Plein v. USAA Casualty Insurance Company is not a coverage case per se.  However, it is likely to be of interest to CO readers.  It involves the ability of a lawyer to be adverse to a former client, specifically, an insurer client.  As a general rule, this is permitted under rules of professional conduct, so long as the current case, where the lawyer is adverse to the former client, is not “substantially related” to the lawyer’s prior representation.

The issue arose this way.  Attorney Joel Hanson filed a first party bad faith action, on behalf of the Pleins, against USAA.  It had to do with USAA’s handling of a fire claim.  The ins and outs of the bad faith claim are not important here.

A few months later, attorneys William Smart and Ian Birk, from the law firm Keller Rohrback LLP, associated with Attorney Hanson in the case against USAA.  To be clear, Smart and Birk were still working at Keller Rohrback.  They simply joined the Pleins’ team.

Here’s the rub.  Keller Rohrback had had a long relationship with USAA.  Over a decade, ending in 2017, at least eight attorneys at Keller Rohrback had represented USAA in at least 165 cases, including approximately 12 that involved bad faith.  Keller Rohrback was USAA’s primary law firm in Washington for bad faith.  The firm billed over 8,000 hours of work for USAA during the last two years of the representation.    

USAA objected to Keller Rohrback’s participation in the litigation based on this prior representation.  However, the Keller firm’s past work for USAA had not involved the Pleins and attorneys Smart and Birk had never been involved in Keller’s relationship with USAA.  The lawyers did not have any knowledge of attorney-client communications with USAA.

USAA sought disqualification of the attorneys.  The trial court said no: “The Plein matter is factually distinct from and not substantially related to [Keller]’s prior representation of USAA, and as a result, the firm’s representation of the Pleins is not a conflict under RPC [Rule of Professional Conduct] 1.9.”

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

The Washington appeals court reversed.  The court’s decision was guided by a comment to RPC 1.9: “Matters are ‘substantially related’ for purposes of this Rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.”

For a host of reasons, the court concluded that the Plein matter was substantially related to the Keller firm’s prior representation of USAA.  Some of these are as follows:

• “Keller learned significant confidential information about USAA's strategies for bad faith litigation.”

• “According to USAA, it trusted Keller attorneys ‘with direct access to confidential and proprietary business information of USAA CIC and its affiliated companies’ including, confidential claims handling materials, thought processes of adjusters and in-house attorneys, business and litigation philosophies, and strategies such as ‘approaches to settlement discussions, motion practice, case analysis, defenses, witness meetings, witness preparation, trial preparation, and discovery both on a case-by-case and institutional, company-wide level.”

• Keller also participated in seminars as part of enterprise-wide strategic discussions where attorneys became privy to ‘proprietary information including litigation approach and strategies that has only been shared with a limited group of all of the law firms nationally representing USAA CIC and its affiliate companies in alleged bad faith litigation across the United States.’  And Keller attorneys had electronic login credentials to certain internal proprietary and confidential documents concerning insurance bad faith litigation, ‘including document repositories holding attorney-client information and electronic claim databases.’”

• “[T]he temporal proximity of the prior representation affects the analysis of risk to the former client. ‘Information acquired in a prior representation may have been rendered obsolete by the passage of time.’ RPC 1.9 cmt. 3. Here, Keller agreed to represent the Pleins within three months of the end of its relationship with USAA. This short time frame provides scant opportunity for obsolescence, particularly given the extent—in substance and duration—of the prior representation.”

Thus, the court concluded that the Keller firm’s representation of the Pleins generated “a substantial risk that USAA’s confidential information would materially advance the Pleins’ position.”  The court held that there was a conflict of interest under RPC 1.9(a) and attorneys Smart and Birk and the Keller Rohrback firm were disqualified from representing the Pleins.