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HomeMy WebLinkAboutAgenda Report - December 9, 2003 B-01 SMAGENDA ITEM B-1 &Q%� CITY OF LODI %. COUNCIL COMMUNICATION im AGENDA TITLE: Discussion Regarding Proposed Audit (Agreed -Upon Procedures) Of Envision Law Group's Billings And Authorization To Execute Contract With Barger & Wolen LLP MEETING DATE: December 9, 2003 PREPARED BY: Mayor Larry Hansen RECOMMENDED ACTION: That the City Council authorize the Mayor to execute the contract with Barger & Wolen LLP for the initial audit (agreed-upon procedures) of Envision Law Group's billings. BACKGROUND INFORMATION: At the November 19, 2003, City Council meeting, the Council approved the following two motions: oo To move forward on item one of the motion made on September 17, 2003 (i.e. 1. Financial agreement with Lehman Bros., Inc.; evaluation to include possible ramifications to the City of various scenarios that could occur) and engage an outside professional firm to audit billing records of Envision Law Group; and that items two and three of the motion made on September 17, 2003 (i.e. 2. Determine other potential options and strategies that the City could pursue in regard to the PCE/TCE litigation; and 3. Valuation of the City's current strategy) be stayed until such time as Council deems it necessary to proceed. oo Authorized that the law firm of Barger & Wolen LLP be retained pending successful resolution of any conflicts and a background/reference check; appropriated an initial retainer of $50,000; and authorized Council Member Hansen and Mayor Hitchcock to negotiate the contract, which will then be reviewed by the City Council before being formally initiated. Since that meeting, I have met with attorneys Robert G. Levy and David J. McMahon of the law firm of Barger & Wolen. Mr. Levy has experience in insurance coverage, professional liability litigation, and attorneys fee dispute issues. Mr. McMahon has experience in complex business disputes, financial and regulator litigation, environmental cost containment, and appellate work. (Please refer to Exhibit A, agenda Item 1-1 from the November 19 City Council meeting.) Also please find Exhibit B (list of references), Exhibit C (proposed contract), Exhibit D (letter from Robert Levy dated November 26, 2003), and Exhibit E (a conflict disclosure). I am in the process of calling the references and will report the results on December 9. 1 believe the approval of this contract is an important step in responding to the many questions that have been raised by the public and Council Members. I also believe that timing is a critical element to success. We need to get this audit in motion as quickly as possible. APPROVED: H. Dixon Flynn, City Manager council/councom/PCE TCEopinion5.doc Discussion Regarding Proposed Audit (Agreed -Upon Procedures) Of Envision Law Group's Billings And Authorization To Execute Contract With Barger & Wolen LLP December 9, 2003 Page Two FUNDING: None required—$50,000 appropriated on November 19, 2003. ck�� Q - hlaiwapw) arty D. Hansdn Mayor LDHlmp Attachments Exhibit A Agenda Item 1-1 (November 19, 2003 City Council agenda) Exhibit B List of references Exhibit C Proposed contract Exhibit D Letter from Robert Levy dated November 26, 2003 Exhibit E A conflict disclosure AGENDA ITEM 1-1 &12� CITY OF LODI %. COUNCIL COMMUNICATION im AGENDA TITLE: Discussion Regarding Proposed Audit (agreed-upon procedures) of Envision Law Group's Billings MEETING DATE: November 19, 2003 PREPARED BY: Council Member Larry Hansen RECOMMENDED ACTION: That Council discuss the proposed audit (agreed-upon procedures) of Envision Law Group's billings and 1) authorize that the law offices of Barger & Wolen LLP be retained, 2) appropriate an initial retainer of $50,000, and 3) authorize Council Member Hansen and Mayor Hitchcock to negotiate a contract. BACKGROUND INFORMATION: As the City's lengthy and complicated environmental abatement program litigation moves forward, there are many issues to be resolved. Some of the issues raised by Council Members, the media, aid/or citizens focus on the financing of the litigation, the cost of the litigation, and the length of the litigation. Because of these concerns, the City Council voted to seek a second opinion (refer to Council Communication and minutes from September 17, 2003). Council Member Beckman made a motion, Hitchcock second, to direct the City to officially seek a professional evaluation/additional opinion on the following matters related to the environmental abatement program: Financial agreement (with Lehman Bros., Inc.), evaluation to include possible ramifications to the City of various scenarios that could occur; 2. Determine other potential options and strategies that the City could pursue in regard to the PCE/TCE litigation; and 3. Valuation of the City's current strategy. The above motion carried by the following vote: Ayes — Council Members: Beckman, Hansen, and Mayor Hitchcock Noes — Council Members: Howard and Land Council Member Hansen and Mayor Hitchcock were charged with the responsibility of finding attorneys to offer the second opinion. Approximately 15 attorneys/law firms have been interviewed by either Council Member Hansen or Mayor Hitchcock. During this process, two attorneys were found with experience in auditing lengthy and costly litigation cases. Mayor Hitchcock and Council Member Hansen interviewed the attorneys, Robert G. Levy and David J. McMahon of the law firm Barger & Wolen LLP. Mr. Levy has concentration in insurance coverage, professional liability litigation, and attorneys' fee dispute issues for APPROVED: H. Dixon Flynn, City Manager Discussion Regarding Proposed Audit (agreed-upon procedures) of Envision Law Group's Billings November 19, 2003 Page Two the past 22 years. He was formerly the coverage counsel, statewide, for a major California legal malpractice insurer. He is qualified as a trial expert witness on the duties of insurance coverage counsel, and he has served as an expert witness on allocation between covered and non -covered claims in patent infringement litigation. Mr. McMahon has worked for Barger & Wolen LLP since January 1995, and his practice areas are complex business, financial and regulatory litigation, environmental cost containment practice, and appellate work. Barger & Wolen LLP was retained as Associate Remedial Liaison Counsel in the Lincoln Properties case. In this role, they were hired by the Settling Dry Cleaning Defendants to review and analyze the bills submitted for payment by the law firm of Zevnik, Horton, Guibord & McGovern, et al. (the "Zevnik firm"). The Zevnik firm was performing oversight and monitoring on behalf of their client, Lincoln Properties, in an environmental cleanup taking place at a shopping center located in Stockton. At that time Mr. Michael Donovan worked for the Zevnik firm, and eventually moved to the Envision Law Group. Barger & Wolen was also asked to review and analyze the invoices submitted by a number of the consultants who worked on the case with the Zevnik firm. During their retention, where they observed bills that did not comply with generally accepted billing practices or which were not properly documented, Barger & Wolen filed dispute petitions in court in accordance with the case management order which was applicable in that case. The petitions were heard and decided by the Honorable David H. Weinstein with Judicial Arbitration & Mediation Services (JAMS) who was serving as Special Master, appointed by the Honorable David Levi. In certain cases, the decisions of Judge Weinstein were appealed to the federal district court judge who was in charge of the case, the Honorable David Levi. Ultimately, Barger & Wolen LLP was involved in bringing a motion to amend the consent decree, which governed the cleanup in the case. The motion resulted in a resolution of the case through settlement. Summary of Barger & Wolen LLP Qualifications: Over the years, Barger & Wolen LLP has worked on more than 60 cases dealing with issues relating to litigation management, the reasonableness of attorneys' fees and the ethics of hourly billing. In the past several years, Barger & Wolen has been involved in cases decided by the Arizona, Montana, Georgia, and Florida Supreme Courts wherein ethical issues pertaining to the use of billing guidelines, legal auditing, and related issues have been decided. 2. Since 1991 Barger & Wolen LLP has litigated dozens of cases in which ethical considerations and/or the reasonableness of attorneys' fees and costs have been the central issue. During the last ten years, they have served as a litigator and consultant in a wide range of fee dispute cases, including environmental contamination, toxic tort matters, mass tort litigation, asbestos litigation, complex commercial disputes, and insurance overage/fee disputes. These cases have often involved disputes between clients and independently retained counsel, Cumis fee disputes, panel counsel fee disputes and attorneys' fee arbitrations. Since 1991 they have reviewed and analyzed hundreds of millions of dollars in law firm invoices reflecting legal fees and costs generated in litigation matters. 3. As a litigator of attorneys' fee cases, Barger & Wolen LLP has been involved in appellate advocacy, litigation, arbitration, and mediation concerning law firm fees and related ethical issues in many jurisdictions throughout be United States, including California, Florida, Texas, Alaska, Arizona, Georgia, Montana, Tennessee, and Utah. Discussion Re rdino Proposed Audit (agreed-upon procedures) of Envision Law Group's I tgs November 19,200S Page Three 4. Barger & Wolen LLP is constrained from providing details about some of these matters because of confidentiality orders or stipulations, which prohibit us from disclosing detailed information including, in some instances, the identity of the law firms involved. 5. As a consultant to various clients and companies in attorneys' fees matters, they have assisted clients, including corporations and insurance companies in drafting attorney billing guidelines for use by attorneys defending complex litigation. 6. Barger & Wolen LLP has also worked on a number of cases in which law firms have hired their firm to assist in their analysis of the reasonableness and necessity of fees and costs in ongoing litigation. This law firm has the expertise and experience necessary to determine if the legal fees incurred by the City have been reasonable and necessary. FUNDING: Water Fund $50,000 Vicky cAthie, Finance Director DAVIDJ. ?V1.C:NIMJON (415) 743-3706 dmanah on{«bn vvol . core Lary Hansen City of Lodi 221 West Pane Street P. 0. Box 3006 Lodi, California 95241-1910 650 California Street Ninth Floor San Francisco, California 94108 Telephone: ne: (415) 434-2800 Facsimile: (415) 434-2533 November 25, 2003 Re: List of..eferences for Barger & Wolen Lear Larry: PIIrAsL RcFER To. Ci1Jrf FILE MMBLK: 01.000.045 Pursuant to your request, we provide the following list of references for your Consideration, We have provided names, addresses and phone numbers, Some of these individuals are familiar with our firm's general practice. Others have observed the work we have done in th area of litigation management and legal auditing. We stand ready to provide you with any further infonuation you require on request. 1. Daniel J, Wallace, Esq. City Attorney City of Santa Barbara 740 State Street, Sadie 201 Santa Barbara, CA 93.102-1990 Phone: (805) 564-5331 Fax: (805) 897-2532 2, Matt Granger, Esq. Assistant. City Attorney City of Lompoc, Past Office Box 8001 Lompoc, CA 93438-8001 forte: (805) 736-161 Fax: (805) 736-8681 BARGER & WOLEN UJI Larry Hansen November 25, 2003 Page 2 3. Marty .Myers, Esq. Heller Elm an Whiter & McAu iffe LLP 333 Bash Street San Francisco, CA 94104-2878 Phone; (415) 772-6209 Fax: (415)772-6268 Email- MMyersOhewm_corn 4. Robert Hines, Esq. FarrOla, Braun cit .Martell 235 Montgomery Street, 30"' Floor San Francisco, CIS 94104 Phone: (415) 954-4400 Email: rhi.rzes cz 1ban.com 50 robin Lie Cram, Esq. Craig & Winkelman LLP 2150 Shattuck Avenue Suite 1220 Berkeley, California 94704 Phone: (510) 549-33 Fax: (510) 217-5894 Home: (510) 420-1.479 6. Martin. S. Checov, Esq. O' elveny & Myers LLP 275 Battery Street Embarcadero Center Test San Francisco, CA 941113305 Phone: (415) 984-8700 7. .lames M, White, Esq. American International Group 80 Pike Street, 6"' Floor New York, New York 10005 Business Phone: (212) 770-1801 E.ina l: �aApa� Avll $. James Wagoner, Esq. McCormick, Barstow, Sheppard, Wayte & Carruth LLP P. 0, Box 28912 Larry Hanson November 25, 2003 Page 3 DJM:rvv Fresno, CA 93729-8912 Phone: (559) 433-1300 Fax: (559) 433-2300 9. Robert C. Goodman, Esq. Lam; Offices of Robert Goodman UP 177 Post Street, Suite 600 Sari Francisco, CA 94108 Phone. (415) 777-2210 10. Peter Suns, Esq. Legal Secretary (to Governor Schwarzene er) (916) 445-0873 11, Paul Derecktor President and CEO Derecktor Shipyards 311 E. Boston Fast Road Mamaroneck, New York 10543 P c t: (914) 699-50211 Please call us if you have any question abotit this list of references. C1ser's FojdersAjnf4-cr u) Larry Hansen i 1-25-U3.doe `fiery truly y€ um OB G� LEVY For the F'irM. DAVID J. e AHON For the F hn 650 Califomia Street Ninth Floor DAviD J, WMAuoN San Franci$co, Caldomia 94108 (415) 743-3706 T,�Iepho= (415) 434-2900 dMQMahQn@bOxWOLG(1M FaoMmil e; (415) 434-2533 Ley Hansen City of Lodi City Hall 221 West Pi ap Street P.0. Box 3006 Lodz, Ca lifornia 95241-1910 N 0. 16 5 P. 2 ... ..... .. . . ... .... . .. ... . x'1 513 REMK To OURFUA N"ER! of 00U45 T1,As lefter is written to confum the terms under wbich this law firm (the "fwm," "we," or "us") has been :reWned by the, City of Lodi (the 11client" or "YOU11) to render logal. services; I !I 111 11011 HIM "Mil I I IN I I I I We have been retained by the City of Lodi to perform a legal audit of the fees and costs incurred by the Envision law f=, as well u the v anous consultauts and expeds retained by it or by the City of Lodi at Envision's direction. 2, Wo have also been hired by the City of Lodi to review and analyze the Fjnanci3�g Agreement entered into between the City of Lodi aad Lehman Bro thers, (tbe "Program Receipts Sale and Repurchae Agreement dated as of June 1, 2000 between the City of Lodi, As Soller and ropurchaser, and Lodi Financiug Corporation as fttchasex" ). 3, The Scope of our retention will also include outlining the legal reraedies Md options available, to the City of Lodi with rtspect to issues and concerns that havQ arisen re..9 arding itoms I and 2, above. The services pt6onned under this agreement may also inchide incidental services of a mino, zit=- regarding other matWrs, each of which matters do not =tail fees i;a excess of $1,040, Ift the event that we am engaged in a subsequent matter not described above, the, general nature of our fee aaangement shall also be evz&I by this lenez. in ronnection with the forQgoing, our services may consist of various activitics which we, ia our sole disev-,dat, deem to be in the intcrost of the cause entausted to us, including, without hinitation, disctmsions with you, attain iter -of ce confers s, telephone ealls, writing a:ay incidental correToudqnce, preparing legal dpcument6 and opinioxis, interviewing pertinent witaasws or other persons, traveling, reproacking yoi3 in legal proceedings involving actiow or suits before state and federal F- a N Larry Hansan, Esq. Novber 4-5, 2003 Page courts or agcncies or other govemmental bodies, preparing . may r s arch aiad d cave tat on, and all other necessary matters for such represeuWjou. QhLtgafi9& o e For all litigation, matters, the firm shall defendth e olie t i the action specifiedn the " e ccs Description"=ation ova;, including as necessary- the pr amt on of pleadings, motions .d related matters; conduct of disco -very; filing of oroN- complaints a d any complaints plaints air t ted pias relating to the action specified in the "Servide Description" s -tion above, conduct of settlement ne otiatiou ; and conduct of trial, Fox all coxpox .trs matters, the f= shall draft or review all necessary documents and advise the Qhent regaTdiug the logal effect of all proposed terms and condi tions; counsel the client regarding the legal f,-on,,;eqqenccs of the matter specified in the "Services Description" section bcv; and assist the c4entm obtaining all newsy pemits and taking any Cather steps that may be necessary to complete the transaction. .dyke Aft r lea: to Co ,, Unless specifically prov'Id d for herein to the contrary, our sex -vices are l anted such that we have xxo obligation to advise you of any changes in the law or .facts with respect to any matter that you have assigned to as after we have completed performing services with respect thereto, N is agt=§. You ao nowled e haat we have made no assn e s regarding the disposition or rooAlts of any phase of the matter or matters wig, Which. We are assisting you. Any expressions relating to possibilities of success are only our opinions U lawyers, and do not mprcamt assurances of a particular outcome. J Fps. You shall reimbmse this office for legal fees and costs for services rendered based on our standard hourly billing rates in effect at the time the ork is pc6or ed, Our pr rat h.ouz°ly rates for the personnel proposed to work ou this e ga o gent vary from $ 0 to $310. Fo the billing rates of iudivi.duals miticipatod to work on your project and other standaxd fees and chaTges, pease see Exhibit A. `You agree that all fees and charges are subject to reasonable p niodi inrr�ases subject to prior mutual agreement. Qfit&va ned, In addition renubursement for legal fees, you shall pay for all cosh and expenses chargQd to you or advanced on your behalf Costs charged include filing fees, t l phonc charges, document reproduction, travel costs such as plane tiok6ts, cab fares, mileage and tolls, data prorcssing charges, aonprofessional overtime, mossenger charges and Ire lated seTvic s. ,mounts we charge for data reproduction, services of our word prvicesiing division (for documeats of 5 pages or more) and other services ars billed as costs. The &m slAll not be obligated to pay or advance any such fees, casts, or eXpenses and it may, at its sale optioi4 () require you to advance p) ent for any such costs Or (2) alTmge.to have those coda directly billed to you. NotwithstaWing NS p rovisban, the fum may at its sole option advance siiich assts as it deems appropriate and obtain reimbursement from the client. Y Y L N UP Larry Hansen, Esq. Never 25, 2003 Page The fact. that we elect to adva ce any partic k item of oost on behalf of the client s%aall jaot be deemed. to creat a obligation to advanoc the sae or similar iteral of cost at any future tiaiie, Both legal services reudered and costs advanced by the fum will be billed on a monthly bads,. Lamment. You shall make payment for the abvvp, legal s rvicos and costs wi't n thiAy days of the date of our montbly statement, In addition, during to comae of the faun's mprese tat on, its lawyers may consult with Meits and =angt fox these Mexts to Tender sortie s on your behalf If this is done, we will require your direct payment to the ex;p Tis and you agree that you will not o y be respoLsible for the payment of those costs, but for any law- cbarges and similar items, Notice.of co- ect l ° �h'itI f �! if, for any reason, you dispute all or a iy pQrdon of any monthly statement rend d, you shQ inf nm the undersigned in writ" within foxtya ve days after receipt of the monthly statement. If there has been no such commu-nication, the monthly st tezx w shall be de ned by beth the client and the firms to be. correct and payable in Ul- =eresjou Past,txx o nt , In the went tit any bill is not paidiibin forty-fiv . (45) days of the date it wa s sent, the f= will be ent€tled to intemst an that amount from that: point forward at the rate of either ton pe-meut (I 011/o) per annum, or tlae highest rete perrnissib1 under the laws of the State of California, whichever is lover. W l £fib i atio c lie t. You agree to cooperate with the fum to tht extent nwessaxy for the tim to dischargo its duties under"Us agreement. Coop: toga shall include; but not be limit d to, attendance at all proceediags, meetiuSs, conferences aud other events at wI ch your presence, is rec ixd or requested-, and provideg the firm with any ueces,saxy doemneats aad other informatioA p raptly following our request. u ervi ani A i r e . nloss otherwise notified, the undmiped will be the attomey who will supervise your file. When necessary, however, that allo ey may utilize. other members of the fina associates or paralegals, to assist with, your legal matters. 'flan decision ofwhich attorney will be employed on any matter for you will be that of the law fu., Mess we are specifically directed in vniting to employ € my certain personnel. If so directed, the fees for such persormel will b --ommensmatelyhi her duc to the exclusive utilization of such attorney's time. c in t est. °:ozit tt x . e ourreatly repres=t and may iia the fate reprnscnt other iadiv duals, insumce companies, and oi-iz tioTis and persons who may 'be in wznp titin , with you... Your acceptance of the terms of this letter includes the fact that w may mpr seat persons irL competition with you, Furthermore, because of tlae many matters handled by the inn, matters for ether clients may, in certain circumstances, be given pdority over yow- matters, when in the judgment of the fir, the relative urgency of different xrsatCors dictata such priority, 5 BA ER & WOLEN NO, 1c BARGER & WOLEN UP LwTy Hansen, Esq, Novmber 25,2003 Page 4 —RAm-:M. In conneotion with our mpreamtation, we will require a retainer of $10,000, You ihould keep. in mind that the =tainor is not an ostimate of the total fees and costs, Those ,ums may fu exceed the above re r. We will bill you mondily with o -Ur C=ent fees a:ad ohargesi, wliich yo -a are to pay witbin thirty days of the statemeftt date. At our option, we May apply the rctainer to unpaid charges and require reiustatment or an increase of the ret ner- if any balance is -remaining upon completion of se ices, we will Mum such balanc e. Please rerWt a chedk for the retaineralong with the acknowledgment copy of this later. &zMqj:MWq" The fum aad the clic ,t agree that either may terminate, their relationship with the other at any tinle, for any or no reason, by notifying the other in Ming. gg4pj". You aclmowledge that it is impossible to -know in advance, the eutire fees w costs for our representation. For example, if the work entails or conceins the p'rosecution or defense of litigation, or matters siniflar to litigation, a majority of the work is contingent upoR the activities of our opponents and the developing exigmeies of the litigation. Similar exigalacies often develop in hwdling tramactional mattcn, From time to time, you might ask us to estiniate the cost of handUng a particular phase of, or the TQst of, the litigation or prqjca, wbich we are handling on your behalf. We may endeavor to assist you in that regard. You should keep in mind, however, that such esfi=tos are really "guesstimates" based on predictions of what work the othaz side, the count, or the exigencies of the litigation or project may require us to perform. AdaLa—ation You agrce, as we do, that any dispute, based upon or arisiag out of our eugag=emt, tWs let agreement, our fees and/or costs advarwed on your behalf, and/or the perfozaianco or fQuro to perfb= service* (inclading, without limit, claims of professional negligence) shall be submitted to arbitration before the American oabitration Association, and ftt the decisiQn of the Arbitrator(s) shall be bindlug, on all parties. Any contention that fees should be offset, reduced, discharged, or t1iininated 'because the services were perfonned �-aproperly or Mow the standard of =e for attomcys shall also be litigated in that arbitration. You undcrstend that submitting a fnaftr such as this to arbitration constitutes a waiver of the right to have it trial by a jury and also imposes certain 11initations on discolvery procedures. DeTite; these facts, however, you agree, as do we, to arbitrate the as issues because of The relative speed d cost savings that ofton accoinpaay arbftmtioi� proceedings. Prior to slanting this letter, you have been advised of the provisions of CaUfomia Business & Professioas Code Sections 6200-6204, including your nght not to participate in fee arbitration and your right to anal following arbitzation. Your agroomew to participate in biuding nbitration of any -fee disputes under the Mos of the American Arbitration Association is Y)u a&pe,, as we do, that the prevailing party in Way arbitration or litigation Wising out of or relating to our engagement, this letter agreement, any obligations nr• a( ; NO. 1/r BARF_WOLEN ur November 25, 2003 Page 6 VK Robert Q. Lary 10 David 1. McMahon $285 awn N . V drat a $240 lchael D. Haupt $235 Paralegals 11 o We chargo for our tine in x U of D.1 hours. In -office e p otocop n $025 per page Mileage 0.365 per Mile Coraputmized legal reseaxch Actual cast Word processing $3 1,00 per hour Clerical staff overtime 1,00 per hour Facsimile 1 .00 per page sent The rags on this schedule axe, subje t to reasonablo increases that: wc mutually agreed i+:��s�����c®110QG�9(�45�eC�iaa�rl�c�iiil5e�i 1t•2S�('+� M E /� 16 L� BARGER & WOLEN Larzy Hessen, Esq. Novex bcr 25, 2003 Page 5 created by this letter agreement, fees audA>r costs advaucW on your behalf , d/or the performance Qr t lure to perfonn services (including, witLout limit, clams of brech of dwy or prof s ional negligence) shall be mtztled to recover all aaomeysl fees (including the value of time of atwmoys in the Arm at their no=al billy rates), all expos' fees onrl apenses, and Al casts (whether or not such cost are recoverable pant to the CaliforniaCod of Civil Proc,dz ) as may be incurr d in comection. with eithor obtaining.or collecting any judgTnevt an lar arbitration award, in addition to any Cather relief to wbich that party may be entitled. =Lc Agieemea This a reemmt supers t�s any aad all other a rcome ats, Qither coral or in writing, between the �,,1i t and the fm with, respect to the subject of this agreement, Tisee-ent contains all, of the, covenants and agreements between tete pardc,5 with respect to the subject matter oft s °e e t, and each p cy to this t*me t acknowledges that no represent tions, inducements, promis s, or agm-oments have, been Made by Or ou behalf of any party oxcept those covc-is and agreements =bodied in i s agreement, No aveement, statement, or promise not contained azz Us agreement shall be valid or binding, QqyeiMing 1,1j Me ThQ validity offu agreement and of any of its trams or provisions, as grit as the ruts and duties of the, parties wdor this agreexwmt, shall bc- consftue'd pursu t to and in accordance with California law. We are, pleased to have this opportmAty to be of spice to yon. if the foregoing weQts with.your approval, please date and siva the enclosed Gopy ofdds later where, indicated and. return it to tws office in the enclo d self-addressed envelope, By signing the enclosed y' you acknowledge that this letter agrcement is subject to bixiding arbitration as provided above. Thmik you for youx court;sy and cooperation, ACCEPTED AND AGREED TO: On this _—day of �. ,.,._.._, � � 003 [Signawre on Piled We look forward to worldag closcIy z yots, N U0 V, 2 6. 3 2 3, F V BARGER & WOLL BARGER & LENLLP 650 Cahfon-Aa Street Ninth Floor Ro4trcr 0, Lory Sm Francisco, Califomia 94 108 (41 S) 743.3 704 Telephone, (415) 434-2800 rIevy@bUwoLn,om Facsitnile. (415) 434-2533 1<.= . Hansen Council Member Lodi City Council Lodi., California ffiz� P uAs4 �ra To Om Paz NUMDn, Fuxther to our discussion yesterday, I write to provide an overview of cur fax's proposed ;p roar to the asci .t the City ofLodi is cousidming engaging our ffiln to handle. Our pfimary goal is to control the ongwag enoxmoustransacdon casts associated' mqth the prospwtive, clewup. To this end, we propose (1) to perform s leggy audit of the -attoineys' and consultants' fecs and costs, and (2) to malyze the eAabling documents, most notably the Lehman fmancing agreement, but, also the Envision fee cont.ract. Based upon ow fWdings and con clusiow, we propose then to advise the City of its legal options regarding points (1) and (2). Drie,tly to set forth some of the legal bases w� believe the City coold invoke, with respect to attorneys' fees, despite the terms of fee agreement, under the California Business and Professions Code a lawyer may charge oWy "a reawnable fee," measured by criteria set fodh in the code and other generally accepted othical billing pro tiers. Likewise, the United States Supreme Court laas rated that sm vices for which a legal fee is charged must be "reasonable and riec"sary," With rcspoct to contracwal issues, a contract may be rescinded where it was formed tmder a mistake, where there has be= misrepresentation (either activtAy or by negligent omission), aud, sometimes, where there are changed circumstances and thus the contract no lager serves the purpose(s) for which it was orented, WE9TIrXII BIRK HI IW*M-X oop,l s 9z%e Ummao 9o\lm 5za)ZWJ:L,%ovf Iew .1WRjo loodst Xup smsxp olw1iI py-mA n oiC jt llr-.) cel -�n4 fool smotd °spuu x:)qunj ioj saaXv 4v -i ft of pDou otp Irtoxalm ®s oxtiosoaj '9 j jnAe ;q+ YuT srooB sly ZuRsilduamov uu XjTD IsIssre of Alun odoq pm tvoAuv, o4 pmfoi iD upvaft rousiod OU OAMI dp-UI dO M TRIM AJZJ�4= 41X0 rSs� qgeoiddr op&taqqwd G!m M04 9 uuol o.id o vl x oidd oTjsgo t js- q- js °p uv MI of odoid w $ ul ,poffuuqo a.q Am 21ou pZ aq� jo jo o suo ppop qns Imp SVS jV'q` [IIM MA -1 of pQq AoqjWqA& `�4uGmo ° q u ;,.)Tp jo uopdvout oga 3o aulp Ott jl� pinoo A.,41P lstoq q� p7�rpsaoqmw uozspop 4rG jimp 4Aagaq 4l �ptxooi�-p�pjons oq t o jsw uogo st sob-aoY cis 'dntmajo kwsrswou aqj parg of i . j ,tr)'If sr' tgvgoid Aouom € n uo Iv *AoR q o �isag ssuo dtunssv ino jo omos iu p'no o t ova .TIM 29 lda-D-gvEl R Wo 650 California StrCec Ninth Floor San 'tea--isoo, Califoniia 9410$ (415) 143-3706 "elephoaep (41 ).434-2 00 dTnOMahOn@bsrwOLr,QW aoinuile: (415) 434-2533 LaTy D, Hausen mayor City of Lo4i: 221 West.Pine St et P. 0. 3006 Lodi, Cal forWa 95241-1910 Re. Disclosure of Polontial Conflicts sof Interest Dear Mayor Hansom N0 Oup %Lz FI s ; 292.i.oaa As you know, the City of Lodi (mere' '111P UW). is:rons.idering ret bun Barger &. Wo.lon LLP to represent its fist is in Qonnectioa with tho following matters: (I) to perform a legal audit of tfees and cost$ incurred by the Bnvisioa Law Gioup ("Envision"), as well as v ows consultant. and expexts reWned by it or. bythe C ity under Envision't direction; () to review and analyze the Rune 1, 2000 fumoing a e aant entered.. into between the City and Lehman Brotherg In,,,, (deno iAated. the "Program Receipts Me and Ropurchase Agrccrnanf% and (3) to. outh.ne the legal remedies and other options availablo. to the City with respect to issues and concem that have arisen ro ardi items 1) and () dbov(the "Proposed mation"). l eca se the interests of the City may invsa ve the interests of some of Barger & Wokm's Q .t, former, vWonts, we. believo it is best to disclose the potential . conflicts of interest that may exist by reason of mu representation of those 1�4ients ajad to obta the, City's infomed. written consent before procceding with the representations As You l o , Baxgor & Wolea was engaged to represent Ole interests of two subsidiaries of Chubb lasuran e,Company (" a ' "), namely Pacific Indenwity Company ("Pacifio") and Federal insuraxim Company (" Federal"), in an aeon. filed in 24()() its the San Francisco Sup r or Com, =tided . artford.4coide l -Ndemnity Company, et Axl v, ne City ,Loth, at ali, Cas o. 3236A Specifically, Hartford Insurance Company ("Haford") and related e - t z�s :used Pacific, Fedaal and other insurers for declaratory relief and contingent contribution relating to the City's `liability" for def=e and cleanup costs associated VAth contamination of the City's sewer system by PCE and other chmnicals arnanating prixrza ly from dry cleaners in downtown Lodi (the "Cleanup Litigation") - The City thereafter filed a PUB 65 BARGER. & WOLEN D. Hansen December 5, 2003 Page 2 cross-complaint against all parties, incluftg Pacific and Federal — two carries it clai-med to be its insumrs. Following the filin of the City's toss -co pl t� the €etheramis to the Glee Litigation also fled cross actions against Pacific aud Federal. However, on or about March 6, 2002, the City dTopped Federal when it filed its &A amexidod cross-complaint, and on or a sot Svtember 12, 2003, thQ City di missod Pacific ou the eve ortrial. All other carriers have since dismissed pacific as well. The action has Seen stayed as to F doral and all other "excess" carriers. Thus, t City no longer maintains any c1aims against Pacific or Federal in the cl anup Litigation, and Chubb is involved in the case only by vide of the (stayed) cross-complaints against Fedoral. Neveitheless, in. a sup=b :ada oe of ca timx, should the City decide to rosin Barger & Wolen in comipsc iota with the PropQsed Represeutation, we will terminate our represm,tation of Federal in the Cleanup Litigation. B. Barger & Wolexi's Representation of Ti-avelors Indenmity Company Our preliminary conflict check has also idmtWed one other matter involving the City whereW we provided services to Trav lers indemnity Company (" Tr velar;?) in the United States Distiict Court for the Eastem Disaict of Calibomia, entitlod American Stores Properties .Ihcc et al v. City of Lea f et uZ, Case No- CIV S-97-1853, The scope Qf our rapfesentatioA in that action was extremely l nited, consisting of assisting v l r in responding to a diW party subpoena that had been steed on Travelora by lawyers for the City, Travelers never appeared in the American Stares action as a. party. Moreover, in Novembcr 2001, our invohrt anent on behalf of Traytkrs t nninated and the representatian was transferred to the law firm of Perkins Foie. The last time, that we provided any mbstantive work on the Arnerican Stores case was in November 2001. .s you may recall, the. Lincoln Pwperties oleanup litigation was resolved by why of the purch of ars, onvixonmental romediatiorl polio from ATG Envirownental. At the early stages of the =viro=ontW litigation involving the City, AIG Environmental was Likewise wt,�-restcd in, the possibility of. its ultimately providing a policy, Lir polioi s, of ouvironmental remediation insurmce to handle cleanup of the pollution. in tho City. IR that the acmes involved w the initial litigation ixivelving oleanap of the City were complax, SIG EavironmentzI ret in d ua r & Wolon to review public record documents and provide clarification as to what appeared to be transpiring in th.c litigation, with respect to the elu tion as to w m the ultimate cleanup of the contaminatioja of the City night tate place. Barger & `Meilen provided Al Environmeutal witb the requested ovQr viow of litigation, as of that time. The fim did no fah z- rtport% g on 0 ht public record documents to AIG Environmental subsequ t to Tarniary 2000, Apparettly, Travelers iquwd An iunwauot policy to Lwty Stores, wbich was sabsc�quvn y purchased by 'A. UE P N K 165 P 1 IL BARGER & WN up LwTy De Hansen Decamber 5, 2003 Page 3 D, Potential Conflicts of Interest A conflict of iutcrest exists whcu a lawyer's duty on behalf of one clot obUgatos the lawyer to take action prejudicial to t4o int ret of another client, i.e., 'when in behalf of one client, it is dat . y to. coutend for that which duty to another . . requires him to oppose." Flo v. Superio;,Cor,irt(1994)9Cal,4th275,292, Conflicts of interest can be. based on a lawycr's representation of two or more clients in a single dispute or transaction ("=acun=t rvresentation") or they cau be based on a, lawyer's representation of a. chm in oxie matter against a client in a different matter ('succcsdva reproscntaioii'�, With Ympest to conflicts of interest based on concwrent -f epiesemialiva, m attomey must receive the infornied Witten consent of of clients bzforc he or she can proceed with the representation. With respect to conflicts of interest based on successive representation, the attorney is only required to Obtain the informed w6ttem oonsent of tho olicnt in tho first matt x. " Informed tten consent" means the cfimVs or formel'olient's written agTeement to the representation following written disclosure. Because Barger & Wolon no longeic ropresents Travelers with respect to the subpo.ena in the 4rngrican Stores action and because ow involvement in that matter is compidely 1=elated to the Proposed Represmtatioix, we can conceive of no actual or potential conflict of iaterest created by our rwresentation of the, City in tbo Proposed Ropre-sentatiou, Likowise, because Barger & Wolon no longer is reporting to AIG Enviro=ental on the various pieces. of lifigaticm coumming cleanup of the City aud because, our provious involvement in that regard is compldly unrelated to the Proposed RePre-sentation, we can conceive of no actual oT potential conflict of interest created by oux reprosentation of the City in the Proposed Reprosentatior'. Our represmtation of the Chubb entifies in the Cl=up Litigation way constftutc a somewhat different situation since, we we b6ng asked to review attorney bills subu1jut-A by Envision to the City in the very sami, litigation. To the, extent Buvision',q bills contain informatiou that is protecWd by the aftomey-climl privilege, Barger & Wolen would have access to that information creating a potonlial congict of interest between our representation of Moral in �e Cloanup Litigatien and oux ropmsentation of the City in the Proposed Reprosentation, Conversely, from Chubb's perspective, the information obtained by Barger & Wolen in our representation of Foderal arpgably could be used by the City to the detriinout of Chubb, However, given tho fact that (1) the Proposed Representation does not contemplate — nor Nvould Bargqz & Wolea, undcr any oixQimstances, ever become involved in — litigation against insurers in the, Cleanup Litigation, (2) Federal and the City are no longor adverse in the Clmup Litigatioa, and (3) the Envision attoruoy bills appear to be, in the public, domain (and lion -privileged), we, believe a conflict of intmst is unlikely, Novertheless, as an extra measure of caution, we are prep ed to tarmivate forthwith our representatiun of Federal in the Cleanup Litigation W order to cout our representation of the City in the Proposed Repres=tation. NO, 165 L I Larry D. Hansen Docember 5, 2003 Page 4 Please do not hesitate to oil if you wish to disouss.t.he matters addrossed herein at greater leagth, YQ-u are ceTtainly PrMleged and Welcomo to consult other counsel conceming th4se, rixattzrs, as well, 1, on behalf of the City of Lodi, being fully antagar ized.to exopute this doo-umozit, have x and undastand the attached 'letter dated December 4 2403 di to bhe potendalfix a �onAizl fittmest between the City of Lodi and Travelers Accident and Indemnity Company, AIG Enviromnontal, and the Chubb Group of hasurance Companies. Notwithstanding the potential for a coralict, I hereby conscm to Barger & of LLPs rWrosen tation of the City of Lodi in connection with the matters identified above, THE CITY OF LODI TQ XAny Razca-vtdo ENVisION LAw GROUP A LIMITED LIABILITY PARTNERSHIP TO: Randall A. Hays, Esq. City Attorney FROM: John C. Meyer, Esq. Assistant City Attorney ENVision Law Group, LLP DATE: December 9, 2003 4��W 1;4-5�d3 Privileged an'd Confidential Attorney -Client CQrnmuriicgition.''. Attorney Work Pr©duct Not Subject to Public Disclosure SUBJECT: Retention of Barger & Wolen, LLP, to Perforin Audit of the City's Legal Invoices INTRODUCTION We have been advised of the City Council's decision, subject to the resolution of certain conflicts of interest', to retain the law firm of Barger & Wolen, LLP to conduct a review of the legal invoices submitted to the City by our firm and our predecessor, Zevnik Horton Guibord & McGovern, LLP. While we continue to believe that the City may properly review our bills at any time it wishes, any such review should be done under the City's supervision by a provider that is neutral and independent so that any result will reflect a candid and unbiased assessment of those invoices. In fact, in light of concerns recently expressed by certain council members about supposed billing improprieties, ENVision Law Group, LLP welcomes such a review and an opportunity to address any concerns. In any event and as recognized by the Council's contingent approval of this proposed retention, such a review must not be conducted by a law firm that is subject to non-waivable conflicts of interest. Moreover, even if the conflicts were such that they could be waived, the waiver of an actual conflict of interest to allow opposing counsel to be engaged to review the bills of the City's attorneys prosecuting actions against parties represented by that very law firm is unconscionable. In fact, a review by such an inherently biased firm cannot and will not produce a reliable work product upon which the City can act without facing a high degree of skepticism and distrust. As discussed below, Barger & Wolen is not only a firm with an extremely biased agenda in any review that it would conduct (given not only its primarily insurance industry client base, but also its past, personal history opposing the founding member of this firm, Michael Donovan), it is ' We are informed that, to date, the City Council has not sought the advice of counsel on the scope of Barger & Wolen's disclosure or the legality of waiving the identified conflicts either from the City Attorney or by opinion from independent outside counsel. Failure to obtain advice of counsel may negate the validity of any consent granted. ENVISION LAw GROUP A LIMITED LIABILITY PARTIERSHf P Randall A. Hays, City Attorney Privileged and Confidential City of Lodi, California Attorney -Client Communication December 9, 2003 Attorney Work Product Page 2 Not Subject to Public Disclosure also a firm that is subject to both waivable and non-waivable conflicts of interest.' Accordingly, we respectfully urge the City to carefully analyze the authority pertaining to these conflicts of interests. Upon recognizing that the conflict at issue herein is not waivable, we urge the City to select an alternate firm to conduct this review. A. QUESTIONS ADDRESSED 1. Does Barger & Wolen have conflicts of interest? 2. Can Barger & Wolen's conflicts of interest be waived after full and informed disclosure to the City of Lodi ? Can Barger & Wolen resolve its conflict by creating "ethical walls" or by terminating its representation of the other client so that it can undertake the representation of the City? 4. Can the City of Lodi proceed with an audit at this time if it so chooses? B. SHORT ANSWERS Yes. Barger & Wolen has several existing conflicts of interest including the current representation of two of the City's liability insurers in Hartford Accident & Indemnity Co. v. City of Lodi, et al., Case No. 323658 (Cal. Superior Ct. - San Francisco County)(hereinafter the "Hartford action" which is the City's action San Francisco Superior Court against its own insurers); the prior representation of Jack Alquist who is a primary defendant in City of Lodi v. M&P Investments, et al., Case No.CIV 5-00-2441 (E.D. Cal.)(Damrell, J.)(hereinafter the M&P Investments action which is the City's core action in federal court against the parties responsible for the PCE/TCE contamination within the Lodi Area of Contamination); and the prior representation ofTravelers Indemnity Company in the American Store Properties Inc., et al. v. the City ofLodi, Case No. CV 5-97-1853 FCD (E.D. Cal.) in light of the suit brought against the City of Lodi by Travelers Indemnity which is captioned The Travelers Indemnity Company, et al. v. The City of Lodi, et al., Case No. As outlined in our firm's memorandum of November 5, 2003, we have serious concerns regarding the significant, adverse consequences that a formal public audit undertaken at the present time will have upon the City's on-going, and predominantly successful efforts to recover the City's defense costs and upon our efforts to defend the City's interests in the ongoing litigation before Judge Damrell. ENVISION L,Aw GROUP A 11WTED UABILITY PAR 11MRSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 3 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure 02AS02008 (Cal. Superior Ct. - Sacramento County). 2. No. While the Rules of Professional Conduct of the State Bar of California provide that all potential and some actual conflicts of interest may be waived after full disclosure is made and informed written consent is given, certain actual conflicts of interest may not be waived. Specifically, neither an attorney nor a law firm may represent two separate clients in a single law suit where an actual conflict exists between those two clients. In fact, the California Supreme Court has stated that the most egregious conflict of interest is representation of clients whose interest are directly adverse in the same litigation. The rationale for this rule lies in the public policy that the paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the Bar. The important right to counsel of one's choice must yield to ethical considerations that affect the fundamental principles of our judicial process. Accordingly, while Barger & Wolen's conflicts concerning its prior representations may be waived in writing after receiving informed consent, the actual conflict in the Hartford action arising out of the proposed concurrent representation of the Pacific Indemnity and Federal Insurance (collectively referred to as the "Chubb Companies") on the one hand and the City of Lodi on the other may not be waived. 3. No. For attorneys in private practice (as distinct from a former government attorney moving into private practice), constructing a so-called "ethical wall" within a single law firm is insufficient to cure a conflict of interest. When an attorney is disqualified from concurrent representation, the entire law firm is vicariously disqualified. Moreover, the size of the firm is immaterial, as is whether the firm is organized into different practice groups. Furthermore, the decision to drop one client (as proposed by Mr. Levy and Mr. McMahon) cannot cure the conflict. A law firm that knowingly undertakes adverse concurrent representation may not avoid disqualification by withdrawing from the representation of the less favored client before hearing. 4. Yes. While we have advised the City Council that the decision to conduct an audit at this time may have adverse impacts on the City's cost recovery claims, we have also advised the City Council that it free to conduct an audit at any time it deems appropriate. To do so, the City Council need only select a firm to conduct the audit that owes a duty of loyalty o__nly to the City. In short, the sole requirement is selection of a firm that is independent and neutral so that it has no conflict of interest. While Barger & Wolen most certainly does not satisfy this criteria, there are numerous firms that provide this service that could be engaged by the City. ENVISION LLAW GROUP A LIMITED LIABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 4 C. Facts Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure A. Barger & Wolen is a law firm that currently represents two of the City's own insurance companies — Pacific Indemnity Company' and Federal Insurance Company — against both of which the City has brought claims in a pending lawsuit in San Francisco Superior Court. Indeed, both insurance companies which are represented by Barger & Wolen have interests directly adverse to the City in the ongoing insurance coverage matter (the Hartford Action). Barger & Wolen has a continuing duty of loyalty to both Pacific indemnity and Federal in the above referenced action. B. Barger & Wolen is a law firm that represents the Travelers Indemnity Company. Travelers Indemnity Company has sued the City of Lodi in The Travelers Indemnity Company, et al. v. The City of Lodi, et al., Case No. 02AS02008 (Cal. Superior Ct. - Sacramento County) — a case that remains pending. While Travelers is represented in the above -referenced Superior Court action by the Summit Law Group and Simpson Thacher & Bartlett, the fact remains that Travelers is a current client of Barger & Wolen. In addition, Travelers Indemnity was the subject of discovery in American Store Properties Inc., et al. v. the City of Lodi, Case No. CV 5-97-1853 FCD (E.D. Cal.). Barger & Wolen represents Travelers and opposed the City for purposes of responding to the discovery in this federal action which also remains pending. In short, Barger & Wolen has a continuing duty of loyalty to Travelers. C. Barger & Wolen is a law firm that represented Fremont Indemnity Company in the matter captioned Lincoln Properties Ltd. v. AIUlnsurance Co., Case No. 238274 (Cal. Superior Ct. - San Joaquin County)(McNatt, J.) in which their client was compelled to pledge the policy limits to the clean up of Lincoln Center, as well as to pay significant monitoring and oversight costs in excess of those policy limits. D. Barger & Wolen is a law firm that, as Associate Remedial Liaison Counsel, ' Based upon council minutes, we believe that Pacific Indemnity insured the City for multiple years in the early 1970's, preceding the USF&G term of coverage, which commenced on December 31, 1974. As you know, we recently dismissed Pacific Indemnity from the Harford matter, as the City has been unable to locate additional evidence of coverage, other, than the council minutes. That dismissal, however, was without prejudice, and Pacific Indemnity remains subject to be drawn back into the Hartford action if we can locate better evidence of coverage, such as portions of an actual policy. Thus, the dismissal does not eliminate the potential conflict of interest with respect to Pacific Indemnity. ENVISION LAw GROUP A LIMITED LIABILITY PARTINERS14P Randall A. Hays, City Attorney Privileged and Confidential City of Lodi, California Attorney -Client Communication December 9, 2003 Attorney Work Product Page 5 Not Subject to Public Disclosure represented the Settling Dry Cleaning Defendants in the matter captioned Lincoln Properties Ltd. v. Higgins, et al., Case No. CIV -S-91 760 (E.D. Cal.)(Levi, J.) Although apparently paid by the insurers that were subject to the orders issued in the above -referenced AIU action, Barger & Wolen's actual clients were the individual defendants in the Higgins action. These individual defendants specifically included Jack Alquist (and his dry cleaning operations) who is one of the primary defendants in the City's core enforcement action in federal court known as City of Lodi v. M&P Investments, et al., Case No.CIV 5-00-2441 (E.D. Cal.)(Damrell, J.). D. Discussion of Questions Addressed L. Barger & Wolen Has Serious Conflicts of Interest At the outset, we note that Barger & Wolen has very real and very serious conflicts of interest — each of which should have been disclosed to the City and cleared before discussions between Barger & Wolen and the City's representatives began.' These conflicts include both continuing actual conflicts of interest and potential conflicts of interest. This proposed representation creates actual conflicts of interest in which Barger & Wolen would represent adverse parties in the same action, in which Barger & Wolen has represented adverse parties in unrelated actions, and in which Barger & Wolen would represent a current client that is adverse to a former client. In addition, Barger & Wolen has identified certain other potential conflicts of interest. Each of the actual conflicts of interest is described more fully below: 1. Actual Conflict: Barger & Wolen currently represents two of the City's own insurance carriers --- Pacific Indemnity Company and Federal Insurance Company — in Hartford Accident & Indemnity Co., et al. v. the City of Lodi, Case No. 323658 (Cal. Superior Ct. - San Francisco County)(Kramer, J.). The Hartford matter, of course, concerns the City's disputes with its insurance carriers with respect to the defense and indemnity obligations of those carriers in the M&P Investments suit, and both Pacific and Federal are aligned against the City in that matter. As counsel to Pacific and Federal, Barger & Wolen has taken the position that its clients do not owe the City a defense in the M&P Investments suit and are under no obligation to indemnify the City. Those insurance companies, however, may ultimately be liable for the City's costs of defense and to indemnify the City. It is, " We previously provided a conflict list to the City. Barger & Wolen's name appears on page I 1 of that list. ENVISION LAW CROUP A LIMITED LIABILITY PART[ERSHP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 6 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure therefore, in the interests of Barger & Wolen's insurer clients for Messrs. Levy and McMahon to attack the invoices submitted to the City in order to minimize the amounts for which their insurer clients will be liable. In this respect, the interests of Barger & Wolen and its insurer clients are directly aligned with those of USF&G. Moreover, if they are retained, Barger & Wolen will be in the unique position of reviewing the privileged and confidential invoices reflecting the efforts of our firm to prove the contractual obligations of Barger & Wolen's insurer clients. There can be no reasonable debate that this concurrent representation constitutes a direct and actual conflict of interest. Barger & Wolen would owe a duty of loyalty to multiple clients in the same action. The very matter to be reviewed as counsel for the City is precisely the same matter that is at issue concerning whether and to what extent Barger & Wolen's insurer clients will be liable for these fees and costs as claim expenses. 2. Actual Conflict: Barger & Wolen currently represents the Traveler Indemnity Company. Travelers Indemnity Company is adverse to the City of Lodi in two separate actions. Specifically, Travelers Indemnity Company has sued the City of Lodi in The Travelers Indemnity Company, et al. v. The City of Lodi, et al., Case No. 02AS02008 (Cal. Superior Ct. - Sacramento County) — a case that remains pending. While Travelers is represented in the above -referenced Superior Court action by the Summit Law Group and Simpson Thacher & Bartlett, the fact remains that Travelers is a current client of Barger & Wolen. In addition, Travelers Indemnity was the subject of discovery in American Store Properties Inc., et al. v. the City of Lodi, Case No. CV S-97-1853 FCA (E.D. Cal.). Barger & Wolen represents Travelers for purposes of responding to the discovery in this federal action which also remains pending. In short, Barger & Wolen has a continuing duty of loyalty to Travelers. 3. Actual Conflict: As Associate Remedial Liaison Counsel in the Lincoln Properties Ltd. v. Higgins, et al. matter, Barger & Wolen represented Jack Alquist. Jack Alquist was found liable in the Lincoln Properties matter and, following the creation of a clean up fund and the selection of a Trustee to conduct the clean up at Lincoln Center, Jack Alquist was dismissed from that case. Significant funds from those insurers who issued policies to Jack Alquist were used to create the clean up fund. Jack Alquist is also the owner of Guild Cleaners located within the City of Lodi and a primary defendant in the City's M&PInvestments action. Moreover, the very same insurance policies that were the subject of the Lincoln Properties litigation are also ENVISION LAW CROUP A LIMITED LABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 7 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure the same policies at issue for Guild CIeaners in Lodi. As such, Barger & Wolen is in possession of confidential information relating to a former client and its insurers which is directly relevant and bears more than a substantial relationship between the present and former litigation. 4. Potential Conflicts: In addition to the potential conflicts identified in Barger & Wolen's letter dated December 5, 2003, it is important to note a more pervasive potential conflict. Even a cursory review of the statement of qualifications of Mr. levy and Mr. McMahon reflect that their area of practice lies in insurance litigation on behalf of numerous insurance industry clients (Travelers, Chubb, Fremont and AIG to name only those that have come up in the current disclosures). To the extent that these Barger & Wolen attorneys can claim any specialty, it is in minimizing environmental litigation costs on behalf of the insurance industry and to the detriment of insureds like the City. Indeed, this is precisely the role that Barger & Wolen played in the Lincoln Properties litigation where they sought to shut off all funds to Lincoln Properties for tactical advantage. With so many insurer clients and an unabashed loyalty to those clients, there is a significant potential that their fiduciary duty to the City will be, or perhaps already is, in conflict with their duty of loyalty and candor to their insurer clients. In short, there is no reason to believe that Barger & Wolen will not continue to represent the interests of their insurer clients while performing whatever audit they will undertake. E. Only Some Of Barger & Wolen's Conflicts Can Be Cleared by Obtaining Written Waivers of Conflict After Providing Full Disclosure According to the California Supreme Court, the question of disqualification involves a conflict between the client's right to counsel of their choice and the need to maintain ethical standards of professional responsibility. See People v. Speedee Oil Change Systems, Inc., (1999) 20 Cal.4th 1135, 1145. The paramount concern must be to preserve public trust in the scrupulous administration of justice and integrity of the bar. Id. The important right to counsel of one's choice must yield to ethical consideration that affect the fundamental principles of our judicial process. Id. In California, the Rules of Professional Conduct govern the issue of conflicts of interest in California and dictate when and how an attorney may undertake competing representations ofclients with actual or potential conflicts of interest. Pursuant to Rule 3-310 of the California Rules of Professional Conduct, the general rule is that an attorney may undertake the representation of clients with potential or actual conflicts of interest if the attorney first fully discloses the conflicts and then obtains informed, written consent. This general rule was promulgated in recognition of the client's ENVISION L,Aw CROUP A LIMITED LIABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 8 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure strong interest in the right to retain counsel of its own choosing. Certain exceptions, however, exist to this general rule so as to ensure that attorneys maintain an undivided duty of loyalty to their clients and protect the integrity of the judicial process. Where an exception to the general rule applies, the courts conclude that any consent obtained is, by definition, neither intelligent nor informed. Accordingly, under these circumstances, no waiver is possible and the client must seek alternative representation. The following examines each of the conflicts identified above to explore how the Rules of Professional Conduct apply. 1. Hartford Conflict: In the Hartford action, Barger & Wolen represents the Pacific Indemnity and Federal Insurance which are both insurers of the City of Lodi in a case which pits the City against its own liability insurers in an insurance coverage dispute. In short, the City of Lodi seeks both the payment of its legal and technical costs of responding to claims against it relating to the environmental contamination within the soil and groundwater of the City of Lodi, as well as indemnity for any share of the liability which might be ascribed to the City for that contamination. In response to these claims by the City, Barger & Wolen's insurer clients have denied that they owe any obligations to the City. In fact, despite City Council minutes in December 1974 articulating the selection of Pacific Indemnity as its insurer, Pacific Indemnity denies even the existence of a policy Oust as USF&G denied the existence of its policies for years). This case remains active and the parties concretely adverse. While Pacific Indemnity has been dismissed without prejudice until such time as additional evidence of its policy is found, the City still has unmitigated claims against Pacific Indemnity. As for Federal Insurance Company, this one of the City's liability insurer remains an active party to the Hartford action. In its capacity as counsel for the Chubb Companies, Barger & Wolen owes these clients a fiduciary duty and an undivided duty of loyalty. Ishmael v. Millington (1966) 241 Cal. App. 2d 520, 526-527, 50 Cal. Rptr. 592. See Santa Clara County Counsel Atty's Assn. v. Woodside (1994) 7 CalAth 525, 547-548, fn. 6, 28 Cal. Rptr. 2d 617. Despite this duty of loyalty to the insurers in the Hartford action, Barger & Wolen proposes to undertake a concurrent representation of the City of Lodi. There can be no argument that the City of Lodi is adverse to the Chubb Companies in the Hartford action. As the Supreme Court noted in Flatt v. Superior Court (1994) 9 CalAth 275, 282-285, the effective functioning of the fiduciary relationship between the attorney and the client depends on the client's trust and confidence in counsel. The courts will protect the client's legitimate expectations of loyalty to preserve this essential basis for trust and security in the attorney client relationship. Id. Therefore, if an attorney— or more likely a law firm — simultaneously represents clients who have conflicting interests, a more stringent per se rule of disqualification applies. With few exceptions, disqualification follows automatically, ENVISION LAw GROUP A LIMITED LIABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 9 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure regardless of whether the simultaneous representations have anything in common or present any risk that confidences obtained in one matter would be used in the other. Id. at p. 284. The California Supreme Court in Flatt continued by stating that "the most egregious conflict of interest is representation of clients whose interests are directly adverse in the same litigation." Id. at p. 284, fn. 3. Such patently improper dual representation suggests to the clients — and to the public at large -- that the attorney is completely indifferent to the duty of loyalty and the duty to preserve confidences. However, the attorney's actual intention and motives are immaterial, and the rule of automatic disqualification applies." Id. "This rule is designed not alone to prevent the dishonest practitioner from fraudulent conduct," but also to keep honest attorneys from having to choose between conflicting duties, or being tempted to reconcile conflicting interests, rather than fully pursuing their client's rights. People v. Speedee Oil Change Systems Inc. (1999) 20 CalAth 1135, 1147 (quoting Anderson v. Eaton (1930) 211 Cal. 113, 116, 293 P. 788).) In the present instance, the City seeks a review of the invoices of its legal and technical advisors which are the very same invoices that currently are, and will continue to be, at issue in the Hartford action. As such, there is an undeniable and continuing actual conflict between current clients who are adverse in ongoing litigation. "Common sense dictates that it would be unthinkable to permit an attorney to assume a position at trial or hearing where he could not advocate the interests of one client without adversely injuring those of the other." Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd. (1993) 12 Cal. App. 4th 74, 97, 15 Cal. Rptr. 2d 585, 598. Therefore, despite the client's purported informed written consent, counsel may not represent two clients at a hearing or a trial if there is an existing, actual conflict between them. In such circumstances, any purported `consent' to the conflicting representation would be neither intelligent nor informed. Id. See also Clem v. Superior Ct. (County ofFresno)(1977) 75 Cal. App. 3d 893, 898, 142 Cal. Rptr. 509, 512.5 In conclusion, this actual conflict in a concurrent representation where the interests are adverse in ongoing litigation, may not be waived and informed written consent will not cure 5 There is, of course, substantial additional authority that a conflict such as the one faced by Barger & Wo len cannot be waived. See, e.g., McClure v. Donovan (1947) 82 Cal. App. 2d 664, 666, 186 P.2d 718, 719 ("an attorney may not represent claims inconsistent with those of his client or conflicting claims of two clients"); Dettamanti, v. Lompoc Union School District (1956) 143 Cal. App. 2d 715, 723, 300 P.2d 78, 83 ("Where there is a duty of loyalty to different clients it is impossible for an attorney to advise either one as to a disputed claim against the other.'). ENVISION LAW GROUP A LIMITED LIABILITY PARTNERSHIP Randall A. Hays, City Attorney Privileged and Confidential City of Lodi, California Attorney -Client Communication December 9, 2003 Attorney Work Product Page 10 Not Subject to Public Disclosure the conflict. 2. Traveler's Conflict: The conflicts of interest that arise by virtue of Barger & Wolen's representation of the Traveler Indemnity Company differs from that in the Hartford action. In this circumstance, an actual conflict exists because Travelers is adverse to the City of Lodi and Barger & Wolen has an ongoing relationship with Travelers. In short, Barger & Wolen's representation of Travelers is in generally unrelated matters. Therefore, although adverse to the City, the actual conflict is treated by application of Rule 3-310(C) of the California Rules of Professional Conduct. Rule 3-310(C)(3) provides that: A Member shall not, without informed written consent of each client, .. . represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter. As the The Travelers Indemnity Company, et al. v. The City of Lodi, et al., Case No. 02AS02008 (Cal. Superior Ct. - Sacramento County) is not directly related to the representation proposed to be undertaken by Barger & Wolen on behalf of the City of Lodi, this actual conflict maybe addressed by obtaining informed written consent from both clients after providing full disclosure to each of them. Although complicated somewhat by the fact that Barger & Wolen represented Travelers in handling a discovery response to a non-party subpoena in American Store Properties Inc., et al. v. the City of Lodi, Case No. CV 5-97- 1853 FCD (E.D. Cal.), Rule 3-310(C) should still apply as Travelers is not a party to this action. Accordingly, with respect to this actual conflict the City of Lodi should demand a full disclosure in writing concerning the nature and extent of Barger & Wolen's relationship with Travelers. 3. Alqust Conflict: The conflict ofinterest arising from Barger & Wolen's prior representation of Jack Alquist in the Lincoln Properties Ltd. v. Higgins, et al. matter differs again in nature from those conflicts arising from either the Hartford Action or the Travelers action. In this instance, Barger & Wolen represented Jack Alquist in a matter from which Mr. Alquist has been dismissed and, as far as has been disclosed, there is no continuing relationship between Barger & Wolen and Mr. Alquist. In essence, Mr. Alquist is a former client. Now Barger & Wolen proposes to take on a new client where the new client is adverse to the former client. In such cases where the conflict results from successive - as opposed to concurrent — representations, a lesser standard applies. In such cases, it is the duty of confidentiality that ENVISION LAVA' GROUP A LIMITED LIABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page I I Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure is at issue rather than the duty of loyalty. Forrest v. Baeza (1997) 58 Cal. App. 4th 55, 73. Accordingly, disqualification is prescribed only where there is a substantial relationship between the prior representation and the current representation. Here, there is clearly a substantial relationship. In the former representation of Mr. Alquist; the issues involved his customs and operating practices of his dry cleaning operations in Stockton California. That representation also involved litigation with Mr. Alquist's insurers under certain commercial general liability insurance policies. The current litigation in which the City of Lodi is adverse to Mr. Alquist involves, once again, Mr. Alquist's custom and operating practices of his dry cleaning operations using substantially identical equipment and also involves coverage by Mr. Alquist's insurers under the very same insurance policies at issue in the prior litigation. As such, there can be no debate that a substantial relationship exists. Accordingly, disqualification is prescribed. Despite this substantial relationship, Rule 3-310(E) of the California Rules of Professional Conduct provides that this actual conflict may be addressed by obtaining "the informed written consent of the client and the former client ...." Therefore, Barger & Wolen must fully disclose in writing all facts relevant to the prior representation and make a similar disclosure to Mr. Alquist before obtaining informed written consent from both the former and prospective client. As regards this actual conflict, until such time as both waivers are obtained, Barger & Wolen must be disqualified. 4. Potential Conflicts: As noted above, Barger & Wolen is also subject to a more pervasive potential conflict arising from its extensive and close relationship with numerous insurance company clients. In the face of an innovative program that is designed to compel insurers of responsible parties to pay for the investigation and clean up of environmentally contaminated sites in response to local governmental authority, Barger & Wolen is confronted with potentially severely divided loyalties. Barger & Wolen is a recognized insurance defense firm that has longstanding relationships with many long standing and substantial clients whose interests will be adversely affected by the successful resolution of the City's current environmental litigation program. In fact, Barger & Wolen has marketed itself to the City of Lodi based, in large part, on its role as the insurers point men in the Lincoln Properties litigation to perform the same tasks that they now propose to perform for the City. As such, the inherent bias and potentially divided loyalty raises significant questions about the integrity of any result from their review. In any event, Rule 3-310(C)(1) provides that a Member of the State Bar shall not, without the informed written consent of each client, accept representation of more than one client in ENVISION LAw GROUP A UNIT LIABILITY PARTNERSHIP Randall A. Hays, City Attorney City of Lodi, California December 9, 2003 Page 12 Privileged and Confidential Attorney -Client Communication Attorney Work Product Not Subject to Public Disclosure a matter in which the interests of the clients potentially conflict. As potential conflicts may be waived by obtaining informed written consent, the City may waive this conflict if it so chooses after receiving a full and candid disclosure. It is important to note, however, that despite any waiver granted by the City Council, the retention of opposing counsel to challenge the work of its own lawyers will be inherently suspect. The Council would be well served to consider the consequences of selecting inherently biased counsel to undertake this project in lieu of readily available neutral and independent counsel who could just as ably perform the same tasks. F. Barger & Wolen Cannot Resolve its Conflict by Creating "Ethical Walls" or by 'germinating its Representation of the Other Client So That it Can Undertake the Representation of the City In prior representations to the City Council and in its letter dated December 5, 2003, Mr. McMahon and Mr. Levy have suggested that Barger & Wolen could resolve its actual conflicts by creating an "ethical wall" around those other attorneys in the firm who trigger the conflict. Alternatively, they have suggested a willingness to discharge the Chubb Companies representation in order to continue with this representation. Neither of these alternatives is permissible under the California Rules of Professional Conduct. In California, where an attorney is disqualified from concurrent representation, the entire law firm is vicariously disqualified. See generally, Henriksen v. Great American Savings &Loan (1992) 11 Cal. App. 4th 109,114,14 Cal. Rptr. 2d 184,187; see also ABA Model Code DR -5-105(D). The size and organization of the firm is irrelevant to the application of this rule. Truck Insurance Exchange v. Fireman's Funds Insurance Co. (1992) 6 Cal. AppAth 1050, 1059-60. In fact, under certain circumstances not present here, ethical walls may be employed to cure a conflict of interest where the representation of the two clients is not concurrent, or where the attorney generating the conflict is a former government lawyer j ust entering private practice and the conflict arises by virtue of his prior public employment. Given the nature of the Hartford conflict as described above, ethical walls will not cure Barger & Wolen's conflict of interest in this matter. Similarly, California law rejects the tactic of discharging one client so as to retain a more favored client. Commonly referred to as the "Hot Potato' rule, California law does not permit an attorney representing clients whose interests conflict to avoid disqualification by dropping one client in favor of the other in order resolve the conflict. Id. It is also important to note that a conflict based on divided duties of loyalty cannot be resolved by waiving the attorney-client privilege. While such a waiver may obviate the concerns over confidentiality, such a waiver does nothing to cure the divided duty of loyalty. ENVISION L.Aw GROUP A LIMITED LABILITY PARTNERSHIP Randall A. Hays, City Attorney Privileged and Confidential City of Lodi, California Attorney -Client Communication December 9, 2003 Attorney Work Product Page 13 Not Subject to Public Disclosure G. The City of Lodi can proceed with an audit at this time if it so chooses. Simply stated, the City can clearly proceed with an audit at this time if it so chooses. The City must simply select a firm to conduct the review that is not subject to an unwaivable conflict of interest. As then Council Member Hansen has acknowledged, he interviewed only one firm when seeking an auditor to conduct the currently proposed review. All other firms and attorneys interviewed were addressed at a time when Mr. Hansen sought a firm to review the legal strategy. As such, the City has not yet sought out the availability of non -conflicted firms to provide the desired service. Barger & Wolen is certainly not the only firm that provides these services and the City should be able to locate in a relatively short time frame alternative service providers to conduct this review. E. CONCLUSION To summarize, while the City obviously cannot retain opposing counsel for Guild Cleaners or USF&G to do an audit, hiring Barger & Wolen is just about the same thing. Due to serious conflicts of interest — non-waivable actual conflicts, waivable actual conflicts, and potential conflicts that are entirely unseemly and antithetical to City's goal of a supportable and credible review of the billings at issue, Barger & Wolen cannot and should not be retained. We urge the City Council to retain a firm that is not subject to these conflicts to perform the designated tasks. Failure to do so will taint any resulting report and recommendation, rather than provide a basis to address any issues that might be raised by a competent, neutral and independent reviewer.