Court of Appeal Test Drives New Candor Rule

 

 

The First District Court of Appeal, Div. 2, issued a Halloween-eve decision that surely qualifies as some lawyers’ horror story. The decision Davis v. TWC Dealership Group, Inc., case no. A155030, filed 10/30/19, involved arbitration clauses in employment contracts, but it was published to “also affirm—and remind the profession of—the importance of candor toward the court.”

The underlying thicket is a series of employment agreements signed by the Plaintiffs when they began their ultimately unhappy relationship with their employer.  Those agreements purported to bind Plaintiffs to arbitrate their claims in language the Court described as a “paragon of prolixity,” whose substance is “opaque,” and which has sentences that are “complex, filled with statutory references, and legal jargon.” But the Court of Appeal had some help in reaching its description because the same paragraph had been the subject of a California Supreme Court opinion OTO, L.L.C.v. Kho (2019) 8Cal.5th 111, 128) (Kho).  In fact, the same law firm had argued the Kho case before the Supreme Court. The TWC Court noted no complete version of any of the three fee agreements appeared in the record, and that extensive use of ellipsis was made in the briefing to omit large parts of the contracts.

The Kho decision was filed shortly after the close of briefing in the TWC case but it was not brought to the appellate court’s attention.  In its order, the Court asked the parties to address the impact of Kho but the associate attorney dispatched to argue the case was unprepared.  Neither of the attorneys who signed briefs appeared, having left the firm.

The Court of Appeal found the failure to inform the Court of the Kho decision was an “obvious” violation of Rule of Professional Conduct 3.3(a)(2), given that the same law firm had appeared in Kho:

A lawyer shall not …fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel. or knowingly misquote to a tribunal the language of a book, statute, decision or other authority. . . .’ ” ..”

This rule is new in California.  Prior Rule of Professional Conduct 5-200 contained a similar prohibition against “intentionally” misquoting to a tribunal the language of a book, statute, or decision but no positive duty to disclose known adverse authority. It also contained the same general prohibition against using means inconsistent with truth or seeking to mislead a judicial officer with ” by an artifice or false statement of fact or law” contained in Business & Professions Code section 6068(d).  The origin of the new rule is Model Rule 3.3.

“Known” is a defined term in the new Rules; Rule 1.0.1(f): “Knowingly,”“known,” or “knows” means actual knowledge of the fact in question. A person’s knowledge may be inferred from circumstances.”

Since the same law firm argued Kho and the Court of Appeal specifically asked counsel to address Kho (as well as counsel’s failure to bring Kho to the court’s attention) finding knowledge isn’t much of a stretch.  One feels for the firm associate who appeared at the oral argument.

The Court of Appeal finding of lack of candor wasn’t necessary to decide TWC; the law of unconscionability, exemplified by Kho, supplied the necessary rule of decision.  The Court of Appeal also did not refer the matter to the Office of Chief Trial Counsel (OCTC), despite the “obvious” rule violation.  No sanction was sought or imposed and the conduct does not otherwise meet the statutory reporting requirements of Bus. & Prof. Code section 6086.7.  OCTC will surely see this decision and has the power to open its own investigation.

Whether or not discipline results, the Court of Appeal has given us a significant test drive of one of the new rules, meant to send a message that the duty of candor has some new teeth in California.

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