A California court just said "potential" conflicts can void your fee agreement.
For years, firms assumed a conflict-of-interest problem only mattered once it became real. A new published opinion says that is wrong, and the cost of getting it wrong is losing your own engagement agreement, arbitration clause included.
By Helena Harper, Editorial Director
The case
Beginning in 2020, the law firm McGrath Kavinoky LLP represented former patients of Dr. James Heaps, a UCLA gynecologist, in cases alleging sexual abuse. The firm's client base grew to 312 people, whose cases were coordinated before a single judge. In January 2022, the firm reached a tentative aggregate settlement with Dr. Heaps and UCLA. The court appointed retired judges to oversee how the resulting $374.4 million was allocated among the plaintiffs.
Two of those clients, identified in the case as Jane Doe 1 and Jane Doe 2, later sued the firm itself. Among their claims: that representing 312 people with claims against the same defendants, then negotiating a single aggregate settlement, created a conflict of interest the firm never disclosed to them in writing.
The doctrine
Rule of Professional Conduct 1.7(b) bars a lawyer from representing a client where there is a significant risk the representation will be materially limited by the lawyer's responsibilities to another client, unless the lawyer obtains informed written consent. When the firm moved to compel arbitration under its engagement agreements, Does 1 and 2 argued the firm's failure to disclose that risk made the agreements, arbitration clauses included, unenforceable.
The trial court agreed. As the judge put it: "Defendants' failure to disclose this conflict, at any time during the representation, invalidates the retainer agreement and the arbitration clause contained therein." The firm appealed.
What the court held
On June 29, 2026, the California Court of Appeal, Second Appellate District, Division Seven, affirmed, in a published opinion: Jane Doe 1 et al. v. McGrath Kavinoky LLP, No. B343201. The court's reasoning turned on 2018's Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., in which the California Supreme Court held that when a lawyer violates an ethical rule by entering an engagement agreement without disclosing a conflict of interest, the entire agreement, including its arbitration provision, is unenforceable.
"Though Sheppard involved an actual conflict and this case involves a potential conflict, the rule of Sheppard applies. Therefore, the trial court did not err in ruling the law firm's engagement agreement was unenforceable."
That distinction is the whole story. Sheppard dealt with a firm that already knew it represented conflicting interests and said nothing. This case involved a firm that, at the moment each client signed on, faced only the possibility that representing many plaintiffs against a common defendant might someday produce a conflict, for instance, once it came time to divide one settlement fund among all of them. The Court of Appeal held that possibility was enough to trigger the disclosure duty, and that skipping it carried the same consequence as ignoring a conflict that had already arrived.
Three consequences for practicing attorneys
What changes, in practice, for any firm that represents more than one client with claims against the same party:
Disclosure duties now attach earlier
Waiting for a conflict to become "actual" before disclosing it is no longer a safe reading of Rule 1.7(b), at least in this district.
The whole agreement is at risk, not just one clause
Losing the arbitration provision is the visible cost, but the underlying holding voids the engagement agreement itself, fee terms included.
Multi-client representation needs a documented disclosure at intake
Any matter where a firm represents several clients with claims against a common defendant, mass tort, coordinated personal injury, family-adjacent multi-party matters, now carries real exposure if that structure is not disclosed in writing up front.
This does not require firms to stop taking these matters. Coordinated representation of many clients against one defendant remains common practice, in mass tort, in coordinated personal injury work, in any matter where numbers create leverage a single client would not have alone.
It requires firms to say the quiet part out loud, in writing, at the start: that representing many people against the same party creates a risk worth naming before anyone signs, not after a settlement forces the question.
Archivar
The Archivar Editorial Desk
Researched and fact-checked against the primary opinion and an independent secondary source, read side by side against the certified-for-publication order rather than a summary of it, before this ran. General information for attorneys, not legal advice.
Sources: Jane Doe 1 et al. v. McGrath Kavinoky LLP, Cal. Ct. App., Second Appellate District, Division Seven, No. B343201 (filed June 29, 2026, certified for publication), read from the official opinion; Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59; FindLaw, case summary (cross-check).
