CA Supreme Court Rules on Advance Waivers in Shepard Mullin Case
By Keith R. Fisher
Last month, the California Supreme Court held that Sheppard, Mullin, Richter & Hampton, LLP’s failure specifically to inform a client of its representation of an adverse party in unrelated matters was an ethical violation which invalidated the engagement agreement. The firm represented a manufacturing company in a federal qui tam action brought on behalf of a number of public entities at the same time that it represented one of these public entities in unrelated matters. Both clients had executed engagement agreements that purported to waive all such conflicts of interest, current or future, but the agreements did not specifically refer to any specific conflict and the law firm did not tell either client about its representation of the other.
The waiver was ineffective, the court held, because the firm failed to disclose a known conflict with a current client. Unless that conflict is specifically disclosed, a general advanced conflict waiver is not valid in California.
Nevertheless, the state high court held that the firm might still be able to recover the value of its legal services under quantum meruit. This reverses the denial by the intermediate appellate court of the firm’s bid to recover some portion of the roughly $1 million in unpaid fees. That claim will be decided by the trial court on remand.