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

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                SEE CONCURRING AND DISSENTING OPINION
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

                                             2
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

                                          3
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.



                                          4
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

                                          5
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.

                                          6
     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.




                                           7
                                          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.)

                                           8
(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

                                           9
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.




                                          10
                                          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

                                          11
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].)

                                          12
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

                                          13
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.

                                          14
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

                                          15
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



                                           16
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.


                                           17
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

                                          18
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).)

                                            19
     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

                                          20
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

                                          21
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

                                         22
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-

                                           23
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

                                          24
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)

                                          25
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.


                                           26
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>.)


                                           27
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-Professional-
Conduct-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.


                                         28
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.

                                          29
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.)

                                          30
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.


                                          31
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.

                                          32
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

                                          33
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

                                           34
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


                                           35
     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.

                                          36
     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

                                           37
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.)

                                           38
     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)—


                                         39
     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.)



                                           40
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

                                          41
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.

                                          42
                                         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.

                                         43
         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.




                                          1
                   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.”



                                          2
       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 J-
M’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


                                         3
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” J-
M “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.

                                         4
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.”




                                         5
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.

                                              6
       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


                                          7
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,


                                             8
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.)


                                           9
       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


                                            10
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


                                            11
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.

                                          12
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.)


                                           13
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


                                          14
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


                                          15
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


                                           16
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


                                          17
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


                                           18
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


                                          19
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


                                          20
       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 fee-
sharing 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.)

                                         21
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-or-
nothing 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


                                           22
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


                                          23
“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


                                          24
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


                                          25
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).)


                                          26
       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 well-
intentioned 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


                                           27
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


                                          28
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.


                                           29
      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.




                                        30
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
