Common interest agreements can play a vital role in the defense of a case where multiple parties share a substantially similar legal interest. But while common interest agreements have many benefits, they can pose risks for attorneys and their clients as well.
Recently, in Diva Limousine Ltd. v. Uber Technologies Inc., No. 18-cv-05546-EMC, 2019 BL 8013 (N.D. Cal. Jan. 9, 2019), a putative class brought suit against Uber, questioning whether, under California law, Uber drivers were properly classified as independent contractors rather than employees.
Uber filed a motion to disqualify Diva’s counsel, Warren Postman, and his law firm, Keller Lenkner LLC. The company contended that, during Postman’s previous employment at the U.S. Chamber of Commerce Litigation Center, he had worked with Uber in litigating a Seattle ordinance matter that implicated the driver classification issue.
At that time, both Uber and the Chamber asserted Postman acquired Uber’s privileged and confidential information, pursuant to a common interest agreement. Two months after leaving the Chamber to join Keller Lenkner, Postman and his firm began sending arbitration demands to Uber on behalf of drivers asserting they were misclassified.
The trial court granted the motion to disqualify the attorney and his law firm.
“The crux of Diva’s claims in this case,” wrote the court, “is that Uber avoids certain wage, tax, and benefits obligations by improperly classifying its drivers as independent contractors instead of employees, and thus unfairly undercut its competitors on price.” 2019 BL 8013, 12.
The court found it “reasonably likely” that Uber, in the earlier litigation, disclosed to the Chamber and its counsel “facts about how driver classification impacts its business model and legal strategies relating to driver classification,” as well as facts and strategies “directly at issue,” or with “some critical importance to,” the class action lawsuit. Id. at 13 (internal quotation marks omitted). The court held:
- that counsel had owed Uber a duty of confidentiality pursuant to the common interest agreement;
- that his involvement with the Seattle litigation had been “extensive,” id. at 15; and
- that because the Seattle matter substantially related to the later class action litigation, disqualification was appropriate, not only as to the individual attorney, but his law firm.
A petition for writ of mandamus has been filed, and remains pending.
The decision in Diva Limousine is fair warning that common interest agreements have both benefits and risks for attorneys and clients. This article explores the risks of disqualification that can arise as a result of that duty of confidentiality, and the best means of protecting against disqualification when entering into a common interest agreement.
Common interest agreements allow attorneys representing different clients with similar legal interests to share information, coordinate strategy, and limit costs, without compromising the confidentiality protections provided by the attorney-client privilege and work product doctrine.
The doctrine, accordingly, “is an exception to the general rule that voluntary disclosure to a third party of purportedly privileged information waives the privilege.” Acceleration Bay LLC v. Activision Blizzard Inc., Nos. 16-453–RGA, 16-454–RGA, 16-455–RGA, 2018 BL 45102, 3 (D. Del. Feb. 9, 2018).
The doctrine is recognized in almost all states, but with significant variations. Issues that can arise, and will depend on state law for their resolution, include:
- what constitutes a common interest;
- who can waive the protection;
- whether the doctrine applies to communications made in the absence of counsel; and
- whether the doctrine applies in the absence of a written confidentiality agreement.
Implied Lawyer-Client Relationship; Duty of Confidentiality
Most courts recognize that a common interest agreement does not create an attorney-client relationship with the non-client. For example, in Diva Limousine, the court, while ultimately disqualifying counsel and his firm, recognized that a “common interest agreement does not turn a party into a client of its co-party’s attorneys; the agreement simply exempts the parties from the rule of waiver that would otherwise apply if they exchanged confidential information with each other.” 2014 BL 8013, 18 n.4.
It is well accepted, however, that common interest agreements impose a duty of confidentiality on parties and their counsel who receive confidential information—indeed that is one of the primary purposes behind a common interest agreement. See ABA Comm’n on Ethics & Professional Responsibility, Formal Op. 95-395 (attorney participating in a joint defense group who receives confidential information from the other members “would almost surely have a fiduciary obligation to the other members”).
Accordingly, in United States v. Henke, 222 F.3d 633 (9th Cir. 2000) (per curiam), when shortly before trial one defendant accepted a plea agreement and promised to testify for the government, the other defendant’s counsel sought to withdraw because his duty of confidentiality to the cooperating witness under the common interest agreement prevented him from cross-examining the witness on matters discussed in privileged meetings—a limitation the lawyer claimed unduly restricted his ability to zealously advocate on behalf of his client.
The trial court denied the motion, and the Ninth Circuit reversed, stating that the joint defense had created an implied attorney-client relationship between defense counsel and the now-cooperating witness, and that there was in fact a duty to maintain the witness’ confidences, which in turn unduly restricted defense counsel’s ability to cross-examine the witness. Id.
As we have seen in Diva Limousine, courts have taken the natural, next step and found that counsel can be disqualified as a result of a breach of the duty of confidentiality
In Henke, the court explained: “Just as an attorney would not be allowed to proceed against his former client in a cause of action substantially related to the matters in which he previously represented that client, an attorney should also not be allowed to proceed against a co-defendant of a former client wherein the subject matter of the present controversy is substantially related to the matters in which the attorney was previously involved, and wherein confidential exchanges of information took place between the various co-defendants in preparation of a joint defense.” Id. at 637 (quoting Wilson P. Abraham Constr. Corp. v. Armco Steel Corp., 559 F.2d 250, 253 (5th Cir. 1977) (per curiam)). See also Restatement (Third) of the Law Governing Lawyers § 132 cmt. g(ii) (“A lawyer who learns confidential information from a person represented by another lawyer pursuant to a common-interest sharing arrangement is precluded from a later representation adverse to the former sharing person when [the] information actually shared by that person with the lawyer or the lawyer’s client is material and relevant to the later matter.”) (citation omitted).
Courts faced with motions to disqualify counsel based on conflicts of interest arising under a common interest agreement generally require that the moving party show: “(1) the actual exchange of relevant confidential information; (2) the former representation was the same or substantially related to the current litigation; and (3) the current client’s interests are materially adverse to interests of the party claiming to be protected by the joint defense agreement.” Roosevelt Irrigation Dist. v. Salt River Project Agric. Improvement & Power Dist., 810 F. Supp.2d 929, 970 (D. Ariz. 2011) (internal quotation marks omitted).
The first factor distinguishes motions to disqualify in the joint defense context from motions to disqualify filed by a former client. In the latter situation, the sharing of confidential information is presumed; but in the joint defense context, there is no presumption that confidential information was shared, and the moving party must prove confidential information was actually exchanged. Wilson P. Abraham Constr. Corp., 559 F.2d at 253.
As the Restatement (Third) of the Law Governing Lawyers § 132 explains: “A lawyer who learns confidential information from a person represented by another lawyer pursuant to a common-interest sharing arrangement is precluded from a later representation adverse to the former sharing person when information actually shared . . . with the lawyer or the lawyer’s client is material and relevant to the later matter. Such a threatened use of shared information is inconsistent with the understanding of confidentiality that is part of such an arrangement.” Id. cmt.g (ii) (citations omitted) (emphasis added).
Not all courts recognize this distinction, however. The Diva Limousine court, for example, expressly held that “the general rule governs,” and “[a]cess to confidential information is ‘presume[d]’ based on [the] substantial relationship between the successive representations.” Diva Limousine, Ltd., 2019 BL 8013, 17.
The best means of minimizing these risks associated with a common interest agreement is a clearly worded and comprehensive written agreement.
As the D.C. Bar has recognized: “Some forms of [common interest agreements] define in great detail the rights and obligations that each member of the joint defense group is assuming with respect to every other member of the group. For example, the [common interest] agreement might specifically disclaim any attorney-client relationship with the members of the joint defense group who are not the participating lawyer’s client. It might also provide a specific waiver to allow use of confidential joint defense information to cross-examine and impeach a member of the joint defense group who becomes a witness for the adversary after abandoning the joint defense . . . e.g., a guilty plea or settlement agreement.” D.C. Bar Ethics Op. 349 (Sept. 2009) (emphasis added).
In addition, the agreement can provide “ground rules” to address cases where “[o]ther lawyers in a participating attorney’s law firm are asked to represent clients in matters adverse to one or more non-client members of the joint defense group, including matters that are substantially related to the joint defense matter,” id.; and where “[a] participating lawyer moves to another law firm which has, or is later asked to undertake, representations adverse to one or more members of the joint defense group that are substantially related to the joint defense matter.” Id. See 1 Geoffrey C. Hazard, Jr., W. William Hodes, Peter R. Jarvis, The Law of Lawyering § 10.13 (4th ed. 2018) (“[M]ost cooperation agreements are reduced to writing, and many involve complex specifications.”).
Some courts have held that a general waiver-of-conflict provision is sufficient to avoid disqualification. In In re Shared Memory Graphics LLC, 659 F.3d 1336, 1339 (Fed. Cir. 2011), for example, the court denied a motion for disqualification because the agreement expressly stated: “The parties expressly acknowledge and agree that nothing in this Agreement, nor compliance with the terms of this Agreement by either party, shall be used as a basis to seek to disqualify the respective counsel of such [a] party in any future litigation.” Id. at 1338-39 (internal quotation marks omitted).
However, as with any advance waiver provision, the more tailored the waiver can be to the conflict that might eventually arise, the more likely a court will enforce it. Indeed, at least one court has granted a motion to disqualify despite an even more specific clause than this, finding that the conflict of interest that had arisen had not been contemplated by the common interest agreement. All Am. Semiconductor Inc. v. Hynix Semiconductor Inc., Nos. C 07-1200 et al., 2008 BL 280751, 7-8 (N.D. Cal. Dec. 18, 2008).
There, an attorney who had participated in a common interest agreement with a company named Infineon switched law firms, and the new firm was adverse to Infineon in a substantially related matter. The common interest agreement had provided that Infineon waived any conflict of interest that might arise on account of the agreement, “including specifically from an attorney member of this Agreement . . . cross-examining him, her or it at trial or in any other proceeding arising from or relating to the above Investigation.” Id. (internal quotation marks omitted).
The court reasoned: “The court is not convinced that Infineon gave its informed consent to waive its right to seek disqualification of [counsel] under the circumstances. Plaintiffs did not offer persuasive evidence or argument indicating that the prospective waiver provision sufficiently disclosed the nature of the conflict that has subsequently arisen between the parties, and that Infineon knowingly and specifically waived its right to object to this conflict.” Id. at 12.
Parties are thus best advised to make the prospective waiver in common interest agreements as tailored to potential conflicts as possible. Moreover, because an attorney could be unduly restricted in her advocacy by an obligation to avoid the use of confidential information (recall United States v. Henke, discussed above) a more certain means of avoiding disqualification is to provide that an attorney can in fact use confidential information should later adversity arise, and one of the parties testify at trial against another. United States v. Stepney, 246 F. Supp. 2d 1069 (N.D. Cal. 2003).
As explained in Stepney, prohibiting a party from using confidential information to cross-examine creates a “tension with the general principle that where an attorney has actually obtained confidential information relevant to her representation of a client, the law presumes that she cannot avoid relying on the information—however indirectly or unintentionally—in forming legal advice and trial strategy. Because the cross-examining attorney still holds relevant confidences of the witness, it is not clear that she can truly operate free from conflict.” Id. at 1085 (citation omitted).
It is thus advisable to ensure common interest agreements contain the following terms:
• That nothing in the agreement is intended to create any attorney-client relationship;
• That neither the agreement, nor information shared pursuant to it, shall be asserted by any party as grounds for a motion to disqualify;
• That the parties voluntarily waive any claim of conflict of interest that might arise by virtue of the agreement;
• Should a party to the agreement become a witness at trial, the lawyer for another party may use confidential information to cross-examine the testifying party;
• An express acknowledgment that such confidential information may include statements or confidences the testifying witness shared with his or her attorney.
Common interest agreements can play a vital role in litigation today, especially in multi-party, complex cases. Attorneys need to be cognizant of the potential downside risk of disqualification that can arise from such arrangements, however, and take steps to protect their clients from that possibility at the outset.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Meg Keeley is a partner at the law firm of Williams & Connolly LLP, where she is co-chair of the firm’s Lawyer Liability Practice Group. She concentrates her practice on legal malpractice defense and securities litigation.