42 Cal.App.5th 546
Cal. Ct. App.2019Background
- Stephens retained Terry O’Reilly on a 40% contingency; O’Reilly never signed the retainer and later withdrew; O’Reilly died and his firm became subject to an involuntary Chapter 7 bankruptcy.
- After appellate proceedings, Stephens settled its insurance coverage dispute with Fireman’s Fund for $5.8 million; the written settlement allocated proceeds to Stephens and its successor counsel (Shapirshteyn) and included Stephens’ indemnity representation.
- The bankruptcy trustee gave Michael Danko (largest creditor) access to O’Reilly’s files; Danko purchased the estate’s attorney-fee claim, received Stephens’ client file, then assigned the claim to O&C Creditors LLC (of which Danko is sole member).
- Stephens sought declaratory relief and obtained a TRO and later a protective discovery order requiring Danko to return/limit use of the client file; the trial court denied Stephens’ motion to disqualify Danko Meredith from representing O&C Creditors.
- Fireman’s Fund and Akin Gump brought an anti‑SLAPP special motion to strike O&C Creditors’ cross‑claims (claiming wrongful settlement/disbursement in derogation of an attorney’s lien); the trial court granted the motion and awarded attorney fees to Fireman’s Fund; the appeals followed and were consolidated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Motion to disqualify Danko Meredith | Danko reviewed and used Stephens’ privileged client file; disqualification needed to prevent unfair advantage | Danko argued waiver and that mere exposure doesn’t mandate disqualification; disqualification would let Danko (as principal) remain a party and hire new counsel | Denied. No reasonable likelihood that the misconduct would affect outcome; prophylactic disqualification not required given measures to protect privilege and Danko’s overlapping roles |
| Protective discovery / client-file use (privilege & Evidence Code §958) | Stephens: trustee/assignee’s possession was unauthorized; privilege preserved; demand return and protection | Danko: as purchaser/assignee he stands in O’Reilly’s shoes and can use files; Stephens waived privilege | Writ relief denied; protective discovery order affirmed. Purchaser/assignee (standing in attorney’s shoes) may access communications directly at issue under §958, but only document-by-document and limited to communications put directly at issue |
| Anti‑SLAPP motion re: claims that defendants wrongfully settled/disbursed proceeds (IIPEA, breach of trust) | O&C Creditors: settlement disbursement (paying Stephens) wrongfully deprived the lienholder and is not protected petitioning activity | Fireman’s Fund/Akin Gump: settlement and disbursement are litigation‑related petitioning acts protected by anti‑SLAPP; claims arise from that protected activity | Granted. Settlement negotiation and execution (and disbursement pursuant to it) were protected activity; O&C Creditors failed to show a probability of prevailing because the retainer was voidable (no attorney signature) and thus the alleged lien lacked minimal merit |
| Attorney‑fees award under anti‑SLAPP statute | O&C Creditors: fees excessive, wrong rates, non‑apportioned time, block‑billing problems; Akin Gump shouldn’t recover fees for in‑house work | Fireman’s Fund/Akin Gump: entitled to fees as prevailing defendants and had an attorney-client relationship with counsel who litigated anti‑SLAPP | Affirmed. Trial court properly applied lodestar, substantially reduced hours/rates, and permissibly awarded fees for Akin Gump’s representation; no abuse of discretion |
Key Cases Cited
- People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135 (1999) (disqualification doctrine and competing policy considerations)
- State Comp. Ins. Fund v. WPS, Inc., 70 Cal.App.4th 644 (1999) (duties on inadvertent receipt of privileged materials)
- McDermott Will & Emory LLP v. Superior Court, 10 Cal.App.5th 1083 (2017) (disqualification standard for inadvertent disclosure and State Fund duties)
- Navellier v. Sletten, 29 Cal.4th 82 (2002) (settlement and settlement negotiations are protected activity under anti‑SLAPP)
- Rand Resources v. City of Carson, 6 Cal.5th 610 (2019) (claim must "arise from" protected activity; the protected act must supply elements of the challenged claim)
- Old Republic Constr. Program Group v. The Boccardo Law Firm, Inc., 230 Cal.App.4th 859 (2014) (distinguishing claims that arise from entering a stipulation vs. claims based on later withdrawal/disbursement)
- Drell v. Cohen, 232 Cal.App.4th 24 (2014) (anti‑SLAPP in post‑settlement attorney‑lien disputes; gravamen matters)
- Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725 (2009) (attorney‑client privilege is legislative and exceptions are narrow)
- Ketchum v. Moses, 24 Cal.4th 1122 (2001) (lodestar and factors for fee adjustments under fee‑shifting statutes)