Court of Appeal of California Reserves Motion to Disqualify Pepper Hamilton for Use of Documents fro

This past Thursday, Associate Justice Richard Fybel wrote the opinion for a unanimous decision in URS Corp. v. Atkinson/Walsh Joint Venture, No. G055271, 2018 Cal. App. Unpub. LEXIS 5173 (Cal. Ct. App. July 26, 2018) reversing the order of the trial court granting the motion of Atkinson/Walsh to disqualify Pepper Hamilton as counsel for URS Corp.. The trial court found that Pepper Hamilton obtained work product belonging to AW violating a confidentiality agreement which restricted access to documents stored in a cloud based repository to outside counsel for use in connection with facilitating a mediation and settlement agreement.

The dispute between the parties concerned the expansion of a freeway. AW failed to pay $2.3 million in charges because it contended that design errors by URS constituted a breach of contract. A 'share site', https://collaboratc.sheppardmullin.com, was set up to share documents to be used in the mediation process. A 'Confidentiality, Non-disclosure, and Inadmissibility Agreement' required that all documents shared on the site be kept confidential. The agreement did not provide any directions for the destruction or return of documents uploaded to the site. After two mediation sessions in which URS was represented by Castle Cox, Pepper Hamilton filed a complaint on its behalf. Pepper Hamilton had previously provided advice to URS on the mediation.

After the complaint was filed Pepper Hamilton declined requests from A/W to return documents on the share site. A/W contended that URS accessed information from the share site without any intention of resolving the parties' dispute through mediation. The trial court signed a temporary restraining order directing Pepper Hamilton not to review or copy any documents obtained from the share site. Pepper Hamilton offered to delete its copies of the documents in return for a withdrawal of the motion to disqualify. The trial court found that Pepper Hamilton used documents from the share site in preparation of the complaint in violation of the confidentiality agreement.

AW filed a motion to dismiss the appeal because URS failed to obey the court's order to destroy the share site documents. The Court declined to used its power under the disentitlement doctrine to deny the appeal because of the failure to obey the order. For the appeal, Pepper Hamilton submitted declarations verifying that its IT personnel deleted folders containing documents from the share site on its network, and also instructed Business Intelligence Associates (BIA) to quarantine documents in the cloud repository so Pepper Hamilton could not access them. AW did not present any evidence to contradict URS's declarations.

Justice Fybel concluded that, "It may well be that URS/AECOM or Pepper Hamilton should have destroyed the Share Site documents hosted by BIA sooner than it did after the trial court made its order. But, after balancing the equities we conclude that dismissal of the appeal is not an appropriate remedy if in fact URS/AECOM waited to destroy those documents until after AW brought the motion to dismiss the appeal." Id. at *20.

Although this case did not involve inadvertent disclosure, Justice Fybel applied principles governing attorney disqualification for inadvertent disclosure. A motion to disqualify will only be granted where there is a reasonable probability that the counsel obtained information that could be used advantageously against an adverse party. The Court held that: "[r]eceipt of confidential information during mediation is not in itself enough to justify disqualification of counsel." Id. at *23.

Justice Fybel concluded that the motion to disqualify should not have been granted because Pepper Hamilton had not violated the confidentiality agreement. He noted that the agreement did not provide a definition for 'outside counsel', and that Pepper Hamilton would be such under the usual and ordinary meaning of the term. "The fact Pepper Hamilton filed the complaint against AW after the second mediation session and after AW had uploaded documents to the Share Site does not mean Pepper Hamilton used those documents in preparing the complaint. URS's complaint against AW was bare bones and dealt only with URS's claims for lack of payment. URS's complaint does not refer to or rely on any documents exchanged in the mediation process, which dealt only with AW's claims for design errors and delay. To say that Pepper Hamilton used the Share Site documents and information in preparing the complaint against AW is too much of a stretch to justify disqualification." Id. at *30. Justice Fybel excused Pepper Hamilton's refusal to return the documents in light of the fact that the parties were considering a third mediation session.