs is filed first, followed by, if necessary, the filing of a second motion to enforce the bond after the unsuccessful shareholder plaintiff exhausts his or her appeals. If the derivative action arises out of the breach of a contract that includes an attorney’s fee provision, the prevailing defendant is not limited to recourse against the plaintiff’s bond (if one is posted) under Corporations Code Section 800 and to indemnity under Corporations Code Section 317. Prevailing defendants may also avail themselves of the reciprocal right to attorney’s fees found in Civil Code Section 1717, either in addition to or in lieu of these other sources of potential recovery.50 Because the statutory scheme governing shareholder derivative actions in California is skeletal, and because these actions are equitable in nature, the courts have played a prominent role in shaping the substantive law and procedure in this area. The dot-com implosion and recent flood of corporate and accounting scandals should act as catalysts in the years ahead for a greatly accelerated evolution of shareholder derivative law in California. ■ 1 Corporations Code §15702, which governs derivative actions in the context of limited partnerships, simply mirrors Corporations Code §800. Corporations Code §316(c) (directors’ joint liability to creditors) and §506(b) (shareholders’ direct liability to creditors) authorize actions in the name of the corporation without regard to the provisions of §800. 2 For an overview of basic principles of shareholder derivative litigation, see 9 W ITKIN , S UMMARY OF CALIFORNIA LAW, Corporations §§179 et seq. (9th ed. 1989), and 2 FRIEDMAN, CALIFORNIA PRACTICE GUIDE: CORPORATIONS §§6:598 et seq. (2002). 3 Shields v. Singleton, 15 Cal. App. 4th 1611, 1619 (1993). 4 CORP. CODE §800(b)(2). 5 Nelson v. Anderson, 72 Cal. App. 4th 111, 127 (1999). 6 Beyerbach v. Juno Oil Co., 42 Cal. 2d 11, 28 (1954). 7 Reed v. Norman, 152 Cal. App. 2d 892, 898 (1957). 8 Oakland Raiders v. National Football League, 93 Cal. App. 4th 572, 587-89 (2001). 9 Shields v. Singleton, 15 Cal. App. 4th 1611, 1622 (1993). 10 CORP. CODE §800(a). Burt v. Irvine Co., 237 Cal. App. 2d 828, 868 n.5 (1965). 12 Bailey v. Fosca Oil Co., 180 Cal. App. 2d 289, 296-97 (1960). 13 Hale v. Southern Cal. IPA Med. Group, Inc., 86 Cal. App. 4th 919, 927-28 (2001). 14 CORP. CODE §800(c). 15 CORP. CODE §800(f). 16 Alcott v. M.E.V. Corp., 193 Cal. App. 3d 797, 799-800 (1987). 17 Findley v. Garrett, 109 Cal. App. 2d 166, 177-78 (1952). 18 Id. at 174. 19 Katz v. Chevron Corp., 22 Cal. App. 4th 1352, 1366 (1994). 20 Lee v. Interinsurance Exch., 50 Cal. App. 4th 694, 715 (1996). 21 Findley, 109 Cal. App. 2d at 177. 22 See Will v. Engebertson & Co., 213 Cal. App. 3d 1033, 1041-43 (1989) (special litigation committee); Finley v. Superior Court, 80 Cal. App. 4th 1152, 1162-63 (2000) (same). 23 Finley, 80 Cal. App. 4th at 1158-63. 24 Id. at 1158; CORP. CODE §311. 25 Lewis v. Anderson, 615 F. 2d 778, 781-83 (9th Cir. 1979). 26 Stockton v. Ortiz, 47 Cal. App. 3d 183, 191-92 (1975). 27 Olson v. Basin Oil Co. of Cal., 136 Cal. App. 2d 543, 560-61 (1955). 28 McDermott, Will & Emery v. Superior Court, 83 Cal. App. 4th 378, 383 (2000). 29 Smith v. Laguna Sur Villas Cmty. Ass’n, 79 Cal. App. 4th 639, 644 (2000). 30 McDermott, Will & Emery, 83 Cal. App. 4th at 384. This holding raises the question whether counsel can be sued when director defendants assert an advice-ofcounsel defense or otherwise waive the attorney-client privilege. 31 Forrest v. Baeza, 58 Cal. App. 4th 65, 74-75 (1997). 32 Compare CAL. RULES OF PROF’L CONDUCT R. 3-600(E) with R. 3-310(E). But see Forrest, 58 Cal. App. 4th at 7682 (disqualification of corporate counsel from continued representation of individual directors/shareholders not required if the “functioning of the corporation has been so intertwined with the individual defendants that any distinction between them is entirely fictional”). 33 CORP. CODE §317(d); Groth Bros. Oldsmobile, Inc. v. Gallagher, 97 Cal. App. 4th 60, 73 (2002). 34 Indemnification beyond that allowed by Corporations Code §317 is authorized, within limits, by Corporations Code §204(a)(11) if a corporation’s articles and bylaws so provide. 35 Brusso v. Running Springs Country Club, Inc., 228 Cal. App. 3d 92, 103-04 (1991). 36 CORP. CODE §317(e). 37 CORP. CODE §317(a); Fed-Mart Corp. v. Price, 111 Cal. App. 3d 215, 222 (1980). 38 CORP. CODE §317(f). 39 Compare C ORP . C ODE §317(e) with C ORP . C ODE §317(f). See also 1 MARSH’S CALIFORNIA CORPORATION LAW §11.22[I], at 11-217 (4th ed. 1999). 40 CORP. CODE §317(f) (last sentence). 41 CORP. CODE §317(f). 42 The Bond and Undertaking Law, CODE CIV. PROC. §§995.010 et seq. 43 Rankin v. Freebank Co., 47 Cal. App. 3d 75, 96 (1975). 44 Ensher v. Ensher, Alexander & Barsoom, Inc., 187 Cal. App. 2d 407, 410 (1960). 45 Baker v. Pratt, 176 Cal. App. 3d 370, 378 (1986). 46 Id. 47 CORP. CODE §800(d). 48 CAL. R. OF CT. R. 870.2. 49 CODE CIV. PROC. §996.440. 50 Brusso v. Running Springs Country Club, Inc., 228 Cal. App. 3d 92, 102-05 (1991). 11 Judgments Enforced Law Office of Donald P. Brigham 23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653 P: 949.206.1661 F: 949.206.9718 [email protected] AV Rated JACK TRIMARCO & ASSOCIATES POLYGRAPH/INVESTIGATIONS, INC. 9454 Wilshire Blvd. Sixth Floor Beverly Hills, CA 90212 (310) 247-2637 Jack Trimarco - President Former Polygraph Unit Chief Los Angeles F.B.I. (1990-1998) CA. P.I. # 20970 Member Society of Former Special Agents Federal Bureau of Investigation 1361 Avenida De Aprisa Camarillo, CA 93010 (805) 383-8004 email: [email protected] Former Polygraph Inspection Team Leader Office of Counter Intelligence U.S. Department of Energy LOS ANGELES LAWYER / DECEMBER 2002 19 By Steven R. Yee The Blame Game The California Supreme Court will soon decide whether the anti-SLAPP law applies to malicious prosecution claims A 20 LOS ANGELES LAWYER / DECEMBER 2002 the lack of probable cause) and the tort’s disfavored status.3 However, because of the reluctance of trial courts to dismiss cases at the initial pleading stage, defendants have often been forced to litigate malicious prosecution actions at least through a motion for summary judgment. Only then would plaintiffs have to create a triable issue of fact through the use of admissible evidence. As a result, defendants in malicious prosecution actions have often expended substantial resources in time and money defending themselves against meritless actions. In addition to the costs involved, malicious prosecution actions are troublesome for attorneys for several other reasons. First, the California Evidence Code does not recognize a doctrine that would allow attorneys to waive the attorney-client privilege when defending themselves against lawsuits. This becomes problematic when an attorney is sued for malicious prosecution but the attorney’s client in the underlying action is not. In that situation, the sued attorSteven R. Yee is a partner at Wolfe & Wyman, LLP in Los Angeles and Orange Counties, where he is the chair of the firm’s Professional Liability Department and specializes in legal malpractice litigation. He would like to thank Steve R. Belilove for his assistance. KEN SUSYNSKI s if being sued for legal malpractice and paying the skyrocketing premiums for professional liability insurance were not enough for lawyers to worry about, they also have to be concerned about the threat of being sued for malicious prosecution. When a plaintiff loses an underlying action, the plaintiff’s attorney frequently becomes a candidate for defendant in a subsequent malicious prosecution suit. Malicious prosecution actions have become more commonplace despite the consistent holdings of the California Supreme Court that the tort of malicious prosecution is “disfavored” because of its potential to create an undue chilling effect on a citizen’s willingness to report criminal conduct or to bring a civil dispute to court.1 The supreme court’s preferred approach is to adopt “measures facilitating the speedy resolution of the initial lawsuit and authorizing the imposition of sanctions for frivolous or delaying conduct within that first action itself.”2 Unfortunately, strong case law holdings have not been sufficient to inhibit the filing of malicious prosecution cases. Traditionally, attorneys have opposed malicious prosecution actions by presenting arguments based on the elements of the tort (specifically, ney cannot unilaterally waive the attorney-client privilege in order to defend himself or herself in the malicious prosecution action—even though that may be the only effective way to mount a defense. This raises the question: How is the sued attorney supposed to present a defense without waiving the attorney-client privilege? Moreover, malicious prosecution suits against attorneys are especially dangerous because unlike legal malpractice actions, there is no right to indemnity—a fact that a surprising number of attorneys do not know.4 Indemnity coverage is precluded because Insurance Code Section 533 bars indemnity for “willful acts” of an insured.5 Thus, although professional liability insurance can cover defense costs in a malicious prosecution action, it cannot indemnify the attorney for damages. This places the sued attorney at great risk. Finally, malicious prosecution actions are particularly vexing for lawyers because they often trigger a legal malpractice action. In this scenario, when plaintiffs in unsuccessful underlying actions are named as defendants in a subsequent malicious prosecution action, they often sue their attorneys for advising them to pursue the underlying action. A New Weapon Fortunately, a new weapon has emerged that may allow attorneys to combat malicious prosecution actions far more effectively. This weapon, which may ultimately curtail the filing of malicious prosecution actions altogether, is Section 425.16 of the Code of Civil Procedure, otherwise known as California’s Anti-Strategic Lawsuit against Public Participation (SLAPP) statute. Through the use of the anti-SLAPP statute, trial courts can finally put some muscle behind the well-settled proposition that malicious prosecution actions are disfavored. The anti-SLAPP statute enables defendants to force a trial judge to determine if the plaintiff can establish a reasonable probability of prevailing on each element of each cause of action through the use of admissible evidence and to move to have malicious prosecution actions dismissed at the initial pleading stage of the litigation.6 The filing of an anti-SLAPP special motion to strike also triggers an automatic stay on discovery so that the defendant will not have to incur the attendant costs if the malicious prosecution action is determined to be meritless.7 A stay of discovery also means that the plaintiff must have admissible evidence in hand that proves the required elements of a malicious prosecution case: 1) the underlying action at issue ended favorably for the plaintiff, 2) the underlying action was initiated and maintained without probable cause, and 3) the underlying 22 LOS ANGELES LAWYER / DECEMBER 2002 action was brought with malice. Plaintiffs, accordingly, will not be allowed to conduct fishing expeditions when a special motion to strike is pending. The reach of the antiSLAPP statute is limited. It was enacted to allow a trial court to “dismiss at an early stage non-meritorious litigation meant to chill the valid exercise of the constitutional rights of freedom of speech and petition in connection with a public issue.”8 The antiSLAPP statute thus requires the trial court to under take a two-step process when determining whether an anti-SLAPP motion meets these statutory requirements. First, the court must decide whether the defendant has made a threshold prima facie showing that the defendant’s acts of which plaintiff complains were taken in furtherance of the defendant’s constitutional rights of petition or free speech in connection with a public issue. The California Supreme Court has, however, recently held that a defendant invoking the anti-SLAPP statute does not have to prove that the party filing the SLAPP suit had the actual intention to chill the defendant’s exercise of these constitutional rights.9 If the court finds that the defendant has made the requisite showing, the second step shifts the burden to the plaintiff to establish a reasonable probability of prevailing on the merits by making a prima facie showing of facts that would, if proved, support a judgment in the plaintiff’s favor.10 The court may also consider the defendant’s opposing evidence, but only to determine if it defeats the plaintiff’s showing as a matter of law.11 The court does not weigh the evidence or make credibility determinations.12 In assessing the probability the plaintiff will prevail, the court considers only evidence that would be admissible at trial.13 In other words, the anti-SLAPP statute operates like a “summary judgment in reverse”—with the burden on plaintiffs to demonstrate under oath a “reasonable probability of success.”14 This is quite a burden for a plaintiff pursuing a malicious prosecution action. How, for example, does one prove malice without the benefit of any discovery? Until recently, it was very much an open question whether the antiSLAPP statute actually applies to malicious prosecution actions. Given its general language, the anti-SLAPP statute has typically been used in actions involving First Amendment issues such as libel, slander, and defamation. Although arguments existed favoring the application of the anti-SLAPP statute to malicious prosecution actions, many trial judges consistently ruled that the anti-SLAPP statute did not apply to these suits. Creative lawyers nevertheless persevered, utilizing the broad language that the California Supreme Court used in decisions like Briggs v. Eden Council for Hope and Opportunity to argue that the anti-SLAPP statute did apply to malicious prosecution actions. In Briggs, the supreme court stated: Thus, plainly read, Section 425.16 encompasses any cause of action against a person arising from any statement or writing made in, or in connection with an issue under consideration or review by an official proceeding or body.15 The supreme court continued, “As pertinent here ‘the constitutional right to petition…includes the basic act of filing litigation or otherwise seeking administrative action.’”16 Using this language in Briggs, a court of appeal held in 2001—for the first time—that Code of Civil Procedure Section 425.16 applies specifically to malicious prosecution actions. In Chavez v. Mendoza,17 the appellate court held: It is well established that filing a lawsuit is an exercise of a party’s constitutional right of petition….[F]urther, the filing of a judicial complaint satisfies the “in connection with a public issue” component of Section 425.16, subdivision (b)(1) because it pertains to an official proceeding.18 Importantly, a defendant making a special motion to strike pursuant to the anti-SLAPP statute does not have to prove first that the activity is constitutionally protected as a matter of law. The moving party merely has to make a prima facie showing that the action arises from constitutionally protected activity.19 The Chavez court held that “under the statutory scheme, a Court must generally presume the validity of the claimed constitutional right in the first step of the anti-SLAPP analysis, and then permit the parties to address the issue in the second step of the analysis, if necessary.”20 The Chavez court also pointed out that this analysis is “consistent with the disfavored nature of the malicious prosecution tort, and the view that such claims are too frequently used as a dilatory and harassing device….”21 In so many words, the Chavez court was instructing trial court judges that they have the tools to stop the increase in frivolous malicious prosecution actions. The Burden of Proof Because of the Chavez decision and court of appeal decisions following it, malicious prosecution actions will be much more difficult to maintain past the initial pleading stage. Only when the plaintiff can prove a reasonable probability of prevailing on the merits at the outset of the case (without any discovery) will the suit survive. This burden is particularly difficult to meet in the context of malicious prosecution actions. In other actions, plaintiffs are more likely to have the necessary admissible evidence at the outset to oppose a special motion to strike made pursuant to the anti-SLAPP statute. For example, in a defamation action, a plaintiff can oppose a special motion to strike with proof of the defamatory statement (by copy of the written statement or by declaration of the witness who heard the defamatory statement) and a declaration from the plaintiff attesting that the statement is false. The Anti-SLAPP Statute Code Civil Procedure Section 425.16, commonly known as California’s anti-SLAPP statute, reads as follows: (a) The Legislature finds and declares that there has been a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances. The Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process. To this end, this section shall be construed broadly. (b)(1) A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. (2) In making its determination, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based. (3) If the court determines that the plaintiff has established a probability that he or she will prevail on the claim, neither that determination nor the fact of that determination shall be admissible in evidence at any later stage of the case, and no burden of proof or degree of proof otherwise applicable shall be affected by that determination. (c) In any action subject to subdivision (b), a prevailing defendant on a special motion to strike shall be entitled to recover his or her attorney’s fees and costs. If the court finds that a special motion to strike is frivolous or is solely intended to cause unnecessary delay, the court shall award costs and reasonable attorney’s fees to a plaintiff prevailing on the motion, pursuant to Section 128.5. (d) This section shall not apply to any enforcement action brought in the name of the people of the State of California by the Attorney General, district attorney, or city attorney, acting as a public prosecutor. (e) As used in this section, “act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue” includes: (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law; (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; (4) or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech. (f) The special motion may be filed within 60 days of the service of the complaint or, in the court’s discretion, at any later time upon terms it deems proper. The motion shall be noticed for hearing not more than 30 days after service unless the docket conditions of the court require a later hearing. (g) All discovery proceedings in the action shall be stayed upon the filing of a notice of motion made pursuant to this section. The stay of discovery shall remain in effect until notice of entry of the order ruling on the motion. The court, on noticed motion and for good cause shown, may order that specified discovery be conducted notwithstanding this subdivision. (h) For purposes of this section, “complaint” includes “cross-complaint” and “petition,” “plaintiff” includes “cross-complainant” and “petitioner,” and “defendant” includes “cross-defendant” and “respondent.” (i) On or before January 1, 1998, the Judicial Council shall report to the Legislature on the frequency and outcome of special motions made pursuant to this section, and on any matters pertinent to the purposes of this section. (j) An order granting or denying a special motion to strike shall be appealable under Section 904.1. (k)(1) Any party who files a special motion to strike pursuant to this section, and any party who files an opposition to a special motion to strike, shall, promptly upon so filing, transmit to the Judicial Council, by e-mail or fax, a copy of the endorsed-filed caption page of the motion or opposition, a copy of any related notice of appeal or petition for a writ, and a conformed copy of any order issued pursuant to this section, including any order granting or denying a special motion to strike, discovery, or fees. (2) The Judicial Council shall maintain a public record of information transmitted pursuant to this subdivision for at least three years, and may store the information on microfilm or other appropriate electronic media.—S.R.Y. LOS ANGELES LAWYER / DECEMBER 2002 23 COMPUTER FORENSICS Certified Data Discovery Show them what makes you an expert. marketcenter.findlaw.com • • • • • • Hidden/deleted file recovery Docs, Graphics, E-mail Internet use & Date Codes Expert Witness Testimony Litigation Support Full Forensic Computer Lab 909-780-7892 DATACHASERSINC.COM Expert Witness, Consultant, Mediation, Dispute Resolutions Legal Market Center 1-888-FINDLAW (1-888-346-3529) HANK KRASTMAN, PH.D., J.D. Retired L. A. City Building Inspector and Mechanical Inspector, ICBO licensed for all other Municipalities. Tel/Fax: 818/727-1723 • Toll Free: 1-866/496-9471 I.C.B.O. (International Conference of Building Officials) Certified: Licensed B–General Building, C-10 Electrical, C-20 Heating Ventilating and Air Conditioning, 33 years experience in construction; State E.Q. Certified Inspector. (Since 1986–High Settlements) Slip and Fall, Construction Defects, Wrongful Death, Toxic-Environmental, Burn-Fire, Electric injuries, Contract Dispute, Landslides, Failing Walls/Retaining, Earthquake, Disabled Access, Construction Injuries, Building and Safety matters. Planning Zoning, Fallen Trees, Holes in street, Sidewalk, Parking Lots, Scalding. Contractors License Board, etc., C.V. on request. Associate Experts: Ken Bedirian, R.E. Broker, J.D., Eric Fintzi, Art-Antique & Appraisals and Sam Mahseredjian, Investigator © 2001 West Group W-100939R/10-01 Trademarks shown are used under license. Free Case Evaluation: LAWNETINFO.COM We Understand Bankruptcy OVER 25 YEARS OF SUCCESS The Legal Side and The Human Side Clients troubled by debts? We are experts at: • Debt Restructuring Plans • Chapters 7, 11, and 13 Relief • Conservative Asset Protection Refer your clients with confidence: • AV Rating • Free Consultations • Reasonable Fees Professional, Compassionate Solutions Laurence D. Merritt Attorney at Law Phone: 818.710.3823 • email: [email protected] Internet: www.legalknight.com Formerly with Merritt & Hagen 24 LOS ANGELES LAWYER / DECEMBER 2002 More importantly, the plaintiff in this action would not need evidence from the sued party. However, in a malicious prosecution action, it is much more difficult for a plaintiff to prove malice by the sued attorney at the initial pleading stage. Without any discovery, it will be very difficult for a malicious prosecution plaintiff to dispute a declaration from the sued attorney that states that the sued attorney did not know the plaintiff before initiating the underlying action, that no settlement demands were made in the underlying action, and that the sued attorney had no ill will or malice toward the plaintiff. It is still difficult at this time to tell whether the anti-SLAPP statute will strike a mortal blow against malicious prosecution claims. Pursuant to Code of Civil Procedure Section 425.16(k)(1), the Judicial Council is required to keep detailed records of anti-SLAPP motions and their disposition. The party who files a special motion to strike and the party who opposes the motion are both required to notify the Judicial Council of their action, and the Judicial Council is supposed to receive a conformed copy of order granting or denying a motion brought pursuant to the anti-SLAPP statute.22 However, a review of the information provided by the Judicial Council is not revealing. According to Judicial Council statistics, a total of 275 anti-SLAPP motions have been filed in Los Angeles County since the inception of the statute. Of those, 18 were granted, 14 were denied, and 243 were listed as “disposition not reached.” These statistics suggest that attorneys are simply not notifying the Judicial Council of the results after special motions to strike are filed.23 Of the special motions to strike granted in Los Angeles and Orange Counties, the majority involved traditional anti-SLAPP actions like defamation. Thus, the effect on trial courts of the anti-SLAPP appellate decisions involving malicious prosecution remains to be seen. That effect will obviously be magnified when the California Supreme Court rules explicitly on whether the anti-SLAPP statute applies to malicious prosecution actions, an issue that is now pending before the court.24 In addition, another wrinkle on the use of the anti-SLAPP statute to defend against malicious prosecution actions has emerged. But this twist is directed not at attorney-defendants but at those attorneys representing plaintiffs in malicious prosecution actions. The anti-SLAPP statute provides that a prevailing defendant on a special motion to strike “shall” recover “his or her attorney’s fees and costs.”25 Thus, if a plaintiff’s attorney fails to inform a potential malicious prosecution client that the client may be liable for attorney’s fees if the defendant prevails through the anti-SLAPP statute, the plaintiff’s attorney could be exposed to a legal malpractice action. Claims of this nature against attorneys representing malicious prosecution plaintiffs have recently been made. It is surely disconcerting for a plaintiff who brings a malicious prosecution action to wind up paying the defendant-attorney after the plaintiff has prevailed in the underlying action. An attorney who brings a malicious prosecution action now arguably has a duty to inform the client of the anti-SLAPP statute prior to bringing the action. Placing this additional burden on plaintiffs and their attorneys is another way in which applying the anti-SLAPP statute to malicious prosecution actions will serve the strong public policy disfavoring these lawsuits. In California, malicious prosecution actions have long been disfavored. Before the application of Code of Civil Procedure Section 425.16 to these actions, however, malicious prosecution defendants were forced to engage in expensive and time-consuming litigation. By applying the anti-SLAPP statute to malicious prosecution actions, the courts have kept in mind the disfavored status of malicious prosecution actions. Accordingly, a special motion to strike pursuant to California’s anti-SLAPP statute can be used as a very powerful tool on behalf of malicious prosecution defendants. ■ Susman, 47 Cal. App. 4th 777, 784 (1996)). Chavez v. Mendoza, 94 Cal. App. 4th 1083 (2001). 18 Id. at 1087. See also Stroock & Stroock & Lavan v. Tendler, 102 Cal. App. 4th 318 (2002) (holding that plaintiff’s malicious prosecution action arising from defendant’s filing of the underlying malpractice suit against plaintiff was on its face constitutionally protected petitioning activity) and Jarrow Formulas, Inc. v. La Marche, 97 Cal. App. 4th 1 (2002), rev. granted (holding that malicious prosecution complaint directed at a defendant because she filed a cross-complaint falls within a person’s right of petition) and White v. Lieberman, 2d Civil No. B147327, WL 31421097 (Cal. Ct. App. Oct. 29, 2002 (in accord with Chavez). 19 Stroock & Stroock & Lavan, 102 Cal. App. 4th 318. 20 Chavez, 94 Cal. App. 4th at 1089. 21 Id. 22 CODE CIV. PROC. §425.16(k). 17 23 The statistics are available on the Judicial Council Web site at http://www.courtinfo.ca.gov/reference/sl. 24 Jarrow Formulas, Inc. v. La Marche, 97 Cal. App. 4th 1 (2002), rev. granted. The supreme court initially indicated that it would defer consideration of this case until disposition of several other anti-SLAPP statuterelated cases (including Equilon Enterprises v. Consumer Cause, Inc., 29 Cal. 4th 53 (2002)), all of which were decided on Aug. 29, 2002. In deciding these cases, the supreme court cited Chavez v. Mendoza, 94 Cal. App. 4th, 1083 (2001), in a manner that would appear to indicate approval of that decision. This suggests that the court will approve the appellate court’s ruling in Jarrow that the anti-SLAPP statute applies to malicious prosecution cases. The supreme court only recently ordered briefing in Jarrow and has not yet scheduled oral argument, so a ruling is not expected soon. 25 CODE CIV. PROC. §425.16(c). 1 Sheldon Appel Co. v. Albert & Oliker, 47 Cal. 3d 863 (1989); see also Wilson v. Parker, Covert & Chidester, 28 Cal. 4th 811 (2002). 2 Sheldon Appel Co., 47 Cal. 3d at 873. 3 To properly state a cause of action for malicious prosecution, a plaintiff must plead and prove three essential elements: 1) the underlying action was commenced by or at the direction of the defendant and was pursued to a legal termination in favor of the plaintiff in the malicious prosecution action and against the defendant, 2) the underlying action was brought without probable cause, and 3) the underlying action was initiated with malice. Downey Venture v. LMI Ins. Co., 66 Cal. App. 4th 478, 494 (1998) (citing Bertero v. National Gen. Corp., 13 Cal. 3d 43, 50 (1974)). 4 Downey Venture, 66 Cal. App. 4th 478. 5 Id. at 503. 6 CODE CIV. PROC. §425.16(b)(1). 7 CODE CIV. PROC. §425.16(g). 8 Kashian v. Harriman, 98 Cal. App. 4th 892, 905 (2002) (citing Sipple v. Foundation for Nat. Progress, 71 Cal. App. 4th 226, 235 (1999)). 9 Equilon Enter., LLC v. Consumer Cause, Inc., 29 Cal. 4th 53 (2002). 10 Chavez v. Mendoza, 94 Cal. App. 4th 1083, 1087 (2001) (citing Dowling v. Zimmerman, 85 Cal. App. 4th 1400, 1414 (2001)). 11 Lafayette Moorehouse, Inc. v. Chronicle Publ’g Co., 37 Cal. App. 4th 855, 867 (1995). 12 Church of Scientology v. Wollersheim, 42 Cal. App. 4th 628, 654 (1996); Wilcox v. Superior Court, 27 Cal. App. 4th 809, 827-28 (1994). 13 Church of Scientology, 42 Cal. App. 4th at 654-55. 14 College Hosp., Inc. v. Superior Court, 8 Cal. 4th 704, 718-19 (1994). 15 Briggs v. Eden Council for Hope and Opportunity, 19 Cal. 4th 1106, 1113 (1999). 16 Id. at 1115 (citing Dove Audio v. Rosenfeld, Meyer & LOS ANGELES LAWYER / DECEMBER 2002 25 MCLE ARTICLE AND SELF-ASSESSMENT TEST Sponsored by By reading this article and answering the accompanying test questions, you can earn one MCLE legal ethics WEST credit. To apply for credit, please follow the instructions on the test answer sheet on page 31. By Mark L. Tuft EYES ONLY FOR YOUR California’s duty of confidentiality is both more inclusive and more protective than the attorney-client privilege Confidentiality is the central feature of the unique relationship between attorney and client. Confidentiality enables lawyers to function as lawyers, promotes client autonomy and dignity, and generally is viewed as essential to an effective and impartial system of justice. No other duty of professional responsibility is so important to the function of lawyering yet so misunderstood by commentators, the public, and lawyers themselves. Jurisdictions throughout the country have varying rules on confidentiality. Considerable debate exists as to the parameters of the duty of confidentiality and the relationship of confidentiality as a principle of professional responsibility and the attorney-client privilege. Unlike most states, California does not have an ethics rule on confidentiality. Instead, California lawyers are obliged to follow a seemingly inflexible statute that has not been materially changed since 1872.1 As a result, some commentators view California as being out of step with the rest of the country by not allowing or requiring lawyers to make disclosures in certain situations. Justification for strict confidentiality has been questioned, particularly in nonlitigation matters, and recent legislation has encroached on the duty of confidentiality. As California lawyers deal with the impact of terrorism, corporate scandals, and the more global practice of law, greater clarity on the duty of confidentiality is needed. (See “New Challenges to Confidentiality,” page 28.) The duty of confidentiality is related to the duty of loyalty, and together they define the primary role of the lawyer in his or her representative capacity.2 In essence, the duty of confidentiality precludes an attorney from either disclosing confidential information about a client or using that information adversely to the client. Business and Professions Code Section 6068(e) imposes on California attorneys the duty “[t]o maintain inviolate the confidence, and in every peril to himself or herself to preserve the secrets of his or her client.” The statute obligates lawyers to preserve the client’s trust and confidence in the attorney as well as protect information gained in the relationship that the client has requested to Mark L. Tuft, a partner with Cooper, White & Cooper LLP in San Francisco, counsels lawyers on professional responsibility and liability issues. He is a vice chair of the State Bar of California Commission for the Revision of the California Rules of Professional Conduct, and he is a former chair of the State Bar Committee on Professional Responsibility and Conduct. 26 LOS ANGELES LAWYER / DECEMBER 2002 KEN CORRAL be held inviolate or the disclosure of which would be embarrassing or likely detrimental to the client’s interests.3 The duty of confidentiality, therefore, covers much more than communications protected by the attorney-client privilege.4 The duty to protect client secrets may, depending on the circumstances, include all information relating to the representation, whatever its source,5 and even includes matters of public record that might cause a client or a former client public embarrassment.6 The duty of confidentiality extends to potential clients seeking the attorney’s assistance with a view toward employing the attorney professionally even if no client-lawyer relationship ensues.7 Confidentiality also continues after the attorney-client relationship has ended and, with limited exception, sur vives the client’s death.8 Although the statute that codifies California’s duty of confidentiality is reputed to be the strictest in the country, the scope of the duty in California is actually not as broad as in states that follow the ABA Model Rules of Professional Conduct, which were originally adopted in 1983. ABA Model Rule 1.6(a) protects all “information relating to the representation of a client”—a protection that is even more sweeping than the earlier ABA Model Code of Professional Responsibility, which was adopted in 1969.9 In contrast, the California statute provides that the lawyer must preserve the client’s “secrets,” which may or may not include everything learned in the course of representing a client. Implicit in Section 6068(e) is the requirement of a reasonable expectation of confidentiality on the part of the client, which, depending on the circumstances, may narrow the scope of the attorney’s duty as compared to the Model Rules.10 The ABA and California were more closely aligned on the concept of client secrets before the Model Rules superseded the Model Code. The ABA Model Code defined the scope of the duty of confidentiality as the sum of the information protected by the attorney-client privilege—in other words, a client’s confidences—and information gained in the professional relationship that, although not protected by the privilege, would be embarrassing or detrimental to the client if revealed, or was information the client had expressly requested to be held inviolate—that is, the client’s secrets.11 ABA Model Rule 1.6(a) eliminates the Model Code’s two-prong approach to the duty of confidentiality.12 Ethics Rules and the Attorney-Client Privilege The law of confidentiality has its origins in two distinct but related sources: ethics rules and the attorney-client privilege. The original ABA Canons of Ethics, adopted in 1908, did not directly address the issue of confidentiality. The only reference was in Canon 6 on conflicts of interest, which precluded a lawyer from accepting employment that might require the disclosure of the client’s “secrets” or “confidences.” Canon 37 was added in 1928 to impose on the lawyer a duty to preserve a client’s confidences. The origin of California’s Section 6068(e) is the code of civil procedure developed by David Dudley Field for the New York legislature in 1849. The concepts in the Field code is sought from the lawyer through compulsion of law.18 The duty of confidentiality is interpreted broadly and is designed primarily to protect the attorney-client relationship, while the attorney-client privilege, as a rule of evidence, is construed narrowly in judicial proceedings in which courts are concerned primarily with ascertaining the truth.19 The attorney-client privilege protects only confidential communications between the attor ney and client or their agents. Information protected by the duty of confidentiality is much broader than information pro- were brought to California, most likely by Steven J. Field, who was David Dudley Field’s brother and who later served as a chief justice of the California Supreme Court.13 In 1872, Section 511 of the New York Code of Civil Procedure became Section 282 of the new California Code of Civil Procedure. In 1937, the statute became part of Business and Professions Code Section 6068.14 Codes of legal ethics dealing with confidentiality are relatively recent compared to the attorney-client privilege, which can be traced back to the time of Elizabeth I.15 The attorney-client privilege and confidentiality have the same roots and share similar goals; yet, there are also important distinctions between the two. The attorney-client privilege is codified in the Evidence Code followed by a list of exceptions.16 The duty of confidentiality is codified in the State Bar Act and is a substantive duty.17 The attorney-client privilege and the work product doctrine apply in judicial and other proceedings in which the attorney may be called as a witness or otherwise called to produce evidence concerning the client. The duty of confidentiality protects client information from disclosure in situations other than those in which evidence tected by the privilege and often includes all information relating to the representation that is obtained by the attorney from any source.20 As a result, the ethical duty of confidentiality is more protective than the attorney-client privilege. For example, because the privilege interferes with the truth-finding function of the courts, the party seeking to invoke the privilege has the burden of establishing each of its elements.21 In contrast, an attorney has a fiduciary obligation to preserve client secrets “at every peril to himself or herself,” which includes avoiding the representation of interests adverse to the client or former client when the attorney possesses confidential information material to the matter at issue.22 Public Policy The duty of confidentiality in California is often erroneously characterized as absolute. Although Section 6068(e) contains no express exceptions, limitations on the duty of confidentiality have long been recognized by case law, other rules, and ethics opinions. Consequently, disclosure of otherwise confidential information is permitted with the client’s informed consent.23 A lawyer may not supLOS ANGELES LAWYER / DECEMBER 2002 27 press evidence under a claim of client confidentiality that the lawyer or the lawyer’s client has a legal obligation to reveal or to produce.24 It is also an established principle of professional responsibility that a lawyer may not counsel, assist, or advise a client regarding conduct that the lawyer knows is criminal or fraudulent.25 A lawyer may be required by law to disclose information otherwise protected under Section 6068(e). Examples include reporting large cash transactions26 and the right of courts to inquire of counsel regarding a client’s competence in criminal proceedings.27 Section 6068(e) does not permit attorneys to violate their duty of candor to the court.28 For example, a lawyer is not required to stand idly by when the client insists on committing perjury, even in a criminal case; instead, the lawyer may advise the client that the lawyer will seek to withdraw from representing the client.29 Information protected under Section 6068(e) may also be disclosed as necessary in responding to a client’s claim against the attorney30 and in pursuing a contested claim for fees.31 Finally, it is generally accepted that a lawyer cannot avoid complying with a final order of a court of competent jurisdiction based on Section 6068(e).32 The duty of con- fidentiality, however, may obligate the attorney to seek appellate review of the order before making disclosure.33 The interplay between the attorney-client privilege and confidentiality has been a source of confusion not only for lawyers but for judges and commentators as well. Both the testimonial privilege and the ethical obligation exist to protect the client as opposed to the interests of the lawyer or a third par ty. Preserving client confidences facilitates a full development of essential facts, encourages people to seek early assistance from lawyers about their legal problems regardless of how embarrassing or legally damaging the subject matter, and aids clients in making informed decisions about their affairs.34 The law has become increasingly complicated, and clients require the assistance of competent counsel for meaningful access to the legal system to resolve their problems. As the California Supreme Court has stated, the duty of confidentiality is not simply a rule of professional conduct but reflects a public policy of paramount importance.35 Ethical principles are generally based on the concept of client autonomy. This means that a fully informed and adequately represented client is able to make his or her own decisions and is not required to be under the control of the lawyer. The traditional role of the lawyer, both as advocate and as a confidential counselor, is to competently advise the client about the law and its consequences. The right of the client to control information disclosed to the lawyer is consistent with this principle. Conversely, rules that allow lawyers to make disclosures of confidential client information over the client’s objection in order to protect the interests of a third party tend to change the lawyer’s role from the client’s fiduciary to a law enforcement officer or free agent. Broadly construed confidentiality has gained greater acceptance in the criminal context. The Sixth Amendment assures that criminal defendants receive the effective assistance of counsel, which necessarily includes a high degree of confidentiality.36 The Fifth Amendment right against self-incrimination prohibits the government from requiring individual defendants or their attorneys to provide certain evidence. However, the distinction between the application of confidentiality principles in the criminal and civil arenas is not always clear and not necessarily warranted. Many activities in which a client seeks a lawyer’s advice involve New Challenges to Confidentiality Recent events have created more issues regarding the application of the duty of confidentiality. These legal developments could have a significant impact on several areas of practice. ▼ Monitoring Certain Attorney-Inmate Conversations. The U.S. Bureau of Prisons has adopted regulations permitting the monitoring of attorney-client conversations under certain circumstances to prevent attorneys and/or their interpreters from being used by detainees, either willingly or unwillingly, to send messages to those outside of prison about committing future acts of terrorism.1 The lawyer and inmate must be given advance written notice unless the Justice Department has received court permission to conduct secret monitoring. The regulations provide for a “privilege” team composed of persons not involved in the underlying investigation to review the monitored conversations for potentially privileged information. ▼ Gatekeeper Regulation. In response to the problem of international money laundering and its connection to terrorism, one of the options being considered by the Justice Department is the imposition of federal requirements on accountants and lawyers to file suspicious activity reports (SARs) if they learn of a known or suspected violation of federal law, especially in connection with money laundering and financial crime.2 ▼ ABA Task Force on Corporate Responsibility. In its preliminary report, the ABA Task Force on Corporate Responsibility has recommended that Model Rule 1.6 of the ABA Model Rules of Professional Conduct be amended to permit disclosure of client confidential information if the client’s conduct has resulted or is reasonably certain to result in substantial injury to the financial interests or property of another. The proposed amendment would also require lawyers to disclose the confidential information of clients to prevent felonies or other serious crimes, including violations of the federal securities laws, if lawyers have knowledge of this conduct.3 ▼ Sarbanes-Oxley Act of 2002. The recent revelations of corporate accounting abuses led to congressional passage of the Sarbanes-Oxley Act of 2002, which President Bush signed into law on July 30.4 Section 307 of the act provides that the Securities and Exchange Commission must issue rules requiring private attorneys who represent public companies before the SEC to report evidence of violations of securities laws, breaches of fiduciary duties, or similar violations to the company’s audit committee or board of directors. The act also mandates that the SEC create federal rules of professional conduct for attorneys who practice before the SEC.—M.L.T. 1 28 C.F.R. §501.3(d). R. Christian Bruce, Justice Eyeing Attorneys, Accountants for Anti-Money Laundering Duties, ABA/BNA LAWYERS’ MANUAL ON PROFESSIONAL CONDUCT, Vol. 18, No. 4, at 93. 3 Preliminary Report of the ABA Task Force on Corporate Responsibility, July 16, 2002, available at www.abanet.org/buslaw/corporateresponsibility. 4 The Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745. 2 28 LOS ANGELES LAWYER / DECEMBER 2002 You’re successful. You’re confident. You’re informed. With KeyCite ® Alert, you‘re always on top of the law. This exclusive tracking service automatically notifies you of breaking developments in the law --- via wireless device, e-mail or fax --- so you always have the most current information to support your case. Differences that matter. Call 1-800-REF-ATTY (1-800-733-2889) or visit westlaw.com/keycite. © 2002 West Group W-105431/9-02 Trademarks shown are used under license. both criminal as well as civil consequences. The law has become increasingly complex, and clients have a need to know the consequences of their actions before they become a suspect or are charged with an offense. A broadly construed rule on confidentiality in the civil context also promotes the privacy interests of individuals, which in states such as California is a constitutional right.37 One of the problems in narrowly drawing a bright-line rule on confidentiality is the effect permissible disclosures would have on the predictability of the confidential nature of the client’s information. To what extent would the client need to be given a Miranda-type warning prior to speaking with a lawyer? As the California Supreme Court has noted, “If a lawyer could not promise to maintain the confidentiality of his client’s secrets, the only advice he or she could provide would be, ‘don’t talk to me.’”38 It is important for a lawyer to explain to the client that the lawyer’s duty of loyalty includes loyalty to the law as well as to the client. This is not so much a Miranda-style warning as it is sound advice regarding the limitations on the duty of confidentiality and the proper role of the lawyer in the professional relationship. Preventing Physical Harm Nevertheless, there is an inherent tension between confidentiality and the obligation to uphold the law and prevent harm to others. Two situations provoke the greatest controversy. One occurs when the lawyer believes the client intends to commit an act that could cause death or serious bodily harm to another, and the other involves the application of the crime-fraud exception to the duty of confidentiality. Most lawyers accept the idea that confidentiality principles should not prevent them from taking steps to save a life or prevent serious harm to another. Indeed, there is no record of a California lawyer being disciplined for violating Section 6068(e) by disclosing client secrets to save a human life. ABA Model Rule 1.6(b) was revised earlier this year to give lawyers substantially broader discretion to disclose confidential information to the extent a lawyer reasonably believes necessary to prevent “reasonably cer tain” death or substantial bodily harm.39 The new rule is ABA Model Rule 1.6(b)(1). Under the former rule, permissive disclosure was limited to the client’s commission of a criminal act and allowed disclosure only where the threat of harm was “imminent.”40 In California, the Evidence Code was amended in 1993 to provide that the attorney-client privilege does not apply when a lawyer reasonably believes that disclosure 30 LOS ANGELES LAWYER / DECEMBER 2002 of any confidential communication relating to the representation is necessary to prevent the client from committing a criminal act that the lawyer believes is likely to result in death or substantial bodily harm.41 This provision, which is found in Evidence Code Section 956.5, confines its application to the evidentiary privilege and is not a rule of professional conduct. The legislative histor y is murky,42 and the tension between Evidence Code Section 956.5 and Business and Professions Code Section 6068(e) remains unresolved.43 The controversy over whether a lawyer should be permitted to disclose client confidences to prevent physical harm to another often revolves around a discussion of Tarasoff v. Regents of the University of California,44 in which a psychotherapist was subject to tort liability for failing to disclose communications protected by the psychotherapist-patient privilege when the disclosure was reasonably necessar y to prevent threatened danger. Although the application of Tarasoff to lawyers has been heavily debated, in the 25 years since the case was decided, no court has held a lawyer to a similar duty of disclosure, particularly to a person who is not the lawyer’s client. 45 However, new ABA Model Rule 1.6(b)(1) and Evidence Code Section 956.5 could lead to an analogous liability for lawyers. Ethics opinions of local bar associations are in conflict on the extent to which California lawyers can ethically make disclosures to save life and limb.46 The State Bar has on three occasions proposed a rule of professional conduct on confidentiality that defined the duty and included permission to disclose information reasonably necessary to prevent death or substantial bodily harm.47 Despite the rejection of these proposals, the California Supreme Court has the inherent authority to resolve the dilemma created by the legislature and to clarify the duty of confidentiality in California. This Los Angeles Lawyer MCLE self-study test is sponsored by WEST. MCLE Test No. 111 The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education legal ethics credit by the State Bar of California in the amount of 1 hour. 1. The duty of confidentiality is: A. A rule of professional conduct. B. A section in the State Bar Act. C. Both A and B. 2. Under the duty of confidentiality, an attorney is precluded from: A. Disclosing confidential information about a client. B. Using confidential information adverse to the client. C. Both A and B. 3. The duty of confidentiality does not apply unless there is an attorney-client relationship. True. False. The Crime-Fraud Exception The crime-fraud exception is another matter. In California, the exception applies to the attorney-client privilege and is recognized as such by federal courts, among other jurisdictions. The exception is based on the rationale that the attorney-client privilege belongs to the client, and that a client who obtains the lawyer’s assistance in committing a crime or fraud has not consulted the lawyer in the lawyer’s representative capacity.48 As U.S. Supreme Court Justice Cardozo explained, “The privilege takes flight if the relationship is abused. A client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law.”49 In this sense, the crime-fraud test is 4. The duty of confidentiality was codified in California in: A. 1975. B. 1928. C. 1872. D. 1850. 5. The duty of confidentiality and the attorneyclient privilege are construed narrowly. True. False. 6. The duty of confidentiality may apply even when the attorney-client privilege does not. True. False. MCLE Answer Sheet #111 7. The duty of confidentiality permits a lawyer to suppress evidence even when the lawyer or the lawyer’s client has a legal obligation to reveal or to produce that evidence. True. False. 8. Business and Professions Code Section 6068(e) does not permit an attorney to violate his or her duty of candor to the court. True. False. 9. Information protected under Business and Professions Code Section 6068(e) may be disclosed: A. In responding to a client’s claim of legal malpractice against the attorney. B. In pursuing a contested claim against the client for the attorney’s fees. C. Both A and B. 10. The attorney-client privilege and the duty of confidentiality share a common purpose in helping clients make informed decisions about their affairs. True. False. 11. ABA Model Rule 1.6 was revised in 2002 to give a lawyer the discretion to disclose confidential information to the extent the lawyer reasonably believes necessary when: A. The client intends to commit an act that is likely to result in reasonably certain death or substantial bodily harm. B. The client intends to commit a criminal act that is likely to result in reasonably certain death or substantial bodily harm. C. The client intends to commit an act that is likely to result in imminent death or substantial bodily harm. 12. The attorney-client privilege does not apply in California if a lawyer reasonably believes that disclosure of confidential information relating to the representation of the client is necessary to: A. Prevent the client from committing a criminal act that the lawyer believes is likely to result in imminent death or substantial bodily harm. B. Prevent the client from committing a criminal act that the lawyer believes is likely to result in death or substantial bodily harm. C. Prevent the client from committing an act that the lawyer believes is likely to result in reasonably certain death or substantial bodily harm. 13. The court in People v. Dang held that Evidence Code Section 956.5 is an exception to the duty of confidentiality under Business and Professions Code Section 6068(e). True. False. FOR YOUR EYES ONLY Sponsored by WEST Name Law Firm/Organization 14. A party asserting the attorney-client privilege has a right to notice and an opportunity to be heard before disclosure of information protected by the attorney-client privilege can be ordered in a civil proceeding. True. False. Address City State/Zip E-mail Phone State Bar # 15. The ABA adopted the ABA Ethics 2000 Commission’s recommended changes to Model Rule 1.6 that allow a lawyer the discretion to disclose confidential information of the client to the extent the lawyer reasonably believes necessary to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interest or property of another and involves the use by the client of the lawyer’s services in the furtherance of the crime or fraud. True. False. 16. The State Bar proposed a rule of professional conduct on confidentiality to the California Supreme Court on: A. Three occasions. B. Two occasions. C. Four occasions. 17. The Sarbanes-Oxley Act of 2002 requires the SEC to issue rules requiring private attorneys representing public companies before the SEC to report evidence of securities laws violations to the company’s audit committee or board of directors. True. False. 18. The crime-fraud exception applies to: A. Future crimes and frauds. B. Past crimes and frauds. C. Ongoing crimes and frauds. D. All of the above. E. Both A and C. 19. Attorneys are required to preserve confidential client information in seeking to withdraw as counsel of record in proceedings before a court or other tribunal. True. False. 20. Lawyers in California must comply with Business and Professions Code Section 6068(e) in protecting a corporate client from the wrongful acts of its agents. True. False. Instructions for Obtaining MCLE Credits 1. Study the MCLE article in this issue. 2. Answer the test questions opposite by marking the appropriate boxes below. Each question has only one answer. Photocopies of this answer sheet may be submitted; however, this form should not be enlarged or reduced. 3. Mail the answer sheet and the $15 testing fee ($20 for non-LACBA members) to: Los Angeles Lawyer MCLE Test P.O. Box 55020 Los Angeles, CA 90055 Make checks payable to Los Angeles Lawyer. 4. Within six weeks, Los Angeles Lawyer will return your test with the correct answers, a rationale for the correct answers, and a certificate verifying the MCLE credit you earned through this self-assessment activity. 5. For future reference, please retain the MCLE test materials returned to you. Answers Mark your answers to the test by checking the appropriate boxes below. Each question has only one answer. 1. ■A ■B ■C 2. ■A ■B ■C 3. ■ True 4. ■A 5. ■ True ■ False 6. ■ True ■ False 7. ■ True ■ False 8. ■ True 9. ■A 10. ■ True 11. ■A ■B ■C 12. ■A ■B ■C 13. ■ True ■ False 14. ■ True ■ False 15. ■ True ■ False 16. ■A 17. ■ True 18. ■A 19. ■ True ■ False 20. ■ True ■ False ■ False ■B ■C ■D ■ False ■B ■C ■ False ■B ■C ■ False ■B ■C ■D ■E LOS ANGELES LAWYER / DECEMBER 2002 31 actually an exclusion rather than an exception to the privilege.50 The lawyer’s duty of confidentiality and the attorney-client privilege are not the same. A party claiming that the evidentiary shield against compelled disclosure of a confidential client communication does not apply bears the burden of proving the elements of the crimefraud exception in a judicial proceeding. The court, and not the lawyer, is the decision maker and must invoke procedural safeguards in deciding whether the exception applies.51 Even in civil proceedings, a party asserting the privilege has a right to proper notice and an opportunity to be heard before disclosure of privileged information can be ordered.52 The ABA has not been a model of consistency on the issue of disclosing client crime or fraud as an exception to the duty of confidentiality. Early versions of the ABA rules permitted discretion to disclose confidential information to protect third parties from being victims of a crime.53 The ABA Model Code obligated a lawyer to rectify client fraud by, if necessary, revealing the fraud to third parties.54 However, after the SEC’s reliance on ABA Model Code DR 7-102(B)(1) in a highly publicized investigation that led to SEC v. National Student Marketing Corporation,55 the ABA amended its rule to preclude disclosure of client fraud “when the information is protected as a privileged communication.”56 The next year the ABA changed its rule to define “privileged communication” as including all “confidences and secrets” learned during the attorney-client relationship.57 The controversy over the application of the crime-fraud exception to the duty of confidentiality was played out again in 1983 with the adoption of the ABA Model Rules and the rejection of the Kutak Commission proposal that Model Rule 1.6 permit disclosures to prevent or rectify client crime or fraud. Another proposal to restore much of the Kutak recommendation was again rejected in 1991. Most states have not adopted Model Rule 1.6 as recommended by the ABA. As a result, there is substantial disagreement among the states on the scope of a lawyer’s duty of confidentiality as it relates to client crime or fraud.58 The ABA Ethics 2000 Commission recommended changes to Model Rule 1.6 in 2001 that would allow a lawyer the discretion to disclose confidential information of the client to the extent the lawyer reasonably believes necessary to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or proper ty of another and involves the use by the client of the lawyer’s services in the furtherance of the 32 LOS ANGELES LAWYER / DECEMBER 2002 crime or fraud. The rule would also allow disclosure to prevent, mitigate, or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud that involves the client’s use of the lawyer’s services. The ABA House of Delegates rejected these proposed revisions by approximately 2 to 1. However, more recently, the ABA Task Force on Corporate Responsibility has recommended, in a preliminary report filed July 16, 2002, that Model Rule 1.6 be amended to expand permissive disclosures to prevent or rectify the consequences of client crime or fraud that are reasonably certain to result, or have resulted, in substantial injury to the financial interests or property of another and involve the client’s use of the lawyer’s services. The ABA Task Force further recommended that Rule 1.6 be amended to make disclosure mandatory, rather than permissive, in order to prevent client conduct known to the lawyer to involve a crime—including violations of federal securities laws and regulations—in furtherance of which the client has used or is using the lawyer’s services and which is reasonably certain to result in substantial injury to the financial interests or property of another.59 The rationale for these proposals is that a client who uses a lawyer’s services to perpetrate a crime or fraud forfeits the protections afforded by the client-lawyer relationship. It is also argued that a lawyer will be better able to persuade the client to refrain from wrongdoing by threatening to disclose the client’s secrets. However, applying the crimefraud exception to the lawyer’s duty of confidentiality changes the traditional role of the lawyer as client fiduciary and imposes on the lawyer the function of judicial decision maker. Even the crime-fraud exception to the attorney-client privilege does not allow an attorney to act as the sole arbiter on whether to become a whistle-blower regarding client misconduct. Without judicial intervention, the client risks the loss of rights without due process at the hands of the lawyer in whom the client has been encouraged by the law to repose trust and confidence. The crime-fraud exception applies only to communications that are in furtherance of the crime or fraud.60 Communications regarding past crimes and frauds remain protected under the privilege. The crime-fraud test— whether the crime or fraud occurred in the past, is ongoing, or will occur in the future— may be useful in a judicial determination of the crime-fraud exception to the attorneyclient privilege, but it is not a very practical tool for attorneys in actual practice. There is uncertainty in California whether the exceptions to the attorney-client privilege apply equally to the duty of confidentiality. In General Dynamics v. Superior Court, the California Supreme Court suggested in dicta that Evidence Code Section 956.5 represents a situation in which the legislature decided that “the principle of professional confidentiality does not apply.” 61 More recently, the court of appeal in Fox Searchlight Pictures, Inc. v. Paladino62 found that Business and Professions Code Section 6068(e) must be read in conjunction with other statutes and ethics rules that permit the attorney to depart from strict confidentiality requirements, including Evidence Code Section 958, which applies to communications that are relevant to an issue of breach, by the lawyer or client, of a duty arising out of the attorneyclient relationship. Relying on In the Matter of Lilly,63 the Fox Searchlight court found that the State Bar Court has determined that the duty of confidentiality under Section 6068(e) is modified by the exceptions to the attorney-client privilege contained in the Evidence Code.64 This assertion was repeated in People v. Dang.65 However, the In the Matter of Lilly opinion does not support the conclusion that Section 6068(e) is modified by the Evidence Code.66 Certainty and Predictability Lawyers often experience problems in applying the law of confidentiality. For example, attorneys are required to preserve client confidences in seeking to be relieved as counsel.67 At the same time, confidential information can be disclosed as necessary to pursue a contested action for fees following withdrawal.68 If the duty of confidentiality precludes an attorney from representing another client, it may or may not lead to the vicarious disqualification of the attorney’s law firm.69 Also, lawyers must abide by Section 6068(e) in protecting a corporate client from the wrongful acts of its agents.70 At the same time, lawyers must meet the standard of care in protecting the interests of the corporate client.71 Circumstances may arise in the representation of a government client when disclosure of otherwise confidential information may be in the public interest.72 Confidentiality pervades the field of professional responsibility. Yet there is no national ethical standard on confidentiality today among the states. Instead, there is confusion—some would say chaos—on the duty of confidentiality. California, therefore, is not out of step with the rest of the country and could take the lead in clarifying the law of confidentiality through a rule of professional conduct that will provide adequate guidance for lawyers to follow in the increasingly complex practice of law. Clients and the public are entitled to certainty and predictability with respect to confidential information shared with lawyers. As the U.S. Supreme Court has stated, “[A]n uncertain privilege [or confidentiality rule], or one that purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.”73 ■ 1 BUS. & PROF. CODE §6068(e). Flatt v. Superior Court, 9 Cal. 4th 275, 289 (1994) (“One of the principal obligations which binds an attorney is that of fidelity, the maintaining inviolate of the confidence reposed in him by those who employ him, and at every peril to himself to preserve the secrets of his client.…[T]his obligation is a very high and stringent one.”). 3 In re Soale, 31 Cal. App. 144, 153 (1916); State Bar of California Formal Op. 1993-133. 4 Goldstein v. Lees, 46 Cal. App. 3d 614, 621, n.5. (1975). 5 See Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 436 (1985). 6 Matter of Johnson, 4 Cal. State Bar Ct. Rptr. 179, 189 (Rev. Dept. 2000). 7 State Bar of California Formal Op. 1984-84; Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 366 (1977); see ABA MODEL RULES OF PROF’L CONDUCT R. 1.18 (2002). 8 Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 414 (1983). 9 GEOFFREY C. HAZARD JR., THE LAW OF LAWYERING §9.15 (ABA Model Rule 1.6(a) creates a presumption of confidentiality that operates automatically in all cases without any signal from the client.). 10 The interpretation of “secrets” in Business and Professions Code §6068(e) generally has followed the definition under the ABA Model Code of Professional Responsibility DR 4-101(a), in which “secrets” is defined as information the client requested to be held inviolate or information that would be embarrassing or likely to be detrimental if revealed. See also Forrest v. Baeza, 58 Cal. App. 4th 65, 82 (1997) (disqualification of attorney for two of three officers/shareholders denied when confidential information attorney received while representing corporation was not conceivably different from information attorney received from officers/shareholders) and Christiansen v. U.S.D. Court for Cent. D. of Cal., 884 F. 2d 694, 698-99 (9th Cir. 1988) (substantial relationship test inapplicable when former client had no reason to believe that the information given to attorney would not be disclosed to attorney’s current client). 11 ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 4-101. 12 See ABA MODEL RULES OF PROF’L CONDUCT R. 1.6(a) and cmt. 3 (2002). 13 Justice Field also served as an associate justice on the U.S. Supreme Court. 14 Patterson, Legal Ethics and the Duty of Loyalty, 29 EMORY L.J. 909, 941-42 (1980). 15 See 8 J. WIGMORE, EVIDENCE IN TRIALS AT COMMON LAW §2290, at 3194 (1905); see also Hazard, An Historical Perspective on the Attorney-Client Privilege, 66 CAL. L. REV. 1061, 1069-91 (1978). 16 EVID. CODE §§950-962. 17 The State Bar Act, BUS. & PROF. CODE §§6000 et seq. The act includes BUS. & PROF. CODE §6068(e). 18 See C ALIFORNIA P RACTICE G UIDE : P ROFESSIONAL RESPONSIBILITY §7:9 (2002); ABA MODEL RULES OF PROF’L CONDUCT R. 1.6 cmt. 3. 19 Trammel v. United States, 445 U.S. 40, 50-51 (1980) (Privileges should be construed strictly because they 2 contravene the fundamental principle that the public has “a right to every man’s evidence.”). 20 Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 436 (1985). 21 United States v. United Shoe Mach. Corp., 89 F. Supp. 347, 358-59 (D. Mass. 1950); D.I. Chadbourne, Inc. v. Superior Court, 60 Cal. 2d 213 (1964). 22 CAL. RULES OF PROF’L CONDUCT R. 3-310(E). 23 Commercial Standard Title Co. v. Superior Court, 92 Cal. App. 3d 934, 945 (1979); Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 456 (1990). 24 CAL. RULES OF PROF’L CONDUCT R. 5-220. 25 BUS. & PROF. CODE §6068(d); see ABA MODEL RULES OF PROF’L CONDUCT R. 1.2(d). 26 I.R.C. §6050I (returns relating to cash received in trade or business). 27 PENAL CODE §§1367.1, 1368. BUS. & PROF. CODE §6068(d); CAL. RULES OF PROF’L CONDUCT R. 5-200. 29 Nix v. Whiteside, 475 U.S. 157, 172-73 (1986). 30 See Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 396 (1982). 31 Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 452 (1988). 32 BUS. & PROF. CODE §6068(a); see BUS. & PROF. CODE §6103. 33 See, e.g., People v. Kor, 129 Cal. App. 2d 436, 446-47 (1954) (concurring opinion). 34 Upjohn Co. v. United States, 449 U.S. 383, 391 (1981); Jeffry v. Pounds, 67 Cal. App. 3d 6, 9 (1977). 35 In re Jordan, 7 Cal. 3d 930, 940-41 (1972). 36 See United States v. Henry, 447 U.S. 264, 295 (1980) 28 W I N D O W S R E S TA URA N T ■ Contemporary Cuisine in Opulent Comfort ■ World Class Wine & Famous Martini Menu TREAT YOURSELF AND YOUR GUESTS TO WINDOWS RESTAURANT. WINDOWS is located on top of the Transamerica building on the corner of 12th and Olive Streets above the Los Angeles basin, overlooking beautiful sunsets, spectacular views, and glimmering city lights. Members of the Los Angeles County Bar Association receive a 10% discount! LUNCH 11:00 a.m. - 2:00 p.m. Lunch Monday-Friday DINNER 5:00 p.m.-10:00 p.m. Tuesday-Saturday HAPPY HOUR 4:00 p.m.-7:00 p.m. Tuesday-Friday Private rooms available for Special Events from 12-150 guests for a sit-down dinner and 300-400 for a cocktail reception. RICHARD BONHAMA, GENERAL MANAGER CARLOS ANDRADE, EXECUTIVE CHEF SPECIAL EVENTS & RESERVATIONS 213.746.1554 • FAX 213.742.4593 LOS ANGELES LAWYER / DECEMBER 2002 33 (dissenting opinion). 37 CAL. CONST. art. I, §1. 38 Southern Cal. Gas Co. v. Public Utils. Comm’n, 50 Cal. 3d 31, 37 (1990). 39 ABA MODEL RULES OF PROF’L CONDUCT R. 1.6(b)(1) (2002). 40 ABA MODEL RULES OF PROF’L CONDUCT former R. 1.6(b) (1983). 41 EVID. CODE §956.5. 42 It is likely the legislature intended to overrule People v. Clark, a decision by the California Supreme Court. People v. Clark, 50 Cal. 3d 583 (1990) (testimony during penalty phase of murder case about client’s threats protected by the attorney-client privilege). 43 See People v. Dang, 93 Cal. App. 4th 1293, 1298 (2001) (conflict between EVID. CODE §956.5 and BUS. & PROF. CODE §6068(e) not raised by the parties and decision therefore was limited to the admissibility of lawyer’s testimony at trial). 44 Tarasoff v. Regents of the Univ. of Cal., 17 Cal. 3d 425 (1976). 45 See Hawkins v. King County Dep’t of Rehab. Servs., 24 Wash. App. 338, 602 P. 2d 361 (1979) (distinguishing Tarasoff but suggesting that attorney liability is possible under extraordinary circumstances). 46 Compare Los Angeles County Bar Association Prof’l Responsibility and Ethics Committee Formal Op. 436 (1985) (following ABA MODEL RULES OF PROF’L CONDUCT R. 1.6) with San Diego County Bar Association Formal Op. 1990-1 (1990) (BUS. & PROF. CODE §6068(e) leaves “no discretion for disclosure or other warning of a client’s intent to inflict serious bodily harm or death upon another person.”). 47 Proposed R. 3-100 (1987) (“A member may reveal a confidence or secret…to the extent the member reasonably believes necessary to prevent the commission of a criminal act the member believes is likely to result in death or substantial bodily harm.”); Proposed R. 3100 (1992) (same, except the word “imminently” added before “likely…”); Proposed R. 3-100 (1998) (same and tracks EVID. CODE §956.5). 48 United States v. Hodge & Zweig, 548 F. 2d 1347 (9th Cir. 1977); EVID. CODE §956. 49 Clark v. United States, 289 U.S. 1, 15 (1933). 50 The traditional definition of the attorney-client privilege excludes client crime or fraud. See United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950). 51 United States v. Zolin, 491 U.S. 554, 574-75 (1989). 52 Titmus v. Superior Court (Lavarone), 87 Cal. App. 4th 738, 740 (2001). 53 ABA Canon 37 (1928) provided that “the announced intention of the client to commit a crime is not included within the confidences which he is bound to respect.” See also ABA CANON 41 (1928). 54 ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1). 55 SEC v. National Student Marketing Corp., 457 F. Supp. 682 (D. D.C. 1978) (counsel for merging corporation violated antifraud provisions of the federal securities laws by failing to delay closing pending disclosure of materially false financial information regarding the surviving corporation). 56 ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1) (1974). 57 ABA MODEL CODE OF PROF’L RESPONSIBILITY DR 7102(B)(1) (1975). 58 See Attorneys’ Liability Assurance Society, Inc. Ethics Rules on Client Confidences (2001), reprinted in M ORGAN & R OTUNDA , S ELECTED S TANDARDS ON PROFESSIONAL RESPONSIBILITY 134-144 app. A (2002). 59 Preliminary Report of the ABA Task Force on Corporate Responsibility (July 16, 2002), available at www.abanet.org/buslaw/corporateresponsibility. 60 EVID. CODE §956 (“There is no privilege under this article if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or a fraud.”) 61 General Dynamics v. Superior Court, 7 Cal. 4th 1164, 1189-90 (1994). 62 Fox Searchlight Pictures, Inc. v. Paladino, 89 Cal. App. 4th 294, 313-14 (2001). 63 In the Matter of Lilly, 2 Cal State Bar Ct. Rptr. 473, 478 (1993). 64 Fox Searchlight, 89 Cal. App. 4th at 314. 65 People v. Dang, 93 Cal. App. 4th 1293, 1298-99 (2001). See note 43, infra. 66 In the Matter of Lilly addressed whether the summary disbarment procedure under Business and Professions Code §6102(c) applied in circumstances involving a deceased former client whose estate was handled by an attorney acting as executor and not as an attorney. In holding that §6102(c) does not expressly limit its scope to the victimization of current clients, the court found that both Business and Professions Code §6068(e) and Evidence Code §950 define the term “client” broadly. 67 See CAL. R. OF CT. R. 376(c) (attorney’s declaration in support of withdrawal motion cannot compromise confidentiality). 68 In re Rindlisbacher, 225 B.R. 180, 193 (9th Cir B.A.P. 1998). 69 See People v. Speedee Oil Change Sys., Inc, 20 Cal. 4th 1135, 1150-52 (1999) and ABA Formal Op. 99-415, n. 19. 70 CAL. RULES OF PROF’L CONDUCT R. 3-600(B). 71 See FDIC v. O’Melveny & Myers, 969 F. 2d 744 (9th Cir. 1992). 72 See, e.g., AB 363 (2002). This bill, vetoed by Governor Davis, sought to add Business and Professions Code §6068.1 authorizing lawyers for government agencies to act as whistle-blowers in certain situations. 73 Upjohn Co. v. United States, 449 U.S. 383, 393 (1981). IMMIGRATION CONSULAR PROCESSING EMPLOYER SANCTIONS (I-9) DESIGN CORPORATE IMMIGRATION POLICIES EXPERT TESTIMONIAL SERVICES TEMPORARY WORK VISAS LAW LABOR CERTIFICATIONS FAMILY RELATED PETITIONS OUTBOUND VISA CAPABILITY Intra-Company Transfers Entertainers & Sports Professionals NAFTA (North American Free Trade Agreement) Visas Professionals & Investors Blue/White Collar Employee Immigration Assistance Global Business Requires Global Knowledge Newport Beach 4685 MacArthur Court, Suite 400 Newport Beach, CA 92660 phone 949-251-8844 fax 949-251-1545 email [email protected] AV Rated Los Angeles 6310 San Vicente Blvd., Suite 415 Los Angeles, CA 90048 phone 323-936-0200 fax 323-936-4488 email [email protected] www.hirson.com • also in San Diego, CA • Phoenix, AZ • Las Vegas, NV • New York, NY • Wilton, CT • Toronto, Canada David Hirson and Mitchell L. Wexler are certified by the State Bar of California Board of Legal Specialization as specialists in Immigration and Nationality Law. All matters of California state law are provided by active members and/or under the supervision of active members of the California State Bar. 34 LOS ANGELES LAWYER / DECEMBER 2002 The 2002 Los Angeles Lawyer O Holiday Travel & ADVENTURE TRAVEL SafariAfrica Owned and operated by attorneys, SafariAfrica offers safari travel in Kenya and Tanzania that is reflective, inspiring, and educational. Up-close wildlife encounters, stylish accommodations, and delicious food are built into every safari. SafariAfrica offers even more, including opportunities for experiential learning, as well as guides trained to take advantage of every educational opportunity that comes along. Add walking safaris, horseback riding safaris, or canoe safaris for those travelers who want to experience East Africa in a more active way. Our travelers enjoy our “giving back” component which allows them to help Africans through our charitable programs and investment in local tribes which are benefiting directly from Africa’s tourism industry. We’d love to have you on safari with us. Give us a call, and we’ll send you a brochure. SafariAfrica, 4450 Arapahoe Avenue, Suite 100, Boulder, CO, 80304, (303) 4152574, toll free (888) 658-7102. Web site: www.professionalsafaris.com. also drive your family members who may need to be driven for any reason. Additionally, we provide placement service for clients seeking to employ a full-time personal or company private chauffeur. Our service provides a convenience that complements your lifestyle. Use one of our chauffeurs to drive you in your car so you can be more productive on the road and when you don’t feel like driving. For reservations and information call (818) 348-3115. Or visit our Web site at www.yourdriver.com. Our e-mail: [email protected] Fax: (818) 703-6736. We accept Master Card, Visa, and American Express. Call now to get your FREE phones with activation of a service plan. FREE PHONES • FREE PHONES • FREE PHONES. We offer all the carriers under one roof AT&T, Boost Mobile, Cingular, Nextel, Sprint PCS, T-Mobile and Verizon Wireless. FREE ACCESSORIES WITH ACTIVATION OF SERVICE. We offer free delivery. 4759 Hollywood Boulevard, one block west of Vermont. (323) 667-2003 or visit us online @ www.nationwidewireless.net. CHAUFFEUR The Private Chauffeur Ever wish someone else would drive? The Private Chauffeur provides professional chauffeurs to come to your home or office and drive you in your car! Chauffeurs are available to drive you to business appointments, court dates, depositions, luncheons, dinners, special events, medical appointments, and errands and to assist you in other convenient and time-saving driving and personal assistant duties. We with beautiful sunsets over the Los Angeles basin followed by spectacular views of glimmering lights, providing the perfect setting for your special occasion. Windows is famous for its contemporary fusion cuisine, furnishing an opulent comfort, world-class wine and beer lists. We provide complementary parking for $5.50 for 5 hours before 5:00 P.M. and for unlimited time after 5:00 P.M. Windows, 1150 South Olive Street, Los Angeles. General Manager, Richard Bonhama. Banquet information, Angie Kwan (213) 746-1554, reservations (213) 746-1554, fax (213) 742-4593. See display ad on page 33. ENTERTAINMENT HOLIDAY GIFT IDEAS CaliforniaMobileDJs.com Book your holiday party now! Book your party fast…the holidays are upon us, and now is the time to act! Bringing parties to life since 1992. This holiday season we can bring the party to you! We offer experienced DJ/MC entertainment. Event planning and coordination. An extensive music library from the 1940s to today’s top 40. More fun than you can imagine. Call now for availability. We also do corporate events, private parties, weddings, birthdays, and grand openings. Visit us at www.californiamobiledjs.com. Contact Bob Houle at (888) 307-3565. CELLULAR www.nationwidewireless.net Gift Guide HOLIDAY DINING & CATERING Four Oaks Restaurant Located between Century City and the Valley, Four Oaks continues to receive national acclaim for its commitment to the art of food and wine. Comfortable French setting, romantic ambience, and surrounded with gardens, Four Oaks provides the ultimate setting for business or romance. Accommodations are available for private parties and group business dinners. Four Oaks Restaurant, 2181 North Beverly Glen Boulevard, Los Angeles, CA 90077, (310) 470-2265, fax (310) 415-5492. Web site: www.4oaksrestaurant.com. Windows Whether you're looking to have dinner party for a few business associates or a large party with close friends, Windows is the perfect place to be. For evening catering events, our location at the top of the Transamerica Building is complete AT&T Wireless AT&T Wireless is a leading provider of advanced wireless voice and data services. Operating one of the largest digital wireless networks in North America, AT&T Wireless provides customers with high-quality mobile wireless communications service in the U.S. and internationally. LACBA members receive additional discounts on wireless service and equipment. To activate new service, call (213) 2532400, or if you are an existing AT&T Wireless customer and would like to take advantage of the LACBA discounts, please call (800) 4596524 and refer to the LACBA account number (FAN#) 50001408. For information on realtime wireless e-mail and voice service with Blackberry please call Tracy McDaniel (949) 500-1000. See display ad on page 2. Drivetech Racing School Give the thrill of a lifetime: driving a 400hp V8-powered NASCAR race car at speeds up to 150 mph! Since 1992 Drivetech has given drivers the biggest “bang for the buck” anywhere! Lots of laps! Great cars! Where? How about the ovals of California Speedway and Phoenix International Raceway, or the challenging Willow Springs road course? No experience necessary, and we supply helmets, driving suits, and professional instruction. There’s a lot more, like in-car radios for instant instruction, and in-car video cameras for the world’s best souvenir! Prices begin at just $325.00! Same-day shipment of gift certificates, major credit cards accepted. Call (800) 678-8864 for a comprehensive brochure. LOS ANGELES LAWYER / DECEMBER 2002 35 Steam Steam emerged from an idea that people create their self-image through self-expression. A space that moves and transforms. Steam is a home for the creative exploration of one’s self. Intuitive to individuality, beauty is the focus. Schedule a haircut and style and receive a complimentary “Steam treatment,” a nourishing treatment for your scalp and hair; you choose between two special oil blends for a full scalp, neck, and shoulder massage, valid through February 2003. Please bring this ad to your appointment. Steam, 314 North Harper Avenue, Los Angeles, CA 90048, (323) 9660024, fax (323) 658-7908. Frank Vernon Jewelers/Diamond Brokers For more than 50 years, Frank Vernon Diamond Brokers and Wholesale Jewelers has built its reputation on offering diamonds of exceptional brilliance and beautifully designed and exquisitely crafted jewelry, at prices as attractive as the merchandise. In anticipation of the holidays, the Frank Vernon showroom has an even larger selection of loose diamonds and other precious stones, rings, bracelets, earrings, pins, and necklaces, as well as lustrous pearls. In addition, Frank Vernon can help you design that unique piece to satisfy even the most demanding taste. The courteous and experienced sales staff will help you select that perfect gift to make the holidays sparkle. Frank Vernon is open Monday through Friday, 9 A.M. to 4:30 P.M., and Saturday, 9 A.M. to 2:30 P.M. For further information, please call Frank Vernon Jewelers at (213) 683-1480, 607 South Hill Street, Suite 610, Los Angeles, CA 90014. See display ad on page 36. HOTELS/MEETINGS/CATERING Hotel Metropole Conveniently located in the heart of Avalon on Catalina Island just 5 minutes from the ferry. The Hotel Metropole is a luxury hotel in a beautiful pristine setting offering 48 spacious air-conditioned guest rooms with spectacular views of the ocean, mountains, and the hotel’s courtyard. Situated just footsteps from the beach, it is the ideal locale for romantic getaways, family vacations, and corporate functions. The look of relaxed elegance imparts a sense of peace and serenity, which echoes the overall island ambiance of balmy breezes and soothing waters. The Hotel Metropole is adjacent to the Metropole Market Place, an openair marketplace with cobblestone walkways and sparkling fountains featuring a potpourri of boutiques, specialty shops, delis, cafes, and fine dining at two ocean-view restaurants. Guest rooms feature king-size beds, telephones, remote-controlled television with cable programming, and amply stocked snack bars. Each of the bright rooms is appointed with comfortable fruitwood furnishings in an aesthetically pleasing blend of colors to match the seaside ambiance. Many rooms have Jacuzzi tubs and private balconies, and adjoining rooms are available for families and groups. The hotel’s new 1800 square-foot recently redesigned suite, the Beach House, offers panoramic views and an added level of luxury, including two bedrooms, two Jacuzzi baths, a fully equipped kitchen, dining area, large living room with big screen TV and stereo, and over 1,000 square feet of private deck space. Other in-room amenities include plush terry cloth robes (seasonal) and complimentary continental breakfasts. Room service and day spa also available. 205 Crescent Avenue, Avalon, CA 90704, reservations and information (310) 510-1884, (800) 300-8528, Web site: www.hotel-metropole.com. Park Hyatt Los Angeles at Century City Discover a unique enclave of elegance, charm, and intimacy inspired by the finest European hotels. Luxurious accommodations and attentive service make it ideal for business and pleasure. Our location in Century City offers easy access to Rodeo Drive shopping via our complimentary limousine service. Treat yourself to an exquisite breakfast, lunch, or dinner in our Park Grill restaurant. Our newly renovated guest rooms feature outdoor balconies, marbled bathrooms including separate shower and bath, three telephones, and twice-daily maid service. Now featuring an exclusive discounted rate for qualified law firms. Please call (310) 284-6506 to take advantage of this new promotion. The Park Hyatt Los Angeles, “Where the Exceptional Is the Rule.” 2151 Avenue of the Stars, Los Angeles, CA 90067. For reservations call (310) 277-1234. The Argyle Hotel Gracing the peak of Sunset Boulevard. The Argyle Hotel is the epitome of Art Deco design and luxury, capturing the forgotten essence of the Golden Era of Hollywood. With just 64 rooms and suites, you too can have the starlet lifestyle and comfort…offering 24 hour room service, butler service, plush terry cloth robes, valet parking, 24 hour concierge service, 2-line phones, mini-bars in all rooms, nightly turndown service, in-room safes, in-room VCRs, inroom stereo/CD players, in-room data ports, in-room fax machines, and in-room hairdryers. The Argyle Hotel is the perfect place to hold your small meeting. We offer comfortably appointed meeting rooms ranging from 440 to1160 square feet, as well as the terrace patio at 1600 square feet. The Fenix Restaurant at 2162 square feet and the Fenix Lounge at 637 square feet. Hassle-free meetings with all the added perks of luxury are what we are made up of. 8358 Sunset Boulevard, West Hollywood, CA 90069, (323) 654-7100, fax (323) 654-1004. RESORTS Lake Arrowhead Resort The Lake Arrowhead Resort…a world away and above it all. About 90 minutes and a mile above the stress and smog of the Los Angeles basin is an elegant resort nestled in the lush pine forest of the San Bernardino Mountains. The Lake Arrowhead Resort is set right on the clear waters of strikingly beautiful Lake Arrowhead. Each mountain season has its own distinctive charm. Summer’s sunny blue skies and comfortable temperatures. Autumn’s brilliant ochers, golds, and oranges. The snows of winter that skiers cherish. And the first emerging buds of wildflowers in the spring of the year. Welcome to Lake Arrowhead Resort. Lake Arrowhead Resort, 27984 Highway 189, P.O. Box 1699, Lake Arrowhead, CA 92352, (909) 744-3024, fax (909) 336-3016. SUEDE & LEATHER CLEANING Suede and Leather Cleaning This is the time to put your best “fashion foot” forward, a time to look your best, by wearing your best suede and leather fashions. But if you know one thing about suede and leather, it’s that you had best leave their care to a true professional, and that is where the experts at Premier Suede & Leather Cleaning can help. Leather pants, suede coats, leather bags, suede skirts, whatever form it comes in, eventually it will get dirty. It might be easier to drop off your garments at the local dry cleaners, but thousands of garments are ruined by dry cleaners that don’t have the expertise in cleaning suede and leather garments. Premier has cleaned garments for Bally, Armani, Nordstrom, Max Fields, North Beach Leather, and many other fine retail stores. These stores want the best, and that’s why they only use Premier. Every year thousands of customers like yourself from all over the country ship their garments by UPS and Federal Express to Premier, as do many famous personalities and movie studios. Don’t take chances with your expensive garments. Let a specialist clean and recolor them for you. Premier is the most respected suede and leather cleaner in the nation. Bill Tobias, the owner, has 18 years of experience cleaning suede and leather, so call him and discuss your garments with him and he will make sure they look like new again. He also performs miracles on cleaning and redyeing your home and office suede and leather furniture. You can reach Bill at 1-800 2452378. Premier Suede & Leather Cleaners has two locations, 20021 Ventura, Woodland Hills, CA 91364 and 5422 Oceanus Drive, Huntington Beach, CA 92649. LOS ANGELES LAWYER / DECEMBER 2002 37 computer counselor By Carole Levitt Regulating the Availability of Public Records Online Federal and state courts are working to balance issues of privacy and public access and our free speech rights, nothing short of full access to public records via the Internet, sensitive information included, is acceptable. On the other hand, those in favor of the right to privacy want sensitive information taken off the Internet, especially in light of crimes such as identity theft and stalking. y definition, public records A Standard Policy are available to anyone As a result of this controversy, who takes the time to go to cour ts are drafting r ules to the appropriate source and ask address public access to court for them. Privacy advocates are documents. For example, in an not pleased, however, that these effort toward a consistent state records are becoming more policy for access to electronic increasingly accessible over the court documents, the National Internet. Without the effort of Center for State Courts and the traveling to the source, anyone Justice Management Institute with a computer and Internet con- submitted a white paper, The nection can access public records Public Access to Court Records: from home or from the work- Guidelines for Policy Development place. With this ease of access, by State Courts, to the Conferpublic records—including sensi- ence of Chief Justices and the tive information—are now much Conference of State Court Admore public. ministrators at their Annual Almost anything that a per- Conference this past summer son files with a gover nment (visit http://www.courtaccess agency—from a divorce decree .org/modelpolicy/). The docuto property records—is a public ment advocates electronic access record. A careful to cour t records Carole Levitt is search of public but seeks to limit president of Internet records can indiaccess to informaFor Lawyers. She can cate the price paid tion that is not be reached at for a house, the accessible to the [email protected] names of those public pursuant to .com. being booked by federal or state law, the Los Angeles court rule, or case sheriff, the names law. of those who have In Califor nia, been assigned to pay child sup- Section 37(b)(12) of the Rules of port, and even the Social Security Court simply states: “The public and credit card numbers of those should have access to electroniwho file for bankruptcy. cally filed documents as required For those who argue that by law.” (See www.courtinfo.ca access to public records is part of .gov/rules/2002/appendix/.) And our open, democratic tradition the Judicial Council of the Califor- B 38 LOS ANGELES LAWYER / DECEMBER 2002 nia Administrative Office explains that “should have access” means only “to the extent it is feasible,” which includes consideration for counties that simply lack the funds to establish online databases (http://www.courtinfo.ca .gov/rules/reports/documents /rules06.pdf). Thus, online access has general support, but it has been limited by practical concerns as well as questions of privacy. Ultimately, for example, the council decided to limit the court data that is freely available to the public over the Internet. Consequently, Rules 2070 through 2077 were added to the California Rules of Court, effective July 1, 2002 (see http://www .courtinfo.ca.gov/rules/). Privacy concerns are addressed in Rule 2073, which states that records from all the following types of proceedings are not to be accessible over the Internet by the public: juvenile court, guardianship or conser vatorship, mental health, criminal, and any proceedings under the Family Code and Code of Civil Procedure Section 527.6 (civil harassment). What can be accessed via the Internet is the register of actions (as defined in Government Code Section 69845), which includes the title of each cause, with the date of its commencement and a memorandum of ever y subsequent proceeding in the action with its date, calendars, and indexes and other records from civil cases, except those listed above. Court rules regarding the accessibility of information online do not af fect public access to paper copies or to computer terminals at cour thouses. These rules apply only to the public and not to parties to an action or their attorneys. Additionally, these rules apply only to trial courts; appellate courts and the supreme court have fully searchable online dockets. In the Los Angeles Superior Court, an important limitation on online access is that cases may only be searched by number. However, the Los Angeles County Bar Association has created a Searchable Superior Court Civil Register, which is accessible through its Web site (www.lacba .org). Users may search this register by a number of criteria, including the names of judges and parties, types of cases, and motions filed. At the federal cour ts, the Report of the Judicial Conference Committee on Court Administration and Case Management on Privacy and Public Access to Electronic Case Files was adopted in September 2001. It can be viewed online at www.privacy .uscourts.gov/Policy.htm. Of particular concern to federal courts was public access to bankruptcy filings, because of the large amount of sensitive information contained in these filings, including Social Security numbers, financial account numbers, detailed profiles of personal spending habits, and medical information. However, the administrative office of the U.S. courts recognized that in order for the public to hold the bankruptcy system accountable, access to records that show whether an individual has filed for bankruptcy, the type of proceeding, and the identities of the parties in interest should be available. A debtor’s personal, identifying information and financial account numbers should not be included in electronic or hard copies of filings. In practice, this means that only the last four digits of Social Security and financial account numbers are to appear in public records, and the names of minor children are to be omitted. Unlike the wholesale ban on electronic access to some records that the California court system has imposed, the federal courts are leaning toward partial publication from case files. Other Public Records Other public records are publicly available and free over the Internet. The Los Angeles Sheriff’s Inmate Information Center booking log is available, containing one year of historical data. Search by name and the following information will unfold: full name, gender, race, age, date of birth, weight, hair color, eye color, reason for arrest, bail amount, and housing location (http://pajis.lasd.org /ajis_search.cfm). To the fear of public knowledge of one’s arrest, one may now add the fear of publication of one’s weight and age at the time of arrest. A list with pictures of deadbeat dads and moms is available at http://childsupport.co.la .ca.us/dlparents.htm. This site announces to the world that Maximillian Rudolf Lobkowicz is delinquent and provides the following details: He owes more than $500,000 in back child support, was born in 1943, weighs 220 pounds, and was last seen in Beverly Hills. Records of all marriages taking place in Las Vegas are freely searchable on the Web by name or certificate number (http://www.co .clark.nv.us/recorder/mar_srch.htm). Marriage records in Los Angeles, however, are not so freely accessible. In Orange County, copies of marriage certificates are not freely available on the Web, but they can be ordered over the Internet (click on Online Transactions at http://www.oc.ca.gov/). Death records can be found in the Social Security Index at http://rootsweb.com/ or http://ancestry.com/—both are free sites that require registration. Search by last name and you can learn date of birth, date of death, last known address, Social Security number, and place of issuance. The death records of 9,366,786 Californians (from 1940 to 1997) are also available at rootsweb. These records provide much of the same information that is found on the Social Security Index but not Social Security numbers. They do provide, however, an additional piece of information— the mother’s maiden name—that answers one of the most common questions asked for security and privacy purposes. After September 11, the governor requested that the death and birth records found at rootsweb .com be taken down. That request was com- LAWSUIT & ASSET PROTECTION RINGLER ASSOCIATES Manuel R. Valdez, CSSC [email protected] Over 20 Years of Experience in Structured Settlements, Insurance, Financial Services, and Healthcare. Manny J. 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WITKIN, ESQ. ✦ CAROLE EISINGER KERN S E R V I C E A T T O R N E Y “We try to be the Best–Not the Biggest” DEPENDABILITY SINCE 1961 Integrity ■ Competence ■ Fair Prices COURT HOUSE SERVICE PROCESS SERVING INVESTIGATIVE RESEARCH COURT FAX FILING Agents in major cities throughout the State & Nation CALL FOR INFORMATION • NO OBLIGATION TEL: (213) 483-4900 FAX: (213) 483-7777 533 N. GLENDALE BLVD., SUITE 101, LOS ANGELES 90026 BANKRUPTCY JUDGESHIP Central District of California - Los Angeles, CA U.S. Courts for the Ninth Circuit is recruiting to fill a vacancy on the Bankruptcy Court for the Central District of California. Chambers is in Los Angeles, CA. This is an open, competitive process. Qualifications include admission to practice, good standing bar membership, and at least 5 years of legal practice. Appointment is for 14 years, subject to possible reappointment. Salary is $138,000. No relocation expenses provided. Vacancy announcement and application forms are available via court Web site at www.ce9.uscourts.gov (click on “documents”). They are also available at all court clerks’ offices in the Ninth Circuit or by calling, faxing or writing the following numbers or address: VOICE-(415) 556-6158 / FAX-(415) 556-6179 U.S. Courts for the Ninth Circuit Office of the Circuit Executive P.O. Box 193939 San Francisco, CA 94119- 3939 (Attn: Bankruptcy Recruitment-C.D. CA). All completed application materials must be received by 1/31/03. EOE 40 LOS ANGELES LAWYER / DECEMBER 2002 plied with, but the death records have appeared again. Sex offender registries have been one of the more litigated areas of free public records on the Web. Every state and county handles the matter dif ferently (http://www .fbi.gov/hq/cid/cac/states.htm). In Los Angeles there is no Web database that is searchable by offender’s name. Recently, however, a Web database was created to search by location, but it does not attach names or precise addresses (http://gismap .co.la.ca.us/sols/default.htm). This site is experiencing such heavy usage that users may have considerable access problems. There is also no consistency among states and counties regarding access to real property records and the amount of information to be found on these records. In Los Angeles, free searching by an address or assessor number is possible, but searching by a person’s name is not (http://assessor.co.la.ca.us/). Even after one conducts a search by address or assessor number at the county assessor’s site, the property owner’s name is still not shown. In sharp contrast, the free assessment database in Tennessee allows for name searching (http://18.104.22.168/). It is impossible to ascertain all of an individual’s real property assets using free publicly accessible records, but one can search by name using a pay database such as Lexis, Westlaw, Choicepoint, or Accurint. If one owns California property but does not know it, the unclaimed property database for California can help. This site can be accessed via the controller’s of fice site at http://www .sco.ca.gov/. (I have found unclaimed money for others but never myself.) A local attorney found $60,000 when he searched under the name of a client who owed him money. The Internet has undoubtedly tipped the balance in favor of the public’s right to know over the person’s right to privacy. Although courts have a duty to provide access, no statutory obligation exists for the dissemination of case files electronically. Internet access to public records is not mandated by the federal courts, and in California, it is mandated only to the extent feasible because some smaller counties simply do not have the funds to implement Web access. Web access to sensitive information, such as Social Security numbers, can be obtained from investigative databases. These databases are not available to the public but only to groups such as attorneys and law enforcement who can prove that they have a legitimate business purpose for the information. If some privacy advocates have their way, even this may not be an option. At the very least, everyone should be aware of just how public their public records can be. ■ Classifieds EXPERTS/CONSULTANTS BUSINESS VALUATION EXPERTS. The firm has over 20 years of litigation support and expert testimony experience in matters involving business valuation, economic damages, intellectual property, loss of business goodwill, and lost profits. 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El Monte, CA 91733 (626) 401-1515 HUNTINGTON PARK HEALTH CENTER 3033 E. Florence Ave. Huntington Park, CA 90255 (323) 582-8401 POMONA HEALTH CENTER 1180 N. White Ave. Pomona, CA 91768 (909) 623-0649 VICTORY HEALTH CENTER 6420 Van Nuys Boulevard Van Nuys, CA 91401 (818) 988-8480 CRENSHAW HEALTH CENTER 4243 S. Crenshaw Blvd. Los Angeles, CA 90008 (323) 291-5733 *ONTARIO HEALTH SERVICES 334 N. Euclid Ave. Ontario, CA 91764 (909) 395-5598 HIGHLAND PARK HEALTH CENTER 5421 N. Figueroa St. (Highland Park Plaza) Highland Park, CA 90042 (323) 478-9771 SO. CENTRAL HEALTH CENTER 4721 S. Broadway Los Angeles, CA 90037 (323) 234-3100 WHITTIER HEALTH SERVICES 13019 Bailey Ave. Suite F Whittier CA 90601 (562) 698-2411 1-800-624-2866 *Medical facilities in Montebello and Ontario only LOS ANGELES LAWYER / DECEMBER 2002 41 IndextoAdvertisers Aon Direct Admin/LACBA Prof Liability, p. 1 lawnetinfo.com, p. 24 Tel. 800-634-9177 www.attorneys-advantage.com Tel. 818-727-1723 www.lawnetinfo.com AT&T Wireless, p. 2 Lawyers’ Mutual Insurance Co., p. 7 Tel. 213-253-2400 www.attwireless.com Tel. 800 252-2045 www.lawyersmutual.com Law Office of Donald P. Brigham, p. 19 Lexis Publishing, Inside Front Cover, p. 9 Tel. 949-206-1661 e-mail: [email protected] www.lexis.com California Community Foundation, Inside Back Cover Arthur Mazirow, p. 6 Tel. 213-413-4130 www.calfund.org Tel. 310-255-6114 e-mail: [email protected] The Chugh Firm, p. 19 Laurence D. Merritt, p. 24 Tel. 562-229-1220 www.chugh.com Tel. 818-710-3823 www.legalknight.com Cohen Miskei & Mowrey, p. 39 Noriega Chiropractic Clinics, p. 41 Tel. 818-986-5070 [email protected] Tel. 323-728-8268 Coldwell Banker, p. 15 Office of the Circuit Executive, U.S. Courts, p. 40 Tel. 818-905-7111 e-mail: [email protected] Tel. 415-556-2000 www.ce9.uscourts.gov Commerce Escrow Company, p. 25 Ostrove, Krantz & Ostrove, p. 14 Tel. 213-484-0855 www.comescrow.com Tel. 323-939-3400 www.lawyers.com/ok&olaw Computerish Networks, Inc., p.14 Quo Jure Corporation, p. 11 Tel. 800-811-8984 www.computerish.com Tel. 800-843-0660 www.quojure.com DataChasers, Inc., p. 24 Ringler Associates/Manuel Valdez, p. 39 Tel. 909-780-7892 www.datachasersinc.com Tel. 888-471-7051 e-mail: [email protected] Fax & File, p. 14 Sanli Pastore & Hill, Inc., p. 6 Tel. 415-491-0606 www.faxfile.com Tel. 310-571-3400 www.sphvalue.com Field & Testing Engineering, Inc., p. 40 Hon. Anita Rae Shapiro, p. 15 Tel. 562-743-7230 e-mail: [email protected] Tel. 714-529-0415 www.adr-shapiro.com Frank Vernon Jewelers, p. 36 Southland Credit Union, p. 4 Tel. 213-683-1480 Tel. 800-426-1917 www.southlandcivic.org Steven L. 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This conference focuses on the typical stages of a case and features some of the most prominent lawyers and judges in our community. Learn from the masters and come away from the program with a file of sample pleadings you can use in your own practice. On Thursday, from 8 A.M. to 4:15 P.M., instruction will cover how to draft complaints and responsive pleadings, written discovery and discovery motions, and the California Rules of Court. On Friday, from 8 A.M. to 4:15 P.M., the general topics will be advanced deposition techniques; law and motion; and courtroom basics. And on Saturday, from 8:30 A.M. to 4 P.M., topics will include writing in plain English and alternative dispute resolution. This event will be held at the LACBA/LEXIS Publishing Conference Center, 281 South Figueroa Street, Downtown. The registration code number is 7102L05. $400—CLE+PLUS members $475—Barristers and all LACBA section members $550—LACBA members discount (CLE+PLUS card, 2002 Nuts and Bolts Conference) $650—“Become a Member” discount, which includes LACBA membership, CLE+PLUS card, and the 2002 Nuts and Bolts Conference $900—all others 18.5 CLE hours, including 2 ethics hours Mastery of Legal Research ON SATURDAY, DECEMBER 13, the Los Angeles County Bar Association and the Los Angeles Paralegal Association will present a LexisNexis training program on research proficiency. This course will cover initial case analysis and how to conduct factual discovery using the Lexis system, including locating and profiling people and conducting company research. Participants will also receive The Updated Rules of Court and other valuable reference material. The event will be held at the LACBA/LEXIS Entertainment Industry Labor and Employment Law Publishing Conference ON FRIDAY, DECEMBER 6, the Labor and Employment Law Section will present a program for attorneys involved in labor and employment in the entertainment industry. After introductory remarks by Deborah C. Saxe, Arnold Peter, and Vicki Shapiro, the first session will feature speakers Arnold Peter and Vicki Shapiro. From 9:30 to 11 A.M., the topic will be the basics of labor and employment issues in sports, featuring speakers Santiago Fernandez, Ted Fikre, Adam Katz, James Perzik, and Richard Brown. Next, Mike Farrell, Richard Levy, Zino Macaluso, Daniel Savage, and Peter Kiefer will discuss the future of talent representation in Hollywood. The luncheon panel speaker will be A. Robert Pisano. After lunch, speakers Ronald H. Gertz, Lawrence Mayberry, Grace Reiner, and Laurence Zakson will examine developments in technology. Then, speakers Adam Levin, Dan Schechter, and Ann Calfas will discuss restrictive covenants. The conference will take place at the Sheraton Universal Hotel, 333 Universal Terrace Parkway in Universal City. On-site registration will begin at 8:30 A.M., with the program continuing from 9 A.M. to 5 P.M. The registration code number is 8177L06. $95—CLE+PLUS members $195—Labor and Employment Law Section members $210—LACBA members $255—all others 6.25 CLE hours Center, 281 South Figueroa Street, Downtown. Parking at the Figueroa Courtyard Garage will be available for $7 with LACBA validation. On-site registration will begin at 9 A.M., with lunch from 12:30 to 1:30 P.M., and the program itself from 9:30 A.M. to 4:30 P.M. Registration code number: 7096L13. $150—CLE+PLUS members $250—LAPA members $300—LACBA members $450—all others 5 CLE hours The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the December County Bar Update. LOS ANGELES LAWYER / DECEMBER 2002 43 closing argument By Rena E. Kreitenberg A Cloud over Arbitration Decision Appeals A state court ruling changes the calculus when considering contractual arbitration clauses ntil recently, it was a generally held belief that parties to a contract for binding arbitration in California could preserve their right to judicial review provided that the right was expressly stated and adequate consideration existed. While that belief remains well grounded if the arbitration agreement is subject to Ninth Circuit interpretation of the Federal Arbitration Act (FAA),1 it is now misplaced for agreements interpreted pursuant to California law. In other words, when counseling clients on arbitration agreements, a new variable has arisen: What court will likely interpret the agreement? The recent decision by the California Court of Appeal in Crowell v. Downey Community Hospital Foundation2 has eliminated the right to contract for judicial review of arbitration awards governed by California state law. The court’s ruling, however, flies in the face of California precedent, makes no logical sense, is contrary to Ninth Circuit law, and creates significant ambiguity for practitioners. This will only serve to deepen what parties fear most about arbitration: that an arbitrator will act capriciously or without regard to the law. In California, private arbitration, as provided in Code of Civil Procedure Sections 1280 et seq., is a creature of contract.3 The majority in Crowell nevertheless held that negotiated contractual provisions allowing for judicial review are unenforceable because the Code of Civil Procedure specifically excludes review outside the grounds set forth in the code. Unfortunately, these grounds are very narrow, involve serious misconduct or outright fraud on the part of the arbitrator, and are rarely, if ever, applicable. In essence, the court in Crowell held that because strong public policy favors finality of judgment, the use of private arbitration presumes nonjudicial review of a decision. The court ignores, however, the fact that private contractual arbitration is a matter of agreement between the parties whereby the powers of the arbitrator are necessarily determined by agreement or stipulation. The court also ignores that parties may agree to expand or constrict statutory rights. The dissenting opinion in Crowell provides a more thorough and practical application of California law, including persuasive Ninth Circuit federal authority, which the Crowell majority refused to consider.4 As a result, the dissenting opinion provides a logical rationale as to why the courts, when faced with this issue in the past, have qualified their rulings limiting judicial review provisions in contractual arbitration. By basing such findings upon the “intentions of the parties, as expressed” in the particular agreement, the courts recognize that the parties should be allowed to freely contract for judicial review of arbitration awards.5 The dissenting opinion focuses on this critical issue when it correctly states: “At the core of binding arbitration is the parties’ freedom to contract for resolution of disputes in a forum and pursuant to rules U 44 LOS ANGELES LAWYER / DECEMBER 2002 of their choosing. Absent the parties’ agreement, binding arbitration cannot occur because it involves the decision to waive fundamental constitutional rights, including the right to trial by jury.”6 The sad truth is, the majority ruling in Crowell forces parties to choose between their right to freely contract and their right to a quick, economical, and fair forum outside the civil court system. The dissenting opinion recognized this conundrum and noted that it raises the fear that parties will refuse binding arbitration as an option because the cost becomes too high if a capricious arbitrator issues an award that is unsupported by law or evidence. Given that the current statutory scheme does not require arbitrators to follow the law, it seems that binding arbitration is now far too risky an endeavor. Parties can just as easily preserve their rights to appeal by opting for a bench trial while at the same time saving the cost of an arbitrator. When disputes are governed by federal law, a practitioner could avail the client of the broader provisions for judicial review in the FAA as provided in current Ninth Circuit law. However, this option could prove impractical and ineffective unless the contract includes a choice of forum provision that would require application of law from a jurisdiction (such as the Ninth Circuit) favorable to broader judicial review, since precedents disallowing judicial review exist in other federal circuits. Even more troubling, in multiple-party arbitrations crossing numerous jurisdictions, some parties may have the right to judicial review while other parties to the very same agreement would not. Regardless of how we feel about the current state of the law, we must now carefully counsel our clients on all aspects of binding arbitration and clearly explain the significant rights they could be waiving before recommending the “cheaper and quicker” alternative to the civil court process. With binding arbitration, it seems more and more that you get what you pay for. ■ Lapine Tech. Corp. v. Kyocera Corp., 130 F. 3d 884 (9th Cir. 1997). 2 Crowell v. Downey Cmty. Hosp. Found., 2002 Daily Journal DAR 1013 (2d. App. Dist. 2002), 95 Cal. App. 4th 730 (2002). 3 Moncharsh v. Heily & Blase, 3 Cal. 4th 1 (1992). 4 Crowell, 2002 Daily Journal DAR at 1015; see also id. at 1018 (dissenting op.). 5 Old Republic Ins. Co. v. St. Paul Fire & Marine Ins. Co. 45 Cal. App. 4th 631, 637; see also Crowell, 2002 Daily Journal DAR at 1018 (dissenting op.). 6 Crowell, 2002 Daily Journal DAR at 1020. 1 Rena E. Kreitenberg is a partner in the firm of Mesisca, Riley & Kreitenberg, where she specializes in business transactions and litigation and real estate matters. Charitable Gift Annuity Charitable Lead & Remainder Trusts Donor Advised Funds The Charitable Family IRA Planned GivingExplore the Options. When your clients ask you about tax-smart giving, or how to include a significant charitable contribution as part of their estate plans, the California Community Foundation is here to help. Since 1915, we’ve been working with donors and their advisors to make the practice of philanthropy easy and cost-effective. To learn more about our philanthropic products and services, visit our Web site at www.calfund.org and click on “Advisor Center.” California Community Foundation 445 South Figueroa Street, Suite 3400 Los Angeles, California 90071 (213) 413.4130 fax (213) 622.2979 Funding the Future of Los Angeles County Since 1915 We make research easier so you can move on to the next challenging thing. Time is precious. That’s why we make legal research as quick and easy as possible. With My Westlaw, you can personalize your experience in ways that speed up your research. We make it easy for you to access your relevant legal resources so you can find the most on-point information faster and easier. Only Westlaw® values your time like this so you can move on to your next challenge. Differences that matter. Try us at www.westlaw.com. Or call 1-800-WESTLAW (937-8529). © 2002 West Group W-102352/9-02 Trademarks shown are used under license.