HARRIETT MITCHELL et al., Plaintiffs, v. CORELOGIC VALUATION SOLUTIONS, INC., Defendant No. SA CV 17-02274-DOC (DFMx) United States District Court, C.D. California, Southern Division Filed December 11, 2019 Counsel Daniel Solomon Brome, Matthew C. Helland, Nichols Kaster LLP, San Francisco, CA, Natasha Tavora Baker, Rachel Meyers Terp, Bryan J. Schwartz, Bryan Schwartz Law, Maren Irene Christensen, Tycko & Zavareei, LLP, Oakland, CA, for Plaintiffs. Amy S. Williams, Brian E. Cole, II, Kimberly Marie Jansen, Timothy M.Freudenberger, Carlton DiSante and Freudenberger LLP, Irvine, CA, for Defendant McCormick, Douglas F., United States Magistrate Judge Report and Recommendation of United States Magistrate Judge *1 This Report and Recommendation is submitted to the Honorable David O. Carter, United States District Judge, under 28 U.S.C. § 636 and General Order 05-07 of the United States District Court for the Central District of California. I. INTRODUCTION Before the Court is Defendant CoreLogic Value Solutions, Inc.'s Motion to Disqualify Plaintiffs' Counsel (“Motion”). See Dkt. 275. Plaintiffs submitted an Opposition to the Motion on October 28, 2019, and Defendant's Reply followed on November 4. See Dkts. 280 (“Opp'n”), 285 (“Reply”). The District Judge referred the Motion to this Court for a report and recommendation. See Dkt. 292. The Court held a hearing on December 9. Upon review of the record, the parties' briefs, and the hearing, the Court recommends that the Motion be DENIED. II. BACKGROUND This is a wage-and-hour dispute. Plaintiffs and the putative class and collective action members are or were employed as appraisers by Defendant. See Dkt. 73, Third Amended Complaint (“TAC”) ¶ 1. According to the TAC, Defendant failed to pay appropriate overtime, meal, and rest compensation. See id. ¶ 8. On July 11, 2019, the Court ordered Defendant to produce responsive electronically stored information (“ESI”) from nine custodians for sixteen months. See Dkt. 232. More than 57,000 pages of documents were produced, virtually all labeled as “confidential.” See Dkt. 275-2 (“Williams Decl.”) ¶ 2; Dkt. 280-1 (“Brome Decl.”) ¶ 4. On August 20, 2019, Plaintiffs sent Defendant a list of 188 potential exhibits to the pending class certification motion, which Defendant agreed to review “as a courtesy.” Williams Decl. ¶ 5, Ex. A. On August 23—the date Plaintiffs' motion was due—Defendant identified one exhibit (COLO-MIT0066333) as privileged. See id. Plaintiffs agreed to not cite to or rely on the document. See id. On September 2, 2019, Defendant advised Plaintiff that Exhibits 20 (COLO-MIT0057704-05) and 21 (COLO-MIT0057715) to the class certification motion were privileged communications that were inadvertently produced and subject to clawback. See id. ¶ 8, Ex. B. Defendant asked Plaintiffs to immediately withdraw and re-file the class certification motion without reference to the exhibits. See id. After some back and forth, Plaintiffs offered to redact two sentences and request in camera review to allow the Court to determine whether privilege applied. See id. ¶ 13, Ex. C. Defendant rejected that offer. See id. ¶ 14, Ex. D. On September 4, 2019, Plaintiffs requested in camera review of the subject documents. See Dkt. 259. On September 13, the Court determined that the documents appeared to reflect privileged communications and that privilege had not been waived, and thus were subject to the clawback provision of Federal Rule of Civil Procedure 26(b)(5)(B). See Dkt. 265 (“Privilege Order”). Plaintiff then revised the class certification motion to remove the two exhibits and references thereto. See Brome Decl. ¶ 18. III. LEGAL STANDARD District courts have the inherent authority to disqualify counsel. See United States v. Wunsch, 84 F.3d 1110, 1114 (9th Cir. 1996). In order to determine whether to disqualify counsel, the court applies California law. See In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000) (“[Federal courts] apply state law in determining matters of disqualification.”). *2 Motions to disqualify proceed in two steps. First, the court determines whether counsel has committed an ethical violation. See Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807, 815 (2007). Second, assuming a violation occurred, the court considers whether disqualification is appropriate. See id. at 819. “An order of disqualification of counsel is a drastic measure, which courts should hesitate to impose except in circumstances of absolute necessity.” Kelly v. Rover, 2012 WL 851558, at *2 (N.D. Cal. Mar. 13, 2012) (citing In re Marvel, 251 B.R. 869, 871 (Bankr. N.D. Cal. 2000)). “Because of [the] potential for abuse, disqualification motions should be subjected to particularly strict judicial scrutiny.” Optyl Eyewear Fashion Int'l Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1050 (9th Cir. 1985) (citation and internal quotations omitted). IV. DISCUSSION A. Whether Plaintiffs' Counsel Violated their Ethical Obligations State Compensation Insurance Fund v. WPS, Inc. (“State Fund”) is the seminal California decision defining a lawyer's ethical obligations after receiving another party's attorney-client privileged materials. See 70 Cal. App. 4th 644 (1999). State Fund established the following standard: When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified. Id. at 656-57.[1] Because the standard is objective, courts must “consider whether reasonably competent counsel, knowing the circumstances of the litigation, would have concluded that the materials were privileged.” Rico, 42 Cal. 4th at 818 (adopting the State Fund standard). Defendant repeatedly cites to the Court's Privilege Order to support its argument that opposing counsel violated their ethical duties. Noting that the Court has already determined that Exhibits 20 and 21 referenced fact gathering at the direction of in-house counsel, Defendant implies that Plaintiffs should have understood the same when the communications were initially received. See Reply at 4 (“The Order, however, makes clear that the privileged nature of the communications was obvious to Judge McCormick.”). But the fact that the Court's Privilege Order credited Defendant's position and rejected Plaintiffs has no bearing on the present inquiry because it was made with the benefit of hindsight. “Without assuming the role of a Monday morning quarterback,” the question for the Court is whether counsel acted reasonably with the information they had at their disposal. Todd v. STAAR Surgical Co., No. 14-5263, 2016 WL 6699285, at *3 (C.D. Cal. July 20, 2016). *3 Defendant's primary argument is that the two communications have obvious indicia of privilege. The date and time stamps of Exhibits 20 and 21 reflect that they were made on the same date as the parties' mediation efforts. See Williams Decl. ¶ 3. They also refer to fact gathering done at the direction of “Ursula” for use in “mediation.” See id. “Ursula” is Ursula Guzman, Defendant's Associate General Counsel. Defendant notes that Ms. Guzman attended the mediation, most depositions, and met opposing counsel several times, and thus Plaintiffs knew or should have known that they had potentially privileged information. See Motion at 9. Plaintiffs' counsel responds that he did not view the subject communications as privileged: “[t]he documents did not stand out ... as related in any way to the parties' mediation – they appeared simply to be about an internal overtime audit, comparing work records with the time records used for payroll.” Dkt. 280-6 (“Schwartz Decl.”) ¶ 7. Unlike Defendant's counsel, the Court is not prepared to discount counsel's statement that he did not immediately associate “Ursula” with Ms. Gomez. Although Ursula is an unusual name, nothing in the record indicates that Plaintiffs' counsel had any association with Ms. Gomez except in formal settings such as mediations and depositions, settings in which the use of first names is less likely. Nor is the Court persuaded that counsel should have immediately recognized the date of the communications as the date of the mediation. Additionally, the Court does not view the references to Ursula and mediation in isolation and instead considers them in light of the full circumstances facing counsel. The communications are messages between two non-attorneys discussing employment issues. They were not marked “attorney-client privileged,” instead marked “confidential” like the vast majority of Defendant's production. Compare State Fund, 70 Cal. App. 4th at 648 (“The heading at the top of each claim summary form reads: ‘Attorney-Client Communication/Attorney Work Product,’ followed by: ‘Do Not Circulate or Duplicate,’ and ‘(Complete and Return to SCIF Civil Litigation Center).’ ”). The communications were part of a large document production that Plaintiffs received less than six weeks before the certification motion was due. As part of its review of the 188 potential class certification exhibits, Defendant identified on exhibit as privileged but not the two at issue. Defendant made this identification the day the class certification motion was due. Given these circumstances, the Court cannot conclude that a reasonably competent attorney would have determined that Exhibits 20 and 21 were clearly or obviously privileged. The privileged nature of the communications became “obvious” once Defendant notified Plaintiffs on September 2, 2019 of its privilege claim and demanded return of the documents. By September 4, Plaintiffs had destroyed their copies of the communications and sought in camera review as to the sealed documents already on file with the Court, see Brome Decl. ¶ 11, which was the right course of action to take: “when in doubt, ask the court,” Gomez v. Vernon, 255 F.3d 1118, 1135 (9th Cir. 2001). Following the Court's Privilege Order, Plaintiffs promptly revised the class certification motion to remove Exhibits 20 and 21 and any references thereto. See Brome Decl. ¶ 17; Dkt. 268.[2] Counsel's course of conduct strikes the Court as reasonable, especially in comparison to the cases Defendant cites to support disqualification. For example, Defendant relies heavily on In re Bona Fide Conglomerate, Inc., in which the Ninth Circuit affirmed the district court's finding that counsel violated his State Fund duties: “[I]n the face of SourceAmerica's [privilege] claim ... Cragg responded that he had no privileged information in his possession.... For a period of almost two years, Cragg and Bona Fide maintained that no privileged information was in their possession and that any privilege was waived.” 728 F. App'x 656, 658-59 (9th Cir. 2018); see also United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. 08-6403, 2013 WL 2278122, at *2 (C.D. Cal. May 20, 2013) (“Instead of seeking direction from the Court, Relators' counsel continued to quote in the pleadings portions of privileged documents [for the next three years].”). Here, by contrast, Plaintiffs' counsel did not wait two or three years but instead sought direction from the Court within two days of Defendant's initial email. *4 In sum, the Court concludes that a reasonably competent attorney would not have concluded Exhibits 20 and 21 were clearly or obviously privileged, and that Plaintiffs acted reasonably once alerted to the fact that they had privileged information. B. Whether Disqualification is Appropriate Even assuming that Plaintiffs' violated their ethical duties, disqualification would not be an appropriate remedy. “ ‘[T]he significant question is whether there exists a genuine likelihood that the status or misconduct of the attorney in question will affect the outcome of the proceedings before the court.’ ” Bona Fide, 728 F. App'x at 659 (quoting Gregori v. Bank of Am., 207 Cal. App. 3d 291, 308-09 (1989)) (alteration in original). Exhibits 20 and 21 concerned efforts by some of Defendant's employees to compare whether appraisals were ever submitted during times when an appraiser was not logged into Defendant's timekeeping system. As Plaintiffs point out, the concept of comparing time stamped work evidence against an employer's timekeeping records is common in off-the-clock cases, and Plaintiffs' retained expert performed a similar analysis without relying on the privileged information. See Opp'n at 12-13. Additionally, other non-privileged sources indicate that Defendant has made sporadic attempts to determine the extent of off-the-clock work occurring. See Brome Decl. ¶ 20, Ex. D (Vescera Depo.) at 87:20-89:4 (discussing timecard review of a specific appraiser). Similar to the situation in Todd, Plaintiffs appear to have “gained no insight into Defendants' litigation strategy, ascertained no new areas of discovery, and acquired no facts that could not have been obtained elsewhere. At best, [counsel] gained an idea of what discovery might produce.” 2016 WL 6699285, at *8. Defendant makes much of the fact that the information “cannot be unlearned,” but does not explain how the information Plaintiffs acquired would somehow undermine the fairness of trial and later proceedings. Defendant's citation to McDermott is particularly inapposite. At issue in that case was a privileged e-mail that was inadvertently sent to opposing counsel. See 10 Cal. App. 5th at 1094. After learning that the e-mail was privileged: Gibson Dunn refused to return the Blaskey e-mail, denying that it was privileged and that the State Fund rule applied. Gibson Dunn then further reviewed and analyzed the e-mail to determine its relevance to the claims and defenses in the Malpractice Actions, formulated deposition questions based on the e-mail's content, and deposed May Jo and Teri about the e-mail while reading portions of it into the record. Gibson Dunn also identified and quoted the e-mail in its interrogatory responses that described evidence supporting Defendants' defenses, produced the e-mail in discovery, and lodged a copy with the trial court in opposition to the privilege motion. Id. at 1122. This is a far cry from what happened here. Instead, this situation is more like Ashman v. Solectron Corp., where the district court declined to sanction the plaintiff and his counsel: “Most if not all of the relevant documents taken by [plaintiff] will be produced by [defendant] during discovery, and there is no evidence that [plaintiff] or his counsel have engaged in improper conduct since the instant litigation was commenced.” No. 08-1430, 2008 WL 5071101, at *3 (N.D. Cal. Dec. 1, 2008). *5 The Court is also mindful of other important interests at stake. “[J]udges must examine [disqualification motions] carefully to ensure that literalism does not deny the parties substantial justice.” People ex rel. Dep't of Corps. v. SpeeDee Oil Change Sys., Inc., 20 Cal. 4th 1135, 1145 (1999). Consequently, courts should consider, among other things, “a client's right to chosen counsel, an attorney's interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion.” Id. at 1144-45. This case is at the class certification stage and nearly two years old. Replacing the expertise and experience of counsel at this juncture would be challenging, if not impossible. The Court agrees with Plaintiffs' counsel that to disqualify them “would be a serious blow to the class's legal team, weighing against disqualification.” White v. Experian Info. Sols., 993 F. Supp. 2d. 1154, 1167-68 (C.D. Cal. 2014) (Carter, J.). The Court therefore concludes that disqualification would not be a proper remedy. V. RECOMMENDATION IT IS HEREBY RECOMMENDED that Defendant's Motion for Disqualification be DENIED. Footnotes [1] There is some ambiguity when an attorney's State Fund duties are triggered, i.e., when a lawyer comes into possession of materials that “obviously ... or clearly appear” to be privileged, State Fund, 70 Cal. App. 4th at 656, or “whenever a lawyer ascertains that he or she may have privileged attorney-client material,” id. at 657. Nearly every case applying State Fund uses the former language. In McDermott Will & Emery LLP v. Superior Court, the court observed that State Fund could be read to establish two standards, with the latter language triggering “a more limited response” of the lawyer notifying the privilege holder, at which point the onus shifts to the privilege holder to take appropriate steps. 10 Cal. App. 5th 1083, 1108-09 (2017). To the Court's knowledge, the California Supreme Court has not spoken on this issue. [2] Specifically, the Privilege Order went out late on a Friday, and Plaintiffs acted the following Monday.