Hyundai Motor Company and Hyundai Motor America, Inc., Plaintiffs, v. Hyundai Technology Group, General Procurement, Inc., and Hyundai Technology, Inc., Defendant Case No.: 8:23-cv-01709-CBM-DFM United States District Court, C.D. California Filed January 03, 2025 Marshall, Consuelo B., United States District Judge ORDER RE: DEFENDANTS' MOTION TO DISQUALIFY PLAINTIFFS' COUNSEL, O'MELVENY & MYERS LLP *1 The matter before the Court is Defendants' Motion to Disqualify O'Melveny & Myers LLP from representing Plaintiffs in this action. (Dkt. No. 148 (“Motion”).) I. BACKGROUND This is a trademark dilution case filed on March 24, 2023 by Plaintiffs Hyundai Motor Company and Hyundai Motor America, Inc., which produce automobiles, against Defendants Hyundai Technology Group, Inc., General Procurement, Inc., and Hyundai Technology, Inc., which produce “personal computing and related products.” (Dkt. No. 1 (“Compl.”), ¶ 21.) Plaintiffs are represented by O'Melveny & Myers LLP (“OMM”). (Id.) The parties have been actively engaged in extensive discovery—fact discovery closed on September 20, 2024, and the parties are currently engaged in expert discovery. The instant Motion arises out of Defendants' inadvertent production of a privileged document, which was discovered by OMM. The document is a PowerPoint presentation containing a slide entitled “NOTES FROM IP ATTORNEY” that had not been redacted.[1] (Mot. at 8; Dkt. No. 148-2 (“Goldfinger Decl.”), ¶ 3.) Upon discovering the document, an OMM attorney emailed defense counsel alerting counsel to the production of a document that “may be privileged,” noting that OMM had “segregated the potentially privileged documents and excluded it from our review,” and asking whether counsel intended to claw back[2] the document. (Id.; see also Dkt. No. 148-1 (“Williams Decl.”), ¶ 5 & Ex. B.) Defense counsel responded on the same day that the slide in the PowerPoint is privileged and provided a redacted version of the PowerPoint to OMM. Defense counsel asked OMM to confirm it would “destroy/delete the existing record,” which OMM confirmed. (Mot at 9; Williams Decl., ¶ 5 & Ex. B.) On September 4, 2024, however, David Eberhart, a partner at OMM, “marked an unredacted copy of the PowerPoint as an exhibit at the deposition of Defendants' principal witness, Imad Boukai.” (Id.; Goldfinger Decl, ¶ 2.) Defense counsel “immediately identified” the exhibit as containing privileged material and informed Mr. Eberhart that she would not permit Mr. Boukai to answer any questions about the privileged side. Mr. Eberhart noted that “there have been a number of instances where we've given Mitsubishi notice[s][3] and your team has not chosen to claw back the document” and asked counsel to confirm that they intended to claw back the document. Mr. Eberhart did not ask any questions related to the privileged slide during the deposition. (Id. at 9–10.) Defense counsel then reviewed their records and confirmed that the slide had already been clawed back, and on September 7, 2024, counsel requested “a conference with OMM to discuss counsel's retention and use of a privileged document that they had previously indicated was destroyed and this intended Motion to Disqualify.” (Id. at 10; Williams Decl. ¶ 9.) The parties met and conferred on September 13, 2024. (Williams Decl., ¶ 10.) On September 21, 2024, OMM notified Defendants that “the document was copied into an associate's ‘working file’ before the claw back, was inadvertently not deleted, and then was ‘placed’ in a group of documents provided to Mr. Eberhart in preparation for the deposition.” (Id.) *2 On October 22, 2024, Defendants filed this Motion, arguing that because Plaintiffs' counsel “knowingly failed to destroy, reviewed, and used a privileged document which had been clawed back by Defendants,” counsel should be disqualified from representing Plaintiffs in this matter. (Dkt. No. 148 at 2.) On November 12, 2024, Plaintiffs filed an opposition to the Motion. (Dkt. No. 153 (“Opposition”).) On November 19, 2024, Defendants filed a reply. (Dkt. No. 159 (“Reply”).) Defendants also filed evidentiary objections to the Declaration of Mark Tuft,[4] which Plaintiffs filed in support of their opposition. (See Dkt. No. 159-4.) On December 2, 2024, Plaintiffs then filed objections to the Declaration of Edward Lear,[5] which Defendants filed concurrently with their reply.[6] (See Dkt. No. 162.) II. STATEMENT OF THE LAW “The right to disqualify counsel is within the discretion of the trial court as an exercise of its inherent powers.” Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1103 (N.D. Cal. 2003) (citing United States v. Wunsch, 84 F.3d 1110, 1114 (9th Cir.1996)). “[D]isqualification motions are generally disfavored and, because of their potential for abuse, must be ‘subjected to particularly strict judicial scrutiny.’ ” Block v. Augme Techs., Inc., 2010 WL 11549566, at *4 (C.D. Cal. May 28, 2010) (quoting Shurance v. Planning Control Int'l, Inc., 839 F.2d 1347, 1349 (9th Cir. 1988)); see also Visa, 241 F. Supp. 2d at 1104 (“Motions to disqualify counsel are strongly disfavored”). “Motions to disqualify proceed in two steps. First, the court determines whether counsel has committed an ethical violation. [citation]. Second, assuming a violation occurred, the court considers whether disqualification is appropriate. [citation]. When considering a motion to disqualify counsel, a court must balance such varied interests as a party's right to chosen counsel, the interest in representing a client, the burden placed on a client to find new counsel, and the possibility that tactical abuse underlies the disqualification motion.” Fitzgerald v. Mercedes Benz USA, LLC, 2021 WL 3620429, at *3 (C.D. Cal. Apr. 5, 2021). District courts “apply state law in determining matters of disqualification.” In re Cnty. of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000). “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.” State Comp. Ins. Fund v. WPS, Inc., 70 Cal. App. 4th 644, 656 (1999).[7] “The State Fund rule holds attorneys to a reasonable standard of professional conduct when confidential or privileged materials are inadvertently disclosed.” Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807, 818 (2007). “Mere exposure to the confidences of an adversary does not, standing alone, warrant disqualification”—but “disqualification might be justified if an attorney inadvertently receives confidential materials and fails to conduct himself or herself in the manner specified above, assuming other factors compel disqualification.” State Fund, 70 Cal. App. 4th at 657. *3 Even if an ethical violation occurred, disqualification may not be appropriate. “[D]isqualification is proper as a prophylactic measure to prevent future prejudice to the opposing party from information the attorney should not have possessed; an affirmative showing of existing injury from the misuse of privileged information is not required.” McDermott Will & Emery LLP v. Superior Ct., 10 Cal. App. 5th 1083, 1120 (2017). “[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. Thus, disqualification is proper where, as a result of a prior representation or through improper means, there is a reasonable probability counsel has obtained information the court believes would likely be used advantageously against an adverse party during the course of the litigation.” Id. III. DISCUSSION A. Evidentiary Objections Defendants object to paragraphs 5 and 11-19 in the Declaration of Mark Tuft. (Dkt. No. 153-20 (“Tuft Decl.”).) Paragraphs 5 and 15 through 19 contain legal conclusions and Tuft's opinions on whether the relevant facts here warrant disqualification of OMM. Therefore, the Court SUSTAINS Defendants' objections to those paragraphs on the grounds that they are improper opinion offering legal conclusions. Paragraphs 11 through 14 summarize the relevant facts based on Tuft's review of relevant documents. The Court SUSTAINS Defendants' objections to these paragraphs because the declaration offers only a recitation of facts regarding events of which Tuft has no personal knowledge. Plaintiffs object to the Declaration of Edward Lear (Dkt. No. 159-1) in its entirety on the grounds that (1) Lear “misrepresents the court decision on which his opinion is based,” and (2) the declaration is improperly submitted with Defendants' reply brief, “depriving Plaintiffs of the ability to respond to it.” (Dkt. No. 162 at 3.) The Court SUSTAINS Plaintiffs' first objection to the extent that Lear attests the attorney in State Fund was disqualified when in fact he was not (See State Comp. Ins. Fund v. WPS, Inc., 70 Cal. App. 4th 644, 658 (1999))—however, Lear's statement does not render his entire methodology “flawed” such that the declaration should be excluded in its entirety. The Court also SUSTAINS Plaintiffs' second objection. See Muhammad v. Jenkins, 2021 WL 10352945, at *1 (C.D. Cal. Nov. 19, 2021) (“[i]t is generally improper to attach declarations and other new evidence to a reply brief”). Finally, the Court finds that the Lear Declaration contains improper legal conclusions. Therefore, the Court declines to consider the Tuft Declaration or the Lear Declaration for purposes of this Motion. B. Motion to Disqualify 1. OMM's Conduct OMM explains that in August 2024, an OMM attorney “assembled documents for [Mr. Eberhart] to use in connection with” the deposition of Boukai and accidentally pulled the unredacted version of the document from a “working file, where it existed prior to Defendants clawing it back” into the deposition preparation folder.[8] (Id. at 9 (citing Declaration of Anthony Cardine (Dkt. No. 153-21), ¶ 8).) Mr. Eberhart attests that “[w]hen [he] reviewed this document to prepare for the Boukai deposition, [he] recalled that there were multiple documents that appeared privileged but that for which, following a notice O'Melveny sent to Defendants, Defendants had waived privilege. Because [he] believed that all privileged documents had been deleted from O'Melveny's possession, [he] believed the Slide Deck was one of the documents over which Defendants had waived privilege.” (Dkt. No. 153-1 (“Eberhart Decl.”), ¶ 15.) OMM confirms that it has deleted “any unredacted copies” of the document in its “file systems and email storage,” but maintains “one remaining unredacted copy ... in a secure location pending the determination of the present motion.” (Opp. at 13.) *4 The parties do not appear to dispute that OMM sent a Mitsubishi notice to Defendants about the privileged document and that defense counsel then clawed back the document. The disagreement appears to be about whether OMM's “good faith” belief that the document was not clawed back and its subsequent review and use of the document met the “reasonable standard of professional conduct” required by State Fund. Mitsubishi, 42 Cal. 4th at 818. Defendants contend that OMM's purported good faith is irrelevant because case law does not require a showing of bad faith to find disqualification warranted. (Reply at 11.) OMM contends that its good faith and the lack of prejudice to Defendants make this case “fundamentally different” from the cases where courts have found disqualification warranted.[9] (Opp. at 17.) State Fund requires attorneys who receive privileged documents inadvertently to “refrain from examining the materials any more than is essential to ascertain if the materials are privileged.” State Fund, 70 Cal. App. 4th at 656. Federal Rule of Civil Procedure 26(b)(5)(B) requires that “[a]fter being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has” and “must not use or disclose the information until the claim is resolved.” When OMM first discovered the privileged document, it tried to comply with these requirements. But OMM plainly did not “return, sequester, or destroy the specified information and any copies,” nor did it “refrain from examining” the document later on when preparing for the Boukai deposition. OMM cites no authority for its position that its good faith in sending the initial Mitsubishi notice excuses its subsequent review and use of privileged material. “The receiving attorney's reasonable belief the privilege holder waived the privilege or an exception to the privilege applies does not vitiate the attorney's State Fund duties.” McDermott, 10 Cal. App. 5th at 1092. Defendants clearly clawed back the document in their response to the Mitsubishi notice. OMM was thus obligated to destroy all copies and refrain from examining the document any further. Ultimately, it was OMM's responsibility to (1) ensure that all copies of the privileged document were destroyed once Defendants clawed back the document, and (2) ensure that it refrained from examining the materials in detail after the clawback (which would not have been possible had OMM destroyed all copies of the document in the first place). OMM argues, without support, that the “reasonable standard of professional conduct” did not require its attorneys to exercise more diligence than noting that Defendants waived privileged for multiple documents and assuming that a particular document, appearing privileged on its face, must have been one of the documents where privilege was waived. That Defendants had not clawed back other documents that appeared privileged on their face is irrelevant—the fact remains that Defendants clawed back this particular document and OMM failed to destroy all copies, resulting in OMM's inadvertent use the document leading up to and at the Boukai deposition. OMM fails to respond to Defendants' argument that at the time the document was placed into the deposition preparation folder, none of OMM's attorneys “conducted even a basic inquiry” as to whether the document might be privileged, “such as searching for the emails in which Defendants clawed back” privileged documents. (Mot. at 15.) Thus, OMM does not show how its conduct meets the “reasonable standard of professional conduct.” Mitsubishi, 42 Cal. 4th at 818. *5 Accordingly, the Court finds that OMM's conduct violated Rule 26(b)(5)(B) and its duties under State Fund. 2. Disqualification as a Remedy “Mere exposure to the confidences of an adversary does not, standing alone, warrant disqualification.” State Fund, 70 Cal. App. 4th at 657. “When a party moves to disqualify opposing counsel based on allegedly improper receipt of privileged or confidential information, the party seeking disqualification has the initial burden to show its adversary possesses confidential information materially related to the proceedings before the court. Sundholm v. Hollywood Foreign Press Ass'n, 99 Cal. App. 5th 1330, 1341 (2024). “The moving party need not disclose the actual information asserted to be confidential but must provide the court with the nature of the information and its material relationship to the proceeding.” Id. “The moving party,” however, “carries a heavy burden and must satisfy a high standard of proof.” Fitzgerald, 2021 WL 3620429 at *3. In Sundholm v. Hollywood Foreign Press Ass'n, a California Court of Appeal held that trial court erred in disqualifying a party's attorneys because the evidence did not show the privileged material would prejudice the opposing party in the litigation. 99 Cal. App. 5th at 1342. The court held that the trial court “failed to explain how Sundholm would use the privileged information to HFPA's disadvantage in this lawsuit—the required material link between the privileged information and the issues presented in this lawsuit.” The court noted that “HFPA did not present any evidence to support a finding of prejudice,” as there was “no indication in the record how the asserted privileged documents contained information directly relevant to this case or could be used to HFPA's disadvantage.” Id. at 1342–43. With respect to certain privileged notes from counsel in a draft document, the court noted that “HFPA provides no explanation for how the note ... could affect the outcome of this case.” Id. at 1343. The court then concluded that “[i]n the absence of any reasonable probability the privileged information would have provided Sundholm with an unfair advantage or otherwise affected the outcome of the proceeding, disqualification was improper.” Id. Likewise, here Defendants do not provide sufficient evidence “to support the conclusion [that] counsel's review of allegedly privileged communications is likely to be prejudicial.” ColorTokens, Inc. v. Medovich, 2018 WL 10419783, at *4 (N.D. Cal. Oct. 22, 2018) (finding counsel failed to meet their State Fund duties but denying motion to disqualify counsel because plaintiff failed to show prejudice). As an initial matter, it is not clear what the privileged information contained in the document is—all Defendants offer is that the slide is labeled “NOTES FROM IP ATTORNEY.” While Defendants need not disclose the actual information, here they have not explained how the information is material to this case.[10] This is not enough to meet Defendants' “heavy burden” and “high standard of proof” on this Motion. Thus, the Court cannot determine whether OMM's review and use of the information “would affect the outcome of the proceedings before the court.” McDermott, 10 Cal. App. 5th at 1120; see also O'Shea v. Epson Am., Inc., 2010 WL 2305863, at *4 (C.D. Cal. June 4, 2010) (denying motion to disqualify counsel on basis of alleged unethical use of privileged information where the Court “lack[ed] sufficient evidence regarding the existence, circumstances, and contents of these communications”). *6 Therefore, Defendants have not shown that disqualification is an appropriate remedy for OMM's conduct here. IV. CONCLUSION Accordingly, Defendants' Motion to Disqualify is DENIED. IT IS SO ORDERED. Footnotes [1] Defendants have not submitted the actual document for the Court to review in camera. [2] The Court understands “claw back” to mean the process by which a party may retrieve documents that were inadvertently disclosed during the course of discovery. [3] A Mitsubishi notice refers to Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807 (2007), in which the California Supreme Court held that when confidential or privileged materials are inadvertently disclosed, attorneys have an ethical duty to refrain from examining the materials more than is necessary to determine the materials may be privileged and to notify the sender that they are in possession of such materials. [4] Mr. Tuft is an attorney who specializes “in the field of professional responsibility of lawyers” and is “certified as a Legal Malpractice Specialist by the State Bar of California.” (Dkt. No. 153-20, ¶ 7.) [5] Mr. Lear is an attorney who is a “former State Bar prosecutor” and has been “qualified as an expert on issues of attorney malpractice, standard of care, attorney ethical breaches, and the reasonableness of legal fees” in past federal and state matters. (Dkt. No. 159-1, ¶ 3.) [6] Defendants also filed a “response” to Plaintiffs' objections. (Dkt. No. 168.) [7] Similarly, Federal Rule of Civil Procedure 26(b)(5)(B) also states: “If information produced in discovery is subject to a claim of privilege or of protection as trial-preparation material, the party making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The producing party must preserve the information until the claim is resolved.” [8] At the hearing on the Motion, OMM confirmed that the retention of this copy of the document was an inadvertent oversight. [9] The cases discussed by both sides are Mitsubishi, 42 Cal. 4th 807 (2007); Clark, 196 Cal. App. 4th 37 (2011); and McDermott, 10 Cal. App. 5th 1083 (2017). [10] Defendants note that the slide involves its “HY” brand, on which Plaintiffs have conducted discovery—however, they have not explained how or why the slide's information about the HY brand is so material that it could affect the outcome of the entire litigation.