This Memorandum of Law is downloadable with citations to authorities in footnotes.
Introduction
One of the four primary duties which California attorneys owe to all clients is a duty of undivided loyalty. The other three primary duties are the duty of confidentiality, the duty to disclosure, and the duty of competent representation. The primary purpose of the duty of loyalty is to encourage public confidence in the integrity of the legal profession.
The Duty of Undivided Loyalty Is Biblical in Origin
“The mandatory rule of disqualification in cases of dual representations involving unrelated matters – analogous to the biblical injunction against ‘serving two masters’ (Matthew 6:24) – is such a self-evident one that there are few published appellate decisions elaborating on it.” “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other.”
Ethical Foundation of the Duty of Undivided Loyalty
Rule 1.7 of the Rules of Professional Conduct defines the key terms “Informed Consent” and “Informed Written Consent” . A California lawyer who represents the interests of multiple parties cannot ethically start work without first analyzing potential conflicts of interest among the parties and making appropriate disclosure. “A lawyer shall not, without informed written consent from each client represent a client directly adverse to another client [nor] if the lawyer’s representation will be materially limited by the lawyer’s responsibilities to or relationships with another client, or a third person, or by the lawyer’s own interests. Representation is permitted only if the representation is not prohibited by law; and the representation does not involve the assertion of a claim by one client against another client.”
A California lawyer who represents the interests of multiple clients cannot ethically start work without first obtaining their informed written consent. “A lawyer shall not, without informed written consent from each client represent a client directly adverse to another client [nor] if the lawyer’s representation will be materially limited by the lawyer’s responsibilities to or relationships with another client, or a third person, or by the lawyer’s own interests. Representation is permitted only if the representation is not prohibited by law; and the representation does not involve the assertion of a claim by one client against another client.”
A California lawyer who represents the interests of multiple parties cannot ethically accept compensation from a liability insurer for the defense of a policyholder without informed written consent. “A lawyer shall not accept compensation for representing a client from one other than the client unless: (a) there is no interference with the lawyer’s independent professional judgment or with the lawyer-client relationship; (b) [confidential] information is protected; and (c) the lawyer obtains the client’s informed written consent.”
Common Law Duty of Undivided Loyalty
“An attorney’s duty of loyalty to a client is not one that is capable of being divided, at least under circumstances where the ethical obligation to withdraw from further representation of one of the parties is mandatory, rather than subject to disclosure and client consent.” “It is . . . an attorney’s duty to protect his client in every possible way, and it is a violation of that duty for him to assume a position adverse or antagonistic to his client without the latter’s free and intelligent consent given after full knowledge of all the facts and circumstances. By virtue of this rule an attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his client’s interests. Nor does it matter that the intention and motives of the attorney are honest. The rule is designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent.”
“[T]he bedrock principle of fiduciary obligation, the duty of loyalty, requires that trustees be disinterested, that they put the interests of those they act for or represent before their own or that of others.”
The Duty of Undivided Loyalty Is “Automatic” or “Per Se”
The duty of undivided loyalty prohibits an attorney from representing multiple clients one after the other (successive representation) or at the same time (simultaneous representation). “Even though the simultaneous representations may have nothing in common, and there is no risk that confidences to which counsel is a party in the one case have any relation to the other matter, disqualification may nevertheless be required. Indeed, in all but a few instances, the rule of disqualification in simultaneous representation cases is a per se or ‘automatic’ one.”
Duty of Undivided Loyalty Survives Termination
The duty of loyalty survives termination of the attorney-client relationship to the extent that a lawyer may not act in a manner that will injure the former client with respect to the matter involved in the prior representation (i.e., a lawyer cannot attack his or her prior work).
The Duty of Undivided Loyalty Impact the Duty of Confidentiality
“The potential problems may develop during pretrial discovery which must go beyond simple preparation for a favorable verdict to develop alternate strategies minimizing exposure. (Dependent counsel) was bound to investigate all conceivable bases on which liability might attach. These investigations and client communications may provide information relating directly to the coverage issue. Furthermore, counsel may form an opinion about the insureds’ credibility. As between counsel’s two clients, there is no confidentiality regarding communications intended to promote common goals (Evid. Code, § 962). But confidentiality is essential where communication can affect coverage. Thus, the lawyer is forced to walk an ethical tightrope, and not communicate relevant information which is beneficial to one or the other of his clients.”
Practice Pointer:
The Cumis Rule provides that when an insurer’s reservation of rights creates a disqualifying conflict of interest , then: 1) dependent counsel cannot ethically accept or continue employment without the policyholder’s informed written consent; and 2) without such consent, the insurer must pay for independent counsel selected and directed by the insurer. While, the Cumis Rule is the law, some insurers and their chosen dependent counsel may seek to ignore or avoid it so as to maintain control the conduct of the policyholder’s defense.
Sometimes reserving insurer and/or its dependent counsel may communicate orally with the policyholder to cajole the policyholder to acquiesce. Policyholder may seek guidance to participate in such communication by consulting a Practice Pointer, Pitches and Fallacies, available at DutytoDefend.com. Policyholders may also force the issue of consent by sending a reserving insurer a Coverage Questionnaire, and sending dependent counsel an Ethical Compliance Questionnaire, both available for free at DutytoDefend.com.