American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton
117 Cal. Rptr. 2d 685, 2002 Cal. Daily Op. Serv. 2259, 96 Cal.App.4th 1017 (2002)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An attorney breaches their fiduciary duty to a current client by accepting a non-attorney role, such as a Rule 30(b)(6) witness, for a party whose interests are adverse to the client, even if not providing legal advice to the new party, because such a role creates conflicting fiduciary duties and the possibility of breaching client confidences. This duty cannot be circumvented by unilaterally terminating the client relationship to avoid conflict rules.
Facts:
- In July 1990, American Airlines (American) retained attorney Gregory A. Long (Long) and his law firm, Sheppard, Mullin, Richter & Hampton (SMRH), to advise it on potential claims against McDonnell Douglas Corporation (MDC) regarding performance issues with MD-11 aircraft.
- From February 1994 to July 1995, American engaged Long to review and oppose the production of American's confidential MD-11 related documents in discovery proceedings within a lawsuit brought by ADO Finance A.G. (ADO) against MDC concerning the same aircraft model.
- In February 1996, ADO, through its attorneys, asked Long to serve as its federal Rule 30(b)(6) witness in the ADO/MDC litigation, a role requiring him to testify on matters known or reasonably available to ADO.
- Long informed American's in-house counsel, Kathryn Koorenny, of ADO's request, and Koorenny explicitly told Long that American would not consent to his employment as ADO's witness due to conflict of interest concerns and potential revelation of confidential information.
- Long, after consulting with SMRH's ethics committee, decided to accept the ADO engagement on March 11, 1996, believing no conflict existed and promising not to reveal American's confidential information.
- On March 14, 1996, Long sent a letter to American stating that his work for American was complete and he was accepting the ADO engagement, reaffirming his belief that no conflict existed and he would protect American's confidences.
- During the Rule 30(b)(6) deposition on April 9, 1996, Long refused to answer questions from MDC that related to information he had obtained from American, asserting attorney-client privilege.
- On May 27, 1996, a special master in the ADO/MDC litigation ordered Long disqualified as ADO's Rule 30(b)(6) witness, concluding that his continuing duty to American and the potential for ethical violations would severely hamper his effectiveness.
Procedural Posture:
- In October 1996, American Airlines (American) filed a lawsuit against attorney Gregory A. Long (Long) and his law firm, Sheppard, Mullin, Richter & Hampton (SMRH), in state trial court, alleging breach of fiduciary duty, professional negligence, and misappropriation of trade secrets.
- Defendants successfully moved for summary adjudication on American's claim for punitive damages and misappropriation of trade secrets, and also successfully moved to strike American’s allegations seeking constructive trust relief and private attorney general attorney fees.
- Defendants served an offer to compromise for $59,200 under Code of Civil Procedure section 998, which American rejected.
- Before trial, the court granted defendants’ motion in limine to preclude American from seeking a refund of attorney fees paid to defendants prior to the date of the alleged breach of fiduciary duty.
- During trial, the court granted defendants' motion for directed verdict, limiting the jury's consideration to damages resulting from Long's service as a Rule 30(b)(6) witness and the alleged improper turning over of document indices.
- The jury, by a nine-to-three vote, found defendants liable for breach of fiduciary duty and professional negligence related to Long serving as a Rule 30(b)(6) witness, awarding American $8,174 in damages, but found no liability regarding the document indices.
- The trial court, based on American's rejection of the § 998 offer, ruled that defendants were entitled to recover their costs and expert witness fees incurred after the offer, awarding defendants $126,022.79, which, after offset by American’s damages and pre-offer costs, resulted in a net award of $91,033.63 in favor of defendants.
- American's post-trial motions for a new trial and for judgment notwithstanding the verdict were denied.
- American appealed the trial court's rulings, and defendants filed a cross-appeal challenging the jury's verdict finding them liable for breach of fiduciary duty.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an attorney breach their fiduciary duty to a current client by accepting a non-attorney engagement for a party whose interests are adverse to the client, without the client's informed written consent, even if no legal advice is rendered to the new party and no confidential information is ultimately disclosed?
Opinions:
Majority - Vogel (C. S.), P. J.
Yes, an attorney breaches their fiduciary duty to a current client by accepting a non-attorney engagement for a party whose interests are adverse to the client, even if not providing legal advice to the new party and no confidential information is ultimately disclosed. The court affirmed the jury's finding of breach of fiduciary duty by Long and SMRH. The court reasoned that Rule 3-310(C) of the State Bar Rules of Professional Conduct (prohibiting concurrent representation of conflicting interests without informed written consent) applies to all types of legal employment, not solely traditional attorney-client relationships where legal advice is rendered. Citing William H. Raley Co. v. Superior Court, the court emphasized that "Professional responsibilities do not turn on whether a member of the State Bar acts as a lawyer." Long's role as ADO's Rule 30(b)(6) deponent placed him in a fiduciary position to ADO, requiring him to act in ADO's best interests, which inherently conflicted with his ongoing duty to American to preserve its confidences. The court also found a breach under Rule 3-310(E) (prohibiting adverse employment using material confidential information). It rejected the argument that Long's employment with ADO was not adverse or that his promise not to disclose confidences mitigated the conflict. The court stated, "It is anathema to the State Bar Rules of Professional Conduct to suggest that an attorney can place himself in a situation in which he undertakes adverse representation of a third party, and the client cannot object because the attorney has promised not to disclose the client’s confidential information." The critical factor is the "possibility of the breach of confidence," not whether actual disclosure occurred. An attorney cannot unilaterally convert a present client into a former client to circumvent conflict rules, as such an act can itself be a breach of loyalty. The court, however, affirmed the trial court's summary adjudication against punitive damages, finding that while Long's conduct was improper, it did not meet the "clear and convincing evidence" standard for malice, oppression, or fraud, as he genuinely believed no conflict existed and actively attempted to protect American's confidences at the deposition. Lastly, the court affirmed the award of costs to defendants under Code of Civil Procedure section 998, holding that an offer to settle by dismissing the lawsuit with prejudice is a valid "offer to allow judgment to be taken." It rejected American's argument that the non-monetary value of the liability finding made their judgment more favorable, deeming such an interpretation unworkable and detrimental to the statute's purpose.
Analysis:
This case significantly clarifies the breadth of an attorney's duty of loyalty, establishing that it extends beyond providing legal advice to encompass any fiduciary role undertaken for an adverse party. It reinforces that the potential for conflict, rather than actual disclosure of confidences, is sufficient to constitute a breach. The ruling prevents attorneys from unilaterally deciding whether a conflict exists or attempting to bypass ethical rules by reclassifying clients. While affirming a robust standard for fiduciary duty, the case also demonstrates the high evidentiary bar for punitive damages, even in instances of professional misconduct, emphasizing the need for conduct that is truly "despicable" or intentionally harmful. Finally, it provides crucial guidance on the interpretation of Code of Civil Procedure section 998 settlement offers, particularly regarding non-monetary judgments versus dismissal with prejudice.
