Bates v. Granada Healthcare and RehabilitationCenter

Bates v. Granada Healthcare and RehabilitationCenter

Filed 9/15/08 Bates v. Granada Healthcare and Rehabilitation Center CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

ALLEN BATES et al., Plaintiffs and Respondents, v. GRANADA HEALTHCARE AND REHABILITATION CENTER, LLC et al., Defendants and Appellants.

A120485 (Humboldt County Super. Ct. No. DR060264)

This is an appeal from an order denying a motion to disqualify three law firms from representing respondents Allen Bates, James C. Brewer and Jacquelyn Vilchinsky (collectively, respondents) in this elder abuse class action lawsuit. Appellants Granada Healthcare and Rehabilitation Center, LLC, Eureka Healthcare and Rehabilitation Center, LLC, Pacific Healthcare and Rehabilitation Center, LLC, St. Luke Healthcare and Rehabilitation Center, LLC, and Seaview Healthcare and Rehabilitation Center, LLC, (collectively, appellants) contend the trial court erred in issuing such order because one of those law firms previously represented Dr. Patrick Dawson, M.D., appellants medical director and member of their governing body, in a separate medical malpractice action.

This appeal raises several issues not easily resolved on this record. First, we have wrestled with the issue of whether appellants even had standing to bring this disqualification motion. Generally, parties, like appellants, who have never had an attorney-client or other confidential or fiduciary relationship with the attorneys sought to be disqualified cannot bring such motion. (E.g., Dino v. Pelayo (2006) 145 Cal.App.4th 347, 352-353.) Some courts, however, have recognized an exception to this rule where the party bringing the motion has a sufficient personal stake in the motion or where the ethical breach upon which the motion is based is so manifest and glaring that it triggers the courts inherent duty to manage the conduct of the attorneys appearing before it and to ensure fair administration of justice. (E.g., Colyer, et al. v. Larry Smith, et al. (C.D. Cal. 1999) 50 F.Supp.2d 966, 971-972; see County of Los Angeles v. Superior Court (1990) 222 Cal.App.3d 647, 658.) Given the facts involved in this case, which we discuss in detail below, we conclude this exception should apply here and, thus, that appellants were entitled to bring this motion.

Second, we have wrestled with the proper standard to apply in deciding whether respondents counsel should be disqualified in this case. Generally, where, as here, counsel simultaneously represented clients in separate matters whose interests were adverse, disqualification is required. (Flatt v. Superior Court (1994) 9 Cal.4th 275, 284-285 [Flatt].) This strict, per se rule is rooted in the need to assure counsels undivided loyalty to each client. (Ibid.) Where, on the other hand, counsel currently represents a client whose interests are adverse to the interests of a former client, a less strict rule applies. (Id. at p. 283.) In such case, counsels disqualification is required only if a substantial relationship exists between the subject matter of the prior and current representations. (Ibid.) This rule is rooted in a clients expectation of confidentiality rather than loyalty. While the former client may no longer expect undivided loyalty from counsel, the client may still expect the permanent confidentiality of matters disclosed to counsel during the prior representation. (Ibid.)

The decision to apply the automatic disqualification rule or the substantial relationship rule seemingly requires no more than a quick look into whether the representations at issue were simultaneous or successive. Here, however, we have the unique circumstance that counsel began representing a second client with interests adverse to a first client after the trial court had effectively ended the first matter by granting the first clients motion to dismiss with prejudice, but before the trial court had actuallyended the matter by entering final judgment in favor of such client. As such, counsels duty of loyalty to the first client remained protected; its duty of confidentiality, however, was placed in jeopardy. Thus, while application of the automatic disqualification rule seems appropriate based on the brief period of simultaneous representation, the value placed at stake protection of the duty of confidentiality seems to warrant application of the substantial relationship rule. Faced with this unique circumstance, we choose to be guided not by the need to adhere strictly to a formal rule, but by the need to be guided by the underlying principles that led to the rules adoption in the first place. As such, as discussed in greater detail below, we conclude application of the substantial relationship rule is appropriate in this case.

In wrestling with these preliminary issues, as well as with other significant issues implicated by this record that are addressed herein in particular, issues relating to the timeliness of the motion we are not oblivious to the grave implications our decision will have. This class action lawsuit, while not yet close to trial, has been litigated for over two years, with counsel on both sides expending significant amounts of time and resources. Moreover, this lawsuit is but one of several elder abuse lawsuits brought by various plaintiffs represented by respondents counsel against some or all of the appellants named here. As such, any decision to disqualify counsel, whether made on this or some other record, will significantly impact the parties in not just this case, but in those other related lawsuits as well. For these reasons, we render our decision with considerable thoughtfulness.

FACTUAL AND PROCEDURAL BACKGROUND

On May 4, 2006, respondents filed a class action complaint, later amended, against twenty-four defendants alleging unfair, unlawful and fraudulent business practices, false and misleading advertising, and violation of the Patients Bill of Rights. Respondents, residents of appellants skilled nursing facilities, were represented in this matter by three law firms: Janssen, Malloy, Needham, Morrison, Reinholtsen, Crowley & Griego, LLP (the Janssen firm); the Law Offices of Michael Thamer (the Thamer firm); and Luce, Forward, Hamilton & Scripps LLP (the Luce firm).[1]

This class action was one of several elder abuse lawsuits filed in Humboldt County Superior Court against appellants on behalf of various plaintiffs by the Janssen firm and/or the Thamer firm. Other such lawsuits include Paredes v. Granada Healthcare and Rehabilitation Center, LLC, DR060063(Paredes);Christiansen v. St. Lukes Healthcare and Rehabilitation Center, LLC, DR050084(Christiansen); McCrary v. Eureka Healthcare and Rehabilitation Center, LLC, DR060123(McCrary);Jacobs v. Pacific Healthcare and Rehabilitation Center, LLC, DR050318(Jacobs);Davisv. Granada Healthcare and Rehabilitation Center, LLC, DR060403(Davis); and Fitzhugh v. Granada Healthcare and Rehabilitation Center, LLC, DR050474(Fitzhugh) (collectively, the elder abuse lawsuits). Appellants were represented by attorney Tyler Draa of the law firm Hinshaw, Draa, Marsh, Still & Hinshaw in several of the elder abuse lawsuits, including Paredes, Jacobs, and Fitzhugh. Appellants were (and are) represented by Scott Kiepen of the law firm Hooper, Lundy & Bookman, Inc., in this lawsuit.

In January 2006, several months before this lawsuit was filed, Draa wrote a letter to Michael Morrison and Timothy Needham of the Janssen firm regarding an unrelated medical malpractice lawsuit entitled Poulter v. Granada Healthcare & Rehabilitation Center, LLC (Poulter I). In Poulter I, Draa represented the defendant (and appellant in this case) Granada Healthcare & Rehabilitation Center, LLC (Granada) and the Janssen firm represented Granadas co-defendant, Dr. Dawson. The plaintiff had sued both Granada, as a corporate entity, and Dr. Dawson, in his individual capacity as a treating physician, based on alleged inadequate care and treatment rendered to the decedent while a patient at Granada. As Draas letter noted, Dr. Dawson was the medical director and a member of the governing body at Granada and at several affiliated companies (including the remaining appellants in this case).

In his January 2006 letter, Draa advised Morrison that a potential conflict of interest may have arisen based on the Janssen firms representation of Dr. Dawson in Poulter I and of plaintiffs against Granada in the Fitzhugh matter. Draa nonetheless expressed hope that an actual conflict could be avoided and that the attorneys could work together in Poulter I to assert a mutually supportive defense.

Shortly thereafter, Morrison had a phone conversation with Draa, during which Draa reportedly told him lawyer to lawyer that, while his client was a bit uncomfortable with the situation, Draa found the Janssen firm reasonable to deal with and thus would not seek to disqualify the firm.

On March 22, 2006, Morrison wrote a letter to Draa in which he discussed the impact of his firms representation of both Dr. Dawson in Poulter I and the plaintiffs in the elder abuse lawsuits. Specifically, Morrison advised Draa that it would be inappropriate for Draa to discuss with Dr. Dawson his treatment of Ms. Poulter, just as it would be inappropriate for Morrison to be present during Draas discussions with Dr. Dawson regarding his administrative role at Granada or his treatment of patients other than Ms. Poulter. Morrison added: I have no objection to you speaking with Dr. Dawson about other matters so long as the subject of Ms. Poulters care or the facts surrounding it are not part of your conversation.

On April 13, 2006, the trial court in Poulter I dismissed the complaint with prejudice before discovery had begun. Accordingly, on June 26, 2006, judgment was entered in favor of defendants Granada and Dr. Dawson.

Shortly before this lawsuit was filed, a new Poulter complaint was filed against Dr. Dawson and Granada in Humboldt County Superior Court (Poulter II). Several months later, in September 2006, the Janssen firm advised Dr. Dawson of the new filing and, when Dr. Dawson asked that the firm represent him in Poulter II, advised that it would be unable to do so unless he signed a written waiver of any conflict of interest based on its representation of the plaintiffs in the elder abuse lawsuits. Dr. Dawson did not sign such waiver.

On September 19, 2006, Morrison wrote to both Draa and Scott Kiepen, who had been hired to represent appellants in this matter, advising of his firms refusal to represent Dr. Dawson in Poulter II without a signed waiver based on the appearance of a conflict of interest.

On October 17, 2006, Draa wrote to Needham of the Janssen firm, with a copy to Kiepen, in which he advised that a patent conflict existed with respect to his firms representation of Dr. Dawson and the plaintiffs in the elder abuse lawsuits. Draa explained: Your client in the Poulter case, Patrick Dawson, M.D., is not just the Medical Director for each of those facilities [sued in Paredes, Jacobs, McCrary, Davis and Fitzhugh]. He was (during the course of the events giving rise to each lawsuit), and remains, a member of the governing board for each and every facility. [] Your firm is attacking, and seeking punitive damages as a consequence of, the conduct of skilled nursing facilities the operations of which are directed by governing bodies of which Dr. Dawson is a member.

Needham of the Janssen firm responded to this letter on October 24, 2006, denying that any direct conflict had arisen. Needham reasoned that Dr. Dawson was not a defendant in any action the firm had filed against appellants or its affiliates, and that it had not violated the professional rules of conduct barring attorneys from communicating with persons known to be represented by other attorneys about the subject of the representation. (See Rules of Prof. Conduct, rule 2-100(b)(1).) Also, I am unaware of any information that indicates Dawson is involved in any act or omission which could bind these organizations.

Nearly one year later, on September 5, 2007, appellants filed a motion to disqualify all counsel the Janssen, Thamer and Luce firms from representing respondents in this action.[2] Similar such motions had already been filed by appellants in the Wilkens, Fitzhugh, Paredes, McCrary, and Davis lawsuits.

Appellants motion in this lawsuit was heard on October 9, 2007, and shortly thereafter was denied. In denying the motion, the trial court incorporated by reference its previous order denying disqualification in McCrary. In that order, the trial court found that disqualification was not required based on the Janssen firms representation of Dr. Dawson in Poulter I and respondents in the elder abuse lawsuit because: (1) Dr. Dawsons interests in Poulter I as a treating physician and in the elder abuse lawsuit as an associate of appellants were distinct; and (2) Dr. Dawson is not a party to the elder abuse lawsuit. The trial court also noted [t]he fact Dr. Dawson may be associated with [appellants] does not grant [appellants] standing to disqualify counsel, but found that [t]he issue need not be resolved since under the rules regarding simultaneous representation [respondents] counsel is not disqualified.

This appeal followed.

DISCUSSION

Appellants contend the trial court erred in denying their motion to disqualify respondents counsel. Appellants reason that the Janssen firm was defending Dr. Dawson against claims of medical malpractice in Poulter I at the same time it brought this lawsuit raising claims of unfair competition and false advertising against appellants based at least in part on alleged acts and omissions of their agents, who include Dr. Dawson. Appellants reason further that the Thamer and Luce firms are subject to vicarious disqualification based on their association with the Janssen firm in this lawsuit.

A.

Generally, a trial courts decision on a disqualification motion is reviewed for abuse of discretion. [Citations.] (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 [People ex rel. Dept. of Corporations v. SpeeDee].)  The trial courts exercise of this discretion is limited by the applicable legal principles and is subject to reversal when there is no reasonable basis for the action.  (Zador Corp. v. Kwan (1995) 31 Cal.App.4th 1285, 1293.)  [W]e must consider the evidence in the light most favorable to the prevailing party and take into account every reasonable inference supporting the trial courts decision.  (Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 10.) Further, the trial courts findings on disputed evidence are conclusive on appeal. (Ibid.)

Where, however, there are no material disputed factual issues, the appellate court reviews the trial courts determination as a question of law. (People ex rel. Dept. of Corporations v. SpeeDee,supra, 20 Cal.4th at p. 1144; see also City and County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 846.) In doing so, the appellate court must keep in mind that a disqualification motion involves concerns that justify careful review of the trial courts exercise of discretion. (People ex rel. Dept. of Corporations v. SpeeDee,supra, 20 Cal.4th at p. 1144.)

B.

Here, the facts relevant to the propriety of disqualifying respondents counsel are largely undisputed. As such, we review the trial courts exercise of discretion in denying disqualification as a matter of law in light of the applicable legal principles. (People ex rel. Dept. of Corporations v. SpeeDee,supra, 20 Cal.4th at p. 1144.) In doing so, we keep in mind the following:

A motion to disqualify a partys counsel may implicate several important interests. Consequently, judges must examine these motions carefully to ensure that literalism does not deny the parties substantial justice. [Citation.] Depending on the circumstances, a disqualification motion may involve such considerations as a clients right to chosen counsel, an attorneys interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion. [Citations.] Nevertheless, determining whether a conflict of interest requires disqualification involves more than just the interests of the parties. [] A trial courts authority to disqualify an attorney derives from the power inherent in every court [t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto. (Code Civ. Proc.,  128, subd. (a)(5); [citations].) Ultimately, disqualification motions involve a conflict between the clients right to counsel of their choice and the need to maintain ethical standards of professional responsibility. [Citation.] The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar.The important right to counsel of ones choice must yield to ethical considerations that affect the fundamental principles of our judicial process. [Citations.] (People ex rel. Dept. of Corporations v. SpeeDee,supra,20 Cal.4th at pp. 1145-1146.)

With respect to the substantive rules governing disqualification of counsel, as we have already stated, such rules differ depending on whether the legal representations at issue are concurrent or successive. (Flatt, supra, 9 Cal.4th at p. 284.) In cases where an attorney represents two clients with conflicting interests in successive representations, courts apply the so-called substantial relationship rule. Under that rule, an attorney who has previously represented one client may be disqualified from representing a successive client in litigation adverse to the interests of the former client where there exists a substantial relationship between the subjects of the previous and current representations. (Id. at p. 283.)

As our state Supreme Court has explained, [t]he substantial relationship test mediates between two interests that are in tension in such a context ― the freedom of the subsequent client to counsel of choice, on the one hand, and the interest of the former client in ensuring the permanent confidentiality of matters disclosed to the attorney in the course of the prior representation, on the other. Where the requisite substantial relationship between the subjects of the prior and the current representations can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorneys representation of the second client is mandatory; indeed, the disqualification extends vicariously to the entire firm. [Citations.] (Flatt, supra, 9 Cal.4th at pp. 283-284.)

In cases where an attorney concurrently represents two clients with conflicting interests, a stricter rule the so-called automatic disqualification rule applies. (Flatt, supra, 9 Cal.4th at p. 284.) This rule, which prohibits concurrent representation of adverse interests, is in most situations a per se or automatic one. [Citations.] (Ibid.) The reason is this. While the substantial relationship rule for successive representation is rooted in the duty of confidentiality, the automatic disqualification rule for concurrent representation is rooted in the duty of loyalty. (Ibid. at pp. 284-285 [The primary value at stake in cases of simultaneous or dual representation is the attorneys dutyand the clients legitimate expectation of loyalty, rather than confidentiality.]; see also Truck Ins. Exchange v. Firemans Fund Ins. Co. (1992) 6 Cal.App.4th 1050, 1056) [  [t]he principle precluding representing an interest adverse to those of a current client is based not on any concern with the confidential relationship between attorney and client but rather on the need to assure the attorneys undivided loyalty and commitment to the client. [Citations].  ].) And, clearly, a client who learns that his or her lawyer is also representing a litigation adversary, even with respect to a matter wholly unrelated to the one for which counsel was retained, cannot long be expected to sustain the level of confidence and trust in counsel that is one of the foundations of the professional relationship. (Flatt, supra, 9 Cal.4th at p. 285; see also People ex rel. Dept. of Corporations v. Speedee, supra, 20 Cal.4th at p. 1146 [[t]he effective functioning of the fiduciary relationship between attorney and client depends on the clients trust and confidence in counsel].) Whether the attorney actually possesses confidential information from the client that could be used against that client is thus immaterial. (Truck Ins. Exchange v. Firemans Fund Ins. Co., supra, 6 Cal.App.4th at pp. 1056-1057.] So inviolate is the duty of loyalty to an existing client that not even by withdrawing from the relationship can an attorney evade it. (Flatt, supra, 9 Cal.4th at p. 288.)

Consistent with these principles, the State Bar has promulgated professional rules of conduct which, together with the statutory law and case law, help define the fiduciary duties owed by an attorney to his or her client. The following such rules are relevant to our inquiry:

(C) A member shall not, without the informed written consent of each client: . . . [ ] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter. . . .[ ]

(E) A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment. (Cal. Rules of Prof. Conduct, rule 3-310(C), (E); see also American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, 1032.)

C.

Before applying these rules to the facts before us, we address respondents initial argument that appellants lack standing to bring their disqualification motion because appellants have never had an attorney-client or other fiduciary or confidential relationship with the Janssen firm. Respondents are correct as a general matter that some sort of confidential or fiduciary relationship must have existed before a party is entitled to prevail on a motion to disqualify an attorney predicated on the actual or potential disclosure of confidential information. [Citations]. (Dino, supra, 145 Cal.App.4th at pp. 352-353.) As already set forth, however, there is a recognized exception to this rule, albeit one that has not yet been fully examined by the California appellate courts. A nonclient might have standing to bring a disqualification motion based on a third-party conflict of interest if he or she can establish (i) a personal stake in the motion (sufficient to satisfy the irreducible constitutional minimum standard for Article III [of the United States Constitution] standing) or (ii) that the ethical breach is so manifest and glaring that it triggers the courts inherent obligation to manage the conduct of attorneys appearing before it and to ensure the fair administration of justice. [Colyer v. Smith [(C.D. Cal. 1999)] 50 F.Supp.2d [966,] 971-972; see DCH Health Services Corp. v. Waite (2002) 95 C[al.]A[pp.]4th 829, 832 . . . Standing arises from a breach of the duty of confidentiality owed to the complaining party regardless of whether a lawyer-client relationship existed]. (Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2007)  4:322.11, p. 4-106.6; see also Concat LP and Chelator, LLC v. Unilever, PLC (N.D. Cal. 2004) 350 F.Supp.2d 796, 818.)

Consistent with, but not directly addressing, this minority rule, one California appellate court has held that an attorney may be disqualified from representing a party where the attorney received the work product of the party moving for disqualification from an expert who had been designated as the moving partys witness, but was later withdrawn as a witness before the expert had been deposed. (County of Los Angeles v. Superior Court, supra, 222 Cal.App.3d at p. 658.) Even though the moving party had never had an attorney-client or other fiduciary relationship with the attorney, given the attorneys receipt of the moving partys confidential information, the appellate court concluded considerations of ethics which run to the very integrity of our judicial process required the trial court to grant the disqualification motion. (Ibid.)

Here, we likewise conclude appellants had a personal stake in the outcome of the disqualification motion, given the potential for disclosure of its confidential information, sufficient to meet the requirements of the minority rule. Having reviewed the pleadings in Poulter I, it is clear Dr. Dawsons confidential disclosures to the Janssen firm in connection with his defense in that case were not merely of a private nature. Rather, as discussed in more detail below, they related to his conduct while employed as an agent of appellants, the moving party. Indeed, appellant Granada was both the employer of and co-defendant with Dr. Dawson in Poulter I. The professional conduct of both appellant Granada, as principal, and Dr. Dawson, as agent, were thus at issue. As such, confidential information could easily have been revealed by Dr. Dawson to the Janssen firm during the course of the litigation concerning the conduct of both Dr. Dawson and Granada, including information concerning Dr. Dawsons actions as medical director or member of the governing body of Granada and the other appellants. Accordingly, we conclude appellants have a direct interest, separate from that of Dr. Dawson, in seeking to disqualify the Janssen firm.[3] (Vapnek et al., Cal. Practice Guide: Professional Responsibility, supra,  4:322.11; see also Concat LP, supra, 350 F.Supp.2d at pp. 818-819 [finding plaintiff had standing to disqualify opposing counsel, even though plaintiff had never been opposing counsels client, where such counsel represented a nonparty who had been plaintiffs managing partner and negotiator during the relevant time period, who owned a 24 percent limited partnership interest in plaintiffs sole owner, and who had made disclosures to counsel regarding plaintiffs business and financial matters].)

Indeed, while courts must be skeptical when a litigation adversary seeks to disqualify counsel, our paramount concern must be to protect the integrity of the judicial system. (McPhearson v. Michaels Co. (2002) 96 Cal.App.4th 843, 849-850; People ex rel. Dept. of Corporations v. SpeeDee,supra, 20 Cal.4th at pp. 1145-1146; County of Los Angeles v. Superior Court, supra, 222 Cal.App.3d at p. 658.) For that reason, every court is granted the inherent power to disqualify an attorney [t]o control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto. (Code Civ. Proc.,  128, subd, (a)(5); [citations.] (People ex rel. Dept. of Corporations v. SpeeDee,supra, 20 Cal.4th at p. 1145.) It is with this inherent power in mind, and given the unique circumstances of this case, that we conclude appellants were entitled to seek disqualification of the Janssen firm.

D.

Respondents make the additional threshold argument that the rules of professional conduct governing disqualification do not apply in this case because Dr. Dawson, the Janssen firms former client, is not a party to the present lawsuit and has not complained that a breach of loyalty or confidentiality has occurred. The trial court agreed. We, however, disagree. As several courts have noted, the limitations on representing conflicting interests set forth in the Rules of Professional Conduct, rule 3-310, exist where counsels employment is adverse to the client or former client, and can exist even though a prior client is not a party to the litigation.[4] (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal.App.4th 1832, 1843-1844; see also American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at p. 1039.) Under the rules of professional conduct, a conflict of interest may arise [1] where an attorneys relationship with a person or entity creates an expectation that the attorney owes a duty of fidelity. It may also arise [2] where the attorney has acquired confidential information in the course of such a relationship which will be, or may appear to the person or entity to be, useful in the attorneys representation in an action on behalf of a client. (Cal. Compendium on Professional Responsibility . . . , State Bar Formal Opinion No. 1981-63, p. 3.) (William H. Raley Co. v. Superior Court, (1983) 149 Cal.App.3d 1042, 1047.)

Here, appellants claim that a conflict of interest exists between the Janssen firm and Dr. Dawson based on the first such circumstances the existence of a duty of loyalty or fidelity. (William H. Raley Co. v. Superior Court, supra, 149 Cal.App.3d at p. 1047.) As such, appellants claim that the automatic disqualification rule requires the firms disqualification in this lawsuit. Having already agreed that Dr. Dawsons status as a nonparty and appellants status as a nonclient do not preclude such disqualification, we thus turn to the merits of appellants claim.[5]

E.

It appears from the record the Janssen firm simultaneously represented Dr. Dawson in Poulter I and respondents in this case for a brief period of time from May 4, 2006, when this lawsuit was filed, to June 26, 2006, when judgment was entered in favor of the defendants in Poulter I. Dr. Dawson at no time consented in writing to the Janssen firms simultaneous representation of respondents. (Cal. Rules of Prof. Conduct, rule 3-310(C), (E).) As such, at first glance it appears appellants are correct that application of the automatic disqualification rule, based on the need to protect client loyalty, is appropriate. However, our State Supreme Court has advised that any concerns the court may have about compromised attorney loyalty must take into account the limited period of time in which the attorney concurrently represented the adverse clients. (People ex rel. Dept. of Corporations v. Speedee, supra, 20 Cal.4th at p. 1147.) Moreover, it is well established that the purpose of a disqualification order must be prophylactic, not punitive. (Gregori v. Bank of America (1989) 207 Cal.App.3d 291, 308-309.) As such, we consider more closely the facts of this case. In particular, we note that, while judgment in favor of the Poulter I defendants was entered on June 26, 2006, the litigation effectively ended earlier, before this lawsuit was filed, when the trial court granted the defendants motion to dismiss the complaint with prejudice on April 13, 2006 before discovery had begun.[6] Thus, there was little risk, if any, that the firms loyalty was ever divided between Dr. Dawson and respondents. (See People ex rel. Dept. of Corporations v. Speedee, supra, 20 Cal.4th at p. 1147 [noting that the risk of divided loyalty effectively ended when the attorneys services were promptly terminated in case involving a brief period of concurrent representation].) An attorneys undivided duty of loyalty runs to current clients, not to former clients. (See Flatt, supra, 9 Cal.4th at pp. 286-287.)

Nonetheless, the concern for client confidences, like the attorneys duty to preserve those confidences, continues after the attorneys services end. (People ex rel. Dept. of Corporations v. Speedee, supra, 20 Cal.4th at p. 1147; Flatt, supra, 9 Cal.4th at p. 283.) Here, the Janssen firm continued to owe Dr. Dawson a duty of confidentiality after Poulter I ended and this lawsuit began. Dr. Dawson could have reasonably expected, based on the Janssen firms past representation of him, that his confidential information would not be used to further the interests of the Janssen firms current clients. It is thus the duty of confidentiality with which we are concerned in deciding whether disqualification should have been ordered in this case. Accordingly, we conclude application of the substantial relationship rule, rather than the automatic disqualification rule, is appropriate based on the unique circumstances of this case. (See Flatt, supra, 9 Cal.4th at p. 284 [noting the substantial relationship test . . . applies where the representation of a former client has been terminated and the parameters of such relationship [is] . . . fixed ].) We next consider whether the substantial relationship rule has been met in this case.

F.

The test for a substantial relationship between cases entails an inquiry into  the similarities between the two factual situations, the legal questions posed, and the nature and extent of the attorneys involvement with the cases.  [Citation.] It must be shown that the information from the prior representation is material to the current employment. (See rule 3-310(E).)  As part of its review, the court should examine the time spent by the attorney on the earlier cases, the type of work performed, and the attorneys possible exposure to formulation of policy or strategy.  [Citation.] (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal.App.4th 223, 234.)

Moreover, under the substantial relationship test, the actual use or misuse of confidential information is not determinative; it is the possibility of the breach of confidence which controls. [Citation.] [Citation.] (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at p. 1043.) As a result, the substantial relationship test is a strict, prophylactic rule. In applying this rule, courts avoid becoming enmeshed in considerations of the number and importance of the confidences, the potential impact of their use in litigation, or the effect of disqualification upon the parties. (River West, Inc. v. Nickel (1987) 188 Cal.App.3d 1297, 1308.) Rather, [i]f a substantial relationship is established, the discussion should ordinarily end. The rights and interests of the former client will prevail. Conflict will be presumed; [and] disqualification will be ordered, even where the former client is not a party.[7] (Id. at pp. 1308-1309; see also American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at p. 1039; Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp., supra, 36 Cal.App.4th 1832, 1844-1845.)

G.

Here, based on our own review of the pleadings, we conclude a substantial

relationship exists between the subjects of Poulter I and this lawsuit. True, Poulter I raises a claim against Dr. Dawson for professional negligence while this lawsuit raises claims against appellants for unfair, unlawful and fraudulent business practices, false and misleading advertising, and violation of the Patients Bill of Rights. But regardless of how the legal claims are labeled, the record makes clear both lawsuits involve several overlapping legal and factual issues i.e., duty of care issues arising from professional services provided at skilled nursing facilities managed and operated by appellants and their agents. In particular, both complaints allege that appellants, acting through their agents, who include Dr. Dawson, failed to provide adequate care to the elderly and dependent adult patients residing at appellants facilities.

In Poulter I, for example, the plaintiff alleged the decedent, a patient at facilities operated and managed by appellant Granada, was negligently treated, examined, tested, diagnosed and cared for by both Granada and Dr. Dawson, among others. The plaintiff further alleged that both Granada and Dr. Dawson negligently managed, maintained, selected, designed, controlled and conducted their services and activities in connection with the decedents medical treatment and care.

In this lawsuit, on the other hand, respondents allege, among other things, that appellants, including Granada, made false and misleading statements regarding the skill and number of their professional staff and the quality of their care. Respondents further allege that appellants engaged in unfair and deceptive practices with respect to the management, administration and operation of the Facilities. In particular, respondents allege that appellants failed to employ an adequate number of qualified personnel to carry out their functions in violation of Health and Safety Code section 1599.1.[8]

Appellants, as corporate entities, necessarily engaged in these alleged acts and omissions through their agents. And, by definition, appellants agents include Dr. Dawson, who served as an employee at Granada and as medical director and governing body member at each of appellants facilities. As such, in this case, as in Poulter I, the acts and omissions of Dr. Dawson and others in managing, operating and providing treatment for the patients of appellants facilities were squarely before the court. (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, supra, 69 Cal.App.4th at p. 234 [considering whether information from the prior representation is material to the current employment in applying the substantial relationship test].)

Further, although Granada had separate counsel in Poulter I, because it was co-defendant with Dr. Dawson in that case, a possibility existed that the Janssen firm was privy to information related to both defendants formulation of litigation policy or strategy. Indeed, a letter from Granadas counsel to the Janssen firm expressed the hope that the firms would be able to work together to assert a mutually supportive defense for co-defendants Granada and Dr. Dawson in Poulter I. Information regarding Granadas litigation strategy or policy could indeed prove helpful to the firm in prosecuting this action against appellants, and is properly considered in determining whether disqualification is required. (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, supra, 69 Cal.App.4th at p. 234; Knight v. Ferguson (2007) 149 Cal.App.4th 1207, 1215 [Where an attorney acquires knowledge about the former clients attitudes, practices, business customs, litigation philosophy, strengths, weaknesses or strategy, disqualification may be required for that reason alone.].)

Given the related nature of both legal and factual issues in the two matters, confidential information, including information related to litigation policy or strategy, could have been revealed to the Janssen firm in the course of its representation of Dr. Dawson in Poulter I that could now prove helpful to its representation of respondents in this lawsuit. As such, we conclude the substantial relationship test has been satisfied, and thus presume, as we must, that confidential information was in fact revealed. (City National Bank v. Adams (2002) 96 Cal.App.4th 315, 327-328 [if the nature of the representation is such that confidences could have been exchanged between the lawyer and the client, courts will conclusively presume they were exchanged, and disqualification will be required].) Disqualification is therefore appropriate under rule 3-310(E) of the Professional Rules of Conduct based on the mere possibility or temptation for the Janssen firm to misuse Dr. Dawsons confidential information.[9] (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at p. 1040.)

As our colleagues in the Second Appellate District, Division Four, have aptly stated: It is difficult to believe that a counsel who scrupulously attempts to avoid the revelation of former client confidences-i.e., who makes every effort to steer clear of the danger zone-can offer the kind of undivided loyalty that a [current] client has every right to expect and that our legal system demands. Rule 5 [the predecessor to Rule 3-310] operates to preclude any impediment to the fulfillment of an attorneys professional obligation to his [current] client by proscribing any conflict of interest in his representation of past and present clients. (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at p. 1041.)

H.

Our inquiry, however, does not end here. Indeed, the key issue in this case is just now being revealed. In cases of successive representation where a substantial relationship exists, there is a narrow exception to the rules requiring disqualification based on a partys delay in bringing the motion. (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1309.) [M]otions to disqualify are often used as a tactical device to delay litigation, and when there is evidence of unreasonable delay in bringing the motion, causing prejudice to the present client, the motion for disqualification should not be granted. (In re Complex Asbestos Litigation [(1991)] 232 Cal.App.3d [572,] 599.) (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp., supra, 36 Cal.App.4th at p. 1847.) However, because of the laws concern for unhampered counsel on both sides of the litigation, mere delay in making a disqualification motion is not dispositive. The delay must be extreme in terms of time and consequence. (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1311.) (State Farm Mutual Automobile Ins. Co. v. Federal Ins. Co. (1999) 72 Cal.App.4th 1422, 1434.)

Here, the trial court made no finding with respect to whether appellants waived the right to seek disqualification based on an unreasonable delay in bringing the motion. We thus turn to the undisputed evidence in the record to decide the issue ourselves.

The record shows that appellants attorney of record in this lawsuit, Scott Kiepen, discovered facts indicating a potential or actual conflict of interest based on the Janssen firms representation of both Dr. Dawson and respondents no later than September 2006. Specifically, on September 19, 2006, Michael Morrison of the Janssen firm wrote to both Kiepen and Tyler Draa, Granadas attorney of record in Poulter I and appellants attorney of record in several of the other elder abuse lawsuits, advising of his firms refusal to represent Dr. Dawson in Poulter II based on the appearance of a conflict of interest. In addition, beginning in January 2006, months before this lawsuit was filed, Draa and Morrison exchanged several letters and at least one phone call regarding a possible conflict between the Janssen firms representation of Dr. Dawson in Poulter I and of appellants in the other elder abuse lawsuits. Nonetheless, despite this ongoing exchange of information, appellants waited at least one year, if not more until September 5, 2007 to bring the motion to disqualify. Such delay, we conclude, is extreme in terms of time. (See River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1311 [finding a 3-year delay in bringing the disqualification motion unreasonable ]; cf. Western Continental Operating Co. v. Natural Gas Corp. (1989) 212 Cal.App.3d 752, 761 [finding a 2-month delay in bringing such motion reasonable].)

In so concluding, we acknowledge that Kiepen attested below that he did not confirm[] an actual conflict of interest between Dr. Dawson and the Janssen firm . . . [until] spring of 2007, at which time he notified the Janssen firm of appellants intention to seek disqualification. Even if true, the date relevant to our inquiry is when a potential conflict becomes apparent, not when an actual conflict is confirmed. (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1311.) And given the exchange of correspondence that occurred throughout 2006 between both the Janssen firm and Kiepen and the Janssen firm and Draa, appellants attorney in Poulter I and in several other elder abuse lawsuits, we conclude a potential conflict should have been apparent to appellants long before Spring 2007.

Further, we note that, according to the declaration filed by Morrison of the Janssen firm in opposition to the motion to disqualify, the Janssen firm had, as of September 20, 2007, spent over 700 hours prosecuting this lawsuit, and was the only law firm in the Humboldt County area regularly prosecuting elder abuse lawsuits and class actions. Thus, while this is not a situation where a party has raised the conflict on the eve of trial or several years after an answer was filed, substantial resources have been expended thus far in prosecuting this complicated class action lawsuit. As such, disqualification of the Janssen firm would result in considerable prejudice and hardship to respondents, particularly in light of the fact that care should be taken in the imposition of the sanction of disqualification upon attorneys involved in class action litigation (Koo v. Rubios Restaurants, Inc. (2003) 109 Cal.App.4th 719, 735).

Based on the undisputed evidence in this record, we thus conclude an extreme delay in terms of both time and circumstance did in fact occur that resulted in appellants implied waiver of the right to seek disqualification of the Janssen firm. (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1311.) As such, the trial courts order denying appellants motion for disqualification must be affirmed.[10]

DISPOSITION

The trial courts order denying appellants motion to disqualify is affirmed.[11]

_

Jenkins, J.

We concur:

_

McGuiness, P. J.

_

Pollak, J.

Publication courtesy of San Diego free legal advice.

Analysis and review provided by Santee Property line attorney.

San Diego Case Information provided by www.fearnotlaw.com

[1] Appellants are 5 of the 24 defendants named in the underlying class action lawsuit. Each appellant is a limited liability corporation licensed in California to operate skilled nursing facilities in Humboldt County. Defendant Skilled Healthcare LLC and/or Skilled Healthcare Group, Inc., is the parent corporation to or otherwise affiliated with the other defendants.

[2] According to a declaration filed by Kiepen in support of the motion, he obtained information in approximately February 2007 indicating the existence of an actual conflict of interest, but did not confirm such conflict until Spring 2007. At that time, Kiepen informed the Janssen firm of appellants intention to seek disqualification.

[3] While it is not clear from the record what, if any, confidential information regarding appellant Granada was exchanged between Dr. Dawson and the Janssen firm in Poulter I, a letter from Granadas counsel to the Janssen firm expressed the hope that the firms would be able to work together to assert a mutually supportive defense for co-defendants Granada and Dr. Dawson in that lawsuit.

[4] Courts have recognized in several different factual settings that disqualification on the basis of a prior relationship with a nonparty is proper. (Hull v. Celanese Corporation (2d Cir. 1975) 513 F.2d 568, 569; Comden v. Superior Court [(1978)] 20 Cal.3d 906; William H. Raley Co. v. Superior Court (1983) 149 Cal.App.3d 1042, 1049 [197 Cal.Rptr. 232]; see also Thomas v. Municipal Court of Antelope Valley J.D. (9th Cir. 1989) 878 F.2d 285; Jeffry v. Pounds (1977) 67 Cal.App.3d 6, 10 [136 Cal.Rptr. 373] and Leversen v. Superior Court (1983) 34 Cal.3d 530, 538-540 [194 Cal.Rptr. 448, 668 P.2d 755]; compare with Maruman v. Integrated Circuits, Inc. v. Consortium Co. (1985) 166 Cal.App.3d 443 [212 Cal.Rptr. 497].) (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp., supra, 36 Cal.App.4th at p. 1844, fn. 10.)

[5] The issue of whether Dr. Dawson has an independent right to seek the Janssen firms disqualification in this case is not before is. We therefore do not address it.

[6] We do not find as a matter of law that the attorney-client relationship between Dr. Dawson and the Janssen firm ended on April 13, 2006. Rather, we find only that, for purposes of the conflict of interest analysis in this case, the litigation in Poulter I effectively ended at that time.

[7] As we discuss belowin more detail, a narrow exception to the substantial relationship test exists where the party opposing the disqualification motion offers prima facie evidence of an unreasonable delay in bringing the motion and resulting prejudice. (River West, Inc. v. Nickel, supra, 188 Cal.App.3d at p. 1309.)

[8] Health and Safety Code section 1599.1 provides in relevant part:

Written policies regarding the rights of patients shall be established and shall be made available to the patient, to any guardian, next of kin, sponsoring agency or representative payee, and to the public. Those policies and procedures shall ensure that each patient admitted to the facility has the following rights and is notified of the following facility obligations, in addition to those specified by regulation:  (a) The facility shall employ an adequate number of qualified personnel to carry out all of the functions of the facility.  (b) Each patient shall show evidence of good personal hygiene and be given care to prevent bedsores, and measures shall be used to prevent and reduce incontinence for each patient.  (c) The facility shall provide food of the quality and quantity to meet the patients needs in accordance with physicians orders.  (d) The facility shall provide an activity program staffed and equipped to meet the needs and interests of each patient and to encourage self-care and resumption of normal activities. Patients shall be encouraged to participate in activities suited to their individual needs.  (e) The facility shall be clean, sanitary, and in good repair at all times.  (f) A nurses call system shall be maintained in operating order in all nursing units and provide visible and audible signal communication between nursing personnel and patients. Extension cords to each patients bed shall be readily accessible to patients at all times. . . . .

[9] A limited exception to this conclusive presumption exists where the party opposing the motion can show there was no opportunity for confidential information to be revealed. (City National Bank v. Adams, supra, 96 Cal.App.4th at pp. 327-328.) Here, respondents made no such showing. While respondents insist there is no evidence that the Janssen firm received confidential information regarding Dr. Dawsons role as a director or officer of [appellant], such fact, even if true, does not establish the firm lacked the opportunity to receive confidential information from Dr. Dawson. Moreover, we are aware of no law requiring us to distinguish between a former clients personal and professional roles when deciding whether a breach of confidentiality has occurred.

Likewise misplaced are respondents assertions that they have no intention to disclose any of Dr. Dawsons confidential information, to name him as a defendant, or to call him as a witness in this lawsuit. Given the similarity of the factual allegations raised in this lawsuit and in Poulter I, the potential for the Janssen firm to misuse confidential information revealed by Dr. Dawson in Poulter I exists regardless of whether he is named as a defendant or identified as a witness. That potential alone is sufficient to require disqualification. (City National Bank v. Adams, supra, 96 Cal.App.4th at pp. 327-328.) Moreover, Dr. Dawsons right to confidentiality should not depend on the Janssen firms promise to safeguard his information: It is precisely this compromised situation, when the burden of deciding which client to favor is placed solely on the attorneys shoulders and within the attorneys sole power to decide, that Rule 3-310 is designed to avoid. In other words, [the attorneys] promise to maintain the confidences of [the former client] is entirely dependent on his self-assumed position as arbiter of his own fidelity and what is and is not a privileged communication. That is not a permissible avoidance of his fiduciary duty. (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, supra, 96 Cal.App.4th at pp. 1039-1040.)

[10] In its decision, the trial court point[ed] out that defendants [sic] acquiescence to Jansens [sic] dual representation may be separate grounds for denying the motion. Because we find waiver of the right to seek disqualification based on appellants delay in bringing the motion, we need not decide whether waiver may also be based on acquiescence. Likewise, given our finding of waiver, we need not address appellants remaining argument that the Thamer and Luce firms should have been subject to vicarious disqualification.