Tuesday, March 12, 2002
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C.A. Takes Broad View of Lawyer’s Duty to Avoid Conflict of Interest
By KENNETH OFGANG, Staff Writer/Appellate Courts
An attorney may not voluntarily testify at a deposition if the party on whose behalf the testimony is to be given has interests adverse to those of a client, the Court of Appeal for this district has ruled.
Div. Four Friday upheld a jury’s verdict requiring Sheppard, Mullin, Richter & Hampton to pay more than $8,000 in damages to American Airlines for breach of fiduciary duties.
The panel also, however, upheld Los Angeles Superior Court Judge Ronald Sohigian’s conclusion that American could not recover punitive damages and his award of costs to Sheppard Mullin under Code of Civil Procedure Sec. 998. The result was that Sheppard Mullin, which had offered to pay a little less than $60,000 to settle the case and claimed about $120,000 in costs incurred after the offer was rejected, won a net judgment of more than $90,000.
The unusual dispute arose from a problem that American had with the MD-11 aircraft in purchased from McDonnell Douglas Corporation in the late 1980s. The airline hired Gregory Long of Sheppard Mullin in 1990 for advice and possible litigation in the matter, which was concluded by a confidential settlement.
More Litigation
Another plaintiff, Swiss aircraft broker ADO, sued McDonnell Douglas in connection with the airworthiness of the MD-11 in 1993. As part of that litigation, the manufacturer was ordered to turn over certain documents related to its dealings with American over to ADO’s attorneys.
When it learned those documents might become public, American sought advice from Long. The attorney eventually negotiated terms of a protective order with ADO’s lawyers.
Two years later, ADO retained Long to give a deposition in the litigation, as its corporate representative under Rule 30(b)(6) of the Federal Rules of Civil Procedure. The rule provides that a party may serve a notice upon a corporation to give a deposition on specified matters, in which event the corporation must designate a person with knowledge of those matters to testify as its representative.
Conflict Denied
When questions arose as to whether Long’s testimony on behalf of ADO might conflict with his duties to American, Long informed American that he did not believe a conflict existed because he was no longer working for American in connection with the MD-11, wasn’t going to do so in the future, and was unaware of any conflict between ADO’s interests and American’s.
McDonnell Douglas then subpoenaed Long and Sheppard Mullin, seeking copies of all documents Long reviewed on behalf of American and all notes he made concerning that review, but the firm invoked privilege and said the documents were irrelevant to the Rule 30(b)(6) deposition.
At the deposition, Long declined to answer a number of questions relating to his work for American, citing attorney-client privilege. The manufacturer’s attorneys terminated the deposition and moved for sanctions, saying ADO failed to designate a proper Rule 30(b)(6) representative, and ADO moved for a protective order and sanctions for terminating the deposition.
ADO’s motion was referred to a special master, who recommended that ADO’s motion be denied. Although the special master found no misconduct on Long’s part, she said his duty to American precluded him from serving as a Rule 30(b)(6) witness. McDonnell Douglas, she reasoned, was entitled to test Long’s reliability by exploring what information he received during his representation of American, while Long’s duty to American precluded him from answering those questions.
McDonnell Douglas later produced some American-related documents to ADO’s lawyers in discovery. A few months later, the suit ended in a confidential settlement, but three months after that American sued Long and Sheppard Mullin for breach of fiduciary duty and professional negligence, among other things.
By the time the case went to the jury, much of it had been whittled away by rulings of the judge, including a summary adjudication rejecting American’s punitive damages claim.
The jury ultimately found that their had been a breach of duty, and that it was negligent of the defendants to accept employment from ADO, but awarded only $8,174 in damages.
The judge awarded $126,000 in Sec. 998 costs, including more than $58,000 in expert witness fees. Deducting the jury award, plus nearly $27,000 in costs incurred by American prior to the settlement offer, left Sheppard Mullin with a net judgment of a little over $91,000.
American appealed, based on the denial of punitive damages and the exclusion of other items alleged as damages, including attorney fees paid to Sheppard Mullin prior to the alleged breach of duty. Sheppard Mullin cross-appealed, arguing that it had not breached any duty as a matter of law.
Presiding Justice Charles Vogel, writing for the Court of Appeal, concluded that Long’s engagement to testify on behalf of ADO breached his duty to American. The fact that he was acting as a witness, rather than an attorney, for ADO was irrelevant, the presiding justice said.
Long, Vogel reasoned, was “placed him in a position of trust where he could be compelled to choose which of two conflicting loyalties he would honor.”
The presiding justice also rejected that contention that Long could not have breached any duty to American since no secrets were actually disclosed.
“It matters not that in the final analysis American’s confidences were not disclosed,” he wrote. “What matters more is that Long and [Sheppard Mullin] exhibited an absence of loyalty when they jettisoned American in order to assume a preferred position with ADO.”
Kurt L. Schmalz, L. Kimberly Pepper, and Donna M. Dean of Lurie & Zepeda represented American on appeal. Brad D. Brian and Steven W. Hawkins of Munger, Tolles & Olson represented Long and Sheppard Mullin.
Former Munger Tolles partner Rita J. Miller also worked on the appeal for the defendants prior to her appointment to the Los Angeles Superior Court.
The case is American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton, 02 S.O.S. 1299.
Copyright 2002, Metropolitan News Company