Jane Doe 1 et al. v. McGrath Kavinoky LLP et al.

Summary

The California Court of Appeal held that a law firm’s engagement agreements with multiple sexual-abuse plaintiffs were unenforceable because the firm failed to obtain informed written consent to a significant potential conflict of interest under California Rule of Professional Conduct 1.7(b). Applying Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., the court concluded that the ethical violation invalidated the agreements, including their arbitration provisions. The court affirmed the order denying the law firm’s motion to compel arbitration.

Holdings

1. A law firm representing multiple clients with similar claims against the same defendants must obtain informed written consent when, at the outset of the representation, there is a significant risk that the firm's responsibilities to other clients will materially limit its representation of each client. The firm's failure to obtain that consent violated Rule 1.7(b).
2. Under Sheppard, a violation of Rule 1.7(b) that existed when the engagement agreement was entered into renders the engagement agreement unenforceable as contrary to public policy.
3. The arbitration provisions were not severable from the engagement agreements because the agreements were unenforceable in their entirety for illegality.

Questions Presented

1. Whether the firm's representation of multiple clients with similar claims, without informed written consent to the significant risk of conflicts arising from an aggregate settlement, violated California Rule of Professional Conduct 1.7(b).
2. Whether a violation of Rule 1.7(b) rendered the engagement agreements unenforceable under Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., including their arbitration provisions.
3. Whether the arbitration provisions were severable from the engagement agreements.
4. Whether substantial evidence supported the superior court's finding that a significant risk of a material conflict existed at the outset of the representation.

Disposition

affirmed