Kelly Woodruff

Sometimes an appellate court follows the law and maintains appropriate deference to the Legislature and higher courts, but in doing so issues a ruling that creates extraordinary practical policy problems. The Fourth District Court of Appeal's ruling last week in URS Corp. v. Atkinson/Walsh Joint Venture, involving stays that result from appeals of disqualification orders, is such a case.

As a result of URS Corp., parties whose attorneys have been disqualified can bring an immediate appeal and obtain an automatic stay of the disqualification order without an automatic stay of trial proceedings. That means that for months or even years while the disqualification appeal is pending, that compromised attorney – who may be privy to confidential information or face another critical ethical defect – can conceivably remain in his or her place in ongoing litigation despite a court having found the existence a disqualifying conflict.

This is an untenable result, currently binding on all California trial courts. The Fourth District may well have applied existing law correctly, but the result is so aberrant and problematic that the Supreme Court or Legislature should accept the URS Corp. panel's own invitation and revise the rule quickly.

Issue of First Impression

Unlike in the federal courts, the California Supreme Court long ago held in Meehan v. Hopps that an order denying a motion to disqualify counsel is immediately appealable, either as an order denying an injunction or as a final collateral order. Since then, our lower courts have consistently found that orders both granting and denying attorney disqualification motions may immediately be appealed. What the Supreme Court did not answer is whether proceedings in the trial court are stayed while the disqualification order is being appealed.

In 2001, the Court of Appeal held in Reed v. Superior Court that the denial of a motion to disqualify counsel does not automatically stay proceedings in the trial court. The court's rationale was that collateral orders, by definition, do not “embrace[] or affect[]” the remaining proceedings and, therefore, do not automatically stay the remaining trial court proceedings under Code of Civil Procedure Section 916(a). And to the extent an order denying an attorney disqualification motion is a denial of an injunction, orders denying preliminary injunctions generally do not automatically stay the action. This is good policy since weak or meritless disqualification motions are often brought for purely strategic reasons, and an automatic stay of every denial of disqualification of counsel could potentially lead to increased abuse.

But in the 16 years since Reed was decided, no published decision has addressed the question of whether an order granting a disqualification motion gives rise to an automatic stay, and, if so, what proceedings in the trial court are automatically stayed.

A New Bright-Line Rule

Analyzing the history of both the appealability of disqualification orders and automatic stays pending appeal, URS Corp. has now answered these questions of first impression with a new bright-line rule.

First, the URS Corp. court held that a trial court's granting of a motion to disqualify counsel automatically stays enforcement of the disqualification order. The court held that within the collateral order rubric, an order disqualifying counsel is final and collateral, and falls within the clear language of Code of Civil Procedure Section 916(a). And when viewed as an injunction, a disqualification order is more akin to a mandatory injunction, which is automatically stayed pending appeal, because it requires the attorneys to terminate the engagement and the clients to engage new counsel.

This rule follows the law and in itself doesn't create any practical problems. In fact, it will eliminate the need for parties to waste resources in both the trial court and the appellate court in seeking a stay pending appeal.

However, the rub lies in URS Corp.'s second holding: as to the question of whether the ongoing trial court proceedings are automatically stayed during appeal, the court answered definitively no. Because the Supreme Court expressly held in Meehan that disqualification orders are collateral to the proceedings, they necessarily do not “embrace” or “affect” the remaining matters in the trial proceedings and therefore do not fall within the terms of Section 916.

While the URS Corp. court was likely constrained by existing law to reach this conclusion, this incongruous result leads to a host of practical problems – which the court itself recognized. Most seriously, with a disqualification order stayed but trial proceedings ongoing, a disqualified attorney can continue to represent the party in all aspects of the trial proceedings, potentially even finishing the case before the disqualification appeal is resolved.

The URS Corp. court posited that this concern could be resolved through either a trial court motion or a petition for a discretionary stay of the remaining proceedings, or – as the “best outcome” – through stipulation of the parties. But stipulation seems impossible, because lawyers generally think they are on the right side of a disqualification issue (no one seeks out an ethical conflict) and may well assume in good faith that they'll be vindicated on appeal. And since parties with disqualified attorneys can continue the litigation with their chosen counsel during appeal, there is no incentive for them to stipulate to a multi-year delay, particularly if they are plaintiffs.

Further, while seeking a discretionary stay might provide the necessarily relief, it improperly shifts the burden of obtaining the stay to the party prevailing below, the “victim” of the conflicted opposing counsel. It also undermines the benefits of a bright-line rule by requiring the parties to litigate the issue of a stay in any event.

The URS Corp. court pointed out that the practical implications of its ruling are the result of the fact that disqualification orders are appealable in the first place. Indeed, the court expressly invited the Legislature or Supreme Court to abrogate the rule.

It's an invitation the Supreme Court or the Legislature should take up. Moreover, there's a pretty easy solution: Orders granting disqualification motions should be immediately reviewable by writ petition only, as in federal court.

Writ petitions will allow the Court of Appeal to step in and correct disqualification errors of significant magnitude without creating an undue risk of conflicted attorneys litigating a case. Writ review especially makes sense because orders granting or denying disqualification motions are reviewed for abuse of discretion only, meaning the vast majority of these orders will be affirmed as long as they are broadly reasonable.

The more quickly the higher authorities can get involved, the better. URS Corp.'s new rule seriously threatens the fabric of loyalty and confidentiality on which the entire field of litigation rests.

On Appeals is a monthly column by the attorneys of the California Appellate Law Group LLP, the largest appellate specialty boutique in Northern California. Kelly Woodruff is an attorney with the firm, and has clerked in both the Ninth Circuit and the U.S. District Court for the District of Hawaii. Find out more about Kelly and the California Appellate Law Group at www.calapplaw.com.