1

SEE CONCURRING AND DISSENTING OPINION

Filed 8/30/18

IN THE SUPREME COURT OF CALIFORNIA

SHEPPARD, MULLIN, RICHTER )

& HAMPTON, LLP, )

)

Plaintiff and Respondent, )

) S232946

v. )

) Ct.App. 2/4 B256314

J-M MANUFACTURING COMPANY, INC., )

) Los Angeles County

Defendant and Appellant. ) Super. Ct. No. YC067332

______________________________________ )

A large law firm agreed to represent a manufacturing company in a federal 

qui tam action brought on behalf of a number of public entities. During the same 

time period, the law firm represented one of these public entities in matters 

unrelated to the qui tam suit. Both clients had executed engagement agreements 

that purported to waive all such conflicts of interest, current or future, but the 

agreements did not specifically refer to any conflict and the law firm did not tell 

either client about its representation of the other. This arrangement fell apart when 

the public entity discovered the conflict and successfully moved to have the firm 

disqualified in the qui tam action. A fight over the manufacturer’s outstanding law 

firm bills followed, and the dispute was sent to arbitration in accordance with an 

arbitration clause in the parties’ engagement agreement.

The arbitrators ruled in the law firm’s favor and the superior court 

confirmed the award, but the Court of Appeal reversed. That court concluded that 
2

the matter should never have been arbitrated because, notwithstanding the broad 

conflict waiver in the engagement agreement, the law firm’s undisclosed conflict 

of interest violated rule 3-310(C)(3) of the Rules of Professional Conduct. This 

ethical violation, the court ruled, rendered the parties’ agreement, including the 

arbitration clause, unenforceable in its entirety. The Court of Appeal further held 

that the conflict of interest disentitled the law firm from receiving any

compensation for the work it performed for the manufacturer while also 

representing the utility district in other matters.

We agree with the Court of Appeal that, under the framework established in 

Loving & Evans v. Blick (1949) 33 Cal.2d 603, the law firm’s conflict of interest 

rendered the agreement with the manufacturer, including its arbitration clause, 

unenforceable as against public policy. Although the manufacturer signed a 

conflicts waiver, the waiver was not effective because the law firm failed to 

disclose a known conflict with a current client. But we conclude, contrary to the 

Court of Appeal, that the ethical violation does not categorically disentitle the law 

firm from recovering the value of the services it rendered to the manufacturer; 

whether principles of equity entitle the law firm to some measure of compensation 

is a matter for the trial court to address in the first instance. 

I.

In 2006, a qui tam action was filed against J-M Manufacturing Company, 

Inc. (J-M), a pipe manufacturing company, in federal court in California. John 

Hendrix, the relator in the action, alleged that J-M had misrepresented the strength 

of polyvinyl chloride pipe it had sold to approximately 200 public entities around 

the country for use in their water and sewer systems. In early 2010, the complaint 

was unsealed, and many of these public entities intervened in the case. 

As these events were unfolding, J-M began to consider replacing the law firm 

that had been representing it in the action. In February 2010, shortly after the 
3

complaint was unsealed, J-M’s general counsel, Camilla Eng, invited attorneys 

from the law firm of Sheppard, Mullin, Richter & Hampton, LLP (Sheppard 

Mullin), to discuss taking over the representation from the other law firm. The 

attorneys, Bryan Daly and Charles Kreindler, ran a conflicts check to determine 

whether Sheppard Mullin had represented any of the public entities identified as 

the real parties in interest in the qui tam action. The conflicts check revealed that 

another Sheppard Mullin attorney, Jeffrey Dinkin, had done employment-related

work for a public entity intervener, South Tahoe Public Utility District (South 

Tahoe), on and off since at least 2002, and most recently in November 2009. 

South Tahoe had, however, signed an advance waiver of conflicts in cases 

unrelated to the employment matters on which Dinkin had provided assistance. 

After internal consultation, Sheppard Mullin’s general counsel opined that because 

of this advance conflict waiver, the firm could take on representation of J-M in the 

qui tam action.

On March 4, 2010, Sheppard Mullin and J-M signed an engagement 

agreement. Under the heading “Scope of Representation,” the agreement recited

that Sheppard Mullin was engaged to represent J-M in the qui tam action. The 

agreement provided that the representation would terminate on completion of the 

lawsuit and “any related claims and proceedings,” unless the law firm agreed 

separately to provide J-M other legal services. The agreement recited the terms of 

the representation, including payment of fees, and provided that these terms would 

also apply to other engagements for J-M that Sheppard Mullin might undertake, 

except as the parties otherwise agreed.

The engagement agreement also contained a conflict waiver much like the 

one South Tahoe had signed. The waiver provision provided:

“Conflicts with Other Clients. Sheppard, Mullin, Richter & Hampton LLP 

has many attorneys and multiple offices. We may currently or in the future 
4

represent one or more other clients (including current, former, and future clients) 

in matters involving [J-M]. We undertake this engagement on the condition that 

we may represent another client in a matter in which we do not represent [J-M], 

even if the interests of the other client are adverse to [J-M] (including appearance 

on behalf of another client adverse to [J-M] in litigation or arbitration) and can 

also, if necessary, examine or cross-examine [J-M] personnel on behalf of that 

other client in such proceedings or in other proceedings to which [J-M] is not a 

party provided the other matter is not substantially related to our representation of 

[J-M] and in the course of representing [J-M] we have not obtained confidential 

information of [J-M] material to representation of the other client. By consenting 

to this arrangement, [J-M] is waiving our obligation of loyalty to it so long as we 

maintain confidentiality and adhere to the foregoing limitations. We seek this 

consent to allow our Firm to meet the needs of existing and future clients, to 

remain available to those other clients and to render legal services with vigor and 

competence. Also, if an attorney does not continue an engagement or must 

withdraw therefrom, the client may incur delay, prejudice or additional cost such 

as acquainting new counsel with the matter.” 

Although Eng revised certain portions of the engagement agreement before 

signing, she made no changes to the conflict waiver provision. Sheppard Mullin 

did not tell J-M about its representation of South Tahoe before or at the time the 

engagement agreement was signed. 

The engagement agreement also contained an arbitration clause, providing 

that any dispute over fees or charges that was not resolved through voluntary 

arbitration under the auspices of the California State Bar, and any other type of 

dispute between the parties, would be settled by “mandatory binding arbitration” 

conducted in accordance with the California Arbitration Act (CAA; Code Civ. 
5

Proc., § 1282 et seq.). The arbitration clause also stated the agreement would be 

governed by California law. 

Dinkin, the Sheppard Mullin employment partner, again began actively 

working for South Tahoe later in March 2010, a few weeks after Sheppard Mullin 

began representing J-M. Over the course of the following year, Sheppard Mullin 

billed South Tahoe for about 12 hours of work. During this period, South Tahoe’s 

attorneys in the qui tam action became aware that Sheppard Mullin was now 

representing J-M in that action. In March 2011, South Tahoe’s attorneys in the qui 

tam action wrote to Sheppard Mullin asking for an explanation for the firm’s 

failure to inform South Tahoe of the adverse representation. Sheppard Mullin 

responded by reminding South Tahoe of its earlier conflicts waiver. Dissatisfied 

with this response, South Tahoe filed a motion to disqualify Sheppard Mullin in 

the qui tam proceeding.

In July 2011, the district court granted the disqualification motion, ruling that 

Sheppard Mullin’s simultaneous representation of South Tahoe and J-M had been 

undertaken without adequately informed waivers in violation of rule 3-310(C)(3) 

of the Rules of Professional Conduct. 

During its representation of J-M, Sheppard Mullin performed approximately 

10,000 hours of work in the qui tam action and a related state court action. 

According to Sheppard Mullin attorney Kreindler, the firm’s billings totaled more 

than $3 million, of which more than $1 million remained unpaid. 

Sheppard Mullin sued J-M for the unpaid fees. J-M cross-complained for 

breach of contract, an accounting, breach of fiduciary duty, and fraudulent 

inducement; it also sought disgorgement of fees previously paid to Sheppard 

Mullin, as well as exemplary damages.

Sheppard Mullin petitioned for an order compelling arbitration under Code of 

Civil Procedure section 1281.2. J-M opposed the order, asserting that Sheppard 
6

Mullin’s conflict of interest had rendered the parties’ entire agreement illegal and 

unenforceable. Overruling J-M, the superior court granted the petition to compel 

arbitration.

1

The arbitrators ruled in Sheppard Mullin’s favor. They observed that “the 

better practice” would have been for the firm to disclose its representation of 

South Tahoe and seek J-M’s specific waiver of the conflict. But the arbitrators 

concluded that, even assuming Sheppard Mullin’s failure to disclose the conflict 

constituted an ethical violation, the violation was not sufficiently serious or 

egregious to warrant forfeiture or disgorgement. The arbitrators observed that 

Sheppard Mullin’s representation of South Tahoe involved matters unrelated to the 

qui tam action and that the conflict of interest had not caused J-M damage, 

prejudiced its defense of the qui tam action, resulted in communication of its 

confidential information to South Tahoe, or rendered Sheppard Mullin’s 

representation less effective or less valuable. The arbitrators awarded Sheppard 

Mullin more than $1.3 million in fees and interest.

Sheppard Mullin petitioned the superior court to confirm the award, but J-M 

petitioned to vacate it, renewing its contention that the parties’ engagement 

agreement was illegal and unenforceable due to Sheppard Mullin’s simultaneous 

representation of adverse interests in violation of rule 3-310(C)(3) of the Rules of 

Professional Conduct. Again overruling J-M’s objection, the superior court 

confirmed the award. Citing Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1

(Moncharsh), the court held that a violation of the Rules of Professional Conduct

does not render a retainer agreement unenforceable. The court concluded that the 

arbitrators therefore did not exceed their powers in awarding the contractual fees. 

(Code Civ. Proc., § 1286.2, subd. (a)(4).)

 

1 J-M petitioned the Court of Appeal for a writ of mandate, but the petition 

was summarily denied.
7

The Court of Appeal reversed. The court explained that California law, 

unlike federal law, treats a challenge to the legal enforceability of a contract as a 

matter for the court to decide, regardless of whether the contract contains an 

arbitration clause. The appellate court concluded that here, Sheppard Mullin’s 

concurrent representation of J-M and South Tahoe violated rule 3-310(C)(3) of the 

Rules of Professional Conduct, notwithstanding the scope of the conflict waivers 

in the parties’ respective engagement agreements. This violation, the court 

concluded, both rendered the engagement agreement with J-M unenforceable and 

disentitled Sheppard Mullin from any fees for representing J-M while it was 

simultaneously representing South Tahoe in other matters. For fee calculation 

purposes, the court remanded to the superior court to determine when precisely

Sheppard Mullin’s representation of South Tahoe began. 

We granted Sheppard Mullin’s petition for review. The petition presents 

three questions: (1) whether a court may invalidate an arbitration award on the 

ground that the agreement containing the arbitration agreement violates the public 

policy of the state as expressed in the Rules of Professional Conduct, as opposed 

to statutory law; (2) whether Sheppard Mullin violated the Rules of Professional 

Conduct in view of the broad conflicts waiver signed by J-M; and (3) whether any 

such violation automatically disentitles Sheppard Mullin from any compensation 

for the work it performed on behalf of J-M. We consider each of these questions 

in turn.
8

II.

The threshold question in the case concerns the proper scope of judicial 

review of the arbitrators’ award under the CAA.

2 The CAA is “a comprehensive 

statutory scheme regulating private arbitration in this state.” (Moncharsh, supra, 3 

Cal.4th at p. 9.) “Through this detailed statutory scheme, the Legislature has 

expressed a ‘strong public policy in favor of arbitration as a speedy and relatively 

inexpensive means of dispute resolution.’ ” (Ibid.) To effectuate that policy, the 

CAA provides that “[a] written agreement to submit to arbitration an existing 

controversy or a controversy thereafter arising is valid, enforceable and 

irrevocable, save upon such grounds as exist for the revocation of any contract.” 

(Code Civ. Proc., § 1281.) Where, as here, an arbitrator has issued an award, the 

decision is ordinarily final and thus “is not ordinarily reviewable for error by 

either the trial or appellate courts.” (Moncharsh, at p. 13.) The exceptions to this 

rule of finality are specified by statute. As relevant here, the CAA provides that a 

court may vacate an arbitration award when “[t]he arbitrators exceeded their 

powers and the award cannot be corrected without affecting the merits of the 

decision upon the controversy submitted.” (Code Civ. Proc., § 1286.2, subd. 

(a)(4) (section 1286.2(a)(4)).)

In Loving & Evans v. Blick, supra, 33 Cal.2d 603 (Loving & Evans), this 

court held that the excess-of-authority exception applies, and an arbitral award 

must be vacated, when a court determines that the arbitration has been undertaken 

to enforce a contract that is “illegal and against the public policy of the state.” 

 

2 As noted, the parties’ agreement calls for application of California law, 

including the CAA, and both parties agree that the CAA governs. This case thus 

presents no question concerning application of the Federal Arbitration Act, 9 

United States Code section 1 et seq. (See Volt Info. Sciences v. Leland Stanford 

Jr. U. (1989) 489 U.S. 468, 470; Cronus Investments, Inc. v. Concierge Services

(2005) 35 Cal.4th 376, 387.)
9

(Loving & Evans, at p. 610 (plur. opn. of Spence, J.); see id. at p. 615 (conc. opn. 

of Edmonds, J.).) Sheppard Mullin does not ask us to revisit that holding. It does, 

however, argue that the Loving & Evans illegality exception should apply only to 

contracts that are found to violate public policy as it has been declared by the 

Legislature. Because the Rules of Professional Conduct are not promulgated by 

the Legislature, Sheppard Mullin argues, a violation of the rules can afford no 

ground for vacating an arbitration award under section 1286.2(a)(4) of the CAA. 

We reject the argument.

A.

Under general principles of California contract law, a contract is unlawful, 

and therefore unenforceable, if it is “[c]ontrary to an express provision of law” or 

“[c]ontrary to the policy of express law, though not expressly prohibited.” (Civ. 

Code, § 1667.)

While this court has recognized that “questions of public policy are primarily 

for the legislative department to determine,” we have also held that a contract or 

transaction may be found contrary to public policy even if the Legislature has not 

yet spoken to the issue. (Safeway Stores v. Retail Clerks etc. Assn. (1953) 41 

Cal.2d 567, 574 [“In cases without number the state courts have declared 

contracts, transactions and activities . . . to be contrary to public policy where their 

legislative departments have not spoken on the subject.”]; Green v. Ralee 

Engineering Co. (1998) 19 Cal.4th 66, 82 [administrative regulations promulgated 

to effectuate statutory authority “may be manifestations of important public 

policy”].)

As particularly relevant here, California courts have held that a contract or 

transaction involving attorneys may be declared unenforceable for violation of the 

Rules of Professional Conduct, the set of binding rules governing the ethical 

practice of law in the State of California. In Chambers v. Kay (2002) 29 Cal.4th 
10

142 (Chambers), this court refused enforcement of a fee division agreement 

undertaken without written client consent, on the ground that the arrangement 

violated the Rules of Professional Conduct. We noted that the California State Bar 

is authorized by statute to formulate these rules, and they are adopted with the 

approval of this court. (Chambers, at p. 156; see Bus. & Prof. Code, §§ 6076–

6077.) To enforce the fee division agreement, we observed, would be to 

countenance “a violation of a rule we formally approved in order ‘to protect the 

public and to promote respect and confidence in the legal profession.’ ”

(Chambers, at p. 158, quoting Rules Prof. Conduct, rule 1–100(A).) It would be 

“absurd,” we concluded, for a court to aid an attorney in enforcing a transaction 

prohibited by the rules. (Chambers, at p. 161.) Both before and after Chambers, 

Courts of Appeal reached similar conclusions about similar fee splitting 

arrangements in violation of the Rules of Professional Conduct. As the court 

explained in Altschul v. Sayble (1978) 83 Cal.App.3d 153, the rules “are not only 

ethical standards to guide the conduct of members of the bar; but they also serve 

as an expression of public policy to protect the public.” (Id. at p. 163; see id. at 

pp. 159–164; Kallen v. Delug (1984) 157 Cal.App.3d 940, 948–951; Scolinos v. 

Kolts (1995) 37 Cal.App.4th 635, 639–640; Margolin v. Shemaria (2000) 85 

Cal.App.4th 891, 901–903; McIntosh v. Mills (2004) 121 Cal.App.4th 333, 344–

346.) It follows that an attorney contract that has as its object conduct constituting

a violation of the Rules of Professional Conduct is contrary to the public policy of 

this state and is therefore unenforceable.
11

B.

The question Sheppard Mullin raises here is whether a different, more 

restrictive rule ought to apply when a court considers the lawfulness of a contract 

on review of an arbitrator’s decision, applying the illegality exception recognized 

in Loving & Evans.

The specific question in Loving & Evans concerned the validity of an 

arbitration award granted to a group of unlicensed contractors feuding with a 

property owner. (Loving & Evans, supra, 33 Cal.2d at pp. 604–605.) The 

superior court had confirmed the award without establishing that the contractors 

had at least substantially complied with the licensing statutes. We held this was 

error because to enforce the agreement of an unlicensed contractor would violate 

the public policy codified in statutes forbidding unlicensed persons from engaging 

in the contracting business and from recovering compensation for such business. 

(Id. at pp. 606–607, 613–614 (plur. opn. of Spence, J.); see id. at p. 615 (conc. 

opn. of Edmonds, J.).)

We acknowledged that the merits of an arbitral award are not generally 

subject to judicial review, but explained that “the rules which give finality to the 

arbitrator’s determination of ordinary questions of fact or of law are inapplicable 

where the issue of illegality of the entire transaction is raised in a proceeding for 

the enforcement of the arbitrator’s award.” (Loving & Evans, supra, 33 Cal.2d at 

p. 609.) Whether a contract is entirely illegal, and therefore unenforceable, is an

issue “for judicial determination upon the evidence presented to the trial court, and 

any preliminary determination of legality by the arbitrator . . . should not be held 

to be binding upon the trial court.” (Ibid.) This is because “[t]he question of the 

validity of the basic contract [is] essentially a judicial question,” whether the 

question is raised in opposition to a petition to compel arbitration or in a 

postarbitration petition to vacate an arbitral award. (Id. at p. 610.) “If this were 
12

not the rule,” we reasoned, “courts would be compelled to stultify themselves by 

lending their aid to the enforcement of contracts which have been declared by 

statute to be illegal and void. A party seeking confirmation cannot be permitted to 

rely upon the arbitrator’s conclusion of legality for the reason that paramount 

considerations of public policy require that this vital issue be committed to the 

court’s determination whenever judicial aid is sought.” (Id. at p. 614.)

In the years since Loving & Evans was decided, this court has identified 

limits to this exception to arbitral finality, but the court has not questioned the 

continued validity of the exception itself.3 In Ericksen, Arbuthnot, McCarthy, 

 

3 Since Loving & Evans, the Courts of Appeal in several cases have applied 

the illegality exception in declining to confirm arbitration awards based on a 

judicial determination that the parties’ contract violated public policy and was 

therefore void and unenforceable in its entirety. (Lindenstadt v. Staff Builders, 

Inc. (1997) 55 Cal.App.4th 882, 892–893 [whether unlicensed person acted as real 

estate broker is for court to determine, not arbitrator]; All Points Traders, Inc. v. 

Barrington Associates (1989) 211 Cal.App.3d 723, 737 [where arbitrator made 

award to unlicensed person who allegedly acted as a real estate broker in violation 

of statute, “the issue of illegality is one for judicial determination upon the 

evidence presented to the trial court”]; Green v. Mt. Diablo Hospital Dist. (1989) 

207 Cal.App.3d 63, 66, 71–73 [allegations that hospital district’s buy-out 

agreement with executive constituted illegal gift of public funds, illegal payment 

of extra compensation, etc., constituted claims of illegality voiding entire contract 

and were subject to judicial determination; trial court properly denied petition to 

compel arbitration]; Bianco v. Superior Court (1968) 265 Cal.App.2d 126, 129–

130 [applying rule to claim that oil drilling contract was unenforceable because the 

parties failed to obtain the required drilling permits; petition to compel arbitration 

should have been denied]; see also Epic Medical Management, LLC v. Paquette

(2015) 244 Cal.App.4th 504, 512 [stating rule that “[w]hen it is alleged that the 

contract in its entirety is illegal, the issue is reviewable,” but finding rule 

inapplicable because allegedly illegal transactions were only an incidental part of 

parties’ contractual arrangement]; Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 

21, 36 [in case involving unlicensed person acting as contractor, distinguishing 

Loving & Evans on ground that claim of illegality went to only one provision of 

broad development agreement]; Cotchett, Pitre & McCarthy v. Universal Paragon 

Corp. (2010) 187 Cal.App.4th 1405, 1417, fn. 1 [noting entire-illegality principle 

but declining to address it in view of lack of illegality].)
13

Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312 (Ericksen), we 

considered whether a party is entitled to avoid arbitration pursuant to a contractual 

arbitration clause when the party alleges it was fraudulently induced to enter into 

the contract. We answered the question in the negative, concluding that the 

agreement to arbitrate was severable from the remainder of the contract, and the 

question of whether the contract (as opposed to the agreement to arbitrate) had 

been fraudulently induced was thus a matter for the arbitrator to consider in the 

first instance. (Id. at pp. 317–320, citing, inter alia, Prima Paint v. Flood & 

Conklin (1967) 388 U.S. 395 [reaching same conclusion in case of alleged 

fraudulent inducement].) We also considered “the practical consequences of a rule 

which would allow a party to avoid an arbitration commitment” merely by 

pleading that the other party never intended to fulfill its contractual obligations. 

(Ericksen, supra, at pp. 322–323.) In holding such a fraud claim did not preclude 

arbitration, we distinguished Loving & Evans and other cases in which “the issue 

of illegality of the contract has been raised.” (Ericksen, at p. 316, fn. 2.) We 

explained that while “[q]uestions of public policy which are implicated by an 

illegal agreement . . . might be ill-suited for arbitral determination,” the same is 

not true of “garden-variety ‘fraud in the inducement’ ” claims “related to 

performance failure.” (Id. at p. 317, fn. 2.) The latter sort of claims, we 

explained, are, by contrast, “ideally suited for the arbitrator’s expert 

determination.” (Ibid.)

Later, in Moncharsh, supra, 3 Cal.4th 1, we considered whether the claimed 

illegality of a provision of a contract (as opposed to the entirety of the contract) 

constitutes grounds for vacating an arbitral award. In that case, an attorney and 

law firm executed an employment agreement that, among other things, provided 

for the remittance of a substantial percentage of future fees to the law firm if the 

attorney left and took clients with him. When the attorney did just that, the firm 
14

demanded its contractual share, and the attorney refused. The parties submitted 

the ensuing dispute to an arbitrator in accordance with the arbitration clause of the 

employment agreement. (Id. at pp. 6–7.) In the arbitration proceedings, the 

attorney argued that the fee sharing clause was unenforceable because it violated 

the Rules of Professional Conduct and case law on entitlement to fees from a 

former client, but the arbitrator rejected the argument. The attorney sought 

judicial review of the merits of that ruling through a petition to vacate or modify 

the award under Code of Civil Procedure section 1286.2, citing Loving & Evans in 

support of his claim for judicial review. (Moncharsh, at pp. 7–8, 31.) 

This court rejected the argument. Loving & Evans, we emphasized, 

concerned a claim that the contract was illegal not just in part, but in whole. 

(Moncharsh, supra, 3 Cal.4th at pp. 31–32.) The distinction mattered, we 

explained, because the CAA calls for the enforcement of an arbitration agreement 

unless there are grounds for revoking that agreement. (Moncharsh, at p. 29; see 

Code Civ. Proc., § 1281.2.) “If a contract includes an arbitration agreement, and 

grounds exist to revoke the entire contract, such grounds would also vitiate the 

arbitration agreement. Thus, if an otherwise enforceable arbitration agreement is 

contained in an illegal contract, a party may avoid arbitration altogether.” 

(Moncharsh, at p. 29, italics added.)4 But when, as in Moncharsh itself, “the 

alleged illegality goes to only a portion of the contract (that does not include the 

arbitration agreement), the entire controversy, including the issue of illegality, 

remains arbitrable.” (Id. at p. 30.) We accordingly rejected the suggestion that

 

4 Despite its broad phrasing, Moncharsh did not purport to overrule Ericksen, 

supra, 35 Cal.3d at pages 316 to 317, footnote 2, 322 to 323, in which we had 

taken the view that fraudulent inducement in the making of the contract, as 

distinguished from illegality, is not a ground for vitiating an arbitration agreement 

contained therein.
15

judicial review of an arbitrator’s decision is routinely available in such cases. (Id.

at p. 32, fn. 14.)

In the portion of Moncharsh on which Sheppard Mullin relies most heavily, 

we went on to observe “that there may be some limited and exceptional 

circumstances justifying judicial review of an arbitrator’s decision when a party 

claims illegality affects only a portion of the underlying contract. Such cases 

would include those in which granting finality to an arbitrator’s decision would be 

inconsistent with the protection of a party’s statutory rights.” (Moncharsh, supra, 

3 Cal.4th at p. 32, citing Shearson/American Express Inc. v. McMahon (1987) 482 

U.S. 220, 225–227.) In light of the legislative policy in favor of arbitral finality, 

however, we counseled that courts should be reluctant to invalidate an award on

such a ground “[w]ithout an explicit legislative expression of public policy.” 

(Moncharsh, at p. 32, italics added.) “Absent a clear expression of illegality or 

public policy undermining” the statutory presumption favoring private arbitration 

and the finality of arbitral awards, “an arbitral award should ordinarily stand 

immune from judicial scrutiny.” (Ibid.) The particular ethical rules the attorney 

had cited were inadequate for this purpose, we held, as the rules said nothing to 

suggest arbitration was inappropriate to resolve what was “essentially an ordinary 

fee dispute.” (Id. at p. 33.)

Sheppard Mullin seizes on the reference to an “explicit legislative expression 

of public policy” in this passage to argue that judicial review of the arbitral award 

in this case should be limited to whether the parties’ agreement violates a statute 

or comparable declaration of the Legislature. But the language on which 

Sheppard Mullin relies is not fairly read as a general caution against reliance on 

nonlegislative expressions of public policy in considering the enforceability of 

contracts containing arbitration agreements. The passage was concerned with a 

different subject: when, notwithstanding a valid and enforceable arbitration 
16

agreement, an arbitrator’s resolution of a particular issue should be subject to 

judicial review for legal error. The court noted that such review might be 

warranted when “granting finality to an arbitrator’s decision would be inconsistent 

with the protection of a party’s statutory rights,” but it advised courts to be wary 

of such claims in the absence of a clear expression of statutory policy. 

(Moncharsh, 3 Cal.4th at p. 32, italics added; see also id. at p. 33 [“[T]he normal 

rule of limited judicial review may not be avoided by a claim that a provision of 

the contract, construed or applied by the arbitrator, is ‘illegal,’ except in rare cases 

when according finality to the arbitrator’s decision would be incompatible with the 

protection of a statutory right.”].) Moncharsh did not suggest, much less hold, that 

a court presented with a claim that an entire contract or transaction is void for 

illegality is limited to considering only those expressions of public policy that are 

contained in legislative enactments.

Sheppard Mullin argues that it makes no sense to distinguish for these 

purposes between claims of partial contractual illegality and complete illegality; in 

either case, it argues, the legislative policy favoring contractual arbitration should 

yield only when the contract violates public policy as the Legislature has declared 

it. But ever since Loving & Evans—whose continued validity Sheppard Mullin 

has not questioned—California cases have made clear that the legislative policy 

favoring contractual arbitration, and the finality of arbitral awards, applies only 

when there is, in fact, a valid contract to arbitrate. (Loving & Evans, supra, 33 

Cal.2d at p. 610.) And as we said in Moncharsh, while a claim that a single 

provision of a contract is illegal ordinarily has no bearing on the validity of the 

parties’ agreement to arbitrate, the same is not true of a claim that the entire 

contract is void for illegality. In such cases, we have said, the agreement to 

arbitrate cannot be severed from the remainder, and a court is not bound to 
17

confirm the results of an arbitration conducted under such a contract. (Moncharsh, 

supra, 3 Cal.4th at p. 29.)

Sheppard Mullin also makes much of the fact that Loving & Evans itself 

concerned a claim of illegality premised on violation of statutory law, and 

references to the nature of the claim are scattered throughout the opinion. (E.g., 

Loving & Evans, supra, 33 Cal.2d at p. 604 [the arbitration award could not “be 

reconciled with the settled public policy of this state as expressed in our statutory 

law”]; id. at p. 612 [confirming the arbitration award “would be tantamount to 

giving judicial approval to acts which are declared unlawful by statute”].) 

Subsequent cases applying the Loving & Evans illegality exception have involved 

similar scenarios. (E.g., All Points Traders, Inc. v. Barrington Associates, supra, 

211 Cal.App.3d at p. 737 [unlicensed person allegedly acted as a real estate broker 

in violation of statute].)5 But the logic of these cases is not so limited. As we 

have since explained, the basic premise of Loving & Evans is that an agreement to 

arbitrate is invalid and unenforceable if it is made as part of a contract that is 

invalid and unenforceable because it violates public policy. (Moncharsh, supra, 3 

Cal.4th at p. 29; Loving & Evans, at p. 610; accord, Richey v. AutoNation, Inc.

(2015) 60 Cal.4th 909, 917 [notwithstanding general rules of arbitral finality, 

“judicial review may be warranted when a party claims that an arbitrator has 

enforced an entire contract or transaction that is illegal”].) And as noted, 

California law holds that a contract may be held invalid and unenforceable on 

 

5 Green v. Mt. Diablo Hospital Dist., supra, 207 Cal.App.3d at pages 71 to 

73, applied the rule to an agreement made in violation of both statutory and 

constitutional limits on public agencies. The court in Bianco v. Superior Court, 

supra, 265 Cal.App.2d at pages 129 to 130, did not specify the source of the law 

requiring the parties to acquire drilling permits; whether it was a statute or a 

regulation is thus unclear.
18

public policy grounds even though the public policy is not enshrined in a 

legislative enactment.

C.

Sheppard Mullin warns that failure to adopt a legislative policy limitation 

will invite a flood of litigation by parties disappointed by arbitration results. 

Courts will be mired in difficult line-drawing exercises to determine what sort of 

contracts violate public policy and which do not. The problem will be particularly 

acute in the context of attorney-service contracts, Sheppard Mullin says, because 

the Rules of Professional Conduct govern so many aspects of the attorney-client 

relationship. And to resolve these claims, courts will be regularly called on to 

resolve highly factual disputes, thereby eliminating the advantages of arbitration. 

But by declining to adopt Sheppard Mullin’s legislative policy limitation on 

the illegality exception, we are hardly breaking new ground. We merely affirm 

that, under Loving & Evans, the legality of a contract that contains an arbitration 

agreement is to be judged by the same standards as a contract without such an 

agreement. And we repeat that those standards do not encompass claims of mere 

partial illegality; the case law does not establish, nor do we today hold, that an 

attorney-services contract may be declared illegal in its entirety simply because it 

contains a provision that conflicts with an attorney’s obligations under the Rules 

of Professional Conduct. As Moncharsh illustrates, the violation of an ethical rule 

in one portion of a contract (there a fee-splitting provision) does not necessarily 

preclude enforcement of the contract as a whole. (Moncharsh, supra, 3 Cal.4th at 

p. 30; see also Civ. Code, § 1599 [contract with “several distinct objects” may be 

void as to an unlawful one and valid as to a lawful one]; Birbrower, Montalbano, 

Condon & Frank v. Superior Court (1998) 17 Cal.4th 119, 137–139 [when 

attorney-service contract was valid as to services performed in New York and 

invalid as to those performed in California, the valid part would be severed from 
19

the remainder, allowing law firm to seek contractual fees for New York work]; 

Calvert v. Stoner (1948) 33 Cal.2d 97, 103–105 [invalid provision in fee 

agreement prevented client from settling without lawyer’s consent; it was held 

severable from the lawful compensation provisions, which remained enforceable].) 

It is only when “the illegality taints the entire contract” that courts may declare 

“the entire transaction is illegal and unenforceable.” (Keene v. Harling (1964) 61 

Cal.2d 318, 321.)

With this background in mind, we turn to the question whether the claimed

violation in this case constitutes grounds for revocation of the entire contract.

III.

J-M argues, and the Court of Appeal agreed, that the engagement agreement 

at issue is unenforceable because it violated rule 3-310(C)(3) of the Rules of 

Professional Conduct (rule 3-310(C)(3)). That rule provides that an attorney 

“shall not, without the informed written consent of each client . . . [¶] . . . [¶] . . . 

[r]epresent a client in a matter and at the same time in a separate matter accept as a 

client a person or entity whose interest in the first matter is adverse to the client in 

the first matter.” (Ibid.) “Simply put,” without informed written consent, “an 

attorney (and his or her firm) cannot simultaneously represent a client in one 

matter while representing another party suing that same client in another matter.” 

(Certain Underwriters at Lloyd’s London v. Argonaut Ins. Co. (N.D.Cal. 2003) 

264 F.Supp.2d 914, 919.) This general prohibition applies even if “the 

simultaneous representations may have nothing in common.” (Flatt v. Superior 

Court (1994) 9 Cal.4th 275, 284 (Flatt).) “ ‘Informed written consent’ ” is defined 

to mean “written agreement to the representation following written disclosure,” 

and “[d]isclosure” is defined as “informing the client . . . of the relevant 

circumstances and of the actual and reasonably foreseeable adverse consequences 

to the client . . . .” (Rules Prof. Conduct, rule 3-310(A)(2), (1).)
20

Sheppard Mullin does not dispute that its concurrent representation of J-M 

and South Tahoe came within the scope of rule 3-310(C)(3), but maintains that it 

obtained J-M’s informed consent to that representation by means of the conflict 

waiver provision of the parties’ engagement agreement. We conclude that 

Sheppard Mullin’s concurrent representation of J-M and South Tahoe violated rule 

3-310(C)(3) and rendered the engagement agreement between Sheppard Mullin 

and J-M unenforceable. Our conclusion rests on three subsidiary points: First, at 

the time Sheppard Mullin agreed to represent J-M in the qui tam action, the law 

firm also represented a client with conflicting interests, South Tahoe; second, 

because Sheppard Mullin knew of that conflicting interest and failed to inform

J-M of it, J-M’s consent was not “informed” within the meaning of the Rules of 

Professional Conduct; and third, Sheppard Mullin’s unconsented-to conflict of 

interest affected the whole of its engagement agreement with J-M, rendering it 

unenforceable in its entirety.

A.

In their engagement agreement, Sheppard Mullin asked J-M to agree to the 

law firm’s representation of any other client, “currently or in the future,” in 

matters not substantially related to its representation of J-M, “even if the interests 

of the other client are adverse” to J-M’s. The conflict waiver clause alerted J-M 

that Sheppard Mullin is a large firm with many offices and attorneys and may 

represent clients whose interests conflict with J-M’s, but it did not disclose any 

particular conflict, or even any area of potential conflict, and did not mention

Sheppard Mullin’s concurrent representation of South Tahoe.

The parties and amici curiae debate at length whether a general advisement of 

this type is adequate to obtain a client’s informed consent to the possibility of 

future conflicts with a law firm’s future clients. But J-M argues that this debate is 

beside the point, because when it hired Sheppard Mullin to represent it in the qui 
21

tam action, the firm’s representation of South Tahoe was not merely a future 

possibility; it was a present reality. Sheppard Mullin disputes the premise, 

asserting that when the firm took on J-M’s representation on March 4, 2010, South 

Tahoe was a former client (or, to borrow a term used at oral argument, a 

“dormant” client) and did not become a current client again until March 29, when 

Dinkin began new employment work for the agency. But based on the terms of 

Sheppard Mullin’s engagement agreement with South Tahoe, as well as the

undisputed facts concerning their course of dealing, we agree with J-M: Sheppard 

Mullin and South Tahoe had an attorney-client relationship at the time Sheppard 

Mullin took on J-M, South Tahoe’s adversary, as a client.

South Tahoe’s operative engagement agreement, executed in 2006, provided 

that Sheppard Mullin would represent the utility district “in connection with 

general employment matters (the ‘Matter’).” The agreement further provided that 

South Tahoe could terminate the representation at any time, as could Sheppard 

Mullin (subject to its ethical obligations), but that otherwise the representation 

would terminate “upon completion of the Matter” unless the firm agreed to render 

other legal services to the agency. The parties’ agreement thus established an 

attorney-client relationship that, absent earlier termination by one of the parties, 

would endure so long as Sheppard Mullin continued to work on “the Matter,” 

which was defined in the agreement as “general employment matters.”

Dinkin had performed employment work for South Tahoe in November 2009 

and did so again beginning on March 29, 2010. Overall, Dinkin had provided 

South Tahoe legal services as a Sheppard Mullin partner since 2002, and the firm 

billed the utility district for 119 hours of work in the five years before May 2011.

As of March 4, 2010, then, Sheppard Mullin’s work on “general employment 

matters” was ongoing. There is no evidence either party terminated the 

engagement until South Tahoe did so in 2011, after it discovered the firm’s 
22

conflict of interest. It follows that Sheppard Mullin was still South Tahoe’s 

attorney in March 2010, when it also began representing J-M.

This conclusion finds support in a substantial body of case law from both 

within and without California. Under comparable circumstances, where a law 

firm and client have had a long-term course of business calling for occasional 

work on discrete assignments, courts have generally held the fact that the firm is 

not performing any assignment on a particular date and may not have done so for 

some months—or even years—does not necessarily mean the attorney-client 

relationship has been terminated. In International Business Machines Corp. v. 

Levin (3d Cir. 1978) 579 F.2d 271, 281, for example, the court found a continuous 

attorney-client relationship existing at the time a law firm took on adverse 

representation even though the law firm “had no specific assignment from IBM on 

hand on the day the antitrust complaint was filed and even though [the law firm] 

performed services for IBM on a fee for service basis rather than pursuant to a 

retainer arrangement.” As the court explained, “the pattern of repeated retainers, 

both before and after the filing of the complaint, supports the finding of a 

continuous relationship.” (Ibid.; see also, e.g., M’Guinness v. Johnson (2015) 243 

Cal.App.4th 602, 616–617 [several-month gap following completion of last 

assignment did not terminate attorney-client relationship]; Kabi Pharmacia AB v. 

Alcon Surgical, Inc. (D.Del. 1992) 803 F.Supp. 957, 962 [allegedly “ ‘sporadic’ ” 

nature of firm’s work, and “lull” in such work at time of adverse representation, 

does not support finding there was no ongoing attorney-client relationship]; SWS 

Financial Fund A v. Salomon Bros. Inc. (N.D.Ill. 1992) 790 F.Supp. 1392, 1395, 

1399 [continuing relationship found where firm had billed client for 214 hours 

over a 13-month period on a number of discrete projects, the last ending two 

months before firm began adverse representation]; Manoir–Electroalloys Corp. v. 

Amalloy Corp. (D.N.J. 1989) 711 F.Supp. 188, 193–195 [individual was law 
23

firm’s current client in 1988, even though firm had last performed work for 

individual in 1983 to 1984, where the two had a long-standing arrangement 

involving legal work on a number of matters].) The central question is whether 

the client would reasonably understand that the representation has terminated (see 

Rest.3d Law Governing Lawyers, § 31, com. h, p. 223; id., § 18), and courts are 

properly reluctant to impose on a client the burden of discerning that a law firm 

that has done periodic work for it has ceased to be the client’s attorney, simply by 

lapse of time.

Sheppard Mullin contends its agreement with South Tahoe was a 

“framework” agreement under which the relationship would be renewed, on the 

same terms, each time the client had a new assignment for the firm—and, 

critically, one that would end when the assignment was completed. (See Banning 

Ranch Conservancy v. Superior Court (2011) 193 Cal.App.4th 903, 913 (Banning 

Ranch) [framework agreement between law firm and client created “a structure for 

establishing future attorney-client relationships on an ‘as-requested’ basis by the 

[client], and subject to confirmation by the . . . firm,” but “ ‘did not create an 

attorney-client relationship absent an actual request, and acceptance, for 

representation on a particular matter’ ”].) The terms of the agreement do not, 

however, bear out the characterization. The agreement provided that Sheppard 

Mullin’s representation of South Tahoe would continue for the length of “the 

Matter,” which the agreement defined as general employment matters, in the 

plural. The definition belies the suggestion that the parties intended to terminate 

the attorney-client relationship after each individual general employment matter 

was completed. And unlike the framework agreement at issue in Banning Ranch, 

the agreement contained no language reserving to the law firm the right to decline 

work requested by the client. Nor did the agreement include any other explicit 

statement that Sheppard Mullin and South Tahoe would maintain an attorney-
24

client relationship only during times when the law firm was actually performing 

work for the utility district.

While the South Tahoe engagement agreement was not what the Banning 

Ranch court called a “[c]lassic retainer agreement[]” (Banning Ranch, supra, 193 

Cal.App.4th at p. 917)—there was no retainer fee involved—it was not a simple 

framework agreement, either. It was, rather, an agreement governing a continuing 

engagement involving occasional work on employment matters as needed. And 

under that agreement, over the course of a decade Sheppard Mullin regularly 

advised and assisted South Tahoe with employment matters. (Cf. Banning Ranch, 

at p. 915 [law firm performed minimal work for client under agreement].) Absent 

any express agreement severing the relationship during periods of inactivity, South 

Tahoe could reasonably have believed that it continued to enjoy an attorney-client 

relationship with its longtime law firm even when no project was ongoing. (See 

Manoir–Electroalloys Corp. v. Amalloy Corp., supra, 711 F.Supp. at p. 194 [client 

could reasonably “construe [attorney’s] actions as the actions of attorneys vis-à-vis 

their present client”].)

B.

As noted, J-M consented to waive current conflicts, as well as future ones. 

The waiver thus, by its terms, covers the conflict with South Tahoe. We must 

therefore consider whether the waiver constituted effective consent to Sheppard 

Mullin’s concurrent representation of adverse interests.

The limitations in rule 3-310(C)(3) serve to enforce “the attorney’s duty—

and the client’s legitimate expectation—of loyalty, rather than confidentiality.” 

(Flatt, supra, 9 Cal.4th at p. 284.) It is for this reason that the rules encompass 

simultaneous representation even in unrelated matters where there is no risk that 

confidential information will be transmitted. (Ibid.) The purpose of these rules, 

we have explained, “is evident, even (or perhaps especially) to the nonattorney. A 
25

client who learns that his or her lawyer is also representing a litigation adversary, 

even with respect to a matter wholly unrelated to the one for which counsel was 

retained, cannot long be expected to sustain the level of confidence and trust in 

counsel that is one of the foundations of the professional relationship.” (Id. at 

p. 285; accord, People ex rel. Dept. of Corporations v. SpeeDee Oil Change 

Systems, Inc. (1999) 20 Cal.4th 1135, 1147; Jeffry v. Pounds (1977) 67 

Cal.App.3d 6, 10–11 (Jeffry).)

Because rule 3-310(C)(3) embodies a core aspect of the duty of loyalty, the

disclosure required for informed consent to dual representation must also be 

measured by a standard of loyalty. To be informed, the client’s consent to dual 

representation must be based on disclosure of all material facts the attorney knows 

and can reveal. (See, e.g., Image Technical Services, Inc. v. Eastman Kodak Co.

(N.D.Cal. 1993) 820 F.Supp. 1212, 1214–1215, 1217 [law firm failed to obtain 

informed consent to a conflict of interest because it did not disclose known 

material details of the conflict].) An attorney or law firm that knowingly 

withholds material information about a conflict has not earned the confidence and 

trust the rule is designed to protect. 

Assessed by this standard, the conflicts waiver here was inadequate. By 

asking J-M to waive current conflicts as well as future ones, Sheppard Mullin did

put J-M on notice that a current conflict might exist. But by failing to disclose to 

J-M the fact that a current conflict actually existed, the law firm failed to disclose 

to its client all the “relevant circumstances” within its knowledge relating to its 

representation of J-M. (Rules Prof. Conduct, rule 3-310(A)(1).)

Sheppard Mullin contends the blanket disclosure and waiver was sufficient in 

light of J-M’s size and sophistication and the participation of J-M’s own general 

counsel in the engagement negotiations. It cites a federal disqualification case 

from Texas, Galderma Laboratories v. Actavis Mid Atlantic LLC (N.D.Tex. 2013) 
26

927 F.Supp.2d 390 (Galderma), for support. In that case, Galderma, a large 

corporation with global operations, engaged a law firm to help it with employee 

benefits matters, signing (by its general counsel) a blanket waiver of conflicts for 

the law firm. (Id. at p. 393.) One of the firm’s other clients, Actavis, was later 

named a defendant in an intellectual property suit brought by Galderma, and the 

firm represented Actavis in that litigation. When Galderma learned of the law 

firm’s adverse concurrent representation, it sought to disqualify the firm in the 

intellectual property action. (Id. at p. 394.)

The district court denied disqualification. The court applied the American 

Bar Association Model Rules of Professional Conduct (hereinafter the Model 

Rules), which require informed consent to concurrent representation of adverse 

interests (a more lenient Texas rule did not). (Galderma, supra, 927 F.Supp.2d at 

pp. 395–396.) Relying on a comment to rule 1.7 of the Model Rules to the effect

that a general waiver may be effective where the client is an experienced user of 

legal services represented by independent counsel, the district court found the law 

firm’s blanket waiver form effective to obtain informed consent from Galderma, a 

large corporation represented by its own general counsel. (Id. at pp. 396–397, 

399–406.)6

Galderma is inapposite. As an initial matter, whether or not the district court 

in that case correctly interpreted and applied the Model Rules, California has not 

 

6 Rule 1.7(b)(4) of the Model Rules permits concurrent representation of 

adverse parties with each client’s informed consent, confirmed in writing. 

Comment 22 to the rule, addressing consent to a future conflict, notes that a 

“general and open-ended” consent will ordinarily be ineffective but may suffice 

“if the client is an experienced user of the legal services involved,” particularly if 

the client is independently represented when giving consent.
27

adopted those rules or, more importantly, the comments to them.

7 But even more 

to the point, Sheppard Mullin’s blanket waiver would not be effective in this case 

even under Galderma’s approach, because here the law firm failed to disclose a 

known, existing conflict before soliciting J-M’s consent. On this point, the 

Galderma court was clear: “If a conflict of interest is known to an attorney at the 

time he seeks a waiver, the attorney is not allowed to hide that conflict, regardless 

of whether the client is sophisticated or not.” (Galderma, supra, 927 F.Supp.2d at 

pp. 402–403.) We agree. Whether the client is an individual or a multinational 

corporation with a large law department, the duty of loyalty demands an attorney 

or law firm provide the client all material information in the attorney or firm’s 

possession. No matter how large and sophisticated, a prospective client does not 

have access to a law firm’s list of other clients, and cannot check for itself whether 

the firm represents adverse parties. Nor can it evaluate for itself the risk that it 

may be deprived, via motion for disqualification, of its counsel of choice, as 

happened here. In any event, clients should not have to investigate their attorneys. 

 

7 On May 10, 2018, this court approved comprehensive amendments to the 

Rules of Professional Conduct, to take effect November 1, 2018. As part of this 

revision, current rule 3-310 will be replaced by a new provision governing 

conflicts of interest involving current clients, rule 1.7, which does take some of its 

language from rule 1.7 of the Model Rules. Like the current rule 3-310, new rule 

1.7 will require informed written consent for concurrent representation of adverse 

interests. But in approving this rule, we did not adopt the comment to rule 1.7(a) 

of the Model Rules upon which the Galderma court relied. We instead noted that 

the client’s experience and sophistication and the presence of independent 

representation in connection with the consent are “relevant” to the effectiveness of 

that consent, and that the new rule “does not preclude an informed written 

consent[] to a future conflict in compliance with applicable case law.” (Rules 

Prof. Conduct, rule 1.7, com. 9, eff. Nov. 1, 2018 <http://www.calbar.ca.gov/

Portals/0/documents/rules/New-Rules-of-Professional-Conduct-2018.pdf> [as of 

Aug. 30, 2018]. All Internet citations in this opinion are archived by year, docket 

number, and case name at <http://www.courts.ca.gov/38324.htm>.) 
28

Simply put, withholding available information about a known, existing conflict is 

not consistent with informed consent.8

Because this case concerns the failure to disclose a current conflict, we have 

no occasion here to decide whether, or under what circumstances, a blanket 

advance waiver like the one at issue in Galderma would be permissible.9 We 

conclude, rather, that without full disclosure of existing conflicts known to the 

attorney, the client’s consent is not informed for purposes of our ethics rules. 

Sheppard Mullin failed to make such full disclosure here.

C.

Sheppard Mullin argues that even if it failed to secure adequate consent to the 

dual representation of J-M in the qui tam action, the ethical violation does not 

invalidate the entire engagement agreement because the agreement encompassed 

other matters as well. But as noted, the object of the agreement was representation 

in the qui tam action. The agreement states that Sheppard Mullin is engaged to 

represent J-M “in connection with the lawsuit filed by Qui Tam plaintiff John 

 

8 We recognize that client confidentiality may, in some cases, limit what a 

law firm may tell one client about its representation of another. As noted in a 

comment to rule 1.7 of the Model Rules, if one client “refuses to consent to the 

disclosure necessary to permit the other client to make an informed decision, the 

lawyer cannot properly ask the latter to consent.” (Model Rules, rule 1.7, com. 19; 

see also Rules Prof. Conduct, rule 1.7, com. 7, eff. Nov. 1, 2018 

<http://www.calbar.ca.gov/Portals/0/documents/rules/New-Rules-of-ProfessionalConduct-2018.pdf> [as of Aug. 30, 2018].)

9 Several federal courts applying California law have declined to enforce 

blanket advance waivers on grounds they insufficiently disclosed the conflicts of 

interest. (Lennar Mare Island, LLC v. Steadfast Ins. Co. (E.D.Cal. 2015) 105 

F.Supp.3d 1100, 1115, 1118; Western Sugar Coop. v. Archer-Daniels-Midland 

Co. (C.D.Cal. 2015) 98 F.Supp.3d 1074, 1083–1084; Concat LP v. Unilever, PLC

(N.D.Cal. 2004) 350 F.Supp.2d 796, 801, 819–821.) Because we deal here with 

disclosure and waiver of a known existing conflict, we do not decide whether these 

decisions are correct.
29

Hendrix.” The agreement further states that the representation will terminate upon 

completion of that action and any related proceedings. The only reference to work 

outside that scope is a general statement that, except as the parties otherwise agree, 

the agreement’s terms will also apply to “other engagements for [J-M] that 

[Sheppard Mullin] may undertake.” (Italics added.) And while the agreement 

states that certain provisions on responding to possible third party document

requests survive termination of the representation, those provisions were not 

independent of the qui tam representation but dependent on it. They do not 

change the fact that the agreement was one for representation in the qui tam 

action, a representation that violated rule 3-310(C)(3).10 

As explained in part II, ante, violation of a Rule of Professional Conduct in 

the formation of a contract can render the contract unenforceable as against public 

policy. That is what happened here when Sheppard Mullin agreed to represent 

J-M in the qui tam action, while also representing South Tahoe on other matters, 

without obtaining J-M’s informed consent. It is true that Sheppard Mullin 

rendered J-M substantial legal services pursuant to the agreement, and J-M has not 

endeavored to show that it suffered damages as a result of the law firm’s conflict 

of interest. But the fact remains that the agreement itself is contrary to the public 

policy of the state. The transaction was entered under terms that undermined an 

ethical rule designed for the protection of the client as well as for the preservation 

of public confidence in the legal profession. The contract is for that reason 

 

10 At oral argument, counsel for Sheppard Mullin offered a different argument 

for treating the conflict as relating only to a portion of the parties’ agreement: The 

agreement encompassed not only representation in the qui tam action, but also 

representation in a state court action to which South Tahoe was not a party. The 

engagement agreement itself, however, makes clear that its object was 

representation in the qui tam action. In any event, Sheppard Mullin did not 

include this argument or supporting reasoning in its briefs, and we decline to 

address an argument cursorily raised for the first time at oral argument.
30

unenforceable. (See Chambers, supra, 29 Cal.4th at p. 159 [refusing to enforce 

fee-sharing agreement reached without client’s written consent, even though client 

was informed of agreement and referring attorney performed substantial legal 

services]; Altschul v. Sayble, supra, 83 Cal.App.3d at p. 164 [fee-sharing 

agreement reached without client’s written consent would be void as contrary to 

public policy even if referring attorney performed some legal services].)

IV.

Because Sheppard Mullin’s ethical breach renders the engagement agreement 

unenforceable in its entirety, the rule of Loving & Evans means that Sheppard 

Mullin is not entitled to the benefit of the arbitrators’ decision awarding it unpaid 

contractual fees. The final question before us is whether Sheppard Mullin may 

receive any compensation for its services at all.

As an alternative to contractual recovery, Sheppard Mullin has sought 

recovery under the equitable doctrine of quantum meruit—a doctrine that has 

sometimes been applied to allow attorneys “to recover the reasonable value of 

their legal services from their clients when their fee agreements are found to be 

invalid or unenforceable.” (Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453,

462 (Huskinson), citing cases; see Rest.3d Law Governing Lawyers, supra,

§ 39.)

11 The Court of Appeal, however, held that Sheppard Mullin’s conflict of 

interest disentitles it from either receiving or retaining any compensation for the 

approximately 10,000 hours it worked on the qui tam matter, even on a theory of 

quantum meruit. Relying on a series of California cases in which courts denied

 

11 “Quantum meruit refers to the well-established principle that ‘the law 

implies a promise to pay for services performed under circumstances disclosing 

that they were not gratuitously rendered.’ [Citation.] To recover in quantum 

meruit, a party need not prove the existence of a contract [citations], but it must 

show the circumstances were such that ‘the services were rendered under some 

understanding or expectation of both parties that compensation therefor was to be 

made.’ ” (Huskinson, supra, 32 Cal.4th at p. 458.)
31

compensation in the face of serious ethical breaches, the Court of Appeal held that 

an attorney may never recover compensation for services rendered while it labored 

under an improperly waived conflict of interest. (See Fair v. Bakhtiari (2011) 195 

Cal.App.4th 1135; Jeffry, supra, 67 Cal.App.3d 6; Goldstein v. Lees (1975) 46 

Cal.App.3d 614 (Goldstein).)

Sheppard Mullin contends that not every attorney conflict of interest 

precludes quantum meruit recovery of unpaid fees, much less requires 

disgorgement of fees already paid. And here, it argues, the circumstances do not 

warrant the denial of fees. The firm asserts that, as the arbitrators found, its 

attorneys acted in good faith reliance on the blanket conflict waivers both clients 

signed. There is no claim that Sheppard Mullin ever worked against J-M’s interest 

in any matter, and no evidence suggests a breach of confidentiality. And finally, 

Sheppard Mullin emphasizes that J-M stipulated in the arbitration proceedings that 

it was not challenging the “value or [] quality” of Sheppard Mullin’s work on the 

qui tam action or seeking “transition costs” incurred in replacing the disqualified 

firm.

12 Under the circumstances, Sheppard Mullin argues, denying all 

compensation for the extensive legal services the firm rendered in the qui tam 

action would impose a greatly disproportionate penalty and give J-M a massive 

windfall.

The ultimate question whether Sheppard Mullin is entitled to any 

compensation at all is not ripe for our resolution. Because the superior court 

ordered the matter to arbitration before determining whether the parties had an 

enforceable contract and refused to review the merits of the arbitral award after it 

 

12 In the stipulation, however, J-M reserved the right to present evidence of 

the ethical violation and to argue that because of it Sheppard Mullin was not 

entitled to any fees.
32

was made, it has yet to consider any of the noncontract issues framed by the 

parties’ pleadings.

13 Our holding today will reposition the parties where they 

were before the case took its unwarranted detour to arbitration, giving them an 

opportunity to litigate their noncontract claims. In order to clarify the scope of 

issues remaining for resolution, however, we address the portion of the Court of 

Appeal’s decision categorically barring recovery. We conclude, contrary to the 

Court of Appeal, that California law does not establish a bright-line rule barring all 

compensation for services performed subject to an improperly waived conflict of 

interest, no matter the circumstances surrounding the violation.

Like the Court of Appeal, we begin by considering the rule described in 

section 37 of the Restatement Third of Law Governing Lawyers: “A lawyer 

engaging in clear and serious violation of duty to a client may be required to 

forfeit some or all of the lawyer’s compensation for the matter.” (See also id., 

§ 39, com. e, p. 288 [where fee contract is unenforceable, attorney may recover in 

quantum meruit “unless the lawyer’s conduct warrants fee forfeiture under § 37”].) 

An actual conflict of interest, the Court of Appeal reasoned, is always a serious 

violation, and so always bars any compensation. But while every violation of 

attorney conflict of interest rules is indeed serious to some degree, the rule 

described in the Restatement—which in turn derives from general principles of 

agency law—is not so categorical. The Restatement instructs, and we agree, that 

the egregiousness of the attorney’s conduct, its potential and actual effect on the 

client and the attorney-client relationship, and the existence of alternative 

 

13 In its complaint, Sheppard Mullin pleaded a cause of action for quantum 

meruit; J-M cross-complained for breach of fiduciary duty and fraudulent 

inducement and prayed for exemplary damages as well as disgorgement of the fees 

already paid. These claims have not been tried, nor have they been tested by 

means of a motion for summary judgment.
33

remedies are all also relevant to whether and to what extent forfeiture of 

compensation is warranted. (See id., § 37.)

The law takes these case-specific factors into account because forfeiture of 

compensation is, in the end, an equitable remedy. As California courts have often 

noted, the rule governing attorney forfeiture derives primarily from the general 

principle of equity that a fiduciary’s breach of trust undermines the value of his or 

her services. (Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 

Cal.App.4th 1, 14, fn. 2 (Cal Pak); Schaefer v. Berinstein (1960) 180 Cal.App.2d 

107, 135, disapproved on other grounds in Jefferson v. J.E. French Co. (1960) 54 

Cal.2d 717, 719; accord, Kidney Association of Oregon v. Ferguson (1992) 315 

Or. 135, 144 [843 P.2d 442] [“When a court reduces or denies attorney fees as a 

consequence of a lawyer’s breach of fiduciary duty, it is a reflection of the limited 

value that a client receives from the services of an unfaithful lawyer.”].) “The 

remedy of fee forfeiture presupposes that a lawyer’s clear and serious violation of 

a duty to a client destroys or severely impairs the client-lawyer relationship and 

thereby the justification of the lawyer’s claim to compensation.” (Rest.3d Law 

Governing Lawyers, supra, § 37, com. b, p. 272.) Forfeiture also serves as a 

deterrent to misconduct, and it avoids putting clients to the task of proving the 

harm stemming from the lawyer’s conflict of interest when the extent of the harm 

may be difficult to measure. (Ibid.)

The degree to which forfeiture is warranted as an equitable remedy will

necessarily vary with the equities of the case. The commentary to the Restatement 

thus recognizes that while an attorney’s “flagrant” breach of his or her duty to a 

client may justify a complete forfeiture even without proof of harm to the client 

(Rest.3d Law Governing Lawyers, supra, § 37, com. d, p. 273), in other, less 

egregious cases complete forfeiture “would sometimes be an excessive sanction, 

giving a windfall to a client” (id., com. b, p. 272). As our sister court has 
34

explained, a rule of automatic and complete forfeiture “for every breach of 

fiduciary duty, or even every serious breach, would deprive the remedy of its 

equitable nature and would disserve its purpose of protecting relationships of 

trust.” (Burrow v. Arce (Tex. 1999) 997 S.W.2d 229, 241; see also id. at p. 242, 

fn. 45 [collecting state cases taking similarly flexible approach].) 

When a law firm seeks compensation in quantum meruit for legal services

performed under the cloud of an unwaived (or improperly waived) conflict, the 

firm may, in some circumstances, be able to show that the conduct was not willful, 

and its departure from ethical rules was not so severe or harmful as to render its 

legal services of little or no value to the client. Where some value remains, the 

attorney or law firm may attempt to show what that value is in light of the harm

done to the client and to the relationship of trust between attorney and client. 

Apprised of these facts, the trial court must then exercise its discretion to fashion a 

remedy that awards the attorney as much, or as little, as equity warrants, while 

preserving incentives to scrupulously adhere to the Rules of Professional Conduct.

The Court of Appeal decisions on which J-M relies do not persuade us to 

adopt a more categorical rule. In Jeffry, supra, 67 Cal.App.3d at pages 8 to 9, a 

law firm represented a client in a personal injury matter while, through a different 

attorney, also representing the client’s wife against the client in their marital 

dissolution case, without the client’s knowledge or consent. After an unconflicted 

attorney substituted into the personal injury matter and obtained a recovery for the 

client, the firm sought and was awarded the reasonable value of its services. 

(Ibid.) On appeal, the client argued that “an attorney should be barred from 

recovering a fee when the client has discharged him for accepting employment 

hostile to the client’s interests” (id. at p. 9) and the appellate court agreed, 

criticizing the law firm’s “uninhibited acceptance of a lawsuit against a current 

client” (id. at p. 11) and denying the firm any compensation for services rendered 
35

after its ethical breach (id. at p. 12). The court’s holding was not surprising, given 

the facts: the law firm had decided to represent the client’s wife in a lawsuit 

against him, without making any effort to obtain his consent. But the court did not 

purport to craft a rule to govern all other breaches, nor did it offer any reasoning to 

support such a categorical rule.

The same is true of Cal Pak, supra, 52 Cal.App.4th 1, in which the trial court 

disqualified an attorney and disallowed compensation after he proposed to drop 

his clients’ claims in exchange for several million dollars, to be paid directly to the 

attorney. (Id. at pp. 6–8.) The Court of Appeal ruled that the trial court “clearly 

did not abuse its discretion,” at least insofar as it denied compensation for work 

performed after this “colossal misdeed.” (Id. at pp. 16, 13; see also id. at p. 13 

[“here the trial court faced a direct, acknowledged, undisputed and indefensible 

betrayal by counsel of the interests of his client and the putative class”].) In so 

ruling, the court did recite a “general rule in conflict of interest cases that where an 

attorney violates his or her ethical duties to the client, the attorney is not entitled to 

a fee for his or her services” (id. at p. 14), but it also observed that the same cases 

point to the possibility of some fees being recoverable in certain circumstances (id.

at p. 16). The court ultimately upheld the trial court’s ruling in pertinent part 

without relying on any absolute rule denying all compensation for attorneys who 

act under a conflict of interest, no matter the nature and consequences of the 

breach.

14

 

14 Day v. Rosenthal (1985) 170 Cal.App.3d 1125 involved a similarly 

egregious breach of duty. The attorney there had cheated Doris Day and her 

husband out of millions of dollars, while ostensibly representing them as attorney 

and business manager. (Id. at pp. 1133–1134.) The case, as the trial court 

described it, “ ‘ooze[d] with attorney-client conflicts’ ” and “ ‘reek[ed]’ ” of 

violations of the Rules of Professional Conduct. (Id. at pp. 1134, 1135.) After 

reviewing the misconduct in detail, the appellate court rejected the attorney’s 
36

J-M also relies on Goldstein, supra, 46 Cal.App.3d 614, in which an attorney 

had served first as a corporation’s general counsel, then as counsel for a corporate 

director waging a proxy battle for control of the company. The Court of Appeal 

held the latter representation was subject to a conflict of interest, rendering the 

contract for that representation unenforceable. (Id. at pp. 617, 623–624.) The 

court went on to conclude, without any supportive reasoning, that the attorney’s 

firm was barred from any noncontractual recovery for his services: “Technically, 

of course, this action is not brought upon the contract, but is brought for services 

rendered pursuant to the contract. Needless to say, this distinction does not call 

for a different result.” (Id. at p. 624, fn. 11.) Goldstein’s unexamined 

conclusion—needless to say—holds little persuasive value. (Compare Rest.3d 

Law Governing Lawyers, § 37, supra, com. a, p. 271 [noting that even when an 

attorney’s contract is rendered unenforceable by misconduct, the lawyer may in 

some cases recover the fair value of services rendered].)15

 

complaint that the trial court failed to determine the value of his services, 

explaining that the trial court in fact “found that the reasonable value of all his 

services was zero” (id. at p. 1163) and, in any event, “[h]is conflicts of interest 

rendered his services valueless and required no finding on the[ir] reasonable 

value” (id. at p. 1162).

15 The concurring and dissenting opinion (post, at p. 11) notes that Goldstein 

and Jeffry cited this court’s decision in Clark v. Millsap (1926) 197 Cal. 765, 785, 

in which we upheld a trial court’s award of only a partial fee “upon a 

consideration of conflicting evidence which involves the unraveling of 

transactions intermingled with fictitious and fraudulent acts.” We explained that 

“a court may refuse to allow an attorney any sum as an attorney’s fee if his 

relations with his client are tainted with fraud” or other improper acts 

“ ‘inconsistent with the character of the profession.’ ” (Ibid.) Here, the trial court 

has not yet determined whether Sheppard Mullin’s violation of the Rules of 

Professional Conduct constituted fraud or whether it was in other respects so 

inconsistent with the character of the legal profession as to justify complete 

forfeiture of compensation.
37

Finally, J-M relies on Fair v. Bakhtiari, supra, 195 Cal.App.4th 1135 (Fair), 

but Fair is not reasonably read to establish a categorical rule barring all recovery 

in cases of conflict of interest. In Fair, the trial court denied quantum meruit 

recovery to an attorney who had entered into extensive real estate investments 

with a client without giving the client advisements required by the Rules of 

Professional Conduct. (Id. at pp. 1142–1144, 1146.) On appeal, the court 

observed that services burdened by a conflict of interest between attorney and 

client have often been held to be without value. But it explained that “ ‘[w]here 

the entire contract is prohibited by statute or public policy, recovery in quantum 

meruit based on the reasonable value of services performed may or may not be 

allowed.’ ” (Id. at p. 1150.) The Court of Appeal concluded that the trial court 

had not abused its discretion in disallowing quantum meruit recovery under the 

circumstances of the case because the court “could well determine” that the 

attorney’s conduct was “fundamentally at war” with both ethical rules and 

statutory law and that it “infected the entire relationship” between the attorney and 

his clients. (Id. at p. 1169.) 

As Fair itself acknowledged, other California cases have explained that 

quantum meruit recovery may indeed be available in cases of conflict of interest, 

depending on the circumstances. (Fair, supra, 195 Cal.App.4th, at p. 1161.) 

Pringle v. La Chapelle (1999) 73 Cal.App.4th 1000, involved a claim that an 

attorney who represented both a corporation and individuals with interests adverse 

to the corporation failed to obtain valid waivers of the conflict and was therefore 

entitled to no fees for her services to one of the individual clients. (Id. at p. 1005.) 

The appellate court agreed with the individual client that “an attorney’s breach of 

a rule of professional conduct may negate an attorney’s claim for fees,” but noted 

the absence of any cited case holding that it “automatically” does so. (Id. at 

pp. 1005, 1006, italics added.) On the minimal record the client had provided, the 
38

Court of Appeal could not “ascertain if the purported violation of the rules was 

serious, if any act was inconsistent with the character of the profession, or if there 

was an irreconcilable conflict” (id. at p. 1006), and therefore affirmed the 

judgment awarding the attorney her fees. (Id. at p. 1007; see also Mardirossian & 

Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 279 [affirming trial court’s 

award of compensation in quantum meruit on assumption that attorney violated 

rule 3-310 of the Rules of Professional Conduct, where asserted ethical violation 

was not “particularly egregious” and where complaining client had not shown 

prejudice]; Sullivan v. Dorsa (2005) 128 Cal.App.4th 947, 965–966 [whether 

violation of rules on representation of adverse interests was serious enough to 

compel forfeiture of fees is a question primarily for the trial court’s factfinding 

and discretionary judgment].) 

The Court of Appeal also looked for support to this court’s decision in 

Huskinson, supra, 32 Cal.4th 453, but Huskinson does not mandate application of 

a categorical bar on compensation in all cases involving the ethical conflicts rules. 

In Huskinson, two law firms violated the Rules of Professional Conduct by 

agreeing between them to divide the prospective fee in a contingency case without 

obtaining the client’s informed written consent; one firm later sued the other for its 

agreed share of the fee. (Id. at pp. 456–457.) We held that while the plaintiff firm 

could not recover on the contract, which was unenforceable, it could recover the 

reasonable value of its services under a claim for quantum meruit. We reasoned 

that the ethical rule requiring disclosure to the client did not bar either the 

representation or the receipt of compensation. We further reasoned that allowing a 

quantum meruit recovery, which would be smaller than the agreed fee division, 

would not undermine the ethical rule’s policy because attorneys would still have a 

strong incentive to comply in order to receive their full fee. (Id. at pp. 459–460, 

463.)
39

In the portion of Huskinson on which the Court of Appeal relied, we 

distinguished two cases in which courts had disallowed quantum meruit recovery 

to attorneys who committed ethical violations, Jeffry, supra, 67 Cal.App.3d 6, and 

Goldstein, supra, 46 Cal.App.3d 614, explaining that those cases “involved 

violations of a rule that proscribed the very conduct for which compensation was 

sought, i.e., the rule prohibiting attorneys from engaging in conflicting 

representation or accepting professional employment adverse to the interests of a 

client or former client without the written consent of both parties.” (Huskinson, 

supra, 32 Cal.4th at p. 463.) But we had no occasion in Huskinson to consider 

whether an unwaived conflict of interest, standing alone, always requires the 

denial of compensation. The issue was not presented there and so we did not 

decide it.

16

 

16 The concurring and dissenting opinion (post, at pp. 23–24) also invokes 

Thomson v. Call (1985) 38 Cal.3d 633 (Thomson), in which a city council 

member’s sale of real estate to the city was found to have violated Government

Code section 1090’s ban on self-dealing by public employees. We upheld a 

judgment requiring the defendant to return the entire purchase price, even though 

the city was permitted to retain the property. (Thomson, at pp. 646–652.)

Thomson is distinguishable both procedurally and substantively. Whereas 

the superior court there had held a trial and tailored a remedy appropriate to the 

facts and equities (Thomson, supra, 38 Cal.3d at pp. 643–644), here there has been 

no trial and no such opportunity for the superior court to consider the most 

appropriate remedy. And while we noted the trial court’s remedy in that case was

“consistent with a long, clearly established line of cases” denying all recovery for 

transactions made in violation of Government Code section 1090 (Thomson, at 

p. 647), precedent in the area of attorney rule violations points to a more 

fact-dependent inquiry into the egregiousness of the attorney’s ethical violation, its 

effect on the value of the work to the client, and other possible injuries to the 

client. (See, e.g., Cal Pak, supra, 52 Cal.App.4th at pp. 15–16; Rest.3d Law 

Governing Lawyers, supra, § 37.) The difference between these approaches 

reflects a difference in the nature of the conflicts at issue—a Government Code 

section 1090 violation inheres in the very fact of the official’s interest in the 

transaction, and cannot be avoided by full disclosure (Thomson, at pp. 649–650)—
40

The Court of Appeal cases demonstrate that forfeiture of compensation is 

often an appropriate response to conflicted representation. But they do not stand 

for the proposition that quantum meruit recovery for legal services performed 

while the attorney suffers from an unwaived conflict of interest is categorically 

barred, and we do not so hold. We instead hold that the issue is generally one for 

the discretion of the trial court, to be exercised in light of all the circumstances that 

gave rise to the conflict. Once again, the Restatement provides useful guidance: 

“Considerations relevant to the question of forfeiture include the gravity and 

timing of the violation, its willfulness, its effect on the value of the lawyer’s work 

for the client, any other threatened or actual harm to the client, and the adequacy 

of other remedies.” (Rest.3d Law Governing Lawyers, supra, § 37; see also 

Kidney Association of Oregon v. Ferguson, supra, 843 P.2d at p. 477 [factors to be 

considered include the value of services to the client and “ “whether the breach 

was intentional, negligent or without fault’ ”].)

When a law firm seeks fees in quantum meruit that it is unable to recover 

under the contract because it has breached an ethical duty to its client, the burden 

of proof on these or other factors lies with the firm. To be entitled to a measure of 

recovery, the firm must show that the violation was neither willful nor egregious, 

and it must show that its conduct was not so potentially damaging to the client as 

to warrant a complete denial of compensation. And before the trial court may 

award compensation, it must be satisfied that the award does not undermine 

 

as well as a different judgment about the range of remedies that will effectively 

avoid undermining incentives to comply with the relevant rules (see id. at p. 651).

Under these circumstances, we conclude consideration of aggravating and 

mitigating circumstances, such as whether the law firm knowingly violated rule 

3-310(C)(3) and whether the conflict affected the value of its legal work, is more 

appropriate than the “undeniably harsh” categorical rule applied in Thomson. 

(Thomson, at p. 650.)
41

incentives for compliance with the Rules of Professional Conduct. For this reason, 

at least absent exceptional circumstances, the contractual fee will not serve as an 

appropriate measure of quantum meruit recovery. (Huskinson, supra, 32 Cal.4th 

at p. 458, fn. 2, citing Chambers, supra, 29 Cal.4th at p. 162.) Although the law 

firm may be entitled to some compensation for its work, its ethical breach will 

ordinarily require it to relinquish some or all of the profits for which it negotiated.

On remand, Sheppard Mullin may be unable to meet its burden and the trial 

court may find its misconduct so egregious or so potentially harmful to J-M as to 

preclude any award. But without a more robust factual record or any trial court 

findings we are unable to say it would be an abuse of discretion to order Sheppard 

Mullin compensated in some degree for the many thousands of hours of legal 

work it performed on J-M’s behalf before South Tahoe successfully moved to 

have Sheppard Mullin disqualified. Sheppard Mullin’s concurrent representation 

of J-M and South Tahoe in separate matters involved a conflict of interest 

affecting the representation itself, not merely the attorney’s compensation as in 

Huskinson, supra, 32 Cal.4th at page 463. But the firm did seek and obtain J-M’s 

written consent to the conflict, albeit through a blanket waiver clause we hold here 

to be ineffective under the circumstances, and it could properly have represented 

both clients had the consent been properly informed. (Rule 3-310(C)(3).) The law 

firm may have been legitimately confused about whether South Tahoe was J-M’s 

current client when it took on J-M’s defense, or it may in good faith have believed 

the engagement agreement’s blanket waiver provided J-M with sufficient 

information about potential conflicts of interest, there being at the time no explicit 

rule or binding precedent regarding the scope of required disclosure. The conflict 

was, moreover, not one in which Sheppard Mullin represented another client 

against J-M (compare Jeffry, supra, 67 Cal.App.3d at p. 11). And although J-M is 

under no obligation to present evidence that it was injured—the harm resulting 
42

from a violation of the duty of loyalty often being intangible and difficult to 

quantify—at this point, questions as to whether Sheppard Mullin’s conflict may 

have affected the value of its work or led to a loss or default in the qui tam 

litigation have not yet been litigated. 

On the other hand, considering Sheppard Mullin’s actions and reasoning in 

light of the rule set forth in rule 3-310(C)(3), the trial court may conclude that the 

firm has not shown it was legitimately confused or that it acted in good faith. The 

law firm may also be unable to show its conduct caused or threatened no harm or 

only minimal harm to its client. Considering these and other factors, the trial court 

may determine that the policy of rule 3-310(C)(3) is best vindicated by a complete 

forfeiture of compensation. On the limited factual record before us, however, we 

cannot conclude that the existence of an improperly waived conflict of interest, by 

itself, presents an absolute bar to the award of reasonable compensation for 

services rendered.

By leaving open the possibility of quantum meruit compensation for the 

10,000 hours that Sheppard Mullin worked on J-M’s behalf, we in no way 

condone the practice of failing to inform a client of a known, existing conflict of 

interest before asking the client to sign a blanket conflicts waiver. Trust and 

confidence are central to the attorney-client relationship, and maintaining them 

requires an ethical attorney to display all possible candor in his or her disclosure of 

circumstances that may affect the client’s interests. Sheppard Mullin’s failure to 

exhibit the necessary candor in this case has rendered its contract with J-M 

unenforceable and has thus disentitled it to the benefit of the unpaid contract fees 

awarded by the arbitrators in this case. Whether Sheppard Mullin is nevertheless 

entitled to a measure of compensation for its work is, along with the other 

unresolved noncontract issues raised by the pleadings, a matter for the trial court 

to consider in the first instance.
43

V.

We affirm the judgment of the Court of Appeal insofar as it reversed the 

superior court’s judgment entered on the arbitration award. We reverse the 

judgment of the Court of Appeal insofar as it ordered disgorgement of all fees 

collected, and remand for further proceedings consistent with our opinion.

KRUGER, J.

WE CONCUR:

CORRIGAN, J.

LIU, J.

CUÉLLAR, J.

NARES, J.*

 

* Associate Justice of the Court of Appeal, Fourth Appellate District, 

Division One, assigned by the Chief Justice pursuant to article VI, section 6 of the 

California Constitution.
1

CONCURRING AND DISSENTING OPINION BY CHIN, J.

In March 2010, J-M Manufacturing Company, Inc. (J-M), hired Sheppard, 

Mullin, Richter & Hampton, LLP (Sheppard Mullin), to provide legal 

representation in a federal qui tam action in which various public entities were 

suing J-M for over $1 billion in damages. On the day J-M and Sheppard Mullin 

signed the engagement agreement, Sheppard Mullin knew, but failed to disclose, 

that one of the public entities suing J-M in the qui tam action — South Tahoe 

Public Utility District (South Tahoe) — was an existing client of the law firm. 

Nor did Sheppard Mullin disclose this fact during the next year of the qui tam 

litigation, although it actively represented South Tahoe in unrelated matters during 

that time. It finally disclosed the conflict to J-M in April 2011, only after learning 

that South Tahoe, which discovered the conflict on its own, was planning to move 

for Sheppard Mullin’s disqualification in the qui tam action. I agree with the 

majority that the conflict rendered the engagement agreement, including its 

arbitration clause, unenforceable as against public policy. However, I disagree 

with the majority that, notwithstanding the conflict and the agreement’s invalidity, 

Sheppard Mullin may be entitled to recover from J-M in quantum meruit for the 

value of the legal services it provided in the qui tam action. I would instead hold 

that Sheppard Mullin’s failure to disclose its known conflict of interest precludes it 

from any recovery. I dissent insofar as the majority holds otherwise. 
2

FACTUAL AND PROCEDURAL BACKGROUND

In 2006, J-M, a pipe manufacturer, was sued in a federal court qui tam 

action regarding pipe it sold to 200 public entities, including South Tahoe. The 

complaint demanded over $1 billion in damages. On February 5, 2010, South 

Tahoe intervened in the action. 

On February 22, 2010, representatives of J-M — including its general 

counsel, Camilla Eng — met with Sheppard Mullin attorneys Bryan Daly and 

Charles Kreindler about taking over as J-M’s defense counsel in the qui tam 

action. On March 4, 2010, Sheppard Mullin and J-M signed an engagement 

agreement, which included the following general conflict waiver provision: 

“Sheppard . . . has many attorneys and multiple offices. We may currently or in 

the future represent one or more other clients (including current, former, and 

future clients) in matters involving [J-M]. We undertake this engagement on the 

condition that we may represent another client in a matter in which we do not 

represent [J-M], even if the interests of the other client are adverse to [J-M] 

(including appearance on behalf of another client adverse to [J-M] in litigation or 

arbitration) and can also, if necessary, examine or cross-examine [J-M] personnel 

on behalf of that other client in such proceedings or in other proceedings to which 

[J-M] is not a party provided the other matter is not substantially related to our 

representation of [J-M] and in the course of representing [J-M] we have not 

obtained confidential information of [J-M] material to representation of the other 

client. By consenting to this arrangement, [J-M] is waiving our obligation of 

loyalty to it so long as we maintain confidentiality and adhere to the foregoing 

limitations. We seek this consent to allow our Firm to meet the needs of existing 

and future clients, to remain available to those other clients and to render legal 

services with vigor and competence. Also, if an attorney does not continue an 

engagement or must withdraw therefrom, the client may incur delay, prejudice or 

additional cost such as acquainting new counsel with the matter.”
3

According to its general counsel, D. Ronald Ryland, before execution of the 

agreement, Sheppard Mullin ran “a conflicts check” and “identified South 

Tahoe . . . as a client in matters wholly unrelated to J-M.” Specifically, Sheppard 

Mullin attorney Jeffrey Dinkin had periodically represented South Tahoe on 

employment matters since at least 2002, and most recently in November 2009. 

Ryland concluded that “the matters Sheppard Mullin handled for South Tahoe 

were not ‘substantially related’ to the Qui Tam Action,” and that an “advance 

conflict waiver” South Tahoe had signed in 2006 — similar to the one J-M 

signed — therefore “authorized the undertaking of the representation.” In 

Ryland’s opinion, because South Tahoe had signed the advance waiver and J-M 

“was comfortable with, agreed to, and was prepared to sign” a similar waiver, 

“there was nothing to disclose to J-M” and he informed Daly and Kreindler that 

they could “agree to represent J-M in the Qui Tam Action.” Daly agreed that, 

because of South Tahoe’s advance conflict waiver, “there was no conflict” and 

that South Tahoe “presented [no] issue regarding representing J-M in the Qui Tam 

action.” 

Consistent with this view, before J-M executed the engagement agreement, 

Sheppard Mullin did not disclose its representation of South Tahoe. Indeed, 

according to the sworn declaration of Eng, who retained Sheppard Mullin on JM’s behalf, “[d]uring the interview process leading to [Sheppard Mullin’s] 

retention, [Sheppard Mullin] attorneys assured [her] there were no conflicts with 

the firm’s proposed representation in the [qui tam] Action.” Sheppard Mullin has 

not denied this assertion. Daly stated in a sworn declaration that he did not 

“intentionally conceal[] an alleged conflict” from J-M. But, as noted above, he 

also declared that “there was no conflict” and that South Tahoe “presented [no] 

issue regarding representing J-M in the Qui Tam action.” Kreindler stated in a 

sworn declaration only that he “did not learn about any potential issue involving 

South Tahoe” at the time of the retention, adding that Daly “handled the tasks 

associated with J-M’s retention of Sheppard Mullin,” including “running and 
4

evaluating the conflicts check.” Ryland stated in a sworn declaration that he “did 

not ‘conceal’ anything from J-M nor anyone else in connection with [Sheppard 

Mullin’s] retention by J-M.” But, as noted above, he also declared that “there was 

nothing to disclose to J-M.” Sheppard Mullin’s view that there was no conflict 

and nothing to disclose is completely consistent with Eng’s statement that 

Sheppard Mullin attorneys “assured” her “[d]uring the interview process” that 

“there were no conflicts with the firm’s proposed representation in the [qui tam] 

Action.”1

A few weeks after the engagement agreement’s execution, Dinkin again 

began actively working for South Tahoe. During the next year, he billed it for 

about 12 hours of work. Sheppard Mullin did not disclose this fact either to J-M 

or to South Tahoe’s counsel in the qui tam action. In January 2011, South Tahoe’s 

qui tam counsel became aware that Sheppard Mullin was simultaneously 

representing J-M in the qui tam action and South Tahoe in other matters. In a 

letter dated March 4, 2011, asking Sheppard Mullin to explain the situation, South 

Tahoe’s counsel stated that it had learned that Sheppard Mullin “concurrently has 

represented” South Tahoe “for the entire time Sheppard Mullin has been adverse 

to South Tahoe in the [qui tam] action,” and that Sheppard Mullin’s “ongoing 

representation of South Tahoe predate[d] Sheppard Mullin’s representation of” JM “by several years.” In response, Kreindler did not deny these assertions, and 

instead acknowledged that Sheppard Mullin “has been representing South Tahoe 

for many years in connection with general employment matters.” He also cited the 

“conflict waiver” in the “current engagement letter” with South Tahoe, and stated 

that, “in response to” South Tahoe’s March 4 letter, “an ethical wall,” though “not 

required,” had been “erected between” Sheppard Mullin employees “who may be 

 

1 Consistent with this analysis, although Sheppard Mullin’s reply brief offers 

circumstantial reasons for disbelieving Eng’s statement, it conspicuously fails to 

cite anything in the record — including the many declarations its attorneys filed in 

this case — to refute Eng’s statement.
5

involved with the representation of J-M, and those who may be involved with 

general employment matters with South Tahoe.” Unsatisfied with the response, 

on April 11, 2011, South Tahoe’s counsel informed Sheppard Mullin that South 

Tahoe was “contemplating” filing a motion to disqualify Sheppard Mullin from 

the qui tam case, and asked for a “meet and confer discussion” regarding the 

motion. During a subsequent telephone conference on April 19, South Tahoe’s 

counsel reiterated its intention to move for Sheppard Mullin’s disqualification as 

J-M’s counsel.2

Between March 4, when South Tahoe’s counsel first wrote to Sheppard 

Mullin about the conflict, and the April 19 telephone conference, Sheppard Mullin 

did not inform J-M that South Tahoe was questioning Sheppard Mullin’s 

representation of J-M based on a conflict of interest, or that Sheppard Mullin was 

communicating with South Tahoe’s counsel on this issue. It finally did so on 

April 20, informing Eng by email that South Tahoe’s counsel “has threatened to 

file a motion to disqualify Sheppard Mullin because a lawyer in our Santa Barbara 

office gives employment advice to South Tahoe.” Even then, Sheppard Mullin did 

not disclose its March 2010 pre-engagement conflicts check. Eng did not discover 

that information for another two months, when Ryland filed with the court a 

declaration discussing the issue. 

On May 9, 2011, South Tahoe’s counsel moved to disqualify Sheppard 

Mullin as J-M’s counsel. Sheppard Mullin opposed the motion based on South 

 

2 According to South Tahoe’s attorney, Kreindler stated during the April 19 

telephone conference that Sheppard Mullin “had run a conflict check prior to 

accepting the engagement with J-M,” and it “showed South Tahoe to be an 

existing client.” Kreindler maintains he “did not refer to South Tahoe as an 

‘existing’ client,” but explained that Sheppard Mullin “had done some labor work 

for South Tahoe that had concluded by November 2009” and “had done some very 

modest additional labor work for South Tahoe since [Sheppard Mullin] had 

become involved in the Qui Tam Action.” 
6

Tahoe’s execution of the advance conflict waiver. In letters offering to settle the 

dispute — which proposed a $250,000 cash payment and 40 hours of free 

employment related legal work in exchange for South Tahoe’s conflict waiver —

Sheppard Mullin referenced its “long-standing relationship” with South Tahoe, 

noting that it had “been pleased to provide labor advice to [South Tahoe] for the 

last 9 years.” The court ultimately granted the motion, finding that the advance 

waiver was insufficient and that Sheppard Mullin’s representation therefore 

violated rule 3-310(C)(3) of the Rules of Professional Conduct,3 which provides 

that an attorney “shall not, without the informed written consent of each client . . . 

[¶] . . . [¶] . . . [r]epresent a client in a matter and at the same time in a separate 

matter accept as a client a person or entity whose interest in the first matter is 

adverse to the client in the first matter.” 

Sheppard Mullin sued J-M for unpaid fees, asserting it was still owed $1 

million of the $3 million it had billed (for about 10,000 hours of work). J-M filed 

a cross-complaint asserting various claims and requesting disgorgement of fees 

paid and exemplary damages. 

Sheppard moved to compel arbitration under the engagement agreement’s 

arbitration provision. The court granted the motion, rejecting J-M’s claim that 

Sheppard Mullin’s ethical violation rendered the entire agreement, including the 

arbitration clause, illegal and unenforceable. The arbitrators subsequently found 

for Sheppard Mullin, reasoning that any ethical violation was not so serious or 

egregious as to warrant forfeiture and disgorgement of fees. They awarded 

Sheppard Mullin over $1.3 million in fees and interest. On Sheppard Mullin’s 

motion, the superior court confirmed the award, rejecting J-M’s renewed claim 

that the agreement was illegal and unenforceable due to the rules violation. 

 

3 All further unlabeled rule references are to the Rules of Professional 

Conduct.
7

The Court of Appeal reversed, holding: (1) the parties agreed that 

California law would govern any disputes; (2) under California law, a claim that a 

contract is wholly illegal and unenforceable is for a court to decide, 

notwithstanding an arbitration clause; (3) Sheppard Mullin violated rule 3-

310(C)(3); and (4) the violation rendered the engagement agreement 

unenforceable and precluded Sheppard Mullin from recovering any fees, even in 

quantum meruit.

DISCUSSION

Initially, I agree with the majority in the following respects: (1) where 

California law governs, a court may invalidate an arbitration award on the ground 

that the contract containing the parties’ arbitration agreement violates the public 

policy of the state as expressed in the Rules of Professional Conduct; (2) when 

Sheppard Mullin and J-M signed the engagement agreement regarding the qui tam 

action, Sheppard Mullin had an existing attorney-client relationship with South 

Tahoe on unrelated matters; (3) Sheppard Mullin knew of this existing conflict but 

failed to disclose it to J-M; (4) because of the nondisclosure, the waiver J-M 

signed was insufficient to permit Sheppard Mullin to represent J-M 

notwithstanding the existing conflict; (5) the undisclosed conflict violated rule 3-

310(C)(3) and renders the engagement agreement unenforceable in its entirety; 

and (6) because the engagement agreement is unenforceable in its entirety, 

Sheppard Mullin is not entitled to the benefit of the arbitrators’ decision awarding 

it unpaid contractual fees.

However, I disagree with the majority’s holding that Sheppard Mullin may 

pursue recovery in quantum meruit for the value of the services it rendered to J-M. 

Unlike the majority, which “begin[s] by considering” the Restatement Third of the 

Law Governing Lawyers (maj. opn., ante, at p. 32), I begin with our own 

precedent — Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 462 

(Huskinson) — which the majority curiously discusses only as a brief afterthought 

at the end of its opinion (maj. opn., ante, at pp. 38-39). Huskinson involved a fee 
8

dispute, not between a lawyer and client, but between two law firms that had 

entered into a fee-sharing agreement without complying with the ethical rule 

requiring them to obtain the client’s informed written consent to the agreement. 

(Huskinson, at p. 456.) We held that, although the ethical violation precluded the 

agreement’s enforcement, the plaintiff law firm was entitled to quantum meruit 

recovery from the defendant law firm for the reasonable value of the legal services 

it provided to the client. (Ibid.) In reaching this conclusion, “we look[ed] first” to 

whether a quantum meruit award would be contrary to what the violated rule 

“seeks to accomplish,” i.e., prohibiting attorneys from dividing “ ‘a fee for legal 

services’ ” absent the client’s informed consent. (Id. at p. 458.) We held that it 

would not, reasoning that the violated rule “does not purport to restrict attorney 

compensation on any basis other than a division of fees” (ibid.) and that an award 

“based on the reasonable value of” (id. at p. 459) legal services neither 

“constitute[s] a division of fees within the rule’s contemplation” nor is “otherwise 

tied to the specific legal fees [the client] paid” (ibid.). 

We also considered in Huskinson whether permitting quantum meruit 

recovery as between law firms would be “consistent with case law holding or 

otherwise recognizing that attorneys may recover from their clients the reasonable 

value of their legal services when their fee contracts or compensation agreements 

are found to be invalid or unenforceable for other reasons.” (Huskinson, supra, 32 

Cal.4th at p. 461.) We concluded that it would. (Ibid.) Notably, in reaching this 

conclusion, we distinguished two decisions — Jeffry v. Pounds (1977) 67 

Cal.App.3d 6 (Jeffry), and Goldstein v. Lees (1975) 46 Cal.App.3d 614 

(Goldstein) — in which courts disallowed any quantum meruit recovery for an 

ethical rule violation. “Those cases,” we explained, “involved violations of a rule 

that proscribed the very conduct for which compensation was sought, i.e., the rule 

prohibiting attorneys from engaging in conflicting representation or accepting 

professional employment adverse to the interests of a client or former client 

without the written consent of both parties.” (Huskinson, at p. 463.) By contrast, 
9

we reasoned, the violated fee-sharing rule at issue in Huskinson did “not bar the 

services plaintiff rendered on [the client’s] behalf; it simply prohibit[ed] the 

dividing of [the client’s] fees because she was not provided written disclosure of 

the fee-sharing agreement and her written consent was not obtained.” (Ibid.) 

Another factor we considered in Huskinson was whether “[t]he 

Legislature’s regulation of fee agreements between attorneys and clients favor[ed] 

the availability of quantum meruit recovery.” (Huskinson, supra, 32 Cal.4th at p. 

460.) We concluded that it did, explaining that the Legislature, in several statutes 

rendering attorney-client fee agreements voidable absent a signed agreement, had 

specified that if the client voided an agreement for noncompliance, the attorney 

was “ ‘entitled to collect a reasonable fee.’ ” (Ibid., quoting Bus. & Prof. Code, 

§§ 6147, subd. (b), 6148, subd. (c).) “Allowing quantum meruit recovery when 

two law firms negotiate a fee-sharing agreement without complying with [the 

ethics rule’s] written client consent requirement is consistent with the 

Legislature’s policy determination that, even if a particular fee or compensation 

agreement is not in writing or signed by the client, a law firm laboring under such 

an agreement nonetheless deserves reasonable compensation for its services.” 

(Huskinson, at p. 460.) 

Finally, we considered in Huskinson whether allowing recovery in quantum 

meruit would “undermine” or “discourage compliance with” the violated rule. 

(Huskinson, supra, 32 Cal.4th at pp. 459, 460.) We concluded it would not, 

explaining: “Attorneys who negotiate contingent fee-sharing agreements, which 

take into account the risk that the client pays no fee if the client does not prevail in 

his or her case, understandably prefer to receive their negotiated fees rather than 

the typically lesser amounts representing the reasonable value of the work 

performed. Consequently, even if quantum meruit recovery is available when the 

absence of client notification or consent renders a fee-sharing agreement 

unenforceable, such attorneys have no less incentive to comply with rule 2–200.” 

(Id. at p. 460.) 
10

Applying the approach and the factors we set forth in Huskinson, I 

conclude that quantum meruit recovery is unavailable in this case. The answer to 

the “first” question we considered in Huskinson — whether a quantum meruit 

award would be contrary to what the violated rule “seeks to accomplish” 

(Huskinson, supra, 32 Cal.4th at p. 458) — is clearly yes. As here relevant, the 

purpose of rule 3-310 is to preclude attorneys from simultaneously representing 

clients with conflicting interests absent the clients’ informed written consent. 

Because Sheppard Mullin did not get that consent, a quantum meruit award would 

compensate it for legal services that the rule expressly precluded it from 

providing. Indeed, the majority agrees that the conflict resulting from Sheppard 

Mullin’s concurrent representation of J-M and South Tahoe “affect[ed] the 

representation itself, not merely the attorney’s compensation as in Huskinson.” 

(Maj. opn., ante, at p. 41, first italics added.) 

As to whether permitting quantum meruit recovery here would be 

“consistent with case law” (Huskinson, supra, 32 Cal.4th at p. 461), based on the 

very case law we discussed in Huskinson — as well as other case law — I 

conclude that the answer is no. As discussed above, in reaching our conclusion in 

Huskinson, we distinguished Jeffry and Goldstein — which disallowed any 

quantum meruit recovery for an ethical rule violation — on the basis that those 

decisions “involved violations of a rule that proscribed the very conduct for which 

compensation was sought, i.e., the rule prohibiting attorneys from engaging in 

conflicting representation or accepting professional employment adverse to the 

interests of a client or former client without the written consent of both parties.” 

(Huskinson, at p. 463.) The case now before us fits precisely within that 

description: It involves violation of a rule “that proscribed the very conduct for 

which compensation was sought, i.e., the rule prohibiting attorneys from engaging 

in conflicting representation or accepting professional employment adverse to the 

interests of a client or former client without the written consent of both parties.” 

(Ibid.) Again, as the majority explains, the conflict resulting from Sheppard 
11

Mullin’s concurrent representation of J-M and South Tahoe “affect[ed] the 

representation itself, not merely the attorney’s compensation as in Huskinson.” 

(Maj. opn., ante, at p. 41, first italics added.)

The majority declares Jeffry and Goldstein to be unpersuasive. (Maj. opn., 

ante, at pp. 34-36.) Jeffry’s holding, the majority states, “was not surprising” in 

light of the facts — “the law firm had decided to represent the client’s wife in a 

lawsuit against him, without making any effort to obtain his consent” — “[b]ut the 

court did not purport to craft a rule to govern all other breaches, nor did it offer 

any reasoning to support such a categorical rule.” (Maj. opn., ante, at p. 35) Nor, 

the majority asserts, did Goldstein offer any “supportive reasoning” for its 

conclusion that noncontractual recovery was unavailable. (Maj. opn., ante, at p. 

36.)

For several reasons, I disagree with the majority’s analysis. First, the 

majority’s description of the facts in Jeffry is somewhat misleading. The “law 

firm” there did not decide to represent the wife of its existing client in their marital 

dissolution action. (Maj. opn., ante, at p. 34.) One attorney in the firm undertook 

to represent the client’s wife in the dissolution action “without the knowledge of” 

a different attorney who was representing the existing client in a personal injury 

action “and without knowledge of the status of the personal injury litigation.” 

(Jeffry, supra, 67 Cal.App.3d at p. 8.) Indeed, the court remarked that it was “not 

charg[ing] [the attorneys] with dishonest purpose or deliberately unethical 

conduct.” (Id. at p. 11.) Here, of course, when Sheppard Mullin undertook to 

represent J-M, it did know — because it ran a conflicts check — of the existing 

conflict, but made a decision not to disclose it. Second, I disagree that neither 

Jeffry nor Goldstein offers reasoning to support denying recovery in this case. 

Both decisions relied on our statement in Clark v. Millsap (1926) 197 Cal. 765 

(Clark), that “ ‘acts of impropriety inconsistent with the character of the [legal] 

profession, and incompatible with the faithful discharge of its duties’ ” “will 

prevent [an attorney] from recovering for services rendered.” (Id. at p. 785; see 
12

Jeffry, at p. 9; Goldstein, supra, 46 Cal.App.3d at p. 618.) In my view, knowingly 

representing clients with conflicting interests, without disclosing the conflict to 

either client and obtaining the clients’ written consent to the simultaneous 

representation, is an “ ‘act[] of impropriety inconsistent with the character of the 

[legal] profession, and incompatible with the faithful discharge of its duties.’ ” 

(Clark, at p. 785.) Indeed, this is precisely how the appellate courts in Jeffry and 

Goldstein applied Clark’s statement.4 

The key to understanding this application of Clark is the fact that Sheppard 

Mullin’s simultaneous and undisclosed representation of South Tahoe and J-M 

violated “the most fundamental of all duties” that a lawyer owes a client: the 

“duty of loyalty.” (State Compensation Insurance Fund v. Drobot (C.D.Cal. 

2016) 192 F.Supp.3d 1080, 1084 (Drobot).) As we have explained, “[t]he primary 

value at stake in cases of simultaneous or dual representation” — even with 

respect to unrelated matters — “is the attorney’s duty — and the client’s 

legitimate expectation — of loyalty.” (Flatt v. Superior Court (1994) 9 Cal.4th 

275, 284 (Flatt).) This “inviolate” duty (id. at p. 288) is a “fundamental value of 

our legal system” (People ex rel. Dept. of Corporations v. SpeeDee Oil Change 

Systems, Inc. (1999) 20 Cal.4th 1135, 1146 (SpeeDee)). “The effective 

 

4 The majority’s statement that in Clark “we upheld a trial court’s award of 

only a partial fee” (maj. opn., ante, at p. 36, fn. 12) is both inaccurate and 

misleading. It is inaccurate because the fee the trial court awarded in Clark —

$7,500 — was not a “partial” fee (maj. opn., ante, at p. 36, fn. 12); it was the total 

fee that, according to the plaintiff, the parties had agreed upon (Clark, supra, 197 

Cal. at p. 775). In agreeing with the plaintiff and awarding this amount “in full for 

all services performed” (id. at p. 785), the trial court rejected the attorney’s 

contention that a $20,000 promissory note the plaintiff had signed represented “the 

fee that [the attorney] was to receive for professional services,” and the court 

additionally “refused to allow [the attorney] any credit on account of said note on 

the ground that its execution was fraudulently procured and was without 

consideration” (id. at p. 775). The majority’s statement is misleading because we 

upheld the $7,500 award notwithstanding the attorney’s fraudulent acts because 

the plaintiff in Clark “did not object to the allowance of” that sum. (Id. at p. 785.) 

Here, of course, J-M does object to the award of any compensation.
13

functioning of the fiduciary relationship between attorney and client depends on 

the client’s trust and confidence in counsel.” (SpeeDee, at p. 1146.) “A client 

who learns that his or her lawyer is also representing a litigation adversary, even 

with respect to a matter wholly unrelated to the one for which counsel was 

retained, cannot long be expected to sustain the level of confidence and trust in 

counsel that is one of the foundations of the professional relationship. All legal 

technicalities aside, few if any clients would be willing to suffer the prospect of 

their attorney continuing to represent them under such circumstances.” (Flatt, at 

p. 285.) But an attorney’s “duty to maintain undivided loyalty” is vital, not just in 

protecting the client’s trust and confidence in his or her attorney, but more broadly 

in maintaining “public confidence in the legal profession and the judicial process.” 

(SpeeDee, at p. 1146; see Santa Clara County Counsel Attys. Assn. v. Woodside

(1994) 7 Cal.4th 525, 547, fn. 6 [“rationale for” the rule prohibiting attorneys, 

without consent, from accepting employment adverse to a client even in unrelated 

matters is “the maintenance of the attorney’s ‘duty of undivided loyalty,’ without 

which ‘ “public confidence in the legal profession and the judicial process” is 

undermined’ ”].) For these reasons, “in all but a few instances, the rule of 

disqualification in simultaneous representation cases is a per se or ‘automatic’ 

one” (Flatt, at p. 284), “regardless of whether the simultaneous representations 

have anything in common or present any risk that confidences obtained in one 

matter would be used in the other” (SpeeDee, at p. 1147.) This rule, which is 

“analogous to the biblical injunction against ‘serving two masters’ ” (Flatt, at p. 

286), “protect[s] clients’ legitimate expectations of loyalty [in order] to preserve 

this essential basis for trust and security in the attorney-client relationship” 

(SpeeDee, at p. 1147). 

Of course, because “[t]he principle of loyalty is for the client’s benefit,” an 

attorney may simultaneously represent clients “whose interests are adverse as to 

unrelated matters provided full disclosure is made and both agree in writing to 

waive the conflict.” (Flatt, supra, 9 Cal.4th at p. 285, fn. 4, second italics added.) 
14

However, given the vital and fundamental role of the duty of loyalty in our legal 

system — including maintaining “public confidence in the legal profession and the 

judicial process” (SpeeDee, supra, 20 Cal.4th at p. 1146) — where, as here, full 

disclosure is not made and informed consent is not obtained, knowingly 

representing clients with conflicting interests constitutes an “ ‘act[] of impropriety 

inconsistent with the character of the [legal] profession, and incompatible with the 

faithful discharge of its duties,’ ” so as to “ ‘prevent [the attorney] from 

recovering for services rendered.’ ” (Clark, supra, 197 Cal. at p. 785.) The 

majority fails to explain how it concludes otherwise. 

Finally, the majority’s treatment of Jeffry and Goldstein is difficult to 

square with our treatment of those decisions in Huskinson. There, we could have 

limited and criticized Jeffry and Goldstein as the majority attempts to do so here. 

Instead, we attributed their denial of quantum meruit recovery to a common factor 

that was absent in decisions that allowed quantum meruit recovery: “violations of 

a rule that proscribed the very conduct for which compensation was sought, i.e., 

the rule prohibiting attorneys from engaging in conflicting representation or 

accepting professional employment adverse to the interests of a client or former 

client without the written consent of both parties.” (Huskinson, supra, 32 Cal.4th 

at p. 463.) It is of course true, as the majority asserts, that “we did not decide” in 

Huskinson that an unwaived conflict of interest, standing alone, always requires 

the denial of compensation. (Maj. opn., ante, at p. 39.) Had we done so, the 

present case would surely not be before us. However, our discussion in Huskinson 

of Jeffry and Goldstein was important to our analysis, and the majority errs by 

cavalierly casting it aside simply because the issue now before us “was not 

presented” in that case. (Maj. opn., ante, at p. 39.) The majority’s summary 

treatment of our discussion ignores the fact that our description in Huskinson of 

the common factor that explained the denial of all recovery in Jeffry and 

Goldstein — “violations of a rule that proscribed the very conduct for which 

compensation was sought, i.e., the rule prohibiting attorneys from engaging in 
15

conflicting representation or accepting professional employment adverse to the 

interests of a client or former client without the written consent of both parties” 

(Huskinson, at p. 463) — is completely in line with the starting point of our 

analysis in Huskinson: whether a quantum meruit award would be contrary to 

what the violated rule “seeks to accomplish.” (Id. at p. 458.)

Notably, our appellate courts have read Huskinson precisely as I do. In 

Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1141, an attorney violated the 

Rules of Professional Conduct by entering into business relationships with clients 

without complying with written disclosure and consent requirements. The trial 

court concluded that the violation precluded the attorney from recovering the 

reasonable value of the services he had provided, even though the transaction had 

been “very successful.” (Ibid.) In affirming, the Court of Appeal relied heavily 

on Huskinson, explaining: “[W]e read Huskinson . . . as recognizing a distinction 

between the type of violations that may render an agreement voidable, but still 

allow the attorney compensation for the reasonable value of his or her services, 

and the type of violation that precludes such recovery: Attorneys who violate a 

rule of professional conduct may recover in quantum meruit where they do not act 

in violation of an express statutory prohibition when providing legal services and 

where the subject services are not otherwise prohibited. [Citation.] On the other 

hand, violation of a rule that constitutes a serious breach of fiduciary duty, such as 

a conflict of interest that goes to the heart of the attorney-client relationship, 

warrants denial of quantum meruit recovery.” (Fair, at p. 1161, second italics 

added.) 

Still other California case law supports the conclusion that Sheppard 

Mullin’s ethical violation precludes it from seeking quantum meruit recovery. In 

A.I. Credit Corp., Inc. v. Aguilar & Sebastinelli (2003) 113 Cal.App.4th 1072, 

1075, a law firm pursuing a collection matter against a former client was 

disqualified under rule 3-310(E) because it failed to obtain the former client’s 

informed written consent to the conflicting representation. The law firm’s client 
16

in the collection matter sued for a declaration that, because of the disqualification, 

it owed the law firm nothing for its legal services. (A.I. Credit Corp., at p. 1076.) 

The law firm filed an answer raising the defense of quantum meruit. (Ibid.) The 

trial court granted summary judgment to the client, ruling that the law firm was 

not entitled to compensation. (Ibid.) The Court of Appeal affirmed, citing “[t]he 

general rule . . . that an attorney disqualified for violating an ethical obligation is 

not entitled to fees.” (Id. at p. 1079.) The court rejected the law firm’s argument 

that recovery should be allowed because it had committed only “a minor technical 

[rules] violation . . . due to its failure to obtain a waiver,” explaining: “The trial 

court determined that there was a disqualifying violation of ethical obligations. 

Consequently, . . . there is no genuine issue of material fact in this regard 

precluding summary judgment.” (Ibid.)

By contrast, none of the case law the majority cites truly supports its 

conclusion that Sheppard Mullin may be entitled to quantum meruit recovery in 

this case. The majority principally relies on Pringle v. La Chapelle (1999) 73 

Cal.App.4th 1000 (Pringle) (maj. opn., ante, at p. 37), but that case did not even 

involve quantum meruit recovery or a proven violation of the ethical rules; it 

involved recovery on the contract itself based on a jury finding of no ethical 

violation. In Pringle, an attorney who had simultaneously represented a 

corporation, its president, and its CEO as codefendants in a harassment action filed 

a complaint seeking money owed “pursuant to written fee agreements.” (Pringle,

at p. 1002.) One of the agreements contained a lengthy discussion of the potential 

conflicts of interest arising from an attorney’s simultaneous representation of 

multiple parties and advised the defendants to consult with independent counsel 

before signing a waiver. (Ibid.) The CEO executed the waiver and agreement on 

his own behalf and on behalf of the corporation. (Id. at p. 1003.) On this record, 

the jury “returned a general verdict” for the attorney, finding in a special verdict 

that the CEO “had given informed written consent to allow [the attorney] to 

represent more than one client.” (Ibid.) In seeking to overturn the verdict on 
17

appeal, the CEO asserted that the attorney had violated the ethical rule requiring a 

corporation’s conflict waiver to be signed by someone who is not also being 

individually represented by the same attorney. (Id. at p. 1005.) The appellate 

court affirmed the jury’s verdict, stating: “We have no evidence [in the record 

before us] which would enable us to ascertain if there was conflicting evidence on 

whether [the attorney] violated the Rules of Professional Conduct. We do not 

know if the corporation, in some way other than the two fee agreements, 

consented to the representation.” (Ibid.) In short, there was no proven rule 

violation in Pringle, and no attempt to recover in quantum meruit.

In dictum, the court in Pringle went on to discuss the CEO’s argument that 

“an attorney’s breach of a rule of professional conduct may negate an attorney’s 

claim for fees.” (Pringle, supra, 73 Cal.App.4th at p. 1005.) The court observed 

that the CEO had “not cited a case standing for the proposition that a violation of a 

rule of professional conduct automatically precludes an attorney from obtaining 

fees.” (Id. at pp. 1005-1006.) Of course, the issue here is not whether any 

violation of any of the Rules of Professional Conduct automatically precludes 

recovery. Certainly, Huskinson refutes that proposition. The issue here is whether 

such recovery is barred by the violation of one particular rule — the rule that 

absolutely precludes attorneys from simultaneously representing clients with 

conflicting interests absent full disclosure of the conflict and consent, in order to 

preserve “the most fundamental of all duties a lawyer owes a client”: the duty of 

loyalty. (Drobot, supra, 192 F.Supp.3d at p. 1084.) The Pringle court also noted 

that the simultaneous representation presented a “potential” conflict of interest, 

that it did “not know if the interests of [the CEO] and [the corporation actually] 

diverged,” and that it therefore could not “ascertain if the purported rule violation 

by [the attorney] was incompatible with the faithful discharge of her duties.” 

(Pringle, at pp. 1006, 1007.) Here, of course, there was an actual conflict of 

interest, because one of Sheppard Mullin’s existing clients was suing another of its 

existing clients. Thus, as explained above, we can “ascertain” that Sheppard 
18

Mullin’s proven rule violation “was incompatible with the faithful discharge of 

[its] duties.” (Id. at p. 1007.) For these reasons, Pringle does not support the 

majority’s view that Sheppard Mullin may pursue quantum meruit recovery 

notwithstanding its violation of rule 3-310.

For many similar reasons — and some additional ones — nor does 

Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257 

(Mardirossian), which the majority also cites. (Maj. opn., ante, at p. 38.) In 

Mardirossian, a law firm that had filed an action on behalf of two clients — Ersoff 

and Leonard — was fired by Ersoff shortly before he settled his claim. 

(Mardirossian, at pp. 261-263.) Thus, like Pringle, it involved counsel that was 

simultaneously representing several clients on the same side in a single a case. 

Also like Pringle, Mardirossian involved, not an actual conflict of interest, but “at 

most, a potential conflict of interest between” the simultaneously represented 

clients. (Mardirossian, at p. 264.) As in Pringle, in Mardirossian, the trier of fact 

found that the written waiver each client had signed — which expressly stated that 

a conflict might exist with the other identified client and acknowledged the 

opportunity to consult with separate counsel concerning the issue — “was 

sufficient and valid.” (Mardirossian, at p. 264.) In affirming the trial court’s 

decision, the Court of Appeal did not disagree with this finding, but took an 

alternative course. Citing Pringle, the court first stated that whether “the breach of 

a rule of professional conduct . . . warrant[s] a forfeiture of fees . . . depends on the 

egregiousness of the violation.” (Mardirossian, at p. 278.) It then held that, even 

if, as Ersoff contended, the waiver was insufficient because it “did not detail the 

conflicts at issue,” “Ersoff ha[d] not shown the violation was particularly 

egregious or that he was in any way prejudiced by it. Under the circumstances, we 

cannot say the trial court abused its discretion in concluding it would be 

inequitable and an ‘an unjust enrichment’ if Ersoff’s attorney fee obligation were 

to be excused ” (Id. at p. 279.) The circumstances to which the court was 

referring were the following: After the law firm filed a complaint, worked on the 
19

case for seven months, and prepared for depositions and a mediation, Ersoff fired 

the firm and hired a new one in which his wife was a partner. (Id. at p. 263.) Nine 

days later, Ersoff settled the case, with the defendants agreeing to pay him $3.7 

million. (Ibid.) Leonard had “participat[ed] in the action to assist Ersoff.” (Id. at 

p. 262.) Because Mardirossian involved (1) an assumed violation of a different 

rule, (2) “at most,” only “a potential conflict of interest between” simultaneously 

represented clients on the same side of a single lawsuit (id. at p. 264), and (3) an 

attorney who was fired by the client and replaced by the client’s wife’s law firm 

about a week before a very lucrative settlement was reached (ibid.), it does not 

support the majority’s conclusion that Sheppard Mullin may pursue quantum 

meruit recovery notwithstanding its knowing representation of actually conflicting 

interests without full disclosure and consent, which resulted in its disqualification 

by South Tahoe, not its firing by its client, J-M.

The last decision the majority cites — Sullivan v. Dorsa (2005) 128 

Cal.App.4th 947 (Sullivan) — is even more far afield. That case did not involve a 

request for quantum meruit recovery; it involved the request of a referee in a 

property partition proceeding for an award of fees to the law firm he had hired to 

provide him with legal services in connection with that proceeding. (Sullivan, at 

pp. 950-953.) Nor did it even involve a payment dispute between an attorney and 

client. The client — the referee — was in favor of the award; it was the owners of 

the property, who were not “clients” of the law firm, who opposed the award. (Id.

at p. 964.) They objected to the fee request to the extent it included services the 

law firm provided after negotiations began with a prospective purchaser with 

whom the law firm had an existing legal relationship. (Id. at pp. 963-964.) In 

rejecting this claim, the court focused first on the owners’ lack of “standing” — as 

nonclients — “to protest the alleged representation of adverse interests.” (Id. at p. 

964.) 

The Sullivan court, after discussing and quoting Pringle at length, then 

added that the owners had “fail[ed] to show that any violation of the rules 
20

governing representation of adverse interests was serious enough to compel a 

forfeiture of fees.” (Sullivan, supra, 128 Cal.App.4th at p. 965.) In this regard, 

the court failed to appreciate that Pringle’s discussion was dicta and that Pringle 

involved only a potential conflict of interest between multiple clients on the same 

side in a single case. The court also offered no detailed discussion of the facts, 

noting instead that the owners had failed to “cit[e] pertinent portions of the record” 

(Sullivan, at p. 964) to establish the “misconduct” they had “alleged” the law firm 

committed (id. at p. 965). Thus, the court did not discuss whether a law firm’s 

simultaneous and knowing representation of clients whose interests are actually 

“adverse” (rule 3-310(C)(3)), without disclosing the conflict, necessarily is 

“inconsistent with the character of the [legal] profession,” “incompatible with the 

faithful discharge of the attorney’s duties,” and a “ ‘serious violation of the 

attorney’s responsibilities.’ ” (Sullivan, at p. 965.) “[R]epresentations marred by 

actual conflicts of interest exude the egregious and readily apparent divided 

loyalty of counsel.” (Commonwealth v. Cousin (Mass. 2018) 88 N.E.3d 822, 831.) 

For these reasons, Sullivan does not support the majority’s conclusion that 

Sheppard Mullin may, at “the discretion of the trial court,” be entitled to quantum 

meruit recovery.5 (Maj. opn., ante, at p. 40.)

 

5 The majority’s reliance on Pringle, Mardirossian, and Sullivan is 

problematic for an additional and important reason: all three are contrary to the 

majority’s analysis insofar as they place the burden on the client to defeat recovery 

by showing that the ethical violation was serious and caused harm. (Pringle, 

supra, 73 Cal.App.4th at pp. 1006, 1007 [“On the record [the client] presented, we 

cannot ascertain if the purported violation of the rules was serious, if any act was 

inconsistent with the character of the profession,” or if the attorney “had obtained 

or would expect to obtain confidential information which might have been harmful 

to one client, but helpful to another”]; Mardirossian, supra, 153 Cal.App.4th at p. 

279 [client “has not shown the violation was particularly egregious or that he was 

in any way prejudiced by it”]; Sullivan, supra, 128 Cal.App.4th at p. 965 [clients 

“fail to show that any violation of the rules governing representation of adverse 

interests was serious enough to compel a forfeiture”].) The majority places the 
21

Returning to Huskinson, another factor we cited there in holding that 

quantum meruit recovery was permissible is lacking in this case: a “policy 

determination” of the Legislature, expressed through statutes, “favor[ing] the 

availability of quantum meruit recovery” under the circumstances. (Huskinson, 

supra, 32 Cal.4th at p. 460.) As explained above, in holding in Huskinson that 

quantum meruit recovery is available when law firms violate ethical disclosure 

and consent requirements regarding fee-sharing agreements, we relied in part on 

the fact that two statutes regulating fee agreements “specif[y]” that, where a client 

voids an agreement for noncompliance, “the attorney remains ‘entitled to collect a 

reasonable fee.’ ” (Huskinson, at p. 460.) I am aware of no statute — and neither 

Sheppard Mullin nor the majority cites one — reflecting a legislative policy 

determination that attorneys are entitled to a reasonable fee — or any other 

compensation — when they violate their duty of loyalty by undertaking to 

represent a client without disclosing a known and existing conflict with another 

client and obtaining both clients’ informed consent to the simultaneous 

representation.

Finally, the last factor we discussed in Huskinson — “whether allowing 

recovery in quantum meruit would undermine compliance with” the violated 

ethics rule (Huskinson, supra, 32 Cal.4th at p. 459) — supports denying quantum 

meruit in this case. In Huskinson, we emphasized that the ethics rule violated 

there did not bar the law firm that was seeking recovery from working on the case 

or rendering services “on [the client’s] behalf; it simply prohibit[ed] the dividing 

of [the client’s] fees because she was not provided written disclosure of the feesharing agreement and her written consent was not obtained.” (Id. at p. 463.) By 

contrast, in this case, the violated rule did preclude Sheppard Mullin from 

rendering services to J-M absent its informed consent. Thus, the risk Sheppard 

 

burden on Sheppard Mullin to prove that its ethical violation “was neither willful 

nor egregious” and “was not so potentially damaging to the client as to warrant a 

complete denial of compensation.” (Maj. opn., ante, at p. 40.) 
22

Mullin faced if it disclosed to J-M that it was representing one of the entities suing 

J-M in the qui tam action was that J-M would decline to hire Sheppard Mullin and 

Sheppard Mullin would lose the representation in its entirety. Indeed, one must 

wonder why, other than that risk, Sheppard Mullin made a conscious decision after 

its conflicts check “identified” South Tahoe “as a client,” not to disclose the 

representation to J-M and to instead deal with this situation through a generalized 

conflicts waiver that only referenced the possibility Sheppard Mullin “may

currently . . . represent one or more other clients . . . in matters involving” J-M. 

(Italics added.) 

Moreover, in “assum[ing]” in Huskinson that the law firm seeking recovery 

would “remain fully motivated to” comply with the ethical rule on fee-sharing 

agreements even if it obtained a quantum meruit award, we focused on the fact 

that a “contingent fee-sharing agreement[]” was at issue, such that “the negotiated 

fee” the law firm would lose if the fee-sharing agreement were not enforced “far 

exceed[ed] the amount of quantum meruit recovery,” i.e., “the reasonable value of 

the work performed.” (Huskinson, supra, 32 Cal.4th at p. 460.) No such all-ornothing contingent fee agreement is at issue here, and it is likely that the disparity 

between the contractual fees and “the value of the services [Sheppard Mullin] 

rendered to” J-M (maj. opn., ante, at p. 2) is considerably less than the disparity 

that was at issue in Huskinson. “Because the [contractual] fee [likely does not] far 

exceed[] the amount of quantum meruit recovery, we may logically assume that” 

law firms facing the loss of a lucrative representation because of a known and 

existing conflict will not “remain fully motivated to comply with” rule 3-310(C) 

(Huskinson, at p. 460) if, as the majority holds, they may recover in quantum 

meruit “the value of the services [they] rendered” notwithstanding their decision 

not to disclose the conflict (maj. opn., ante, at p. 2).

In this regard, our decision in Thomson v. Call (1985) 38 Cal.3d 633 

(Thomson) is instructive. There, the defendant — a member of the Albany City 

Council — sold land to the city for $258,000, thus violating a conflict of interest
23

statute that prohibited government employees from “ ‘be[ing] financially 

interested in any contract made by them in their official capacity, or by any body 

or board of which they are members.’ ” (Id. at p. 637, 638, fn. 2.) We held that 

the contract was void and unenforceable, that the city could keep the property, and

that the defendant could not recover either on the contract or in quantum meruit, 

even though he had not committed fraud and had, in fact, relied on advice from the 

city attorney. (Id. at p. 646-652.) We considered, and rejected, several remedies 

“less severe than” complete forfeiture. (Id. at p. 651.) Allowing the defendant to 

recover “the fair market value of the land,” we explained, would present a “serious 

problem,” in that it would “provide[] only a weak incentive for public officials to 

avoid [conflicts of interest]. If they enter into such arrangements and ‘get caught’ 

in the . . . violation, this remedy would leave them as well off as they were prior to 

the transaction; if the violation goes unnoticed or unchallenged, they would profit 

from the deal.” (Ibid.) Allowing such recovery would also be contrary to the 

conflict of interest statute’s “prophylactic function,” which was not to prevent 

“undue profit,” but “to prevent conflicts of interest from occurring.” (Id. at p. 

652.) Allowing recovery of the amount the defendant originally paid for the land, 

although “provid[ing] some incentive for officials to avoid conflict-of-interest 

situations,” would “also impl[y] that undue profit and loss to the city,” rather than 

the prevention of conflicts, “are the primary concerns” of the statute. (Ibid.) On 

the other hand, we explained, complete forfeiture “provides a strong disincentive 

for those officers who might be tempted to take personal advantage of their public 

offices” (id. at p. 650), and “provides public officials with a strong incentive to 

avoid conflict-of-interest situations scrupulously” (ibid.). It also would 

“effectively implement[] the conflict-of-interest statutes’ strict public policy 

goals.” (Id. at p. 651.) 

Similar considerations warrant complete forfeiture in this case. Allowing 

attorneys who fail to disclose known conflicts of interest to “recover[] the value of 

the services [they] rendered to” their clients (maj. opn., ante, at p. 2) would 
24

“provide[] only a weak incentive for” attorneys to comply with rule 3-310(C) 

(Thomson, supra, 38 Cal.3d at p. 651). If they undertake a representation without 

disclosing a conflict, “and ‘get caught’ in the . . . violation, this remedy would 

leave them [better] off [than] they were prior to the transaction; [and] if the 

violation goes unnoticed or unchallenged, they [may] profit” even more. (Ibid.)

Allowing such recovery would also be contrary to rule 3-310(C)’s 

prophylactic function, which is to “protect[] the integrity of the attorney-client 

relationship,” not to address “specific acts of disloyalty or diminution of the 

quality of the attorney’s representation.” (Forrest v. Baeza (1997) 58 Cal.App.4th 

65, 74.) As discussed above, because of the duty of loyalty’s vital and 

fundamental role in our legal system, “in all but a few instances, the rule of 

disqualification in simultaneous representation cases is a per se or ‘automatic’ 

one” (Flatt, supra, 9 Cal.4th at p. 284), “regardless of whether the simultaneous 

representations have anything in common or present any risk that confidences 

obtained in one matter would be used in the other” (SpeeDee, supra, 20 Cal.4th at 

p. 1147). This rule “is designed not alone to prevent the dishonest practitioner 

from fraudulent conduct, but as well to preclude . . . honest practitioner[s] from 

putting [themselves] in a position where [they] may be required to choose between 

conflicting duties, or be led to an attempt to reconcile conflicting interests, rather 

than to enforce to their full extent the rights of the interest which [they] should 

alone represent.” (Anderson v. Eaton (1930) 211 Cal. 113, 116 (Anderson).) 

Indeed, we have observed that these types of conflicts may “unconsciously” affect 

the decisionmaking even of attorneys “in good faith intending to discharge” their 

duty of loyalty to their clients. (Id. at p. 117.) “Conscience and good morals 

dictate that . . . attorney[s] should not so conduct [themselves] as to be open to the 

temptation of violating [their] obligation of fidelity and confidence.” (Ibid.) 

Because “[t]he principle of loyalty is for the client’s benefit,” an attorney may 

simultaneously represent clients “whose interests are adverse as to unrelated 

matters provided full disclosure is made and both agree in writing to waive the 
25

conflict.” (Flatt, at p. 285, fn. 4.) However, where, as here, full disclosure is not 

made and informed consent is not obtained, allowing quantum meruit recovery 

would be contrary to rule 3-310(C)’s prophylactic function, which is to prevent 

attorneys even “from putting [themselves] in a position” (Anderson, at p. 116) that 

may “tempt[]” them to violate their “obligation of fidelity” (id. at p. 117).

The majority finds Thomson unhelpful and uninstructive, but the majority’s 

reasons are unconvincing. The majority first emphasizes that the trial court in 

Thomson, in denying all compensation, “held a trial and tailored a remedy 

appropriate to the facts and equities.” (Maj. opn., ante, at p. 39, fn. 16.) However, 

as the majority later recognizes, there was “ ‘a long, clearly established line of 

cases’ denying all recovery for” the kind of violation at issue in Thomson. (Maj. 

opn., ante, at p. 39, fn. 16.) As I have shown, there is also a line of cases denying 

all recovery for the kind of violation that Sheppard Mullin committed. Moreover, 

the majority overlooks the fact that in Thomson, notwithstanding the trial court’s 

conclusion, we independently “considered the possibility of” imposing “less 

severe” penalties (Thomson, supra, 38 Cal.3d at p. 651), and we found those 

alternative penalties wanting because they lacked adequate deterrent impact and 

would poorly serve the prophylactic function of the conflict of interest statute 

there at issue (id. at pp. 651-652). The majority offers no explanation or 

justification for its “different judgment about the range of remedies that will 

effectively avoid undermining incentives to comply with” the rule at issue here. 

(Maj. opn., ante, at p. 40, fn. 16.) 

In fact, the majority offers no real discussion of deterrence at all. Instead, 

without analysis, it simply directs trial courts to make case-by-case determinations 

of whether a quantum meruit award would, under the circumstances, “undermine 

incentives for compliance with the Rules of Professional Conduct.” (Maj. opn., 

ante, at pp. 40-41.) The majority cites no authority for this novel approach. 

Certainly, nothing in Huskinson or in Thomson, where we addressed the issue 

ourselves, suggests that trial courts should make such a case-by-case inquiry. Nor 
26

does the majority explain how trial courts are to make such case-by-case 

determinations. What factors should they consider? Is this part of the “the burden 

of proof” that the majority places on attorneys seeking quantum meruit recovery? 

(Maj. opn., ante, at p. 40.) If so, what constitutes evidence regarding the adequacy 

of the motivation to comply? Must the evidence address the effect of quantum 

meruit recovery on the motivation to comply, not just of the attorney seeking 

compensation in the case, but, as we discussed in Huskinson, of “all other 

similarly situated law firms and attorneys”? (Huskinson, supra, 32 Cal.4th at p. 

460.) Again, how is a court supposed to determine this larger issue? Because the 

majority offers no standards to guide the inquiry, is a trial court’s determination 

reviewable, or is it effectively standardless and unreviewable? If it is reviewable, 

then what standard of review applies? The majority offers no guidance on any of 

these questions.

Another consideration supporting my conclusion is one that J-M vigorously 

puts forth but that the majority barely acknowledges: the difficulty in determining 

whether the undisclosed conflict caused injury. J-M asserts that “it is 

extraordinarily difficult” — indeed “practically impossible” — “to prove that an 

attorney pulled punches due to divided loyalty,” and that “a conflict can cause an 

attorney to compromise the client's case in myriad subtle ways that are, by their 

nature, almost impossible to assess.” The United States Supreme Court made this 

similar observation in a case involving simultaneous representation of criminal 

defendants: “[A] rule requiring a defendant to show that a conflict of interests . . . 

prejudiced him in some specific fashion would not be susceptible of intelligent, 

even-handed application. . . . [I]n a case of joint representation of conflicting 

interests the evil . . . is in what the advocate finds himself compelled to refrain

from doing . . . . [T]o assess the impact of a conflict of interests on the attorney's 

options, tactics, and decisions in plea negotiations would be virtually impossible. 

Thus, an inquiry into a claim of harmless error here would require . . . unguided 

speculation.” (Holloway v. Arkansas (1978) 435 U.S. 475, 490-491 (Holloway).) 
27

J-M’s assertions and the high court’s discussion are fully consistent with 

our own recognition in Anderson, supra, 211 Cal. at page 117, that simultaneous 

representation may “unconsciously” affect the decisionmaking of even wellintentioned attorneys. There, we expressed concern that the conflict created by an 

attorney’s dual representation of clients “might have unconsciously caused [the 

attorney] to accept an offer of compromise or settlement of [the client’s] claim” —

rather than “sue . . . for a large sum of money, as he had previously intimated . . . 

he would do” — so as not to harm the interest of another client. (Id. at pp. 117-

118.) Here, during discussions leading up to the engagement agreement, Sheppard 

Mullin told J-M that one of its “goal[s]” as defense counsel would be “to stop the 

‘free ride’ by small municipalities, and to force them to spend time and resources 

to substantiate their claim.” Did Sheppard Mullin’s follow through on this 

strategy as to South Tahoe, notwithstanding its ongoing attorney-client 

relationship with that entity? Did it take action “to force” South Tahoe — its 

client in other matters — “to spend time and resources to substantiate [its] claim” 

against J-M in the qui tam action? An inquiry into this question, and more broadly 

into whether Sheppard Mullin’s simultaneous representation of J-M and South 

Tahoe harmed J-M, would require “unguided speculation.” (Holloway, supra, 435 

U.S. at p. 491.)

The majority says virtually nothing about this issue or J-M’s arguments, 

only briefly acknowledging as an aside that “the harm resulting from a violation of 

the duty of loyalty [is] often . . . intangible and difficult to quantify.” (Maj. opn., 

ante, at p. 42.) Even worse, the majority ignores its own recognition of this 

common difficulty and holds that the parties now must “litigat[e]” the question 

whether the undisclosed conflict “affected the value of [Sheppard Mullin’s] 

work.” (Maj. opn., ante, at p. 42.) And the majority imposes this requirement 

without considering how extensive the additional litigation surely will be, 

including discovery battles with J-M seeking interrogatory responses and 

deposition testimony from Sheppard Mullin attorneys regarding litigation tactics 
28

and decisionmaking. Nor does the majority discuss whether Sheppard Mullin will 

be responsible for J-M’s costs in litigating these issues, which resulted solely from 

Sheppard Mullin’s decision not to disclose its relationship to South Tahoe. Rather 

than spawn more subsidiary litigation and raise a host of unanswered questions by 

allowing for quantum meruit recovery, we should hold that such recovery is 

unavailable under the circumstances of this case.

Finally, the other considerations the majority cites do not justify its 

conclusion that quantum meruit recovery may be available. The majority 

emphasizes that Sheppard Mullin performed “many thousands of hours of legal 

work” before its disqualification. (Maj. opn., ante, at p. 41.) Of course, Sheppard 

Mullin is solely responsible for that circumstance, because it consciously decided 

not to disclose the conflict and was disqualified by South Tahoe when the facts 

later came to light. The majority asserts that Sheppard Mullin “did seek and 

obtain J-M’s written consent to the conflict.” (Ibid.) However, as the majority 

correctly holds, because Sheppard Mullin did not disclose the existing conflict, it 

neither sought nor obtained a valid and effective waiver. The majority also asserts 

that Sheppard Mullin “may have been legitimately confused about whether South 

Tahoe was [a] current client when it took on J-M’s defense.” (Ibid.) However, 

there is no evidence in the record that Sheppard Mullin thought South Tahoe was 

only a former client. There is, however, undisputed evidence — the sworn 

declaration of its general counsel, D. Ronald Ryland — that before execution of 

the retention agreement, Sheppard Mullin ran “a conflicts check” and “identified 

South Tahoe . . . as a client in matters wholly unrelated to J-M.” According to 

other undisputed evidence, Sheppard Mullin simply concluded that, because of the 

waiver South Tahoe had signed, “there was nothing to disclose to J-M” and “there 

was no conflict” that “presented any issue regarding representing J-M in the Qui 

Tam action.” The majority also asserts that Sheppard Mullin “may in good faith 

have believed the engagement agreement’s blanket waiver provided J-M with 

sufficient information about potential conflicts of interest.” (Ibid.) However, such 
29

a finding would seem to be inconsistent with (1) the majority’s no-nonsense and 

unqualified declaration that, “[s]imply put, withholding available information 

about a known, existing conflict is not consistent with informed consent” (id. at p. 

28, fn. omitted), (2) the majority’s conclusion that “at the time [it] agreed to 

represent J-M,” Sheppard Mullin “knew” it “represented a client with conflicting 

interests, South Tahoe” (id. at p. 20), and (3) the majority’s statement that even 

the case law on which Sheppard Mullin now relies “was clear” that disclosure of 

conflicts “ ‘known to an attorney at the time he seeks a waiver’ ” is mandatory 

“ ‘regardless of whether the client is sophisticated’ ” (id. at p. 27). 

I disagree with the majority that, notwithstanding these considerations, we 

need a trial court to determine whether Sheppard Mullin’s good faith is established 

by the absence “at the time” J-M retained Sheppard Mullin of an “explicit rule or 

binding precedent” (maj. opn., ante, at p. 42) that affirmatively and definitively 

precluded Sheppard Mullin from “withholding available information about [the] 

known, existing conflict” (id. at p. 28). Procedurally, it requires no factual 

development or credibility determination to decide whether the mere absence of 

such legal authority establishes good faith, so we are in as good a position as the 

trial court to decide that issue and need not commit this determination to the trial 

court’s discretion. Substantively, I conclude that the mere absence of such legal 

authority cannot justify a finding that, because Sheppard Mullin had a “good faith” 

belief (id. at p. 41) it could “withhold[] available information about [the] known, 

existing conflict” (id. at p. 28), it should receive compensation. The majority’s 

contrary conclusion will tempt and encourage attorneys to take advantage of their 

asserted “confus[ion]” or the absence of authority “explicit[ly]” precluding their 

conduct (id. at pp. 41-42) by testing the boundaries of their ethical obligations and 

engaging in questionable behavior that they may later attempt to justify as having 

been done in good faith. At least where the fundamental and inviolate duty of 

loyalty is at stake, we should instead adopt a rule that encourages attorneys to err 

on the side of caution, and to scrupulously honor their ethical obligations.
30

For the preceding reasons, I dissent insofar as the majority holds that 

Sheppard Mullin may be entitled to recover in quantum meruit the value of the 

services it rendered to J-M, notwithstanding Sheppard Mullin’s failure to disclose 

its representation of South Tahoe.

CHIN, J.

I CONCUR:

CANTIL-SAKAUYE, C. J.
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Company, Inc.

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 244 Cal.App.4th 590

Rehearing Granted

__________________________________________________________________________________

Opinion No. S232946

Date Filed: August 30, 2018

__________________________________________________________________________________

Court: Superior

County: Los Angeles

Judge: Stuart M. Rice

__________________________________________________________________________________

Counsel:

Greines, Martin, Stein & Richland, Kent L. Richland, Barbara W. Ravitz, Robert A. Olson and Jeffrey E. 

Raskin for Defendant and Appellant.

Steven W. Murray as Amicus Curiae on behalf of Defendant and Appellant.

Litigation Law Group, Gordon M. Fauth, Jr., and Rosanne L. Mah for Exponential Interactive, Inc., 

Halston Operating Company, LLC, Herbalife International of America, Inc., JDI Display America, Inc., 

Kimberly-Clark Corporation, Leaf Group Ltd., NETGEAR, Inc., Newegg Inc., Turo Inc., Varian Medical 

Systems, Inc., and VidAngel, Inc., as Amici Curiae on behalf of Defendant and Appellant.

Reuben Raucher & Blum, Stephen L. Raucher, Pokuaa M. Enin; Karpman & Associates and Diane L. 

Karpman for Beverly Hills Bar Association as Amicus Curiae on behalf of Defendant and Appellant.

Amar D. Sarwal, Mary L. Blatch; Liang Ly, John K. Ly and Jason L. Liang for Association of Corporate 

Counsel as Amicus Curiae on behalf of Defendant and Appellant.

Gibson, Dunn & Crutcher, Kevin S. Rosen, Theane Evangelis, Bradley J. Hamburger, Andrew G. Pappas, 

Heather L. Richardson and Jeremy S. Smith for Plaintiff and Respondent.

Spertus, Landes & Umhofer, James W. Spertus and Jennifer E. LaGrange for Amici Legal Scholars as 

Amicus Curiae on behalf of Plaintiff and Respondent.

Holland & Knight, Paul C. Workman, Peter R. Jarvis and Marissa E. Buck for Amici Law Firms as Amicus 

Curiae on behalf of Plaintiff and Respondent.

Samuel Bellicini; Fishkin & Slatter, Jerome Fishkin; Rogers Joseph O’Donnell and Merri A. Baldwin for 

The Association of Discipline Defense Counsel as Amicus Curiae on behalf of Plaintiff and Respondent.
Page 2 – S232946 – counsel continued

Counsel:

Sidley Austin, Mark E. Haddad, Joshua E. Anderson and David R. Carpenter for Professional Liability 

Insurers, AF Beazley Syndicate 623/2623 at Lloyd’s, CNA Financial Corporation, Endurance US Holdings 

Corp., and W.R. Berkley as Amici Curiae on behalf of Plaintiff and Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):

Kent L. Richland

Greines, Martin, Stein & Richland

5900 Wilshire Boulevard, 12th Floor

Los Angeles, CA 90036

(310) 859-7811

Kevin S. Rosen

Gibson, Dunn & Crutcher

333 South Grand Avenue

Los Angeles, CA 90071

(213) 229-7000