Failure to Establish a Substantial Risk Defeats Claim of Conflict of Interest Barring Lawyers from Representing Plaintiff Against Former Client
My expert witness practice is limited because I refuse to testify against any insurer I have ever represented in the past as a lawyer regardless of the facts involved or the amount of time that has expired since I last represented the insurer. In Washington state it seems I would not be prohibited from testifying unless the insurer can prove that there was a substantial risk that my prior representation would cause damage to the insurer.
In Richard Plein, a married person, and Debra Plein (formerly Debra De Witt), a married person, and the marital community composed thereof v. USAA Casualty Insurance Company, an insurance company, and The Sterling Group, Inc. (doing business as Sterling Group, DKI), a corporation, No. 97563-9, Supreme Court Of The State Of Washington (May 21, 2020) Richard and Debra Plein sued USAA Casualty Insurance Company, alleging insurance bad faith. The Pleins hired three attorneys, two of whom were members of the Keller Rohrback LLP lawfirm (Keller), to represent them. But Keller had previously defended USAA in bad faith litigation for over 10 years.
Under the Rules of Professional Conduct, RPC 1.9(a) would bar Keller from representing the current clients, the Pleins, against former client USAA if the prior representation was in a matter “substantially related” to the current Plein matter.
Irene Hecht and her team at Keller represented USAA between 2007 and 2017. According to Keller, that representation of USAA in Washington included “over 165 matters between August 2006 and November 2017” and Keller had access to the following information:
- The business customs and practices, including confidential claims handling materials and business relationships with outside companies and vendors;
- The thought processes of adjusters, business representatives, and in-house attorneys; and
- Business and litigation philosophies and strategies, including approaches to settlement discussions, motion practice, case analysis, defenses, witness meetings, witness preparation, trial preparation, and discovery both on a case-by-case and institutional, company-wide level.
Further, Keller acknowledges that during the course of its representation of USAA, Keller:
- Had regular in-person and telephonic access to company employees, executives, and in-house attorneys relative to insurance claims and related Alleged Bad Faith Litigation;
- Provided USAA CIC and its affiliated companies with advice, including as to insurance coverage matters, litigation strategies, factual positions, litigation mitigation recommendations for training and communication materials, and legal arguments; and
- Was provided with electronic login credentials to certain internal proprietary and confidential documents regarding insurance bad faith litigation, including document repositories holding attorney-client information and electronic claim databases; and
- Actively participated in court appearances, depositions, written court filings, correspondence, and mediations on behalf of USAA CIC and its affiliated entities.
Keller acted as USAA’s sole defense counsel against four bad faith claims in Washington. USAA alleged that Keller “had (and has) extensive knowledge of how USAA CIC’s adjusters analyze and handle homeowner’s insurance claims and the interplay of this knowledge with the companies’ litigation strategy and analysis in defending Alleged Bad Faith Litigation in Washington.”
In 2016, a fire damaged the Pleins’ home and personal property. USAA agreed that the Pleins’ homeowners’ insurance policy covered the damage. On USAA’s recommendation, the Pleins hired The Sterling Group, Inc. to repair the damage. But rather than repair the home, Sterling “concealed unrepaired fire damage.” In addition, the work that Sterling did contained “numerous deficiencies.” USAA nevertheless declined to pay the Pleins for either the cost of additional repairs to their home or the cost of the temporary living arrangements while their home was uninhabitable.
The Pleins hired attorney Joel Hanson to represent them in a lawsuit against USAA and Sterling, alleging insurance bad faith, violation of the Consumer Protection Act (CPA), ch. 19.86 RCW, and several other claims. CP at 142-44. Soon after filing the lawsuit, Hanson consulted with two Keller attorneys, William Smart and Ian Birk. The Pleins hired Smart and Birk to represent them along with Hanson.
USAA then demanded that Keller immediately withdraw from representing the Pleins due to a conflict of interest. The trial court issued an order concluding that “the Plein matter is factually distinct from and not substantially related to the firm’s prior representation of USAA, and as a result, the firm’s representation of the Pleins is not a conflict. Accordingly, the trial court allowed Keller to continue to represent the Pleins.
RPC 1.9(a) states: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.” (Emphasis added.) The question presented is whether the Plein matter is “substantially related” to any matter on which Keller previously represented USAA.
THE FORMER CLIENT BEARS THE BURDEN OF SHOWING A “SUBSTANTIAL RELATIONSHIP”
Both federal and state courts generally agree that the burden of proving substantial relationship should ordinarily be placed on the former client. Under the previous version of the rules, the Court of Appeals also placed the burden on the party moving to disqualify counsel.
KELLER DID NOT REPRESENT USAA ON THE SAME OR A SUBSTANTIALLY RELATED MATTER
A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.
The 2006 Amendments to RPC 1.9 and Its Comments Now Determine Whether Matters Are “Substantially Related”
In 2006, the Supreme Court amended RPC 1.9 and added numerous comments. The key inquiry is whether there is a “substantial risk” that Keller acquired “confidential factual information as would normally have been obtained in the prior representation” that “would materially advance” the Pleins’ position.
Under this rule and these comments, the former client need not show that the lawyer actually obtained confidential information—the “former client is not required to reveal the confidential information learned by the lawyer in order to establish a substantial risk that the lawyer has confidential information to use in the subsequent matter.”
The Decisions Holding That “Substantially Related” Matters Must Be Factually Related Are More Persuasive
USAA alleges that Keller obtained specific information relevant to the facts of the instant case during its representation of USAA in a prior case. That matter involved allegations similar to those made by the Pleins. USAA’s response to an unrelated set of facts, even facts based on similar allegations, does not suggest that Keller obtained confidential information that would materially advance the Pleins’ case.
The Supreme Court concluded that Keller did not represent USAA on the Plein matter or on anything factually related to the Plein matter. As a result, it did not represent USAA on any matter substantially related to the instant case, so it may now represent the Pleins.
Duty of Loyalty” Approach
USAA also contends that Keller breached the “duty of loyalty” it owed to USAA. If there were a general duty of loyalty to never litigate against a former client, courts would not need to apply RPC 1.9(a) at all and would not need to assess whether matters are substantially related; disqualification would be automatic any time a lawyer sought to represent a party adverse to a former client.
Keller represented USAA for many years, and the parties agree that it obtained information about the company’s procedures and general strategies. But it never represented USAA on any matter substantially related to the Plein matter. Thus, RPC 1.9(a) does not prohibit Keller from representing the Pleins against USAA.
Under current RPC 1.9(a), USAA fails to show a “substantial risk” that Keller obtained “confidential factual information” that would “materially advance” the Pleins’ case. The Supreme Court reversed the Court of Appeal and concluded that disqualification was not required and reinstated the trial court’s order that disqualification was not required.
The facts of the Plein case avoided the conflict claim because it did not relate to refusing to pay a claim owed but to pay for damages caused by a repair entity that it had recommended. As a result, since the other bad faith suits Keller had defended dealt with claims handling and not an extraneous claim for recommending an incompetent builder and not guarantee the work of the builder. No conflict exists and I would expect that the Keller Rohrback LLP lawfirm will never receive another assignment from USAA.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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