Reaffirming Loving & Evans v. Blick (1949) 33 Cal.2d 60, this decision holds that when the entire agreement containing an arbitration clause is illegal as contrary to statute or to public policy, the arbitration clause cannot be enforced and any arbitration award cannot be enforced. This rule applies to an attorney fee agreement that is rendered unenforceable due to a violation of the Rules of Professional Responsibility. Here, Sheppard Mullin’s fee agreement violated Rules of Professional Conduct, rule 3-310(C)(3) because Sheppard Mullin had an on-going, if episodic, attorney-client relationship with one of the intervenor plaintiffs in a qui tam action at the time it contracted with J-M, to defend it in that action. Even though the conflicting representation was on an unrelated matter, it affected Sheppard Mullin’s duty of loyalty. Also, Sheppard Mullin was not shielded from the ethical violation by the broad conflict waiver it got J-M to sign at the outset of the representation because, at the time, Sheppard Mullin knew of the conflict but didn’t disclose it to J-M in soliciting the conflict waiver. While the inadequately waived conflict voided the fee agreement and the arbitration clause it contained, Sheppard Mullin may still be able to recoup on a quantum meruit basis some compensation for the value of the work it performed. In exercising its equitable discretion on the quantum meruit claim, the trial court should consider the gravity and timing of the violation, its willfulness, its effect on the value of the lawyer’s work for the client, any other threatened or actual harm to the client and the adequacy of other remedies. Sheppard Mullin bears the burden of proof on those factors.
California Supreme Court (Kruger, J.; Chin, J., & Cantil-Sakauye, C.J., dissenting in part); August 30, 2018; 6 Cal. 5th 59