Where law firm represents a company and a member against another member of the company giving rise to hypothetical conflict of interest, but no actual conflict or reasonable likelihood exists, must law firm be disqualified?
I am becoming more and more convinced that trial courts should be more restrained in disqualifying law firms based on mere appearances of potential conflicts of interest. That certainly seems to be the message in a trend of appellate cases. And I may have been a participant in this trend, when I authored the opinion in Baker Manock & Jensen v. Superior Court (2009) 175 Cal.App.4th 1414, in which the Fifth Appellate District found the mere possibility that a conflict of interest existed for a law firm to represent the executor of an estate and a beneficiary against another beneficiary did not warrant the trial court's order of disqualification.
More recently in this blog's May 8, 2013 entry, I discussed (with some reservation as to the reasoning) Khani v. Ford Motor Company (published 4/25/13) 2013 DJDAR 5399, in which the Second Appellate District reversed the trial court's disqualification of an attorney who sued a former client; the appellate court found no evidence the attorney had been actually exposed in the prior representation to information similar to that in the case of his current client opposing his former client.
Now we have Havasu Lakeshore Investments, LLC v. Fleming (published 6/18/13) G047244, in which the Fourth Appellate District, Division Three, too reverses a trial court's disqualification. In this case, the trial court had disqualified a law firm from simultaneously representing a limited liability company, its manager member which itself is a partnership, and the person managing that partnership in a lawsuit against two of the company's minority members. The appellate court found no actual conflict of interest and that there was no reasonable likelihood a conflict would arise; thus, there was no reason to order disqualification because of the appearance of split loyalty (that being the basis of the trial court's disqualification in reliance on rule 3-310(C) of the California State Bar Rules of Professional Conduct).