Zador Corp. v. Kwan
31 Cal. App. 4th 1285, 37 Cal. Rptr. 2d 754, 95 Cal. Daily Op. Serv. 795 (1995)
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Rule of Law:
In a joint client representation, where a potential conflict of interest exists, a law firm may sue a former client on behalf of a current co-client if the former client signed a detailed waiver consenting to the firm's continued representation of the co-client "notwithstanding any adversity that may develop."
Facts:
- In 1983, Zador Corporation, N.V. (Zador) purchased the 'Platt Property,' with C. K. Kwan acting as an agent for Zador's owners during the transaction.
- In 1990, Roy Bolton filed a lawsuit against Zador and Kwan related to an interest in the Platt Property.
- Zador retained the law firm Heller, Ehrman, White & McAuliffe (Heller) to represent both Zador and Kwan as co-defendants in the Bolton lawsuit.
- Heller required Kwan to sign a detailed conflict waiver form, which stated that if a conflict arose, Heller would continue to represent Zador and Kwan agreed not to seek Heller's disqualification "notwithstanding any adversity that may develop."
- Heller discovered documents suggesting Kwan may have improperly profited from the Platt Property transaction, creating a conflict of interest between Kwan and Zador.
- Heller advised Kwan to retain separate counsel, which he did. At that time, Kwan reaffirmed his consent for Heller to continue representing Zador.
- After Kwan admitted to profiting from the property deal, Zador, represented by Heller, filed a cross-complaint against Kwan.
Procedural Posture:
- Roy Bolton sued Zador, Kwan, and others in a state trial court.
- Zador filed a cross-complaint against the sellers of the property.
- Zador, represented by Heller, amended its cross-complaint to name its former agent, Kwan, as a cross-defendant.
- Kwan filed a motion in the trial court to disqualify Heller as Zador's counsel.
- The trial court granted Kwan's motion to disqualify Heller.
- Zador, as appellant, appealed the trial court's disqualification order to the intermediate court of appeal.
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Issue:
Does a detailed written waiver, in which a client consents to his attorney's continued representation of a co-client "notwithstanding any adversity that may develop," prevent that client from later disqualifying the attorney when the co-client sues him?
Opinions:
Majority - Elia, J.
Yes. A client's informed, written consent to his counsel's continued representation of a co-client, even in the face of future adversity, is enforceable and bars the client from later seeking to disqualify the counsel when that adversity materializes as litigation. The trial court erred by applying the 'substantial relationship' test, which is not determinative in a joint representation case where a client has executed a specific waiver. In such circumstances, the analysis turns not on the presumption of confidential disclosures but on the scope of the consent given by the client. Here, Kwan signed a detailed consent form explicitly agreeing to Heller's continued representation of Zador 'notwithstanding any adversity,' which naturally includes the possibility of being sued. Kwan later reaffirmed this consent after retaining his own separate counsel. Enforcing this waiver aligns with principles of client autonomy and contract freedom, and prevents the disqualification motion from being used as a tactical litigation device.
Analysis:
This decision solidifies the enforceability of advance conflict waivers in joint representation settings, shifting the focus from the presumptive 'substantial relationship' test to the specific scope of the client's consent. It provides law firms with a clearer path to managing potential conflicts by obtaining detailed, forward-looking waivers from all jointly represented parties. The ruling underscores that client autonomy allows a party to waive future conflict-based disqualification rights, even if the conflict escalates into direct litigation. Consequently, this case serves as a crucial guidepost for drafting effective engagement letters and conflict waivers in complex multi-party representations.
