Richard Plein, Et Ano, Resps v. Usaa Casualty Ins Co., Pet

       IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 RICHARD PLEIN, a married person, and             No. 78190-1-I
 DEBORAH PLEIN (formerly Deborah De
 Witt), a married person, and the marital         DIVISION ONE
 community composed thereof,

                                Respondents,
                                                  PUBLISHED OPINION
               V.


 USAA CASUALTY INSURANCE
 COMPANY, an insurance company,

                                   Appellant,
               and

 THE STERLING GROUP, INC. (doing
 business as Sterling Group, DKI), a
 corporation,

                                  Defendant.      FILED: July 29, 2019


       CHUN, J.   —   We address whether, given the facts of this case, a law firm

may represent a person adverse to a former client. In doing so, we analyze

whether this case constitutes a matter “substantially related” to the firm’s

representation of the former client under RPC 1 .9(a). Comment 3 to RPC 1 .9

guides our analysis.

       On behalf of Richard and Debra Plein, attorney Joel Hanson filed a

complaint for insurance bad faith and various other claims against USAA
 No. 78190-1-112


Casualty Insurance Company. The claims stemmed from the actions of USAA

and its recommended contractor for repairs following a house fire.

       A few months later, attorneys William Smart and Ian Birk from the law firm

Keller Rohrback LLP, joined the Pleins’ legal team. USAA objected to Keller’s

participation in the litigation because the company and law firm had recently

ended their extensive attorney-client relationship.

       Keller requested the trial court rule on the asserted conflict of interest.

The trial court found no conflict under RPC 1 .9. USAA moved for discretionary

review, which this court granted. We conclude Keller’s representation of the

Pleins violates RPC 1.9(a). Accordingly, we reverse.

                                 I. BACKGROUND

       The Pleins purchased homeowners’ insurance from USAA. Later, in

August 2015, a fire damaged their home and personal property. USAA

determined that the insurance policy covered the damage and recommended

The Sterling Group, LLC as a contractor to perform repairs. The Pleins followed

the recommendation.

      The Pleins moved back into their home after Sterling finished the repairs.

They claim to have noticed a substantial lingering odor of smoke upon their

return. According to the Pleins, Sterling had concealed, rather than properly

repaired, the fire damage. The Pleins hired a public adjuster and USAA hired an

industrial hygienist. The industrial hygienist discovered numerous deficiencies in

the repair work. The Pleins alleged that USAA agreed to move them to a rental




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No. 78190-1-113


house to complete the repairs, but it did not investigate the cost of the needed

repairs or offer payment for those repairs.

           The Pleins claim that as of November 14, 2017, USAA had not made a

coverage decision as to the additional repairs. That day, Mr. Hanson filed a

complaint against USAA and Sterling1 on behalf of the Pleins. In January 2018,

Mr. Hanson approached William Smart, an attorney with Keller, about

representing the Pleins in their lawsuit. That same month, Mr. Smart and

another Keller attorney, Ian Birk, agreed to associate as counsel on the case.

           A conflicts check at Keller revealed the firm’s past relationship with USAA.

Keller attorney Irene Hecht and at least seven additional attorneys at the firm

represented USAA and its affiliates for over a decade. Between August 2006

and November 2017, Keller represented USAA and its affiliates in at least 165

cases, approximately 12 of which involved insurance bad faith litigation by

homeowners. Keller served as USAA’s primary law firm in Washington for bad

faith litigation. In the last two years of its representation, Keller billed over 8,000

hours of work for USAA.

       One of the cases in which Keller represented a USAA subsidiary in an

insurance bad faith lawsuit involved issues very similar to the Pleins’ case.

Specifically, Cueva v. Garrison Proii & Cas. Ins. Co., Pierce County Superior

Court No. 10-2-06680-8, concerned an allegation of insurance bad faith relating

to the handling of repairs after a house fire. The similarities between Cueva and

the Pleins’ case included smoke damage inadequately repaired by a

       1   Sterling is not party to this appeal.


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No. 78190-1-114


recommended contractor, health concerns arising from the smoke damage,

appropriate methods to clean the house and personal property, and “factual and

legal disputes concerning the methodology for objectively testing for smoke

damage.”

       The relationship between USAA and Keller ended in November 2017, the

same month the Pleins filed suit. Keller’s past work for USAA had not involved

the Pleins. Additionally, the firm indicated that Mr. Smart and Mr. Birk had never

been involved in Keller’s relationship with USAA and did not have any knowledge

of attorney-client communications with the company.

       After learning of Keller’s involvement in the Plein lawsuit, USAA contacted

the firm to claim a conflict of interest and demand immediate withdrawal. Keller

moved for a ruling on the asserted conflict of interest. In response, USAA

requested disqualification of Mr. Smart, Mr. Birk, and Mr. Hanson. The trial court

concluded “the Pie/n matter is factually distinct from and not substantially related

to [Keller}’s prior representation of USAA, and as a result, the firm’s

representation of the Pleins is not a conflict under RPC 1 .9.” The trial court

allowed the Keller attorneys and Mr. Hanson to remain as counsel for the Pleins.

       USAA requested discretionary review of the trial court’s ruling. A

commissioner of this court granted discretionary review as to the representation

by the Keller lawyers, but denied review as to Mr. Hanson, who remains as

counsel for the Pleins. The Pleins moved to modify the commissioner’s ruling. A

panel of this court denied the motion.




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 No. 78190-1-1/5


                                        II. DISCUSSION

            USAA contends Keller’s participation in the case violates RPC 1 .9(a). It

argues that this case constitutes a matter substantially related to the firm’s prior

representation of the company. The Pleins argue the conflict of interest

prohibition does not apply, and ask us to view their case as factually distinct from

prior USAA cases handled by Keller. For the reasons discussed herein, we

agree with USAA.

    A. Standard of Review

        We review de novo “a court’s decision to grant or deny a motion to

disqualify counsel.” Sanders v. Woods, 121 Wn. App. 593, 597, 89 P.3d 312

(2004).2 Likewise, we review de novo a determination of whether an attorney

has violated the RPC. Teia v. Saran, 68 Wn. App. 793, 796, 846 P.2d 1375

(1993); see State v. Hunsaker, 74 Wn. App. 38, 42, 873 P.2d 540 (1994).

    B. RPC 1.9(a) & RPC 1.10(a)

        RPC 1.9(a) provides:
        A lawyer who has formerly represented a client in a matter shall not
        thereafter represent another person in the same or a substantially
        related matter in which that person’s interests are materially adverse
        to the interests of the former client unless the former client gives
        informed consent, confirmed in writing.
(Emphasis added.)


        2 Washington courts have not established which party bears the burden of proof in
connection with a motion to disqualify under RPC 1.9. Some federal courts applying Washington
law have assigned the burden to the firm whose disqualification is sought. See, e.g., FMC
Techs., Inc. v. Edwards, 420 F. Supp. 2d 1153, 1158 (W.D. Wash. 2006): Avocent Redmond
Corp. v. Rose Elec., 491 F. Supp. 2d 1000, 1007 (W.D. Wash. 2007). Another concluded that the
party seeking disqualification bears the burden of establishing the conflict of interest. Velazguez
Velez v. Molina-Rodriguez, 235 F. Supp. 3d 358, 361-62 (D.P.R. 2017). In this case, we would
reach the same conclusion regardless of which party bears the burden.


                                                5
 No. 78190-1-116


         Additionally, RPC 1.10(a) provides:
         [Wjhile lawyers are associated in a firm, none of them shall knowingly
         represent a client when any one of them practicing alone would be
         prohibited from doing so by Rules 1.7 or 1.9, unless the prohibition
         is based on a personal interest of the disqualified lawyer and does
         not present a significant risk of materially limiting the representation
         of the client by the remaining lawyers in the firm.
Generally, this means, “[i]f an individual in a law firm is precluded by RPC 1 .9

from representing a particular client, then all the members of the law firm are

likewise prohibited from representing the client under RPC 1.10.” Hunsaker, 74

Wn. App. at 41-42. Hence, in this case, if RPC 1.9(a) precludes Ms. Hecht (or

any other Keller lawyer) from representing the Pleins, RPC 1.10(a) prohibits such

representation by any lawyer at the firm.

    C. Underlying Principles

        Comment 2 to RPC 1.10 explains:
        The rule of imputed disqualification        gives effect to the principle of
                                                      .   .   .


        loyalty to the client as it applies to lawyers who practice in a law firm.
        Such situations can be considered from the premise that a firm of
        lawyers is essentially one lawyer for purposes of the rules governing
        loyalty to the client, or from the premise that each lawyer is
        vicariously bound by the obligation of loyalty owed by each lawyer
        with whom the lawyer is associated.
RPC 1 .9 incorporates both this duty of loyalty and the duty of confidentiality to

former clients. See State v. White, 80 Wn. App. 406, 415, 907 P.2d 310 (1995).~

These duties correlate to bedrock principles of the legal profession.4 They

         ~ This case discusses former RPC 1 .9, which, for the purposes of this proposition, does
not vary materially from the current rule.
         ~ “[L]awyers are regarded as people who know how to keep secrets, as much as they are
regarded as litigators.   . or drafters of contracts.” In re Disciplinary Proceedings Against Schafer,
                              .

149 Wn.2d 148, 160, 66 P.3d 1036 (2003) (citing 1 GEOFFREY C. HAZARD, JR. &W. WILLIAM
HODES, THE LAW OF LAWYERING § 9.2 (3d ed. 2002)). “This perception is founded on more than
300 years of the practice of confidentiality.” Schafer, 149 Wn.2d at 160. “The attorney-client
privilege is thought to derive from the original concept of an attorney’s implicit oath of loyalty to


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 No. 78190-1-1/7


 remain critical toward former clients because ‘the attorney may hold confidences

 of the former client that could be used, sometimes subtly, against the former

 client.” In re Marriage of Wixom, 182 Wn. App. 881, 908-09, 332 P.3d 1063

 (2014).~ Furthermore, effective representation necessitates protection of the

confidential relationship between an attorney and client. ~ In re Disciplinary

Proceedings Against Schafer, 149 Wn.2d 148, 160, 66 P.3d 1036 (2003).6

         The parties do not dispute the imputation effect of RPC 1.10(a). We thus

focus our inquiry on the application of RPC 1 .9(a).

    D. “Substantially Related Matter”

         RPC 1 .9(a) prohibits USAA’s former lawyers at Keller—and therefore the

Keller firm under RPC 1.10(a)—from representing the Pleins on any matter

“substantially related” to their former representation of the company.7


[their] client and is the oldest of the common law privileges.” Schafer, 149 Wn.2d at 160 n.4
(citing 8 JOHN HENRY WIGMORE, EVIDENCE IN TRIALS AT COMMON LAW § 2290 (John T. McNaughton
ed., 4th rev. ed. 1961)).
          ~ The United States Supreme Court observed almost 170 years ago:
        There are few of the business relations of life involving a higher trust and
        confidence than that of attorney and client, or, generally speaking, one more
        honorably and faithfully discharged; few more anxiously guarded by the law, or
        governed by sterner principles of morality and justice; and it is the duty of the court
        to administer them in a corresponding spirit, and to be watchful and industrious, to
        see that confidence thus reposed shall not be used to the detriment or prejudice
        of the rights of the party bestowing it.
Stockton v. Ford, 52 U.S. 232, 247, 13 L. Ed. 676 (1850).
        6 As the United States Supreme Court noted over 130 years ago:

          The rule which places the seal of secrecy upon communications between client
          and attorney is founded upon the necessity, in the interest and administration of
          justice, of the aid of persons having knowledge of the law and skilled in its practice,
          which assistance can only be safely and readily availed of when free from the
          consequences or the apprehension of disclosure.
Hunt v. Blackburn, 128 U.S. 464, 470, 9 5. Ct. 125, 127, 32 L. Ed. 488 (1888); cf. Schafer, 149
Wn.2d at 160-162 (discussing how the attorney-client privilege benefits society at large).
          ~ For a discussion regarding the history and development of the substantial relationship
test in the United States, see 1 GEOFFREY C. HAZARD, JR., W. WILLIAM HODES & PETER R. JARVIS,
THE LAW OF LAWYERING §~ 14.07-14.10 (4th ed. 2015).



                                                  7
No. 78190-1-118


          The Court of Appeals originally established the following process for

determining whether matters are substantially related:
          [W]e must: (1) reconstruct the scope of the facts of the former
          representation; (2) assume the lawyer obtained confidential
          information from the client about all these facts; and (3) determine
          whether any former factual matter is sufficiently similar to a current
          one that the lawyer could use the confidential information to the
          client’s detriment.
Sanders, 121 Wn. App. at 598; see also Hunsaker, 74 Wn. App. at 41-42; Teja,

68 Wn. App. at 796. It did so under the former version of RPC 1 .9(a).8

       Thereafter, in keeping with its inherent power to regulate the practice of

law in Washington, see Chism v. Tn-State Constr. Inc., 193 Wn. App. 818, 838,

374 P.3d 193 (2016), our Supreme Court adopted the current version of RPC 1.9

along with associated comments in 2006. RPC 1 .9 & cmts. 1-9 at 157 Wn.2d

1202-06 (2006). The RPCs’ “Scope” provisions explain the role of the

comments: Such comments “do not add obligations to the Rules but provide

guidance for practicing in compliance with the Rules.” RPC Scope [14]. “The

Comment accompanying each Rule explains and illustrates the meaning and

purpose of the Rule.      .   .   .   The Comments are intended as guides to interpretation,

but the text of each Rule is authoritative.” RPC Scope [21].




      8   At the time, RPC 1.9 provided as follows:
      A lawyer who has formerly represented a client in a matter shall not thereafter:
      (a) Represent another person in the same or a substantially related matter in which
      that person’s interests are materially adverse to the interests of the former client
      unless the former client consents in writing after consultation and a full disclosure
      of the material facts: or
      (b) Use confidences or secrets relating to the representation to the disadvantage
      of the former client, except as rule 1.6 would permit.


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 No. 78190-1-1/9


         Comment 3 provides guidance on the meaning of “substantially related

 matter.” However, it does not mention the prior standard for assessing

substantially related matters as found in Sanders, ~ or Hunsaker. Since

adoption of the comments, no published Washington case has interpreted the

comments to RPC 1 .9 in order to address the definition of “substantially related

matter.”

         For the following reasons, Comment 3, rather than the prior case law,

guides our analysis of whether Keller’s prior representation of USAA is

substantially related to this case. First, the Court of Appeals decided those prior

cases before 2006, in the absence of any similar comment. And second, the

comments bear the imprimatur of the Washington Supreme Court, which adopted

them and which exercises plenary authority over attorney discipline. Chism v.

Tn-State Constr. Inc., 193 Wn. App. at 841.

        Turning then to Comment 3, it provides, in pertinent part, a somewhat

more stringent standard compared to the case law above:
        Matters are “substantially related” for purposes of this Rule if they
        involve the same transaction or legal dispute or if there othe,wise is
        a substantial risk that confidential factual information as would
        normally have been obtained in the prior representation would
        materially advance the client’s position in the subsequent matter.
(Emphasis added.) Below, we apply this definition as well as other provisions of

the comment and conclude that this case and the prior representation of USAA

qualify as substantially related.9

        ~ Even though Comment 3 clearly addresses the meaning of “substantially related,” the
Pleins point to Comment 2 to argue that their case is “factually distinct” from Keller’s prior
representation of USAA. The Pleins highlight Comment 2’s statement that a lawyer who
recurrently handled a type of problem for a former client is not precluded from later representing


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 No. 78190-1-1110


         To illustrate, Comment 3 provides the example of a lawyer who learns

 extensive private financial information” about a businessperson during

representation and thus cannot subsequently represent the spouse in divorce

proceedings. While the business and divorce proceedings are factually distinct,

and do not involve the same transaction or legal dispute, there is a substantial

risk that the attorney’s knowledge of private financial information would materially

advance the spouse’s position in the divorce.10

         USAA faces similar concerns as the businessperson described in

Comment 3. While the specific facts of the Pleins’ case may qualify as distinct,

Keller learned significant confidential information about USAA’s strategies for bad

faith litigation. USAA provided a declaration about the scope of Keller’s

another client in a factually distinct problem of that type even though the subsequent
representation involves a position adverse to the prior client.’ RPC 1.9 cmt. 2 (emphasis added).
 But Comment 2 expressly focuses on the scope of the term ‘matter.” Deciding whether matters
qualify as factually distinct does not necessarily complete the RPC 1 .9(a) analysis. We must still
determine whether those matters are substantially related. To be sure, Comment 3 indicates that
matters may be substantially related even if they do not involve “the same transaction or legal
dispute.”
         10 USAA’s expert witness opines that this businessperson hypothetical constitutes an

“example of the playbook problem.” And he implies that Keller possesses knowledge of USAA’s
 playbook.” No published Washington case has yet to expresslyaddress the “playbook” concept.
One treatise describes it as follows:
              Some courts and commentators    .   .  hold that the lawyer and [their] new client
                                                      .

         would have an improper advantage if the lawyer was permitted to make use of
         general tactical information and psychological insights, such as the former client’s
         negotiating style, risk aversion, willingness to be deposed, and ability to handle the
         stress—including the financial stress—of litigation..   .   .This method of defining
         substantial relationship between legal matters is commonly referred to, utilizing a
         sports metaphor, as the ‘playbook” rationale         [Ajlthough disqualification based
         on pure playbook concerns is unwarranted, courts have not infrequently taken a
         close look where playbook information blends into more specific factual information
         that could be put to adverse use. Thus, even where matters are factually distinct,
         disqualification is sometimes ordered where a lawyer represented a client in a
         series of matters that involve the same modus operandi and underlying factual
         base as the new matter.
1 HAZARD, JR., HODES & JARVIS, supra, § 14.10. We note the playbook rationale for informational
purposes. To a certain extent, it overlaps with the concerns set forth in Comment 3, and it is a
concept that non-Washington courts have discussed extensively.


                                                      10
 No. 78190-1-I/il


representation during their professional relationship, which spanned over a

decade. Keller does not dispute this description of the extent of its

representation of USAA.

       Accord ing to USAA, it trusted Keller attorneys “with direct access to

confidential and proprietary business information of USAA CIC and its affiliated

companies” including, confidential claims handling materials, thought processes

of adjusters and in-house attorneys, business and litigation philosophies, and

strategies such as “approaches to settlement discussions, motion practice, case

analysis, defenses, witness meetings, witness preparation, trial preparation, and

discovery both on a case-by-case and institutional, company-wide level.” Keller

served as one of the few law firms involved in insurance bad faith litigation on

behalf of USAA in Washington, and had “intimate business and litigation

knowledge.” Keller provided USAA and its affiliates with advice including

“insurance coverage matters, litigation strategies, factual positions, litigation

mitigation recommendations for training and communication materials, and legal

arguments.”

       Keller also participated in seminars as part of enterprise-wide strategic

discussions where attorneys became privy to “proprietary information including

litigation approach and strategies that has only been shared with a limited group

of all of the law firms nationally representing USAA CIC and its affiliate

companies in alleged bad faith litigation across the United States.” And Keller

attorneys had electronic login credentials to certain internal proprietary and

confidential documents concerning insurance bad faith litigation, “including


                                          11
 No. 78190-1-1/12


 document repositories holding attorney-client information and electronic claim

 databases.”

        Moreover, Keller gathered information on specific issues in order to

defend USAA in Cueva. Keller provided advice on local expert witnesses in

industrial hygiene and toxicology. Thus, USAA has shown a significant risk that

Keller has knowledge of both specific and general confidential information that

could materially advance the Pleins’ case.

       Additionally, the temporal proximity of the prior representation affects the

analysis of risk to the former client. “Information acquired in a prior

representation may have been rendered obsolete by the passage of time.”

RPC 1 .9 cmt. 3. Here, Keller agreed to represent the Pleins within three months

of the end of its relationship with USAA. This short time frame provides scant

opportunity for obsolescence, particularly given the extent—in substance and

duration—of the prior representation.

       The Pleins contend that Keller had only general knowledge and

information that would be disclosed during discovery. Comment 3 addresses the

role of specific versus general information as well as information disclosed to

third parties: “In the case of an organizational client, general knowledge of the

client’s policies and practices ordinarily will not preclude a subsequent

representation; on the other hand, knowledge of specific facts gained in a prior

representation that are relevant to the matter in question ordinarily will preclude

such a representation,” and, “Information that has been disclosed to the public or

to other parties adverse to the former client ordinarily will not be disqualifying.”


                                          12
 No. 78190-1-1/13


 RPC 1 .9 cmt. 3. The Pleins’ argument, however, disregards the significant

amount of confidential information on legal strategies and defenses developed

between USAA and Keller. Moreover, the specific knowledge gained during

defense of Cueva appears relevant to the issues in the Pleins’ case. Therefore,

Keller’s knowledge of USAA’s legal strategies goes beyond the permitted

“general knowledge of the client’s policies and practices.” RPC 1.9 cmt. 3.

        Keller points to the fact that USAA has not suggested any pattern or

practice of intentionally acting in bad faith that would have been learned during

representation. However, the Comments state, “A former client is not required to

reveal the confidential information learned by the lawyer in order to establish a

substantial risk that the lawyer has confidential information to use in the

subsequent matter.” RPC 1 .9 cmt. 3. As further noted by Comment 3, “[a]

conclusion about the possession of such information may be based on the nature

of the services the lawyer provided the former client and information that would in

ordinary practice be learned by a lawyer providing such services.” The bad faith

litigation defense conducted by Keller on behalf of USAA, particularly in Cueva,

creates significant concern that Keller possesses specific confidential information

that could unfairly aid the Pleins.

                                  III. CONCLUSION

       In light of the foregoing, we determine that Keller’s representation of the

Pleins generates a substantial risk that USAA’s confidential information would

materially advance the Pleins’ position in this case. We conclude there is a




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No. 78190-1-1/14


conflict of interest under RPC 1 .9(a). Mr. Smart, Mr. Birk, and their firm are

disqualified from representing the Pleins in this matter.

       Reversed.




WE CONCUR:




                                                   1~4(4     4L1




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