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Boake Christensen, James B. Lewis, Leslie G. Landau, David M. Heilbron and McCutchen, Doyle, Brown & Enersen for Petitioner.
John K. Van de Kamp, Attorney General, Randall P. Borcherding, Deputy Attorney General, Jan T. Chilton, Robert L. Lofts, Donald J. Querio and Severson, Werson, Berke & Melchior for Real Parties in Interest.
The accounting firm of Peat, Marwick, Mitchell & Company (Peat Marwick), defendant in an accounting malpractice action, petitions for extraordinary relief from an order precluding it from controverting plaintiffs' evidence on certain elements of the malpractice allegations. After Peat Marwick merged with KMG Main Hurdman (Main Hurdman), the accounting firm retained by plaintiffs as their expert witness, the trial court made the preclusion order to prevent the compromise of confidential information and to preserve the integrity of the judicial process. Peat Marwick contends the trial court was without power to enter a preclusion order in the absence of statutory authorization, and that any such power the court did enjoy was abused under the facts of this case.
The underlying action concerns the financial failure of Western Community MoneyCenter (MoneyCenter), a Contra Costa-based thrift and loan corporation and former Peat Marwick client. At the time of its failure MoneyCenter had approximately 12,000 thriftholders, mostly Contra Costa residents, with accounts reportedly totalling about $98 million. On April 20, 1984, the California Commissioner of Corporations (Commissioner) placed MoneyCenter in liquidation. On May 29, 1984, the Commissioner, in the name of the People of the State of California (the People) filed suit on behalf of MoneyCenter thriftholders, creditors and the liquidation estate. The suit sought to recoup an estimated $25 million deficit allegedly caused by the intentional and negligent mismanagement by MoneyCenter officers and directors. On November 15, 1984, the Commissioner, joined by the Attorney General, filed a first amended complaint adding Peat Marwick as a defendant based on an allegedly negligent audit which contributed to the MoneyCenter decline. The People alleged that MoneyCenter's failure resulted from "the mismanagement of that financial institution by the officers and directors responsible for it, the intentional misconduct of certain of those officers and directors and the failure of its certified public accountants to properly audit its financial affairs."
The following background facts are allegations taken from the People's complaint.
Peat Marwick had been hired by MoneyCenter in September 1982 to audit MoneyCenter's financial affairs. One purpose of the audit was to provide financial reports to the Commissioner and to each MoneyCenter thriftholder, in conformity with Financial Code section 18406. fn. 1 Peat Marwick misrepresented that its auditing personnel were adequately trained and that its proposed audit methods complied with applicable law. Peat Marwick conducted the audit and in early 1983 issued its audit reports which [200 Cal. App. 3d 277] contained inaccurate and misleading information concerning MoneyCenter's financial solidity as of December 31, 1982. These reports overstated MoneyCenter income, falsely stated a net income of over $1 million, understated the loan loss reserve, and failed to mention the deficiencies of MoneyCenter's books and records. It is further alleged that Peat Marwick was not an independent auditor "because of its dual role as auditor and management consultant, its preparation of missing accounting documents for MoneyCenter which it then proceeded to audit, and the negotiations by at least one member of Peat Marwick's supporting staff for the acquisition of an equity interest" in the holding company which owned all MoneyCenter stock.
Peat Marwick did not notify the Commissioner, creditors, or thriftholders when it discovered the inaccuracies of its audit. Had the Commissioner been made aware of the audit's falsity, he could have taken appropriate corrective steps. In reliance on the inaccurate audit, the Commissioner allowed MoneyCenter to continue its operations; thriftholders continued to place their funds with MoneyCenter and creditors continued to extend credit. As a proximate result of reliance on the audit, MoneyCenter became insolvent and the creditors and thriftholders were damaged by an alleged deficit, or shortfall, in the liquidation estate of over $25 million.
The facts of Peat Marwick's merger with the People's accounting expert are the foundation of the trial court's preclusion order, and are taken almost entirely from the trial court's findings of fact.  These findings are binding on this court unless unsupported by substantial evidence. (Foot's Transfer & Storage Co. v. Superior Court (1980) 114 Cal. App. 3d 897, 902 [171 Cal. Rptr. 1].) Peat Marwick has not shown, indeed has not attempted to show, that the findings of fact are unsupported by substantial evidence. Peat Marwick has for the most part merely restated its own evidence, and [200 Cal. App. 3d 278] not the contrary evidence on which the trial court relied. (See Foreman & Clark Corp. v. Fallon (1971) 3 Cal. 3d 875, 881 [92 Cal. Rptr. 162, 479 P.2d 362].) Accordingly, we recite the facts as found by the trial court, and supported by the record.
After the People initiated their MoneyCenter lawsuit in May 1984, they recognized the need to retain an accounting firm as an expert witness in the forthcoming complicated litigation. Of the available "Big Eight" accounting firms, Main Hurdman appeared the best qualified. In the autumn of 1984 the People retained Main Hurdman as a professional accounting litigation expert in the MoneyCenter action. There were two primary aspects to Main Hurdman's role as expert -- Peat Marwick's professional negligence, and the amount of the deficit, or shortfall, in the MoneyCenter liquidation estate.
With respect to professional negligence, Main Hurdman concluded that Peat Marwick's 1982 audit of the MoneyCenter books was negligently performed and the People had a valid case of accounting malpractice against Peat Marwick. In particular, Main Hurdman advised the People that instead of a $1 million profit, the MoneyCenter had incurred a multimillion dollar loss. Much of Main Hurdman's work on the issue of professional negligence had been completed by the end of 1984, by which time Peat Marwick had been named and served as a defendant. Main Hurdman then actively assisted the People's attorneys in formulating litigation strategy related to the 1982 audit. After the issue of accounting malpractice had been addressed, the People directed Main Hurdman to assess, as the measure of damages, the precise amount of the deficit in the MoneyCenter liquidation estate. The estimated shortfall ultimately rose to $41 million from the $25 million alleged in the complaint.
For almost the entire time Main Hurdman was the People's litigation expert, it and defendant Peat Marwick were in the process of negotiating a merger. Shortly after Main Hurdman was retained by the People, merger negotiations commenced. The trial court found that the merger's genesis could be traced back to December 1984 and January 1985 when there were "early exchanges of information." Although fully aware of the manifest conflict of interest which would be created by a merger between Peat Marwick as defendant and Main Hurdman as plaintiffs' expert, Main Hurdman continued discussions and negotiations with Peat Marwick throughout the spring and summer of 1985. The negotiations ended in September 1985 when certain international partners of Main Hurdman disagreed with the proposed merger.
For what the trial court found were "undoubtedly ... good business reasons," the negotiations were cloaked in secrecy, complete with code [200 Cal. App. 3d 279] names to disguise the real parties. In spite of these efforts at secrecy there was a "leak" to the press and a story appeared in the Wall Street Journal. However, before the People's attorneys learned anything of the proposed merger, Main Hurdman's regional managing partner assured them in early September 1985 that there was no truth to the "rumors" of merger talks between Peat Marwick and Main Hurdman. Having this assurance, the People continued with Main Hurdman as their chosen expert.
In March 1986 the People learned that Mr. Richard Miller, the in-house associate general counsel for Peat Marwick who was primarily responsible for the defense of the professional negligence lawsuit, was joining the staff of Main Hurdman as general counsel. Understandably alarmed at the potential consequences of this transfer, the People's attorneys pressed the issue. They were given assurances by Main Hurdman that confidences would be respected and a promise from Peat Marwick that it would not use the Miller transfer to disqualify Main Hurdman as the People's expert.
Next, the People experienced two revelations deemed, understandably, by the trial court to be "disquieting" and "alarming." First, the People learned that Peat Marwick's attorneys had been contacted to represent Main Hurdman in a series of lawsuits in which it was being sued for accounting malpractice (the Technical Equities cases). Second, the People discovered that Peat Marwick's attorneys already had been informed that Main Hurdman was serving as the People's expert witness. Not surprisingly, the People declined to give the consent which Peat Marwick's attorneys sought in order to allow them to represent Main Hurdman in the Technical Equities litigation.
In early May 1986 Main Hurdman reopened merger negotiations with Peat Marwick when the former's Canadian affiliate defected to another "Big Eight" accounting firm. Believing its "North American flank" was exposed, Main Hurdman actively pursued merger with Peat Marwick during the summer of 1986. By August 28, 1986, a letter of intent was signed and on October 3, 1986, a memorandum of understanding was executed and submitted for a vote to the partners of the two firms.
It was not until mid-August that Main Hurdman decided to disclose the pending merger to the People. Before this happened, counsel for the People learned of the proposed merger from a news account in the Wall Street Journal. A meeting between counsel and top Main Hurdman executives was held on September 12, 1986. In the exact language of the trial court, "[F]or the first time Main Hurdman faced up to the conflict of interest problems it and Peat Marwick had created. With no obvious solution evident, it is apparent that the parties left the meeting hoping that the lawsuit would be [200 Cal. App. 3d 280] settled so that the problem would disappear." Thereafter, and with the apparent consent of the People, Main Hurdman continued its work on the deficit aspect of the People's case. Main Hurdman submitted its report on that subject on January 29, 1987, and then unilaterally terminated its relationship with the People.
The trial court found that Main Hurdman's work as the People's expert involved a total of 68 staff members and over 12,000 hours of work. The billing for these services was $683,379, of which $620,569 had been paid. The engagement as expert for the People was the largest single engagement of the San Francisco office of Main Hurdman at that time.
The Peat Marwick-Main Hurdman merger was scheduled to occur effective April 1, 1987. On March 9, 1987, the People moved for an injunction against the merger or, in the alternative, for an order imposing sanctions against Peat Marwick for merging with the People's expert during pendency of the litigation. The requested sanctions included an order precluding Peat Marwick from controverting those matters to which Main Hurdman would have testified: Peat Marwick's standard of care, the defects in the 1982 audit, and the amount of the liquidation estate's deficit as a measure of the People's damages. The motion also sought an order directing Peat Marwick to return the $620,569 in expert fees paid Main Hurdman by the estate.
The order was filed April 17, 1987, and challenged by extraordinary writ on June 16, 1987. Meanwhile, Peat Marwick had moved for relief from the preclusion order on the ground that it had erected an adequate screen. The motion for relief was still pending when the writ petition was filed. The trial court conducted several days of evidentiary hearings on the motion for relief, in part because Peat Marwick "stressed the importance of [the trial] court hearing oral testimony so that credibility of witnesses could be assessed." The court also reviewed again the evidence presented at the March injunction hearings.
On June 22, 1987, the trial court filed its order denying relief. That order (1) made the findings of fact set forth above; (2) found that Peat Marwick's screening procedures were inadequate; and (3) reversed itself as to damages on the ground that the People had "acquiesced in (if not encouraged) work on the 'estate' deficit well after the conflict of interest was disclosed and the merger had been voted upon," and thus "waived any claim of privilege which is essential to support a claim of breach of a confidence."
With regard to the issues of negligence and standard of care, the trial court was "not persuaded" that the measures "instituted or proposed by Peat Marwick ... to protect plaintiffs' confidences are sufficient to justify lifting the remaining preclusion orders. Those measures are, quite simply, too little and too late." In support of this conclusion, the trial court made further findings of fact.
Main Hurdman's chief executive officer (CEO) "candidly" conceded that he had no plan to protect confidences -- he simply believed "something could be worked out." On April 1, 1987, the effective date of the merger, a list of the names of the Main Hurdman and Peat Marwick personnel who worked on the MoneyCenter litigation had not even been prepared, much less exchanged, and the CEO's formal directive concerning nondisclosure came only after the preclusion order was entered.
As an example, the trial court referred to the evidence that oral reports on the status of pending negotiations had been exchanged during merger negotiations. However, no written reports were exchanged and the contents of oral reports were "unknown." The court found credible testimony that Main Hurdman's general counsel was asked to give Peat Marwick "anything they wanted." The court was "left to speculate what those litigation reviews included. If one must speculate, it seems inconceivable that professional accountants would not review critically and in detail the exposure the pending litigation they might be buying into could bring." Although the postmerger entity of Peat, Marwick, Main & Co. is apparently not formally responsible for any judgment in the proceedings below, the court sagaciously observed that a judgment against Peat Marwick would necessarily reduce Peat, Marwick, Main profits. The court concluded it had "misgivings about what was not presented."
Having found the screening mechanism inadequate, the court went on to find that the People had been harmed by the merger. The court specifically [200 Cal. App. 3d 283] found "that the merger of Peat Marwick and Main Hurdman has seriously eroded the ability of plaintiffs to prepare and present their case. It is not simply a situation in which plaintiffs can go out into the marketplace and find a new 'hired gun.' The initial selection of Main Hurdman was difficult enough because of the many parties involved in the case and the conflicting interests which other large accounting firms had. The impact of Main Hurdman's defection to a significant adverse party cannot be underestimated. For anyone experienced in the dynamics of trial, it is plain that trial theories and strategies must be entirely reassessed and restructured."
The court found additional harm to the integrity of the judicial system. "[T]he subtle aura of potentially compromised confidences -- the appearance of impropriety alone -- undermines public confidence in the integrity of the litigation process. The circumstances of this case demand far more than what a [screening mechanism] can provide to restore confidence and provide assurance that the system of justice has not tilted in favor of one party."
Peat Marwick filed its writ petition June 16, 1987, before the trial court had ruled on its motion for relief from the April 17 order and had filed the order of June 22. The latter order supersedes the April 17 order, reverses it [200 Cal. App. 3d 284] in part by removing the damages issue from the scope of preclusion, and sets forth the trial court's extensive findings of fact. Inexplicably, Peat Marwick never attempted to amend its petition to mount a challenge to the June 22 order, and did not effect a challenge by filing a separate writ petition. A reading of the June 22 order clearly showed that Peat Marwick's version of the facts was substantially inaccurate. Peat Marwick's failure to challenge the operative order of the case led us to summarily deny the petition on July 21, 1987.
Peat Marwick then petitioned the Supreme Court for review, substantially ignoring the trial court's June 22 order and its findings of fact. The Supreme Court granted review and transferred the case to this court with instructions to issue the alternative writ.
[2a] Having been directed to review this case by the order of the Supreme Court, we begin by noting a procedural deficiency which would normally preclude review by extraordinary writ. The Supreme Court's grant-and-transfer order directed us to issue an alternative writ in response to the petition as filed in this court. As noted, that petition predates the operative June 22 order and challenges only the order of April 17. It is, of course, axiomatic that a party can only obtain extraordinary relief from a particular order by means of a proper verified petition challenging that order and explaining why the order is an abuse of discretion or an excess of jurisdiction, and why remedies at law are inadequate. Peat Marwick has made no such challenge to the June 22 order. Thus, we find ourselves faced with a directive to afford extraordinary writ review to a petitioner who has failed to challenge the operative order in the case, an order which supersedes the challenged order, reverses it in part, and bears significant findings of fact.
We asked Peat Marwick at oral argument to comment on our procedural concerns. Peat Marwick contended that because the June 22 order was appended to the People's answer to the petition for review, the grant-and-transfer order effectively placed the June 22 order before this court for extraordinary review. Peat Marwick has presented no authority for the rather novel proposition that a Supreme Court grant-and-transfer, a common process of replacing a summary denial of a writ with a written opinion, can substitute for a formal, verified writ petition challenging a specific order and setting forth the appropriate prerequisites for extraordinary relief. (See generally, California Civil Writ Practice (Cont.Ed.Bar 1987) § 3.1 et seq., § 7.1 et seq.) On the contrary, a grant-and-transfer order is not even an indication of the substantive merit of the petition.  "The Supreme [200 Cal. App. 3d 285] Court's direction that we issue the alternative writ, after our denial, is an expression on the part of the Supreme Court that we examine the contentions raised by the petitioner and write an opinion evaluating those contentions." (Charlton v. Superior Court (1979) 93 Cal. App. 3d 858, 861 [156 Cal. Rptr. 107].) [2b] Such an order does not cure procedural defects in the petition. (Ibid.; see Star Motor Imports, Inc. v. Superior Court (1979) 88 Cal. App. 3d 201 [151 Cal. Rptr. 721].) We doubt that a grant and transfer serves as a functional substitute for a formal petition to challenge a trial court order.
Peat Marwick makes two arguments: (1) the trial court lacked legal authority to render its preclusion order, and (2) assuming it had authority the order is an abuse of discretion on the facts of this case. Both arguments are unpersuasive.
[4a] Peat Marwick contends that the preclusion order is not explicitly authorized by statute and is therefore invalid. The contention is based on this chain of reasoning: (1) the preclusion order is a "discovery sanction"; (2) all discovery sanctions must be specifically authorized by statute; (3) the preclusion order is not so authorized; and (4) the court lacked authority to make the order. The flaw in this chain is its first premise: the court's order precluding evidence is not a sanction for the abuse of discovery procedures, but is a remedy for abuse of the litigation process.
The People's motion below sought "sanctions," not "discovery sanctions." One side or the other may have begun to use the phrase "discovery [200 Cal. App. 3d 286] sanctions," or the connection to discovery may have been made because the People's points and authorities cited four cases which involved the preclusion of evidence as a sanction, but which arose from a discovery context. (Puritan Ins. Co. v. Superior Court (1985) 171 Cal. App. 3d 877 [217 Cal. Rptr. 602]; Wm. T. Thompson Co. v. General Nutrition Corp. (C.D.Cal. 1985) 104 F.R.D. 119; United States v. ACB Sales & Service Inc. (D.Ariz. 1982) 95 F.R.D. 316; Barker v. Bledsoe (W.D.Okla. 1979) 85 F.R.D. 545.) These cases were cited, however, for the general proposition that a trial court has inherent authority to preclude evidence to police an abuse of the litigation process. They do not, and should not, make this a "discovery sanction" case.
The characterization of the preclusion order as a dismissal is fundamentally incorrect. It apparently arises from remarks by the trial court at an earlier stage of the proceedings, when the court was contemplating a preclusion order covering standard of care, negligence and damages estimated at $41 million. At that point the trial court stated the order would be "the functional equivalent of striking Peat Marwick's answer, granting a default judgment to the [People], or perhaps granting the [People] a judgment on the pleadings." Peat Marwick points to this language and repeatedly characterizes the preclusion order as functionally the same as a default judgment or dismissal. The trial court's language, however, predated the June 22 order's modification of the preclusion order as to damages. As Peat Marwick may litigate the amount of damages, as well as the issue of proximate cause, the claimed "functional equivalence" to a default judgment is no longer present. Moreover, while the preclusion of defense evidence is no doubt an onerous sanction, the preclusion does not amount to a summary adjudication of the issue of negligence and standard of care. The People must still present evidence on these issues sufficient to satisfy their burden of proof.
[4b] The real question in this case is whether a California trial court has the inherent power to preclude evidence to cure abuses or overreaching [200 Cal. App. 3d 287] involving confidential information, such as the merger with one's opponents' expert. We conclude the trial courts do indeed have such inherent power and do not need a specific statutory authorization to prevent injustice by excluding certain evidence.
The trial court's inherent powers have been recognized, endorsed and affirmed in a considerable body of authority, and the powers have been flexibly applied in response to the many vagaries of the litigation process. In Conn v. Superior Court (1987) 196 Cal. App. 3d 774 [242 Cal. Rptr. 148], the trial court directed the wrongful-termination plaintiff to return to his former employer documents he had removed from his office. In upholding the order the Court of Appeal ruled the action was within the court's "inherent power to control the proceedings before it and to make orders which prevent the frustration, abuse, or disregard of the court's processes. [Citation.]" [200 Cal. App. 3d 288] (Id., at p. 785.) In Western Steel & Ship Repair, Inc. v. RMI, Inc. (1986) 176 Cal. App. 3d 1108, 1116-1117 [222 Cal. Rptr. 556], the court concluded that the trial court had the inherent power, in the proper case, to afford immediate ex parte relief to a debtor in attachment when such power was not statutorily authorized. "Such power is part of the inherent power of the superior court (and of courts generally) to control litigation before it, to prevent abuse of its process, and to create a remedy for a wrong even in the absence of specific statutory remedies. [Citations.]" (Id., at p. 1116, italics added.) In Venice canals Resident Home Owners Assn. v. Superior Court (1977) 72 Cal. App. 3d 675 [140 Cal. Rptr. 361], the trial court required the posting of a stay bond in a mandamus action to protect the rights of innocent third parties who had obtained building permits and commenced construction. "Similar inherent power has been recognized as available to the court to prevent unfair results, although the relevant statute itself contains no provision for such limitation." (Id., at p. 680.) Additional examples are cited and discussed in both the Western Steel and the Venice Canals decisions.
[4d] In one sense the preclusion order in this case is a grant of a motion in limine to exclude evidence. We need not rest the order under the in limine rubric, however, as numerous cases have not relied on that motion procedure to exclude evidence to prevent an abuse or an unfair advantage by a party to litigation. In some cases the courts have acted under the [200 Cal. App. 3d 289] auspices of statute or rule. (Puritan Ins. Co. v. Superior Court, supra, 171 Cal. App. 3d 877; United States v. ACB Sales & Service, Inc., supra, 95 F.R.D. 316.) In others the courts have invoked their inherent power to exclude evidence to ensure a fair and orderly trial. In Barker v. Bledsoe, supra, 85 F.R.D. 545, the plaintiff's expert examined evidence, but destroyed it without notice to the defense, thereby preventing the defense from conducting its own examination. The court relied upon its inherent power to ensure the defense received a fair trial, and precluded the expert from testifying about his examination. Similarly, in Wm. T. Thompson Co. v. General Nutrition Corp. (C.D.Cal. 1984) 593 F. Supp. 1443, a party had wrongfully destroyed documentary evidence; the District Court recognized its inherent power to prevent the party from advancing evidence controverting the documents' contents. Under the factual circumstances before it, however, the court rejected a preclusion order as insufficiently severe, and imposed the more severe sanction of dismissal.
Contrary to Peat Marwick's assertion, there is no legal or logical reason to limit inherent-power preclusion orders to cases involving the destruction of evidence. A party may be disadvantaged as much by the destruction of evidence as by the invasion or destruction of a unique relationship with its expert witness. Moreover, there is no intrinsic limitation on the court's inherent power of evidence preclusion which would enable preclusion in cases of evidence destruction, but leave the court powerless to remedy other forms of litigation abuse. Peat Marwick's conduct in this case, as the trial court found, has seriously damaged the People's case. Faced with this sort of abuse of the litigation process, the trial court may act to prevent the taking of an unfair advantage and to preserve the integrity of the judicial system. The court may invoke its inherent power to preclude a party's evidence on those aspects of its opponent's case which would have been presented in court by the now-compromised expert witness.
In Nobles the court upheld a preclusion order which excluded the testimony of a defense expert who had failed to permit discovery of a "highly relevant" report. More recently, the court upheld the preclusion of certain alibi testimony, imposed as a sanction for failing to reveal the names of two alibi witnesses in accordance with a discovery rule. (Taylor v. Illinois (1988) 484 U.S. 400 [98 L. Ed. 2d 798, 108 S. Ct. 646].) The court ruled that preclusion orders were not absolutely barred by due process considerations, but could be imposed in appropriate cases to preserve "the integrity of the adversary process" and "the fair and efficient administration of justice." (Id., at p. [98 L.Ed.2d at p. 814, 108 S.Ct. at p. 655].) If a preclusion order may be imposed upon the constitutional rights of a criminal defendant, the imposition of one upon a civil litigant, under appropriate circumstances, can hardly be a violation of due process.
[4e] The trial court's preclusion order was well within its inherent authority. fn. 10 It remains to determine whether the entry of the order constitutes an abuse of discretion on the record before us.
 Given the trial court's specific -- and essentially unchallenged -- findings of fact, it is not difficult to conclude the preclusion order was well within the court's legitimate discretion to remedy an egregious wrong. Consequently, we need not discuss the issue at length.
Aside from the fact that not all predictions are "speculation" and a court may act in advance to enjoin harm reasonably likely to occur, Peat Marwick's position is unsound. Again, the argument is based on an incorrect view of the facts. The trial court's June 22 order, postdating the transcript reference, concludes that it is "inconceivable" that confidential information has not been exchanged. The court also found the screening mechanism was inadequate, and that the People were compromised in their choice of an expert -- a clear and present harm.
Peat Marwick concludes with the lament that its "inability to defend itself" is too harsh given the lack of any evidence that confidential information changed hands, given its screening mechanism, and the "fact" that the People have in any event "already disclosed voluntarily" the "substance" of Main Hurdman's conclusions. The first two points are defeated by the findings of fact; in addition, the People's return details the seriousness of Peat Marwick's conduct in harming the People's case and in fostering Main Hurdman's breach of its fiduciary duty to the People. The third is not factually correct. In connection with settlement efforts against other defendants below, the People disclosed Main Hurdman's report relating to the size of the deficit. This is pertinent only to the issue of damages, no longer covered by the preclusion order, and not to standard of care and negligence. A second letter proposing settlement to Peat Marwick did not mention Main Hurdman and only outlined legal theories of the People's case; the letter was excluded from evidence below on Peat's own objection. The letter also does not cure the problem of the expert's exposure to plaintiffs' litigation planning and information and then merging with Peat Marwick.
The alternative writ is discharged; the petition for extraordinary relief is denied. The People shall recover costs.
I concur in the opinion of Justice Haning, but write separately to comment on the apparently widespread use of the term "Chinese Wall" to describe the type of screening mechanism discussed in this case. While our opinion uses the term "screen," both the parties and the trial court used the term "Chinese Wall," which seems to have become a term of art. I write to express my profound objection to the use of this phrase in this context.
The enthusiasm for handy phrases of verbal shorthand is understandable. Occasionally, however, lawyers and judges use a term which is singularly inappropriate. "Chinese Wall" is one such piece of legal flotsam which should be emphatically abandoned. The term has an ethnic focus which many would consider a subtle form of linguistic discrimination. Certainly, the continued use of the term would be insensitive to the ethnic identity of the many persons of Chinese descent. Modern courts should not perpetuate the biases which creep into language from outmoded, and more primitive, ways of thought.
Aside from this discriminatory flavor, the term "Chinese Wall" is being used to describe a barrier of silence and secrecy. The barrier itself may work to further the cause of ethics in litigation; but the term ascribed to that barrier will necessarily be associated with constraints on the freedom of open communication. To employ in this context the image of the Great Wall of China, one of the magnificent wonders of the world and a structure of great beauty, is particularly inappropriate. One can imagine the response to the negative use of the images of the Eiffel Tower, the Great Pyramid of Cheops, or the Colossus of Rhodes.
Finally, "Chinese Wall" is not even an architecturally accurate metaphor for the barrier to communication created to preserve confidentiality. Such a barrier functions as a hermetic seal to prevent two-way communication between two groups. The Great Wall of China, on the other hand, was only a one-oay barrier. It was built to keep outsiders out -- not to keep insiders in.
It is necessary to raise a clenched cry for jettisoning the outmoded legal jargon of a bygone time. If the image of a wall must be used, perhaps "ethics wall" is more suitable phraseology.
I concur in the result because Peat Marwick's petition challenges the trial court's order of April 17, and this order was mooted by the trial court's subsequent order of June 22. Our Supreme Court directed us to issue an alternative writ apparently not perceiving that the petition before it challenges an order which had been mooted by a later order. Peat Marwick has filed no challenge to the June 22 order and the Supreme Court's direction to issue an alternative writ on Peat Marwick's challenge to the April 17 order applies only to that order.
FN 1. Financial Code section 18406 states: "Each industrial loan company which has issued and which has outstanding investment certificates shall: [¶] (a) Post in a conspicuous and prominent place in each business location a condensed statement of its financial condition, and [¶] (b) Furnish to a person prior to such person's investment in an investment certificate a copy of its latest condensed statement of its financial condition. Each year a copy of the condensed statement shall be furnished by mail or hand-delivered to each investment certificate holder. [¶] (c) Maintain and have available for public inspection a copy of its latest audited financial statement required by subdivision (a) of Section 18405 in each of its business locations. Any person shall, upon request, be permitted to inspect the statement during regular business hours. [¶] (d) The statement required by subdivisions (a) and (b) shall set forth such information and be in such form as may be required by the commissioner."
FN 2. For a description of such screening mechanisms and their use, see generally Note, The Chinese Wall Defense to Law Firm Disqualification (1980) 128 U.Pa.L.Rev. 677.
FN 3. The order also directed the repayment of the requested expert fees of $620,569. This portion of the order is not at issue in this writ proceeding.
FN 5. This is an example of the "curious incident of the dog in the nighttime," a literary allusion often invoked but seldom explained. The "incident of the dog" was cited by Sherlock Holmes as the clue to the nighttime abduction of a racehorse from its trainer's barn. Dr. Watson noted quizzically that "the dog did nothing in the nighttime." Holmes replied "That was the curious incident." It was the trainer himself who took the horse, and the watchdog, sensing its owner, did not bark.
FN 6. In its footnote 1 the trial court noted: "Among the measures suggested, Peat Marwick cavalierly suggests that ... certain key former Main Hurdman staff will be transferred out of California or even fired .... Such a suggestion is an affront and only underscores the impersonal and pitiless economic self-interest which pervades this case."
FN 7. We emphasize this procedural problem because Peat Marwick, both in its briefing, and again at oral argument, stressed what it claims to be deficiencies in the original, superseded order of April 17. However, since it successfully prevailed upon the trial court to reconsider and issue a new order, the order of June 22 is the only operative order in the record for review.
FN 9. Mills Land & Water Co. v. Golden West Refining Co. (1986) 186 Cal. App. 3d 116 [230 Cal. Rptr. 461] does not, as Peat Marwick suggests, support setting aside the trial court's order. Mills Land supports the People to the extent that it affirms an order disqualifying an attorney for conflict of interest and precluding him from communicating confidential information. To the extent Mills Land reverses an order disqualifying the attorney's entire firm, the case is distinguishable. The global disqualification in Mills Land was rejected as punitive because, in contrast to the case before us, there was no evidence the opposing party would be prejudiced by the firm's continued participation. Mills Land also concluded there was no basis for a finding of "continuing effect" of the conflict of interest, which is in contrast to the factual findings made in the instant case.
FN 10. The preclusion order in this case involves two of four elements in two of five causes of action levied against Peat Marwick. We express no opinion on the validity of a more severe preclusion order precluding all evidence on all causes of action.

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