Ethics, Retainer Agreements: California Supreme Court Decides That Undisclosed Conflict Of Interest Rendered Retention Agreement And Arbitration Award Unenforceable, But Remands For Trial Court To Consider If Quantum Meruit Recovery Was Permissible

Lots of Questions Remain, Given This Was Not An FAA Case; However, Boilerplate Conflict Waivers Do Not Do The Trick.

            The California Supreme Court has just come out with a widely-watched opinion in Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, Inc., Case No. S232946 (Cal. Supreme Court August 30, 2018) (published), although it drew majority and concurring/dissenting opinions of well over 70 pages, with the majority decision written by Justice Kruger.

            The law firm granted review in the case did have an undisclosed conflict of interest, obtaining a boilerplate conflict waiver from the challenging party. That challenging party obtained an intermediate appellate court decision reversing confirmation of an arbitration award, with the appellate court finding no fees were allowable under the retainer agreement.

            The California Supreme Court agreed that contractual fee recovery was not allowable to law firm under the retention agreement based on the undisclosed conflict of interest. That meant the retainer agreement was unenforceable as a matter of public policy, which required no contractual fee recovery. The boilerplate conflict waiver was found ineffective in nature.

            However, the majority then remanded to the trial court to determine the equities—whether the conflict of interest was egregious and intentional enough to preclude quantum meruit recovery. The dissenting justices would have held that fee recovery was totally precluded. Justice Kruger authored the majority decision.

            Co-contributor Marc also has posted on this decision in his August 31, 2018 post at calmediation.org.