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Plein v. USAA Casualty Insurance Co.

Court of Appeals of Washington, Division 1

July 29, 2019

RICHARD PLEIN, a married person, and DEBORAH PLEIN (formerly Deborah De Witt), a married person, and the marital community composed thereof, Respondents,
v.
USAA CASUALTY INSURANCE COMPANY, an insurance company, Appellant, and THE STERLING GROUP, INC. (doing business as Sterling Group, DKI), a corporation, Defendant.

          Chun, J.

         We address whether, given the facts of this case, a law firm may represent a person adverse to a former client. In doing so, we analyze whether this case constitutes a matter "substantially related" to the firm's representation of the former client under RPC 1.9(a). Comment 3 to RPC 1.9 guides our analysis.

         On behalf of Richard and Debra Plein, attorney Joel Hanson filed a complaint for insurance bad faith and various other claims against USAA Casualty Insurance Company. The claims stemmed from the actions of USAA and its recommended contractor for repairs following a house fire.

         A few months later, attorneys William Smart and Ian Birk from the law firm Keller Rohrback LLP, joined the Pleins' legal team. USAA objected to Keller's participation in the litigation because the company and law firm had recently ended their extensive attorney-client relationship.

         Keller requested the trial court rule on the asserted conflict of interest. The trial court found no conflict under RPC 1.9. USAA moved for discretionary review, which this court granted. We conclude Keller's representation of the Pleins violates RPC 1.9(a). Accordingly, we reverse.

         I. BACKGROUND

         The Pleins purchased homeowners' insurance from USAA. Later, in August 2015, a fire damaged their home and personal property. USAA determined that the insurance policy covered the damage and recommended The Sterling Group, LLC as a contractor to perform repairs. The Pleins followed the recommendation.

         The Pleins moved back into their home after Sterling finished the repairs. They claim to have noticed a substantial lingering odor of smoke upon their return. According to the Pleins, Sterling had concealed, rather than properly repaired, the fire damage. The Pleins hired a public adjuster and USAA hired an industrial hygienist. The industrial hygienist discovered numerous deficiencies in the repair work. The Pleins alleged that USAA agreed to move them to a rental house to complete the repairs, but it did not investigate the cost of the needed repairs or offer payment for those repairs.

         The Pleins claim that as of November 14, 2017, USAA had not made a coverage decision as to the additional repairs. That day, Mr. Hanson filed a complaint against USAA and Sterling[1] on behalf of the Pleins. In January 2018, Mr. Hanson approached William Smart, an attorney with Keller, about representing the Pleins in their lawsuit. That same month, Mr. Smart and another Keller attorney, Ian Birk, agreed to associate as counsel on the case.

         A conflicts check at Keller revealed the firm's past relationship with USAA. Keller attorney Irene Hecht and at least seven additional attorneys at the firm represented USAA and its affiliates for over a decade. Between August 2006 and November 2017, Keller represented USAA and its affiliates in at least 165 cases, approximately 12 of which involved insurance bad faith litigation by homeowners. Keller served as USAA's primary law firm in Washington for bad faith litigation. In the last two years of its representation, Keller billed over 8, 000 hours of work for USAA.

         One of the cases in which Keller represented a USAA subsidiary in an insurance bad faith lawsuit involved issues very similar to the Pleins' case. Specifically, Cueva v. Garrison Prop. & Cas. Ins. Co., Pierce County Superior Court No. 10-2-06680-8, concerned an allegation of insurance bad faith relating to the handling of repairs after a house fire. The similarities between Cueva and the Pleins' case included smoke damage inadequately repaired by a recommended contractor, health concerns arising from the smoke damage, appropriate methods to clean the house and personal property, and "factual and legal disputes concerning the methodology for objectively testing for smoke damage."

         The relationship between USAA and Keller ended in November 2017, the same month the Pleins filed suit. Keller's past work for USAA had not involved the Pleins. Additionally, the firm indicated that Mr. Smart and Mr. Birk had never been involved in Keller's relationship with USAA and did not have any knowledge of attorney-client communications with the company.

         After learning of Keller's involvement in the Plein lawsuit, USAA contacted the firm to claim a conflict of interest and demand immediate withdrawal. Keller moved for a ruling on the asserted conflict of interest. In response, USAA requested disqualification of Mr. Smart, Mr. Birk, and Mr. Hanson. The trial court concluded "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 1.9." The trial court allowed the Keller attorneys and Mr. Hanson to remain as counsel for the Pleins.

         USAA requested discretionary review of the trial court's ruling. A commissioner of this court granted discretionary review as to the representation by the Keller lawyers, but denied review as to Mr. Hanson, who remains as counsel for the Pleins. The Pleins moved to modify the commissioner's ruling. A panel of this court denied the motion.

         II. DISCUSSION

         USAA contends Keller's participation in the case violates RPC 1.9(a). It argues that this case constitutes a matter substantially related to the firm's prior representation of the company. The Pleins argue the conflict of interest prohibition does not apply, and ask us to view their case as factually distinct from prior USAA cases handled by Keller. For the reasons discussed herein, we agree with USAA.

         A. Standard of Review

         We review de novo "a court's decision to grant or deny a motion to disqualify counsel." Sanders v. Woods. 121 Wn.App. 593, 597, 89 P.3d 312 (2004).[2] Likewise, we review de novo a determination of whether an attorney has violated the RPC. Teja v. Saran. 68 Wn.App. 793, 796, 846 P.2d 1375 (1993); see State v. Hunsaker. 74 Wn.App. 38, 42, 873 P.2d 540 (1994).

         B. RPC 1.9(a) & RPC 1.10(a)

         RPC 1.9(a) 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 ...

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