Wymac Capital v. Anderson

Filed 6/8/07 Wymac Capital v. Anderson CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Attorney David R. Medlin appeals from an order imposing $15,000 sanctions payable to Wymac Capital, Inc. (Wymac) based on the trial courts conclusion that Medlins failure to recognize a disqualifying conflict of interest delayed a trial and would cause Wymac additional expense. Although Medlin challenges the order on several procedural grounds that may well have merit, we believe the appeal is most simply resolved on the ground that the trial court erred in disqualifying Medlin, thus eliminating the predicate on which sanctions were imposed.

Background

The facts giving rise to this appeal are not in dispute. In November 2003 Wymac, a licensed mortgage broker, filed an action against two of its former employees and their new employer alleging misappropriation of trade secrets and breach of employee confidentiality agreements. The two employees were Shannon Anderson and Melanie Fosson. The new employer was alleged to be Michael Beinke, individually and doing business as Pacific Guaranty Mortgage Company (PGM), but the complaint was later amended to add CMG Mortgage Services, Inc. (CMG) as a defendant when it was determined that PGM was a branch of CMG.[1] From the outset, Medlin and his law firm represented both CMG and the three individual defendants, Anderson, Fosson and Beinke.

CMG agreed to indemnify Fosson and Beinke from any liability incurred in the action but did not agree to indemnify Anderson, who apparently left the mortgage business soon after the litigation commenced. CMG did agree to pay Medlins attorney fees and on three occasions Medlin obtained Andersons written waiver of the potential conflict of interest and her agreement to joint representation.[2]

Wymac alleged that shortly before leaving its employ, Anderson closed certain loans with CMG, and disclosed to CMG customer information, proprietary business models and software that were Wymacs trade secrets. She allegedly did so by the use of email communications to herself and to Fosson, who had previously left Wymac for CMG, with the involvement of Beinke. The litigation was contentious and gave rise to extended discovery disputes involving computer inspections, several expert witnesses, numerous depositions, and many motions before a discovery referee and the court. The register of actions for the three years the action was pending is 75 pages in length.

The trial date was continued three times, but trial was eventually reached on October 10, 2006. On the preceding Friday, Medlin and his firm withdrew as counsel of record for CMG but remained as counsel for the three individual defendants. CMG was represented by Charles Louderback and the firm of Payne & Fears LLP, who had joined Medlin as co-counsel for CMG in September.[3] Near the start of the chambers conference with the trial judge on October 10, Louderback asserted that because CMG was not indemnifying Anderson, CMG and the individual defendants were separate sides in the action for the purpose of determining the number of peremptory challenges to which the parties were entitled.[4] Wymacs attorney strenuously objected, arguing that Medlin had represented all of the defendants until the preceding Friday and was still attorney for CMG in other matters and that CMG was paying for the defense of all the defendants, labeling the change in counsel a faade, a charade. He objected to there being two sides and [s]econdly, we object to Mr. Medlin purporting to represent Shannon Anderson and purporting not to represent CMG. Medlin stated that he was no longer representing CMG in the action because of this potential conflict of interest. He explained, the facts are correct in terms of my representinghaving represented all the parties until recently. I did represent all the parties. I no longer represent CMG Mortgage Services in this action. There is, I think, only the potential for a conflict of interest with Shannon Anderson and CMG. That potential exists only in a narrow area. It has been fully disclosed to her. Shes had multiplemultipleon three occasions she signed three different conflict waivers, each of which Im happy to share with the Court, advises her of the situation and the opportunity to seek counsel, and the limits on what indemnity and defense are, and what those distinctions are. The court indicated, however, that it had concerns that Mr. Medlin has represented both [CMG and Anderson] up until last week. The court agreed that Anderson should not be required to go to trial without counsel and then commented, I think this is a very unfortunate situation that could and should have been anticipated before now. That said, I dont think I can allow a defendant who has the potential of a verdict against her without any indemnification agreement, even if she did sign off that she understands the ramifications of having signed off. The issue is; what do I do about it? And Im going to think about it overnight and read your various papers.

The following day, counsel for Wymac submitted a trial brief in support of the disqualification of David R. Medlin and the entire law firm of Medlin & Hargrave, a Professional Corporation. Wymac argued that Medlins continued representation of any of the individual defendants is a violation of the duties of confidentiality and loyalty and was absolutely prohibited because an attorney cannot represent clients with adverse interests in the same litigation. Wymac claimed that Medlins continued representation of the individual defendants would prejudice Wymac because, somewhat illogically, his disqualification would cause another continuance, in which case he requested that the court order defendants to pay its costs and attorney fees that have been expended in preparing for this trial.[5] Wymac requested that the court disqualify Mr. Medlin and Medlin & Hargrove from any further participation in this case. The court preliminarily expressed its concern when there is what appears to be an actual conflict of interest, whether or not a waiver is valid. After some argument, in which Medlin again asserted that no conflict of interest exists right now, and Wymacs counsel stated [i]t would be unthinkable to permit an attorney to assume a position at trial or hearing where he could not advocate the interest of one client without adversely injuring those of another, the court continued the matter to permit Medlin to submit a written response to Wymacs brief.

Medlin did so the next day, arguing, among other things, that Wymac had no standing to object to an alleged conflict of interest between Anderson and CMG and himself, that there was no actual conflict of interest between Anderson and any of the other defendants, that Anderson had knowingly waived any potential conflict of interest, and that Wymac was raising the matter as a transparent attempt to remove defendant Andersons counsel of choice and to continue a trial that plaintiff does not want to try. The following day, Wymac filed a supplemental brief replying to Medlins opposition and arguing, among other things, that there was an actual conflict of interest between CMG and Anderson because CMG was not indemnifying Anderson and Anderson remains personally liable for every penny. It is beyond the bounds of reason to assume that every defendant has the same interests and that there is no existing dispute between the parties, in the face of Ms. Andersons liability risk.

When the chambers conference resumed on October 13, 2006, the court stated that it had been satisfied either that there was no conflict of interest . . . and/or that there had been a waiver by Miss Anderson specifically as to any conflict that potentially could exist until it was informed that Medlin had withdrawn as counsel for CMG and would be representing the individual defendants. And, of course, the court continued, it became more of a concern to me when I was told there were two sides for the defense, whichasking for me to decide there were two sides on the defense concedes that there is a conflict of interest between the defendants. After further argument, the court expressed its conclusion that there is a conflict, I think, between Anderson and CMG, and Anderson and Fosson and Beinke, and possibly between Fosson, Beinke, and CMG. . . . [] . . . [W]hen I think theres a breach of contract action against some and not others . . . theres a potential there for different damages, different liability. And I guess all the defendants have been sued for misappropriation of trade secrets, so you know, Anderson and Fosson could be liable for fees, commissions and attorneys fees, which the others would not be or could not be, and that they all could be liable for damages for misappropriation. [] So, to properly defend this case the defendants could each take positions adverse to each other to shift potential liability away from themselves and onto other defendants. Now whether thats going to happen or not, I dont know. But because of the litigation setting, and I think the cases are pretty clear, that there is almost a mandatory disqualification there. [] The courts all talk about the undivided duty of undivided loyalty that attorneys have to a client, and that the rule rests with the clients expectation of confidentiality and trust, and that this litigation situation is a classic conflict. . . . And I believe that, as the court, I have an obligation to uphold the integrity of the system.

With respect to the issue of waiver, the court continued, I dont believe that Miss Andersons waiver was knowing and intelligent. Without going into the details of these letters . . . the waivers do not mention the possibility of her having punitive damages. It does not mention a possibility of her losing her real estate license. It does not mention the possibility of criminal liability. It doesnt mention the possibility that other defendants could point fingers at her. And the letters all say that if a conflict arose, she would be told, and that Mr. Medlin would represent CMG and not her. And that in itself makes me believe that her waiver was not knowing and intelligent.

The court stated that in its view there was a conflict between CMG and each of the individual defendants, and that to be on the safe side, that all of the individual defendants should be individually represented. [] . . . if you read the cases, in any situation where there is a potential for punitive damages and any potential that one defendant might try to shift liability by pointing fingers at the other, I think you need to have separate representation for each of those defendants. The court went on to state that because of Mr. Medlin and his firms ongoing representation of CMG, . . . he and his firm are disqualified from representing any defendant in this case, but because the other two individual defendants were being indemnified by CMG it was addressing only the Anderson issue. The court explained, I think that Miss Anderson has been put between the proverbial rock and the hard place. Because she has been told that as long as she is represented by the Medlin firm, and that her fees would continue to be paid, but that she also should know that thethat CMG would be controlling the litigation, the defense of the litigation. [] And, of course, her alternative then is to get her own attorney and pay her fees. And I can see that any client whos faced with big-time attorneys fees would feel they had no alternative but to sign the waiver. So, for all the reasons Ive said, I dont believe her waiver was knowing and informed or intelligent and whatever.

The court indicated that because it was disqualifying Medlin from representing Anderson and she would need new counsel, it had no alternative but to continue the trial. Wymac then repeated its request for compensation for the delay, and the wasted preparation. After brief argument, the court concluded, there is obviously a certain amount of work that you have to redo. I am going to order as sanctions that CMG will pay Miss Andersons legal fees, and $15,000 to plaintiffs for their legal fees. At Medlins request, the court stated that the $15,000 sanctions would be a joint obligation of CMG and himself. The courts orders were reflected in the clerks minutes but no formal order was signed by the court. Thereafter, the parties reached a settlement of the litigation in which CMG, but not Medlin, was released from any obligation to pay the sanctions. Medlin timely filed a notice of appeal from the sanction order.

Discussion

Preliminary issues

Preliminarily, Medlin argues that Wymac is not a proper party to this appeal because it had and has no standing to object to a conflict of interest between opposing parties and their attorneys. (DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832-833.) Although as we shall point out below, this argument has merit with respect to the propriety of the order entered in the trial court, that order, which is the subject of the appeal, directs Medlin to pay Wymac $15,000 in sanctions. Wymac, a party to the action to whom the sanctions will be paid if the order is upheld, has an unmistakable interest in defending the order and will be bound by the outcome of the appeal. It is entitled to participate in the appeal. (Cf. Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1480.)

Wymac, on its part, argues that this court should not even consider the propriety of the disqualification order because Medlin has appealed only from the sanction order and not from the order of disqualification. It contends that the only issue presented is whether the court abused its discretion in awarding sanctions after having disqualified Medlin. However, the sanctions were based on Medlins failure to have disqualified himself. If the court erred in its conclusion that Medlin was disqualified from representing Anderson, the sanctions necessarily were erroneously imposed. Medlins appeal from the sanction order, which is authorized by Code of Civil Procedure section 904.1, brings up for review any intermediate ruling, proceeding, order or decision which involves the merits or necessarily affects the judgment or order appealed from. (Code Civ. Proc.,  906; Santa Barbara Pistachio Ranch v. Chowchilla Water Dist. (2001) 88 Cal.App.4th 439, 448, fn. 1.)

Since Wymacs appellate brief does not address the propriety of the disqualification order, Medlin asserts that Wymac is conceding that the trial court improperly disqualified Medlin. This court might well treat Wymacs failure to brief this essential issue as a waiver of its contention that the order was properly entered. (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal,  594, pp. 627-629.)However,despite Wymacs failure to respond to Medlins contentions on this point in its appellate brief, it remains within the courts discretion to consider the issue on its merits. (Id. at  595, pp. 629-630.)  Since the issue was fully addressed in the trial court and is central to the disposition of the appeal, we deem it appropriate to resolve the issue on its merits. We therefore have given careful consideration to the briefs that Wymac submitted to the trial court urging Medlins disqualification.

Since the trial courts disqualification order is not based on any material disputed factual issues, the propriety of the order presents a question of law which is subject to independent review by this court. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1144.) Even if viewed as a question of whether the trial court abused its discretion, the importance of disqualification motions requires careful review of the trial courts exercise of discretion. (In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 585.)

Wymac lacks standing to challenge the asserted conflict of interest

Medlin contends that Wymac had no standing to request the court to disqualify him from representing Anderson because of an asserted conflict in the obligations he owes to Anderson and to his former and continuing client, CMG. While it may be an overstatement to say that a nonclient litigant has no standing to bring a motion to disqualify the opposing lawyer, it is nonetheless true that standing to challenge a conflict on the part of opposing counsel must arise from a breach of duty owed to the complaining party. (DCH Health Services Corp. v. Waite, supra, 95 Cal.App.4th at p. 832; Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, 1404, 1409, 1410-1411, fn. 6.) Typically, in the case of an attorneys successive representation of one client following the prior representation of another client, the concern is to enforce the duty of confidentiality owed to the former client. (Ibid.; Flatt v. Superior Court (1994) 9 Cal.4th 275, 282-284 (Flatt).) In the case of the simultaneous representation of clients with conflicting interests, the primary value at stake is the attorneys dutyand the clients legitimate expectationof loyalty, rather than confidentiality. (Id. at p. 284.) However, like the principle of confidentiality, [t]he principle of loyalty is for the clients benefit. (Id. at p. 285, fn. 4.)There is no suggestion, nor can there be, that Medlin owed any dutyof confidentiality, loyalty, or otherwiseto Wymac, much less a duty that was threatened by any conflict of interest between Medlins obligations to Anderson and to GMC. Wymac of course was entitled to object to the request that Anderson and the other individual defendants be treated as a separate side from CMG for the purpose of jury selection, it was entitled to bring out in cross-examination the attorney fee arrangement to the extent it bore on Andersons credibility, and it could object to any statements made by counsel during the course of trial that it considered misleading as to the relationship between the defendants. The only meaningful prejudice to itself that Wymac urged arose from the conflict was the postponement of trialwhich resulted solely from the disqualification. Hence, Wymac was and is without standing to complain of any asserted conflict of interest affecting Medlins representation of Anderson.

Nonetheless, the trial court was mindful of its obligation to ensure the integrity of the judicial process and commendably concerned that a party appearing before it was not prejudiced by misconduct of counsel. The court on its own motion may inquire into the necessity of disqualifying counsel because of an irreconcilable conflict of interest. (Klemm v. Superior Court (1977) 75 Cal.App.3d 893, 901, fn. 4 (Klemm).) But the Rules of Professional Conduct prohibit an attorney from representing more than one client in a matter in which the interests of the clients potentially or actually conflict only if the attorney has not obtained the informed written consent of each client. (Rule 3-310(C)(1 & 2).)[6] The Supreme Courts decision in Flatt indicates that disqualification may be mandatory if the attorney represents clients whose interests are directly adverse in the same litigation. (Flatt, supra, 9 Cal.4th at p. 284, fn. 3; see also People ex. rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., supra, 20 Cal.4th at p.1147). Even in such a case Flatt leaves open the possibility that written consent following full disclosure may provide an exception (9 Cal.4th at p. 285, fn. 4.), but that possibility is slight if it exists at all. As a matter of law a purported consent to dual representation of litigants with adverse interests at a contested hearing would be neither intelligent nor informed. Such representation would be per se inconsistent with the adversary position of an attorney in litigation, and common sense dictates that it would be unthinkable to permit an attorney to assume a position at a trial or hearing where he could not advocate the interests of one client without adversely injuring those of the other. (Klemm, supra, 75 Cal.App.3d at p. 898.) In all events, informed written consent unquestionably is sufficient to permit dual representation if the conflict is only potential. [I]f the conflict is merely potential, there being no existing dispute or contest between the parties represented as to any point in litigation, then with full disclosure to and informed consent of both clients there may be dual representation at a hearing or trial. (Id. at p. 899; see also Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007; Smith, Smith & Kring v. Superior Court (1997) 60 Cal.App.4th 573, 582.)

There was no actual conflict between the interests of Anderson and CMG

In determining whether there is a conflict of interest requiring disqualification, the court must consider the combined effects of the strong interest parties have in representation by counsel of their choice, and in avoiding the duplicate expense and time-consuming effort involved in replacing counsel already familiar with the case. [Citations.] [I]t must be kept in mind that disqualification usually imposes a substantial hardship on the disqualified attorneys innocent client, who must bear the monetary and other costs of finding a replacement.  (Smith, Smith & Kring v. Superior Court, supra, 60 Cal.App.4th at pp. 580-581.)  [T]he fact that the client has consented to the dual capacity must be given great weight.  (Id. at p. 580.) A mere possibility of an unspecified conflict does not require independent counsel. The conflict must be significant, not merely theoretical, actual, not merely potential. (Dynamic Concepts, Inc. v. Truck Ins. Exchange, supra, 61 Cal.App.4th at p. 1007.)

As Medlin repeatedly advised the court, there was no actual conflict in the interests of Anderson and CMG in defending against Wymacs claims. The mere fact that CMG had not agreed to indemnify Anderson against any liability she might incur did not establish that their interests conflicted. Nor did the possibility of Anderson alone being held liable for breach of her confidentiality agreement reflect a divergence in the positions the defendants would assert in defending against Wymacs claims. (Cf. Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706, 713-714.) While there undoubtedly are situations in which defendants attempt to avoid liability by pointing fingers at each other, there was absolutely no indication of any such possibility here. Wymacs issue conference statement asserted that all defendants are liable to plaintiff on all causes of action to be tried by the jury. It suggested no respect in which Wymacs claims against one defendant would be strengthened if the claims against another defendant were not established. The issue conference statement submitted on behalf of all of the defendants asserted common defenses. All defendants denied any misappropriation and contended that the disputed information did not constitute trade secrets. Although Wymac argued at length that the interests of Anderson and CMG were not aligned, never did it specify an issue on which it would be in the interest of either, or either could be expected, to assert conflicting views. Never did Wymac or the trial court specify any issue as to which the interests of Anderson favored one position while the interests of CMG called for taking a different position. The Supreme Court in Flatt referred to the classic formulation of an attorney-client conflict of interest:  a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.  (Flatt, supra, 9 Cal.4th at p. 282, fn. 2; see also Klemm, supra, 75 Cal.App.3d at p. 898.) Nowhere in the record is there any indication that Medlins representation of Anderson or any of the other individual defendants would have placed him in such a position.

Wymac persistently argued to the trial court that the assertion made by Louderback, the new attorney for CMG, that the divergence in the interests of CMG and of the individual defendants justified treating them as different sides for the purpose of allocating peremptory challenges (Code Civ. Proc., 231, subd. (c)) was an admission of a conflict of interest. But Louderback indicated that there was adversity only in certain areas and specified only the position of CMG that it was not responsible to indemnify Anderson for any liability she might incur. In the event that Anderson was found liable and asserted a right to indemnity, the potential conflict of interest would have become actual and Medlin would have been required to withdraw as Andersons attorney. However, this potential did not mean that the interests of CMG and Anderson conflicted in defeating Wymacs claims. Whether or not the parties were entitled to be treated as separate sides for the purpose of jury selectionwhich they may well not have beenthat standard is not the same as the standard for determining the presence of an irreconcilable conflict of interest on the part of counsel.

In short, Wymac and the trial court confuse[d] divergence in interest with conflict in interest. (Spindle v. Chubb/Pacific Indemnity Group, supra, 89 Cal.App.3d at p. 713.) There being only a potential for a future conflict of interest, Medlin was permitted to represent both clients in their defense of Wymacs claims, provided that both consented in writing after being told whatever is necessary to enable each of them to make intelligent, informed decisions regarding the subject matter of their joint representation. (Ibid.)

Anderson gave informed written consent to the joint representation

As indicated above (see fn. 2, ante), on three occasions Anderson signed writings confirming her waiver of the potential conflict of interest and consent to joint representation. These writings were preceded by written explanations from Medlin of the potential conflict of interest, the impact of dual representation upon the attorney-client privilege, and the possibility that Anderson alone could be held liable for damages and attorney fees and that CMG would not indemnify her for any such liability. These letters from Medlin repeatedly encouraged Anderson to obtain advice from independent counsel of her choosing and offered to share with such an attorney all information concerning the case necessary to permit the attorney to intelligently advise her whether to consent to joint representation. These letters, which this court has reviewed, appear sufficient on their face to have permitted Anderson to make an informed decision whether there was sufficient reason for her to forego joint representation at CMGs expense and incur the expense of independent counsel. (See Zador Corp. v. Kwan (1995) 31 Cal.App.4th 1285, 1205.)

The trial court rejected the sufficiency of Medlins disclosures for essentially two reasons. For one, it seemed to believe that the circumstances were such that Andersons consent was necessarily uninformed. According to the court, the letters all say that if a conflict arose, she would be told and that Mr. Medlin would represent CMG and not her. And that in itself makes me believe that her waiver was not knowing and intelligent. And later, the court expressed its view that in choosing between accepting joint representation at CMGs expense or paying for her own attorney, Anderson has been put between the proverbial rock and the hard place, leading the court to believe that her waiver was not knowing and informed or intelligent or whatever. However, this somewhat paternalistic attitude does not reflect the proper legal standard. It may be that Andersons choice was difficult, but it was hers to make. (Cf. Maxwell v. Superior Court (1982) 30 Cal.3d 606, 619, 622; Zador Corp. v. Kwan, supra, 31 Cal.App.4th at p. 1295, citing Wolfram, Modern Legal Ethics (1986)  7.2, p. 337.) Separate representation is inherently more expensive than joint representation. Every litigantwhether individual or corporate, public or privatewho is faced with the question of whether to consent to joint representation must weigh the cost of separate representation against the benefit of avoiding potential conflicts of interest. (City of Huntington Beach v. Petersen Law Firm (2002) 95 Cal.App.4th 562, 568-569.) So long as there was no actual conflict between the positions of CMG and herself at the upcoming trial and she was fully informed of the implications of her decision, she was entitled to opt for joint representation. (Smith, Smith & Kring v. Superior Court, supra, 60 Cal.App.4th at pp. 580-581.)

The trial court also felt that Medlins disclosures were insufficient because they failed to mention the possibility of incurring punitive damages, losing her real estate license, criminal liability, or the possibility that other defendants could point fingers at her. However, two of the three disclosure letters from Medlin indicate that they were preceded by conversations with Anderson, in which some of these matters may have been discussed. Moreover, there is no showing that any of the collateral consequences mentioned by the court were even remotely likely or required discussion. California law does not require that every possible consequence of a conflict be disclosed for a consent to be valid. (Zador Corp. v. Kwan, supra, 31 Cal.App.4th at p. 1301; Maxwell v. Superior Court, supra, 30 Cal.3d at p. 622 [Waiver of the consequences of potential conflict was not inadequate simply because neither the court nor the agreement undertook the impossible burden of explaining separately every conceivable ramification].) Certainly there was no showing that any other defendant was likely to point fingers at Anderson. In all events, if the court was concerned about the sufficiency of the disclosures, the proper course was to speak with Anderson to ensure that she understood these additional matters, not to remove from her the option of accepting joint representation. [I]f the judge has any question regarding whether the proper standards have been observed, it is his duty to either require counsel to inquire further or inquire himself regarding the circumstances of the execution of the written consents and the state of mind of the clients for the purpose of making the necessary factual determination in this regard. (Klemm, supra, 75 Cal.App.3d at p. 901.) As in Klemm, the trial court erred in refusing to permit Medlin to represent both CMG and Anderson, without at least having brought to Andersons attention those additional matters it felt she should understand and then determined whether she wished to continue with the joint representation.

Conclusion

Because the trial court erred in disqualifying Medlin from representing Anderson, it necessarily follows that there was no basis to sanction him for having failed to withdraw. It is therefore unnecessary to consider Medlins numerous challenges to the summary manner in which the court imposed those sanctions.

Disposition

The order imposing sanctions is reversed. Medlin shall recover his costs on appeal from Wymac.

_________________________

Pollak, J.

We concur:

_________________________

McGuiness, P. J.

_________________________

Parrilli, J.

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[1] The corporate defendant is sometimes referred to as PGM, PGM Danville, CMG, or PGM/CMG. We shall refer to the corporation as CMG throughout.

[2] The record contains three sealed written consents that were submitted to the trial court for in camera review because they contain portions that are confidential attorney-client communications. Without disclosing any confidential information, the first is a letter from Medlin to Anderson dated November 24, 2003, in which Medlin explained that he was not then aware of any conflict of interest but that if one should arise he would withdraw as Andersons attorney and continue to represent CMG. The letter also explained the impact of joint representation on the attorney-client privilege, and advised Anderson of her right to consult with an attorney of her choice, which she was encouraged to do. Following the letter there was a Waiver of Potential Conflict and Consent to Joint Representation, signed by Anderson, in which she consented to the arrangement. A similar pair of documents was exchanged in the Fall of 2005, just after settlement negotiations had terminated and the case was set for trial. The August 30, 2005 letter from Medlin explained that no actual conflict of interest had yet arisen, but based on Medlins increased familiarity with Wymacs claims, he expanded his explanation of the potential for a conflict to arise. This letter pointed out that while CMG was prepared to continue providing Anderson a defense at its cost, it had not agreed to provide indemnity, and the letter discussed the possibility that Anderson might be found liable even if CMG were not. The letter also discussed the possibility of Anderson being found liable for Wymacs attorney fees, and Andersons choices concerning representation, pointing out that if CMG continued to provide her a defense at its cost it would continue to insist upon controlling the defense and any settlement, except to the extent a settlement required a monetary contribution from her. The letter strongly urged Anderson to obtain the advise of independent counsel, but requested that she do so promptly so that there would be time for new counsel to prepare for trial if that was her choice. On September 8, 2005, Anderson signed a Renewed Waiver of Potential Conflict and Consent to Continued Joint Representation, reaffirming that she understood the potential for a conflict of interest and elected to continue being represented by Medlin. The third exchange occurred shortly before another settlement conference and the upcoming continued trial date. In a September 18, 2006 letter, Medlin repeated CMGs continuing offer to pay the costs of Andersons defense but not to provide indemnity, and advised Anderson that if a proposal were made to settle with the individual defendants that she wished to consider, Medlin would insist that she obtain independent counsel to advise her concerning the settlement and that CMG would pay another attorney of her choice to do so. On September 20, 2006, Anderson confirmed that she had reviewed, considered and understood the contents of the letter. She made no request for independent counsel.

[3] Earlier in the litigation, Medlin had been joined as co-counsel for CMG by Leo LaRocca and the firm of Niven & Smith. That firm withdrew when Payne & Fears entered its appearance.

[4] Louderback told the judge that in certain areas the sides were adverse to each other, subsequently explaining that we are going to be arguing that we [CMG] are not responsible in indemnity for [Anderson] and our interests are adverse from that standpoint. At that point no claim for indemnity had been asserted or was to be tried.

[5] Wymac also contended that Medlins representation of the individual defendants created false appearance[s] and fraud upon the court, was an attempt by CMG to divorce itself from the unitary defense it had previously presented in an effort to insulate CMG and prevent plaintiff from actually recovering its damages, and that this flagrant ethical violation would hang over any judgment, making it vulnerable to appeal.

[6] Subdivision (C) of rule 3-310 of the Rules of Professional Conduct reads in part: A member shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; . . .